6-K 1 d561476d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of December, 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 Consolidated Financial Statements

     1  

2.

 

Unaudited Consolidated Statements of Financial Position

     7  

3.

 

Unaudited Consolidated Statements of Profit or Loss

     9  

4.

 

Unaudited Consolidated Statements of Comprehensive Income

     10  

5.

 

Unaudited Consolidated Statements of Changes in Equity

     11  

6.

 

Unaudited Consolidated Statements of Cash Flow

     12  

7.

 

Unaudited Notes to the Consolidated Financial Statements

     13  
 

Annex: Press Release

  


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2017

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

 

1. ANALYSIS OF FINANCIAL POSITION

 

  a) Statement of Financial Position

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

 

Assets

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

Current assets

     2,770,363        2,722,360  

Non-current assets

     11,224,237        11,283,821  
  

 

 

    

 

 

 

Total assets

     13,994,600        14,006,181  
  

 

 

    

 

 

 

Liabilities

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

Current liabilities

     1,399,394        1,346,064  

Non-current liabilities

     5,478,313        5,660,834  

Non–parent participation

     41,920        44,032  

Net equity attributable to parent company

     7,074,973        6,955,251  
  

 

 

    

 

 

 

Total net equity and liabilities

     13,994,600        14,006,181  
  

 

 

    

 

 

 

As of December 31, 2017, total assets decreased MU.S.$12 compared to December 31, 2016, equivalent to a 0.08% variation. This decrease was driven mainly by decreases in the balance of biological assets and inventory, which were partially offset by increases in Trade and other current receivables and property assets, plants and equipment.

In turn, total liabilities decreased by MU.S.$129 mainly due to a decrease in financial liabilities and deferred taxes liabilities, partially offset by increases in trade and other current payables.

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

 

Liquidity ratios

   12-31-2017      12-31-2016  

Current Liquidity (current assets / current liabilities)

     1.98        2.02  

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

     1.14        1.16  

Debt indicators

   12-31-2017      12-31-2016  

Debt to equity ratio (total liabilities / equity)

     0.97        1.00  

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

     0.20        0.19  

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

     0.80        0.81  
     12-31-2017      12-31-2016  

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

     1.83        2.02  

Activity ratio

   12-31-2017      12-31-2016  

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

     3.06        2.99  

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

     4.15        3.97  

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

     117.58        120.42  

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

     86.67        90.68  

As of December 31, 2017, the short-term debt represented 20% 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 Consolidated Financial Statements

December 31, 2017

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

 

 

Our financial expenses coverage ratio decreased from 2.02 to 1.83, mainly due to lower earnings before taxes and higher financial costs for the period ended December 31, 2017, compared to the same period of 2016.

 

  b) Statement of profit or loss

Income before income tax

Income before income tax registered a profit of approximately MU.S.$239 compared to a profit of approximately MU.S.$263 in the same period of 2016. The negative variation of MU.S.$24 is explained by the factors described in the following table:

 

Item

   MU.S.$  

Gross margin

     401  

Distribution and Administrative Expenses

     (74

Other income and expenses (*)

     (309

Financial income and expenses

     (39

Others

     (3
  

 

 

 

Net change in income before income tax

     (24
  

 

 

 

 

(*) Includes MU.S.$173 of Loss of forest due to fires net of MU.S.$35 from insurance compensation.

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

 

Revenues

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

Pulp

     2,451,363        2,146,079  

Timber

     2,625,198        2,494,750  

Forestry

     114,122        96,488  

Other

     47,568        24,068  
  

 

 

    

 

 

 

Total revenues

     5,238,341        4,761,385  
  

 

 

    

 

 

 

Sales costs

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

Wood

     725,114        736,399  

Forestry work

     631,276        600,320  

Depreciation and amortization

     389,847        377,983  

Other costs

     1,828,295        1,784,203  
  

 

 

    

 

 

 

Total sales costs

     3,574,532        3,498,905  
  

 

 

    

 

 

 

Profitability index

   12-31-2017      12-31-2016  

Profitability on equity

     3.83        3.19  

Profitability on assets

     1.93        1.57  

Return on operating assets

     4.67        2.21  

Profitability ratios

   12-31-2017      12-31-2016  

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

     2.38        1.89  

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

     270,352        217,577  

Gross margin (ThU.S.$)

     1,663,809        1,262,480  

Financial costs (ThU.S.$)

     (287,958      (258,467

 

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2017

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

 

 

EBITDA

   12-31-2017
MU.S.$
     12-31-2016
MU.S.$
 

Gain (loss)

     270.4        217.6  

Finance costs

     288.0        258.5  

Financial income

     (19.6      (29.7

Expenses for income tax

     (31.0      45.6  

EBIT

     507.7        492.0  

Depreciation and amortization

     421.6        409.4  

EBITDA

     929.2        901.4  

Cost at fair value of the harvest

     334.1        340.2  

Gain from changes in fair value of biological assets

     (83.0      (208.6

Exchange difference

     (0.1      3.9  

Others*

     186.2        15.2  

Adjusted EBITDA

     1,366.4        1,052.1  

 

* 2017: Loss of forest due to fires of MU.S.$138.1, net of MU.S.$34.8 from Impairment provision for property, plant and equipment and others, and MU.S.$13 from forestry roads adjustment.
* 2016: Loss of forest due to fires of MU.S.$15.2

2. MAIN SOURCES OF FINANCING

Arauco’s financing needs are mainly covered through the capital markets, with bond issuances and credits obtained from banks and financial institutions serving as the main sources of financing. For short-term borrowing, Arauco follows a liquidity policy which indicates the amounts and institutions from which it can borrow according to several conditions defined in the policy. In the case of long-term debt, corporate bond issuances in the local market and also in international markets are used as sources of new resources. Another source of long-term financing corresponds to borrowings from banks and financial institutions around the world.

3. DIFFERENCE BETWEEN ECONOMIC VALUES AND BOOK ASSETS

Assets and liabilities are presented in the Financial Statements according to International Financial Reporting Standards and instructions issued by the Chilean Superintendency of Securities and Insurance (current Chilean Commission for the Financial Market). 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

Prices during the fourth quarter experienced an increase of 11.2% compared to the last quarter. In general, all markets were very active in demand because of healthy economies that could absorb the increase in supply of pulp of new production that started at the end of 2016 and during 2017. This new production was also compensated due to operational problems of existing plants that lost a significant part of their annual capacity. The OKI Mill that was expected to reach the 2.8 million tons of annual production, instead is expected to produce 1.7 million tons for the next couple of years.

The Asian markets continue with high demand, especially China that has been affected by the import restrictions of unsorted waste paper. Although prices in the local market in China began to stabilize, there was an important difference between these prices and those of imports, especially in long fiber, that was declining during the fourth quarter. During the fourth quarter, there was more supply of short fiber pulp, so increases in prices were done with caution. Most Asian paper producers managed to pass the increases in pulp prices to

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2017

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

 

 

their products due to the strong demand, these were materialized specially during the fourth quarter. In Korea, customers were more reluctant to the increases in prices, because there was over supply in the paper market and pulp customers were not able to transfer the increase to their products. The increases in Korea were bigger than China due to higher discounts and adjustments to list prices.

In Europe, the market that was quite depressed for several years, showed clear signs of recovery and demand grew significantly, the market was still particularly active during this fourth quarter and prices continued rising. With the only exception of the tissue industry, the additional costs that paper producers had to absorb were transferred to the final product, and in general, the productions were at full capacity. In the tissue market contracts are annually negotiated so companies have more buying power.

Middle East, specially Turkey also started to have problems to transfer the price of the raw materials and were oversupply in tissue put producers in a very delicate situation in terms of margin. In North and Latin America, the price increases less aggressive. In the fluff market at the beginning of the fourth quarter the increase of prices was slow, but during the quarter prices started going up in a better rhythm.

Production during the fourth quarter decreased by 15.2% compared to last quarter and 11.3% compared to the same quarter of last year. The lower production is explained by more programmed maintenance stoppages this quarter, certain production losses at the plant in Argentina and the blockade of the Constitución Mill by an association of truck owners. The blockade lasted 38 days and the effect on the production was of 35,000 tons approximately.

Composite Panel

Sales slightly decreased, with overall sales volume decreasing 3.6% and average prices remain steady. MDF and PBO, both had less sales compared to third quarter, mainly because of competition in the North American markets. OSB sales volume in Chile were lower, however it was compensated with an increase in average prices, thanks to production from Sonae Arauco which we could sell within this market through market trading.

Sales in North American market continued to show stable price levels in comparison to the last quarter, meanwhile sales volume decreased due to more competitors. Brazil was also affected by lower sales volume in MDF, but there is still optimism in the market due to more consumption during the last months.

The rest of Latin America reached stable sales thanks to our diversified product mix. These markets have not been as dynamic as other parts of the world, as less projects that require construction and furniture products come into execution. In the Melamine market, we are still growing specially in Chile and Perú, where we are developing new supplying choices to cover the demand.

