As filed with the Securities and Exchange Commission on April 28, 201717, 2019

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM20-F

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20162018

Commission File Number:33-99720

CELULOSA ARAUCO Y CONSTITUCIÓN S.A.

(Exact name of Registrant as specified in its charter)

Arauco and Constitution Pulp Inc.

(Translation of Registrant’s name into English)

Republic of Chile

(Jurisdiction of incorporation or organization)

Avenida El Golf 150

14th Floor

Las Condes, Santiago

Chile

(Address of principal executive offices)

Gianfranco Truffello

Tel.:56-2-2461-7221

E-mail:gianfranco.truffello@arauco.clgianfranco.truffello@arauco.com

Avenida El Golf 150

14th Floor

Las Condes, Santiago

Chile

(Name, telephone,e-mail and/or facsimile number and address of company contact person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

Title of each class:

7.500% Notes due 2017

7.250% Notes due 2019

5.000% Notes due 2021

4.750% Notes due 2022

4.500% Notes due 2024

3.875% Notes due 2027

5.500% Notes due 2047

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: Shares of Common Stock, without par value: 113,159,655

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesNo

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes ☐  No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

N/A

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,,anon-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer   Accelerated Filer 
Non-AcceleratedNon-Accelerated Filer   Emerging Growth Company 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statement included in this filing:

 

U.S. GAAP  ☐

  

International Financial Reporting Standards as issued

by the International Accounting Standards Board  ☒

  Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item  17 ☐  Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).YesNo

 

 

 


TABLE OF CONTENTS

 

     Page 

PART I

    

    Item 1.

  

Identity of Directors, Senior Management and Advisers

   1 

    Item 2.

  

Offer Statistics and Expected Timetable

   1 

    Item 3.

  

Key Information

   1 

    Item 4.

  

Information on our Company

   1920 

    Item 5.

  

Operating and Financial Review and Prospects

   4552 

    Item 6.

  

Directors, Senior Management and Employees

   6573 

    Item 7.

  

Major Shareholders and Related Party Transactions

   7280 

    Item 8.

  

Financial Information

   7482 

    Item 9.

  

The Offer and Listing

   7886 

    Item 10.

  

Additional Information

   7987 

    Item 11.

  

Quantitative and Qualitative Disclosures About Market Risk

   8895 

    Item 12.

  

Description of Securities Other than Equity Securities

   9097 

PART II

    

    Item 13.

  

Defaults, Dividend Arrearages and Delinquencies

   9198 

    Item 14.

  

Material Modifications to the Rights of Security Holders and Use of Proceeds

   9198 

    Item 15.

  

Controls and Procedures

   9198 

    Item 16A.

  

Audit Committee Financial Expert

   9299 

    Item 16B.

  

Code of Ethics

   9299 

    Item 16C.

  

Principal Accountant Fees and Services

   9299 

    Item 16D.

  

Exemptions from the Listing Standards for Audit Committees

   93101 

    Item 16E.

  

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

   93101 

    Item 16F.

  

Change in Registrant’s Certifying Accountant

   93101 

    Item 16G.

  

Corporate Governance

   93101 

    Item 16H.

  

Mine Safety Disclosures

   93101 

PART III

    

    Item 17.

  

Financial Statements

   93101 

    Item 18.

  

Financial Statements

   93101 

    Item 19.

  

Exhibits

   94102 

 

i


CERTAIN TERMS AND CONVENTIONS

Celulosa Arauco y Constitución S.A. is asociedad anónima (corporation) organized under the laws of the Republic of Chile, and subject to certain rules applicable tosociedades anónimas abiertas (Chilean public corporations). Except where otherwise specified or the context otherwise requires, when we refer to the “Company,” “Arauco” or “we,” in this annual report, we mean Celulosa Arauco y Constitución S.A. and its consolidated subsidiaries. When we refer to “Chile,” we mean the Republic of Chile; when we refer to “Argentina,” we mean the Argentine Republic; when we refer to “Brazil,” we mean the Federative Republic of Brazil; when we refer to “the U.S.,” “U.S.A.,” or “the United States,” we mean the United States of America; and when we refer to “Uruguay,” we mean the Oriental Republic of Uruguay.Uruguay; and when we refer to “Mexico,” we mean the United Mexican States. All references to “tonnes” are to metric tons (1,000 kilograms), which equal 2,204.7 pounds. One “hectare” equals 10,000 square meters or 2.471 acres. Discrepancies in any table between totals and the sums of the amounts listed aremay be due to rounding.

Unless otherwise specified, all references to “$,” “U.S.$,” “U.S. dollars” or “dollars” are to United States dollars; references to “Chilean pesos” or “Ch$” are to Chilean pesos; references to “Argentine pesos” or “AR$” are to Argentine pesos; references to “Brazilian reais” “Brazilian reals” or “R$” are to Brazilian reais; references to “€” or “euro” are to the euro, the single European currency established pursuant to the European Economic and Monetary Union; references to “Rubles” are to Russian rubles; and references to “UF” are toUnidades de Fomento. The UF is a unit of account that is linked to, and adjusted daily to reflect changes in, the Chilean consumer price index reported by theInstituto Nacional de Estadísticas (Chilean National Institute of Statistics). As of December 31, 2016,2018, one UF equaled U.S.$39.3639.68 and Ch$26,347.96.27,565.79.

Regarding our pulp business, references to “hardwood” kraft pulp are to pulp made from eucalyptus or short fiber, and references to “softwood” kraft pulp are to pulp made from pine or long fiber.

PRESENTATION OF FINANCIAL AND OTHER DATA

This report includes the audited consolidated statement of financial position of Arauco and our subsidiaries as of December 31, 2016,2018 and 20152017 and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years for the period ended December 31, 20162018 (collectively, the “audited consolidated financial statements” or “financial statements”). In addition, this report includes selected financial information as of and for the periods ended December 31, 2012, 2013, 2014, 2015, 2016, 2017 and 2016.2018.

We make statements in this report about the pulp market partly on the basis of information from third-party sources. This information is principally sourced from reports published by Hawkins Wrights Ltd. and Resource Information Systems Inc., which are specialized consultants in the pulp market.

For your convenience, this annual report contains certain translations of Chilean peso amounts into U.S. dollars at specified rates. Unless otherwise indicated, the U.S. dollar equivalent for information in Chilean pesos is based on the observed exchange rate reported by Banco Central de Chile, which we refer to as the “Central Bank of Chile” or the “Central Bank.” The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos. On December 31, 2016,2018, the observed exchange rate for Chilean pesos, as published in theDiario Oficial de la República de Chile (Official Gazette) on January 3, 2017,2, 2019, was Ch$669.47694.77 to U.S.$1.00, and on April 25, 2017,12, 2019, the observed exchange rate was Ch$660.04660.67 to U.S.$1.00. See “Exchange“Item 3. Key Information—Exchange Rates.” You should not construe these translations as representations that the Chilean peso amounts actually represent such dollar amounts or could be converted into U.S. dollars at the rates indicated or at any other rate. Unless otherwise specified, references to the devaluation or the appreciation of the Chilean peso against the U.S. dollar are in nominal terms (without adjusting for inflation) based on the observed exchange rates published by the Central Bank of Chile for the relevant period.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial information as of December 31, 2012, 2013, 2014, 2015, 2016, 2017 and 20162018 and for each of the five years then ended is derived from, should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements which have been prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

 As of and for the year ended December 31,   As of and for the year ended December 31, 
 2016 2015 2014 2013 2012   2018 2017 2016 2015 2014 
 (in thousands of U.S. dollars, except ratios and share data)   (in thousands of U.S. dollars, except ratios and share data) 

INCOME STATEMENT DATA

   

Revenue

  4,761,385   5,146,740   5,342,643   5,145,500   4,298,663    5,954,833   5,238,341   4,761,385   5,146,740   5,342,643 

Cost of sales

  (3,498,905  (3,511,425  (3,654,146  (3,557,210  (3,163,432   (3,722,749  (3,574,532  (3,498,905  (3,511,425  (3,654,146

Gross profit

  1,262,480   1,635,315   1,688,497   1,588,290   1,135,231    2,232,084   1,663,809   1,262,480   1,635,315   1,688,497 

Other income

  257,863   273,026   368,924   385,055   408,251    124,304   111,513   257,863   273,026   368,924 

Distribution costs

  (496,473  (528,470  (556,837  (523,587  (452,760   (556,805  (523,300  (496,473  (528,470  (556,837

Administrative expenses

  (474,469  (551,977  (550,809  (544,694  (479,625   (561,284  (521,294  (474,469  (551,977  (550,809

Other expenses

  (77,415  (83,388  (138,769  (136,812  (105,325   (95,880  (240,165  (77,415  (83,388  (138,769

Other gains (losses)

  —     —     —     —     16,133 

Other income (loss)

   14,213   0   0   0   0 

Finance income

  29,701   50,284   30,772   19,062   23,476    20,895   19,640   29,701   50,284   30,772 

Finance costs

  (258,467  (262,962  (246,473  (232,843  (236,741   (214,779  (287,958  (258,467  (262,962  (246,473

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

  23,939   6,748   7,481   6,260   18,933    17,246   17,017   23,939   6,748   7,481 

Exchange rate differences

  (3,935  (41,171  (9,961  (11,797  (17,245   (26,470  98   (3,935  (41,171  (9,961

Income before income tax

  263,224   497,405   592,825   548,934   310,328    953,524   239,360   263,224   497,405   592,825 

Income tax

  (45,647  (129,694  (448,652  (130,357  (166,787   (226,765  30,992   (45,647  (129,694  (448,652
 

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Net income

  217,577   367,711   144,173   418,577   143,541    726,759   270,352   217,577   367,711   144,173 

BALANCE SHEET DATA

           

Current assets

  2,722,360   2,686,412   3,140,715   2,808,321   2,785,517    3,441,160   2,770,363   2,722,360   2,686,412   3,140,715 

Property, plant and equipment

  6,919,495   6,896,396   7,119,583   7,137,467   6,816,742    7,174,693   7,034,299   6,919,495   6,896,396   7,119,583 

Biological assets(1)

  3,898,991   3,826,597   3,846,353   3,892,203   3,873,070    3,652,263   3,766,942   3,898,991   3,826,597   3,846,353 

Total assets

  14,006,181   13,670,391   14,593,214   14,335,106   14,116,747    14,593,748   13,994,600   14,006,181   13,670,391   14,593,214 

Total current liabilities

  1,346,064   1,034,251   1,547,086   1,682,016   1,546,728    1,579,764   1,399,394   1,346,064   1,034,251   1,547,086 

Totalnon-current liabilities

  5,660,834   5,989,695   6,231,392   5,608,550   5,604,260    5,675,013   5,478,313   5,660,834   5,989,695   6,231,392 

Issued capital

  353,618   353,618   353,618   353,618   353,176    353,618   353,618   353,618   353,618   353,618 

Total equity

  6,999,283   6,646,445   6,814,736   7,044,540   6,965,759    7,338,971   7,116,893   6,999,283   6,646,445   6,814,736 

CASH FLOW DATA

           

Net cash flow from operating activities

  773,584   853,650   985,175   897,720   442,394    1,280,921   1,072,425   773,584   853,650   985,175 

Net cash flow from investing activities

  (640,212  (477,780  (655,158  (687,620  (1,345,849   (893,982  (633,348  (640,212  (477,780  (655,158

Net cash flow from financing activities

  (38,484  (812,176  (7,885  (7,776  1,055,482    129,871   (439,101  (38,484  (812,176  (7,885
 

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Net (decrease) increase in cash and equivalents before effect of exchange rate changes

  94,888   (436,306  322,132   202,324   152,027    516,810   (24  94,888   (436,306  322,132 

OTHER FINANCIAL DATA

           

Capital expenditures(2)

  556,633   564,795   604,155   942,638   1,186,374    937,934   844,082   556,633   564,795   604,155 

Depreciation and amortization

  409,387   400,145   353,434   298,647   252,381    407,422   421,551   409,387   400,145   353,434 

Fair value cost of timber harvested(3)

  340,199   306,673   353,273   320,894   311,821    319,448   334,100   340,199   306,673   353,273 

EBIT(3)

  491,990   710,083   808,526   762,715   523,593    1,147,408   507,678   491,990   710,083   808,526 

Adjusted EBITDA(3)

  1,052,142   1,282,443   1,272,209   1,143,382   861,745    1,850,537   1,353,159   1,067,121   1,290,486   1,280,481 

Adjusted EBITDA(3)/finance costs

  4.07   4.88   5.16   4.91   3.64    8.62   4.70   4.13   4.91   5.20 

Adjusted EBITDA(3)/revenue

  22.1  24.9  23.8  22.2  20.0   31.1  25.8  22.4  25.1  24.0

Average debt(4)/Adjusted EBITDA(3)

  4.18   3.66   3.97   4.37   4.80    2.37   3.23   4.12   3.64   3.95 

Total debt(5)

  4,481,003   4,305,435   5,078,430   5,026,494   4,962,116    4,510,276   4,273,518   4,481,003   4,305,435   5,078,430 

Total debt(5)/capitalization(6)

  39.0  39.3  42.7  41.6  41.6   38.1  37.5  39.0  39.3  42.7

Total debt(5)/equity attributable to parent company

  64.4  65.1  75.0  71.9  72.0   61.8  60.4  64.4  65.1  75.0

Working capital(7)

  1,376,296   1,652,161   1,593,629   1,126,305   1,238,789    1,861,396   1,370,969   1,376,296   1,652,161   1,593,629 

Number of shares

  113,159,655   113,159,655   113,159,655   113,159,655   113,152,446    113,159,655   113,159,655   113,159,655   113,159,655   113,159,655 

Net income per share (U.S.$ per share)

  1.9   3.2   1.2   3.4   1.2    6.4   2.4   1.9   3.2   1.2 

Dividends paid

  130,624   143,003   141,089   140,054   196,816    257,421   121,586   130,624   143,003   141,089 

Dividends per share (U.S.$ per share)

  1.15   1.26   1.25   1.24   1.74    2.27   1.07   1.15   1.26   1.25 

 

(1)

Biological assets refer to our forests andlong-standing trees (current andnon-current).

(2)

Includes capital expenditures in respect of property, plant and equipment and biological assets accrued for the period. Excludes acquisitions of companies.

(3)

We calculate EBIT as “net income” before “finance costs,” “finance income” and “income tax.” We calculate EBITDA as EBIT, plus “depreciation and amortization.”

Adjusted EBITDA is calculated by adding “fair value cost of timber harvested,” “exchange rate differences” and other expenses, and deducting “gain from changes in fair value of biological assets” to EBITDA. “Fair value cost of timber harvested” is anon-cash expense included in our cost of sales (as a component of raw materials) that represents the fair value of the wood

harvested and sold from our own plantations, which is commonly excluded from thenon-generally accepted accounting principles(non-GAAP) measures used by analysts to compare participants in our industry as it is anon-cash item (purchases of wood from third parties are cash expenses that are not included in “fair value cost of timber harvested”). “Gain from changes in fair value of biological assets” is a gain that does not represent cash flow. We believe that Adjusted EBITDA provides investors with a useful supplemental indicator of the performance of our core business because (i) it cancels out the effects of fair value that are independent of the cost efficiency of our operating facilities and (ii) it excludes the effect of exchange rate differences, which are mainly derived from our debt instruments.

In evaluating the performance of Arauco, we believe that each of thesenon-GAAP financial measures should be considered together with and should not be considered in isolation, or as a substitute for, the analysis of our results as reported under IFRS. Some of the limitations of ournon-GAAP financial measures are that EBIT, EBITDA and Adjusted EBITDA do not reflect: (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) changes in, or cash requirements for, working capital needs; or (iii) the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt.

Because not all companies calculate EBIT, EBITDA or Adjusted EBITDA in the same manner, such measures as calculated by us may differ from such measures calculated by other companies. We compensate for these limitations by using EBIT, EBITDA and Adjusted EBITDA as supplemental measures to monitor our performance and by relying primarily on our financial statements that have been prepared in accordance with IFRS.

The following table presents, for the periods indicated, the reconciliation of EBIT, EBITDA and Adjusted EBITDA to net income.

 

  As of and for the year ended December 31,   As of and for the year ended December 31, 
  2016 2015 2014 2013 2012   2018 2017 2016 2015 2014 
  (in thousands of U.S. dollars)   (in thousands of U.S. dollars) 

Net income

   217,577   367,711   144,173   418,577   143,541    726,759   270,352   217,577   367,711   144,173 

(+) Finance costs

   258,467   262,962   246,473   232,843   236,741    214,779   287,958   258,467   262,962   246,473 

(-) Finance income

   (29,701  (50,284  (30,772  (19,062  (23,476   (20,895  (19,640  (29,701  (50,284  (30,772

(+) Income Tax

   45,647   129,694   448,652   130,357   166,787    226,765   (30,992  45,647   129,694   448,652 

Adjusted EBIT

   491,990   710,083   808,526   762,715   523,593 

EBIT

   1,147,408   507,678   491,990   710,083   808,526 

(+) Depreciation and amortization(*)

   409,387   400,145   353,434   317,647   252,381    407,422   421,551   409,387   400,145   353,434 

EBITDA

   901,377   1,110,228   1,080,362   1,061,362   775,974    1,554,830   929,229   901,377   1,110,228   1,161,960 

(+) Fair value cost of timber harvested

   340,199   306,673   353,273   320,894   311,821    319,448   334,100   340,199   306,673   353,273 

(-) Gain from changes in fair value of biological assets

   (208,562  (210,479  (284,497  (269,671  (243,295   (84,476  (83,031  (208,562  (210,479  (284,497
  

 

  

 

  

 

  

 

  

 

 

(+) Exchange rate differences

   3,935   41,171   9,961   11,797   17,245    26,470   (98  3,935   41,171   9,961 

(+) Others(**)

   15,193   34,850   31,512   —     —      34,265   172,959   30,172   42,893   39,784 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Adjusted EBITDA

   1,052,142   1,282,443   1,272,209   1,143,382   861,745    1,850,537   1,353,159   1,067,121   1,290,486   1,280,481 

 

(*)

See Note 37 and Note 19 of our audited consolidated financial statements for more detail on amortizationdepreciation and depreciation.amortization.

(**)

“Others” includes othernon-cash expenses or gains. For 2016, 2015,gains, mainly associated with charges for forestry losses due to fires and 2014impairment for fixed assets and others. The increased in “Others” includedfor 2017 is mainly due to provision for forestry losses.losses that accounted U.S.$138 million due to wildfires that affected our forests at the beginning of 2017.

 

(4)

Average debt is calculated as the average of total debt between the beginning and the end of the applicable year.

(5)

Total debt is calculated as the sum of other current financial liabilities and othernon-current financial liabilities, lessminus hedging instruments.

(6)

Capitalization is calculated as total debt, including accrued interest, plus total equity.

(7)

Working capital is calculated by subtracting current liabilities from current assets.

EXCHANGE RATES

The following table sets forth, for the periods and dates indicated, certain information concerning the observed exchange rates reported by the Central Bank. No representation is made that the Chilean peso or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Chilean pesos, as the case may be, at the rates indicated or at any other rate. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos. See “Item 10. Additional Information—Exchange Controls.”

 

  Daily Observed Exchange Rate   Daily Observed Exchange Rate 

Year Ended December 31,

  High   Low   Average(1)   Period-
End
   High   Low   Average(1)   Period-End 
  Ch$ per U.S.$   Ch$ per U.S.$ 

2012

   519.69    469.65    486.59    479.96 

2013

   533.95    466.50    495.18    524.61 

2014

   621.41    527.53    570.34    606.75    621.41    527.53    570.34    606.75 

2015

   715.66    597.10    654.66    710.16    715.66    597.10    654.66    710.16 

2016

   730.31    645.22    676.67    669.47    730.31    645.22    676.67    669.47 

Months(2016-2017)

                

2017

   679.05    614.75    649.12    614.75 

2018

   698.56    588.28    640.62    694.77 

Months(2018-2019)

        

October

   698.56    656.25    678.57    698.56 

November

   679.24    650.72    666.46    673.54    688.76    667.46    676.24    671.09 

December

   677.11    649.40    666.97    669.47    695.69    666.49    683.23    694.77 

January

   673.36    646.19    660.09    646.19    697.64    666.76    675.38    657.81 

February

   648.88    638.35    643.34    648.88    665.90    649.22    656.00    651.79 

March

   669.52    650.98    661.86    663.97    683.73    656.57    668.95    678.53 

April (through April 25)

   663.97    647.47    654.61    660.04 

April (through April 12)

   672.56    660.67    665.46    660.67 

 

Source: Central Bank of Chile

 

(1)

For each year, the average of themonth-end exchange rates for the relevant year. For each month, the average daily exchange rate for the relevant month.

On April 25, 2017,12, 2019, the observed exchange rate, as published in the Official Gazette on April 26, 2017,15, 2019, was Ch$660.04660.67 to U.S.$1.00.

FORWARD-LOOKING STATEMENTS

This annual report onForm 20-F contains words such as “believe,” “expect,” “anticipate” and similar expressions that identifyforward-looking statements, which reflect our views about future events and financial performance. Statements that are not historical facts, including statements about our beliefs and expectations, areforward-looking statements. Such statements constituteforward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the United States Private Securities Litigation Reform Act of 1995, as amended.

Forward-looking statements involve inherent risks and uncertainties. Theseforward-looking statements are based on current plans, estimates and projections; therefore, readers should not place undue reliance on them. Actual results could differ materially from those projected in suchforward-looking statements because of various factors that may be beyond our control, including but not limited to our ability to service our debt, fund our working capital requirements, comply with financial covenants in certain of our debt instruments, fund and implement our capital expenditure programs and maintain our relationships with customers, as well as a change in control, the effects on us from competition, future demand for forestry and timberwood products in the Chilean, Argentine, Brazilian, Uruguayan and North American export markets, international prices for forestry and sawn timber, the condition of our forests, possible shortages of energy, including electricity, the state of the Chilean and world economies and manufacturing industries, the relative value of the Chilean peso compared to other currencies, inflation, increases in interest rates, the effects of earthquakes, floods, tsunamis or other catastrophic events and changes in our regulatory environment, including our ability to comply with new or stricter environmental regulations and to resolve environmental liabilities.Forward-looking statements in this annual report speak only as of their dates, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

RISK FACTORS

We are subject to various changing economic, political, social and competitive conditions, particularly in our principal markets. Any of the following risks, if they actually occur, could materially and adversely affect our business, financial condition, results of operations and cash flows.

Risks Relating to Us and the Forestry IndustryCompany

Fluctuations in market price for our products could adversely affect our financial condition, results of operations and cash flows.

Prices for many of the products we sell can fluctuate significantly. The priceprices of commodities such as pulp and sawn timberour products are highly correlated with international prices, while panelboards are more closely correlated with local prices. Consequently, the prices that we are able to charge for theseof our products are highly dependent on prevailing international and localregional prices. Historically, such prices have been subject to substantial variation.variations.

During the period from January 1, 20122014 to December 31, 2016,2018, the average price for Norscan bleached softwood kraft market pulp (pulp produced in North American, Nordic and Central European countries and sold to manufacturers of paper products delivered in Northern Europe, or “NBSK”), which is the benchmark for bleached softwood bleached pulp, ranged from a low of U.S.$762.18789.20 per tonne in September 2012April 2016 to a high of U.S.$933.681,230 per tonne in October and November 2014. NBSK prices averaged U.S.$814.35 per tonne in 2012, and U.S.$856.91 per tonne in 2013.2018. Throughout 2014, NBSK prices maintained a steady upward trend, reaching U.S.$932.15 per tonne inmid-January 2015, mainly driven by increased demand from China. Throughout 2015 and during the first half of 2016, NBSK prices followed a downward trend, decreasing to U.S.$789.2 per tonne at the end of April 2016, as China began to change its economic structure fromexport-driven growth todomestic-demand-driven growth. In addition, the price gap between bothsoftwood and hardwood fibers increased, creating incentives for pulp customers to switch from softwood to hardwood, and adding downward pressure to prices. For the remainder of 2016, prices slightly recovered and finally stabilized, ending the year at U.S.$808.83 per tonne. Throughout 2017, NBSK prices had a positive trend, ending the year at U.S.$999.63. Such upward trend continued through October and November 2018 when prices reached U.S.$1,230, followed by a slight decrease in December 2018, ending the year at U.S.$1,200.02. The 2017 and 2018 rise in prices was mainly driven by an increase of demand in China and stable capacity levels.

InDuring the caseperiod from January 1, 2014 through December 31, 2018, prices of bleached hardwood kraft pulp (pulp made from eucalyptus or birch which is sold in Europe whichand is the benchmark for Bleached Eucalyptus Kraft Pulp, or “BEKP”), prices ranged from a low of U.S.$648.85651.46 per tonne in January 20122017 to a high of U.S.$820.911,050.01 per tonne in June 2013.May 2018. In 2014, two new short fiber pulp mills entered the market with a combined annual production capacity of 2.8 million tonnes. The additional supply caused BEKP prices to decline during the first nine months of 2014, reaching its lowesta price atof U.S.$724.27 per tonne in September 2015.2014. Thereafter, BEKP began an upward trend, reaching U.S.$811.17 per tonne in November 2015, following increased demand, particularly from China, which was able to absorb the increased supply. However, the expectation of additional supply during 2016 and especially in 2017 continued to place downward pressure on prices, which reached their lowest level of 2016 in December 2016,January 2017, at U.S.$652.58651.46 per tonne. A new pulp mill located in Indonesia began itsramp-up in November 2016. With2016, initially with an annual capacity of estimated at 2.8 million tonnes, it is currently the largest pulp mill worldwide.tonnes. As theramp-up of new capacity has beenwas delayed, pulp prices have started to increase duringrise at the first partbeginning of 2017, which was also supported by stronger than expected demand from China. Throughout 2017, prices continued to rise as the expected output of the mill located in Indonesia was revised to 1.7 million tonnes for the next three to four years and the lower capacity of other mills due to operational problems, leading to further increases in prices, reaching U.S.$722.11979.31 per tonne at the end of March 2017. The increase in prices continued through May 2018 when prices reached a peak at U.S.$1,050.01. During the rest of the year, prices stabilized with a slight decrease towards the end of 2018, ending the year at U.S.$1,025.73. The increase in prices through May 2018 was mainly due to sustained demand and stable capacity levels. The decrease in demand registered by the end of 2018 was mainly explained by the trade tensions between China and the United States.

Although timberwood products markets improved untilmid-year 2015, new competition from countries with depreciated currencies increased supply to our traditional markets, such as North America, which caused average prices to decrease. Markets recovered during 2016, although Latin American exports continued to affect prices in countries such as the United States. The North American market showed an improvement in the construction sector, which provided steady demand. During 2017, the construction sector continued to improve, and average prices for wood products increased during certain months of the year. During the first half of 2018, Latin American countries (including Mexico) showed stable demand levels for wood products. Towards the end of 2018, the uncertainty surrounding the trade tensions between China and the United States affected demand. The construction sector in the United States experienced a slight increase compared to 2017, which was sustained throughout 2018. Average prices remained stable in 2018 compared to 2017, showing variations depending on the product.

Global economic conditions may exert downward pressure on commodity prices, including the international prices of the products we sell, which could result in material and adverse declines in our revenues, results of operations and financial condition. We have no control over the factors that cause prices to change which include, among others:

 

worldwide demand (which may be affected by a number of factors, including economic or political conditions in Asia, Latin America, North America and Europe);

 

prevailing world prices, which historically have been subject to significant fluctuations over relatively short periods of time, depending on worldwide demand;

 

world production capacity;

 

the business strategies adopted by major integrated forestry, pulp and paper producers and other major producers; and

 

the availability of substitutes.

In addition, the prices of many of the products we sell are correlated to some extent, and historical fluctuations in the price of one product have usually been accompanied by similar fluctuations in the prices of other products. If the price of one or more of the products that we sell were to decline significantly from current levels, it could have a material adverse effect on our revenues, results of operations and financial condition.

Worldwide competition in the markets for our products could adversely affect our business, financial condition, results of operations and cash flows.

We experience substantial worldwide competition in each of our geographical markets and in each of our product lines. Several of our competitors are larger than we are and have greater financial and other resources. resources, which, among other things, may enhance their ability to support strategic expenditures directed to increase their market share. Our market share may be adversely affected if we are unable to successfully continue to expand our production capacity at the same pace as our competitors.

The pulp industry is sensitive to changes in industry capacity and producer inventories, as well as to cyclical changes in the world’s economies, all of which may significantly affect selling prices and, thereby, our profitability. One or more of these factors could materially and adversely affect our business, financial condition, results of operations and cash flows.

Global economic developments, and particularly economic developments in the Asian, European and U.S. economies, could have an adverse effect on the demand for our products, our financial condition, results of operations and cash flows.

The global economy, and in particular global industrial production, is the primary driver of demand for pulp, paper and timberwood products. Global industrial production dropped during the second half of 2008 and first half of 2009 due to the financial crisis and global economic conditions, resulting in a significant and widespread contraction in demand for pulp, paper and timber products. Due to this downturn in global industrial production, our pulp segment experienced significant price declines in the last quarter of 2008 and the first quarter of 2009, which severely affected our results. In addition, the significant downturn in thehome-building industry in the United States and Europe resulted in increased inventories of available new homes, significant declines in home prices, loss ofhome-equity values and loss of consumer confidence and demand. As a result of these events, our plywood and panel sales were adversely affected, continuing a downward trend both in volume and price across all markets. Ourmedium-density fiberboard molding sales also experienced a sharp decline in volume mainly due to lower activity in the United States and Canadian construction markets. Our timberwood products segment, which is also highly dependent on the strength of thehome-building industry, has experienced decreases in its prices of and demand for its products. The decrease in demand of sawn timber due primarilyproducts from time to the credit crisis and downturn in the real estate market in the United States resulted in our decision to close five sawmills in 2008 and 2009.time.

A decrease in the level of activity in either the domestic or the international markets within which we operate could adversely affect the demand and the price of our products and thus our cash flows and operational and financial results.

The financial and economic crisis that affected several European countries between 2009 and 2012 caused a general economic downturn in Europe, which negatively affected the banking and credit systems, employment and production. Thus, demand and prices for pulp and timber declined in the European market.

The devaluation of the Chinese Yuan during the third quarter of 2015 increased volatility in the markets and resulted in a decline in global demand for commodities. Also in 2015, the currencies of several countries depreciated, such as the Canadian dollar, the euro,Euro, the Chilean peso, the Brazilian real and the Argentine peso, resulting in increased competition in exports, which in turn negatively impacted the average price of our timberwood products. A similar trend continued throughout 2016, although certain of these currencies recovered compared to the previous year. During 2017, certain currencies continued to recover such as the Canadian dollar, the Brazilian real, the Euro and the Chilean peso. The Argentine peso depreciated throughout the year. Similar to what happened in 2015, throughout 2018 the currencies of several countries depreciated, including the Brazilian real, the Chilean peso, the Canadian dollar, and the Argentine peso (which depreciated the most).

Export sales of our timber products to Asia accounted for 8.3%40.1% of our revenuerevenues in 2018 compared to 36.2% in 2017 and 32.6% in 2016, compared to 9.1% in 2015 and 13.7% in 2014, and export sales of our timber products to North America accounted for 23.4%11.2% of our revenuerevenues in 20162018 compared to 23.2%12.8% in 20152017 and 21.7%13.2% in 2014.2016.

Our business, financial condition, results of operations and cash flows could be materially and adversely affected if the economic conditions in Asia, Europe, the United States and elsewhere abroad deteriorate, and if we are unable to reallocate our sawn timberwood products and other products into other markets on equally beneficial terms, which could require us to recognize additional impairment charges.

We depend on free international trade as well as economic and other conditions in our principal export markets.

In 2016,2018, export sales, defined as sales out of the country where our goods were produced, accounted for 62.8%67.8% of our total revenues. During this period, 51.9%59.1% of our export sales were to customers in Asia and Oceania, 21.0%16.4% to customers in North America, 10.9%11.9% to customers in Europe, 10.0%7.2% to customers in Central and South America and 6.2%5.4% to customers in other countries. As a result, our results of operations and cash flows depend, to a significant degree, on economic, political and regulatory conditions in our principal export markets. Our ability to compete effectively in our export markets could be materially and adversely affected by a number of factors beyond our control, including deterioration in macroeconomic conditions, exchange rate volatility, government subsidies and the imposition of increased tariffs or other trade barriers. If our ability to sell our products competitively in one or more of our principal export markets were impaired by any of these developments, it might be difficult tore-allocate reallocate our products to other markets on equally favorable terms and our business, financial condition, results of operations and cash flows might be adversely affected.

We are located in a seismic area that exposes our propertyproperties in Chile to the risk of earthquakes and tsunamis, and we experienced significant business disruption and losses as a result of the February 27, 2010 earthquake.

Our properties in Chile are located in a seismic area that exposes our facilities, plants, equipment and inventories to the risk of earthquakes and even subsequent tsunamis in some areas. A significant earthquake or other catastrophic event could severely affect our ability to meet our production targets or satisfy customer demand and could require us to make unplanned capital expenditures, resulting in lower sales and having a material adverse effect on our financial results.

On February 27, 2010, an earthquake measured at a magnitude of 8.8 on the Richter scale, followed by a tsunami that affected the coast, occurred in theSouth-Central Region of Chile, an area where we maintain a substantial portion of our Chilean industrial operations. Immediately after the earthquake, all of our production units implemented their contingency plans, which involved shutting down operations and evaluating the damage caused to each facility by the earthquake. As a result of the earthquake and the subsequent tsunami, our Mutrún sawmill was destroyed.

The suspension of our operations in Chile resulted in significant asset impairment charges due toearthquake-related damage to property and inventories as well as a significant decrease in our sales volumes due to plant closures, which had an adverse effect on our results of operations and cash flows. Our insurance policies provided coverage up to an aggregate amount of U.S.$650 million for damages to our property, plant, equipment and inventories, with a deductible of U.S.$1 million for property damage, and for losses due to business interruption caused by such damage after the first 15 days forof business interruption. On November 15, 2011, we and the insurers accepted the final report of the insurance adjusters. In accordance with such final report, we received a total recovery payment of U.S.$532.0 million.

We cannot assure you that we will not experience other suspensions or interruptions or unexpected damage to our property as a result of other earthquakes, aftershocks, tsunamis, any related repair and maintenance or other consequences associated with such events, or that our insurance coverage will be sufficient, any of which could have a material and adverse effect on our revenue, results of operations and financial condition.

The costs to comply with, and to address liabilities arising under, environmental laws and regulations could adversely affect our business, financial condition, results of operations and cash flows.

In each country where we have operations, we are subject to a wide range of national and local environmental laws and regulations concerning, among other matters, the preparation of environmental impact assessments for our projects, the protection of the environment and human health, the generation, storage, handling and disposal of waste, the discharge of pollutants and the remediation of contamination. As a forest products manufacturer, we generate air and water emissions and solid and hazardous wastes. These emissions and our waste disposal are subject to limits orand controls prescribed by law or by our operating permits, and we may be required to install or upgrade our pollution control equipment in order to meet these legal requirements. We have made, and expect to continue to make, expenditures to maintain compliance with environmental laws. Notwithstanding our policy to strictly comply with all requirements established by applicable environmental laws, any failure to comply with such environmental laws may result in civil, administrative or criminal fines or sanctions, claims for environmental damages, remediation obligations, the revocation of environmental authorizations or the temporary or permanent closure of facilities. Environmental regulations in Chile and other countries in which we operate have become increasingly stringent in recent years (for example, in connection with the approval and development of new projects), and this trend is likely to continue. Future changes in environmental laws, or in the application, interpretation or enforcement of those laws, including new or stricter requirements related to harvesting activities, air and water emissions and/or climate change regulations, could result in substantially increased capital, operating or compliance costs, impose conditions that restrict or limit our operations or otherwise adversely affect our business, financial condition, results of operations and cash flows. These changes could also limit the availability of our funds for other purposes, which could adversely affect our business, financial condition, results of operations and cash flows.

We have been subject to a number of environmental administrative and judicial proceedings in Chile, including proceedings related to the Valdivia Mill, the Arauco Mill, the Nueva Aldea complex, the Licancel Mill and the Constitución Mill. As a result of these proceedings, we have been subject to monetary fines as well as sanctions, including orders to suspend or limit our operations. The operations of

In November 2015, the Cruces river, where the Valdivia Mill recentlydisposes its effluents, became subject to the Secondary Water Quality Standard for the Valdivia River Basin (hereinafter, the “Norm” or “SWQSVR”). The Valdivia Mill discharges its treated effluents into the Cruces River, which is part of the Valdivia River Basin. We cannot exclude that

The Company and other local entities challenged the authority declare thatvalidity of the Basin is contaminated and thus initiate an administrative procedure to enact a decontamination plan, which may include limits on discharges of wastewater applicable toNorm before the Valdivia Mill.

Arauco expressedThird Environmental Court in January 2016, expressing concerns, among others, regarding various aspects of the Norm’s General Environmental and Social Impact Assessment (AGIES, for its acronym in Spanish), prior to its enactment.. These objections included the lack of identification and consideration for the effective economic and social costs resulting from the adoption of the Norm. Other objections includeincluded that the

Norm’s parameters and limits exceedexceeded the reviewed water quality criteria enforced by reference countries in both quantity and stringency; and that many of the parameters and limits arewere not technically or environmentally reasonable. The Company challenged the validity of the Norm before the Third Environmental Court in January 2016. Several technical, economical and legal reports from third parties (scientists, economists and attorneys from different countries) were filed to support the challenge. Other local actors challenged the Norm as well, such as Corporación para el Desarrollo de la Región de Los Rios (Association for the Development of Los Rios Region) CODEPROVAL (for its acronym in Spanish) and the local company Forestal Calle Calle S.A. The Third Environmental Court ruled in our favor on September 29, 2016, declaring the invalidity of the Norm. ThisNorm, which decision was challengedupheld by the government before the Supreme Court in July 2017.

In December 2017, the government restarted the rulemaking process and published a new draft SWQSVR for public comments. The draft proposes to regulate using practically the same parameters and limits included in the previous Norm declared void by the Supreme Court. In our opinion, the draft presents flaws similar to those detected in the previous rulemaking process, among others, the lack of identification and consideration of its actual economic and social costs and that most of its parameters and limits are not technically or environmentally reasonable. The public comment process finished in March 2018 and several comments from the public and different stakeholders were submitted, including various technical, economical and legal reports from third parties. According to applicable regulations, the government shall analyze and weigh the comments to prepare a final rulingdraft, prior to submitting for consideration by the Sustainability Ministers’ Committee (Consejo de Ministros para la Sustentabilidad) and the President of the Republic. Once the new norm enters into force, we cannot exclude that the authority may declare that the Valdivia River Basin is expected during 2017.contaminated and thus initiate an administrative proceeding to impose a decontamination plan, which may include new limits on discharges of wastewater applicable to the Valdivia Mill.

In the United States, our Moncure mill was subject to an administrative proceeding by the North Carolina Department of Environment and Natural Resources. We negotiated a settlement (Special Order by Consent) in 2015 with the Environmental Management Commission (an agency of the state of North Carolina), which included a monetary fine and an agreement to replace certain emissions control equipment. We expect thatArauco is pursuing an additional agreement with the administrative proceedingstate of North Carolina to be closedobtain additional time for modifications and acclimation of abatement equipment installed under such 2015 Special Order by October 1, 2018. Consent.

In 2016, the Moncure mill was subject to an administrative proceeding for alleged infringements by the North Carolina Department of Environmental Quality (NCDEQ), which is currently ongoing. Correctivehas terminated, as corrective actions have been either proposed or executed, including ongoing training, the installation of alarms/interlocks and the installation of certain control devices. These actions are expected to begin and/or be completed by the end of 2017.

Our Eugene, Oregon mill was subject to an administrative proceeding by the Lane Regional Air Protection Agency. We negotiated a settlement that included monetary fines and an agreement to implement improvements to certain emissions control equipment and processes. The mill will be assessed a civil penalty and this should close the matter unless the mill fails to meet emission standards in future compliance testing. Additional proceedings, enforcement actions or claims related to compliance with environmental requirements or alleged environmental damages may also be brought against us in the future.

Any such proceedings or claims may have an adverse effect on our business, financial condition, results of operations and cash flows. See “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Forestry Industry—Company—Environmental concerns led to the temporary suspension of our operations at the Valdivia Mill in 2005, which adversely affected, and in the future may continue to adversely affect, our business, financial condition, results of operations and cash flows.”

Environmental concerns led to the temporary suspension of our operations at the Valdivia Mill in 2005, which adversely affected, and in the future may continue to adversely affect, our business, financial condition, results of operations and cash flows.

Our operations at the Valdivia Mill have been subject to environmental scrutiny by Chilean environmental regulators and the Chilean public since the mill began its operations in 2004. A variety of concerns and claims have been raised regarding the mill’s potential environmental impacts in the area. Primarily, it has been alleged that the mill’s operations impacted the habitat of the nearby Carlos Anwandter Nature Sanctuary and contributed to the migration and death ofblack-neck swans living in the area. In connection with an environmental administrative proceeding, environmental regulators required us to temporarily suspend operations at the Valdivia Mill for approximately one month in January 2005.

Until October 2007, our Valdivia Mill was under the jurisdiction of the COREMA of the Tenth Region of Chile, but due to a change in legislation creating two additional administrative regions in Chile, our Valdivia Mill became subject to the jurisdiction of the COREMA of the Fourteenth Region of Chile.

In February 2009, as previously required by the COREMA of the Tenth Region of Chile,environmental authorities, we submitted an environmental impact study for the construction of a pipeline to discharge the Valdivia Mill’s wastewater in the Pacific Ocean near Punta Maiquillahue, complying with the requirement that such wastewater be discharged in a body of water other than the Cruces River, the Carlos Anwandter Nature Sanctuary or their respective sources. In February 2010 through Exempt Resolution No. 27/2010,and October 2012, the COREMAenvironmental authorities approved this environmental impact study subject to additional conditions, certain of which we challenged before the Directive Council primarily because they would have prohibited the discharge of wastewater into the Cruces River under any circumstance, including emergencies. On October 23, 2012, the Committee of Ministers passed Exempt Resolution No. 1052, which upheld in part our appeal in permitting the discharge into the Cruces River upon the occurrence of certain contingencies that may affect the normal functioning of the conduction system and/or outfall, including bombings or sabotage, natural disasters, or accidents caused by third parties. On March 29, 2010, two Chilean individuals filed arecurso de participación ciudadana (reclamation action) before the COREMA of the Fourteenth Region of Chile, challenging Exempt Resolution No. 27/2010.some conditions. On April 30, 2013, the Committee of Ministers passed Exempt Resolution No. 391, which upheld in part such reclamation action, modifyingmodified certain paragraphs of Exempt Resolution No. 27/2010the above mentioned approval (establishing effluent discharge limits for 13 parameters). According to Chilean law, the environmental permit shall expire five years after its issuance, provided that the execution of the respective project had not begun. However, on May 16, 2014, the regional environmental authority issued letter No. 165 in which it recognized that although we have not yet carried out physical works with respect to the project, we have carried out systematic, uninterrupted and permanent activities towards its execution.

The construction and operation of the pipeline requested by the environmental authority in order to discharge the Valdivia Mill’s wastewater in a body of water other than the Cruces River, the Carlos Anwandter Nature Sanctuary or their respective sources, remains subject to many environmental, regulatory, engineering and political uncertainties. As of the date of this annual report, it has not been possible to obtain the relevant permits and authorizations for the project. As a result, we cannot provide any assurances that the project will be completed and that any deadline extensions would be granted, even if we comply with all the requirements that may

be set forth by those authorities. If the installation of the pipeline is delayed for reasons attributable to us, we may face sanctions that include warnings, fines or the revocation of the Valdivia Mill’s environmental permit for operation. See “Item 4. Information on the Company—Description of Business—Pulp—Pulp mills—Chile—Valdivia Mill” and “Item 8. Financial Information—Legal Proceedings.”

The suspension of operations at the Valdivia Mill in 2005 adversely affected our business, financial condition, results of operations and cash flows. Any future suspension of operations at the Valdivia Mill or at any other of our significant operating plants can be expected to have similar adverse effects. We offer no assurance that the Valdivia Mill, or our other mills, will be able to operate without further interruption. See “Item 8. Financial Information—Legal Proceedings.”

We have been subject to legal proceedings related to our mills which could adversely affect our business, financial condition, results of operations and cash flows.

In April 2005, theConsejo de Defensa del Estado (National Defense Council), the Chilean national agency that institutes legal proceedings on behalf of the Chilean government, instituted a civil lawsuit seeking reparations, damages and indemnification from us for environmental harm caused into the Carlos Anwandter Nature Sanctuary allegedly caused by effluent discharges from our Valdivia Mill. On July 27, 2013, a civil court of Valdivia ruled that the alleged environmental events were mainly caused by the Valdivia Mill. We decided not to appeal this ruling, in order to create the conditions to shortly begin an effective implementation of measures in favor of thatsuch Nature Sanctuary, without the delay of further legal action. In April 2014, we agreed with and paid to the National Defense Council an indemnification amount of approximately U.S.$5,000,000. This indemnification iswas in addition to another payment of U.S.$5,000,000, which will be designatedused for social programs for the benefit of the community of Valdivia. There were four additional measures ordered by the ruling (though(although not included in the agreement with the National Defense Council), which were discussed by the members of theConsejo Científico Social (Social Council), which includes representatives fromof Arauco, the National Defense Council, academic institutions, NGOs and public authorities. These measures are:were: (i) conducting a study, within one year, undertaken by an interdisciplinary committee of experts, about the current status of the wetland (which has already been completed); (ii) creating an artificial sentinel wetland for representative species, upriver from the discharge of effluents;effluents (which has been constructed); (iii) implementation ofimplementing a monitoring program of environmental impact, within afive-year period; and (iv) creating a new research center focused on wetlands (Centro de Investigación de Humedales). The National Defense Council and Arauco have agreed upon the manner in which these measures have been implemented.

Since the end of 2004, we have been subject to various criminal proceedings relating to alleged violations of several environmental laws in Chile, some of which have been either terminated or abandoned by the prosecutor (decisión de no perseverar) as of the date of this annual report. See “Item 8. Financial Information—Legal Proceedings.However, in connection with the death of fish in the Cruces River in January 2014 close to the Valdivia Mill’s effluent discharge, in January 2019, the public prosecutor’s local office (in Mariquina) filed charges (“formalización de la investigación) against five individuals, four of them currently working for the Company. This process will be under investigation for six months, which period could be extended for up to two years. Also in January 2019, the National Defense Council instituted a civil lawsuit seeking reparations from us for environmental harm allegedly caused by our Valdivia Mill in connection with the death of fish in the Cruces River in January 2014. The National Defense Council did not determine the damages in this lawsuit, which could be sought by theNational Defense Council in a separate proceeding before a civil court. The Company filed its defense in February 2019. The lawsuit remains under review by the court as of the date of this annual report. We cannot predict the outcome or impact of this lawsuit or when it may be resolved. If the result of such lawsuit is unfavorable to us, we may be required to conduct studies on ecosystems and biodiversity as well as to implement programs to both repopulate and monitor species under conservation. We may be required to incur in significant costs to repair any environmental harm a court determines we have caused, which could materially and adversely affect our business, financial condition, results of operations and cash flows.

The commencement of similar criminal proceedings against Arauco at any time in the future could adversely affect some of our mills. We can neither predict the likelihood that we will face such similar proceedings in the future, nor the likely outcome or impact of any such proceedings.

We are also subject to certain administrative proceedings as a result of a pipe leakage in the Nueva Aldea Mill in 2013, the death of fish in the Cruces River event in January 2014, close to the Valdivia Mill effluent discharge, and a pipe leakage in the Arauco Mill in February 2016, allboth of which are currently under investigation by the competent authorities. In addition, in 2016 the Superintendence of the Environment initiated four administrative proceedings against the Valdivia, Nueva Aldea, Licancel and Constitución mills. In 2017, the Superintendence of the Environment initiated an administrative proceeding against the Arauco Mill. The proceedingsfirst part of the proceeding against the Valdivia Mill are ongoing,concluded in 2017. On December 15, 2017, the Superintendence of the Environment decided that the Valdivia Mill was liable for ten out of eleven charges and imposed a fine of 7,777 UTA (approximately U.S.$6.5 million as of December 2018). We appealed this decision on April 5, 2018 before the Third Environmental Court. A final decision by the Third Environmental Court is expected to be rendered during 2019 and may result in material administrative fines or sanctions,be further appealed before the revocation of environmental authorizations orSupreme Court. In 2016, the temporary or permanent closure of facilities. The Nueva Aldea and Constitución mills decided to submit compliance programs according to applicable regulations, both of which were approved by the Superintendence of the Environment. These programs require the mills to implement actions and/or make certain investments in connection with the charges made by the Superintendence. Once theseIn December 2018, the Nueva Aldea mill’s compliance program was officially terminated (“declaración de ejecución satisfactoria”) by the Superintendence of the Environment. With regard to the Constitución mill’s compliance program, once the activities have beenare completed, the proceedings will end. We expect that such proceedings will end in 2019. With regardsregard to the Licancel Mill, the Company filed its defense in June 2016. In February 2017, the Superintendence of the Environment found the Licancel Mill liable for three out of four charges and imposed a fine of 239 UTA (approximately U.S.$205,000). This decision was appealed before the above Superintendence. A final decision bySuperintendence, which on August 7, 2017, materially reduced the fine. Arauco paid the fine and this case was closed. Finally, with regard to the proceeding against Arauco Mill, the Company filed its defense in September 2017 and, in May 2018 the Superintendence is expected in 2017.of the Environment found the Arauco mill liable for two charges and imposed a fine of 699,6 UTA (approximately U.S.$635,000). Arauco paid the fine with a 25% reduction (taking advantage of a benefit established by Chilean law) and this case has been closed.

As a result of such proceedings, we cannot assure you that our mills will be able to operate without interruption. Any such interruption, or unexpected costs to resolve such proceedings, could have a material and adverse effect on our business, financial condition, results of operations and cash flows.

Our ability to access local and international credit or capital markets may be restricted at a time when we need financing, which could have a material adverse effect on our flexibility to react to changing economic and business conditions.

As of December 31, 2016,2018, we had approximately U.S.$4.5 billion of outstanding indebtedness. See “Management’s discussion“Item 5. Operating and analysisFinancial Review and Prospects—Management’s Discussion and Analysis of financial conditionFinancial Condition, Results of Operations and results of operations—Cash Flows—Liquidity and capital resources—Capital Resources—Contractual obligations.Obligations.” The economic environment prevailing at any point in time may prevent us from accessing, or restrict our access to, credit and capital markets to satisfy our financing needs, or we may not be able to refinance our existing indebtedness on terms that are favorable to us or at all. If we are unable to refinance our indebtedness as it becomes due, or if we refinance such indebtedness on terms that are not favorable to us, our business, results of operations and financial condition could be materially and adversely affected.

Material disruptions at any of our manufacturing, mills processing or remanufacturing facilities could negatively impact our financial results.

A material disruption at any of our manufacturing, processing or remanufacturing facilities could prevent us from satisfying customer demand for our products, meeting our production targets and/or require us to make unplanned capital expenditures, resulting in lower sales, which wouldcould have a negative effect on our financial results. Our Chilean facilities are located in a region known for seismic activity that exposes our facilities in Chile to the risk of earthquakes and, in some areas, to subsequent tsunamis.

In addition, our facilities (or any of our machines within an otherwise operational facility) could cease operations unexpectedly due to a number of events, including:

 

unscheduled maintenance outages;

 

prolonged power failures;

 

an equipment failure;

 

fires, floods, hurricanes or other adverse weather;

 

disruptions in the transportation infrastructure, including roads, bridges, railroad tracks, tunnels and tunnels;ports;

a chemical spill or release;

 

explosion of a boiler;

 

the effect of a drought or reduced rainfall on its water supply;

 

labor difficulties;

 

terrorism or threats of terrorism;

 

domestic and international laws and regulations applicable to our Company and our business partners, including joint operation partners, around the world; and

 

other operating problems.

In connection with losses to our production plants, facilities and equipment caused by material disruptions, our insurance coverage may be insufficient. The incurrence of losses or other liabilities that are not covered by insurance could result in significant and unexpected additional costs. Moreover, the terms and conditions for the renewal of our insurance policies may change in the future depending upon market circumstances and the type and amount of risks insured. See “Item 4. Information on our Company—Description of Business—Insurance”.

Disease or fire could affect our forests and manufacturing processes and, in turn, adversely affect our business, financial condition, results of operations and cash flows.

Our operations are subject to various risks affecting our forests and manufacturing facilities, including disease and fire. Although to date certain pests and diseases afflicting radiata or taeda pine plantations in other parts of the world have not significantly affected the forestry industries in Chile, Argentina, Brazil or Uruguay, these pests or diseases may migrate and may significantly affect the forestry industries in Chile, Argentina, Brazil or Uruguay in the future. Similarly, forest fires are always a risk, particularly during low rainfall conditions. We do not maintain insurance against pests, diseases or,the forestry fires season that in certain areas, fires that could affect our forests, and as a result, our business, financial condition, resultsChile typically extends from the last quarter of operations and cash flows could be adversely affected if anyeach year through the southern hemisphere summer to the end of these risks were realized.the first quarter of the following year.

In January and February 2017, wildfires, exacerbated by high temperatures, the action of the winds, low atmospheric humidity and the complexity of combatting multiple focal points that appeared simultaneously in different places, broke out in the central and southern regions of Chile, and in respect of the Company, in the Maule and Bío Bío regions. As a consequence of such fires, the Company has suffered the burning of approximately 80,00072,500 hectares of forest plantations, which havehad a fair value in our accounting of approximately U.S.$240210 million, according to IFRS accounting rules. The affected forest plantations representrepresented approximately 6%5.6% of the IFRS value of the total of the forest plantations of the Company, and approximately to a 2%1.5% of the total assets of Arauco. The affected plantations will behave been managed by the Company in order to minimize the damage suffered as a consequence of the fires. It is estimated that this managing will permit a final recovery between 10% and 20% of the abovementioned accounting amount of U.S.$240 million. Additionally, the

The forest plantations affected by the fires havehad insurance coverage, with their corresponding deductibles and limitations. Aslimits. Based on the final report of the insurance appraisers, in October 2017 our subsidiary Forestal Arauco S.A. recovered a consequence, it is estimated that it will be possible to recover up to an amounttotal of U.S.$35 million, for this concept.after applying the U.S.$15 million deductible.

In turn,Also in 2017, our El Cruce sawmill, which is owned by our subsidiary Maderas Arauco S.A., was also materially affecteddestroyed by the wildfires. El Cruce sawmill had a book value of approximately U.S.$4.5 million and an annual production capacity of 115,881 cubic meters, representing approximately 4.2% of our total sawmill production capacity at the time of the event. AlthoughWith regard to the El Cruce sawmill was insured, our insurance is subject to deductiblesclaim, in October 2017 we recovered U.S.$50.9 thousand on account of affected inventory, and caps.

Duringin 2018, we received approximately U.S.$1.04 million (net of the deductible) on account of property damage. In addition, during the fourth quarter of 20142017, our Viñales sawmill and remanufacturing facility suffered a stoppage of seven days due to a wildfire.

During the first quarter2017-2018 forestry fire season, wildfires were considerably less severe than in the 2016-2017 season. Nevertheless, 587 hectares of 2015,the Company’s forest plantations burned in the 2017-2018 season (which represented 0.8% of the plantations affected by fires in the 2016-2017 season). The affected ourforest plantations had an accounting value of approximately U.S.$2.6 million, according to IFRS accounting rules, representing approximately 0.07% of the IFRS value of the Company’s total forest plantations and destroyed 8,570 hectares. approximately 0.02% of the total assets of Arauco.

During the fourth quarter of 2015 and the first quarter of 2016, fires affected our forest plantations and destroyed 618 hectares. During the fourth quarter of 2016 and the first quarter of 2017,2018-2019 forestry fire season, approximately 82,0401,579 hectares of our forest plantations were affected.

In connection with losses to our production plants, facilities and equipment caused by fires, our insurance coverage may be insufficient. We do not maintain insurance coverage against pests, diseases and, in certain areas, fires that could affect our planted forests. The incurrence of losses or other liabilities that are not covered by insurance could result in significant and unexpected additional costs. Moreover, the terms and conditions for the renewal of our insurance policies may change in the future depending upon market circumstances and the type and amount of risks insured. See “Item 4. Information on our Company—Description of Business—Insurance.”

Climate change may negatively affect our business, financial condition, results of operations and cash flows.

A significant number of scientists, environmentalists, international organizations, regulators and other commentators maintain that global climate change has contributed, and will continue to contribute, to the increasing unpredictability, frequency and severity of natural disasters (including, but not limited to, hurricanes, droughts, tornadoes, freezes, other storms and fires) in certain parts of the world. As a result, a number of legal and regulatory measures as well as social initiatives have been introduced in numerous countries in an effort to reduce carbon dioxide and other greenhouse gas emissions and combat global climate change. Such reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs and may require us to make additional investments in facilities and equipment. In addition, our plantations are located in regions which have ideal climatic conditions for a short growing cycle. Any climate changes that negatively affect such favorable climate conditions in central or southern Chile or in any region in which we benefit from favorable climate conditions could adversely affect the growth rate and quality of our plantations, or our production costs. Although we cannot predict the impact of changing global climate conditions, if any, or if legal, regulatory and social responses to concerns about global climate change, any such occurrences may negatively affect our business, financial condition, results of operations and cash flows.

We may undertake mergers, acquisitions and investments to expand or complement our operations that could result in operating difficulties or otherwise adversely affect our business, financial conditions and results of operations.

From time to time, we carry out mergers, acquisitions and investments to expand or complement our operations. In connection with such transactions, we may be exposed to various risks, including those arising from: (i) not having accurately assessed the value, future growth potential, strengths, weaknesses and potential profitability of potential acquisition targets; (ii) difficulties in successfully integrating, operating, maintaining or managingnewly-acquired operations, including personnel; (iii) unexpected costs of such transactionstransactions; or (iv) unexpected contingent or other liabilities or claims that may arise from such transactions. If any of these risks were to materialize, it could adversely affect our business, financial condition and results of operations.

Our operations could be adversely affected by labor action and contractual disputes.

Approximately 38%53% of our employees in Chile, 49% of our employees in Argentina, 25%30% of our employees in Uruguay, almost 100%9% of our employees in Brazil (although 100% are represented by the unions) and none of our employees in the United States or Canada were unionized as of December 31, 2016.2018. In the past, certain work slowdowns, stoppages and otherlabor-related disruptions have adversely affected our operations.

During 2016, inIn Chile we experienced seven(i) one stoppage during April 2018 (lasting nine days), (ii) three stoppages caused by employees of ourthird-party contractors. We experienced stoppages third party contractors in our Horcones complex caused by employees of our forestry contractors during February (lasting fourtwo days), April (lasting two days) and November (lasting five days) of 2017; (iii) seven separate occasions of blockades during 2016, which included stoppages in April (lastingthe Horcones complex for four days and another for one day). Access today; athree-day stoppage at the entrance of our El Colorado Saw Mill was blocked forsawmill; three daysone-day stoppages in 2016. Ourour Viñales Saw Mill experienced three stoppages, each lasting one day,sawmill during the months of April, August and November 2016. During May 2016,2016; and athree-stoppage in our Constitución Mill had its access blocked for three days. In Uruguay, on June 4, 2016, our mill’s activity was suspended for five days when employeesduring May 2016; (iv) four separate occasions of our logistics contractors blocked the access to the mill.

During 2015, transportation contractors blockedblocking the entrancesentrance of our Horcones complex (Chile) on four separate occasions, on January 13, February 17, March 2324, and September 21, 2015.

During 2014, there were two events of transportation contractors blocking2015; (v) aone-day stoppage at the entrance to our Valdivia mill. The first blockade wasPulp Mill on June 12, 2014 and lasted one day. The second wasaneight-day stoppage between August 29 and September 5, 2014. There were also2014, caused by employees of third party service providers; and (vi) four separate occasions of transportation contractors blocking the entrances of our Horcones complex on February 24 and 25, September 3, October 22 and 23, and November 20, 2014. During 2015, the pulp union carried out three work stoppages and blockades; the first event occurred on May 25, lasting three days, the second on August 3, lasting three days and the last one on September 1, which lasted 14 days.

In January 2013, weAt the end of 2017, the Constitución pulp mill and the Viñales sawmill and remanufacturing facility experienced afour-day40-day stoppage in Chile at the Arauco plywood mill in January 2013, caused by employeesworkers ofthird-party contractors. certain transportation companies.

In Chile, we alsoOur Argentine operations have experienced afour-daythe following work stoppagestoppages in July 2012 at our Arauco plywood mill located in Arauco, during which production partially resumed after the second day, which was caused by the employees of ourthird-party forestry contractors.

In January 2015, we experienced afive-day stoppage at Arauco Argentina’s mills in Misiones as a result of a road blockage led by the truckers’ union, and we also experiencedlast five years: (i) afour-day stoppage at Arauco Argentina’s pulp mill in December 2014, as a result of a strike by the pulp union.

During 2015, production shifts were reduced at the unit in Piray MDF and in the particleboard plant in Zarate (Argentina), in order to improve operational efficiencies. Although the shift reductions and communications were performed in accordance with the provisions of the Labor Contract Law, workers of the plant in Zarate went on strike, causingunion; (ii) asix-hour stoppage. Also during 2015, the pulp union carried out three work stoppages and blockades in Arauco Argentina’s pulp mill: the first event occurred on May 25 for 3 days; the second on August 3, also lasting 3 days; and the last one on September 1, which lasted 14 days.

During 2013, we experienced (i) a27-dayfive-day stoppage at Arauco Argentina’s Zarate mill in April 2013,Misiones in January 2015, as a result of a strikeroad blockage lead by the constructiontruckers union; (ii)(iii) atwo-day6-hour stoppage atin Arauco Argentina’s chemical mill in Zarate; and (iv) a stoppage of three days during May 2013,2015 and August 2015, as well as a result of a strike by the Santa Fe Federation of Labor; and (iii) aone-day14-day stoppage atduring September 2015 in Arauco Argentina’s pulp mill, in June 2013 and athree-day stoppage at Arauco Argentina’s pulp mill in October 2013, both as a result of a strike byPuerto Esperanza. During December 2018, we renewed the pulp union. During 2011 we experienced athree-day stoppage at Arauco Argentina’s chemical mill in March 2011, as a result of a strike bycollective bargaining agreement with the chemical union butthat represents the strike were limited to two hours per shift and did not materially affect operations.employees of Petroquímica General San Martín.

Our Brazilian operations have not experienced any work stoppages infor the last six years.eight years, other than a generalized truckers strike in 2018 that affected our operations. As a consequence of this event, the Company was prevented from receiving raw materials and dispatching products, and our employees could not easily access our Brazilian mills during such time, which resulted in a stoppage of ten days. As a result, transportation costs increased 25% in average, which directly affected the cost of our final product, rising them from 3% to 5% depending on the type of product.

During 2018, our Uruguayan operations did not experience any relevant work stoppages. Also, during 2018 and 2017, we entered into a labor agreement with unions representing the employees of our pulp mill and forestry nursery in Uruguay.

On June 4, 2016, the Montes del Plata mill’s activity was suspended for five days as a result of labor unrest involving employees of our logistics contractors, who blocked the access to the mill. Montes del Plata is the name of the 50/50 joint operation between Arauco and Stora Enso in Uruguay.

During 2014, we experienced 7.5 days of work stoppages during the final phase of construction at Montes del Plata in Uruguay and the start of operations, caused by contractors and third parties. During 2015, there were 28 minor events amounting to 5.5 days of work stoppages, caused by transportation and timber logistics contractors.

In September 2011, we experienced a21-day work stoppage of construction atDuring the Montes del Plata joint operation in Uruguay. In 2012, we experienced approximately 17 days oflast seven years, there have been no strikes or other material work stoppages at our U.S. and in 2013, approximately 33 days of work stoppages during the construction at Montes del Plata. These stoppages were caused by national and local strikes related to various labor conflicts mostly of Montes del Plata subcontractors.

Our Canadian and U.S. operations did not experience any work stoppages in 2012, 2013, 2014, 2015 or 2016.subsidiaries.

We renewed allcollective-bargaining agreements that expired during 20162018 in Chile. We cannot assure you that a work slowdown, or a work stoppage or strike, will not occur prior to or upon the expiration of our labor agreements, and we are unable to estimate the extent to which any such work slowdown, stoppage or strike may adversely affect our sales.

In addition, we depend to a significant extent on employees of contractors to which we outsource a wide range of services including management of certain of our plantations and transportation of raw materials and products. On July 1, 2012, we commenced the process of insourcing the operation of 13 sawn timber industrial facilities, which had previously been managed bythird-party companies.

In the process, we hired 2,900 employees of thesethird-party companies. AsChile, as of December 31, 2016,2018, we had contracts with approximately 854377 contractors, who employed approximately 22,16519,153 employees. During 2018, we incorporated approximately 481 employees in the wood products business, who were previously employed by certain suppliers. Such employees work in the Horcones Complex, the Valdivia Complex, the Nueva Aldea Complex and the Arauco plywood mill. In June 2018, we also commenced an insourcing process in three forest nurseries that were previously managed by contractor companies, which involved the hiring of 715 employees directly.

In Brazil, as of December 31, 2018, we had contracts with approximately 73 contractors, who in turn employed approximately 477 employees.

Under Chilean and Brazilian labor legislation, we are secondarily liable for the payment of labor and the social security obligations owed to employees of our contractors. In Chile, in the event that we do not exercise the rights granted to us by the labor laws regarding the supervision of our contractors in their compliance of their labor and social security obligations, then our responsibility is elevated from secondary to joint and several, thus enabling an employee of a contractor to bring a claim relating to these obligations against both the contractor and us, as the party hiring such contractor, although the contractor would remain primarily liable for such obligations. Generally, we are also responsible for the health and safety conditions of the contractors’ workers and are obligated to ensure that the contractors comply with all obligations related to such conditions while such workers are performing activities for us within our corporate purpose.

In Argentina, substantially similar joint liability rules apply to a principal and its contractors. In addition, national rural labor law, Law No. 26,727, promulgated on December 28, 2011 and fully in effect since March 2013, permits contractor employees under forestry contracts to bring actions directly against the principal to whom the employees’ services are being provided, instead of requiring them to bring actions against the contractor. For work or services related to the ordinary production process of a principal, the law provides that an employment relationship is deemed to exist between the principal and the employee of the contractor.

Our U.S. operations must comply with the regulations of the Occupational Safety & Health Administration (OSHA) and the Federal Labor Standards Act (FLSA), among others.

Our Canadian operations must comply with the regulations of the Occupational Safety & Health Administration (OSHA).

As a result of the foregoing, we may be affected by future strikes, work slowdowns, stoppages or otherlabor-related developments in the various countries in which we operate, including such developments attributable to employees of contractors performing outsourced services, and such strikes, slowdowns, stoppages or other developments could have a material adverse effect on our business, financial condition, results of operations or prospects.

Cybersecurity events, such as a cyberattack could adversely affect our business, financial condition and results of operations

Our business depends on information technology systems to effectively manage our production processes. Therefore, interruptions in these systems caused by employee error or attacks, external cyber-attacks, obsolescence or technical failures can deeply harm our business operations. Cybersecurity risks have generally increased in recent years as a result of the proliferation of new technologies and the increased sophistication and activities of cyberattacks. Any failure of our systems related to sensitive information could disrupt our business and result in production errors, processing inefficiencies and the loss of sales and customers, which in turn could result in decreased revenue, increased costs and excess orout-of-stock inventory levels.

Additionally, cyberattacks or internal actions, including negligence or misconduct of our employees and suppliers, may have a negative impact on our reputation, our relationship with external entities (government, regulators, partners, among others) and our strategic positioning with relation to our competitors. Any significant security breaches or disruptions in the performance of our information technology systems could have a material adverse effect on our results of operations and financial condition.

Risks Relating to Chile

Adverse changes in Chile’s political, legal, tax and economic conditions could directly impact our business and the market price of our securities.

As of December 31, 2016, 63.3%2018, 60.8% of our property, plant and equipment and forest assets were directly owned by Celulosa Arauco y Constitución S.A., and our Chilean subsidiaries, and in 2016, 59.9%2018, 61.8% of our revenues were attributable to our Chilean

operations. Accordingly, our business, financial condition, results of operations and cash flows depend, to a considerable extent, upon economic conditions in Chile. Future changes in the Chilean economy – affecting interest rates, inflation, tax rates or charges on imports and/or exports, among others – could adversely affect our business, financial condition, results of operations and cash flows and may impair our ability to proceed with our strategic plan of business. In addition, such changes may impact the market price of our securities. The Chilean government’s actions have had and may continue to have a material effect on private sector entities. We have no control over and cannot predict how government intervention and policies will affect the Chilean economy or, directly and indirectly, our operations and revenues.

The Chilean government has exercised and continues to exercise substantial influence over many aspects of the economy.

As a way of example, on September 29, 2014, Law No. 20,780 (as amended) introduced significant changes to the Chilean taxation system and strengthened the powers of theServicio de Impuestos Internos (Chilean IRS) to control, prevent, and counter tax evasion. The tax reform increased the income tax rates applicable to us, currently corresponding to 27%. In addition, the former SVS, through theOficio Circular 856 dated October 17, 2014, obliged companies under its supervision not to follow IFRS with respect to the effect of the tax reform on deferred taxes in the statutory financial statements filed with the SVS. Further amendments could affect our income tax rates. We cannot predict how tax reforms will affect, directly or indirectly, our operations and financial condition and the market price of our securities.

We have no control over and cannot predict how government intervention and policies will affect the Chilean economy or, directly and indirectly, our operations and revenues. Our operations and financial condition and the market price of our securities may be adversely affected by changes in policies involving exchange controls, taxation and other matters.

A tax reform bill with significant changes for companies was approved in September 2014 and the Chilean Superintendence of Securities and Insurance, or SVS, modified accounting reporting standards for companies under its supervision in October 2014.

On September 29, 2014, Law No. 20,780, as amended on February 8, 2016 by Law No. 20,899, collectively known as the “Tax Reform”, introduced significant changes to the Chilean taxation system and strengthened the powers of theServicio de Impuestos Internos(Chilean IRS) to control, prevent, and counter tax evasion. The Tax Reform contemplates, among other matters, changes to the corporate tax regime, creating two general tax regimes. Since January 1, 2017, Chilean companies are subject to thesistema parcialmente integrado(the partially integrated regime) or thesistema de renta atribuida (the deemed taxation regime). The partially integrated regime is the default regime for companies owned by legal entities and only those companies owned by natural persons ornon-resident taxpayers are eligible to opt for the deemed taxation regime. As a consequence, the default regime applies to Arauco and its Chilean subsidiaries, that is, the partially integrated system. Both regimes provide for the gradual increase of the corporate tax rate to 24% in 2016 (21% in 2014, 22.5% in 2015 and 24% in 2016). Depending on the tax regime applicable to a company, tax rates will gradually be increased to a maximum rate of 25% in 2017, in the case of the deemed taxation regime, or 27% in 2018, in the case of the partially integrated regime.

The Superintendence of Securities and Insurance issuedOficio Circular No. 856on October 17,2014, which instructs regulated entities to record as a charge to shareholders’ equity in their statutory financial statements the difference in deferred tax assets and liabilities that results from the increase in the tax rate set forth in Law No. 20,780. The impact of this circular has been incorporated in the statutory financial statements which are used to determine the distributable income. This circular differs from International Financial Reporting Standards (IFRS), which requires the impact to be recorded as part of the income statement. However, the financial statements that we prepared and filed with the SVS as of and for the periods ended September 30 and December 31, 2014, 2015 and 2016, account for deferred taxes in accordance withOficio Circular No. 856.

In the attached financial statements prepared in accordance with IFRS, the effect of the change in the tax rate of first category in assets and liabilities relating to deferred taxes resulted in an expense of U.S.$292,717,000 (U.S.$292,155,000 attributable to owners of the parent) has been recorded in the income statement for the year ended December 31, 2014.

Further amendments could affect our income tax rates. We have no control and cannot predict how such amendments will affect, directly or indirectly, the Chilean economy or our operations and revenues. Our operations and financial condition and the market price of our securities may be adversely affected by changes in policies involving exchange controls, taxation and other matters. Furthermore, the change imposed by SVS byOficio Circular 856 dated October 17, 2014 obliging companies under its supervision not to follow IFRS could lead investors to improperly determine Arauco’s results with respect to the effect of the tax reform on Arauco’s deferred taxes.

Chile has different corporate disclosure standards from those with which you may be familiar in the United States, and Chile’s securities laws may not afford you the same protections as U.S. securities laws.

The securities disclosure requirements applicable to certain foreign private issuers differ from those applicable to issuers domiciled in the United States in some important respects. Accordingly, the information about us available to you will not be the same as the information disclosed by a U.S. company required to file reports with the U.S. Securities and Exchange Commission, or the “SEC”.“SEC.”

In addition, although Chilean law imposes restrictions on insider trading and price manipulation, applicable Chilean securities laws and regulations are different from those in the United States, and some investor protections available in the United States may not be available in the same form, or at all, in Chile.

Currency fluctuations may have a negative effect on our financial results.

The Chilean peso has been subject to depreciations and appreciations in the past and may be subject to significant fluctuations in the future. We transact a significant portion of our business in U.S. dollars, and the U.S. dollar is the currency of the primary economic environment in which we operate. A portion of our operating costs, however, areis denominated in Chilean pesos. An increase in the Chilean peso/U.S. dollar exchange rate increases our Chileanpeso-denominated costs.

In addition, as an international company operating in Chile and several other countries, we transact a portion of our business and have assets and liabilities in Chilean pesos and othernon-U.S. dollar currencies, such as the Euro, the Argentine peso, the Uruguayan peso, the Brazilian real, the Colombian peso, the Mexican peso and the Canadian dollar, among others. To the extent that the Chilean peso depreciates against the U.S. dollar, our domestic revenues may be adversely affected when expressed in U.S. dollars. The same effects may occur for our domestic sales in Argentina, Brazil and Canada, or other countries where we have operations for revenues related to products sold in each of the respective local currencies. As a result, fluctuations in the exchange rates of such foreign currencies relative to the U.S. dollar may have a material adverse effect on our business, results of operations, financial condition and cash flows.

Risks Relating to Argentina

The economic conditions in Argentina may adversely affect our financial condition, results of operations and cash flows.

As of December 31, 2016, 9.1%2018, 7.8% of our property, plant and equipment and forest assets were owned by our Argentine subsidiaries, and in 2016, 8.7%2018, 8.1% of our revenues were attributable to our Argentine operations. The financial condition and results of our Argentine operations, including the ability of our Argentine subsidiary Arauco Argentina S.A. (or “Arauco Argentina”, formerly known as Alto Paraná S.A.), to raise capital, depend, among other factors, upon economic conditions prevailing in Argentina. See “Item 4. Information on our Company—Description of Business—History.”

There are various aspects of the Argentine economy that could adversely affect our operations, including, among others, inflation, interest rates, foreign exchange controls and taxes. Between 2001 and 2016, there have been several monetary and currency exchange control measures implemented in Argentina, which have included the obligation to repatriate foreign currency earned abroad and tight restrictions on transferring funds abroad, with certain exceptions for authorized transactions. In 2016 certainand 2017, most of these measures have beenwere eliminated or relaxed by the new Argentine administration that took office as of December 10, 2015. After moving quickly to eliminateforeign-exchange restrictions and shifting to a more flexible exchange rate, the government announced its intention to reduce inflation gradually. However, during 2018, the Argentine economy deteriorated due to certain factors such as (i) the increase in the U.S. interest rate, which partially caused capital outflows from Argentina leading to a depreciation of the Argentine peso and increased inflation; and (ii) a strong drought that affected soy crops, causing a sharp drop in U.S. dollar income derived from exports. In addition, during the second semester of 2018 the economy began to show signs of recession and the Argentine government adopted certain measures to contain fluctuations in exchange rates and aimed at reducing inflation. In this regard, an agreement for U.S.$57.1 billion was entered into with the International Monetary Fund (IMF), establishing a credit program requiring monetary restriction and certain fiscal reforms, including the adoption of an export tax. At the end of the year, the Argentina peso/U.S. dollar exchange rate had increased by 104.2% (year over year) and the inflation rate reached 47.6% (year over year).

We guarantee a portion ofIn 2017, we signed an intercompany loan with Arauco Argentina’s debt. We may be requiredArgentina for U.S.$250 million, which proceeds were used to fulfill our obligation under our guarantees ifrepay in full certain Arauco Argentina’s ability to transfer funds abroad to serviceArgentina debt that we guaranteed. During 2018, Arauco Argentina prepaid U.S.$90 million. Therefore, the balance due after such debtprepayment is restricted. For a description of Arauco Argentina’s debt which we guarantee see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”U.S.$160 million.

Although past restrictions did not materially affect Arauco Argentina’s business, financial condition, results of operations and cash flows, including its ability to service its debt or transfer funds abroad, if in the future such payments are restricted, such restrictions would be an obstacle to Arauco Argentina’s ability to transfer money abroad, which may negatively affect itsour financial condition, results of operations and cash flows.flows would be negatively affected.

We have no control over and cannot predict how any future changes in economic policy or other changes in the Argentine economy could affect our operations and revenues in Argentina.

Risks Relating to Brazil

Economic conditions in Brazil may have a direct impact on our business, financial condition, results of operations and cash flows.

As of December 31, 2016, 8.9%2018, 9.0% of our property, plant and equipment and forest assets were owned by our Brazilian subsidiaries, and in 2016, 7.4%2018, 8.4% of our revenues were attributable to our Brazilian operations. See “Item 4. Information on our Company—Description of Business.” As a result of the foregoing, to a certain extent, our business, financial condition, results of operations and cash flows will be dependent on economic conditions in Brazil.

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian political and economic conditions have a direct impact on our business.

The Brazilian government has exercised and continues to exercise a substantial influence over many aspects of the Brazilian economy. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, wage and price controls, currency devaluations, capital controls and limits on imports. The business, financial condition, results of operations and cash flows of our Brazilian subsidiaries may be adversely affected by such matters, changes in policy or regulation involving tariffs and exchange controls, as well as by factors such as:

 

currency fluctuations;

 

inflation;

 

social instability;

 

price instability;

 

real estate ownership restrictions;restrictions and expropriation;

 

interest rates;

 

liquidity of domestic capital and lending markets,

 

tax policy;

 

political instability; and

 

other political, diplomatic, social and economic developments in or affecting Brazil.

The Brazilian government’s actions have had and may continue to have a material effect on private sector entities, including our operations in Brazil. We have no control over and cannot predict how government intervention and policies will affect the Brazilian economy or, directly and indirectly, our operations and revenues.

Future economic, social and political developments in Brazil may adversely affect the business, financial condition, results of operations and cash flows of our Brazilian subsidiaries.

Inflation and efforts by the Brazilian government to combat inflation may contribute significantly to economic uncertainty in Brazil and could harm the business of our Brazilian subsidiaries.

Brazil has, in the past, experienced high rates of inflation. More recently, Brazil’s rates of inflation were 5.8% in 2012, 5.9% in 2013, 6.4% in 2014, 10.7% in 2015, and 6.3% in 2016, 3.0% in 2017 and 3.8%% in 2018, as measured by theÍndice de Preços ao Consumidor-Amplo(Brazilian Consumer Price Index). In the past, inflation, governmental measures to combat inflation and public speculation about possible future actions have had significant effects on the Brazilian economy and on the financial condition and results of operation of business, such as ours, operating in Brazil.

Fluctuations in the value of Brazil’s currency against the value of the U.S. dollar may result in uncertainty in the Brazilian economy, which may adversely affect the financial condition, results of operations and cash flows of our recently acquired Brazilian subsidiaries.

The Brazilian real has historically suffered frequent devaluation. In the past, the Brazilian government has implemented various economic plans and exchange rate policies, including sudden devaluations, periodicmini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Depreciation over shorter periods has resulted in significant fluctuations in the exchange rate between the Brazilian real and the U.S. dollar and other currencies.

For example, the Brazilian real depreciated against the U.S. dollar by 47.7%1.8% in 20152017 and appreciated by 16.4%14.6% in 2016.2018. The Brazilian real/U.S. dollar exchange rate between the Brazilian real and the U.S. dollar may continue to fluctuate and may rise or decline substantially fromcompared to current levels. From January 1 to March 31, 20172019 the Brazilian real depreciatedappreciated by 3.7%0.90%. with respect to the U.S. dollar. The cost of many raw materials is closely correlated with the U.S dollar, so, if the Brazilian real appreciates against the U.S dollar, the cost of production will decrease and our EBTIDA margin would increase.

Devaluation

Fluctuations of the Brazilian real and currency instability may adversely affect our results of operation and financial condition in terms of U.S. dollars and could adversely affect the ability of our Brazilian subsidiaries to meet their foreign currency obligations in the future and could result in a monetary loss relating to these obligations.

Risks Relating to Uruguay

Economic conditions in Uruguay, or the failure of Montes del Plata and its affiliates to service their debt, may have a direct impact on our financial condition, results of operations and cash flows.

As of December 31, 2016, 15.8%2018, 15.6% of our property, plant and equipment and forest assets were owned by Montes del Plata and its affiliates in Uruguay, and in 2016, 7.2%2018, 8.0% of our revenues were attributable to the Uruguayan operations of Montes del Plata. See “Item 4. Information on our Company—Description of Business.”

We have made significant investments in Uruguay and we may make additional investments in Uruguay in the future. See “Item 4. Information on our Company—Description of Business.” As a result, our financial condition and results of operations may consequently depend, to a certain extent, on political and economic conditions in Uruguay. Certain future actions by the Uruguayan government, including, among others, actions with respect to inflation, interest rates, foreign exchange controls and taxes, could have a material adverse effect on our operations in Uruguay.

Risks Relating to the United States and Canada

Economic conditions in the United States and Canada may have a direct impact on our business, financial condition, results of operations and cash flows.

As of December 31, 2016, 2.5%2018, 6.4% of our property, plant and equipment and forest assets were owned by our U.S. subsidiaries, and in 2016, 12.6%2018, 10.1% of our revenues were attributable to our U.S. subsidiaries. See “Item 4. Information on our Company—Description of Business.”

As of December 31, 2016,2018, 0.4% of our property, plant and equipment and forest assets were owned by our Canadian subsidiaries, and in 2016, 4.2%2018, 3.6% of our revenues were attributable to our consolidated Canadian subsidiaries, which includes our Canadian subsidiaries’ operations in the United States. See “Item 4. Information on our Company—Description of Business.”

As a result of the foregoing, to a certain extent, our business, financial condition, results of operations and cash flows will be dependent on economic conditions in the United States and Canada.

Risks Relating to Other Markets

Our business, earnings and prospects may be adversely affected by developments in other countries that are beyond our control.

Our business, financial condition, results of operations and cash flows depend on the level of economic activity, government and foreign exchange policies and political and economic developments in our principal export markets. In 2014, 20152016, 2017 and 2016, 91.8%2018, 92.2%, 90.8%94.2% and 92.2%,95.2% respectively, of our total pulp sales, and 45.5%43.1%, 43.5%,42.6% and 44.5%42.7%, respectively, of our total sales of forestry wood and panelwood products, were attributable to exports, principally to customers in Asia, the Americas and Western Europe, collectively. Our business, earnings and prospects, as well as our financial condition, results of operations, cash flows and the market price of our securities, may be materially and adversely affected by developments in these export markets relating to inflation, interest rates, currency fluctuations, protectionism, government subsidies, price and wage controls, exchange control regulations, taxation, expropriation, social instability or other political, economic or diplomatic developments. For example, certain target countries to which we export may impose buying restrictions in our industry, which may adversely affect our sales. We have no control over these conditions and developments which could adversely affect us and our business, financial condition, results of operations and cash flows or the price or market of our securities.

Developments in other emerging and developed markets may adversely affect the market price of our securities and our ability to raise additional financing.

Our financial condition and the market price of our securities may be adversely affected by declines in the international financial markets and world economic conditions. Chilean securities markets are, to varying degrees, influenced by general economic, political, social and market conditions in other emerging and developed market countries, especially those in the United States, Europe, China and Latin America. Investors’ reactions to developments in one country can affect the securities markets and the securities of issuers in other countries, including Chile. Negative developments in the international financial markets in the future could adversely affect the market price of our securities and impair our ability to raise additional capital.

Risks Relating to Our Securities

Thenon-payment of funds by our subsidiaries could have a material adverse effect on our business, financial condition, results of operations and ability to service our debt, including our securities.

Our cash flow and our ability to service debt is dependent, in part, on the cash flow and earnings of our subsidiaries and the payment of funds by those subsidiaries to us, in the form of loans, interest, dividends or otherwise. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due under the terms of our securities or to make any funds available for such purpose.

Furthermore, claims of creditors of our subsidiaries, including trade creditors, will have priority over our creditors, including holders of our securities, with respect to the assets and cash flow of our subsidiaries. Our right to receive assets of any of our subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of our securities to participate in those assets) will be effectively subordinated to the claims of that subsidiary’sour subsidiaries’ creditors.

Changes in Chilean tax laws could lead us to redeem our securities.

Under current Chilean law and regulations, payments of interest made from Chile to holders of debt securities who are neither residents nor domiciled or organized in Chile for purposes of Chilean taxation will, generally, be subject to Chilean withholding tax at a rate of 4.0%. Subject to certain exceptions, we will pay additional amounts (as described in “Item 10. Additional Information—Taxation”) so that the net amounts received by the holder of theour notes (including additional amounts) after such Chilean withholding tax will equal the amounts that would have been received in respect of the notes in the absence of such Chilean withholding tax. In the event of certain changes in Chilean tax laws requiring that we pay additional amounts that are in excess of the additional amounts that we would owe if payments of interest on our securities were subject only to a 4.0% withholding tax, we will have the right to redeem our securities.

Credit rating downgrades below investment grade could have a material and adverse effect on our business, financial condition, results of operations and ability to service our debt, including our securities.

Credit rating agencies could downgrade our ratings either due to factors specific to us, a prolonged cyclical downturn in the forestry industry or macroeconomic trends (such as global or regional recessions) and trends in credit and capital markets more generally. Any decline in our credit rating would increase our cost of borrowing and may significantly harm our financial condition, results of operations and profitability, including our ability to refinance our existing indebtedness.

In October 2012, citing soft pulp prices and our increased leverage due to the Flakeboard acquisition and the construction of the Montes del Plata pulp plant in Uruguay, Fitch Ratings, or Fitch, downgraded our foreign and local currency Issuer Default Ratings (IDR) to “BBB” from “BBB+,” in addition to downgrading our national scale rating from “AA (cl)” to“AA- (cl).” Fitch also downgraded the foreign currency IDR of Arauco Argentina, to “BBB” from “BBB+.” The unsecured debt issued by Arauco Argentina and Arauco in Chile was also downgraded to “BBB” and“AA- (cl),” respectively, from “BBB+” and “AA.” On February 6, 2013, Feller Rate, a Chilean subsidiary of Standard & Poor’s Ratings Services, or S&P, lowered our national scale rating to“AA-” from “AA”, citing the adoption of an aggressive financial policy combined with a cycle of low prices and increased costs of raw materials.

On March 7, 2013, Moody’s Investors Service, or Moody’s, downgraded our senior unsecured ratings to “Baa3” from “Baa2” with a negative outlook, citing deterioration in our performance coupled with a significant increase in debt that resulted in a significant increase in leverage. Additionally, Moody’s downgraded the rated notes of Arauco Argentina to “Baa3” from “Baa2”. On March 27, 2013, S&P lowered its rating on us from “BBB” to“BBB-”, citing high debt, our recent acquisitions, and soft pulp prices and rising operating costs. It considered our financial risk profile to be “intermediate” due to expectations of improved leverage.

On April 5, 2013, S&P lowered its corporate credit rating foreign currency on Arauco Argentina from “B+” to “B,” due to worsening business conditions in Argentina and our recent downgrade, as Arauco Argentina’s parent company, from “BBB” to“BBB-” on March 27, 2013. Then on September 13, 2013, the rating was downgraded again from “B” to“B-” following similar action on the Republic of Argentina which was lowered from“B-” to “CCC+.” On December 20, 2013, the foreign currency global scale rating on Arauco Argentina suffered its third downgrade from“B-” to “CCC+” to reflect the same transfer and convertibility risk assessment for Argentina, due to restrictions on access to foreign currency and/or restrictions on transferring money abroad.

On June 19, 2014, Moody’s changed our ratings outlook from negative to stable. Also, the Baa3 note rating of our ArgentineanArgentine subsidiary Arauco Argentina, was affirmed, and its outlook changed to stable.

On October 5, 2016, Fitch Ratings changed our ratings outlook from stable to negative, citing aslower-than-expected decline of our net leverage due to weak operational cash flows, which in turn were affected by lower pulp prices throughout the year.

On September 25, 2018, Fitch Ratings changed our ratings outlook from negative to stable, mentioning that the ratings were supported by the Company’s strong financial position and business position as alow-cost producer of market pulp.

On January 31, 2019, Feller Rate changed our local rating fromAA- to AA, stating that this change was attributable to the strategic plan of the Company, focused on high internationalization through investments and acquisitions, which has led to an improvement in business profile and main credit indicators.

We cannot assure you that we will not be subject to further credit rating downgrades. Credit rating downgrades below investment grade could have a material and adverse effect on our ability to service our debt, including our securities, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

Item 4. Information on our Company

DESCRIPTION OF BUSINESS

We believe that as of December 31, 2016, we wereare one of Latin America’s largest forest plantation owners and that we are Chile’sone of the world’s largest exporterproducers of forestrybleached and timberunbleached softwood kraft pulp, bleached hardwood kraft pulp and wood products in terms of revenue.production capacity. We have industrial operations in Chile, Argentina, Brazil, Mexico, the United States Canada and Canada. We also have industrial operations in Uruguay, (viavia our 50% share in Montes del Plata),Plata, and in Spain, Portugal, Germany and South Africa, (viavia our 50% share in Sonae Arauco).Arauco. As of December 31, 2016,2018, we had more than 1.0 million hectares of plantations in Chile, Argentina, Brazil and Uruguay combined. During 2016, we harvested approximately 22.0 million cubic meters of sawlogs and pulplogs and sold approximately 7.9 million cubic meters of timber products, including sawn timber (green andkiln-dried lumber), remanufactured wood products, plywood and panels (medium density fiber board, or MDF, particleboard, or PBO, and high density fiber board, or HB). During 2016, we sold approximately 3.7 million tonnes of pulp in the form of hardwood bleached pulp, softwood bleached pulp, softwood unbleached pulp and fluff pulp.

Based on information published by Hawkins Wright Ltd., an independent research company for the pulp and paper industry, as of December 31, 2016,2018, we were one of the world’s largest producers of bleached hardwood kraft market pulp and bleached and unbleached softwood kraft market pulp in terms of production capacity, with an estimated 6.5% sharecapacity.

During 2018, we sold 3.7 million metric tons of pulp, in the total world production capacityform of hardwood bleached pulp, softwood kraft marketbleached pulp, softwood unbleached pulp and a 24.1% sharefluff. During 2018, we harvested 22.3 million cubic meters of the total world production capacitysawlogs and pulplogs and sold 8.2 million cubic meters of unbleached softwood kraft market pulp. “Market pulp” is pulp sold to manufacturers of paperwood products, as opposed to pulp produced by an integrated paper producer for use in its paper production facilities. “Kraft pulp” is pulp produced using a chemical process.

Based on information published by Hawkins Wright Ltd.including sawn timber (green and kiln-dried lumber), we were also one of the world’slowest-cost producers of softwood kraft market pulp. We believe that we are able to produce ourremanufactured wood products, at a lower cost than our competitors because of the high growth rateplywood and short harvest cycle of radiatapanels (medium-density fiberboard, or MDF, particleboard, or PBO, and taeda pine compared to other commercial softwoods, the advanced genetic and silvicultural techniques we apply in our forest management, our modern mill facilities and, in the case of Chile, the proximityhigh-density fiberboard, or HB). In 2018, export sales constituted approximately 67.8% of our operationstotal revenue. During 2018, sales in Asia, South and Central America and North America accounted for 40.1%, 23.4% and 24.8%, respectively, of our total revenue for such year.

As of December 31, 2018, our planted forests consisted of 64.7% radiata, taeda and elliottii pine and 33.0% eucalyptus. We seek to Pacific coast ports.manage our forestry resources in a way that ensures that the annual growth of our forests is equal to or greater than the volume of resources harvested each year. In 2018, we planted a total of 85,243 hectares, and harvested a total of 65,441 hectares in Chile, Argentina, Brazil and Uruguay.

History

Celulosa Arauco y Constitución S.A. is asociedad anónima (corporation) organized under the laws of Chile and subject to certain rules applicable tosociedades anónimas abiertas (Chilean public corporations). Our principal executive offices are located at Avenida El Golf 150, 14th Floor, Las Condes, Santiago, Chile, and our telephone number is+56-2-2461-7200.

We were formed on September 14, 1979 in a merger between Industrias de Celulosa Arauco S.A., or Industrias Arauco, and Celulosa Constitución S.A., or Celulosa Constitución. Our two predecessor companies were created in the late 1960s and early 1970s by Corporación de Fomento de la Producción, or Corfo, a Chilean government development corporation, to develop forest resources, improve soil quality in former farming areas and promote employment. As part of the Chilean government’s privatization program, Corfo sold Industrias Arauco to Compañía de Petróleos de Chile S.A., or Copec, in 1977 and Celulosa Constitución to Copec in 1979. In October 2003, Copec transferred all of itsgasoline- andfuel-related business assets to a new subsidiary, and changed its legal name to Empresas Copec S.A., or Empresas Copec. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.”

