6-K 1 d594031d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of March, 2018

Commission File Number 33-99720

 

 

ARAUCO AND CONSTITUTION PULP INC.

(Translation of registrant’s name into English)

 

 

El Golf 150

Fourteenth Floor

Santiago, Chile

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ☐            No  ☒

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-             

 

 

 


Table of Contents

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item        Page  

1.

 

Ratio Analysis of the Interim Consolidated Financial Statements

     1  

2.

 

Unaudited Interim Consolidated Statements of Financial Position

     7  

3.

 

Unaudited Interim Consolidated Statements of Profit or Loss

     9  

4.

 

Unaudited Interim Consolidated Statements of Comprehensive Income

     10  

5.

 

Unaudited Interim Consolidated Statements of Changes in Equity

     11  

6.

 

Unaudited Interim Consolidated Statements of Cash Flow

     12  

7.

 

Unaudited Notes to the Interim Consolidated Financial Statements

     13  
 

Annex: Press Release

  


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2018

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

 

 

 

1. ANALYSIS OF FINANCIAL POSITION

 

  a) Statement of Financial Position

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

 

Assets

   03-31-2018
ThU.S.$
     12-31-2017
ThU.S.$
 

Current assets

     2,865,794        2,770,363  

Non-current assets

     11,280,281        11,224,237  
  

 

 

    

 

 

 

Total assets

     14,146,075        13,994,600  
  

 

 

    

 

 

 

Liabilities

   03-31-2018
ThU.S.$
     12-31-2017
ThU.S.$
 

Current liabilities

     1,389,494        1,399,394  

Non-current liabilities

     5,515,224        5,478,313  

Non–parent participation

     41,461        41,920  

Net equity attributable to parent company

     7,199,896        7,074,973  
  

 

 

    

 

 

 

Total net equity and liabilities

     14,146,075        13,994,600  
  

 

 

    

 

 

 

As of March 31, 2018, total assets increased MU.S.$151 compared to December 31, 2017, equivalent to a 1.08% variation. This variation was driven mainly by increases in the balance of trade and other current receivables and other non-financial assets (roads and payments to amortize current), which were partially offset by decreases in cash and cash equivalents and lower tax receivables.

In turn, total liabilities increased by MU.S.$27 mainly due to an increase in non-financial liabilities (minimum dividend) and current tax liabilities, partially offset by decreases 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

   03-31-2018      12-31-2017  

Current Liquidity (current assets / current liabilities)

     2.06        1.98  

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

     1.19        1.14  

Debt indicators

   03-31-2018      12-31-2017  

Debt to equity ratio (total liabilities / equity)

     0.95        0.97  

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

     0.20        0.20  

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

     0.80        0.80  
     03-31-2018      03-31-2017  

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

     5.83        (0.18

Activity ratio

   03-31-2018      12-31-2017  

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

     3.09        3.06  

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

     4.16        4.15  

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

     116.55        117.58  

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

     86.61        86.67  

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2018

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

 

 

As of March 31, 2018, the short-term debt represented 20% of total liabilities (20% as of December 31, 2017).

Our financial expenses coverage ratio increased from (0.18) to 5.83, mainly due to higher earnings before taxes and lower financial costs for the period ended March 31, 2018, compared to the same period of 2017.

 

  b) Statement of profit or loss

Income before income tax

Income before income tax registered a profit of approximately MU.S.$250 compared to a loss of approximately MU.S.$71 in the same period of 2017. The positive variation of MU.S.$320 is explained by the factors described in the following table:

 

Item

   MU.S.$  

Gross margin

     181  

Distribution and Administrative Expenses

     (29

Other income and expenses (*)

     165  

Others

     3  
  

 

 

 

Net change in income before income tax

     320  
  

 

 

 

 

(*) Includes MU.S.$178 of Loss of forest due to fires.

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

 

Revenues

   03-31-2018
ThU.S.$
     03-31-2017
ThU.S.$
 

Pulp

     732,860        563,604  

Timber

     692,689        640,015  

Forestry

     30,024        19,635  

Other

     9,081        10,482  
  

 

 

    

 

 

 

Total revenues

     1,464,654        1,233,736  
  

 

 

    

 

 

 

Sales costs

   03-31-2018
ThU.S.$
     03-31-2017
ThU.S.$
 

Wood

     167,656        186,765  

Forestry work

     174,502        149,638  

Depreciation and amortization

     95,023        95,626  

Other costs

     484,410        439,590  
  

 

 

    

 

 

 

Total sales costs

     921,591        871,619  
  

 

 

    

 

 

 

Profitability index

   03-31-2018      12-31-2017  

Profitability on equity

     11.02        3.83  

Profitability on assets

     5.62        1.93  

Return on operating assets

     8.09        4.67  

Profitability ratios

   03-31-2018      03-31-2017  

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

     1.75        (0.40

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

     197,716        (45,272

Gross margin (ThU.S.$)

     543,063        362,117  

Financial costs (ThU.S.$)

     (51,662      (59,872

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2018

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

 

 

EBITDA

   03-31-2018
MU.S.$
     03-31-2017
MU.S.$
 

Gain (loss)

     197.7        (45.3

Finance costs

     51.7        59.9  

Financial income

     (4.8      (6.4

Expenses for income tax

     51.8        (25,6

EBIT

     296.4        (17.4

Depreciation and amortization

     102.3        105.0  

EBITDA

     398.8        87.5  

Cost at fair value of the harvest

     88.3        70.5  

Gain from changes in fair value of biological assets

     (29.6      (43.3

Exchange difference

     (1.0      (1.5

Others*

     7.0        180.7  

Adjusted EBITDA

     463.5        294.0  

 

* Considers loss of forest due to fires.

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

Pulp sales during the first quarter of 2018 increased by 15.1% compared to the fourth quarter of 2017, this is mainly due to higher prices. Pulp prices during the quarter increased by 13.3% compared to last quarter, and sales volume increased by 0.7%. During this quarter demand remained stable or rising depending on the market, and the spreads in returns between markets decreased. Worldwide inventories remained at normal levels, a rise of 2 days during the quarter and a rise of 4 days over the same period of 2017.

In Asia, the Chinese New Year period that generally marks the end of the period of high demand has not been noticed, demand was active and prices were stable. This relative stability specially in short fiber, gave time to paper producers to pass the higher costs to their customers with enough success and allowing them to maintain their margins. In long fiber the increases were higher, due to import restrictions on recycled papers. As of January 1, new regulations began to apply: the prohibition of importing unsorted waste paper and a more restrictive level of impurities in the selected grade. This has not only restricted the granting of import permits, it also has created uncertainty in how, how efficient and how accurate customs control is at imports.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2018

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

 

 

Europe experienced a very special situation and that was not seen for several years. A very active demand, paper producers operating at full capacity which allowed them to pass costs to their customers. The most significant increase in long fiber grades was not only due to demand, but also to certain supply restrictions due to the harvest problems experienced by Scandinavian pulp producers, restrictions resulting from a mild winter that does not allow to enter the forest to harvest raw materials, this meant a drop in the supply of over 10%. The constant rise in process of raw materials, pulp prices and chemical products for paper producers, has not given time to paper producers to benefit from the increases in paper prices that they have been able to implement by eroding their margins.

In the Middle East markets prices were stable, but following the same tendencies that the rest of the world. Korea kept the tendency of China, during the first quarter negotiations were completed. In Latin America prices increases were delayed, because many contracts are indexed.

Production during the first quarter increased by 11.6% compared to last quarter. The higher production is explained by less programmed maintenance stoppages during this quarter and because during the fourth quarter of 2017 we had certain production losses in Argentina and the blockade of the Constitución mill by an association of truck owners.

Composite Panel

Composite panelsales increased in the first quarter of 2018 compared to the previous quarter due to higher sales volume, slightly offset by a decrease in prices. Both PBO and MDF, had higher sales volume in our major markets, North and South America. Sales in United States and Canada continued to show stable prices level and an increase in sales volume. Meanwhile in Mexico, sales volume decreased due to difficulties in transferring higher prices of MDF to customers. The new Duraplay plant maintains a constant supply specially in the north of the country.