Timber Division

Sawn timber markets showed a negative trend from last quarter with sales volume decreasing 7.6%, but with stable average prices. Asia and the Middle East are the principal customers for these products, and sales to this markets during the fourth quarter were lower than the third quarter. Remanufactured sales volume was affected by the new supply coming from Brazil, that was compensated slightly by higher prices. Production was lower than the third quarter due to the stoppages in the Viñales facility.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2017

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

 

 

Panels

Plywood production and sales volume decrease compared to the third quarter by 7.2% and 9.5% respectively. However, average prices increased 3.6% during the fourth quarter. Sales in North America improved as demand grew, especially with the retailer’s, due to the hurricanes that affected the southern east of the country. In Latin America, specifically in Chile and Mexico, the demand expanded and we were able to increase prices.

5. ANALYSIS OF CASH FLOW

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

 

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

Positive (negative) Cash flow

     

Cash flow from operating activities

     1,072,425        773,584  

Cash flow from (used in) financing activities:

     

Loan and bond obtention and payments

     (315,230      92,442  

Dividend payments

     (121,586      (130,624

Others

     (2,285      (302

Cash flow from (used in) investment activities:

     

Incorporation and sale of property, plant and equipment

     (442,006      (338,468

Incorporation and sale of biological assets

     (176,575      (139,063

Incorporation and sale of intangible assets

     (10,468      (14,858

Additions (Disposals), Investments in joint ventures and associates.

     (15,917      (146,354

Dividends received

     7,287        4,772  

Others

     4,331        (6,241
  

 

 

    

 

 

 

Positive (negative) Net cash flow

     (24      94,888  
  

 

 

    

 

 

 

The financing cash flow shows a higher negative balance of MU.S.$439 for the current period, presenting variations in respect of the previous period (negative balance of MU.S.$38), resulting mainly from higher payments by indebtedness during the 2017 period.

Regarding the investment cash flow, as of the closing of the current period, it shows a lower negative balance of MU.S.$633 (MU.S.$640 for the 2016 period), mainly due to higher disbursements arising from the payment of the investment in joint venture SONAE ARAUCO during the 2016 period, offset by higher purchases in property, plant and equipments and biological assets in 2017.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 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 December 31, 2017, a ratio of fixed rate debt to total consolidated debt of approximately 86%, which it believes is consistent with industry standards. Regarding variations in prices of pulp and forestry products, 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 December 31, 2017, a detailed analysis of the risks associated with the business of Arauco is available (See Note 23).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

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

Assets

        

Current Assets

        

Cash and cash equivalents

   5      589,886        592.253  

Other current financial assets

   23      3,504        5.201  

Other current non-financial assets

   25      129,837        144.915  

Trade and other current receivables

   23      814,412        701.610  

Accounts receivable due from related companies

   13      3,488        12.505  

Current inventories

   4      868,462        852.612  

Current biological assets

   20      307,796        306.117  

Current tax assets

        49,471        104.088  

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

        2,766,856        2.719.301  

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

   22      3,507        3.059  

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

        3,507        3.059  

Total Current Assets

        2,770,363        2.722.360  

Non-Current Assets

        

Other non-current financial assets

   23      56,600        8.868  

Other non-current non-financial assets

   25      121,521        130.319  

Trade and other non-current receivables

        16,040        14.273  

Accounts receivable due from related companies, non-current

   13      1,056        957  

Investments accounted for using equity method

   15-16      368,772        446.548  

Intangible assets other than goodwill

   19      88,615        89.497  

Goodwill

   17      69,922        74.893  

Property, plant and equipment

   7      7,034,299        6.919.495  

Non-current biological assets

   20      3,459,146        3.592.874  

Deferred tax assets

        8,266        6.097  

Total Non-Current Assets

        11,224,237        11.283.821  

Total Assets

        13,994,600        14.006.181  
     

 

 

    

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

 

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

Equity and Liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      500,344       697.452  

Trade and other current payables

   23      717,346       537.891  

Accounts payable to related companies

   13      11,208       3.831  

Other current provisions

   18      2,728       842  

Current tax liabilities

        8,088       1.641  

Current provisions for employee benefits

   10      5,730       5.244  

Other current non-financial liabilities

   25      153,950       99.163  

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

        1,399,394       1.346.064  

Total Current Liabilities

        1,399,394       1.346.064  

Non-Current Liabilities

       

Other non-current financial liabilities

   23      3,778,567       3.870.914  

Other non-current provisions

   18      36,008       38.138  

Deferred tax liabilities

   6      1,485,365       1.631.065  

Non-current provisions for employee benefits

   10      66,033       60.084  

Other non-current non-financial liabilities

   25      112,340       60.633  

Total Non-Current Liabilities

        5,478,313       5.660.834  

Total Liabilities

        6,877,707       7.006.898  

Equity

       

Issued capital

        353,618       353.618  

Retained earnings

        7,425,133       7.329.675  

Other reserves

        (703,778     (728.042

Equity attributable to parent company

        7,074,973       6.955.251  

Non-controlling interests

        41,920       44.032  

Total Equity

        7,116,893       6.999.283  

Total Equity and Liabilities

        13,994,600       14.006.181  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

          For the years ended December 31,  
          2017     2016  
     Note    ThU.S.$     ThU.S.$  

Statements of profit or loss

       

Revenue

   9      5,238,341       4,761,385  

Cost of sales

   3      (3,574,532     (3,498,905

Gross profit

        1,663,809       1,262,480  

Other income

   3      111,513       257,863  

Distribution costs

   3      (523,300     (496,473

Administrative expenses

   3      (521,294     (474,469

Other expense

   3      (240,165     (77,415

Profit from operating activities

        490,563       471,986  

Finance income

   3      19,640       29,701  

Finance costs

   3      (287,958     (258,467

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

   15      17,017       23,939  

Exchange rate differences

        98       (3,935

Profit before income tax

        239,360       263,224  

Income Tax

   6      30,992       (45,647

Net Profit

        270,352       217,577  
     

 

 

   

 

 

 

Net profit attributable to

       

Net profit attributable to parent company

        269,724       213,801  

Net profit attributable to non-controlling interests

        628       3,776  

Net Profit

        270,352       217,577  
     

 

 

   

 

 

 

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

       

Basic earnings per share from continuing operations

        2.3836       1.8894  
     

 

 

   

 

 

 

Basic earnings per share

        2.3836       1.8894  
     

 

 

   

 

 

 

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

       

Earnings per diluted share from continuing operations

        —         —    
     

 

 

   

 

 

 

Earnings per diluted share

        —         —    
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

          For the years ended December 31,  
     Note    2017
ThU.S.$
    2016
ThU.S.$
 

Net profit

        270,352       217,577  

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

       

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

        2,499       (5,593

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

        8,754       132  

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

        11,253       (5,461

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      11,873       173,754  

Other Comprehensive Income before tax exchange differences on translation

        11,873       173,754  

Cash flow hedges

       

Gains (losses) on cash flow hedges, before tax

   23      22,212       84,045  

Recycle of cash flow hedges to profit or loss before tax

   23      (16,965     (10,198

Other Comprehensive Income before tax Cash flow hedges

        5,247       73,847  

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

        17,120       247,601  

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

       

Income tax relating to actuarial losses on defined benefit plans

        (673     1,509  

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

        (2,086     (106

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

       

Income tax relating to cash flow hedges

   23      (5,917     (20,055

Income tax relating to recycle of cash flow hedges

   23      4,326       2,700  

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

        (1,591     (17,355

Other comprehensive (loss) income

        24,023       226,188  

Comprehensive (loss) income

        294,375       443,765  
     

 

 

   

 

 

 

Comprehensive Income attributable to

       

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

        293,988       435,119  

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

        387       8,646  

Total comprehensive (loss) income

        294,375       443,765  
     

 

 

   

 

 

 

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

 

10


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

12-31-2017

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

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

Opening balance at 01-01-2017

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

Changes in Equity:

                     

Comprehensive income

                     

Net profit

                  269,724       269,724       628       270.352  

Other comprehensive income, net of tax

        12,114       3,656       1,826       6,668       24,264         24,264       (241     24.023  

Comprehensive income

     —          12,114       3,656       1,826       6,668       24,264       269,724       293,988       387       294.375  

Dividends

                  (174,266     (174,266     (2,483     (176.749

Increase (decrease) from transfers and other changes

                  —         —         (16     (16

Changes in equity

     —          12,114       3,656       1,826       6,668       24,264       95,458       119,722       (2,112     117.610  

Closing balance at 12-31-2017

     353,618        (691,772     4,752       (18,926     2,168       (703,778     7,425,133       7,074,973       41,920       7,116,893  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

12-31-2016

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

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

Opening balance at 01-01-2016

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

Changes in Equity:

                     

Comprehensive income

                     

Net profit

                  213,801       213,801       3.776       217.577  

Other comprehensive income, net of tax

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

Comprehensive income

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

Dividends

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

Increase (decrease) from transfers and other changes

                  —         —         (99     (99

Changes in equity

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

Closing balance at 12-31-2016

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

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the years ended December 31,  
     2017
ThU.S.$
    2016
ThU.S.$
 