In 1996, we acquired Alto Paraná S.A., an Argentine company (that, effective January 1, 2015, changed its name to Arauco Argentina S.A.), which, at the time of the acquisition, owned plantations and other land in Argentina and manufactured and sold bleached softwood kraft pulp. With this acquisition, we expanded our market opportunities outside of Chile.

In 2005, 2006 and 2007, we expanded our presence in Chile, Argentina and Brazil through a series of acquisitions that increased our land holdings and the production capacity of various sectors of our business.

On May 17, 2009, our subsidiary Inversiones Arauco Internacional Limitada (previously known as Arauco Internacional S.A.), or Arauco Internacional, and a subsidiary of Stora Enso agreed through a joint operation partnership to acquire the Uruguayan subsidiaries of ENCE, which acquisition was completed on October 16, 2009. The companies acquired by the joint operation partnership were Eufores S.A., Celulosa y Energía Punta Pereira S.A. and Zona Franca Punta Pereira S.A. The main assets of these subsidiariesUruguayan companies included 130,000 hectares of land, of which 73,000 had forestry plantations, 6,000 hectares under agreements with third parties, an industrial site, the necessary environmental permits for the construction of a pulp mill, a river terminal, a chip producing mill and a nursery. The agreed value of these assets, pursuant to the aforementioned transaction, was U.S.$335 million, of which we paid 50% (or U.S.$167.5 million). See “Item 5. Operating and Financial Review and Prospects—Results of Operations.”

On August 26, 2009, our subsidiary Placas do Paraná S.A. (now, Arauco do Brasil S.A.) acquired 100% of the shares of Tafisa Brasil, by means of a share purchase agreement executed among SCS Beheer, B.V., Tafiber—Tableros de Fibras Ibéricos, S.L. (each of which is a subsidiary of Sonae Indústria, SGPS, S.A.) and Placas do Paraná S.A. Pursuant to the transaction, we paid a purchase price of U.S.$227 million, of which U.S.$165.2 million was allocated to pay the value of the shares of Tafisa Brasil, with the balance

corresponding to liabilities that the acquired company maintained. The primary asset of Tafisa Brasil (which has been renamed Arauco do Brasil S.A.) is a panel production facility located in the city of Piên, Brazil, which is in the state of Paraná. The facility has an annual total installed capacity of 750,000 cubic meters, which includes three production lines: two lines producing MDF and one line producing PBO. The facility also hasadded-value lines to produce products for the construction and furniture industries.

On September 27, 2009, Arauco and its subsidiary Inversiones Arauco Internacional, executed a series of joint operation agreements with Stora Enso, pursuant to which Stora Enso Amsterdam B.V. agreed to transfer the ownership of 100% of the shares of Stora Enso Uruguay S.A. to Forestal Cono Sur. As a consequence of this transaction, Arauco and Stora Enso equally control all assets that both companies own in Uruguay. Such joint operation, named Montes del Plata, is formed by the companies Forestal Cono Sur S.A., Stora Enso Uruguay S.A., Eufores S.A., Celulosa y Energía Punta Pereira S.A., Zona Franca Punta Pereira S.A., Ongar S.A., Terminal Logística e Industrial M’Bopicuá S.A.and El Esparragal Asociación Agraria de R.L.

In April 2010, our subsidiary Arauco do Brasil S.A. acquired 50% of the shares of Dynea Brasil S.A. from Dynea AS for U.S.$15 million. As a result of this acquisition, we became the owner of 100% of the shares of Dynea Brasil S.A., which was absorbed by Arauco do Brasil S.A. in May 2010.

On January 18, 2011, as per the Montes del Plata joint operation, Arauco and Stora Enso agreed to carry out the construction of a state of the art pulp mill with an annual capacity of 1.3 million tonnes, a port and a power producing unit based on renewable sources, all located in Punta Pereira in the department of Colonia, Uruguay. The total investment was approximately U.S.$2.5 billion. The pulp mill entered the production phase in June 2014 and reached full production capacity in October 2015.

In November 2011, Centaurus Holdings S.A., a Brazilian company that is 51% owned by Klabin S.A. and 49% owned by our subsidiary Arauco Forest Brasil S.A., acquired the shares of Florestal Vale do Corisco Ltda., which has 107,000 hectares of land in the Brazilian state of Paraná. The total purchase price for the transaction was U.S.$473.5 million, of which we paid 49%. On May 31, 2012, Centaurus Holdings S.A. was absorbed by Florestal Vale do Corisco Ltda.

In 2011, Arauco Argentina acquired 100% of the shares of Greenagro S.A. or Greenagro, a company duly incorporated under the laws of Argentina, for a total purchase price of U.S.$10.7 million. Greenagro is engaged in forestry activities in the area of Isla Victoria, province of Entre Ríos, Argentina.

In 2012, Arauco Panels USA, one of our U.S. subsidiaries, acquired an industrial facility in Moncure, North Carolina, for U.S.$56 million plus approximately U.S.$6 million in respect of working capital, subject to adjustment based on actual working capital at closing. The facility includes MDF andhigh-density fiberboard, or HDF, production lines with annual production capacity of up to 330,000 cubic meters, a PBO production line with annual production capacity of up to 270,000 cubic meters and two melamine product production lines. This transaction closed in January 2012.

On June 7, 2012, we signed a share purchase agreement to acquire 100% of the shares of Flakeboard Company Limited or Flakeboard, a Canadian company, for a total purchase price of U.S.$242.5 million. Flakeboard is a key North American producer of wood paneling for furniture. It owns and operates seven panel mills in Canada and the U.S. with an aggregate annual production capacity of 1.2 million cubic meters of MDF panels, an annual production capacity of 1.2 million cubic meters of PB,PBO, and an annual production capacity of 634,000 cubic meters of melamine. This transaction closed in September 2012.

During the second quarter of 2013, ourwholly-owned forestry subsidiaries—Bosques Arauco S.A., Forestal Valdivia S.A., Forestal Arauco S.A., and Forestal Celco S.A.—were merged with and into Forestal Celco S.A. This process started on July 1, 2013, when Bosques Arauco was merged with and into Forestal Valdivia. Subsequently, on September 1, 2013, Forestal Valdivia was merged with and into Forestal Arauco. On December 1, 2013, Forestal Arauco was merged with and into Forestal Celco. Finally, in May 2014, Forestal Celco changed its name to Forestal Arauco S.A.

On July 28, 2015, Mahal Empreendimentos e Participações S.A., a Brazilian company, of which our subsidiary Arauco Forest Brasil S.A. owned 84.53% (at the time of the purchase mentioned below) and Empreendimentos Florestais Santa Cruz Ltda. owned 15.47%, acquired 37,625 hectares of land in the Brazilian state of Mato Grosso do Sul. The total purchase price for the transaction was U.S.$53 million.

On October 27, 2015, our subsidiary Arauco Forest Brasil S.A acquired 51% of the shares of Novo Oeste Gestão de Ativos Florestais S.A. As a result of this acquisition, we became the ownerowners of 100% of the shares of Novo Oeste Gestão de Ativos Florestais S.A., which has 26,229 hectares of forestry plantations in the Brazilian state of Mato Grosso do Sul.

On December 1, 2015, Arauco’swholly-owned subsidiaries Paneles Arauco S.A., Aserraderos Arauco S.A. and Arauco Distribución S.A. were merged into Paneles Arauco S.A., company which will operateoperates in the wood products segment (previously referred to as timber segment,segment), including in the panel and sawmill businesses. In August 2016, Paneles Arauco S.A. changed its name to Maderas Arauco S.A.

On November 30, 2015, our subsidiary Inversiones Arauco Internacional, Limitada, entered into a share purchase agreement with Sonae Industria, (“or Sonae,”) under which the purchase of 50% of the shares of a Spanish subsidiary of Sonae, currently named

Tableros de Fibras S.A., was agreed, along with the name change to “Sonae Arauco”. According with the executed agreements, both Sonae and Arauco agreed to jointly control Sonae Arauco. On May 31, 2016, we closed the Sonae Arauco transaction. The price paid was the amount of €137,500,000 (equivalent to U.S.$153.1 million at the time of the purchase). Sonae Arauco and its subsidiaries produce market wood panels, of the OSB, MDF and PBPBO type, and sawn timber through the operation of: (i) two panel plants and one sawmill in Spain; (ii) two panel plants and one resin plant in Portugal; (iii) four panel plants and one impregnation papers plant in Germany, (iv) and two panel mills in South Africa. In the aggregate, the production capacity of Sonae Arauco is approximately 460,000 cubic meters of OSB, 1,450,000 cubic meters of MDF, 2,270,000 cubic meters of particleboards and 100,000 cubic meters of sawn timber.

On October 25, 2016, Arauco informed the approval by its board of directors of the commencement of the construction of the “MDP Grayling” project, which willto be located in the State of Michigan, United States of America. Such project will be carried out by our U.S. subsidiary Flakeboard America Limited. The project comprises the construction and operation of a plant that will manufacture medium-density particle board, or MDP. Arauco expects that the production capacity of the plant will be 800,000 cubic meters of finished product per year, of which approximately 300,000 cubic meters will be coated with melamine paper. Arauco expects that the Project will commenceThe project started its operations by the end of 2018 and that its sales will exceed U.S.$200 million per year.2019’s first quarter. The execution of this project requiresrequired an estimated investment of U.S.$400450 million, which arewas financed using Arauco’s own resources and bank loans.

On September 13, 2017, Arauco announced the approval by its board of directors of the “Dissolving Pulp” project, relating to the Valdivia mill, which aims to diversify the type of pulp produced in the Valdivia mill, by enabling it to produce dissolving pulp. Arauco estimates that this project will require an investment of approximately U.S.$190 million (as revised in 2018). This project will be carried out in the current facilities of the Valdivia mill, implementing certain adjustments and incorporating new equipment. Among others, the project contemplates the installation of two new additional digesters to optimize the production level of dissolving pulp, a new discharging tank (storing process) of pulp and certain modifications to the treatment areas. In addition, the project is expected to be financedincrease the Valdivia’s mill capacity to inject energy to the Chilean power grid (Sistema Eléctrico Central, or SEN, formerly theSistema Interconectado Central) from the current units of the mill. We expect that this project will start operations at the end of 2019.

On December 6, 2017, our Brazilian subsidiary Arauco do Brasil S.A. purchased from Masisa S.A., or Masisa, all of the equity rights in Masisa do Brasil Ltda., currently named Arauco Indústria de Painéis Ltda. The enterprise value of the transaction was U.S.$102.8 million, subject to certain deductions made under the contract. The main assets owned by Masisa do Brasil Ltda. consist of two industrial complexes located in Ponta Grossa (Paraná) and in Montenegro (Rio Grande do Sul). They have a line of MDF boards with an annual installed capacity of 300,000 m3, a line of MDP boards with a current annual installed capacity of 500,000 m3, and four lines of melamine coating, with a total annual installed capacity of 660,000 m3. The amount paid for the equity rights of Masisa do Brasil Ltda. was U.S.$ 32.9 million.

On December 19, 2017, Arauco’s own resources.subsidiaries Arauco Internacional and AraucoMex, S.A. de C.V., agreed with the Chilean company, Masisa, the purchase of all of the shares of Masisa’s Mexican subsidiaries, namely Maderas y Sintéticos de México, S.A. de C.V., Maderas y Sintéticos Servicios, S.A. de C.V., Masisa Manufactura, S.A. de C.V., Placacentro Masisa México, S.A. de C.V. and Masnova Química, S.A. de C.V., or Masisa’s Mexican Subsidiaries. The transaction closed on January 31, 2019 as detailed below.

On July 24, 2018, the project for the Modernization and Expansion of the Arauco Mill (Proyecto Modernización y Ampliación de la Planta Arauco, or MAPA project) was approved by the board of directors of the Company. The MAPA project contemplates an estimated investment of U.S.$2,350 million and is located at the commune and province of Arauco, in the Bio Bio Region, Chile. The project consists of the constructionand start-up of a new production line of 1,560,000 annual tonnes of bleached hardwood kraft pulp (Line 3). Line 1 of the Arauco Mill will cease its operations once the Line 3 comes online. Therefore, this project is expected to increase the net production of the Arauco Mill by approximately 1,270,000 tonnes of pulp, reaching a total production capacity of approximately 2,100,000 annual tonnes. We expect that this project will start operations in the second quarter of 2021.

On January 31, 2019, Arauco’s subsidiaries Arauco Internacional and AraucoMex, S.A. de C.V., acquired the shares of the Masisa’s Mexican Subsidiaries. The price of the transaction was U.S.$160 million. The main assets acquired consist of two industrial complexes located in Durango and Zitácuaro, that jointly account for three particleboard (PBO) lines with an annual installed capacity of 339,000 m3; an MDF boards line of with an annual installed capacity of 220,000 m3; melamine coating (or TFL) lines with an annual installed capacity of 309,000 m3; a chemical plant with an installed capacity of 60,000 tonnes of resins and 60,600 tonnes of formaldehyde; and impregnation lines with an aggregate annual installed capacity of 28.9 million of m2. Further, one of Masisa’s Mexican Subsidiaries, i.e. Maderas y Sintéticos de México, S.A. de C.V., is the lessee of a chemical plant in Lerma, with an installed capacity of 43,200 tonnes of resins and 21,600 tonnes of formaldehyde.

Our principal executive offices are located at Avenida El Golf 150, 14th Floor, Las Condes, Santiago, Chile, and our telephone number is+56-2-2461-7200. Our website is www.arauco.cl or www.arauco.com. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov).

Corporate Structure

We are substantially wholly owned by Empresas Copec S.A., a public company listed on the Santiago Stock Exchange, the Valparaíso Stock Exchange and the Chilean Electronic Stock Exchange. Empresas Copec is a holding company, the principal interests of which are in Arauco, gasoline and gas distribution, electricity, fishing and mining. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.”

The following table sets forth our ownership interests in our subsidiaries as of December 31, 2016.2018.

 

   Country of
incorporation
  Total stock held 

Agenciamiento y Servicios Profesionales S.A. de C.V.

  Mexico   99.9990

Arauco Argentina S.A.

  Argentina   99.9801 

Arauco Australia Pty Ltd.

  Australia   99.9990 

Arauco Bioenergía S.A.

  Chile   99.9999 

Arauco Colombia S.A.

  Colombia   99.9982 

Arauco do Brasil S.A.

  Brazil   99.9990 

Arauco Florestal Arapoti S.A.

Brazil79.9992

Arauco Forest Brasil S.A.

Brazil99.9991

Arauco Europe Cooperatief U.A.

  The Netherlands   99.9990 

Arauco Florestal Arapoti S.A.

Brazil79.9992
Arauco Forest Brasil S.A.Brazil99.9992
Arauco Indústria de Painéis LtdaBrazil99.9990
Arauco Middle East DMCC

  Dubai   99.9990 

Arauco North America, Inc. (ex Flakeboard America Limited)(1)

U.S.A.99.9990
Arauco Nutrientes Naturales SPA

SpA
  Chile   99.9484 

Arauco Panels USA LLC

U.S.A.99.9990

Arauco Perú S.A.

  Peru   99.9990 

Arauco Wood Products, Inc.

(China) Company Limited
  U.S.A.China   99.9990 

Araucomex S.A. de C.V.

  Mexico   99.9990 

Consorcio Protección Fitosanitaria Forestal S.A.

  Chile   57.540457.0831 

Empreendimentos Florestais Santa Cruz Ltda.

  Brazil   99.978999.9985 

Flakeboard America Limited

U.S.A.99.9990

Flakeboard Company Limited

  Canada   99.9990 

Forestal Arauco S.A.

  Chile   99.9484 

Forestal Cholguán S.A.

  Chile   98.474498.5479 

Forestal Concepción S.A.

Panama99.9990

Forestal Los Lagos S.A.

  Chile   79.9587 

Forestal Nuestra Señora del Carmen S.A.

  Argentina   99.9805 

Forestal Talavera S.A.

  Argentina   99.9942 

Greenagro S.A.

  Argentina   97.9805 

Inversiones Arauco Internacional Ltda.

  Chile   99.9990 

Investigaciones Forestales Bioforest S.A.

  Chile   99.9489 

Leasing Forestal S.A.

  Argentina   99.9801 

Mahal Empreendimentos e Participacoes S.A.

Brazil99.9934

Novo Oeste Gestão de Ativos Florestais S.A.

Brazil99.9990

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

  Chile   99.9995 

Maderas Arauco Costa Rica S.A.

Costa Rica99.9990
Mahal Empreendimentos e Participacoes S.A.Brazil99.9991
Novo Oeste Gestão de Ativos Florestais S.A.Brazil99.9991
Savitar S.A.

  Argentina   99.9841 

Servicios Aéreos Forestales Ltda.

  Chile   99.9990 

Servicios Logísticos Arauco S.A.

  Chile   99.9997 

(1)

On December 31, 2018, both Arauco Wood Products Inc. and Arauco Panels USA, LLC merged into Flakeboard America Limited (currently, Arauco North America, Inc). This event did not have an impact on the consolidated financial statements.

Business Strategy

Our business strategy is to maximize theconsists of focusing on maximizing value of our forest plantations byfrom, and pursuing sustainable growth opportunities inwith respect to, our core businessesforestland, managing our operations sustainably and expanding into new markets and products.developing products that contribute to an economy based on renewable resources that we believe improves the quality of life of millions of people around the world. We are implementingseek to implement our business strategy through the following principles and initiatives:

we are improvingStriving to combine science, technology and innovation in order to unlock the growth rate and qualityfull potential of our plantations through advanced forest management techniques;and develop renewable products in our forestry, pulp, timber, panels and clean energy business areas.

 

we are executing a capital expenditure plan designedSeeking to reinforcemanage our competitive advantages through economies of scaleoperations responsibly by adopting the best environmental practices and scope, improvingpromoting the efficiencysafety and productivitydevelopment of our industrial activitiesemployees and optimizing the use of our forests through biomass energy generation;

we continue to develop our facilities, transportation, shipping, storage and product distribution network that allow us to reach over 80 countries worldwide; andcontractors.

 

we areCreating high quality products and materials for the paper, packaging, furniture, construction and energy industries, and providing high quality service to our customers.

Consolidating and expanding our presence internationally, into newin regions that we believe haveoffer comparative advantages in the forestry and timber sector.industry sectors in which we operate.

Domestic and Export Sales

The following table sets forth our revenuerevenues derived from exports and domestic sales for the years indicated.

 

  Year ended December 31,   Year ended December 31, 
  2016   2015   2014   2018   2017   2016 
  (in millions of U.S. dollars)   (in millions of U.S. dollars) 

Export Sales

            

Bleached pulp

  $1,628   $1,762   $1,714   $2,402   $1,935   $1,628 

Unbleached pulp

   253    275    302    410    285    253 

Sawn timber

   400    419    538    421    400    400 

Remanufactured wood products

   218    231    204    230    231    218 

Plywood

   185    203    175    215    197    185 

Panels

   305    300    372    340    325    305 

Other

   2    4    1    22    10    2 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total export revenue

  $2,991   $3,195   $3,306   $4,040   $3,383   $2,991 
  

 

   

 

   

 

   

 

   

 

   

 

 

Domestic Sales

            

Bleached pulp

  $152   $197   $171   $135   $127   $152 

Unbleached pulp

   7    8    9    8    9    7 

Sawn timber

   80    79    100    67    76    80 

Remanufactured wood products

   28    57    32    23    28    28 

Plywood

   42    37    34    40    41    42 

Panels

   1,229    1,297    1,340    1,385    1,318    1,229 

Logs

   63    88    121    72    73    63 

Chips

   21    18    20    31    25    21 

Electric power

   103    121    160    87    94    103 

Other

   44    50    50    67    64    45 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total domestic revenue

  $1,770   $1,952   $2,037   $1,915   $1,855   $1,770 
  

 

   

 

   

 

   

 

   

 

   

 

 

Revenue

  $4,761   $5,147   $5,343   $5,955   $5,238   $4,761 
  

 

   

 

   

 

   

 

   

 

   

 

 

The following table sets forth a geographic market breakdown of our export revenuerevenues for the years indicated.

 

  Year ended December 31   Year ended December 31 
  2016   2015   2014   2018   2017   2016 
  (in millions of U.S. dollars)   (in millions of U.S. dollars) 

Asia and Oceania

  $1,553   $1,673   $1,720   $2,388   $1,898   $1,553 

North America

   627    656    661    664    671    627 

Europe

   326    236    354    479    361    326 

Central and South America

   299    482    353    289    256    299 

Other

   186    148    218    220    197    186 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $2,991   $3,195   $3,306   $4,040   $3,383   $2,991 
  

 

   

 

   

 

   

 

   

 

   

 

 

Forestry Activity

Radiata pine grows at the fastest rates within a narrow band of latitude and under certain climatic conditions. One of Chile’s main advantages in the forestry products industry lies in the short growing cycle of its radiata pine plantations. The faster growth rate of radiata pine trees in Chile allows harvesting of pulplogs and sawlogs 16 to 18 years after planting and of high quality sawlogs 25 years after planting. For most temperate softwood forests in the Northern Hemisphere this range is 18 to 45 years for pulplogs and 50 to 150 years for high quality sawn timber. Consequently, the Chilean forestry industry is a relativelylow-cost producer, since a Chilean producer generally requires less time and a smaller area to produce the same volume of pine as its North American or European competitors, who face lower forest growth rates and higher transportation and investment costs as a result of the larger tracts of forests necessary to produce equivalent yields of softwood. Accordingly, since themid-1970s, we have focused our forest management toward the application of advanced genetic and silviculture techniques to increase productivity and the quality of our plantations.

Eucalyptus, which we began planting in 1989, grows well in the forest regions of Chile. Once planted, eucalyptus trees require no further forest management (other than fire control and reduction of weeds) until harvest. The average harvest cycle of eucalyptus plantations is approximately 12 years. Once harvested, eucalyptus can be replanted or regrown.

Throughout our history, we have demonstrated a continued commitment to the improvement of our forest management policies. We have adopted environmentally sensitive policies towards our holdings of native forests, which are protected and preserved in their entirety. Our products come from our established plantations only; we do not sell any products derived from our native forests. We conduct our forestry operations in accordance with current legislative and environmental sustainability standards. Certain of our subsidiaries have received various environmental certifications as of the date of this annual report, which include, but are not limited to the following:report. See “Item 4. Information on our Company—Certifications.”

Forest Stewardship Council® Forest Management Certification: a forest management certification aimed at promoting forest management that is environmentally responsible, socially beneficial and economically viable for the world’s forests. FSC® is anon-profit organization devoted to encouraging the responsible management of the world’s forests (Forestal Arauco license code:FSC-C108276);

Sustainable Forest Management Certification (CERTFOR): the Chilean certification of sustainable forest management, as determined since 2004 by the PEFC (Program for the Endorsement of Forest Certifications Schemes). PEFC is an internationalnon-profit,non-governmental organization dedicated to promoting sustainable forest management;

CERTFOR Chain of Custody Certification: a certification granted by the PEFC and designed to ensure that certified raw materials are used in finished products;

FSC® Chain of Custody Certification: a certification from the FSC® that is designed to ensure traceability from certified forest and other controlled sources to the finished product (Forestal Arauco Zona Norte license code: FSC – C013026);

Environmental Management System ISO 14001: a certification issued by the International Standards Organization (ISO), awarded to organizations that comply with environmental legislation, monitor significant environmental impacts, prevent pollution and maintain a continuing program of environmental improvement. ISO is an internationalnon-profit,non-governmental organization dedicated to developing international business standards; and

Occupational Health and Safety Assessment Series (OHSAS) 18001: a certification awarded for the effective management of conditions and factors that may adversely affect the work environment of employees, temporary workers, contractors and other persons who are in the workplace.

Forest Plantations

The information in this section refers to 100% of the plantations owned by Forestal Arauco S.A. (Chile), 80% of the plantations owned by Forestal Los Lagos S.A., 100% of the plantations owned by Arauco Argentina, 50% of the plantations we own in Uruguay through the Montes del Plata joint operation, 100% of the plantations owned by Arauco Forest Brasil, 80% of the plantations owned by Arauco Florestal Arapoti and 100% of the plantations owned by Mahal Empreendimentos e Participacoes S.A,S.A., unless otherwise mentioned.

As of December 31, 2016,2018, our planted forests consisted of 67.9%64.7% radiata, taeda and elliottii pine and 29.9%33.0% eucalyptus. Radiata, taeda and elliottii pine have a rapid growth rate and a short harvest cycle compared to other commercial softwoods. These pine species are sufficiently versatile for both the production of forestry and timber and the production oflong-fiber pulp for sale to manufacturers of paper and packaging. Eucalyptus is used to produceshort-fiber pulp for sale to manufacturers of paper and tissue.

We seek to manage our forestry resources seeking to ensure that the annual growth of our forest is equal to or greater than the volume of resources harvested each year. In 2016,2018, Arauco planted a total of 65,98585,243 hectares and harvested a total of 63,07865,441 hectares in Chile, Argentina, Brazil and Uruguay. We believe that our annual harvests and plantations,long-term sustainable equilibrium is approximately 72.8 thousand hectares.

Our planted radiata pine forests are located in central and southern Chile, and most are located in close proximity to our major production facilities. As of December 31, 2016,2018, our aggregate radiata pine holdings comprised 41%39.0% of all Chilean radiata pine plantations, making us the country’s largest radiata pine plantation owner according to the Chilean Forestry Institute.plantations. As of December 31, 2016,2018, we owned approximately 1.1 million hectares of land in Chile, of which 718674 thousand hectares are forest plantations.

As of December 31, 2016,2018, we owned approximately 263,384263,213 hectares of forest and other land in Argentina, approximately 181,298249,324 hectares of forest and other land in Brazil and approximately 122,609125,843 hectares of forest and other land that Montes del Plata owns in Uruguay. Of the total land we own in Uruguay through Montes del Plata, 100% is planted with eucalyptus: dunnii (80%(91.9%), globulus (6%(1.1%), grandis (6%(3.3%) and other species (8%(3.7%).

Of the total land we own in these fourthree countries, approximately 144,734165,921 hectares of land isare planted with taeda pine and elliottii pine, both species of softwood that hashave a growth rate similar to that of radiata pine.pine, and 157,564 hectares with eucalyptus. The balance includes plantations of other species of trees, land to be planted, protected areas and native forests.

The following table sets forth the number of hectares and types of uses of our land holdings and rights, as of December 31, 2016.2018.

 

  As of December 31, 2016   As of December 31, 2018 
  Total   Distribution   Total   Distribution 
  (in hectares)   (percentage)   (in hectares)   (percentage) 

Pine plantations (1)

        

0-5 years

   171,503    10.2   185,243    10.5

6-10 years

   160,528    9.6   142,526    8.1

11-15 years

   137,361    8.2   137,656    7.8

16-20 years

   136,014    8.1   97,424    5.5

21+ years

   90,839    5.4   95,739    5.4

Subtotal

   696,245    41.5   658,588    37.2

Eucalyptus plantations(2)

   306,593    18.3   336,164    19.0

Plantations of other species

   22,119    1.3   23,020    1.3

Subtotal of Plantations

   328,712    19.6   1,017,772    57.5

Land for plantations

   51,637    3.1   111,165    6.3

Land for other uses(3)

   599,308    35.8   640,062    36.2
  

 

   

 

   

 

   

 

 

Total(4)

   1,675,902    100.0   1,768,999    100.0
  

 

   

 

   

 

   

 

 

 

(1)

All years are calculated from the date of planting.

(2)

Approximately 76.7%83% of our eucalyptus plantations are less than 10 years old.

(3)

Includes roads, firebreaks, native forests and yards.

(4)

Includes 100% of the plantations owned by Forestal Arauco S.A. (Chile), 80% of the plantations owned by Forestal Los Lagos S.A., 100% of the plantations owned by Arauco Argentina, 50% of the plantations we own in Uruguay through the Montes del Plata joint operation, 100% of the plantations owned by Arauco Forest Brasil, 80% of the plantations owned by Arauco Florestal Arapoti and 100% of the plantations owned by Mahal Empreendimentos e Participacoes S.A.S.A.. Also includes 22,84315,320 hectares for which we have the right to harvest but do not own the land, of which 15,93915,015 hectares are in Chile, 6,599 hectares are in Uruguay and 305 hectares are in Argentina.Argentina; there are no hectares are in Uruguay.

Land Acquisition and Afforestation

Our total land assets have increased from fewer than 170,000 hectares in 1980 to 1,675,9021,768,999 hectares as of December 31, 2016.2018. In the five years ending December 31, 2016,2018, we purchased 32,6374,763 hectares of land, all of which 13,441 hectares were purchased in Chile, 8,109 in Brazil and 11,087 in Uruguay.Chile. For more information regarding our material acquisitions, see “—History”“Item 4. Information on our Company—Description of the Business —History”.

We expect to acquire additional land if we are presented withhave the possibility to do so at a desired price or location. There can be no assurance that we would be able to acquire land at a desired price or in a desired location.

We plan to continue our policy of supplementing our pulplog production with purchases from domestic third parties. We believe that this policy is economically efficient, given the significant quantities of pulplog available from third parties and our increasing proportion of sawlogs yielded from our plantations. We believe that the aggregate of our existing plantations, the land currently held by us that we own which we intend to afforest and thethird-party purchases volume that we make in the ordinary course of our businesspurchase fromthird-parties will be sufficient to satisfy our anticipated future demand for sawlogs and pulplogs.

Forest Management

For our pine plantations, our forestry management activities seek to increase sawlogs through advanced genetic techniques, planting and site preparation procedures, thinning and pruning. Managed forests can produce trees of larger diameter and, if pruned, a higher proportion of clear wood, which generally commands a higher price than knotted wood. Although some land is not suitable for the production of pruned logs, as of December 31, 2016,2018, approximately 63% of our pine forests in Chile were conducive to clear wood production.

For our eucalyptus plantations, our forestry management activities seek to increase the amount of fiber production per hectare through advanced genetic techniques and planting and site preparation procedures. Eucalyptus is more expensive to plant than pine; however, after planting, eucalyptus requires minimal forest management, yields more fiber per hectare and has a shorter growth cycle and greater wood density than pine, resulting in a greater amount of pulp production per hectare.

As of December 31, 2016,2018, we had 187 nurseries in Chile, Argentina, Brazil and Uruguay (through Montes del Plata), in which we grow seedlings using seeds and cuttings from genetically selected trees. To achieve higher quality trees and an increased growth rate, we apply strict selection criteria to the trees from which seedlings are produced. We then plant the seedlings manually.manually or mechanically. Depending upon the species of tree to be planted and the nutrient and physical characteristics of the soil, we may also undertake a certain amount of ground preparation before planting. Our other principal forest activities are thinning, pruning and harvesting.

Thinning, or cullingcuting inferior trees from the plantation, occurs when commercially necessary. Thinned trees are used in pulp production or, depending on the quality of the land, as sawlogs. Commercial thinning occurs when trees are eight8 to 14 years old and results in an average reduction of the number of trees per hectare from the original stocking of 1,2501,000 and 1,600,1,333, depending on the productivity of the land, to 700 in the first thinning(8-9 (8 to 9 years) and to approximately 450 in the second thinning(12-14 (12 to 14 years).

This high level of thinning benefits Arauco for the following reasons:

 

the cost of planting is relatively low,

 

the higher number of young trees provide each other with natural protection from the elements, and

 

the high degree of selection that thinning makes possible leaves only the highest quality trees to be harvested.

Pruning involves removing branches, the source of knots, which are the main defect in sawn timber. Pruning results in ahigh-quality clear wood saw log of 5.35.8 meters from each tree, and is conducted three times:

 

when trees are five to seven years old,

 

one year later, when trees are six to eight years old, and

 

one year later, when trees are seven to nine years old.

Our eucalyptus plantations are neither thinned nor pruned.

Harvesting timber involves felling trees, removing branches from the logs, cutting the logs into appropriate sections and loading the logs onto trucks for transport to sawmills, panel mills or pulp mills. We use the lower section of the radiata pine, comprising the first 7 to 12 meters, in sawmills and plywood mills. We use themid-section of the radiata pine, comprising, on average, the next 8 to 13 meters, in either sawmills or pulp mills, depending on the diameter and quality of the pine. We use the top section of the tree for pulp, MDF andmedium-density particleboard, or MDP production.

We monitor product demand and our current inventory levels, and we match harvests from sections of our plantations that will provide the optimal yield given our product requirements. This process involves the use of sophisticated research models and close communication between our different operating areas to ensure that the correct amounts of timber of the required characteristics are supplied. We replant as soon as practicable after harvesting, with an average period between harvesting and replanting of one year.

The following table illustrates, on a hectare basis, the extent of our thinning, pruning and harvesting activities in Chile during the periods indicated.

 

   2016   2015   2014 
   (in hectares) 

Thinning

   16,229    14,003    12,574 

Pruning

   33,547    31,292    28,195 

Harvesting

   31,863    33,266    35,653 

   2018   2017   2016 
   (in hectares) 

Thinning

   10,358    5,553    16,229 

Pruning

   36,172    32,869    33,547 

Harvesting

   36,267    38,932    31,863 

We manage our forest activities, but we hire independent contractors to perform the bulk of our operations, including planting, maintenance, thinning, pruning, harvesting, transportation and access road construction. As of December 31, 2016,2018, we had arrangements with more than 261338 independent contractors that employed over 11,89412,822 workers in Chile. Many of these contractors havelong-standing relationships with us, but we award the majority of contracts based on competitive bids. We believe that our arrangements with independent contractors provide greater flexibility and efficiency than performing these activities directly.

Our plantations are interspersed with native forest and farmland, and, as a result, they are naturally protected against the spread of certain diseases. In addition, our subsidiary Investigaciones Forestales Bioforest S.A., or Bioforest, has developed strategies to protect our forests from pests and diseases. During the last fiveseven years, radiata pine plantations in Chile have been affected by two health problems: 1) thesirexSirex noctilio, a wasp which attacks stressed trees, has caused a natural selection for thinning and 2) the disease produced byphytophthoraPhytophthora pinifolia has reduced the growth rate of certain trees. To mitigate the effects of thesirexSirex noctilio, Bioforest has implemented a biological control program under which it has released into the affected forests natural enemies of thesirexSirex noctilio, including thenematode, thebeddingiaBeddingia siricidicola and theparasitoid ibaliaIbalia leucospoide. To control the spread ofphytophthora pinifolia, Bioforest has begun a genetic program to make our trees more tolerant to this disease and has also begun dispersing in our forests a fertilizer that further promotes resistance. For more information regarding certain risks to our forests presented by disease, see “Item 3. Key Information—Risk Factors—Risks Relating to the Company—Disease or fire could affect our forests and manufacturing processes and, in turn, adversely affect our business, financial condition, results of operation and cash flows.”

We operate an extensive fire control organization that interacts with the fire control organizations of other forestry companies to minimize any fire damage to our forests. The operation consists primarily of a system of spotter towers and cameras, manned 24 hours a day during the summer months, from which spotters report the direction of any fire observed to a central command post, where the fire’s exact location is determined, and an appropriate ground and/or aerial response is formulated. The focus of this operation is to detect the fires as soon as possible and control firesto reach the location in less than 1020 minutes in order to prevent fires from spreading. SinceAlso, when feasible, we work in firefighting activities with authorities, other fire control organizations and local communities. During the years 2015 and 2016, this system has limited fire damage to our forests to an average of 5,7883,907 hectares of the plantations per year. Prior to 2015, we suffered wildfires on December 31, 2011, which destroyed our Nueva Aldea plywood mill and approximately 8,200 hectares of our forest plantations. Furthermore,Notwithstanding such system, during January and February 2017, large forest fires affected Arauco’s plantations in the Maule and Bio Bio Regions in southern Chile. About 80,00072,500 hectares of our forest plantations were damaged to some extent and our El Cruce Sawmill was destroyed as a result of these fires.

During the end of 2015 and during the first quarter of 2016,2015-2016 forestry fire season, fires that affected our forest plantations destroyed 618 hectares. During the end of 2016 and the first quarter of 2017,2016-2017 season, approximately 82,040 hectares of our forest plantations were affected. See “Item 3. Key Information—Risk Factors—Risks Relating to Us AndIn the Forestry Industry—Disease or fire could affect2017-2018 season, approximately 587 hectares of our forests and manufacturing processes and, in turn, adversely affect our business financial conditions, results of operations and cash flows.”forest plantations were affected by forest fires.

Forest Production

We harvested 2222.3 million cubic meters of logs during the year ended December 31, 2016,2018, consisting of 9.39.2 million cubic meters of sawlogs, 7.38.0 million cubic meters of pine pulplogs and 5.45.1 million cubic meters of eucalyptus pulplogs and other logs. We did not export any pulplogs during 2016 because substantially all of the pulplogs from our forests were used in our pulp or panel mills. During 2016,2018, our sawmills and panel mills used 7.77.3 million cubic meters of sawlogs. We also sold 1.31.8 million cubic meters of sawlogs to unaffiliated domestic sawmills during 2016.2018.

A log merchandising facility located at the same site as our Horcones I and Horcones II sawmills optimizes, cuts and classifies wood destined for our plywood facility, sawmills or pulp mills with an annual processing capacity of 1.82.0 million cubic meters of logs per year. The Nueva Aldea complex also includes a log merchandising facility, with an annual processing capacity of 1.62.6 million cubic meters of logs per year.

Pulp

We believe that we were Chile’s largest producer of bleached and unbleached softwood market pulp in terms of production in 2016.2018. For the year ended December 31, 2016,2018, our pulp sales were U.S.$2.0 3.0 billion, representing 42.9%49.6% of our total revenuerevenues for the period.

Pulp obtained from wood fibers is mainly used in the manufacture of printing and writing paper, hygienic and sanitary paper, board and packaging. Whether a specific kind of pulp is suitable for a particular end use depends not only on the type of wood but also on the process used to transform the wood into pulp. Pulp made from softwoods, such as radiata pine, has long fibers and it is used to provide strength to paper products. Hardwood bleachedBleached hardwood pulp is used primarily for printing and writing papers and for tissue. Unbleached pulp is used primarily for linerboard (a packaging material). Pulp made from hardwoods, such as eucalyptus, has short fibers and is used in combination with long fiber in manufacturing paper products.

We use a chemical process, known as the kraft process, in our pulp mills in Chile, Argentina, and Uruguay. The raw wood is in the form of pulplogs and chips, which are used in the production process to produce pulp. The pulplogs are first debarked and chipped. The chips are then screened, mixed and cooked with chemicals to separate the bulk of the lignin from the wood fibers. After the

material is screened and washed, it is then passed tohigh-density tanks. For bleached pulp, the next step is afive-stage bleaching process using chemicals, primarily chlorine dioxide. At all of our pulp mills, the bleaching process is preceded by an oxygen delignification stage. Then, the fibers are subject to a final stage where a sheet is formed and subsequently dried and baled for transportto be transported to customers. The lignin and bark produced during this process isare used as fuel in the boilers to produce steam, providing heat and generating electricity for the mill. Our bleached pulp is bleached to a 90+ brightness level, as measured by the ISO test procedure, which is one of the industry’s measurement methods.

Pulp Mills

As of December 31, 2016,2018, we owned and operated five pulp mills in Chile, one in Argentina, and jointly owned and operated one in Uruguay with Stora Enso, with an aggregate installed annual production capacity of approximately 3.94.0 million tonnes. This figure includes 50% of our MontesUruguay (Montes del PlataPlata) joint operation. Our six pulp mills, together with the 50% volume we include from our interest in the Montes del Plata mill, produced 3.3 million tonnes of bleached pulp and 0.40.5 million tonnes of unbleached pulp in 2016.2018.

All our pulp mills in Chile, the Puerto Esperanza pulp mill in Argentina and the Montes del Plata mill in Uruguay are certified under ISO 9001, ISO 14001 and under standard Chain of Custody FSC®and CERTFOR (PEFC Homologated)international standards. See “Item 4. Information on our Company—Certifications”. The Puerto Esperanza Pulp Mill in Argentina is certified under ISO 14001, OHSAS 18001 and Chain of Custody FSC®. The Montes del Plata Mill is certified under Chain of Custody FSC®. The following list sets forth the codes of license COC FSC® for each pulp mill:

Arauco Pulp Mill:FSC-C006552

Licancel Pulp Mill:FSC-C109896

Constitución Pulp Mill:FSC-C109895

Nueva Aldea Pulp Mill:FSC-C011929

Valdivia Pulp Mill:FSC-C005084

Puerto Esperanza Pulp Mill:FSC-C121377

Celulosa y Energía Punta Pereira (Montes del Plata) Pulp Mill:FSC-C116413

The following table sets out bleached and unbleached kraft pulp production by plant for each of the years indicated.

 

  Year ended December 31,   Year ended December 31, 
  2016   2015   2014   2013   2012   2018   2017   2016   2015   2014 
  (in thousands of tonnes)   (in thousands of tonnes) 

Chile

                    

Arauco Mill (bleached)

          

Arauco I

   258    268    269    284    282 

Arauco II

   475    474    483    510    505 

Arauco Mill

          

Arauco I (bleached)

   271    264    258    268    269 

Arauco II (bleached)

   451    456    475    474    483 

Arauco II (unbleached)

   32    21    —      —      —   

Valdivia Mill (bleached)

   550    549    550    550    550    548    550    550    549    550 

Constitución Mill (unbleached)

   278    303    310    311    307    318    270    278    303    310 

Nueva Aldea Mill (bleached)

   999    934    985    944    882    1,033    992    999    935    985 

Nueva Aldea Mill (unbleached)

   —      —      —      3    —   

Licancel Mill (unbleached)

   152    152    150    147    137    158    144    152    152    150 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Subtotal

   2,712    2,681    2,747    2,749    2,663    2,811    2,697    2,712    2,681    2,747 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Argentina

                    

Alto Paraná Mill (bleached)

   341    314    282    331    307 

Puerto Esperanza Mill (bleached)

   326    310    341    314    282 

Uruguay

                    

Montes del Plata (bleached- 50%)

   643    608    240    —      —      654    688    643    608    240 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

   3,695    3,603    3,269    3,080    2,970    3,791    3,695    3,696    3,603    3,269 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

The following is a description of each of our pulp mills in Chile, Argentina and Uruguay.

Chile

Arauco I. Arauco I or Line 1, which began operations in 1972, is located at the Arauco Mill in the heart of a group of our radiata pine plantations in the Eighth Region of Chile. Arauco I produces elementarychlorine-free pulp, which does not use chlorine gas. Elementarychlorine-free pulp is also produced by most of our competitors in each of the world’s major pulp producing regions. The installed annual production capacity of Arauco I is approximately 290,000 tonnes of eucalyptus and pine bleached hardwood kraft pulp.

Arauco II. Also located at the Arauco Mill, Arauco II was completed in 1991. Arauco II’s pulping process is generally the same as that of Arauco I, but it includes technological improvements in its production process and environmental design. Arauco II is also equipped to produce elementarychlorine-free pulp. The installed annual production capacity of Arauco II is approximately 510,000 tonnes of pinetonnes. Although the mill mainly produces bleached softwood kraft pulp, it could also produce unbleached softwood kraft pulp.

On July 24, 2018, the MAPA project was approved by the board of directors of the Company. The MAPA project contemplates an estimated investment of U.S.$2,350 million and is to be located at the commune and province of Arauco, in the Bio Bio Region, Chile. The project consists of the constructionand start-up of a new production line of 1,560,000 annual tonnes of bleached hardwood kraft pulp (Line 3). Line 1 of the Arauco Mill will cease its operations once Line 3 comes online. Therefore, this project is expected to increase the net production of the Arauco Mill by approximately 1,270,000 tonnes of pulp, reaching a total production capacity of approximately 2,100,000 annual tonnes. We expect that this project will start operations in the second quarter of 2021.

ConstitucióConstitución Mill. The Constitución Mill is located in the heart of a group of our radiata pine forests in the SeventhMaule Region, of Chile. As of December 31, 2016,2018, the Constitución Mill was the largest unbleached softwood market pulp mill in the world, with an installed annual production capacity of approximately 355,000 tonnes. The unbleached pulp produced in this mill does not use any chlorine in its production process.

Licancel Mill. We acquired the Licancel Mill in September 1999. It is located in Licantén, which is 250 kilometers south of Santiago. The mill has anInvestments made during 2018 increased the mill’s installed annual production capacity offrom approximately 155,000 tonnes to 160,000 tonnes of eucalyptusunbleached softwood kraft pulp and pine bleached and unbleached kraft pulp. The Licancel Mill is equipped to produce elementarychlorine-free pulp.

Valdivia Mill. The Valdivia Mill commenced operations in February 2004. The Valdivia Mill is located in the Fourteenth Region of Chile (which was previously part of the Tenth Region of Chile), an area with significant radiata pine and eucalyptus plantations. The Valdivia Mill has an installed potential annual production capacity of approximately 550,000 tonnes of bleached pulp, consisting of softwood pulp and eucalyptushardwood pulp. The Valdivia Mill is equipped to produce elementarychlorine-free pulp.

In February 2015, the Environmental Assessment Service (SEA) unanimously approved the Environmental Impact Statement submitted by Arauco in order to move forward with the dissolving pulp project being developed at Valdivia Pulp Mill. This initiative, which requires a U.S.$185190 million (as revised in 2018) investment, will allow Arauco to be the first company in Chile to produce this type of pulp, in addition to creating avalue-added product and diversifying its supply to the market. Dissolving pulp is mainly used in the manufacture of viscose, which is known for its softness, shine, purity and high water absorption, making it suitable for use in the production of fabric medical items and personal care items, specifically clothing. Unlike synthetic fibers that are mostly produced from oil based sources, dissolving pulp is natural and renewable. In addition, this project will increase the facility’s power generation by 15 megawatts, (“MW”)or MW, in comparison with the power generation during bleached hardwood kraft pulp campaign. TheIn July 2017, the project was approved by the authorities and in September 2017, the board of directors of Arauco unanimously approved the project, which has started its construction and operationphase in the fourth quarter of 2017. We expect that this project is subject to many environmental, regulatory, engineering and political uncertainties. As a result, we cannot provide any assurances thatwill start operations at the project will be completed.end of 2019.

Nueva Aldea Mill. Located in the Eighth Region of Chile, this mill was completed in 2006, and currently has aafter certain investments made during 2018, it increased its production capacity offrom 1,027,000 tonnes per year to 1,040,000 tonnes per year, half of which is fordedicated to the production of pine bleached softwood kraft pulp and the other half of which is fordedicated to the production of eucalyptus bleached hardwood kraft pulp. The Nueva Aldea Mill is equipped to produce elementarychlorine-free pulp.

Argentina

Puerto Esperanza Mill. Arauco Argentina’s softwood pulp mill is located in the Province of Misiones, a region whose soil and climate are favorable for the rapid growth of pine trees. The Puerto Esperanza Mill (formerly known as Alto Paraná Millmill) is the only bleached softwood kraft market pulp facility in Argentina. The mill has an installed annual production capacity of 350,000 tonnes of pulp, consisting of fluff pulp and bleached softwood pulp for paper use, currently representing almost all of the total bleached softwood pulp production capacity in Argentina.pulp.

Uruguay

Montes del Plata. Located in Punta Pereira in the department of Colonia, Uruguay, the Montes del Plata Pulp Mill began operations in June 2014. The total investment was approximately U.S.$2.7 billion. The mill has an annual installed capacity of 1.31.4 million air dry tonnes (“AdT”) of bleached pulp. On June 4, 2014, the environmental authorities of Uruguay (MVOTMA) approved an annual production capacity of the Montes del Plata mill of 1.5 million AdTtonnes per year.

Regarding our Montes del Plata mill in Uruguay, during 2017 we made some operational improvements that led to an increase in the annual capacity of the mill, reaching approximately 1.4 million tonnes from 1.3 million tonnes. Of the total annual capacity of the mill we own the 50% due to the joint operation we had with Stora Enso, which correspond approximately to 700 thousand tonnes of annual capacity.

Production Costs

Based on information published by Hawkins Wright Ltd., our cash costs for softwood pulp production are lower than the average costs of market pulp producers in Canada, the United States and Scandinavia, particularly with respect to transportation, which enables our costs to be lower than the average costs of our Northern Hemisphere competitors, on a total delivered cost basis. The following table comparessets forth our costs for the production of bleached softwood kraft market pulp to the average cost of market pulp producers in selected regions in the Northern Hemisphere.pulp.

   Bleached Softwood Kraft Pulp Producers’ Cost 
   Arauco(1)(4)   British
Columbia
Coast
   West
Canada
Interior
   United
States(4)
   Sweden(4)   Finland(4) 
   (in U.S.$ per tonne) 

Wood

   181    212    188    157    244    283 

Chemicals

   53    59    56    68    46    45 

Labor and Others(2)

   133    194    178    193    93    90 

Total cash cost

   366    465    422    418    383    418 

Transportation(3)

   30    43    76    43    49    59 

Marketing and Sales

   3    6    12    14    6    8 

Total delivered cost

   399    514    509    475    438    485 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Arauco(1)  Bleached
Softwood Kraft Pulp Cash Costs
(in U.S.$ per tonne)

Wood

182

Chemicals

62

Labor and Others(2)

145

Total cash cost

389

Transportation(3)

35

Marketing and Sales

3

Total delivered cash cost

427

 

Source: Hawkins Wright. The Outlook for Paper Grade Pulp Demand, Supply, Costs and Prices, December 2016.Arauco

(1)For comparative purposes,

Only includes only Arauco’s operations in Chile.

(2)

Includes labor, energy, maintenance costs, and other mill costs.

(3)

Delivered in China.

(4)Hawkins Wright and Arauco consider a byproduct credit, which is not included in the total delivered cost shown in the table above.

Sales

Total shipments ofEstimated installed bleached kraft market pulp in the global market duringcapacity worldwide for the year ended December 31, 20162018 equaled 57.365.9 million tonnes. Based on information published by Pulp and Paper Production Council,Hawkins Wright Ltd., we believe that our production capacity represented 5.3%5.1% of this market in 2016.2018. During the same year, ended December 31, 2016, we exported 91.4%98.3% of our bleached pulp (in terms of tonnes sold), principally to customers in Asia and Western Europe.

Integrated manufacturers dominate the world production of unbleached softwood pulp, as opposed tonon-integrated companies that sell market pulp, like us. “Market pulp” is pulp sold to manufacturers of paper products, as opposed to pulp produced by an integrated paper producer for use in its paper production facilities. With world shipmentsa worldwide installed capacity of unbleached softwood kraft pulp of 2.02.4 million tonnes for 2016,2018, according to Pulp and Paper Production Council,Hawkins Wright Ltd., we are the world’s largest single producer of unbleached softwood market pulp, based on sales,production capacity, with 21.9%20.0% of the total market in 2016.2018. During the same year, ended December 31, 2016, 97.4%98.2% of our total unbleached market pulp sales (in terms of tonnes sold) consisted of export sales. While for the last fivesix years Asia has been our principal export market for unbleached market pulp, we continually seek niche markets for our products in Western Europe and the United States.

The following table sets forth, by region, the sales volumes of bleached and unbleached pulp for the years indicated.

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2016   2015   2014   2018   2017   2016 
  (in tonnes)   (in tonnes) 

Bleached Pulp

            

Asia and Oceania

   2,153,550    2,003,058    1,874,346    2,289,694    2,311,090    2,153,550 

Europe

   557,726    603,593    527,839    597,116    547,012    557,726 

North and South America

   399,195    435,287    416,539    301,226    335,251    399,195 

Other

   130,289    35,999    9,077    532    134,422    130,289 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   3,240,760    3,077,937    2,827,801    3,188,568    3,327,775    3,240,760 
  

 

   

 

   

 

   

 

   

 

   

 

 

Unbleached Pulp

            

Asia and Oceania

   326,332    325,394    332,964    407,659    338,648    326,332 

North and South America

   94,288    116,613    100,352    81,600    88,425    94,288 

Europe

   4,618    6,795    11,270    1,186    2,073    4,618 

Other

   14,447    10,756    6,920    3,729    15,948    14,446 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   439,684    459,558    451,505    494,174    445,094    439,684 
  

 

   

 

   

 

   

 

   

 

   

 

 

While there are many grades and varieties, pulp is a commodity that is marketed primarily based on price and service. In marketing our pulp, we seek to establishlong-term relationships withnon-integrated end users of pulp by providing a competitively priced,high-quality, consistent product and excellent service. The quality of our pulp derives from the high standards of production that we maintain at our mills and our use of a single species of tree, in contrast to pulp producers in some of the world’s major softwood pulp producing regions that mix different species, depending on availability and seasonality. Our bleached pulp is marketed under the brand names “Arauco” and “Arauco Argentina” and our unbleached pulp is marketed under the brand name “Celco.” The 50% share of the pulp produced from Montes del Plata is marketed under the brand name “Arauco.”

Prices for bleached kraft market pulp produced from radiata pine and eucalyptus normally fluctuate depending on prevailing world prices, which historically have been cyclical. The fluctuations generally depend on worldwide demand, world production capacity, business strategies adopted by major forestry, pulp and paper producers, the availability of substitutes and the relative strength of the U.S. dollar. See “Item 5. Operating and Financial Review and Prospects—Management’s Discussion and Analysis of Financial Conditions, Results of Operations and Cash Flows—Overview” and “—Pulp Prices” and “Item 3. Key Information—RiskFactors-Risks Factors—Risks Relating to Us and the ForestryIndustry-FluctuationsCompany—Fluctuations in market price for our products could adversely affect our financial condition, results of operations and cash flows.”

The following table sets forth our average bleached and unbleached pine pulp prices per tonne at the indicated dates for each quarter, of the years referenced.

 

  2016   2015   2014   2018   2017   2016 
  (U.S.$ per tonne)   (U.S.$ per tonne) 

Bleached Pulp

            

1Q

   570    644    690    784    565    570 

2Q

   590    643    670    804    620    590 

3Q

   564    652    668    808    633    564 

4Q

   558    610    644    773    730    558 

Unbleached Pulp

            

1Q

   594    619    704    847    596    594 

2Q

   608    600    705    873    664    608 

3Q

   573    628    678    876    660    573 

4Q

   574    621    664    864    768    574 

In accordance with customary pulp market practice, we do not havelong-term sales contracts with our customers (except for a few limited cases); rather, we maintainlong-standing relationships with our customers with whom we periodically reach agreements on specific volumes and prices. We have a diversified customer base located throughout the world and totaling, as of December 31, 2016,2018, more than 230250 customers. As of December 31, 2016,2018, we employed 1312 sales agents to represent us in more than 4733 countries. We manage this worldwide sales network from our headquarters in Chile.

TimberWood Products

We produce panels (fiberboard and particleboard), sawn timber (green,kiln-dried lumber and flitches), remanufactured wood products and plywood. For the year ended December 31, 2016,2018, sales of timberwood products totaled U.S.$2.52.7 billion, representing 52.2%45.7% of our total revenues.

Exports, which include sales to countries other than the countries in which the goods are produced, accounted for 43.5%44.3% of our total revenues of timberwood products for the year ended December 31, 2016.2018. We sell panels primarily to customers in North America, Brazil, Chile, Argentina and other countries in Latin America.

The following table sets forth our panelwood products sales to unaffiliated third parties for each of the years indicated.

 

  Year ended December 31,   Year ended December 31, 
  2016   2015   2014   2013   2012   2018   2017   2016   2015   2014 
  (in thousands of cubic meters)   (in thousands of cubic meters) 

Panels

   4,754    4,915    4,840    4,738    2,988    5,410    4,866    4,754    4,915    4,840 

Sawn timber

   1,944    2,079    2,361    2,284    2,009    1,825    1,893    2,022    2,079    2,361 

Remanufactured wood products

   442    422    429    411    413    438    445    442    422    429 

Plywood

   564    594    444    425    568    532    567    564    594    444 

Total

   7,704    8,010    8,074    7,858    5,978    8,205    7,771    7,782    8,010    8,074 

As of December 31, 2016,2018, we owned and operated two panel mills, eightseven sawmills and two plywood mills in Chile; two panel mills and one sawmill in Argentina; twofour panel mills in Brazil; six panel mills in the United States;States and two panel mills in Canada. Total aggregate installed annual production capacity as of December 31, 20162018 was approximately 9.87.4 million cubic meters. We operate our sawmills in coordination with our forestry and sales operations, since our sawn timber is generally produced in accordance with customer specifications. All our sawmills are located near our pine plantations. As of December 31, 2016,2018, we also owned five remanufacturing facilities—four in Chile and one in Argentina—that reprocess sawn timber into remanufactured wood products, such as moldings, jams andpre-cut pieces that end users require for doors, furniture and door and window frames. These facilities produced 434,843387,442 cubic meters of remanufactured wood products in 2016.2018.

Two acquisitions expanded our North American manufacturing presence. In December 2011, Arauco Panels USA, one of our U.S. subsidiaries,we entered into an asset purchase agreement to acquire an industrial facility in Moncure, North Carolina for U.S.$56 million plus approximately U.S.$6 million in working capital. In June 2012, we entered into a share purchase agreement to acquireas a result of which we acquired five panel mills in the United States, one of which was located in Albany, Oregon; two in Bennettsville, South Carolina; one in Eugene, Oregon; and one in Malvern, Arkansas and two panel mills in Canada, located in St. Stephen, New Brunswick and Sault Ste. Marie, Ontario.

On July 1, 2012, we commenced the process of insourcing the operation of 13 sawn timber industrial facilities in Chile, which had previously been managed bythird-party companies. As a result, we incorporated 2,900 people into our workforce in that same year.

In 2015, we agreed to purchase a 50% of Sonae Arauco for a total purchase price of €137.5 million (equivalent to U.S.$153.1 million)million at the time of the purchase), comprising the following operations: (i) two panel plants and one sawmill in Spain; (ii) two panel plants and one resin plant in Portugal; (iii) four panel plants and one impregnation of melamine papers plant in Germany, (iv) and two panel mills in South Africa. The transaction closed on May 31, 2016.

On December 6, 2017, our Brazilian subsidiary Arauco do Brasil S.A. purchased all of the equity rights in Masisa do Brasil Ltda. See “Item 4. Information on our Company—Description of Business—History.”

On January 31, 2019, Arauco’s subsidiaries Arauco Internacional and AraucoMex, S.A. de C.V., acquired the shares of Masisa’s Mexican Subsidiaries. See “Item 4. Information on our Company—Description of Business—History.”

Our panelwood products mills in Chile, North America, Argentina and Brazil are certified under standard Chain of Custody FSC®(License CodeFSC-C119538), which includes two panel mills. Also,international standards. See “Item 4. Information on our eight sawmills, two plywood mills and the remanufacturing facilities are certified under the Chain of Custody FSC® standard (License CodeFSC-C119538). Additionally, all our timber mills in Chile are certified under CERTFOR (PEFC homologated).

In North America, all our panel mills are certified under the Chain of Custody FSC®standard (License CodeFSC-C019364) and our composite panel mills are also certified under the ISO 14001/ OHSAS 18001 standard.

Our Zárate Mill in Argentina is certified under the Chain of Custody FSC®standard (License CodeFSC-C119529). All our mills in Argentina are certified under the Environmental Management System ISO 14001 standard, as well as under the Occupational Health and Safety Assessment Series (OHSAS) 18001 standard.

Our panel mills in Brazil (Jaguariaiva and Piên) are certified under the Chain of Custody FSC®standard (License CodeFSC-C010928 andFSC-C118530), the Environmental Management System ISO 14001 standard and the Occupational Health and Safety Assessment Series (OHSAS) 18001 standard.Company—Certifications.”

Chile

Teno Mill.This mill, which began production on July 4, 2012, has an installed annual production capacity of 300,000 cubic meters of PBO and 240,000 cubic meters of melamine laminate panels. The complex has a continuous PBO panel production line, two laminated panel production lines and one impregnation line. In 2018, Teno mill started its production capacity increase project through the Teno 340 project, to increase the PBO annual installed capacity up to 340,000 cubic meters.

TrupáTrupán-Cholguá-Cholguán Mill. This mill has an installed annual production capacity of approximately 575,000 cubic meters of panels and 35,00040,000 cubic meters of melamine panels. It has three production lines, one of which produces HB with an annual capacity of 60,000 cubic meters and the other two of which produce MDF with an annual production capacity of 165,000 and 350,000 cubic meters, respectively. The HB line has been recently shut down.

Arauco Mill. This mill has an installed annual production capacity of approximately 350,000 cubic meters of plywood panels. It has two production lines with respective production capacities of 140,000 and 210,000 cubic meters.

Nueva Aldea Plywood Mill.This mill was built on the same site as the original mill, which was destroyed as a result of the 2011 wildfires in theBio-Bio Region of Chile. The new Nueva Aldea Mill started operating on December 18, 2013. It has an annual production capacity of 360,000 cubic meters of plywood panels.

Cholguán Sawmill and Remanufacturing Facilities. This sawmill has installed annual production capacity of approximately 317,000 cubic meters of lumber, as well as drying kiln facilities with installed annual production capacity of approximately 273,000 cubic meters and two remanufacturing facilities with installed annual production capacity of approximately 92,000 cubic meters of remanufactured wood products. The Cholguán sawmill also has a special facility for making laminating beams with installed annual production capacity of approximately 12,500 cubic meters.

Colorado Sawmill. This sawmill has an installed annual production capacity of approximately 273,000 cubic meters of lumber and produces “green” sawn timber (or sawn timber that is not kiln dried) for the Chilean, Japanese and Middle Eastern markets. It also has drying facilities with installed annual production capacity of approximately 175,000 cubic meters.

El Cruce Sawmill. This sawmill has an installed annual production capacity of approximately 116,000 cubic meters of lumber. Due to wildfires occurred during the months of January and February 2017 in Chile, the El Cruce Sawmill was destroyed.

Horcones I Sawmill and Remanufacturing Facility. This sawmill has an installed annual production capacity of approximately 484,000 cubic meters of lumber. It also has drying kilns with an installed annual capacity of approximately 362,000 cubic meters and a remanufacturing facility with an installed annual production capacity of approximately 130,000 cubic meters of remanufactured wood products.

Horcones II Sawmill.The annual production capacity of this mill is approximately 242,000 cubic meters of lumber. It also has drying facilities with an installed annual capacity of approximately 167,000166,000 cubic meters.

Nueva Aldea Sawmill. This mill has installed annual production capacity of approximately 431,000 cubic meters of sawn timber and is equipped with drying kilns with installed annual capacity of approximately 351,000 cubic meters.

Valdivia Sawmill and Remanufacturing Facility.This sawmill has installed annual production capacity of approximately 464,000 cubic meters of lumber. It also has drying facilities with an installed annual capacity of approximately 336,000 cubic meters and a remanufacturing facility with installed annual capacity of approximately 85,000 cubic meters of remanufactured wood products.

Viñales Sawmill and Remanufacturing Facility. This sawmill has installed annual production capacity of approximately 377,000 cubic meters of lumber. It is also equipped with drying kilns with installed annual capacity of approximately 358,000 cubic meters and a remanufacturing facility with an installed annual capacity of approximately 101,000 cubic meters of remanufactured wood products.

Argentina

Piray MDF Mill. This mill has an installed annual production capacity of approximately 300,000 cubic meters of MDF panels and 120,000 cubic meters of melamine lamination.

Zárate Mill. This mill has an installed annual production capacity of approximately 260,000 cubic meters of PBO panels and 220,000 cubic meters of melamine lamination, in addition to producing PBO.

Piray Sawmill and Remanufacturing Facility. This sawmill has installed annual production capacity of approximately 358,000318,000 cubic meters of lumber. It is also equipped with drying kilns with installed annual production capacity of approximately 308,000 cubic meters and a remanufacturing facility with installed annual production capacity of approximately 67,000 cubic meters of remanufactured wood products.

Brazil

Jaguariaiva Mill. This mill produces MDF and has an installed annual production capacity of approximately 815,000780,000 cubic meters of MDF panels through the first production line and 500,000 cubic meters of MDF panels through the second production line. Its total melamine lamination capacity is 280,000480,000 cubic meters.

Piên Mill. This mill has an installed annual production capacity of approximately 750,000 cubic meters of panels distributed among two production lines with a production capacity of 440,000 cubic meters of MDF boards, 310,000 cubic meters of PBO and 250,000264,000 cubic meters of melamine lamination. In December 2018, the powder silo of one of the lines in this mill suffered damage that paralyzed the operations of the PBO panels for approximately ten days. This event did not cause a material impact on the financial statements.

Montenegro Mill. This mill has an installed annual production capacity of approximately 410,000 cubic meters of PBO panels and 200,000 cubic meters of melamine lamination.

Ponta Grossa Mill. This mill produces MDF and has an installed annual production capacity of approximately 310,000 cubic meters of MDF panels. Its melamine lamination capacity is 360,000 cubic meters.

México

Durango Mill. This mill includes two PBO production lines with an annual installed capacity of 155,000 cubic meters; one MDF production line with an annual installed capacity of 220,000 cubic meters and four melamine lines with an annual installed capacity of 210,000 cubic meters. The Durango mill was acquired in January 2019.

Zitácuaro Mill. This mill includes one PBO production line with an annual installed capacity of 184,000 cubic meters and three melamine production lines with an annual installed capacity of 107,120 cubic meters. Zitácuaro mill was acquired on January 2019.

United States

Duraflake Mill.This mill located in Oregon, has an installed annual production capacity of approximately 442,000 cubic meters of PBO and 132,000 cubic meters of melamine lamination.

Bennettsville Mill.This mill located in South Carolina has an installed annual production capacity of approximately 251,000 cubic meters of MDF.

Eugene Mill. This mill located in Oregon has an installed annual production capacity of approximately 154,000 cubic meters of MDF.

Malvern Mill. This mill located in Arkansas has an installed annual production capacity of approximately 310,000 cubic meters of MDF.

Carolina Mill.This mill located in South Carolina has an installed annual production capacity of approximately 600,000 cubic meters of PBO and 285,000 cubic meters of melamine lamination. An expansion project was completed in the fourth quarter of 2016, increasing the mill’s PBO production capacity by 104,000 cubic meters and melamine capacity by 153,000 cubic meters.

Moncure Mill. This facility located in North Carolina includes an MDF production line with an annual production capacity of 285,000 cubic meters, a PBO production line with an annual production capacity of 262,000 cubic meters and two melamine lamination production lines with a combined annual production capacity of 150,000 cubic meters.

Grayling Mill.This facility is located in Michigan and includes one production line with an annual installed production capacity of 800,000 cubic meters of PBO. This facility had been under construction since 2017 and started its operations during the first quarter of 2019.

Panolam Mill.This facility is located in Oregon and includes two thermally fused lamination lines with an annual installed production capacity of 75,000 cubic meters of melamine. It was acquired in July 2018.

Canada

Sault Sainte Marie Mill.This mill located in Ontario has an installed annual production capacity of approximately 310,000 cubic meters of MDF and 115,000 cubic meters of melamine lamination.

St. Stephen Mill.This mill located in New Brunswick has an installed annual production capacity of approximately 376,000 cubic meters of panels distributed between two production lines with a production capacity of 216,000 cubic meters of PBO and 160,000 cubic meters of thin HDF, in addition to a melamine lamination capacity of 255,000 cubic meters, paint/print and décor paper lines and with anon-site resin facility.

Sonae Arauco

Sonae Arauco, of which we own 50%, and its subsidiaries produce market wood panels, of the OSB, MDF and PBPBO type, and sawn timber through the operation of: (i) two panel plants and one sawmill in Spain; (ii) two panel plants and one resin plant in Portugal; (iii) four panel plants and one impregnation of melamine papers plant in Germany, (iv) and two panel mills in South Africa.Africa (one of them is currently shut down). In the aggregate, the production capacity of Sonae Arauco is approximately 460,000516,000 cubic meters of OSB, 1,450,0001,482,000 cubic meters of MDF, 2,270,0002,330,000 cubic meters of particleboards and 100,00050,000 cubic meters of sawn timber.

Forestry Products

Our forestry products are sawlogs, pulplogs, posts and chips. As a result of our forest management policies and the increasing maturity of our plantations, our plantations are yielding increasing volumes of forestry products, particularly clear wood. As the volume of clear wood has grown, we have broadened our range of forestry products. For the year ended December 31, 2016,2018, sales of forestry products were U.S.$86.5105 million, representing 1.8% of our revenues for such year.

The following table sets forth, by category, forestry product sales to unaffiliated third parties for each of the years indicated.

 

  Year ended December 31,   Year ended December 31, 
  2016   2015   2014   2013   2012   2018   2017   2016   2015   2014 
  (in thousands of cubic meters)   (in thousands of cubic meters) 

Sawlogs

   1,328    1,793    2,262    2,149    2,250    1,794    1,608    1,328    1,793    2,262 

Pulplogs

   459    591    499    546    274    746    616    459    591    499 

Posts

   0    0    2    13    22    —      —      —      —      2 

Chips

   366    278    303    305    365    546    443    366    278    303 

Energy and Sustainable Development

We utilize renewable fuels such as forest biomasssub-products in power plants that cogenerate the steam and electricity required for our manufacturing operations, thus contributing to reducing greenhouse emissions. Biomassco-generation allows for a high thermal efficiency, approaching 80% in some cases. In addition to meeting our own energy needs, in Chile we generate a significant amount of surplus power, which we deliver to theSistema Interconectado Central (Chilean power grid, or SIC), SEN, which distributes electrical power throughout the Central and Southern Regions of Chile. In Uruguay, biomasssub-products from our Montes del Plata Mill also cogenerate the steam and electricity to meet our energy needs, and surplus power is delivered to the Uruguayan power grid.

The following table sets forth, by country and mill, our energy producing facilities and their annual installed capacities, maximum generation, average consumption and surplus power as of December 31, 2016:2018:

 

Country/Mill

  Installed  Capacity
(MW)
   Maximum
Generation
(MW)
   Average
Consumption
(MW)
   Surplus power delivered
to Power Grid

(MW)
  Installed Capacity
(MW)
 Maximum
Generation
(MW)
 Average
Consumption
(MW)
 Surplus power delivered
to Power Grid
(MW)
 

Chile

            

Arauco

   127    105    81    24   127   105   81   24 

Constitución

   40    30    22    8   40   30   22   8 

Cholguán

   29    28    15    13   29   28   15   13 

Licancel

   29    20    14    6   29   20   14   6 

Valdivia

   140    115    54    61   140   115   54   61 

Horcones (gas/diesel)

   24    24    0    24   24   24   —     24 

Nueva Aldea I

   30    28    14    14   30   28   14   14 

Nueva Aldea II (diesel)(1)

   10    N.A.    0    N.A.   10   N.A.   —     10 

Nueva Aldea III

   136    100    63    37   136   100   63   37 

Bioenergía Viñales

   41    31    9    22   41   31   9   22 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Total Chile

   606    481    272    209   606   481   272   219 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Uruguay

            

Montes del Plata(2)(1)

   82    74    38    36   91   90   39   50 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Total Uruguay

   82    74    38    36   91   90   39   50 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Argentina

            

Piray

   38    23    15    8   38   30   16   15 

Esperanza

   40    35    40    0 

Puerto Esperanza

  44   44   39   —   
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Total Argentina

   78    58    55    8   82   74   55   15 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Total

   766    613    365    253   779   645   366   284 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

 

(1)Nueva Aldea II does not have energy available to sell to third parties
(2)

Considers 50% of joint ventureoperation Montes del Plata

As of December 31, 2016,2018, we had registered fiveco-generation power plants in Chile as greenhouse emission reduction project activities under the Clean Development Mechanism (CDM) of the Kyoto Protocol. Three of them were registered during 2006, Trupán, Nueva Aldea (first phase) and Nueva Aldea (second phase); a fourth plant was registered in 2009, the Valdivia biomass power plant; and the fifth one was registered in January 2011, the Horcones power plant expansion project. Each of these power plants generates electricity through forestry biomass (forestry and wood industrialsub-products, including the wood pulpby-product called “black liquor”), which is a renewablecarbon-neutral fuel that allows the facilities to decrease their reliance onfossil-fuel intensive grid electricity.

Arauco was the first Chilean forestry company to issue Certificates of Emission Reductions (CERs or carbon credits) through the CDM of the Kyoto Protocol in Chile. As ofFrom 2007 to December 31, 2016, we2018, Arauco had issuedcontributed 7.8% of total carbon credits in the energy generation from residual biomass projects portfolio registered worldwide in accordance with the CDM standard. This represents a totalnet issuance of 3.574.2 million CERs with our CDM projects.

As of the date of this annual report, accumulated in the period from 2007 to 2018, we have sold 1.62.98 million CERs, mainly to European companies subject to compliance obligations under the European Trading Scheme (ETS). and to global companies who aim to compensate their emissions in the voluntary market. The following table presents the total amount of CERs issued and sold by Arauco for each of the years indicated:

 

  Year ended December 31   Year ended December 31 
  2016   2015   2014   2013   2007-2012   2018   2017   2016   2015   2014   2013   2012-2007 

CERs issued (net of the commission paid to United Nations Framework Convention on Climate Change, or UNFCCC)

   109,844    827,971    403,317    488,475    1.67 million    247,588    457,309    109,844    827,971    403,317    488,475    1.67 million 

CERs sold or donated

   561,619    1,375    42,567    —      1.04 million    658,512    1,095,780    561,619    1,375    42,567    —      1.04 million 

In 2015, Arauco entered into along-term sale agreement with Vattenfall Energy Trading Netherlands N.V., pursuant to which Arauco agreed to sell all its CERs generated between 2013 and 2020 to Vattenfall. This agreement provides for the sale of our carbon credits in the European compliance market, which is the largest carbon credit market currently in operation. In 2016,2018, Arauco sold 560,267626,650 CERs to Vattenfall Energy Trading Netherlands N.V. under thelong-term agreement.

The Viñales biomass power plant, which began operations on May 17, 2012, reached its maximum production capacity on August 29, 2012. The power plant is located alongside the Viñales sawmill, in Chile’s Seventh Region. The plant includes abiomass-fueled power boiler with capacity to produce 210 tonnes of steam per hour and a 41 Megawattextraction-condensing turbo generator. This power plant was also developed as an emission reduction project initiative by Arauco. On January 27, 2013, the Viñales emission reduction project activity was successfully registered as a greenhouse gas emission reduction project activity under the voluntary carbon standard: Verified Carbon Standard (VCS). This project issued 96,110 Verified Carbon Units (VCUs) as its first verified emission reductions (VERs) in early 2017on January 3, 2017. In addition, during the second quarter of 2018, the project issued 506,776 VCUs as its second VERs.

During January 2013, the biomass cogeneration power plant located in the Montes del Plata pulp mill facility in Uruguay was successfully registered as a CDM project activity. This was the eleventh CDM project registered in Uruguay. This project activity is expected to generate an average of 124,000 CERs per year, during its first7-year crediting period. It is expected that this project will issue its first CERs inOn April 26, 2018, the first halfissuance of 2018.CERs was accomplished by generating 66,006 CERs with the Punta Pereira biomass power plant project.

Competition

We experience substantial worldwide competition in each of our geographical markets and in each of our product lines.

Pulp

In general, our main competitors in the pulp market vary depending on the geographical regionhave activities in many regions, considering pulp variety and variety of pulp involved.commercial presence. Fibria Cellulose S.A., or Fibria, and CMPC Celulosa S.A., or CMPC, are our main competitors because they have a wide geographical presence, the former in hardwood and Fibriathe latter in hardwood and softwood pulp. Furthermore, there are competitors such as Suzano Papel e Cellulose S.A., or Fibria,Suzano, and El Dorado Brasil Celulose S.A., or El Dorado, with a relevant presence in the Asian markets, specifically in China and Korea where the main both hardwood and softwood customers are our main competitorslocated. Competitors from all regions participate in most geographical regions. While Fibria produces hardwood pulp only, CMPC produces both softwood and hardwood pulp. In Asia,the diversified European market, where we also face competition from Canadian, Brazilian, Russian and Indonesian producers. In Europe, wemainly face competition from Brazilian, Scandinavian and U.S. producers. Our main competitors with respect toin Asia in unbleached softwood pulp arecome from New Zeland, Canada and Russia.

On January 14, 2019, a merger between Fibria and Suzano was consummated, as publicly reported by the companies.

TimberWood Products

Arauco’s main competitors in the MDF market are: in Latin America, Duratex S.A., Masisa, S.A., Berneck, Proteak, Guararapes and other large South American producers; in North America, local producers such as Roseburg Forest Products Co.;, West Fraser and Plum Creek; in Asia, producers from Malaysia and China; and in the Middle East, European producers.

For sales of PBO, in the Latin American market we compete mainly with Duratex S.A., Masisa, Novopan, Berneck S.A., Berneck S.A.Egger and Fibraplac S.A. In North America, we mainly compete with Panolam, Roseburg Forest Products Co., Funder America, Uniboard,Temple-Inland Inc., Kaycan Ltd. and Sonae Indústria, SGPS, SA.

Arauco’s principal competitors in the plywood markets are located in the United States, Finland, Chile, Brazil and China. We compete mainly with CMPC, Eagon, Roseburg,Georgia-Pacific, and UPM, among others.

For remanufactured wood products, our main competitors are located in Chile, China, Brazil and the United States. For sawn timber, our main competitors are located in Europe, New Zealand, Canada and Chile. We believe that our operating efficiencies, competitive logistics costs, ability to serve customers with multiple specifications, geographical presence in 3840 countries and the versatility of our radiata and taeda pine allow us to compete effectively in the world market for timber products.

Transportation, Storage and Distribution

To remain competitive worldwide, we ship our products to various distribution centers around the world from which final delivery to the customer is made.

The following are the principal Chilean ports that we use, each of which is operational as of the date of this annual report:

 

  

Coronel. A private port located between Concepción and the Arauco Mill, which we built as a member of a consortium with five other companies and in which we have an equity interest of 50%. We shipped 45%47.3% of our aggregate export volume through this port in 2016;2018;

 

  

Lirquén. A private port in Concepción in which as of December 31, 2018, we havehad an equity interest of 20.3% and through which we shipped 28%26.2% of our aggregate export volume during 2016;2018. On April 5, 2019, we sold such equity interest to DP World Holding UK Ltd., or DP; and

 

  

San Vicente. Astate-owned port near the city of Concepción through which we shipped 27%26.4% of our aggregate export volume during 2016.2018.

The closest ports to our Chilean mills are located as follows: approximately 60 kilometers from the Arauco Mill, 310 kilometers from the Constitución Mill, 370 kilometers from the Licancel Mill, 70 kilometers from the Nueva Aldea Mill and 430 kilometers from the Valdivia Mill. We do not own pulp storage warehouses at any of these ports.

We ship pulp to various ports in Europe, North and South America and Asia and, as is customary in the pulp industry, we store some stock in those ports. We use 12 foreign ports that have warehouse facilities available, and standard storage terms provide that we are entitled to a certain period of storage free of charge. We seek to ensure that we do not exceed the free storage period for each shipment. As of December 31, 2016,2018, we had approximately 86,620 AdT140,561 tonnes of pulp in storage in warehouses at foreign ports.

We believe that our shipping costs are comparable to those of our international competitors, notwithstanding Chile’s general greater distance from Europe,main markets, because of the proximity of our plantations and mills to the Pacific coast and the economies of scale we achieve through the volume of our exports.

In Argentina, timely and competitively priced delivery of finished products to our customers is an important factor in our ability to compete effectively, and we ship most orders either by truck or railway almost immediately after they are produced.

In Brazil, our efficient distribution system, which delivers finished products to more than 870 customers in over 350 cities, many of which are separated by long distances, is a key component to our competitiveness.

In Uruguay, our finished product of hardwood pulp is mainly shipped mainly to Europe and Asia through our own Montes del Plata Mill port located next to the pulp mill in Punta Pereira, Colonia, Uruguay.

In North America, products sourced from our South American operations are shipped into 1720 major ports of entry and storaged in 14 warehouses. These are dispatched to more than 3,500 locations in the United States and Canada. Arauco’s eight composite panel plants (one in construction and two impregnation plants) in North America service over 580 customers throughout the region mainly through trucks, in addition to exporting products to the Caribbean, Central America and the Middle East.America.

Description of Property

The following table presents our principal properties as of December 31, 2016.2018.(1)

 

Country

 

Forestry

  

Plants and Facilities

Chile 

1,108,6111,130,618 total hectares

718,460674,020 hectares of plantations

  

5 Pulp Mills

2 Panel Mills1 PBO Mill

1MDF-HB Mill(2)

2 Plywood Mills

87 Sawmills

4 Remanufacturing Facilities

Argentina 

263,384263,213 total hectares

132,333132,617 hectares of plantations

  

1 Pulp Mill

1 MDF Mill

1 PBO Mill

1 Sawmill

1 Remanufacturing Facility

1 ChemicalResin Plant

Brazil 

181,298249,324 total hectares

100,468134,331 hectares of plantations

  

2 MDF Mill

1 MDFPBO Mill

1MDF-PBO Mill

1 Resin Plant

Uruguay(1)(3) 

122,609125,842 total hectares

73,69676,804 hectares of plantations

  50% of 1 Pulp Mill
United States   

23 PBO Mills

3 MDF Mills

1MDF-PBO Mill

1 Impregnation of melamine papers Plant

Canada   

1 MDF Mill

1MDF-PBOHDF-PBO Mill

1 Resin Plant

Portugal   

50% of 1 MDF Mill (2)(4)

50% of 1 PBO Mill (2)(4)

50% of 1 Resin Plant (4)

Spain   

50% of 1 MDF Mill (2)(4)

50% of 1 PBO Mill (2)(4)

50% of 1 Sawmill (2)(4)

Germany   

50% of 2 MDF Mills (2)(4)

50% of 1MDF-PBO Mill (2)(4)

50% of 1PBO-OSB Mill (2)(4)

50% of 1 Impregnation of melamine

papers Plant (4)

South Africa   

50% of 1 PBO Mill (2)(4)(5)

50% of 1 PBOMDF-PBO Mill (2)(4)

(1)

Does not include Mexican mills acquired in January 2019.

(2)

The HB line has been recently shut down

(3)

Corresponds to 50% of Montes del Plata.

(2)(4)

Corresponds to 50% of Sonae Arauco.

(5)

This mill is currently shut down.

Future expansion plans will depend on global market conditions. For information regarding environmental risks associated with our use of our properties, see “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Forestry Industry.Company.

Insurance

We carry a global insurance program, consistent with industry practice, covering our production plants, facilities and equipment. This insurance provides coverage, in the event of fire, explosion, machinery breakdowns or natural disasters, including earthquakes and tsunamis. Our insurance covers up to U.S.$750 million per loss in Chile, U.S.$300 million per loss in each country: Argentina, Brazil, United States and Canada (for Arauco North America), and R$839 million per loss in Brazil, including physical damage and business interruption for up to 18 months.months for Chile, Argentina and Brazil, and up to 12 months for United States and Canada. The deductibledeductibles for Chile and Argentina for physical damage isare U.S.$3 million per occurrence for damages caused. In case of damages caused by earthquakes and tsunamis with ain Chile, the deductible ofis 2% of the total insured amount for each location, subject to a cap of U.S.$25 million. Deductibles for Chile and Argentina for business interruption are 30 days for all losses, 45 days for machinery breakdowns and 6045 days for machinery breakdowns of turbines. WeFor Chile and Argentina, we also have an annualself-insurance retention of U.S.$2015 million, with a U.S.$107.5 million maximum per event. The deductible for Arauco North America, including physical damage and business interruption is U.S.$2.5 million, and themillion. The deductible for Brazil, including physical damage and business interruption is U.S.$1.5R$5 million. All of ourOur insurance policiespolicy covering our production plants, facilities and equipment in Chile Argentina, Brazil, United States and Canada are carried by the Seguros Generales Suramericana S.A. (60.2%(50.0%), Compañía deMapfre S.A. (25.0%) and Chubb Seguros Chile S.A. (25.0%); in Argentina and Brazil are carried by Seguros Generales Penta MapfreSuramericana S.A. (21.3%(100%); in the United States is carried by SOMPO Japan Insurance Company of America (100%), and Ace Seguros S.A. (18.5%in Canada by Royal & Sun Alliance Insurance Company of Canada, Inc. (100%).

Also,The insurance policies for plantations located in the Delta del Paraná, Argentina, are carried by Sancor Seguros and have a maximum limit of U.S.$7 million with a deductible of U.S.$100 thousand. Our insurance policies for some of our plantations located in Mato Grosso do Sul, Brazil, are carried by Fairfax Insurance and have a maximum limit of R$30 million (approximately U.S.$9.2 million as of December 31, 2018) with a deductible per event of R$1.5 million (approximately U.S.$0.5 million as of December 31, 2018).

In addition, we have contracted fire insurance policiescoverage for all of our Chilean forest holdings and nurseries but do not insure against pests or disease. In Argentina, we maintain fire insurance for 15,65216,324 hectares of timber assets located in the Delta del Paraná, nearclose to Buenos Aires and Entre Ríos. For the rest of our Argentine operations, we do not maintain fire insurance for our timber assets because

we believe that the risk of damage from fire is low as Argentina receives significant amounts of rainfall, particularly during the summer months. For our forests in Brazil we maintain fire insurance for 26,000 hectares of Novo Oeste’s timber assets located in Mato Grosso do Sul. For the rest of our forests in Brazil, we do not maintain fire insurance because we believe the risk of damage from fire does not justify the costs of carrying insurance. Terms, deductibles and the limits of our insurance policies in all the countries where we operate are consistent with industry practice, which in conjunction with the Company’s own resources, allow it to minimize these risks.risks

In January and February 2017, wildfires, exacerbated by high temperatures, the action of the winds, low atmospheric humidity and the complexity of combatting multiple focal points that appeared simultaneously in different places, broke out in the central and southern regions of Chile, and in respect of the Company, in the Maule and Bio Bio regions. As a consequence of such fires, the Company suffered the burning of approximately 72,500 hectares of forest plantations, which had a fair value of approximately U.S.$210 million, according to IFRS. The forestryforest plantations affected by the fires had insurance for plantations locatedcoverage, with their corresponding deductibles and limits. In accordance with the final report of the insurance adjusters, in Chile is carried by Seguros Generales SuramericanaOctober 2017 our subsidiary Forestal Arauco S.A. (60%) and Compañía de Seguros Generales Penta S.A. (40%), with arecovered U.S.$5035 million, maximum limit and a deductible ofafter applying the U.S.$15 million perdeductible.

Also, in 2017, our El Cruce sawmill, which is owned by our subsidiary Maderas Arauco S.A., was destroyed by wildfires. El Cruce sawmill had a book value of approximately U.S.$4.5 million and an annual production capacity of 115,881 cubic meters, representing approximately 4.2% of our total sawmill production capacity at the time of the event. TheWith regard to the insurance policies for plantations locatedclaim, in October 2017 we recovered U.S.$50.9 thousand on account of affected inventory, and during the Delta del Paraná, Argentina, are carried by Sancor Seguros and have a maximum limitfirst quarter of 2018 we received approximately U.S.$71.04 million (net of the deductible) on account of property damage.

After the 2017 wildfires in Chile, we increased the limits of our forestry insurance coverage in Chile to U.S.$85 million with a deductible of U.S.$140 thousand. Our25 million for the whole season (regardless of the number of the events). This policy is carried by Mapfre Compañía de Seguros Generales S.A. (100%) and the insurance period is from October 3,2018 to October 3, 2019. We also established satellite-assessment for damaged areas, which enables us to face potencial claims in a faster way.

During the 2017-2018 forestry fire season, wildfires were considerably less severe than in the 2016-2017 season. Nevertheless, 587 hectares of the Company’s forest plantations burned in the 2017-2018 season (which represented 0.8% of the plantations affected by fires in the 2016-2017 season). The affected forest plantations had a fair value of approximately U.S.$2.6 million, according to IFRS accounting rules, representing approximately 0.07% of the IFRS value of the Company’s total forest plantations and approximately 0.02% of the total assets of Arauco.

In connection with losses to our production plants, facilities, forests and equipment caused by fires or otherwise, our insurance coverage may be insufficient. The incurrence of losses or other liabilities that are not covered by insurance could result in significant and unexpected additional costs. Moreover, the terms and conditions for the renewal of our insurance policies for somemay change in the future depending upon market circumstances and the type and amount of our plantations located in Mato Grosso do Sul, Brazil, are carried by Fairfax Insurance and have a maximum limit of R$30 million with a deductible per event of R$1.5 million.

risks insured. For more information regarding the risks for which we insure our property, see “Item 3. Key Information—Risk Factors—Risks Relating to Usthe Company.”

Cybersecurity

We have developed a cybersecurity policy based on the guidelines and criteria contemplated by the Forestry Industry.”

international standards ISO 27001 and ISO 27002, as well as control mechanisms, technologies, processes and procedures developed on the basis of guidelines and criteria addressed by the international standard ISO 27032 / NIST. Additionally, we periodically make security assessments, which allow us to complement and improve ongoing initiatives. For more information regarding cybersecurity risk, see “Item 3. Key Information—Risk Factors—Risk Relating to Our Nueva Aldea complex suffered significant fire related damage toCompany—Cybersecurity events, such as a cyber-attack could adversely affect our plywood millbusiness, financial condition and forests due to wildfires that affected the Eight Regionresults of Chile on December 31, 2011. Our insurance covered the losses related to our forest plantations. We had a U.S.$1.0 million deductible for property damage and a U.S.$1.97 million deductible for business interruption at our Nueva Aldea plywood mill. On December 11, 2012, we and the insurers accepted the final report of the insurance adjusters. In accordance with such final report, as of December 31, 2013, we received a total recovery of U.S.$33 million, net of U.S.$110 million in advance payments that we had already received. With respect to our inventory, which was covered under a different policy, we received during 2013 a total recovery of U.S. $20.8 million.operations.”

CAPITAL EXPENDITURES

To utilize our increasing volume of forest production, we have added to, expanded and modernized our processing facilities.

For the year ended December 31, 2014, our aggregate capital expenditures were U.S.$604.2 million, consisting primarily of U.S.$471.2 million for addition of property, plant and equipment and U.S.$133.0 million for the addition of biological assets.

For the year ended December 31, 2015, our aggregate capital expenditures were U.S.$564.8 million, consisting primarily of U.S.$438.7 million for addition of property, plant and equipment and U.S.$126.1 million for the addition of biological assets.

For the year ended December 31, 2016, our aggregate capital expenditures were U.S.$556.6 million, consisting primarily of U.S.$419.2 million for addition of property, plant and equipment and U.S.$137.4 million for the addition of biological assets.

For the year ended December 31, 2017, our aggregate capital expenditures were U.S.$844.1 million, consisting primarily of U.S.$533.8 million for addition of property, plant and equipment and U.S.$310.3 million for the addition of biological assets. The increase with respect to 2016 was mainly attributable to higher capital expenditures in respect of biological assets to replace those lost because of the wildfires in 2017.    

For the year ended December 31, 2018, our aggregate capital expenditures were U.S.$938.0 million, consisting primarily of U.S.$730.5 million for addition of property, plant and equipment and U.S.$207.5 million for the addition of biological assets. The increase with respect to 2017 was mainly attributable to higher capital expenditures in ongoing projects.

For the year ending December 31, 2017,2019, we have planned capital expenditures of U.S.$6001,892 million, which principally include U.S.$240469 million infor maintenance of our existing mills, U.S.$2301,073 million infor expansion and other strategic initiatives, and U.S.$130350 million infor maintenance and acquisition of biological assets.

GOVERNMENT REGULATION

Environmental Regulation

In each country where we have operations, we are subject to numerous national and local environmental laws, regulations, decrees and municipal ordinances concerning, among other things, health, the handling and disposal of solid and hazardous waste, discharges into the air, soil and water and other environmental impacts. Some of these laws require us to conduct environmental impact studies of future projects or activities (or major modifications thereto). Under these laws, our operations may be subject to specific approvals, consents and regulatory requirements, and emissions and discharges may be required to meet specific standards and limitations. We have made and will continue to make substantial expenditures to comply with such environmental laws, regulations, decrees and ordinances.

Chile

The Chilean legislation to which we are subject includes theLey Sobre Bases Generales del Medio Ambiente (Chilean Environmental Law) and related regulations. Current environmental institutions include the following public entities: the Ministry of the Environment (aimed at developing national environmental policy), the Service of Environmental Evaluation (in charge of administering the environmental assessment system), the Evaluation Commissions (in charge of evaluating projects and activities within the Environmental Impact Evaluation System), and the Superintendence of Environment (in charge of supervising and auditing environmental compliance).

Under the Chilean Environmental Law, we are required to conduct environmental impact studies or declarations on the environmental impact of any future projects or activities (or their significant modifications) that may affect the environment. These and other regulations also establish procedures for private citizens to object to the plans or studies submitted by project owners.

Governmental agencies may participate in the oversight of the implementation of projects in accordance with their environmental impact studies or declarations of environmental impact. Under the Chilean Environmental Law and other regulations, affected private citizens, public agencies and local authorities can sue to enforce compliance with environmental regulations. Enforcement remedies include temporary or permanent closure of facilities and fines. The Superintendence of Environment has issued numerous resolutions, instructions and requirements to various companies, officials and supervised parties, including our Company.

The operations ofIn November 2015, the Cruces river, where the Valdivia Mill recentlydisposes its effluents, became subject to the Norm.Norm (as defined above). The Valdivia Mill discharges its treated effluents into the Cruces River, which is part of the Valdivia River Basin. We cannot exclude that

The Company and other local entities challenged the authority declare thatvalidity of the Basin is contaminated and thus initiate an administrative procedure to enact a decontamination plan, which may include limits on discharges of wastewater applicable toNorm before the Valdivia Mill.

Arauco expressedThird Environmental Court in January 2016, expressing concerns, among others, regarding various aspects of the Norm’s General Environmental and Social Impact Assessment (AGIES, for its acronym in Spanish), prior to its enactment.. These objections included the lack of identification and consideration for the effective economic and social costs resulting from the adoption of the Norm. Other objections includeincluded that the Norm’s parameters and limits exceedexceeded the reviewed water quality criteria enforced by reference countries in both quantity and stringency; and that many of the parameters and limits arewere not technically or environmentally reasonable. The Company challenged the validity of the Norm before the Third Environmental Court in January 2016. Several technical, economical and legal reports from third parties (scientists, economists and attorneys from different countries) were filed to support the challenge. Other local actors challenged the Norm as well, such as Corporación para el Desarrollo de la Región de Los Rios (Association for the Development of Los Rios Region) CODEPROVAL (for its acronym in Spanish) and the local company Forestal Calle Calle S.A. The Third Environmental Court ruled in our favor on September 29, 2016, declaring the invalidity of the Norm, invalid. Thiswhich decision was appealedupheld by the Supreme Court in July 2017.

