6-K 1 d380543d6k.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 March, 2017

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 Interim Consolidated Financial Statement

     1  

2.

 

Unaudited Interim Consolidated Statement of Financial Position

     7  

3.

 

Unaudited Interim Consolidated Statement of Profit or Loss

     9  

4.

 

Unaudited Interim Consolidated Statement of Changes in Equity

     11  

5.

 

Unaudited Interim Consolidated Statement of Cash Flow

     12  

6.

 

Unaudited Notes to the Interim Consolidated Financial Statement

     13  
 

Annex: Press Release

  

 


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2017

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

 

 

1. ANALYSIS OF FINANCIAL POSITION

 

  a) Statement of Financial Position

The principal components of assets and liabilities at each period, as follows:

 

Assets

   03-31-2017
ThU.S.$
     12-31-2016
ThU.S.$
 

Current assets

     2,748,988        2,722,360  

Non-current assets

     11,121,432        11,283,821  
  

 

 

    

 

 

 

Total assets

     13,870,420        14,006,181  
  

 

 

    

 

 

 

Liabilities

   03-31-2017
ThU.S.$
     12-31-2016
ThU.S.$
 

Current liabilities

     1,306,061        1,346,064  

Non-current liabilities

     5,575,114        5,660,834  

Non–parent participation

     45,201        44,032  

Net equity attributable to parent company

     6,944,044        6,955,251  
  

 

 

    

 

 

 

Total net equity and liabilities

     13,870,420        14,006,181  
  

 

 

    

 

 

 

As of March 31, 2017, total assets decreased MU.S.$136 compared to December 31, 2016, equivalent to a 0.97% variation. This deviation was driven mainly by decreases in the balance of biological assets and inventories.

In turn, total liabilities decreased by MU.S.$126 mainly due to a decrease in accounts payable, deferred tax liabilities and liabilities.

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

 

Liquidity ratios

   03-31-2017      12-31-2016  

Current Liquidity (current assets / current liabilities)

     2.10        2.02  

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

     1.24        1.16  

Debt indicators

   03-31-2017      12-31-2016  

Debt to equity ratio (total liabilities / equity)

     0.98        1.00  

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

     0.19        0.19  

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

     0.81        0.81  
     03-31-2017      03-31-2016  

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

     (0.18      2.14  

Activity ratio

   03-31-2017      12-31-2016  

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

     3.05        2.99  

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

     4.15        3.97  

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

     117.93        120.42  

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

     86.64        90.68  

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2017

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

 

 

As of March 31, 2017, the short-term debt represented 19% of total liabilities (19% as of December 31, 2016).

Our financial expenses coverage ratio decreased from 2.14 to (0.18), mainly due to the higher earnings before taxes for the period ended March 31, 2017, compared to the same period of 2016.

 

  b) Statements of profit or loss

Income before income tax

Income before income tax registered a loss of approximately MU.S.$71 compared to a profit of approximately MU.S.$80 in the same period of 2016. The negative variation of MU.S.$151 is explained by the factors described in the following table:

 

Item

   MU.S.$  

Gross margin

     48  

Distribution and Administrative Expenses

     (27

Other income/ expenses per function (*)

     (183

Others

     11  
  

 

 

 

Net change in income before income tax

     (151
  

 

 

 

 

(*) Net loss for forest fires of MU.S.$178.

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

 

Revenues

   03-31-2017
ThU.S.$
     03-31-2016
ThU.S.$
 

Pulp

     579,356        525,831  

Timber

     624,263        591,740  

Forestry

     19,635        22,250  

Other

     10,482        6,204  
  

 

 

    

 

 

 

Total revenues

     1,233,736        1,146,025  
  

 

 

    

 

 

 

Sales costs

   03-31-2017
ThU.S.$
     03-31-2016
ThU.S.$
 

Wood

     186,765        188,850  

Forestry work

     149,638        131,728  

Depreciation and amortization

     95,626        87,429  

Other costs

     439,590        423,819  
  

 

 

    

 

 

 

Total sales costs

     871,619        831,826  
  

 

 

    

 

 

 

Profitability index

   03-31-2017      12-31-2016  

Profitability on equity

     (2.59      3.19  

Profitability on assets

     (1.30      1.57  

Return on operating assets

     3.58        2.21  

Profitability ratios

   03-31-2017      03-31-2016  

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

     (0.40      0.46  

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

     (45,272      52,919  

Gross margin (ThU.S.$)

     362,117        314,199  

Financial costs (ThU.S.$)

     (59,872      (70,285

 

(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 Interim Consolidated Financial Statements

March 31, 2017

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

 

 

EBITDA

   03-31-2017
MU.S.$
     03-31-2016
MU.S.$
 

Gain (loss)

     (43.3      52.9  

Finance costs

     59.9        70.3  

Financial income

     (6.4      (11.3

Expenses for income tax

     (25.6      27.4  

EBIT

     (17.4      139.3  

Depreciation and amortization

     105.0        94.6  

EBITDA

     87.5        233.8  

Cost at fair value of the harvest

     70.5        70.6  

Gain from changes in fair value of biological assets

     (43.3      (50.5

Exchange difference

     (1.5      1.1  

Others*

     178.4        0.0  

Adjusted EBITDA

     291.7        252.8  

 

* 2017: Forest loss provision of MU.S.$178.4.
* 2016: Forest loss provision of MU.S.$0 for the period ended March 31, 2017. As of December 21, 2016 the amount was MU.S.$15.2.

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

Pulp prices gained strength throughout the first quarter and surpassed our preliminary estimates. Demand remained active worldwide, evidenced by the increase in shipments of long fiber and short fiber in March by 5.6% and 7.3% respectively, compared to the same month of last year. The startup of OKI Mill’s Line 1 did not have an impact on prices as demand efficiently absorbed the incoming supply. OKI Mill’s Line 2 has recently started but impact in prices is yet to be seen. In Asia, average prices in both fibers followed an upward trend. Europe, on the other hand, remained subdued throughout the first months of the year, reacting to changes in supply and demand at a much slower rate. This delay is mainly due to the fact that European prices are generally indexed to list prices which are already lagged in comparison to market prices. Discounts in this market are also negotiated once a year, which means that any increase in discounts shows a slight decrease in net price as prices continue to adjust to the market.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2017

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

 

 

In Asia, prices showed a gain compared to last quarter as well as compared to the same quarter of last year. Long fiber average prices increased U.S.$ 70 per ton or approximately 12%, while short fiber prices increased approximately U.S.$ 80 per ton or 15%. Despite a slight downturn in demand growth in China compared to last quarter, demand levels remain active. The Chinese government policies to stimulate internal consumption are showing results: paper producers are operating close to 100% of their plant capacity, compared to 65% to 80% a few months ago. Many production facilities did not even stop during the Chinese New Year to meet demand, even though costs per worker can increase up to three times during this holiday. Prices for paper have also surged as producers have been able to transfer their higher costs to the final client. Growing demand for these final products has sparked new interest in investments for the paper industry, with many new projects shortening their ramp up timelines. Other Asian countries such as Korea have not had the same dynamic: paper producers’ margins have been waning as they have not had the same luck in obtaining higher selling prices for their products.

Oversupply in the tissue and printing & writing paper markets located in Europe have hindered paper producers to push for higher prices. However, pulp prices did follow the positive international trend, with average prices in long fiber increasing U.S.$ 25 per ton or 4%, and short fiber increasing U.S.$ 90 per ton or 14%. Despite a larger increase in short fiber prices in Europe compared to Asia, Asian margins continue to surpass European margins. In general, pulp producers have preferred to continue selling within the European market, considering container shipping costs from Europe to Asia have surged, especially those destined to China. Local long fiber pulp producers such as those located in Scandinavia have therefore decided to sell within Europe rather than seek Asian markets, dampening the increase in prices in this fiber.

Latin American markets have not had any significant change compared to last quarter, chiefly following international price trends, with the exception of Brazil and Venezuela. The new Klabin pulp mill continues to place pressure on local long fiber prices in Brazil as its ramp up progresses. On the other hand, in Venezuela import licenses have not been approved, and many local paper producers are at risk of downtime for lack of raw material.

During the quarter, the maintenance stoppage of our Constitución Mill was moved up from the end of the second quarter to the first quarter, due to the forest fires that affected the nearby region where this mill is located. The mill was not affected with the forest fires, but a stoppage was mandated as a safety precaution. There were no other maintenance stoppages that affected this quarter.