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     5,508,705       5,020,551  

Other cash receipts from operating activities

     365,238       470,765  

Classes of cash payments

    

Payments to suppliers for goods and services

     (3,850,367     (3,914,976

Payments to and on behalf of employees

     (532,223     (320,738

Other cash payments from operating activities

     (128,314     (232,271

Interest paid

     (261,186     (191,573

Interest received

     18,966       29,380  

Income taxes paid

     (37,942     (83,903

Other inflows (outflows) of cash, net

     (10,452     (3,651

Net Cash flows from Operating Activities

     1,072,425       773,584  
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Cash flow used in obtaining control of subsidiaries or other businesses

     (15,918     —    

Cash used for contributions and purchase of associates and joint ventures

     —         (153,135

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

     1       6,781  

Loans to related parties

     —         —    

Proceeds from sale of property, plant and equipment

     6,308       17,685  

Purchase of property, plant and equipment

     (448,314     (356,153

Proceeds from sales of intangible assets

     —         —    

Purchase of intangible assets

     (10,468     (14,858

Proceeds from sales of other long-term assets

     2,609       1,644  

Purchase of other non-current assets

     (179,184     (140,707

Dividends received

     7,287       4,772  

Other inflows (outflows) of cash, net

     4,331       (6,241

Cash flows used in Investing Activities

     (633,348     (640,212
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total borrowings obtained

     1,312,481       737,653  

Debt obtained in long-term

     1,025,096       187,845  

Debt obtained in short-term

     287,385       549,808  

Repayments of borrowings

     (1,627,711     (645,211

Dividends paid

     (121,586     (130,624

Other outflows of cash, net

     (2,285     (302

Cash flows used in Financing Activities

     (439,101     (38,484
  

 

 

   

 

 

 

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

     (24     94,888  

Effect of exchange rate changes on cash and cash equivalents

     (2,343     (2,660
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     (2,367     92,228  

Cash and cash equivalents, at the beginning of the period

     592,253       500,025  

Cash and cash equivalents, at the end of the period

     589,886       592,253  
  

 

 

   

 

 

 

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

NOTE 1. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

Entity Information

Celulosa Arauco y Constitución S.A. and subsidiaries, (hereafter “Arauco” or the “Company”), tax identification number 93,458,000-1, is a closely held corporation, that was registered in the Securities Registry (the “Registry”) of the Superintendency of Securities and Insurance (current Chilean Commission for the Financial Market (“CMF”)) as No. 042 on June 14, 1982. Additionally, the Company is registered as a non-accelerated filer in the Securities and Exchange Commission (SEC) of the United States of America.

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

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

Arauco is principally engaged in the production and sale of products related to the forestry and timber industries. Its main operations are focused on business areas of pulp, timber and forestry.

Arauco is controlled by Empresas Copec S.A., which owns 99.9780% of Arauco, and is registered in the Securities Registry as No. 0028. Each of the above mentioned companies is subject to the oversight of the CMF.

The ultimate shareholders of Arauco are Mrs. Maria Noseda Zambra de Angelini, Mr. Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi, who have control fundamentally as follows:

 

  (i) Through Inversiones Angelini y Cía. Ltda., entity wich has 63.4015% of the shares of AntarChile S.A. and

 

  (ii) Mr. Roberto Angelini Rossi through the statutory control of Inversiones Golfo Blanco Ltda., direct owner of 5.77307% of the shares of AntarChile S.A.; and Mrs. Patricia Angelini Rossi, through the statutory control of Inversiones Senda Blanca Ltda., direct owner of 4.32981% of the shares of AntarChile S.A.

Arauco’s Consolidated Financial Statements were prepared on a going concern basis.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

Presentation of Consolidated Financial Statements

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

 

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

 

    Consolidated Statements of Profit or Loss for the years ended December 31, 2017 and 2016.

 

    Consolidated Statements of Comprehensive Income for the years ended December 31, 2017 and 2016.

 

    Consolidated Statements of Changes in Equity for the years ended December 31, 2017 and 2016.

 

    Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016.

 

    Explanatory disclosures (notes)

Period Covered by the Consolidated Financial Statements

Periods ended December 31, 2017 and 2016.

Date of Approval of Consolidated Financial Statements

These consolidated financial statements were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Meeting No. 584 on April 19, 2018.

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.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

Summary of significant accounting policies

 

a) Basis for preparation of consolidated financial statements

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

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

 

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 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.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

-Goodwill

Goodwill represents the excess of the acquisition cost over the fair value of the Group’s holding in the identifiable net assets of the acquired subsidiary at the date of acquisition. The aforementioned fair value is determined whether based on assessments and/or the discounted future flow method using hypotheses in their determination, such as sales prices and industry indexes, among others. See Note 17.

-Litigation and Contingencies

Arauco and its subsidiaries are subject to certain litigation proceedings. Future impact on Arauco’s financial condition derived from such litigations is estimated by management, in collaboration with its legal advisors. Arauco applies judgment when interpreting the reports of its legal advisors who provide updated estimates of the legal contingencies at each reporting period and/or at each time a modification is determined to be necessary. For a description of current litigations see Note 18.

 

c) Consolidation

The 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

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

If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for transactions and other events in similar circumstances, appropriate adjustments are made to the consolidated financial statements of subsidiaries in order to ensure compliance with Arauco’s accounting policies.

All intercompany transactions and unrealized gains and losses from subsidiaries have been fully eliminated from consolidated financial statements and non-controlling interest is presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent company.

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

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

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

 

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.

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

e) Functional currency

 

(i) Functional currency

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

 

(ii) Translation to the presentation currency of Arauco

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

 

(iii) Foreign Currency Transactions

Transactions in currencies other than the functional currency are recognized at the exchange rates prevailing at the dates of the transactions. Profit or loss on transactions in currencies other than the functional currency resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

Derivative financial instruments are explained in Note 1 h)

Financial liabilities

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

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

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

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

 

h) Derivative financial instruments

(i) Derivative Financial Instruments - The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, interest rate swaps, currency swaps and zero cost collar contracts. The Company’s policy is to enter into derivatives contracts only for economic hedging purposes and there no instruments with speculation objectives.

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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

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

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

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

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

 

i) Inventories

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

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

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

Biological assets are transferred to inventories when forests are harvested.

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

 

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AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

When market conditions result in the production costs of a product exceeding its net realizable value, the inventories are written-down to their net realizable value. This write-down also includes obsolescence amounts resulting from slow moving inventories and technical obsolescence.

Spare parts that will be consumed in a period of less than twelve months are presented in inventories and recognized as an expense when they are consumed.

 

j) Non-current assets held for sale

The Group classifies certain property, plant and equipment, intangible assets, investments in associates and disposal groups (groups of assets to be sold together with their directly associated liabilities) as non-current assets held for sale which as of the date of the 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 consolidated statement of financial position within equity, separately from the equity of the owners of the parent company.

 

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Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

Changes in the ownership interest of a parent in its subsidiary that do not result in a loss of control are treated as equity transactions. Any difference between the amount by which non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the parent company. No adjustment is made to the carrying amount of goodwill, neither gains nor losses are recognized in the statement of profit or loss.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may initially be measured either at fair value or at the present ownership instruments’ proportionate share of non-controlling interests, in the recognized amounts of the 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 business combination achieved in stage (“step acquisition”), recognizing the effects of remeasurement of previously held equity in the acquiree in the statements of profit or loss.

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 statement 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).

 

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Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

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

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

 

m) Intangible assets other than goodwill

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

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

 

(i) Computer Software

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

 

(ii) Water Rights, Easements and Other Rights

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

 

(iii) Customers and trade relations with customers

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

 

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Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

n) Goodwill

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquired company, and the fair value of the acquirer’s previously held equity interest in the acquired company (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the statements of profit or loss.

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

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For purposes of impairment testing, goodwill in a business combination is allocated as of the acquisition date to the cash generating unit or a group of cash generating units expected to benefit from the synergies of the combination irrespective of whether other assets or liabilities of the acquired company are allocated to those units or group of units.

The goodwill generated on acquisitions of foreign companies, is expressed in the functional currency of such foreign company.

Goodwill recognized for the acquisition of the subsidiary Arauco do Brasil S.A. whose functional currency is the Brazilian Real, is translated into U.S. Dollars at the closing exchange rate.

 

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Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

o) Property, Plant and Equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment. The cost includes expenditures that are directly attributable to the acquisition of the assets.

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

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

Depreciation is calculated by components using the straight-line method.

The useful lives of the items of property, plant and equipment is estimated according to the expected use of the assets. The residual values and useful lives of assets are reviewed and adjusted, if appropriate, annually.

 

p) Leases

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

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

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

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

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

 

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Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

q) Biological Assets

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

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

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

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

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

 

r) Income taxes and deferred taxes.

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

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

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

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

 

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Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

s) Provisions

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

 

t) Revenue recognition

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

 

(i) Revenue recognition from the Sale of Goods

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

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

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

The main Incoterms used by Arauco are the following:

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

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

 

(ii) Revenue recognition from Rendering of Services

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

 

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Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

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

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

Revenues from 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 consolidated financial statements.