In December 2017, the government beforerestarted the rulemaking process and published a new draft SWQSVR for public comments. The draft proposes to regulate using practically the same parameters and limits included in the previous Norm declared void by the Supreme Court. AIn our opinion, the draft presents flaws similar to those detected in the previous rulemaking process, among others, the lack of identification and consideration of its actual economic and social costs and that most of its parameters and limits are not technically or environmentally reasonable. The public comment process finished in March 2018 and several comments from the public and different stakeholders were submitted, including several technical, economical and legal reports from third parties, were submitted. According to applicable regulations, the government shall analyse and weigh the comments to prepare a final rulingdraft, prior to submitting for the consideration by the Sustentability Ministers’ Committee(Consejo de Ministros para la Sustentabilidad) and the President of the Republic. Once the new norm enters into force, we cannot exclude that the authority may declare that the Valdivia River Basin is expected during 2017.contaminated and thus initiate an administrative proceeding to impose a decontamination plan, which may include new limits on discharges of wastewater applicable to the Valdivia Mill.

The application of these environmental laws and remedies may adversely affect the manner in which we seek to implement our business strategy and our ability to realize our strategy. See “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Forestry Industry—Company—The costs to comply with, and to address liabilities arising under, environmental laws and regulations could adversely affect our business, financial condition, results of operations and cash flows.”

As of the date of this annual report, we have been subject to certain inspections,administrative proceedings as a result of a pipe leakage in the Nueva Aldea Mill in 2013, the death of fish in the Cruces River in January 2014, close to the Valdivia Mill effluent discharge, and a pipe leakage in the Superintendence has served us with several requests for information. As stated above,Arauco Mill in February 2016, all of which are currently under investigation by the competent authorities.

In addition, in 2016 the Superintendence of the Environment initiated four administrative proceedings against the Valdivia, Nueva Aldea, Licancel and Constitución mills. In 2017, the Superintendence of the Environment initiated an administrative proceeding against the Arauco Mill. The proceedingsfirst part of the proceeding against the Valdivia Mill are ongoing,concluded in 2017. On December 15, 2017, the Superintendence of the Environment decided that the Valdivia Mill was liable for ten out of eleven charges and imposed a fine of 7,777 UTA (approximately U.S.$6.5 million as of December 31, 2018). We appealed this decision on April 5, 2018 before the Third Environmental Court. A final decision by the Third Environmental Court is expected to be rendered during 2019 and may result in material administrative fines or sanctions,be further appealed before the revocation of environmental authorizations orSupreme Court. In 2016, the temporary or permanent closure of facilities. The Nueva Aldea and Constitución mills decided to submit compliance programs according to applicable regulations, both of which were approved by the Superintendence of the Environment. These programs require the mills to implement actions and/or make certain investments in connection with the charges made by the Superintendence. Once theseIn December 2018, the Nueva Aldea mill compliance program was officially terminated (declaración de ejecución satisfactoria) by the Superintendence of the Environment. With regard to the Constitución mill’s compliance program, once the activities have beenare completed, the proceedings will end. We expect that such proceedings will end in 2019. With regardsregard to the Licancel Mill, the Company filed its defense in June 2016. In

February 2017, the Superintendence of the Environment found the Licancel Mill liable for three out of four charges and imposed a fine of 239 UTA (approximately U.S.$205,000). This decision was appealed before the above Superintendence. A final decision bySuperintendence, which on August 7, 2017, materially reduced the fine. Arauco paid the fine and this case has been closed. Finally, with regard to the proceeding against Arauco the Company filed its defense in September 2017 and, in May 2018, the Superintendence is expected in 2017.of the Environment found the Arauco mill liable for two charges and imposed a fine of 699,6 UTA (approximately U.S.$635,000). Arauco paid the fine with a 25% reduction (taking advantage of a benefit established by Chilean law) and this case has been closed.

We have faced, and continue to face, certain other environmental proceedings in connection with certain of our mills. For a description of these proceedings, see “Item 8. Financial Information—Legal Proceedings.” and Note 18 of our audited consolidated financial statements.

Argentina

Our operations in Argentina are subject to Argentine environmental legislation, including regulation by municipal, provincial and federal governmental authorities.

Argentine environmental legislation includes the requirement that water used or recovered in the production process must be chemically, biologically and thermally treated before being returned to public waters, such as the Paraná River. In addition, all gaseous emissions must be scrubbed to ensure satisfactory levels of waste particle recovery and odor removal. Regular testing of river water, soil and air quality is used to monitor the ultimate impact of the mill on the environment.

We believe that we are currently in material compliance with all applicable local and national environmental regulations governing our operations in Argentina.

Brazil

Our Brazilian operations are subject to environmental legislation, including municipal, regional and federal governmental laws, regulations and licensing requirements. Law No. 6,938 establishes strict liability for environmental damage, mechanisms for the enforcement of environmental standards and licensing requirements for activities that are damaging or potentially damaging to the environment. A violation of environmental laws and regulations may result in:

 

fines,

 

partial or total suspension of activities,

 

forfeiture or restriction of tax incentives or benefits, or

 

forfeiture or suspension of participation in credit lines with official credit establishments.

As a result, we may become liable for environmental damages caused by the management of our materials, including damages caused during the transportation, treatment and disposal of our industrial waste, even where third parties manage such activities on our behalf.

Law No. 9,605 provides that individuals or entities whose conduct or activities cause harm to the environment are subject to criminal and administrative sanctions and are liable for any costs to repair the damages resulting from such harm. For individuals who commit environmental crimes, criminal sanctions range from fines to imprisonment; for legal entities, criminal sanctions may include fines, partial or total suspension of activities, restrictions on participation in government contracts and, in cases of bad faith, dissolution. In addition, Law No. 9,605 establishes that the corporate structure of a company may be disregarded if the structure impedes the recovery for harm caused to the environment. We are not aware of any successful assertion of claims against shareholders under this provision of Law No. 9,605.

We believe we are currently in material compliance with all applicable local and national environmental regulations governing our operations in Brazil.

Uruguay

Our activities at Montes del Plata are subject to Uruguayan national and municipal environmental regulations. The principal environmental authorization required to carry out such project’s construction activities was the environmental authorization, or AAP, regulated by the Environmental Impact Assessment Act, Law No. 16,466, and its regulatory Decree No. 349/005. AAPs are granted by the National Environmental Bureau, or DINAMA, which pertains to the Ministry of Housing, Land Use Management and Environment, or MVOTMA. In order to obtain this authorization, an applicant must submit a complete report regarding all aspects of any proposed works including a classification of the same by a competent professional in one of the three categories, A, B or C. If the proposed project is classified as B or C, a comprehensive environmental impact assessment (which includes all aspects of the project, including water and noise, among others) is required and in some cases a public hearing may be required. Once the AAP is granted, the interested party is required to perform the project in accordance with the terms and conditions of such authorization.

For certain activities (including construction of an industrial plant) listed in Article 2 of Decree No. 349/005, a Viability Location Report, or VAL, is required. This report should be submitted before the National Environmental Bureau and must include a notification to the municipal government where the project is to be located (Intendencia) and the delivery of information similar to that required for the AAP. This process contemplates a period for public comment on summary information that is available. The Intendencia involved in any such project may submit its findings to the DINAMA for consideration. The VAL, if needed, must be obtained prior to the AAP. The relevant companies that comprise Montes del Plata have already obtained the AAP and the VAL.

Once construction is completed according to the approved project and the AAP conditions, and prior to starting operations, a company needs to obtain the environmental authorization for operation, or AAO, which is regulated by the same decree, and comes to regulate the environmental compliance of the relevant companies in the operational phase of the endeavor.endeavor and needs to be renewed every 3 years. Montes del Plata obtained this authorization from the National Environmental Bureau, DINAMA, in June 2014.2014, and has been renewed until December 2020.

We believe that the Montes del Plata projectoperation is currently in material compliance with applicable local and national environmental regulations in Uruguay.

United States and Canada

Our North American operations are subject to U.S. and Canadian environmental legislation, including federal, provincial, state and local laws and regulations. Such laws and regulations govern the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain hazardous materials and wastes, the remediation of contaminated soil and groundwater, plant and wildlife protection, landfill sites and the health and safety of employees. For example, under the Clean Air Act, the United States Environmental Protection Agency, or the EPA, has established Maximum Achievable Control Technology, or MACT, environmental regulations that establish emission standards for point sources of pollution, such as press and dryer exhausts, process vents and equipment leaks. In addition, some of our operations require environmental permits and controls to prevent and reduce air and water pollution. Our failure to comply with applicable environmental, health and safety requirements, including permits related thereto, may result in:

 

civil penalties;

 

supplemental environmental projects;

 

enforcement actions or other sanctions, such as judicial orders enjoining or curtailing operations or requiring corrective measures;

 

loss of operating permits;

 

required installation of pollution control equipment; or

remedial actions.

In addition, we may become liable forthird-party claims for personal injury and property damage due to contamination at our mills, even where the activity that caused such contamination occurred before we owned the mills.

We believe we are currently in material compliance with all applicable local and national environmental regulations and orders governing our operations in the United States and Canada.

Forestry,Land-Use and Land Ownership Regulations

Chile

The management and exploitation of forests in Chile is regulated by the Forests Law of 1931, as amended, and Decree Law No. 701 of 1974, as amended. The Forests Law and Decree Law No. 701 impose a variety of restrictions on the management and exploitation of forests. Forestry activities, including thinning, on land that is designated as preferably suited for forests or that has native or planted forests, are subject to management plans that require the approval of the Corporación Nacional Forestal, or National Forest Service, (“CONAF”).or CONAF. In addition, the Forests Law and Decree Law No. 701 impose fines for the harvesting or destruction of trees and shrubs in violation of the terms of a forest management plan. We believe that we are in material compliance with the Forests Law and Decree Law No. 701.

Law No. 20,283, published in the Official Gazette on July 30, 2008, provides for the management and conservation of native tree forests and forest development. Its purposes are the protection, recovery and improvement of native forests in order to guarantee both forest sustainability and environmental policy. This law established a fund for the conservation and sustainable management of native forests. According to this law, owners of native forests are able to exploit them so long as they have a “management plan” approved by the CONAF. Depending on the owner’s approved plan, as well as other factors, the subsidy provided by the fund may

vary between U.S.$200 and U.S.$400 per hectare. The law also prohibits the harvesting of native trees in certain areas and under certain conditions. In compliance with applicable regulations, we have adopted environmentally sensitive policies towards our holdings of native forests, which are protected and preserved in their entirety. Our products come from established plantations only; we do not sell any wood derived from our native forests. Arauco’s forestry operations adhere to our international control systems, which are all in accordance with current legislative and environmental sustainability standards. We believe that we are in material compliance with Law No. 20,283. See “Item 4. Information on our Company—Description of Business—Forestry Activity.”

Argentina

The management and exploitation of forests in Argentina is regulated by National Law No. 13,273, National Law No. 25,080 (as amended and National Law No. 26,432,extended), National Decree No. 710, Provincial Law No. 854, Provincial Law No. 3,426 and other regulations promulgated thereunder, which collectively constitute the regulatory framework. The regulatory framework imposes a variety of restrictions on the management and exploitation of forests in Argentina. The regulatory framework regulates the replanting of land after harvesting.

On December 28, 2011, National Law No. 26,737 was promulgated, which established limitations on the ability of foreigners to purchase rural land in Argentina. This law provides that foreigners cannot acquire more than 15% of all rural land in the country, and that no foreigner can individually hold more than 30% of said 15%. For the purposes of the National Law No. 26,737, rural land is all land located outside the urban area.

We believe that our Argentine operations are in material compliance with the regulatory framework.

Brazil

Environmental laws and regulations relating to the management and exploitation of forests and the protection of Brazilian plants and wildlife govern our Brazilian forestry operations. Under this regulatory framework Brazilian authorities establish forest preservation areas and regulate replanting of forests after harvesting.

There are current discussions about certain Brazilian legal restrictions on the acquisition of rural properties by foreign companies and by Brazilian companies controlled by foreign persons. Those restrictions are contained in the Opinion issued by the Office of the General Counsel to the Federal Government in August 2010, which has been the subject to several judicial challenges. Currently, there is a pending litigation before theSupremo Tribunal Federal (Highest Court in Brazil) to determine if the Federal Law No. 5,709/1971 is applicable to Brazilian companies with foreign shareholders, as it could arguably be contrary to the Brazilian constitution. In addition, the Government is expected to submit a bill to Congress addressing this subject. Our local counsel has advised us that although in their opinion these restrictions are not applicable to the transactions consummated by our Brazilian subsidiaries, they could apply from August 2010 and to future transactions.transactions which have as object, the acquisition of land by persons that have foreign majority capital. We believe that our Brazilian operations are in material compliance with the applicable regulatory framework.

Uruguay

The management and exploitation of forests in Uruguay is regulated primarily by Law No. 15,939 (as amended by Law No. 18,083 and by the regulatory decree No. 452/988), which has declared forestry activity as an area of national interest. This law classifies forests into three categories: protectors, yield and general, and provides certain tax and financial benefits related to forests classified as protectors and yield located in areas classified as forestry priority. If such forests were planted after January 1, 2007, they must also comply with the definition of quality wood. In order to obtain such classification, interested parties must submit a forestry management plan to the General Forestry Bureau. This law also establishes certain conservation requirements and controls for each category of forest.

Additionally, forest activity is subject to environmental and soil care regulations. According to Law No. 16,466 and Decree No. 349/005, plantations of more than 100 hectares need prior environmental authorization. Law No. 15,239 also provides certain measures that must be adopted to reduce erosion and degradation of the soil to promote its restoration when necessary. Forestry regulations from local municipalities may also require additional permits depending on the forest location.

We believe that the Montes del Plata forestry operations are in material compliance with the applicable regulatory framework.

Certifications

Forestry

Certain of our subsidiaries have received various international and local environmental certifications as of the date of this annual report, which include, but are not limited to the following:

Forest Stewardship Council® Forest Management Certification: a forest management certification aimed at promoting forest management that is environmentally responsible, socially beneficial and economically viable for the world’s forests. FSC® is anon-profit organization devoted to encouraging the responsible management of the world’s forests (Forestal Arauco license code:FSC-C108276, Forestal Los Lagos license code:FSC-C008129, Eufores S.A. (Montes del Plata) license code:FSC-C016979, Arauco ArgentinaS.A- license code:FSC-C128100, Arauco Argentina S.A. license code:FSC-C128100, Arauco Florestal Arapoti license code:FSC-C010673, Arauco Forest Brasil-Tunas do PR license code:FSC-C116843, Arauco Forest Brasil- C.Tenente e Sengés license code:FSC-C010303 and Mahal Empreendimentos e Participações S/A license code:FSC-C131921);

Sustainable Forest Management Certification (CERTFOR): the Chilean certification of sustainable forest management, as determined since 2004 by the PEFC (Program for the Endorsement of Forest Certifications Schemes). PEFC is an internationalnon-profit,non-governmental organization dedicated to promoting sustainable forest management;

CERTFOR Chain of Custody Certification: a certification granted by the PEFC and designed to ensure that certified raw materials are used in finished products;

FSC® Chain of Custody Certification: a certification from the FSC® that is designed to ensure traceability from certified forest and other controlled sources to the finished product (Forestal Arauco Zona Norte license code: FSC – C013026, Forestal Arauco Zona Centro license code: FSC – C008122, Forestal Arauco Zona Sur license code: FSC – C017136, Forestal Los Lagos license code: FSC – C018322 and Eufores S.A. (Montes del Plata) code:FSC-C023409);

Environmental Management System ISO 14001: a certification issued by the International Standards Organization (ISO), awarded to organizations that comply with environmental legislation, monitor significant environmental impacts, prevent pollution and maintain a continuing program of environmental improvement. ISO is an internationalnon-profit,non-governmental organization dedicated to developing international business standards; and

Occupational Health and Safety Assessment Series (OHSAS) 18001: a certification awarded for the effective management of conditions and factors that may adversely affect the work environment of employees, temporary workers, contractors and other persons who are in the workplace.

Pulp

All our pulp mills in Chile are certified under ISO 9001, ISO 14001 and under standard Chain of Custody FSC®and CERTFOR (PEFC Homologated). The Puerto Esperanza Pulp Mill in Argentina is certified under ISO 14001, OHSAS 18001 and Chain of Custody FSC®. The Montes del Plata Mill in Uruguay is certified under Chain of Custody FSC®. The following list sets forth the codes of license COC FSC® for each pulp mill:

Arauco Pulp Mill:FSC-C006552

Licancel Pulp Mill:FSC-C109896

Constitución Pulp Mill:FSC-C109895

Nueva Aldea Pulp Mill:FSC-C011929

Valdivia Pulp Mill:FSC-C005084

Puerto Esperanza Pulp Mill:FSC-C121377

Celulosa y Energía Punta Pereira (Montes del Plata) Pulp Mill:FSC-C116413

Wood Products

Our panel mills in Chile are certified under standard Chain of Custody FSC (License CodeFSC-C119538), which includes two panel mills. Also, our seven sawmills, two plywood mills and the remanufacturing facilities are certified under the Chain of Custody FSC standard (License CodeFSC-C119538). Additionally, all our timber mills in Chile are certified under CERTFOR (PEFC homologated), ISO 14001 and Occupational Health and Safety Assessment Series (OHSAS) 18001.

In North America, all our panel mills are certified under the Chain of Custody FSC standard (License CodeFSC-C019364) and our composite panel mills are also certified under the ISO 14001/ OHSAS 18001 standard.

Our Zárate Mill and Piray sawmill in Argentina are certified under the Chain of Custody FSC standard (License CodeFSC-C119529 and License CodeFSC-C130094). All our mills in Argentina are certified under the Environmental Management System ISO 14001 standard, as well as under the Occupational Health and Safety Assessment Series (OHSAS) 18001 standard. The sawmill Piray, remanufacture Piray, Zarate Mill and Chemical Arauco Argentina are certified under ISO 9001.

All our panel mills in Brazil are certified under the Environmental Management System ISO 14001. Occupational health and safety management OHSAS 18001 and Quality Management ISO 9001. The Jaguariaíva Pien Mills, Ponta Grossa e Motenegro Mills are certified under the Chain of Custody FSC Multi-site standard (License CodeFSC-C010928).

Item 5. Operating and Financial Review and Prospects

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS

The following discussion is based on and should be read in conjunction with our audited consolidated financial statements and the notes thereto, included elsewhere in this annual report. Our consolidated financial statements are prepared in U.S. dollars in accordance with IFRS.

Overview

We derive our revenuerevenues from the sale of bleached and unbleached pulp, panelswood products such as MDF, PBO, HB, and plywood, and sawn timber products such as sawn timber and remanufactured wood products, forestry products, such as sawlogs and pulplogs, and sales of electricity to the grid.electricity. Export sales constituted 62.1%64.6% of our total revenuerevenues for the year ended December 31, 20152017 and 58.1%67.8% of our total sales revenuerevenues for the year ended December 31, 2016.2018. Sales of pulp constitute the single largest component of our revenue.revenues. As occurs with manyother commodities, pulp is subject to significant cyclical price fluctuations determined by global supply and demand. Accordingly, our revenue isrevenues are subject to cyclical fluctuations. Prices for timberwood and forestry products, also fluctuate significantly among domestic markets. Although prices tend to have the most significant effect on our results of operations, sales volume and product mix, production costs and exchange rate fluctuations also can have a substantial impact on our results.

Our business, results of operations and cash flows depend, to a large extent, on the level of economic activity, on government and foreign exchange policies and on political and economic developments in our principal export markets. In 2014, we exported our products to Asia, North, Central and South America, Europe and, to a lesser extent, Africa and the Middle East. In 2014 and 2015, 91.8% and 90.8%, respectively, of total pulp revenues were export sales, and 26.6%43.9% and 25.9%42.3%, respectively, of total timber productswood and forestry productproducts revenues were export sales. In 2016, 92.2% of our total pulp revenues were export sales, and 26.7%43.1% of total timber productswood and forestry productproducts revenues were also export sales. In 2017, 94.2% of our total pulp revenues were exports sales, and 42.6% of total wood and forestry products revenues were also export sales. In 2018, 95.2% of our total pulp revenues and 42.7% of total wood and forestry products revenues were export sales. Our business, earnings and prospects may be materially and adversely affected by developments in our export markets with respect to inflation, interest rates, currency fluctuations, protectionism, government subsidies, price and wage controls, exchange control regulations, taxation, expropriation or social instability, as well as by political, economic or diplomatic developments.

As of December 31, 2016, 63.3%2018, 60.8% of our property, plant, equipment and forest assets were directly owned by Celulosa Arauco and Constitución S.A.us and our Chilean subsidiaries, 9.1%7.8% by our Argentine subsidiaries, 8.9%9.0% by our Brazilian subsidiaries, 2.9%6.8% by our U.S. and Canadian subsidiaries and 15.8%15.6% by our joint operation in Uruguay. In 2016, 59.9%2018, 61.8% of our consolidated revenue wasrevenues were derived from our operations in Chile, 8.7%8.1% of our consolidated revenue wasrevenues were derived from our operations in Argentina, 7.4%8.4% of our consolidated revenue wasrevenues were derived from our operations in Brazil, 16.8%13.7% of our consolidated revenue wasrevenues were derived from our operations in the United States and Canada and 7.2%8.0% of our revenue wasrevenues were derived from our operations in Uruguay. Accordingly, our financial condition, results of operations and cash flows are affected by, to a significant degree, economic conditions in Chile, Argentina, Brazil, Uruguay, the United States and Canada.

Economic Indicators in Chile, Argentina, Brazil, Uruguay, the United States and Canada

Chile

According to the Central Bank of Chile, Chile’s GDP increased by 1.9%1.6% in real terms during 2014,2016, and in 20152017 and 20162018 it grew at rates of 2.3%1.1% and 1.6%4.2%, respectively. See “Item 3. Key Information—Risk Factors—Risks Relating to Chile.”

Argentina

According to theInstituto Nacional de Estadística y Censos (the Argentine National Statistics and Census Institute, or the “INDEC”), Argentina’s GDP increaseddeclined by 0.5%2.0% in real terms during 2014,2016, and in 2015,2017, it grew at a rate of 2.6%increased by 2.7%. For 2016,2018, the INDEC reported a negative growthdecline of 2.3%2.5% in real GDP. In 20142016 and 2015,2017, the Argentine peso depreciated against the U.S. dollar by 30.7%20.9% and 51.7%16.4%, respectively. In 2016,2018, the Argentine peso depreciated against the U.S. dollar by 20.9%105.3%. The INDEC’s national CPI (as defined below) has registered an increase of 24.7% on a year-over-year comparison for 2017, and an increase of 47.6% for 2018.

From 2007 through 2015, the INDEC, underwent institutional and methodological reforms that gave rise to controversy regarding the reliability of the information that it produced, including inflation, GDP, unemployment and poverty data.    On January 8, 2016, based on its determination that the INDEC had failed to produce reliable statistical information, particularly with respect to its CPI, GDP and foreign trade data, the new Argentine administration declared a state of administrative emergency for the national statistical system and the INDEC that remained in effect through December 31, 2016. Following the emergency declaration, the INDEC ceased publishing statistical data until a rearrangement of its technical and administrative structure was finalized. As of the date of this annual report, the INDEC has published certain revised data, including the CPIIndice de Precios al Consumidor (Consumer Prices Index, or the “CPI”) monthly data since May 2016 and foreign trade and balance of payment statistics. On June 29, 2016, the INDEC published a report including revised GDP data for the years 2004 through 2015. On July 11, 2017, the INDEC started to publish the national CPI. The INDEC has since then published the national CPI for each month through March 2019.

Although reports published by the International Monetary Fund (IMF) stated that their staff used alternative measures of inflation for macroeconomic surveillance, including data produced by private sources, which have shown inflation rates considerably higher than those published by the INDEC between 2007 and 2015, on November 9, 2016, the IMF Executive Board lifted its censure on Argentina, noting that Argentina had resumed the publication of data in a manner consistent with its obligations under the Articles of Agreement of the IMF. Future economic, social and political developments in Argentina, over which we have no control, could impair our and Arauco Argentina’s business, financial condition or results of operations. See “Item 3. Key Information—Risk Factors—Risks Relating to Argentina.”

Brazil

According to theInstituto Brasileiro de Geografia e Estatística (the Brazilian Institute of Geography and Statistics), Brazil’s GDP increased in real terms by 0.1% during 2014, and decreased by 3.8% in 2015. In 2016, Brazil’s GDP decreased in real terms by 3.6% during 2016, and increased in real terms by 1.0% in 2017. In 2018, Brazil’s GDP increased in real terms by 1.1%. In 20142016, the Brazilian real appreciated against the U.S. dollar by 19.8% and 2015,in 2017 the Brazilian real depreciated against the U.S. dollar by 10.8% and 47.7%, respectively.1.8%. In 2016,2018, the Brazilian real depreciated against the U.S. dollar by 16.4%14.6%. See “Item 3. Key Information—Risk Factors—Risks Relating to Brazil.”

Uruguay

According to theBanco Central del Uruguay (the Central Bank of Uruguay), Uruguay’s GDP increased by 3.2%1.5% in real terms during 2014,2016, and in 20152017 and 20162018 it grew in real terms at rates of 0.4%2.9% and 1.5%1.6%, respectively. In 2014,2016, the Uruguayan peso appreciated against the U.S. dollar by 12.8%3.2% but in 20152017 it depreciated against the U.S. dollar by 23.2%1.0%. In 2016,2018, the Uruguayan peso again appreciateddepreciated against the U.S. dollar by 3.2%12.9%. See “Item 3. Key Information—Risk Factors—Risks Relating to Uruguay.”

United States

According to the U.S. Bureau of Economic Analysis, the United States GDP increased by 2.4%1.6% in real terms during 2014,2016, and in 20152017 and 20162018 it grew in real terms at rates of 2.6%2.3% and 1.6%2.9%, respectively. See “Item 3. Key Information—Risk Factors—Risks Relating to the United States and Canada.”

Canada

According to the Bank of Canada, Canada’s GDP increased by 2.5%1.4% in real terms during 2014,2016, and in 20152017 and 20162018 it grew in real terms at rates of 1.2%3.0% and 1.4%1.8%, respectively. The Canadian dollar depreciated against the U.S. dollar by 9.0% in 2014, 19.6% in 2015 and 3.8% in 2016.2016, 6.8% in 2017 and 6.9% in 2018. See “Item 3. Key Information—Risk Factors—Risks Relating to the United States and Canada.”

Exchange Rate Fluctuations

We generally priceexpress our exportsexport prices in U.S. dollars, whereas our domestic sales in Chile are priced in Chilean pesos except for pulp sales, which are priced in U.S. dollars; domestic sales in Brazil are priced in Brazilian reals and domestic sales in Argentina are priced in Argentine pesos except for pulp sales, which are priced in U.S. dollars. To the extent that the Chilean peso depreciates against the U.S. dollar, our domestic revenues may be adversely affected when expressed in U.S. dollars. The same effects may occur for our domestic sales in Argentina and Brazil for products sold in each of the respective local currencies.

The Chilean peso has been subject to devaluation in the past and could be subject to significant fluctuations in the future. During 2016,2018, the value of the Chilean peso relative to the U.S. dollar increased 5.7%decreased by 14.0% in nominal terms, based on the observed exchange rates

on December 31, 20152017 and December 31, 2016.2018. The observed exchange rate on April 25, 2017,12, 2019, as published in the Official Gazette on April 26, 2017,15, 2019, was Ch$660.04660.67 to U.S.$1.00. For information regarding historical rates of exchange in Chile from January 1, 2012,2014, see “Item 3. Key Information—Exchange Rates.”

The effect of exchange rate fluctuations is partially offset by the fact that certain of our operating expenses are denominated in U.S. dollars (such as our freight costs and selling expenses in the form of commissions paid to our sales agents abroad) and a significant part of our indebtedness is denominated in U.S. dollars. As of December 31, 2016,2018, our U.S.dollar-denominated indebtedness was U.S. $4.5$4.5 billion. In addition, asif the U.S. dollar appreciates against the legal currency in any of our export markets, we must, from time to time, priceexpress our sales in that local currency to compete effectively.

Future developments in the Chilean, Argentine, Brazilian, Uruguayan, Canadian and U.S. economies may impair our ability to proceed with our strategic plan, including with respect to pricing. For additional discussion regarding the risks we face in each of the aforementioned markets, see “Item 3. Key Information—Risk Factors—Risks Relating to Chile,” “—Risks Relating to Argentina,” “—Risks Relating to Brazil,” “—Risks Relating to Uruguay” and “—Risks Relating to the United States and Canada.”

In recent years, our revenue hasrevenues have been affected by price level volatility in the export market. The prices for each of our pulp, panels, wood and forestry products depend on the markets in which they are sold. While prices are generally similar for a given product on a global basis, regionalizeddomestic market conditions affect prices in markets such as Asia, Europe and the United States.

The following table sets forth, for the periods indicated, average unit sales prices for our products.

 

  Year ended
December 31, (1)
   Year ended
December 31,(1)
 

Product (2)

  2016   2015   2014   2018   2017   2016 
  (U.S.$ per tonne) (3)   (U.S.$ per tonne)(3) 

Pulp

            

Bleached pulp

   549.5    636.7    666.8    795.6    619.7    549.5 

Unbleached pulp

   592.4    616.6    687.0    846.7    659.0    592.4 
  (U.S.$ per cubic meter) (3)   (U.S.$ per cubic meter)(3) 

Timber

      

Wood Products

      

Sawn timber

   246.8    239.8    270.0    272.7    258.5    246.8 

Remanufactured wood products

   556.1    686.4    549.6    577.1    582.8    556.1 

Plywood

   402.4    403.8    472.1    480.7    420.5    402.4 

Panels

   322.6    325.0    353.6    318.9    337.7    322.6 

Forestry Products

            

Logs

   35.3    36.9    43.9    27.8    32.7    35.3 

 

(1)

Calculated as average unit prices for the year based on our internally collected data.

(2)

Each category of product contains different grades and types and the shipping terms vary with the product, as well as the customer.

(3)

We generally quote our prices in U.S. dollars for export sales and in Chilean pesos, Argentine pesos or Brazilian reals, as applicable for domestic sales.

Pulp Prices

Overview

Historically, world pulp prices have been subject to significant fluctuations over relatively short periods of time. Pulp prices mainly depend on worldwide demand, world production capacity, worldwide pulp and paper inventory levels and availability of substitutes, and in general terms, are directly related to global economic growth. All of these factors are beyond our control. See “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Forestry Industry—Company— Fluctuations in market price for our products could adversely affect our financial condition, results of operations and cash flows”.

Prices for bleached grades of hardwood pulp, including eucalyptus, generally follow the same cyclical pattern as prices for NBSK, which is the benchmark for bleached softwood bleachedkraft pulp. However, the latter historically has had higher prices mainly due to lower global supply. Moreover, during the last five years, the majority of the added global pulp production capacity has been dedicated to the production of hardwood pulp, particularly eucalyptus pulp.

Prices for unbleached softwood market pulp also follow cyclical patterns related to worldwide demand, stock levels and supply. UnbleachedBased on information published by Hawkins Wright Ltd., unbleached softwood market pulp represents about 3.4%3.3% of the total wood pulp market. The majority of such pulp is sold in Asia, and its price does not necessarily follow the cycle of prices for NBSK or BEKP.

In 2015, a new pulp mill entered the short fiber pulp market with an annual production capacity of 1.3 million tonnes. During the first half of 2015 the short fiber market remained stable, with a peak price of U.S.$ 811.2 per tonne in October 2015. Following the October peak BEKP prices began to decrease as a result of the global economic downturn and lower demand in the Chinese market as a result of the devaluation of the Yuan, ending the year at a price of U.S.$788.9 per tonne. Expectations of new supply during 2016 and especially in 2017, continued to pressure prices down, reaching their lowest level for 2016 in December 2016, at U.S.$652.58 per tonne. A new pulp mill located in Indonesia began itsramp-up in November 2016. With an annual capacity of 2.8 million tonnes, it is currently one of the largest pulp mills worldwide. Throughout 2015 and the first half of 2016, NBSK prices followed a downward trend, reaching U.S.$789.2 per tonne at the end of April 2016. For the remainder of the year, prices slightly recovered and stabilized, finishing the year at U.S.$808.83 per tonne.

During 2017, average prices of BEKP and NBSK followed an upward trend, with NBSK reaching U.S.$999.63 per tonne at the end of the year, the highest level since 2011. BEKP prices increased significantly during 2017 reaching U.S.$979.31 at the end of the year (the rise in this type of fiber has reduced the gap between both fibers). Prices increased mainly because the expected capacity of the mill located in Indonesia was revised to 1.7 million tonnes for the next three to four years and the lower capacity of other existing mills due to operational problems. Demand had a steady rise during 2017, which also drove prices to reach higher levels.

During 2018, average prices of BEKP and NBSK followed an upward trend, slightly decreasing in the last part of the year, with NBSK reaching U.S.$1,200.02 per tonne and BEKP U.S.$1,025.73 per tonne. The positive trend during most of the year was mainly due to strong demand and stable capacity levels, while the slight decrease at the end of 2018 was mainly driven by the trade tensions between China and the United States.

Prices of NBSK(1)

The following table sets forth the prices for NBSK for the years indicated, as well as the variation with respect to the previous year, as listed on the NBSK index for the periods indicated:

 

                                    

List Price as of

December 31,

      Change YoY       Change YoY* 

2013

  U.S.$906.48    12.0

2014

   932.06    2.8

2015

   808.36    (13.8)%    808.36    (13.8)% 

2016

   808.83    0.7   808.83    0.7

2017

   999.63    23.6

2018

   1,200.02    20.0

*

YoY means year over year

Prices of BEKP(1)

The following table sets forth the prices for BEKP for the years indicated, as well as the variation with respect to the previous year, as listed on the BEKP index for the periods indicated:indicated

 

                                    

List Price as of

December 31,

      Change YoY       Change YoY 

2013

  U.S.$769.73    (0.8)% 

2014

   742.90    (3.5)% 

2015

   788.91    6.2   788.91    6.2

2016

   652.58    (17.3)%    652.58    (17.3)% 

2017

   979.31    50.1

2018

   1,025.73    4.7

(1)

Source: RISI.

Prices of UKP

The following table sets forth the market price of UKP for the years indicated, as well as the variation with respect to the previous year:

 

Price as of December 31,

      Change YoY 

2013

   721.5    23.8

2014

   650.4    (9.9)% 

2015

   601.7    (7.5)% 

2016

   573.82    (4.6)% 

Price as of

December 31,

      Change YoY 

2015

   601.70    (7.5)% 

2016

   573.82    (4.6)% 

2017

   768.03    33.8

2018

   853.77    11.2

Source: Arauco.

Forestry and TimberWood Products Prices

Over the last five years, the average prices for our forestry and sawn timber products have fluctuated significantly, reflecting the effect on demand of global economic developments.

During 2012, average sales prices in our2014, the sawn timber products segment increased as compared to 2011, mainly due to a 6.7% increase in average sales prices of sawn timber. In 2012, sales in our panel segment increased by 3.7% as compared to 2011. This increase was mainly due to a 10.4% increase in sales volume, which was partially explained by the acquisition of the Moncure mill and Flakeboard in 2012.

During 2013, the average prices in our timber products segment increased 1.0%. The average price of panels increased 0.5%.

During 2014, all sawn timbermarket improved, with increased demand that permitted the sales mix and prices to improve relativecompared to 2013. Asian markets, in particular Japan, South Korea and China followed this positive trend. The North American market, despite an improvement in the Housing Starts index, did not show significant improvement, howevereven though prices rose in our solid wood moldings business. Also, our MDF and PBO sales in North America had positive and stable price levels. In Brazil, our panels business had relatively stable price levels in Brazilian reals.

During 2015, average prices and sales volume for our timberwood products declined by 8.0%5.3% and 0.9% respectively, compared to 2014. Overall, countries with depreciated currencies increased their exports, resulting in greater supply in several markets, which in turn, lowered prices. In Brazil, for example, overall average prices dropped due to the country’s economic slowdown. In North America, increased competition mainly affected the MDF market, with increased exports from Brazilian and Canadian producers, among others. Prices for our moldings products remained stable. As a result of the decrease in Argentina’s competitiveness in the export market, we focused our sales efforts with respect to panels primarily on the domestic market. The higher production of our Nueva Aldea Mill increased our plywood sales volume throughout the year. Particleboards also showed increased sales benefittingprofits from production at our Teno Mill, which reached full production capacity during the first quarter of 2015. We were also able to improve product mix sales, increasing sales of our greater value added products (such as melamine products). In addition, we experienced increased competition in the Middle East in the sawn timber market during the first six months of 2015 due to higher supply from European markets.

During 2016, average prices for our panels and sawn timber declined by 0.7% and 2.7% respectively, in each case compared to 2015. Sales volumes decreased compared to 2015, with panels sales volume dropping by 3.3% and sawn timber sales volume dropping by 4.6%. Argentine markets continued to be pressured during 2016, and opportunities to export to other countries were limited. Brazilian markets followed a similar trend, although there were higher export opportunities, where the depreciation of their local currency against the U.S. dollar made costsmargins more competitive. These export opportunities were mainly to North America, where higher supply volumes entered the market, partially offset by healthy demand throughout the year. Our new commercial sales office in the Middle East also enabled us to reach new customers and have a better presence in those markets.

During 2017, average prices for our wood products division increased by 5.1% compared to 2016. The panels market increased in average prices and sales volume by 4.7% and 2.4% respectively compared to 2016. Our sawn timber average prices increased by 4.7% compared to 2016, offset by a decrease of 5.3% in sales volume. North American market demand improved in 2017 fueled by the construction and retail sectors. The Brazilian market has been recovering slowly after the economic and political crisis. The Argentine market has improved in sales volume. Despite the new MDF mills in Brazil and Mexico that increased competition, we were able to maintain and increase prices in some markets. With the acquisition of the assets of Masisa in Brazil, we expect to consolidate our position in the market.

During 2018, average prices of our wood products decreased by 1.7% compared to 2017. The panels market showed a decrease in average prices by 5.6% while sales volumes showed an increase of 11.2%. The downward trend in prices was explained by an oversupply mainly from Brazil, Chile, the United States and Asia, and seasonality in the northern hemisphere. Sawn timber had a 5.5% increase in average prices throughout 2018, partially offset by a slight decrease in sales volume of 2.9%, which was mainly explained by lower demand from China, which in turn is related to the uncertainty surrounding the trade tensions between this country and the United States.

Prices for our forestry and sawn timber may decline in the future. Our results of operations may be materially adversely affected if the prices of our products decline from current levels.

Costs

Our major costs of sales are the following:

 

the cost of timber,

 

costs related to harvesting (forestry works),

 

maintenance, costs,

 

chemical costs,

the cost of sawmill processing,chemicals,

 

depreciation and amortization, and

 

energy and fuel costs.fuel.

Our major administrative and selling expenses are wages and salaries, traffic, shipping and freight costs, information technology (IT) expenses, insurance expenses and commissions.

Our property, plant and equipment are depreciated on astraight-line basis over the remaining useful lives of the underlying assets. However, the amount of such depreciation that relates to our fixed production assets, such as pulp mills, panels mills and sawmills, is allocated to finished goods held as inventories and accumulates until charged to cost of sales when the finished goods are sold. Forests and land are not depreciated. For additional information relating to the accounting treatment of our biological assets, see “—Critical Accounting Policies—Biological Assets.”

Selling expenses consist primarily of per tonne fees we pay to our selling agents. Traffic, shipping and freight costs are the outbound logistics costs of carrying the product to the client’s destination.

Cost of sales increased 9.2% during 2012 as a result of increased sales volume in all our business segments and increases in the unit costs of our main products. Compared to 2011, our costs of sales per tonne increased 8.7% for bleached softwood pulp, increased 7.2% for bleached hardwood pulp, and increased 19.1% for unbleached softwood pulp. In 2012, our cost of sales measured as a percentage of total revenues was 73.6%, as compared to 65.9% in 2011.

Cost of sales increased 12.4% during 2013, when compared with 2012. This was mainly the result of an increase in the sales volumes of our panels, pulp and timber products business segments by 45.2%, 5.2% and 7.3%, respectively. In 2013, we were able to achieve lower unit costs of pulp. Our cost of sales per tonne of BSKP and BEKP decreased 4.7% and 6.0%, respectively. This was largely due to an improvement in production rates at our pulp mills as compared to 2012. In 2013, our cost of sales measured as a percentage of total revenues was 69.1%, as compared to 73.6% in 2012.

In 2014, our cost of sales increased 2.7% when compared with 2013. However, as a percentage of our revenues, in 2014 and 2013 cost of sales represented 68.6% and 69.1% of total revenues, respectively. The 2.7% increase in cost of sales reflects the volume increase in our sales of pulp, sawn timber and panels by 6.5%, 3.6% and 2.3%, respectively.

In 2015, our cost of sales decreased 3.9% when compared to 2014. Energy and fuel costs decreased 25.5% when compared to 2014, mainly due to the global decline in crude oil prices and its derivatives. In addition, cost of timber declined 20.7% mainly due to the decrease in the volume of sales of sawn timber, especially in Chile. The depreciation of each of the Chilean peso, the Argentine peso and the Brazilian real against the U.S. Dollar had a positive effect on costs denominated in those depreciated currencies.

In 2016, our cost of sales decreased by 0.4% when compared to 2015. The cost of chemical products and energy and fuels for use during our production process decreased by 11.2% and 18.9% respectively, in each case compared to 2015. Energy prices followed a downward trend during the entire 2016, while fuel prices continued at levels much lower than their historical average (despite certain recovery in price levels during the second half of the year). Lower forestry labor costs also allowed for lower total cost of sales. A partially offsetting factor was the cost of timber which increased by 14.9%14.7% mostly as a result of our increase in sales volume in our pulp segment by 4.0% and an increase in the fair value cost of timber harvested by 10.9%.

In 2017, our cost of sales increased by 2.2% compared to 2016. The cost of energy and fuels for our production processes increased by 33.3% and the cost for our chemical products increased by 8.0% in 2017 compared to 2016. Fuel prices rose during 2017, following an upward trend of various commodities. Higher indirect cost and forestry labor cost also had an impact on the higher cost of sales. These cost increases were partially offset by lower maintenance cost and other raw materials cost that decreased 16.2% and 14.9%, respectively, compared to 2016.

In 2018, our costs of sales increased by 4.1% compared to 2017. The main reason was the 8.3% increase in the cost of chemical products used in our production processes. Additionally, the cost of forestry labor increased by 6.5% compared to 2017, and other raw materials costs were 21.1% higher. These higher costs were partially offset by a 4.7% decrease in the cost of wood and a 18.3% decrease in costs of electricity.

Critical Accounting Policies

A summary of our significant accounting policies is included in Note 1 to our audited consolidated financial statements, which are included in this annual report. The preparation of consolidated financial statements in accordance with IFRS requires management to make subjective estimates and assumptions that affect the amounts reported. Estimates are based on historical experience and various other assumptions that are believed to be reasonable, though actual results and timing could differ from the estimates. Management believes that the accounting policies below take into account those matters that require the exercise of judgment, but acknowledge that different judgments could result in substantially different results. The most critical accounting policies and estimates are described below.

Biological Assets

IAS 41 requires that biological assets, such as standing trees, are shown on the statement of financial position at fair value. Our forests are thus accounted for at fair value lessminus estimatedpoint-of-sale costs at harvest, considering that the fair value of these assets can be measured reliably.

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 the basis of sustainable forest management plans and considering the potential growth of forests. This recovery is performed on the basis of each forest stand identified and for each type of tree species.

These discounted cash flows require estimates in growth, harvest, sales prices and costs. It is therefore important that management make appropriate estimates of future levels and trends for sales and costs, as well as administer regular surveys of the forests to establish the volumes of wood available for harvesting and their current growth rates. The principal considerations used to calculate the valuation of forest plantations and sensibility analysis over significant inputs are presented in Note 20 to our audited consolidated financial statements.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimate of the value in use of thecash-generating units to which goodwill has been allocated. Arauco estimates the value either based on appraisals and/or the future cash flows expected to arise from thecash-generating unit and a suitable discount rate to calculate present value. See Note 17 to our audited consolidated financial statements.

Litigation and Contingencies

Arauco, its subsidiaries and our Uruguayan joint ventureoperation Montes del Plata are subject to certain ongoing lawsuits, the future effects of which need to be estimated by our management in collaboration with our legal advisors. See “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Forestry Industry—Company—We arehave been subject to legal proceedings related to our mills which could adversely affect our business, financial condition, results of operations and cash flows” and “Item 8. Financial Information—Legal Proceedings.” See Note 18 to our audited consolidated financial statements.

Recently Issued Accounting Standards

Note 1 to our audited consolidated financial statements discusses new accounting pronouncements under IFRSstandards, interpretations and amendments that apply toare mandatory for the first time for the annual periodsperiod beginning on or after January 1, 2016. There are no additional pronouncements,2018 and also the new standards, interpretations and amendments, or interpretations that couldthe application of which is not yet mandatory, which have a material impact on our financial statements.not been adopted in advance.

Results of Operations

The following table provides a breakdown of our financial results of operations and sales volumes as of and for the years ended December 31, 2014, 20152016, 2017 and 2016.2018. The table and the discussion that follows are based on and should be read in conjunction with our audited consolidated financial statements, including the notes thereto, as of and for the years ended December 31, 2014, 20152016, 2017 and 20162018 included elsewhere herein. The audited consolidated financial statements included herein are prepared in U.S. dollars and in accordance with IFRS. The Timber segment was created following the merger of the companies Paneles Arauco S.A. (successor), Aserraderos Arauco S.A. and Arauco Distribución S.A, from the two business segments previously known as panels and sawn timber. This transaction had no effect on results and was performed to generate greater synergies, share best practices and achieve better results for our clients. See Note 14 and Note 24 to our audited consolidated financial statements.

 

  For the year ended December 31,   For the year ended December 31, 
  2016   2015   2014   2018   2017   2016 
  Sales % Volume   Sales % Volume   Sales % Volume   Sales % Volume   Sales % Volume   Sales % Volume 
  (in millions of U.S. dollars, except where indicated)   (in millions of U.S. dollars, except where indicated) 

Revenue

                        

Pulp

                        

Bleached pulp(1)

   1,780.6   37.4  3,240.8    1,959.7   38.1  3,077.9    1,8885.5   35.3  2,827.8    2,536.9   42.6   3,188.6    2,062.4   39.4   3,327.8    1,780.6   37.4   3,240.8 

Unbleached pulp(1)

   260.5   5.5   439.7    283.4   5.5   459.6    310.2   5.8   451.5    418.4   7.0   494.2    293.3   5.6   445.1    260.5   5.5   439.7 
  

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

 

Total

   2,041.1   42.9  3,680.4    2,243.1   43.6   3,537.5    2,195.7   41.1   3,279.3    2,955.3   49.6   3,682.7    2,355.7   45.0   3,772.9    2,041.1   42.9   3,680.5 
  

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

 

Timber

            

Wood Products

            

Panels(2)

   1,533.6   32.2   4,753.9    1,597.2   31.0   4,914.8    1,711.7   32.0   4,840.1    1,725.1   29.0   5,410.0    1,643.3   31.4   4,866.2    1,533.6   32.2   4,753.9 

Sawn timber(2)

   479.8   10.1   1,943.8    498.4   9.7   2,078.9    637.6   11.9   2,361.5    487.7   8.2   1,788.4    476.1   9.1   1,841.6    479.8   10.1   1,943.8 

Remanufactured wood products(2)

   245.5   5.2   441.6    287.5   5.6   418.8    235.9   4.4   429.3    252.6   4.2   437.7    259.3   5.0   445.0    245.5   5.2   441.6 

Plywood

   226.9   4.8   563.9    239.9   4.7   594.1    209.6   3.9   443.9    255.5   4.3   531.6    238.2   4.5   566.5    226.9   4.8   563.9 
  

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

 

Total

   2,485.8   52.2  7,703.2    2,623.0   51.0  8,006.6    2,794.7   52.3  8,078.3    2,721.0   45.7   8,167.8    2,616.9   50.0   7,719.3    2,485.8   52.2   7,703.2 
  

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

 

Forestry

                        

Logs, net(2)

   63.1   1.3   1,787.5    87.9   1.7   2,384.3    121.2   2.3   2,760.9    71.9   1.2   2,539.9    72.6   1.4   2,223.7    63.1   1.3   1,787.5 

Chips

   20.8   0.4   366.2    17.6   0.3   277.6    19.5   0.4   302.5    31.4   0.5   546.0    25.2   0.5   443.4    20.8   0.4   366.2 

Other

   6.1   0.1   7.8    3.8   0.1   15.7    2.1   0.0   44.0    4.1   0.1   0.1    8.2   0.1   5.2    6.1   0.1   7.8 
  

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

 

Total

   90.0   1.9  2,161.4    109.2   2.1  2,677.6    142.8   2.7  3,107.4    107.4   1.8   3,086.0    106.0   2.0   2,672.3    90.0   1.9   2,161.5 
  

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

   

 

  

 

  

 

 

Energy

   103.4   2.2     121.1   2.4     159.9   3.0     86.7   1.5     93.8   1.8     103.4   2.2  

Other

   41.1   0.9     50.4   1.0     49.5   0.9     84.4   1.4     65.9   1.2     41.1   0.9  
  

 

  

 

    

 

  

 

    

 

  

 

    

 

  

 

    

 

  

 

    

 

  

 

  

Total revenue

   4,761.4   100    5,146.7   100    5,342.6   100    5,954.8   100     5,238.3   100     4,761.4   100  
  

 

  

 

    

 

  

 

    

 

  

 

    

 

  

 

    

 

  

 

    

 

  

 

  

Cost of sales

                        

Timber

   (736.4     (641.8     (809.0     (691.1     (725.1     (736.4  

Forestry labor costs

   (600.3     (636.1     (655.3     (672.2     (631.3     (600.3  

Maintenance costs

   (313.5     (305.7     (278.3     (280.7     (262.8     (313.5  

Chemical costs

   (479.3     (539.9     (541.3     (560.2     (517.5     (479.3  

Depreciation

   (378.0     (371.9     (323.3     (377.6     (389.8     (378.0  

Other costs of sales

   (991.4     (1,016.1     (1,047.0     (1,140.9     (1,048.0     (991.4  
  

 

     

 

     

 

     

 

     

 

     

 

   

Total cost of sales

   (3,498.9     (3,511.4     (3,654.1     (3,722.7     (3,574.5     (3,498.9  
  

 

     

 

     

 

     

 

     

 

     

 

   

Gross profit

   1,262.5   26.5    1,635.3   31.8    1,688.5   31.6    2,232.1   37.5    1,663.8   31.8    1,262.5   26.5 

Other income

   257.9      273.0      368.9      124.3      111.5      257.9   

Distribution costs

   (496.5     (528.5     (556.8     (556.8     (523.3     (496.5  

Administrative expenses

   (474.5     (552.0     (550.8     (561.3     (521.3     (474.5  

Other expenses

   (77.4     (83.4     (138.8     (95.9     (240.1     (77.4  

Other gains (losses)

   0.0      0.0      0.0   

Other income (loss)

   14.2      —        —     

Financial income

   29.7      50.3      30.8      20.9      19.6      29.7   

Financial costs

   (258.5     (263.0     (246.5     (214.8     (287.9     (258.5  

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

   23.9      6.7      7.5      17.2      17.0      23.9   

Exchange rate differences

   (3.9     (41.2     (10.0     (26.5     0.1      (3.9  

Income before income tax

   263.2      497.4      592.8      953.5      239.4      263.2   

Income tax

   (45.6     (129.7     (448.7     (226.8     31.0      (45.6  

Net income

   217.6      367.7      144.2      726.8      270.4      217.6   

 

(1)

Volumes measured in thousands of tonnes. Does not include subproduct sales (i.e. energy, chemicals) which are presented in the pulp reportable segment in Note 24 in our audited consolidated financial statements.

(2)

Volumes measured in thousands of cubic meters. Does not include subproduct sales (i.e. energy, chemicals) which are presented in the timberwood products reportable segment in Note 24 in our audited consolidated financial statements.

Year Ended December 31, 20152017 Compared to Year Ended December 31, 20162018

Revenue

Revenue decreased 7.5%Revenues increased by 13.7% from U.S.$5,146.75,238.3 million in 20152017 to U.S.$4,761.45,954.8 million in 2016,2018, primarily as a result of:

 

a 9.0%25.5%, or U.S.$202.0599.6 million, decreaseincrease in revenuerevenues from pulp;

 

a 5.2%4.0%, or U.S.$137.2104.1 million, decreaseincrease in revenuerevenues from timber;wood products;

 

a 17.6%1.3%, or U.S.$19.21.4 million, decreaseincrease in revenuerevenues from forestry products.products

Pulp. RevenueRevenues from bleached and unbleached pulp decreased 9.0%increased by 25.5% from U.S.$2,243.1 2,355.7 million in 20152017 to U.S.$2,041.12,955.3 million in 2016,2018, reflecting a 9.0% decrease in sales volume and a 2.3% decrease in average prices. Sales of bleached pulp decreased 9.1% due to a 13.7% decrease28.5% increase in average prices, partially offset by a 5.3% increase2.4% decrease in sales volume. During 2016, the gap between softwood and hardwood pricesSales of bleached pulp increased but prices remained stable during the last quarter. Hardwood prices followed a downward trend during the whole yearby 23.0% due to ana 28.4% increase of supply to the market and lower expected demand. A pulp mill in Indonesia, with capacity of 2.8 million tonnes of hardwood pulp (currently the largest pulp mill worldwide) was set to start operationsaverage prices, partially offset by the end of 2016. However, as we reached the second semester of 2016, it became clear to the market that the startup of the new mill would be delayed, thus taking pressure off prices. Demand also started picking upa 4.2% decrease in China driven by the revitalization of its exports and price inflation. Softwood prices remained fairly stable after a drop during the first two quarters of 2016, along with stable demand. Revenuesales volume. Revenues from unbleached pulp decreased 8.1%increased by 42.6% during 2016,2018, mainly due to a 3.9% decrease28.5% increase in average prices and a 4.3% decrease11.0% increase in sales volume. Prices for both types of fiber (softwood and hardwood) showed a similar upward trend throughout most of 2018, and demand remained stable until the last quarter. By the end of the year, both prices and demand were impacted by the effects of the trade tensions between China and the United States.

Timber.Wood products.RevenueRevenues from timber decreased 5.2%wood products increased by 4.0% from U.S.$2,623.02,616.9 million in 20152017 to U.S.$2,485.82,721.0 million in 2016. This decrease in revenues was2018, primarily due to a 3.8% decrease in sales volume and a 1.5% decrease in average prices. Panel prices, in particular for MDF moldings and other value added products, declined as a result of increased supply originating from Brazil and other countries with depreciated currencies, which in turn increased competition. Argentina showed a decline in prices and sales volume in PBO and MDF, mainly due to the economic downturn and difficulties exporting these items to other countries.

Revenue from sawn timber decreased 3.7%, from U.S.$498.4 million to U.S.$479.8 million due to a 6.5% decrease5.8% increase in sales volume, partially offset by a 2.9%slight average price decrease of 1.7%.

Panel products sales had a 5.0% increase compared to 2017, driven by a 11.2% increase in sales volume, which was partially offset by an average prices. After a weak first quarter,price decrease of 5.6%.

Revenues from sawn timber markets recovered over the rest of 2016, although not reaching the same revenue levels of 2015. Asia showed an overall healthy demand for our sawn timber products, although competition increased from countries with depreciated currencies. Remanufactured products revenue decreased 14.6%by 2.4%, from U.S.$287.5476.1 million in 20152017 to U.S.$245.5487.7 million in 2018 due to a 19.0% decrease5.5% increase in average prices, partially offset by a 5.4% increase2.9% decrease in sales volume. Trade tension between China and the United States resulted in lower demand during the second half of 2018 from the Asian markets. Plywood revenue decreased 5.4%revenues increased by 7.3% from U.S.$239.9238.2 million in 20152017 to U.S.$226.9255.5 million in 2016, with2018, mainly due to a 14.3% increase in average prices, slightly offset by 6.2% decrease in sales volumes decreasing 5.1% and prices decreasing 2.3%. The North American market maintained its dynamism, with the Housing Starts index maintaining its positive trend during 2016, which resulted in a sustained demand for sawn timber products.volume.

Forestry products.RevenueRevenues from forestry products decreased 17.6%increased by 1.3% from U.S.$109.2106.0 million in 20152017 to U.S.$90.0107.4 million in 2016.2018. This decreaseincrease was primarily the result of a U.S.$24.86.2 million increase in chips sales partially offset by a slight decrease in logs sales of 1.1%, explained by a U.S.$3.2 million decrease in the revenue of log sales, driven in turn by a U.S.$8.8 million decrease in sales in sawlogs and a U.S.$16.0 million decrease in sales in pulplogs.sales.

Other revenue.RevenueRevenues from other sources, consisting mainly of sales of energy, chemicals and chemicals, decreased 15.7%other services, increased by 7.1% from U.S.$171.4159.7 million in 20152017 to U.S.$144.4171.1 million in 2016. This was2018, primarily as a result of a U.S.$17.718.5 million increase in other export sales of fire-damaged wood. This was partially offset by a U.S.$7.0 million decrease in our energy sales, as a result of a decrease in average electricity prices in Chile.sales.

Cost of sales

Cost of sales decreased 0.4%increased by 4.1% from U.S.$3,511.43,574.5 million in 20152017 to U.S.$3,498.93,722.7 million in 2016,2018, primarily as a result of a 3.8% decrease8.3% increase in sales volume of our timberchemical products whichand a 6.5% increase in turn decreased forestry labor costs by 5.6%. Costs of energy and fuel used in our operations decreased by 18.9% compared to 2015, as well as costs of energy we sold back to the power grid which decreased by 4.1%, mainly driven by a decline in average prices of crude oil and its derivatives compared to 2015 average prices.

Gross Profit

As a percentage of total revenue, our gross profit decreased from 31.8% in 2015 to 26.5% in 2016, primarily as a result of a 7.5% decrease in sales revenue, while cost of sales declined slightly by 0.4%.

Other income

Other income decreased 5.6% from U.S.$273.0 million in 2015 to U.S.$257.9 million in 2016. Profits from changes in the fair value of our biological assets remained more or less stable, decreasing slightly by 0.9% compared to 2015. In addition, we generated no gains on business combinations achieved in stages compared to a gain of U.S.$8.2 million in 2015, due to the purchase of the remaining 51.0% of Novo Oeste in Brazil during the last quarter of 2015.

Distributionhigher production. These increased costs

Distribution costs decreased 6.1% from U.S.$528.5 million in 2015 to U.S.$496.5 million in 2016, primarily due to a decrease by 7.7%, or U.S.$29.6 million, in total shipping and freight costs. This decrease was explained by a decline in shipping and freight tariffs. As a percentage of revenue, distribution costs remained fairly stable, at 10.4% in 2016, compared to 10.3% in 2015.

Administrative expenses

Administrative expenses decreased 14.0% from U.S.$552.0 million in 2015 to U.S.$474.5 million in 2016. As a percentage of revenue, administrative expenses also decreased from 10.7% in 2015 to 10.0% in 2016.

Finance costs

Finance costs decreased 1.7%, from U.S.$263.0 million in 2015 to U.S.$258.5 million in 2016. Despite an increase in total debt when compared to 2015, the decrease in finance costs was mainly due to the issuance of a local bond in December 2016, which served to refinance short and/orlong-term liabilities. During the rest of 2016 we continued to focus on our de leveraging process.

Exchange rate differences

Losses from exchange rate differences totaled U.S.$3.9 million in 2016. In particular, the depreciation of the Argentine peso affected our cash and cash equivalents and account receivables of our Argentine subsidiary. Since the functional currency of our Brazilian subsidiaries, Arauco do Brasil S.A. and Arauco Forest Brasil S.A., is the Brazilian real, the depreciation of the Brazilian real also generated a loss given that their outstanding loans are denominated in U.S. dollars. See “—Economic Indicators in Chile, Argentina, Brazil, Uruguay, the United States and Canada—Argentina.”

Income tax

We recorded an income tax expense of U.S.$45.6 million in 2016 compared to U.S.$129.7 million in 2015. This decrease is mainly attributable to lower revenues which in turn decreased by 7.5% or U.S.$385.4 million compared to 2015. The decrease is also attributable to a direct credit in 2016 of approximately U.S.$16.7 million which positively impacted our income tax expense, as a result of a net increase in deferred tax assets attributable to the carry forward of unused tax losses after the restructuring of Novo Oeste, acquired at the end of 2015. See “Item 3. Risk Factors—Risks Relating to Chile—A tax reform bill with significant changes for companies was approved in September 2014 and the Chilean Superintendence of Securities and Insurance, or SVS, modified accounting reporting standards for companies under its supervision in October 2014.

Net income

Net income in 2016 decreased 40.8% from U.S.$367.7 million in 2015 to U.S.$217.6 million in 2016. Lower sales in all of our business segments decreased our gross profit by 22.8% or U.S.$357.8 million. Lower distribution costs and administrative expenses partially offset this effect. See “Item 3—Risk Factors—Risks Relating to Chile—A tax reform bill with significant changes for companies was approved in September 2014 and the Chilean Superintendence of Securities and Insurance, or SVS, modified accounting reporting standards for companies under its supervision in October 2014.”

Year Ended December 31, 2014 Compared to Year Ended December 31, 2015

Revenue

Revenue decreased 3.7% from U.S.$5,342.6 million in 2014 to U.S.$5,146.7 million in 2015, primarily as a result of:

a 23.5%, or U.S.$33.6 million, decrease in revenue from forestry products;

a 6.1%, or U.S.$171.7 million, decrease in revenue from timber; which was partially offset by

a 2.2%, or U.S.$47.4 million, increase in revenue from pulp.

Pulp. Revenue from bleached and unbleached pulp increased 2.2% from U.S.$2,195.7 million in 2014 to U.S.$2,243.1 million in 2015, reflecting a 7.9% increase in sales volume, offset by a 5.3% decrease in average prices. Sales of bleached pulp increased 3.9% due to a 8.8% increase in sales volume, offset by a 4.5% decrease in average prices. Our increase in sales volume partially reflects new sales from the Montes del Plata mill. During 2015, the price difference between softwood pulp and hardwood pulp decreased, and in the third quarter, hardwood pulp traded above softwood pulp. This was mainly because softwood prices decreased driven by large discounts made by Russian producers, who benefited from the depreciation of the Ruble. Also, European producers have benefited from a weaker Euro and this has resulted in market pressure to lower softwood prices. In the fourth quarter of 2015, hardwood prices fell below softwood prices, mainly driven by uncertainty in the Chinese market as a result of the devaluation of the Chinese Yuan, which added pressure to pulp prices overall. Revenue from unbleached pulp decreased 8.6% due to a 10.2% decrease in average prices, which was were partially offset by a 1.8% increase in sales volume.

Timber.Revenue from timber decreased 6.1%, from U.S.$2,794.7 million in 2014 to U.S.$2,623.0 million in 2015. This decrease in revenues was primarily due to a 5.3% decrease in average prices and 0.9% decrease in sales volume. Panel prices, in particular for MDF moldings and other value added products, declined as a result of increased supply originating from Argentina, Brazil and other countries with depreciated currencies, which in turn increased competition, especially in North America.

Revenue from sawn timber, remanufactured wood products and plywood decreased 5.3% from U.S.$1,083.1 million in 2014 to U.S.$1,025.9 million in 2015, primarily as a result of a 4.4% decrease in sales volume, partially offset by a 0.9% increase in average prices. Sawn timber revenue decreased 21.8% from U.S.$637.6 million to U.S.$498.4 million due to a 12.0% decrease in sales volume and a 11.2% decrease in average prices. Prices declined throughout 2015 due to increased exports from countries with depreciated currencies to countries with better market conditions. Remanufactured products revenue increased 21.9% from U.S.$235.9 million in 2014 to U.S.$287.5 million due to a 24.9% increase in average prices, offset by a 2.4% decrease in sales volume. The North American market maintained its dynamism, with the Housing Starts index maintaining its positive trend during 2015, resulting in a sustained demand for sawn timber products. Our product mix sales also improved, with products with higher margins accounting for a higher share of our sales.

Forestry products.Revenue from forestry products decreased 23.5% from U.S.$142.8 million in 2014 to U.S.$109.2 million in 2015. This decrease was primarily the result of a U.S.$33.4 million4.7% decrease in the revenuecost of logs, driven by a U.S.$47.0 million decrease in sales of sawlogs, which was partially offset by a U.S.$13.7 million increase in sales of pulplogs.timber.

Other revenue.Revenue from other sources, consisting mainly of sales of energy and chemicals, decreased 17.7% from U.S.$208.3 million in 2014 to U.S.$171.4 million in 2015. This was primarily the result of a U.S.$38.8 million decrease in our energy sales, as a result of a decrease in average electricity prices in Chile.

Cost of sales

Cost of sales decreased 3.9% from U.S.$3,654.1 million in 2014 to U.S.$3,511.4 million in 2015, primarily as a result of a 10.5% decrease in our sales volume of timber, which in turn decreased timber costs by 20.7%. In Brazil, timber costs decreased in U.S. Dollar terms as a result of the depreciation of the Brazilian real. Costs of energy and fuel used in our operations decreased by 25.5% compared to 2014, as well as costs of energy we sold back to the power grid by 47.1%, mainly driven by a decline in prices of crude oil and its derivatives.

Gross Profit

As a percentage of total revenue, our gross profit increased slightly from 31.6% in 2014 to 31.8% in 2015,2017 to 37.5% in 2018, primarily as a result of a 3.9% decrease13.7% increase in oursales revenue, while cost of sales which was offsetrose slightly by a 3.7% decrease in sales revenue.4.1%.

Other income

Other income decreased 26.0%increased by 11.5% from U.S.$368.9111.5 million in 20142017 to U.S.$273.0124.3 million in 2015. Profits2018. This was mainly due to compensations received in our energy business of U.S.$4.6 million and an increase of profits from changes in the fair value of our biological assets decreased by 26.0% when compared to 2014, which reflects the lower U.S. dollar valuation of our biological assets, primarily in Brazil. In addition, gains from asset sales decreased 79.4% when compared to 2014. In 2014, the sale of 11,000 hectares ofnon-strategic plantations in Chile generated anon-recurring gain of U.S.$911.4 million.

Distribution costs

Distribution costs decreased 5.1%increased by 6.4% from U.S.$523.3 million in 2017 to U.S.$556.8 million in 2014 to U.S.$528.5 million in 2015,2018, primarily due to a 5.5%an increase of 7.6%, or U.S.$27.931.1 million decrease in total shipping and freight costs. This isincrease was mainly explained by higher freight tariffs in the United States (due to a decline in shippingcertified truck driver shortage), and freight tariffs.higher sales volume. As a percentage of revenue, distribution costs remained fairly stable at 10.3%9.4% in 2015,2018, compared to 10.4%10.0% in 2014.2017.

Administrative expenses

Administrative expenses increased slightlyby 7.7% from U.S.$550.8521.3 million in 20142017 to U.S.$552.0561.3 million in 2015.2018. As a percentage of revenue, administrative expenses also increasedremained stable at 9.4% in 2018, compared to 10.0% in 2017.

Other expenses

Other expenses decreased by 60.0% from 10.3%U.S.$240.2 million in 20142017 to 10.7%U.S.$95.9 million in 2015.2018 due to lower forestry fires in comparison with the ones affecting our forests during 2017.

Other income (loss)

Other income (loss) reached U.S.$14.2 million in 2018, explained by a profit due to bargain acquisition recognized following the acquisition of Masisa’s assets in Brazil.

Finance costs

Finance costs increased 6.7%decreased by 25.4%, from U.S.$246.5287.9 million in 20142017 to U.S.$263.0214.8 million in 2015. This increase was mainly2018, primarily due to the impact of the full year accrual of interest on the debt relatedlower incurred costs compared to Montes del Plata, compared2017 when we repurchased our Notes due in 2019, 2021 and 2022, including a premium payment that amounted tosix-months in 2014. approximately U.S.$60 million.

Exchange rate differences

Losses from exchange rate differences totaled U.S.$41.226.5 million in 2015, as a consequence of2018 compared to the currency depreciationU.S.$0.1 million gain in most of the countries in which we have operations, especially in our Argentine and Brazilian subsidiaries. In particular,2017. These losses were primarily due to the depreciation of the Argentine peso, affected our cash and cash equivalents and account receivables of our Argentine subsidiary. In our Brazilian subsidiaries, Arauco do Brasil S.A. and Arauco Forest Brasil S.A., the depreciation of the Brazilian real generated a loss given thatand the outstanding loans are denominated in U.S. dollars.Chilean peso. See “—Economic Indicators in Chile, Argentina, Brazil, Uruguay, the United States and Canada—Argentina.Canada.

Income tax

We recorded an income tax expense of U.S.$129.7226.8 million in 20152018 compared to a gain of U.S.$448.731.0 million in 2014.2017. This decreaseincrease was attributable to our higher income from operational activities in 2018, which is mainly explained by higher revenues in Chile by 18.5%. During 2017 we had a direct chargepositive effect in 2014deferred taxes, as a result of tax rate reductions in the United States and Argentina which accounted for U.S.$17.6 million and U.S.$62.7 million, respectively.

Net income

Net income in 2018 increased by 168.8% from U.S.$270.4 million in 2017 to U.S.$726.8 million in 2018. This is explained by higher sales in our different business segments, which in the aggregate increased our gross profit by 34.2% or U.S.$568.3 million, as well as a decrease in financial costs and other operating expenses, all of which was partially offset by higher income tax losses.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2017

Revenue

Revenues increased by 10.0% from U.S.$4,761.4 million in 2016 to U.S.$5,238.3 million in 2017, primarily as a result of:

a 15.4%, or U.S.$314.6 million, increase in revenues from pulp;

a 5.3%, or U.S.$131.1 million, increase in revenues from wood products;

a 17.8%, or U.S.$16.0 million, increase in revenues from forestry products

Pulp. Revenues from bleached and unbleached pulp increased by 15.4% from U.S.$2,041.1 million in 2016 to U.S.$2,355.7 million in 2017, reflecting a 2.5% increase in sales volume and a 12.6% increase in average prices. Sales of bleached pulp increased by 15.8% due to a 12.8% increase in average prices and a 2.7% increase in sales volume. 2017 started with a large gap between softwood and hardwood, with both prices increasing. The growth in hardwood prices was greater than the increase in softwood prices, which implied that through the year the gap between both prices decreased significantly. The increase in hardwood prices was driven by lower expected supply capacity of the pulp mill in Indonesia, because the market expected a capacity of 2.8 million tonnes annually and instead we expect the capacity to be stable at 1.7 million tonnes for the next three to four years. Lower capacity due to operational problems in existing mills in the industry also impacted the supply and compensated the new production. Demand has had a steady rise during 2017 as certain policies, including import restrictions of unsorted waste paper, put in place by the Chinese government to stimulate internal consumption, helped support pulp demand in China. Revenues from unbleached pulp increased by 12.6% during 2017, mainly due to a 11.2% increase in average prices and a 1.2% increase in sales volume.

Wood products.Revenues from wood products increased by 5.3% from U.S.$2,485.8 million in 2016 to U.S.$2,616.9 million in 2017. This increase in revenues was primarily due to a 5.1% increase in average prices, and by a 0.2% increase in sales volume. Despite additional supply from Brazil and North America competitors, revenues from panels increased by 7.1%, driven by a 4.7% increase in average prices and a 2.4% increase in sales volume. Argentina showed an increase in prices and sales volume in MDF and PBO, mainly due to better conditions in the economy. In Brazil PBO and MDF average prices improved, due to economic growth compared to a contraction in the two prior years.

Revenues from sawn timber decreased by 0.8%, from U.S.$479.8 million in 2016 to U.S.$476.1 million in 2017 due to a 5.3% decrease in sales volume, partially offset by a 4.7% increase in average prices. During the first quarter of 2017, forestry fires in Chile damaged our El Cruce Sawmill, which stopped its operations. Our other sawmills were able to absorb the lack of production. Demand from Asia and Middle East, our principal customers for these products, have shown improvements during the year. Remanufactured products revenues increased 5.6% from U.S.$245.5 million in 2016 to U.S.$259.3 million in 2017 due to a 4.8% increase in average prices and a 0.8% in sales volume. Plywood revenues increased 5.0% from U.S.$226.9 million in 2016 to U.S.$238.2 million in 2017 with sales volumes increasing 0.5% and prices increasing 4.5%. The North American market showed a high demand in retail, distribution and industrial customers.

Forestry products.Revenues from forestry products increased by 17.8% from U.S.$90.0 million in 2016 to U.S.$106.0 million in 2017. This increase was primarily the result of a U.S.$9.6 million increase in logs sales, driven in turn by a U.S.$8.2 million increase in sales in sawlogs, and a U.S.$1.4 million increase in sales in pulplogs.

Other revenue.Revenues from other sources, consisting mainly of sales of energy and chemicals, increased by 10.5% from U.S.$144.5 million in 2016 to U.S.$159.7 million in 2017. This was primarily the result of a U.S.$24.9 million increase in other services, partially offset by a U.S.$ 9.6 million decrease in energy sales.

Cost of sales

Cost of sales increased by 2.2% from U.S.$3,498.9 million in 2016 to U.S.$3,574.5 million in 2017, primarily as a result of a 33.3% increase in cost of energy and fuel used in our operations mainly driven by higher average prices of fuel. Our forestry labor cost increased by 5.2% due to increased forestry production and our chemical products costs increased by 8.0%. These increased costs were largely offset by a 16.2% decrease in our maintenance costs.

Gross Profit

As a percentage of total revenue, our gross profit increased from 26.5% in 2016 to 31.8% in 2017, primarily as a result of a 10.0% increase in sales revenue, while cost of sales rose slightly by 2.2%.

Other income

Other income decreased by 56.8% from U.S.$257.9 million in 2016 to U.S.$111.5 million in 2017. Profits from changes in the fair value of our biological assets decreased by 60.2% compared to 2016, mainly due to a change in the forest valuation contained in the IFRS forest assessment. This change in estimation originated from forest inventory differences, associated to pruning and thinning that were not carried out according to schedule, climate reasons, and an update in the growth tables considered in the valuation.

Distribution costs

Distribution costs increased by 5.4% from U.S.$496.5 million in 2016 to U.S.$523.3 million in 2017, primarily due to an increase of 7.0%, or U.S.$26.9 million, in total freight costs. This increase was explained by an increase in sales volume in our pulp division. As a percentage of revenue, distribution costs remained fairly stable, at 10.0% in 2017, compared to 10.4% in 2016.

Administrative expenses

Administrative expenses increased by 9.9% from U.S.$474.5 million in 2016 to U.S.$521.3 million in 2017. As a percentage of revenue, administrative expenses remained stable at 10.0% in 2017 and 2016.

Other expenses

Other expenses increased by 210.3% from U.S.$77.4 million in 2016 to U.S.$240.2 million in 2017 due to the forestry fires that affected our forest during 2017. Loss totaled approximately U.S.$292173.1 million net of U.S.$35.0 million that we received from the insurance company; thereby the loss was U.S.$138.1 million.

Finance costs

Finance costs increased by 11.4%, from U.S.$258.5 million in 2016 to U.S.$287.9 million in 2017. This increase is explained by our repurchase of Notes due in 2019, 2021 and 2022 in November 2017. The costs incurred in the impactrepurchase primarily included a premium payment that amounted to approximately U.S.$60 million. During 2017 we continued to focus on our deleveraging process.

Exchange rate differences

Gains from exchange rate differences totaled U.S.$0.1 million in 2017, compared to the U.S.$3.9 million loss that we had in 2016. This was primarily due to the appreciation of a netthe Chilean peso which increased our cash and cash equivalents and outstanding debt in this currency. See “—Economic Indicators in Chile, Argentina, Brazil, Uruguay, the United States and Canada.”

Income tax

We recorded an income tax gain of U.S.$31.0 million in 2017 compared to an expense of U.S.$45.6 million in 2016. This increase is attributable to lower income before tax and the effect in deferred liabilities attributable to the increasetaxes a result of the tax rate reduction in accordance with Law No. 20,780, in force since 2014. See “Item 3. Risk Factors—Risks Relating to Chile—A tax reform bill with significant changesUnited States and Argentina which accounted for companies was approved in September 2014U.S.$17.6 million and the Chilean Superintendency of Securities and Insurance, or SVS, modified accounting reporting standards for companies under its supervision in October 2014.U.S.$62.7 million.

Net income

Net income in 20152017 increased 155.0%by 24.3% from U.S.$144.2217.6 million in 20142016 to U.S.$367.7270.4 million in 2015, due to the impact2017. Higher sales in all of thenon-recurring charge onour business segments increased our gross profit by 31.8% or U.S.$401.3 million and our income taxes in 2014. See “Item 3—Risk Factors—Risks Relating to Chile—A tax reform bill with significant changes for companiesgain, all of which was approved in September 2014partially offset by higher other operating expenses and the Chilean Superintendence of Securities and Insurance, or SVS, modified accounting reporting standards for companies under its supervision in October 2014.”lower other operating income.

Liquidity and Capital Resources

Our primary sources of liquidity are funds from operations, domestic and international borrowings from commercial and investment banks and debt offerings in the domestic and international capital markets.

Arauco has a liquidity policy, approved by the Board of Directors, which maintains conservative criteria regarding Arauco’s liquidity management.

We also have access to two committed credit facility lines, which total U.S.$315314.4 million. The first line has an available amount of UF2,885,000,UF 2,885,000, or approximately U.S.$115.0114.4 million and maturesexpires on January 29, 2020. The second line has a maximum available amount of U.S.$200.0 million and maturesexpires on March 27, 2020. As of the date of this annual report, Arauco has not used any of these committed credit facility lines.

Cash Flow from Operating Activities

Our net cash flow provided by operating activities was U.S.$773.61,280.9 million in 20162018 and U.S.$853.71,072.4 million in 2015.2017. This declineincrease was principally due to a 12.4% decreaseU.S.$621.1 million increase in the collection of sales of goods and services. This wasservices, partially offset by a U.S.$345.6449.0 million decreaseincrease in payments to suppliers for goods and services.employees.

Our net cash flow provided by operating activities was U.S.$853.71,072.4 million in 20152017 and U.S.$985.2773.6 million in 2014.2016. This declineincrease was principally due to a U.S.$70.3488.2 million increase in payments to suppliers of goods and services, as well as a U.S.$50.5 million increase in income taxes paid, among others. This was partially offset by U.S.$104.5 million increase in theour collection of sales of goods and services.services, partially offset by a U.S.$104.0 million increase in other payments for operating activities.

Cash Flow Used in Investing Activities

Our net cash used in investing activities was U.S.$640.2893.9 million in 20162018 and U.S.$477.8633.3 million in 2015.2017. This increase was principally due to higheran increase in capital expenditures includingof 50.8%, or U.S.$51.2227.7 million, for the water treatmentmainly as a result of purchases of property, plant and equipment. Capital expenditures in our Arauco Mill;2018 included U.S.$153.1196.6 million for the acquisition of 50% of Sonae Arauco; and U.S.$ 16.0 million asin the “MDP Grayling” project in Michigan began its construction phase.(United States), U.S.$124.9 million in the “MAPA” project, U.S.$52.9 million in the “Dissolving Pulp” project and U.S.$16.2 million in the water treatment plant in the Arauco mill.

Our net cash used in investing activities was U.S.$477.8633.3 million in 20152017 and U.S.$655.2640.2 million in 2014.2016. This decrease was principally due to a 30.1%, or U.S.$138.4 million, decrease in our purchasescapital expenditure, mainly as a result of property, plant and equipment, mainly explained by the completion of the Montes del Plata mill during the third quarter of 2014. Additionally, comparedU.S.$15.9 million increase in cash flows used to 2014, there was a decrease of 85.1%, orpurchase in associates. Capital expenditures in 2017, included U.S.$135.2183.4 million in loans to related parties.the “MDP Grayling” project in Michigan, U.S.$179.2 million in plantations and U.S.$26.9 million in the water treatment plant in the Arauco mill.

Cash Flow Used infrom Financing Activities

Our net cash used inprovided by financing activities was U.S.$38.5129.8 million in 2016,2018, compared to the U.S.$812.2439.1 million used in 2015.2017. During 2016,2018, we received U.S.$737.7863.6 million in loan proceeds, and we paid U.S.$645.2475.2 million of principal of and interest on our debt, including U.S.$72.0 million in payment of principal of loans made in connection with the construction of the Montes del Plata Mill.debt. In addition, we paid U.S.$130.6257.4 million in dividends.

Our net cash used inprovided by financing activities was U.S.$812.2439.1 million in 2015,2017, compared to the U.S.$7.938.5 million used in 2014.2016. During 20152017, we received U.S.$280.91,312.5 million in loan proceeds, and we paid U.S.$949.21,627.7 million of principal of and interest on our debt, including U.S.$370877.0 million in a U.S.dollar-denominated bonds, U.S.$270.0 million in a U.S.dollar-denominated bond of our subsidiary Arauco Argentina, and U.S.$150100.0 million in the prepayment of debt held by our subsidiary Flakeboard in North America.of a credit loan. In addition, we paid U.S.$143.0121.6 million in dividends.

We believe that cash flow generated by operations, cash balances, borrowings from commercial banks and debt offerings in the domestic and international capital markets will be sufficient to meet our working capital, debt service and capital expenditure requirements for the foreseeable future. See “Item 4—4.—Information on our Company—Capital Expenditures.”

Contractual Obligations

As is customary practice in the pulp industry, we generally do not havelong-term sales contracts with our customers; rather, we maintain relationships with our customers, with whom we reach agreements from time to time on specific volumes and prices.

The following table sets forth certain contractual obligations as of December 31, 2016,2018, and the period in which the contractual obligations come due.

 

  Payments Due by Period   Payments Due by Period 
  Less than  1
year
   1-3 years   3-5 years   More than
5 years
   Total   Less than 1
year
   1-3 years   3-5 years   More than
5 years
   Total 
  (in thousands of U.S. dollars)   (in thousands of U.S. dollars) 

Debt obligations(1)

   656,599    1,326,133    1,097,183    2,091,941    5,171,856    504,920    957,724    932,115    2,632,108    5,026,867 

Purchase obligations(2)

   57,043    5,722    —      —      62,765    352,449    370,427        722,876 

Capital (finance) lease obligations

   40,400    50,559    23,027    —      113,986    30,916    26,296    10,975      68,187 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

   754,042    1,382,414    1,120,210    2,091,941    5,348,607    888,285    1,354,447    943,090    2,632,108    5,817,930 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

(1)

Includes estimated interest payments related to debt obligations based on market values as of December 31, 2016.2018. In the case of floating rate debt, interest rate is calculated using the current index setting in place as of December 31, 2016,2018, and assume no changes in theyear-end index for any of the future periods. The interest rate on our floating rate debt is determined principally by reference to the Londoninter-bank offered rate (LIBOR), and as of December 31, 2016,2018, the average spread for our U.S. dollar floating rate debt oversix-month LIBOR was 1.80%1.50%. Approximately 12.9%15.6% of our total debt is floating rate debt as December 31, 2016.2018.

(2)

Excludes contracts entered into with independent contractors to perform operations on our behalf. Our payment obligations under such contracts are notpre-determined, but rather depend on the performance of certain variables. Accordingly, we cannot quantify our contractual obligations under such contracts.

Investing Activities

During 2016,2018, our main investment activities were mainly aimed atinvestments in projects; sustaining our existing property, plantpanel, sawmill and equipment, as well aspulp mills, and sustaining our biological assets. OtherThe project capitalization investments included:included primarily:

 

U.S.$153.1219.0 million forinvested in the acquisition of Sonae Arauco;“MDP Grayling” project;

 

U.S.$51.2128.1 million for the new water treatment plantinvested in the Arauco Mill;“MAPA” project; and

 

U.S.$20.865.0 million forinvested in the “MDP Grayling” project.“Dissolving Pulp” project in the Valdivia mill.

Financing Activities

During 2016,2018, our principal financing activities were as follows:

On December 1, 2016, AraucoOctober 25, 2018, we issued localtwo series of bonds in Chilethe local capital markets for a total amount of U.S.$337.2 million. The amount of the issuance of the10-year Series was UF 5.03.0 million, equivalent to U.S.$201.4 million. These bonds are denominated119.0 million as of December 31, 2018, while the amount of the25-year series was UF 5.5 million, equivalent to U.S.$218.2 million as of December 31, 2018. The proceeds from the issuance were used for the financing of the MAPA project.

On September 27, 2018, we refinanced U.S.$200 million of a loan due in UF and have a10-year tenor.September 28, 2018, extending the final maturity date to September 2023.

As of December 31, 2016, our2018, the current portion of our bank debt was U.S.$195.6215 million of which 97.5%96.8% was U.S.dollar-denominated. As of December 31, 2016,2018, our totalnon-current portion of our bank debt was U.S.$718.7725.4 million of which 97.5%98.9% was U.S.dollar-denominated.

As of December 31, 2016,2018, we also had total capital markets borrowings (including the current portion of such debt) of U.S.$4.53.5 billion, 68.3%58.9% of which were U.S.dollar-denominated.

As of December 31, 2016,2018, the weighted average maturity of ournon-current debt was 5.648.96 years. The interest rate on our floating rate debt is determined principally by reference to the Londoninter-bank offered rate (LIBOR), and as of December 31, 2016,2018, the average spread for our U.S. dollar floating rate debt oversix-month LIBOR was 1.80%1.50%. As of December 31, 2016,2018, the average interest rate for our U.S. dollar fixed rate debt was 5.19%4.75%. These average rates do not reflect the effect of swap agreements.

As of December 31, 2016,2018, we guaranteed obligations of U.S.$494.5322.2 million related to Montes del Plata, U.S.$270.0287.0 million related to Arauco ArgentinaFlakeboard America and U.S.$19.015.2 million related to Arauco Forest BrasilBrazil and Mahal.

The instruments and agreements governing our bank loans and local bonds set limits on our incurrence of debt and liabilities through the use of financial covenants. The principal financial covenants contained in the bank loan agreements in effect on December 31, 20162018 are as follows:

 

Our debt to equity ratio must not exceed 1.2:1; and

 

Our interest coverage ratio must not be less than 2:1.

The principal financial covenant contained in the local bond agreements is:

 

Our debt to equity ratio must not exceed 1.2:1.

We were in compliance with all bank loan and bond covenants as of December 31, 2016.2018. Our U.S.dollar-denominated bonds do not contain financial covenants.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have anyoff-balance sheet arrangements.

TREASURY MANAGEMENT

Our corporate financial policy establishes a set of guidelines, procedures and responsibilities to minimize certain financial risks to which we are exposed and to regulate such policy with a global corporate view. This policy seeks to manage such risks in our best interests, covering all countries where we operate, and is administered by our Corporate Finance Department (based in Chile).

We manage the treasury activities of all our Chilean subsidiaries and certain foreign commercial offices on a centralized basis. Our ChileanIn the case of our Argentine, North American and Brazilian subsidiaries, borrow from or lend money to us in accordance withthe management of their daily cash requirements or surplus, maintaining their cash balance close to zero. Our policytreasury activities is not to allowindependent from our Chilean subsidiaries to invest in financial instruments and other transactions. We make decisions regardingshort-term loans,short-term investments, currency transactions and other transactions on a consolidated basis. TreasuryCorporate Finance Department, although following the same corporate policy.

The treasury activities of our Uruguayan joint operations are governed by our cash and depositsa corporate financial policy which is approved by the Boardits board of Directors. The main principles of our cash and deposits policy are as follows:

investments must be in fixed income instruments;

investments must be in instruments from the Central Bank of Chile or from reputable financial institutions; and

transactions must be carried out only with banks or bank subsidiaries.

Our Argentine, Brazilian, Uruguayan, Canadian and U.S. subsidiaries manage their treasury activities independently from us. Their activities are governed by corporate cash and deposit policies approved by our Chief Financial Officer. These policies aredirectors based on the same principles underlying our cash and deposits policy. In addition, the Uruguayan joint operations are supervised by a financial committee integrated by members of both shareholders’ finance departments.

The treasury activities of Sonae Arauco, our joint venture with Sonae, are governed by a corporate financial policy approved by its board of directors, based on the same principles underlying our cash and subject to compliance with local regulations, including foreign exchange controls.deposits policy. In addition, they are supervised by a financial committee integrated by members of both shareholders.

HEDGING

We periodically review our exposure to risks arising from fluctuations in foreign exchange rates and interest rates and decide, on acase-by-case basis, at our senior management level whether to hedge such risks. Our Derivatives Policy establishes the minimum requisites our counterparties must meet, as well as proper procedures. As a result, from time to time we enter into currency and interest rate swaps with respect to a portion of our borrowings. See Note 23 to our audited consolidated financial statements. Arauco applies hedge accounting for financial instruments whose purpose is to hedge against foreign currency fluctuations.

Cross Currency Swap Agreements

We have outstanding the following cross currency swap agreements in Chile to hedge our local bonds issued in UF:

 

Bank

  U.F.  Notional
Amount
   U.S.$ Notional
Amount
   Hedging Start
Date
   Maturity   UF Notional
Amount
   U.S.$ Notional
Amount
   Hedging Start
Date
   Maturity 

Deutsche—U.K.

   1,000,000    43,618,307    30-10-2011    30-10-2021    1,000,000    43,618,307    10-30-2011    10-30-2021 

JP Morgan—N.A.

   1,000,000    43,618,307    30-10-2011    30-10-2021    1,000,000    43,618,307    10-30-2011    10-30-2021 

Deutsche—U.K.

   1,000,000    37,977,065    30-04-2014    30-04-2019    1,000,000    37,977,065    04-30-2014    04-30-2019 

BBVA—Chile

   1,000,000    38,426,435    30-10-2014    30-04-2023 

BBVA—Chile

   1,000,000    38,378,440    30-10-2014    30-04-2023 

Scotiabank—Chile

Scotiabank—Chile

   

1,000,000

1,000,000

 

 

   

38,426,435

38,378,440

 

 

   

10-30-2014

10-30-2014

 

 

   

04-30-2023

04-30-2023

 

 

Santander—Chile

   1,000,000    37,977,065    30-10-2014    30-04-2023    1,000,000    37,977,065    10-30-2014    04-30-2023 

BCI—Chile

   1,000,000    37,621,562    30-10-2014    30-04-2023    1,000,000    37,621,562    10-30-2014    04-30-2023 

Corpbanca—Chile

   1,000,000    42,864,859    01-09-2010    01-09-2020    1,000,000    42,864,859    09-01-2010    09-01-2020 

BBVA—Chile

   1,000,000    42,864,859    01-09-2010    01-09-2020 

Scotiabank—Chile

   1,000,000    42,864,859    09-01-2010    09-01-2020 

Deutsche—U.K.

   1,000,000    42,864,859    01-09-2010    01-09-2020    1,000,000    42,864,859    09-01-2010    09-01-2020 

Santander—Spain

   1,000,000    42,873,112    01-09-2010    01-09-2020    1,000,000    42,873,112    09-01-2010    09-01-2020 

BBVA—Chile

   1,000,000    42,864,257    01-09-2010    01-09-2020 

Scotiabank—Chile

   1,000,000    42,864,257    09-01-2010    09-01-2020 

Corpbanca—Chile

   1,000,000    46,474,122    15-05-2012    15-11-2021    1,000,000    46,474,122    05-15-2012    11-15-2021 

JP Morgan—N.A.

   1,000,000    47,163,640    15-11-2012    15-11-2021    1,000,000    47,163,640    11-15-2012    11-15-2021 

BBVA—Chile

   1,000,000    42,412,852    15-11-2013    15-11-2023 

Scotiabank—Chile

   1,000,000    42,412,852    11-15-2013    11-15-2023 

Santander—Chile

   1,000,000    41,752,718    15-11-2013    15-11-2023    1,000,000    41,752,718    11-15-2013    11-15-2023 

Deutsche—U.K.

   1,000,000    41,752,718    15-11-2013    15-11-2023    1,000,000    41,752,718    11-15-2013    11-15-2023 

Santander—Chile

   3,000,000    128,611,183    01-10-2014    01-04-2024    3,000,000    128,611,183    10-01-2014    04-01-2024 

JP Morgan – U.K.

   1,000,000    43,185,224    01-10-2014    01-04-2024 

JP Morgan—U.K.

   1,000,000    43,185,224    10-01-2014    04-01-2024 

Corpbanca—Chile

   1,000,000    43,277,070    01-10-2014    01-04-2024    1,000,000    43,277,070    10-01-2014    04-01-2024 

BCI—Chile

   1,000,000    43,185,224    01-10-2014    01-04-2021    625,000    26,990,765    10-01-2014    04-01-2021 

BCI—Chile

   1,000,000    43,196,695    01-10-2014    01-04-2021    625,000    26,997,935    10-01-2014    04-01-2021 

Santander—Chile

   5,000,000    201,340,031    15-11-2016    15-11-2026    5,000,000    201,340,031    11-15-2016    11-15-2026 

Banco de Chile—Chile

   954,545    36,250,835    04-30-2019    10-30-2029 

Goldman Sachs—N.A.

   1,000,000    40,521,750    10-10-2018    10-10-2028 

Goldman Sachs—N.A.