Brazil started the year in good shape, and we expect good demand despite the new capacity that will enter the market in the second semester. This new capacity will come from three new plants (Asperbras, Floraplac and Placas do Brasil) and from the restart of one plant (Duratex). The market shows higher consumption rates, that were reflected in stable sales but with better price levels. The Argentine market remained stable without any big changes. In Chile, a higher dynamism allowed a growth in sales. The rest of Latin America kept their demand and improved in prices.

Sawn timber

Sawn timber markets showed a positive trend compared to last quarter, increasing prices and sales volume by 4.5% and 0.5% respectively. Demand remained solid, pushing prices even further, especially in China and the rest of Asia, where sawn timber consumption remained strong. Sales in the Middle East remained more stable, and prices continued to rise. Remanufactured sales have not recovered to normal levels for this period of high seasonality in the United States. This market maintains a good level of consumption thanks to the increased activity in the construction industry, however the increased supply from producers in China and Brazil have affected prices.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2018

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

 

 

Plywood

Plywood production and sales volume increased compared to the fourth quarter by 9.5% and 1.1% respectively. Prices increased by 5.5% compared to last quarter. Plywood is experiencing a situation of high demand in markets whose activity in the construction sector is very dynamic. We are optimistic for the next months due to a strong demand for products of higher value, in United States, Europe, Mexico, Chile and Oceania.

5. ANALYSIS OF CASH FLOW

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

 

     03-31-2018
ThU.S.$
     03-31-2017
ThU.S.$
 

Positive (negative) Cash flow

     

Cash flow from operating activities

     83,435        180,764  

Cash flow from (used in) financing activities:

     

Loan and bond obtention and payments

     70        (46,628

Dividend payments

     (602      (785

Others

     10        3  

Cash flow from (used in) investment activities:

     

Incorporation and sale of property, plant and equipment

     (93,983      (68,534

Incorporation and sale of biological assets

     (70,269      (45,926

Incorporation and sale of intangible assets

     (282      (4,640

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

     (15,918      1  

Dividends received

     2,211        —    

Others

     5        (3
  

 

 

    

 

 

 

Positive (negative) Net cash flow

     (95,323      14,252  
  

 

 

    

 

 

 

Cash flow from operating activities shows a lower positive balance of MU.S.$83 for the current period, representing a variation in respect of the previous period (MU.S.$181), resulting mainly from higher payments to accounts payables and the payment to Masisa Chile.

The financing cash flow shows a negative balance of MU.S.$1 for the current period, representing a variation in respect of the previous period (negative balance of MU.S.$47), resulting mainly from higher borrowings net of higher payments.

Regarding the investment cash flow, as of the closing of the current period, it shows a higher negative balance of MU.S.$178 (MU.S.$119 for the 2017 period), mainly due to higher disbursements arising from the payment of the balance held in the investment in panel entity in Brasil and for higher purchases in property, plant and equipment and biological assets in 2018.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2018

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

 

 

8. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of March 31, 2018, a ratio of fixed rate debt to total consolidated debt of approximately 85.5%, 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 Interim Consolidated Financial Statements as of March 31, 2018, a detailed analysis of the risks associated with the business of Arauco is available (See Note 23).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note    03-31-2018
ThU.S.$
     12-31-2017
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

   5      493,658        589,886  

Other current financial assets

   23      2,963        3,504  

Other current non-financial assets

   25      184,472        129,837  

Trade and other current receivables

   23      939,535        814,412  

Accounts receivable from related companies

   13      8,452        3,488  

Current inventories

   4      905,360        868,462  

Current biological assets

   20      305,210        307,796  

Current tax assets

        22,797        49,471  

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

        2,862,447        2,766,856  

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

   22      3,347        3,507  

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

        3,347        3,507  

Total Current Assets

        2,865,794        2,770,363  

Non-Current Assets

        

Other non-current financial assets

   23      105,994        56,600  

Other non-current non-financial assets

   25      121,342        121,521  

Trade and other non-current receivables

        18,302        16,040  

Accounts receivable from related companies, non-current

   13      542        1,056  

Investments accounted for using equity method

   15-16      377,416        368,772  

Intangible assets other than goodwill

   19      89,544        88,615  

Goodwill

   17      69,731        69,922  

Property, plant and equipment

   7      7,015,197        7,034,299  

Non-current biological assets

   20      3,472,881        3,459,146  

Deferred tax assets

        9,332        8,266  

Total Non-Current Assets

        11,280,281        11,224,237  

Total Assets

        14,146,075        13,994,600  
     

 

 

    

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

     Note    03-31-2018
ThU.S.$
    12-31-2017
ThU.S.$
 

Equity and Liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      501,046       500,344  

Trade and other current payables

   23      585,367       717,346  

Accounts payable to related companies

   13      9,330       11,208  

Other current provisions

   18      2,614       2,728  

Current tax liabilities

        39,125       8,088  

Current provisions for employee benefits

   10      6,322       5,730  

Other current non-financial liabilities

   25      245,690       153,950  

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

        1,389,494       1,399,394  

Total Current Liabilities

        1,389,494       1,399,394  

Non-Current Liabilities

       

Other non-current financial liabilities

   23      3,802,535       3,778,567  

Other non-current provisions

   18      35,640       36,008  

Deferred tax liabilities

   6      1,488,680       1,485,365  

Non-current provisions for employee benefits

   10      72,863       66,033  

Other non-current non-financial liabilities

   25      115,506       112,340  

Total Non-Current Liabilities

        5,515,224       5,478,313  

Total Liabilities

        6,904,718       6,877,707  

Equity

       

Issued capital

        353,618       353,618  

Retained earnings

        7,536,692       7,425,133  

Other reserves

        (690,414     (703,778

Equity attributable to parent company

        7,199,896       7,074,973  

Non-controlling interests

        41,461       41,920  

Total Equity

        7,241,357       7,116,893  

Total Equity and Liabilities

        14,146,075       13,994,600  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

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

Statements of profit or loss

       

Revenue

   9      1,464,654       1,233,736  

Cost of sales

   3      (921,591     (871,619

Gross profit

        543,063       362,117  

Other income

   3      37,232       48,332  

Distribution costs

   3      (132,400     (124,010

Administrative expenses

   3      (141,525     (120,350

Other expense

   3      (16,827     (193,116

Profit from operating activities

        289,543       (27,027

Finance income

   3      4,782       6,413  

Finance costs

   3      (51,662     (59,872

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

   15      5,845       8,131  

Exchange rate differences

        1,049       1,461  

Profit before income tax

        249,557       (70,894

Income Tax

   6      (51,841     25,622  

Net Profit

        197,716       (45,272
     

 

 

   

 

 

 

Net profit attributable to

       

Net profit attributable to parent company

        197,806       (45,608

Net profit attributable to non-controlling interests

        (90     336  

Net Profit

        197,716       (45,272
     

 

 

   

 

 

 

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

       

Basic and diluted earnings per share from continuing operations

        1.7480       (0.4030
     

 

 

   

 

 

 

Basic and diluted earnings per share

        1.7480       (0.4030
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

          For the years ended March 31,  
     Note    2018
ThU.S.$
    2017
ThU.S.$
 

Net profit

        197,716       (45,272

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

   10      (318     (88

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

        1,694       (100

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

        1,376       (188

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      (5,525     33,721  

Other Comprehensive Income before tax exchange differences on translation

        (5,525     33,721  

Cash flow hedges

       

Gains (losses) on cash flow hedges, before tax

        25,841       17,710  

Recycle of cash flow hedges to profit or loss before tax

        (1,900     (2,287

Other Comprehensive Income before tax Cash flow hedges

        23,941       15,423  

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

        18,416       49,144  

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

        85       10  

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

        (423     10  

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

   6      (6,404     (4,226

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

        (6,404     (4,226

Other comprehensive (loss) income

        13,050       44,750  

Comprehensive (loss) income

        210,766       (522
     

 

 

   

 

 

 

Comprehensive Income attributable to

       

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

        211,170       (1,694

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

        (404     1,172  

Total comprehensive (loss) income

        210,766       (522
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

03-31-2018

   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 01-01-2018

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

Changes in Equity:

                      

Comprehensive income

                      

Net profit

                   197,806       197,806       (90     197.716  

Other comprehensive income, net of tax

        (5,211     17,537        (233     1,271       13,364         13,364       (314     13.050  

Comprehensive income

     —          (5,211     17,537        (233     1,271       13,364       197,806       211,170       (404     210.766  

Dividends

                   (86,247     (86,247     (22     (86,269

Increase (decrease) from transfers and other changes

                   —         —         (33     (33

Changes in equity

     —          (5,211     17,537        (233     1,271       13,364       111,559       124,923       (459     124.464  

Closing balance at 03-31-2018

     353,618        (696,983     22,289        (19,159     3,439       (690,414     7,536,692       7,199,896       41,461       7,241,357  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

03-31-2017

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

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

Opening balance at 01-01-2017

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

Changes in Equity:

                      

Comprehensive income

                      

Net profit

                   (45,608     (45,608     336       (45.272

Other comprehensive income, net of tax

        32,885       11,197        (78     (90     43,914         43,914       836       44.750  

Comprehensive income

     —          32,885       11,197        (78     (90     43,914       (45,608     (1,694     1.172       (522

Dividends

                   (9,513     (9,513     (3     (9.516

Increase (decrease) from transfers and other changes

                   —         —         —         —    

Changes in equity

     —          32,885       11,197        (78     (90     43,914       (55,121     (11,207     1,169       (10.038

Closing balance at 03-31-2017

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

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the years ended March 31,  
     2018
ThU.S.$
    2017
ThU.S.$
 

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     1,307,672       1,321,668  

Other cash receipts from operating activities

     114,996       83,446  

Classes of cash payments

    

Payments to suppliers for goods and services

     (1,072,176     (980,138

Payments to and on behalf of employees

     (160,501     (139,701

Other cash payments from operating activities

     (44,841     (23,790

Interest paid

     (43,524     (69,894

Interest received

     2,403       3,799  

Income taxes paid

     21,785       (12,779

Other inflows (outflows) of cash, net

     (42,379     (1,847

Net Cash flows from Operating Activities

     83,435       180,764  
  

 

 

   

 

 

 

Cash flows (used in) investing activities

    

Cash flow used in obtaining control of subsidiaries or other businesses

     (15,918     —    

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

     —         1  

Proceeds from sale of property, plant and equipment

     2,756       512  

Purchase of property, plant and equipment

     (96,739     (69,046

Purchase of intangible assets

     (282     (4,640

Proceeds from sales of other long-term assets

     7       220  

Purchase of other non-current assets

     (70,276     (46,146

Dividends received

     2,211       —    

Other inflows (outflows) of cash, net

     5       (3

Cash flows used in Investing Activities

     (178,236     (119,102
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total borrowings obtained

     96,474       5,001  

Debt obtained in long-term

     46,474       —    

Debt obtained in short-term

     50,000       5,001  

Repayments of borrowings

     (96,404     (51,629

Dividends paid

     (602     (785

Other outflows of cash, net

     10       3  

Cash flows used in Financing Activities

     (522     (47,410
  

 

 

   

 

 

 

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

     (95,323     14,252  

Effect of exchange rate changes on cash and cash equivalents

     (905     2,000  
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash equivalents

     (96,228     16,252  

Cash and cash equivalents, at the beginning of the period

     589,886       592,253  

Cash and cash equivalents, at the end of the period

     493,658       608,505  
  

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2018 AND 2017 AND DECEMBER 31, 2017.

NOTE 1. PRESENTATION OF INTERIM 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 (currently, the 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, wood products 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. María Noseda Zambra de Angelini (who passed away on April 15, 2018), 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 Interim Consolidated Financial Statements were prepared on a going concern basis.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

Presentation of Interim Consolidated Financial Statements

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

 

    Interim Consolidated Statements of Financial Position as of March 31, 2018 and December 31, 2017.

 

    Interim Consolidated Statements of Profit or Loss for the periods ended March 31, 2018 and 2017.

 

    Interim Consolidated Statements of Comprehensive Income for the periods ended March 31, 2018 and 2017.

 

    Interim Consolidated Statements of Changes in Equity for the periods ended March 31, 2018 and 2017.

 

    Interim Consolidated Statements of Cash Flows for the periods ended March 31, 2018 and 2017.

 

    Explanatory disclosures (notes)

Period Covered by the Interim Consolidated Financial Statements

Periods beginning on January 1 and ended March 31, 2018 and 2017.

Date of Approval of Interim Consolidated Financial Statements

These interim consolidated financial statements were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Meeting No. 588 on March 17, 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 wood products 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.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

In relation to the cost of sales, although labor and services costs are generally billed and paid in local currency, these costs are not as significant as the costs of raw materials, which are driven mainly by global markets and therefore, influenced mostly by the U.S. Dollar.

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

Summary of significant accounting policies

 

a) Basis for preparation of interim consolidated financial statements

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

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

 

b) Critical accounting estimates and judgments

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

-Biological Assets

The recovery of forest plantations is based on discounted cash flow models which means that the fair value of biological assets is calculated using cash flows from continuing operations on a discounted basis, based on our sustainable forest management plans and the estimated growth of forests.

These discounted cash flows require estimates in growth, harvest, sales prices and costs; therefore, it is important that management make appropriate estimates of future levels and trends for sales and costs, as well as conduct regular surveys of the forests to establish the volumes of wood available for harvesting and their current growth rates. The main considerations used to measure forest plantations are presented in Note 20, including a sensitivity analysis.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

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

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

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

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

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

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

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

c) rights arising from other contractual arrangements; and

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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 interim consolidated financial statements of subsidiaries in order to ensure compliance with Arauco’s accounting policies.

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

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

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

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

 

d) Segments

Arauco has defined its reportable segments according to its business areas, based on the products and services sold to its customers. This definition is consistent with the management, resource allocation and performance assessment made by key personnel responsible for making relevant decisions related to the Company’s operation. The Chief Operating Decision Maker (CODM) is the Chief Executive Officer who is responsible for making these decisions and it is supported by the Corporate Managing Directors of each segment.

Based on the aforementioned process, the Company has established reportable segments according to the following business units:

 

    Pulp

 

    Wood products

 

    Forestry

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

e) Functional currency

 

(i) Functional currency

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

 

(ii) Translation to the presentation currency of Arauco

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

 

(iii) Foreign Currency Transactions

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

March 31, 2018

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 are 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 Interim Consolidated Financial Statements

March 31, 2018

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.

-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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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

j) Non-current assets held for sale

The Group classifies certain property, plant and equipment, intangible assets, investments in associates and disposal groups (groups of assets to be sold together with their directly associated liabilities) as non-current assets held for sale which as of the date of the statements of financial position are the subject of active sale efforts which are estimated to be highly probable. Non-current assets held for sale are presented separately from the other assets in the balance sheet.

These assets or disposal groups are measured at the lower of the carrying amount or the fair value less the costs to sell, and are no longer depreciated or amortized from the time they are classified as non-current assets held for sale.

 

k) Business Combinations

Arauco applies the acquisition method to account for a business combination. This method requires the identification of the acquirer, determination of the acquisition date, recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; and recognition and measurement of goodwill or a gain from a bargain purchase. Identifiable assets acquired and liabilities assumed and any contingent liabilities in a business combination are initially measured at fair value at the acquisition date, except:

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

-liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 3 at the acquisition date; and

-assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with such standard.

Acquisition-related costs are accounted for as expenses when they are incurred, except for costs to issue debt or equity securities which are recognized in accordance with IAS 32 and IFRS 9.

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

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may initially be measured either at fair value or at the present ownership instruments’ proportionate share of non-controlling interests, in the recognized amounts of the acquirer’s identifiable net assets. The choice is made on a transaction-by-transaction basis.

Arauco measures the fair value of the acquired company in the business combination achieved in each 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).

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”.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

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 Interim Consolidated Financial Statements

March 31, 2018

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 Interim Consolidated Financial Statements

March 31, 2018

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 Interim Consolidated Financial Statements

March 31, 2018

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

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

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

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2018

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 satisfied its performance obligations through the transfer of committed goods and services to the customer and it has no right to dispose of the assets, nor effective control of such good or services rendered.