 

u) Minimum dividend

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

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

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

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

 

v) Earning per share

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

 

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Unaudited Consolidated Financial Statements

December 31, 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.

Financial Assets

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

 

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Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

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

x) Employee Benefits

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

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

The main factors considered for calculating the actuarial value of severance obligation for years of service are employee turnover, salary increases and life expectancy of the workers included in this benefit.

Actuarial gains and losses are recognized in other comprehensive income in the year they are incurred.

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

y) Employee Vacations

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

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

 

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Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

z) Recent accounting pronouncements

 

  a) Standards, interpretations and amendments that are mandatory for the first time for annual periods beginning on January 1, 2017:

 

Amendments and

   improvements   

  

Content

  

Mandatory application

for annual periods

  beginning on or after  

IAS 7   

Statements 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 12   

Disclosure of Interests in Other Entities.

Clarifies the scope of this rule.

   January 1, 2017

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

 

  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

Supersedes IAS 39. This final version includes requirements for the classification and measurement of financial assets and liabilities and introduces an ‘expected credit loss’ model for the measurement of the impairment. Hedge accounting part was included in IFRS 9 published at November 2013.

   January 1, 2018
IFRS 15   

Revenue from Contracts with Customers

Provides a single, principles based five-step model to be applied to all contracts with customers. The principles include information related to nature, amount, opportunity and uncerntainty of the revenue and cash flows from contracts with customers.

   January 1, 2018
IFRS 16   

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
IFRS 17   

Inssurance Contracts

Supersedes IFRS 4. It changes mainly the accounting for insurance contracts and inverstments contracts.

   January 1, 2021

 

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December 31, 2017

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

 

 

Amendments and

   improvements   

  

Content

  

Mandatory application

for annual periods

  beginning on or after  

IFRS 1   

First-time Adoption of International Financial Reporting Standards

Deletes the short-term exemptions for first time adopters regarding to IFRS 7, IAS 9 and IFRS 10.

   January 1, 2018
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
IAS 28   

Investments in associates and joint ventures

Measurement of the investments in associates and joint ventures at fair value.

   January 1, 2018
IAS 28   

Investments in associates and joint ventures

It clarifies that an entity applies IFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.

   January 1, 2019
IFRS 9   

Financial instruments

Allows assets to be measured at amortised cost.

   January 1, 2019
IFRS 3   

Business Combinations

Clarifies that when an entity obtains control of a business that is a joint operation, it is a business combination achieve by steps.

   January 1, 2019
IFRS 11   

Joint Arrangements

Clarifies that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business.

   January 1, 2019
IAS 12   

Income taxes

Clarifies the income tax consequences of dividends from financial instruments at amortized cost should be recognized according to the past transactions or events that generated distributable profits.

   January 1, 2019
IAS 23   

Borrowing Costs

Clarifies that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the general borrowings.

   January 1, 2019

 

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Unaudited Consolidated Financial Statements

December 31, 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 standard 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.

IFRS 15 – Revenue from Contracts with Customers.

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

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

The main contracts with clients do not include additional separate performance obligations that would substantially change the 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 standard will result in recognizing practically all leases in the balance sheet, because the distinction between operational and financial leases was eliminated. Under the new standard 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 standard. This standard will be in full force and effect as of January 1, 2019.

The group’s main assets are held under financial leases by Arauco and its affiliates, and therefore we do not expect that the new standard will have a significant impact on the financial statements. However, the group has yet to evaluate which other adjustments, if any, would be necessary due to changes in the definition of the term of the lease and the various treatments of variable rent payments and extension and termination options. Therefore, it is not yet possible to estimate the value of the right to use the assets and liabilities under leases that will be recognized upon the implementation of the new standard, or how this could affect the group’s earnings or losses and the classification of future cash flows.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

NOTE 2. 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 consolidated financial statements the share capital of Arauco is ThU.S.$353,618.

100% of Capital corresponds to ordinary shares

 

     12-31-2017    12-31-2016

Description of Ordinary Capital Share Types

   100% of Capital corresponds to
ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

   113,159,655

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$0.0031210 per share

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

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

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

   113,159,655

 

b) Dividends paid

The interim dividend paid in December 2017 was equivalent to 20% of the distributable net profit calculated as of the end of September 2017 and was considered a decrease in the statements of changes in equity.

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

The ThU.S.$174,266 (ThU.S.$ 88,578 as of December 31, 2016) presented in the statements of changes in equity correspond to the minimum dividend provision recorded for the period 2017.

In the Statements of Cash Flow in the line item “Dividends Paid” an amount of ThU.S.$121,586 is presented for the year ended December 31, 2017 (ThU.S.$130,624 for the year ended December 31, 2016), of which ThU.S.$119,499 (ThU.S.$ 128,793 for the year ended December 31, 2016) correspond to the payment of dividends of the parent company.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

   12-20-2017

Amount of Dividend

   ThU.S.$60,494

Number of Shares for which Dividends are Paid

   113,159,655

Dividend per Share

   U.S.$0.53459

 

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

   05-10-2017

Amount of Dividend

   ThU.S.$59,005

Number of Shares for which Dividends are Paid

   113,159,655

Dividend per Share

   U.S.$0.52143

 

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid

     Interim Dividend  

Type of Shares for which there is a Dividend Paid

     Ordinary Shares  

Date of Dividend Paid

     12-14-2016  

Amount of Dividend

     ThU.S.$29,572  

Number of Shares for which Dividends are Paid

     113,159,655  

Dividend per Share

     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

   U.S.$0.87683

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

c) Disclosure of Information on Reserves

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

Reserves of exchange differences on translation

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

Reserves of cash flow hedges

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

Reserve of Actuarial Losses in Defined Benefit Plans

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

Other reserves

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

Other items in the Statements of Profit or Loss

The table below sets forth other income, other expenses, finance income, finance costs and share of profit (loss) of associates and joint ventures for the years ended December 31, 2017 and 2016 are as follows:

 

     January - December  
     2017
ThU.S.$
     2016
ThU.S.$
 

Classes of Other Income

     

Other Income, Total

     111,513        257,863  

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

     83,031        208,562  

Net income from insurance compensation

     1,305        3,222  

Revenue from export promotion

     3,542        2,350  

Lease income

     3,061        4,687  

Gain on sales of assets

     13,444        17,485  

Gain on business combination achieved in stages

     —          —    

Access easement

     565        3,756  

Recovery of tax credits

     —          2,033  

Other operating results (*)

     6,565        15,768  

Classes of Other Expenses by activity

     

Total of Other Expenses by activity

     (240,165      (77,415

Depreciation

     (1,880      (562

Legal expenses

     (3,882      (5,087

Impairment provision for property, plant and equipment and others

     (33,240      (14,979

Operating expenses related to plants stoppage

     (5,861      (3,926

Expenses related to projects

     (2,139      (1,620

Loss of asset sales

     (4,691      (2,283

Loss and repair of assets

     (3,739      (1,307

Loss of forest due to fires (**)

     (138,139      (15,193

Other Taxes

     (17,463      (8,261

Research and development expenses

     (2,594      (2,684

Fines, readjustments and interests

     (3,675      (1,004

Loss on disposal of associates

     —          (10,369

Others rentals no operational

     (1,877      —    

Other expenses

     (20,985      (10,140

Classes of financing income

     

Financing income, total

     19,640        29,701  

Financial income from mutual funds - term deposits

     11,023        11,439  

Financial income resulting from swap - forward instruments

     3,602        7,226  

Financial income resulting from loans with related companies

     —          —    

Other financial income

     5,015        11,036  

Classes of financing costs

     

Financing costs, Total

     (287,958      (258,467

Interest expense, Banks loans

     (31,014      (33,224

Interest expense, Bonds

     (223,602      (183,203

Interest expense, other financial instruments

     (15,706      (17,221

Other financial costs

     (17,636      (24,819

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

     

Total

     17,017        23,939  

Investments in associates

     4,855        16,348  

Joint ventures

     12,162        7,591  

 

(*) ”Other operating results” includes income from interests, extraction of sand and gravel from wharfage and indemnities, among others.
(**) Loss of forest due to fires are presented net of ThU.S.$35,000 from insurance compensation as of December 2017.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

 

     January - December  

Cost of sales

   2017
ThU.S.$
     2016
ThU.S.$
 

Timber

     725,114        736,399  

Forestry labor costs

     631,276        600,320  

Depreciation and amortization

     389,847        377,983  

Maintenance costs

     262,764        313,500  

Chemical costs

     517,478        479,335  

Sawmill Services

     109,776        117,340  

Other Raw Materials

     188,874        221,950  

Other Indirect costs

     178,447        143,074  

Energy and fuel

     186,041        139,527  

Cost of electricity

     42,008        39,960  

Wage and salaries

     342,907        329,517  

Total

     3,574,532        3,498,905  
  

 

 

    

 

 