Timber Division

Sawn timber markets had a depressed quarter compared to the fourth quarter of 2016 and the first quarter of 2016. Despite the forest fires in Chile during this year, which damaged our El Cruce Sawmill, our other sawmills were able to pick up the pace and absorb the lack in production. Because of this, production remained within normal levels. Prices remained fairly stable in sawn timber and remanufactured sawn timber, increasing by 1.3% and 1.7% respectively, quarter on quarter. On the other hand, sawn timber sales volume decreased by 15.3% compared to last quarter. Remanufactured products helped counteract this negative effect, increasing sales volume by 6.6%. Sawn timber sales to our Asian markets have remained buoyant, with sales to Taiwan and China leading the way. The Middle East has had better demand levels and lower freight costs, which has enabled us to negotiate better price levels and receive better margins.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2017

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

 

 

Panels

Plywood production was solid throughout the quarter despite setbacks in wood supply after the forest fires. Sales were also steady, with plywood sales volume increasing 7.0%, partially offset by a decrease in prices of 0.8% compared to last quarter.

Composite panel markets showed improvement in sales volume and average prices compared to last quarter. Overall, MDF panels (“MDF”) increased its sales volume by 3.7% and its prices by 1.6%, while PB panels (“PB”) increased its sales volume by 4.3% and its price by 1.3%.

In North America, sales volume surged thanks to MDF and PB sales. Prices fluctuated around the same levels as last quarter, slightly declining when compared to the same quarter of last year. The MDF moldings market remained stable throughout the quarter.

In Brazil, volumes continued stressed, especially PB which declined 14% compared to the quarter before due to a more depressed industrial channel. Prices, however, rose steadily 4% in MDF and 5% for PB. Compared to the same quarter of last year, prices have risen for both MDF and PB approximately 30%, showing signs of recovery for the Brazilian market. In Argentina, despite increasing prices, sales volume declined. PB was the most affected, with prices increasing 2% but sales volume decreasing 14% quarter on quarter. Other Latin American markets lost dynamism during the quarter, evidenced by less overall sales in these markets.

5. ANALYSIS OF CASH FLOW

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

 

     03-31-2017
ThU.S.$
     03-31-2016
ThU.S.$
 

Positive (negative) Cash flow

     

Cash flow from operating activities

     181,196        227,163  

Cash flow from (used in) financing activities:

     

Loan and bond obtention and payments

     (46,628      35,887  

Dividend payments

     (785      —    

Others

     3        (380

Cash flow from (used in) investment activities:

     

Incorporation and sale of property, plant and equipment

     (68,966      (77,325

Incorporation and sale of biological assets

     (45,926      (36,772

Incorporation and sale of intangible assets

     (4,640      (521

Others

     (2      1,225  
  

 

 

    

 

 

 

Positive (negative) Net cash flow

     14,252        149,277  
  

 

 

    

 

 

 

The financing cash flow had a negative balance of MU.S.$47 in the current period compared to a positive balance of MU.S.$35 in the same period of 2016. 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 MU.S.$119 compared to a negative balance of MU.S.$113 for the same period in 2016, mainly due to greater disbursements for plantations in the current period and the purchase of intangibles, offset by lower payments in purchases of property, plant and equipment purchases.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2017

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

 

 

6. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of March 31, 2017, a ratio of fixed rate debt to total consolidated debt of approximately 86.8%, 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 result, exposure to changes in the exchange rate has decreased significantly.

In the report to the Consolidated Financial Statements as of March 31, 2017, 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 Interim Consolidated Financial Statements

March 31, 2017

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

 

 

INTERIM CLASSIFIED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

            03-31-2017     

12-31-2016

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

Assets

        

Current Assets

        

Cash and cash equivalents

     5        608,505        592,253  

Other current financial assets

     23        4,186        5,201  

Other current non-financial assets

     25        170,622        144,915  

Trade and other current receivables

     23        723,961        701,610  

Accounts receivable due from related companies

     13        9,952        12,505  

Current Inventories

     4        825,605        852,612  

Current biological assets

     20        299,931        306,117  

Current tax assets

        103,286        104,088  

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

        2,746,048        2,719,301  

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

     22        2,940        3,059  

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

        2,940        3,059  

Total Current Assets

        2,748,988        2,722,360  

Non-Current Assets

        

Other non-current financial assets

     23        15,868        8,868  

Other non-current non-financial assets

     25        109,108        130,319  

Trade and other non-current receivables

     23        16,332        14,273  

Accounts receivable due from related companies, non-current

     13        957        957  

Investments accounted for using equity method

     15-16        461,186        446,548  

Intangible assets other than goodwill

     19        90,767        89,497  

Goodwill

     17        75,840        74,893  

Property, plant and equipment

     7        6,898,149        6,919,495  

Non-current biological assets

     20        3,446,550        3,592,874  

Deferred tax assets

     6        6,675        6,097  

Total Non-Current Assets

        11,121,432        11,283,821  

Total Assets

        13,870,420        14,006,181  
     

 

 

    

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

INTERIM CLASSIFIED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

          03-31-2017    

12-31-2016

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

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      674,275       697,452  

Trade and other current payables

   23      506,463       537,891  

Accounts payable to related companies

   13      7,444       3,831  

Other current provisions

   18      438       842  

Current tax liabilities

        2,723       1,641  

Current provisions for employee benefits

   10      5,315       5,244  

Other current non-financial liabilities

   25      109,403       99,163  

Total Current Liabilities other than assets included in disposal groups classified as held for sale

        1,306,061       1,346,064  

Total Current Liabilities

        1,306,061       1,346,064  

Non-Current Liabilities

       

Other non-current financial liabilities

   23      3,821,387       3,870,914  

Other non-current provisions

   18      38,829       38,138  

Deferred tax liabilities

   6      1,591,030       1,631,065  

Non-current provisions for employee benefits

   10      61,099       60,084  

Other non-current non-financial liabilities

   25      62,769       60,633  

Total Non-Current Liabilities

        5,575,114       5,660,834  

Total Liabilities

        6,881,175       7,006,898  

Equity

   3     

Issued capital

        353,618       353,618  

Retained earnings

        7,274,554       7,329,675  

Other reserves

        (684,128     (728,042

Equity attributable to parent company

        6,944,044       6,955,251  

Non-controlling interests

        45,201       44,032  

Total Equity

        6,989,245       6,999,283  

Total Equity and Liabilities

        13,870,420       14,006,181  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

         

January-March

Unaudited

 
        2017     2016  
     Note    ThU.S.$     ThU.S.$  

Statements of profit or loss

       

Revenue

   9      1,233,736       1,146,025  

Cost of sales

   3      (871,619     (831,826

Gross profit

        362,117       314,199  

Other income

   3      48,332       58,017  

Distribution costs

   3      (124,010     (112,486

Administrative expenses

   3      (120,350     (105,109

Other expense

   3      (193,116     (20,509

Profit (loss) from operating activities

        (27,027     134,112  

Finance income

   3      6,413       11,312  

Finance costs

   3      (59,872     (70,285

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

   15      8,131       4,038  

Exchange rate differences

        1,461       1,109  

Profit before income tax

        (70,894     80,286  

Income Tax

   6      25,622       (27,367

Net Profit (loss)

        (45,272     52,919  
     

 

 

   

 

 

 

Net profit attributable to

       

Net profit attributable to parent company

        (45,608     52,174  

Net profit attributable to non-controlling interests

        336       745  

Net Profit (loss)

        (45,272     52,919  
     

 

 

   

 

 

 

Basic earnings per share (in U.S.$ per share)

       

Basic earnings per share from continuing operations

        (0.4030412     0.4610654  
     

 

 

   

 

 

 

Basic earnings per share

        (0.4030412     0.4610654  
     

 

 

   

 

 

 

Earnings per diluted shares (in U.S.$ per share)

       

Earnings per diluted share from continuing operations

        (0.4030412     0.4610654  
     

 

 

   

 

 

 

Earnings per diluted share

        (0.4030412     0.4610654  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

           

January-March

Unaudited

 
     Note      2017
ThU.S.$
    2016
ThU.S.$
 

Net profit

        (45,272     52,919  

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

        (88     (2,041

Share of other comprehensive income of associates and joint ventures accounted for using equity method