 

(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 committed 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. 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

Revenue from the rendering of services is recognized as long as the performance obligation have been satisfied and when the outcome of a transaction can be reliably estimated.

 

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March 31, 2018

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

 

 

Revenue is recognized considering the stage of completion of the transaction at the date of the reporting period, when Arauco has the enforceable right of payment from the rendering of the services.

Arauco mainly provides power supply services which are transacted principally in the spot market of the Sistema Eléctrico Nacional (SEN) (“National Electrical System”). According to current regulations, the prices on that market called “Marginal Costs” are calculated by the Coordinador Eléctrico Nacional (CEN) (“National Electrical Coordinator”) 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 SEN.

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

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

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

 

u) Minimum dividend

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

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

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

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

 

v) Earning per share

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2018

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.

 

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March 31, 2018

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

 

 

An allowance for doubtful accounts is established based on a measurement of expected losses using a simplified approach.

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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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, 2018:

 

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
IFRIC 22   

Transactions in Foreign Currency and Anticipated Considerations

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

   January 1, 2018

 

Amendments and

   improvements   

  

Content

  

Mandatory application

for annual periods

  beginning on or after  

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
IAS 28    Investments in associates and joint ventures Measurement of the investments in associates and joint ventures at fair value.    January 1, 2018

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2018

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 introduced 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.

Arauco did not have a significant impact in the classification and measurement of its financial assets (See Note 2).

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.

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 change the timing of income recognition in accordance to IFRS 15.

The adoption of the standards, amendments and interpretations described above will not have a significant impact on Arauco’s Interim 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 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 23   

Uncertain tax positions

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

   January 1, 2019
IFRS 17   

Insurance Contracts

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

   January 1, 2021

 

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March 31, 2018

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

 

 

Amendments and

   improvements   

  

Content

  

Mandatory application

for annual periods

  beginning on or after  

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 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

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.

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.

 

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March 31, 2018

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

 

 

NOTE 2. ACCOUTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES

Changes to accounting policies

As from January 1, 2018, IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers came into force, which have not materially impacted the Group’s Financial Statements based on Arauco’s assessment to date.

With regard to IFRS 9, we hereby inform the following:

- Classification and measurement

Arauco’s Financial Instruments were reviewed under the new IFRS 9 classification model. No significant changes were derived therefrom.

This assessment takes into consideration Arauco’s business model to manage its financial assets and liabilities, and whether or not its cash flows are composed only of payment of principal and interest.

- Impairment of Commercial Debtors and other Accounts Receivable

Arauco adopted the expected credit losses model under IFRS 9, which replaces the incurred loss model under IAS 39. In this new impairment model for accounts receivable, we used the simplified model, determining the risk rate based on historical information.

This assessment has determined that, to date, the current impairment provision reasonably hedges the impairment risk of the balances of Arauco’s accounts receivable portfolio.

-Hedging Derivatives

Arauco’s hedging derivatives were assessed under the new standard and fulfill all of the conditions set out in IFRS 9 to remain being accounted for as hedging.

Those conditions are the following: (i) that there is a unique relation between the hedging instrument and the hedged item; (ii) that there is an appointment and formal documentation regarding the hedging relation, the objective and risk management strategy to deploy the hedging; (iii) and that it complies with all of the efficiency requirements, that is, that there is an economic relation, the credit risk effect does not predominate over the changes of value that stem from this economic relation and the hedge ratio is the same as the amount of the covered item.

Regarding the inclusion of credit risk in the appraisal of Arauco’s hedging derivatives, as of March 31, 2018, the impact results in an inferior cash flow hedging Reserve, amounting to ThU.S.$ 7,880.

Regarding IFRS 15, we report the following:

IAS 18 “Income from ordinary activities” and all associated interpretations were replaced with the coming into force of IFRS 15. Arauco applied IFRS 15 to all its contracts with clients, with the exception of those contracts that fall within the scope of other provisions.

The application of this new provision does not lead to identifying performance obligations in addition to the main one (sale of assets and services), income is acknowledged in relation to the price set in the sales contract, net from volume-related discounts, after Arauco satisfies its performance obligations through the transfer of goods and services committed to the client, and Arauco has no right to dispose of the goods, nor does it

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

have effective control of those products. Volume-related discounts lead to a variable consideration, which is estimated in relation to the actual sales volume and it is assessed considering the annual forecasted sales.

Changes to accounting estimates

As of March 31, 2018, there have been no changes regarding the accounting estimates for the 2017 financial year.

NOTE 3. DISCLOSURE OF OTHER INFORMATION

 

a) Disclosure of information on Issued Capital

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

100% of Capital corresponds to ordinary shares

 

     03-31-2018    12-31-2017

Description of Ordinary Capital Share Types

   100% of Capital corresponds to
ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

   113,159,655

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$0.0031210 per share

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

   ThU.S.$353,618
     03-31-2018    12-31-2017

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

   113,159,655

 

b) Dividends paid

As of March 31, 2018 and 2017, no dividends were 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.$86,247 (ThU.S.$ 9,513 as of March 31, 2017) presented in the statements of changes in equity correspond to the minimum dividend provision recorded for the period 2018.

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

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid

   Final Dividend

Type of Shares for which there is a Dividend Paid

   Ordinary Shares

Date of Dividend Paid

   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

 

c) Disclosure of Information on Reserves

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

Reserves of exchange differences on translation

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

Reserves of cash flow hedges

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

Reserve of Actuarial Losses in Defined Benefit Plans

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

Other reserves

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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 periods ended March 31, 2018 and 2017 are as follows:

 

     January - March  
     2018
ThU.S.$
     2017
ThU.S.$
 

Classes of Other Income

     

Other Income, Total

     37,232        48,332  

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

     29,575        43,257  

Net income from insurance compensation

     31        67  

Revenue from export promotion

     1,039        895  

Lease income

     713        1,034  

Gain on sales of assets

     4,798        1,966  

Access easement

     85        38  

Other operating results (*)

     991        1,075  

Classes of Other Expenses by activity

     

Total of Other Expenses by activity

     (16,827      (193,116

Depreciation

     (328      (891

Legal expenses

     (769      (583

Impairment provision for property, plant and equipment and others

     (7,015      (975

Operating expenses related to plants stoppage

     (961      (1,042

Expenses related to projects

     (1,002      (969

Loss of asset sales

     (522      (564

Loss and repair of assets

     (24      (3,719

Loss of forest due to fires (**)

     (9      (178,361

Other Taxes

     (3,336      (1,867

Research and development expenses

     (298      (416

Fines, readjustments and interests

     (180      (277

Others rentals no operational

     (985      —    

Other expenses

     (1,398      (3,452

Classes of financing income

     

Financing income, total

     4,782        6,413  

Financial income from mutual funds - term deposits

     2,374        2,698  

Financial income resulting from swap - forward instruments

     637        1,845  

Other financial income

     1,771        1,870  

Classes of financing costs

     

Financing costs, Total

     (51,662      (59,872

Interest expense, Banks loans

     (7,153      (7,747

Interest expense, Bonds

     (35,669      (47,919

Interest expense, other financial instruments

     (3,378      (744

Other financial costs

     (5,462      (3,462

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

     

Total

     5,845        8,131  

Investments in associates

     171        3,415  

Joint ventures

     5,674        4,716  

 

(*) ”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 Interim Consolidated Financial Statements

March 31, 2018

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

 

 

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

 

     January - March  

Cost of sales

   2018
ThU.S.$
     2017
ThU.S.$
 

Timber

     178,431        186,765  

Forestry labor costs

     158,586        149,638  

Depreciation and amortization

     95,023        95,626  

Maintenance costs

     65,079        63,988  

Chemical costs

     131,950        125,310  

Sawmill Services

     38,439        28,663  

Other Raw Materials

     56,653        44,502  

Other Indirect costs

     48,843        42,240  

Energy and fuel

     48,743        44,590  

Cost of electricity

     11,124        9,170  

Wages and salaries

     88,720        81,127  

Total

     921,591        871,619  
  

 