   1,000,000    40,066,555    10-10-2018    10-10-2028 

Scotiabank—Chile

   1,000,000    40,537,926    10-10-2018    10-10-2028 

Santander—Chile

   3,000,000    118,400,504    10-10-2018    10-10-2038 

Santander—Chile

   2,500,000    97,971,786    10-10-2018    10-10-2038 

TOTAL

   29,000,000    1,214,300,605        37,704,545    1,555,656,742     

Thesecross-currency swap agreements allow us to address uncertaintieshedge our currencies exposures regarding exchange rates. Through these agreements, we receive cash flows in UF, which allow us to comply with the terms of our outstanding bonds and pay fixed amounts in U.S. dollars, the currency in which a significant amount of our assets and sales are denominated.

The aggregate fair value of ourcross-currency swap agreements as of December 31, 2016,2018, represented a liability of U.S.$80.351.2 million as compared to December 31, 2015,2017, when they represented a liabilityan asset of U.S.$205.647.5 million.

Interest Rate Swap Agreements

We have outstanding the following interest rate swap agreements to hedge fluctuations in floating rates forlong-term debt in Uruguay:

 

Bank  Currency U.S.$ Notional Amount

DNB Bank ASA

  USD 59,077,20842,198,006(1)

 

 (1)

U.S.$ notional amount includes multiple contract agreements.

The fair value of this agreement as of December 31, 2016,2018, represented an asset of U.S.$650,657936,000 for Arauco. The fair value shown in the table above is 50% of total fair value, since these agreements were entered into by Montes del Plata (of which Arauco owns 50% of its shares).

Forward Agreements

As of December 31, 2016,2018, we have outstanding forward agreements in Colombia and Uruguay to hedge fluctuations in their respective local currencies, as follows:

 

Bank  Exchange Rate   U.S.$ Notional Amount  Hedging Start Date Maturity

BBVACorpbanca Colombia

   USD-COP    5,000,0001,500,000  28-10-201610-31-2018 11-01-201701-09-2019

BBVACorpbanca Colombia

   USD-COP    4,000,0001,700,000  18-11-201611-26-2018 09-02-201702-12-2019

BBVACorpbanca Colombia

   USD-COP    7,000,0001,600,000  13-12-201612-20-2018 10-03-201703-12-2019

Banco Santander Uruguay

   USD-UYU    16,600,00014,880,000(1)  —   

HSBC Uruguay

USD-UYU11,610,000(1)—  —   

Citibank U.K.

   USD-UYU    3,200,0004,425,000(1)  —   —  

HSBC Uruguay

USD-UYU10,750,000(1)   —   

 

 (1)

U.S.$ notional amount includes multiple contract agreements.

The fair value of these agreements as of December 31, 2016,2018, represented an asset of U.S.$2.8 million613,000 for Arauco, which includes the Colombian forward agreements and the 50% of total fair value since theseof the forward agreements were entered into by Montes del Plata (of which Arauco owns 50% of its shares).

Commodity Swap Agreements

We have also analyzed our exposure to risks associated with fluctuations in the prices of commodities, including fuel oil. As of December 31, 2016,2018, we had outstanding the following commodity swap agreements to hedge fluctuations in the prices of fuel oil in Uruguay:

 

Bank  Exchange Rate   U.S.$ Notional Amount

JPMorgan Chase Bank, N.A.

   Fuel Oil No. 6   5,507,5776,189,275(1)

DNB Bank ASA

   Fuel Oil No. 6   2,660,9324,836,938(1)

Citibank U.K.

   Fuel Oil No. 6   377,563401,075(1)

 

 (1)

U.S.$ notional amount includes multiple contract agreements.

The fair value of these agreements as of December 31, 2016,2018, represented an asseta liability of U.S.$1.31.4 million for Arauco. The fair value shown in the table above is 50% of total fair value, since these agreements were entered into by Montes del Plata (of which Arauco owns 50% of its shares).

RESEARCH AND DEVELOPMENT

We spent U.S.$3.110.0 million in 2014,2016, U.S.$2.69.8 million in 20152017 and U.S.$2.712.0 million in 20162018 on research and development. We conduct our principal research and development programs through our subsidiary, Bioforest, which concentrates its efforts on applying and implementing advanced technologies to the specific characteristics of our forests and mills.

In our forestry product business segment, we are continuously researching and attempting to develop different strains oflong-fiber pine and short fiber eucalyptus trees to improve their quality and to shorten their average harvest cycle. Additionally, we maintain close relations with certain international research institutes and the scientific community that participate in our industry. Bioforest has increased the growth rate of our radiata pines, eucalyptus globulus and eucalyptus nitens, adding more value to our plantations.

In the pulp and panels business segments, Bioforest has been adding value to Arauco through researching and developing new technologies in order to produce our goods in a more efficient way and improve the quality of our products, to use them in new ways and to create a better understanding and knowledge of our process.

TREND INFORMATION

During the end of 2018, pulp demand decreased due to higher inventories of paper producers who decreased their exports as a result of the trade tensions between China and the United States, which led to a decrease in pulp prices. During January and February 2019, prices remained stable. After the Chinese New Year, at the beginning of February, paper producers reduced their inventories and pulp demand started to restore.

From December 31, 20162018 through March 31, 2017, theApril 2, 2019, prices for bleached softwood increasedkraft pulp decreased by 2.2%8.2%, reaching U.S.$826.261,101.9 per tonne in NBSK index, while prices for bleached hardwood increasedkraft pulp decreased by 10.7%5.4%, to U.S.$722.11970.8 per tonne in the BEKP index. During the first quarter of 2019, pulp demand in Europe was lower, following the Asian trend seen at the end of 2018. The continued increase in ChineseAsian market showed a stable demand has helped prices rise in both fibers, with softwood sharingas it was expected. For the momentum hardwood prices have had overrest of 2019, we expect no significant capacity scheduled to enter the last few months. Hardwood markets continue tomarket.

Regarding wood products segment, we expect demand from the northern hemisphere will be optimistic as inventory levels return to more balanced levels, and unexpected mill stoppages have pulled additional pressure offstable this year, which will also depend on the supply side.

Demand for timber products has a positive outlook for the current year.trade tensions development. In the case of panels, the United States continues its positive trend asaddition, the Housing Starts index is led by the strongestsingle-family homebuilding in nearly a decade. Although we expect new supply in the MDF markets as three new panel mills are expectedUnited States market appears to start operations during the year in Mexico, the marketmaintain a healthy trend in the first quarter of 2019. Likewise, Mexico has showed stable demand levels and a positive trend is expected for 2019. In Brazil, there are favorable economic prospects and volume sales are expected to be balanced between local sales and exports. Argentina is a market that is going through a difficult economic situation, which has affected margins and it is believed that the year remained stable. For Brazil, 2017 began with improved sales volumes comparedcurrent situation is not going to improve in the previous quarters,first quarter of 2019. However, in this country, commercial strategies are already being considered for the next months.

Sales of remanufactured wood and sawn timber products, in general, are expected to remain stable even though thethere is currently an oversupply from Latin American and U.S. competitors, which may also affect prices. The market remains unstable. The Argentine markets also shows signs of improvement compared to the previous year,situation in Asia and higher interest in public worksOceania is expected to boost demand. Sonae Arauco also shows increased sales, following thebe better after trade tensions are resolved, which may result in a recovery of European markets. Prices for remanufactured products experienced improvements during the first months of 2017, although volumes have been depressed. In Chile, there is uncertainty regarding the real impact the forest fires have had on the internal wood supply, which would affect pricesdemand and volumes throughout the rest of the year. Demand from Asia and Oceania remained stable, which supported price increases. North America continues its overall stability, with the pressure of the increased supply from countries with depreciated currencies somewhat subsiding.stabilize prices.

For more information regarding trends in our business, see “Item 5. Operating and Financial Review and Prospects—Management’s Discussion and Analysis of Financial Condition, Results of Operations and Cash Flows s—Overview” and “—Exchange Rate Fluctuations.” For risks affecting our business, see “Item 3. Key Information—Risk Factors.”

Item 6. Directors, Senior Management and Employees

DIRECTORS AND EXECUTIVE OFFICERS

Directors

A Board of Directors manages our business. Ourestatutos(by-laws) require that the Board of Directors consist of nine directors. Our directors cannot also be our executives. The entire board is elected every three years and can bere-elected for any number of periods. The current board was elected in April 2017, and their terms will be renewed in April 2020. The board may appoint replacements to fill any vacancies that occur during periods between elections; however, at the annual shareholders’ meeting following any such replacement, an election of the entire board must take place. Scheduled meetings of the Board of Directors are generally held once a month. Extraordinary board meetings are called when summoned by the Chairman or when requested by at least two directors. We have not entered into any contracts with our current directors to provide any benefits upon the termination of their relationship with us. We do not have a compensation committee.

Our current directors are listed below.

 

Name

  

Years as Director

  

Position

  

Age

  

Years as Director

  

Position

  

Age

Manuel Bezanilla

  30  Chairman  72  32  Chairman  74

Roberto Angelini

  30  FirstVice-Chairman  68  32  FirstVice-Chairman  70

Jorge Andueza

  23  SecondVice-Chairman  68  25  SecondVice-Chairman  70

Alberto Etchegaray

  23  Director  71  25  Director  73

Eduardo Navarro

  9  Director  51  11  Director  53

Timothy C. Purcell

  12  Director  57  14  Director  59

Franco Mellafe

  2  Director  41  4  Director  43

Juan Ignacio Langlois

  1  Director  49  3  Director  51

Jorge Bunster(1)

  16  Director  64  18  Director  66

 

(1)

Jorge Bunster was Director from1996-2010. He rejoined the Board of Directors in April 2017.

Included below are brief biographical descriptions of each of our directors.

Manuel Bezanilla became a Director on April 30, 1986 and became Chairman of the Board of Directors on April 23, 2013. He served as SecondVice-Chairman of the Board of Directors from May 4, 2007 to April 23, 2013. He is also a partner of the law firm Portaluppi, Guzmán y Bezanilla. He serves as Chairman of the board of Forestal Arauco and serves as a member of the boards of directors of Empresas Copec, COPEC, PesqueraIquique-Guanaye S.A., AntarChile and Inversiones Siemel S.A. Mr. Bezanilla holds a law degree from the Catholic University of Chile.

Roberto Angelinibecame a Director on April 30, 1986 and became FirstVice-Chairman of the Board of Directors on May 4, 2007. He served asVice-Chairman of the Board of Directors from April 18, 1991 to January 4, 2005, when he voluntarily resigned, and as SecondVice-Chairman of the Board of Directors from January 27, 2005 to May 4, 2007. He serves as Chairman of the board of directors of Empresas Copec, COPEC, AntarChile, Corpesca S.A., PesqueraIquique-Guanaye S.A., Inversiones Alxar S.A. and Servicios Corporativos Sercor S.A. He also serves as a member of the boards of directors of Forestal Arauco, Empresa Pesquera Eperva S.A., Orizon S.A., Cumbres Andinas S.A.C. and Inversiones Siemel S.A. Mr. Angelini holds a degree in civil engineering from the Catholic University of Chile.

Jorge Anduezabecame a Director on April 11, 1994 and was appointed SecondVice-Chairman of the Board of Directors on April 23, 2013. He is also the Chairman of the board of directors of Inversiones Siemel S.A. and Orizon S.A., and serves as a member of the boards of directors of COPEC, Empresas Copec, Forestal Arauco, Empresa Pesquera Eperva S.A., Corpesca S.A., PesqueraIquique-Guanaye S.A., Organización Terpel S.A. and Servicios Corporativos Sercor S.A. Mr. Andueza holds a degree in electronic civil engineering from Federico Santa María Technical University.

Alberto Etchegaraybecame a Director on April 11, 1994 and served as Chairman of the Board of Directors from January 4, 2005 to May 4, 2007, when he voluntarily resigned. He is also a partner of Domet Ltda., the Chairman of the board of directors of Inversiones La Construcción S.A. and Red Salud S.A., and the Vice Chairman of the Board of Directors of Salfacorp S.A., and serves as a member of the board of directors of Compañía de Seguros Confuturo S.A. and Compañía de Seguros Corpseguros S.A. He served as the Chilean Minister of Housing for four years. Mr. Etchegaray holds a degree in civil engineering from the Catholic University of Chile.

Eduardo Navarrobecame a Director on September 25, 2007. He is also the Chief Executive Officer of Empresas Copec S.A., the Chief Executive Officer of PesqueraIquique-Guanaye S.A., and serves as chairman of the board of Abastible S.A. and Duragas S.A. and a member of the board of directors of COPEC, Solgas S.A., Duragas S.A., Corpesca S.A., Orizon S.A., Inversiones Alxar S.A., Inversiones Laguna Blanca S.A., Cumbres Andinas S.A.C. and Inversiones del Nordeste. Mr. Navarro holds degrees in commercial engineering and economics, and a master’s degree in economics, all from the Catholic University of Chile.

Timothy C. Purcellbecame a directorDirector on April 26, 2005. He is also Managing Partner of Linzor Capital Partners, LP. Mr. Purcell currently serves as a member of the boardBoard of directorsDirectors of Komax, S.A., Engenium Capital S.A. de C.V., Tip de México, S.A. de C.V., and Corporación Santo Tomás. He is also a directorChairman of the board of directors of Enseña Chile, a Trustee of International House in New York and a Trusteemember of the Chilean chapterboard of The Nature Conservancy.directors of Colegios Cree in Chile. Mr. Purcell received an undergraduate degree with distinction in Economicseconomics from Cornell University, as well as a Master’s Degreemaster’s degree in International Studiesinternational studies from the University of Pennsylvania and a master’s degree in business (MBA) from Wharton Business School.

Franco Mellafebecame a director on April 21, 2015. He has also served as member of the board of directors of Forestal Arauco and Inversiones Angelini y Compañía Limitada since July 2013. Mr. Mellafe holds a Master’s Degree in Business Administration from Babson College and an undergraduate degree in Business Administration from Gabriela Mistral University. Before joining our Board of Directors, Mr. Mellafe worked for twelve years in different positions in Arauco.

Juan Ignacio Langlois became a director on April 26, 2016. He is also Partner of Tyndall Group. Mr. Langlois currently serves as a member of the board of directors of Metrogas S.A. and theInstituto Chileno de Administración Racional de Empresas (ICARE). He also serves as alternative director of Minera Las Cenizas S.A. Mr. Langlois received a law degree with maximum distinction from the Universidad de Chile School of law as well as a master’s degree in business administration (MBA) from theKenan-Flagler Business School, University of North Carolina at Chapel Hill.

Jorge Bunsterserved as a member of the Board of Directors of the Company between April 1994 and March 2010, when he voluntarily resigned to assume the position of Vice Minister of Foreign Trade at the Ministry of Foreign Affairs of Chile, and subsequently, on April 2012, as Minister of Energy until March of 2014. Mr. Bunster serves as a member of the boards of directors of COPEC, Orizon S.A. and Empresa Pesquera Eperva S.A..S.A. Mr. Bunster holds degrees in commercial engineering and economics from the Catholic University of Chile and a master’s degree in business administration from IESE, Navarra University, Spain.

Executive Officers

Our executive officers are appointed by the Board of Directors and hold office at its discretion. Our current principal executive officers and the directors of each area or department are listed below.

 

Name

 

Years with

Arauco

  

Position

  

    Age    

  

Years with

   Arauco   

  

Position

    Age  

Matías Domeyko (1)

 28  Chief Executive Officer  55  32  

Chief Executive Officer

  57

Cristián Infante

 21  President & Chief Operating Officer  50  23  

President & Chief Operating Officer

  52

Gianfranco Truffello

 22  Chief Financial Officer  49  24  

Chief Financial Officer

  50

Robinson Tajmuch

 26  SeniorVice-President Comptroller  60  28  

SeniorVice-President Comptroller

  62

Camila Merino

 6  SeniorVice-President Human Resources & EHS  49

Iván Chamorro

  18  

SeniorVice-President Human Resources & EHS

  45

Franco Bozzalla

 27  SeniorVice-President Wood Pulp & Energy  54  29  

SeniorVice-President Wood Pulp & Energy

  56

Charles Kimber

 31  Senior Vice-President Commercial & Corporate Affairs  55  33  

Senior Vice-President Commercial & Corporate Affairs

  57

Antonio Luque

 25  SeniorVice-President Timber & Panels  60  26  

SeniorVice-President Wood Products

  62

Alvaro Saavedra

 25  SeniorVice-President Forestry  61

Camila Merino

  8  

SeniorVice-President Forestry

  51

Gonzalo Zegers

 9  SeniorVice-President International & Business Development  56  11  

SeniorVice-President International & Business Development

  58

Felipe Guzmán

 8  General Counsel  47  11  

General Counsel

  49

Pablo Franzini

  14  

Senior Vice-President International

  44

 

(1)

Matías Domeyko worked at Arauco from 1987 to 1994. He rejoined Arauco in 1997.

Included below are brief biographical descriptions of each of our executive officers and the directors of each area or department.

Matías Domeykois the Chief Executive Officer of Arauco. Mr. Domeyko worked at Arauco from 1987 to 1994, and then rejoined in 1997 as our Chief Financial Officer. In 2005, Mr. Domeyko assumed the position of Chief Executive Officer of Arauco. He previously served as the Director of Development of Copec. Mr. Domeyko holds a degree in commercial engineering from the University of Chile.

Cristián Infanteis the President & Chief Operating Officer of Arauco, a position that was created by Arauco in July 2011. He joined Arauco in 1996 as a wood pulp sales representative, and in 1998 was appointed sales manager for industrial lumber and remanufactured products of Forestal Arauco. He then moved to Centromaderas S.A., where he worked until 2001. Mr. Infante later served as the Corporate Management & Development and Atlantic Region Managing Director. Mr. Infante holds a degree in civil engineering from the Catholic University of Chile.

Gianfranco Truffellois the Chief Financial Officer of Arauco. He joined Arauco in 1994 and was previously our Finance Manager. He also served as the Chief Financial Officer of Arauco Argentina S.A. Mr. Truffello holds a degree in civil engineering from the Catholic University of Chile and a master’s degree in business administration from the Massachusetts Institute of Technology.

Robinson Tajmuch is the SeniorVice-President Comptroller of Arauco. He joined Arauco in 1991 and was previously our Comptroller. Before joining Arauco, he served as Auditing Manager at Pricewaterhouse. Mr. Tajmuch holds a degree in accounting and auditing from the Santiago University of Chile.

Camila MerinoIván Chamorrois the SeniorVice-President Human Resources & EHS of Arauco. Prior to joining Arauco, Ms. Merino served as the Labor Minister of the Chilean government. She also served as Chief Executive Officer at Metro de Santiago and Corporate Vice President at SQM. Ms. MerinoHe holds a degree in civil engineering and MBA from the Catholic University of ChileChile. Mr. Chamorro joined the company in 2001, working in the commercial department and a master’s degree in business administration from the Massachusetts Institutelater, as its Manager of Technology.Public Affairs and Communications.

Franco Bozzallais the SeniorVice-President Wood Pulp & Energy of Arauco. He joined Arauco in 1990. He was formerly a sales representative of Forestal Arauco and the Panels Area Managing Director. Mr. Bozzalla holds a degree in civil engineering from the Catholic University of Chile.

Charles Kimberis the SeniorVice-President Commercial & Corporate Affairs of Arauco. He graduated from the Catholic University of Chile with a degree in Commercial Engineering and joined Arauco in 1986, where he has held several positions in sales. He was previously Managing Director of Arauco Wood Products Inc.

Antonio Luqueis the SeniorVice-President Timber & PanelsWood Products of Arauco. He joined Arauco in 1993. Before joining Arauco, he was the General Manager of Cabildo S.A. and a research engineer at Compañía Industrial. Mr. Luque holds a degree in civil engineering from the University of Chile.

Alvaro SaavedraCamila Merinois the SeniorVice-President Forestry of Arauco. He joinedPrior to joining Arauco, in 1991. Previously, he wasMs. Merino served as the DirectorLabor Minister of Development of Forestal Arauco. Hethe Chilean government. She also served as Chief Executive Officer at Metro de Santiago and Corporate Vice President at SQM. Ms. Merino holds a degree in civil engineering from the Catholic University of Chile and a master’s degree in sciencebusiness administration from the UniversityMassachusetts Institute of London.Technology.

Gonzalo Zegers is the SeniorVice-President International & Business Development of Arauco. He joined Arauco in 2008. Before joining our Company, he was the general manager of Agrofruta S.A. from 1991 to 1995, Chief Financial Officer(1995-1996) and Chief Executive Officer(1996-2005) of MASISA,Masisa, and Chief Executive Officer of ATC Panels Inc. (USA) until 2008. Mr. Zegers holds a degree in commercial engineering from the Santiago University of Chile.

Felipe Guzmán is the General Counsel of Arauco. He joined Arauco in December 2008. Before joining our Company, he worked at the law firm Portaluppi, Guzmán & Bezanilla(1996-2008), and he spent a year as an International Associate at Simpson, Thacher & Bartlett in New York(2000-2001). Mr. Guzmán holds a law degree from Finis Terrae University, and a Master of Law from Duke University.

Pablo Franzini is Arauco’s Senior Vice President International. He has worked in the Company since 2005, performing in the financial, logistic and commercial areas of Arauco in Argentina, and later held the position of Managing Director at Arauco Brasil. He is a Business Economics graduate from Torcuato Di Tella University, Argentina, and has an MBA from Erasmus Universiteit in Rotterdam, Netherlands.

Compensation

For 2016,2018, the aggregate compensation of all our directors and executive officers and senior managers paid or accrued in that year for services in all capacities, including salaries and compensation for their service to those executive officers who serve as directors, was U.S.$1.82.6 million. We do not maintain any pension or retirement programs or incentive compensation plans for our directors or executive officers. We also do not maintain any plans providing for benefits upon termination of employment. The following table sets out the compensation of our directors, executive officers and senior managers for their services as directors in the years provided.2018.

Name

  2016   2015 

Manuel Bezanilla

  U.S.$396,350   U.S.$173,830 

Roberto Angelini

   246,151    124,329 

Jorge Andueza

   246,151    124,329 

José Tomás Guzmán

   —      110,532 

Cristián Infante

   90,969    74,864 

Matías Domeyko

   79,425    63,336 

Jorge Garnham M.

   66,969    62,929 

José Rafael Campino

   85,874    55,196 

Name

  2016   2015 

Alberto Etchegaray

   96,002    55,196 

Eduardo Navarro

   96,002    55,196 

Timothy C. Purcell

   96,002    55,196 

Franco Mellafe

   133,523    36,345 

Alvaro Saavedra

   23,544    19,528 

Nicolás Majluf

   —      14,018 

Jorge Serón

   11,544    11,528 

Robinson Tajmuch

   11,544    11,528 

Antonio Luque

   12,000    8,000 

Gonzalo Zegers

   12,000    8,000 

Franco Bozzalla

   —      7,616 

Pablo Ruival

   25,691    3,000 

Sergio Gantuz

   25,691    3,000 

Eduardo Zañartu

   —      2,932 

Juan Ignacio Langlois

   78,298    —   
  

 

 

   

 

 

 

Total Compensation

   1,833,730    1,080,428 
  

 

 

   

 

 

 

Name

2018

Manuel Bezanilla

U.S.$569,811

Roberto Angelini

339,533

Jorge Andueza

339,533

Cristián Infante

108,990

Matías Domeyko

108,990

Jorge Garnham M.

73,703

Alberto Etchegaray

127,272

Eduardo Navarro

127,272

Timothy C. Purcell

127,272

Franco Mellafe

188,262

Alvaro Saavedra

88,152

Jorge Serón

12,714

Robinson Tajmuch

14,739

Antonio Luque

18,000

Gonzalo Zegers

24,000

Pablo Ruival

18,456

Sergio Gantuz

18,456

Camila Merino

30,714

Jorge Bunster

127,272

Pablo Mainardi

18,456

Juan Ignacio Langlois

127,272

Pablo Franzini

6,000

Total Compensation

2,614,867

Board Practices

In 2013, we created an audit committee, which was composed of two directors, Jorge Andueza and Timothy C. Purcell, as well as the Chief Executive Officer of Arauco, the Chief Operating Officer of Arauco, the SeniorVice-President Comptroller of Arauco and the General Counsel of Arauco. Our securities are not listed on any U.S. national securities exchange and, therefore, we are not subject to the rules relating to audit committees imposed by theSarbanes-Oxley Act of 2002, as amended. In the Board of Director´s Meeting of November 24, 2015, it was agreed to reinforce the role of the audit committee, giving it new powers and amplifying its members. It is now composed by three directors: Jorge Andueza, Timothy C. Purcell, and Eduardo Navarro, as well as the Chief Executive Officer of Arauco, the President and Chief Operating Officer of Arauco, the SeniorVice-President Comptroller of Arauco, and the General Counsel of Arauco. It was also agreed that it would report to the Board of Directors on a biannual basis.

We also have an ethics committee that ensures compliance with our ethics code, which defines, promotes and regulates behavior of professional and personal excellence consistent with our philosophy and values to be followed by all our staff. The members of the ethics committee are Jorge Andueza (second vice president of the Board of Directors), Matías Domeyko (CEO), Cristián Infante (President and COO) and Felipe Guzmán (General Counsel).

Employees

The following table provides a breakdown of our employees by main category of activity as of the end of each year in thethree-year period ended December 31, 2016.2018.

 

  2016   2015   2014   2018   2017   2016 

Executives

   450    446    391    448    498    450 

Professionals and Technicians

   4,192    4,621    4,257    5,059    4,453    4,192 

Workers

   9,597    9,681    8,928    11,745    10,428    9,597 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   14,239    14,748    13,576    17,252    15,379    14,239 

Under Chilean and Brazilian labor legislation, we are secondarily liable for the payment of labor and the social security obligations owed to employees of our contractors. In Chile, in the event that we do not exercise the rights granted to us by the labor laws regarding the supervision of our contractors in their compliance of their labor and social security obligations, then our responsibility is elevated from secondary to joint and several, thus enabling an employee of a contractor to bring a claim relating to these obligations against both the contractor and to us, as the party hiring such contractor, although the contractor would remain primarily liable for such obligations. Furthermore, as a general rule, we are also responsible for some of the health and safety conditions of the contractors’ workers, and we are obligated to supervise the compliance by our contractors with all obligations related to such conditions while such workers are performing activities for us within our corporate purpose.

In Argentina, substantially similar joint liability rules apply to a principal and its contractors. In addition, national rural labor law, Law No. 26,727, promulgated on December 28, 2011 and fully operational in March 2013 after publication of certain relevant regulations, permits contractor employees under forestry contracts to bring actions directly against the principal to whom the employees’ services are being provided, instead of requiring them to bring actions against the contractor. For work or services related to the ordinary production process of a principal, the law provides that an employment relationship exists between the principal and the employee of the contractor.

Approximately 38%53% of our employees in Chile, 49% of our employees in Argentina, 25%30% of our employees in Uruguay, almost 100%9% of our employees in Brazil and none of our employees in the United States or Canada were unionized as of December 31, 2016.2018. We negotiate collective bargaining agreements of two, three or four years’ duration with unionized employees.

We have stable employee relations in Chile, Argentina, Brazil, Uruguay, the United States and Canada. Our Chilean operations have not

In Chile we experienced any work(i) one stoppage during April 2018 (lasting nine days), (ii) three stoppages caused by employees of our third party contractors in the lastour Horcones complex during February (lasting two days), April (lasting two days) and November (lasting five years other than (i)days) of 2017; (iii) seven separate occasions of blockades during 2016, which includeincluded stoppages in the Horcones complex for four days and another for one day; athree-day stoppage at the entrance of our El Colorado Sawmill;sawmill; threeone-day stoppages in our Viñales Sawmill;sawmill during the months of April, August and November 2016; and athree-stoppagethree-day stoppage in our Constitución Mill; (ii)Mill during May 2016; (iv) four separate occasions of transportation contractors blocking the entrance of our Horcones Complexcomplex on January 13, February 17, March 24, and September 21, 2015; (iii)(v) aone-day stoppage at the Valdivia Pulp Mill inon June 12, 2014 and aneight-day stoppage inbetween August 29 and September 5, 2014, caused by employees of third party service providers, (iv)and (vi) four separate occasions of transportation contractors blocking the entrances of our Horcones complex on February 24 and 25, September 3, October 22 and 23, and November 20, 2014, (v) afour-day stoppage at the Arauco plywood mill in January 2013, caused by employees ofthird-party contractors and (vi) afour-day work stoppage in July 2012 at our Arauco plywood mill located in Arauco, during which production resumed partially after the second day; which was caused by the employees of ourthird-party forestry contractors at each of the respective facilities.2014. During 2015, the pulp union carried out three work stoppages and blockade; the first event occurred on May 25 forlasting three days,days; the second on August 3, lasting three days; and the last one on September 1, which lasted 14 days.

Our Argentine operations have not experienced any work stoppages in the last five years other than (i) athree-day stoppage at Arauco Argentina’s chemical mill in March 2011, as a result of a strike by the chemical union; (ii) a27-day stoppage at Arauco Argentina’s Zarate mill in April 2013, as a result of a strike by the construction union; (iii) atwo-day stoppage at Arauco Argentina’s chemical mill in May 2013, as a result of a strike by the Santa Fe Federation of Labor; (iv) aone-day stoppage at Arauco Argentina’s pulp mill in June 2013 and athree-day stoppage at Arauco Argentina’s pulp mill in October 2013, both as a result of a strike by the pulp union; (v) afour-day stoppage at Arauco Argentina’s pulp mill in December 2014, as a result of a strike by the pulp union; (vii)(ii) afive-day stoppage at Arauco Argentina’s mill in Misiones in January 2015, as a result of a road blockage lead by the truckers union; (viii)(iii) a6-hour stoppage in Arauco Argentina’s mill in Zarate; and a stoppage of 3three days during May 2015 and August 2015, as well as a14-day stoppage during September 2015 in Arauco Argentina’s pulp mill, Alto Paraná.Puerto Esperanza. During December 2018, we renewed the collective bargaining agreement with the chemical union that represents the employees of Petroquímica General San Martín.

Our Brazilian operations have not experienced any work stoppages in the last six years.

In September 2011, we experiencedeight years, other than a21-day work generalized truckers strike in 2018 that affected our operations. As a consequence of this event, the Company was prevented from receiving raw materials and dispatching products, and our employees could not easily access our Brazilian mills during such time, which resulted in a stoppage of construction atten days.

During 2018, our Uruguayan operations have not experienced any relevant work stoppages. Also, during 2018 and 2017, we entered into a labor agreement with unions representing the employees of our pulp mill and forestry nursery in Uruguay.

On June 4, 2016, the Montes del Plata joint operation in Uruguay. In 2012,mill’s activity was suspended for five days as a result of labor unrest involving employees of our logistics contractors, who blocked the access to the mill.

During 2014, we experienced approximately 17 days of work stoppages and in 2013, approximately 337.5 days of work stoppages during the final phase of construction at Montes del Plata. These stoppages werePlata in Uruguay and the start of operations, caused by nationalcontractors and local strikes, relatedthird parties. During 2015, there were 28 minor events amounting to various labor conflicts mostly5.5 days of work stoppages, caused by transportation and timber logistics contractors. Montes del Plata subcontractors. On June 4,is the mill was detained after employeesname of our logistics contractors blocked the access for five days.50/50 joint operation between Arauco and Stora Enso in Uruguay.

During the last fiveseven years, there have been no strikes or other material work stoppages at our U.S. and Canadian subsidiaries.

SHARE OWNERSHIP

Our FirstVice-Chairman, Roberto Angelini, owns directly and indirectly 29.7% of Inversiones Angelini y Compañía Limitada, (“or Inversiones Angelini”),Angelini, which is the principal shareholder of AntarChile. He directly owns 5.9%0.2% of AntarChile. Through his direct and indirect interests in Inversiones Angelini, AntarChile and Empresas Copec, Roberto Angelini beneficially owns 15.2%11.6% of our shares. Our Director Franco Mellafe owns indirectly a 4.9% of Inversiones Angelini. He also directly owns 0.059% of AntarChile. Through his direct and indirect interests in Inversiones Angelini, AntarChile and Empresas Copec, Franco Mellafe beneficially owns 1.96% of our shares.

None of our other directors or executive officers beneficially owns 1% or more of our shares.

Item 7. Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS

Our only outstanding voting securities are shares of common stock of a single series, without nominal (par) value. The following table sets forth certain information concerning ownership of our common stock, as of April 25, 2017,2, 2019, with respect to each shareholder known by us to own more than 5% of the outstanding shares of our common stock and all of our directors and executive officers, as a group.

 

  Number of  Shares
Owned
   Percentage
Ownership
   Number of
Shares Owned
   Percentage
Ownership
 

Empresas Copec

   113,134,814    99.98    113,134,814    99.98 

Directors and executive officers of our Company, as a group

   —      —      —      —   

Through its ownership of our Common Stock, Empresas Copec currently has voting control over us.

Empresas Copec is a Chilean public company listed on the Santiago Stock Exchange, the Valparaíso Stock Exchange and the Chilean Electronic Stock Exchange. It is a holding company, the principal interests of which are in Arauco, gasoline distribution, electricity, gas distribution, fishing and mining. Before October 1, 2003, Empresas Copec’s legal name was Compañía de Petróleos de Chile S.A. As of that date, Compañía de Petróleos de Chile S.A. transferred all its gasoline andfuel-related business assets to a new subsidiary, Compañía de Petróleos de Chile COPEC S.A., and changed its legal name to Empresas Copec S.A. As of December 31, 2015,2018, AntarChile owned 60.8% of Empresas Copec.

Through its ownership in Empresas Copec, AntarChile beneficially owned 60.8% of our shares as of December 31, 2016.2018. As of April 25, 2017,2, 2019, AntarChile beneficially owned 60.8% of our shares. Inversiones Angelini in turn owns 63.4% of AntarChile’s shares, and certain other related investors own an additional 10.52%10.9% of AntarChile. Inversiones Angelini and such other investors are defined herein as the “Angelini Group.”

The principal equity owners of interest in Inversiones Angelini are Mrs. María Noseda Zambra with 10.9%, Mr. Roberto Angelini Rossi directly and indirectly with 29.7%, and Mrs. Patricia Angelini Rossi directly and indirectly with 24.3%. Mrs. María Noseda Zambra passed away on April 15, 2018.

As of December 31, 20162018, and April 25, 2017,2, 2019, the Angelini Group controlled Arauco through the ownership structure described above.

RELATED PARTY TRANSACTIONS

We engage in a variety of transactions in the ordinary course of business with related parties. Related parties include, among others, directors, officers and affiliates of our Company. The norms for transactions with related parties by and among public corporations and their subsidiaries are mainly regulated by Title XVI of the Chilean Companies Act, or Title XVI, which was included by Law No. 20,382 published in the Official Gazette on October 20, 2009, and articles 44 and 89 of the Chilean Companies Act. Title XVI requires that our transactions with related parties contribute to our Company’s interest and be on a market basis or on terms similar to those prevailing in the market. In addition, Title XVI provides that related party transactions must be approved by an informed majority of the disinterested members of the Board of Directors. If a majority of the disinterested directors abstains from voting on a particular transaction, the transaction must be approved by a unanimous vote of thenon-abstaining disinterested directors or bytwo-thirds of the shares with voting rights. Resolutions approving any such transactions must be reported to our shareholders at the next annual shareholders’ meeting.

Notwithstanding the above, in accordance with Article 147 of the Chilean Companies Act, our Board has resolved that the following transactions with related parties do not need to follow the procedure set forth in the previous paragraph: (i) transactions which do not involve material amounts; (ii) transactions with affiliates in which we control 95% or more of the equity; and (iii) transactions that are considered by our Board to be performed in the ordinary course of our business in accordance with our general policy of customary dealings, which was approved by our Board on December 29, 2009March 27, 2018 and is available to shareholders at our main office and is published on our website, at www.arauco.cl.www.arauco.cl or www.arauco.com.

Article 146 of the Chilean Companies Act defines related party transactions as negotiations, acts, contracts or transactions between a corporation and any other person or entity that involve the following:

 

directors or officers of the corporation (or their respective spouses and certain other relatives) acting on their own or on behalf of persons different from the corporation;

 

directors or officers of the corporation (or their respective spouses and certain other relatives) who have a direct or indirect ownership interest of at least 10% of the equity shares of the other company or are also directors or officers of such other company;

 

persons who have been in the last 18 months previous to the transaction, directors or officers of the corporation; and

 

“related persons” of the corporation, as defined in article 100 of the Chilean Securities Markets Law.

Article 100 of the Chilean Securities Markets Law establishes that the following are “related persons” to a company: (i) the entities of thegrupo empresarial (corporate group) to which such company belongs; (ii) the entities that are either parent company, subsidiary, owners of at least 10% of the equity of a company or other companies in which the company owns at least 10%; (iii) directors or officers of the company (or their respective spouses and certain other relatives); (iv) any person who, individually or with other persons under a voting agreement can designate at least one member of the management of the company or control at least 10% of the capital of such company; and (v) any other person who is indicated as such by the ChileanSuperintendencia de Valores y Seguros, which has been replaced by the Commission for the Financial Market since January 2018, in accordance with certain parameters established by theabove-mentioned Article 100.

Our transactions with affiliates include the following:

 

We purchase goods and services that may also be provided by other suppliers. Among the most significant are our fuel purchases from COPEC, a subsidiary of Empresas Copec, our majority shareholder; and

 

We purchase port services from our 20.2% affiliates Puertos y Logística S.A. (formerly Puerto de Lirquén S.A.) and Puerto Lirquén S.A. (formerly Portuaria Sur de Chile S.A.), and our 50% affiliate Compañía Puerto de Coronel S.A.; On April 5, 2019, we sold such equity interest to DP;

 

We purchase from EKA Chile, a chlorate sodium supplier, which is 50% controlled by Arauco, and we provide EKA Chile with electricity; and

 

We obtain legal services from Portaluppi, Guzmán y Bezanilla, a law firm of which one of our directors, Manuel Bezanilla, is a partner. In addition, José Tomás Guzmán, a former director who resigned in December 2015, is also a partner of such firm.

Financial information concerning transactions with affiliates is included in Note 13 to our audited consolidated financial statements.

Item 8. Financial Information

See “Item 18—18.—Financial Statements.”

EXPORT SALES

Export sales constituted 62.8%67.8% of our revenuerevenues for the year ended December 31, 2016.2018. Our total export revenuerevenues for 2016 was2018 were U.S.$2,991.34,040.2 million. Our principal overseas markets are Asia, North America and Western Europe. See “Item 4. Information on our Company—Description of Business—Domestic and Export Sales.”

LEGAL PROCEEDINGS

From time to time, we have been subject to environmental proceedings related to allegations by the Chilean environmental regulators and private parties. We are also subject to certain other legal proceedings arising from the ordinary course of our business. For more information regarding the environmental proceedings and other legal proceedings arising from the ordinary course of business, see Note 18 to our audited consolidated financial statements.

While Chilean law in general provides that only individuals can be convicted in criminal actions, Chilean Law No. 20,393, which was published in the Official Gazette on December 2, 2009, provides an exceptionthere are several regulations that provide exceptions to this general rule, under which criminal responsibility of legal entities can be established for criminal offenses related to, among others, the financing of terrorism, asset laundering, receiving or bribery. We do not have knowledge of any fact that could result in our criminal responsibility under such law.regulations.

Valdivia Mill

Our operations at the Valdivia Mill have been subject to continued environmental scrutiny by Chilean environmental regulators and the Chilean public since the mill began its operations in 2004. There were allegations of a causal connection between the migration and death ofblack-neck swans and the operations at the Valdivia mill, and in a study dated April 18, 2005, researchers at the Austral University in Valdivia concluded that wastewater discharges from the Valdivia Mill had significantly altered the quality of the Cruces River. The studyWe are also concluded that the effluent discharges were a significant contributing factor in the death or migration of a large population of theblack-necked swans in the Carlos Anwandter Nature Sanctuary downstream from the Valdivia Mill. In April 2005, the National Defense Council instituted a civil lawsuit seeking reparations, damages and indemnification from us for environmental harm allegedly caused by the discharges from the Valdivia Mill. In response, we argued to the court that this action should be rejected, as several studies have demonstrated that there is no relationship between the alleged damages and the operation of the Valdivia Mill. The National Defense Council did not quantify the damages it was seeking in connection with the Valdivia Mill lawsuit. On July 27, 2013, a civil court of Valdivia ruled that the alleged environmental events were mainly caused by the Valdivia Mill. We decided not to appeal this ruling, in order to create the conditions to shortly begin an effective implementation of measures in favor of that Nature Sanctuary, without the delay of further legal deadlines. In April 2014, we agreed with and paid the National Defense Council an indemnification amount of approximately U.S.$5,000,000. This is in addition to another amount of U.S.$5,000,000, which was designated for social programs for the benefit of the community of Valdivia.

There are four additional measures ordered by the ruling that were discussed by the members of the Social Council, which includes representatives from Arauco, the National Defense Council, academic institutions, NGOs and public authorities. These measures are: (i) conducting a study, within one year, undertaken by an interdisciplinary committee of experts, about the current status of the wetland; (ii) creating an artificial sentinel wetland for representative species, upriver from the discharge of effluents; (iii) implementation of a monitoring program of environmental impact, within afive-year period; and (iv) creating a new research center focused on wetlands (Centro de Investigación de Humedales).

In June 2005, we suspended operations at the Valdivia Mill until certain technical and legal conditions could be clarified with the applicable regulatory authorities. The mill resumed operations in August 2005, after 64 days of suspended operations, at 80% of its authorized production capacity. The mill gradually increased its production over afour-month period starting in March 2008 and reached full capacity in June 2008. The suspension of operations at the Valdivia Mill in 2005 adversely affected our business, financial condition, results of operations and cash flows. Any future suspension of operations at the Valdivia Mill or at any other of our significant operating plants can be expected to have similar adverse effects. We offer no assurance that the Valdivia Mill, or our other mills, will be able to operate without further interruption. See “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Forestry Industry—Environmental concerns led to the temporary suspension of our operations at the Valdivia Mill in 2005, which adversely affected, and in the future may continue to adversely affect, our business, financial condition, results of operations and cash flows”.

In June 2007, we were required to submit to the COREMA of the Tenth Region of Chile an environmental impact study for the implementation of substantial technological improvements on the quality of the effluents generated by the Valdivia Mill. On June 30, 2008, the COREMA approved that environmental impact study. However, the approval was subject to certain conditions that, in our opinion, adversely affected the feasibilityadministrative proceedings as a result of the project. For such reason, we filed arecurso de reclamación (appeal) before the Boarddeath of Directors ofComisión Nacional del Medio Ambiente (National Environmental Commission, or CONAMA) , challenging the conditions imposed by the COREMA. Our administrative appeal was partially accepted by the CONAMA, which upheld some of the conditions that we believed would adversely affect the feasibility of the project. Consequently, on September 17, 2009, we presented another appeal before the relevant courts. On December 5, 2012, the Environmental Evaluation Service of the Tenth Region of Chile authorized certain changes to the project based on the implementation of certain technological improvements. On November 9, 2012, we withdrew our appeal. The court approved the withdrawal on November 29, 2012.

In February 2009, as previously required by the environmental authority, we submitted to the COREMA of the Fourteenth Region of Chile an environmental impact study for the construction of a pipeline to discharge the Valdivia Mill’s wastewaterfish in the Pacific Ocean near Punta Maiquillahue, complying with the requirement that such wastewater be discharged in a body of water other than the Cruces River in January 2014, and a pipe leakage in the Carlos Anwandter Nature Sanctuary or their respective sources. InArauco Mill in February 2010, the environmental authority approved this environmental impact study subject to additional conditions, certain2016, both of which we challenged before the Board of Directors primarily because they would have prohibited the discharge of wastewater into the Cruces Riverare currently under any circumstance, including emergencies. On October 23, 2012, the Committee of Ministers passed Exempt Resolution No. 1052, which upheld in part our appeal in permitting the discharge into the Cruces River upon the occurrence of certain contingencies that may affect the normal functioning of the conduction system and/or outfall, including bombings or sabotage, natural disasters, or accidents caused by third parties. On March 29, 2010, two Chilean individuals filed arecurso de participación ciudadana (reclamation action) before the environmental authority, challenging Exempt Resolution No. 27/2010. On April 30, 2013, the Committee of Ministers passed Exempt Resolution No. 391, which upheld in part such reclamation action, modifying paragraph 4.8.3 and updating tables 8, 9.a and 9.b, all of the Exempt Resolution No. 27/2010 (thereby establishing effluent discharge limits for 13 parameters, including total chromium, total hydrocarbons, sulfur, oil and grease, suspended solids and phosphorus).

As stated in the environmental impact study, the construction of this pipeline will commence once (i) the COREMA (or the relevant environmental authority under the Chilean Environmental Law) approves the environmental impact study in its final form, and (ii) all necessary permits for the construction of the pipeline have been issuedinvestigation by the competent authorities. In addition, in 2016 the environmental impact study, we estimated that the constructionSuperintendence of the pipeline will take 24 months. OnceEnvironment initiated administrative proceedings against the constructionValdivia, Nueva Aldea, Licancel and Constitución mills. In 2017, the Superintendence of the pipeline has been completed, we will conduct a6-month trial phaseEnvironment initiated an administrative proceeding against the Arauco Mill. The first part of the pipeline and will then begin normal operations.

The construction and operation of the pipeline remain subject to many environmental, regulatory, engineering and political uncertainties. As a result, we cannot provide any assurances that the project will be finally completed. If the installation of the pipeline is delayed for reasons attributable to us, we may face sanctions that include warnings, fines or the revocation of the Valdivia Mill’s environmental permit for operation. Alternatively, if any delays are attributable to reasons beyond our control, we believe that the environmental authorities should extend the applicable deadlines. However, we can provide no assurances that any deadline extensions would be granted, even if we comply with all the requirements that may be set forth by those authorities. See “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Forestry Industry— Environmental concerns led to the temporary suspension of our operations atproceeding against the Valdivia Mill concluded in 2005,2017. On December 15, 2017, the Superintendence of the Environment decided that the Valdivia Mill was liable for ten out of eleven charges and imposed a fine of 7,777 UTA (approximately U.S.$6.5 million as of December, 2018). We appealed this decision on April 5, 2018 before the Third Environmental Court. A final decision by the Third Environmental Court is expected to be rendered during 2019 and may be further appealed before the Supreme Court. In 2016, the Nueva Aldea and Constitución mills decided to submit compliance programs according to applicable regulations, both of which adversely affected,were approved by the Superintendence of the Environment. These programs require the mills to implement actions and/or make certain investments in connection with the charges made by the Superintendence. In December 2018, the Nueva Aldea mill’s compliance program was officially terminated (“declaración de ejecución satisfactoria”) by the Superintendence of the Environment. With regard to the Constitución mill’s compliance program, once the activities are completed, the proceedings will end. We expect that such proceedings will end in 2019. With regard to the Licancel Mill, the Company filed its defense in June 2016. In February 2017, the Superintendence of the Environment found the Licancel Mill liable for three out of four charges and imposed a fine of 239 UTA (approximately U.S.$205,000). This decision was appealed before the above Superintendence, which on August 7, 2017, materially reduced the fine. Arauco paid the fine and this case was closed. Finally, with regard to the proceeding against Arauco Mill, the Company filed its defense in September 2017 and, in May 2018, the future may continue to adversely affect, our business, financial condition, resultsSuperintendence of operationsthe Environment found the Arauco mill liable for two charges and cash flows.”imposed a fine of 699,6 UTA (approximately U.S.$635,000). Arauco paid the fine with a 25% reduction (using a benefit established by Chilean law) and “Item 4. Information on our Company—Description of Business—Pulp—Pulp mills—Chile—Valdivia Mill.”this case has been closed.

Tax Litigation in Argentina

On December 14, 2007, theAdministración Federal de Ingresos Públicos (Federal Administration of Publicublic Revenues, or AFIP), Argentina’s internal revenue service, notified our Argentine subsidiary, Alto Paraná S.A., which effective January 1, 2015, changed its name to Arauco Argentina S.A., or Arauco Argentina, of a claim for alleged unpaid taxes for fiscal years 2002, 2003 and 2004 in the aggregate amount of AR$418 million (or approximately U.S.$10522 million at thethen-currentDecember 31, 2017 exchange rate) including principal, interest and penalties accrued through such date, arising from a dispute regarding certain income tax deductions (related to debt issued by Arauco Argentina in 2001 and repaid in 2007) taken by Arauco Argentina and challenged by the AFIP. On February 8, 2010, theTribunal Fiscal de la Nación (Argentina’s Tax Court), issued an administrative ruling requiring that Arauco Argentina pay the AFIP’s claim in full.

Arauco Argentina appealed this administrative ruling to the Court of Appeals, in addition to filing an injunctive action requesting that the court stay Arauco Argentina’s payment obligation until resolution of its pending appeal. On May 13, 2010, the Court of Appeals granted an injunction of Arauco Argentina’s payment obligation in exchange for the posting of a surety bond in the amount of AR$633.6 million (or approximately U.S.$12934 million at thethen-currentDecember 31, 2017 exchange rate). On December 28, 2012, the Court of Appeals dismissed Arauco Argentina’s appeal. Arauco Argentina appealed this decision before the Argentine Supreme Court of Justice, or the Argentine Supreme Court. The appeal was under consideration by the Argentine Supreme Court since May 29, 2013. As of the date of this annual report, the injunction granted by the Court of Appeals is still in force.

On July 22, 2016, Argentine Law N° 27,260 was promulgated, which established a regime for the exceptional regularization of tax, social security and customs obligations that were at that time subject to judicial proceedings (the “Regularization Regime”).

In September 2016, and considering the significant advantages offered by the Regularization Regime, Arauco Argentina accepted participating in the regime in relation to theabove-mentioned claim by AFIP. Entering the Regularization Regime meant for Arauco Argentina the exemption of the applicable fines as well as the release of a portion of accrued interests. As a result, the disbursement amounted to AR$ 248.5 million (approximately(or approximately U.S.$16.6 million)13 million at December 31, 2017 exchange rate). Additionally, Arauco Argentina must carry out the payment of the costs and expenses to be determined by the courts, determination which is still pending at the time of this annual report. The decision to enter into the Regularization Regime required an unconditional release byof Arauco Argentina in relation to the regularized obligations, as well as the release and waverwaiver of any action derived for it in the above proceedings. On November 1, 2016, the Supreme Court accepted Arauco Argentina’s release and ordered the return of the file to the competent court. On April 18, 2017, Chamber I of the National Court of Appeals declared that the Company had abandoned its actions and rights, including its repetition rights, thus condoning the fine and the corresponding interests. Additionally, the Court of Appeals deferred the court fee determination until payment of the state attorneys has been decided by the lower court, ordering as well, the reimbursement of the contingency insurance posted. The bond has been released and returned to the insurance company. The fees of the state’s lawyers have been determined by the lower Court and the Court of Appeals and the Company is paying fees in installments, as permitted by the “Regularization Regime”.

Tax Litigation in Chile

On August 25, 2005, the Chilean IRS issued tax calculations No. 184 and No. 185 of 2005 objecting to certain capital reduction transactions effected by Arauco on April 16, 2001 and October 31, 2001, and furthermore, requesting reimbursement for amounts returned to us in respect of certain claimed tax losses. On November 7, 2005, we requested aRevisióRevisión de la ActuacióActuación Fiscalizadora (Review of the Supervision Action, or RAF), which is an administrative review of the tax action brought by the Chilean IRS, and subsequently, a claim was filed against theabove-mentioned tax calculations No. 184 and No. 185 of 2005. The RAF was resolved on January 9, 2009 by the Chilean IRS, which resolution, however, only partially sustained our request. In response, we filed an additional complaint with regard to the portion of the RAF that was not granted administrative review. On September 20, 2017, the Chilean Tax and Custom Court resolved to confirm the Chilean IRS tax calculations No. 184 and No. 185. On October 12, 2017, Arauco appealed this decision before the Santiago Court of Appeals. On June 29, 2018, the Santiago Court of Appeals confirmed the first instance ruling. On July 19, 2018, Arauco filed a “recurso de casación en el fondo y en la forma” (nullity recourse) before the Supreme Court. As of the date of this annual report, the investigation in respect of this complaintaforementioned nullity recourse is pending.still under review.

Our Company believes that its position in respect of this complaint is supported by solid legal arguments and that there is a reasonable likelihood that this matter will result in a favorable outcome for us. However, if this result does not occur, it is possible that an obligation will arise for the amount specified, which was Ch$3,362,265,453 (equivalent to U.S.$5,022 thousand)5.02 million), plus any accrued interest as of the payment date.

Tax Litigation in Brazil

On November 8, 2012, Brazilian Tax Authorities issued an Infraction Notice against one of our Brazilian subsidiaries, Arauco do Brasil S.A., for alleged unpaid taxes purportedly due by such company for the years 2006 to 2010 in the aggregate amount of R$172 million (approximately U.S.$85 million). In particular, the Tax Authorities (i) objected to the deductibility of certain payments made and expenses incurred (including premium amortization, interest and legal expenses) by Arauco do Brasil between 2005 and 2010 and (ii) alleged that Arauco do Brasil made certain underpayments in respect of the Brazilian Corporate Income Tax and the Brazilian Social Contribution on Net Profits during 2010. Currently, the aggregate amount of the claims asserted in the Infraction Notice, plus interest, correspond to R$185 million (approximately U.S.$79 million).

On December 11, 2012, Arauco do Brasil filed an objection to cancel the Infraction Notice before the Judgment Office of the Brazilian Revenue Service, first administrative level.

On July 20, 2015, the Judgment Office of the Brazilian Revenue Service rejected Arauco do Brasil’s objection. Arauco do Brasil filed an appeal before the CARF (Conselho Administrativo de Recursos Fiscais), which is the second administrative level.

The CARF’s decision occurred on May 16, 2017, which accepted some of the company’s arguments but maintained other charges. On September 27, 2018, Arauco do Brasil S.A. was notified of CARF’s decision, which determined the current value of the alleged infraction in R$ 57.5 million (equivalent to U.S.$ 14.45 million, as per the R$/U.S.$ exchange rate as of March 28, 2019), plus interest and inflation adjustments until the end of the trial. Arauco do Brasil S.A.filed a motion for clarification (embargos de declaración), requesting the CARF to clarify certain aspects of the decision. On January 25, 2019, the CARF decided that there were no clarifications or omissions pending, and therefore, the company filed a special resource (recurso especial) with the Superior Chamber of Fiscal Appeals of the CARF (Cámara Superior de Recursos Fiscales, or CSRF) on February 2, 2019, reiterating the arguments of the company regarding the issues under discussion. As of the date of this annual report, athe decision on this appealwith respect to such special resource is still pending. In accordance with the decision regarding the motion for clarification, CARF calculated the amount under discussion at R$ 58,059,580.30 as of January 31, 2019 (equivalent to U.S.$ 14.59 million, as per the R$/U.S.$ exchange rate as of March 28, 2019), plus interest and inflation adjustments from January 31, 2019 until the end of the trial.

We believeconsider that Arauco do Brasil S.A.’s objection to the appealInfraction Notice is based onsupported by solid legal arguments and that there is a reasonable likelihoodchance that this matter will result in a favorable outcome for Arauco do Brasil.Brasil S.A.. If the appealspecial recourse is rejected, we intendthe company will be able to begin the relevant proceedings to contestdiscuss the Infraction Notice before the Brazilian Justice.courts of justice. However, if the cancellation of the Infraction Notice does not occur, it is possible that an obligation will arise for the amount above specified, plus any accrued interest and penalties as of the payment date.

DIVIDEND POLICY

Chilean law currently requires that, unless otherwise decided by the unanimous vote of our issued and subscribed shares eligible to vote, public corporations distribute a cash dividend in an amount equal to at least 30% of the corporation’s consolidated net income for each year, unless and except to the extent the corporation has unabsorbed losses from prior years. In April 2002, our shareholders approved the current dividend policy, setting the cash dividend at 40% of our consolidated net income for each year, which was determined on a Chilean GAAP basis through the year ended December 31, 2008, and has been determined on an IFRS basis since January 1, 2009. In accordance with IFRS, the determination of the dividend amount is based on the effective realized profit net of any relevant variations in the value of unrealized assets and liabilities.

For the year ended December 31, 2014, under IFRS, our results were affected by an increase in our deferred taxes resulting from the increase of the tax rate set forth in Law No. 20,780. However, according to Oficio Circular 856 of the SVS dated October 17, 2014, we were required to record the difference in assets and liabilities for deferred taxes as a charge to our net worth for purposes of our financial statements reported to the SVS. As such, our annual dividend distribution for the year ended December 31, 2014 was based on our profit calculated according to IFRS, as modified by Oficio Circular 856 of the SVS. See “Item 3. Key Information—Risk Factors—Risks Relating to Chile—A tax reform bill with significant changes for companies was approved in September 2014 and the Chilean Superintendence of Securities and Insurance, or SVS, modified accounting reporting standards for companies under its supervision in October 2014.”

On April 22, 2014, our shareholders approved a final dividend of U.S.$0.66652828 per share for 2013, which was distributed on May 7, 2014. On November 25, 2014, our Board of Directors approved an interim dividend of U.S.$0.5461976 per share, which was distributed on December 10, 2014. On April 21, 2015, our shareholders approved a final dividend of U.S.$0.866672295 per share for 2014, which was distributed on May 13, 2015. On November 24, 2015, our Board of Directors approved an interim dividend of U.S.$0.385117532 per share, which was distributed on December 16, 2015. On April 26, 2016, our shareholders approved a final dividend of U.S.$0.876827598 per share for 2015, which was distributed on May 11, 2016. On November 22, 2016, our Board of Directors approved an interim dividend of U.S.$0.2613312999 per share, which was distributed on December 14, 2016. On April 25, 2017, our shareholders approved a final dividend of U.S.$0.52142834529 per share for 2016, which willwas distributed on May 10, 2017. On November 28, 2017, our Board of Directors approved an interim dividend of U.S.$0.5345863395 per share, which was distributed on December 20, 2017. On April 24, 2018, our shareholders approved a final dividend of U.S.$1.0054189337 per share for 2017, which was distributed on May 10, 2018. On November 27, 2018, our Board of Directors approved an interim dividend of U.S.$1.2571231207 per share, which was distributed on December 12, 2018. On March 26, 2019, our Board of Directors approved a final dividend of U.S.$1.6086974655 per share for 2018, to be distributed on May 10, 2017.8, 2019, all of which is subject to shareholders’ approval at the meeting to be held on April 23, 2019.

Although the Board of Directors has no current plans to recommend changes in our dividend policy, the policy has been changed in the past and no assurance can be given that the policy will not be changed in the future, due to changes in Chilean law, capital requirements, operating results or other factors.

Item 9. The Offer and Listing

Neither our stock nor ourSEC-registered securities are listed on any stock exchange or other regulated market.

Trading in our securities takes place primarily in theover-the-counter market. Accordingly, we are unable to obtain reliable information on such trading.

Item 10. Additional Information

ARTICLES OF INCORPORATION ANDBY-LAWS

When we refer to the “Company,” “Arauco” or “we,” in this description of the articles of incorporation andby-laws, we mean Celulosa Arauco y Constitución S.A.

Organization and Registration

We are asociedad anónima (corporation) organized in Chile under the laws of Chile, subject to certain rules applicable tosociedades anónima abiertas (Chilean public corporations), which bylaws were approved on August 18, 1971, by resolution300-S of the Chilean Securities Commission and recorded in the Santiago Commercial Register of 1971 on page 6433 under entry number 2994 and on page 6431 under entry number 2993. Notice was published in the Official Gazette on September 4, 1971.

Objects and Purposes

Our purpose, as stated in ourestatutos(by-laws), includes the manufacture of forestry products, the management of forestry lands and other activities.

Capital

In 2002, ourby-laws were amended such that our capital is denominated in U.S. dollars. In 2002, we and two of our subsidiaries, Aserraderos Arauco and Paneles Arauco, which are currently merged into Maderas Arauco (formerly Paneles Arauco), received authorization from the Chilean IRS to prepare our audited consolidated financial statements in U.S. dollars, beginning January 1, 2002. On January 1, 2003, our subsidiaries Forestal Arauco, Bosques Arauco, Forestal Valdivia, Forestal Celco, which are currently merged into Forestal Arauco (formerly Forestal Celco), and Cholguán obtained the same permission from the Chilean IRS. The same permission from the Chilean IRS was obtained by our subsidiary Inversiones Arauco Internacional Ltda. in January 2003, by our subsidiary Forestal Los Lagos in January 2005 and by our subsidiaries Arauco Bioenergía S.A. and Servicios Logísticos Arauco S.A in January 2008.

Directors

Pursuant to ourby-laws, our Board of Directors is composed of nine members elected at a regular meeting of our shareholders. Our directors are not required to be shareholders. Ourby-laws state that the amount of compensation to be received by the directors for their directorial services shall be fixed by the shareholders’ meeting. Directors may be compensated for anynon-directorial services rendered to us at levels of compensation comparable with compensation commonly paid for these services, compensation which is compatible with the directors’ compensation fixed by the shareholders’ meeting. Theby-laws also state that our Board of Directors has all the authorities of administration and disposal that Chilean law or theby-laws do not confer upon the shareholders’ meeting. The Board of Directors has the right to act on our behalf without the need for a special power of attorney, even in cases where a power of attorney is required by law. In particular, theby-laws provide that the Board of Directors is empowered to encumber our assets, real and personal property with mortgages, easements or pledges regardless of the value of such property or the amount of the respective encumbrances and to borrow money paying interest, with or without a guaranty for the loan.

Ourby-laws provide that we may enter into acts or contracts in which one or more directors are interested only if the interested director’s interest is made known to the board, the acts or contracts are approved by the board and the terms of the act or contract conform to those prevailing in the market. In addition, board resolutions approving interested director transactions must be reported by the chair of the meeting at the first shareholders’ meeting following the approval of the interested director transaction. See “Item 7. Major Shareholders and Related Party Transaction” for further information on related party transactions.

See “Item 6. Directors, Senior Management and Employees” for further information about our Board of Directors.

Shareholders

Our share capital consists of ordinarycommon stock shares of no para single series, without nominal (par) value issued in registered form. Record holders of shares are registered in our share register. Any transfer of shares must be noted in our share register.

Voting Rights

Each share of our stock entitles the holder to one vote at any meeting of shareholders. Resolutions may be taken upon a vote of an absolute majority of the voting shares present or represented. Any resolution relating to amendments to ourby-laws must be approved by an absolute majority of the voting shares issued. Resolutions with regard to the following matters, among others, require the affirmative vote oftwo-thirds of the voting shares issued:

 

transformation, including division or merger with another company;

 

advanced dissolution;

 

change of corporate domicile;

 

reduction in our equity capital;

 

approval and appraisal ofnon-cash capital contributions;

 

reduction in the number of members of the Board of Directors;

 

the disposal of 50% or more of our assets, whether or not such disposal also includes any of our liabilities; the disposal of 50% or more of the assets of one our subsidiaries, provided that such subsidiary represents at least 20% of our assets; and any disposal of shares by our Company that causes us to lose control of a subsidiary that represents at least 20% of our assets; and

 

changes to the way in which corporate benefits will be distributed.

According to ourby-laws, holders of our shares also have the right to vote at the regular shareholders’ meeting for the election of directors. Shareholders or their representatives may accumulate their votes in favor of one candidate or distribute them among various candidates. A vote on the election of directors may be omitted if an election is proposed by acclamation and none of the shareholders present or represented opposes the motion. The Board of Directors may also be dismissed by a regular or special shareholders’ meeting, though the shareholders may only vote to dismiss the board as a whole.

Changes to Shareholders’ Rights

To change the rights of holders of our shares or create a new series of our shares, we must amend ourby-laws. Any reduction of the rights of our shares requires atwo-thirds majority vote of all holders of our shares under Chilean law. Chilean law also requires that public corporations distribute a cash dividend in an amount equal to at least 30% of the corporation’s consolidated net income for each year (on an IFRS basis), unless otherwise decided by a unanimous vote of the corporation’s issued and subscribed shares eligible to vote. Any changes to the way in which corporate benefits are distributed must be approved by atwo-thirds majority of all holders of the corporation’s shares.

Shareholders’ Meetings

Ourby-laws provide that the Board of Directors shall call shareholders’ meetings. Notice of shareholders’ meetings must be made by a prominent notice published at least three times, on different days, in the newspaper of one of our corporate domiciles, as determined by a shareholders’ meeting, or in the absence of a determination, in the Official Gazette.

A shareholder must be registered in our share register as of the meeting date to be entitled to participate and vote at any shareholders’ meeting. In addition, other persons may represent shareholders at meetings. Powers of attorney must be given in writing and must be granted with respect to all of the shares the shareholder is entitled to vote as of the date of the shareholders’ meeting.

Shareholders’ meetings may be regular or special meetings. Regular shareholders’ meetings are held once a year within the first four months of the year. Among other things, the regular shareholders’ meeting appoints independent external auditors to examine our accounts, inventory, balance sheet and other financial results. Theby-laws provide that the following matters are to be considered at regular shareholders’ meetings:

 

the review of our results of operations and external auditors’ reports and the approval or rejection of our annual report, our balance sheet and financial statements;

 

the distribution of profits of each financial period and the distribution of our dividends;

 

the election or dismissal of the members of the Board of Directors; and

any matter of corporate interest that is not considered transacted at a special shareholders’ meeting pursuant to the Chilean law.

Special shareholders’ meetings may be held at any time required by corporate needs to consider any matter that the law or ourby-laws require to be considered at a shareholders’ meeting. Ourby-laws require the meeting notice to disclose any matters to be discussed at a special shareholders’ meeting. According to theby-laws, the following matters must be considered at special shareholders’ meetings:

 

dissolution;

 

transformation, merger or division and the amendment of ourby-laws;

 

the issue of bonds or debentures convertible into shares;

 

the disposal of 50% or more of our assets, whether or not such disposal also includes any of our liabilities;liabilities, and the formulation or modification of any business plan that contemplates the disposal of assets for an amount higher than such percentage; the disposal of 50% or more of the assets of one of our subsidiaries, provided that such subsidiary represents at least 20% of our assets; and any disposal of shares by the Company that causes us to lose control of a subsidiary that represents at least 20% of our assets; and

 

the grant of real or personal guarantees to secure obligations of third parties, unless they are subsidiaries, in which case the approval of the Board of Directors will be sufficient.

Any other matters within the competence of regular shareholders’ meetings may be considered at special shareholders’ meetings.

Any act of a shareholders’ meeting relating to our dissolution, transformation, merger or division, the amendment of ourby-laws, any disposal of 50% or more of our assets or the issue of bonds convertible into shares or convertible debentures must be held before a notary public, who must certify that the minutes of such meeting are the true expression of what occurred and was resolved at such meeting.

Allocation of Net Income and Distribution of Dividends

Ourby-laws provide that the shareholders at a regular shareholders’ meeting shall determine the annual distribution of our net profits for each financial period, within the limitations prescribed by law. The shareholders shall also set the date on which any distribution shall be paid, within the time limits prescribed by law. Chilean law prescribes that distributions shall be paid within 30 days of the regular shareholders’ meeting at which such distribution was determined.

In accordance with Chilean law, in the event of liquidation, capital can be distributed to the shareholders only after the rights of the creditors have been secured or debts owed to creditors have been paid. Ourby-laws provide that a shareholders’ meeting will appoint one or more liquidators to carry out the liquidation and to call shareholders’ meetings, as required under Chilean law.

Regulation of and Restrictions on Foreign Investors

There are no limitations on the rights to hold securities, including rights ofnon-resident or foreign shareholders to hold or exercise voting rights on securities.

Disclosure of Shareholder Ownership

We register certain information about our shareholders in our shareholder registry. We are required to disclose this information to the Chilean Securities Commission on a quarterly basis.

Rights of Shareholders

Ourby-laws provide that, in the case of a dispute between shareholders or between shareholders and management, the parties will submit their dispute to an arbitrator, who may determine the procedural rules to be used in the arbitration but must issue a final judgment in accordance with Chilean law. Subject to limited exceptions, the arbitrator’s judgment shall not be subject to appeal. The parties shall appoint the arbitrator by mutual agreement and if no agreement is reached, an arbitrator will be appointed by the civil court system from among present and former associate justices of the Supreme Court of Justice of Chile.

EXCHANGE CONTROLS

The Central Bank is responsible for, among other things, monetary policies and exchange controls in Chile. Prior to 1989, Chilean law permitted the purchase and sale of foreign currency only in cases explicitly authorized by the Central Bank. Law No. 18,840, theLey Orgánica Constitucional del Banco Central de Chile (Organic Law of the Central Bank of Chile), or the Central Bank Act, enacted in 1989, liberalized the rules that govern the ability to buy and sell foreign currency.

The Central Bank Act empowers the Central Bank to determine which types of foreign exchange operations must be carried out in the Formal Exchange Market rather than theMercado Cambiario Informal (Informal Exchange Market). The Central Bank has ruled that certain foreign exchange transactions, including those attendant to foreign investments and bond issuances, may be effected only in the Formal Exchange Market. The Central Bank may also impose restrictions on foreign exchange operations that are conducted or are required to be conducted in the Formal Exchange Market. These restrictions may include the requirement of prior authorization from the Central Bank, the imposition of reserve requirements and the limitation of foreign exchange operations that may be conducted by the entities that participate in the Formal Exchange Market.

The Formal Exchange Market consists of banks and other entities authorized by the Central Bank to participate in such Formal Exchange Market. On April 16, 2001, the Central Bank agreed that, effective April 19, 2001, the prior foreign exchange restrictions would be eliminated and a newCompendio de Normas de Cambios Internacionales (Compendium of Foreign Exchange Regulations)Regulations, or the Compendium) would be applied.

The main objective of this change was to facilitate capital movements from and into Chile and to encourage foreign investment.

The following specific restrictions were eliminated:

 

a reserve requirement with the Central Bank for a period of one year;

 

the requirement for prior approval by the Central Bank for certain operations, such as repatriation of investments and payments to foreign creditors;

 

the mandatory return of foreign currencies to Chile; and

 

the mandatory conversion of foreign currencies into Chilean pesos.

Under the amended regulations, only the following limitations are applicable to these operations:

 

the Central Bank must be provided with information related to certain operations, such as foreign investments and foreign credits; and

 

certain operations,such as money transfers to and from Chile related to foreign investments and foreign credits, must be conducted within the Formal Exchange Market.

International Issue of Bonds

Before April 19, 2001, any international issue of bonds was subject to approval by the Central Bank after submission of an application to the Central Bank through a bank or other participant in the Formal Exchange Market. Absent the Central Bank’s authorization, issuers were unable to offer bonds outside of Chile. On April 19, 2001, the Central Bank issued foreign exchange regulations, effective as of March 1, 2002, that were included in the Chapters XIV and VIII of the Compendium, applicable to bond issues made either from Chile or through an agency abroad. It must be noted however, that all debt issues made before the regulations remain subject to the regulations existing at the time of their issue.

Debt Securities Issued Directly by Us

In accordance with the regulations issued by the Central Bank, which are included in the Chapter XIV of the Compendium, any international issue of bonds in an aggregate amount exceeding U.S.$1,000,000 must be registered and dated by the Central Bank or by a bank or other entity authorized by the Central Bank to participate in the Formal Exchange Market before the proceeds from the issuance can be remitted to Chile and received by the issuer or simultaneously with the remittance into Chile of such proceeds. The issuer must submit forms regarding the offering to the registering entity or directly to the Central Bank, along with a letter of instructions indicating whether it prefers to receive the proceeds in Chilean pesos or in a foreign currency. If presented through a Formal Exchange Market entity, such entity must, in turn, verify that the forms submitted by the issuer are in accordance with the documentation relating to the issue and inform the Central Bank of the operation no later than 11:00 a.m. on the banking business day following the date on which the proceeds of the issue are transferred to the issuer.

If the issuer opts to receive the proceeds of the issue outside of Chile, it must report this to the Central Bank directly or through a Formal Exchange Market entity during the first ten calendar days of the month following the one in which the proceeds were received.

Chapter XIV of the Compendium also states that proceeds from the issue, as well as payment of capital and interest relating to the issue, must be received and sent from and through the Formal Exchange Market, but purchases of U.S. dollars in connection with payments on debt securities issued directly by us can be made either in the Formal or in the Informal Exchange Market. There can be no assurance, however, that we will be able to purchase U.S. dollars in the Informal Exchange Market or in the Formal Exchange Market at the time or in the amounts required to pay debt service related to any such debt securities, since the registration of the debt securities with the Central Bank does not grant us access to the Formal Exchange Market for the purchase of U.S. dollars necessary to make payments in respect of those securities. There can also be no assurance that further Central Bank regulations or legislative changes to the current foreign exchange control regime in Chile would not restrict or prevent our purchase of U.S. dollars to make payments under our securities.

In the case of debt securities issued directly by us before the effectiveness of the foreign exchange regulations, the registration of the debt securities with the Central Bank grants us access to the Formal Exchange Market for the purchase of U.S. dollars necessary to make payments in respect of those securities but requires that payments on such debt securities shall be made only with U.S. dollars purchased in the Formal Exchange Market.

We will also be required to inform the Central Bank quarterly of the outstanding amounts due under our securities and from time to time of any information that has been previously filed.

The regulations of Chapter XIV of the Compendium do not make any reference to theone-year mandatory deposit in the Central Bank that was previously required by Chapter XIV. However, the Central Bank is authorized, under the Central Bank Act, to impose such a requirement.

Debt Securities Issued Through Our Panamanian Agency

In December 1996, we established a registered agency in Panama. We may from time to time issue debt securities directly or through our Panamanian agency depending on, among other factors, whether or not we expect to bring the proceeds thereof into Chile. In such cases, the proceeds of such issuance of the notes may be brought into Chile or held abroad. In either case, however, in accordance with Chapter VIII of the Compendium, we were required to inform the Central Bank of the issuance of international bonds through our Panamanian agency during the first ten calendar days of the month following the one in which the disbursement of funds to the agency was produced, and provide the schedule of payments of the notes. On December 27, 2007, the requirement to provide such information to the Central Bank was eliminated. We are no longer required to inform the Central Bank of future issuances of bonds made through our Panamanian agency.

Purchases of U.S. dollars in connection with payments on debt securities issued through our Panamanian agency, whether before or after April 19, 2001, can be made either in the Formal Exchange Market or in the Informal Exchange Market. Although we were required to inform the Central Bank of the issuance of debt securities through our Panamanian agency, such communication to the Central Bank did not give us access to the Formal Exchange Market for the purchase of U.S. dollars necessary to make payments in respect of those debt securities.

There can be no assurance that we will be able to purchase U.S. dollars in the Informal Exchange Market or in the Formal Exchange Market at the time or in the amounts required to pay debt service related to any such debt securities. There can also be no assurance that further Central Bank regulations or legislative changes to the current foreign exchange control regime in Chile and will not restrict or prevent our purchase of U.S. dollars to make payments under our securities from Chile.

TAXATION

General

The following summary contains a description of the principalcertain Chilean and United States federal income tax consequences of the purchase, ownership and disposition of our securities, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase our securities. This summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than the United States and Chile.

This summary is based on the tax laws of Chile (including the relevant matters pursuant to the tax reform Law No. 20,780) and the United States as in effect on the date of this Form20-F, as well as regulations, rulings and decisions of Chile and the United States available on or before such date and now in effect. All of the foregoing is subject to change, and any changes could apply retroactively and could affect the continued validity of this summary.

Prospective purchasers of our securities should consult their own tax advisors as to the Chilean, United States or other tax consequences of the purchase, ownership and disposition of our securities, including, in particular, the application to their particular situations of the tax considerations discussed below, as well as the application of state, local, foreign or other tax laws.

Chile and the United States have executed an income and capital tax treaty for the avoidance of double taxation and the prevention of fiscal evasion, but this treaty is not in effect, and its effectiveness is contingent upon ratification in the United States Senate. At this time, it is not clear when the United States Senate will consider ratification, and therefore the effective date of the treaty is uncertain.

Chilean Taxation

The following is a general summary of the principal consequences under Chilean tax law, as currently in effect, of an investment in our securities made by a foreign holder. Foreign holder means either:

 

in the case of an individual, a person who is neither is a resident nor is domiciled in Chile. For purposes of Chilean tax purposes,taxation, (a) an individual is domiciledresident in Chile if such individualhe or she has his or her principal place of business in Chile. The individual will be considered as a resident if she or he staysremained in Chile for more than six months in one calendar year, or a total of more than six months in two consecutive fiscal years;years and (b) an individual is domiciled in Chile if such individual resides in Chile with the intention of remaining in Chile (the intention will be determined according to the circumstances); or

 

in the case of a legal entity, a legal entity that is not organized under the laws of Chile, unless our securities are assigned to a branch or a permanent establishment of such entity in Chile.

Under Chile’s income tax law, our payments of interest made from Chile in respect to our securities to a foreign holder will generally be subject to a Chilean withholding tax assessed at a rate of 4.0%, or the Chilean Interest Withholding Tax, only to the extent the requirements for applying a 4.0% rate are complied with. In addition, consideration should be given to the fact that the rate might be higher if these payments do not comply with the requirements established in the law with the purpose to determine the indebtedness limit of the local entity.

We have agreed, subject to specific exceptions and limitations, to pay to the foreign holders of notes additional amounts in respect of the Chilean Interest Withholding Tax in order to ensure that the interest amount the foreign holder receives is net of Chilean Interest Withholding Tax. If we pay additional amounts in respect of the Chilean Interest Withholding Tax, any tax refunds in respect of these amounts will be for our benefit. In the event that certain changes in Chilean tax laws require us to pay additional interest amounts in respect of the Chilean Interest Withholding Tax at a rate in excess of 4.0%, we have the right to redeem our securities.

Under existing Chilean law and regulations, a foreign holder will not be subject to any Chilean taxes in respect of payments of principal that we make with respect to our securities. Our payments with respect to our securities of amounts not considered principal or interest may be subject to a Chilean withholding tax of up to 35%.

The Chilean Income Tax Law provides that a foreign holder is subject to income tax on his Chilean source income. For this purpose, Chilean source income means earnings from activities developedperformed in Chile or from the sale, disposition or other transactions in connection with assets or goods located in the country. As a general rule, according toChile. Article 11 of the Chilean Income Tax Law, the source of interest income corresponds to the residence country of the debtor. Nevertheless, there are special rulestax law states that, may apply to bondsfor this purpose, notes and other private or public or private debt instruments issued by taxpayers domiciled, or residentsecurities will only be considered as located in Chile which may establishif they are issued in Chile as the source of interest income. Under these rules and in connection withby a Chilean issuer. In consideration that our securities are not issued in Chile, any capital gains arising out ofrealized on the sale or other disposition of securities issued abroad by a foreign holder of our securities generally will not be subject to taxation on capital gains, provided that the sale or disposition occurs outside of Chile.any Chilean income taxes.

A foreign holder will not be liable for estate, gift, inheritance or similar taxes with respect to its holdings unless the securities held by a foreign holder:

 

are located in Chile at the time of such foreign holder’s death or at the time the transfer takes place, or

 

are located outside of Chile, but were purchased or acquired with funds derivedmonies obtained from Chilean source income.sources.

A foreign holder shouldwill not be liable for Chilean stamp, registration or similar taxes.

The issue of our securities directly by us was subject to the Chilean stamp tax, which we paid. The issue of our securities through our Panamanian Branch was not subject to a stamp tax.

United States Taxation

This summary of certain United States federal income tax considerations deals principally with United States Holders that acquired our securities as part of the initial offering of our securities, hold our securities as capital assets and whose functional currency is the United States dollar. It does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular investor, and generally does not address the tax treatment of United States Holders that may be subject to special tax rules, such as banks, financial institutions,tax-exempt entities, regulated investment companies, real estate investment trusts, insurance companies, partnerships and partners therein, dealers in securities or currencies, traders in securities electing to mark to market, certainshort-term holders of our securities, persons that will hold our securities as a position in a “straddle” or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction, persons that own (or are deemed to own for United States tax purposes) 10% or more of our voting stock by vote or value or persons that are not United States Holders. United States Holders should be aware that the U.S. federal income tax consequences of holding our securities may be materially different for investors described in the previous sentence, including as a result of certain laws applicable to investors with short holding periods or that engage in hedging transactions.

U.S. holders that use an accrual method of accounting for U.S. federal income tax purposes generally will be required to include certain amounts in income no later than the time such amounts are reflected on certain financial statements. The application of this rule thus may require the accrual of income earlier than would be the case under the general tax rules applicable to accrual basis taxpayers, although the precise application of this rule is unclear at this time. This rule generally will be effective for tax years beginning after December 31, 2017 or, for debt securities issued with original issue discount, for tax years beginning after December 31, 2018. U.S. holders that use an accrual method of accounting should consult with their tax advisors regarding the potential applicability of this legislation to their particular situation.

As used under this section “United States Taxation,” the term “United States Holder” means a beneficial owner of a Note that is a citizen or resident of the United States or a United States domestic corporation or that otherwise is subject to United States federal income taxation on a net income basis in respect of our securities.

Taxation of Interest and Additional Amounts

A United States Holder will treat the gross amount of interest and Additional Amounts (i.e., without reduction for Chilean Interest Withholding Tax, determined utilizing the 4.0% Chilean Interest Withholding Tax rate applicable to all United States Holders of our securities) as ordinary interest income in respect of our securities at the time that such payments are accrued or are received, in accordance with the United States Holder’s method of tax accounting. Any Chilean Interest Withholding Tax paid will be treated as foreign income taxes eligible for credit against such United States Holder’s United States federal income tax liability, subject to generally applicable limitations and conditions, or, at the election of such United States Holder, for deduction in computing such United States Holder’s taxable income. Interest and Additional Amounts will constitute income from sources outside the United States for foreign tax credit purposes. Such income generally will constitute “passive category income.” Foreign tax credits will not be allowed for withholding taxes imposed in respect of certainshort-term or hedged positions in securities and may not be allowed for withholding taxes imposed in respect of arrangements in which a United States Holder’s expected economic profit is insubstantial. United States Holders should consult their own advisors concerning the implications of these rules in light of their particular circumstances.

The calculation of foreign tax credits and, in the case of a United States Holder that elects to deduct foreign taxes, the availability of deductions, involves the application of rules that depend on a United States Holder’s particular circumstances. United States Holders should consult their own tax advisors regarding the availability of foreign tax credits and the treatment of Additional Amounts.

A Holder of our securities that is, with respect to the United States, a foreign corporation or a nonresident alien individual (a“Non-U.S. Holder”) generally will not be subject to United States federal income or withholding tax on interest income or Additional Amounts earned in respect of our securities, unless such income is effectively connected with the conduct by theNon-U.S. Holder of a trade or business in the United States.

Taxation of Dispositions

A United States Holder will generally recognize gain or loss on the sale, exchange or other disposition of a security in an amount equal to the difference between the amount realized on the sale, exchange or other disposition and the tax basis in the security. If Chilean income tax is withheld on the sale, exchange or other disposition of our securities, the amount realized by a U.S. holder will

include the gross amount of the proceeds of that sale, exchange or other disposition before deduction of the Chilean income tax. A United States Holder’s tax basis in a security will generally equal its cost. Gain or loss realized by a United States Holder on the sale, redemption or other disposition of our securities generally will be treated as capital gain or loss and such gain or loss will belong-term capital gain or loss if at the time of the disposition, our securities have been held for more than one year. The net amount oflong-term capital gain realized by a United States Holder that is an individual is generally taxed at a reduced rate. Gain, if any, realized by a United States Holder generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, in the case of gain from the disposition of securities that is subject to Chilean income tax, a United States Holder may not be able to benefit from the foreign tax credit for that Chilean income tax, unless the United States Holder can apply the credit against U.S. federal income tax payable on other income from foreign sources. Alternatively, the United States Holder may generally elect to take a deduction for the Chilean income tax paid. The rules governing foreign tax credits are complex and a United States Holder should consult its own tax advisor regarding the availability of foreign tax credits under its particular circumstances.

ANon-U.S. Holder of our securities will not be subject to United States federal income or withholding tax on gain realized on the sale or other disposition of our securities unless (i) such gain is effectively connected with the conduct by theNon-U.S. Holder of a trade or business in the United States or (ii) in the case of gain realized by an individualNon-U.S. Holder, theNon-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met.

Specified Foreign Financial Assets

Certain United States Holders that own “specified foreign financial assets” with an aggregate value in excess of USD 50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at anon-U.S. financial institution, as well as securities issued by anon-U.S. issuer (which would include our Securities)securities) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. United States Holders who fail to report the required information could be subject to substantial penalties. In addition, the statute of limitations for assessment of tax would be suspended, in whole or part. Holders should consult their own tax advisors concerning the application of these rules to their investment in the Securities, including the application of the rules to their particular circumstances.

Backup Withholding and Information Reporting

Payments of principal, premium, if any, and interest on our securities and payment of the proceeds of any disposition of our securities made to certain United States Holders may be subject to U.S. information reporting requirements. In addition, certain United States Holders may be subject to a U.S. backup withholding tax in respect of such payments if they do not provide their taxpayer identification numbers to the payor or otherwise establish an exemption.Non-U.S. Holders generally are exempt from these withholding and reporting requirements, but may be required to comply with applicable certification and identification procedures to establish their eligibility for such an exemption.

DOCUMENTS ON DISPLAY

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and other information with the SEC. These materials, including this Annual Report and the exhibits thereto, may be inspected and copied at the Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the materials may be obtained from the Public Reference Room at the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the Commission maintains an Internet website at http://www.sec.gov, from which these materials may be electronically accessed. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at1-800-SEC-0330.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

The following discussion about our risk management activities includesforward-looking statements that involve risk and uncertainties. Actual results could differ materially from those projected in suchforward-looking statements.

We are exposed to market risk from changes in interest rates and currency exchange rates. Our Board of Directors approves our policies that address these risks. From time to time, we assess our exposure and monitor opportunities to manage these risks, including entering into derivative contracts. For information on the currency and interest rate swaps into which we enterentered with respect to a portion of our borrowings, see “Item 5. Operating and Financial Review and Prospects—Hedging” and Note 23 to our audited consolidated financial statements. In the normal course of business, we also face risks that are eithernon-financial ornon-quantifiable. Such risks principally include country risk, credit risk and legal risk and are not represented in the tables below.

Interest Rate Risk

Interest rate risk exists principally with respect to our indebtedness that bears interest at floating rates. As of December 31, 2016,2018, we had outstanding U.S.$4.5 billion of indebtedness, including accrued interest and discounts and costs of issuance, of which 87.1%84.4% bore interest at fixed interest rates and 12.9%15.6% bore interest at floating rates of interest. These averageThe fixed and floating rates do not reflect the effect of swap agreements. 71.7%66.2% of our indebtedness was denominated in U.S. dollars as of that date. The interest rate on our variable rate debt is determined principally by reference to LIBOR. As of December 31, 2016,2018, we were party to an interest rate swap agreement in our Uruguayan subsidiaryjoint operation to hedge fluctuations in floating rates forlong-term debt. See “Item 5. Operating and Financial reviewReview and Prospects – Prospects—Hedging” and Note 23 to our audited consolidated financial statements.

The following table summarizes our debt obligations, as of December 31, 2016.2018. These obligations are sensitive to changes in interest rates. The table presents the aggregate principal amount of each category of indebtedness maturing in each year, at the weighted average interest rate for each category of indebtedness. Average interest rates for liabilities are calculated based on the prevailing interest rate for each loan as of December 31, 2016.2018.

 

  Average
Interest
Rate
 2017   2018   2019   2020   2021   Thereafter   Total
Debt
   Fair
Value
   Average
Interest
Rate
 2019   2020   2021   2022   2023   Thereafter   Total
Debt
   Fair
Value
 
  (U.S.$ in millions)   (U.S.$ in millions) 

Interest

                                  

Bearing Debt

                                  

Fixed Rate

                                  

(U.S.$-denominated)

   5.19  515.6    43.9    542.6    45.2    442.8    1,054.1    2,644.2    2,756.3    4.75  309.7    45.2    245.4    300.3    23.6    1,373.7    2,297.9    2,191.2 

(UF/CLP$-denominated)

   3.25  58.2    19.9    94.6    240.7    57.1    774.2    1,244.7    1,450.9    3.12  85.7    256.6    48.6    48.8    48.8    1,019.4    1,507.8    1,608.3 

(R$-denominated)

   8.70  4.7    1.9    3.7    2.5    1.2    1.0    15.1    15.1    7.94  0.4    0.5    0.7    0.6    —      —      2.2    2.2 

(Ar$-denominated)

   15.25  0.04    —      —      —      —      —      0.04    0.04 

Floating Rate

                                  

(U.S.$denominated) LIBOR+

   1.80  118.3    337.9    40.7    40.7    40.4    21.1    569.1    577.7    1.50  133.6    40.4    39.4    39.3    237.8    199.3    689.9    742.0 

(R$-denominated) TJLP +

   10.43  0.2    1.0    3.9    3.9    2.9    —      7.9    7.9    3.76  6.4    4.6    0.8    0.6    —      —      12.4    12.4 
  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

    697.0    404.6    685.4    331.7    511.8    1,850.4    4,481.0    4,807.9     535.8    347.3    334.9    389.6    310.2    2,592.4    4,510.3    4,556.1 
   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

    

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Foreign Currency Risk

Our principal exchange rate risk involves changes in the value of the Chilean peso and, to a lesser extent, the Brazilian real, the Argentine peso and the euroEuro relative to the U.S. dollar. We estimate that a majority of our consolidated costs and expenses are denominated in U.S. dollars. As of December 31, 2016:2018:

 

69.7%75.2% of our accounts receivable were denominated in U.S. dollars, 15.2%11.9% in Chilean pesos and 6.6%7.9% were denominated in Brazilian reals;reais;

88.5%77.6% of our cash andshort-term investments were denominated in U.S. dollars, 1.8%16.8% were denominated in Chilean pesos, 0.7%0.3% in Argentine pesos and 8.1%4.1% in Brazilian reals;reais;

 

68.3%66.2% of our debt was denominated in U.S. dollars before swaps; and

 

a significant portion of our consolidated total assets was denominated in U.S. dollars.

Substantially all of our foreigncurrency-denominated revenues, receivables and indebtedness are denominated in U.S. dollars and the majority of our costs and expenses receivables and indebtedness are denominated in U.S. dollars. As of December 31, 2016, 68.3%2018, 66.2% of our debt was denominated in U.S. dollars before swaps. As of December 31, 2016,2018, we were party to cross currency swap agreements in Chile to hedge our local bonds in UF, and forward agreements to swap local currencies to U.S. dollars. See “Item 5. Operating and Financial reviewReview and Prospects – Prospects—Hedging” and Note 23 to our audited consolidated financial statements. Accordingly, variations in the value of the Chilean peso relative to the U.S. dollar will not have a significant effect on the cost in U.S. dollars of our foreign debt service obligations.

Commodity Risk

Prices for pulp, forestry and timberwood products can fluctuate significantly, and our revenue isrevenues are highly sensitive to fluctuations in such prices. For a more detailed discussion and sensitivity analysis relating to the risks arising from changes in the market price of pulp, which is our primary commodity risk, see Note 23 to our audited consolidated financial statements. As of December 31, 2016,2018, we were party to derivative contracts to partially hedge our exposure to fuel oil in Uruguay, which include commodity swap agreements. See “Item 5. Operating and Financial review and Prospects – Hedging” and Note 23 to our audited consolidated financial statements.

Item 12. Description of Securities Other than Equity Securities

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

(a)Disclosure controls and procedures.We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and SeniorVice-President Comptroller, of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, 2016.2018. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and SeniorVice-President Comptroller concluded that the disclosure controls and procedures, as of December 31, 2016,2018, were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the U.S. Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to our management, including the Chief Executive Officer and SeniorVice-President Comptroller, as appropriate to allow timely decisions regarding required disclosure.

(b)Management’s annual report on internal controls and procedures.Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision and with the participation of our management, including our Chief Executive Officer and SeniorVice-President Comptroller, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our evaluation under the framework inInternal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2016.2018.

(c)Attestation Report of the registered public accounting firm. Not applicable.

(d)Changes in internal controls over financial reporting.There has been no change in our internal control over financial reporting during 20162018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16A. Audit Committee Financial Expert

We have an audit committee, described in “Item 6. Directors, Senior Management and Employees—Directors and Executive Officers.” We believe that the members of our audit committee have sufficient financial and other experience to perform their responsibilities. Our Board of Directors has determined that Timothy C. Purcell qualifies as an “audit committee financial expert” within the meaning of Item 16A of Form20-F and is independent as that term is defined in Rule10A-3 under the Exchange Act. For a description of Mr. Purcell’s professional experience, see “Item 6. Directors, Senior Management and Employees—Directors and Executive Officers.”

Item 16B. Code of Ethics

We have adopted a code of ethics, as defined in Item 16B of Form20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to all of our employees, including, but not limited to, our Chief Executive Officer, Chief Financial Officer and SeniorVice-President Comptroller. We will provide any person without charge, upon request, a copy of such code of ethics. Requests for a copy of the code of ethics may be made to Celulosa Arauco y Constitución S.A., El Golf 150, 14th Floor, Santiago, Chile, Attn: Gianfranco Truffello, tel. (562)(011-562)2461-7200, fax (562)(011-562)2461-7541. Our code of ethics is also published on our website at www.arauco.cl.www.arauco.cl or www.arauco.com. If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and SeniorVice-President Comptroller, or if we grant any waiver of such provisions, we will disclose the amendment or waiver in our annual report on Form20-F. On December 20, 2016, we amended our code of ethics to incorporate provisions relating to the protection of corporate property, a declaration of Arauco’s five corporate values, an extension of the scope of persons who can inform breaches under the code of ethics and an amendment to the list of crimes for which the company may be liable, to include the crime of reception (delito de receptación).

Item 16C. Principal Accountant Fees and Services

Audit andNon-Audit Fees

The following table sets forth the fees billed to us by our independent auditors PricewaterhouseCoopers Consultores Auditores SpA, or PwC, during the fiscal years ended December 31, 20152017 and 2016.2018.