        (100     (927

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

        (188     (2,968

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        33,721       88,907  

Other Comprehensive Income before tax exchange differences on translation

        33,721       88,907  

Cash flow hedges

       

Gains (losses) on cash flow hedges, before tax

     23        17,710       5,986  

Recycle of cash flow hedges to profit or loss before tax

     23        (2,287     (2,616

Other Comprehensive Income before tax Cash flow hedges

        15,423       3,370  

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

        49,144       92,277  

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

       

Income tax relating to actuarial losses on defined benefit plans

        10       562  

Income tax relating to share of other comprehensive income of associates and joint ventures accounted for using equity method

        10       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

     23        (4,226     (1,378

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

     23        (4,226     (1,378

Other comprehensive (loss) income

        44,750       88,720  

Comprehensive (loss) income

        (522     141,639  
     

 

 

   

 

 

 

Comprehensive Income attributable to

       

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

        (1,694     138,597  

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

        1,172       3,042  

Total comprehensive (loss) income

        (522     141,639  
     

 

 

   

 

 

 

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

Unaudited

03-31-2017

   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.$
    Other
Reserves
ThU.S.$
    Total
other
Reserves
ThU.S.$
    Retained
Earnings
ThU.S.$
    Equity
attributable
to owners of
parent

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

Opening balance at 01-01-2017

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

Changes in Equity:

                     

Comprehensive income

                     

Net profit

                  (45,608     (45,608     336       (45,272

Other comprehensive income, net of tax

        32,885       11,197       (78     (90     43,914         43,914       836       44,750  

Comprehensive income

     —          32,885       11,197       (78     (90     43,914       (45,608     (1,694     1,172       (522

Dividends

                  (9,513     (9,513     (3     (9,516

Changes in equity

     —          32,885       11,197       (78     (90     43,914       (55,121     (11,207     1,169       (10,038

Closing balance at 03-31-2017

     353,618        (671,001     12,293       (20,830     (4,590     (684,128     7,274,554       6,944,044       45,201       6,989,245  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unaudited

03-31-2016

   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.$
    Other
Reserves
ThU.S.$
    Total
other
Reserves
ThU.S.$
    Retained
Earnings
ThU.S.$
    Equity
attributable
to owners of
parent

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

Opening balance at 01-01-2016

     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

                  52,174       52,174       745       52,919  

Other comprehensive income, net of tax

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

Comprehensive income

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

Dividends

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

Increase (decrease) from transfers and other changes

                  —         —         (62     (62

Changes in equity

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

Closing balance at 03-31-2016

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

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS - DIRECT METHOD

 

    

January-March

Unaudited

 
     2017
ThU.S.$
    2016
ThU.S.$
 

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     1,321,668       1,308,350  

Other cash receipts from operating activities

     83,446       129,125  

Classes of cash payments

    

Payments to suppliers for goods and services

     (980,138     (935,629

Payments to and on behalf of employees

     (139,701     (125,310

Other cash payments from operating activities

     (19,530     (64,770

Interest paid

     (74,154     (72,296

Interest received

     3,799       3,918  

Income taxes paid

     (12,779     (13,280

Other inflows (outflows) of cash, net

     (1,847     (2,945

Net Cash flows from Operating Activities

     180,764       227,163  
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Cash used for contributions and purchase of associates and joint ventures

     1       —    

Proceeds from sale of property, plant and equipment

     512       2,338  

Purchase of property, plant and equipment

     (69,046     (79,663

Purchase of intangible assets

     (4,640     (521

Proceeds from sales of other long-term assets

     220       4  

Purchase of other non-current assets

     (46,146     (36,776

Other inflows (outflows) of cash, net

     (3     1,225  

Cash flows used in Investing Activities

     (119,102     (113,393
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total borrowings obtained

     5,001       208,487  

Debt obtained in long-term

     —         297  

Debt obtained in short-term

     5,001       208,190  

Repayments of borrowings

     (51,629     (172,600

Dividends paid

     (785     —    

Other outflows of cash, net

     3       (380

Cash flows used in Financing Activities

     (47,410     35,507  
  

 

 

   

 

 

 

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

     14,252       149,277  

Effect of exchange rate changes on cash and cash equivalents

     2,000       (6,591
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     16,252       142,686  

Cash and cash equivalents, at the beginning of the period

     592,253       500,025  

Cash and cash equivalents, at the end of the period

     608,505       642,711  
  

 

 

   

 

 

 

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2017 AND 2016 AND DECEMBER 31, 2016

NOTE 1. PRESENTATION OF INERIM CONSOLIDATED FINANCIAL STATEMENTS

Entity Information

Celulosa Arauco y Constitución S.A. and subsidiaries, (hereafter “Arauco” or the “Company”), tax identification number 93,458,000-1, is a closely held corporation, that was registered in the Securities Registry (the “Registry”) of the Superintendency of Securities and Insurance (the “SVS”) as No. 042 on June 14, 1982. Additionally, the Company is registered as a non-accelerated filer in 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.

Arauco is principally engaged in the production and sale of products related to the forestry and timber 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 Interim Consolidated Financial Statements were prepared on a going concern basis.

Presentation of the Interim Consolidated Financial Statements

The Financial Statements presented by Arauco as of March 31, 2017 are:

 

    Interim Classified Consolidated Statements of Financial Position as of March 31, 2017 and December 31, 2016.

 

    Interim Consolidated Statements of Profit or Loss for the periods between January 1 and March 31, 2017 and 2016

 

    Interim Consolidated Statements of Comprehensive Income for the periods between January 1 and March 31, 2017 and 2016

 

    Interim Consolidated Statements of Changes in Equity for the periods between January 1 and March 31, 2017 and 2016

 

    Interim Consolidated Statements of Cash Flows for the periods between January 1 and March 31, 2017 and 2016

 

    Explanatory disclosures (notes).

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

Period Covered by the Interim Consolidated Financial Statements

Periods between January 1 and March 31, 2017 and 2016.

Date of Approval of Interim Consolidated Financial Statements

These interim consolidated financial statements for the periods between January 1 and March 31, 2017 were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Meeting No.569 held May 17, 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

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 reportable 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 reportable 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 interim consolidated financial statements is the U.S. Dollar. Figures on these interim consolidated financial statements are presented in thousands of U.S. Dollar (“ThU.S.$”).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

Summary of significant accounting policies

 

a) Basis for preparation of interim consolidated financial statements

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

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

 

b) Critical accounting estimates and judgments

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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. The aforementioned 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 interim consolidated financial statements include all entities over which Arauco has the power to direct the relevant financial and operating activities. Subsidiaries are consolidated from the date on which control is obtained and up to the date that control ceases.

Specifically, a company controls an investee or subsidiary if, and only if, they have all of the following:

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

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

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

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

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

c) rights arising from other contractual arrangements; and

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

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

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

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

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

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

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

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

 

17


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

d) Segments

Arauco has defined its reportable 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 reportable segments according to the following business units:

 

    Pulp

 

    Timber

 

    Forestry

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

 

e) Functional currency

 

(i) Functional currency

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

 

(ii) Translation to the presentation currency of Arauco

For the purposes of presenting interim consolidated financial statements, 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 statements of profit or loss, 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 Interim Consolidated Financial Statements

March 31, 2017

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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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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 policy’s is to enter into derivatives contracts only for economic hedging purposes.

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

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

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

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

-Fair Value Hedges under IAS 39 - Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instruments and the change in the hedged items attributable to the hedged risks are recognized in profit or loss in the corresponding line item.

-Cash flow hedges under IAS 39 - The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the Finance costs line item in the interim 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.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

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

 

i) Inventories

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

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

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

Biological assets are transferred to inventories when forests are harvested.

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

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 statements 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:

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

-deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 respectively;

-liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree 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 interim 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.

Arauco measures the fair value of the acquired company in the businesses combination achieved (“step acquisition”), recognizing in the statements of profit or loss the effects of the re-measurement of previously held equity in the acquiree.

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 Interim Consolidated Financial Statements

March 31, 2017

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 statements of profit or loss 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.

Investments in associates and joint ventures are presented in the interim consolidated statement of financial position in the line item “Investments accounted for using equity method”.

If Arauco’s share of losses of an associate or joint venture equals or exceeds its interest in the associate or joint venture, Arauco discontinues recognizing its share of further losses. After Arauco’s carrying value in the investee is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that Arauco has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, Arauco resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized.

