6-K 1 d448071d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of June, 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

June 30, 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

   06-30-2017
ThU.S.$
     12-31-2016
ThU.S.$
 

Current assets

     2,629,591        2,722,360  

Non-current assets

     11,044,213        11,283,821  
  

 

 

    

 

 

 

Total assets

     13,673,804        14,006,181  
  

 

 

    

 

 

 

Liabilities

   06-30-2017
ThU.S.$
     12-31-2016
ThU.S.$
 

Current liabilities

     1,066,287        1,346,064  

Non-current liabilities

     5,630,585        5,660,834  

Non–parent participation

     43,679        44,032  

Net equity attributable to parent company

     6,933,253        6,955,251  
  

 

 

    

 

 

 

Total net equity and liabilities

     13,673,804        14,006,181  
  

 

 

    

 

 

 

As of June 30, 2017, total assets decreased MU.S.$332 compared to December 31, 2016, equivalent to a 2.37% variation. This deviation was driven mainly by decreases in the balance of biological and property assets, plants and equipment.

In turn, total liabilities decreased by MU.S.$310 mainly due to a decrease in accounts payable and financial liabilities.

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

 

Liquidity ratios

   06-30-2017      12-31-2016  

Current Liquidity (current assets / current liabilities)

     2.47        2.02  

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

     1.39        1.16  

Debt indicators

   06-30-2017      12-31-2016  

Debt to equity ratio (total liabilities / equity)

     0.96        1.00  

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

     0.16        0.19  

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

     0.84        0.81  
     06-30-2017      03-31-2016  

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

     1.43        2.14  

Activity ratio

   06-30-2017      12-31-2016  

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

     3.03        2.99  

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

     4.12        3.97  

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

     118.81        120.42  

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

     87.44        90.68  

As of June 30, 2017, the short-term debt represented 16% of total liabilities (19% as of December 31, 2016).

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

June 30, 2017

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

 

 

Our financial expenses coverage ratio decreased from 2.10 to 1.43, mainly due to the lower earnings before taxes for the period ended June 30, 2017, compared to the same period of 2016.

 

  b) Statements of profit or loss

Income before income tax

Income before income tax registered a profit of approximately MU.S.$51 compared to a profit of approximately MU.S.$150 in the same period of 2016. The negative variation of MU.S.$99 is explained by the factors described in the following table:

 

Item

   MU.S.$  

Gross margin

     123  

Distribution and Administrative Expenses

     (29

Other income and expenses (*)

     (207

Others

     14  
  

 

 

 

Net change in income before income tax

     (99
  

 

 

 

 

(*) Includes MU.S.$174 of losses due to forestry claims.

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

 

Revenues

   06-30-2017
ThU.S.$
     06-30-2016
ThU.S.$
 

Pulp

     1,151,260        1,067,282  

Timber

     1,292,744        1,226,945  

Forestry

     48,769        47,051  

Other

     20,893        12,033  
  

 

 

    

 

 

 

Total revenues

     2,513,666        2,353,311  
  

 

 

    

 

 

 

Sales costs

   06-30-2017
ThU.S.$
     06-30-2016
ThU.S.$
 

Wood

     376,629        375,592  

Forestry work

     301,093        275,293  

Depreciation and amortization

     185,497        183,986  

Other costs

     886,071        876,898  
  

 

 

    

 

 

 

Total sales costs

     1,749,290        1,711,769  
  

 

 

    

 

 

 

Profitability index

   06-30-2017      12-31-2016  

Profitability on equity

     1.11        3.19  

Profitability on assets

     0.56        1.57  

Return on operating assets

     4.03        2.21  

Profitability ratios

   06-30-2017      06-30-2016  

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

     0.34        0.96  

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

     38,795        110,387  

Gross margin (ThU.S.$)

     764,376        641,542  

Financial costs (ThU.S.$)

     (117,617      (135,770

 

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

 

2


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

June 30, 2017

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

 

 

EBITDA

   06-30-2017
MU.S.$
     06-30-2016
MU.S.$
 

Gain (loss)

     (38.8      110.4  

Finance costs

     117.6        135.8  

Financial income

     (12.3      (17.9

Expenses for income tax

     11.8        39.6  

EBIT

     155.9        267.8  

Depreciation and amortization

     201.8        199  

EBITDA

     357.7        466.8  

Cost at fair value of the harvest

     161.8        167.1  

Gain from changes in fair value of biological assets

     (67.3      (98.9

Exchange difference

     0.2        (0.9

Others*

     173.9        2.1  

Adjusted EBITDA

     626.2        536.2  

 

* 2017: Forestry claims of MU.S.$173.9
* 2016: Forestry claims of MU.S.$2.1

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

Even though the first months of summer usually bring slower global pulp demand, pulp prices continued their positive rally during the second quarter. The second line at the OKI Mill ramped up during April, but with little to no impact in prices. This was supported by a lower production in the CMPC Guaiba Mill, which encountered operational issues back in February and operated at only 80% during the quarter. World inventories remained balanced, with long fiber inventories increasing two days compared to the last quarter to 31 days, and short fiber decreasing by one day to 37 days. Arauco sold less sales volume Q-o-Q as many storm surges hit the Chilean coast, delaying some ships to embark and consequently lagging sales invoiced.

In Asia, paper prices continued increasing thanks to a dynamic paper market, supported by sporadic production downtimes of some paper producers. Short fiber prices increased between 6% and 7%, or U.S.$ 40 per ton, during the quarter. On the other hand, long fiber prices showed an upward trend during the first two months of the quarter, with a 3% or U.S.$ 20 per ton gain. However, long fiber prices corrected by 1% during the month of June, mainly due to seasonally weaker demand. Other Asian countries such as Korea have followed suit in terms of price movements; prices for both fibers have increased, with a slight correction in long fiber prices in June.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

June 30, 2017

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

 

 

European markets showed the highest increase in pulp prices this quarter, with a gain in short fiber prices of approximately 16%. Many paper producers decided to take the risk of buying pulp spot thinking that the market would be more favorable to them. Nevertheless, unexpected downtimes in pulp mills have given way to higher pulp prices each month. Now many paper producers are looking to extend their contracts up to the end of next year in order to close their exposure to short-term pulp prices. When compared to Asian markets, margins continue subdued despite the price recovery. Pulp producers therefore continue to export volume to Asia, which in turn clears the way for larger price hikes in Europe.

Markets in Latin America remained stable throughout the quarter, following international Price trends. Venezuela continued subdued, where Arauco has not sold any pulp volume during the first part of the year.

The ramp-up of the Klabin mill continues to affect prices in Brazil, and we have decided to increase exports of fluff to other markets such as the Middle East, where countries like Turkey have shown better margins than selling locally in Argentina.

Pulp production remained fairly stable in comparison to last quarter, and increased by 6.4% compared to the same quarter of last year. Despite the forest fires during the first quarter of the year, wood supply has not been obstructed. Mills must take the added precaution of monitoring closely incoming wood so as to not contaminate the pulp with bits of charcoal. We had maintenance stoppages in Line 1 of our Arauco Mill during the end of March and beginning of April, and Montes del Plata during the month of May.

Composite Panel

Sales slightly increased this quarter when compared to last quarter. MDF increased its sales volume by 0.7% and prices by 1.1% when compared to the first quarter of 2017, while PB increased its sales volume by 6.4% and prices by 3.0%.

In North America, demand was stable. Disruptions in market production volumes after an MDF mill exploded in North Carolina enabled Brazilian imports to permeate the market with renewed strength, without detriment to price levels. In Mexico, MDF sales remained subdued as supply from new MDF plants as well as higher imports intensified competition. On the other hand, PB prices rose throughout the quarter, reflecting a healthy demand in our design lines.