 
     January - December  

Distribution cost

   2017
ThU.S.$
     2016
ThU.S.$
 

Selling costs

     39,175        33,557  

Commissions

     14,880        13,880  

Insurance

     3,620        3,216  

Provision for doubtful accounts

     (245      910  

Other selling costs

     20,920        15,551  

Shipping and freight costs

     484,125        462,916  

Port services

     30,996        28,028  

Freights

     384,523        357,442  

Other shipping and freight costs

     68,606        77,446  

Total

     523,300        496,473  
  

 

 

    

 

 

 
     January - December  

Administrative expenses

   2017
ThU.S.$
     2016
ThU.S.$
 

Wages and salaries

     218,720        198,042  

Marketing, advertising, promotion and publications expenses

     10,046        9,937  

Insurances

     17,122        21,526  

Depreciation and amortization

     28,210        29,285  

Computer services

     27,193        27,735  

Lease rentals (offices, other property and vehicles)

     14,195        13,391  

Donations, contributions, scholarships

     12,772        10,396  

Fees (legal and technical advisors)

     43,107        43,809  

Property taxes, city permits and rights

     17,281        15,962  

Cleaning services, security services and transportation

     25,153        26,975  

Third-party variable services (maneuvers, logistics)

     46,097        40,277  

Basic services

     8,423        8,653  

Maintenance and repair

     5,579        7,617  

Seminars, courses, training materials

     2,526        3,560  

Other administration expenses

     44,870        17,304  

Total

     521,294        474,469  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

NOTE 4. INVENTORIES

 

Components of Inventory

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

Raw materials

     103,049        61,252  

Production supplies

     98,548        102,760  

Work in progress

     56,194        59,332  

Finished goods

     441,726        468,544  

Spare Parts

     168,945        160,724  

Total Inventories

     868,462        852,612  
  

 

 

    

 

 

 

Inventories recognized as cost of sales at December 31, 2017 were ThU.S.$3,511,871 (ThU.S.$3,423,439 at December 31, 2016).    

In order to have the inventories recorded at net realizable value at December 31, 2017, a net decrease of inventories was recognized associated with a higher provision of obsolescence of ThU.S.$1,264 (ThU.S.$8,397 at December 31, 2016). As of December 31, 2017, the amount of obsolescence provision is ThU.S.$28,684 (ThU.S.$27,420 at December 31, 2016).

At December 31, 2017, there were inventory write-offs of ThU.S.$1,427 (ThU.S.$1,332 at December 31, 2016)

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

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

Agricultural Products

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

NOTE 5. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, bank checking account balances, time deposits 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 is to maximize the amounts of cash surpluses in the short-term. These instruments are permitted under Arauco’s Investment Policy which allows investing in fixed income securities. These instruments have a maturity of less than three months from the date of acquisition.

Arauco invests in local and international mutual funds in order to maximize the returns of cash surpluses denominated in Chilean Pesos or in foreign currencies such as U.S. Dollars or Euros. These instruments are permitted under Arauco’s Investment Policy.

As of the date of these consolidated financial statements, there are no amounts of cash and cash equivalents with restrictions on use.

 

Components of Cash and Cash Equivalents

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

Cash on hand

     148        3,156  

Bank checking account balances

     209,037        146,290  

Time deposits

     292,105        247,391  

Mutual funds

     73,170        195,416  

Other cash and cash equivalents (*)

     15,426        —    

Total

     589,886        592,253  
  

 

 

    

 

 

 

 

(*) Applies to purchase contracts resale commitments.

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

 

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

AAAfm

     70,808        192,895  

AAfm

     2,362        2,521  

Total Mutual Funds

     73,170        195,416  
  

 

 

    

 

 

 

Changes in Financial Liabilities

 

            Cash Flow                           
     Opening balance
12-31-2016
     Borrowings
obtained
     Borrowings
Paid
    Interest paid     Accrued
interest
     Inflation adjustment     Non-cash
movements
    Closing balance
12-31-2017
 

Borrowings from banks

     914,358        421,309        (481,205     (28,141     27,894        (439     4,681       858,457  

Hedging liabilities

     87,364        —          —         —         —          —         (81,971     5,393  

Bonds and promissory notes

     3,452,658        891,172        (1,146,506     (233,045     218,326        122,324       (2,244     3,302,685  

Total

     4,454,380        1,312,481        (1,627,711     (261,186     246,220        121,885       (79,534     4,166,535  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
            Cash Flow                           
     Opening balance
12-31-2015
     Borrowings
obtained
     Borrowings
Paid
    Interest paid     Accrued
interest
     Inflation adjustment     Non-cash
movements
    Closing balance
12-31-2016
 

Borrowings from banks

     997,542        550,226        (645,211     (27,692     27,471        9       12,013       914,358  

Hedging liabilities

     227,568        —          —         —         —          —         (140,204     87,364  

Bonds and promissory notes

     3,180,334        187,427        —         (163,881     165,017        79,923       3,838       3,452,658  

Total

     4,405,444        737,653        (645,211     (191,573     192,488        79,932       (124,353     4,454,380  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

NOTE 6. INCOME TAXES AND DEFERRED 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 35% in the United States (federal tax).

On September 29, 2014, the Official Gazette enacted 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, 2018 and thereafter, if the Company chooses the application of the partially integrated system.

Subsequently, on February 28, 2016, the Official Gazette enacted Law No. 20,899, which introduced amendments to Law No. 20,780. Among the main amendments is the incorporation of certain limitations for applying to the attributed income system, and therefore Arauco’s Chilean companies must apply the general rule, that is, the partially integrated system.

On December 22, 2017, a new law was enacted in the United States that amended several articles of the Income Tax Act. The most relevant amendments of this law include the reduction of the income tax rate, from 35% as to 21% by 2018 fiscal year. This amendment generated a benefit of ThU.S.$ 17,600 for Arauco’s subsidiaries in that country as of December 31, 2017, as a result of the reduction of the net deferred liabilities generated by the reduction of the federal income tax rate.

On December 29, 2017, Law No. 27,430 was enacted in the Official Gazette of Argentina, which amended several articles of the Income Tax Act. The most relevant amendments include the reduction of the federal income tax rate from 35%to 30% by 2018 and 2019 fiscal years, and 25% by 2020. This amendment generated a benefit of ThU.S$ 62,677 for Arauco’s subsidiaries in that country as of December 31, 2017, as a result of the reduction of the net deferred liabilities generated by the reduction of the federal income tax rate.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

Deferred Tax Assets

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

 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     7,433        5,771  

Deferred tax Assets relating to Accrued Liabilities

     11,267        11,716  

Deferred tax Assets relating to Post-Employment benefits

     19,276        17,618  

Deferred tax Assets relating to Property, Plant and equipment

     11,657        9,806  

Deferred tax Assets relating to Financial Instruments

     4,348        12,699  

Deferred tax Assets relating to Tax Loss Carryforward

     62,706        50,917  

Deferred tax Assets relating to Inventories

     5,941        7,158  

Deferred tax Assets relating to Provisions for Income

     21,354        7,069  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     5,149        4,886  

Intangible revaluation differences

     10,389        10  

Deferred tax Assets relating to Other Deductible Temporary Differences

     27,364        22,985  

Total Deferred Tax Assets

     186,884        157,866  
  

 

 

    

 

 

 

Offsetting presentation

     (178,618      (151,769
  

 

 

    

 

 

 

Net Effect

     8,266        6,097  
  

 

 

    

 

 

 

Certain subsidiaries of Arauco mainly in Chile, Brazil and Uruguay, as of the date of these consolidated financial statements, present tax losses for which we estimate that, given the projection of future profits, will allow the recovery of these assets. The total amount of these tax losses is ThU.S.$216,397 (ThU.S.$178,064 at December 31, 2016), which are mainly originated by operational and financial losses.

In addition, as of the closing of these consolidated financial statements there are ThU.S.$167,862 (ThU.S.$176,280 at December 31, 2016) of non-recoverable tax losses from companies in Uruguay as joint operations based on the participation of Arauco and subsidiaries in USA, 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:

 

     12-31-2017      12-31-2016  

Deferred Tax Liabilities

   ThU.S.$      ThU.S.$  

Deferred tax Liabilities relating to Property, Plant and Equipment

     860,498        934,892  

Deferred tax Liabilities relating to Financial Instruments

     12,684        7,186  

Deferred tax Liabilities relating to Biological Assets

     676,876        719,577  

Deferred tax Liabilities relating to Inventory

     32,580        31,072  

Deferred tax Liabilities relating to Prepaid Expenses

     41,600        42,881  

Deferred tax Liabilities relating to Intangible

     22,014        27,222  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     17,731        20,004  

Total Deferred Tax Liabilities

     1,663,983        1,782,834  
  

 

 

    

 

 

 

Offsetting presentation

     (178,618      (151,769
  

 

 

    

 

 

 

Net Effect

     1,485,365        1,631,065  
  

 

 

    

 

 

 

The effect of changes in current and deferred tax liabilities related to financial hedging instruments corresponds to a credit of ThU.S.$1,591 for the year ended December 31, 2017 (compared to a credit of ThU.S.$17,355 for the year ended December 31, 2016), which is presented in net in Reserves for Cash Flow Hedges in the Consolidated Statement of changes in Equity.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