 

  Year ended December 31,   Year ended December 31, 
  2016   2015   2018   2017 
  (U.S.$ in thousands)   (U.S.$ in thousands) 

Audit fees

  $2,185    1,718   $2,109   $2,466 

Audit-related fees

   146    509 

Tax fees

   823    443    1,181    1,702 

Other fees

   —      5    —      1,093 

Total fees

  $3,008    2,166   $3,436   $5,770 

Audit fees in the above table are the aggregate fees billed by PwC for the fiscal years ended December 31, 20152018 and 2016,2017, in each case in connection with the audit of our annual financial statements in accordance with IFRS, as well as the review of other filings.

Audit-related fees in the above table are the aggregate fees billed by PwC for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, including due diligence in Brazil and Mexico.

Tax fees in the above table are fees billed by PwC for the fiscal years ended December 31, 20152018 and 2016,2017, associated with tax compliance services in Chile, Brazil, Argentina, Colombia, Uruguay and Mexico; and tax consultation services in Chile, Argentina, Spain and the United States.

Other fees in the above table are fees billed by PwC related to an assessment of internal control over financial reporting for the fiscal year ended December 31, 2015,2017 with the purpose of issuing a report indicating control deficiencies associated with either control design deficiencies or control effectiveness for the Company’s entities in connection with a salary survey study performed in Uruguay.Chile, United States, Argentina and Brazil.

Audit Committee Approval Policies and Procedures

Our Board of Directors has establishedpre-approval policies and procedures for the engagement of our independent auditors. Pursuant to ourpre-approval policy, our Board of Directors haspre-approved a list of services that our independent auditors are allowed to provide to us or our subsidiaries.

Additionally, our Board of Directors expressly approves, on acase-by-case basis, any engagement of our independent auditors for audit andnon-audit services that are not included on thepre-approved list.

All services described in each of paragraphs (b) through (d) of this Item were approved by the Board of Directors pursuant to paragraph (c)(7)(i)(C) of Rule2-01 of RegulationS-X.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

Item 16F. Change in Registrant’s Certifying Accountant

Not applicable.

Item 16G. Corporate Governance

Not applicable. Neither our stock nor ourSEC-registered securities are listed on any stock exchange or other regulated market.

Item 16H. Mine Safety Disclosures

Not applicable.

PART III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

Our audited consolidated financial statements have been prepared in accordance with IFRS, as issued by the IASB, and are included in this annual report beginning at pageF-1.

Item 19. Exhibits

Documents filed as exhibits to this annual report:

 

1.1  English translation of theestatutos(by-laws) of Celulosa Arauco y Constitución S.A., as of April 22, 2014 (incorporated by reference to Exhibit 1.1 to Arauco’s Annual Report on Form20-F for the fiscal year ended December 31, 2013, filed on April 29, 2014, Commission fileNo. 033-99720).
8.1  List of subsidiaries
12.1  Certification of chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002
12.2  Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002
13.1  Certification of chief executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Linkbase Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

Omitted from the exhibits filed with this annual report are certain instruments and agreements with respect to ourlong-term debt, none of which authorizes securities in a total amount that exceeds 10% of our total assets. We hereby agree to furnish to the SEC copies of any such omitted instruments or agreements as the SEC requests.

Index of Exhibits

1.1English translation of theby-laws (estatutos) of Celulosa Arauco y Constitución S.A., dated as of April 22, 2014 (incorporated by reference to Exhibit 1.1 to Arauco’s Annual Report on Form20-F for the fiscal year ended December 31, 2013, filed on April 29, 2014, Commission fileNo. 033-99720).
8.1List of subsidiaries.
12.1Certification of chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.
12.2Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.
13.1Certification of chief executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section  906 of theSarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

XBRL Taxonomy Extension Schema Linkbase Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document


The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

CELULOSA ARAUCO Y CONSTITUCIÓN S.A.
By: 

/s/ Matías Domeyko

 Matías Domeyko
 Chief Executive Officer

Date: April 28, 201717, 2019


CONSOLIDATED

FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 20162018 AND 20152017


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Celulosa Arauco y Constitución S.A.

In our opinion, the accompanying consolidated statement of financial position and the related consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows present fairly, in all material respects, the financial position of Celulosa Arauco y Constitución S.A. and its subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers
Santiago, Chile
April 25, 2017.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Celulosa Arauco y Constitución S.A.

We have audited the accompanying consolidated statements of income, comprehensive income, changes in equity, and cash flows (the “consolidated financial statements”) of Celulosa Arauco y Constitución S.A. and subsidiaries (the “Company”) for the year ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit of the consolidated financial statements provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Celulosa Arauco y Constitución S.A. and subsidiaries for the year ended December 31, 2014, in conformity with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

/s/ Deloitte Auditores y Consultores Limitada
Santiago, Chile
April 21, 2015


INDEX

 

   Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-1 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

   F-1F-2 

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

   F-3F-4 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

   F-4F-5 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

   F-5F-6 

CONSOLIDATED STATEMENTS OF CASH FLOWS

   F-7 

NOTE 1. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

   F-8 

NOTE 2. ACCOUTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES

   F-27F-32 

NOTE 3. DISCLOSURE OF OTHER INFORMATION

   F-28F-33 

NOTE 4. INVENTORIES

   F-33F-38 

NOTE 5. CASH AND CASH EQUIVALENTS

   F-34F-39 

NOTE 6. INCOME TAXES

   F-35F-40 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

   F-41F-45 

NOTE 8. LEASES

   F-45F-48 

NOTE 9. REVENUE

   F-46F-49 

NOTE 10. EMPLOYEE BENEFITS

   F-47F-50 

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

   F-48F-51 

NOTE 12. BORROWING COSTS

   F-53F-56 

NOTE 13. RELATED PARTIES

   F-53F-56 

NOTE 14. CONSOLIDATED FINANCIAL STATEMENTS

   F-58F-60 

NOTE 15. INVESTMENTS IN ASSOCIATES

   F-60F-62 

NOTE 16. INTERESTS IN JOINT ARRANGEMENTS

   F-63F-65 

NOTE 17. IMPAIRMENT OF ASSETS

   F-67F-68 

NOTE 18. PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES

   F-68F-69 

NOTE 19. INTANGIBLE ASSETS

   F-77F-78 

NOTE 20. BIOLOGICAL ASSETS

   F-78F-79 

NOTE 21. ENVIRONMENTAL MATTERS

   F-81F-82 

NOTE 22.NON-CURRENT ASSETS HELD FOR SALE

   F-84 

NOTE 23. FINANCIAL INSTRUMENTS

   F-85 

NOTE 24. REPORTABLE SEGMENTS

   F-110F-107 

NOTE 25. OTHERNON-FINANCIAL ASSETS ANDNON-FINANCIAL LIABILITIES

   F-117F-113 

NOTE 26. DISTRIBUTABLE NET PROFIT AND EARNINGS PER SHARE

   F-118F-114 

NOTE 27. SUBSEQUENT EVENTS

   F-120F-116 


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Celulosa Arauco y Constitución S.A.

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of financial position of Celulosa Arauco y Constitución S.A. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers

Santiago, Chile

April 17, 2019

We have served as the Company’s auditor since 2015.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

  Note   12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
   Note   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Assets

            

Current Assets

            

Cash and cash equivalents

   5    592,253    500,025    5    1,075,942    589,886 

Other current financial assets

   23    5,201    32,195    23    497    3,504 

Other currentnon-financial assets

   25    144,915    133,956    25    129,854    129,837 

Trade and other current receivables

   23    701,610    733,322    23    839,184    814,412 

Accounts receivable due from related companies

   13    12,505    3,124    13    7,324    3,488 

Current Inventories

   4    852,612    909,988 

Current inventories

   4    1,030,196    868,462 

Current biological assets

   20    306,117    306,529    20    315,924    307,796 

Current tax assets

     104,088    64,079      36,513    49,471 

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

     2,719,301    2,683,218      3,435,434    2,766,856 

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

   22    3,059    3,194    22    5,726    3,507 

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

     3,059    3,194 

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

     5,726    3,507 

Total Current Assets

     2,722,360    2,686,412      3,441,160    2,770,363 

Non-Current Assets

            

Othernon-current financial assets

   23    8,868    595    23    20,346    56,600 

Othernon-currentnon-financial assets

   25    130,319    125,516    25    86,948    121,521 

Trade and othernon-current receivables

   23    14,273    15,270    23    15,149    16,040 

Accounts receivable due from related companies, non current

   13    957    —   

Accounts receivable due from related companies,non-current

   13    481    1,056 

Investments accounted for using equity method

   15-16    446,548    264,812    15-16    358,053    368,772 

Intangible assets other than goodwill

   19    89,497    88,112    19    90,093    88,615 

Goodwill

   17    74,893    69,475    17    65,851    69,922 

Property, plant and equipment

   7    6,919,495    6,896,396    7    7,174,693    7,034,299 

Non-current biological assets

   20    3,592,874    3,520,068    20    3,336,339    3,459,146 

Deferred tax assets

   6    6,097    3,735    6   4,635    8,266 

TotalNon-Current Assets

     11,283,821    10,983,979      11,152,588    11,224,237 

Total Assets

     14,006,181    13,670,391      14,593,748    13,994,600 

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

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

  Note   12-31-2016
ThU.S.$
 12-31-2015
ThU.S.$
   Note   12-31-2018
ThU.S.$
 12-31-2017
ThU.S.$
 

Equity and liabilities

     

Equity and Liabilities

     

Liabilities

          

Current Liabilities

          

Other current financial liabilities

   23    697,452   296,038    23    537,596   500,344 

Trade and other current payables

   23    537,891   583,018    23    659,618   717,346 

Accounts payable to related companies

   13    3,831   7,141    13    10,229   11,208 

Other current provisions

   18    842   858    18    413   2,728 

Current tax liabilities

     1,641   10,976    6    153,642   8,088 

Current provisions for employee benefits

   10    5,244   4,497    10    5,656   5,730 

Other currentnon-financial liabilities

   25    99,163   131,723    25    212,610   153,950 

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

     1,346,064   1,034,251      1,579,764   1,399,394 

Total Current Liabilities

     1,346,064   1,034,251      1,579,764   1,399,394 

Non-Current Liabilities

          

Othernon-current financial liabilities

   23    3,870,914   4,236,965    23    4,044,279   3,778,567 

Non-current payables

     2,230   —   

Othernon-current provisions

   18    38,138   34,541    18    33,884   36,008 

Deferred tax liabilities

   6    1,631,065   1,619,012    6    1,417,658   1,485,365 

Non-current provisions for employee benefits

   10    60,084   51,936    10    64,895   66,033 

Othernon-currentnon-financial liabilities

   25    60,633   47,241    25    112,067   112,340 

TotalNon-Current Liabilities

     5,660,834   5,989,695      5,675,013   5,478,313 

Total Liabilities

     7,006,898   7,023,946      7,254,777   6,877,707 

Equity

   3         

Issued capital

     353,618   353,618    3   353,618   353,618 

Retained earnings

     7,329,675   7,204,452      7,824,045   7,425,133 

Other reserves

     (728,042  (949,360     (875,884  (703,778

Equity attributable to parent company

     6,955,251   6,608,710      7,301,779   7,074,973 

Non-controlling interests

     44,032   37,735      37,192   41,920 

Total Equity

     6,999,283   6,646,445      7,338,971   7,116,893 

Total Equity and Liabilities

     14,006,181   13,670,391      14,593,748   13,994,600 

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

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

      For the years ended December 31,       For the years ended December 31, 
  Note   2016
ThU.S.$
 2015
ThU.S.$
 2014
ThU.S.$
   Note   2018
ThU.S.$
 2017
ThU.S.$
 2016
ThU.S.$
 

Statements of profit or loss

            

Revenue

   9    4,761,385   5,146,740   5,342,643    9    5,954,833   5,238,341   4,761,385 

Cost of sales

   3    (3,498,905  (3,511,425  (3,654,146   3    (3,722,749  (3,574,532  (3,498,905

Gross profit

     1,262,480   1,635,315   1,688,497      2,232,084   1,663,809   1,262,480 

Other income

   3    257,863   273,026   368,924    3    124,304   111,513   257,863 

Distribution costs

   3    (496,473  (528,470  (556,837   3    (556,805  (523,300  (496,473

Administrative expenses

   3    (474,469  (551,977  (550,809   3    (561,284  (521,294  (474,469

Other expense

   3    (77,415  (83,388  (138,769   3    (95,880  (240,165  (77,415

Other gains (losses)

   14    14,213   —     —   

Profit from operating activities

     471,986   744,506   811,006      1,156,632   490,563   471,986 

Finance income

   3    29,701   50,284   30,772    3    20,895   19,640   29,701 

Finance costs

   3    (258,467  (262,962  (246,473   3    (214,779  (287,958  (258,467

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

   15    23,939   6,748   7,481    15    17,246   17,017   23,939 

Exchange rate differences

     (3,935  (41,171  (9,961     (26,470  98   (3,935

Profit before income tax

     263,224   497,405   592,825      953,524   239,360   263,224 

Income Tax

   6    (45,647  (129,694  (448,652   6    (226,765  30,992   (45,647

Net Profit

     217,577   367,711   144,173      726,759   270,352   217,577 
    

 

  

 

  

 

     

 

  

 

  

 

 

Net profit attributable to

            

Net profit attributable to parent company

     213,801   362,689   139,803      725,482   269,724   213,801 

Net profit attributable tonon-controlling interests

     3,776   5,022   4,370      1,277   628   3,776 

Net Profit

     217,577   367,711   144,173      726,759   270,352   217,577 
    

 

  

 

  

 

     

 

  

 

  

 

 

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

      

Basic earnings per share from continuing operations

     1.8894   3.2051   1.2354 
    

 

  

 

  

 

       

Basic earnings per share

     1.8894   3.2051   1.2354 

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

      

Basic and diluted earnings per share from continuing operations

     6.4111   2.3836   1.8894 

Basic and diluted earnings per share

     6.4111   2.3836   1.8894 
    

 

  

 

  

 

     

 

  

 

  

 

 

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

      

Earnings per diluted share from continuing operations

     1.8894   3.2051   1.2354 
    

 

  

 

  

 

 

Earnings per diluted share

     1.8894   3.2051   1.2354 
    

 

  

 

  

 

 

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

      

For the years

ended December 31,

       

For the years

ended December 31,

 
  Note   2016
ThU.S.$
 2015
ThU.S.$
 2014
ThU.S.$
   Note   2018
ThU.S.$
 2017
ThU.S.$
 2016
ThU.S.$
 

Net profit

     217,577   367,711   144,173      726,759   270,352   217,577 

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

            

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

     (5,593  (1,530  (12,829   10    1,856   2,499   (5,593

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

     132   (1,008  (6,052     (1,657  8,754   132 

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

     (5,461  (2,538  (18,881     199   11,253   (5,461

Components of other comprehensive income that will be reclassified to profit or loss before tax:

            

Exchange differences on translation

            

Gains (losses) on exchange differences on translation, before tax

   11    173,754   (385,109  (163,844   11    (184,876  11,873   173,754 

Other Comprehensive Income before tax exchange differences on translation

     173,754   (385,109  (163,844     (184,876  11,873   173,754 

Cash flow hedges

            

Gains (losses) on cash flow hedges, before tax

   23    84,045   11,859   (43,228   23    30,321   22,212   84,045 

Recycle of cash flow hedges to profit or loss before tax

   23    (10,198  (16,122  949    23    (15,286  (16,965  (10,198

Other Comprehensive Income before tax Cash flow hedges

     73,847   (4,263  (42,279     15,035   5,247   73,847 

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

     247,601   (389,372  (206,123     (169.841  17,120   247,601 

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

            

Income tax relating to actuarial losses on defined benefit plans

     1,509   649   3,404      (501  (673  1,509 

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

     (106  227   1,271      176   (2,086  (106

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

            

Income tax relating to cash flow hedges

   23    (20,055  (1,738  10,963    6    (4,474  (5,917  (20,055

Income tax relating to recycle of cash flow hedges

   23    2,700   3,627   (199     —     4,326   2,700 

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

     (17,355  1,889   10,764      (4,474  (1,591  (17,355

Other comprehensive (loss) income

     226,188   (389,145  (209,565     (174,441  24,023   226,188 

Comprehensive (loss) income

     443,765   (21,434  (65,392     552,318   294,375   443,765 

Comprehensive Income attributable to

            

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

     435,119   (15,619  (65,289     555,294   293,988   435,119 

Comprehensive (loss) income, attributable tonon-controlling interests

     8,646   (5,815  (103     (2,976  387   8,646 

Total comprehensive (loss) income

     443,765   (21,434  (65,392     552,318   294,375   443,765 

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

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

12-31-2016 Issued
Capital
ThU.S.$
  Reserve of
exchange
differences
on
translation
ThU.S.$
  Reserve
of cash
flow
hedges
ThU.S.$
  Reserve
of
actuarial
losses on
defined
benefit
plans
ThU.S.$
  Other
Reserves
ThU.S.$
  Total  other
Reserves
ThU.S.$
  Retained
Earnings
ThU.S.$
  Equity
attributable
to owners
of parent
T.hU.S.$
  Non -
controlling
interests

ThU.S.$
  Total
Equity
ThU.S.$
 

Opening balance at01-01-2016

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

Changes in Equity:

          

Comprehensive income

          

Net profit

        213,801   213,801   3.776   217.577 

Other comprehensive income, net of tax

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

Comprehensive income

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

Dividends

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

Increase (decrease) from transfers and other changes

        —     —     (99  (99

Changes in equity

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

Closing balance at12-31-2016

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

12-31-2015 Issued
Capital
ThU.S.$
  Reserve of
exchange
differences
on
translation
ThU.S.$
  Reserve
of cash
flow
hedges
ThU.S.$
  Reserve
of
actuarial
losses on
defined
benefit
plans
ThU.S.$
  Other
Reserves
ThU.S.$
  Total  other
Reserves
ThU.S.$
  Retained
Earnings
ThU.S.$
  Equity
attributable
to owners
of parent
T.hU.S.$
  Non -
controlling
interests
ThU.S.$
  Total
Equity
ThU.S.$
 

Opening balance at01-01-2015

  353,618   (498,495  (53,022  (15,790  (3,745  (571,052  6,984,564   6,767,130   47,606   6,814,736 

Changes in Equity:

          

Comprehensive income

          

Net profit

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

Other comprehensive income, net of tax

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

Comprehensive income

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

Dividends

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

Increase (decrease) from transfers and other changes

        —     —     (828  (828

Changes in equity

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

Closing balance at12-31-2015

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

12-31-2014

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

Opening balance at01-01-2014

  353,618   (339,105  (21,507  (6,384  1,036   (365,960  7,004,640   6,992,298   52,242   7,044,540 
12-31-2018  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 at01-01-2018

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

Increase (decrease) for changes in accounting policies

      (1,918    (1,918  (1,957  (3,875  —     (3,875

Restated opening balance

   353,618    (691,772  2,834   (18,926  2,168   (705,696  7,423,176   7,071,098   41,920   7,113,018 

Changes in Equity:

                      

Comprehensive income

                      

Net profit

        139,803   139,803   4,370   144,173           725,482   725,482   1,277   726,759 

Other comprehensive income, net of tax

   (159,390  (31,515  (9,406  (4,781  (205,092   (205,092  (4,473  (209,565   —      (180,623  10,561   1,355   (1,481  (170,188  —     (170,188  (4,253  (174,441

Comprehensive income

  —     (159,390  (31,515  (9,406  (4,781  (205,092  139,803   (65,289  (103  (65,392   —      (180,623  10,561   1,355   (1,481  (170,188  725,482   555,294   (2,976  552,318 

Dividends

        (159,879  (159,879  (4,533  (164,412          (324,295  (324,295  (1,752  (326,047

Increase (decrease) from transfers and other changes

          (318  (318  —     (318

Changes in equity

  —     (159,390  (31,515  (9,406  (4,781  (205,092  (20,076  (225,168  (4,636  (229,804   —      (180,623  10,561   1,355   (1,481  (170,188  400,869   230,681   (4,728  225,953 

Closing balance at12-31-2014

  353,618   (498,495  (53,022  (15,790  (3,745  (571,052  6,984,564   6,767,130   47,606   6,814,736 

Closing balance at12-31-2018

   353,618    (872,395  13,395   (17,571  687   (875,884  7,824,045   7,301,779   37,192   7,338,971 
12-31-2017  Issued
Capital
ThU.S.$
   Reserve of
exchange
differences
on
translation
ThU.S.$
 Reserve of
cash flow
hedges

ThU.S.$
 Reserve
of
actuarial
losses on
defined
benefit
plans
ThU.S.$
 Other
Reserves
ThU.S.$
 Total other
Reserves
ThU.S.$
 Retained
Earnings
ThU.S.$
 Equity
attributable
to owners

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

Opening balance at01-01-2017

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

Changes in Equity:

            

Comprehensive income

            

Net profit

          269,724   269,724   628   270.352 

Other comprehensive income, net of tax

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

Comprehensive income

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

Dividends

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

Increase (decrease) from transfers and other changes

          —     —     (16  (16

Changes in equity

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

Closing balance at12-31-2017

   353,618    (691,772  4,752   (18,926  2,168   (703,778  7,425,133   7,074,973   41,920   7,116,893 
12-31-2016  Issued
Capital
ThU.S.$
   Reserve of
exchange
differences
on
translation
ThU.S.$
 Reserve of
cash flow
hedges

ThU.S.$
 Reserve
of
actuarial
losses on
defined
benefit
plans
ThU.S.$
 Other
Reserves
ThU.S.$
 Total other
Reserves
ThU.S.$
 Retained
Earnings
ThU.S.$
 Equity
attributable
to owners

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

Opening balance at01-01-2016

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

Changes in Equity:

            

Comprehensive income

            

Net profit

          213,801   213,801   3.776   217.577 

Other comprehensive income, net of tax

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

Comprehensive income

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

Dividends

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

Increase (decrease) from transfers and other changes

          —     —     (99  (99

Changes in equity

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

Closing balance at12-31-2016

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

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

  For the years
ended December 31,
   

For the years

ended December 31,

 
  2016
ThU.S.$
 2015
ThU.S.$
 2014
ThU.S.$
   2018
ThU.S.$
 2017
ThU.S.$
 2016
ThU.S.$
 

STATEMENTS OF CASH FLOWS

        

Cash Flows from (used in) Operating Activities

        

Classes of cash receipts from operating activities

        

Receipts from sales of goods and rendering of services

   5,020,551   5,733,693   5,629,175    6,129,806   5,508,705   5,020,551 

Other cash receipts from operating activities

   470,765   337,696   364,639    377,085   365,238   470,765 

Classes of cash payments

        

Payments to suppliers for goods and services

   (3,914,976  (4,260,587  (4,190,295   (4,299,395  (3,850,367  (3,914,976

Payments to and on behalf of employees

   (320,738  (490,723  (499,370   (558,230  (532,223  (320,738

Other cash payments from operating activities

   (212,230  (169,237  (122,027   (192,254  (128,314  (232,271

Interest paid

   (211,614  (229,894  (204,915   (172,280  (261,186  (191,573

Interest received

   29,380   17,720   46,658    11,738   18,966   29,380 

Income taxes paid

   (83,903  (87,784  (37,285   (12,742  (37,942  (83,903

Other inflows (outflows) of cash, net

   (3,651  2,766   (1,405   (2,807  (10,452  (3,651

Net Cash flows from Operating Activities

   773,584   853,650   985,175    1,280,921   1,072,425   773,584 

Cash flows (used in) investing activities

        

Cash flow used in obtaining control of subsidiaries or other businesses

   —     (10,090  —      (17,049  (15,918  —   

Cash used for contributions and purchase of associates and joint ventures

   (153,135  (814  (1,882   (3,023  —     (153,135

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

   6,781   —     —      2   1   6,781 

Loans to related parties

   —     (23,628  (158,797

Proceeds from sale of property, plant and equipment

   17,685   5,860   63,492    9,392   6,308   17,685 

Purchase of property, plant and equipment

   (356,153  (321,385  (459,796   (675,958  (448,314  (356,153

Proceeds from sales of intangible assets

   —     99   —   

Purchase of intangible assets

   (14,858  (10,395  (10,101   (2,682  (10,468  (14,858

Proceeds from sales of other long-term assets

   1,644   506   40,257    5,437   2,609   1,644 

Purchase of othernon-current assets

   (140,707  (126,132  (142,138   (222,029  (179,184  (140,707

Dividends received

   4,772   6,350   12,073    10,880   7,287   4,772 

Other inflows (outflows) of cash, net

   (6,241  1,849   1,734    1,048   4,331   (6,241

Cash flows used in Investing Activities

   (640,212  (477,780  (655,158   (893,982  (633,348  (640,212

Cash flows from (used in) Financing Activities

        

Total borrowings obtained

   737,653   280,863   1,035,601    863,551   1,312,481   737,653 

Debt obtained in long-term

   187,845   890   829,348    485,077   1,025,096   187,845 

Debt obtained in short-term

   549,808   279,973   206,253    378,474   287,385   549,808 

Repayments of borrowings

   (645,211  (949,183  (900,595   (475,284  (1,627,711  (645,211

Dividends paid

   (130,624  (143,003  (141,089   (257,421  (121,586  (130,624

Other outflows of cash, net

   (302  (853  (1,802   (975  (2,285  (302

Cash flows used in Financing Activities

   (38,484  (812,176  (7,885

Cash flows from (used in) Financing Activities

   129,871   (439,101  (38,484

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

   94,888   (436,306  322,132    516,810   (24  94,888 

Effect of exchange rate changes on cash and cash equivalents

   (2,660  (34,821  (18,192   (30,754  (2,343  (2,660

Net increase (decrease) of Cash and Cash equivalents

   92,228   (471,127  303,940    486,056   (2,367  92,228 

Cash and cash equivalents, at the beginning of the period

   500,025   971,152   667,212    589,886   592,253   500,025 

Cash and cash equivalents, at the end of the period

   592,253   500,025   971,152    1,075,942   589,886   592,253 

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 20162018 AND 20152017

 

NOTE 1.

PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

Entity Information

Celulosa Arauco y Constitución S.A. and subsidiaries, (hereafter “Arauco” or the “Company”), tax identification number93,458,000-1, is a closely held corporation, that was registered in the Securities Registry (the “Registry”) of the Superintendency of Securities and Insurance (the “SVS”Chilean Commission for the Financial Market (“CMF”) as No. 042 on June 14, 1982. Additionally, the Company is registered as anon-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, 14thfloor, 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, timberwood 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 SVS.CMF.

The ultimate shareholders of Arauco are Mrs. MariaMaría Noseda Zambra de Angelini (who passed away on April 15, 2018), Mr. Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi, through the entity Inversiones Angelini y Cia. Ltda. which ownswho 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 4.329804% of the shares of AntarChile S.A., the controlling shareholder of our parent company Empresas Copec S.A.

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

Presentation of Consolidated Financial Statements

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

 

Consolidated Statements of Financial Positionas of December 31, 20162018 and 2015.2017.

 

Consolidated Statements of Profit or Loss for the years ended December 31, 2016, 20152018, 2017 and 2014.2016.

 

Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 20152018, 2017 and 2014.2016.

 

Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 20152018, 2017 and 2014.2016.

 

Consolidated Statements of Cash Flows for the years ended December 31, 2016, 20152018, 2017 and 2014.2016.

 

Explanatory disclosures (notes)

Period Covered by the Consolidated Financial Statements

As of December 31, 20162018 and 20152017 and for the periods between January 1 and December 31, 2016, 20152018, 2017 and 2014.2016.

Date of Approval of Consolidated Financial Statements

These consolidated financial statements were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Meeting on April 25, 2017.17, 2019.

Abbreviations used in this report:

IFRS - International Financial Reporting Standards

IASB - International Accounting Standards Board

IAS - International Accounting Standards

IFRIC - International Financial Reporting Standards Interpretations Committee

MU.S.$ - Millions of U.S. dollars

ThU.S.$ - Thousands of U.S. dollars

U.F. – Inflation index-linked units of account

UTA – Annual Tax Unit

ICMS – Tax movement of inventories and services (Brazil)

Functional and Presentation Currency

Arauco and most of its subsidiaries determined the United States (“U.S.”) Dollar as its functional currency since the majority of its revenues from sales of its products are derived from exports denominated in U.S. Dollars, while their costs of sales are to a large extent related or indexed to the U.S. Dollar.

For the pulp reportable segment, most of the sales are exports denominated in U.S. Dollars and costs are mainly related to plantation costs which are settled in U.S. Dollars.

For the sawn timber, panelwood 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.

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

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

Summary of significant accounting policies

 

a)

Basis for preparation of consolidated financial statements

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

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

Revision of previously issued financial statements

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

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

Arauco assessed the materiality of these errors quantitatively and qualitatively on the financial statements for prior periods in accordance with the guidance of United States Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No.99, “Materiality”, and concluded that they were not material to any prior annual or interim periods or trends of financial results, and that pursuant to paragraph 40A of IAS 1 “Presentation of financial statements”, it is not necessary to include the financial statement as of January 1, 2015 (third column).

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

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

Current Biological Assets

   272,037    34,492    306,529 

Total Current Assets

   2,651,920    34,492    2,686,412 

Non-Current Biological Assets

   3,554,560    (34,492   3,520,068 

Deferred Tax Assets

   140,251    (136,516   3,735 

TotalNon-Current Assets

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

Total Assets

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

Deferred Tax Liabilities

   1,755,528    (136,516   1,619,012 

TotalNon-Current Liabilities

   6,126,211    (136,516   5,989,695 

Total Liabilities

   7,160,462    (136,516   7,023,946 

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

 

b)

Critical accounting estimates and judgments

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

-Biological Assets

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

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

-Goodwill- 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- Litigation and Contingencies

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

 

c)

Consolidation

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

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

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

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

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

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

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

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

c) rights arising from other contractual arrangements; and

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

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

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 thenon-controlling interest, as appropriate. Total comprehensive income is attributed to the owners of the parent company andnon-controlling interests even if the results of thenon-controlling interest have a deficit balance.

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

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

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

Certain consolidated subsidiaries have Brazilian Real, 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 presentnon-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent company.

 

d)

Segments

Arauco has defined its reportable segments according to its business areas, based on the products and services sold to its customers. This definition is consistent with the management, resource allocation and performance assessment made by key personnel responsible for making relevant decisions related to the Company’s operation. The Chief Operating Decision Maker (CODM) ispersonnel responsible for making such decisions are the Executive Vice-president and the Chief Executive Officer who is responsibleare the highest authorities for making these decisions and it isare 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

 

TimberWood products

 

Forestry

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

e)

Functional currency

(i) Functional currency

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

(ii) Translation to the presentation currency of Arauco

For the purposes of presenting consolidated financial statements, assets and liabilities of Arauco’s operations in a functional currency different from Arauco´sArauco’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 atyear-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 includecash-in-hand,cash-on-hand, deposits held on demand at banksfinancial entities 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

Initial classification

Arauco classifies its financial assets into the following categories: fair value through profit or loss, amortized cost, and Fair Value through other comprehensive income.

The classification is based on the business model used to manage the assets and the characteristics of their contractual cash flows.

Management determines the classification of its financial assets at the time of their initial registration.

(a) Financial assets at fair value through profit or loss: these instruments are initially measured at fair value. Net income and losses, including any income from interest or dividends, are registered in the profit or loss of the period. Financial assets are classified intoin the following specified categories: ‘loanscategory of financial assets at fair value through profit or loss when they are maintained for negotiation or designated in their initial registration as assets at fair value through profit or loss. A financial asset can be classified in this category if it is acquired mainly for the purposes of being sold in the short-term. Gain or losses of assets held for negotiations are registered in the consolidated statements of Profit or Loss, and receivables’ and “derivativethe related interest is registered independently as financial instruments”. The classification depends onincome. Derivatives are classified as acquired for negotiation also unless they are designated as hedging instruments.

(b) Assets measured at amortized cost: they are initially registered at the nature and purposefair value of the transaction, adding or subtracting the transaction costs are directly attributable to the issuance of the financial asset or financial liability. The financial asset is maintained within a business model, the objective of which is to maintain financial assets to obtain contractual cash flows and the contractual conditions of the asset give rise, on specified dates, to cash flows that are solely payments of principal and interests (“SPPI”) over the amount of the outstanding principal.

Subsequent measurement

Financial instruments are subsequently measured at “Fair value through profit or loss”, Amortized Cost or Fair Value through other comprehensive income.

The classification is determined atbased on two criteria: i) the time of initial recognition. All purchases and salesCompany’s business model for the management of financial assetsinstruments, and ii) whether the contractual cash flows related to the financial instruments represent “Solely Payments of Principal and Interests”.

a) Fair value through profit or loss: these instruments are recognizedsubsequently measured at fair value. Net earnings and derecognized onlosses, including income from interests and dividends, are registered as profits or losses for the trade date, which require delivery of assets within the same time frame established by regulation or conventionperiod. These instruments are held for negotiation and they are mainly acquired to be sold in the marketplace.short term. Derivatives are also classified as held for negotiation, unless they are registered as hedging instruments. Financial instruments of this type are classified as Other Current andNon-Current Financial Assets. They are subsequently valuated by determining their fair value, registering changes in value in the consolidated statements of Profit or Loss, in the items of Financial Income or Financial Costs.

b) Financial assets measured at amortized cost: These instruments are subsequently measured at amortized cost minus accumulated amortizations, using the effective interest method and adjusted by loss allowance and volume discounts, in the case of financial assets. Financial income and expenses, foreign exchange income and losses, and impairment are registered in results. Any earnings or losses due to initial or subsequent reductions of the value of the asset are registered in the statement of profit or loss of the period. Loans and receivables arenon-derivative financial assetsinstruments with fixed or determinable payments that are not quotedtraded in anany active market. Loans and receivablesThey are classified as current assets, except for those with maturities more than 12 months after the reporting period, which are classified asnon-current assets. Loans and receivables include trade and other receivables.

Loans and receivables are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition and are subsequently measuredregistered at amortized cost, usingregistering accrued conditions directly in profit or loss.

Arauco measures accumulated losses in a quantity equivalent to expected credit losses during the lifelong commitment. Expected credit losses are based on contractual cash flow differences based on the allowance of each contract and the cash flows that Arauco expects. The difference is then discounted based on an approximation of the asset’s original effective interest rate method, less any impairment.rate. The asset’s carrying value is reduced as the allowance is used, and the loss is recognized in sales expenses in the financial statements. When an account receivable cannot be collected, it is regularized against the allowance account for receivables. Subsequent recoveries of previously impaired amounts are recognized as a debit in distribution costs.

Derivative financial instruments are explained in Note 1 h)

Financial liabilities

Arauco classifies its financial liabilities as follows: fair value through profit or loss, derivatives designated as effective hedging instruments and amortized costs.

Management determines the classification of its financial liabilities upon initial recognition. Financial liabilities (including borrowingsare derecognized when the obligation is cancelled, settled or expired. When an existing financial liability is replaced with another of the same provider under substantially different terms, or where the terms of an existing liability are substantially amended, such exchange or modification is treated as awrite-off of the original liability, with a new liability being recognized, and tradethe difference between the respective carrying amounts is recognized in the statement of profit or loss.

Financial liabilities are initially recognized at fair value, and other payables)in the case of loans, they include the costs directly attributable to the transaction. The subsequent measurement of the financial liabilities depends on their classification:

Financial Liabilities at fair value through profit or loss

Financial liabilities are included in the category of financial liabilities at fair value through profit or loss when they are held for trading or originally designated at fair value through profit or loss. Income and losses from liabilities held for trading are recognized in profit or loss. This category includesnon-designated derivatives for hedging accounting.

Financial Liabilities at Amortized Cost

Other financial liabilities are subsequently measuredvalued at their amortized cost usingbased on the effective interest rate method.

The effective interest method is a method of calculating the amortized cost is calculated taking into account any premium or acquisition discount, and includes the costs of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the ratetransactions that discounts estimated future cash payments (including all fees and amounts paid or received that formare an integral part of the effective interest rate, transaction costsrate. This category includes Commercial Accounts Payable and other premiums or discounts) throughOther Accounts Payable, as well as the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.loans included in Other Current andNon-Current Financial Liabilities.

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 policy’sCompany’s policy is to enter into derivatives contracts only for economic hedging purposes.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 subsequentlyre-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 innon-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at FVTPL as a whole. Arauco has determined that no embedded derivatives currently exist.

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

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

-Fair Value Hedges under IAS39--Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in profit or loss in the line item relating to the hedged item.

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

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

i)

Inventories

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

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

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

Biological assets are transferred to inventories when forests are harvested.

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

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

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

 

j)

Non-current assets held for sale

The Group classifies certain property, plant and equipment, intangible assets, investments in associates and disposal groups (groups of assets to be sold together with their directly associated liabilities) asnon-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 asnon-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 anynon-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 acquireacquiree 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 5Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with such standard.

Acquisition-related costs are accounted for as expenses when they are incurred, except for costs to issue debt or equity securities which are recognized in accordance with IAS 32 and IAS 39.IFRS 9.

A parent will presentnon-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 whichnon-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the parent company. No adjustment is made to the carrying amount of goodwill, neither gains nor losses are recognized in the statement of profit or loss.

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

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

If the initial accounting for a business combination is not completed by the end of the reporting period in which the combination occurs, Arauco reports preliminary amounts for the items for which the accounting is incomplete. During the measurement period (no more than one year), these preliminary amounts are retrospectively adjusted, or additional assets or liabilities are recognized to reflect new information about facts and circumstances that existed at the acquisition date, if known, would have affected the amounts recognized at that date.

Business combinations that are under common control transactions are accounted using as a reference the pooling of interest. Under this method, assets and liabilities related to the transaction carry over the previous carrying values. Any difference between assets and liabilities included in the consolidation and the consideration transferred, is accounted in equity.

 

l)

Investments in associates and joint arrangements

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

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

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

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

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

If the acquisition cost is lower than the fair value of the net assets of the associate acquired, the difference is recognized directly in statement of profit or loss in line Other gains (losses).

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

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

m)

Intangible assets other than goodwill

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

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

(i) Computer Software

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

(ii) Water Rights, Easements and Other Rights

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

(iii) Customers and trade relations with customers

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

n)

Goodwill

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of anynon-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 theliabilities assumed. If the total of consideration transferred,non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the statements of profit or loss.

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

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

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

Goodwill recognized for the acquisition of the subsidiary Arauco do Brasil S.A. whose functional currency is the Brazilian Real, is translated into U.S. Dollars at the closing exchange rate. At the date of these consolidated financial statements, the change in the carrying amount of goodwill in Brazil is only related to the net exchange rate differences on translation.

o)

Property, Plant and Equipment

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

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

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

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

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

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.

q)

Biological Assets

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

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

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

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

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

 

r)

Income taxes and deferred taxes.

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

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

Deferred taxes are recognized in accordance with the standards established in IAS 12 - Income Tax.

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

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

 

s)

Provisions

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

t)

Revenue recognition

Revenues are valued at fair value of the consideration received or to be received, derived from them.

Arauco analyses and takes under consideration all relevant facts and circumtances to apply the five-step model established under IFRS 15 to customer contracts: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price, and (v) recognise revenue. Aditionally, Arauco evaluates the incremental costs of obtaining a contract and the costs incurred to comply with a contract.

Arauco recognizes revenues when the steps established in IFRS have been satisfactorily complied with.

Accounts receivable are recognized when Araucocontrol over goods or services has been transferred the risks and rewards of ownership to the buyer and Arauco has no right to disposecustomer, because at this point of the assets, nor effective controltime collection is unconditional and the passage of such good.time is only needed to receive payment.

(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. Revenue from the sale of goods are recognised when there is no obligation unsatisfied that could affect the customer’s acceptance of the product. The delivery is effective when the products are sent to the specific location, the risks of obsolescence and loss have been transferred to the customer and when Arauco has objective evidence that all acceptance criteria have been satisfied.

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

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

The main Incoterms used by Arauco are the following:

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

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

(ii) Revenue recognition from Rendering of Services

When the outcome of a transaction involvingRevenue from the rendering of services can be reliably estimated, revenue is recognized by reference toas long as the performance obligation have been satisfied.

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

There is probableno significant financing component, given that the economic benefits associatedsales are made with the transaction will flow to the Arauco.a reduced average collection period, which is in line with market practice.

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

Electrical power is generated as aby-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 theCDEC-SIC. SEN.

Arauco provides othernon-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 recognized during the period of the service contract on a straight-line basis over the term of the contract.

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

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

 

u)

Minimum dividend

Article No. 79 of the Chilean Corporations Law states that, unless otherwise unanimously agreed by the shareholders, corporations must distribute annually at least 30% of net income for the current year as cash dividend to shareholders determined in proportion to their shares or in the proportion established in theby-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 currentnon-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.

 

w)

Impairment

Non-financial Assets

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

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

For the purposes of assessing impairment losses, assets are grouped at the lowest level for which there is identifiable cash flows separately for each cash-generating unit.Non-financial assets, other than goodwill, which had recognized an impairment loss, are reviewed at the end of each reporting period whether there are any circumstances indicating that an impairment loss previously recognized may no longer exists or has decreased.

“Cash-generating units” are the smallest identifiable groups of those cash inflows that are largely independent of the cash inflow from other assets or groups of assets.

Goodwill

Goodwill and intangible assets with indefinite useful life are tested annually for impairment or whenever circumstances indicate it. The recoverable amount of an intangible asset is the higher of its fair value less costs to sell and its value in use. An impairment loss is recognized whenever the carrying amount exceeds the recoverable amount.

A cash-generating unit, for which goodwill has been allocated, is tested for impairment annually or more frequently when there are circumstances indicating that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets pro rata based on the carrying amount of each asset in the unit. Any impairment loss of goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

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

Financial Assets

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

An allowance for doubtful accounts is established based on an analysisa measurement of the maturity of the portfolio and considering the insurance coverage on accounts receivable. Other conditions are assessed, for example, when there is objective evidence of default or delinquency in payments under the original sale terms and when the customer enters into bankruptcy or financial reorganization, and iswritten-off when Arauco has exhausted all levels of recovery of the receivable inexpected losses using a reasonable time.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 reversedeither 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 Othernon-current payables” depending on their respective maturities in the consolidated statements of financial position.

z)

Recent accounting pronouncements

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

Amendments and improvements

Content

Mandatory application

for annual periods

beginning on or after

IFRS11-AmendmentsEstablishes how to account for the acquisition of an interest in a joint venture operation that qualifies as a business.January 1, 2016
IAS 16 and IAS 38 – AmendmentsThis amendment clarifies that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate. It also clarifies that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset.January 1, 2016
IAS 16 and IAS 41 – AmendmentsThese amendments change the reporting for bearer plants, which should be accounted for in the same way as property, plant and equipment. The amendments include them in the scope of IAS 16 rather than IAS 41.January 1, 2016
IAS27-AmendmentsAllows entities to use the equity method to account for investments in subsidiaries, join ventures and associates in their separate financial statements.January 1, 2016
IAS1-AmendmentsThe amendments aim at clarifying IAS 1 to address perceived impediments to preparers exercising their judgment in presenting their financial reports.January 1, 2016
IFRS 10, and IAS 28- AmendmentsAmendments address issues that have arisen in the context of applying the consolidation exception for investment entities.January 1, 2016
Annual Improvements 2012-2014 CycleIFRS 5, IFRS 7, IAS 19, IAS 34.January 1, 2016

The adoption of the standards, amendments and interpretations described above did not have a significant impactfirst time for annual periods beginning on the Arauco’s Consolidated Financial Statements.January 1, 2018:

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

 

Standards and interpretations

  

Content

  

Mandatory application


for annual periods


beginning on or after

IFRS 9

  

Financial Instruments

 

The completeSupersedes 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 replaces most of the guidance in IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39.published at November 2013.

  January 1, 2018

IFRS 15

  This standard defines

Revenue from Contracts with Customers

Provides a newsingle, principles based five-step model to recognizedbe 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 costumers.customers.

  January 1, 2018

IFRS 16

Leases

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

January 1, 2019

IFRIC 22

  

Transactions in Foreign Currency and Anticipated Considerations

 

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

  January 1, 2018

Amendments and improvements

  

Content

  

Mandatory application


for annual periods


beginning on or after

IAS 7

IFRS 1
  

StatementsFirst-time Adoption of Cash FlowsInternational Financial Reporting Standards

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

 

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

  January 1, 20172018
IAS 12IFRS 2  

Income taxesShare-based payment

 

Clarifies the measurement of cash settled share-based payment transactions and the accounting for deferred tax assets relatingamendments that change such payments to debt instruments measured at fair value.equity instruments.

  January 1, 20172018
IFRS 15  

Revenue from contracts with customers.

 

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

  January 1, 2018

IFRS 4

  

Insurance contracts

 

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

  January 1, 2018
IAS 40  

Investment properties

 

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

  January 1, 2018
IFRS 12IAS 28  

Disclosure of InterestsInvestments in Other Entities.associates and joint ventures

 

ClarifiesMeasurement of the scope of this rule.investments in associates and joint ventures at fair value.

  January 1, 2018

IFRS 9 - Financial Instruments.

IFRS 9 came into force on January 1, 2018, replacing IAS 39, and its application has not given rise to significant impact on Arauco’s Consolidated Financial Statements. The Company carried out a detailed assessment of the three aspects of the standard and its impact on the consolidated financial statements, which can be summarized as follows:

i) Classification and measurement: as required by IFRS 9, Arauco changed its classification method for financial assets based on two concepts: the characteristics of the financial assets’ contractual cash flows and of Arauco’s business model, the purpose of which is achieved through the collection of contractual cash flows and the sale of financial assets. Under this new method the four classification categories of IFRS 39 were replaced with the following:

- Amortized cost, where the financial assets are kept in a business model the purpose of which is the generation of contractual cash flows;

- Fair value through other comprehensive income, where the financial assets are kept in a business model the purpose of which is achieved by generating contractual cash flows and selling financial assets;

- Fair value through profit or loss, a residual category which comprises financial instruments that are not kept under any of the business models referenced above, including those kept for negotiation and those designated at fair value in their initial recognition.

With regard to the measurement of financial liabilities, IFRS 9 retains to a great extent the prior accounting treatment of IAS 39, with limited amendments, under which the majority of these liabilities are measured at amortized cost, thereby enabling the designation of a financial liability at fair value with changes in results, provided that certain criteria are met. However, the standard introduced new provisions for liabilities designated at fair value through profit or loss, by virtue of which under certain circumstances the changes in the fair value related to the variation of the “own credit risk” are recognized in other comprehensive income.

Management reviewed and assessed Arauco’s financial assets as of January 1, 2018, based on the hitherto prevailing events and circumstances, and concluded that the new classification requirements do not have an impact on the accounting of its financial assets. The loans and the accounts receivable are maintained in order to obtain the contractual cash flows that only represent the payment of principal and interest; therefore, the criteria for them to be measured at amortized cost under IFRS 9, are fulfilled. Regarding the impairment of the financial assets, IFRS 9 requires an expected credit losses model, as opposed to the incurred loss model set forth by IAS 39. This means that, under IFRS 9, impairments are recorded, generally, earlier compared with the previous model. The new impairment model is applied to the financial assets measured at amortized cost or measured at their fair value through other comprehensive income, except for investments in equity instruments. Impairment provisions are measured based on:

The expected credit losses for the upcoming 12 months; or

The expected credit losses during the entire lifespan of the asset, if on the date of submission of the Consolidated Financial Statements, a significant increase in the credit risk of a financial instrument were to occur, as from the initial recognition thereof.

IFRS 9 also establishes a simplified approach to measure the correction of values for losses at a sum equal to the expected credit loss during the lifespan of the asset for commercial accounts receivable, contractual assets, or accounts receivable for leases. Arauco chose to apply this policy for the aforementioned financial assets.

ii) Hedging accounting: IFRS 9 also introduced a new model for hedging accounting, with the purpose of aligning accounting more closely with the risk management activities of the companies and of establishing an approach that would be more principle-based. The new approach allows for an improved reflection of the risk management activities in the financial statements, allowing for more elements to be eligible as hedged elements: risk component ofnon-financial items, net positions and aggregate exposures (in other words, a combination of anon-derivative exposure and a derivative). The most significant changes regarding the hedging instruments, when compared with the hedging accounting method employed under IAS 39, pertains to the possibility of deferring the temporary value of an option, the forward points of forward contracts, and the difference of the monetary base in other comprehensive income, until the time when the hedged element has an impact on results. IFRS eliminated the quantitative requirement from the effectiveness tests envisaged under IAS 39, whereby the results had to be within the80%-125% range, thus allowing for the evaluation of the efficacy to be aligned with the management of the risk through the demonstration of the existence of an economic ratio between the hedging instrument and the hedged item, while also allowing the possibility of rebalancing the hedging ratio if the risk management objective remains unaltered. Nevertheless, retrospective inefficacy must still be valuated and recognized. Arauco applied the new requirements of IFRS 9 as of the date of the adoption of the same, as of January 1, 2018.

The application of IFRS has had the following initial impacts as of January 1, 2018, in Arauco’s Consolidated Financial Statements:

Hedging assets net

IAS 28  Investments in Associates and Joint Ventures.ThU.S.$

Closing balance at December 31, 2017 - calculated under IAS 39

  52,057

Amounts restated through reserves

(2,627

Opening balance at January 1, 2018 - under IFRS 9

49,430

Loss allowance for trade receivables

ThU.S.$

Closing loss allowance at December 31, 2017 - calculated under IAS 39

(17,785

Amounts restated through retained earnings

(2,875

Closing loss allowance at January 1, 2018 - under IFRS 9

(20,660

IFRS 9 adjustments net of deferred taxes

ThU.S.$

Amounts restated through reserves

(2,627

Amounts restated through retained earnings

(2,875

Deferred taxes

1,627

Increase (decrease) due to changes to accounting policies

(3,875

IFRS 15 – Revenue from Contracts with Customers.

As from January 1, 2018, Arauco has decided to apply IFRS 15 using the modified retrospective method, recognizing the accumulated effect of the initial application as an adjustment to the opening balance of the retained earnings of year 2018. However, no significant effects impacting Arauco’s Consolidated Financial Statements were identified and there were no adjustment to the opening balance of retained earnings.

This standard requires more detailed disclosures than those required under the previous current standards, with the purpose of supplying more complete information regarding the nature, amounts, schedule and certainty of the income and cash flows derived from the contracts with clients.

In addition to the submission of more extensive disclosures regarding Arauco’s income transactions, the application of IFRS 15 has not had any impact upon Arauco’s financial position or financial performance. During 2017, the Arauco Group carried out an implementation project, in order to identify and measure the potential impacts of applying IFRS 15 to its consolidated financial statements. This project identified all of the income flows from Arauco’s ordinary activities, the knowledge of the business’s traditional practices, a thorough evaluation of each type of contract with clients, and the determination of the registration methodology for this income under the current rules. A special evaluation was carried out regarding the contracts that contain key aspects of IFRS 15 and certain features that are of particular interest for Arauco, such as: identification of contractual obligations, contracts with multiple obligations and moment of the recognition, contracts with a variable consideration, significant financing components, principal versus agent analysis, existence of warranties for type of service, and capitalization of the costs of obtaining and performing a contract. As mentioned in this Note 1, Arauco’s main activity is the production and sale of products related to the forestry and timber industry. Considering the nature of the goods and services that are being offered as well as the aforementioned characteristics of the income flows, Arauco did not identify impacts over the consolidated financial statements at the moment of initially applying IFRS 15, that is, as of January 1, 2018. The type of revenue and acknowledgments are described in Notes 9 and 24.

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

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.  Undetermined.Indeterminate

IAS 19

Employee Benefits

Prescribe the accounting and disclosure for employee benefits, requiring an entity to recognise a liability where an employee has provided service and an expense when the entity consumes the economic benefits of employee service.

January 1, 2019

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

IAS 1 y IAS 8

Presentation of Financial Statementes and Accounting Policies, Changes in Accounting Estimates and Errors. Clarifies the definition of material and align the definition used in the Conceptual Framework and the standards themselves.January 1, 2020

IFRS 3

Definition of a Business

Narrows the definitions of a business

January 1, 2020

IFRS - 9 Financial Instruments.

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

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

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

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

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

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

IFRS 16 - Leases

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

According to the carried outperformed 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.period, except for the effects of the adoption of IFRS 16, which is described below.

IFRS 16 – Leases

IFRS 16 has not been applied at the closing of these Consolidated Financial Statements, and is applicable as of the annual periods beginning on January 1, 2019.

IFRS 16 – Leases includes changes in Arauco’s accounting as lesee, by requiring a similar treatment than that of financial leases for all the leases that are currently classified as operational with an effective term exceeding 12 months. This means, in general terms, that it will be necessary to acknowledge an asset that represents the right of use over the goods that are subject to operational leasing agreements as well as a liability, equal to the present value of the payments associated to the agreement. Regarding the effects over the results, the payment of monthly leases shall be replaced by the depreciation for the asset’s right of use and the acknowledgement of a financial expense.

Arauco will recognize leases retroactively with the cumulative effect of the initial application of the standard recognized as of January 1, 2019, consistently with all leases where it acts a lessee.

Given this alternative, it will not be necessary to restate the comparative information.

Arauco has chosen not to recognize a liability and an asset forright-of-use for low value leases or whose term of the contract is 12 months or less.

In the impact assessment project of IFRS 16 in the Consolidated Financial Statements of Arauco, we have estimated that we will recognize assets forright-of-use with their corresponding obligations forright-of-use for an approximate amount of MU.S.$ 300.

 

NOTE 2.

ACCOUTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES

ThereChanges to accounting policies

Arauco applied IFRS 15 “Revenue from Contracts with Customers” and IFRS 9 “Financial instruments” for the first time. These new standards require an assessment of the impacts over each of the affected accounting accounts and balances as of January 1, 2018, as part of the transition to the new accounting standards.

The Company has identified the changes as a result of the application of the standards, acknowledging the accumulated effect of their initial application as a restatement of the opening balances of the retained earnings and reserves as of January 1, 2018; therefore, the financial statements as of December 31, 2017 have not been modified.

The impact of the implementation of IFRS 9 - Financial instruments, and IFRS 15 - Revenue from Contracts with Customers, is explained in note 1 z).

Changes to accounting estimates

As of December 31, 2018, there have been no changes inregarding the treatment ofaccounting estimates amendments and accounting policies with respect to same period of lastfor the 2017 financial year.

NOTE 3.

DISCLOSURE OF OTHER INFORMATION

 

a)

Disclosure of information on Issued Capital

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

100% of Capital corresponds to ordinary shares

 

   12-31-201612-31-2018  12-31-201512-31-2017

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
   12-31-201612-31-2018  12-31-201512-31-2017

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

  113,159,655

 

b)

Dividends paid

The interim dividend paid in December 20162018 was equivalent to 20% of the distributable net profit calculated as of the end of September 20162018 and was considered a decrease in the statements of changes in equity.

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

The ThU.S.$88,578324,295 (ThU.S.$142,801 174,266 as of December 31, 2015)2017) presented in the statements of changes in equity correspond to the minimum dividend provision recorded for the period 2016.2018.

In the Statements of Cash Flow in the line item “Dividends Paid” an amount of Th.U.S.ThU.S.$ 130,624257,421 is presented for the year ended December 31, 20162018 (ThU.S.$143,003 121,586 for the year ended December 31, 2015)2017), of which ThU.S.$128,793256,029 (ThU.S.$141,652 119,499 for the year ended December 31, 2015)2017) correspond to the payment of dividends of the parent company.

The following are the dividends paid and per share amounts during the periods 2016, 20152018, 2017 and 2014:2016:

Detail of Dividend Paid, Ordinary Shares

Dividend Paid

Interim Dividend

Type of Shares for which there is a Dividend Paid

Ordinary Shares

Date of Dividend Paid

12-12-2018

Amount of Dividend

ThU.S.$ 142,256

Number of Shares for which Dividends are Paid

113,159,655

Dividend per Share

U.S.$ 1.25712

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

05-10-2018

Amount of Dividend

ThU.S.$113,773

Number of Shares for which Dividends are Paid

113,159,655

Dividend per Share

U.S.$ 1.00542

Detail of Dividend Paid, Ordinary Shares

Dividend Paid

Interim Dividend

Type of Shares for which there is a Dividend Paid

Ordinary Shares

Date of Dividend Paid

12-20-2017

Amount of Dividend

ThU.S.$60,494

Number of Shares for which Dividends are Paid

113,159,655

Dividend per Share

U.S.$0.53459

Detail of Dividend Paid, Ordinary Shares

Dividend Paid

Final Dividend

Type of Shares for which there is a Dividend Paid

Ordinary Shares

Date of Dividend Paid

05-10-2017

Amount of Dividend

ThU.S.$59,005

Number of Shares for which Dividends are Paid

113,159,655

Dividend per Share

U.S.$0.52143

 

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid

   Interim Dividend 

Type of Shares for which there is a Dividend Paid

   Ordinary Shares 

Date of Dividend Paid

   12-14-2016 

Amount of Dividend

   ThU.S.$29,572 

Number of Shares for which Dividends are Paid

   113,159,655 

Dividend per Share Ordinary Shares

   U.S.$0.26133 

 

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid

   Final Dividend 

Type of Shares for which there is a Dividend Paid

   Ordinary Shares 

Date of Dividend Paid

   05-11-2016 

Amount of Dividend

   ThU.S.$99,221 

Number of Shares for which Dividends are Paid

   113,159,655 

Dividend per Share Ordinary Shares

   U.S.$0.87683 

Detail of Dividend Paid, Ordinary Shares

Dividend Paid

Interim Dividend

Type of Shares for which there is a Dividend Paid

Ordinary Shares

Date of Dividend Paid

12-16-2015

Amount of Dividend

ThU.S.$43,580

Number of Shares for which Dividends are Paid

113,159,655

Dividend per Share, Ordinary Shares

U.S.$0.38512

Detail of Dividend Paid, Ordinary Shares

Dividend Paid

Final Dividend

Type of Shares for which there is a Dividend Paid

Ordinary Shares

Date of Dividend Paid

05-12-2015

Amount of Dividend

ThU.S.$98,072

Number of Shares for which Dividends are Paid

113,159,655

Dividend per Share

U.S.$0.86667

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

12-09-2014

Amount of Dividend

ThU.S.$61,808

Number of Shares for which Dividends are Paid

113,159,655

Dividend per Share

U.S.$0.54620

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

05-09-2014

Amount of Dividend

ThU.S.$75,424

Number of Shares for which Dividends are Paid

113,159,655

Dividend per Share

U.S.$0.66653

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 ofThe hedging reserve includes the cash flow hedges correspondhedge reserve and the costs of hedging reserve. The cash flow hedge reserve is used to recognise the effective portion of net gaingains or loss of derivative financial instrumentslosses on derivatives that complies with the requirements of hedge accounting at the end of each period.are designated and qualify as cash flow hedges.

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.

Other items in the Statements of Profit or Loss

The table below sets forth other income, other expenses, finance income, finance costs and share of profit (loss) of associates and joint ventures for the years ended December 31, 2016, 20152018, 2017 and 20142016 are as follows:

 

  January - December   January - December 
  2016
ThU.S.$
   2015
ThU.S.$
   2014
ThU.S.$
   2018
ThU.S.$
   2017
ThU.S.$
   2016
ThU.S.$
 

Classes of Other Income

            

Other Income, Total

   257,863    273,026    368,924    124,304    111,513    257,863 

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

   208,562    210,479    284,497    84,476    83,031    208,562 

Net income from insurance compensation

   3,222    1,522    2,264    1,788    1,305    3,222 

Revenue from export promotion

   2,350    2,692    4,032    3,570    3,542    2,350 

Lease income

   4,687    2,654    2,708    2,156    3,061    4,687 

Gain on sales of assets

   17,485    11,849    57,653    13,164    13,444    17,485 

Gain on sales of assets classified as held for sale

   —      —      244 

Gain on business combination achieved in stages

   —      8,744    —   

Access easement

   3,756    8,160    5,158    260    565    3,756 

Recovery of tax credits

   2,033    8,081    —      —      —      2,033 

Compensations received

   4,554    283    139 

Other operating results (*)

   15,768    18,845    12,368    14,336    6,282    15,629 

Classes of Other Expenses by activity

            

Total of Other Expenses by activity

   (77,415   (83,388   (138,769   (95,880   (240,165   (77,415

Depreciation

   (562   (1,407   (2,084   (523   (466   (562

Legal expenses

   (879   (3,334   (4,806   (3,832   (3,882   (5,087

Impairment provision for property, plant and equipment and others

   (14,979   (12,321   (11,803   (31,680   (33,240   (14,979

Operating expenses related to plants stoppage

   (3,926   (3,917   (5,102   (2,718   (7,275   (3,926

Expenses related to projects

   (1,620   (532   (7,447   (15,497   (2,139   (1,620

Start-up costs

   —      —      (9,591

Loss of asset sales

   (2,283   (2,475   (2,406   (8,533   (4,691   (2,283

Loss and repair of assets

   (1,307   (316   (126   (430   (3,739   (1,307

Loss of forest due to fires

   (15,193   (34,850   (31,512

Loss of forest due to fires (**)

   (2,584   (138,139   (15,193

Other Taxes

   (8,261   (8,981   (7,540   (16,821   (17,463   (8,261

Research and development expenses

   (2,684   (2,604   (3,105   (1,888   (2,594   (2,684

Severance payments and evictions

   (4,208   (1,748   (8,256

Fines, readjustments and interests

   (1,004   (1,139   (3,749   (788   (3,675   (1,004

Loss on disposal of associates

   (10,369   —      —      —      —      (10,369

Other expenses

   (10,140   (9,764   (41,242   (10,586   (22,862   (10,140

Classes of financing income

            

Financing income, total

   29,701    50,284    30,772    20,895    19,640    29,701 

Financial income from mutual funds – term deposits

   11,439    15,128    13,786    13,177    11,023    11,439 

Financial income resulting from swap – forward instruments

   7,226    4,439    4,673    596    3,602    7,226 

Financial income resulting from loans with related companies

   —      17,629    6,570 

Other financial income

   11,036    13,088    5,743    7,122    5,015    11,036 

Classes of financing costs

            

Financing costs, Total

   (258,467   (262,962   (246,473   (214,779   (287,958   (258,467

Interest expense, Banks loans

   (33,224   (40,690   (32,978   (29,320   (31,014   (33,224

Interest expense, Bonds

   (183,203   (189,526   (186,186   (142,846   (223,602   (183,203

Interest expense, other financial instruments

   (17,221   (7,260   (8,612   (18,716   (15,706   (17,221

Other financial costs

   (24,819   (25,486   (18,697   (23,897   (17,636   (24,819

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

            

Total

   23,939    6,748    7,481    17,246    17,017    23,939 

Investments in associates

   16,348    5,573    6,958    3,043    4,855    16,348 

Joint ventures

   7,591    1,175    523    14,203    12,162    7,591 

 

(*)

Other operating results” includes incomes 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.

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

 

  January - December   January - December 

Cost of sales

  2016
ThU.S.$
   2015
ThU.S.$
   2014
ThU.S.$
   2018
ThU.S.$
   2017
ThU.S.$
   2016
ThU.S.$
 

Timber

   736,399    641,821    808,991    691,129    725,114    736,399 

Forestry labor costs

   600,320    636,100    655,257    672,233    631,276    600,320 

Depreciation and amortization

   377,983    371,851    323,306 

Depreciation

   377,557    389,847    377,983 

Maintenance costs

   313,500    305,701    278,280    280,715    262,764    313,500 

Chemical costs

   479,335    539,856    541,327    560,241    517,478    479,335 

Sawmill Services

   117,340    128,801    129,052    140,106    109,776    117,340 

Other Raw Materials

   221,950    226,342    184,836    228,701    188,874    221,950 

Other Indirect costs

   143,074    138,900    126,129    185,424    178,447    143,074 

Energy and fuel

   139,527    172,077    231,120    207,712    186,041    139,527 

Cost of electricity

   39,960    41,674    78,760    34,301    42,008    39,960 

Wage and salaries

   329,517    308,302    297,088    344,630    342,907    329,517 

Total

   3,498,905    3,511,425    3,654,146    3,722,749    3,574,532    3,498,905 

 

   January - December 

Distribution cost

  2016
ThU.S.$
   2015
ThU.S.$
   2014
ThU.S.$
 

Selling costs

   33,557    48,160    48,656 

Commissions

   13,880    15,801    16,201 

Insurance

   3,216    4,601    5,330 

Provision for doubtful accounts

   910    3,137    2,497 

Other selling costs

   15,551    24,621    24,628 

Shipping and freight costs

   462,916    480,310    508,181 

Port services

   28,028    26,216    28,906 

Freights

   357,442    387,081    402,386 

Other shipping and freight costs

   77,446    67,013    76,889 

Total

   496,473    528,470    556,837 
(*)

Total amount is composed of the cost of inventory sales for ThU.S.$ 3,662,348 (ThU.S.$3,510,009 and ThU.S.$ 3,423,439 at December 31, 2017 and 2016, respectively) and the cost of rendering services for ThU.S.$ 60,401 (ThU.S.$ 64,523 as of December 31, 2017)

 

   January - December 

Administrative expenses

  2016
ThU.S.$
   2015
ThU.S.$
   2014
ThU.S.$
 

Wages and salaries

   198,129    227,407    215,662 

Marketing, advertising, promotion and publications expenses

   9,937    10,422    11,343 

Insurance

   21,526    28,216    32,367 

Depreciation and amortization

   29,285    24,587    25,686 

Computer services

   36,285    31,897    25,136 

Lease rentals (offices, other property and vehicles)

   14,209    13,527    10,209 

Donations, contributions, scholarships

   10,396    11,172    10,407 

Fees (legal and technical advisors)

   43,899    49,556    51,301 

Property taxes, city permits and rights

   16,275    19,196    20,790 

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

   94,528    135,997    147,908 

Total

   474,469    551,977    550,809 

       January-December 

Expenses for

  Note   2016
ThU.S.$
   2015
ThU.S.$
   2014
ThU.S.$
 

Depreciation

   7    394,835    388,192    340,959 

Employee benefits

   10    532,957    537,629    525,220 

Amortization

   19    14,552    11,953    12,475 
   January - December 

Distribution cost

  2018
ThU.S.$
   2017
ThU.S.$
   2016
ThU.S.$
 

Selling costs

   39,402    39,175    33,557 

Commissions

   14,629    14,880    13,880 

Insurance

   4,266    3,620    3,216 

Provision for doubtful accounts

   3,144    (245   910 

Other selling costs

   17,363    20,920    15,551 

Shipping and freight costs

   517,403    484,125    462,916 

Port services

   28,064    30,996    28,028 

Freights

   440,886    409,801    382,894 

Other shipping and freight costs (internation, warehousing, stowage, customs and other costs)

   48,453    43,328    51,994 

Total

   556,805    523,300    496,473 
   January - December 

Administrative expenses

  2018
ThU.S.$
   2017
ThU.S.$
   2016
ThU.S.$
 

Wages and salaries

   247,927    218,720    198,042 

Marketing, advertising, promotion and publications expenses

   12,650    10,046    9,937 

Insurances

   15,538    17,122    21,526 

Depreciation and amortization

   27,879    28,210    29,285 

Computer services

   27,434    27,193    27,735 

Lease rentals (offices, other property and vehicles)

   14,249    14,195    13,391 

Donations, contributions, scholarships

   13,952    12,772    10,396 

Fees (legal and technical advisors)

   51,039    43,107    43,809 

Property taxes, city permits and rights

   17,645    17,281    15,962 

Cleaning services, security services and transportation

   24,089    25,153    26,975 

Third-party variable services (maneuvers, logistics)

   43,573    46,097    40,277 

Basic services

   9,467    8,423    8,653 

Maintenance and repair

   6,973    5,579    7,617 

Seminars, courses, training materials

   3,117    2,526    3,560 

Other administration expenses (travels, clothing and safety equipment, enviromental expenses, audits and others)

   45,752    44,870    17,304 

Total

   561,284    521,294    474,469 

NOTE 4.

INVENTORIES

 

Components of Inventory

  12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Raw materials

   61,252    85,999    56,213    103,049 

Production supplies

   102,760    97,755    122,794    98,548 

Work in progress

   59,332    62,475    66,432    56,194 

Finished goods

   468,544    503,059    610,203    441,726 

Spare Parts

   160,724    160,700    174,554    168,945 

Total Inventories

   852,612    909,988    1,030,196    868,462 

Inventories recognized as cost of sales at December 31, 20162018 were ThU.S.$3,423,4393,662,348 (ThU.S.$3,416,2353,510,009 and ThU.S.$3,569,213 3,423,439 at December 31, 20152017 and 2014,2016, respectively).

In order to have the inventories recorded at net realizable value at December 31, 2016,2018, a net decrease of inventories was recognized associated with a higher provision of obsolescence of ThU.S.$8,3972,038 (ThU.S.$6,9091,264 and ThU.S.$ 2,9678,397 at December 31, 20152017 and 2014,2016, respectively). As of December 31, 2016,2018, the amount of obsolescence provision is ThU.S.$28,49929,658 (ThU.S.$20,10228,684 at December 31, 2015)2017).

At December 31, 20162018, there were inventory write-offs of ThU.S.$1,3326,760 (ThU.S.$4,215 1,427 and ThU.S.$ 5481,332 at December 31, 20152017 and 2014,2016, respectively)

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

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

Agricultural Products

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

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.

Theinvestment objective of time deposits is to maximize the amounts of cash surpluses in the short-term. These instruments are permitted under Arauco’s Investment Policy which allows investing in fixed income securities. These instruments have a maturity of less than three months from the date of acquisition.

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

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

 

  12-31-2016   12-31-2015 

Components of Cash and Cash Equivalents

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

Cash on hand

   3,156    201    126    148 

Bank checking account balances

   146,290    143,123    327,006    209,037 

Time deposits

   247,391    159,912    478,775    292,105 

Mutual funds

   195,416    196,789    270,035    73,170 

Other cash and cash equivalents (*)

   —      15,426 

Total

   592,253    500,025    1,075,942    589,886 

(*) Applies to purchase contracts with resale commitments.

The risk classification of the mutual funds in effect as of December 31, 20162018 and December 31, 20152017 is shown below.

 

  December
2016
ThU.S.$
   December
2015
ThU.S.$
   December
2018
ThU.S.$
   December
2017
ThU.S.$
 

AAAfm

   192,895    196,749    268,237    64,471 

AAfm

   2,521    40 

No classification

   1,798    8,699 

Total Mutual Funds

   195,416    196,789    270,035    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    534,474    (453,789  (28,397  30,133    761   (1,204  940,435 

Hedging liabilities

   5,393    —      —     (803  —      (138  67,147   71,599 

Bonds and promissory notes

   3,302,685    329,077    (21,495  (143,080  144,116    (112,773  3,124   3,501,654 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total

   4,166,535    863,551    (475,284  (172,280  174,249    (112,150  69,067   4,513,688 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
       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 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

NOTE 6.

INCOME TAXES

The tax rates applicable in the countries in which Arauco operates are 24%27% in Chile, 35%30% in Argentina, 34% in Brazil, 25% in Uruguay and 34%21% in the United States (federal tax).

On September 29, 2014, the Official Gazette publishedenacted 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 29,28, 2016, the Official Gazette publishesenacted 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 effect onmost relevant amendments of this law include the resultsreduction of operationsthe income tax rate, from 35% as to 21% by 2018 fiscal year. This amendment generated a benefit of ThU.S.$ 17,600 for the year endedArauco’s subsidiaries in that country as of December 31, 2014 due to the change in tax rate was an expense of ThU.S.$ 292,717, which was generated mainly from the2017, as a result of the expected reversalreduction of temporary defferences associated with property, plant, equipmentthe 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 biological assets.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.

Deferred Tax Assets

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

 

  12-31-2018 12-31-2017 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

   5,771   13,498    6,105   7,433 

Deferred tax Assets relating to Accrued Liabilities

   11,716   8,535    10,906   11,267 

Deferred tax Assets relating to Post-Employment benefits

   17,618   15,480    19,072   19,276 

Deferred tax Assets relating to Property, Plant and equipment

   9,806   7,730    10,125   11,657 

Deferred tax Assets relating to Financial Instruments

   12,699   21,805    9,761   4,348 

Deferred tax Assets relating to Tax Loss Carryforward

   50,917   35,751    109,320   62,706 

Deferred tax Assets relating to Inventories

   7,158   4,240    5,532   5,941 

Deferred tax Assets relating to Provisions for Income

   7,069   3,997    7,443   21,354 

Deferred tax Assets relating to Allowance for Doubtful Accounts

   4,886   4,572    5,001   5,149 

Intangible revaluation differences

   10   56    7,651   10,389 

Deferred tax Assets relating to Other Deductible Temporary Differences

   30,216   24,587    21,108   27,364 

Total Deferred Tax Assets

   157,866   140,251    212,024   186,884 

Netting presentation

   (151,769  (136.516
  

 

  

 

 

Offsetting presentation

   (207,389  (178,618
  

 

  

 

 

Net Effect

   6,097   3,735    4,635   8,266 
  

 

  

 

 

Certain subsidiaries of Arauco mainly in Chile, Brazil and Uruguay, as of the date of these consolidated financial statements, present tax losses for which we estimate that, given the projection of future profits, will allow the recovery of these assets. The total amount of these tax losses is ThU.S.$157,403368,938 (ThU.S.$112,383 216,397 at December 31, 2015)2017), which are mainly originated by operational and financial losses.

In addition, as of the closing of these consolidated financial statements there are ThU.S.$ 76,280183,162 (ThU.S.$ 114,507167,862 at December 31, 2015)2017) ofnon-recoverable tax losses from companies in Uruguay as joint operations based on the participation of Arauco and subsidiaries in USA, for which deferred tax assets have not been recognized. The estimated recovery period exceeds the expiry date of such tax losses.

Deferred Tax Liabilities

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

 

  12-31-2016 12-31-2015   12-31-2018 12-31-2017 

Deferred Tax Liabilities

  ThU.S.$ ThU.S.$   ThU.S.$ ThU.S.$ 

Deferred tax Liabilities relating to Property, Plant and Equipment

   934,892   930,608    829,288   860,498 

Deferred tax Liabilities relating to Financial Instruments

   7,186   6,376    14,225   12,684 

Deferred tax Liabilities relating to Biological Assets

   719,577   693,103    661,582   676,876 

Deferred tax Liabilities relating to Inventory

   31,072   31,912    39,025   32,580 

Deferred tax Liabilities relating to Prepaid Expenses

   42,881   40,907    37,897   41,600 

Deferred tax Liabilities relating to Intangible

   27,222   26,419    20,240   22,014 

Deferred tax Liabilities relating to Other Taxable Temporary Differences

   20,004   26,203    22,790   17,731 

Total Deferred Tax Liabilities

   1,782,834   1,755,528    1,625,047   1,663,983 

Netting presentation

   (151,769  (136,516
  

 

  

 

 

Offsetting presentation

   (207,389  (178,618
  

 

  

 

 

Net Effect

   1,631,065   1,619,012    1,417,658   1,485,365 
  

 

  

 

 

The effect of changes in current and deferred tax liabilities related to financial hedging instruments corresponds to a debitcredit of ThU.S.$17,3554,474 for the year ended December 31, 20162018 (compared to a credit of ThU.S.$1,889 1,591 for the year ended December 31, 2015)2017), which is presented in the Consolidated Statements of Comprehensive Income and accumulatednet in Reserves for Cash Flow Hedges in the Consolidated Statement of changes in Equity.

Reconciliation of deferred tax assets and liabilities

 

Deferred Tax Assets

  Opening
Balance
01-01-2016
ThU.S.$
   Deferred
tax
Expenses
(Income)
ThU.S.$
 Deferred
tax of
items
charged
to other
comprehensive
income
ThU.S.$
 Increase
(decrease)
Net
exchange
differences
ThU.S.$
   Closing
balance
12-31-2016
ThU.S.$
   Opening
Balance
01-01-2018
IAS 39
ThU.S.$
   Amounts
restated
ThU.S.$
   Opening
Balance
01-01-2018
IFRS 9
ThU.S.$
   Deferred
tax
Expenses
(Income)
ThU.S.$
 Deferred
tax of
items
charged
to other
comprehensive
income
ThU.S.$
 Increase
(decrease)
Net
exchange
differences
ThU.S.$
 Closing
balance
12-31-2018
ThU.S$
 

Deferred tax Assets relating to Provisions

   13,498    (8,019  —     292    5,771    7,433      7,433    (1,015  —     (313  6,105 

Deferred tax Assets relating to Accrued Liabilities

   8,535    3,181   —     —      11,716    11,267      11,267    (361  —     —     10,906 

Deferred tax Assets relating to Post-Employment benefits

   15,480    579   1,509   50    17,618    19,276      19,276    297   (504  3   19,072 

Deferred tax Assets relating to Property, Plant and equipment

   7,730    2,076   —     —      9,806    11,657      11,657    (1,532  —     —     10,125 

Deferred tax Assets relating to Financial Instruments

   21,805    1,500   (10,606  —      12,699    4,348    709    5,057    (507  5,211   —     9,761 

Deferred tax Assets relating to Tax Loss Carryforward

   35,751    11,498   —     3,668    50,917    62,706      62,706    53,103   —     (6,489  109,320 

Deferred tax Assets relating to Inventories

   4,240    2,918   —     —      7,158    5,941      5,941    (378  —     (31  5,532 

Deferred tax Assets relating to Provisions for Income

   3,997    3,050   —     22    7,069    21,354      21,354    (13,910  —     (1  7,443 

Deferred tax Assets relating to Allowance for Doubtful Accounts

   4,572    261   —     53    4,886    5,149    918    6,067    (843  —     (223  5,001 

Intangible revaluation differences

   56    (46  —     —      10    10,389      10,389    (1,244  —     (1,494  7,651 

Deferred tax Assets relating to Other Deductible Temporary Differences

   24,587    3,593   —     2,036    30,216    27,364      27,364    (3,838  —     (2,418  21,108 

Total Deferred Tax Assets

   140,251    20,591   (9,097  6,121    157,866    186,884    1,627    188,511    29,772   4,707   (10,966  212,024 

Deferred Tax Liabilities

  Opening
Balance
01-01-2018
IAS 39
ThU.S.$
   Amounts
restated
ThU.S.$
   Opening
Balance
01-01-2018
IFRS 9
ThU.S.$
   Deferred
tax
Expenses
(Income)
ThU.S.$
 Deferred
tax of
items
charged
to other
comprehensive
income
ThU.S.$
 Increase
(decrease)
Net
exchange
differences
ThU.S.$
 Closing
balance
12-31-2018
ThU.S$
 

Deferred tax Liabilities relating to Property, Plant and Equipment

   860,498    —      860,498    (23,428  —     (7,782  829,288 

Deferred tax Liabilities relating to Financial Instruments

   12,684    —      12,684    1,542   —     (1  14,225 

Deferred tax Liabilities relating to Biological Assets

   676,876    —      676,876    2,060   —     (17,354  661,582 

Deferred tax Liabilities relating to Inventory

   32,580    —      32,580    6,445   —     —     39,025 

Deferred tax Liabilities relating to Prepaid Expenses

   41,600    —      41,600    (3,703  —     —     37,897 

Deferred tax Liabilities relating to Intangible

   22,014    —      22,014    (562  —     (1,212  20,240 

Deferred tax Liabilities relating to Other Taxable Temporary Differences

   17,731    —      17,731    6,450   —     (1,391  22,790 

Total Deferred Tax Liabilities

   1,663,983    —      1,663,983    (11,196  —     (27,740  1,625,047 

 

Deferred Tax Liabilities

  Opening
Balance
01-01-2016
ThU.S.$
   Deferred
tax
Expenses
(Income)
ThU.S.$
  Deferred
tax of
items
charged
to other
comprehensive
income
ThU.S.$
   Increase
(decrease)
Net
exchange
differences
ThU.S.$
  Closing
balance
12-31-2016
ThU.S.$
 

Deferred tax Liabilities relating to Property, Plant and Equipment

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

Deferred tax Liabilities relating to Financial Instruments

   6,376    810   —      —     7,186 

Deferred tax Liabilities relating to Biological Assets

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

Deferred tax Liabilities relating to Inventory

   31,912    (840  —      —     31,072 

Deferred tax Liabilities relating to Prepaid Expenses

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

Deferred tax Liabilities relating to Intangible

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

Deferred tax Liabilities relating to Other Taxable Temporary Differences

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

Total Deferred Tax Liabilities

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

Deferred Tax Assets

  Opening
Balance
01-01-2015
ThU.S.$
   Deferred
tax
Expenses
(Income)
ThU.S.$
  Deferred
tax of
items
charged
to other
comprehensive
income
ThU.S.$
   Increase
(decrease)
from
business
combinations
ThU.S.$
   Increase
(decrease)
Net
exchange
differences
ThU.S.$
  Closing
balance
12-31-2015
ThU.S.$
 

Deferred tax Assets relating to Provisions

   14,923    (813  —      —      (612  13,498 

Deferred tax Assets relating to accrued liabilities

   11,120    (2,561  —      —      (24  8,535 

Deferred tax Assets relating to Post-Employment benefits

   13,859    971   692    —      (42  15,480 

Deferred tax Assets relating to Property, Plant and equipment

   11,199    (3,469  —      —      —     7,730 

Deferred tax Assets relating to Financial Instruments

   14,129    23   7,653    —      —     21,805 

Deferred tax Assets relating to tax losses carryforward

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

Deferred tax Assets relating to Inventories

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

Deferred tax Assets relating to Provisions for Income

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

Deferred tax Assets relating to Allowance for Doubtful Accounts

   3,855    797   —      —      (80  4,572 

Intangible revaluation differences

   1,080    (1,024  —      —      —     56 

Deferred tax Assets relating to other deductible temporary differences

   34,302    (8,892  —      —      (823  24,587 

Total Deferred Tax Assets

   158,283    (16,265  8,345    —      (10,112  140,251 

Deferred Tax Assets

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

   14,300    7,054   —     —      —     21,354 

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

   22,985    (3,807  —     9,134    (948  27,364 

Total Deferred Tax Assets

   157,866    13,351   (10,437  28,640    (2,536  186,884 

Deferred Tax Liabilities

  Opening
Balance
01-01-2015
ThU.S.$
   Deferred
tax
Expenses
(Income)
ThU.S.$
 Deferred
tax of
items
charged
to other
comprehensive
income
ThU.S.$
   Increase
(decrease)
from
business
combination
ThU.S.$
   Increase
(decrease)
Net
exchange
differences
ThU.S.$
 Closing
balance
12-31-2015
ThU.S.$
   Opening
Balance
01-01-2017
ThU.S.$
   Deferred
tax
Expenses
(Income)
ThU.S.$
 Deferred
tax of
items
charged
to other
comprehensive
income
ThU.S.$
 Increase
(decrease)
through
Business
Combination
ThU.S.$
   Increase
(decrease)
Net
exchange
differences
ThU.S.$
 Closing
balance
12-31-2017
ThU.S$
 

Deferred tax Liabilities relating to Property, Plant and Equipment

   941,666    5,221   —      —      (16,279  930,608    934,892    (82,445  —     9,735    (1,684  860,498 

Deferred tax Liabilities relating to Financial Instruments

   4,906    1,470   —      —      —     6,376    7,186    5,497   —     —      1   12,684 

Deferred tax Liabilities relating to Biological Assets

   681,505    18,823   —      16,051    (23,276  693,103    719,577    (79,947  —     37,997    (751  676,876 

Deferred tax Liabilities relating to Inventory

   25,688    6,224   —      —      —     31,912    31,072    1,508   —     —      —     32,580 

Deferred tax Liabilities relating to Prepaid Expenses

   40,888    (184  —      —      203   40,907    42,881    (1,281  —     —      —     41,600 

Deferred tax Liabilities relating to Intangible

   32,990    2,666   —      —      (9,237  26,419    27,222    (4,880  —     —      (328  22,014 

Deferred tax Liabilities relating to Other Taxable Temporary Differences

   29,506    (7,961  —      —      4,658   26,203    20,004    (6,730  —     4,467    (10  17,731 

Total Deferred Tax Liabilities

   1,757,149    26,259   —      16,051    (43,931  1,755,528    1,782,834    (168,278  —     52,199    (2,772  1,663,983 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

  12-31-2018   12-31-2017 
  Deductible   Taxable   Deductible   Taxable 
  12-31-2016   12-31-2015   Difference   Difference   Difference   Difference 

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

   106,949      104,500      102,704      124,178   

Deferred Tax Assets - Tax loss carryforward

   50,917      35,751      109,320      62,706   

Deferred Tax Liabilities

     1,782,834      1,755,528      1,625,047      1,663,983 

Total

   157,866    1,782,834    140,251    1,755,528    212,024    1,625,047    186,884    1,663,983 

 

  January - December 
  January - December   2018 2017   2016 

Detail of Temporary Difference Income and Loss Amounts

  2016
ThU.S.$
 2015
ThU.S.$
 2014
ThU.S.$
   ThU.S.$ ThU.S.$   ThU.S.$ 

Deferred Tax Assets

   9,093   (15,306  (6,758   (23,331  6,079    9,093 

Deferred Tax Assets - Tax loss carryforward

   11,498   (959  (9,008   53,103   7,270    11,498 

Deferred Tax Liabilities

   (3,868  (26,259  (317,131   11,196   168,279    (3,868

Total

   16,723   (42,524  (332,897   40,968   181,628    16,723 

Income Tax Expense

Income tax expense consists of the following:

 

  January - December 
  January - December   2018 2017 2016 

Income Tax composition

  2016
ThU.S.$
 2015
ThU.S.$
 2014
ThU.S.$
   ThU.S.$ ThU.S.$ ThU.S.$ 

Current income tax expense

   (58,831  (87,908  (127,057   (270,252  (155,292  (58,831

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

   4,471   3,018   —   

Prior period current income tax adjustments

   (6,899  4,033   2,555    (1,732  (227  (6,899

Other current benefit tax (expenses)

   3,360   (3,295  8,747    (220  1,865   3,360 

Current Tax Expense, Net

   (62.370  (87,170  (115,755   (267,733  (150,636  (62,370

Deferred tax expense relating to origination and reversal of temporary differences

   5,225   (41,565  (30,753   (12,135  174,358   5,225 

Deferred tax expense relating to changes in tax rates

   —     —     (292,717

Tax benefit arising from previously unrecognized tax loss carryforward

   11,498   (959  (9,427   53,103   7,270   11,498 

Total deferred Tax Expense, Net

   16,723   (42,524  (332,897

Income Tax Expense, Total

   (45,647  (129,694  (448,652

Total deferred Tax benefit (expense), Net

   40,968   181,628   16,723 

Income Tax benefit (expense), Total

   (226,765  30,992   (45,647

The following table presents the current income tax expense detailed by foreign and domestic (Chile) companies at December 31, 2016, 20152018, 2017 and 2014:2016:

 

   January - December 
    2016
ThU.S.$
  2015
ThU.S.$
  2014
ThU.S.$
 

Foreign current income tax expense

   (27,931  (33,129  (30,458

Domestic current income tax expense

   (34,439  (54,041  (85,297

Total current income tax expense

   (62,370  (87,170  (115,755

Foreign deferred tax expense

   7,794   (17,240  (25,806

Domestic deferred tax expense

   8,929   (25,284  (307,091

Total deferred tax expense

   16,723   (42,524  (332,897

Total tax expense

   (45,647  (129,694  (448,652
   January - December 
    2018
ThU.S.$
  2017
ThU.S.$
  2016
ThU.S.$
 

Foreign current income tax expense

   (35,442  (28,071  (27,931

Domestic current income tax expense

   (232,291  (122,565  (34,439

Total current income tax expense

   (267,733  (150,636  (62,370

Foreign deferred tax benefit (expense)

   19,940   94,228   7,794 

Domestic deferred tax benefit (expense)

   21,028   87,400   8,929 

Total deferred tax benefit (expense)

   40,968   181,628   16,723 

Total tax benefit (expense)

   (226,765  30,992   (45,647

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

The reconciliation of income tax expense is as follows:

 

  January - December 
  January - December   2018 2017 2016 

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

  2016
ThU.S.$
 2015
ThU.S.$
 2014
ThU.S.$
   ThU.S.$ ThU.S.$ ThU.S.$ 

Statutory domestic (Chile) income tax rate

   24  22.5  21   27.0  25.5  24.0

Tax Expense at statutory tax rate

   (63,174  (111,916  (124,493   (257,451  (61,037  (63,174

Tax effect of foreign tax rates

   (13,368  (16,099  (23,170   3,464   (7,118  (13,368

Tax effect of revenues exempt from taxation

   33,834   41,268   9,832    82,521   40,133   33,834 

Tax effect of not deductible expenses

   (10,987  (40,866  (19,203   (53,510  (28,783  (10,987

Tax rate effect of tax loss carry forwards

   —     14   (515   15   (44  —   

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

   —     (857  (2,935   (91  195   —   

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

   17,157   307   12    —     5,311   17,157 

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

   (3,681  (3,445  (292,717   —     78,946   (3,681

Tax rate effect of adjustments for current tax of prior periods

   (6,899  4,033   2,555    (1,732  (227  (6,899

Other tax rate effects

   1,471   (2,128  1,982    19   3,616   1,471 

Total adjustments to tax expense at applicable tax rate

   17,527   (17,778  (324,159   30,686   92,029   17,527 

Tax expense at effective tax rate

   (45,647  (129,694  (448,652

Tax benefit (expense) at effective tax rate

   (226,765  30,992   (45,647

Current tax liabilities

The current tax liabilities balances are as follow:

   12-31-2018  12-31-2017 

Current tax Liabilities

  ThU.S.$  ThU.S.$ 

Provision tax income (First category)

   260,538   126,404 

Monthly Provisional Payments (MPP)

   (107,023  (119,753

Other taxes

   127   1,437 
  

 

 

  

 

 

 

Total

   153,642   8,088 
  

 

 

  

 

 

 

NOTE 7.

PROPERTY, PLANT AND EQUIPMENT

 

  12-31-2016   12-31-2015   12-31-2018   12-31-2017 

Property, Plant and Equipment, Net

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

Construction in progress

   321,031    251,519 

Construction work in progress

   1,030,730    597,351 

Land

   991,450    951,638    972,143    1,008,310 

Buildings

   2,169,731    2,182,643    2,062,887    2,135,201 

Plant and equipment

   3,256,348    3,346,675    2,921,462    3,112,755 

Information technology equipment

   24,154    26,210    23,292    22,665 

Fixtures and fittings

   9,880    11,860    15,906    12,297 

Motor vehicles

   16,858    16,721    14,916    15,959 

Other property, plant and equipment

   130,043    109,130    133,357    129,761 

Total Net

   6,919,495    6,896,396    7,174,693    7,034,299 

Property, Plant and Equipment, Gross

        

Construction in progress

   321,031    251,519 

Construction work in progress

   1,030,730    597,351 

Land

   991,450    951,638    972,143    1,008,310 

Buildings

   3,825,259    3,698,351    3,959,186    3,926,157 

Plant and equipment

   6,128,494    5,927,789    6,388,843    6,410,561 

Information technology equipment

   76,421    73,573    86,558    82,765 

Fixtures and fittings

   33,613    35,283    44,694    40,388 

Motor vehicles

   48,534    45,503    53,507    49,756 

Other property, plant and equipment

   153,838    131,894    157,301    159,720 

Total Gross

   11,578,640    11,115,550    12,692,962    12,275,008 

Accumulated depreciation and impairment

        

Buildings

   (1,655,528   (1,515,708   (1,896,299   (1,790,956

Plant and equipment

   (2,872,146   (2,581,114   (3,467,381   (3,297,806

Information technology equipment

   (52,267   (47,363   (63,266   (60,100

Fixtures and fittings

   (23,733   (23,423   (28,788   (28,091

Motor vehicles

   (31,676   (28,782   (38,591   (33,797

Other property, plant and equipment

   (23,795   (22,764   (23,944   (29,959

Total

   (4,659,145   (4,219,154   (5,518,269   (5,240,709

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

As of December 31, 2016,2018, there are no significant assets pledged as collateral to be disclosed in these consolidated financial statements.