Latin American sales were mixed. The Brazilian market continued constrained after a tumultuous economic and political crisis. Although demand for panels seemed to be in good condition, prices in some local markets continued pressured. Despite all these setbacks, Arauco was able to slightly increase prices and sales volume within this country. The Argentine market has shown promise, boosted by increased sales of our valued added products. In Chile, lower economic activity principally affected melamine sales. Prices and sales volume in Colombia were pressured as more supply came from local and international producers. In contrast, the market in Peru has shown sustaining levels of growth.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

June 30, 2017

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

 

 

Timber Division

Markets showed recovery in total sales, mainly boosted by higher prices compared to the first quarter, and higher sales volume of 1.9% when plywood is not taken into account. Compared to last year, however, prices remain at higher levels. Asian and Middle Eastern markets particularly have shown improvement. In Korea, we were able to push through price hikes, while the Chinese market was stimulated by an increase in demand for furniture in the United States. In the Middle East, the appreciation of the euro decreased incoming competition from Europe, therefore increasing margins. Remanufactured product sales volume likewise remained stable compared to last quarter. The North American market was also active, enabling price hikes in various products. Supply and demand seemed to be in balance, giving way to a stable outlook for the rest of the year.

Panels

Prices continued the positive trend seen during the first quarter, increasing by 3.3%, although in detriment of sales volume which decreased 10.2%. A healthy level of demand in the North American market endured, and preliminary tests to launch new products were successful thus far. In Europe, we have also been able to increase prices, thanks to the strengthening of the construction sector.

5. ANALYSIS OF CASH FLOW

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

 

     06-30-2017
ThU.S.$
     06-30-2016
ThU.S.$
 

Positive (negative) Cash flow

     

Cash flow from operating activities

     485,960        453,719  

Cash flow from (used in) financing activities:

     

Loan and bond obtention and payments

     (258,759      31,355  

Dividend payments

     (60,481      (100,250

Others

     67        37  

Cash flow from (used in) investment activities:

     

Incorporation and sale of property, plant and equipment

     (153,939      (137,391

Incorporation and sale of biological assets

     (86,756      (72,126

Incorporation and sale of intangible assets

     (7,746      (1,644

Additions (Disposals), Investments in joint ventures and associates

     3,123        (146,354

Dividends received

     1,156        3,272  

Others

     (5      (3,289
  

 

 

    

 

 

 

Positive (negative) Net cash flow

     (77,380      27,329  
  

 

 

    

 

 

 

The financing flow shows a higher negative balance of 319 million for the current period, presenting variations in respect of the previous period (negative balance of 69 million), resulting mainly from a higher indebtedness during the 2016 period.

Regarding the investment flow, as of the closing of the current period, it shows a lower negative balance of 244 million (357 million for the 2016 period), mainly due to higher disbursements arising from the payment of the purchase of the joint business SONAE ARAUCO during the 2016 period.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

June 30, 2017

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

 

 

7. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of June 30, 2017, a ratio of fixed rate debt to total consolidated debt of approximately 85.4%, which it believes is consistent with industry standards. The Company does not participate in futures trading as to maintain one of the lowest cost structures in the industry, the risks for price fluctuations are bounded.

The Company and most of its subsidiaries maintain their accounting records and prepare their financial statements in U.S. dollars. Both the accounts receivable and most financial liabilities are denominated in U.S. dollars or are covered by an exchange rate swap, as well as most of their revenues. As a result, exposure to changes in the exchange rate has decreased significantly.

In the report to the Consolidated Financial Statements as of June 30, 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

June 30, 2017

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

 

 

INTERIM CLASSIFIED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note      06-30-2017
(Unaudited)
ThU.S.$
     12-31-2016
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

     5        512,723        592,253  

Other current financial assets

     23        4,361        5,201  

Other current non-financial assets

     25        181,334        144,915  

Trade and other current receivables

     23        704,609        701,610  

Accounts receivable from related companies

     13        6,204        12,505  

Current Inventories

     4        846,975        852,612  

Current biological assets

     20        303,600        306,117  

Current tax assets

        67,328        104,088  

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

        2,627,134        2,719,301  

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

     22        2,457        3,059  

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

        2,457        3,059  

Total Current Assets

        2,629,591        2,722,360  

Non-Current Assets

        

Other non-current financial assets

     25        11,715        8,868  

Other non-current non-financial assets

     23        110,962        130,319  

Trade and other non-current receivables

        13,969        14,273  

Investments accounted for using equity method

     15-16        347,923        446,548  

Intangible assets other than goodwill

     19        90,972        89,497  

Goodwill

     17        74,484        74,893  

Property, plant and equipment

     7        6,867,111        6,919,495  

Non-current biological assets

     20        3,519,006        3,592,874  

Deferred tax assets

        7,114        6,097  

Total non-Current Assets

        11,044,213        11,283,821  

Total Assets

        13,673,804        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

June 30, 2017

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

 

 

INTERIM CLASSIFIED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

 

     Note    06-30-2017
(Unaudited)
ThU.S.$
    12-31-2016
ThU.S.$
 

Equity and liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      454,021       697,452  

Trade and other current payables

   23      508,849       537,891  

Accounts payable to related companies

   13      8,489       3,831  

Other current provisions

   18      378       842  

Current tax liabilities

        4,787       1,641  

Current provisions for employee benefits

   10      5,378       5,244  

Other current non-financial liabilities

   25      84,385       99,163  

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

        1,066,287       1,346,064  

Total Current Liabilities

        1,066,287       1,346,064  

Non-Current Liabilities

       

Other non-current financial liabilities

   23      3,866,748       3,870,914  

Other non-current provisions

   18      37,516       38,138  

Deferred tax liabilities

   6      1,603,953       1,631,065  

Non-current provisions for employee benefits

   10      61,845       60,084  

Other non-current non-financial liabilities

   25      60,523       60,633  

Total non - current liabilities

        5,630,585       5,660,834  

Total liabilities

        6,696,872       7,006,898  

Equity

       

Issued capital

        353,618       353,618  

Retained earnings

        7,315,437       7,329,675  

Other reserves

        (735,802     (728,042

Equity attributable to parent company

        6,933,253       6,955,251  

Non-controlling interests

        43,679       44,032  

Total equity

        6,976,932       6,999,283  

Total equity and liabilities

        13,673,804       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

June 30, 2017

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

            January-June     April-June  
            (Unaudited)  
     Note      2017
ThU.S.$
    2016
ThU.S.$
    2017
ThU.S.$
    2016
ThU.S.$
 

Income Statement

           

Revenue

     9        2,513,666       2,353,311       1,279,930       1,207,286  

Cost of sales

     3        (1,749,290     (1,711,769     (877,671     (879,943

Gross profit

        764,376       641,542       402,259       327,343  

Other income

     3        80,948       119,766       32,616       61,749  

Distribution costs

     3        (252,129     (234,414     (128,119     (121,928

Administrative expenses

     3        (247,507     (236,620     (127,157     (131,511

Other expenses

     3        (201,168     (33,411     (8,052     (12,902

Profit (loss) from operating activities

        144,520       256,863       171,547       122,751  

Finance income

     3        12,317       17,897       5,904       6,585  

Finance costs

     3        (117,617     (135,770     (57,745     (65,485

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

     3-15        11,570       10,031       3,439       5,993  

Exchange rate differences

        (175     918       (1,636     (191

Income before income tax

        50,615       149,939       121,509       69,653  

Income Tax

     6        (11,820     (39,552     (37,442     (12,185

Net Income

        38,795       110,387       84,067       57,468  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to

           