 

m) Intangible assets other than goodwill

After initial recognition, intangible assets with finite useful lives are carried at cost less any accumulated amortization and impairment losses.

Amortization of an intangible asset with a finite useful life is allocated over the asset’s useful life. Amortization begins when the asset is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2017

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 statements of profit or loss.

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 interim consolidated financial statements, the change in the carrying amount of goodwill in Brazil is only related to the net exchange rate differences on translation.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2017

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 accounts receivable. 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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March 31, 2017

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.

Biological assets shown as current assets correspond to those forestry plantations that will be harvested in the short term.

Biological growth and changes in fair value of forestry plantations are recognized in the line item “Other income” in the interim consolidated statement of profit or loss.

 

r) Income taxes and deferred taxes.

The tax liabilities are recognized in the interim consolidated financial statements based on the determination of taxable income for the year and calculated using the tax rates in force in the countries where Arauco operates.

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.

The goodwill arising on business combinations does not give rise to deferred tax.

The deferred tax assets and tax credits are generally recognized for all deductible temporary differences to the extent that it is probable that future taxable profit will be available against which those deductible temporary differences can be utilized.

 

s) Provisions

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

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.

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.

 

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March 31, 2017

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

 

 

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 reportable segments mentioned in Note 24 are measured in accordance with the policies indicated in the preceding paragraphs.

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

 

u) Minimum dividend

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

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

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

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

 

v) Earning per share

Basic earnings per share are calculated by dividing the net profit for the period attributable to the parent company by the weighted average number of ordinary shares outstanding during the period, excluding the average number of shares in the Company held by a subsidiary, if such circumstance exists. Arauco has not performed any type of transaction with a potential dilutive effect that would cause diluted earnings per share to be different from basic earnings per share.

 

w) Impairment

Non-financial Assets

The recoverable amount of property, plant and equipment and other 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.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

A previously recognized impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, however a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.

For the purposes of assessing impairment losses, assets are grouped at the lowest level for which there is identifiable cash flows separately for each cash-generating unit. Non-financial assets, other than goodwill, which had 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.

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.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

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 statements of financial position.

 

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March 31, 2017

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

 

 

z) Recent accounting pronouncements

 

  a) 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

IFRIC 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

 

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March 31, 2017

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

 

 

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.

IFRS - 9 Financial Instruments.

IFRS 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities. The provision includes new rules applicable to hedge accounting and a new impairment model for financial assets. The financial assets held by the Group mainly include: Mutual Fund Holdings, (hedge) 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 that are recognized at fair value through profit and loss, 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 on 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 timing 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 on January 1, 2019.

 

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March 31, 2017

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

 

 

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

NOTE 2. ACCOUTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES

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

NOTE 3. DISCLOSURE OF OTHER INFORMATION

 

a) Disclosure of information on Issued Capital

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

100% of Capital corresponds to ordinary shares

 

     03-31-2017    12-31-2016

Description of Ordinary Capital Share Types

   100% of Capital corresponds to
ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

   113,159,655

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$0.0031210 per share

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

   ThU.S.$353,618
     03-31-2017    12-31-2016

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

   113,159,655

 

b) Dividends paid

As of March 31, 2017 and 2016, no dividends were paid.

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 a decrease in the statement of changes in equity.

The final dividend paid each year, by the end of May, corresponds to 40% of the prior year distributable net profit, which takes into account the interim dividend paid

The ThU.S.$9,513 (ThU.S.$17,901 as of March 31, 2016) presented in the statement of changes in equity correspond to the minimum dividend provision recorded for the period 2017.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

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

 

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  

 

c) Disclosure of Information on Reserves

Other reserves comprise reserves of exchange differences on translation, reserves of cash flow hedges and other reserves. Arauco does not have any restrictions associated with these reserves.    

Reserves of exchange differences on translation

Reserves of exchange differences on translation correspond to exchange differences relating to the translation of the results and net assets of Arauco’s subsidiaries whose functional currency is other than Arauco’s presentation currency.

Reserves of cash flow hedges

Reserves of cash flow hedges correspond to the portion of net gain or loss of derivative financial instruments that complies with the requirements of hedge accounting at the end of each period.

Reserve of Actuarial Losses in Defined Benefit Plans

This corresponds to changes in the present value of the obligation for defined benefits resulting from experience adjustments (the effect of the differences between the previous actuarial assumptions and the events that occurred within the context of the plan) and the effects of the changes in the actuarial assumptions.

Other reserves

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

Other items in the Statements of Profit or Loss

The table below sets forth other income, other expenses, finance income, finance costs and share of profit (loss) of associates and joint ventures as of March 31, 2017 and 2016:

 

     January - March  
     Unaudited  
     2017      2016  
     ThU.S.$      ThU.S.$  

Classes of Other Income

     

Other Income, Total

     48,332        58,017  

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

     43,257        50,475  

Net income from insurance compensation

     67        1,456  

Revenue from export promotion

     895        619  

Lease income

     1,034        819  

Gain on sales of assets

     1,966        2,878  

Access easement

     38        —    

Other operating results

     1,075        1,770  

Classes of Other Expenses by activity

     

Total of Other Expenses by activity

     (193,116      (20,509

Depreciation

     (891      (318

Legal expenses

     (253      (1,261

Impairment provision for property, plant and equipment and others

     (975      (927

Operating expenses related to plants stoppage

     (1,042      (1,539

Expenses related to projects

     (969      (62

Loss of asset sales

     (564      (247

Loss and repair of assets

     (3,719      (231

Loss of forest due to fires

     (178,361      —    

Other Taxes

     (1,867      (1,862

Research and development expenses

     (416      (563

Severance payments and evictions

     (330      (200

Fines, readjustments and interests

     (277      (152

Loss on disposal of associates

     —          (10,369

Other expenses

     (3,452      (2,778

Classes of financing income

     

Financing income, total

     6,413        11,312  

Financial income from mutual funds - term deposits

     2,698        3,241  

Financial income resulting from swap - forward instruments

     1,845        6,545  

Other financial income

     1,870        1,526  

Classes of financing costs

     

Financing costs, Total

     (59,872      (70,285

Interest expense, Banks loans

     (7,747      (8,695

Interest expense, Bonds

     (47,919      (45,684

Interest expense, other financial instruments

     (744      (10,115

Other financial costs

     (3,462      (5,791

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

     

Total

     8,131        4,038  

Investments in associates

     3,415        3,275  

Joint ventures

     4,716        763  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

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

 

     January - March  
     Unaudited  

Cost of sales

   2017
ThU.S.$
     2016
ThU.S.$
 

Timber

     186,765        188,850  

Forestry labor costs

     149,638        131,728  

Depreciation and amortization

     95,626        87,429  

Maintenance costs

     63,988        71,806  

Chemical costs

     125,310        117,951  

Sawmill Services

     28,663        27,832  

Other Raw Materials

     44,502        56,052  

Other Indirect costs

     42,241        28,733  

Energy and fuel

     33,508        32,419  

Cost of electricity

     20,251        11,401  

Wage and salaries

     81,127        77,625  

Total

     871,619        831,826  
  

 

 

    

 

 

 
     January - March  
     Unaudited  
     2017      2016  

Distribution cost

   ThU.S.$      ThU.S.$  

Selling costs

     9,180        7,582  

Commissions

     3,509        3,517  

Insurance

     763        920  

Provision for doubtful accounts

     1        43  

Other selling costs

     4,907        3,102  

Shipping and freight costs

     114,830        104,904  

Port services

     7,292        6,382  

Freights

     93,167        80,697  

Other shipping and freight costs

     14,371        17,825  

Total

     124,010        112,486  
  

 

 

    

 

 

 
     January - March  
     Unaudited  
     2017      2016  

Administrative expenses

   ThU.S.$      ThU.S.$  

Wages and salaries

     50,067        42,766  

Marketing, advertising, promotion and publications expenses

     2,375        2,322  

Insurance

     4,648        5,920  

Depreciation and amortization

     8,132        6,104  

Computer services

     6,711        3,523  

Lease rentals (offices, other property and vehicles)

     4,023        2,521  

Donations, contributions, scholarships

     2,397        2,828  

Fees (legal and technical advisors)

     9,199        9,889  

Property taxes, city permits and rights

     4,305        2,723  

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

     28,493        26,513  

Total

     120,350        105,109  
  

 

 

    

 

 

 

 

            January - March  
            Unaudited  
            2017      2016  

Expenses for

   Note      ThU.S.$      ThU.S.$  

Depreciations

     7        101,415        91,532  

Employee benefits

     10        132,290        122,097  

Amortization

     19        3,545        3,020  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

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

 

Auditors fees

   03-31-2017
ThU.S.$
 

Audit services

     602  

Other services

  

Tax services

     179  

Others

     27  

TOTAL

     808  

Number of employees

     No. 15,737  
  

 

 

 

NOTE 4. INVENTORIES

 

     03-31-2017      12-31-2016  
     Unaudited         

Components of Inventory

   ThU.S.$      ThU.S.$  

Raw materials

     9,966        61,252  

Production supplies

     101,948        102,760  

Products in progress

     53,288        59,332  

Finished goods

     499,305        468,544  

Spare Parts

     161,098        160,724  

Total Inventories

     825,605        852,612  
  

 

 

    

 

 

 

Inventories recognized as cost of sales at March 31, 2017 were ThU.S.$854,573 (ThU.S.$808,244 at March 31, 2016).    