 

    

 

 

 
     January - March  

Distribution cost

   2018
ThU.S.$
     2017
ThU.S.$
 

Selling costs

     7,779        9,180  

Commissions

     3,715        3,509  

Insurance

     978        763  

Provision for doubtful accounts

     8        1  

Other selling costs

     3,078        4,907  

Shipping and freight costs

     124,621        114,830  

Port services

     7,892        7,292  

Freights

     97,106        93,167  

Other shipping and freight costs

     19,623        14,371  

Total

     132,400        124,010  
  

 

 

    

 

 

 
     January - March  

Administrative expenses

   2018
ThU.S.$
     2017
ThU.S.$
 

Wages and salaries

     65,178        50,067  

Marketing, advertising, promotion and publications expenses

     2,673        2,375  

Insurances

     3,628        4,648  

Depreciation and amortization

     6,945        7,613  

Computer services

     3,995        6,710  

Lease rentals (offices, other property and vehicles)

     4,096        3,878  

Donations, contributions, scholarships

     3,260        2,397  

Fees (legal and technical advisors)

     13,465        9,199  

Property taxes, city permits and rights

     4,546        4,305  

Cleaning services, security services and transportation

     6,446        6,432  

Third-party variable services (maneuvers, logistics)

     11,560        10,059  

Basic services

     2,480        2,063  

Maintenance and repair

     1,751        1,273  

Seminars, courses, training materials

     501        454  

Other administration expenses

     11,001        8,877  

Total

     141,525        120,350  
  

 

 

    

 

 

 

 

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

 

Auditors fees

   03-31-2018
ThU.S.$
     03-31-2017
ThU.S.$
 

Audit services

     780        602  

Other services

     

Tax services

     132        179  

Others

     66        27  

TOTAL

     978        808  
  

 

 

    

 

 

 

Number of employees

   No.  
     15,379        15,737  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

NOTE 4. INVENTORIES

 

Components of Inventory

   03-31-2018
ThU.S.$
     12-31-2017
ThU.S.$
 

Raw materials

     111,624        103,049  

Production supplies

     98,095        98,548  

Work in progress

     56,867        56,194  

Finished goods

     463,709        441,726  

Spare Parts

     175,065        168,945  

Total Inventories

     905,360        868,462  
  

 

 

    

 

 

 

Inventories recognized as cost of sales at March 31, 2018 were ThU.S.$904,543 (ThU.S.$854,573 at March 31, 2017).

In order to have the inventories recorded at net realizable value at March 31, 2018, a net decrease of inventories was recognized associated with a higher provision of obsolescence of ThU.S.$2,689 (ThU.S.$3,197 at March 31, 2017). As of March 31, 2018, the amount of obsolescence provision is ThU.S.$28,684 (ThU.S.$27,420 at December 31, 2016).

At March 31, 2018, there were inventory write-offs of ThU.S.$178 (ThU.S.$123 at March 31, 2017).

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

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

Agricultural Products

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

Components of Cash and Cash Equivalents

   03-31-2018
ThU.S.$
     12-31-2017
ThU.S.$
 

Cash on hand

     186        148  

Bank checking account balances

     223,071        209,037  

Time deposits

     182,407        292,105  

Mutual funds

     87,994        73,170  

Other cash and cash equivalents (*)

     —          15,426  

Total

     493,658        589,886  
  

 

 

    

 

 

 

 

(*) Applies to purchase contracts with resale commitments.

The risk classification of the mutual funds in effect as of March 31, 2018 and December 31, 2017 is shown below.

 

     March
2018
ThU.S.$
     December
2017
ThU.S.$
 

AAAfm

     82,817        70,808  

AAfm

     5,177        2,362  

Total Mutual Funds

     87,994        73,170  
  

 

 

    

 

 

 

Changes in Financial Liabilities

 

          Cash Flow                          
    Opening balance
01-01-2018
ThU.S.$
    Borrowings
obtained
ThU.S.$
    Borrowings
paid
ThU.S.$
    Interest paid
ThU.S.$
    Accrued
interest
ThU.S.$
    Inflation adjustment
ThU.S.$
    Non-cash
movements
ThU.S.$
    Closing balance
12-31-2018
ThU.S.$
 

Borrowings from banks

    858,457       96,474       (96,404     (9,499     7,283       44       1,064       857,419  

Hedging liabilities

    5,393       —         —         (682     —         (138     (3,132     1,441  

Bonds and promissory notes

    3,302,685       —         —         (33,343     36,727       31,581       1,450       3,339,100  

Total

    4,166,535       96,474       (96,404     (43,524     44,010       31,487       (618     4,197,960  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          Cash Flow                          
    Opening balance
01-01-2017
ThU.S.$
    Borrowings
obtained
ThU.S.$
    Borrowings
paid ThU.S.$
    Interest
paid
ThU.S.$
    Accrued
interest
ThU.S.$
    Inflation
adjustment
ThU.S.$
    Non-cash
movements
ThU.S.$
    Closing balance
12-31-2017
ThU.S.$
 

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  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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 27% in Chile, 30% in Argentina, 34% in Brazil, 25% in Uruguay and 21% 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 Interim Consolidated Financial Statements

March 31, 2018

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

   03-31-2018
ThU.S.$
     12-31-2017
ThU.S.$
 

Deferred tax Assets relating to Provisions

     6,996        7,433  

Deferred tax Assets relating to Accrued Liabilities

     9,736        11,267  

Deferred tax Assets relating to Post-Employment benefits

     21,303        19,276  

Deferred tax Assets relating to Property, Plant and equipment

     9,798        11,657  

Deferred tax Assets relating to Financial Instruments

     4,182        4,348  

Deferred tax Assets relating to Tax Loss Carryforward

     72,014        62,706  

Deferred tax Assets relating to Inventories

     7,488        5,941  

Deferred tax Assets relating to Provisions for Income

     6,530        21,354  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     5,877        5,149  

Intangible revaluation differences

     9,940        10,389  

Deferred tax Assets relating to Other Deductible Temporary Differences

     28,358        27,364  

Total Deferred Tax Assets

     182,222        186,884  
  

 

 

    

 

 

 

Offsetting presentation

     (172,889      (178,618
  

 

 

    

 

 

 

Net Effect

     9,333        8,266  
  

 

 

    

 

 

 

Certain subsidiaries of Arauco mainly in Chile, Brazil and Uruguay, as of the date of these interim consolidated financial statements, present tax losses for which we estimate that, given the projection of future profits, will allow the recovery of these assets. The total amount of these tax losses is ThU.S.$251,625 (ThU.S.$216,397 at December 31, 2017), which are mainly originated by operational and financial losses.

In addition, as of the closing of these interim consolidated financial statements there are ThU.S.$156,118 (ThU.S.$ 167,862 at December 31, 2017) 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:

 

Deferred Tax Liabilities

   03-31-2018
ThU.S.$
     12-31-2017
ThU.S.$
 

Deferred tax Liabilities relating to Property, Plant and Equipment

     851,555        860,498  

Deferred tax Liabilities relating to Financial Instruments

     15,896        12,684  

Deferred tax Liabilities relating to Biological Assets

     673,519        676,876  

Deferred tax Liabilities relating to Inventory

     33,521        32,580  

Deferred tax Liabilities relating to Prepaid Expenses

     45,960        41,600  

Deferred tax Liabilities relating to Intangible

     22,243        22,014  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     18,875        17,731  

Total Deferred Tax Liabilities

     1,661,569        1,663,983  
  

 

 

    

 

 

 

Offsetting presentation

     (172,889      (178,618
  

 

 

    

 

 

 

Net Effect

     1,488,680        1,485,365  
  

 

 

    

 

 

 

The effect of changes in current and deferred tax liabilities related to financial hedging instruments corresponds to a credit of ThU.S.$6,404 at March 31, 2018 (compared to a credit of ThU.S.$4,226 at March 31, 2017), which is presented 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 Interim Consolidated Financial Statements

March 31, 2018

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

 

 

Reconciliation of deferred tax assets and liabilities

 