Net income attributable to parent company

        38,391       109,084       83,999       56,910  

Income attributable to non-controlling interests

        404       1,303       68       558  

Profit (loss)

        38,795       110,387       84,067       57,468  
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

           

Basic earnings per share from continuing operations

        0.3392640       0.9639831       0.7423052       0.5029178  
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

        0.3392640       0.9639831       0.7423052       0.5029178  
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per diluted shares

           

Earnings per diluted share from continuing operations

        0.3392640       0.9639831       0.7423052       0.5029178  
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per diluted share

        0.3392640       0.9639831       0.7423052       0.5029178  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

June 30, 2017

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

            January-June     April-June  
            (Unaudited)  
            2017     2016     2017     2016  
     Note      ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Profit (loss)

        38,795       110,387       84,067       57,468  

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

           

Other comprehensive income before tax actuarial gains losses on defined benefit plans

        31       (2,915     119       (874

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

        (1,407     (323     (1,307     604  

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

        (1,376     (3,238     (1,188     (270

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        (2,745     191,553       (36,466     102,646  

Other Comprehensive Income before tax exchange differences on translation

        (2,745     191,553       (36,466     102,646  

Cash flow hedges

           

Gains (losses) on cash flow hedges, before tax

        3,425       11,242       (14,285     5,256  

Reclassification adjustments on cash flow hedges before tax

        (8,740     (8,119     (6,453     (5,503

Other Comprehensive Income before tax Cash flow hedges

        (5,315     3,123       (20,738     (247

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

        (8,060     194,676       (57,204     102,399  

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

           

Income tax relating to defined benefit plans of other comprehensive income

        (8     788       (18     226  

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

        280       67       270       (160

Income tax relating to cash flow hedges of other comprehensive income

     6        953       (1,042     5,179       336  

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

        953       (1,042     5,179       336  

Other comprehensive income

        (8,211     191,251       (52,961     102,531  

Comprehensive income

        30,584       301,638       31,106       159,999  
     

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income attributable to

           

Comprehensive income, attributable to owners of parent company

        30,631       295,163       32,325       156,566  

Comprehensive income, attributable to non-controlling interests

        (47     6,475       (1,219     3,433  

Total comprehensive income

        30,584       301,638       31,106       159,999  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

June 30, 2017

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

Unaudited

06-30-2017

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

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

Opening balance at 01/01/2017

     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 income

                  38,391       38,391       404       38,795  

Other comprehensive income, net of tax

        (2,290     (4,362     19       (1,127     (7,760       (7,760     (451     (8,211

Comprehensive income

     0        (2,290     (4,362     19       (1,127     (7,760     38,391       30,631       (47     30,584  

Dividends

                  (52,629     (52,629     (299     (52,928

Increase (decrease) through for transfers and other changes equity

                  0       0       (7     (7

Changes in equity

     0        (2,290     (4,362     19       (1,127     (7,760     (14,238     (21,998     (353     (22,351

Closing balance at 06/30/2017

     353,618        (706,176     (3,266     (20,733     (5,627     (735,802     7,315,437       6,933,253       43,679       6,976,932  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

06-30-2016

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

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

Opening balance at 01/01/2016

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

Changes in Equity:

                     

Comprehensive income

                     

Net income

                  109,084       109,084       1,303       110,387  

Other comprehensive income, net of tax

        186,389       2,081       (2,135     (256     186,079         186,079       5,172       191,251  

Comprehensive income

     0        186,389       2,081       (2,135     (256     186,079       109,084       295,163       6,475       301,638  

Dividends

                  (43,732     (43,732     (439     (44,171

Increase (decrease) for transfer and other changes

                  0       0       (75     (75

Changes in equity

     0        186,389       2,081       (2,135     (256     186,079       65,352       251,431       5,961       257,392  

Closing balance at 06/30/2016

     353,618        (686,381     (53,315     (18,803     (4,782     (763,281     7,269,804       6,860,141       43,696       6,903,837  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

June 30, 2017

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS - DIRECT METHOD

 

     06-30-2017     06-30-2016  
     Unaudited  
     ThU.S.$     ThU.S.$  

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     2,688,994       2,571,994  

Other cash receipts from operating activities

     170,661       245,884  

Classes of cash payments

    

Payments to suppliers for goods and services

     (1,927,244     (1,874,981

Payments to and on behalf of employees

     (274,030     (250,573

Other cash payments from operating activities

     (50,264     (113,136

Interest paid

     (112,709     (106,230

Interest received

     8,337       15,408  

Income taxes refund (paid)

     (13,595     (34,684

Other (outflows) inflows of cash, net

     (4,190     37  

Net Cash flows from Operating Activities

     485,960       453,719  
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Cash flow used in purchase of associates and joint ventures

     3,123       6,781  

Capital contributions to joint ventures

     0       (153,135

Proceeds from sale of property, plant and equipment

     3,328       8,030  

Purchase of property, plant and equipment

     (157,267     (145,421

Purchase of intangible assets

     (7,746     (1,644

Proceeds from other long-term assets

     312       4  

Purchase of other non-current assets

     (87,068     (72,130

Dividends received

     1,156       3,272  

Other outflows of cash, net

     (5     (3,289

Cash flows used in Investing Activities

     (244,167     (357,532
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total loans obtained

     77,645       366,987  

Loans obtained in long term

     1,463       297  

Proceeds from short-term borrowings

     76,182       366,690  

Repayments of borrowings

     (336,404     (335,632

Dividends paid by subsidiaries or special purpose companies

     (60,481     (100,250

Other inflows of cash, net

     67       37  

Cash flows from (used in) Financing Activities

     (319,173     (68,858
  

 

 

   

 

 

 

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

     (77,380     27,329  

Effect of exchange rate changes on cash and cash equivalents

     (2,150     6  
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     (79,530     27,335  

Cash and cash equivalents, at the beginning of the period

     592,253       500,025  

Cash and cash equivalents, at the end of the period

     512,723       527,360  
  

 

 

   

 

 

 

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

June 30, 2017

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

 

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 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 with the Securities and Exchange Commission (SEC) of the United States of America.

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

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

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 June 30, 2017 are:

 

    Interim Classified Consolidated Statements of Financial Position as of June 30, 2017 and December 31, 2016.

 

    Interim Consolidated Statements of Profit or Loss for the periods between January 1 and June 30, 2017 and 2016

 

    Interim Consolidated Statements of Comprehensive Income for the periods between January 1 and June 30, 2017 and 2016

 

    Interim Consolidated Statements of Changes in Equity for the periods between January 1 and June 30, 2017 and 2016

 

    Interim Consolidated Statements of Cash Flows for the periods between January 1 and June 30, 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

June 30, 2017

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

 

 

Period Covered by the Interim Consolidated Financial Statements

Periods between January 1 and June 30, 2017 and 2016.

Date of Approval of Interim Consolidated Financial Statements

These interim consolidated financial statements for the periods between January 1 and June 30, 2017 were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Meeting No. 574 held August 23, 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

June 30, 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.

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.

-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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

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:

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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

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, Argentine Peso, Canadian Dollar 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.

 

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.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

(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.

 

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)

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

Financial liabilities

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

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

Financial obligations are classified as current liabilities, unless Arauco holds an unconditional right to defer their settlement during at least 12 months after the balance sheet’s date.

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

 

h) Derivative financial instruments

(i) Derivative Financial Instruments - The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, interest rate swaps, currency swaps and zero cost collar contracts. The Company’s policy is 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.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

-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.

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.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

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:

-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.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

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.

 

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.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

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.

 

(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.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

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.

 

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.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

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.