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

 

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

Amount committed for the acquisition of property, plant and equipment

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

Disbursements for property, plant and equipment under construction

   317,159    215,035 
    12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Amount committed for the acquisition of property, plant and equipment

   798,631    112,924 

Reconciliation of Property, Plant and Equipment

The following tables set forth the reconciliation of the carrying amount of property, plant and equipment as of December 31, 20162018 and December 31, 2015:2017:

 

Movement of Property, Plant and
Equipment

 Construction
in progress
ThU.S.$
 Land
ThU.S.$
 Buildings
ThU.S.$
 Plant and
equipment
ThU.S.$
 IT
Equipment
ThU.S.$
 Fixtures
and fittings
ThU.S.$
 Motor
vehicles
ThU.S.$
 Other
Property, Plant
and Equipment
ThU.S.$
 TOTAL
ThU.S.$
   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 Balance01-01-2016

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

Changes

         

Additions

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

Disposals

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

Retirements

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

Depreciation

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

Impairment loss recognized in profit or loss

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

Increase (decrease) through net exchange differences

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

Reclassification of assets held for sale

  —     —     —     341   —     —     —     —     341 

Increase (decrease) through transfers from construction in progress

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

Total changes

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

Closing balance12-31-2016

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

Movement of Property, Plant and
Equipment

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

Opening Balance01-01-2015

  265,440   949,531   2,172,177   3,565,502   28,521   11,654   17,346   109,412   7,119,583 

Opening Balance01-01-2018

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

Changes

                   

Additions

  215,035   50,504   17,360   139,749   2,178   2,234   1,829   9,774   438,663    660,918   3   6,949   42,467   1,125   1,146   2,352   15,516   730,476 

Acquisitions through business combinations

  —     —     1,474   7   —     15   —     —     1,496    —     3,900   —     4,887   —     —     —     —     8,787 

Disposals

  (20  (591  (456  (583  (78  (5  (432  (10  (2,175   (1,994  (448  (770  (702  (42  —     (129  (528  (4,613

Retirements

  (4,596  (44  (1,389  (1,942  (5  (7  (101  (481  (8,565   (6,269  (4,466  (1,656  (17,680  (42  (28  (84  (5,599  (35,824

Depreciation

  —     —     (117,337  (320,135  (5,302  (2,980  (4,110  (5,915  (455,779   —     —     (125,407  (316,118  (5,791  (2,870  (3,920  (3,660  (457,766

Impairment loss recognized in profit or loss

  —     —     —     (4,065  —     —     —     —     (4,065   —     —     (654  (356  (5  (20  —     —     (1,035

Increase (decrease) through net exchange differences

  (4,432  (52,284  (30,258  (103,972  (290  (519  (300  (6,025  (198,080   (4,115  (34,204  (15,444  (42,059  (175  (210  (217  (6,332  (102,756

Reclassification of assets held for sale

  —     2,759   2,676   (117  —     —     —     —     5,318    —     (2,193  (5  5,323   —     —     —     —     3,125 

Increase (decrease) through transfers from construction in progress

  (219,908  1,763   138,396   72,231   1,186   1,468   2,489   2,375   —      (215,161  1,241   64,673   132,945   5,557   5,591   955   4,199   —   

Total changes

  (13,921  2,107   10,466   (218,827  (2,311  206   (625  (282  (223,187   433,379   (36,167  (72,314  (191,293  627   3,609   (1,043  3,596   140,394 

Closing balance12-31-2015

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

Closing balance12-31-2018

   1,030,730   972,143   2,062,887   2,921,462   23,292   15,906   14,916   133,357   7,174,693 

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 Balance01-01-2017

   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 balance12-31-2017

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

The depreciation expense for the period ending December 31, 2016, 20152018, 2017 and 20142016 is as follows:

 

  January-December   January-December 
  2016   2015   2014   2018   2017   2016 

Depreciation for the year

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

Cost of sales

   371,170    365,401    316,607    377,557    389,847    371,170 

Administrative expenses

   21,546    19,084    19,910    15,530    14,883    21,546 

Other expenses

   2,119    3,707    4,441    1,986    3,494    2,119 

Total

   394,835    388,192    340,958    395,073    408,224    394,835 

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

 

    Years of
Useful
Life
(Average)
 

Buildings

   58 

Plant and equipment

   30 

Information technology equipment

   8 

Fixtures and fittings

   28 

Motor vehicles

   7 

Other property, plant and equipment

   14 

See Note 12 for details of capitalized borrowing costs.

NOTE 8. LEASES

Arauco acting as lessee

 

  12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Property, Plant and Equipment under finance leases

   117,206    132,836    76,020    116,534 

Plant and equipment

   117,206    132,836    76,020    116,534 

Reconciliation of Financial Lease Minimum Payments:

 

    12-31-201612-31-2018 
   Present Value 

Periods

  ThU.S.$ 

Less than one year

   40,40030,916 

Between one and five years

   73,58637,271 

More than five years

   —   

Total

   113,98668,187 
    12-31-201512-31-2017 
   Present Value 

Periods

  ThU.S.$ 

Less than one year

   36,86244,341 

Between one and five years

   90,69768,035 

More than five years

   —   

Total

   127,559112,376 

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

Arauco acting as lessor

Reconciliation of Financial Lease Minimum Payments:

 

  12-31-2016   12-31-2018 
  Gross   Interest   Present Value   Gross   Interest   Present Value 

Periods

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

Less than one year

   512    —      512    1,180    49    1,131 

Between one and five years

   353    —      353    837    —      837 

More than five years

   —      —      —      —      —      —   

Total

   865    —      865    2,017    49    1,968 
  12-31-2015   12-31-2017 
  Gross   Interest   Present Value   Gross   Interest   Present Value 

Periods

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

Less than one year

   10    1    9    12,001    69    11,932 

Between one and five years

   6    —      6    1,174    —      1,174 

More than five years

   —      —      —      —      —      —   

Total

   16    1    15    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 othernon-current receivable” depending on their maturities stated above.

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

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

 

NOTE 9.

REVENUE

 

  January - December   January - December 

Classes of revenue

  2016
ThU.S.$
   2015
ThU.S.$
   2014
ThU.S.$
   2018
ThU.S.$
   2017
ThU.S.$
   2016
ThU.S.$
 

Revenue from sales of goods

   4,649,581    5,018,138    5,174,936    5,857,584    5,133,339    4,649,581 

Revenue from rendering of services

   111,804    128,602    167,707    97,249    105,002    111,804 

Total

   4,761,385    5,146,740    5,342,643    5,954,833    5,238,341    4,761,385 

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

NOTE 10.

EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

   2016
ThU.S.$
   2015
ThU.S.$
   2014
ThU.S.$
 

Employee expenses

   532,957    537,629    525,220 

Wages and salaries

   506,993    519,066    514,826 

Severance indemnities

   25,964    18,563    10,394 

  2018
ThU.S.$
 2017
ThU.S.$
 2016
ThU.S.$
 

Employee expenses

   627,614   563,117   532,957 

Wages and salaries

   602,936   542,981   506,993 

Severance indemnities

   24,678   20,136   25,964 
  

 

  

 

  

 

 
  2016 2015 2014   2018 2017 2016 

Discount rate

   4.52  4.91  4.61   5.91  5.11  4.52

Inflation

   2.79  2.95  2.97   3.00  2.77  2.79

Annual rate of wage growth

   5.22  5.22  5.79   5.22  5.22  5.22

Mortality rate (1)

   RV-2009   RV-2009   RV-2009    RV-2014   RV-2014   RV-2009 

 

(1)

For the purposes of determining the technical reserves, Chilean annuity providers are required by law to utilize the mortality tables specified by the SVS.SVS (currently Chilean Commission for the Financial Market). The most recent table is theRV-2009,RV-2014, which is based on Chilean pensioner experience from 2002-20072006-2013 (SP & SVS, 2010)2013). The mortality tables distinguish between males and females.

 

Sensitivities to assumptions

  20162018
ThU.S.$
 

Discount rate

  

Increase in 100 bps

   (9,0524,476

Decrease in 100 bps

   10,5725,151 

Wage growth rates

  

Increase in 100 bps

   5,5964,881 

Decrease in 100 bps

   (4,8754,468

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligations as of December 31, 20162018 and December 31, 2015:2017:

 

  12-31-2018 12-31-2017 
  12-31-2016
ThU.S.$
 12-31-2015
ThU.S.$
   ThU.S.$ ThU.S.$ 

Current

   5,244   4,497    5,656   5,730 

Non-current

   60,084   51,936    64,895   66,033 

Total

   65,328   56,433    70,551   71,763 

Reconciliation of the present value of severance indemnities obligations

  12-31-2016
ThU.S.$
 12-31-2015
ThU.S.$
   12-31-2018
ThU.S.$
 12-31-2017
ThU.S.$
 

Opening balance

   56,433   52,172    71,763   65,328 

Current service cost

   5,334   13,032    5,201   5,583 

Interest cost

   2,957   2,257    3,723   3,208 

(Gains) losses from changes in actuarial assumptions

   2,083   (5,723   (172  (3,711

Actuarial gains and losses arising from experience

   3,503   6,980    (1,685  1,212 

Benefits paid

   (7,871  (3,482   (4,773  (5,654

Costs from past services

   4,710   —   

Increase (decrease) for foreign currency exchange rates changes

   2,889   (8,803   (8,216  5,797 

Closing balance

   65,328   56,433    70,551   71,763 

NOTE 11.

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

 

  12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Total Current Assets

   2,722,360    2,686,412    3,441,160    2,770,363 

Cash and Cash Equivalents

   592,253    500,025    1,075,942    589,886 

U.S Dollar

   524,426    388,818    834,513    501,352 

Euro

   2,357    2,501 

Euros

   8,295    4,306 

Brazilian Real

   47,696    21,676    44,605    47,314 

Argentine Pesos

   4,046    40,573    2,854    10,038 

Other currencies

   3,327    2,979    5,375    3,685 

Chilean Pesos

   10,401    43,478    180,300    23,191 

Other current financial assets

   5,201    32,195    497    3,504 

U.S Dollar

   4,879    29,367    497    3,497 

Argentine Pesos

   315    2,828 

Other currencies

   7    —      —      7 

Other currentnon-financial assets

   144,915    133,956    129,854    129,837 

U.S Dollar

   62,246    55,365    49,170    48,632 

Euros

   71    82    125    104 

Brazilian Real

   22,537    16,505    19,018    17,158 

Argentine Pesos

   12,261    3,705    5,855    5,832 

Other currencies

   3,500    4,801    5,325    5,306 

Chilean Pesos

   44,300    53,280    50,361    52,805 

U.F.

   —      218 

Trade and other current receivables

   701,610    733,322    839,184    814,412 

U.S Dollar

   489,056    507,032    631,047    550,674 

Euro

   26,544    27,595 

Euros

   7,399    20,498 

Brazilian Real

   46,150    37,975    66,500    89,673 

Argentine Pesos

   15,137    23,016    15,044    26,863 

Other currencies

   16,620    14,091    15,458    17,702 

Chilean Pesos

   106,681    123,056    99,950    106,442 

U.F.

   1,422    557    3,786    2,560 

Accounts receivable due from related companies

   12,505    3,124 

Accounts receivable from related companies

   7,324    3,488 

U.S Dollar

   274    21    591    726 

Brazilian Real

   726    995    83    171 

Chilean Pesos

   10,548    2,108    6,169    2,192 

U.F.

   957    —      481    399 

Current Inventories

   852,612    909,988    1,030,196    868,462 

U.S Dollar

   812,748    871,629    957,529    809,689 

Brazilian Real

   39,864    38,359    72,667    58,773 

Current biological assets

   306,117    306,529    315,924    307,796 

U.S Dollar

   271,551    272,037    253,672    270,761 

Brazilian Real

   34,566    34,492    62,252    37,035 

Current tax assets

   104,088    64,079    36,513    49,471 

U.S Dollar

   6,199    5,464    16,042    7,769 

Euros

   262    —   

Brazilian Real

   5,798    5,243    4,978    6,721 

Argentine Pesos

   39    2,000 

Other currencies

   2,696    850    1,501    3,188 

Chilean Pesos

   89,356    50,522    13,730    31,793 

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

   3,059    3,194 

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

   5,726    3,507 

U.S Dollar

   3,059    3,194    5,152    2,835 

Brazilian Real

   574    672 

  12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

TotalNon-Current Assets

   11,283,821    10,983,979    11,152,588    11,224,237 

Othernon-current financial assets

   8,868    595    20,346    56,600 

U.S Dollar

   8,868    212    20,346    56,600 

Argentine Pesos

   —      383 

Othernon-currentnon-financial assets

   130,319    125,516    86,948    121,521 

U.S Dollar

   95,658    114,164    79,615    104,711 

Brazilian Real

   4,042    2,987    4,946    4,629 

Argentine Pesos

   9,900    7,138    1,427    11,303 

Other currencies

   636    706    730    693 

Chilean Pesos

   20,083    521    230    185 

Trade and othernon-current receivables

   14,273    15,270    15,149    16,040 

U.S Dollar

   6,895    9,976    7,733    4,247 

Brazilian Real

   1,040    3,345 

Other currencies

   527    729    27    —   

Chilean Pesos

   5,753    3,145    3,267    6,692 

U.F.

   1,098    1,420    3,082    1,756 

Accounts receivable due from related companies, non current

   957    —   

Accounts receivable from related companies,non-current

   481    1,056 

U.F.

   957    —      481    1,056 

Investments accounted for using equity method

   446,548    264,812    358,053    368,772 

U.S Dollar

   124,324    122,416    135,805    130,276 

Euro

   156,990    —   

Euros

   177,548    185,410 

Brazilian Real

   165,203    142,329    42,052    53,080 

Chilean Pesos

   31    67    2,648    6 

Intangible assets other than goodwill

   89,497    88,112    90,093    88,615 

U.S Dollar

   88,394    87,154    87,729    87,007 

Brazilian Real

   1,026    876    2,364    1,516 

Chilean Pesos

   77    82    —      92 

Goodwill

   74,893    69,475    65,851    69,922 

U.S Dollar

   42,508    42,445    42,573    42,656 

Brazilian Real

   32,385    27,030    23,278    27,266 

Property, plant and equipment

   6,919,495    6,896,396    7,174,693    7,034,299 

U.S Dollar

   6,394,105    6,448,616    6,675,290    6,443,081 

Brazilian Real

   520,448    442,959    498,993    585,202 

Chilean Pesos

   4,942    4,821    410    6,016 

Non-current biological assets

   3,592,874    3,520,068    3,336,339    3,459,146 

U.S Dollar

   3,185,872    3,297,710    2,924,266    2,934,819 

Brazilian Real

   407,002    222,358    412,073    524,327 

Deferred tax assets

   6,097    3,735    4,635    8,266 

U.S Dollar

   4,134    3,735    4,558    4,319 

Brazilian Real

   1,697    —      36    3,622 

Other currencies

   52    —      41    32 

Chilean Pesos

   214    —      —      293 

  12-31-2016   12-31-2015   12-31-2018   12-31-2017 
  Up to 90 days   

From 91 days to

1 year

   Total   Up to 90 days   From 91 days to
1 year
   Total   Up to 90 days   From 91 days to
1 year
   Total   Up to 90 days   From 91 days to
1 year
   Total 
  ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$ 

Total Liabilities, current

   806,280    539,784    1,346,064    910,436    123,815    1,034,251    1,160,815    418,949    1,579,764    1,045,364    354,030    1,399,394 

Other current financial liabilities

   196,001    501,451    697,452    189,693    106,345    296,038    121,606    415,990    537,596    148,778    351,566    500,344 

U.S Dollar

   178,442    455,908    634,350    153,361    71,330    224,691    110,329    334,747    445,076    134,125    284,293    418,418 

Brazilian Real

   3,558    1,282    4,840    25,092    2,266    27,358    1,880    4,948    6,828    2,383    4,660    7,043 

Argentine Pesos

   11    29    40    —      356    356 

Chilean Pesos

   1,132    3,387    4,519    902    2,622    3,524    1,334    3,683    5,017    1,508    4,116    5,624 

U.F.

   12,858    40,845    53,703    10,338    29,771    40,109    8,063    72,612    80,675    10,762    58,497    69,259 

Bank Loans

   134,140    61,483    195,623    126,795    72,948    199,743    84,778    130,271    215,049    110,700    282,172    392,872 

U.S Dollar

   130,571    60,172    190,743    101,703    70,326    172,029    82,898    125,323    208,221    108,317    277,512    385,829 

Brazilian Real

   3,558    1,282    4,840    25,092    2,266    27,358    1,880    4,948    6,828    2,383    4,660    7,043 

Argentine Pesos

   11    29    40    —      356    356 

Financial Leases

   9,534    30,866    40,400    9,301    27,561    36,862    7,265    23,651    30,916    9,928    34,413    44,341 

Chilean Pesos

   1,132    3,387    4,519    902    2,622    3,524    1,334    3,683    5,017    1,508    4,116    5,624 

U.F.

   8,402    27,479    35,881    8,399    24,939    33,338    5,931    19,968    25,899    8,420    30,297    38,717 

Other Loans

   52,327    409,102    461,429    53,597    5,836    59,433    29,563    262,068    291,631    28,150    34,981    63,131 

U.S Dollar

   47,871    395,736    443,607    51,658    1,004    52,662    27,431    209,424    236,855    25,808    6,781    32,589 

U.F.

   4,456    13,366    17,822    1,939    4,832    6,771    2,132    52,644    54,776    2,342    28,200    30,542 

Trade and other current payables

   511,371    26,520    537,891    583,018    —      583,018    659,618    —      659,618    717,342    4    717,346 

U.S Dollar

   146,652    3,510    150,162    174,469    —      174,469    184,989    —      184,989    193,562    —      193,562 

Euros

   12,006    1,028    13,034    8,808    —      8,808    7,450    —      7,450    9,099    —      9,099 

Brazilian Real

   4,849    21,982    26,831    25,616    —      25,616    64,873    —      64,873    124,917    —      124,917 

Argentine Pesos

   31,661    —      31,661    27,068    —      27,068    15,590    —      15,590    29,243    —      29,243 

Other currencies

   12,244    —      12,244    17,619    —      17,619    9,650    —      9,650    4,936    —      4,936 

Chilean Pesos

   285,359    —      285,359    324,361    —      324,361    348,886    —      348,886    333,525    4    333,529 

U.F.

   18,600    —      18,600    5,077    —      5,077    28,180    —      28,180    22,060    —      22,060 

Accounts payable to related companies

   3,831    —      3,831    7,141    —      7,141    10,229    —      10,229    11,208    —      11,208 

U.S Dollar

   1,969    —      1,969    962    —      962    1,777    —      1,777    1,354    —      1,354 

Chilean Pesos

   1,862    —      1,862    6,179    —      6,179    8,452    —      8,452    9,854    —      9,854 

Other current provisions

   842    —      842    858    —      858    413    —      413    2,728    —      2,728 

U.S Dollar

   842    —      842    858    —      858    413    —      413    622    —      622 

Brazilian Real

   —      —      —      2,106    —      2,106 

Current tax liabilities

   1,641    —      1,641    10,030    946    10,976    152,994    648    153,642    6,361    1,727    8,088 

U.S Dollar

   448    —      448    6,380    —      6,380    88    —      88    283    —      283 

Euros

   7    —      7    1,093    —      1,093    7    —      7    158    —      158 

Brazilian Real

   —      —      —      530    —      530 

Argentine Pesos

   133    —      133    24    —      24    16,730    —      16,730    46    —      46 

Other currencies

   574    —      574    1,716    —      1,716    102    —      102    479    —      479 

Chilean Pesos

   479    —      479    287    946    1,233    136,067    648    136,715    5,395    1,727    7,122 

Current provisions for employee benefits

   5,214    30    5,244    1,751    2,746    4,497    4,923    733    5,656    5,595    135    5,730 

Brazilian Real

   51    —      51    —      —      —   

Chilean Pesos

   5,214    30    5,244    1,751    2,746    4,497    4,872    733    5,605    5,595    135    5,730 

Other currentnon-financial liabilities

   87,380    11,783    99,163    117,945    13,778    131,723    211,032    1,578    212,610    153,352    598    153,950 

U.S Dollar

   62,974    163    63,137    79,673    13,633    93,306    187,740    606    188,346    119,309    582    119,891 

Euros

   53    —      53    44    —      44    49    —      49    77    —      77 

Brazilian Real

   9,426    11,616    21,042    22,251    —      22,251    12,340    —      12,340    18,016    —      18,016 

Argentine Pesos

   3,474    —      3,474    4,428    139    4,567    3,037    —      3,037    3,215    —      3,215 

Other currencies

   3,202    —      3,202    3,704    —      3,704    4,104    —      4,104    3,906    —      3,906 

Chilean Pesos

   8,183    4    8,187    7,823    6    7,829    3,762    972    4,734    8,809    16    8,825 

U.F.

   68    —      68    22    —      22    —      —      —      20    —      20 

  12-31-2016   12-31-2015   12-31-2018   12-31-2017 
  

From 13

months to 5

years

   

More than 5

years

   Total   

From 13

months to 5

years

   

More than 5

years

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

Totalnon-current liabilities

   3,599,291    2,061,543    5,660,834    3,732,206    2,257,489    5,989,695    2,506,687    3,168,326    5,675,013    3,025,553    2,452,760    5,478,313 

Othernon-current financial liabilities

   2,020,484    1,850,430    3,870,914    2,141,600    2,095,365    4,236,965    1,451,888    2,592,391    4,044,279    1,455,641    2,322,926    3,778,567 

U.S Dollar

   1,591,127    1,075,204    2,666,331    1,748,723    1,525,269    3,273,992    1,041,304    1,573,044    2,614,348    970,631    1,508,999    2,479,630 

Brazilian Real

   17,098    1,042    18,140    13,953    1,929    15,882    7,827    —      7,827    16,506    —      16,506 

Argentine Pesos

   —      —      —      48    —      48 

Chilean Pesos

   11,151    —      11,151    10,455    —      10,455    5,821    —      5,821    9,839    —      9,839 

U.F.

   401,108    774,184    1,175,292    368,421    568,167    936,588    396,936    1,019,347    1,416,283    458,665    813,927    1,272,592 

Bank Loans

   626,384    92,351    718,735    648,017    149,782    797,799    526,062    199,324    725,386    327,424    138,161    465,585 

U.S Dollar

   609,286    91,309    700,595    634,016    147,853    781,869    518,235    199,324    717,559    310,918    138,161    449,079 

Brazilian Real

   17,098    1,042    18,140    13,953    1,929    15,882    7,827    —      7,827    16,506    —      16,506 

Argentine Pesos

   —      —      —      48    —      48 

Financial Leases

   73,586    —      73,586    90,697    —      90,697    37,271    —      37,271    68,035    —      68,035 

Chilean Pesos

   11,151    —      11,151    10,455    —      10,455    5,821    —      5,821    9,839    —      9,839 

U.F.

   62,435    —      62,435    80,242    —      80,242    31,450    —      31,450    58,196    —      58,196 

Other Loans

   1,320,514    1,758,079    3,078,593    1,402,886    1,945,583    3,348,469    888,555    2,393,067    3,281,622    1,060,182    2,184,765    3,244,947 

U.S Dollar

   981,841    983,895    1,965,736    1,114,707    1,377,416    2,492,123    523,069    1,373,720    1,896,789    659,713    1,370,838    2,030,551 

U.F.

   338,673    774,184    1,112,857    288,179    568,167    856,346    365,486    1,019,347    1,384,833    400,469    813,927    1,214,396 

Non-current payables

   2.230    —      2.230    —      —      —   

U.S Dollar

   2.230    —      2.230    —      —      —   

Othernon-current provisions

   38,138    —      38,138    34,541    —      34,541    33,884    —      33,884    36,008    —      36,008 

U.S Dollar

   1    —      1    4    —      4    9    —      9    7    —      7 

Brazilian Real

   5,425    —      5,425    4,410    —      4,410    5,839    —      5,839    4,682    —      4,682 

Argentine Pesos

   32,712    —      32,712    30,127    —      30,127    28,035    —      28,035    31,316    —      31,316 

Chilean Pesos

   1    —      1    3    —      3 

Deferred tax liabilities

   1,479,596    151,469    1,631,065    1,456,888    162,124    1,619,012    841,723    575,935    1,417,658    1,355,531    129,834    1,485,365 

U.S Dollar

   1,412,506    131,406    1,543,912    1,373,597    162,124    1,535,721    751,356    575,935    1,327,291    1,247,096    129,834    1,376,930 

Brazilian Real

   67,090    20,063    87,153    83,291    —      83,291    90,367    —      90,367    108,435    —      108,435 

Non-current provisions for employee benefits

   60,084    —      60,084    51,936    —      51,936    64,895    —      64,895    66,033    —      66,033 

Other currencies

   144    —      144    149    —      149    159    —      159    129    —      129 

Chilean Pesos

   59,940    —      59,940    51,787    —      51,787    64,736    —      64,736    65,904    —      65,904 

Othernon-currentnon-financial liabilities

   989    59,644    60,633    47,241    —      47,241    112,067    —      112,067    112,340    —      112,340 

U.S Dollar

   430    —      430    392    —      392    19    —      19    13    —      13 

Brazilian Real

   —      59,644    59,644    46,043    —      46,043    111,841    —      111,841    111,634    —      111,634 

Argentine Pesos

   349    —      349    608    —      608    29    —      29    480    —      480 

Chilean Pesos

   206    —      206    195    —      195    178    —      178    213    —      213 

U.F.

   4    —      4    3    —      3 

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

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.

BrazilBrazilian Real

Empreendimentos Florestais Santa Cruz Ltda.

  Brazil  Brazilian Real

Mahal Empreendimentos e Participacoes S.A.

  Brazil  Brazilian Real

Investigaciones Forestales BioforestNovo Oeste Gestao de Ativos Florestais S.A.

  ChileBrazil  Chilean PesosBrazilian Real

Consorcio Protección Fitosanitaria Forestal S.A.

  Chile  Chilean Pesos

Forestal Nuestra Señora del Carmen S.A.

  Argentina  Argentine Pesos

Forestal Talavera S.A.

  Argentina  Argentine Pesos

Greeneagro S.A.

  Argentina  Argentine Pesos

Leasing Forestal S.A.

  Argentina  Argentine Pesos

Savitar S.A.

  Argentina  Argentine Pesos

Flakeboard Company Limited

  Canada  Canadian Dollar

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

 

  January - December   January - December 
  2016
ThU.S.$
   2015
ThU.S.$
   2014
ThU.S.$
   2018
ThU.S.$
   2017
ThU.S.$
   2016
ThU.S.$
 

Arauco Do Brasil S.A.

   73,087    (155,390   (66,222

Arauco do Brasil S.A.

   (70,685   (6,537   73,087 

Arauco Forest Brasil S.A.

   68,314    (140,992   (57,515   (65,196   (6,929   68,314 

Arauco Florestal Arapoti S.A.

   19,523    (43,189   (17,640   (17,007   (1,051   19,523 

Arauco Distribución S.A.

   —      (4,180   (3,793

Sonae Arauco S.A.

   (9,811   20,547    —   

Arauco Argentina S.A.

   4,989    (13,308   (5,765   (7,584   (752   4,989 

Flakeboard Company Limited

   2,984    (16,915   (8,049   (7,879   6,529    2,984 

Others

   (13   (301   (406   (2,461   307    (13
  

 

   

 

   

 

   

 

   

 

   

 

 

Total reserve of exchange differences on translation

   168,884    (374,275   (159,390   (180,623   12,114    168,884 
  

 

   

 

   

 

   

 

   

 

   

 

 

Effect of foreign exchange rates changes

 

  January-December 
  January - December   2018   2017   2016 
  2016
ThU.S.$
   2015
ThU.S.$
   2014
ThU.S.$
   ThU.S.$   ThU.S.$   ThU.S.$ 

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

   (3,935   (40,827   (7,763   (26,470   98    (3,935

Reserve of exchange differences on translation (withNon-controlling interests)

   173,754    (385,109   (163,844   (185,038   11,873    173,754 

NOTE 12.

BORROWING COSTS

Arauco estimatescapitalizes interest at effective rate on current investment projects.

At the average ratedate of borrowingsissuance of these consolidated financial statements, Arauco has capitalized financial interest related to finance its current investments projects. The average rate loansthe modernization and extension of Planta Arauco (MAPA) project in Chile and to finance these investments projects were claculated to record the capitalization.Grayling project in the United States.

 

  January - December 
  January - December   2018 2017 
  2016
ThU.S.$
 2015
ThU.S.$
   ThU.S.$ ThU.S.$ 

Property, plant and equipment capitalized cost

      

Property, plant and equipment capitalized interest cost rate

   5.11  4.87   3.74  4.57

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

   2,177   1,893    16,469   6,830 

 

NOTE 13.

RELATED PARTIES

Related Party Disclosures

Related parties are those entities defined in IAS 24 and under the rules of the Chilean SVSCommission for the Financial Market and the Chilean Corporations Law.

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

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

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

Name of Group’s Main Shareholders

The ultimate shareholders of Arauco, direct and indirectly, are Mrs. Maria Noseda Zambra de Angelini (who passed away on April 15, 2018), Mr. Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi through Inversiones Angelini y Cia. Ltda.Rossi.

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

Empresas Copec S.A.

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 transactionsTransactions carried out with related parties are equitableintended to contribute to the corporate interest, are adjusted in relationprice, terms and conditions to other transactions regularly performedthose prevailing in the market at market conditions, with mutual independencethe time of approval, and meet the parties.requirements and procedures set forth in the law.

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

 

ID N°

 

Company Name

 Country Functional % Ownership interest
12-31-2016
 % Ownership interest
12-31-2015
 
 Functional % Ownership interest
12-31-2018
 % Ownership interest
12-31-2017
 

ID N°

Company Name

 Country Currency Direct Indirect Total Direct Indirect Total  

Company Name

 Country Currency Direct Indirect Total Direct Indirect Total 
 U.S. Dollar  0.0020   99.9970   99.9990   0.0020   99.9970   99.9990  

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 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  

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 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 Colombia S.A.

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

Arauco do Brasil S.A.

 Brazil Brazilian Real  1.1624   98.8366   99.9990   1.2485   98.7505   99.9990  

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.

 Netherland U.S. Dollar  0.4614   99.5376   99.9990   0.4843   99.5147   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 Florestal Arapoti S.A.

 Brazil Brazilian Real  —     79.9992   79.9992   —     79.9992   79.9992 
 

Arauco Forest Brasil S.A.

 Brazil Brazilian Real  10.1297   89.8694   99.9991   10.1297   89.8694   99.9991  

Arauco Forest Brasil S.A.

 Brazil Brazilian Real  9.7714   90.2278   99.9992   9.9971   90.0021   99.9992 
 

Arauco Middle East DMCC

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

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 
 

Arauco North America, Inc. (ex Flakeboard America Limited)

 USA U.S. Dollar  0.0001   99.9989   99.9990   —     99.9990   99.9990 
76620842-8 

Arauco Nutrientes Naturales SPA

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

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 
 

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 Perú S.A.

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

Arauco Wood (China) Company Limited

 China U.S. Dollar  —     99.9990   99.9990   —     —     —   
 

Arauco Wood Products, Inc.

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

Arauco Wood Products, Inc.

 USA U.S. Dollar  —     —     —     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  

Araucomex S.A. de C.V.

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

Consorcio Protección Fitosanitaria Forestal S.A.

 Chile Chilean Pesos  —     57.5404   57.5404   —     57.5404   57.5404  

Consorcio Protección Fitosanitaria Forestal S.A.

 Chile Chilean Pesos  —     57.0831   57.0831   —     57.5223   57.5223 
 

Empreendimentos Florestais Santa Cruz Ltda.

 Brazil Brazilian Real  —     99.9789   99.9789   —     99.9789   99.9789  

Empreendimentos Florestais Santa Cruz Ltda.

 Brazil Brazilian Real  —     99.9985   99.9985   —     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 
 

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  

Forestal Arauco S.A.

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

Forestal Cholguán S.A.

 Chile U.S. Dollar  —     98.4744   98.4744   —     98.4478   98.4478  

Forestal Cholguán S.A.

 Chile U.S. Dollar  —     98.5479   98.5479   —     98.4826   98.4826 
 

Forestal Concepción S.A.

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

Forestal Los Lagos S.A.

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

Forestal 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 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  

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  

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  

Inversiones Arauco Internacional Ltda.

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

Investigaciones Forestales Bioforest S.A.

 Chile Chilean Pesos  1.0000   98.9489   99.9489   1.0000   98.9489   99.9489  

Investigaciones Forestales Bioforest S.A.

 Chile U.S. Dollar  1.0000   98.9489   99.9489   1.0000   98.9489   99.9489 
 

Leasing Forestal S.A.

 Argentina Argentine Pesos  —     99.9801   99.9801   —     99.9801   99.9801  

Leasing Forestal S.A.

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

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

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

Maderas Arauco S.A.

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

Mahal Empreendimentos e Participacoes S.A.

 Brazil Brazilian Real  —     99.9934   99.9934   —     99.9934   99.9934  

Maderas Arauco Costa Rica S.A.

 Costa Rica U.S. Dollar  —     99.9990   99.9990   —     —     —   
 

Novo Oeste Gestao de Ativos Florestais S.A.

 Brazil Brazilian Real  —     99.9990   99.9990   —     99.9990   99.9990  

Mahal Empreendimentos e Participacoes S.A.

 Brazil Brazilian Real  —     99.9991   99.9991   —     99.9961   99.9961 
 

Savitar S.A.

 Argentina Argentine Pesos  —     99.9841   99.9841   —     99.9841   99.9841  

Novo Oeste Gestao de Ativos Florestais S.A.

 Brazil Brazilian Real  —     99.9991   99.9991   —     99.9991   99.9991 
 

Savitar S.A.

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

Servicios Aéreos Forestales Ltda.

 Chile U.S. Dollar  0.0100   99.9890   99.9990   0.0100   99.9890   99.9990  

Servicios Aéreos Forestales Ltda.

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

Servicios Logísticos Arauco S.A.

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

Servicios Logísticos Arauco S.A.

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

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

 

ID N°

Company Name

  Country  Functional
Currency

Eufores S.A.

  Uruguay  U.S. Dollar

Celulosa y Energía Punta Pereira S.A.

  Uruguay  U.S. Dollar

Zona Franca Punta Pereira S.A.

  Uruguay  U.S. Dollar

Forestal Cono Sur S.A.

  Uruguay  U.S. Dollar

Stora Enso Uruguay S.A.

  Uruguay  U.S. Dollar

El Esparragal Asociación Agraria de R.L.

  Uruguay  U.S. Dollar

Ongar S.A.

  Uruguay  U.S. Dollar

Terminal Logística e Industrial M’Bopicua S.A.

  Uruguay  U.S. Dollar

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

Employee Benefits for Key Management Personnel

 

  January - December   January - December 
  2016   2015   2014   2018   2017   2016 
  ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$   ThU.S.$ 

Salaries and bonuses

   84,699    65,760    63,159    72,666    59,501    73,398 

Per diem compensation to members of the Board of Directors

   1,783    1,097    1,397    2,560    2,566    1,783 

Termination benefits

   6,339    2,250    4,073    9,068    4,936    6,174 

Total

   92,821    69,107    68,629    84,294    67,003    81,355 

Related Party Receivables, Current

 

Name of Related Party

 Tax ID No.  Nature of
Relationship
 Country  Currency Maturity  12-31-2016
ThU.S.$
  12-31-2015
ThU.S.$
 

Forestal Mininco S.A

  91.440.000-7  Common Stockholder  Chile  Chilean pesos  30 days   39   44 

Eka Chile S.A

  99.500.140-3  Joint Venture  Chile  Chilean pesos  30 days   1,701   1,646 

Forestal del Sur S.A

  79.825.060-4  Common director  Chile  Chilean pesos  30 days   7,618   —   

Stora Enso Arapoti Industria del Papel S.A

  —    Associate  Brazil  Brazilian Real  —     —     472 

Unilin Arauco Pisos Ltda.

  —    Joint Venture  Brazil  Brazilian Real  30 days   726   523 

Abastible S.A.

  91.806.000-6  Controlling Parent’s Subsidiary  Chile  Chilean pesos  —     —     142 

CMPC Celulosa S.A.

  96.532.330-9  Common Stockholder  Chile  Chilean pesos  30 days   2   —   

Fundación Educacional Arauco

  71.625.000-8  Common director  Chile  Chilean pesos  30 days   1,188   276 

Fundación Acerca Redes

  65.097.218-K  Parent company is founder and
contributor
  Chile  U.S. Dollar  30 days   274   21 

Compañía Puerto de Coronel S.A.

  79.895.330-3  Subsidiary of the Associate  Chile  UF  Jan-17   478   —   

Compañía Puerto de Coronel S.A.

  79.895.330-3  Subsidiary of the Associate  Chile  UF  Sep-17   479   —   

TOTAL

       12,505   3,124 

Name of Related Party

 Tax ID No.  Nature of
Relationship
  Country Currency Maturity  12-31-2018
ThU.S.$
  12-31-2017
ThU.S.$
 

Forestal Mininco S.A.

  91.440.000-7   Common Stockholder  Chile Chilean pesos  30 days   14   25 

Eka Chile S.A.

  99.500.140-3   Joint Venture  Chile Chilean pesos  30 days   2,362   2,027 

Forestal del Sur S.A.

  79.825.060-4   
Associate of a subsidiary’s
minority shareholder
 
 
 Chile Chilean pesos  30 days   3,740   4 

Unilin Arauco Pisos Ltda.

  —     Joint Venture  Brazil Brazilian Real  30 days   83   171 

Colbún S.A.

  96.505.760-9   Common Stockholder  Chile Chilean pesos  30 days   52   136 

CMPC Celulosa S.A.

  96.532.330-9   Common Stockholder  Chile Chilean pesos  30 days   1   —   

Fundación Acerca Redes

  65.097.218-K   
Parent company is founder and
contributor
 
 
 Chile U.S. Dollar  30 days   221   726 

Sonae Arauco Portugal S.A.

  —     Subsidiary of a Joint Venture  Portugal U.S. Dollar  30 days   370   —   

Compañía Puerto de Coronel S.A.

  79.895.330-3   Subsidiary of an Associate  Chile U.F.  30 days   481   399 

TOTAL

       7,324   3,488 

Related Party Receivables,Non-Current

 

Name of Related Party

 Tax ID No.  Nature of
Relationship
  Country  Currency  Maturity  12-31-2018
ThU.S.$
  12-31-2017
ThU.S.$
 

Compañía Puerto de Coronel S.A.

  79.895.330-3   Subsidiary of an Associate   Chile   U.F.   —     —     528 

Compañía Puerto de Coronel S.A.

  79.895.330-3   Subsidiary of an Associate   Chile   U.F.   Jan-20   481   528 

TOTAL

       481   1,056 

Name of Related Party

Tax ID No.Nature of
Relationship
CountryCurrencyMaturity12-31-2016
ThU.S.$
12-31-2015
ThU.S.$

Compañía Puerto de Coronel S.A.

79.895.330-3
Subsidiary of the
Associate

ChileUFSep-18478—  

Compañía Puerto de Coronel S.A.

79.895.330-3
Subsidiary of the
Associate

ChileUFSep-19478—  

TOTAL

957—  

Related Party Payables, Current

 

Name of Related party

 Tax ID No.  Nature of
Relationship
  Country  Currency  Maturity 12-31-2016
ThU.S.$
  12-31-2015
ThU.S.$
 

Compañía de Petróleos de Chile S.A.

  99.520.000-7   Controlling Parent’s Subsidiary   Chile   Chilean pesos  30 days  1,758   6,057 

Abastible S.A.

  91.806.000-6   Controlling Parent’s Subsidiary   Chile   Chilean pesos  30 days  97   —   

Portaluppi, Guzman y Bezanilla Abogados

  78.096.080-9   Common director   Chile   Chilean pesos  —    —     98 

Puerto Lirquén S.A.

  96.959.030-1   Subsidiary of the Associate   Chile   U.S. Dollar  30 days  1,246   851 

Compañía Puerto de Coronel S.A.

  79.895.330-3   Subsidiary of the Associate   Chile   U.S. Dollar  30 days  723   111 

Empresas Copec S.A.

  90.690.000-9   Controlling Parent   Chile   Chilean pesos  —    —     24 

Adm. de ventas al detalle Arco Prime Ltda.

  77.215.640-5   
Controlling Parent’s
Subsidiary
 
 
  Chile   Chilean pesos  30 days  5   —   

Empresa Distrib. Papeles y Cartones S.A.

  88.566.900-k   Common Stockholder   Chile   Chilean pesos  30 days  2   —   

TOTAL

       3,831   7,141 

Name of Related Party

 Tax ID No.  Nature of
Relationship
  Country  Currency  Maturity  12-31-2018
ThU.S.$
  12-31-2017
ThU.S.$
 

Compañía de Petróleos de Chile S.A.

  99.520.000-7   Common controlling parent   Chile   Chilean pesos   30 days   7,019   8,837 

Abastible S.A.

  91.806.000-6   Common controlling parent   Chile   Chilean pesos   30 days   601   545 

Fundación Educacional Arauco

  71.625.000-8   Common director   Chile   Chilean pesos   30 days   616   54 

Red to Green S.A.(Ex-Sigma Servicios Informáticos S.A.)

  86.370.800-1   Common Stockholder   Chile   Chilean pesos   30 days   14   1 

Portaluppi, Guzman y Bezanilla Asesorías Ltda.

  78.096.080-9   Common director   Chile   Chilean pesos   —     —     146 

Empresa Nacional de Telecomunicaciones S.A.

  92.580.000-7   Common Stockholder   Chile   Chilean pesos   30 days   123   137 

Servicios Corporativos Sercor S.A.

  96.925.430-1   Associate   Chile   Chilean pesos   30 days   11   29 

Puerto Lirquén S.A.

  96.959.030-1   Subsidiary of an associate   Chile   U.S. Dollar   30 days   1,003   1,354 

Compañía Puerto de Coronel S.A.

  79.895.330-3   Subsidiary of an associate   Chile   U.S. Dollar   30 days   772   —   

Depósitos Portuarios Lirquén S.A.

  96.871.870-3   Subsidiary of an associate   Chile   U.S. Dollar   30 days   2   —   

Adm.Estaciones de Servicio Serco Ltda.

  79.689.550-0   Common controlling parent   Chile   Chilean pesos   30 days   1   1 

Adm. de Ventas al Detalle Arco Prime Ltda.

  77.215.640-5   Common controlling parent   Chile   Chilean pesos   30 days   1   14 

Empresa Distrib. Papeles y Cartones S.A.

  88.566.900-k   Common Stockholder   Chile   Chilean pesos   30 days   8   —   

Elemental S.A.

  76.659.730-0   Indirect associate of controlling parent   Chile   Chilean pesos   30 days   1   4 

Woodtech S.A.

  76.724.000-7   Indirect associate of controlling parent   Chile   Chilean pesos   30 days   28   86 

Orizon S.A.

  96.929.960-7   Common controlling parent   Chile   Chilean pesos   30 days   1   —   

Vía Limpia SPA

  79.874.200-0   Common controlling parent   Chile   Chilean pesos   30 days   9   —   

Air BP Copec

  96.942.120-8   Common controlling parent   Chile   Chilean pesos   30 days   19   —   

TOTAL

       10,229   11,208 

Related Party Transactions

Purchases

 

Name of Related Party

 Tax ID No. Nature of
Relationship
 Country Currency Transaction Descriptions 12-31-2016
ThU.S.$
  12-31-2015
ThU.S.$
  12-31-2014
ThU.S.$
 

Abastible S.A.

 91.806.000-6 Controlling Parent’s Subsidiary Chile Chilean pesos Fuel  2,199   2,503   3,676 

Empresas Copec S.A

 90.690.000-9 Controlling Parent Chile Chilean pesos Management service  356   233   277 

Compañía de Petróleos de Chile S.A.

 99.520.000-7 Controlling Parent’s Subsidiary Chile Chilean pesos Fuel and other  39,732   61,245   96,497 

Compañía Puerto de Coronel S.A.

 79.895.330-3 Subsidiary of the Associate Chile U.S. Dollar Transport and
stowage
  8,633   10,917   9,458 

Puerto Lirquén S.A.

 96.959.030-1 Subsidiary of the Associate Chile U.S. Dollar Port services  7,311   7,694   9,937 

EKA Chile S.A.

 99.500.140-3 Joint Venture Chile Chilean pesos Sodium chlorate  47,236   39,362   48,696 

Forestal del Sur S.A.

 79.825.060-4 Common director Chile Chilean pesos Timber and ships  2,093   2,018   —   

Portaluppi, Guzman y Bezanilla Abogados

 78.096.080-9 Common director Chile Chilean pesos Legal services  1,295   1,312   1,761 

Empresa Nacional de Telecomunicaciones S.A.

 92.580.000-7 Common Stockholder Chile Chilean pesos Telephone services  512   552   474 

CMPC Maderas S.A.

 95.304.000-K Common Stockholder Chile Chilean pesos Timber and logs  511   267   489 

Forestal Mininco S.A.

 91.440.000-7 Common Stockholder Chile Chilean pesos Timber and logs  180   204   204 

Red to GreenS.A.(Ex-Sigma Servicios Informáticos S.A.)

 86.370.800-1 Common director Chile Chilean pesos Computer services  249   59   —   

Empresa de Residuos Resiter Ltda

 89.696.400-3 Common director Chile Chilean pesos Industrial cleaning
services
  —     (285  4,157 

Empresas de Residuos Industriales Resiter Ltda

 76.329.072-7 Common director Chile Chilean pesos Industrial cleaning
services
  —     5,027   1,432 

Resiter Uruguay S.A

 —   Common director Uruguay U.S. Dollar Service to collect
solid waste
  —     774   1,167 

Colbún Transmisión S.A.

 76.218.856-2 Common director Chile Chilean pesos Electrical power  383   447   330 

CMPC Celulosa S.A.

 96.532.330-9 Common Stockholder Chile Chilean pesos Others purchases  3   2,217   1023 
Sales        

Name of Related Party

 Tax ID No. Nature of
Relationship
 Country Currency Transaction Descriptions 12-31-2016
ThU.S.$
  12-31-2015
ThU.S.$
  12-31-2014
ThU.S.$
 

Colbún S.A.

 96.505.760-9 Common director Chile Chilean pesos Electrical Power  5,999   1,083   3,284 

EKA Chile S.A.

 99.500.140-3 Joint venture Chile Chilean pesos Electrical Power  16,326   17,543   27,361 

Stora Enso Arapoti Industria de Papel S.A.

 —   Associate Brazil Brazilian
Real
 Timber  1,149   5,617   8,349 

Forestal del Sur S.A.

 79.825.060-4 Common director Chile Chilean pesos Harvesting services,
Timber and chips
  21,657   19,328   19,311 

CMPC Celulosa S.A.

 96.532.330-9 Common director Chile Chilean pesos Timber  35   130   246 

Cartulinas CMPC S.A.

 96.731.890-6 Common director Chile Chilean pesos Pulp  —     —     679 

Empresa Eléctrica Guacolda S.A.

 96.635.700-2 Associate Chile Chilean pesos Electrical power  —     —     1,264 

Forestal Mininco S.A.

 91.440.000-7 Common Stockholder Chile Chilean pesos Timber  47   311   —   

Compañía Puerto de Coronel S.A.

 79.895.330-3 Associate Chile UF Sale of land  1,914   —     —   

Unilin Arauco Pisos Ltda.

 —   Joint venture Brazil Brazilian
Real
 Timber  5,263   2,666   11,887 
Other Transactions        

Name of Related Party

 Tax ID No. Nature of
Relationship
 Country Currency Transaction Descriptions 12-31-2016
ThU.S.$
  12-31-2015
ThU.S.$
  12-31-2014
ThU.S.$
 

Novo Oeste Gestao de Ativo Florestais S.A.

  Subsidiary (1) Brazil Brazilian
Real
 Loans (Capital and
interest)
  —     41,091   151,549 

(1)Since October 2015, the company is a subsidiary of Arauco, therefore, the transactions presented in this note are those made with this Company until that month (see Note 14).

Name of Related Party

 Tax ID No. Nature of
Relationship
 Country Currency Transaction
Descriptions
 12-31-2018
ThU.S.$
  12-31-2017
ThU.S.$
  12-31-2016
ThU.S.$
 

Abastible S.A.

 91.806.000-6 Common controlling parent Chile Chilean pesos Fuel  3,668   3,115   2,199 

Compañía de Petróleos de Chile S.A.

 99.520.000-7 Common controlling parent Chile Chilean pesos Fuel and other  75,328   66,789   39,732 

Compañía Puerto de Coronel S.A.

 79.895.330-3 Subsidiary of the Associate Chile U.S. Dollar Transport and stowage  10,607   9,986   8,633 

Puerto Lirquén S.A.

 96.959.030-1 Subsidiary of the Associate Chile U.S. Dollar Port services  8,488   6,956   7,311 

EKA Chile S.A.

 99.500.140-3 Joint Venture Chile Chilean pesos Sodium chlorate  47,209   44,055   47,236 

Forestal del Sur S.A.

 79.825.060-4 Associate of a subsidiary’s
minority shareholder
 Chile Chilean pesos Wood and ships  1,675   1,310   2,093 

Portaluppi, Guzman y Bezanilla Abogados

 78.096.080-9 Common director Chile Chilean pesos Legal services  897   1,496   1,295 

Empresa Nacional de Telecomunicaciones S.A.

 92.580.000-7 Common Stockholder Chile Chilean pesos Telephone services  617   460   512 

CMPC Maderas S.A.

 95.304.000-K Common Stockholder Chile Chilean pesos Wood and logs  644   330   511 

Forestal Mininco S.A.

 91.440.000-7 Common Stockholder Chile Chilean pesos Wood and logs  261   62   180 

Colbún Transmisión S.A.

 76.218.856-2 Common director Chile Chilean pesos Electrical Power  453   389   383 

Woodtech S.A.

 76.724.000-7 Indirect associate of
controlling parent
 Chile Chilean pesos Wood volumen
measurement services
  2,449   2,239   982 

Inversiones Siemel S.A.

 94.082.000-6 Common Stockholder Chile Chilean pesos Rentals  326   596   777 

Sercor S.A.

 96.925.430-1 Associate Chile Chilean pesos Other purchases  148   150   —   

Vía Limpia

 79.874.200-0 Common controlling parent Chile Chilean pesos Other purchases  257   —     —   

CMPC Celulosa S.A.

 96.532.330-9 Common Stockholder Chile Chilean pesos Others purchases  11   965   3 
Sales                   

Name of Related Party

 Tax ID No. Nature of
Relationship
 Country Currency Transaction
Descriptions
 12-31-2018
ThU.S.$
  12-31-2017
ThU.S.$
  12-31-2016
ThU.S.$
 

Compañía de Petróleos de Chile S.A.

 99.520.000-7 Common controlling parent Chile Chilean pesos Charter Services  75   202   —   

Colbún S.A.

 96.505.760-9 Common director Chile Chilean pesos Electrical Power  277   1,128   5,999 

EKA Chile S.A.

 99.500.140-3 Joint venture Chile Chilean pesos Electrical Power  24,857   19,182   16,326 

Forestal del Sur S.A.

 79.825.060-4 Common director Chile Chilean pesos Harvesting services,
Wood and chips
  26,308   25,322   21,657 

Unilin Arauco Pisos Ltda.

 —   Joint venture Brazil Brazilian Real Wood  1,474   2,966   5,263 

NOTE 14.

CONSOLIDATED FINANCIAL STATEMENTS

On August 2, 2016, our subsidiary Forestal Arauco S.A. incorporated the company Arauco Nutrientes Naturales SPA, with a capital contribution of ThU.S.$5,000 of which, as of December 31, 2016, Th.U.S.$3,000 had been paid. The corporate purpose of the company is the manufacture and sale of products made from extracts, fruits, and others.

Company mergers

On December 1, 2015 there was a merger among the affiliates Paneles2018, Arauco S.A. (successor), Aserraderos Arauco S.A.Wood Products Inc and Arauco Distribución S.A.Panels USA, LLC merged into Flakeboard America Limited (currently Arauco North America, Inc). This transaction had no effect on results andArauco’s profit or loss.

On May 7, 2018, the company Maderas Arauco Costa Rica S.A. was performedcreated through the subsidiary Inversiones Arauco Internacional Ltda., with a viewcapital of 10,000 colones (equivalent to generate greater synergies, share best practices and achieve better serviceU.S.$ 18). On December 24, 2018 Inversiones Arauco Internacional Ltda. made a capital contribution of U.S.$300,000 to the company Maderas Arauco Costa Rica S.A.

On August 3. 2018, the company Arauco Wood (China) Company Limited was created through the subsidiary Inversiones Arauco Internacional Ltda. with a capital of U.S.$ 500,000 which it has not been paid.

On December 6, 2017, the subsidiary Arauco do Brasil S.A. acquired all the equity rights of Masisa do Brasil Ltda. (currently Arauco Industria de Paineis Ltda.) for our clients.ThU.S.$ 32,914. During December 2017, Arauco paid ThU.S.$ 15,918. Later, in February 2018, the balance of ThU.S$ 16,996 was paid. The main assets acquired consist of 2 industrial complexes that would give Arauco an installed capacity of approximately 10 million m3.

Investments in Subsidiaries

In October 2015,Arauco recognized the Company acquiredacquisition of Arauco Industria de Paineis Ltda. over on the remaining 51%basis of the interest ownershipinformation available at the date of the transaction, performing a preliminary calculation of the allocation of fair values in Novo Oeste Gestaothe acquisition of this Company. The recorded assets and liabilities are considered provisional amounts and may be adjusted during the measurement period of this acquisition, in order to reflect new information obtained regarding facts and circumstances existing as of the date of acquisition which, had they been known, would have affected the measurements of the amounts recorded by that date. During the year 2018, after finalizing the determination of the fair values for the acquisition of Arauco Industria de Ativos Florestais S.A.Paineis Ltda., Arauco recognized a profit of ThU.S.$ 16,501 in which it held, on December 31, 2015, a stakeOther Gains (Losses) in the Consolidated Statements of 100% through Arauco’s subsidiaries in Brazil. TablesProfit or Loss, net of exchange difference for conversion for ThU.S.$ 2,288.

The table below showshows the acquiredfair values of assets and liabilities at fair value, consideration paid and effects generated through the transaction.date of the transaction:

 

Novo Oeste Gestao de Ativos FlorestaisARAUCO INDUSTRIA DE PAINEIS LTDA.

  10-27-201512-06-2017
Th.U.S.ThU.S.$
 

Cash and cash equivalentsequivalent

   4274,345

Trade and other current receivables

48,877 

Inventories

   3,747

Accounts receivable due from related companies, Current

39,917

Other Assets, Current

154

Current Assets, Total

44,245

Accounts receivable due from related companies,Non-current

12,439

Other Assets,Non-Current

—  23,335 

Property, plant and equipment

   1,49691,956

Other assets

20,929 

BiologicalTotal assets

Non-current189,442

Other financial liabilities, current andnon-current

   87,580

Non-Current Assets, Total

101,515

Assets, Total

145,76043,218 

Trade and other current payables Current

   23822,018 

Current taxOther liabilities

   3,449

Accounts payable to related companies, current

1074,791 

Current Liabilities, Total liabilities

   3,697140,027 

Accounts payable to related companies,Non-current

137,193

Deferred tax liabilities

16,051

Non-Current Liabilities, Total equity

   153,244

Liabilities, Total

156,94149,415 

The interest previously held by Novo Oeste Gestao de Ativos Florestais S.A. was measuredfollowing table shows revenue and net profit recognized at fair value, recognizing a gain in the other income line of ThU.S.$15,268. The price paid for the 51% interest was ThU.S.$995, generating a goodwill of ThU.S.$6,697, for which Arauco decided to recognize in the results because of the Company’s accumulated losses. The impairment loss is presented net from the above mentioned gain.

On August 13, 2015, the company Arauco Middle East DMCC was incorporated with a single contribution from Inversiones Arauco Internacional Limitada of 3,673,000 Dirham (ThU.S.$1,000). The corporate purpose of this company is the promotion of products and the management of Arauco’s customer relations in the Middle East.

On January 26, 2015 Arauco, through its subsidiaries in North America, acquired a melamine-based paper treatment plant located in Biscoe, North Carolina. The price paid was ThU.S.$9,522. The attached table displays the acquired assets at fair value and the price paid under the transaction:acquisition day:

 

ARAUCO INDUSTRIA DE PAINEIS LTDA.

  Th.U.S$January 1, 2017  to
December 31, 2017
ThU.S.$
 

InventoriesRevenue

   37211,830 

LandsNet loss

   597(1,376

If the acquisition had occurred on January 1, 2017, consolidatedpro-forma revenue and profit for the year ended December 31, 2017 would have been:

CELULOSA ARAUCO Y CONSTITUCIÓN S.A. AND SUBSIDIARIES

January-December  2017
(Pro-forma)

ThU.S.$
 

BuildingsRevenue

   1,7235,395,859 

Plant and equipmentNet profit

   6,830

Value Paid, Total

9,522261,776 

These amounts have been calculated using the subsidiary’s results and adjusting them for property, plant and equipment impairments before the acquisition.

The details of the subsidiaries included in the consolidation of Arauco are disclosed in Note 13.

NOTE 15.

INVESTMENTS IN ASSOCIATES

At December 31, 2016 and December 31, 2015 there are no new investments in associates to report.On May 2, 2018, the company E2E S.A. was incorporated through the subsidiary Maderas Arauco S.A., with a total capital of ThU.S.$ 6,000, under 50% ownership of Arauco. As of this date, ThU.S.$ 2,241 have been contributed.

On March 31, 2016, ourJanuary 19, 2018, the company Parque Eólico Ovejera Sur SpA was incorporated through the subsidiary Arauco do BrasilBioenergía S.A. sold its stake at Stora Enso Arapoti Industria de Papel S.A. for, under 50% ownership of Arauco. The capital contributed by Arauco was ThU.S.$4,141. This transaction generated a loss of ThU.S.$10,369, as reflected in the Consolidated Statements of Profit or Loss, in line item “Other Expenses”. 782.

The following tables set forth information about Investments in associates.

 

Name

  Puertos y Logística S.A.

Country

  Chile

Functional Currency

  U.S. Dollar

Corporate purpose

  Docking and warehousing operations for proprietary and third party use, cargo of all classes of goods, as well, as warehousing and transport operations.

Ownership interest (%)

  20.2767%
   

12-31-201612-31-2018

  

12-31-201512-31-2017

Carrying amount

��  ThU.S.$61,50562,511  ThU.S.$58,92262,225

Name

  Inversiones Puerto Coronel S.A.

Country

  Chile

Functional Currency

  U.S. Dollar

Corporate purpose

  Investments in movables and real estate, acquisition of companies, securities and investment instruments, investment management and development and/or participation in all kind of businesses and companies related to industrial, shipping, forestry and commercial activities.

Ownership interest (%)

  50.0000%
   

12-31-201612-31-2018

  

12-31-201512-31-2017

Carrying amount

  ThU.S.$43,55952,643  ThU.S.$43,20047,619

Name

  Servicios Corporativos Sercor S.A.

Country

  Chile

Functional Currency

  Chilean Pesos

Corporate purpose

  Consulting services related to business management to Boards of Directors and Senior Management of all Arauco’s entities.

Ownership interest (%)

  20.0000%
   

12-31-201612-31-2018

  

12-31-201512-31-2017

Carrying amount

  ThU.S.$190 193  ThU.S.$179 191

Name

Stora Enso Arapoti Industria de Papel S.A.

Country

Brazil

Functional Currency

Brazilian Real

Corporate purpose

Industrialization and commercialization of paper and cellulose, raw materials andby-products

Ownership interest (%)

20.0000%

12-31-2016

12-31-2015

Carrying amount

—  ThU.S.$17,397

Name

  Genómica Forestal S.A.

Country

  Chile

Functional Currency

  Chilean Pesos

Corporate purpose

  Developing forestry genomics, through the use of biotechnological, molecular and bioinformatics tools with the purpose of strengthening genetic programs so as to improve the competitive position of the Chilean forestry industry for priority tree species.

Ownership interest (%)

  25.0000%
   

12-31-201612-31-2018

  

12-31-201512-31-2017

Carrying amount

  ThU.S.$(1)  ThU.S.$16(4)

Name

  Consorcio Tecnológico Bioenercel S.A.

Country

  Chile

Functional Currency

  Chilean Pesos

Corporate purpose

  Developing of technologies which will promote the development of a biofuels industry in Chile, obtained from lingo-cellulosic materials. The future execution of this sustainable project is financed by the Innova Chile Committee.

Ownership interest (%)

  20.0000%
   

12-31-201612-31-2018

  

12-31-201512-31-2017

Carrying amount

  ThU.S.$317  ThU.S.$676

Name

  Vale do Corisco S.A.

Country

  Brazil

Functional Currency

  Brazilian Real

Corporate purpose

  Management of forestry activities.

Ownership interest (%)

  49.0000%
   

12-31-201512-31-2018

  

12-31-201512-31-2017

Carrying amount

  ThU.S.$160,49038,497  ThU.S.$121,360 48,921

Name

E2E S.A.

Country

Chile

Functional Currency

Chilean pesos

Corporate purpose

Development of construction solutions

Ownership interest (%)

50.0000%

12-31-2018

12-31-2017

Carrying amount

ThU.S.$2,044ThU.S.$ —

Name

Parque Eólico Ovejera Sur SpA

Country

Chile

Functional Currency

Chilean pesos

Corporate purpose

Electrical power projects

Ownership interest (%)

50.0000%

12-31-2018

12-31-2017

Carrying amount

ThU.S.$597ThU.S.$ —

Summarized Financial Information of Associates

 

12-31-2016

  Puertos y
Logística S.A.
ThU.S.$
  Inversiones  Puerto
Coronel S.A.
ThU.S.$
  Serv.Corporativos
Sercor S.A.
ThU.S.$
  Assets
Stora Enso  Arapoti
Ind.de Papel S.A.
ThU.S.$
  Vale do
Corisco S.A.
ThU.S.$
  Consorcio  Tecnológico
Bioenercel S.A.
ThU.S.$
  Genómica
Forestal S.A.
ThU.S.$
  Total
ThU.S.$
 
 
 
 
 
 Assets 

12-31-2018

 Puertos y
Logística  S.A.
ThU.S.$
 Inversiones Puerto
Coronel  S.A.
ThU.S.$
 Serv.Corporativos
Sercor S.A.
ThU.S.$
 E2E S.A.
ThU.S.$
 Parque Eólico
Ovejera del
Sur SpA.
ThU.S.$
 Vale do
Corisco S.A.
ThU.S.$
 Consorcio  Tecnológico
Bioenercel S.A.
ThU.S.$
 Genómica
Forestal  S.A.
ThU.S.$
 Total
ThU.S.$
 

Current

   76,021   29   4,608   0   24,972   6   26   105,662   97,866   29   22,870   680   1,246   4,295   2   25   127,013 

Non-current

   572,831   88,936   668   0   415,083   152   63   1,077,733   566,484   105,354   907   3,600   703   105,836   36   19   782,939 

Total

   648,852   88,965   5,276   0   440,055   158   89   1,183,395   664,350   105,383   23,777   4,280   1,949   110,131   38   44   909,952 
  Puertos y
Logística S.A.
ThU.S.$
  Inversiones Puerto
Coronel S.A.
ThU.S.$
  Serv.Corporativos
Sercor S.A.
ThU.S.$
  Liabilities
Stora Enso Arapoti
Ind.de Papel S.A.
ThU.S.$
  Vale do
Corisco S.A.
ThU.S.$
  Consorcio Tecnológico
Bioenercel S.A. ThU.S.$
  Genómica
Forestal S.A.
ThU.S.$
  Total
ThU.S.$
 
  Liabilities 
  Puertos y
Logística S.A.
ThU.S.$
 Inversiones Puerto
Coronel S.A.
ThU.S.$
 Serv.Corporativos
Sercor S.A.
ThU.S.$
 E2E S.A.
ThU.S.$
 Parque Eólico
Ovejera del
Sur SpA.
ThU.S.$
 Vale do
Corisco S.A.
ThU.S.$
 Consorcio Tecnológico
Bioenercel S.A.
ThU.S.$
 Genómica
Forestal S.A.
ThU.S.$
 Total
ThU.S.$
 

Current

   44,457   82   3,412   0   3,446   0   9   51,406   28,938   82   22,192   192   754   81   —     7   52,246 

Non-current

   301,065   —     912   0   109,079   6   85   411,147   327,124   —     619   —     —     31,485   5   42   359,275 

Equity

   303,330   88,883   952   0   327,530   153   -5   720,843   308,288   105,301   966   4,088   1,195   78,565   33   (5  498,431 

Total

   648,852   88,965   5,276   0   440,055   159   89   1,183,396   664,350   105,383   23,777   4,280   1,949   110,131   38   44   909,952 

12-31-2018

         

Revenues

   107,722   3,072   4,591   492   44,822   33   94   160,826   160,889   6,080   4,841   1   —     8,106   —     37   179,954 

Expenses

   (98,642  —     (4,587  (6,320  (15,238  (147  (100  (125,034  (158,421  —     (4,855  (370  (295  (8,711  (2  (29  (172,683

Profit or loss (continuing operations)

   9,080   3,072   4   (5,828  29,584   (114  (6  35,792   2,468   6,080   (14  (369  (295  (605  (2  8   7,271 

Other comprehensive income

   7,385   (29  —     —     —     —     —     7356   (1,676  2,202   —     —     —     —     —     —     526 

Total Comprehensive income

   16,465   3,043   4   (5,828  29,584   (114  (6  43,148 

Total comprehensive income

  792   8,282   (14  (369  (295  (605  (2  8   7,797 

Dividends

   —     —     —     —     1,420   —     —     1,420   —     —     —     —     —     3,277   —     —     3,277 

12-31-2015

  Puertos y
Logística S.A.
ThU.S.$
 Inversiones Puerto
Coronel S.A.
ThU.S.$
 Serv.Corporativos
Sercor S.A.
ThU.S.$
 Assets
Stora Enso Arapoti
Ind.de Papel S.A.
ThU.S.$
 Vale do
Corisco S.A.
ThU.S.$
 Consorcio Tecnológico
Bioenercel S.A. ThU.S.$
 Genómica
Forestal S.A.
ThU.S.$
 Total
ThU.S.$
 
 Assets 

12-31-2017

 Puertos y
Logística S.A.
ThU.S.$
 Inversiones Puerto
Coronel S.A.
ThU.S.$
 Serv.Corporativos
Sercor S.A.
ThU.S.$
 E2E S.A.
ThU.S.$
 Parque Eólico
Ovejera del
Sur SpA.
ThU.S.$
 Vale do
Corisco S.A.
ThU.S.$
 Consorcio Tecnológico
Bioenercel S.A.
ThU.S.$
 Genómica
Forestal S.A.
ThU.S.$
 Total
ThU.S.$
 

Current

   90,896  ��29   4,174   59,594   14,736   1   44   169,474   92,816   29   4,296   —     —     6,384   5   25   103,555 

Non-current

   472,638   86,453   664   33,284   322,598   345   146   916,128   590,309   97,072   769   —     —     126,215   45   24   814,434 

Total

   563,534   86,482   4,838   92,878   337,334   346   190   1,085,602   683,125   97,101   5,065   —     —     132,599   50   49   917,989 

12-31-2015

  Puertos y
Logística S.A.
ThU.S.$
 Inversiones Puerto
Coronel S.A.
ThU.S.$
 Serv.Corporativos
Sercor S.A.
ThU.S.$
 Liabilities
Stora Enso Arapoti
Ind.de Papel S.A.
ThU.S.$
 Vale do
Corisco S.A.
ThU.S.$
 Consorcio Tecnológico
Bioenercel S.A. ThU.S.$
 Genómica
Forestal S.A.
ThU.S.$
 Total
ThU.S.$
 
 Liabilities 
 Puertos y
Logística S.A.
ThU.S.$
 Inversiones Puerto
Coronel S.A.
ThU.S.$
 Serv.Corporativos
Sercor S.A.
ThU.S.$
 E2E S.A.
ThU.S.$
 Parque Eólico
Ovejera del
Sur SpA.
ThU.S.$
 Vale do
Corisco S.A.
ThU.S.$
 Consorcio Tecnológico
Bioenercel S.A.
ThU.S.$
 Genómica
Forestal S.A.
ThU.S.$
 Total
ThU.S.$
 

Current

   41,784   82   3,136   13,648   9,098   7   7   67,762   44,564   82   3,219   —     —     123   —     14   48,002 

Non-current

   231,160   0   808   7,094   80,563   5   118   319,748   331,681   —     871   —     —     32,636   5   50   365,243 

Equity

   290,590   86,400   894   72,136   247,673   334   65   698,092   306,880   97,019   975   —     —     99,840   45   (15  504,744 

Total

   563,534   86,482   4,838   92,878   337,334   346   190   1,085,602   683,125   97,101   5,065   —     —     132,599   50   49   917,989 

12-31-2017

         

Revenues

   88,689   4,629   16,007   9,574   36,270   983   121   156,273   130,720   4,741   5,211   —     —     34,449   2   30   175,153 

Expenses

   (89,719  0   (5,163  (3,579  (19,674  (105  (1,229  (119,469  (132,538  —     (5,246  —     —     (29,648  (10  (36  (167,478

Profit or loss (continuing operations)

   (1,030  4,629   10,844   5,995   16,596   878   (1,108  36,804   (1,818  4,741   (35  —     —     4,801   (8  (6  7,675 

Other comprehensive income

   (4,386  0   —     —     —     —     —     (4,386  5,850   —     —     —     —     —     —     —     5,850 

Total Comprehensive income

   (5,416  4,629   10,844   5,995   16,596   878   (1,108  32,418 

Total comprehensive income

  4,032   4,741   (35  —     —     4,801   (8  (6  13,525 

Dividends

   —     —     —     —     4,235   —     —     4,235   —     —     —     —     —     —     —     —     —   

Reconciliation of Investment in Associates and Joint Ventures

 

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

Opening balance as of January 1, 2016

   264,812   326,045 

Changes

   

Investments in associates, Additions

   —     1,808 

Investment in joint ventures, Additions

   153,135   —   

Disposals, Investments in associates

   (14,510  —   

Share of profit (loss) in investment in associates

   16,349   5,573 

Share of profit (loss) in investment in joint ventures

   7,590   1,175 

Dividends Received

   (5,320  (18,396

Increase (Decrease) in foreign exchange currency

   20,634   (55,207

Other increases (decreases)

   3,858   3,814 

Total changes

   181,736   (61,233

Ending balance

   446,548   264,812 
   12-31-2016
ThU.S.$
  12-31-2015
ThU.S.$
 

Carrying amount of associates accounted for using equity method

   265,775   241,140 

Carrying amount of joint ventures accounted for using equity method

   180,773   23,672 

Total investment accounted for using equity method

   446,548   264,812 
   12-31-2018
ThU.S.$
  12-31-2017
ThU.S.$
 

Opening balance as of January 1

   368,772   446,548 

Changes

   

Investment in joint ventures, Additions

   3,028   —   

Share of profit (loss) in investment in associates

   3,043   4,855 

Share of profit (loss) in investment in joint ventures

   14,203   12,162 

Dividends Received, Investments in Associates

   (11,307  (8,586

Increase (Decrease) in foreign exchange currency on translation of Associates and Joint Ventures

   (17,287  22,726 

Other increase (decrease) in investment and associates and joint ventures (*)

   (2,399  (108,933

Total changes

   (10,719  (77,776

Closing balance

   358,053   368,772 

 

(*)

In May 2017, Arauco’s associate Florestal Vale do Corisco S.A. performed a return of capital to its shareholders. This transaction did not generate effects in the Consolidated Statements of Profit or Loss nor modified Arauco’s shareholding in Florestal Vale do Corisco S.A.

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

Carrying amount of associates accounted for using equity method

   155,609    158,967 

Carrying amount of joint ventures accounted for using equity method

   202,444    209,805 

Total investment accounted for using equity method

   358,053    368,772 

NOTE 16.

INTERESTS IN JOINT ARRANGEMENTS

Investments and contributions made

On May 31, 2016, Inversiones Arauco Internacional Limitada, Arauco’s subsidiary, acquired 50% of the shares of Tableros de Fibras S.A, a Spanish subsidiary of SONAE INDUSTRIA, SGPS, S.A. (“Sonae”), which as of such date changed its name to “Sonae Arauco S.A.”. The price paid by Arauco for the acquisition of 50% of the shares of Sonae Arauco was the amount of €137,500,000 (equivalent to ThU.S.$153,135 at the acquisition date). This transaction generated a goodwill of ThU.S 36,190, as shown in the Consolidated Statements of Financial Position as part of the investment. As of December 31, 2016, the investment is accounted for under the equity method, notwithstanding that for the final determination of its reasonable value is still ongoing.

Sonae Arauco produces2018 and sales wood panels, of the type of MDF, PB and OSB, and sawn timber, through the operation of 2 panel plants and one sawmill in Spain; 2 panel plants and one resin plant in Portugal; 4 panel plants in Germany and 2 panel plants in South Africa.

In the aggregate, the production capacity of Sonae Arauco is of approximately 1.45 million m3 of MDF, 2.27 million m3 of particle boards, 460,000 m3 of OSB and 100,000 m3 of sawn timber.

As of December 31, 2016,2017, Arauco has not carried out any contributions to Uruguayan companies Celulosa y Energía Punta Pereira S.A. and Zona Franca Punta Pereira S.A. (ThU.S.$82,943 as of December 31, 2015 through its subsidiary Arauco Europe Cooperatief U.A.), where Arauco still holding 50% of control under a joint agreement.

The contributions made were invested in the construction of a last generation cellulose production plant, with a guaranteed annual capacity of 1.3 million tons, a port and an energy generation unit based on renewable resources, which is located in the town of Puerto Pereira, Province of Colonia, Uruguay.

The investments in Uruguay qualify as a joint operation. In relation to “other rights and contractual conditions”, the joint operation has the primary objective of providing the parties an output. As established in the “Pulp Supply Agreement”, both Arauco and its partner have the obligation to acquire 100% of the yearly pulp produced by the joint operation. Arauco has recognized the assets, liabilities, income and expenses associated with its interest ownership, as of January 1, 2013, pursuant to IFRS 11.

Arauco holds a 50% interest in Sonae Arauco, which subsidiary produces and commercializes wood panels, of the type of MDF, PB and OSB, and sawn timber, through the operation of 2 panel plants and one sawmill in Spain; 2 panel plants and one resin plant in Portugal; 4 panel plants in Germany and 2 panel plants in South Africa.

Furthermore, Arauco holds a 50% ownership interest in Unilin Arauco Pisos Laminados Ltda., a Brazilian company, and in Eka Chile S.A. (“Eka”), a company that sells sodium chlorate to cellulose plants in Chile. There is a contractual agreement with these companies whereby Arauco has engaged in an economic activity subject to common control, which is classified as a joint venture.

The following tables set forth summarized financial information of the more significant interests in joint arrangements, which qualify as joint operations:

 

  12-31-2016   12-31-2015   12-31-2018   12-31-2017 

Celulosa y Energía Punta Pereira S.A. (Uruguay)

  Assets
ThU.S.$
 Liabilities
ThU.S.$
   Assets
ThU.S.$
 Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   173,258   182,834    173,499   167,067    220,699    204,455    202,669    186,626 

Non-current

   2,131,266   735,679    2,192,148   885,723    2,044,534    441,010    2,076,255    586,034 

Equity

    1,386,011    —     1,312,857    —      1,619,768    —      1,506,264 

Total Joint Arrangement

   2,304,524   2,304,524    2,365,647   2,365,647    2,265,233    2,265,233    2,278,924    2,278,924 
  

 

  

 

   

 

  

 

   

 

   

 

   

 

   

 

 

Investment

   693,006     656,429     809,884      753,132   
  

 

    

 

    

 

     

 

   
  12-31-2016
ThU.S.$
     12-31-2015
ThU.S.$
 12-31-2014
ThU.S.$
   12-31-2018
ThU.S.$
       12-31-2017
ThU.S.$
     

Income

   680,819     720,499   260,934    904,853      768,508   

Expenses

   (618,387    (612,101  (314,251   (611,444     (650,174  

Joint Arrangement Net Income (Loss)

   62,432     108,398   (53,317   293,409      118,334   
      
  12-31-2018   12-31-2017 
  12-31-2016   12-31-2015 

Forestal Cono Sur S.A.(consolidated) (Uruguay)

  Assets
ThU.S.$
 Liabilities
ThU.S.$
   Assets
ThU.S.$
 Liabilities
ThU.S.$
 

Forestal Cono Sur S.A. (consolidated)

  Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   23,745   21,039    23,267   21,495    23,528    1,668    33,012    22,582 

Non-current

   178,236   1,381    176,876   4,654    170,443    1,957    174,943    2,314 

Equity

   —     179,561    —     173,994    —      190,346    —      183,059 

Total Joint Arrangement

   201,981   201,981    200,143   200,143    193,971    193,971    207,955    207,955 
  

 

  

 

   

 

  

 

   

 

   

 

   

 

   

 

 

Investment

   89,781     86,997     95,173      91,530   
  

 

    

 

    

 

     

 

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

Income

   25,642      15,113   

Expenses

   (19,748     (9,926  

Joint Arrangement Net Income (Loss)

   5,894      5,187   
  12-31-2018   12-31-2017 

Eufores S.A. (consolidated)

  Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   160,708    159,988    183,175    180,298 

Non-current

   638,832    8,282    612,187    7,948 

Equity

   —      631,270    —      607,116 

Total Joint Arrangement

   799,540    799,540    795,362    795,362 
  

 

   

 

   

 

   

 

 

Investment

   315,635      303,558   
  

 

     

 

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

Income

   284,039      336,705   

Expenses

   (261,683     (286,616  

Joint Arrangement Net Income (Loss)

   22,356      50,089   
  12-31-2018   12-31-2017 

Zona Franca Punta Pereira S.A. (Uruguay)

  Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   5,482    106,676    6,105    97,233 

Non-current

   472,539    27,863    483,884    43,180 

Equity

   —      343,482    —     349,576 

Total Joint Arrangement

   478,021    478,021    489,989    489,989 

Investment

   171,741      174,788   
  

 

     

 

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

Income

   17,880      22,129   

Expenses

   (23,975     (24,413  

Joint Arrangement Net Income (Loss)

   (6,095     (2,284  

   12-31-2016
ThU.S.$
       12-31-2015
ThU.S.$
   12-31-2014
ThU.S.$
 

Income

   8,443      10,821    9,200 

Expenses

   (2,876     (12,000   (4,844

Joint Arrangement Net Income (Loss)

   5,567      (1,179   4,356 
   12-31-2016   12-31-2015 

Eufores S.A. (consolidated) (Uruguay)

  Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   178,644    200,525    158,735    187,311 

Non-current

   604,736    23,052    611,500    39,994 

Equity

   —      559,803    —      542,930 

Total Joint Arrangement

   783,380    783,380    770,235    770,235 
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment

   279,902      271,465   
  

 

 

     

 

 

   
   12-31-2016
ThU.S.$
       12-31-2015
ThU.S.$
   12-31-2014
ThU.S.$
 

Income

   296,927      292,534    202,814 

Expenses

   (280,054     (297,291   (222,853

Joint Arrangement Net Income (Loss)

   16,873      (4,757   (20,039
   12-31-2016   12-31-2015 

Zona Franca Punta Pereira S.A. (Uruguay)

  Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   4,397    82,331    11,582    71,202 

Non-current

   492,815    63,021    494,585    88,182 

Equity

   —      351,860    —      346,783 

Total Joint Arrangement

   497,212    497,212    506,167    506,167 
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment

   175,930      173,392   
  

 

 

     

 

 

   
   12-31-2016
ThU.S.$
       12-31-2015
ThU.S.$
   12-31-2014
ThU.S.$
 

Income

   31,042      19,079    20,885 

Expenses

   (25,966     (41,988   (22,762

Joint Arrangement Net Income (Loss)

   5,076      (22,909   (1,877

The following tables set forth summarized financial information of the more significant interests in joint ventures:

 

  12-31-2016   12-31-2015   12-31-2018   12-31-2017 

Unilin Arauco Pisos Ltda.

  Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   7,900    3,549    5,943    2,304    6,165    3,591    7,270    4,461 

Non-current

   5,094    18    3,544    37    4,574    37    5,535    28 

Equity

   —      9,427    —      7,146    —      7,111    —      8,316 

Total Joint Arrangement

   12,994    12,994    9,487    9,487    10,739    10,739    12,805    12,805 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Investment

   4,714      3,573      3,556      4,158   
  

 

     

 

     

 

     

 

   
  12-31-2016
ThU.S.$
       12-31-2015
ThU.S.$
   12-31-2014
ThU.S.$
   12-31-2018
ThU.S.$
       12-31-2017
ThU.S.$
     

Income

   1,305      112    6,385    16,984      17,910   

Expenses

   (1,974     (2,462   (6,378   (16,881     (18,736  

Joint Arrangement Net Income (Loss)

   (669     (2,350   7    103      (826  

Other comprehensive income

   —        —     

Comprehensive income

   103      (826  

Dividends

   —        —     
  12-31-2018   12-31-2017 

Eka Chile S.A.

  Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   19,840    4,443    18,876    5,388 

Non-current

   32,363    5,078    32,040    5,054 

Equity

   —      42,682    —      40,474 

Total Joint Arrangement

   52,203    52,203    50,916    50,916 
  

 

   

 

   

 

   

 

 

Investment

   21,341      20,237   
  

 

     

 

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

Income

   47,798      43,678   

Expenses

   (44,490     (40,111  

Joint Arrangement Net Income (Loss)

   3,308      3,567   

Other comprehensive income

   —        —     

Comprehensive income

   3,308      3,567   

Dividends

   550      —     
  12-31-2018   12-31-2017 

Sonae Arauco S.A.

  Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   272,030    221,393    265,578    235,676 

Non-current

   655,856    351,397    664,689    323,770 

Equity

   —      355,096    —      370,821 

Total Joint Arrangement

   927,886    927,886    930,267    930,267 
  

 

   

 

   

 

   

 

 

Net assets

   146,762      151,920   

Net asset adjustment (Goodwill)

   30,786      33,491   

Investment

   177,548      185,411   
  

 

     

 

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

Income

   1.057,535      976,936   

Expenses

   (1.032,435     (954,979  

Joint Arrangement Net Income (Loss)

   25,100      21,957   

Other comprehensive income

   —        —     

Comprehensive income

   25,100      21,957   

Dividends

   7,480      —     

    12-31-2016   12-31-2015 

Eka Chile S.A.

  Assets
ThU.S.$
   Liabilities
ThU.S.$
   Assets
ThU.S.$
   Liabilities
ThU.S.$
 

Current

   15,817    4,348    23,457    8,365 

Non-current

   31,690    5,021    30,203    5,097 

Equity

   —      31,138    —      40,198 

Total Joint Arrangement

   47,507    47,507    53,660    53,660 
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment

   19,069      20,099   
  

 

 

     

 

 

   
   12-31-2016
ThU.S.$
       12-31-2015
ThU.S.$
   12-31-2014
ThU.S.$
 

Income

   48,276      39,646    49,570 

Expenses

   (44,045     (36,355   (48,530

Joint Arrangement Net Income (Loss)

   4,231      3,291    1,040 
  

 

 

     

 

 

   

 

 

 
    12-31-2016         

Sonae Arauco S.A.

  Assets
ThU.S.$
   Liabilities
ThU.S.$
         

Current

   223,145    213,228     

Non-current

   544,087    312,404     

Equity

   —      241,600     

Total Joint Arrangement

   767,232    767,232     
  

 

 

   

 

 

     

Net Assets

   120,800       

Adjustment to Net Assets (Goodwill)

   36,190       

Investment

   156,990       
  

 

 

       
   12-31-2016
ThU.S.$
             

Income

   507,179       

Expenses

   (495,560      

Joint Arrangement Net Income (Loss)

   11,619       
  

 

 

       

NOTE 17.

IMPAIRMENT OF ASSETS

In 2015, a provision for the impairment of the Arapoti Sawmill in an amount of ThU.S.$2,428, was registered reducing the recoverable value for these assets to zero.

Disclosure of Impairment Losses of Assets

Provisions for impairment of property, plant and equipment due to technical obsolescence have been recorded as of December 31, 20162018 and December 31, 2015,2017, respectively, as shown below:

 

Disclosure of Asset Impairment

  

Principal classes of Assets affected by Impairment and Reversal of Losses

  Machinery and Equipment

Principal Facts and Circumstances that lead to Recognizing Impairment and Reversal of losses

  Technical Obsolescence and Claim
   12-31-201612-31-2018  12-31-201512-31-2017

Information relevant to the sumProvisions for impairment of all impairmentproperty, plant and equipment

  ThU.S.$7,46416,328  ThU.S.$4,65817,396

This impairment provision is being analyzed to determine the definitivewrite-off corresponding to the related assets. In addition, as of December 2015, the Company recognized an impairment derived from the purchase of the 51% ownership in Novo Oeste Gestao de Ativos Florestais S.A. See Note 14 – acquisition of subsidiaries.

Goodwill

Goodwill is allocated to the groups of cash-generating units that are expected to benefit from the synergies of the combination.

At the date of these consolidated financial statements, the balance of goodwill is ThU.S.$74,89365,851 (ThU.S.$69,475,69,922 at December 31, 2015)2017), as shown below:

Goodwill

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

Opening balance at January 1

   69,922   74,893 

Impairment

   —     (4,640

Increase (decrease) in foreign currency exchange

   (4,071  (331

Closing balance

   65,851   69,922 

Of the total of goodwill, ThU.S.$39,69440,661 (ThU.S.$39,631 39,841 as of December 31, 2015)2017) are generated by the acquisition of “Flakeboard”, a company that, directly and/or through its subsidiaries, possesses and operates 7 panel plants, for which Arauco acquired and paid, on September 24, 2012, the price of ThU.S.$242,502 for the 100% interest ownership.

The recoverable amount for Flakeboard’s cash generating unit was determined based on the calculations of its value in use, and this calculation was made using cash flow projections covering a5-year term, applying a real discount rate of 7.8%6.7% which reflects current market assessments for the timberwood products segment in North America.

The investment in the panel plant in Pien, Brazil generated a goodwill of ThU.S.$32,38523,278 (ThU.S.$27,030 27,266 as of December 31, 2015)2017).

The recoverable amount for the Pien plant’s cash generating unit was determined based on the calculations of its value in use, and this calculation was made using cash flow projections based on the operational plan approved by the Administration, covering a5-year term, applying a 9%7% real discount rate that reflects current evaluations for the panel segment in Brazil.

As a result of the annual impairment test at December 31, 2017, the carrying value of the goodwill doesof the plants exceeded their recoverable value, and therefore impairment losses of ThU.S.$4,640 were recognized. As of December 31, 2018, the carrying value of the goodwill of the plants did not exceed their recoverable value, and therefore there iswas no need to recognize impairment losses.

Between December 31, 2016 and 2015, the variation of the balance in goodwill is only due to the translation adjustments as explained in the accounting policies.

NOTE 18.

PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES

The contingent liabilities for outstanding litigations are as follows:

Celulosa Arauco y Constitución S.A.

1.On August 25, 2005, the Chilean Servicio de Impuestos Internos (the “Chilean IRS”) issued tax resolutions No. 184 and No. 185 of 2005, and objected certain income tax returns made by Arauco on April 16, 2001 and October 31, 2001, and furthermore, requested the reimbursement of the amounts returned in connection towith tax losses, along with the amendment of the FUT (Tax Profits Fund) Registry balance. In consideration to the foregoing, the above mentioned tax resolutions ordered the restitution of the historical amount of $4,571,664,617 (equal to ThU.S.$ 6,8296,580 as of December 31, 2016)2018). On November 7, 2005, the Company requested a Review of the Supervision Action (Revisión de la Actuación Fiscalizadora, or “RAF”), which is an administrative review of the tax action brought by the Chilean IRS, and filed a claim disputing the above mentioned tax resolutions No. 184 and 185 of 2005. The RAF was resolved on January 9, 2009 by the Chilean IRS, partially sustaining the Company’s request, granting a discount to the total amount of $1,209,399,164 (equal to ThU.S.$ 1,807,1,741 as of December 31, 2016)2018), resulting in a total disputed amount of $3,362,265,453 (equal to ThU.S.$ 5,022,4,839 as of December 31, 2016); consequently, on this date the claim corresponding to the sums not granted during the enforcement stage was filed.2018) plus fines and interests. On February 19, 2010, the Court acknowledged receipt of the Company’s request. Subsequently, the tax authority issued a report and the Company commented on such report.

On September 26, 2014, Arauco requested the submission of this claim to the competent jurisdiction of the new Tax and Customs Courts. On October 10, 2014, Arauco’s request was granted. Currently the action is being considered by these new Courts under the Docket No. RUC14-9-0002087-3. On March 20, 2015, the SII responded to the allegations submitted by Arauco against Liquidations No. 184 and 185 of 2005. Currently,On June 19, 2017, the case’s evidentiary stage is dueCourt issued the evidence production ruling, which resolution was notified via certified letter on July 23 of 2017. Arauco lodged a motion for reconsideration and a supplementary appeal, requesting the terms of the evidence production ruling be modified. On July 7, 2017, the Court upheld the motion for reconsideration. On September 20, 2017, the Court issued its first instance decision confirming the liquidations. On October 12, 2017, Arauco challenged the decision through an appeal, requesting the Court of Appeals of Santiago to begin.revoke the first instance decision and uphold Arauco’s claim instead. On June 29, 2018, the Court of Appeals of Santiago issued a ruling on appeal, confirming the first instance decision. On July 19, 2018, Arauco lodged a cassation appeal based on formal and substantial flaws before the Supreme Court. Proceedings pending.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore as of December 31, 2016,2018, Arauco has not made any provision whatsoever in connection towith this contingency.

2. In connection with Licancel Plant, on June 22, 2011, the Company was notified of a civil claim for compensation of prejudice for an alleged tort liability, filed by twelve fishermen of the Mataquito River before the Court of First Instance, Guarantee and Family of Licantén under Docket number73-2011. The case arose out of dead fish allegedly found in the Mataquito River on June 5, 2007 caused by the Licancel Plant. The plaintiffs seek to be compensated for alleged damages that they had from the aforementioned event, including loss of profits, pain and suffering and an alleged contractual liability, for a total of $2,695,560,000 (equal to ThU.S.$ 4,026, as of December 31, 2016).

On October 21, 2015 the Court issued a definitive first instance decision partially admitting the claim, sentencing Celulosa Arauco y Constitución S.A. to pay each claimant – asnon-monetary damages – the sum of $5,000,000 plus adjustments (equal to ThU.S.$7, as of December 31, 2016), as per the variation of the CPI, calculated as from May 2007 until the month of the actual payment. On November 16, 2015, the defendant challenged the definitive decision through the submission of a cassation appeal based on formal aspects and an ordinary appeal. In turn, the plaintiff adhered to the appeal, seeking to have the amount of thenon-monetary damages recognized by the first instance decision increased. Pending. (Court of Appeals DocketNo. 60-2016).

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of December 31, 2016, Arauco has not made any provision whatsoever in connection to this contingency.

3. Through Res. Ex. N° 1 issued by the Superintendence of the Environment (“SMA”) on January 8, 2016, notified on January 14, 2016, the SMA formulated 11 charges against the Company, due to alleged breaches of certain Environmental Qualification Resolutions for the Valdivia Plant and of DS No. 90/2000. The 11 charges were classified as follows by the SMA: 1 critical, 5 severe, 5 minor.

On February 12, 2016, the Company submitted its defenses. The SMA shall analyze

On December 15, 2017, the Superintendence of the Environment issued Exempted Resolution No. 1,487, closing the punitive administrative proceeding, absolving the company with regards to one of the charges and rule on the defenses, and it may request new information or openconvicting for other 10 charges, applying a term for providing evidence. Once these proceedings have been discharged, the SMA will issue a resolution that either absolves or sanctions the Company. The resolutions issued by the SMA may be appealed before the Environmental Court.

The maximum fine that the SMA could apply against the Company, for the above mentioned charges, is up to 36,000of 7,777 UTA (equivalent(equal to ThU.S.$ 29,801,6,495 as of December 31, 2016)2018). On December 22, 2017, the Company submitted a motion for reconsideration regarding Exempted Resolution No. 1,487, before the SMA, requesting that we be absolved of all infringements, with the exception of the charge specified under number 7 (late submission of the water quality report regarding the Cruces river). Exempted Resolution No. 357, issued by the Superintendence of the Environment (SMA) was notified on March 23, 2018, through which the reconsideration appeal lodged by the company was rejected. In consideration to the foregoing, on April 5, 2018, a judicial claim was submitted before the Third Environmental Court against Exempted Resolutions No. 1487 and No. 357 of the SMA. On August 7, the hearing of the case took place but it remains under review. On August 22, 2018 court personnel proceeded with the inspection. Proceedings pending.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company, and therefore as of December 31, 2016,2018, Arauco has not made any provision whatsoever in connection towith this contingency.

4.3. Through Res. Ex. N° 1 of the SMA, dated February 17, 2016 notified on February 23, 2016, the SMA formulated 8 charges against the company due to alleged breaches of certain Environmental Qualification Resolutions for the Nueva Aldea Plant. The 8 charges were qualified by the SMA as follows: 7 severe and 1 minor.

On March 15, 2016, the Companycompany submitted - within the established term - a compliance program which contains 30 actions and goals, related to each one of the 8 alleged infringements. On July 15, 2016, the Exempted Resolution No. 11 of the SMA was notified, which approved the compliance program and suspended the punitive proceedings. If the program is satisfactorily implemented, it would be possible to conclude the proceedings without applying any sanctions.

On August 3, 2016, third-party complainants in the administrative proceeding filed a complaint appeal against Exempted Resolution No. 11 issued by the SMA, which approved the compliance program. On December 24, 2016, the Third Environmental Court rejected such complaint filed against Ex. Res. No. 11 SMA, which approved the compliance program. The petitioners did not file a cassation remedy.

5. Through Exempted Resolution No. 1/FileF-020-2016, dated May 6, 2016,On October 31, 2017, a final report was submitted regarding the Compliance Program, which evidenced the complete and comprehensive performance of all actions and measures envisaged in said program. The SMA formulated four charges againstmust issue its opinion regarding the Company due to certain alleged breachessatisfactory performance of the Environmental Qualification Resolutions of the Licancel Plant. The SMA classified the four charges as follows: 1 severe and 3 minor.

The Company filed its defenses on June 8, 2016. On October 21, 2016, the SMA requested additional information from the Company, which will be submitted in due time. On January 12, 2017, the SMA served its resolution concluding the investigation. The SMA has to issue a new resolution either absolving or sanctioning the Company. The SMA’s resolutions may be challenged before the Environmental Court.

On February 1, 2017, the Environment Superintendent issued Exempted Resolution No. 71, imposing a fine against the Company for the amount of 239 Annual Tax Units (UTA) (equivalent to ThU.S.$ 198, as of December 31, 2016).

Regarding Charge No. 1, related to the disposal of solid industrial waste, particularly ashes in excess of the thresholds authorized by RCA No. 75/2004, a fine amounting to 3 UTA was applied (equivalent to ThU.S.$ 2, as of December 31, 2016).

Regarding Charge No. 2, related to the failure to withdraw from the former treatment pond “pursuant to RCA No. 308/2006,” in the environmental inspections dated May of 2013 and February of 2015, a fine amounting to 234 UTA was applied (equivalent to ThU.S.$194, as of December 31, 2016).

Regarding Charge No. 3, that is, related to exceeding the humidity percentages of the mud disposed of in the solid waste deposit, a fine amounting to 2 UTA was applied (equivalent to ThU.S.$ 2, as of December 31, 2016).