In order to have the inventories recorded at net realizable value at March 31, 2017, a net increase of inventories was recognized associated with a less provision of obsolescence of ThU.S.$3,197 (ThU.S.$534 at March 31, 2016). As of March 31, 2017, the amount of obsolescence provision is ThU.S.$25,302 (ThU.S.$28,499 at December 31, 2016).

At March 31, 2017 there were inventory write-offs of ThU.S.$123 (ThU.S.$424 at March 31, 2016)

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

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

Agricultural Products

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

     03-31-2017      12-31-2016  
     Unaudited         

Components of Cash and Cash Equivalents

   ThU.S.$      ThU.S.$  

Cash on hand

     169        3,156  

Bank checking account balances

     162,052        146,290  

Time deposits

     289,401        247,391  

Mutual funds

     130,933        195,416  

Other cash and cash equivalents

     25,950        —    

Total

     608,505        592,253  
  

 

 

    

 

 

 

The risk classification of the mutual funds in effect as of March 31, 2017 and December 31, 2016 is shown below.    

 

     March 2017      March 2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

AAAfm

     127,914        192,895  

AAfm

     2,983        2,521  

Non-classified

     36        —    

Total Mutual Funds

     130,933        195,416  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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 25,5% 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:

 

     03-31-2017      12-31-2016  
     Unaudited         

Deferred Tax Assets

   ThU.S.$      ThU.S.$  

Deferred tax Assets relating to Provisions

     5,746        5,771  

Deferred tax Assets relating to Accrued Liabilities

     8,113        11,716  

Deferred tax Assets relating to Post-Employment benefits

     17,910        17,618  

Deferred tax Assets relating to Property, Plant and equipment

     11,143        9,806  

Deferred tax Assets relating to Financial Instruments

     10,233        12,699  

Deferred tax Assets relating to Tax Loss Carryforward

     74,422        50,917  

Deferred tax Assets relating to Inventories

     7,208        7,158  

Deferred tax Assets relating to Provisions for Income

     4,277        7,069  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     4,469        4,886  

Intangible revaluation differences

     10        10  

Deferred tax Assets relating to Other Deductible Temporary Differences

     24,228        30,216  

Total Deferred Tax Assets

     167,759        157,866  
  

 

 

    

 

 

 

Netting presentation

     (161,084      (151,769
  

 

 

    

 

 

 

Net Effect

     6,675        6,097  
  

 

 

    

 

 

 

Certain subsidiaries of Arauco, as of the date of these interim consolidated financial statements, present tax losses for which we estimate that, given the projection of future profits, will allow the recovery of these assets. The total amount of these tax losses is ThU.S.$251,686 (ThU.S.$157,403 at December 31, 2016), which are mainly originated by operational and financial losses.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

In addition, as of the closing of these interim consolidated financial statements there are ThU.S.$ 80,826 (ThU.S.$ 76,280 at December 31, 2016) of non-recoverable tax losses from companies in Uruguay as joint operations based on the participation of Arauco, for which deferred tax assets have not been recognized. The estimated recovery period exceeds the expiry date of such tax losses.

Deferred Tax Liabilities

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

 

     03-31-2017      12-31-2016  
     Unaudited         

Deferred Tax Liabilities

   ThU.S.$      ThU.S.$  

Deferred tax Liabilities relating to Property, Plant and Equipment

     921,555        934,892  

Deferred tax Liabilities relating to Financial Instruments

     7,378        7,186  

Deferred tax Liabilities relating to Biological Assets

     699,735        719,577  

Deferred tax Liabilities relating to Inventory

     32,637        31,072  

Deferred tax Liabilities relating to Prepaid Expenses

     44,807        42,881  

Deferred tax Liabilities relating to Intangible

     27,726        27,222  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     18,276        20,004  

Total Deferred Tax Liabilities

     1,752,114        1,782,834  
  

 

 

    

 

 

 

Netting presentation

     (161,084      (151,769
  

 

 

    

 

 

 

Net Effect

     1,591,030        1,631,065  
  

 

 

    

 

 

 

The effect of changes in current and deferred tax liabilities related to financial hedging instruments corresponds to a debit of ThU.S.$4,226 for the period ended March 31, 2017 (compared to a credit of ThU.S.$1,378 for the period ended March 31, 2016), which is presented in the Consolidated Statements of Comprehensive Income and accumulated in Reserves for Cash Flow Hedges in the Consolidated Statement of Changes in Equity.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

Reconciliation of deferred tax assets and liabilities

 

     Opening
Balance
01-01-2017
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
Net
exchange
differences
   

Closing
balance
03-31-2017

Unaudited

 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     5,771        (74     —         49       5,746  

Deferred tax Assets relating to Accrued Liabilities

     11,716        (3,552     —         (51     8,113  

Deferred tax Assets relating to Post-Employment benefits

     17,618        265       10       17       17,910  

Deferred tax Assets relating to Property, Plant and equipment

     9,806        1,337       —         —         11,143  

Deferred tax Assets relating to Financial Instruments

     12,699        (286     (2,180     —         10,233  

Deferred tax Assets relating to Tax Loss Carryforward

     50,917        22,529       —         976       74,422  

Deferred tax Assets relating to Inventories

     7,158        50       —         —         7,208  

Deferred tax Assets relating to Provisions for Income

     7,069        (2,792     —         —         4,277  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     4,886        (427     —         10       4,469  

Intangible revaluation differences

     10        —         —         —         10  

Deferred tax Assets relating to Other Deductible Temporary Differences

     30,216        (6,290     —         302       24,228  

Total Deferred Tax Assets

     157,866        10,760       (2,170     1,303       167,759  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Opening
Balance
01-01-2017
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
Net
exchange
differences
   

Closing
balance
03-31-2017

Unaudited

 

Deferred Tax Liabilities

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

Deferred tax Liabilities relating to Property, Plant and Equipment

     934,892        (14,266     —         929       921,555  

Deferred tax Liabilities relating to Financial Instruments

     7,186        192       —         —         7,378  

Deferred tax Liabilities relating to Biological Assets

     719,577        (22,390     —         2,548       699,735  

Deferred tax Liabilities relating to Inventory

     31,072        1,565       —         —         32,637  

Deferred tax Liabilities relating to Prepaid Expenses

     42,881        1,926       —         —         44,807  

Deferred tax Liabilities relating to Intangible

     27,222        288       —         216       27,726  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     20,004        (1,899     —         171       18,276  

Total Deferred Tax Liabilities

     1,782,834        (34,584     —         3,864       1,752,114  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

     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 Loss Carryforward

     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 relating to Prepaid Expenses

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

Deferred tax Liabilities relating 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 Interim Consolidated Financial Statements

March 31, 2017

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     03-31-2017      12-31-2016  
     Unaudited         

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

     93,337           106,949     

Deferred Tax Assets - Tax loss carryforward

     74,422           50,917     

Deferred Tax Liabilities

        1,752,114           1,782,834  

Total

     167,759        1,752,114        157,866        1,782,834  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - March  
     Unaudited  

Detail of Temporary Difference Income and Loss Amounts

   2017
ThU.S.$
     2016
ThU.S.$
 

Deferred Tax Assets

     (11,769      (511

Deferred Tax Assets - Tax loss carryforward

     22,529        2,697  

Deferred Tax Liabilities

     34,584        (8,428

Total

     45,344        (6,242
  

 