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

 

q) Biological Assets

IAS 41 requires that biological assets, such as standing trees, are measured at fair value less cost to sell in the statement of financial position. Forestry plantations are accounted for at fair value less costs to sell, based on the presumption that fair values of these assets can be measured reliably.

The measurement of forestry plantations is based on discounted cash flow models whereby the fair value of the biological assets is determined using estimated future cash flows from continuing operations calculated using our sustainable forest management plans and including the estimated growth of the forests. This valuation is performed on the basis of each identifiable farm block and for each type of tree.

The measurement of new forestry plantations made during the current year is made at cost, which corresponds to the fair value at that date. After twelve months, the valuation methodology used is that explained in the preceding paragraph.

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

Biological growth and changes in fair value of forestry plantations are recognized in the line item “Other income” in the 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.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

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

 

s) Provisions

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

 

t) Revenue recognition

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

 

(i) Revenue recognition from the Sale of Goods

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

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

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.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

(ii) Revenue recognition from Rendering of Services

When the outcome of a transaction involving the rendering of services can be reliably estimated, revenue is recognized by reference to the stage of completion of the transaction at the date of the reporting period, and when it is probable that the economic benefits associated with the transaction will flow to the Arauco.

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

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

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

Revenues from 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.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

w) Impairment

Non-financial Assets

The recoverable amount of property, plant and equipment and other long-term assets with finite useful lives are measured whenever there are any circumstances indicating that the assets have to recognize an impairment loss. Among the circumstances to consider as evidence of impairment are significant declines in the assets’ market value, significant adverse changes in the technological environment, obsolescence or physical damages of assets and changes in the manner in which the asset is used or expected to be used). Arauco evaluates at the end of each reporting period whether there is any evidence of the indications above mentioned.

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

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

Financial Assets

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

An allowance for doubtful accounts is established based on an analysis of the maturity of the portfolio and considering the insurance coverage on accounts receivable. Other conditions are assessed, for example, when there is objective evidence of default or delinquency in payments under the original sale terms and when the customer enters into bankruptcy or financial reorganization, and is written-off when Arauco has exhausted all levels of recovery of the receivable in a reasonable time.

The allowance for doubtful accounts is measured as the difference between the carrying amount of receivables and the present value of estimated future cash flows. The carrying amount of the receivable is reduced through the use of the allowance. If the impairment loss decreases in later periods, it is reversed either directly or by adjusting the provision for doubtful accounts, with effect in profit or loss.

 

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.

 

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June 30, 2017

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

 

 

y) Employee Vacations

Arauco recognizes the expense for employee vacation according to labor legislation in each country on an accrual basis.

This obligation is presented in the line item “Trade and Other current payables” and “Trade and Other non-current payables” depending on their respective maturities in the interim consolidated statements of financial position.

z) Recent accounting pronouncements

 

  a) Provisions, interpretations and amendments that are mandatory for the first time, for the financial years commencing as of January 1, 2017.

 

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 1   

First-Time adoption of the IFRS

Suspension of short-term exceptions

   January 1, 2017
IFRS 12   

Disclosure of Interests in Other Entities.

Clarifies the scope of this rule.

   January 1, 2017
IAS 28    Investments in Associates and Joint Ventures.    January 1, 2017

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

 

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June 30, 2017

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

 

Standards and
interpretations

  

Content

  

Mandatory application
for annual periods
beginning on or after

IFRS 9   

Financial Instruments

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

   January 1, 2018
IFRS 15    This standard defines a new model to recognized revenue from contracts with costumers.    January 1, 2018
IFRS 16   

Leases

Specifies guidelines to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value.

   January 1, 2019
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
IFRIC 23   

Uncertain tax positions

It clarifies the method of applying the acknowledgment and measurement requirements of IAS 12 when there is uncertainty regarding the fiscal treatments.

   January 1, 2019

Amendments and

improvements

  

Content

  

Mandatory application
for annual periods
beginning on or after

IFRS 2   

Share-based payment

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

   January 1, 2018
IFRS 15   

Revenue from contracts with customers.

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

   January 1, 2018
IFRS 4   

Insurance contracts

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

   January 1, 2018
IAS 40   

Investment properties

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

   January 1, 2018
IFRS 10 y IAS 28-Amendments    Sale or Contribution of assets among an Investor and its Associates or Joint Ventures.    Indeterminate

 

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June 30, 2017

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

 

 

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.

The group’s main assets with which it conducts its operations are either held or kept under financial lease by Arauco and its subsidiaries; this it does not expect that the impact of the new rule will cause a significant effect on the financial statements. However, the group has still not assessed what other adjustments, if any, are necessary in view of the changes in the definition of the lease termination and the different treatment of the lease’s variable payments and options to extend and terminate it. Therefore, it is not yet possible to estimate the value of the right of use over the assets and the liabilities for leases that shall be recognized in the adoption of the new rule and how this can affect the group’s earnings or losses and the classification of the cash flows in the future.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 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

 

     06-30-2017    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
     06-30-2017    12-31-2016

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

   113,159,655

 

b) Dividends 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 interim statement of consolidated 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.$52,629 (ThU.S.$43,732 as of June 30, 2016) presented in the interim statement of consolidated changes in equity correspond to the minimum dividend provision recorded for the period 2017.

In the Intermediate Statement of Cash Flow, the Dividend paid line shows an amount of ThU.S.$ 60,481 as of June 30, 2017 (ThU.S.$ 100,250 as of June 30, 2016), of which ThU.S.$ 59,005 (ThU.S.$ 99,221 as of June 30, 2016) correspond to the payment of dividends by Arauco.

The following are the dividends paid and per share amounts during the period 2017 and 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

     05-10-2017  

Amount of Dividend

     ThU.S.$59,005  

Number of Shares for which Dividends are Paid

     113,159,655  

Dividend per Share, Ordinary Shares

     U.S.$0.52143  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid

     Final Dividend  

Type of Shares for which there is a Dividend Paid

     Ordinary Shares  

Date of Dividend Paid

     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

June 30, 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 June 30, 2017 and 2016:

 

     January - June      April - June  
     Unaudited      Unaudited  
     2017      2016      2017      2016  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Classes of Other Income

           

Other Income, Total

     80,948        119,766        32,616        61,749  

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

     67,282        98,874        24,025        48,399  

Net income from insurance compensation

     304        2,226        237        770  

Revenue from export promotion

     1,873        1,129        978        510  

Lease income

     2,262        1,561        1,228        742  

Gain on sales of assets

     4,789        10,147        2,823        7,269  

Access easement

     441        86        403        86  

Other operating results

     3,997        5,743        2,922        3,973  

Classes of Other Expenses by activity

           

Total of Other Expenses by activity

     (201,168      (33,411      (8,052      (12,902

Depreciation

     (1,335      (632      (444      (314

Legal expenses

     (1,977      (2,851      (1,127      (1,390

Impairment provision for property, plant and equipment and others

     (2,731      (1,878      (1,756      (951

Operating expenses related to plants stoppage

     (2,184      (2,004      (1,142      (465

Expenses related to projects

     (637      (1,037      13        (975

Loss of asset sales

     (2,598      (864      (2,034      (617

Loss and repair of assets

     (3,712      (566      7        (335

Loss of forest due to fires

     (173,867      (2,064      4,494        (2,064

Other Taxes

     (3,765      (4,928      (1,898      (3,066

Research and development expenses

     (1,553      (1,139      (818      (576

Fines, readjustments and interests

     (435      (303      (158      (151

Loss on disposal of associates

     —          (10,369      —          —    

Other expenses

     (6,374      (4,776      (3,189      (1,998

Classes of financing income

           