Reconciliation of deferred tax assets and liabilities

 

     Opening
Balance
01-01-2017
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
through
Business
Combination
     Increase
(decrease)
Net
exchange
differences
    Closing
balance
12-31-2017
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     5,771        931       —         726        5       7,433  

Deferred tax Assets relating to Accrued Liabilities

     11,716        (405     —         —          (44     11,267  

Deferred tax Assets relating to Post-Employment benefits

     17,618        2,286       (673     —          45       19,276  

Deferred tax Assets relating to Property, Plant and equipment

     9,806        1,850       —         —          1       11,657  

Deferred tax Assets relating to Financial Instruments

     12,699        1,414       (9,764     —          (1     4,348  

Deferred tax Assets relating to Tax Loss Carryforward

     50,917        7,271       —         6,093        (1,575     62,706  

Deferred tax Assets relating to Inventories

     7,158        (1,435     —         221        (3     5,941  

Deferred tax Assets relating to Provisions for Income

     7,069        (3,697     —         —          —         3,372  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     4,886        (854     —         1,133        (16     5,149  

Intangible revaluation differences

     10        (954     —         11,333        —         10,389  

Deferred tax Assets relating to Other Deductible Temporary Differences

     30,216        6,943       —         9,134        (948     45,345  

Total Deferred Tax Assets

     157,866        13,350       (10,437     28,640        (2,536     186,883  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     Opening
Balance
01-01-2017
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
through
Business
Combination
     Increase
(decrease)
Net
exchange
differences
    Closing
balance
12-31-2017
 

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        (82,445     —         9,735        (1,684     860,498  

Deferred tax Liabilities relating to Financial Instruments

     7,186        5,497       —         —          1       12,684  

Deferred tax Liabilities relating to Biological Assets

     719,577        (79,947     —         37,246        (751     676,876  

Deferred tax Liabilities relating to Inventory

     31,072        1,508       —         —          —         32,580  

Deferred tax Liabilities relating to Prepaid Expenses

     42,881        (1,281     —         —          —         41,600  

Deferred tax Liabilities relating to Intangible

     27,222        (4,880     —         —          (328     22,014  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     20,004        (6,730     —         4,467        (10     17,731  

Total Deferred Tax Liabilities

     1,782,834        (168,278     —         52,199        (2,772     1,663,983  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

     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 Consolidated Financial Statements

December 31, 2017

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     12-31-2017      12-31-2016  

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

     124,178           106,949     

Deferred Tax Assets - Tax loss carryforward

     62,706           50,917     

Deferred Tax Liabilities

        1,663,983           1,782,834  

Total

     186,884        1,663,983        157,866        1,782,834  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - December  

Detail of Temporary Difference Income and Loss Amounts

   2017
ThU.S.$
     2016
ThU.S.$
 

Deferred Tax Assets

     6,079        9,093  

Deferred Tax Assets - Tax loss carryforward

     7,270        11,498  

Deferred Tax Liabilities

     168,279        (3,868

Total

     181,628        16,723  
  

 

 

    

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - December  

Income Tax composition

   2017
ThU.S.$
     2016
ThU.S.$
 

Current income tax expense

     (155,292      (58,831

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

     3,018        —    

Prior period current income tax adjustments

     (227      (6,899

Other current benefit tax (expenses)

     1,865        3,360  

Current Tax Expense, Net

     (150,636      (62,370

Deferred tax expense relating to origination and reversal of temporary differences

     174,358        5,225  

Tax benefit arising from previously unrecognized tax loss carryforward

     7,270        11,498  

Total deferred Tax Expense, Net

     181,628        16,723  

Income Tax Expense, Total

     30,992        (45,647
  

 

 

    

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

The following table presents the current income tax expense detailed by foreign and domestic (Chile) companies at December 31, 2017 and 2016:

 

     January - December  
     2017
ThU.S.$
     2016
ThU.S.$
 

Foreign current income tax expense

     (28,071      (27,931

Domestic current income tax expense

     (122,565      (34,439

Total current income tax expense

     (150,636      (62,370

Foreign deferred tax expense

     94,228        7,794  

Domestic deferred tax expense

     87,400        8,929  

Total deferred tax expense

     181,628        16,723  

Total tax expense

     30,992        (45,647
  

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - December  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   2017
ThU.S.$
    2016
ThU.S.$
 

Statutory domestic (Chile) income tax rate

     25.5     24.0

Tax Expense at statutory tax rate

     (61,037     (63,174

Tax effect of foreign tax rates

     (7,118     (13,368

Tax effect of revenues exempt from taxation

     40,133       33,834  

Tax effect of not deductible expenses

     (37,713     (10,987

Tax rate effect of tax loss carry forwards

     (44     —    

Tax effect of Previously Unrecognized Tax Benefit in the Statements of Profit or Loss

     195       —    

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

     5,311       17,157  

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

     78,946       (3,681

Tax rate effect of adjustments for current tax of prior periods

     (227     (6,899

Other tax rate effects

     12,546       1,471  

Total adjustments to tax expense at applicable tax rate

     92,029       17,527  

Tax expense at effective tax rate

     30,992       (45,647
  

 

 

   

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     12-31-2017      12-31-2016  

Property, Plant and Equipment, Net

   ThU.S.$      ThU.S.$  

Construction work in progress

     597,351        321,031  

Land

     1,008,310        991,450  

Buildings

     2,135,201        2,169,731  

Plant and equipment

     3,112,755        3,256,348  

Information technology equipment

     22,665        24,154  

Fixtures and fittings

     12,297        9,880  

Motor vehicles

     15,959        16,858  

Other property, plant and equipment

     129,761        130,043  

Total Net

     7,034,299        6,919,495  
  

 

 

    

 

 

 

Property, Plant and Equipment, Gross

     

Construction work in progress

     597,351        321,031  

Land

     1,008,310        991,450  

Buildings

     3,926,157        3,825,259  

Plant and equipment

     6,410,561        6,128,494  

Information technology equipment

     82,765        76,421  

Fixtures and fittings

     40,388        33,613  

Motor vehicles

     49,756        48,534  

Other property, plant and equipment

     159,720        153,838  

Total Gross

     12,275,008        11,578,640  
  

 

 

    

 

 

 

Accumulated depreciation and impairment

     

Buildings

     (1,790,956      (1,655,528

Plant and equipment

     (3,297,806      (2,872,146

Information technology equipment

     (60,100      (52,267

Fixtures and fittings

     (28,091      (23,733

Motor vehicles

     (33,797      (31,676

Other property, plant and equipment

     (29,959      (23,795

Total

     (5,240,709      (4,659,145
  

 

 

    

 

 

 

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

 

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

Amount committed for the acquisition of property, plant and equipment

     112,924        122,757  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

Reconciliation of Property, Plant and Equipment

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

 

Movement of Property, Plant and Equipment

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

Opening Balance 01-01-2017

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

Changes

                  

Additions

     440,394       277       12,932       65,938       787       556       2,161       10,788       533,833  

Acquisitions through business combinations

     3,460       4,009       17,214       46,415       164       986       241       2,022       74,511  

Disposals

     —         (1,878     (48     (5,492     (26     (26     (292     (262     (8,024

Retirements

     (1,585     (75     (3,809     (3,900     (4     (29     (127     (7,211     (16,740

Depreciation

     —         —         (125,692     (311,819     (6,080     (2,268     (3,546     (5,421     (454,826

Impairment loss recognized in profit or loss

     (208     —         (769     (8,271     (5     (310     —         (338     (9,901

Increase (decrease) through net exchange differences

     290       (2,728     961       (2,394     51       (31     67       69       (3,715

Reclassification of assets held for sale

     (418     —         —         84       —         —         —         —         (334

Increase (decrease) through transfers from construction in progress

     (165,613     17,255       64,681       75,846       3,624       3,539       597       71       —    

Total changes

     276,320       16,860       (34,530     (143,593     (1,489     2,417       (899     (282     114,804  

Closing balance 12-31-2017

     597,351       1,008,310       2,135,201       3,112,755       22,665       12,297       15,959       129,761       7,034,299  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Movement of Property, Plant and Equipment

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

Opening Balance 01-01-2016

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

Changes

                  

Additions

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

Disposals

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

Retirements

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

Depreciation

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

Impairment loss recognized in profit or loss

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

Increase (decrease) through net exchange differences

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

Reclassification of assets held for sale

     —         —         —         341       —         —         —         —         341  

Increase (decrease) through transfers from construction in progress

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

Total changes

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

Closing balance 12-31-2016

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

48


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

 

     January-December  

Depreciation for the year

   2017
ThU.S.$
     2016
ThU.S.$
 

Cost of sales

     381,725        371,170  

Administrative expenses

     23,005        21,546  

Other expenses

     3,494        2,119  

Total

     408,224        394,835  
  

 

 

    

 

 

 

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 Consolidated Financial Statements