 

    

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - March  
     Unaudited  

Income Tax composition

   2017
ThU.S.$
     2016
ThU.S.$
 

Current income tax expense

     (20,272      (23,967

Prior period current income tax adjustments

     39        587  

Other current tax benefit (expenses)

     511        2,255  

Current Tax Expense, Net

     (19,722      (21,125

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

     26,389        (8,939

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

     18,955        2,697  

Total deferred Tax Expense, Net

     45,344        (6,242

Income Tax Expense, Total

     25,622        (27,367
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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 March 31, 2017 and 2016:

 

     January - March  
     Unaudited  
     2017      2016  
     ThU.S.$      ThU.S.$  

Foreign current income tax expense

     (7,016      (4,925

Domestic current income tax expense

     (12,706      (16,200

Total current income tax expense

     (19,722      (21,125

Foreign deferred tax expense

     8,447        (5,161

Domestic deferred tax expense

     36,897        (1,081

Total deferred tax expense

     45,344        (6,242

Total tax expense

     25,622        (27,367
  

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - March  
     Unaudited  
     2017     2016  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   ThU.S.$     ThU.S.$  

Statutory domestic (Chile) income tax rate

     25.5     24.0

Tax Expense at statutory tax rate

     18,078       (19,269

Tax effect of foreign tax rates

     333       (2,419

Tax effect of revenues exempt from taxation

     13,655       792  

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

     (10,423     (8,105

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

     657       (586

Tax rate effect of adjustments for current tax of prior periods

     39       587  

Other tax rate effects

     3,283       1,633  

Total adjustments to tax expense at applicable tax rate

     7,544       (8,098

Tax expense at effective tax rate

     25,622       (27,367
  

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     03-31-2017      12-31-2016  
     Unaudited         

Property, Plant and Equipment, Net

   ThU.S.$      ThU.S.$  

Construction in progress

     353,611        321,031  

Land

     1,008,559        991,450  

Buildings

     2,163,135        2,169,731  

Plant and equipment

     3,195,409        3,256,348  

Information technology equipment

     23,067        24,154  

Fixtures and fittings

     10,193        9,880  

Motor vehicles

     16,152        16,858  

Other property, plant and equipment

     128,023        130,043  

Total Net

     6,898,149        6,919,495  
  

 

 

    

 

 

 

Property, Plant and Equipment, Gross

     

Construction in progress

     353,611        321,031  

Land

     1,008,559        991,450  

Buildings

     3,852,442        3,825,259  

Plant and equipment

     6,138,214        6,128,494  

Information technology equipment

     76,823        76,421  

Fixtures and fittings

     34,519        33,613  

Motor vehicles

     47,746        48,534  

Other property, plant and equipment

     152,012        153,838  

Total Gross

     11,663,926        11,578,640  
  

 

 

    

 

 

 

Accumulated depreciation and impairment

     

Buildings

     (1,689,307      (1,655,528

Plant and equipment

     (2,942,805      (2,872,146

Information technology equipment

     (53,756      (52,267

Fixtures and fittings

     (24,326      (23,733

Motor vehicles

     (31,594      (31,676

Other property, plant and equipment

     (23,989      (23,795

Total

     (4,765,777      (4,659,145
  

 

 

    

 

 

 

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

As of Mach 31, 2017, there are no significant assets pledged as collateral to be disclosed in these interim consolidated financial statements.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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.

 

     03-31-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Amount committed for the acquisition of property, plant and equipment

     118,342        122,757  
     03-31-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Disbursements for property, plant and equipment under construction

     58,750        317,159  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

Reconciliation of Property, Plant and Equipment

The following tables set forth the reconciliation of the carrying amount of property, plant and equipment as of March 31, 2017 and December 31, 2016:

 

Movement of Property, Plant and Equipment

Unaudited

  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 01-01-2017

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

Changes

                 

Additions

    58,750       11,821       1,629       7,684       43       14       15       306       80,262  

Disposals

    —         (2     (17     (203     (26     —         (279     (2,023     (2,550

Retirements

    (3,492     (9     (45     (299     —         —         (1     (46     (3,892

Depreciation

    —         —         (31,025     (75,038     (1,408     (507     (748     (767     (109,493

Impairment loss recognized in profit or loss

    —         —         —         (916     —         —         —         —         (916

Increase (decrease) through net exchange differences

    700       5,299       2,554       6,110       28       13       35       510       15,249  

Reclassification of assets held for sale

    —         —         —         (6     —         —         —         —         (6

Increase (decrease) through transfers from construction in progress

    (23,378     —         20,308       1,729       276       793       272       —         —    

Total changes

    32,580       17,109       (6,596     (60,939     (1,087     313       (706     -2,020       -21,346  

Closing balance 03-31-2017

    353,611       1,008,559       2,163,135       3,195,409       23,067       10,193       16,152       128,023       6,898,149  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

The depreciation expense for the period ending March 31, 2017 and 2016 is as follows:

 

     January - March  
     Unaudited  
     2017      2016  

Depreciation for the year

   ThU.S.$      ThU.S.$  

Cost of sales

     93,813        85,755  

Administrative expenses

     6,400        4,758  

Other expenses

     1,202        1,019  

Total

     101,415        91,532  
  

 

 

    

 

 

 

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:

 

     Years of
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 Interim Consolidated Financial Statements

March 31, 2017

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

     03-31-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Property, Plant and Equipment under finance leases

     111,970        117,206  

Plant and equipment

     111,970        117,206  

Reconciliation of Financial Lease Minimum Payments:

 

     03-31-2017  
     Unaudited  
     Present Value  

Periods

   ThU.S.$  

Less than one year

     39,468  

Between one and five years

     70,234  

More than five years

     —    

Total

     109,702  
  

 

 

 
     12-31-2016  
     Present Value  

Periods

   ThU.S.$  

Less than one year

     40,400  

Between one and five years

     73,586  

More than five years

     —    

Total

     113,986  
  

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

Arauco acting as lessor

Reconciliation of Financial Lease Minimum Payments:

 

     03-31-2017  
     Unaudited  

Periods

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

Less than one year

     663        —          663  

Between one and five years

     1,883        —          1,883  

More than five years

     —          —          —    

Total

     2,546        —          2,546  
  

 

 

    

 

 

    

 

 

 
     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  
  

 

 

    

 

 

    

 

 

 

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

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

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

NOTE 9. REVENUE

 

     January – March  
     Unaudited  

Classes of revenue

   2017
ThU.S.$
     2016
ThU.S.$
 

Revenue from sales of goods

     1,206,594        1,120,246  

Revenue from rendering of services

     27,142        25,779  

Total

     1,233,736        1,146,025  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January - March  
     Unaudited  
     2017      2016  
     ThU.S.$      ThU.S.$  

Employee expenses

     132,290        122,097  

Wages and salaries

     127,448        118,702  

Severance indemnities

     4,842        3,395  

 

     03-31-2017   12-31-2016

Discount rate

   4.50%   4.52%

Inflation

   2.92%   2.79%

Annual rate of wage growth

   5.22%   5.22%

Mortality rate (1)

   RV-2009   RV-2009

 

Sensitivities to assumptions

   ThU.S.$  

Discount rate

  

Increase in 100 bps

     (4,910

Decrease in 100 bps

     5,739  

Wage growth rates

  

Increase in 100 bps

     5,638  

Decrease in 100 bps

     (4,923

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligations as of March 31, 2017 and December 31, 2016:

 

     03-31-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Current

     5,315        5,244  

Non-current

     61,099        60,084  

Total

     66,414        65,328  
  

 

 

    

 

 

 

Reconciliation of the present value of severance indemnities obligations

   03-31-2017
Unaudited
ThU.S.$
     12-31-2016
ThU.S.$
 

Opening balance

     65,328        56,433  

Current service cost

     1,339        5,334  

Interest cost

     743        2,957  

(Gains) losses from changes in actuarial assumptions

     166        2,083  

Actuarial gains and losses arising from experience

     (90      3,503  

Benefits paid

     (1,653      (7,871

Increase (decrease) for foreign currency exchange rates changes

     581        2,889  

Closing balance

     66,414        65,328  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

NOTE 11. BALANCES IN FOREIGN CURRENCY AND FOREIGN CURRENCY EXCHANGE RATE IMPACT IN PROFIT OR LOSS.