Financing income, total

     12,317        17,897        5,904        6,585  

Financial income from mutual funds - term deposits

     5,637        6,308        2,939        3,067  

Financial income resulting from swap - forward instruments

     3,980        8,069        2,135        1,524  

Other financial income

     2,700        3,520        830        1,994  

Classes of financing costs

           

Financing costs, Total

     (117,617      (135,770      (57,745      (65,485

Interest expense, Banks loans

     (15,517      (16,916      (7,770      (8,221

Interest expense, Bonds

     (85,289      (83,765      (41,523      (41,702

Interest expense, other financial instruments

     (9,211      (26,350      (4,314      (12,614

Other financial costs

     (7,600      (8,739      (4,138      (2,948

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

           

Total

     11,570        10,031        3,439        5,993  

Investments in associates

     3,125        8,787        (290      5,512  

Joint ventures

     8,445        1,244        3,729        481  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 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 - June      April - June  
     Unaudited      Unaudited  

Cost of sales

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

Timber

     376,629        375,592        189,864        186,742  

Forestry labor costs

     301,093        275,293        151,455        143,565  

Depreciation and amortization

     185,497        183,986        89,871        96,557  

Maintenance costs

     129,507        152,612        65,519        80,806  

Chemical costs

     253,536        237,271        128,226        119,320  

Sawmill Services

     54,020        58,924        25,357        31,092  

Others Raw Materials

     93,743        110,718        49,241        54,666  

Others Indirect costs

     81,460        69,384        39,220        40,651  

Energy and fuel

     88,029        69,613        43,439        37,194  

Cost of electricity

     23,078        20,313        13,908        8,912  

Wage and salaries

     162,698        158,063        81,571        80,438  

Total

     1,749,290        1,711,769        877,671        879,943  
  

 

 

    

 

 

    

 

 

    

 

 

 
     January - June      April - June  
     Unaudited      Unaudited  

Distribution cost

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

Selling costs

     18,396        16,733        9,216        9,151  

Commissions

     6,483        7,140        2,974        3,623  

Insurance

     1,545        1,842        782        922  

Provision for doubtful accounts receivable

     104        (25      103        (68

Other selling costs

     10,264        7,776        5,357        4,674  

Shipping and freight costs

     233,733        217,681        118,903        112,777  

Port services

     14,832        13,160        7,540        6,778  

Freights

     188,469        167,467        95,302        86,770  

Other shipping and freight costs

     30,432        37,054        16,061        19,229  

Total

     252,129        234,414        128,119        121,928  
  

 

 

    

 

 

    

 

 

    

 

 

 
     January - June      April - June  
     Unaudited      Unaudited  

Administrative expenses

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

Wage and salaries

     103,342        98,082        53,275        55,316  

Marketing, advertising, promotion and publications expenses

     5,052        4,639        2,677        2,317  

Insurance

     9,232        12,237        4,987        6,317  

Depreciation and amortization

     14,339        13,237        6,726        7,133  

Computer services

     14,871        12,067        8,160        8,544  

Lease rentals (offices, warehouses and machinery)

     7,999        6,858        4,120        4,337  

Donations, contributions, scholarships

     3,858        5,652        1,461        2,824  

Fees (legal and technical advisories)

     17,250        20,038        8,053        10,149  

Property taxes, patents and municipality rights

     9,399        8,170        5,094        5,447  

Personal care, supervision and transport services

     12,461        11,958        6,029        6,281  

Variable third party services (maneuvers, logistic operator)

     20,048        20,416        9,978        10,130  

Basic services (telephone, electricity, water)

     4,087        4,247        2,024        1,975  

Maintenance and repair

     2,702        3,136        1,429        1,552  

Seminars, courses, teaching materials

     884        1,287        430        714  

Other administration expenses

     21,983        14,596        12,714        8,475  

Total

     247,507        236,620        127,157        131,511  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

            January - June        April - June  
            Unaudited        Unaudited  
            2017        2016        2017        2016  

Expenses for

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

Depreciations

   7        194,981          192,512          93,566          100,980  

Employee benefits

   10        268,069          259,700          135,779          137,603  

Amortization

   19        6,788          6,505          3,243          3,485  

 

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

 

Auditors fees

   06-30-2017
ThU.S.$
 

Audit services

     1,126  

Other services

  

Tax services

     407  

Others

     172  

TOTAL

     1,705  
  

 

 

 

Number of employees

     No.  
     15,737  
  

 

 

 

NOTE 4. INVENTORIES

 

     06-30-2017      12-31-2016  
     Unaudited         

Components of Inventory

   ThU.S.$      ThU.S.$  

Raw materials

     77,628        61,252  

Production supplies

     94,663        102,760  

Products in progress

     51,033        59,332  

Finished goods

     459,197        468,544  

Spare Parts

     164,454        160,724  

Total Inventories

     846,975        852,612  
  

 

 

    

 

 

 

Inventories recognized as cost of sales at June 30, 2017 were ThU.S.$1,707,640 (ThU.S.$1,633,455 at June 30, 2016).    

In order to have the inventories recorded at net realizable value at June 30, 2017, a net increase of inventories was recognized associated with a less provision of obsolescence of ThU.S.$3,831 (greater provision of ThU.S.$1,265 at June 30, 2016). As of June 30, 2017, the amount of obsolescence provision is ThU.S.$24,668 (ThU.S.$28,499 at December 31, 2016).

At June 30, 2017 there were inventory write-offs of ThU.S.$475 (ThU.S.$693 at June 30, 2016)

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

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.

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.

 

    

06-30-2017

Unaudited

     12-31-2016  

Components of Cash and Cash Equivalents

   ThU.S.$      ThU.S.$  

Cash on hand

     174        3,156  

Bank checking account balances

     183,653        146,290  

Time deposits

     175,636        247,391  

Mutual funds

     70,080        195,416  

Other cash and cash equivalents (*)

     83,180        —    

Total

     512,723        592,253  
  

 

 

    

 

 

 

The risk classification of the mutual funds in effect as of June 30, 2017 and December 31, 2016 is shown below.

 

     June
2017
Unaudited
ThU.S.$
     December
2016

 

ThU.S.$

 

AAAfm

     63,720        192,895  

AAfm

     6,360        2,521  

Total Mutual Funds

     70,080        195,416  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 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 28, 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:

 

     06-30-2017      12-31-2016  
     Unaudited         

Deferred Tax Assets

   ThU,S,$      ThU.S.$  

Deferred tax Assets relating to Provisions

     5,253        5,771  

Deferred tax Assets relating to Accrued Liabilities

     9,035        11,716  

Deferred tax Assets relating to Post-Employment benefits

     18,058        17,618  

Deferred tax Assets relating to Property, Plant and equipment

     12,097        9,806  

Deferred tax Assets relating to Financial Instruments

     10,163        12,699  

Deferred tax Assets relating to Tax Losses Carryforwards

     75,293        50,917  

Deferred tax Assets relating to Inventories

     6,650        7,158  

Deferred tax Assets relating to Provisions for Income

     3,946        7,069  

Deferred tax Assets relating to Allowance for Doubful Accounts

     4,364        4,886  

Intangible revaluation differences

     11,135        10  

Deferred tax Assets relating to Other Deductible Temporary Differences

     25,019        30,216  

Total Deferred Tax Assets

     181,013        157,866  
  

 

 

    

 

 

 

Netting presentation

     (173,899      (151,769
  

 

 

    

 

 

 

Net Effect

     7,114        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.$253,406 (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

June 30, 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.$ 81,100 (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:

 