December 31, 2017

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

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

Property, Plant and Equipment under finance leases

     116,534        117,206  

Plant and equipment

     116,534        117,206  
  

 

 

    

 

 

 

Reconciliation of Financial Lease Minimum Payments:

 

     12-31-2017  

Periods

   Present Value
ThU.S.$
 

Less than one year

     44,341  

Between one and five years

     68,035  

More than five years

     —    

Total

     112,376  
  

 

 

 
  

 

 

 
     12-31-2016  

Periods

   Present Value
ThU.S.$
 

Less than one year

     40,400  

Between one and five years

     73,586  

More than five years

     —    

Total

     113,986  
  

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

Arauco acting as lessor

Reconciliation of Financial Lease Minimum Payments:

 

     12-31-2017  

Periods

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

Less than one year

     12,001        69        11,932  

Between one and five years

     1,174        —          1,174  

More than five years

     —          —          —    

Total

     13,175        69        13,106  
  

 

 

    

 

 

    

 

 

 
     12-31-2016  

Periods

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

Less than one year

     512        —          512  

Between one and five years

     353        —          353  

More than five years

     —          —          —    

Total

     865        —          865  
  

 

 

    

 

 

    

 

 

 

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

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

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

NOTE 9. REVENUE

 

     January - December  

Classes of revenue

   2017
ThU.S.$
     2016
ThU.S.$
 

Revenue from sales of goods

     5,133,339        4,649,581  

Revenue from rendering of services

     105,002        111,804  

Total

     5,238,341        4,761,385  
  

 

 

    

 

 

 

 

51


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

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

Employee expenses

     563,117       532,957  

Wages and salaries

     542,981       506,993  

Severance indemnities

     20,136       25,964  
  

 

 

   

 

 

 
     2017     2016  

Discount rate

     5.11     4.52

Inflation

     2.77     2.79

Annual rate of wage growth

     5.22     5.22

Mortality rate (1)

     RV-2014       RV-2009  

 

(1) For the purposes of determining the technical reserves, Chilean annuity providers are required by law to utilize the mortality tables specified by the SVS (currently Chilean Commission for the Financial Market). The most recent table is the RV-2014, which is based on Chilean pensioner experience from 2006-2013 (SP & SVS, 2013). The mortality tables distinguish between males and females.

 

Sensitivities to assumptions

   2017
ThU.S.$
 

Discount rate

  

Increase in 100 bps

     (5,170

Decrease in 100 bps

     6,018  

Wage growth rates

  

Increase in 100 bps

     5,590  

Decrease in 100 bps

     (5,212

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

 

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

Current

     5,730        5,244  

Non-current

     66,033        60,084  

Total

     71,763        65,328  
  

 

 

    

 

 

 

Reconciliation of the present value of severance indemnities obligations

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

Opening balance

     65,328        56,433  

Current service cost

     5,583        5,334  

Interest cost

     3,208        2,957  

(Gains) losses from changes in actuarial assumptions

     (3,711      2,083  

Actuarial gains and losses arising from experience

     1,212        3,503  

Benefits paid

     (5,654      (7,871

Increase (decrease) for foreign currency exchange rates changes

     5,792        2,889  

Closing balance

     71,763        65,328  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

 

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

Total Current Assets

     2,770,363        2,722,360  

Cash and Cash Equivalents

     589,886        592,253  

U.S Dollar

     501,352        524,426  

Euros

     4,306        2,357  

Brazilian Real

     47,314        47,696  

Argentine Pesos

     10,038        4,046  

Other currencies

     3,685        3,327  

Chilean Pesos

     23,191        10,401  

Other current financial assets

     3,504        5,201  

U.S Dollar

     3,497        4,879  

Argentine Pesos

     —          315  

Other currencies

     7        7  

Other current non-financial assets

     129,837        144,915  

U.S Dollar

     48,632        62,246  

Euros

     104        71  

Brazilian Real

     17,158        22,537  

Argentine Pesos

     5,832        12,261  

Other currencies

     5,306        3,500  

Chilean Pesos

     52,805        44,300  

Trade and other current receivables

     814,412        701,610  

U.S Dollar

     550,674        489,056  

Euros

     20,498        26,544  

Brazilian Real

     89,673        46,150  

Argentine Pesos

     26,863        15,137  

Other currencies

     17,702        16,620  

Chilean Pesos

     106,442        106,681  

U.F.

     2,560        1,422  

Accounts receivable due from related companies

     3,488        12,505  

U.S Dollar

     726        274  

Brazilian Real

     171        726  

Chilean Pesos

     2,192        10,548  

U.F.

     399        957  

Current Inventories

     868,462        852,612  

U.S Dollar

     809,689        812,748  

Brazilian Real

     58,773        39,864  

Current biological assets

     307,796        306,117  

U.S Dollar

     270,761        271,551  

Brazilian Real

     37,035        34,566  

Current tax assets

     49,471        104,088  

U.S Dollar

     7,769        6,199  

Brazilian Real

     6,721        5,798  

Argentine Pesos

     —          39  

Other currencies

     3,188        2,696  

Chilean Pesos

     31,793        89,356  

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

     3,507        3,059  

U.S Dollar

     2,835        3,059  

Brazilian Real

     672        —    

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

Total Non-Current Assets

     11,224,237        11,283,821  

Other non-current financial assets

     56,600        8,868  

U.S Dollar

     56,600        8,868  

Other non-current non-financial assets

     121,521        130,319  

U.S Dollar

     104,711        95,658  

Brazilian Real

     4,629        4,042  

Argentine Pesos

     11,303        9,900  

Other currencies

     693        636  

Chilean Pesos

     185        20,083  

Trade and other non-current receivables

     16,040        14,273  

U.S Dollar

     4,247        6,895  

Brazilian Real

     3,345        —    

Other currencies

     —          527  

Chilean Pesos

     6,692        5,753  

U.F.

     1,756        1,098  

Accounts receivable due from related companies, non-current

     1,056        957  

U.F.

     1,056        957  

Investments accounted for using equity method

     368,772        446,548  

U.S Dollar

     130,276        124,324  

Euros

     185,410        156,990  

Brazilian Real

     53,080        165,203  

Chilean Pesos

     6        31  

Intangible assets other than goodwill

     88,615        89,497  

U.S Dollar

     87,007        88,394  

Brazilian Real

     1,516        1,026  

Chilean Pesos

     92        77  

Goodwill

     69,922        74,893  

U.S Dollar

     42,656        42,508  

Brazilian Real

     27,266        32,385  

Property, plant and equipment

     7,034,299        6,919,495  

U.S Dollar

     6,443,081        6,394,105  

Brazilian Real

     585,202        520,448  

Chilean Pesos

     6,016        4,942  

Non-current biological assets

     3,459,146        3,592,874  

U.S Dollar

     2,934,819        3,185,872  

Brazilian Real

     524,327        407,002  

Deferred tax assets

     8,266        6,097  

U.S Dollar

     4,319        4,134  

Brazilian Real

     3,622        1,697  

Other currencies

     32        52  

Chilean Pesos

     293        214  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

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

Total Liabilities, current

     1,045,364        354,030        1,399,394        806,280        539,784        1,346,064  

Other current financial liabilities

     148,778        351,566        500,344        196,001        501,451        697,452  

U.S Dollar

     134,125        284,293        418,418        178,442        455,908        634,350  

Brazilian Real

     2,383        4,660        7,043        3,558        1,282        4,840  

Argentine Pesos

     —          —          —          11        29        40  

Chilean Pesos

     1,508        4,116        5,624        1,132        3,387        4,519  

U.F.

     10,762        58,497        69,259        12,858        40,845        53,703  

Bank Loans

     110,700        282,172        392,872        134,140        61,483        195,623  

U.S Dollar

     108,317        277,512        385,829        130,571        60,172        190,743  

Brazilian Real

     2,383        4,660        7,043        3,558        1,282        4,840  

Argentine Pesos

     —          —          —          11        29        40  

Financial Leases

     9,928        34,413        44,341        9,534        30,866        40,400  

Chilean Pesos

     1,508        4,116        5,624        1,132        3,387        4,519  

U.F.

     8,420        30,297        38,717        8,402        27,479        35,881  

Other Loans

     28,150        34,981        63,131        52,327        409,102        461,429  

U.S Dollar

     25,808        6,781        32,589        47,871        395,736        443,607  

U.F.

     2,342        28,200        30,542        4,456        13,366        17,822  

Trade and other current payables

     717,342        4        717,346        511,371        26,520        537,891  

U.S Dollar

     193,562        —          193,562        146,652        3,510        150,162  

Euros

     9,099        —          9,099        12,006        1,028        13,034  

Brazilian Real

     124,917        —          124,917        4,849        21,982        26,831  

Argentine Pesos

     29,243        —          29,243        31,661        —          31,661  

Other currencies

     4,936        —          4,936        12,244        —          12,244  

Chilean Pesos

     333,525        4        333,529        285,359        —          285,359  

U.F.