     Opening
Balance
01-01-2018
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
Net
exchange
differences
    Closing
balance
03-31-2018
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     7,433        (427     —         (10     6,996  

Deferred tax Assets relating to Accrued liabilities

     11,267        (1,532     (3     4       9,736  

Deferred tax Assets relating to Post-Employment benefits

     19,276        1,912       100       15       21,303  

Deferred tax Assets relating to Property, Plant and equipment

     11,657        (1,858     —         (1     9,798  

Deferred tax Assets relating to Financial Instruments

     4,348        —         (166     —         4,182  

Deferred tax Assets relating to Tax Loss Carryforward

     62,706        9,504       —         (196     72,014  

Deferred tax assets relating to Inventories

     5,941        1,548       —         (1     7,488  

Deferred tax assets relating to Provisions for Income

     21,354        (14,824     —         —         6,530  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     5,149        735       —         (7     5,877  

Intangible revaluation differences

     10,389        (406     —         (43     9,940  

Deferred tax Assets relating to Other Deductible Temporary Differences

     27,364        546       —         448       28,358  

Total Deferred Tax Assets

     186,884        (4,802     (69     209       182,222  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Opening
Balance
01-01-2018
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
Net
exchange
differences
    Closing
balance
03-31-2018
 

Deferred Tax Liabilities

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

Deferred tax Liabilities relating to Property, Plant and Equipment

     860,498        (8,648     —         (295     851,555  

Deferred tax Liabilities relating to Financial Instruments

     12,684        (256     3,468       —         15,896  

Deferred tax Liabilities relating to Biological Assets

     676,876        (2,840     —         (517     673,519  

Deferred tax Liabilities relating to Inventory

     32,580        941       —         —         33,521  

Deferred tax Liabilities relating to Prepaid Expenses

     41,600        4,360       —         —         45,960  

Deferred tax Liabilities relating to Intangible

     22,014        277       —         (48     22,243  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     17,731        1,045       —         99       18,875  

Total Deferred Tax Liabilities

     1,663,983        (5,121     3,468       (761     1,661,569  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     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  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     03-31-2018      12-31-2017  

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

     110,208           124,178     

Deferred Tax Assets - Tax loss carryforward

     72,014           62,706     

Deferred Tax Liabilities

        1,661,569           1,663,983  

Total

     182,222        1,661,569        186,884        1,663,983  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January – March  

Detail of Temporary Difference Income and Loss Amounts

   2018
ThU.S.$
     2017
ThU.S.$
 

Deferred Tax Assets

     (14,306      (11,769

Deferred Tax Assets - Tax loss carryforward

     9,504        22,529  

Deferred Tax Liabilities

     5,121        34,584  

Total

     319        45,344  
  

 

 

    

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - December  

Income Tax composition

   2018
ThU.S.$
     2017
ThU.S.$
 

Current income tax expense

     (52,355      (20,272

Prior period current income tax adjustments

     646        39  

Other current benefit tax (expenses)

     (451      511  

Current Tax Expense, Net

     (52,160      (19,722

Deferred tax expense relating to origination and reversal of temporary differences

     (9,185      22,815  

Tax benefit arising from previously unrecognized tax loss carryforward

     9,504        22,529  

Total deferred Tax benefit (expense), Net

     319        45,344  

Income Tax benefit (expense), Total

     (51,841      25,622  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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 March 31, 2018 and 2017:

 

     January - March  
     2018
ThU.S.$
     2017
ThU.S.$
 

Foreign current income tax expense

     (8,877      (7,016

Domestic current income tax expense

     (43,283      (12,706

Total current income tax expense

     (52,160      (19,722

Foreign deferred tax benefit (expense)

     4,144        8,447  

Domestic deferred tax benefit (expense)

     (3,825      36,897  

Total deferred tax benefit (expense)

     319        45,344  

Total tax benefit (expense)

     (51,841      25,622  
  

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - March  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   2018
ThU.S.$
    2017
ThU.S.$
 

Statutory domestic (Chile) income tax rate

     27     25.5

Tax Expense at statutory tax rate

     (67,380     18,078  

Tax effect of foreign tax rates

     (3     333  

Tax effect of revenues exempt from taxation

     18,623       13,655  

Tax effect of not deductible expenses

     (6,365     (10,423

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

     248       —    

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

     —         657  

Tax rate effect of adjustments for current tax of prior periods

     646       39  

Other tax rate effects

     2,390       3,283  

Total adjustments to tax expense at applicable tax rate

     15,539       7,544  

Tax benefit (expense) at effective tax rate

     (51,841     25,622  
  

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     03-31-2018      12-31-2017  

Property, Plant and Equipment, Net

   ThU.S.$      ThU.S.$  

Construction work in progress

     682,001        597,351  

Land

     1,003,819        1,008,310  

Buildings

     2,109,632        2,135,201  

Plant and equipment

     3,040,336        3,112,755  

Information technology equipment

     21,412        22,665  

Fixtures and fittings

     11,725        12,297  

Motor vehicles

     15,196        15,959  

Other property, plant and equipment

     131,076        129,761  

Total Net

     7,015,197        7,034,299  
  

 

 

    

 

 

 

Property, Plant and Equipment, Gross

     

Construction work in progress

     682,001        597,351  

Land

     1,003,819        1,008,310  

Buildings

     3,929,383        3,926,157  

Plant and equipment

     6,408,955        6,410,561  

Information technology equipment

     82,344        82,765  

Fixtures and fittings

     40,115        40,388  

Motor vehicles

     51,151        49,756  

Other property, plant and equipment

     159,459        159,720  

Total Gross

     12,357,227        12,275,008  
  

 

 

    

 

 

 

Accumulated depreciation and impairment

     

Buildings

     (1,819,751      (1,790,956

Plant and equipment

     (3,368,619      (3,297,806

Information technology equipment

     (60,932      (60,100

Fixtures and fittings

     (28,390      (28,091

Motor vehicles

     (35,955      (33,797

Other property, plant and equipment

     (28,383      (29,959

Total

     (5,342,030      (5,240,709
  

 

 

    

 

 

 

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

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

 

     03-31-2018      12-31-2017  
     ThU.S.$      ThU.S.$  

Amount committed for the acquisition of property, plant and equipment

     126,373        112,924  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

Reconciliation of Property, Plant and Equipment

The following tables set forth the reconciliation of the carrying amount of property, plant and equipment as of March 31, 2018 and December 31, 2017:

 

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 01-01-2018

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

Changes

                  

Additions

     103,680       3       1,356       3,290       123       17       42       6,764       115,275  

Disposals

     —         (321     (961     (139     —         —         —         (109     (1,530

Retirements

     (2     (4,238     (124     (535     (5     (1     (119     (4,822     (9,846

Depreciation

     —         —         (30,913     (77,665     (1,433     (603     (990     (834     (112,438

Impairment loss recognized in profit or loss

     —         —         97       (6,400     5       1       —         —         (6,297

Increase (decrease) through net exchange differences

     (322     (924     (13     (3,042     (10     (9     (36     (67     (4,423

Reclassification of assets held for sale

     —         —         157       —         —         —         —         —         157  

Increase (decrease) through transfers from construction in progress

     (18,706     989       4,832       12,072       67       23       340       383       —    

Total changes

     84,650       (4,491     (25,569     (72,419     (1,253     (572     (763     1,315       (19,102

Closing balance 03-31-2018

     682,001       1,003,819       2,109,632       3,040,336       21,412       11,725       15,196       131,076       7,015,197  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

49


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

The depreciation expense for the period ending March 31, 2018 and 2017 is as follows:

 

     January-March  

Depreciation for the year

   2018
ThU.S.$
     2017
ThU.S.$
 

Cost of sales

     95,023        96,065  

Administrative expenses

     3,909        4,148  

Other expenses

     347        1,202  

Total

     99,279        101,415  
  

 

 

    

 

 

 

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

 

     Years of Useful Life
(Average)
 

Buildings

     58  

Plant and equipment

     30  

Information technology equipment

     8  

Fixtures and fittings

     28  

Motor vehicles

     7  

Other property, plant and equipment

     14  

See Note 12 for details of capitalized borrowing costs.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