     06-30-2017      12-31-2016  
     Unaudited         

Deferred Tax Liabilities

   ThU.S,$      ThU.S.$  

Deferred tax Liabilities relating to Property, plant and equipment

     913,965        934,892  

Deferred tax Liabilities relating to Financial Instruments

     8,367        7,186  

Deferred tax Liabilities relating to Biological Assets

     728,011        719,577  

Deferred tax Liabilities relating to Inventory

     36,494        31,072  

Deferred tax Liabilities due to Prepaid Expenses

     45,550        42,881  

Deferred tax Liabilities due to Intangible

     26,892        27,222  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     18,573        20,004  

Total Deferred Tax Liabilities

     1,777,852        1,782,834  
  

 

 

    

 

 

 

Netting presentation

     (173,899      (151,769
  

 

 

    

 

 

 

Net Effect

     1,603,953        1,631,065  
  

 

 

    

 

 

 

The effect of the period of the current and deferred taxes related to the financial instruments for hedges, results in a payment of ThU.S.$ 953 as of June 30, 2017 (a charge amounting to ThU.S.$ 1,042 as of June 30, 2016), which is presented in its net amount in the coverage Reserves in the interim statement of consolidated changes in equity.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

Reconciliation of deferred tax assets and liabilities

 

        Unaudited    Opening
Balance
01-01-2017
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
for Bussines
Combination
     Increase
(decrease)
Net
exchange
differences
    Closing
balance
06/30/2017
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     5,771        (497     —         —          (21     5,253  

Deferred tax Assets relating to Accrued liabilities

     11,716        (2,633     —         —          (48     9,035  

Deferred tax Assets relating to Post-Employment benefits

     17,618        431       (8     —          17       18,058  

Deferred tax Assets relating to Property, Plant and equipment

     9,806        2,291       —         —          —         12,097  

Deferred tax Assets relating to Financial Instruments

     12,699        (612     (1,924     —          —         10,163  

Deferred tax Assets relating to Tax Loss Carryforward

     50,917        25,008       —         —          (632     75,293  

Deferred tax assets relating to Inventories

     7,158        (508     —         —          —         6,650  

Deferred tax assets relating to Provisions for Income

     7,069        (3,127     —         —          4       3,946  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     4,886        (518     —         —          (4     4,364  

Intangible revaluation differences

     10        (264     —         11,389        —         11,135  

Deferred tax Assets relating to Other Deductible Temporary Differences

     30,216        (5,094     —         —          (103     25,019  

Total Deferred Tax Assets

     157,866        14,477       (1,932     11,389        (787     181,013  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
           Unaudited    Opening
Balance
01-01-2017
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
for Bussines
Combinatión
     Increase
(decrease)
Net
exchange
differences
    Closing
balance
06/30/2017
 

Deferred Tax Liabilities

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

Deferred tax Liabilities relating to Property, Plant and Equipment

     934,892        (20,554     —         —          (373     913,965  

Deferred tax Liabilities relating to Financial Instruments

     7,186        1,181       —         —          —         8,367  

Deferred tax Liabilities relating to Biological Assets

     719,577        (28,648     —         38,016        (934     728,011  

Deferred tax Liabilities relating to Inventory

     31,072        5,422       —         —          —         36,494  

Deferred tax Liabilities relating to Prepaid Expenses

     42,881        2,667       —         —          2       45,550  

Deferred tax Liabilities relating to Intangible

     27,222        (195     —         —          (135     26,892  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     20,004        (1,337     —         —          (94     18,573  

Total Deferred Tax Liabilities

     1,782,834        (41,464     —         38,016        (1,534     1,777,852  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 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

June 30, 2017

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     06-30-2017      12-31-2016  
     Unaudited                
     Deductible      Taxable      Deductible      Taxable  
     Difference      Difference      Difference      Difference  

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

     105,720           106,949     

Deferred Tax Assets - Tax loss carryforward

     75,293           50,917     

Deferred Tax Liabilities

        1,777,852           1,782,834  

Total

     181,013        1,777,852        157,866        1,782,834  
  

 

 

    

 

 

    

 

 

    

 

 

 
     January - June      April - June  
     Unaudited  

Detail of Temporary Difference Income and Loss Amounts

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

Deferred Tax Assets

     (6,355      2,239        5,414        2,750  

Deferred Tax Assets - Tax loss carryforward

     20,832        (2,908      (1,697      (5,605

Deferred Tax Liabilities

     41,464        5,596        6,880        14,024  

Total

     55,941        4,927        10,597        11,169  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - June      April - June  
     Unaudited  

Income Tax composition

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

Current income tax expense

     (67,812      (47,337      (47,540      (23,370

Previous period current tax adjustments

     (746      487        (785      (100

Other current tax expenses

     797        2,371        286        116  

Current Tax Expense, Net

     (67,761      (44,479      (48,039      (23,354

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

     35,109        7,835        8,720        16,774  

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

     20,832        (2,908      1,877        (5,605

Total deferred Tax Expense, Net

     55,941        4,927        10,597        11,169  

Income Tax Expense, Total

     (11,820      (39,552      (37,442      (12,185
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 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 June 30, 2017 and 2016:

 

     January - June      April - June  
     Unaudited  
     2017      2016      2017      2016  
     ThU,S,$      ThU.S.$      ThU.S.$      ThU.S.$  

Foreign current income tax expense

     (16,406      (16,352      (9,390      (11,427

Domestic current income tax expense

     (51,355      (28,127      (38,649      (11,927

Total current income tax expense

     (67,761      (44,479      (48,039      (23,354

Foreign deferred tax expense

     7,992        (3,502      (455      1,659  

Domestic deferred tax expense

     47,949        8,429        11,052        9,510  

Total deferred tax expense

     55,941        4,927        10,597        11,169  

Total tax income (expense)

     (11,820      (39,552      (37,442      (12,185
  

 

 

    

 

 

    

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - June     April - June  
     Unaudited  
     2017     2016     2017     2016  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

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

Statutory domestic (Chile) income tax rate

     25.5     24.0     25.5     24.0

Tax Expense at statutory tax rate

     (12,907     (35,986     (30,985     (16,717

Tax effect of foreign tax rates

     1,223       (2,346     890       73  

Tax effect of revenues exempt from taxation

     12,541       5,047       (1,114     4,255  

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

     (18,587     (4,952     (8,164     3,153  

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

     1,134       (1,039     477       (453

Tax rate effect of adjustments for current tax of prior periods

     (746     487       (785     (100

Other tax rate effects

     5,522       (763     2,239       (2,396

Total adjustments to tax expense at applicable tax rate

     1,087       (3,566     (6,457     4,532  

Tax expense at effective tax rate

     (11,820     (39,552     (37,442     (12,185
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     06-30-2017      12-31-2016  
     Unaudited         

Property, Plant and Equipment, Net

   ThU.S.$      ThU.S.$  

Construction in progress

     408,355        321,031  

Land

     1,003,972        991,450  

Buildings

     2,134,720        2,169,731  

Plant and equipment

     3,146,875        3,256,348  

Information technology equipment

     23,620        24,154  

Fixtures and fittings

     10,283        9,880  

Motor vehicles

     16,192        16,858  

Other property, plant and equipment

     123,094        130,043  

Total Net

     6,867,111        6,919,495  
  

 

 

    

 

 

 

Property, Plant and Equipment, Gross

     

Construction in progress

     408,355        321,031  

Land

     1,003,972        991,450  

Buildings

     3,852,526        3,825,259  

Plant and equipment

     6,139,703        6,128,494  

Information technology equipment

     78,709        76,421  

Fixtures and fittings

     35,173        33,613  

Motor vehicles

     49,014        48,534  

Other property, plant and equipment

     148,054        153,838  

Total Gross

     11,715,506        11,578,640  
  

 

 

    

 

 

 

Accumulated depreciation and impairment

     

Buildings

     (1,717,806      (1,655,528

Plant and equipment

     (2,992,828      (2,872,146

Information technology equipment

     (55,089      (52,267

Fixtures and fittings

     (24,890      (23,733

Motor vehicles

     (32,822      (31,676

Other property, plant and equipment

     (24,960      (23,795

Total

     (4,848,395      (4,659,145
  

 

 

    

 

 

 

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

As of June 30, 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

June 30, 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.