 

     03-31-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Total Current Assets

     2,748,988        2,722,360  

Cash and Cash Equivalents

     608,505        592,253  

U.S Dollar

     473,578        524,426  

Euro

     6,453        2,357  

Brazilian Real

     42,643        47,696  

Argentine Pesos

     6,237        4,046  

Other currencies

     4,778        3,327  

Chilean Pesos

     74,816        10,401  

Other current financial assets

     4,186        5,201  

U.S Dollar

     3,861        4,879  

Argentine Pesos

     325        315  

Other currencies

     —          7  

Other current non-financial assets

     170,622        144,915  

U.S Dollar

     73,264        62,246  

Euro

     104        71  

Brazilian Real

     23,943        22,537  

Argentine Pesos

     12,543        12,261  

Other currencies

     3,413        3,500  

Chilean Pesos

     57,355        44,300  

Trade and other current receivables

     723,961        701,610  

U.S Dollar

     506,666        489,056  

Euro

     19,353        26,544  

Brazilian Real

     48,938        46,150  

Argentine Pesos

     24,461        15,137  

Other currencies

     20,345        16,620  

Chilean Pesos

     102,486        106,681  

U.F.

     1,712        1,422  

Accounts receivable from related companies

     9,952        12,505  

U.S Dollar

     479        274  

Brazilian Real

     218        726  

Chilean Pesos

     8,543        10,548  

U.F.

     712        957  

Current Inventories

     825,605        852,612  

U.S Dollar

     783,294        812,748  

Brazilian Real

     42,311        39,864  

Current biological assets

     299,931        306,117  

U.S Dollar

     264,375        271,551  

Brazilian Real

     35,556        34,566  

Current tax assets

     103,286        104,088  

U.S Dollar

     5,291        6,199  

Brazilian Real

     3,315        5,798  

Argentine Pesos

     41        39  

Other currencies

     3,104        2,696  

Chilean Pesos

     91,535        89,356  

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

     2,940        3,059  

U.S Dollar

     2,940        3,059  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

     03-31-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Total Non-Current Assets

     11,121,432        11,283,821  

Other non-current financial assets

     15,868        8,868  

U.S Dollar

     15,868        8,868  

Other non-current non-financial assets

     109,108        130,319  

U.S Dollar

     93,634        95,658  

Brazilian Real

     4,177        4,042  

Argentine Pesos

     10,288        9,900  

Other currencies

     544        636  

Chilean Pesos

     465        20,083  

Trade and other non-current receivables

     16,332        14,273  

U.S Dollar

     7,182        6,895  

Other currencies

     541        527  

Chilean Pesos

     5,961        5,753  

U.F.

     2,648        1,098  

Accounts receivable due from related companies, non-current

     957        957  

U.F.

     957        957  

Investments accounted for using equity method

     461,186        446,548  

U.S Dollar

     125,859        124,324  

Euros

     163,548        156,990  

Brazilian Real

     171,748        165,203  

Chilean Pesos

     31        31  

Intangible assets other than goodwill

     90,767        89,497  

U.S Dollar

     89,583        88,394  

Brazilian Real

     1,111        1,026  

Chilean Pesos

     73        77  

Goodwill

     75,840        74,893  

U.S Dollar

     42,528        42,508  

Brazilian Real

     33,312        32,385  

Property, plant and equipment

     6,898,149        6,919,495  

U.S Dollar

     6,362,909        6,394,105  

Brazilian Real

     530,300        520,448  

Chilean Pesos

     4,940        4,942  

Non-current biological assets

     3,446,550        3,592,874  

U.S Dollar

     3,031,025        3,185,872  

Brazilian Real

     415,525        407,002  

Deferred tax assets

     6,675        6,097  

U.S Dollar

     4,385        4,134  

Brazilian Real

     2,032        1,697  

Other currencies

     51        52  

Chilean Pesos

     207        214  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

     03-31-2017         
     Unaudited      12-31-2016  
     Up to 90
days
     From 91
days to
1 year
     Total      Up to 90
days
     From 91
days to
1 year
     Total  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Total Liabilities, current

     957,016        349,045        1,306,061        806,280        539,784        1,346,064  

Other current financial liabilities

     344,137        330,138        674,275        196,001        501,451        697,452  

U.S Dollar

     320,651        286,192        606,843        178,442        455,908        634,350  

Brazilian Real

     843        2,187        3,030        3,558        1,282        4,840  

Argentine Pesos

     10        20        30        11        29        40  

Chilean Pesos

     1,335        3,977        5,312        1,132        3,387        4,519  

U.F.

     21,298        37,762        59,060        12,858        40,845        53,703  

Bank Loans

     45,710        143,983        189,693        134,140        61,483        195,623  

U.S Dollar

     44,857        141,776        186,633        130,571        60,172        190,743  

Brazilian Real

     843        2,187        3,030        3,558        1,282        4,840  

Argentine Pesos

     10        20        30        11        29        40  

Financial Leases

     9,419        30,049        39,468        9,534        30,866        40,400  

Chilean Pesos

     1,335        3,977        5,312        1,132        3,387        4,519  

U.F.

     8,084        26,072        34,156        8,402        27,479        35,881  

Other Loans

     289,008        156,106        445,114        52,327        409,102        461,429  

U.S Dollar

     275,794        144,416        420,210        47,871        395,736        443,607  

U.F.

     13,214        11,690        24,904        4,456        13,366        17,822  

Trade and other current payables

     499,479        6,984        506,463        511,371        26,520        537,891  

U.S Dollar

     145,776        6,982        152,758        146,652        3,510        150,162  

Euros

     8,295        —          8,295        12,006        1,028        13,034  

Brazilian Real

     27,991        —          27,991        4,849        21,982        26,831  

Argentine Pesos

     25,825        —          25,825        31,661        —          31,661  

Other currencies

     10,554        —          10,554        12,244        —          12,244  

Chilean Pesos

     263,055        2        263,057        285,359        —          285,359  

U.F.

     17,983        —          17,983        18,600        —          18,600  

Accounts payable to related companies

     7,444        —          7,444        3,831        —          3,831  

U.S Dollar

     2,289        —          2,289        1,969        —          1,969  

Chilean Pesos

     5,155        —          5,155        1,862        —          1,862  

Other current provisions

     438        —          438        842        —          842  

U.S Dollar

     438        —          438        842        —          842  

Current tax liabilities

     2,723        —          2,723        1,641        —          1,641  

U.S Dollar

     1,091        —          1,091        448        —          448  

Euros

     273        —          273        7        —          7  

Brazilian Real

     384        —          384        —          —          —    

Argentine Pesos

     —          —          —          133        —          133  

Other currencies

     267        —          267        574        —          574  

Chilean Pesos

     708        —          708        479        —          479  

Current provisions for employee benefits

     5,197        118        5,315        5,214        30        5,244  

Chilean Pesos

     5,197        118        5,315        5,214        30        5,244  

Other current non-financial liabilities

     97,598        11,805        109,403        87,380        11,783        99,163  

U.S Dollar

     45,799        11,785        57,584        62,974        163        63,137  

Euros

     66        —          66        53        —          53  

Brazilian Real

     35,911        —          35,911        9,426        11,616        21,042  

Argentine Pesos

     3,326        —          3,326        3,474        —          3,474  

Other currencies

     3,871        —          3,871        3,202        —          3,202  

Chilean Pesos

     8,556        20        8,576        8,183        4        8,187  

U.F.

     69        —          69        68        —          68  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

     03-31-2017         
     Unaudited      12-31-2016  
     From 13
months to 5
years
     More than 5
years
     Total      From 13
months to 5
years
     More than 5
years
     Total  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Total non-current liabilities

     4,101,574        1,473,540        5,575,114        3,599,291        2,061,543        5,660,834  

Other non-current financial liabilities

     2,481,776        1,339,611        3,821,387        2,020,484        1,850,430        3,870,914  

U.S Dollar

     2,050,479        553,803        2,604,282        1,591,127        1,075,204        2,666,331  

Brazilian Real

     17,928        955        18,883        17,098        1,042        18,140  

Chilean Pesos

     11,634        —          11,634        11,151        —          11,151  

U.F.