 

     03-31-2018      12-31-2017  
     ThU.S.$      ThU.S.$  

Property, Plant and Equipment under finance leases

     109,387        116,534  

Plant and equipment

     109,387        116,534  
  

 

 

    

 

 

 

Reconciliation of Financial Lease Minimum Payments:

 

     03-31-2018  

Periods

   Present Value
ThU.S.$
 

Less than one year

     42,498  

Between one and five years

     63,124  

More than five years

     —    

Total

     105,622  
  

 

 

 
  

 

 

 
     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  
  

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

Arauco acting as lessor

Reconciliation of Financial Lease Minimum Payments:

 

     03-31-2018  

Periods

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

Less than one year

     1,737        69        1,668  

Between one and five years

     1,201        —          1,201  

More than five years

     —          —          —    

Total

     2,938        69        2,869  
  

 

 

    

 

 

    

 

 

 
     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  
  

 

 

    

 

 

    

 

 

 

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

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

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

NOTE 9. REVENUE

 

     January - March  

Classes of revenue

   2018
ThU.S.$
     2017
ThU.S.$
 

Revenue from sales of goods

     1,437,879        1,206,594  

Revenue from rendering of services

     26,775        27,142  

Total

     1,464,654        1,233,736  
  

 

 

    

 

 

 

The reportable segments revenues by business area and by geographical area are presented in Note 24.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January-March  
     2018
ThU.S.$
    2017
ThU.S.$
 

Employee expenses

     142,786       132,290  

Wages and salaries

     131,417       127,448  

Severance indemnities

     11,369       4,842  
  

 

 

   

 

 

 
     03-31-2018     12-31-2017  

Discount rate

     5.06     5.11

Inflation

     2.75     2.77

Annual rate of wage growth

     5.22     5.22

Mortality rate (1)

     RV-2014       RV-2014  

 

Sensitivities to assumptions

   2018
ThU.S.$
 

Discount rate

  

Increase in 100 bps

     (4,910

Decrease in 100 bps

     5,739  

Wage growth rates

  

Increase in 100 bps

     5,638  

Decrease in 100 bps

     (4,923

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligations as of March 31, 2018 and December 31, 2017:

 

     03-31-2018      12-31-2017  
     ThU.S.$      ThU.S.$  

Current

     6,322        5,730  

Non-current

     72,863        66,033  

Total

     79,185        71,763  
  

 

 

    

 

 

 

Reconciliation of the present value of severance indemnities obligations

   03-31-2018
ThU.S.$
     12-31-2017
ThU.S.$
 

Opening balance

     71,763        65,328  

Current service cost

     1,172        5,583  

Interest cost

     932        3,208  

(Gains) losses from changes in actuarial assumptions

     1,852        (3,711

Actuarial gains and losses arising from experience

     (1,534      1,212  

Benefits paid

     (1,789      (5,654

Past service cost

     5,423        —    

Increase (decrease) for foreign currency exchange rates changes

     1,366        5,792  

Closing balance

     79,185        71,763  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

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

 

     03-31-2018      12-31-2017  
     ThU.S.$      ThU.S.$  

Total Current Assets

     2,865,794        2,770,363  

Cash and Cash Equivalents

     493,658        589,886  

U.S Dollar

     337,353        501,352  

Euros

     11,420        4,306  

Brazilian Real

     35,171        47,314  

Argentine Pesos

     5,712        10,038  

Other currencies

     2,210        3,685  

Chilean Pesos

     101,792        23,191  

Other current financial assets

     2,963        3,504  

U.S Dollar

     2,963        3,497  

Argentine Pesos

     —          —    

Other currencies

        7  

Other current non-financial assets

     184,472        129,837  

U.S Dollar

     94,421        48,632  

Euros

     67        104  

Brazilian Real

     20,337        17,158  

Argentine Pesos

     5,472        5,832  

Other currencies

     5,912        5,306  

Chilean Pesos

     58,263        52,805  

Trade and other current receivables

     939,535        814,412  

U.S Dollar

     690,114        550,674  

Euros

     19,151        20,498  

Brazilian Real

     76,556        89,673  

Argentine Pesos

     28,417        26,863  

Other currencies

     22,027        17,702  

Chilean Pesos

     101,129        106,442  

U.F.

     2,141        2,560  

Accounts receivable from related companies

     8,452        3,488  

U.S Dollar

     754        726  

Brazilian Real

     336        171  

Chilean Pesos

     7,362        2,192  

U.F.

     —          399  

Current Inventories

     905,360        868,462  

U.S Dollar

     831,520        809,689  

Brazilian Real

     73,840        58,773  

Current biological assets

     305,210        307,796  

U.S Dollar

     270,374        270,761  

Brazilian Real

     34,836        37,035  

Current tax assets

     22,797        49,471  

U.S Dollar

     5,056        7,769  

Brazilian Real

     5,762        6,721  

Argentine Pesos

     27        —    

Other currencies

     3,366        3,188  

Chilean Pesos

     8,586        31,793  

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

     3,347        3,507  

U.S Dollar

     2,678        2,835  

Brazilian Real

     669        672  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

     03-31-2018      12-31-2017  
     ThU.S.$      ThU.S.$  

Total Non-Current Assets

     11,280,281        11,224,237  

Other non-current financial assets

     105,994        56,600  

U.S Dollar

     105,994        56,600  

Other non-current non-financial assets

     121,342        121,521  

U.S Dollar

     105,191        104,711  

Brazilian Real

     6,129        4,629  

Argentine Pesos

     9,034        11,303  

Other currencies

     801        693  

Chilean Pesos

     187        185  

Trade and other non-current receivables

     18,302        16,040  

U.S Dollar

     8,001        4,247  

Brazilian Real

     1,830        3,345  

Other currencies

     4,326        —    

Chilean Pesos

     4,145        6,692  

U.F.

        1,756  

Accounts receivable from related companies, non-current

     542        1,056  

U.F.

     542        1,056  

Investments accounted for using equity method

     377,416        368,772  

U.S Dollar

     131,587        130,276  

Euros

     195,306        185,410  

Brazilian Real

     50,517        53,080  

Chilean Pesos

     6        6  

Intangible assets other than goodwill

     89,544        88,615  

U.S Dollar

     87,955        87,007  

Brazilian Real

     1,502        1,516  

Chilean Pesos

     87        92  

Goodwill

     69,731        69,922  

U.S Dollar

     42,594        42,656  

Brazilian Real

     27,137        27,266  

Property, plant and equipment

     7,015,197        7,034,299  

U.S Dollar

     6,436,792        6,443,081  

Brazilian Real

     571,833        585,202  

Chilean Pesos

     6,572        6,016  

Non-current biological assets

     3,472,881        3,459,146  

U.S Dollar

     2,954,644        2,934,819  

Brazilian Real

     518,237        524,327  

Deferred tax assets

     9,332        8,266  

U.S Dollar

     4,992        4,319  

Brazilian Real

     4,017        3,622  

Other currencies

     31        32  

Chilean Pesos

     292        293  

 

55


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

     Up to 90
days
ThU.S.$
     03-31-2018
From 91
days to 1
year
ThU.S.$
     Total
ThU.S.$
     Up to 90
days
ThU.S.$
     12-31-2017
From 91
days to 1
year
ThU.S.$
     Total
ThU.S.$
 

Total Liabilities, current

     989,770        399,724        1,389,494        1,045,364        354,030        1,399,394  

Other current financial liabilities

     109,010        392,036        501,046        148,778        351,566        500,344  

U.S Dollar

     71,428        341,358        412,786        134,125        284,293        418,418  

Brazilian Real

     547        6,292        6,839        2,383        4,660        7,043  

Argentine Pesos

     1,408        3,799        5,207        1,508        4,116        5,624  

Chilean Pesos

     35,627        40,587        76,214        10,762        58,497        69,259  

U.F.