 

     06-30-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Amount committed for the acquisition of property, plant and equipment

     143,844        122,757  
     06-30-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Disbursements for property, plant and equipment under construction

     156,028        317,159  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 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 June 30, 2017 and December 31, 2016:

 

Movement of Property, Plant and Equipment

Unaudited

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

    156,028       277       4,379       29,413       203       39       704       661       191,704  

Disposals

    —         (1,422     (17     (3,220     (27     — 9       (254     (2,070     (7,019

Retirements

    (4,872     (17     (546     (2,414     (3     (7     (39     (2,290     (10,188

Depreciation

    —         —         (62,093     (151,122     (2,980     (1,014     (1,679     (3,111     (221,999

Impairment loss recognized in profit or loss

    —         —         (28     928       3       (266     —         —         637  

Increase (decrease) through net exchange differences

    (853     (2,729     (1,615     (1,523     113       -23       419       (140     (6,351

Reclassification of assets held for sale

    —         —         —         832       —         —         —         —         832  

Increase (decrease) through transfers from construction in progress

    (62,979     16,413       24,909       17,633       2,157       1,683       183       1       —    

Total changes

    87,324       12,522       (35,011     (109,473     (534     403       (666     (6,949     (52,384

Closing balance 06-30-2017

    408,355       1,003,972       2,134,720       3,146,875       23,620       10,283       16,192       123,094       6,867,111  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Movement of Property, Plant and Equipment

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

Opening Balance 01-01-2016

    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  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

47


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

The depreciation expense for the period ending June 30, 2017 and 2016 is as follows:

 

     January - June      April - June  
     Unaudited      Unaudited  
     2017      2016      2017      2016  

Depreciation for the year

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

Cost of sales

     181,292        180,666        87,479        94,911  

Administrative expenses

     11,756        10,052        5,356        5,294  

Other expenses

     1,933        1,794        731        775  

Total

     194,981        192,512        93,566        100,980  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

June 30, 2017

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

     06-30-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Property, Plant and Equipment under finance leases

     116,603        117,206  

Plant and equipment

     116,603        117,206  

Reconciliation of Financial Lease Minimum Payments:

 

     06-30-2017  
     Unaudited  
     Present Value  

Periods

   ThU.S.$  

Less than one year

     39,396  

Between one and five years

     73,763  

More than five years

     —    

Total

     113,159  
  

 

 

 

 

     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 interim 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

June 30, 2017

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

 

 

Arauco acting as lessor

Reconciliation of Financial Lease Minimum Payments:

 

     06-30-2017  
     Unaudited  
     Gross      Interest      Present Value  

Periods

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

Less than one year

     1,323        —          1,323  

Between one and five years

     2,542        —          2,542  

More than five years

     —          —          —    

Total

     3,865        —          3,865  
  

 

 

    

 

 

    

 

 

 
     12-31-2016  
     Gross      Interest      Present Value  

Periods

   ThU.S.$      ThU.S.$      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 interim 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 – June      April – June  
     Unaudited      Unaudited  
     2017      2016      2017      2016  

Classes of revenue

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

Revenue from sales of goods

     2,453,536        2,294,928        1,246,942        1,174,682  

Revenue from rendering of services

     60,130        58,383        32,988        32,604  

Total

     2,513,666        2,353,311        1,279,930        1,207,286  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January - June      April - June  
     Unaudited      Unaudited  
     2017      2016      2017      2016  
     ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  

Employee expenses

     268,069        259,700        135,779        137,603  

Wages and salaries

     258,434        252,935        130,986        134,233  

Severance indemnities

     9,635        6,765        4,793        3,370  

 

     06-30-2017     12-31-2016  

Discount rate

     4.58     4.52

Inflation

     2.79     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

     (5,558

Decrease in 100 bps

     5,760  

Wage growth rates

  

Increase in 100 bps

     5,081  

Decrease in 100 bps

     (4,960

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligations as of June 30, 2017 and December 31, 2016:

 

     06-30-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Current

     5,378        5,244  

Non-current

     61,845        60,084  

Total

     67,223        65,328  
  

 

 

    

 

 

 

Reconciliation of the present value of severance indemnities obligations

   06-30-2017      12-31-2016  
   Unaudited         
   ThU.S.$      ThU.S.$  

Opening balance

     65,328        56,433  

Current service cost

     2,699        5,334  

Interest cost

     1,485        2,957  

(Gains) losses from changes in actuarial assumptions

     (346      2,083  

Actuarial gains and losses arising from experience

     315        3,503  

Benefits paid

     (2,819      (7,871

Increase (decrease) for foreign currency exchange rates changes

     561        2,889  

Closing balance

     67,223        65,328  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 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.

 

     06-30-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Total Current Assets

     2,629,591        2,722,360  

Cash and Cash Equivalents

     512,723        592,253  

U.S Dollar

     376,086        524,426  

Euro

     3,439        2,357  

Brazilian Real

     30,016        47,696  

Argentine Pesos

     7,588        4,046  

Other currencies

     5,095        3,327  

Chilean Pesos

     90,499        10,401  

Other current financial assets

     4,361        5,201  

U.S Dollar

     3,339        4,879  

Argentine Pesos

     301        315  

Other currencies

     721        7  

Other current non-financial assets

     181,334        144,915  

U.S Dollar

     106,711        62,246  

Euro

     95        71  

Brazilian Real

     19,791        22,537  

Argentine Pesos

     7,071        12,261  

Other currencies

     3,650        3,500  

Chilean Pesos

     44,016        44,300  

Trade and other current receivables

     704,609        701,610  

U.S Dollar

     487,595        489,056  

Euro

     18,079        26,544  

Brazilian Real

     49,253        46,150  

Argentine Pesos

     28,091        15,137  

Other currencies

     19,988        16,620  

Chilean Pesos

     100,077        106,681  

U.F.

     1,526        1,422  

Accounts receivable due from related companies

     6,204        12,505  

U.S Dollar

     663        274  

Brazilian Real

     243        726  

Chilean Pesos

     4,830        10,548  

U.F.

     468        957  

Current Inventories

     846,975        852,612  

U.S Dollar

     799,497        812,748  

Brazilian Real

     47,478        39,864  

Current biological assets

     303,600        306,117  

U.S Dollar

     269,547        271,551  

Brazilian Real

     34,053        34,566  

Current tax assets

     67,328        104,088  

U.S Dollar

     10,936        6,199  

Brazilian Real

     3,666        5,798  

Argentine Pesos

     40        39  

Other currencies

     4,191        2,696  

Chilean Pesos

     48,495        89,356  

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

     2,457        3,059  

U.S Dollar

     2,457        3,059  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

     06-30-2017      12-31-2016  
     Unaudited         
     ThU.S.$      ThU.S.$  

Total Non Current Assets

     11,044,213        11,283,821  

Other non-current financial assets

     11,715        8,868  

U.S Dollar

     11,715        8,868  

Other non-current non-financial assets

     110,962        130,319  

U.S Dollar

     93,596        95,658  

Brazilian Real

     3,904        4,042  

Argentine Pesos

     12,313        9,900  

Other currencies

     684        636  

Chilean Pesos

     465        20,083  

Trade and other non-current receivables

     13,969        14,273  

U.S Dollar

     4,142        6,895  

Other currencies

     542        527  

Chilean Pesos

     6,792        5,753  

U.F.