     22,060        —          22,060        18,600        —          18,600  

Accounts payable to related companies

     11,208        —          11,208        3,831        —          3,831  

U.S Dollar

     1,354        —          1,354        1,969        —          1,969  

Chilean Pesos

     9,854        —          9,854        1,862        —          1,862  

Other current provisions

     2,728        —          2,728        842        —          842  

U.S Dollar

     622        —          622        842        —          842  

Brazilian Real

     2,106        —          2,106        —          —          —    

Current tax liabilities

     6,361        1,727        8,088        1,641        —          1,641  

U.S Dollar

     283        —          283        448        —          448  

Euros

     158        —          158        7        —          7  

Argentine Pesos

     46        —          46        133        —          133  

Other currencies

     479        —          479        574        —          574  

Chilean Pesos

     5,395        1,727        7,122        479        —          479  

Current provisions for employee benefits

     5,595        135        5,730        5,214        30        5,244  

Chilean Pesos

     5,595        135        5,730        5,214        30        5,244  

Other current non-financial liabilities

     153,352        598        153,950        87,380        11,783        99,163  

U.S Dollar

     119,309        582        119,891        62,974        163        63,137  

Euros

     77        —          77        53        —          53  

Brazilian Real

     18,016        —          18,016        9,426        11,616        21,042  

Argentine Pesos

     3,215        —          3,215        3,474        —          3,474  

Other currencies

     3,906        —          3,906        3,202        —          3,202  

Chilean Pesos

     8,809        16        8,825        8,183        4        8,187  

U.F.

     20        —          20        68        —          68  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

     12-31-2017      12-31-2016  
     From 13
months to 5

years
ThU.S.$
     More than 5
years
ThU.S.$
     Total
ThU.S.$
     From 13
months to 5
years
ThU.S.$
     More than 5
years
ThU.S.$
     Total
ThU.S.$
 

Total non-current liabilities

     3,025,553        2,452,760        5,478,313        3,599,291        2,061,543        5,660,834  

Other non-current financial liabilities

     1,455,641        2,322,926        3,778,567        2,020,484        1,850,430        3,870,914  

U.S Dollar

     970,631        1,508,999        2,479,630        1,591,127        1,075,204        2,666,331  

Brazilian Real

     16,506        —          16,506        17,098        1,042        18,140  

Chilean Pesos

     9,839        —          9,839        11,151        —          11,151  

U.F.

     458,665        813,927        1,272,592        401,108        774,184        1,175,292  

Bank Loans

     327,424        138,161        465,585        626,384        92,351        718,735  

U.S Dollar

     310,918        138,161        449,079        609,286        91,309        700,595  

Brazilian Real

     16,506        —          16,506        17,098        1,042        18,140  

Financial Leases

     68,035        —          68,035        73,586        —          73,586  

Chilean Pesos

     9,839        —          9,839        11,151        —          11,151  

U.F.

     58,196        —          58,196        62,435        —          62,435  

Other Loans

     1,060,182        2,184,765        3,244,947        1,320,514        1,758,079        3,078,593  

U.S Dollar

     659,713        1,370,838        2,030,551        981,841        983,895        1,965,736  

U.F.

     400,469        813,927        1,214,396        338,673        774,184        1,112,857  

Other non-current provisions

     36,008        —          36,008        38,138        —          38,138  

U.S Dollar

     7        —          7        1        —          1  

Brazilian Real

     4,682        —          4,682        5,425        —          5,425  

Argentine Pesos

     31,316        —          31,316        32,712        —          32,712  

Chilean Pesos

     3        —          3        —          —          —    

Deferred tax liabilities

     1,355,531        129,834        1,485,365        1,479,596        151,469        1,631,065  

U.S Dollar

     1,247,096        129,834        1,376,930        1,412,506        131,406        1,543,912  

Brazilian Real

     108,435        —          108,435        67,090        20,063        87,153  

Non-current provisions for employee benefits

     66,033        —          66,033        60,084        —          60,084  

Other currencies

     129        —          129        144        —          144  

Chilean Pesos

     65,904        —          65,904        59,940        —          59,940  

Other non-current non-financial liabilities

     112,340        —          112,340        989        59,644        60,633  

U.S Dollar

     13        —          13        430        —          430  

Brazilian Real

     111,634        —          111,634        —          59,644        59,644  

Argentine Pesos

     480        —          480        349        —          349  

Chilean Pesos

     213        —          213        206        —          206  

U.F.

     —          —          —          4        —          4  

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

Arauco Industria de Paineis Ltda.

   Brazil    Brazilian Real

Empreendimentos Florestais Santa Cruz Ltda.

   Brazil    Brazilian Real

Mahal Empreendimentos e Participacoes S.A.

   Brazil    Brazilian Real

Investigaciones Forestales Bioforest S.A.

   Chile    Chilean Pesos

Consorcio Protección Fitosanitaria Forestal S.A.

   Chile    Chilean Pesos

Forestal Nuestra Señora del Carmen S.A.

   Argentina    Argentine Pesos

Forestal Talavera S.A.

   Argentina    Argentine Pesos

Greeneagro S.A.

   Argentina    Argentine Pesos

Leasing Forestal S.A.

   Argentina    Argentine Pesos

Savitar S.A.

   Argentina    Argentine Pesos

Flakeboard Company Limited

   Canada    Canadian Dollar
     

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

The table below shows a detail per company of the effect in the period of the Reserve of Exchange Differences on translation:

 

     January - December  
     2017      2016  
     ThU.S.$      ThU.S.$  

Arauco do Brasil S.A.

     (6,537      73,087  

Arauco Forest Brasil S.A.

     (6,929      68,314  

Arauco Florestal Arapoti S.A.

     (1,051      19,523  

Sonae Arauco S.A.

     20,547        —    

Arauco Argentina S.A.

     (752      4,989  

Flakeboard Company Limited

     6,529        2,984  

Others

     307        (13
  

 

 

    

 

 

 

Total reserve of exchange differences on translation

     12,114        168,884  
  

 

 

    

 

 

 

Effect of foreign exchange rates changes

 

     January-December  
     2017      2016  
     ThU.S.$      ThU.S.$  

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

     98        (3,935

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

     11,873        173,754  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

NOTE 12. BORROWING COSTS

Arauco estimates the average rate of borrowings to finance its current investments projects. The average rate loans to finance these investments projects were claculated to record the capitalization.

 

     January - December  
     2017     2016  
     ThU.S.$     ThU.S.$  

Property, plant and equipment capitalized cost

    

Property, plant and equipment capitalized interest cost rate

     4.91     5.11

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

     5,603       2,177  

NOTE 13. RELATED PARTIES

Related Party Disclosures

Related parties are those entities defined in IAS 24 and under the rules of the Superintendency of Securities and Insurance (current Chilean Commission for the Financial Market) and the Chilean Corporations Law.

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

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

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

Name of Group’s Main Shareholders

The ultimate shareholders of Arauco, direct and indirectly, are Mrs. Maria Noseda Zambra de Angelini, Mr. Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi.

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

Empresas Copec S.A.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2017

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

 

 

Compensation to Key Management Personnel

Compensation to key management personnel, including directors, managers and deputy managers, consist of a fixed monthly salary, and managers and deputy managers, also receive an annual bonus subject to the results of the Company and the fulfillment of goals of the business as well as individual performance.

Pricing Strategy Terms and Conditions Corresponding to Transactions with Related Parties

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

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

 

               Functional    % Ownership interest
12-31-2017
     % Ownership interest
12-31-2016
 
ID N°   

Company Name

  

Country

  

Currency

   Direct      Indirect      Total      Direct      Indirect      Total  
-   

Agenciamiento y Servicios Profesionales S.A.

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

Arauco Argentina S.A.

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

Arauco Australia Pty Ltd.

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

Arauco Bioenergía S.A.

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

Arauco Colombia S.A.

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

Arauco do Brasil S.A.

   Brazil    Brazilian Real      1.1624        98.8366        99.9990        1.1624        98.8366        99.9990  
-   

Arauco Europe Cooperatief U.A.

   Netherlands    U.S. Dollar      0.5689        99.4301        99.9990        0.4614        99.5376        99.9990  
-   

Arauco Florestal Arapoti S.A.

   Brazil    Brazilian Real      —          79.9992        79.9992        —          79.9992        79.9992  
-   

Arauco Forest Brasil S.A.

   Brazil    Brazilian Real      9.9971        90.0021        99.9992        10.1297        89.8694        99.9991  
-   

Arauco Industria de Paineis Ltda.

   Brazil    Brazilian Real      —          99.9990        99.9990        —          —          —    
-   

Arauco Middle East DMCC

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

Arauco Nutrientes Naturales SPA

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

Arauco Panels USA, LLC

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

Arauco Perú S.A.

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

Arauco Wood Products, Inc.

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

Araucomex S.A. de C.V.

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

Consorcio Protección Fitosanitaria Forestal S.A.

   Chile    Chilean Pesos      —          57.5223        57.5223        —          57.5404        57.5404  
-   

Empreendimentos Florestais Santa Cruz Ltda.

   Brazil    Brazilian Real      —          99.9795        99.9795        —          99.9789        99.9789  
-   

Fla