Regarding Charge No. 4, related to the fact that the discharge point of the effluent was not built at the approved location, the Company was acquitted.

On February 13, 2017, the Company filed a motion for reconsideration, requesting the annulment of the fine or substantially decreasing it. This remedy is currently pending.

Since the Company’s position is grounded in solid legal arguments, and there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of December 31, 2016, Arauco has not made any provision whatsoever in connection to this contingency.Compliance Program.

6.4. Through Exempted Resolution No. 1/FileF-031-2016, dated September 15, 2016, the SMA formulated three charges against the Companycompany due to certain alleged breaches of certain Environmental Qualification Resolutions of the Constitución Plant, and an alleged contravention of Law No. 19,300 resulting from a purported circumvention of the Environmental Assessment System. The SMA classified the three charges as follows: 1 severe and 2 minor.

On October 17, 2016, the Companycompany filed a Compliance Program containing 7 actions and objectives. On January 3, 2017, the SMA served its resolution approving the compliance program submitted by the Company. If the compliance program is executed satisfactorily, the proceedings would conclude without the application of any sanctions.

SinceThe final report regarding the Compliance Program was submitted on October 2, 2017, and further supplemented on December 11, 2017, evidencing the complete and comprehensive performance of all the actions and measures envisaged in said program. The SMA must issue its opinion regarding the satisfactory performance of the Compliance Program.

Celulosa Arauco y Constitución S.A., Forestal Arauco S.A., Maderas Arauco S.A. y Servicios Logísticos Arauco S.A.

1. On August 13, 2018, Asociación Gremial de Dueños de Camiones de Constitución (ASODUCAM) filed a complaint seeking the performance of a contract and claiming compensation for damages against Forestal Arauco S.A., Servicios Logísticos Arauco S.A., Celulosa Arauco y Constitución S.A. and Maderas Arauco S.A. The complaint is based on alleged breaches of some agreements for the allocation, distribution and supply of cargo volumes for the years 2001 and 2005, initially executed by associates of ASODUCAM with Forestal Arauco S.A., and then, allegedly, with Servicios Logísticos Arauco S.A., in favor of the other two defendants, Celulosa Arauco and Constitución S.A. and Maderas Arauco S.A.

The complaint seeks to enforce the contract, plus $575,000,000 (equal to ThU.S.$ 828 as of December 31, 2018) in compensation for damages. As subsidy, it claims (a) $11,189,270,050 (equivalent to ThU.S.$ 16,105 as of December 31, 2018), for actual damages; (b) $ 11,189,270,050 monthly during the entire course of the trial, until the termination of the contract is declared in the final judgment, for loss of profits, and (c) $5,000,000,000 (equivalent to ThU.S.$ 7,197 as of December 31, 2018) for moral damages.

On August 28, 2018 the claim was served upon Celulosa Arauco y Constitución S.A., Forestal Arauco S.A. and Maderas Arauco S.A., service is pending on Servicios Logísticos Arauco S.A. (RolC-757-2018 with the Civil Court of Constitución).

Considering that the Company’s position is grounded inbased on solid legal arguments,grounds, there is a reasonable margin for obtaining a favorable result for the Company and, therefore, as of December 31, 2016,2018, Arauco has not made any provision whatsoever in connection with this contingency.

Forestal Arauco S.A.

1. Maquinarias y Equipos Klenner Limitada filed a civil damages claim before the First Civil Court of Valdivia, Case File numberC-375-2015, against Forestal Arauco S.A. The claim seeks compensation for alleged damages brought as a result of the termination of a service provision contract that took place on February 9, 2010. The plaintiff valued the damages in the amount of $4,203,216,164 (equivalent to ThU.S.$ 6,050, as of December 31, 2018).

On November 14, 2016, the lower court issued a ruling partially upholding the claim, convicting Forestal Arauco S.A. to pay the sum of $115,026,673 (equivalent to ThU.S.$ 166 as of December 31, 2018) as general damage, and the sum of $607,849,413 (equivalent to ThU.S.$ 875 as of December 31, 2018) for loss profit, rejecting the claim for alleged moral damage, all without ordering the payment of litigation expenses.

Forestal Arauco S.A. challenged the ruling filing a cassation remedy based on procedural violations as well as an appeal. The plaintiff also challenged the ruling through an appeal. On August 14, 2017, the Court of Appeals decided to only uphold the appeal filed by Forestal Arauco S.A., dismissing the claim in its entirety.

On September 1, 2017, the plaintiff challenged the decision rendered by the Court of Appeals, filing a formal cassation appeal and a cassation appeal on the merits before the Supreme Court, which was rejected on September 14, 2018. On October 19, 2018, it was certified as enforceable. Case finished.

2. On April 28, 2015, the company was notified of and answered the action for recovery submitted in ordinary proceedings by Mr. Rodrigo Huanquimilla Arcos and Mr. Mario Andrades Rojas, attorneys at law, on behalf of 24 members of the Arcos succession, who claiming to be owners of the estate that they identify as Hacienda Quivolgo, of 5,202 hectares, request that Forestal Celco S.A., currently Forestal Arauco S.A., be sentenced to return the above mentioned real property plus civil and natural fruits or revenues as well as any estates adhered to it, along with any damages that the real property may have suffered, with litigation costs.

The company proceeded to answer the claim requesting that it be completely rejected, arguing that Forestal Celco S.A., currently Forestal Arauco S.A., is the sole and legitimate owner of the real property.

The Court ordered that this trial be joined with Case FileC-54-2015.

On December 9, 2016, the Court summoned the parties for the issuance of the ruling. On February 24, 2017, the first instance final ruling was notified, which ruling dismissed the claim in its entirety.

On March 8, 2017, the claimant appealed against the first instance decision. On May 25, 2018, the first instance ruling was confirmed by the Court, with court costs.

On June 12, 2018, the plaintiff challenged the decision of the Court of Appeals, filing a cassation appeal based on substantial flaws before the Supreme Court. Pending case to be heard. (Case File16,583-2018).

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of December 31, 2018, Arauco has not made any provision whatsoever in connection with this contingency.

3. On April 6, 2015, the company was notified through a rogatory letter regarding the claim submitted by Mr. Gustavo Andrés Ochagavía Urrutia, attorney at law, acting on behalf of 23 members of the Arcos succession, who claim to be the owners of the estate that they identify as Hacienda Quivolgo, of 5,202 hectares, requesting that Forestal Celco S.A., currently Forestal Arauco S.A., be ordered to return the above mentioned real property plus civil and natural fruits or revenues as well as any estates adhered to it, along with any damages that the real property may have suffered, with litigation costs. They base their claim in that Forestal Celco S.A., currently Forestal Arauco S.A., is allegedly in possession but does not own the real property in question.

On April 28, 2015, the company proceeded to answer the claim requesting that it be completely rejected, arguing that Forestal Celco S.A., currently Forestal Arauco S.A., is the sole and legitimate owner of the real property.

On January 8, 2016, the defendant requested a consolidation of the proceedings with Case file334-2014. The Court ordered the requested consolidation.

On February 24, 2017, the final ruling of the lower court was notified, completely dismissing the claim, with litigation costs.

On March 8, 2017, the plaintiff filed an appeal against the lower court final ruling. On May 25, 2018, the Court of Appeals of Talca upheld the first instance final ruling with litigation costs. (Court of Appeals of Talca Case FileNo. 949-2017).

On June 12, 2018, the plaintiff challenged the decision of the Court of Appeals, filing a cassation appeal based on substantial flaws before the Supreme Court. Pending case to be heard. (Case File16,583-2018).

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of December 31, 2018, Arauco has not made any provision whatsoever in connection with this contingency.

4. On July 11, 2017, the company was notified of a civil claim for recovery in ordinary proceedings, filed by Mrs. Carmen Muñoz Domínguez on behalf of Forestal Ezrece S.A. The plaintiff argues that its client would be the rightful owner – as a result of an assignment and sale – of 87.5% of the hereditary rights in the rural real estate property called “Pino Huacho,” located in the boroughs of Los Alamos and of Cañete, province of Lebu, Eighth Region, for a surface area amounting to 5,144.22 hectares, which actions would be under the possession of Forestal Arauco S.A. The claimant has requested the court to order Forestal Arauco S.A. to be sentenced to restitute these actions and rights. Forestal Arauco S.A. answered the claim, requesting its total dismissal, with litigation costs, and further filing a counterclaim based on the ordinary prescription and, in lieu thereof, based on extraordinary prescription.

Proceedings currently at the evidence production stage. Proceedings pending. (Case FileC-109-2017 First Instance and Guarantee Court of Lebu).

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of December 31, 2018, Arauco has not made any provision whatsoever in connection with this contingency.

5. Mrs. Estela Jaramillo, filed a lawsuit in a special indigenous procedure, before the First Civil Court of Osorno (CaseC-2540-2018), requesting the absolute nullity of the contract of sale signed in 1999, by which Consorcio Forestal S.A. sold to Forestal Valdivia S.A., today Forestal Arauco S.A., 1,505.6 hectares under the name of Fundo San Nicolás Dos Lote Uno Norte. It also demands compensation for damages for the exploitation and use of indigenous lands against Forestal Arauco S.A.

On November 10, 2018, Forestal Arauco SA was notified of the lawsuit. On January 16, 2019, the Court dismissed the lawsuit regarding Consorcio Forestal S.A., who was not notified of the complaint.

The response of the proceedings is currently pending.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of December 31, 2018, Arauco has not made any provision whatsoever in connection with this contingency.

Arauco Argentina6. Ricardo Guzmán Reyes filed a claim for compensation for damages before the Court of First Instance(C-678-2018), in which he requests to be compensated for the damages caused as a result of a precautionary measure decreed in a possessory complaint filed by Forestal Celco S.A.

1.On December 14, 2007 the Federal Administration of Internal Revenue (Administración Federal de Ingresos Públicos) (“AFIP”) requested a determination, challenging the deductibility, as against Income Tax, of certain expenses, interests and exchange differences generated by Private Negotiable Obligations issued - which was rejected by the Companycourt in 20012014-, alleging that said precautionary measure prevented the plaintiff from extracting rocks and cancelledmoving aggregates from the mining property called “Puente Nuevo 1, 1 a 14 de la Constitución “, for a period of 463 days.

The plaintiff assesses damages in 2007, for an amount of US$ 250,000,000.

This determination reached $417,908,207 Argentine PesosCLP$ 8,519,046,182 (equivalent to ThU.S.Th.U.S.$26,300 12,262 as of December 31, 2016) for principal, compensatory interest and fines.

On February 11, 2008, the Company appealed before the National Tax Court (Tribunal Fiscal de la Nación) (“TFN”)2018), which upheld the State’s determination on February 2010. The Company appealed this decision before the National Chambercorrespond to CLP$ 7,899,046,182 (equivalent to Th.U.S.$ 11,369 as of AppealsDecember 31, 2018) for Federal Administrative Disputes.

Likewise, the Company requested an interim measure of relief before the Chamber of Appeals, so that the Chamber may order the suspension of the determination’s enforceability while the final judgment is pending. On May 13, 2010, Chamber I of the National Chamber of Appeals for Federal Administrative Disputes approved the request, subject to the pledge of collateral, which collateral was furnished by the Company by means of Insurance Policy No. 86058, issued by Zurich Argentina Cia. de Seguros S.A. for $633,616,741 Argentine Pesosemerging damages, CLP$ 500,000,000 (equivalent to ThU.S.$ 39,875720 as of December 31, 2016).

The judgment of the Chamber of Appeals, issued in December 2012, was contrary2018) for lost profits and CLP$120,000,000 (equivalent to the company’s interests. The Company filed an Ordinary Appeal before the Supreme Court of Justice, which was authorized by the Chamber of Appeals, and an Extraordinary Appeal, which was duly noted by the Chamber for the relevant procedural phase.

During this entire process, the Company, in consultation with its legal advisors external maintained their opinion that the Company had behaved within the limits of the law in its deduction of the interests, expenses and exchange differences that was challenged by the State, and that there were good chance that this determination issued by the AFIP would be rendered without effect.

On July 22, 2016, Congress passed law No. 27,260, whose Title II, Book II establishes an Exceptional Regularization Regime for Tax, Social Security and Customs Obligations, for obligations that have been the subject matter of judicial proceedings (henceforth, the “Regularization Regime”).

The introduction of the Regularization Regime entails an exemption from the applicable fines as well as a portion of the interests. In order to enjoy these benefits, the taxpayer must unconditionally accept its counterparty’s claim in relation to the regularized obligations, as well as desist from and withdraw any action and right, including restitution actions, bearing the expense of litigation costs and expenses.

The legal counselors that have been intervening in the different stages of litigation have highlighted the very important economic advantages offered by the Regularization Regime in light of the contingency inherent to any judicial case.

On September 7, 2016, the Company materialized its application to the Regularization Regime before the AFIP, in connection to the obligations claimed in consideration to the adjustment conducted by the State regarding the Income Tax Statements filed between the years 2001 and 2004 and reported this situation to the Nation’s Supreme Court, consequently abandoning the Ordinary Appeal that had been promptly lodged.

As of this date, the updated amount for the contingency amounted to approximatelyThU.S. $ 891,758,132 Argentine Pesos (equal to ThU.S.$ 56,121173 as of December 31, 2016), corresponding2018) for moral damages.

On December 14, 2018, the lawsuit was notified to principal, interestForestal Arauco S.A. On December 26, 2018, Forestal Arauco S.A. filed an incident of inability with respect to the subrogation judge, Rodrigo Silva Marchant, also requesting the nullity of the proceedings and fines. Therulings issued by him. On January 11, 2019, the Subrogation Judge Mr. Rodrigo Silva Marchant declared himself disqualified from continuing to hear the matter, with the Court accepting the nullity incident on January 16 of the same year.

On February 14, 2019, the court issued a ruling accepting the exception of res judicata filed as dilatory by Forestal Arauco S.A. This resolution was not subject to appeal by the plaintiff, so the case is finished.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company decided to pay in cash, and the balance that was finally paid amounted to $ 248,503,504 Argentine Pesos (equal to ThU.S.$ 15,639therefore, as of December 31, 2016). Additionally,2018, Arauco has not made any provision whatsoever in connection with this contingency.

7. Inversiones Forestales Los Alpes Limitada and Forestal Neltume-Carrasco S.A. filed a claim against Forestal Arauco S.A. before the Company shall assume the payment of all litigation costs and trial expenses, the sum of which was undetermined as of the date of these financial statements. On November 1, 2016, the Nation’s SupremeCivil Court of Justice declaredAngol(C-502-2015), in which they request that Forestal Arauco S.A. restitute the above mentioned remedy’s abandonment and returned the file to the courtmaterial possession of origin. On November 30, 2016, the First Chamber1,855.9 hectares, which would be part of the National Appeals Courttheir property “Resto del Fundo Los Alpes”, which would have an area of approximately 2,700 hectares. Likewise, they requested that it be declared that the case fileproperty is the exclusive domain of the actors, the restitution of the civil and natural fruits, in addition to the deteriorations that the property would have experienced, with costs.

On January 22, 2019, the lawsuit was notified to Forestal Arauco S.A., and the deadline for its response is pending.

On February 13, 2019 Forestal Arauco S.A. filed dilatory exceptions, which are pending resolution.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as returned.of December 31, 2018, Arauco has not made any provision whatsoever in connection with this contingency.

2.

Arauco Argentina S.A.

1. Pursuant to law No. 25,080, the former Secretary of Agriculture, Livestock, Fishing and Foodstuffs, the enforcement agency referred to in the law approved, by Res. No. 952/2000, the forestry and industrial-forestry projects submitted by Arauco Argentina S.A. In the context of these projects, the Company afforested: 1) 4,777 hectares during 2000, in observance of its committed yearly plan; and 2) 23,012 hectares between 2000 and 2006 as a part of the multi-year afforestation plan. Likewise, a sawmill was built with installed capacity to produce 250,000 m3 of sawn timber per year.

On January 11, 2001, Arauco Argentina S.A. submitted an expansion for the approved industrial-forestry project. The expansion was approved via Res. No. 84/03 issued by the former Secretary of Agriculture, Livestock, Fishing and Foodstuffs. In accordance with the assumed obligations, the Company built a MDF board (panels) plant and afforested 8,089 hectares between 2001 and 2006.

Additionally, the Company has filed yearly forestry plans between years 2007 and 20152017 for its local operations in the Provinces of Misiones and Buenos Aires.

In March 2005, Note No. 145/05 of the Undersecretary of Agriculture, Livestock and Afforestation suspended the benefit that exempted Arauco Argentina S.A. from paying export duties under Law No. 25,080. This measure is currently under discussion by the Company. On November 8, 2006, the V Chamber of the National Appeals Court for Adversarial Administrative and Federal Matters issued a ruling ordering Arauco Argentina S.A. to continue to enjoy an exemption from paying the exportation duties, in the same manner and scope it had prior to the suspension ordered by Note No. 145/05, if the clearance of merchandise is performed pursuant to the guarantee regime established in article 453, subsection a) of the Customs Code, for the exempted tax obligation. The judicial measure became effective beginning on March of 2007 by collateralization through the granting of bond (caución) policies for each shipment permits exempted from payment of export duty. The Companycompany maintains an assignment of funds equivalent to $372,478,000$885,528,092 Argentine Pesos (ThU.S.$ 23,44123,463 as of December 31, 2016)2018) for guaranteed export duties, which appears under not current provisions. Additionally, the Company filed a restitution claim for a total amount of US$6,555,207, plus interests accrued from the service of the claim, corresponding to export duties between March 2005 and March 2007, as a result of the application of Note 145/05 issued by the Undersecretary of Agriculture, Livestock and Afforestation. Both the underlying issue and the restitution claim have yet to be resolved.

In turn, duringOn the other hand, in April of year 2005,2016, the Secretary forof Agriculture, Ranching,Livestock and Fishing and Foods issued Resolution No. 260/2005, requiringNo.154 – E/2016, that requires that the holders of any firmsenterprises that hadhave received the fiscal benefits granted underenvisaged by Law No. 25,080, should establish collateral to cover a third of the totalduration of the project, with a minimum term of five years. During May of 2018, the Company modified the duly established collateral in accordance to the terms of said Resolution, for which reason the security was ultimately established at an amount of any such benefits, considering for such purposes all benefits that had been enjoyed until the date of their establishment. In January 2006, the Company furnished, in protest, the requested collateral, which amount to, as of the date of these financial statements, $245,359,796$330,929,852 Argentine pesosPesos (ThU.S.$ 15,4418,768 as of December 31, 2016). On April 29, 2016, the corresponding authority issued Resolution 154 – E/2016 that repealed Resolution 260/2005 and established a minimum and maximum amount for the collateral. The Company shall apply the new Resolution upon the expiration of the next collateral policy (May 2017)2018).

Arauco Argentina S.A. believes that it has complied with all of the obligations imposed upon it by the system set forth under Law No. 25,080.

3. On December 6, 2013, Arauco Argentina S.A. was served upon Resolution 803 issued by the Central Bank of the Republic of Argentina (BCRA) on November 22, 2013. By means of such resolution, the BCRA initiated Investigation No. 5581, whereby it is sought to determine the absence of currency inflow and liquidation, and the delayed inflow of currency arising from export operations.

On March 6, 2014, the BCRA notified Arauco Argentina S.A. that it had received the APSA’s response and was beginning the trial period. On June 18, 2014 the BCRA notified the Company of the closure of the trial period. On June 26, 2014 APSA presented its answer. On October 6, 2014, the Company was served with the ruling dated September 30, 2014, issued by the National Criminal and Economic Court No. 8, Secretary No. 16, through which it was notified that the court would analyze the case under Case File No. 1330/2014.

The resolution through which the Intervening Court declared the expiration of the criminal action based on the statute of limitations and acquitted the Company was issued on August 23, 2016.

Arauco do Brasil S.A.

On November 8, 2012, the Brazilian tax authorities issued an Infringement Notice against one of our Brazilian subsidiaries, Arauco do Brasil S.A., for allegedly unpaid taxed owed by said company during the period from 2006 to 2010. Specifically, the tax authorities (i) objected to the deductibility of certain payments made, and expenses incurred (including the amortization of premiums, interest and litigation costs) by Arauco do Brasil between 2005 and 2010, and, (ii) argued that Arauco do Brasil made certain insufficient payments regarding the Brazilian Corporate Tax (“IRPJ”) and the Corporate Contribution over Net Profits (“CSLL”) during 2010.

On July 20, 2015, Arauco do Brasil was notified of the first-level administrative ruling which partially upheld the Infringement.Infringement, at the estimated amount of R$164,159,000 (ThU.S.$42,435 as of December 31, 2018). Against this ruling, a Voluntary Appeal was filed seeking to revoke the Infringement Notice before the Brazilian Administrative Tax Council (Conselho Administrativo de Recursos Fiscais de Brasil or “CARF”), which is the second administrative level. AsThe CARF’s decision was issued on May 16, 2017, and took into consideration certain arguments presented by the Company regarding the premia, but preserving other charges. On September 27, 2018, Arauco do Brasil was notified of the dateCARF decision, representing the final amount of this report, the trial pertaining to this objection is still pending. With the first level administrative decision, the main amount iscase R$164,159,00057,556,262 (ThU.S.$ 50,46814,878 as of December 31,2016)31, 2018), interests and readjustments will be added to that value until the discussion is over. Arauco do Brasil S.A. filed an appeal for declaration embargoes, to elicit clarifications from the CARF regarding certain points of the decision. After these clarifications, Arauco will present the Special Appeal to the CSRF - Superior Chamber of Fiscais Resources (final administrative instance), to continue the discussion of the part of the accusation that remains.

The company believes that its challenge against the Infringement Notice is based on sound legal grounds and that a reasonable possibility exists that this matter will be resolved in favor of the company and therefore,company. Otherwise, as of December 31, 2016, Arauco has not made any provision whatsoever in connection to this contingency.

Forestal Arauco S.A.

1. On October 8, 2013, Bosques Arauco S.A., now Forestal Arauco S.A. was notified of a civil claim filed by Mr. Manuel Antonio Fren Casanova, requesting the court to declarenext step, the properties known as Cuyinco and Cuyinco Alto as two different properties and, therefore, to orderCompany will discuss the cancellation of the ownership registration in the name of Bosques Arauco S.A. found on N° 290 of page 266 of the Registry of Property kept by the Real Estate Registrar of Cuyinco Alto, on the grounds that, Bosques Arauco S.A. erroneously understood that its property, Cuyinco Alto of 4,600 hectares, would also encompass the land known as Cuyinco, which allegedly belongs to the claimant.

The claim was filedInfringement Notice before the Civil Court of Lebu (Case File No.C-269-2013).

On October 27, 2015, the Court passed a first instance definitive judgment, dismissing the claim in its entirety. On November 16, 2015, the plaintiff challenged the first instance judgment by means of a cassation appeal based on substantial and procedural grounds. (Case Docket Court of Appeals No. 1956-2015).

On January 13, 2017, the Court of Appeals of Concepción upheld the lower court ruling.

The plaintiff did not appealed the Court of Appeals of Concepción ruling, whereby the lower court ruling – which dismissed the claim – was confirmed. Consequently, the decision is final and not subject to any further appeal. Trial concluded.

2. Maquinarias y Equipos Klenner Limitada filed a civil damages claim before the First Civil Court of Valdivia, Case File numberC-375-2015, against Forestal Arauco S.A. The claim seeks compensation for alleged damages brought as a result of the termination of a service provision contract that took place on February 9, 2010. The plaintiff valued the damages in the amount of $4,203,216,164 (equivalent to ThU.S.$ 6,278, as of December 31, 2016).

On November 14, 2016, the lower court issued a ruling partially upholding the claim, convicting Forestal Arauco S.A. to pay the sum of $115,026,673 (equivalent to ThU.S.$ 172 as of December 31, 2016) as general damage, and the sum of $607,849,413 (equivalent to ThU.S.$ 908 as of December 31, 2016) for loss profit, rejecting the claim for alleged moral damage, all without ordering the payment of litigation expenses.

Forestal Arauco S.A. challenged the ruling filing a cassation remedy based on procedural violations as well as an appeal. The plaintiff also challenged the ruling through an appeal. All remedies are currently pending for discussion and ruling by the Court of Appeals of Valdivia. Since January 12, 2017, the remedies are awaiting their presentation (Court entry Case FileNo. 779-2016).Brazilian Justice Courts.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of December 31, 2016,2018, Arauco has not made any provision whatsoever in connection to this contingency.

3. On April 28, 2015, the company was notified of and answered the action for recovery submitted in ordinary proceedings by Mr. Rodrigo Huanquimilla Arcos and Mr. Mario Andrades Rojas, attorneys at law, on behalf of 24 members of the Arcos succession, who claiming to be owners of the estate that they identify as Hacienda Quivolgo, of 5,202 hectares, request that Forestal Celco S.A., currently Forestal Arauco S.A., be sentenced to return the above mentioned real property plus civil and natural fruits or revenues as well as any estates adhered to it, along with any damages that the real property may have suffered, with litigation costs. The company proceeded to answer the claim requesting that it be completely rejected, arguing that Forestal Celco S.A., currently Forestal Arauco S.A., is the sole and legitimate owner of the real property.

The Court ordered that this trial be joined with those entertained under Case FileC-54-2015, suspending the proceeding and ordering the parties to appoint a joint representative to act on behalf of both parties. The attorneys for both claimant parties conferred reciprocal powers to each other, and thus the Court deemed they had fulfilled the legal requirement.

On December 9, 2016, the Court summoned the parties to a ruling hearing. The issuance of the ruling is pending (Case fileC-334-2014 of the Civil Court of Constitución).

On February 24, 2017, the final ruling of the lower court was notified, completely dismissing the claim, with litigation costs. The filing of potential remedies is currently available.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of December 31, 2016, Arauco has not made any provision whatsoever in connection to this contingency.

4. On April 6, 2015, the company was notified through a rogatory letter regarding the claim submitted by Mr. Gustavo Andrés Ochagavía Urrutia, attorney at law, acting on behalf of 23 members of the Arcos succession, who claim to be the owners of the estate that they identify as Hacienda Quivolgo, of 5,202 hectares, requesting that Forestal Celco S.A., currently Forestal Arauco S.A., be ordered to return the above mentioned real property plus civil and natural fruits or revenues as well as any estates adhered to it, along with any damages that the real property may have suffered, with litigation costs. They base their claim in that Forestal Celco S.A., currently Forestal Arauco S.A., is allegedly in possession but does not own the real property in question. On April 28, 2014, the company proceeded to answer the claim requesting that it be completely rejected, arguing that Forestal Celco S.A., currently Forestal Arauco S.A., is the sole and legitimate owner of the real property.

On January 8, 2016, the defendant requested a consolidation of the proceedings with Case file334-2014, as well as the suspension of the proceedings until this request is decided upon. The Court ordered this case file to be joined with the proceedings of case file No.C-334-2014 of the Civil Court of Constitución.

On February 24, 2017, the final ruling of the lower court was notified, completely dismissing the claim, with litigation costs. The filing of potential remedies is currently available.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of December 31, 2016, Arauco has not made any provision whatsoever in connection to this contingency.

At the end of each reporting periodclosing date, there are no other contingencies in which the Companies act as obligor, that mightmay significantly affect the Company’stheir financial, positioneconomic or results of operations.operational conditions.

Provisions recorded as of December 31, 20162018 and December 31, 20152017 are as follows:

 

Classes of Provisions

  12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Provisions, Current

   842    858    413    2,728 

Provisions for litigations

   427    404    413    616 

Other provisions

   415    454    —      2,112 

Provisions,non-Current

   38,138    34,541    33,884    36,008 

Provisions for litigations

   14,696    10,996    10,384    12,556 

Other provisions

   23,442    23,545    23,500    23,452 
  

 

   

 

   

 

   

 

 

Total Provisions

   38,980    35,399    34,297    38,736 
  

 

   

 

   

 

   

 

 

  12-31-2016   12-31-2018 

Movements in Provisions

  Litigations
ThU.S.$ (*)
 Other
Provisions
ThU.S.$
 Total
ThU.S.$
   Litigations (*)
ThU.S.$
 Other
Provisions (**)
ThU.S.$
 Total
ThU.S.$
 

Opening balance

   11,400   23,999   35,399    13,172   25,564   38,736 

Changes in provisions

        

Increase in existing provisions

   5,363   1   5,364    1,660   2   1,662 

Used provisions

   (998  (39  (1,037   (887  —     (887

Increase (decrease) in foreign currency exchange

   (609  —     (609   (5,262  —     (5,262

Other Increases (Decreases)

   (33  (104  (137   2,114   (2,066  48 

Total Changes

   3,723   (142  3,581    (2,375  (2,064  (4,439

Closing balance

   15,123   23,857   38,980    10,797   23,500   34,297 

 

(*)

The increase in legal claims is composed mainly of ThU.S.$886 and ThU.S.$776 (Brazilian and Argentine subsidiaries respectively) in connection with civil and labor lawsuits.

(**)

The decrease in Other Increases (Decreases) in Other provisions is due to legal claims from Arauco Industrias de Paineis which were classified as Other provisions in 2017 and were included as Litigations in December 2018

   12-31-2017 

Movements in Provisions

  Litigations (*)
ThU.S.$
  Other
Provisions (**)
ThU.S.$
  Total
ThU.S.$
 

Opening balance

   15,123   23,857   38,980 

Changes in provisions

    

Increase in existing provisions

   1,314   16   1,330 

Increase through business combinations

   —     2,106   2,106 

Used provisions

   (1,578  —     (1,578

Increase (decrease) in foreign currency exchange

   (1,493  —     (1,493

Other Increases (Decreases)

   (194  (415  (609

Total Changes

   (1,951  1,707   (244

Closing balance

   13,172   25,564   38,736 

(*)

The increase in legal claims is composed mainly of ThU.S.$908 and ThU.S.$375 (Brazilian and Argentine subsidiaries respectively) in connection with civil and labor lawsuits.

(**)

The change in Other Increases (Decreases) in Other provisions is due to a reverse of the provision in Zona Franca Punta Pereira (Uruguay). The increase through business combination corresponds to the acquisition of Arauco Industrias de Paineis.

    12-31-2016 

Movements in Provisions

  Litigations (*)
ThU.S.$
  Other
Provisions (**)
ThU.S.$
  Total
ThU.S.$
 

Opening balance

   11,400   23,999   35,399 

Changes in provisions

    

Increase in existing provisions

   5,363   1   5,364 

Used provisions

   (998  (39  (1,037

Increase (decrease) in foreign currency exchange

   (609  —     (609

Other Increases (Decreases)

   (33  (104  (137

Total Changes

   3,723   (142  3,581 

Closing balance

   15,123   23,857   38,980 

(*)

The increase in legal claims is composed mainly of ThU.S.$ 863 and ThU.S.$ 2,255 (Brazilian and Argentine subsidiaries respectively) in connection with civil and labor lawsits,lawsuits, and ThU.S.$1,490 from Arauco Argentina in connection of fees in lawsuits.

   12-31-2015 

Movements in Provisions

  Litigations
(*)
ThU.S.$
  Other
Provisions (**)
ThU.S.$
  Total
ThU.S.$
 

Opening balance

   16,038   51,026   67,064 

Changes in provisions

    

Increase in existing provisions

   2,555   1,429   3,984 

Used provisions

   (2,990  —     (2,990

Increase (decrease) in foreign currency exchange

   (5,163  —     (5,163

Other Increases (Decreases)

   960   (28,456  (27,496

Total Changes

   (4,638  (27,027  (31,665

Closing balance

   11,400   23,999   35,399 

(*)The increase in legal claims is composed mainly of ThU.S.$1,558 from Brazilian subsidiaries in connection with civil and labor lawsuits, being the latter the most important. In addition there are ThU.S.$840 from Arauco Argentina in connection with labor lawsuits .
(**)

The increase of Other Provisions comprises mainly an increase of ThU.S.$1,429 from Arauco Argentina for export duties. Whilechange in the Other Increases (Decreases), line item, the in Other provisions is due to a reverse of Negative Equitythe ThU.S.$ 100 corresponding to Arauco Forest Brasil over Novo Oeste by ThU.S.$ 25,290 and Forestal Cholguán over Sercor is reflected by ThU.S.$2,850.Argentina.

   12-31-2014 

Movements in Provisions

  Litigations
ThU.S.$ (*)
  Other
Provisions
ThU.S.$ (**)
  Total
ThU.S.$
 

Opening balance

   18,406   15,457   33,863 

Changes in provisions

    

Increase in existing provisions

   9,585   16,782   26,367 

Payments

   (8,951  —     (8,951

Decrease in foreign currency exchange

   (818  (3,324  (4,142

Other (Decreases) Increases

   (2,184  22,111   19,927 

Total Changes

   (2,368  35,569   33,201 

Closing balance

   16,038   51,026   67,064 

(*)In the increase of legal claims US$3.3 million are included that correspond to 50 % of trial provision with the supplier in the construction of the pulp mill in Uruguay SACEEM Zona Franca S.A. (joint agreement).
(**)The increase in Other Provisions, is comprised mainly of an increase of Th.U.S.$2,850 from the provision of Negative Equity of Forestal Cholguan over Sercor and Th.U.S.$ 13,162 of Arauco Forest Brasil over Novo Oeste.

Another increase in Other Provisions corresponds to the Th.U.S$ 21,549 for the provision of export duties.

Provisions for litigations are related to labor and tax claims whose payment period is uncertain. Other provisions mainly include the recognition of a liability related to investments in associates and joint ventures accounted under the equity method with net asset deficiency at the end of the reporting period.

NOTE 19.

INTANGIBLE ASSETS

 

  12-31-2016 12-31-2015   12-31-2018 12-31-2017 

Classes of Intangible Assets, Net

  ThU.S.$ ThU.S.$   ThU.S.$ ThU.S.$ 

Intangible assets, net

   89,497   88,112    90,093   88,615 

Computer software

   26,370   21,251    26,545   26,747 

Water rights

   5,689   5,485    5,966   5,697 

Customer

   50,982   55,265    41,634   47,144 

Other identifiable intangible assets

   6,456   6,111    15,948   9,027 

Classes of intangible Assets, Gross

   159,025   142,704    185,895   173,426 

Computer software

   72,008   58,275    88,177   81,907 

Water rights

   5,689   5,485    5,966   5,697 

Customer

   71,275   70,676    71,443   72,685 

Other identifiable intangible assets

   10,053   8,268    20,309   13,137 

Classes of accumulated amortization and impairment

      

Total accumulated amortization and impairment

   (69,528  (54,592   (95,802  (84,811

Accumulated amortization and impairment, intangible assets

   (69,528  (54,592   (95,802  (84,811

Computer software

   (45,638  (37,024   (61,632  (55,160

Customer

   (20,293  (15,411   (29,809  (25,541

Other identifiable intangible assets

   (3,597  (2,157   (4,361  (4,110

Reconciliation of the carrying amount of intangible assets at the beginning and end of each reporting period balances

 

  12-31-2016     12-31-2018 

Reconciliation of intangible assets

  Computer
Software
ThU.S.$
 Water
Rights
ThU.S.$
 Customer
ThU.S.$
 Others
ThU.S.$
 TOTAL
ThU.S.$
   Computer
Software
ThU.S.$
 Water
Rights
ThU.S.$
   Customer
ThU.S.$
 Others
ThU.S.$
 TOTAL
ThU.S.$
 

Opening Balance

   21,251   5,485   55,265   6,111   88,112    26,747   5,697    47,144   9,027   88,615 

Changes

             

Additions

   12,935   204   —     1,718   14,857    6,369   269    —     7,424   14,062 

Disposals

   (1  —     —     —     (1   (1  —      —     —     (1

Amortization

   (8,368  —     (4,770  (1,414  (14,552   (7,132  —      (4,808  (409  (12,349

Increase (Decrease) related to foreign currency translation

   178   —     487   41   706    (287  —      (702  (31  (1,020

Other Increases (Decreases)

   375   —     —     —     375    849   —      —     (63  786 

Changes Total

   5,119   204   (4,283  345   1,385    (202  269    (5,510  6,921   1,478 

Closing Balance

   26,370   5,689   50,982   6,456   89,497    26,545   5,966    41,634   15,948   90,093 
  12-31-2015     12-31-2017 

Reconciliation of intangible assets

  Computer
Software
ThU.S.$
 Water
Rights
ThU.S.$
 Customer
ThU.S.$
 Others
ThU.S.$
 TOTAL
ThU.S.$
   Computer
Software
ThU.S.$
 Water
Rights
ThU.S.$
   Customer
ThU.S.$
 Others
ThU.S.$
 TOTAL
ThU.S.$
 

Opening Balance

   18,224   5,442   63,164   6,428   93,258    26,370   5,689    50,982   6,456   89,497 

Changes

             

Additions

   9,638   66   —     690   10,394    7,487   8    —     2,973   10,468 

Additions through business combination

   320   —      —     —     320 

Disposals

   (73  —     —     (70  (143   (181  —      —     —     (181

Amortization

   (6,448  (2  (4,819  (684  (11,953   (8,122  —      (4,797  (408  (13,327

Increase (Decrease) related to foreign currency translation

   (84  (21  (3,080  (253  (3,438   873   —      959   (96  1,736 

Other Increases (Decreases)

   (6  —     —     —     (6   —     —      —     102   102 

Changes Total

   3,027   43   (7,899  (317  (5,146   377   8    (3,838  2,571   (882

Closing Balance

   21,251   5,485   55,265   6,111   88,112    26,747   5,697    47,144   9,027   88,615 

 

   Years of Useful  life
(Average)
 

Computer Software

   5 

Customer

   15 

Brands

   7 

The amortization of customer and computer software is presented in the Consolidated Statements of Profit or Loss under the “Administrative Expenses” line item.

NOTE 20.

BIOLOGICAL ASSETS

Biological assets comprise forestry plantations, mainly radiata and taeda pine, and to a lesser extent eucalyptus. The plantations are located in Chile, Argentina, Brazil and Uruguay, with a total surface of 1.71.77 million hectares as of December 31, 20162018 out of which 11.02 million hectares are used for forestry planting, 409441 thousand hectares are native forest, 191199 thousand hectares are used for other purposes and 52111 thousand hectares not yet planted.

As ofFor the year ended December 31, 2016,2018, the production volume of logs totaled 18.720.3 million cubic meters (19.4m3 (20.7 million cubic metersm3 as of December 31, 2015)2017).

Measurements of fair value of Arauco’s biological assets are classified as Level 3, due to the fact that inputs are not observable. However, this information reflects the assumptions that market participants would use in pricing the asset, including assumptions about risk.

These unobservable inputs were developed using the best information available and includes internal data from Arauco. These unobservable inputs can be adjusted if the available information indicates that other market participants would use different information or there is something specific in Arauco that is not available to other market participants.

The main considerations in determining the fair value of biological assets include the following:

 

Arauco uses discounted expected future cash flows of its forest plantations, which are

based on a harvest projection date for all existing plantations.

 

Current forestry plantations are projected based on a net volume that will not decrease, with a minimum growth equivalent to the current supply demand.

 

Future plantations are not considered.

 

The harvest of forestry plantations supplies raw materials for all other products that Arauco produces and trades. By directly controlling the development of forests that will be processed, Arauco ensures high quality timber for each of its products.

 

Expected cash flows are determined in terms of harvest and expected sale of forestry products, associated with the demand from the Company’s own industrial centers and sales to third parties at market prices. Sales margin of the different products that are harvested in the forest is also considered in the valuation. The changes in the value of the plantations pursuant to the criteria defined above are accounted for in the results for the fiscal year, as established in IAS 41. These changes are presented in the Consolidated Statements of Profit or Loss under the line item Other income per function, which as of December 31, 20162018 amounted to ThU.S.$208,56284,476 (ThU.S.$210,479 83,031 as of December 31, 2015)2017). The appraisal of biological assets resulted in a greater cost of the lumber sold in comparison to the real incurred cost, which is presented included in the cost of sales which as of December 31, 20162018 amounted to ThU.S.$204,971207,346 (ThU.S.$185,737 213,234 as of December 31, 2015)2017).

 

Forestry plantations are harvested according to the needs of Arauco’s production plants.

 

The discount rates used are 8%6.4% in Chile (7.5% at 2017), 7.9% Brazil, 10.5% in Argentina and Uruguay, and 12%6.9% in Argentina.Uruguay.

It is expected that prices of harvested timber are constant in real terms based on market prices.

Cost expectations with respect to the lifetime of the forests are constant based on estimated costs included in the projections made by Arauco.

 

The average crop age by species and country is:

 

   Chile   Argentina   Brazil   Uruguay 

Pine

   24    15    15    —   

Eucalyptus

   12    10    7    10 

The following table sets forth changes in fair value of biological assets considering variations in significant assumptions considered in calculating the fair value of the assets:

 

      ThU.S.$       ThU.S.$ 

Discount rate

   0,5    (107,133   0,5    (130,319
   -0,5    113,385    -0,5    137,784 

Margins (%)

   10    383,069    10    390,729 
   -10    (383,069   -10    (390,729

The adjustment to fair value of biological assets is recorded in the Consolidated Statements of Profit or Loss, under the line item Other Income or Other Expenses, depending on whether it corresponds to profits or losses.

Forestry plantations classified as current Biological assets are those to be harvested and sold within twelve months after the reporting period.

The Company has contracted fire insurance policies for its forestry plantatios,plantations, which in conjuctionconjunction with the Company’s resources, allow risks to be minimized.

Detail of Biological Assets Pledged as Security

As of December 31, 2016,2018, there are no forestry plantations pledged as security.

Detail of Biological Assets with Restricted Ownership

As of the date of these consolidated financial statements, there are no biological assets with restricted ownership.

No significant government grants have been received.

Current andNon-Current Biological Assets

As of the date of these consolidated financial statements, the Current andNon-current biological assets are as follows:

 

  12-31-2016   12-31-2015 
  ThU.S.$   ThU.S.$   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Current

   306,117    306,529    315,924    307,796 

Non-current

   3,592,874    3,520,068    3,336,339    3,459,146 

Total

   3,898,991    3,826,597    3,652,263    3,766,942 

Reconciliation of carrying amount of biological assets

 

12-31-2016

Movement

ThU.S.$

Opening Balance

3,826,597

Changes in Biological Assets

Additions through acquisition and costs of new plantations

137,439

Sales

(1,351

Harvest

(326,494

Gain (losses) arising from changes in fair value less costs to sale

208,562

Increases (decreases) in Foreign Currency Translation

69,068

Loss of forest due to fires

(15,193

Other Increases (decreases)

363

Total Changes

72,394

Closing Balance

3,898,991
   12-31-2018 

Movement

  Current
ThU.S.$
  Non-current
ThU.S.$
  Total
ThU.S.$
 

Opening Balance

   307,796   3,459,146   3,766,942 

Changes in real incurred cost

   34,684   (27,174  7,510 

Additions through acquisition and costs of new plantations

   2,105   205,353   207,458 

Sales

   (52  (315  (367

Harvest

   (117,729  —     (117,729

Increases (decreases) in Foreign Currency Translation

   (5,424  (76,672  (82,096

Loss of forest due to fires

   —     (8,702  (8,702

Transfers fromnon-current to current

   155,789   (155,789  —   

Other Increases (decreases)

   (5  8,951   8,946 

Changes in fair value

   (26,556  (95,633  (122,189

Gain (losses) arising from changes in fair value minus sale costs

   (8,684  93,160   84,476 

Sales

   —     (445  (445

Harvest

   (203,164  —     (203,164

Loss of forest due to fires

   —     (3,056  (3,056

Transfers fromnon-current to current

   185,292   (185,292  —   

Total Changes

   8,128   (122,807  (114,679

Closing balance

   315,924   3,336,339   3,652,263 
   12-31-2017 

Movement

  Current
ThU.S.$
  Non-current
ThU.S.$
  Total
ThU.S.$
 

Opening Balance

   306,117   3,592,874   3,898,991 

Changes in real incurred cost

   16,866   82,448   99,314 

Additions through acquisition and costs of new plantations

   6,088   176,234   182,322 

Increase due tonon-cash capital distribution of Vale do Corisco S.A. (see Note 15)

   —     127,927   127,927 

Sales

   —     (4,979  (4,979

Harvest

   (118,414  —     (118,414

Increases (decreases) in foreign currency translation

   (365  (5,427  (5,792

Loss of forest due to fires

   —     (81,750  (81,750

Transfers fromnon-current to current

   129,557   (129,557  —   

Changes in fair value

   (15,187  (216,176  (231,363

Gain (losses) arising from changes in fair value less costs to sale

   (9,029  92,060   83,031 

Sales

   —     (310  (310

Harvest

   (222,694  —     (222,694

Loss of forest due to fires

   —     (91,389  (91,389

Transfers fromnon-current to current

   216,536   (216,536  —   

Other increases (decreases)

   —     (1  (1

Total Changes

   1,679   (133,728  (132,049

Closing balance

   307,796   3,459,146   3,766,942 

 

(*)
12-31-2015

Movement

ThU.S.$

Opening Balance

3,846,353

ChangesOn May 2017, Arauco’s associate Vale do Corisco S.A. performed a return of capital to its shareholders. This operation did not generate effects in Biological Assets

Additions through acquisition and coststhe Consolidated Statements of new plantations

215,557

Sales

(1,028

Harvest

(299,501

Gain (losses) arising from changesProfit or Loss nor modified Arauco’s shareholding in fair value less costs to saleFlorestal Vale do Corisco S.A.

210,479

Increases (decreases) in Foreign Currency Translation

(111,502

Loss of forest due to fires

(34,850

Other Increases (decreases)

1,089

Total Changes

(19,756

Closing Balance

3,826,597

In January 2017, Arauco was affected by fires that consumed 72,564 hectares of forest plantations, recorded in the balance sheet in MU.S.$ 210, representing 5.6% of the value of Arauco’s forestry plantations.

The affected plantations have been managed by the company in order to minimize the damage caused by the fires. This management has allowed for the recovery of 17.6% of the afore mentioned amount of MU.S.$210. Additionally, the forest plantations affected by the fires were insured, with their corresponding deductibles and limitations. As a consequence of the above, the sum recovered from the insurance company amounted to MU.S$ 35.

As of the date of these consolidated financial statements, there are no committed disbursements related to the acquisition of biological assets.

NOTE 21.

ENVIRONMENTAL MATTERS

Environment Management

For Arauco, sustainability means management strategy. This strategy incorporates values, commitments and standards, that together with the adoption of best practices as well as the use of the latest available technologies, seek to continuously improve the Company’s environmental management. It is the environmental department and each of its specialists that ensure these guidelines are met and are put in to practice in everyday company operations.

All of Arauco’s production units have certified environmental management systems, which reinforce the Company’s commitment to environmental performance and ensure the traceability of all raw materials used.

Arauco uses several supplies in its productive processes such as wood, chemical products, and water, etc., which in turn produce liquid and gas emissions. As a way to make the Company’s environmental management more efficient, significant progress has been made to reduce consumption and emissions.

Environmental investments have been made related to the control of atmospheric emissions, process improvements, water and waste management, as well as effluent treatment, in order to improve the environmental performance of all of Arauco’s business units.    

These investments are reflected in the Consolidated Financial Statements as Properties, Plants and Equipment when they refer to disbursements in major works executed and are reflected in Expenses when they refer to improvements or management not directly associated with investment projects.

Detail information of disbursements related to the environment

As of December 31, 20162018 and December 31, 20152017 Arauco has made and / or has committed the following disbursements by major environmental projects:

 

  

12/31/2016

 

Disbursements undertaken 2016

 Committed Disbursements 

Company

 

Name of project

 

State of
project

 Amount
ThU.S.$
  Asset
Expense
  

Asset/expense
destination

item

 Amount
ThU.S.$
  Estimated
date
 

Arauco Do Brasil S.A.

 

Environmental improvement studies

 In process  285   Assets  Property, plant and equipment  417   2017 

Arauco Do Brasil S.A.

 

Environmental improvement studies

 In process  385   Expense  Administration expenses  1,231   2017 

Celulosa Arauco Y Constitucion S.A.

 

Investment projects for the control and management of gas emissions from industrial process

 In process  1,585   Assets  Property, plant and equipment  1,396   2017 

Celulosa Arauco Y Constitucion S.A.

 

Investment projects for the control and management of gas emissions from industrial process

 In process  476   Assets  Property, plant and equipment  8,085   2018 

Celulosa Arauco Y Constitucion S.A.

 

Environmental improvement studies

 In process  611   Assets  Property, plant and equipment  20,658   2017 

Celulosa Arauco Y Constitucion S.A.

 

Environmental improvement studies

 Finished  1,271   Assets  Property, plant and equipment  —     —   

Celulosa Arauco Y Constitucion S.A.

 

Environmental improvement studies

 In process  1,218   Assets  Property, plant and equipment  14,736   2018 

Celulosa Arauco Y Constitucion S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

 In process  51,703   Assets  Property, plant and equipment  64,450   2017 

Celulosa Arauco Y Constitucion S.A.

 

Environmental improvement studies

 In process  26,990   Expense  Operating cost  4,180   2018 

Celulosa Arauco Y Constitucion S.A.

 

Expansion of solid industrial waste dumpsite for management of these in the future

 Finished  144   Assets  Property, plant and equipment  —     —   

Arauco Argentina S.A

 

Construction emisario

 In process  8   Assets  Property, plant and equipment  824   2017 

Arauco Argentina S.A

 

Expansion of solid industrial waste dumpsite for management of these in the future

 In process  187   Assets  Property, plant and equipment  124   2017 

Arauco Argentina S.A

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

 In process  183   Assets  Property, plant and equipment  6,112   2017 

Paneles Arauco S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

 Finished  1,332   Expense  Operating cost  —     —   

Paneles Arauco S.A.

 

Expansion of solid industrial waste dumpsite for management of these in the future

 Finished  465   Expense  Administration expenses  —     —   

Paneles Arauco S.A.

 

Environmental improvement studies

 In process  1,217   Assets  Property, plant and equipment  304   2017 

Forestal Arauco S.A.(Ex-Forestal Celco S.A.)

 

Environmental improvement studies

 In process  643   Expense  Administration expenses  946   2017 

Forestal Los Lagos S.A

 

Environmental improvement studies

 In process  225   Expense  Operating cost  18   2017 
   

 

 

    

 

 

  
  TOTAL  88,928     123,481  
   

 

 

    

 

 

  

  

12/31/2015

 

Disbursements undertaken 2015

  Committed Disbursements 

Company

 

Name of project

 

State of
project

 Amount
ThU.S.$
  Asset
Expense
  Asset/expense
destination
item
  Amount
ThU.S.$
  Estimated
date
 

Arauco Do Brasil S.A.

 

Environmental improvement studies

 In process  32   Assets   
Property, plant
and equipment
 
 
  220   2016 

Arauco Do Brasil S.A.

 

Environmental improvement studies

 In process  220   Expense   
Administration
expenses
 
 
  699   2016 

Celulosa Arauco Y Constitucion S.A.

 

Investment projects for the control and management of gas emissions from industrial process

 In process  2,720   Assets   
Property, plant
and equipment
 
 
  —     —   

Celulosa Arauco Y Constitucion S.A.

 

Environmental improvement studies

 In process  2,688   Assets   
Property, plant
and equipment
 
 
  1,057   2016 

Celulosa Arauco Y Constitucion S.A.

 

Environmental improvement studies

 Finished  4,818   Assets   
Property, plant
and equipment
 
 
  —     —   

Celulosa Arauco Y Constitucion S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

 Finished  244   Assets   
Property, plant
and equipment
 
 
  —     —   

Celulosa Arauco Y Constitucion S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

 In process  6,668   Assets   
Property, plant
and equipment
 
 
  113,321   2017 

Celulosa Arauco Y Constitucion S.A.

 

Environmental improvement studies

 Finished  27,868   Expense   Operating cost   —     —   

Celulosa Arauco Y Constitucion S.A.

 

Expansion of solid industrial waste dumpsite for management of these in the future

 In process  2,122   Assets   
Property, plant
and equipment
 
 
  1,420   2016 

Arauco Argentina S.A

 

Construction emisario

 In process  —     Assets   
Property, plant
and equipment
 
 
  805   2016 

Arauco Argentina S.A

 

Expansion of solid industrial waste dumpsite for management of these in the future

 In process  165   Assets   
Property, plant
and equipment
 
 
  3,952   2016 

Arauco Argentina S.A

 

Environmental improvement studies

 Finished  117   Assets   
Property, plant
and equipment
 
 
  —     —   

Arauco Argentina S.A

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

 In process  38   Assets   
Property, plant
and equipment
 
 
  6,268   2016 

Paneles Arauco S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

 In process  1,627   Expense   Operating cost   109   2016 

Paneles Arauco S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

 In process  555   Assets   
Property, plant
and equipment
 
 
  366   2016 

Paneles Arauco S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

 Finished  720   Assets   
Property, plant
and equipment
 
 
  —     —   

Paneles Arauco S.A.

 

Expansion of solid industrial waste dumpsite for management of these in the future

 In process  355   Expense   
Administration
expenses
 
 
  355   2016 

Forestal Arauco S.A.(Ex-Forestal Celco S.A.)

 

Environmental improvement studies

 In process  613   Expense   
Administration
expenses
 
 
  783   2016 

Forestal Los Lagos S.A

 

Environmental improvement studies

 In process  206   Expense   Operating cost   208   2016 
   

 

 

    

 

 

  
  TOTAL  51,776     129,563  
   

 

 

    

 

 

  
  

12-31-2018

 Disbursements undertaken 2018  Committed Disbursements 

Company

 

Name of project

 State of
project
  Amount
ThU.S.$
  Asset
Expense
 Asset/expense
destination
item
  Amount
ThU.S.$
  Estimated
date
 

Arauco do Brasil S.A.

 

Environmental improvement studies

  In process   1,771  Assets  
Property, plant
and equipment
 
 
  4,001   2019 

Arauco do Brasil S.A.

 

Environmental improvement studies

  In process   3,284  Expense  
Administration
expenses
 
 
  2,723   2019 

Celulosa Arauco y Constitucion S.A.

 

Investment projects for the control and management of gas emissions from industrial process

  In process   6,467  Assets  
Property, plant
and equipment
 
 
  8,271   2019 

Celulosa Arauco y Constitucion S.A.

 

Environmental improvement studies

  In process   29,419  Assets  
Property, plant
and equipment
 
 
  63,035   2019 

Celulosa Arauco y Constitucion S.A.

 

Investment projects for the control and management of gas emissions from industrial process

  Finished   563  Expense  Operating cost   —    

Celulosa Arauco y Constitucion S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

  In process   21,978  Assets  
Property, plant
and equipment
 
 
  9,233   2019 

Celulosa Arauco y Constitucion S.A.

 

Environmental improvement studies

  Finished   25,684  Expense  Operating cost   —    

Arauco Argentina S.A.

 

Construction emisario

  In process   1,454  Assets  
Property, plant
and equipment
 
 
  797   2019 

Maderas Arauco S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

  In process   499  Expense  Operating cost   —    

Maderas Arauco S.A.

 

Expansion of solid industrial waste dumpsite for management of these in the future

  In process   1,471  Expense  Operating cost   —    

Maderas Arauco S.A.

 

Environmental improvement studies

  In process   —    Assets  
Property, plant
and equipment
 
 
  291   2019 

Forestal Arauco S.A.

 

Environmental improvement studies

  In process   1,547  Expense  
Administration
expenses
 
 
  1,957   2019 

Celulosa y Energía Punta Pereira S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

  In process   52  Assets  
Property, plant
and equipment
 
 
  3,266   2019 

Celulosa y Energía Punta Pereira S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

  Finished   281  Assets  
Property, plant
and equipment
 
 
  —    

Forestal Los Lagos S.A.

 

Environmental improvement studies

  In process   236  Expense  Operating cost   273   2019 
   

 

 

    

 

 

  
   TOTAL   94,706     93,847  
   

 

 

    

 

 

  
  

12-31-2017

 Disbursements undertaken 2017  Committed Disbursements 

Company

 

Name of project

 State of
project
  Amount
ThU.S.$
  Asset
Expense
 Asset/expense
destination
item
  Amount
ThU.S.$
  Estimated
date
 

Arauco do Brasil S.A.

 

Environmental improvement studies

  In process   1,008  Assets  
Property, plant
and equipment
 
 
  48   2018 

Arauco do Brasil S.A.

 

Environmental improvement studies

  In process   1,058  Expense  
Administration
expenses
 
 
  296   2018 

Celulosa Arauco y Constitucion S.A.

 

Investment projects for the control and management of gas emissions from industrial process

  In process   18,501  Assets  
Property, plant
and equipment
 
 
  6,928   2018 

Celulosa Arauco y Constitucion S.A.

 

Environmental improvement studies

  In process   48,512  Assets  
Property, plant
and equipment
 
 
  65,798   2018 

Celulosa Arauco y Constitucion S.A.

 

Environmental improvement studies

  Finished   10,326  Assets  
Property, plant
and equipment
 
 
  —    

Celulosa Arauco y Constitucion S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

  In process   55,655  Assets  
Property, plant
and equipment
 
 
  18,226   2018 

Celulosa Arauco y Constitucion S.A.

 

Environmental improvement studies

  In process   26,578  Expense  Operating cost   6,214   2018 

Arauco Argentina S.A.

 

Construction emisario

  In process   2,312  Assets  
Property, plant
and equipment
 
 
  797   2018 

Arauco Argentina S.A.

 

Expansion of solid industrial waste dumpsite for management of these in the future

  In process   139  Assets  
Property, plant
and equipment
 
 
  28   2018 

Arauco Argentina S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

  In process   19  Assets  
Property, plant
and equipment
 
 
  5,921   2018 

Maderas Arauco S.A.

 

Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants

  In process   432  Expense  Operating cost   —    

Maderas Arauco S.A.

 

Expansion of solid industrial waste dumpsite for management of these in the future

  In process   1,346  Expense  Operating cost   —    

Maderas Arauco S.A.

 

Environmental improvement studies

  In process   89  Assets  
Property, plant
and equipment
 
 
  332   2018 

Forestal Arauco S.A.

 

Environmental improvement studies

  In process   983  Expense  
Administration
expenses
 
 
  1,165   2018 

Forestal Los Lagos S.A.

 

Environmental improvement studies

  In process   229  Expense  Operating cost   290   2018 
   

 

 

    

 

 

  
   TOTAL   167,187     106,043  
   

 

 

    

 

 

  

NOTE 22.

NON-CURRENT ASSETS HELD FOR SALE

Arauco decided to sell assets in previous years corresponding mainly to sawmills in Chile and remains committed to its sales plan.

By the end of fiscal year 2015, Paneles Arauco S.A. decided to reclassify to Properties, plant and equipment an amount of ThU.S.$5,429, since the Escuadron, La Araucana and Remanufactura Lomas Coloradas plants were used as warehouses for finished products. These assets consisted of buildings and saw mill equipment, which were shut down in preceding years.

The following table sets forth information on the main types ofnon-current assets held for sale:

 

  12-31-2016   12-31-2015 
  ThU.S.$   ThU.S.$   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Land

   160    217    2,352    160 

Buildings

   1,122    1,122    1,284    1,122 

Property, plant and equipment

   1,777    1,855    2,090    2,225 

Total

   3,059    3,194    5,726    3,507 

As of December 31, 2016, 20152018, 2017 and 2014,2016, there were no significant effects on results related to the sale of assets held for sale.

NOTE 23.

FINANCIAL INSTRUMENTS

23.1 Classification

Arauco’s financial instruments as of December 31, 20162018 and December 31, 2015,2017, are displayed in the table below. Regarding those instruments valued at an amortized cost, as estimation of their fair value is displayed for informational purposes.

 

  December 2016   December 2015   December 2018   December 2017 

Financial Instruments

Thousands of dollars

  Carrying
amount
   Fair Value   Carrying
amount
   Fair Value   Carrying
amount
   Fair Value   Carrying
amount
   Fair Value 

Fair value through profit or loss (held for trading) (1)

   198,582    198,582    200,034    200,034 

Forward

   3,166    3,166    3,245    3,245 

Financial assets at fair value through profit or loss (held for trading)

   270,110    270,110    74,849    74,849 

Derivatives (1)

   75    75    1,679    1,679 

Mutual funds (2)

   195,416    195,416    196,789    196,789    270,035    270,035    73,170    73,170 

Loans and Accounts Receivable

   1,126,182    1,126,182    1,054,952    1,054,952 

Cash and cash equivalents

   396,837    396,837    303,236    303,236 

Financial assets at amortized cost

   1,669,587    1,669,587    1,354,366    1,354,366 

Cash and cash equivalents (amortized cost)

   805,907    805,907    516,716    516,716 

Cash

   149,446    149,446    143,324    143,324    327,132    327,132    209,185    209,185 

Time deposits

   247,391    247,391    159,912    159,912    478,775    478,775    292,105    292,105 

Agreements

   —      —      15,426    15,426 

Accounts Receivable (net)

   715,883    715,883    748,592    748,592    854,333    854,333    830,452    830,452 

Trade and other receivables

   600,589    600,589    614,655    614,655    751,158    751,158    709,983    709,983 

Lease receivable

   764    764    15    15    1,968    1,968    13,106    13,106 

Other receivables

   114,530    114,530    133,922    133,922    101,207    101,207    107,363    107,363 

Accounts receivable due from related parties

   13,462    13,462    3,124    3,124    7,805    7,805    4,544    4,544 

Other Financial Assets (5)

   10,903    10,903    29,545    29,545 

Other financial assets

   1,542    1,542    2,654    2,654 

Financial Liabilities at amortized cost (3)

   5,022,725    5,158,789    4,895,594    5,095,197 

Bonds issued denominated in U.S. dollars

   2,321,980    2,480,063    2,317,216    2,409,538 

Hedging Assets

   19,226    19,226    55,771    55,771 

Financial liabilities at amortized cost (3)

   5,182,353    5,206,334    5,002,072    5,198,654 

Bonds issued denominated in U.S. Dollars

   2,062,044    1,948,482    2,057,746    2,135,893 

Bonds issued denominated in U.F. (4)

   1,130,679    1,078,934    863,118    923,775    1,439,610    1,544,813    1,244,939    1,333,087 

Bank Loans in Dollars

   891,338    926,070    953,898    1,004,792 

Bank borrowing denominated in U.S. dollars

   23,020    23,020    43,644    43,644 

Financial Leasing

   113,986    108,980    127,559    123,289 

Bank Loans in U.S. Dollars

   925,780    962,866    835,099    870,399 

Bank borrowing denominated in U.S. Dollars

   14,655    14,655    23,358    23,358 

Financial leasing

   68,187    63,441    112,376    107,363 

Trade and other payables

   537,891    537,891    583,018    583,018    661,848    661,848    717,346    717,346 

Accounts payable to related parties

   3,831    3,831    7,141    7,141    10,229    10,229    11,208    11,208 

Financial liabilities at fair value through profit or loss

   336    336    1,429    1,429    289    289    137    137 

Forward

   336    336    1,429    1,429 

Hedging Liabilities

   87,027    87,027    226,139    226,139    71,310    71,310    5,256    5,256 

 

(1)Assets measured at fair value through profit or loss other than mutual funds classified as cash equivalents,

The derivatives are presented in the line item “other financial assets” in the consolidated statements of financial position.

(2)

Although mutual funds are measured at fair value through profit or loss for purposes of the consolidated statements of financial position mutual funds are classified as “Cash and cash equivalents” due to the are highly liquid short termshort-term investment.

(3)

Financial liabilities measured at amortized cost, other than “Trade and other payables”, “Accounts payable to related parties” and derivatives are presented in the consolidated statements of financial position in the line item “Other financial liabilities” as current andnon-current based on their maturity.

(4)

The Unidad de Fomento (“UF”U.F.”) is a unit of account that is linked to, and is adjusted daily to reflect changes in the Chilean consumer price index.

(5)Includes guarantee fund for derivatives which correspond to the collateral under swap agreements.

23.2 Fair Value Hierarchy of Financial Assets and Liabilities

The assets and liabilities measured at fair value in the consolidated statements of financial position as of December 31, 2016,2018, have been measured based on the valuation methodologies provided in IAS 39.IFRS 13. The methodologies applied for each financial instrument are classified according to their hierarchy as follows:

 

Level 1: Securities or quoted prices in active markets for identical assets and liabilities

 

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

 

Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

 

Financial Instruments

Thousands of dollars

  Fair Value
December
2016

ThU.S.$
   Fair value 
    Level 1
ThU.S.$
   Level 2
ThU.S.$
   Level 3
ThU.S.$
 

Fair value through profit or loss (held for trading)

        

Derivatives

   3,166      3,166   

Mutual Funds

   195,416    195,416     

Other financial assets

   10,903    2,245    8,657   

Financial liabilities measured at amortized cost

        

Bonds issued denominated in U.S. dollars

   2,480,063    2,480,063     

Bonds issued denominated in U.F.

   1,078,934    1,078,934     

Bank loans in dollars

   926,070      926,070   

Bank borrowing denominated in U.S. dollars

   23,020      23,020   

Financial leasing

   108,980      108,980   

Financial liabilities at fair value through profit or loss

   336      336   

Hedging liabilities

   87,027      87,027   

Fair Value

  December 2018
ThU.S.$
   Level 1
ThU.S.$
   Level 2
ThU.S.$
   Level 3
ThU.S.$
 

Financial assets at fair value

        

Derivatives

   75      75   

Mutual Funds

   270,035    270,035     

Other financial assets

   19,226      19,226   

Financial liabilities at fair value

        

Bonds issued denominated in U.S. Dollars

   1,948,482    1,948,482     

Bonds issued denominated in U.F. (4)

   1,544,813    1,544,813     

Bank loans in U.S. Dollars

   962,866      962,866   

Bank borrowing denominated in other currencies

   14,655      14,655   

Financial leasing

   63,441      63,441   

Financial liabilities at fair value through profit or loss

   289      289   

Hedging liabilities

   71,310      71,310   

23.3 Explanation of the valuation of Financial Instruments.

Cash and cash equivalent and accounts receivable

The carrying amount of accounts receivable, cash and cash equivalents (including mutual funds), and other financial assets and liabilities approximate their fair value due to the short-term nature of such instruments.

Derivative financial instruments

Interest rate and currency swaps are valued under the cash flow discount method at the rate applicable according to the transaction’s risk, using an internal methodology based on the information obtained from Bloomberg. In this particular case, given that cross currency swaps correspond to future flows in UF and future flows in Dollars, Arauco calculates the current value of such flows by using 2 discount curves: the UF zero coupon curve and the Dollar zero coupon.

The fair value of the interest rate swap contracts is calculated by reference to the rate differential between the agreed upon rate and the market rate as of the end date of these financial statements.

The fair value of the currency forward contracts is calculated by reference to the current forward exchange rates of contracts with similar maturity profiles.

Financial Liabilities

The fair value of bonds issued was determined with reference to quoted market prices as they have standard terms and conditions.

The fair value of bank borrowings and financial leases werewas determined based on discounted cash flow analysis, applying the corresponding discount yield curves to the remaining term to maturity.

Disclosures of the fair value of financial liabilities at amortized cost are determined via the use of discounted cash flows, calculated over variables of the observable markets as of the date of informing the consolidated financial statements, and correspond to Level 2 of the fair value hierarchy.

The following table sets forth a reconciliation between the financial liabilities and the consolidated statements of financial position as of December 31, 20162018 and 2015:2017:

 

Thousands of dollars

  December 2016   December 2018 
Up to 90
days
   From 91
days to
1 year
   Other
current
financial
liabilities,
Total
   From 13
months to
5 years
   More than
5 years
   Other non-
current
financial
liabilities,
Total
   Total  Up to 90
days
   From 91
days to

1 year
   Other
current
financial
liabilities,
Total
   From 13
months to

5 years
   More than
5 years
   Other
non-current
financial
liabilities,
Total
   Total 

Bonds obligations

   51,874    409,102    460,976    1,233,603    1,758,079    2,991,682    3,452,658    27,803    262,068    289,871    818,716    2,393,067    3,211,783    3,501,654 

Bank borrowing

   134,140    61,483    195,623    626,384    92,351    718,735    914,358    84,778    130,271    215,049    526,062    199,324    725,386    940,435 

Financial Leasing

   9,534    30,866    40,400    73,586    —      73,586    113,986    7,265    23,651    30,916    37,271    —      37,271    68,187 

Swap and Forward

   453    —      453    86,911    —      86,911    87,364    1,760    —      1,760    69,839    —      69,839    71,599 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Other Financial Liabilities, Total (a)

   196,001    501,451    697,452    2,020,484    1,850,430    3,870,914    4,568,366    121,606    415,990    537,596    1,451,888    2,592,391    4,044,279    4,581,875 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Thousands of dollars

  December 2016   December 2018 
Up to 90
days
   From 91
days to
1 year
   Total
Current
   From 13
months to
5 years
   More than
5 years
   Total non-
current
   Total  Up to 90
days
   From 91
days to

1 year
   Total
Current
   From 13
months to

5 years
   More than
5 years
   Total
non-current
   Total 

Trade and other payables

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

Related party payables

   3,831    —      3,831    —      —      —      3,831 

Trades and other payables

   659,618    —      659,618    2,230    —      2,230    661,848 

Accounts payable to related companies

   10,229    —      10,229    —      —      —      10,229 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Accounts Payable, Total (b)

   515,202    26,520    541,722    —      —      —      541,722    669,847    —      669,847    2,230    —      2,230    672,077 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total Financial Liabilities (a) + (b)

   711,203    527,971    1,239,174    2,020,484    1,850,430    3,870,914    5,110,088 

Financial Liabilities, Total (a) + (b)

   791,453    415,990    1,207,443    1,454,118    2,592,391    4,046,509    5,253,952 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Thousands of dollars

  December 2015   December 2017 
Up to 90
days
   From 91
days to
1 year
   Other
current
financial
liabilities,
Total
   From 13
months to
5 years
   More than
5 years
   Other non-
current
financial
liabilities,
Total
   Total  Up to 90
days
   From 91
days to

1 year
   Other
current
financial
liabilities,
Total
   From 13
months to

5 years
   More than
5 years
   Other
non-current
financial
liabilities,
Total
   Total 

Bonds obligations

   49,357    5,836    55,193    1,179,558    1,945,583    3,125,141    3,180,334    28,013    34,981    62,994    1,054,926    2,184,765    3,239,691    3,302,685 

Bank borrowings

   126,795    72,948    199,743    648,017    149,782    797,799    997,542    110,700    282,172    392,872    327,424    138,161    465,585    858,457 

Financial leasing

   9,301    27,561    36,862    90,697    —      90,697    127,559    9,928    34,413    44,341    68,035    —      68,035    112,376 

Swap and Forward

   4,240    —      4,240    223,328    —      223,328    227,568    137    —      137    5,256    —      5,256    5,393 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Other Financial Liabilities, Total (a)

   189,693    106,345    296,038    2,141,600    2,095,365    4,236,965    4,533,003    148,778    351,566    500,344    1,455,641    2,322,926    3,778,567    4,278,911 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Thousands of dollars

  December 2015   December 2017 
Up to 90
days
   From 91
days to
1 year
   Total
Current
   From 13
months to
5 years
   More than
5 years
   Total non-
current
   Total  Up to 90
days
   From 91
days to

1 year
   Total
Current
   From 13
months to

5 years
   More than
5 years
   Total
non-current
   Total 

Trade and other payables

   583,018    —      583,018    —      —      —      583,018 

Related party payables

   7,141    —      7,141    —      —      —      7,141 

Trades and other payables

   717,342    4    717,346    —      —      —      717,346 

Accounts payable to related companies

   11,208    —      11,208    —      —      —      11,208 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Accounts Payable, Total (b)

   590,159    —      590,159    —      —      —      590,159    728,550    4    728,554    —      —      —      728,554 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total Financial Liabilities (a) + (b)

   779,852    106,345    886,197    2,141,600    2,095,365    4,236,965    5,123,162 

Financial Liabilities, Total (a) + (b)

   877,328    351,570    1,228,898    1,455,641    2,322,926    3,778,567    5,007,465 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

23.4 Derivative Instruments

Hedging instruments recorded as of December 31, 20162018 and 20152017 are cash flow hedges. Arauco uses derivatives for hedging purposes, such as cross currency swaps, currency and commodity forwards, interest rate swaps, and options. Depending on the fair value of each instrument, the position could be either an asset or a liability, and they

are listed in the Statements of Financial Position under OtherNon-currentNon-Current Financial Assets or OtherNon-current Financial Liabilities, respectively. The effects for the period are presented under Equity as Other Comprehensive Income or the Statements of Comprehensive Income as Finance Income or Finance Costs, net of differences in exchange rate of the hedged items and the deferred tax.

A summary of the derivative financial instruments included in the Statements of Financial Position as of the end of this period, is presented below:

 

Financial Instruments

2016
Fair
Value
ThU.S.$

Assets at fair value through profit or loss (held for trading)

3,166

Derivative-Uruguay (1)

3,159

Forward-Colombia

7

Hedging Assets

8,658

Derivative-Uruguay (1)

2,029

Cross Currency Swaps

6,629

Financial liabilities at fair value through profit or loss

(336

Forward-Colombia

(267

Derivative-Uruguay (1)

(69

Hedging Liabilities

(87,027

Cross Currency Swaps

(86,895

Derivative-Uruguay (1)

(132

Financial Instruments

  December 2018
Fair Value
ThU.S.$
   December 2017
Fair Value
ThU.S.$
 

Assets at fair value through profit or loss (held for trading)

   75    1,679 

Derivative-Uruguay (1)

   75    1,672 

Forward (2)

   —      7 

Hedging Assets

   19,226    55,771 

Derivative-Uruguay (1)

   1,357    3,037 

Cross Currency Swaps

   17,869    52,734 

Financial liabilities at fair value through profit or loss

   (289   (137

Forward (2)

   (2   (137

Derivative-Uruguay (1)

   (287   —   

Hedging Liabilities

   (71,310   (5,256

Cross Currency Swaps

   (69,086   (5,248

Derivative-Uruguay (1)

   (2,224   (8

 

(1)

IncludeIncludes Swap and Forward from Uruguay tables.

Financial Instruments

2015
Fair
Value
ThU.S.$

Assets at fair value through profit or loss (held for trading)

3,245

Forward-Colombia

238

Forward-Argentina

2,828

Forward-Uruguay (1)

179

Financial liabilities at fair value through profit or loss

(1,429

Forward-Colombia

(21

Forward-Uruguay (1)

(1,408

Hedging Liabilities

(226,139

Cross Currency Swaps

(205,618

Forward-Uruguay (1)

(3,677

Zero Cost Collar

(16,844

(1)Include Swap and Forward from Uruguay tables.
(2)

Interest Rate SwapIncludes Forwards from Uruguay by ThU.S.$211 are in “Other Financial Assets”.Colombia and Chile.

23.4.1.1.23.4.1. Chile

Cross currency swaps

Arauco is exposed to the risk of variability in cash flows from changes in foreign exchange rates and inflation, mainly due to balances of assets denominated in U.S. Dollars and other currencies differentedifferent from the functional currency, which causes mismatches that could affect operating results.

Below are the cross currency swaps that Arauco has as of December 31, 20162018 and 20152017 to cover the exposure to the exchange rate risk generated from bonds denominated in UF:U.F.:

 

Bond

  

Institution

  Amount U.S.$   Amount UF   Starting date   Ending date   Market  Value
ThU.S.$

2016
 Market Value
ThU.S.
2015
  

Institution

 Amount U.S.$ Amount U.F. Starting date Ending date Fair Value ThU.S.$ 2018 Fair Value ThU.S. 2017 

F

 Deutsche—England  43,618,307   1,000,000   10-30-2011   10-30-2021   (3,105  213 

F

  

Deutsche—U.K.

   43,618,307    1,000,000    10/30/2011    10/30/2021    (4,703  (10,315 JP Morgan—N.A.  43,618,307   1,000,000   10-30-2011   10-30-2021   (3,039  306 

F

  

JP Morgan—N.A.

   43,618,307    1,000,000    10/30/2011    10/30/2021    (4,584  (10,171 Deutsche—England  37,977,065   1,000,000   04-30-2014   04-30-2019   1,707   6,599 

F

  

Deutsche—U.K.

   37,977,065    1,000,000    04/30/2014    04/30/2019    1,782   (2,770 Scotiabank—Chile  38,426,435   1,000,000   10-30-2014   04-30-2023   2,041   5,252 

F

  

BBVA—Chile

   38,426,435    1,000,000    10/30/2014    04/30/2023    558   (5,060 Scotiabank—Chile  38,378,440   1,000,000   10-30-2014   04-30-2023   2,273   5,550 

F

  

BBVA—Chile

   38,378,440    1,000,000    10/30/2014    04/30/2023    908   (4,658 Santander—Chile  37,977,065   1,000,000   10-30-2014   04-30-2023   2,715   6,051 

F

  

Santander—Chile

   37,977,065    1,000,000    10/30/2014    04/30/2023    1,427   (4,122 BCI—Chile  37,621,562   1,000,000   10-30-2014   04-30-2023   3,148   6,549 

F

  

BCI—Chile

   37,621,562    1,000,000    10/30/2014    04/30/2023    1,952   (3,570 Banco de Chile—Chile  36,250,835   954,545   04-30-2019   10-30-2029   155   —   

J

  

Corpbanca—Chile

   42,864,859    1,000,000    09/01/2010    09/01/2020    (5,505  (11,093 Corpbanca—Chile  42,864,859   1,000,000   09-01-2010   09-01-2020   (3,289  (292

J

  

BBVA—Chile

   42,864,859    1,000,000    09/01/2010    09/01/2020    (5,505  (11,093 Scotiabank—Chile  42,864,859   1,000,000   09-01-2010   09-01-2020   (3,289  (292

J

  

Deutsche—U.K.

   42,864,859    1,000,000    09/01/2010    09/01/2020    (5,590  (11,199 Deutsche—England  42,864,859   1,000,000   09-01-2010   09-01-2020   (3,313  (356

J

  

Santander—Spain

   42,873,112    1,000,000    09/01/2010    09/01/2020    (5,463  (11,039 Santander—Spain  42,873,112   1,000,000   09-01-2010   09-01-2020   (3,273  (263

J

  

BBVA—Chile

   42,864,257    1,000,000    09/01/2010    09/01/2020    (5,318  (10,860 Scotiabank—Chile  42,864,257   1,000,000   09-01-2010   09-01-2020   (3,197  (152

P

  

Corpbanca—Chile

   46,474,122    1,000,000    05/15/2012    11/15/2021    (6,355  (11,785 Corpbanca—Chile  46,474,122   1,000,000   05-15-2012   11-15-2021   (4,978  (1,775

P

  

JP Morgan—N.A.

   47,163,640    1,000,000    11/15/2012    11/15/2021    (6,157  (11,413 JP Morgan—N.A.  47,163,640   1,000,000   11-15-2012   11-15-2021   (5,102  (1,753

P

  

BBVA—Chile

   42,412,852    1,000,000    11/15/2013    11/15/2023    (2,548  (7,916 Scotiabank—Chile  42,412,852   1,000,000   11-15-2013   11-15-2023   (882  1,854 

P

  

Santander—Chile

   41,752,718    1,000,000    11/15/2013    11/15/2023    (1,591  (6,925 Santander—Chile  41,752,718   1,000,000   11-15-2013   11-15-2023   (89  2,777 

P

  

Deutsche—U.K.

   41,752,718    1,000,000    11/15/2013    11/15/2023    (1,564  (6,894 Deutsche—England  41,752,718   1,000,000   11-15-2013   11-15-2023   (92  2,800 

Q

 BCI—Chile  26,990,765   625,000   10-01-2014   04-01-2021   (1,679  1,022 

Q

 BCI—Chile  26,997,935   625,000   10-01-2014   04-01-2021   (1,655  1,070 

R

  

Santander—Chile

   128,611,183    3,000,000    10/01/2014    04/01/2024    (13,815  (29,995 Santander—Chile  128,611,183   3,000,000   10-01-2014   04-01-2024   (7,016  (365

R

  

JP Morgan—U.K.

   43,185,224    1,000,000    10/01/2014    04/01/2024    (4,039  (9,320 JP Morgan—England  43,185,224   1,000,000   10-01-2014   04-01-2024   (1,996  329 

R

  

Corpbanca—Chile

   43,277,070    1,000,000    10/01/2014    04/01/2024    (4,026  (9,292 Corpbanca—Chile  43,277,070   1,000,000   10-01-2014   04-01-2024   (2,015  327 

Q

  

BCI—Chile

   43,185,224    1,000,000    10/01/2014    04/01/2021    (3,524  (8,121

Q

  

BCI—Chile

   43,196,695    1,000,000    10/01/2014    04/01/2021    (3,443  (8,007

S

  

Santander—Chile

   201,340,031    5,000,000    11/15/2016    11/15/2026    (3,165  —    Santander—Chile  201,340,031   5,000,000   11-15-2016   11-15-2026   5,830   12,035 

W

 Goldman Sachs  40,521,750   1,000,000   10-10-2018   10-10-2028   (2,392  —   

W

 Scotiabank—Chile  40,537,926   1,000,000   10-10-2018   10-10-2028   (2,294  —   

W

 Goldman Sachs  40,066,555   1,000,000   10-10-2018   10-10-2028   (1,861  —   

X

 Santander—Chile  118,400,504   3,000,000   10-10-2018   10-10-2038   (7,976  —   

X

 Santander—Chile  97,971,786   2,500,000   10-10-2018   10-10-2038   (6,554  —   
            

 

  

 

       

 

  

 

 
             (80,266  (205,618       (51,217  47,486 
            

 

  

 

       

 

  

 

 

Because Arauco has a high percentage of its assets in U.S. dollars, it needs to minimize the risk of the exchange rate, as it holds debt in pesos, adjustable to reflect inflation. The objective of this position in the swap is to eliminate the uncertainty of the exchange rate, exchanging the flows derived from obligations expressed in adjustable pesos of the bonds described above, with flows in U.S. dollars (Arauco’s functional currency), at a fixed and determined exchange rate as of the agreement’s execution date.

Through an effectiveness test, and pursuant to IAS 39,IFRS 9, we were able to validate that the aforementioned hedging instruments are highly effective within an acceptable range for Arauco, for the purposes of eliminating the uncertainty of the exchange rate in the commitments derived from the hedged object.

23.4.1.2 Zero Cost Collars

Moreover, our results are exposed to changes the price of certain fuels. To minimize the risk we limited the volatility of future cash flows associated with the purchase of Fuel Oil No. 6 for year 2015 through zero cost collar contracts of this commodity. The Fuel Oil No. 6 is consumed in the process of pulp production.

Furthermore, we have indirect exposure to the price of Diesel due to contracts with forestry industry contractors, whose rates vary according to the price of this commodity, as well as other variables. To minimize this risk, we use financial instruments to cover the risk associated with the volatility of the cost of forestry contractor rates, from June 2015 until May 2016.

Contracts held by Arauco as of December 31, 2015 are presented in the following table:

Commodity

  Institution   Amount
ThU.S.$
   Unit   Starting date   Ending date   Market Value
ThU.S.$
 

Fuel Oil N°6

   JP Morgan—U.K.    674    Thousands Bbl.    01/01/2015    12/31/2015    (1,017

Diesel

   JP Morgan—U.K.    29,465    Thousands Gall.    06/01/2015    05/31/2016    (9,236

Fuel Oil N°6

   JP Morgan—U.K.    337    Thousands Bbl.    01/01/2016    06/30/2016    (6,591
            

 

 

 
             (16,844
            

 

 

 

23.4.2. Colombia

Forward contracts that are in force and effect, executed by Arauco Colombia as of December 31, 20162018 and 2015,2017, are detailed in the following table:

2016

Exchange rate

  Institution   Amount
ThU.S.$
   Starting date   Ending
date
   Market Value
ThU.S.$
 

USDCOP

   BBVA Colombia    5,000    10/28/2016    1/11/2017    7 

USDCOP

   BBVA Colombia    4,000    11/18/2016    2/9/2017    (255

USDCOP

   BBVA Colombia    7,000    12/13/2016    3/10/2017    (12
          

 

 

 
           (260
          

 

 

 

2015

Exchange rate

  Institution   Amount
ThU.S.$
   Starting date   Ending date   Market Value
ThU.S.$
 

USDCOP

   Corpbanca Colombia    4,000    11/11/2015    02/01/2016    238 

USDCOP

   BBVA Colombia    9,000    12/03/2015    03/01/2016    (21
          

 

 

 
           217 
          

 

 

 

23.4.3. Argentina

Below, you will find the valuation of the forward contract in force and effect, as of December 31, 2015:

Exchange rate

  Institution   Amount
ThU.S.$
   Starting date   Ending date   Market Value
ThU.S.$
   Institution   Amount
ThU.S.$
   Starting date   Ending date   December 2018
Fair Value
ThU.S.$
 

USDARG

   BBVA Banco Frances    8,606    09/08/2015    05/31/2016    2,828 

USDCOP

   Corpbanca Colombia    1,500    10-31-2018    01-09-2019    (2

USDCOP

   Corpbanca Colombia    1,700    11-26-2018    02-12-2019    —   

USDCOP

   Corpbanca Colombia    1,600    12-20-2018    03-12-2019    —   
          

 

           

 

 
           2,828            (2
          

 

           

 

 

Exchange rate

  Institution   Amount
ThU.S.$
   Starting date   Ending date   December 2017
Fair Value
ThU.S.$
 

USDCOP

   BBVA Colombia    6,000    10-11-2017    01-10-2018    (1

USDCOP

   Corpbanca Colombia    8,000    11-14-2017    02-13-2018    (136

USDCOP

   Corpbanca Colombia    2,100    12-21-2017    03-12-2018    7 
          

 

 
           (130
          

 

 

23.4.4.23.4.3. Uruguay

Forward

As of December 31, 20162018 and 2015,2017, Arauco Uruguay maintains the following forward contracts in force and effect for the purposes of ensuring an exchange rate for sale of dollars:

2016

Exchange rate

  Institution   Notional
ThU.S.$
   December 2018
Fair Value
ThU.S.$
 

UYUUSD

   Banco Santander Uy    14,880    (586

UYUUSD

   HSBC Uruguay    11,610    (56

UYUUSD

   Citibank U.K.    4,425    29 
       (613
      

 

 

 

 

Exchange rate

  Institution   Notional
ThU.S.$
   Market Value
ThU.S.$
 

UYUUSD

   Banco Santander Uy    16,600    1,633 

UYUUSD

   Citibank U.K.    3,200    150 

UYUUSD

   HSBC Uruguay    10,750    1,256 
      

 

 

 
       3,039 
      

 

 

 

2015

Exchange rate

  Institution  Notional
ThU.S.$
   Market Value
ThU.S.$
 

USDUYU

  Citibank Uruguay   4.500    (148

USDUYU

  Banco Santander Uruguay   33.000    (579

USDUYU

  JPMorgan Chase Bank, N.A.   2.000    3 

USDUYU

  Citibank U.K.   4.410    (43

USDUYU

  HSBC Uruguay   14.350    (45
      

 

 

 
       (812
      

 

 

 

In addition, Arauco Uruguay maintains an Interest Rate Swap in force and effect, a derivative instrument which purpose is to set the interest rate of a variable rate debt in the same currency (USD). The valuation off this instrument as of December 31, 2015, is shown below:

Entity

  Exchange rate   Institution  Notional
ThU.S.$
   Market Value
ThU.S.$
 

CEPP

   USD   DNB Bank ASA   135,034    211 

Exchange rate

  Institution   Notional
ThU.S.$
   December 2017
Fair Value
ThU.S.$
 

UYUUSD

   Banco Santander Uy    24,000    1,213 

UYUUSD

   Citibank U.K.    —      —   

UYUUSD

   HSBC Uruguay    9,000    543 
      

 

 

 
       1,756 
      

 

 

 

Arauco Uruguay’s profits and losses also face exposure to the price variation of certain fuels, as occurs with Fuel Oil N°6, which is used during the cellulose manufacturing process. In order to minimize this risk, the volatility of future flows associated to the purchase of Fuel Oil No. 6 for years 2016, 20172018, 2019 and part of 20182020 has been limited, through forwards of this commodity. The agreements that are in force and effect as of December 31, 20162018 and 2015,2017, are detailed below:

2016

Commodity

  Institution  Notional
ThU.S.$
   December 2018
Fair Value
ThU.S.$
 

Fuel Oil N°6

  JPMorgan Chase Bank, N.A.   6,189    (800

Fuel Oil N°6

  Citibank U.K.   401    (34

Fuel Oil N°6

  DNB Bank ASA   4,837    (568
      

 

 

 
       (1,402
      

 

 

 

 

Exchange rate

  Institution   Notional
ThU.S.$
   Market Value
ThU.S.$
 

Commodity

  Institution  Notional
ThU.S.$
   December 2017
Fair Value
ThU.S.$
 

Fuel Oil N°6

   JPMorgan Chase Bank, N.A.    5,508    1,059   JPMorgan Chase Bank, N.A.   4,760    1,372 

Fuel Oil N°6

   DNB Bank ASA    2,661    156   DNB Bank ASA   4,002    732 

Fuel Oil N°6

   Citibank U.K.    378    83   Citibank U.K.   761    112 
      

 

       

 

 
       1,298        2,216 
      

 

       

 

 

2015

Exchange rate  Institution   Notional ThU.S.$   Market Value ThU.S.$ 

Fuel Oil N°6

   JPMorgan Chase Bank, N.A.    13,374    (3,057

Fuel Oil N°6

   DNB Bank ASA    5,771    (1,038
      

 

 

 
       (4,095
      

 

 

 

Interest Rate Swap

In addition, Arauco Uruguay´sUruguay’s maintains an Interest Rate Swap in force and effect, a derivative instrument which purpose is to set the interest rate of a variable rate debt in the same currency (USD). The valuation off this instrument as of December 31, 2016,2018 and 2017, is shown below:

 

Exchange rate  Institution  Notional ThU.S.$   Market Value ThU.S.$   Institution   Notional
ThU.S.$
   December 2018
Fair Value
ThU.S.$
 

USD

  DNB Bank ASA   59,077    650    DNB Bank ASA    42,198    936 

Exchange rate

  Institution   Notional
ThU.S.$
   December 2017
Fair Value
ThU.S.$
 

USD

   DNB Bank ASA    50,638    729 

23.5 Loans and Receivables

Loans and receivables arenon-derivative financial assets with fixed or determinable payments that are not quoted in an active market. In the consolidated statements of financial position, they are included in line items “Cash and cash equivalents” (certain components of cash and cash equivalents), “Trade and OtherCurrent/Non-Current Receivables” and “Accounts receivable due from related parties”.

Loans and receivables are measured at amortized cost using the effective interest method and are tested for impairment. Financial assets that are classified as loans and receivables are: cash and cash-equivalents, time deposits, repurchase agreements, trade and othercurrent/non-current receivables, and accounts receivable due from related parties.parties

As of December 31, 20162018 and 2015,2017, there are provisions for impairment for ThU.S.$ 16,64415,147 and ThU.S.$ 19,860,17,785, respectively.

 

  December
2016

ThU.S.$
   December
2015

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

Loans and Accounts Receivable

   1,126,182    1,054,952 

Financial assets at amortized cost

   1,669,587    1,354,366 

Cash and cash equivalents

   396,837    303,236    805,907    516,716 

Cash

   149,446    143,324    327,132    209,185 

Time Deposits

   247,391    159,912    478,775    292,105 

Agreements

   —      15,426 

Trade and other receivables (net)

   729,345    751,716    862,138    834,996 

Trade and Other receivables

   600,589    614,655 

Trade and other receivables

   751,158    709,983 

Lease receivable

   764    15    1,968    13,106 

Other receivables

   114,530    133,922    101,207    107,363 

Accounts receivable due from related parties

   13,462    3,124    7,805    4,544 

Other financial assets

   1,542    2,654 

23.5.1. Cash and Cash Equivalents

Includes cash on hand, bank checking account balances and time deposits and other short term highly liquid investments with an original maturity of three months or less. They are short-term, highly liquid investments that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of changes in value.

The composition of cash and cash equivalents (including the balance of mutual funds displayed in this note as valuation, instruments at fair value with profit or loss) at December 31, 20162018 and December 31, 2015,2017, classified by origin coins is as follow:follows:

 

  12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Cash and Cash Equivalents

   592,253    500,025    1,075,942    589,886 

US Dollar

   524,426    388,818 

U.S. Dollars

   834,513    501,352 

Euro

   2,357    2,501    8,295    4,306 

Other currencies

   55,069    65,228    52,834    61,037 

Chilean pesos

   10,401    43,478    180,300    23,191 

23.5.2 Time Deposits and Repurchase Agreements:The investment objective of time deposits and repurchase agreements is to maximize in the short-term the amounts of cash surpluses. These instruments are authorized by 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.

23.5.3 Trade and Other Receivables:Theserepresent enforceable rights for Arauco resulting from the normal course of the business.

23.5.4 Other Receivables: These correspond to receivables from sales, services or loans that are not considered within the normal course of the business.

The provisionallowance for doubtful accounts is presented as a deduction of trade and other receivables. The provision for doubtful accounts is established based on an analysis of the age of the portfolio and considering the insurance coverage on accounts receivable. Other conditions are assessed for example when there is objective evidence that Arauco will not receive payments under the original sale terms and when the customer is a party to a bankruptcy court agreement or cessation of payments, and iswritten-off when Arauco has exhausted all levels of recovery of the receivable in a reasonable time.

23.5.5 Accounts receivable due from related parties: Represent enforceable rights for Arauco resulting from the normal course of business, calling normal to the line of business, activity or purpose of exploitation and financing, and which Arauco owns anon-controlling ownership of the counterparty.

The following table sets forth trade and othercurrent/non-current receivables classified by currencies as of December 31, 20162018 and December 31, 2015:2017:

 

  12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 

Trade and other current receivables

   701,610    733,322 

US Dollar

   489,056    507,032 

Trades and other current receivables

   839,184    814,412 

U.S. Dollars

   631,047    550,674 

Euros

   26,544    27,595    7,399    20,498 

Other currencies

   77,907    75,082    97,002    134,238 

Chilean pesos

   106,681    123,056    99,950    106,442 

U.F.