     2,493        1,098  

Accounts receivable due from related companies, non current

     957        957  

U.F.

     957        957  

Investments accounted for using equity method

     347,923        446,548  

U.S Dollar

     125,769        124,324  

Euro

     168,761        156,990  

Brazilian Real

     53,361        165,203  

Chilean Pesos

     32        31  

Intangible assets other than goodwill

     90,972        89,497  

U.S Dollar

     89,825        88,394  

Brazilian Real

     1,050        1,026  

Chilean Pesos

     97        77  

Goodwill

     74,484        74,893  

U.S Dollar

     42,580        42,508  

Brazilian Real

     31,904        32,385  

Property, plant and equipment

     6,867,111        6,919,495  

U.S Dollar

     6,352,110        6,394,105  

Brazilian Real

     510,091        520,448  

Chilean Pesos

     4,910        4,942  

Non-current biological assets

     3,519,006        3,592,874  

U.S Dollar

     2,991,578        3,185,872  

Brazilian Real

     527,428        407,002  

Deferred tax assets

     7,114        6,097  

U.S Dollar

     4,597        4,134  

Brazilian Real

     2,231        1,697  

Other currencies

     53        52  

Chilean Pesos

     233        214  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

            06-30-2017                
            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

     909,072        157,215        1,066,287        806,280        539,784        1,346,064  

Other current financial liabilities

     302,545        151,476        454,021        196,001        501,451        697,452  

U.S Dollar

     286,782        91,594        378,376        178,442        455,908        634,350  

Brazilian Real

     3,876        4,177        8,053        3,558        1,282        4,840  

Argentine Pesos

     10        9        19        11        29        40  

Chilean Pesos

     1,410        4,158        5,568        1,132        3,387        4,519  

U.F.

     10,467        51,538        62,005        12,858        40,845        53,703  

Bank Loans

     118,079        95,780        213,859        134,140        61,483        195,623  

U.S Dollar

     114,193        91,594        205,787        130,571        60,172        190,743  

Brazilian Real

     3,876        4,177        8,053        3,558        1,282        4,840  

Argentine Pesos

     10        9        19        11        29        40  

Financial Leases

     9,720        29,676        39,396        9,534        30,866        40,400  

Chilean Pesos

     1,410        4,158        5,568        1,132        3,387        4,519  

U.F.

     8,310        25,518        33,828        8,402        27,479        35,881  

Other Loans

     174,746        26,020        200,766        52,327        409,102        461,429  

U.S Dollar

     172,589        —          172,589        47,871        395,736        443,607  

U.F.

     2,157        26,020        28,177        4,456        13,366        17,822  

Trade and other current payables

     508,849        —          508,849        511,371        26,520        537,891  

U.S Dollar

     159,577        —          159,577        146,652        3,510        150,162  

Euros

     11,072        —          11,072        12,006        1,028        13,034  

Brazilian Real

     27,306        —          27,306        4,849        21,982        26,831  

Argentine Pesos

     23,803        —          23,803        31,661        —          31,661  

Other currencies

     7,957        —          7,957        12,244        —          12,244  

Chilean Pesos

     260,860        —          260,860        285,359        —          285,359  

U.F.

     18,274        —          18,274        18,600        —          18,600  

Accounts payable to related companies

     8,489        —          8,489        3,831        —          3,831  

U.S Dollar

     1,838        —          1,838        1,969        —          1,969  

Chilean Pesos

     6,651        —          6,651        1,862        —          1,862  

Other current provisions

     378        —          378        842        —          842  

U.S Dollar

     378        —          378        842        —          842  

Current tax liabilities

     2,774        2,013        4,787        1,641        —          1,641  

U.S Dollar

     362        —          362        448        —          448  

Euros

     571        —          571        7        —          7  

Brazilian Real

     1,068        —          1,068        —          —          —    

Argentine Pesos

     43        —          43        133        —          133  

Other currencies

     265        —          265        574        —          574  

Chilean Pesos

     465        2,013        2,478        479        —          479  

Current provisions for employee benefits

     5,258        120        5,378        5,214        30        5,244  

Chilean Pesos

     5,258        120        5,378        5,214        30        5,244  

Other current non-financial liabilities

     80,779        3,606        84,385        87,380        11,783        99,163  

U.S Dollar

     51,849        3,604        55,453        62,974        163        63,137  

Euros

     42        —          42        53        —          53  

Brazilian Real

     16,574        —          16,574        9,426        11,616        21,042  

Argentine Pesos

     2,198        —          2,198        3,474        —          3,474  

Other currencies

     3,926        —          3,926        3,202        —          3,202  

Chilean Pesos

     6,136        2        6,138        8,183        4        8,187  

U.F.

     54        —          54        68        —          68  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2017

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

 

 

     From 13
months to 5
years
ThU.S.$
     06-30-2017
Unaudited
More than  5
years
ThU.S.$
     Total
ThU.S.$
     From 13
months to 5
years
ThU.S.$
     12-31-2016
More than 5
years
ThU.S.$
     Total
ThU.S.$
 

Total non-current liabilities

     4,138,174        1,492,411        5,630,585        3,599,291        2,061,543        5,660,834  

Other non-current financial liabilities

     2,511,927        1,354,821        3,866,748        2,020,484        1,850,430        3,870,914  

U.S Dollar

     2,063,892        584,860        2,648,752        1,591,127        1,075,204        2,666,331  

Brazilian Real

     17,283        799        18,082        17,098        1,042        18,140  

Chilean Pesos

     11,553        —          11,553        11,151        —          11,151  

U.F.

     419,199        769,162        1,188,361        401,108        774,184        1,175,292  

Bank Loans

     619,707        94,185        713,892        626,384        92,351        718,735  

U.S Dollar

     602,424        93,386        695,810        609,286        91,309        700,595  

Brazilian Real

     17,283        799        18,082        17,098        1,042        18,140  

Financial Leases

     73,763        —          73,763        73,586        —          73,586  

Chilean Pesos

     11,553        —          11,553        11,151        —          11,151  

U.F.

     62,210        —          62,210        62,435        —          62,435  

Other Loans

     1,818,457        1,260,636        3,079,093        1,320,514        1,758,079        3,078,593  

U.S Dollar

     1,461,468        491,474        1,952,942        981,841        983,895        1,965,736  

U.F.

     356,989        769,162        1,126,151        338,673        774,184        1,112,857  

Other non-current provisions

     37,516        —          37,516        38,138        —          38,138  

U.S Dollar

     11        —          11        1        —          1  

Brazilian Real

     5,013        —          5,013        5,425        —          5,425  

Argentine Pesos

     32,489        —          32,489        32,712        —          32,712  

Chileans Pesos

     3        —          3        —          —          —    

Deferred tax liabilities

     1,466,363        137,590        1,603,953        1,479,596        151,469        1,631,065  

U.S Dollar

     1,356,025        137,590        1,493,615        1,412,506        131,406        1,543,912  

Brazilian Real

     110,338        —          110,338        67,090        20,063        87,153  

Non-current provisions for employee benefits

     61,845        —          61,845        60,084        —          60,084  

Other currencies

     177        —          177        144        —          144  

Chilean Pesos

     61,668        —          61,668        59,940        —          59,940  

Other non-current non-financial liabilities

     60,523        —          60,523        989        59,644        60,633  

U.S Dollar

     225        —          225        430        —          430  

Brazilian Real

     59,600        —          59,600        —          59,644        59,644  

Argentine Pesos

     245        —          245        349        —          349  

Chilean Pesos

     453        —          453        206        —          206  

U.F.

     —          —          —          4        —          4  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 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