                 

Bank Loans

     53,431        336,822        390,253        110,700        282,172        392,872  

U.S Dollar

     52,884        330,530        383,414        108,317        277,512        385,829  

Brazilian Real

     547        6,292        6,839        2,383        4,660        7,043  

Financial Leases

     9,885        32,613        42,498        9,928        34,413        44,341  

Chilean Pesos

     1,408        3,799        5,207        1,508        4,116        5,624  

U.F.

     8,477        28,814        37,291        8,420        30,297        38,717  

Other Loans

     45,694        22,601        68,295        28,150        34,981        63,131  

U.S Dollar

     18,544        10,828        29,372        25,808        6,781        32,589  

U.F.

     27,150        11,773        38,923        2,342        28,200        30,542  

Trade and other current payables

     585,347        20        585,367        717,342        4        717,346  

U.S Dollar

     160,129        —          160,129        193,562        —          193,562  

Euros

     10,162        —          10,162        9,099        —          9,099  

Brazilian Real

     57,489        —          57,489        124,917        —          124,917  

Argentine Pesos

     20,344        —          20,344        29,243        —          29,243  

Other currencies

     9,382        —          9,382        4,936        —          4,936  

Chilean Pesos

     301,842        20        301,862        333,525        4        333,529  

U.F.

     25,999        —          25,999        22,060        —          22,060  

Accounts payable to related companies

     9,330        —          9,330        11,208        —          11,208  

U.S Dollar

     2,515        —          2,515        1,354        —          1,354  

Chilean Pesos

     6,815        —          6,815        9,854        —          9,854  

Other current provisions

     2,614        —          2,614        2,728        —          2,728  

U.S Dollar

     629        —          629        622        —          622  

Brazilian Real

     1,985        —          1,985        2,106        —          2,106  

Current tax liabilities

     37,958        1,167        39,125        6,361        1,727        8,088  

U.S Dollar

     618        —          618        283        —          283  

Euros

     156        —          156        158        —          158  

Argentine Pesos

     —          —          —          46        —          46  

Other currencies

     327        —          327        479        —          479  

Chilean Pesos

     36,857        1,167        38,024        5,395        1,727        7,122  

Current provisions for employee benefits

     5,440        882        6,322        5,595        135        5,730  

Chilean Pesos

     5,440        882        6,322        5,595        135        5,730  

Other current non-financial liabilities

     240,071        5,619        245,690        153,352        598        153,950  

U.S Dollar

     195,841        4,600        200,441        119,309        582        119,891  

Euros

     62        —          62        77        —          77  

Brazilian Real

     23,568        —          23,568        18,016        —          18,016  

Argentine Pesos

     3,455        —          3,455        3,215        —          3,215  

Other currencies

     4,593        —          4,593        3,906        —          3,906  

Chilean Pesos

     12,532        1,019        13,551        8,809        16        8,825  

U.F.

     20        —          20        20        —          20  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

     03-31-2018      12-31-2017  
     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

     2,579,677        2,935,547        5,515,224        3,025,553        2,452,760        5,478,313  

Other non-current financial liabilities

     1,452,624        2,349,911        3,802,535        1,455,641        2,322,926        3,778,567  

U.S Dollar

     961,542        1,517,836        2,479,378        970,631        1,508,999        2,479,630  

Brazilian Real

     14,183        —          14,183        16,506        —          16,506  

Chilean Pesos

     8,830        —          8,830        9,839        —          9,839  

U.F.

     468,069        832,075        1,300,144        458,665        813,927        1,272,592  

Bank Loans

     320,888        146,278        467,166        327,424        138,161        465,585  

U.S Dollar

     306,705        146,278        452,983        310,918        138,161        449,079  

Brazilian Real

     14,183        —          14,183        16,506        —          16,506  

Financial Leases

     63,124        —          63,124        68,035        —          68,035  

Chilean Pesos

     8,830        —          8,830        9,839        —          9,839  

U.F.

     54,294        —          54,294        58,196        —          58,196  

Other Loans

     1,068,612        2,203,633        3,272,245        1,060,182        2,184,765        3,244,947  

U.S Dollar

     654,837        1,371,558        2,026,395        659,713        1,370,838        2,030,551  

U.F.

     413,775        832,075        1,245,850        400,469        813,927        1,214,396  

Other non-current provisions

     35,640        —          35,640        36,008        —          36,008  

U.S Dollar

     11        —          11        7        —          7  

Brazilian Real

     4,755        —          4,755        4,682        —          4,682  

Argentine Pesos

     30,874        —          30,874        31,316        —          31,316  

Chilean Pesos

     —          —          —          3        —          3  

Deferred tax liabilities

     904,275        584,405        1,488,680        1,355,531        129,834        1,485,365  

U.S Dollar

     798,977        584,405        1,383,382        1,247,096        129,834        1,376,930  

Brazilian Real

     105,298        —          105,298        108,435        —          108,435  

Non-current provisions for employee benefits

     71,632        1,231        72,863        66,033        —          66,033  

Other currencies

     144        —          144        129        —          129  

Chilean Pesos

     71,488        1,231        72,719        65,904        —          65,904  

Other non-current non-financial liabilities

     115,506        —          115,506        112,340        —          112,340  

U.S Dollar

     14        —          14        13        —          13  

Brazilian Real

     115,158        —          115,158        111,634        —          111,634  

Argentine Pesos

     117        —          117        480        —          480  

Chilean Pesos

     217        —          217        213        —          213  

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

 

57


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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 - March  
     2018      2017  
     ThU.S.$      ThU.S.$  

Arauco do Brasil S.A.

     (3,404      12,934  

Arauco Forest Brasil S.A.

     (2,232      12,267  

Arauco Florestal Arapoti S.A.

     (1,284      3,346  

Sonae Arauco S.A.

     4,227        2,167  

Arauco Argentina S.A.

     (264      1,011  

Flakeboard Company Limited

     (2,364      1,102  

Others

     110        58  
  

 

 

    

 

 

 

Total reserve of exchange differences on translation

     (5,211      32,885  
  

 

 

    

 

 

 

Effect of foreign exchange rates changes

 

     January-March  
     2018      2017  
     ThU.S.$      ThU.S.$  

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

     1,049        1,461  

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

     (5,525      33,721  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2018

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

 

 

NOTE 12. BORROWING COSTS

Arauco capitalizes interest at effective rate on current investment projects.

 

     January - March  
     2018     2017  
     ThU.S.$     ThU.S.$  

Property, plant and equipment capitalized cost

    

Property, plant and equipment capitalized interest cost rate

     4.90     5.10

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

     2,506       256  

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

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

Name of Group’s Main Shareholders

The ultimate shareholders of Arauco, direct and indirectly, are Mrs. Maria Noseda Zambra de Angelini (who passed away on April 15, 2018), 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 Interim Consolidated Financial Statements

March 31, 2018

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
03-31-2018
     % Ownership interest
12-31-2017
 
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      1.0681        98.9309        99.9990        1.1624        98.8366        99.9990  
-   

Arauco Europe Cooperatief U.A.

   Netherlands    U.S. Dollar      0.5689        99.4301        99.9990        0.5689        99.4301        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        9.9971        90.0021        99.9992  
-   

Arauco Industria de Paineis Ltda.

   Brazil    Brazilian Real      —          99.9990        99.9990        —          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      —          57.1031        57.1031        —          57.5223        57.5223  
-   

Empreendimentos Florestais Santa Cruz Ltda.

   Brazil    Brazilian Real      —          99.9795        99.9795        —          99.9795        99.9795  
-   

Flakeboard America Limited

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

Flakeboard Company Ltd.

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

Forestal Arauco S.A.

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

Forestal Cholguán S.A.

   Chile    U.S. Dollar      —          98.4922        98.4922        —          98.4826        98.4826  
78049140-K   

Forestal Los Lagos S.A.

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

Forestal Nuestra Señora del Carmen S.A.

   Argentina    Argentine pesos      —          99.9805        99.9805        —          99.9805        99.9805  
-   

Forestal Talavera S.A.

   Argentina    Argentine pesos      —          99.9942        99.9942        —          99.9942        99.9942  
-   

Greenagro S.A.

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

Inversiones Arauco Internacional Ltda.

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

Investigaciones Forestales Bioforest S.A.

   Chile    Chilean Pesos      1.0000