     401,735        784,853        1,186,588        401,108        774,184        1,175,292  

Bank Loans

     614,085        63,583        677,668        626,384        92,351        718,735  

U.S Dollar

     596,157        62,628        658,785        609,286        91,309        700,595  

Brazilian Real

     17,928        955        18,883        17,098        1,042        18,140  

Financial Leases

     70,234        —          70,234        73,586        —          73,586  

Chilean Pesos

     11,634        —          11,634        11,151        —          11,151  

U.F.

     58,600        —          58,600        62,435        —          62,435  

Other Loans

     1,797,457        1,276,028        3,073,485        1,320,514        1,758,079        3,078,593  

U.S Dollar

     1,454,322        491,175        1,945,497        981,841        983,895        1,965,736  

U.F.

     343,135        784,853        1,127,988        338,673        774,184        1,112,857  

Other non-current provisions

     38,829        —          38,829        38,138        —          38,138  

U.S Dollar

     —          —          —          1        —          1  

Brazilian Real

     5,564        —          5,564        5,425        —          5,425  

Argentine Pesos

     33,265        —          33,265        32,712        —          32,712  

Deferred tax liabilities

     1,457,101        133,929        1,591,030        1,479,596        151,469        1,631,065  

U.S Dollar

     1,369,811        133,929        1,503,740        1,412,506        131,406        1,543,912  

Brazilian Real

     87,290        —          87,290        67,090        20,063        87,153  

Non-current provisions for employee benefits

     61,099        —          61,099        60,084        —          60,084  

Other currencies

     165        —          165        144        —          144  

Chilean Pesos

     60,934        —          60,934        59,940        —          59,940  

Other non-current non-financial liabilities

     62,769        —          62,769        989        59,644        60,633  

U.S Dollar

     322        —          322        430        —          430  

Brazilian Real

     61,910        —          61,910        —          59,644        59,644  

Argentine Pesos

     314        —          314        349        —          349  

Chilean Pesos

     219        —          219        206        —          206  

U.F.

     4        —          4        4        —          4  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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 on translation:

 

     January - March  
     Unadited  
     2017      2016  
     ThU.S.$      ThU.S.$  

Arauco Do Brasil S.A.

     12,934        36,074  

Arauco Forest Brasil S.A.

     12,267        32,369  

Arauco Florestal Arapoti S.A.

     3,346        9,133  

Sonae Arauco S.A.

     2,167        —    

Arauco Argentina S.A.

     1,011        2,344  

Flakeboard Company Limited

     1,102        6,626  

Others

     58        64  
  

 

 

    

 

 

 

Total reserve of exchange differences on translation

     32,885        86,610  
  

 

 

    

 

 

 

Effect of foreign exchange rates changes

 

     January - March  
     Unadited  
     2017      2016  
     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

     1,461        1,109  

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

     33,721        88,907  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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 rates.

 

     January – March  
     Unadited  
     2017     2016  
     ThU.S.$     ThU.S.$  

Property, plant and equipment capitalized cost

    

Property, plant and equipment capitalized interest cost rate

     5.10     4.94

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

     256       428  

NOTE 13. RELATED PARTIES

Related Party Disclosures

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

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

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

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

Name of Group’s Main Shareholders

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

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

Empresas Copec S.A.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

                    % Ownership interest      % Ownership interest  
               Functional    03-31-2017      12-31-2016  

ID N°

  

Company Name

  

Country

  

Currency

   Direct      Indirect      Total      Direct      Indirect      Total  
-   

Agenciamiento y Servicios Profesionales S.A.

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

Arauco Argentina S.A.

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

Arauco Australia Pty Ltd.

   Australia    U.S. Dollar      —          99.9990        99.9990        —          99.9990        99.9990  
96547510-9   

Arauco Bioenergía S.A.

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

Arauco Colombia S.A.

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

Arauco do Brasil S.A.

   Brazil    Brazilian Real      1.1624        98.8366        99.9990        1.1624        98.8366        99.9990  
-   

Arauco Europe Cooperatief U.A.

   Netherland    U.S. Dollar      0.4553        99.5438        99.9991        0.4614        99.5376        99.9990  
-   

Arauco Florestal Arapoti S.A.

   Brazil    Brazilian Real      —          79.9992        79.9992        —          79.9992        79.9992  
-   

Arauco Forest Brasil S.A.

   Brazil    Brazilian Real      10.1297        89.8694        99.9991        10.1297        89.8694        99.9991  
-   

Arauco Middle East DMCC

   Dubai    U.S. Dollar      —          99.9990        99.9990        —          99.9990        99.9990  
76620842-8   

Arauco Nutrientes Naturales SPA

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

Arauco Panels USA, LLC

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

Arauco Perú S.A.

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

Arauco Wood Products, Inc.

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

Araucomex S.A. de C.V.    

   Mexico    U.S. Dollar      0.0005        99.9985        99.9990        0.0005        99.9985        99.9990  
96657900-5   

Consorcio Protección Fitosanitaria Forestal S.A.

   Chile    Chilean Pesos      —          57.5404        57.5404        —          57.5404        57.5404  
-   

Empreendimentos Florestais Santa Cruz Ltda.

   Brazil    Brazilian Real      —          99.9789        99.9789        —          99.9789        99.9789  
-   

Flakeboard America Limited

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

Flakeboard Company Ltd.

   Canada    Canadian Dollar      —          99.9990        99.9990        —          99.9990        99.9990  
85805200-9   

Forestal Arauco S.A.

   Chile    U.S. Dollar      99.9484        —          99.9484        99.9484        —          99.9484  
93838000-7   

Forestal Cholguán S.A.

   Chile    U.S. Dollar      —          98.4744        98.4744        —          98.4744        98.4744  
-   

Forestal Concepción S.A.

   Panama    U.S. Dollar      —          —          —          0.0050        99.9940        99.9990  
78049140-K   

Forestal Los Lagos S.A.

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

Forestal Nuestra Señora del Carmen S.A.

   Argentina    Argentine pesos      —          99.9805        99.9805        —          99.9805        99.9805  
-   

Forestal Talavera S.A.

   Argentina    Argentine pesos      —          99.9942        99.9942        —          99.9942        99.9942  
-   

Greenagro S.A.

   Argentina    Argentine pesos      —          97.9805        97.9805        —          97.9805        97.9805  
96563550-5   

Inversiones Arauco Internacional Ltda.

   Chile    U.S. Dollar      98.0186        1.9804        99.9990        98.0186        1.9804        99.9990  
79990550-7   

Investigaciones Forestales Bioforest S.A.

   Chile    Chilean Pesos      1.0000        98.9489        99.9489        1.0000        98.9489        99.9489  
-   

Leasing Forestal S.A.

   Argentina    Argentine pesos      —          99.9801        99.9801        —          99.9801        99.9801  
96510970-6   

Maderas Arauco S.A. (ex Paneles Arauco S.A.)

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

Mahal Empreendimentos e Participacoes S.A.

   Brazil    Brazilian Real      —          99.9934        99.9934        —          99.9934        99.9934  
—     

Novo Oeste Gestao de Ativos Florestais S.A.

   Brazil    Brazilian Real      —          99.9990        99.9990        —          99.9990        99.9990  
—     

Savitar S.A.

   Argentina    Argentine pesos      —          99.9841        99.9841        —          99.9841        99.9841  
76375371-9   

Servicios Aéreos Forestales Ltda.

   Chile    U.S. Dollar      0.0100        99.9890        99.9990        0.0100        99.9890        99.9990  
96637330-K   

Servicios Logísticos Arauco S.A.

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

 

58


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2017

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

 

 

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

 

ID N°

  

Company Name

  

Country

  

Functional Currency

-

  

Eufores S.A.

   Uruguay    U.S. Dollar

-

  

Celulosa y Energía Punta Pereira S.A.

   Uruguay    U.S. Dollar

-

  

Zona Franca Punta Pereira S.A.

   Uruguay    U.S. Dollar

-

  

Forestal Cono Sur S.A.

   Uruguay    U.S. Dollar

-

  

Stora Enso Uruguay S.A.

   Uruguay    U.S. Dollar

-

  

El Esparragal Asociación Agraria de R.L.

   Uruguay    U.S. Dollar

-

  

Ongar S.A.

   Uruguay    U.S. Dollar

-

  

Terminal Logística e Industrial M’Bopicua S.A.

   Uruguay    U.S. Dollar

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

Employee Benefits for Key Management Personnel

 

     January - March  
     Unaudited  
     2017      2016  
     ThU.