   1,422    557    3,786    2,560 

Accounts receivable due from related parties, current

   12,505    3,124 

US Dollar

   274    21 

Accounts receivable from related parties, current

   7,324    3,488 

U.S. Dollars

   591    726 

Other currencies

   726    995    83    171 

Chilean pesos

   10,548    2,108    6,169    2,192 

U.F.

   957    —      481    399 

Trade and othernon-current receivables

   14,273    15,270    15,149    16,040 

US Dollar

   6,895    9,976 

U.S. Dollars

   7,733    4,247 

Other currencies

   527    729    1,067    3,345 

Chilean pesos

   5,753    3,145    3,267    6,692 

U.F.

   1,098    1,420    3,082    1,756 

Accounts receivable due from related parties, non current

   957    —   

Accounts receivable from related parties,non-current

   481    1,056 

U.F.

   957    —      481    1,056 

23.6 Total Financial Liabilities

Arauco’s financial liabilities to the date of these consolidated financial statements are as follows :follows:

 

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

Financial Liabilities

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

Total Financial Liabilities

   5,110,088    5,123,162    5,253,952    5,007,465 

Financial liabilities at fair value through profit or loss (held for trading)

   336    1,429    289    137 

Hedging Liabilities

   87,027    226,139    71,310    5,256 

Financial Liabilities Measured at Amortized Cost

   5,022,725    4,895,594    5,182,353    5,002,072 

The following table sets forth the current portion of thenon-current bank borrowings and debt issued as of December 31, 20162018 and 2015.2017.

 

  December
2016

ThU.S.$
   December
2015

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

Bank borrowings - current portion

   88,028    85,885    99,397    92,693 

Bonds issued - current portion

   62,506    55,193    81,060    107,268 

Total

   150,534    141,078    180,457    199,961 

23.7 Financial Liabilities Measured at Amortized Cost

Financial liabilities correspond tonon-derivative financial instruments with contractual cash-flow payments that can be either fixed or variable.

Also, this category includes thosenon-derivative financial liabilities for services or goods delivered to Arauco at the end of each reporting period that have not yet been paid. These amounts are not insured and are generally paid within thirty days after being recognized.

At the end of each reporting period, Arauco includes in this category bank borrowings, bonds issued denominated in U.S. Dollars and in UF,U.F., trade and other payables.

        12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
   12-31-2018
ThU.S.$
   12-31-2017
ThU.S.$
 
   Currency   Amortized Cost   Fair Value 

Total Financial Liabilities

     5,182,353    5,002,072    5,206,334    5,198,654 

Bonds Issued

   U.S. Dollar    2,062,044    2,057,747    1,948,482    2,135,893 

Bonds Issued

   U.F.    1,439,610    1,244,938    1,544,813    1,333,087 

Bank borrowings

   U.S. Dollar    925,780    834,908    962,866    870,399 

Bank borrowings

   Other currencies    14,655    23,549    14,655    23,358 

Financial Leasing

   U.F.    57,349    96,913    53,594    92,542 

Financial Leasing

   Chilean pesos    10,838    15,463    9,847    14,821 

Trades and Other Payables

   U.S. Dollar    187,219    194,342    187,219    194,342 

Trades and Other Payables

   Euro    7,450    8,848    7,450    8,848 

Trades and Other Payables

   Other currencies    90,113    158,567    90,113    158,567 

Trades and Other Payables

   Chilean pesos    348,886    333,529    348,886    333,529 

Trades and Other Payables

   U.F.    28,180    22,060    28,180    22,060 

Related party payables

   U.S. Dollar    1,777    1,354    1,777    1,354 

Related party payables

   Chilean pesos    8,452    9,854    8,452    9,854 

   Currency   12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
   12-31-2016
ThU.S.$
   12-31-2015
ThU.S.$
 
    Amortized Cost   Fair Value 

Total Financial Liabilities

     5,022,725    4,895,594    5,158,789    5,095,197 

Bonds Issued

   U.S. Dollar    2,321,980    2,317,216    2,480,063    2,409,538 

Bonds Issued

   U.F.    1,130,679    863,118    1,078,934    923,775 

Bank borrowings

   U.S. Dollar    891,338    953,898    926,070    1,004,792 

Bank borrowings

   Other currencies    23,020    43,644    23,020    43,644 

Financial Leasing

   U.F.    98,316    113,580    94,052    109,796 

Financial Leasing

   Chilean pesos    15,670    13,979    14,928    13,493 

Trade and Other Payables

   U.S. Dollar    150,162    174,469    150,162    174,469 

Trade and Other Payables

   Euro    13,034    8,808    13,034    8,808 

Trade and Other Payables

   Other currencies    70,736    70,303    70,736    70,303 

Trade and Other Payables

   Chilean pesos    285,359    324,361    285,359    324,361 

Trade and Other Payables

   U.F.    18,600    5,077    18,600    5,077 

Related party payables

   U.S. Dollar    1,968    962    1,968    962 

Related party payables

   Chilean pesos    1,863    6,179    1,863    6,179 

The financial liabilities at amortized cost presented in the consolidated statements of financial positions as of December 31, 20162018 and 20152017 are as follows:

 

  December 2016       December 2018
ThU.S.$
     
Current
ThU.S.$
   Non-Current
ThU.S.$
   Total  Current   Non Current   Total 

Other financial liabilities

   697,000    3,784,003    4,481,003    535,836    3,974,440    4,510,276 

Trade and other payables

   537,891    —      537,891    659,618    2,230    661,848 

Related Party Payables

   3,831    —      3,831 

Accounts payable to related parties

   10,229    —      10,229 

Total Financial Liabilities Measured at Amortized Cost

   1,238,722    3,784,003    5,022,725    1,205,683    3,976,670    5,182,353 
  December 2015       December 2017
ThU.S.$
     
Current
ThU.S.$
   Non-Current
ThU.S.$
   Total  Current   Non Current   Total 

Other financial liabilities

   291,798    4,013,637    4,305,435    500,207    3,773,311    4,273,518 

Trade and other payables

   583,018    —      583,018    717,346    —      717,346 

Related Party Payables

   7,141    —      7,141 

Accounts payable to related parties

   11,208    —      11,208 

Total Financial Liabilities Measured at Amortized Cost

   881,957    4,013,637    4,895,594    1,228,761    3,773,311    5,002,072 

23.8 Cash Flow Hedges Reserve Reconciliation

The following table sets forth the reconciliation balances of cash flow hedges presented in Other Comprehensive Income:

 

   January - December 
   2016   2015   2014 
   ThU.S.$   ThU.S.$   ThU.S.$ 

Opening balance

   (55,396   (53,022   (21,507

Gains (losses) on cash flow hedges

   84,045    11,859    (43,228

Recycle of cash flow hedges to profit or loss

   (10,198   (16,122   949 

Income tax

   (20,055   (1,738   10,963 

Recycle of income tax

   2,700    3,627    (199

Closing balance

   1,096    (55,396   (53,022

   January-December 
   2018
ThU.S.$
   2017
ThU.S.$
   2016
ThU.S.$
 

Opening balance - under IAS 39 and IFRS 9, respectively

   4,752    1,096    (55,396

Amounts restated through reserve of cash flow hedges

   (1,918   —      —   

Opening balance - in accordance with IFRS 9

   2,834    1,096    (55,396

Gains (losses) on cash flow hedges

   30,321    22,212    84,045 

Recycle of cash flow hedges to profit or loss

   (15,286   (16,965   (10,198

Income tax

   (4,474   (5,917   (20,055

Recycle of income tax

   —      4,326    2,700 

Closing balance

   13,395    4,752    1,096 

23.9 Capital Disclosures

23.9.1 Information on Objectives, Policies and Processes applied by the Company regarding Capital Management

Arauco’s policies on capital management have the objective of:

 

a)

Ensuring business continuity and normal operations in the long term;

b)

Ensuring funding for new investments to achieve sustainable growth over time;

c)

Keeping adequate capital structure considering all economic cycles that impact the business and the nature of the industry; and

d)

Maximizing the Company’s value and providing an adequate return to shareholders.

23.9.2 Qualitative Information on Objectives, Policies and Processes applied by the Company regarding Capital Management

Arauco determines and manages its capital structure based on its carrying amount of equity plus its financial debt (bank borrowings and bonds issued).

23.9.3 Quantitative Information on Capital Management

The following table sets forth the financial covenants that the Company has to comply with as part of the terms of certain of its obligations:

 

Instrument

  December
2016
ThU.S.$
   December
2015
ThU.S.$
   Interest
coverage
>= 2,0x
   Debt level
(1) <= 1,2x
 

Domestic bonds (Chile)

   1,130,679    863,118    N/R   Ö 

Syndicate Loan

   298,967    298,316   Ö   Ö 

N/R: Not required for the financial obligation

Instrument

  December 2018
ThU.S.$
   December 2017
ThU.S.$
   Interest
coverage
>= 2,0x
  Debt level
(1) <= 1,2x

Domestic bonds (Chile)

   1,439,610    1,244,939   N/R  Ö

Syndicate Loan Scotia

   200,563    199,597   Ö  Ö

Syndicate Loan Banco Estado—Grayling

   287,565    130,953   Ö  Ö

 

(1)N/R:

Not required for the financial obligation

(1)

Debt to equity ratio (financial debt divided by equity plusnon-controlling interests)

As of December 31, 20162018 and December 31, 2015,2017, Arauco has complied with all of its financial covenants.

The following table sets forth the credit ratings of our debt instruments as of December 31, 2016,2018, are as follows:

 

Instrument

  Standard &
& Poor’s
  Fitch
Ratings
  Moody’s  Feller
Rate

Local bonds

  —    AA -AA-  —    AA -AA-

Foreign bonds

  BBB -BBB-  BBB  Baa3    

Capitalization requirements are established based on the Company’s financial needs and on maintaining an adequate liquidity level and complying with financial covenants established in current debt arrangements. The Company manages its capital structure and makes adjustments based on the prevailing economic conditions in order to mitigate the risks associated with adverse market conditions, and based on opportunities that may arise to improve the Company’s level of liquidity.

The capitalization of Arauco as of December 31, 20162018 and December 31, 20152017 is as follows:

 

  December  2016
ThU.S.$
   December  2015
ThU.S.$
   December
2018
ThU.S.$
   December
2017
ThU.S.$
 

Equity

   6,999,283    6,646,445    7,338,971    7,116,893 

Bank borrowings

   914,358    997,542    940,435    858,457 

Financial leasing

   113,986    127,559    68,187    112,376 

Bonds issued

   3,452,659    3,180,334    3,501,654    3,302,685 
  

 

   

 

   

 

   

 

 

Capitalization

   11,480,286    10,951,880    11,849,247    11,390,411 
  

 

   

 

   

 

   

 

 

23.10 Risk Management

Arauco’s financial instruments are exposed to various financial risks: credit risk, liquidity risk and market risk (including exchange rate risks, interest rate risks and price risks).

Arauco’s overall risk management program focuses on uncertainty in financial markets and aims to minimize potential adverse effects on Arauco’s financial profitability.

Arauco’s financial risk management is overseen by the Corporate Finance Department. This department identifies, assesses and hedges financial risks in close collaboration with Arauco’s operational units.

23.10.1 Type of Risk: Credit Risk

Description

Credit risk refers to financial uncertainty at different periods of time relating to the fulfillment of obligations with counterparties, at the time of exercising the contract rights to receive cash or other financial assets on behalf of Arauco.

Explanation of Credit Risk Exposure and How This Risk Arises

Arauco’s exposure to credit risk is directly related to each of its customer’s individual abilities to fulfill their contractual commitments, reflected in trade receivables.

Accounts exposed to credit risk are: trade receivable, financial lease debtors and other debtors.

Arauco does not have a securitized portfolio.

  December
2016

ThU.S.$
   December
2015

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

Current Receivables

        

Trade receivables

   598,597    614,623    747,258    706,485 

Financial lease receivables

   411    9    1,131    11,932 

Other Debtors

   102,602    118,690 

Other debtors

   90,795    95,995 

Net subtotal

   701,610    733,322    839,184    814,412 

Trade receivables

   609,102    625,201    755,809    716,455 

Financial lease receivables

   512    125    1,131    12,033 

Other Debtors

   108,640    127,856 

Other debtors

   93,370    101,663 

Gross subtotal

   718,254    753,182    850,310    830,151 

Provision for doubtful trade receivables

   10,505    10,578    8,551    9,970 

Provision for doubtful lease receivables

   101    116    —      101 

Provision for doubtful other debtors

   6,038    9,166    2,575    5,668 

Subtotal Bad Debt

   16,644    19,860    11,126    15,739 

Non-Current Receivables

        

Trade receivables

   1,992    32    3,900    3,498 

Financial lease receivables

   353    6    837    1,174 

Other Debtors

   11,928    15,232 

Other debtors

   10,412    11,368 

Net Subtotal

   14,273    15,270    15,149    16,040 

Trade receivables

   1,992    32    7,921    5,544 

Financial lease receivables

   353    6    837    1,174 

Other Debtors

   11,928    15,232 

Other debtors

   10,412    11,368 

Gross subtotal

   14,273    15,270    19,170    18,086 

Provision for doubtful trade receivables

   —      —      4,021    2,046 

Provision for doubtful lease receivables

   —      —      —      —   

Provision for doubtful other debtors

   —      —      —      —   

Subtotal Bad Debt

   —      —      4,021    2,046 

Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods

The Credit and CollectionsSub-Division, dependent from the Treasury Division, is the area entrusted with minimizing the credit risk of the accounts receivable, supervising the delinquency of the accounts. The regulations and procedures applicable for the control and administration of the Arauco Group can be found in the Corporate Credit Policy.

As of December 31, 2016,2018, Arauco’s balance for commercial Debtors was ThU.S.$ 609,102763,730 of which, according to the agreed sales conditions, 54.3%50.36% corresponded to sales on credit (open account), 40.82%48.74% to sales with letters of credit and 4.88%0.91% to other types of sales, distributed in 2,2742,265 debtors. The client with the largest Open Account debt represented 2.14%3.98% of the total accounts receivable as of that date.

Below we provide detail regarding accounts receivable, classified in tranches.tranches:

December 31, 20162018

 

Age of trade receivablesAge of trade receivables Age of trade receivables 

 

 

Days

 Non-past due 1 to 30 31 to 60 61 to 90 91 to 120 121 to 150 151 to 180 181 to 210 211 to 250 More than 250 Total   Non-past due 1 to 30 31 to 60 61 to 90 91 to 120 121 to 150 151 to 180 181 to 210 211 to 250 More than 250 Total 

ThU.S.$

  562,386   31,106   257   881   39   18   21   11   64   14,319   609,102    688,024   59,844   854   36   111   43   141   127   69   14,481   763,730 

%

  92.33  5.11  0.04  0.14  0.01  0.00  0.00  0.00  0.01  2.36  100   90.09  7.84  0.11  0.00  0.01  0.01  0.02  0.02  0.01  1.89  100
December 31, 2015           
Age of trade receivables 

 

Days

 Non-past due 1 to 30 31 to 60 61 to 90 91 to 120 121 to 150 151 to 180 181 to 210 211 to 250 More than 250 Total 

ThU.S.$

  571,499   18,927   2,303   2,332   363   168   1,102   1,413   1,444   25,650   625,201 

%

  91.41  3.03  0.37  0.37  0.06  0.03  0.18  0.23  0.23  4.10  100

December 31, 2017

Age of trade receivables 

 

 

Days

  Non-past due  1 to 30  31 to 60  61 to 90  91 to 120  121 to 150  151 to 180  181 to 210  211 to 250  More than 250  Total 

ThU.S.$

   664,202   39,459   551   955   50   34   2,238   56   97   12,311   719,953 

%

   92.26  5.48  0.08  0.13  0.01  0.00  0.31  0.01  0.01  1.71  100

Arauco applies the simplified approach regarding the expected losses from commercial debtors, which allows for the use of an estimate of expected credit losses over the instrument’s lifespan for all commercial accounts receivable. In order to establish this estimate, the commercial debtors have been grouped in relation to the corresponding risks for sales conditions as well as for tranches, including clients that areup-to-date or in default.

Days

 Non-past due  1 to 30  31 to 60  61 to 90  91 to 120  121 to 150  151 to 180  181 to 210  211 to 250  More than 250  Total 

Letters of credit

  355,755   17,524   8   —     —     —     —     —     —     —     373,287 

Loss allowance provision

  —     —     —     —     —     —     —     —     —     —     —   

Expected loss rate

  0.00  0.00  0.00  0.00  0.00  0.00  0.00  0.00  0.00  0.00 

Credit line

  332,871   40,629   708   37   36   26   27   18   35   9,552   383,939 

Loss allowance provision

  —     —     7   4   4   3   3   18   35   9,552   9,626 

Expected loss rate

  0.00  0.00  0.96  10.00  10.00  10.00  10.00  100.00  100.00  100.00 

Others

  1,879   1,473   71   13   124   15   112   106   32   2,679   6,504 

Loss allowance provision

  —     —     1   1   62   8   56   106   32   2,679   2,945 

Expected loss rate

  0.00  0.00  0.96  10.00  50.00  50.00  50.00  100.00  100.00  100.00 

Trade receivables, total (ThU.S.$)

  690,505   59,626   787   50   160   41   139   124   67   12,231   763,730 

Allowance for doubtful accounts, total (ThU.S.$)

  —     —     8   5   66   11   59   124   67   12,231   12,571 

Arauco does not conduct rescheduling or renegotiations with its clients that imply an amendment to the maturity of the invoices and, should it be necessary, any debt renegotiation with a client shall be analyzed on acase-by-case basis and subjected to the approval of the Corporate Finance Division.

Regarding the provisions fromnon-enforceable accounts,loss allowance provision for trade receivables and others, below we provide detail for the movements as of December 31, 2016, 20152018, 2017 and 2014:2016:

 

   12-31-2016  12-31-2015  12-31-2014 
   ThU.S.$  ThU.S.$  ThU.S.$ 

Opening balance

   (19,860  (18,520  (15,839

Impairment losses recognized on receivables

   (3,950  (3,072  (2,940

Reversal of impairment losses

   7,166   1,732   259 

Closing balance

   (16,644  (19,860  (18,520
   2018
ThU.S.$
  2017
ThU.S.$
  2016
ThU.S.$
 

Opening balance at January 1 - under IAS 39

   (17,785  (16,644  (19,860

Amounts restated through opening retained earnings

   (2,875  —     —   

Opening loss allowance as at January 1, 2018 - under IFRS 9

   (20,660  (16,644  (19,860

Increase in loan loss allowance recognised in profit or loss during the year

   (5,027  (3,423  (2,479

Receivables written off during the year as uncollectible

   8,620   1,806   5,250 

Unused amount reversed

   1,920   476   445 

Closing balance

   (15,147  (17,785  (16,644

Currently there is a policy for provisions for doubtful accounts receivable under IFRS for all the Arauco group companies.

Explanation regarding the Sales Risk with Letters of Credit

The sales with letters of credit mainly occur in markets in Asia and the Middle East. Periodically, a credit assessment is conducted regarding the banks that issue the letters of credit with the purpose of obtaining their score over the basis of risk-qualification ratings, country-specific risk and financial statements. The decision of approving the issuing bank or asking for confirmation of the letter of credit is made in consideration to this assessment.

Explanation of the Sales Risk with Credit Line

Sales on credit are subject to the credit limit for each customer. The approval or rejection of a credit limit for all term sales is conducted by the Corporate CreditSub-Division, as well as by the Credit and Collections area for North America, Brazil and Argentina, which report to the Corporate Finance Division. The regulations and procedures applicable for the correct control and risk management over the sales on credit are ruled by the Credit Policy.

A procedure that must be applied by all the companies of the Arauco group has been established for the approval and/or modification of client credit lines. Credit line requests are entered to the SAP that analyzes all available information. Afterwards, the same are either approved or rejected in each one of the internal committees of each company belonging to the Arauco group, depending on the maximum amount authorized by the Credit Policy. Lines of credit are renewed during this internal process on a yearly basis.

All sales are automatically controlled by a credit verification system, which has been configured to block any orders from clients who are delinquent in a given percentage of a debt and/or from clients whose line of credit, as of the time of the product’s shipping, has been exceeded or is overdue.

In order to minimize the credit risk for term or Open Account sales, it is Arauco’s policy to take out insurance to cover the export sales of companies Celulosa Arauco y Constitución S.A., Maderas Arauco S.A., Forestal Arauco S.A., and Arauco do Brasil S.A., as well as the domestic sales of Arauco México S.A. de C.V., Arauco Wood Inc, Arauco Colombia S.A., Arauco Perú S.A., Arauco Panels USA LLC, Flakeboard Company Ltd., Flakeboard America Ltd. (currently Arauco North America, Inc)., Celulosa Arauco y Constitución S.A., Maderas Arauco S.A., Arauco Florestal Arapoti, Arauco Forest Brasil S.A. and, Arauco do Brasil S.A., Arauco Industria de Paineis Ltda. and Arauco Nutrientes S.P.A., Arauco works with credit insurance company Continental(AA-Euler Hermes World Agency (Aa3 rating, as per risk rating companies HumphreysMoody’s and Fitch Ratings). In order to cover the export sales and domestic sales of Arauco Argentina S.A.AA by S&P), the preferred credit insurance

The company is Insur (a subsidiary of Continental in Argentina). Both companies grant a 90% coverage over the amount of each invoice, without deductibles, for registered clients and of 80%90% fornon-registered clients.(Non-registered clients are those whose lines range betweenare under ThU.S.$ 5 and ThU.S.$ 50100 (equivalent currency of their invoicing) of the local sales of companies Arauco Perú S.A., Arauco Colombia S.A., Arauco México S.A. de C.V., Arauco Do Brasil S.A., Arauco Argentina S.A. and Maderas Arauco S.A. Lines in excess of the aforesaid amounts correspond to registered clients.clients).

As another way of minimizing risk and supporting a line of credit approved by the Credit Committee, Arauco holds guarantees such as mortgages, pledges, Standby letters of credit, bank performance bonds, checks, promissory notes, loans or any other that could be required under the laws of each country. The total amount held in guarantees amounts to US$99.5ThU.S.$58.94 million, effective as of December 2016,2018, as summarized in the following chart. The procedure for guarantees is regulated by Arauco’s Policy on Guarantees, whose purpose is to control their accounting, due date and custody.

 

Guarantees Arauco Group (ThU.S.$)

Guarantees Arauco Group (ThU.S.$)

 

Guarantees Arauco Group (ThU.S.$)

 

Guarantees Debtors

(received from clients)

        

Certificate of deposits

   15,159    15.2   7,107    12.1

Standby

   6,872    6.9   9,142    15.5

Promissory notes

   63,464    63.8   31,036    52.7

Finance

   3,057    3.1   3,605    6.1

Mortgage

   8,298    8.3   4,551    7.7

Pledge

   2,433    2.4   2,099    3.6

Promissory notes

   200    0.2   1,400    2.3

Total Guarantees

   99,483    100.0   58,940    100.0

The maximum exposure to credit risk is limited to the value at amortized cost of the Debtors’ account for sales registered as of the date of this report, minus the percentage of sales insured by the aforementioned credit insurance companies and the guarantees granted in favor of Arauco.

In summary, the open account debt covered by the various insurance policies and guarantees amounts to 98.8%93.4% and, therefore, Arauco’s portfolio exposure amounts to 1.2%6.6%.

 

 

Secured Open Accounts Receivable

  ThU.S.$   %   ThU.S.$   % 

Total open accounts receivable

   330,754    100.0   424,278    100.0

Secured receivables (*)

   326,785    98.8   396,275    93.4

Unsecured receivables

   3,969    1.2   28,003    6.6

 

(*)

Insured Debt is deemed to be the portion of accounts receivable that is covered by a credit company or by guarantees such as standby letters of credit, mortgages, performance bonds, among others

Investment Policy:

Arauco has an Investment Policy which identifies and limits the financial instruments and the entities into which the Arauco companies, in particular Celulosa Arauco y Constitucion S.A., are authorized to invest. The Company’s Treasury Department is centralized with operations in Chile. The Head Office is responsible for carrying out investments, cash flow surplus investments, and short and long term debt subscriptions. Exceptions to this rule areapply to short and long-term debt, and will be for specific investments made through other companies where authorization is required from the Chief Financial Officer.

For financial instruments, the only permitted investments are fixed income investments with adequate liquidity. Each instrument has defined classifications and limits, depending on duration and type of issuer.

Regarding intermediaries (such as banks, securities brokers and dealers of mutual funds that are bank affiliates), a scoring methodology is used to determine the relative degree of risk of each intermediary based on their financial position and assign score points that result in a credit risk rating to each intermediary. Arauco uses this scoring system to determine its investment limits for each intermediary.

The required information to evaluate the various criteria are obtained from published financial statements from the banks under evaluation and from the credit risk ratings of short and long term debt securities obtained from rating agencies authorized by the Superintendence of Banks and Financial Institutions (Fitch Ratings Chile, Humphreys and Feller Rate).

The criteria evaluated are: Capital and Reserves, Current Ratio, Return on equity, Net Income to Operating income Ratio, Debt to Equity Ratio and the Credit Risk rating of each entity.

Any necessary exceptions regarding investment limits in each particular instrument or entity must have the authorization from Arauco’s Chief Financial Officer.

23.10.2 Type of Risk: Liquidity Risk

Description

This risk corresponds to Arauco’s ability to fulfill its financial obligations upon maturity.

Explanation of Liquidity Risk Exposure and How This Risk Arises

Arauco’s exposure to liquidity risk is mainly from its obligations to bondholders, banks and financial institutions, creditors and other payables. Liquidity risk may arise if Arauco is unable to meet the net cash flow requirements, which sustain its operations under both normal and exceptional circumstances.

Explanation of Objectives, Policies and Processes for Risk Management, and Measurement Methods

The Financial Management Department monitors on an ongoing basis the Company’s cash flow forecasts based on short and long term forecasts and available financing alternatives. In order to manage the risk level of financial assets, Arauco follows its investment policy.

The following tables detail Arauco’s liquidity analysis for its financial liabilities as of December 30, 201631, 2018 and December 31, 2015.2017. The tables have been drawn up based on the contractual undiscounted cash outflows and their remaining contractual maturities:

December 31, 2016

  Maturity  Total      
Tax ID 

Name

 Currency  

Name -
Country
Loans with banks

 Up to 3
months
ThU.S.$
  3 to 12
months
ThU.S.$
  1 to 2
years
ThU.S.$
  2 to 3
years
ThU.S.$
  3 to 4
years
ThU.S.$
  4 to 5
years
ThU.S.$
  More than 5
years
ThU.S.$
  Current
ThU.S.$
  Non
Current
ThU.S.$
  

Effective

rate

 Nominal
rate
 
93.458.000-1 Celulosa Arauco y Constitución S.A.  U.S. Dollar  Scotiabank- Chile  —     36   302,242   —     —     —     —     36   302,242  1.63%  1.63% 
 Arauco Argentina S.A.  U.S. Dollar  Banco Galicia- Argentina  5,031   —     —     —     —     —     —     5,031   —    2.00%  2.00% 
 Arauco Argentina S.A.  
Argentine
Pesos
 
 
 Banco Macro- Argentina  11   29   —     —     —     —     —     40   —    15.25%  15.25% 
 Zona Franca Punta Pereira  U.S. Dollar  Interamerican Development Bank  1,178   1,027   2,450   2,387   2,324   2,256   4,302   2,205   13,719  Libor + 2.05%  Libor + 2.05% 
 Zona Franca Punta Pereira  U.S. Dollar  Interamerican Development Bank  2,990   2,782   5,997   5,830   5,664   —     —     5,772   17,491  Libor + 1.80%  Libor + 1.80% 
 Zona Franca Punta Pereira  U.S. Dollar  BBVA  16,176   —     —     —     —     —     —     16,176   —    3.23%  Libor + 2% 
 Zona Franca Punta Pereira  U.S. Dollar  Citibank  —     2,501   —     —     —     —     —     2,501   —    2.95%  Libor + 1.75% 
 Zona Franca Punta Pereira  U.S. Dollar  Scotiabank  2,501   —     —     —     —     —     —     2,501   —    1.60%  1.60% 
 Celulosa y Energia Punta Pereira  U.S. Dollar  Banco Interamericano de Desarrollo  4,768   4,143   9,895   9,637   9,379   9,096   17,371   8,911   55,378  3.30%  Libor + 2.05% 
 Celulosa y Energia Punta Pereira  U.S. Dollar  Banco Interamericano de Desarrollo  12,104   11,237   24,249   23,568   22,888   —     —     23,341   70,705  3.05%  Libor + 1.80% 
 Celulosa y Energia Punta Pereira  U.S. Dollar  Finnish Export Credit  25,474   20,774   43,915   44,538   45,209   45,882   70,166   46,248   249,710  3.20%  3.20% 
 Celulosa y Energia Punta Pereira  U.S. Dollar  Dnb Nor Bank  89   —     —     —     —     —     —     89   —    Libor + 2.00%  Libor + 2.00% 
 Eufores S.A.  U.S. Dollar  Banco Republica Oriental de Uruguay  24,733   12,563   —     —     —     —     —     37,296   —    Libor + 1.75%  Libor + 1.75% 
 Eufores S.A.  U.S. Dollar  Citibank  5   —     —     —     —     —     —     5   —    Libor + 2.00%  Libor + 2.00% 
 Eufores S.A.  U.S. Dollar  Banco HSBC- Uruguay  1,202   —     —     —     —     —     —     1,202   —    Libor + 2.00%  Libor + 2.00% 
 Eufores S.A.  U.S. Dollar  Banco Itau -Uruguay  10,135   5,003   —     —     —     —     —     15,138   —    Libor + 2.00%  Libor + 2.00% 
 Eufores S.A.  U.S. Dollar  Heritage  1,351   —     —     —     —     —     —     1,351   —    Libor + 2.00%  Libor + 2.00% 
 Eufores S.A.  U.S. Dollar  Banco Santander  22,735   —     —     —     —     —     —     22,735   —    Libor + 2.00%  Libor + 2.00% 
 Arauco Do Brasil S.A.  Brazilian Real  Banco ABC - Brazil  7   18   —     —     —     —     —     25   —    2.50%  2.50% 
 Arauco Do Brasil S.A.  Brazilian Real  Banco Itau  2,713   321   —     —     —     —     —     3,034   —    9.50%  9.50% 
 Arauco Do Brasil S.A.  Brazilian Real  Banco Votorantim  13   25   —     —     —     —     —     38   —    5.50%  5.50% 
 Arauco Do Brasil S.A.  Brazilian Real  Banco Santander  2   46   100   100   57   7   —     48   264  9.34%  9.34% 
 Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Itau  2   6   1   —     —     —     —     8   1  2.50%  2.50% 
 Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Itau  13   38   51   4   —     —     —     51   55  3.50%  3.50% 
 Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Bradesco  11   33   44   37   —     —     —     44   81  6.00%  6.00% 
 Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Bradesco  400   —     —     —     —     —     ���     400   —    8.75%  8.75% 
 Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Votorantim  17   —     —     —     —     369   369   17   738  5.00%  5.00% 
 Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Safra  22   66   88   22   —     —     —     88   110  6.00%  6.00% 
 Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Safra  8   21   27   27   27   11   —     29   92  10.00%  10.00% 
 Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Santander  1   16   16   16   8   —     —     17   40  9.00%  9.00% 
 Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Santander  5   18   30   30   19   8   —     23   87  9.22%  9.22% 
 Arauco Forest Brasil S.A.  Brazilian Real  Banco Bradesco  20   57   77   23   —     —     —     77   100  5.91%  5.91% 
 Arauco Forest Brasil S.A.  U.S. Dollar  Banco Alfa  —     5   9   9   9   5   —     5   32  7.94%  7.94% 
 Arauco Forest Brasil S.A.  Brazilian Real  Banco Alfa  —     12   23   23   23   11   —     12   80  11.30%  11.30% 
 Arauco Forest Brasil S.A.  Brazilian Real  Banco Itau- Brazil  4   12   1   2   —     —     —     16   3  2.50%  2.50% 
 Arauco Forest Brasil S.A.  Brazilian Real  Banco Votorantim - Brazil  195   520   694   405   —     327   327   715   1,753  8.59%  8.59% 
 Arauco Forest Brasil S.A.  U.S. Dollar  Banco Votorantim -Brazil  35   101   134   78   —     —     —     136   212  7.44%  7.44% 
 Arauco Forest Brasil S.A.  Brazilian Real  Banco Bndes SubcréditoA-B-D  4   —     —     —     114   460   346   4   920  9.82%  9.82% 
 Arauco Forest Brasil S.A.  U.S. Dollar  Banco Bndes Subcrédito C  4   —     —     —     24   144   120   4   288  7.05%  7.05% 
 Arauco Forest Brasil S.A.  Brazilian Real  Banco Santander  1   32   —     —     —     —     —     33   —    9.32%  9.32% 
 Arauco Forest Brasil S.A.  Brazilian Real  Banco John Deere  62   41   41   32   10   —     —     103   83  6.00%  6.00% 
 Mahal Emprendimientos Pat. S.A.  Brazilian Real  Bndes SubcréditoE-I  23   —     758   3,030   2,272   —     —     23   6,060  8.91%  8.91% 
 Mahal Emprendimientos Pat. S.A.  Brazilian Real  Bndes SubcréditoF-J  16   —     454   1,818   1,363   —     —     16   3,635  9.91%  9.91% 
 Mahal Emprendimientos Pat. S.A.  U.S. Dollar  Bndes SubcréditoG-K  60   —     339   2,037   1,697   —     —     60   4,073  7.05%  7.05% 
 Mahal Emprendimientos Pat. S.A.  Brazilian Real  Bndes SubcréditoH-L  19   —     504   2,020   1,514   —     —     19   4,038  11.11%  11.11% 
   

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   
   Total  134,140   61,483   392,139   95,673   92,601   58,576   93,001   195,623   731,990   
   

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

December 31, 20162018

 

 Maturity Total       Maturity Total   

Tax ID

 

Name

 Currency 

Name - Country
Bonds

 Up to 3
months
ThU.S.$
 3 to 12
months
ThU.S.$
 1 to 2
years
ThU.S.$
 2 to 3
years
ThU.S.$
 3 to 4
years
ThU.S.$
 4 to 5
years
ThU.S.$
 More
than 5
years
ThU.S.$
 Current
ThU.S.$
 Non
Current
ThU.S.$
 Effective
rate
 Nominal
rate
   Name   Currency   Name -
Country
Loans with

banks
 Up to 3
months
ThU.S.$
 3 to 12
months
ThU.S.$
 1 to 2
years
ThU.S.$
 2 to 3
years
ThU.S.$
 3 to 4
years
ThU.S.$
 4 to 5
years
ThU.S.$
 More
than 5
years
ThU.S.$
 Current
ThU.S.$
 Non
Current
ThU.S.$
 Effective
rate
 

Nominal rate

93.458.000-1

 Celulosa Arauco y Constitución S.A. UF Barau-F  —     1,931   11,587   29,091   27,486   33,383   180,490   1,931   282,037   4.24%   4.21%    

Celulosa Arauco
y Constitución
S.A.
 
 
 
   U.S. Dollars   Scotiabank-
Chile
  —     1,930   7,951   7,951   7,951   206,584   —     1,930   230,437   3.70 Libor + 1.10%

93.458.000-1

 Celulosa Arauco y Constitución S.A. UF Barau-J  2,115   —     6,344   6,344   203,030   —     —     2,115   215,718   3.23%   3.22% 

93.458.000-1

 Celulosa Arauco y Constitución S.A. UF Barau-P  —     996   7,794   7,794   7,794   7,794   242,571   996   273,747   3.96%   3.96% 

93.458.000-1

 Celulosa Arauco y Constitución S.A. UF Barau-Q  586   9,839   21,758   21,172   20,586   10,073   —     10,425   73,589   2.96%   2.98% 

93.458.000-1

 Celulosa Arauco y Constitución S.A. UF Barau-R  1,755   —     7,022   7,022   7,022   7,022   290,572   1,755   318,660   3.57%   3.57% 

93.458.000-1

 Celulosa Arauco y Constitución S.A. UF Barau-S  —     600   4,695   4,695   4,695   4,695   210,785   600   229,565   2.44%   2.89% 

 Arauco Argentina S.A. U.S.

Dollar

 Bono 144 A - Argentina  —     270,787   —     —     —     —     —     270,787   —     6.39%   6.38%    
Arauco
Argentina S.A.
 
 
   U.S. Dollars   Banco Bice  5,040   —     —     —     —     —     —     5,040   —     2.10 2.10%

93.458.000-1

 Celulosa Arauco y Constitución S.A. U.S.

Dollar

 Yankee Bonds 2019  15,205   —     36,250   534,254   —     —     —     15,205   570,504   7.26%   7.25% 

93.458.000-1

 Celulosa Arauco y Constitución S.A. U.S.

Dollar

 Yankee Bonds 2nd Emission  2,734   124,949   —     —     —     —     —     127,683   —     7.50%   7.50% 

93.458.000-1

 

Celulosa Arauco y Constitución S.A.

 U.S.

Dollar

 

Yankee 2021

  8,889   —     20,000   20,000   20,000   406,926   —     8,889   466,926   5.02%   5.00% 

93.458.000-1

 Celulosa Arauco y Constitución S.A. U.S.

Dollar

 

Yankee 2022

  11,215   —     23,750   23,750   23,750   23,750   504,895   11,215   599,895   4.77%   4.75% 

93.458.000-1

 

Celulosa Arauco y Constitución S.A.

 U.S.

Dollar

 

Yankee 2024

  9,376   —     22,500   22,500   22,500   22,500   569,625   9,376   659,625   4.52%   4.50% 

   
Arauco
Argentina S.A.
 
 
   U.S. Dollars   Banco Macro  10,054   —     —     —     —     —     —     10,054   —     6.00 6.00%

   
Arauco
Argentina S.A.
 
 
   U.S. Dollars   BBVA  —     13,071   —     —     —     —     —     13,071   —     5.90 5.90%

   

Zona Franca
Punta Pereira
S.A.
 
 
 
   U.S. Dollars   Interamerican
Development
Bank
  1,184   1,032   2,435   2,335   2,233   2,126   —     2,216   9,129   4.62 Libor + 2.05%

   

Zona Franca
Punta Pereira
S.A.
 
 
 
   U.S. Dollars   Interamerican
Development
Bank
  2,940   2,786   5,701   —     —     —     —     5,726   5,701   4.37 Libor + 1.80%

   

Zona Franca
Punta Pereira
S.A.
 
 
 
   U.S. Dollars   BBVA  —     14,103   —     —     —     —     —     14,103   —     4.06 Libor + 1.30%

   

Zona Franca
Punta Pereira
S.A.
 
 
 
   U.S. Dollars   Citibank  —     4,517   —     —     —     —     —     4,517   —     4.19 Libor + 1.25%

   

Zona Franca
Punta Pereira
S.A.
 
 
 
   U.S. Dollars   Scotiabank  —     2,509   —     —     —     —     —     2,509   —     4.39 Libor + 1.50%

   

Celulosa y
Energia Punta
Pereira S.A.
 
 
 
   U.S. Dollars   Banco
Interamericano
de Desarrollo
  4,770   4,179   9,826   9,411   9,008   8,605   —     8,949   36,850   4.62 Libor + 2.05%

   

Celulosa y
Energia Punta
Pereira S.A.
 
 
 
   U.S. Dollars   Banco
Interamericano
de Desarrollo
  11,871   11,274   23,035   —     —     —     —     23,145   23,035   4.37 Libor + 1.80%

   

Celulosa y
Energia Punta
Pereira S.A.
 
 
 
   U.S. Dollars   Finnish Export
Credit
  24,850   21,578   49,484   47,930   47,207   23,562   —     46,428   168,183   3.20 3.20%

   Eufores S.A.    U.S. Dollars   Banco
Republica
Oriental de
Uruguay
  8   27,073   —     —     —     —     —     27,081   —     4.12 Libor + 1.3%

   Eufores S.A.    U.S. Dollars   Citibank  3   —     —     —     —     —     —     3   —     3.43 Libor + 2%

   Eufores S.A.    U.S. Dollars   Banco Itau -
Uruguay
  24   12,511   —     —     —     —     —     12,535   —     4.17 Libor + 1.75%

   Eufores S.A.    U.S. Dollars   Heritage  1,352   —     —     —     —     —     —     1,352   —     4.30 Libor + 1.75%

   Eufores S.A.    U.S. Dollars   Banco
Santander
  20,235   5,021   —     —     —     —     —     25,256   —     3.86 Libor + 1.3%

   
Arauco Do Brasil
S.A.
 
 
   Brazilian Real   Banco
Santander
  21   64   48   6   —     —     —     85   54   9.50 9.50%

   
Arauco Do Brasil
S.A.
 
 
   Brazilian Real   Banco Alfa  17   48   64   64   5   —     —     65   133   10.35 Tljp+2%+ spread 1.75%

   
Arauco Florestal
Arapoti S.A.
 
 
   Brazilian Real   Banco Itau  3   —     —     —     —     —     —     3   —     7.00 3.50%

   
Arauco Florestal
Arapoti S.A.
 
 
   Brazilian Real   Banco
Bradesco
  9   22   —     —     —     —     —     31   —     6.00 6.00%

   
Arauco Florestal
Arapoti S.A.
 
 
   Brazilian Real   Banco
Votorantim
  14   —     —     310   310   —     —     14   620   5.00 5.00%

   
Arauco Florestal
Arapoti S.A.
 
 
   Brazilian Real   Banco Safra  18   —     —     —     —     —     —     18   —     6.00 6.00%

   
Arauco Florestal
Arapoti S.A.
 
 
   Brazilian Real   Banco Safra  6   17   23   10   —     —     —     23   33   10.00 10.00%

   
Arauco Florestal
Arapoti S.A.
 
 
   Brazilian Real   Banco
Santander
  3   14   136   44   44   —     —     17   224   8.38 8.38%

   
Arauco Florestal
Arapoti S.A.
 
 
   Brazilian Real   Banco
Santander
  34   33   50   129   129   —     —     67   308   10.32 10.32%

   
Arauco Florestal
Arapoti S.A.
 
 
   Brazilian Real   Banco
Santander
  4   11   14   11   2   —     —     15   27   10.47 10.49%

   
Arauco Forest
Brasil S.A.
 
 
   Brazilian Real   Banco
Bradesco
  21   23   24   24   14   —     —     44   62   9.00 9.00%

   
Arauco Forest
Brasil S.A.
 
 
   U.S. Dollars   Banco Alfa  2   7   9   5   —     —     —     9   14   17.00 Cesta+2%+spread 1.8%

   
Arauco Forest
Brasil S.A.
 
 
   Brazilian Real   Banco Alfa  5   14   19   10   —     —     —     19   29   0.22 Tljp+2%+Spread 1.8%

   
Arauco Forest
Brasil S.A.
 
 
   Brazilian Real   Banco
Votorantim -
Brazil
  162   198   —     276   276   —     —     360   552   16.00 Tljp+1.8%+Spread 2%

   
Arauco Forest
Brasil S.A.
 
 
   U.S. Dollars   Banco
Votorantim -
Brazil
  34   45   —     —     —     —     —     79   —     10.40 Cesta+1.3%+spread 2%

   
Arauco Forest
Brasil S.A.
 
 
   Brazilian Real   Banco Bndes
Subcrédito
A-B-D
  3   —     98   394   295   —     —     3   787   21.78 Tljp + 2.91%

   
Arauco Forest
Brasil S.A.
 
 
   U.S. Dollars   Banco Bndes
Subcrédito C
  5   —     24   145   120   —     —     5   289   15.22 Cesta+2.91%

   
Arauco Forest
Brasil S.A.
 
 
   Brazilian Real   Banco
Santander
  43   58   181   173   138   —     —     101   492   8.67 8.67%

   

Mahal
Emprendimientos
Pat. S.A.
 
 
 
   Brazilian Real   Bndes
SubcréditoE-I
  663   1,946   1,946   —     —     —     —     2,609   1,946   19.78 Tljp + 2.91%

   

Mahal
Emprendimientos
Pat. S.A.
 
 
 
   Brazilian Real   Bndes
SubcréditoF-J
  399   1,167   1,167   —     —     —     —     1,566   1,167   21.78 Tljp + 3.91%

   

Mahal
Emprendimientos
Pat. S.A.
 
 
 
   U.S. Dollars   Bndes
Subcrédito
G-K
  520   1,528   1,697   —     —     —     —     2,048   1,697   15.22 Cesta + 2.91%

   

Mahal
Emprendimientos
Pat. S.A.
 
 
 
   Brazilian Real   Bndes
Subcrédito
H-L
  444   1,297   1,297   —     —     —     —     1,741   1,297   24.18 Tljp + 5.11%

   

Mahal
Emprendimientos
Pat. S.A.
 
 
 
   Brazilian Real   Banco
Santander
  6   18   23   23   —     —     —     24   46   21.96 Tljp+2%+Spread 2%

   

Mahal
Emprendimientos
Pat. S.A.
 
 
 
   U.S. Dollars   Banco
Santander
  3   9   13   12   —     —     —     12   25   17.40 Cesta+2%+Spread 2%

   

Novo Oeste
Gestao de Ativos
Florestais S.A.
 
 
 
   Brazilian Real   Banco
Santander
  5   18   24   24   2   —     —     23   50   21.96 Tljp+2%+Spread 2%

   

Novo Oeste
Gestao de Ativos
Florestais S.A.
 
 
 
   U.S. Dollars   Banco
Santander
  3   9   13   13   2   —     —     12   28   17.40 Tljp+2%+Spread 2%

   
Flakeboard
Company Ltd.
 
 
   U.S. Dollars   Banco del
Estado de
Chile
  —     2,141   13,164   41,497   40,184   38,872   203,906   2,141   337,623   3.00 Libor + 1.65%
    

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

          

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   
 Total 51,875 409,102 161,700 676,622 336,863 516,143 1,998,938 460,977 3,690,266           Total  84,778   130,271   118,466   110,797   107,920   279,749   203,906   215,049   820,838   
       

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   
December 31, 2016 
    Maturity Total     

Tax ID

 

Name

 

Currency

 

Name - Country
Lease

 

Up to 3
months
ThU.S.$

 

3 to 12
months
ThU.S.$

 

1 to 2
years
ThU.S.$

 

2 to 3
years
ThU.S.$

 

3 to 4
years
ThU.S.$

 

4 to 5
years
ThU.S.$

 

More
than 5
years
ThU.S.$

 

Current
ThU.S.$

 

Non
Current
ThU.S.$

 

Effective
rate

 

Nominal
rate

 

85.805.200-9

 

Forestal Arauco S.A.

 UF 

Banco Santander

  237   1,616   —     1,179   —     1,201   —     1,853   2,380   —     —   

85.805.200-9

 

Forestal Arauco S.A.

 UF 

Banco Scotiabank

  1,571   4,970   —     7,731   —     4,259   —     6,541   11,990   —     —   

85.805.200-9

 

Forestal Arauco S.A.

 UF 

Banco Estado

  645   2,008   —     5,092   —     2,035   —     2,653   7,127   —     —   

85.805.200-9

 

Forestal Arauco S.A.

 UF 

Banco de Chile

  3,294   10,861   —     16,861   —     8,906   —     14,155   25,767   —     —   

85.805.200-9

 

Forestal Arauco S.A.

 UF 

Banco BBVA

  1,673   5,030   —     4,663   —     183   —     6,703   4,846   —     —   

85.805.200-9

 Forestal Arauco S.A. UF 

Banco Credito e Inversiones

  982   2,994   —     7,501   —     2,824   —     3,976   10,325   —     —   

85.805.200-9

 Forestal Arauco S.A. Chilean
Pesos
 

Banco Santander

  46   138   —     61   —     —     —     184   61   —     —   

85.805.200-9

 Forestal Arauco S.A. Chilean
Pesos
 

Banco Chile

  439   1,317   —     2,418   —     929   —     1,756   3,347   —     —   

85.805.200-9

 Forestal Arauco S.A. Chilean
Pesos
 

Banco Credito e Inversiones

  647   1,932   —     5,053   —     2,690   —     2,579   7,743   —     —   
    

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   
   Total  9,534   30,866   —     50,559   —     23,027   —     40,400   73,586   
    

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

December 31, 2018

     Maturity  Total       

Tax ID

  

Name

  Currency  Name - Country
Bonds
   Up to 3
months
ThU.S.$
   3 to 12
months
ThU.S.$
   1 to 2
years
ThU.S.$
  2 to 3
years
ThU.S.$
  3 to 4
years
ThU.S.$
  4 to 5
years
ThU.S.$
   More than  5
years
ThU.S.$
  Current
ThU.S.$
  Non
Current
ThU.S.$
  Effective
rate

 

  Nominal
rate

 

 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.   Barau-F    —      19,425    25,413   24,656   23,899   23,143    116,673   19,425   213,784   4.24  4.21

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.   Barau-F    —      7,770    10,189   9,884   9,579   9,274    47,339   7,770   86,265   4.25  4.21

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.   Barau-J    2,132    —      204,731   —     —     —      —     2,132   204,731   3.23  3.22

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.   Barau-P    —      1,004    7,857   7,857   25,713   24,999    193,697   1,004   260,123   3.96  3.96

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.   Barau-Q    —      20,207    20,576   10,398   —     —      —     20,207   30,974   2.96  2.98

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.   Barau-R    —      1,770    7,079   7,079   7,079   7,079    278,892   1,770   307,208   3.57  3.57

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.   Barau-S    —      592    4,733   4,733   4,733   4,733    204,991   592   223,923   2.44  2.40

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.   Barau-W    —      559    2,487   2,487   2,487   2,487    127,578   559   137,526   2.12  2.09

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.   Barau-X    —      1,317    5,853   5,853   5,853   5,853    326,508   1,317   349,920   2.70  2.68

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollars   
Yankee
Bonds 2019
 
 
   6,168    202,643    —     —     —     —      —     208,811   —     7.26  7.25

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollars   Yankee 2021    4,422    —      10,013   204,527   —     —      —     4,422   214,540   5.02  5.00

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollars   Yankee 2022    5,705    —      12,153   12,153   259,785   —      —     5,705   284,091   4.77  4.75

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollars   Yankee 2024    9,375    —      22,500   22,500   22,500   22,500    527,024   9,375   617,024   4.52  4.50

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollars   Yankee 2027    —      3,175    19,375   19,375   19,375   19,375    77,500   3,175   155,000   3.90  3.88

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollars   Yankee 2047    —      3,607    22,000   22,000   22,000   22,000    528,000   3,607   616,000   5.50  5.50
       

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   
      Total    27,802    262,069    374,959   353,502   403,003   141,443    2,428,202   289,871   3,701,109   
       

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

December 31, 2018

         Maturity   

 

   Total   Effective
rate
   Nominal
rate
 

Tax ID

  Name  Currency  Name- Country Lease   Up to 3
months
ThU.S.$
   3 to 12
months
ThU.S.$
   1 to 2
years
ThU.S.$
   2 to 3
years
ThU.S.$
   3 to 4
years
ThU.S.$
   4 to 5
years
ThU.S.$
   More than  5
years
ThU.S.$
   Current
ThU.S.$
   Non
Current
ThU.S.$
 

85.805.200-9

  Forestal Arauco S.A.  U.F.   Banco Santander    148    410    599    599    —      —      —      558    1,198    —      —   

85.805.200-9

  Forestal Arauco S.A.  U.F.   Banco Scotiabank    1,288    3,158    2,368    2,368    478    478    —      4,446    5,692    —      —   

85.805.200-9

  Forestal Arauco S.A.  U.F.   Banco Estado    639    1,885    989    989    —      —      —      2,524    1,978    —      —   

85.805.200-9

  Forestal Arauco S.A.  U.F.   Banco de Chile    1,998    8,891    3,618    3,618    1,556    1,556    —      10,889    10,348    —      —   

85.805.200-9

  Forestal Arauco S.A.  U.F.   Banco BBVA    545    273    —      —      —      —      —      818    —      —      —   

85.805.200-9

  Forestal Arauco S.A.  U.F.   Banco Credito e Inversiones    1,313    5,351    2,897    2,897    3,220    3,220    —      6,664    12,234    —      —   

85.805.200-9

  Forestal Arauco S.A.  Chilean pesos   Banco Chile    284    690    520    520    —      —      —      974    1,040    —      —   

85.805.200-9

  Forestal Arauco S.A.  Chilean pesos   Banco Credito e Inversiones    679    2,036    1,484    1,484    —      —      —      2,715    2,968    —      —   

85.805.200-9

  Forestal Arauco S.A.  Chilean pesos   Banco Scotiabank    371    957    673    673    233    234    —      1,328    1,813    —      —   
        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     
       Total    7,265    23,651    13,148    13,148    5,487    5,488    —      30,916    37,271     
        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

As part of the policy of Arauco, it considers compliance with all Accounts Payable, whether with related (see Note 13) or third parties, , within a period not exceeding 30 days.

December 31, 2015       Maturity  Total     

Tax ID

 Name  Currency  Name - Country
Loans with banks
 Up to 3
months
ThU.S.$
  3 to 12
months
ThU.S.$
  1 to 2
years
ThU.S.$
  2 to 3
years
ThU.S.$
  3 to 4
years
ThU.S.$
  4 to 5
years
ThU.S.$
  More
than 5
years
ThU.S.$
  Current
ThU.S.$
  Non
Current
ThU.S.$
  Effective
rate
 Nominal
rate

93.458.000-1

  

Celulosa Arauco
y Constitución
S.A.
 
 
 
  U.S. Dollar  Scotiabank- Chile  —     25   4,638   301,770   —     —     —     25   306,408  1.53% Libor
+0.70%

  
Arauco
Argentina S.A.
 
 
  
Argentine
Pesos
 
 
 Banco Macro-
Argentina
  —     49   48   —     —     —     —     49   48  15.25% 15.25%

  
Arauco
Argentina S.A.
 
 
  
Argentine
Pesos
 
 
 Banco Galicia-
Argentina
  —     307   —     —     —     —     —     307   ��    15.25% 15.25%

  

Zona Franca
Punta Pereira
S.A.
 
 
 
  U.S. Dollar  Interamerican
Development
Bank
  1,163   1,023   2,450   2,396   2,343   2,289   6,514   2,186   15,992  Libor
+ 2,05%
 Libor
+ 2,05%

  

Zona Franca
Punta Pereira
S.A.
 
 
 
  U.S. Dollar  Interamerican
Development
Bank
  166   2,777   6,076   5,934   5,794   5,652   —     2,943   23,456  Libor
+ 1,80%
 Libor
+ 1,80%

  

Zona Franca
Punta Pereira
S.A.
 
 
 
  U.S. Dollar  Banco Santander  20,013   —     —     —     —     —     —     20,013   —    Libor
+ 2,00%
 Libor
+ 2,00%

  

Celulosa y
Energia Punta
Pereira S.A.
 
 
 
  U.S. Dollar  Finnish Export
Credit
  25,810   20,354   52,288   51,368   50,477   49,694   118,826   46,164   322,653  3.20% 3.20%

  

Celulosa y
Energia Punta
Pereira S.A.
 
 
 
  U.S. Dollar  Interamerican
Development
bank
  4,706   4,126   9,900   9,680   9,460   9,242   26,298   8,832   64,580  Libor
+ 2,05%
 Libor
+ 2,05%

  

Celulosa y
Energia Punta
Pereira S.A.
 
 
 
  U.S. Dollar  Interamerican
Development
bank
  675   11,220   24,566   23,991   23,417   22,843   —     11,895   94,817  Libor
+ 1,80%
 Libor
+ 1,80%

  

Celulosa y
Energia Punta
Pereira S.A.
 
 
 
  U.S. Dollar  Dnb Nor Bank  —     245   —     —     —     —     —     245   —    Libor
+ 2,00%
 Libor
+ 2,00%

  Eufores S.A.   U.S. Dollar  Banco BBVA -
Uruguay
  16,115   —     —     —     —     —     —     16,115   —    Libor
+ 2,00%
 Libor
+ 2,00%

  Eufores S.A.   U.S. Dollar  Banco Republica
Oriental de
Uruguay
  16,689   18,555   —     —     —     —     —     35,244   —    Libor
+ 1,75%
 Libor
+ 1,75%

  Eufores S.A.   U.S. Dollar  Citibank  —     2,514   —     —     —     —     —     2,514   —    Libor
+ 2,00%
 Libor
+ 2,00%

  Eufores S.A.   U.S. Dollar  Banco HSBC-
Uruguay
  1,201   —     —     —     —     —     —     1,201   —    Libor
+ 2,00%
 Libor
+
2,00%

  Eufores S.A.   U.S. Dollar  Banco Itau -
Uruguay
  5,065   5,004   —     —     —     —     —     10,069   —    Libor
+ 2,00%
 Libor
+ 2,00%

  Eufores S.A.   U.S. Dollar  Heritage  1,357   —     —     —     —     —     —     1,357   —    Libor
+ 2,00%
 Libor
+ 2,00%

  
Arauco Do Brasil
S.A.
 
 
  
Brazilian
Real
 
 
 Banco ABC  5   17   20   —     —     —     —     22   20  2.50% 2.50%

  
Arauco Do Brasil
S.A.
 
 
  U.S. Dollar  Banco Bradesco  831   —     —     —     —     —     —     831   —    1.80% 1.80%

  
Arauco Do Brasil
S.A.
 
 
  
Brazilian
Real
 
 
 Banco Bradesco  3,960   1,256   —     —     —     —     —     5,216   —    8.75% 8.75%

  
Arauco Do Brasil
S.A.
 
 
  
Brazilian
Real
 
 
 Banco do Brazil -
Brazil
  23   72   —     —     —     —     —     95   —    8.70% 8.70%

  
Arauco Do Brasil
S.A.
 
 
  
Brazilian
Real
 
 
 Banco HSBC-
Brazil
  7,779   —     —     —     —     —     —     7,779   —    8.00% 8.00%

  
Arauco Do Brasil
S.A.
 
 
  
Brazilian
Real
 
 
 Banco Itau
-Brazil
  47   43   —     —     —     —     —     90   —    8.43% 8.43%

  
Arauco Do Brasil
S.A.
 
 
  U.S. Dollar  Banco JP Morgan  7,912   4,356   —     —     —     —     —     12,268   —    1.71% 1.71%

  
Arauco Do Brasil
S.A.
 
 
  
Brazilian
Real
 
 
 Banco
Votorantim -
Brazil
  19   38   32   —     —     —     —     57   32  6.30% 6.30%

  
Arauco Do Brasil
S.A.
 
 
  
Brazilian
Real
 
 
 Banco Santander  12,881   3   37   76   75   39   —     12,884   227  8.00% 8.00%

  
Arauco Do Brasil
S.A.
 
 
  
Brazilian
Real
 
 
 Fundo de
Desenvolvimiento
Econom. - Brazil
  7   27   7   —     —     —     —     34   7  0.00% 0.00%

  
Arauco Florestal
Arapoti S.A.
 
 
  
Brazilian
Real
 
 
 Banco Itau  3   6   8   1   —     —     —     9   9  2.50% 2.50%

  
Arauco Florestal
Arapoti S.A.
 
 
  
Brazilian
Real
 
 
 Banco Itau  12   31   43   43   3   —     —     43   89  3.50% 3.50%

  
Arauco Florestal
Arapoti S.A.
 
 
  
Brazilian
Real
 
 
 Banco Bradesco  11   27   37   37   31   —     —     38   105  6.00% 6.00%

  
Arauco Florestal
Arapoti S.A.
 
 
  
Brazilian
Real
 
 
 Banco
Votorantim
  —     14   —     —     —     —     617   14   617  5.00% 5.00%

  
Arauco Florestal
Arapoti S.A.
 
 
  
Brazilian
Real
 
 
 Banco Safra  19   55   73   73   18   —     —     74   164  6.00% 5.00%

  
Arauco Florestal
Arapoti S.A.
 
 
  
Brazilian
Real
 
 
 Banco Safra  6   17   23   23   23   24   9   23   102  10.00% 10.00%

  
Arauco Florestal
Arapoti S.A.
 
 
  
Brazilian
Real
 
 
 Banco Santander  4   24   27   27   27   13   —     28   94  9.22% 9.22%

  
Arauco Forest
Brasil S.A.
 
 
  
Brazilian
Real
 
 
 Banco Bradesco  —     66   —     —     —     144   —     66   144  7.81% 7.81%

  
Arauco Forest
Brasil S.A.
 
 
  
Brazilian
Real
 
 
 Banco Bradesco  307   —     —     —     —     —     —     307   —    12.11% 12.11%

  
Arauco Forest
Brasil S.A.
 
 
  
Brazilian
Real
 
 
 Banco Itau
-Brazil
  9   13   —     86   14   —     —     22   100  5.52% 5.52%

  
Arauco Forest
Brasil S.A.
 
 
  
Brazilian
Real
 
 
 Banco
Votorantim -
Brazil
  —     285   —     —     —     1,474   546   285   2,020  9.31% 9.31%

  
Arauco Forest
Brasil S.A.
 
 
  U.S. Dollar  Banco
Votorantim -
Brazil
  —     62   —     —     —     347   —     62   347  9.00% 9.00%

  
Arauco Forest
Brasil S.A.
 
 
  
Brazilian
Real
 
 
 Bndes  —     3   —     —     —     —     757   3   757  4.61% 4.61%

  
Arauco Forest
Brasil S.A.
 
 
  U.S. Dollar  Bndes  —     4   —     —     —     6   289   4   295  10.80% 10.80%

  
Arauco Forest
Brasil S.A.
 
 
  
Brazilian
Real
 
 
 Banco Santander  —     16   —     —     —     96   —     16   96  9.50% 9.50%

  
Arauco Forest
Brasil S.A.
 
 
  
Brazilian
Real
 
 
 Banco John
Deere
  —     207   —     —     —     —     —     207   —    6.00% 6.00%

  

Mahal
Emprendimientos
Pat. S.A.
 
 
 
  
Brazilian
Real
 
 
 Bndes Subcrédito
E-I
  —     19   —     622   2,492   1,870   —     19   4,984  9.91% 9.91%

  

Mahal
Emprendimientos
Pat. S.A.
 
 
 
  
Brazilian
Real
 
 
 Bndes Subcrédito
F-J
  —     12   —     374   1,496   1,122   —     12   2,992  10.91% 10.91%

  

Mahal
Emprendimientos
Pat. S.A.
 
 
 
  U.S. Dollar  Bndes Subcrédito
G-K
  —     61   —     511   2,037   1,528   —     61   4,076  6.99% 6.99%

  

Mahal
Emprendimientos
Pat. S.A.
 
 
 
  
Brazilian
Real
 
 
 Bndes Subcrédito
H-L
  —     15   —     444   1,646   1,233   —     15   3,323  12.11% 12.11%
    

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   
   Total  126,795   72,948   100,273   397,456   99,353   97,616   153,856   199,743   848,554   
    

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

December 31, 2015

December 31, 2017 Maturity  Total     

Tax ID

  

Name

  Currency  

Name-
Country Loans
with

banks

 Up to 3
months
ThU.S.$
  3 to 12
months
ThU.S.$
  1 to 2
years
ThU.S.$
  2 to 3
years
ThU.S.$
  3 to 4
years
ThU.S.$
  4 to 5
years
ThU.S.$
  More
than 5
years
ThU.S.$
  Current
ThU.S.$
  Non
Current
ThU.S.$
  Effective
rate
 

Nominal

rate

93.458.000-1

  Celulosa Arauco y Constitución S.A.  U.S. Dollar  Scotiabank- Chile  25   199,572   —     —     —     —     —     199,597   —    1.70% Libor + 0.70%

  Zona Franca Punta Pereira  U.S. Dollar  Interamerican Development Bank  1,167   1,032   2,434   2,361   2,282   2,201   2,120   2,199   11,398  3.51% Libor + 2.05%

  Zona Franca Punta Pereira  U.S. Dollar  Interamerican Development Bank  2,953   2,787   5,870   5,676   —     —     —     5,740   11,546  3.26% Libor + 1.80%

  Zona Franca Punta Pereira  U.S. Dollar  BBVA  14,007   —     ��     —     —     —     —     14,007   —    3.13% Libor + 1.75%

  Zona Franca Punta Pereira  U.S. Dollar  Citibank  —     4,503   —     —     —     —     —     4,503   —    3.10% Libor + 1.75%

  Zona Franca Punta Pereira  U.S. Dollar  Scotiabank  3   2,506   —     —     —     —     —     2,509   —    3.17% 3.17%

  Celulosa y Energia Punta Pereira  U.S. Dollar  Banco Interamericano de Desarrollo  4,723   4,161   9,828   9,526   9,201   8,885   8,570   8,884   46,010  3.51% Libor + 2.05%

  Celulosa y Energia Punta Pereira  U.S. Dollar  Banco Interamericano de Desarrollo  11,946   11,255   23,735   22,938   —     —     —     23,201   46,673  3.26% Libor + 1.80%

  Celulosa y Energia Punta Pereira  U.S. Dollar  Finnish Export Credit  25,176   21,214   50,198   49,484   47,929   47,207   23,564   46,390   218,382  3.20% 3.20%

  Celulosa y Energia Punta Pereira  U.S. Dollar  Dnb Nor Bank  —     45   —     —     —     —     —     45   —    0.00% Libor + 2%

  Eufores S.A.  U.S. Dollar  Banco Republica Oriental de Uruguay  24,746   12,564   —     —     —     —     —     37,310   —    3.08% Libor + 1.75%

  Eufores S.A.  U.S. Dollar  Citibank  6   —     —     —     —     —     —     6   —    3.43% Libor + 2%

  Eufores S.A.  U.S. Dollar  Banco HSBC- Uruguay  1,200   —     —     —     —     —     —     1,200   —    2.91% Libor + 1.75%

  Eufores S.A.  U.S. Dollar  Banco Itau -Uruguay  4   12,513   —     —     —     —     —     12,517   —    3.08% Libor + 1.75%

  Eufores S.A.  U.S. Dollar  Heritage  1,352   —     —     —     —     —     —     1,352   —    3.03% Libor + 1.75%

  Eufores S.A.  U.S. Dollar  Banco Santander  20,230   5,013   —     —     —     —     —     25,243   —    3.06% Libor + 1.75%

  Arauco Do Brasil S.A.  Brazilian Real  Banco Santander  23   67   89   46   —     —     —     90   135  9.50% 9.50%

  Arauco Do Brasil S.A.  Brazilian Real  Banco Alfa  18   56   74   74   74   7   —     74   229  10.75% Tljp+2%+ spread 1.75%

  Arauco Do Brasil S.A.  Brazilian Real  Banco Santander  3   7   10   10   7   —     —     10   27  11.00% Tljp+2%+ spread 2%

  Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Itau  1   —     —     —     —     —     —     1   —    2.50% 2.50%

  Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Itau  13   37   4   —     —     —     —     50   4  3.50% 3.50%

  Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Bradesco  11   33   36   —     —     —     —     44   36  6.00% 6.00%

  Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Votorantim  16   —     —     —     364   364   —     16   728  5.00% 5.00%

  Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Safra  22   65   22   —     —     —     —     87   22  6.00% 6.00%

  Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Safra  7   20   27   27   11   —     —     27   65  10.00% 10.00%

  Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Santander  981   907   —     —     —     —     —     1,888   —    9.50% 9.50%

  Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Santander  —     16   16   8   —     —     —     16   24  9.00% 9.00%

  Arauco Florestal Arapoti S.A.  Brazilian Real  Banco Santander  12   52   85   74   64   54   —     64   277  10.49% 10.49%

  Arauco Forest Brasil S.A.  Brazilian Real  Banco Bradesco  20   69   53   28   28   16   —     89   125  9.00% 9.00%

  Arauco Forest Brasil S.A.  U.S. Dollar  Banco Alfa  2   7   9   9   5   —     —     9   23  8.20% Cesta+2%+spread 1.8%

  Arauco Forest Brasil S.A.  Brazilian Real  Banco Alfa  6   17   23   22   11   —     —     23   56  10.80% Tljp+2%+Spread 1.8%

  Arauco Forest Brasil S.A.  Brazilian Real  Banco Itau-Brazil  1   —     —     —     —     —     —     1   —    2.50% 2.50%

  Arauco Forest Brasil S.A.  Brazilian Real  Banco Votorantim - Brazil  192   619   403   —     322   322   —     811   1,047  8.10% Tljp+1.8%+Spread 2%

  Arauco Forest Brasil S.A.  U.S. Dollar  Banco Votorantim - Brazil  34   —     78   —     —     —     —     34   78  7.70% Cesta+1.3%+spread 2%

  Arauco Forest Brasil S.A.  Brazilian Real  Banco Bndes SubcréditoA-B-D  4   —     —     115   458   344   —     4   917  9.82% Tljp + 2.91%

  Arauco Forest Brasil S.A.  U.S. Dollar  Banco Bndes Subcrédito C  5   —     —     24   145   120   —     5   289  7.30% Cesta+2.91%

  Arauco Forest Brasil S.A.  Brazilian Real  Banco Santander  995   984   107   212   202   161   —     1,979   682  8.90% 8.90%

  Mahal Emprendimientos Pat. S.A.  Brazilian Real  Bndes SubcréditoE-I  23   754   3,017   2,262   —     —     —     777   5,279  9.91% Tljp + 2.91%

  Mahal Emprendimientos Pat. S.A.  Brazilian Real  Bndes SubcréditoF-J  16   452   1,810   1,358   —     —     —     468   3,168  10.91% Tljp + 3.91%

  Mahal Emprendimientos Pat. S.A.  U.S. Dollar  Bndes SubcréditoG-K  63   339   2,037   1,697   —     —     —     402   3,734  7.31% Cesta + 2.91%

  Mahal Emprendimientos Pat. S.A.  Brazilian Real  Bndes SubcréditoH-L  19   504   2,011   1,509   —     —     —     523   3,520  12.11% Tljp + 5.11%

  Mahal Emprendimientos Pat. S.A.  Brazilian Real  Banco Santander  —     —     27   27   27   —     —     —     81  11.00% Tljp+2%+Spread 2%

  Mahal Emprendimientos Pat. S.A.  U.S. Dollar  Banco Santander  —     —     13   13   12   —     —     —     38  8.40% Cesta+2%+Spread 2%

  Novo Oeste Gestao de Ativos Florestais S.A.  Brazilian Real  Banco Santander  —     1   26   28   28   2   —     1   84  11.00% Tljp+2%+Spread 2%

  Novo Oeste Gestao de Ativos Florestais S.A.  U.S. Dollar  Banco Santander  —     1   12   13   13   1   —     1   39  8.40% Tljp+2%+Spread 2%

  Flakeboard America Ltd  U.S. Dollar  Banco del Estado de Chile  675   —     5,060   4,839   17,925   17,925   111,309   675   157,058  3.00% Libor + 1.65%
       

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   
      Total  110,700   282,172   107,114   102,380   79,108   77,609   145,563   392,872   511,774   
       

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

         Maturity  Total       

Tax ID

 

Name

 Currency  

Name - Country
Bonds

 Up to 3
months
ThU.S.$
  3 to 12
months
ThU.S.$
  1 to 2
years
ThU.S.$
  2 to 3
years
ThU.S.$
  3 to 4
years
ThU.S.$
  4 to 5
years
ThU.S.$
  More than
5 years
ThU.S.$
  Current
ThU.S.$
  Non
Current
ThU.S.$
  Effective
rate
  Nominal
rate
 

93.458.000-1

 Celulosa Arauco y Constitución S.A.  UF  Barau-F  —     1,771   10,625   10,625   32,403   31,438   239,473   1,771   324,564   4.24  4.25

93.458.000-2

 Celulosa Arauco y Constitución S.A.  UF  Barau-J  1,939   —     5,818   5,818   5,818   186,141   —     1,939   203,595   3.23  3.22

93.458.000-3

 Celulosa Arauco y Constitución S.A.  UF  Barau-P  —     913   7,147   7,147   7,147   7,147   229,723   913   258,311   3.96  3.96

93.458.000-3

 Celulosa Arauco y Constitución S.A.  UF  Barau-Q  —     538   11,266   19,979   19,442   18,905   9,251   538   78,843   2.96  2.98

93.458.000-3

 Celulosa Arauco y Constitución S.A.  UF  Barau-R  —     1,610   6,439   6,439   6,439   6,439   272,750   1,610   298,506   3.57  3.57

—  

 Arauco Argentina S.A.  
U.S.
Dollar
 
 
 Bono 144 A - Argentina  —     1,004   277,869   —     —     —     —     1,004   277,869   6.39  6.38

93.458.000-1

 Celulosa Arauco y Constitución S.A.  
U.S.
Dollar
 
 
 Yankee Bonds 2019  15,205   —     36,250   36,250   533,483   —     —     15,205   605,983   7.26  7.25

93.458.000-1

 Celulosa Arauco y Constitución S.A.  
U.S.
Dollar
 
 
 Yankee Bonds 2nd Emission  2,734   —     134,257   —     —     —     —     2,734   134,257   7.50  7.50

93.458.000-1

 Celulosa Arauco y Constitución S.A.  
U.S.
Dollar
 
 
 Yankee 2021  8,889   —     20,000   20,000   20,000   20,000   406,108   8,889   486,108   5.02  5.00

93.458.000-1

 Celulosa Arauco y Constitución S.A.  
U.S.
Dollar
 
 
 Yankee 2022  11,215   —     23,750   23,750   23,750   23,750   527,255   11,215   622,255   4.77  4.75

93.458.000-1

 Celulosa Arauco y Constitución S.A.  
U.S.
Dollar
 
 
 Yankee 2024  9,375   —     22,500   22,500   22,500   22,500   590,928   9,375   680,928   4.52  4.50
    

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   
   

Total

  49,357   5,836   555,921   152,508   670,982   316,320   2,275,488   55,193   3,971,219   
    

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

December 31, 2015

December 31, 2017 Maturity  Total       

Tax ID

  

Name

  Currency  Name - Country
Bonds
 Up to 3
months
ThU.S.$
  3 to 12
months
ThU.S.$
  1 to 2
years
ThU.S.$
  2 to 3
years
ThU.S.$
  3 to 4
years
ThU.S.$
  4 to 5
years
ThU.S.$
  More
than 5
years
ThU.S.$
  Current
ThU.S.$
  Non
Current
ThU.S.$
  Effective
rate
  Nominal
rate
 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.  Barau-F  —     1,528   28,132   27,301   26,469   25,638   156,181   1,528   263,721   4.24%   4.21% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.  Barau-F  —     611   11,340   11,005   10,670   10,335   62,958   611   106,308   4.25%   4.21% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.  Barau-J  2,342   —     7,027   224,916   —     —     —     2,342   231,943   3.23%   3.22% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.  Barau-P  —     1,103   8,633   8,633   8,633   28,334   240,175   1,103   294,408   3.96%   3.96% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.  Barau-Q  —     22,364   23,445   22,796   11,154   —     —     22,364   57,395   2.96%   2.98% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.  Barau-R  —     1,944   7,777   7,777   7,777   7,777   314,228   1,944   345,336   3.57%   3.57% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.F.  Barau-S  —     650   5,200   5,200   5,200   5,200   230,228   650   251,028   2.44%   2.89% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollar  Yankee 2019  6,168   —     217,034   —     —     —     —     6,168   217,034   7.26%   7.25% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollar  Yankee 2021  4,422   —     10,013   10,013   204,138   —     —     4,422   224,164   5.02%   5.00% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollar  Yankee 2022  5,705   —     12,153   12,153   12,153   259,072   —     5,705   295,531   4.77%   4.75% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollar  Yankee 2024  9,375   —     22,500   22,500   22,500   22,500   548,324   9,375   638,324   4.52%   4.50% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollar  Yankee 2027  —     3,175   19,375   19,375   19,375   19,375   582,479   3,175   659,979   3.90%   3.88% 

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollar  Yankee 2047  —     3,607   22,000   22,000   22,000   22,000   943,160   3,607   1,031,160   5.50%   5.50% 
      

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   
     Total  28,012   34,982   394,629   393,669   350,069   400,231   3,077,733   62,994   4,616,331   
      

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

       Maturity  Total       

Tax ID

 

Name

 Currency  

Name - Country
Lease

 Up to 3
months
ThU.S.$
  3 to 12
months
ThU.S.$
  1 to 2
years
ThU.S.$
  2 to 3
years
ThU.S.$
  3 to 4
years
ThU.S.$
  4 to 5
years
ThU.S.$
  More than
5 years
ThU.S.$
  Current
ThU.S.$
  Non
Current
ThU.S.$
  Effective
rate
  Nominal
rate
 

85.805.200-9

 Forestal Arauco S.A.  UF  Banco Santander  338   904   650   650   3,362   —     —     1,242   4,662   —     —   

85.805.200-9

 Forestal Arauco S.A.  UF  Banco Scotiabank  1,303   4,370   4,875   4,875   6,059   —     —     5,673   15,809   —     —   

85.805.200-9

 Forestal Arauco S.A.  UF  Banco Estado  361   1,160   1,471   1,471   1,957   —     —     1,521   4,899   —     —   

85.805.200-9

 Forestal Arauco S.A.  UF  Banco de Chile  4,026   11,489   11,301   11,301   12,650   —     —     15,515   35,252   —     —   

85.805.200-9

 Forestal Arauco S.A.  UF  Banco BBVA  1,814   5,344   4,490   4,490   3,374   —     —     7,158   12,354   —     —   

85.805.200-9

 Forestal Arauco S.A.  UF  Banco Credito e Inversiones  557   1,672   2,129   2,129   3,008   —     —     2,229   7,266   —     —   

85.805.200-9

 Forestal Arauco S.A.  
Chilean
Pesos
 
 
 Banco Santander  172   517   575   576   —     —     —     689   1,151   —     —   

85.805.200-9

 Forestal Arauco S.A.  
Chilean
Pesos
 
 
 Banco Chile  262   704   824   824   365   —     —     966   2,013   —     —   

85.805.200-9

 Forestal Arauco S.A.  
Chilean
Pesos
 
 
 Banco Credito e Inversiones  468   1,401   1,834   1,834   3,623   —     —     1,869   7,291   —     —   
    

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   
   

Total

  9,301   27,561   28,149   28,150   34,398   0   0   36,862   90,697   
    

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

As part of the policy of Arauco, it considers compliance with all Accounts Payable, whether with related (see Note 13) or third parties , within a period not exceeding 30 days.

December 31, 2017  Maturity  Total       

Tax ID

  

Name

  Currency   Name - Country Lease  Up to 3
months
ThU.S.$
  3 to 12
months
ThU.S.$
  1 to 2
years
ThU.S.$
  2 to 3
years
ThU.S.$
  3 to 4
years
ThU.S.$
  4 to 5
years
ThU.S.$
  More
than 5
years
ThU.S.$
  Current
ThU.S.$
  Non
Current
ThU.S.$
  Effective
rate
  Nominal
rate
 

85.805.200-9

  Forestal Arauco S.A.   U.F.    Banco Santander   168   1,026   983   983   —     —     —     1,194   1,966   —     —   

85.805.200-9

  Forestal Arauco S.A.   U.F.    Banco Scotiabank   1,563   3,772   4,139   4,139   638   638   —     5,335   9,554   —     —   

85.805.200-9

  Forestal Arauco S.A.   U.F.    Banco Estado   749   2,182   2,318   2,318   230   230   —     2,931   5,096   —     —   

85.805.200-9

  Forestal Arauco S.A.   U.F.    Banco de Chile   3,346   13,995   7,886   7,886   2,247   2,247   —     17,341   20,266   —     —   

85.805.200-9

  Forestal Arauco S.A.   U.F.    Banco BBVA   1,151   3,421   447   447   —     —     —     4,572   894   —     —   

85.805.200-9

  Forestal Arauco S.A.   U.F.    Banco Credito e Inversiones   1,443   5,901   4,856   4,856   5,354   5,354   —     7,344   20,420   —     —   

85.805.200-9

  Forestal Arauco S.A.   Chilean Pesos    Banco Santander   50   17   —     —     —     —     —     67   —     —     —   

85.805.200-9

  Forestal Arauco S.A.   Chilean Pesos    Banco Chile   607   1,547   1,015   1,015   123   123   —     2,154   2,276   —     —   

85.805.200-9

  Forestal Arauco S.A.   Chilean Pesos    Banco Credito e Inversiones   767   2,301   3,032   3,032   179   179   —     3,068   6,422   —     —   

85.805.200-9

  Forestal Arauco S.A.   Chilean Pesos    Banco Scotiabank   84   251   334   334   237   236   —     335   1,141   —     —   
       

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   
       Total   9,928   34,413   25,010   25,010   9,008   9,007   —     44,341   68,035   
       

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

Guarantees

As of the date of these consolidated financial statements, Arauco has financial assets of approximately MU.S.$5647 that have been pledged to third parties (beneficiaries), as direct guarantee. If Arauco does not fulfill its obligations, the guarantors could execute the guarantees.

As of December 31, 2016,2018, the total assets pledged as an indirect guarantee were MU.S.$783.624. In contrast to direct guarantees, indirect guarantees are given to secure obligations assumed by a third party.

On September 29, 2011, Arauco entered into a Security Agreement under which it granted anon-joint guarantee limited to 50% of the obligations of the Uruguayan companies (joint ventures) Celulosa y Energía Punta Pereira S.A. and Zona Franca Punta Pereira S.A., under the IDB Facility Agreement in the amount of up to MU.S.$454 and the Finnevera Guaranteed Facility Agreement in the amount of up to MU.S.$900. Both loan agreements were signed with the International Development Bank. Such guarantee is included in the table below, under indirect guarantees.

Direct and indirect guarantees granted by Arauco:

 

DIRECT

               

Subsidiary

  

Guarantee

  

Assets Pledged

  

Currency

  

ThU.S.$

  

Guarantor

Celulosa Arauco y Constitución S.A.

  Guarantee letter    Chilean Pesos  488  Directorate General of Maritime Territory and Merchant Marine

Celulosa Arauco y Constitución S.A.

  Guarantee letter    Chilean Pesos  313  Directorate General of Maritime Territory and Merchant Marine

Celulosa Arauco y Constitución S.A.

  Guarantee letter    Chilean Pesos  230  Directorate General of Maritime Territory and Merchant Marine

Celulosa Arauco y Constitución S.A.

  Guarantee letter    Chilean Pesos  209  Directorate General of Maritime Territory and Merchant Marine

Celulosa Arauco y Constitución S.A.

  Guarantee letter    Chilean Pesos  129120  Directorate General of Maritime Territory and Merchant MarineNational Customs Service

CelulosaForestal Arauco y Constitución S.A.

  Guarantee letter    Chilean Pesos  100831  National Customs ServiceCODELCO S.A.

Arauco Forest Brasil S.A.

Mortgage Industrial Plant of Jaguariaíva of Arauco do Brasil—  U.S. Dollar39,566BNDES

Arauco Forest Brasil S.A.

  Endorsement of Arauco do BrasilADB + Guarantee Letter AISA    U.S. Dollar  6543,022  Bank Votorantim S.A.

Arauco Forest Brasil S.A.

  Endorsement of Arauco do Brasil    U.S. Dollar  3,592550  Bank Votorantim S.A.

Arauco Forest Brasil S.A.

  Equipment  Property plant and equipment  U.S. Dollar  136115  Bank BradescoSantander S.A.

Arauco Forest Brasil S.A.

  Equipment  Property plant and equipment  U.S. Dollar  99192  Bank BradescoSantander S.A.

Arauco Forest Brasil S.A.

  Equipment  Property plant and equipment  U.S. Dollar  74097  Bank John Deere S.A.

Arauco Forest Brasil S.A.

Mortgage Industrial Plant of Jaguariaíva of Arauco do BrasilU.S. Dollar47,041BNDES

Arauco do Brasil S.A.

EquipmentProperty plant and equipmentU.S. Dollar201Bank VotorantimBradesco S.A.

Arauco do Brasil S.A.

  Equipment  Property plant and equipment  U.S. Dollar  106179  Bank ABC BrasilSantander S.A.

Arauco do Brasil S.A.

  Equipment  Property plant and equipment  U.S. Dollar  213176  Bank SantanderAlpha S.A.

Arauco Florestal Arapoti S.A.

  Endorsement of Arauco do Brasil    U.S. Dollar  738621  Bank Votorantim S.A.

Arauco Florestal Arapoti S.A.

  Equipment  Property plant and equipment  U.S. Dollar  204332  Bank Itaú BBASafra S.A.

Arauco Florestal Arapoti S.A.

  Equipment  Property plant and equipment  U.S. Dollar  395198  Bank SafraSantander S.A.

Arauco BioenergíaFlorestal Arapoti S.A.

  Guarantee letterEquipment  Property plant and equipment  Chilean PesosU.S. Dollar  221172  Minera Escondida Ltda.

Arauco Bioenergía S.A.

Guarantee letterChilean Pesos323Minera Escondida Ltda.

Arauco Bioenergía S.A.

Guarantee letterChilean Pesos121CODELCOBank Itaú BBA S.A.
    Total    56,25347,411  
        

 

  

INDIRECT

               

Subsidiary

  

Guarantee

  

Assets Pledged

  

Currency

  

ThU.S.$

  

Guarantor

Celulosa Arauco y Constitución S.A.

  Suretyship not supportive and cumulative  —    U.S. Dollar  494,468322,234  Joint Ventures (Uruguay)

Celulosa Arauco y Constitución S.A.

  

Full Guarantee

  —    U.S. Dollar  270,000287,000  Arauco Argentina (U.S. bondholders)Forest Brasil y Mahal (Brasil)

Celulosa Arauco y Constitución S.A.

  

Guarantee letter

  —    U.S. Dollar  4,3624,039  Arauco Forest BrazilBrasil y Mahal (Brazil)(Brasil)

Celulosa Arauco y Constitución S.A.

  

Guarantee letter

  —    Brazilian Real  14,65311,115  Arauco Forest BrazilBrasil y Mahal (Brazil)(Brasil)
    Total    783,483624,388  
    

    

 

  

23.10.3 Type of Risk: Market Risk – Exchange Rate

Description

Market risk arises from the probability of being affected by losses from fluctuations in currencies exchange rates in which assets and liabilities are denominated, in a functional currency other than the functional currency of Arauco.

Explanation of Currency Risk Exposure and How This Risk Arises

Arauco is exposed to the foreign currency risk from currency fluctuations arising from sales, purchases and obligations undertaken in foreign currencies, such as the Chilean Peso, Euro, Brazilian Real or other foreign currencies. In the case of significant exchange rate variations, the Chilean Peso is the currency that represents the main currency risk. See Note 11 for details assets and liabilities classified by currency.

Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods

Arauco performs sensitivity analyses to measure the effect of this variable on equity and net result.

Sensitivity analysis considers a variation of +/- 10% of the exchange rate over the Chilean Peso. This fluctuation range is considered possible given current market conditions as of the date of these financial statements. With all other variables at a constant rate, a U.S. Dollar exchange rate variation of +/- 10% in relation to the Chilean Peso would mean a change in the net income year after tax +/- 5.28%2.14% (equivalent to MU.S.ThU.S.$ +/- 11,5)-/+ 15,524), and +/- 0.10%0.13% of equity (equivalent to MU.S.ThU.S.$ +/- 6.9)-/+ 9,314).

Additionally, a sensitivity analysis is carried out assuming a variation of +/- 10% in the closing exchange rate on the Brazilian Real, which is considered a possible range of fluctuation given the market conditions as of the date of these financial statements. With all the other variables constant, a variation of +/- 10% in the exchange rate of the dollar on the Brazilian Real would mean a variation on the net income after tax +/- 1,22%0.008% (equivalent to MU.S.ThU.S.-/+$2.7)56) and a change on the equity of +/- 0.02%0.0008% (equivalent to MU.S.ThU.S. -/+$1.6)56).

23.10.4 Type of Risk: Market Risk – Interest rate risk

Description

Interest rate risk refers to the sensitivity of the value of financial assets and liabilities in terms of interest rate fluctuations.

Explanation of Interest Rate Risk Exposure and How This Risk Arises

Arauco is exposed to risks due to interest rate fluctuations for bonds issued, bank borrowings and financial instruments that bear interest at a variable rate.

Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods

Arauco completes its risk analysis by reviewing its exposure to changes in interest rates. As of December 31, 2016, 12.9%2018, 15.6% our financial debt accrues interest at variable rates. A change of +/- 10% in the interest rate is considered a possible range of fluctuation. Such market conditions would affect the income after tax at rate of +/- 0.12%0.25% (equivalent to MU.S.ThU.S.$-/+ 0.3)1,823) and +/- 0.002%0.01% (equivalent to MU.S.ThU.S.$-/+ 0.2)1,094) on equity.

Thousands of dollars

  December  2016
ThU.S.$
   Total   December 2018
ThU.S.$
   Total 

Fixed rate

   3,903,942    87.1   3,807,932    84.4

Bonds issued

   3,452,659      3,501,654   

Bank borrowings (*)

   337,297      238,091   

Financial leasing

   113,986      68,187   

Variable rate

   577,061    12.9   702,344    15.6

Bonds issued

   —        —     

Loans with Banks

   577,061      702,344   

Total

   4,481,003    100.0   4,510,276    100.0

Thousands of dollars

  December 2015   Total   December 2017
ThU.S.$
   Total 

Fixed rate

   3,689,719    85.7   3,676,210    86.0

Bonds issued

   3,180,334      3,302,685   

Bank borrowings (*)

   381,826      261,149   

Financial leasing

   127,559      112,376   

Variable rate

   615,716    14.3   597,308    14.0

Bonds issued

   —        —     

Loans with Banks

   615,716      597,308   

Total

   4,305,435    100,0   4,273,518    100.0

 

(*)

Includes variable rate bank borrowings changed by fixed rate swaps.

23.10.5 Type of Risk: Market Risk – Price of Pulp Risks

Description

Pulp prices are determined by world and regional market conditions. Prices fluctuate based on demand, production capacity, commercial strategies adopted by large-scale forestry companies, pulp and paper producers and by the availability of substitutes.    

Explanation of Price Risk Exposure and How This Risk Arises

Pulp prices are reflected in revenue from sales and directly affect the net income for the period.

As of December 31, 2016,2018, revenue due to pulp sales accounted for 45.1%51.1% of total sales. Pulp prices are fixed on a monthly basis in accordance with the market. Forward contracts or other financial instruments are not used for pulp sales.

Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods

This risk is approached in different ways. Arauco has a team of specialists who perform periodic market and competition analyses, providing tools to analyze and evaluate trends and adjust forecasts. Similarly, Arauco performs price financial sensitivity analysis in order to take the necessary safeguards to confront different scenarios in the best possible manner.

Sensitivity analysis considers a variation of +/- 10% in the average pulp price, a possible fluctuation range given current market conditions at the date of the closing balance. With all other variables constant, a variation of +/- 10% in the average pulp price would mean a variation of 64.80%+/- 29.69% (equivalent to MU.S.ThU.S.$ 141.0)-/+ 215,781) on the income for the year after tax and +/- 1.21%1.76% (equivalent to MU.S.ThU.S.$84.6)129,468) on equity.

NOTE 24.REPORTABLE SEGMENTS

NOTE 24. REPORTABLE SEGMENTS

The main products that generate revenue for each reportable segment are described as follows:

 

Pulp: The main products sold by this reportable segment are long fiber bleached pulp (BSKP), short fiber bleached pulp (BHKP), long fiber raw pulp (UKP), and pulp fluff.

 

Timber:Wood products: The range of products sold by this reportable segment are plywood panels, MDF panels (medium density fiberboard), Hardboard Panels, PB Panels (agglomerated) different sizes of sawn wood and remanufactured products such as moldings, precut pieces and finger joints.

During 2016, following the legal merger of the companies indicated in Note 14, progress was made in the structure of reporting which resulted in the merger of the previous sawn timber and panels segments, as a result the timber segment was created. Disclosures made as of December 31, 2015 and 2014, have been restated for comparative purposes.

 

Forestry: This reportable segment produces and sells sawn logs, pulpable logs, posts and chips made from owned forests of Radiata and Taeda pine, eucalyptus globulus and nitens forests. Additionally, purchases logs and woodchip from third parties, which it sells to its other reportable segment.

Pulp

The Pulp reportable segment uses wood exclusively from pine and eucalyptus plantations for the production of different classes of wood cellulose or pulp. Bleached pulp is mainly used as raw material for producing printing and writing paper, as well as toilet paper and high quality wrapping paper. Unbleached pulp is used to produce packing paper, filters, fiber cement products, dielectric paper and others. On the other hand, fluff pulp is mainly used in the production of diapers and female hygiene products.

Arauco has seven plants, five in Chile, one in Argentina and one in Uruguay (50% property of Arauco) and they have a total production capacity of approximately 3.94 million tons per year. Pulp is sold in more than 4533 countries, mainly in Asia and Europe.

TimberWood products

The Panels reportable segmentarea produces a wide range of panel products and several kinds of moldings aimed at the furniture, decoration and construction industries. It consists of 1719 industrial plants: 5 in Chile, 2 in Argentina, 24 in Brazil, and 8 plants around USA and Canada. The Company has a total annual production capacity of 6.77.4 million cubic meters of PBO, MDF, Hardboards, plywood and moldings.

Through the joint venture Sonae Arauco (see note 16), Arauco produces and sells wood panels, of the type of MDF, PB and OSB, and sawn timber, through the operation of 2 panel plants and one sawmill in Spain; 2 panel plants and one resin plant in Portugal; 4 panel plants in Germany and 2 panel plants in South Africa. In total, Sonae Arauco’s production capacity is approximately 1.5 million m3 of MDF, 2.3 million m3 of PB, 516,000 m3 of OSB and 50,000 m3 of sawn lumber.

Including Sonae Arauco at 50%, Arauco totalize a capacity of 4.6 million m3 of MDF, 4 million m3 of PB and 258,000 m3 of OSB in its plants.

The Sawn Timber reportable segmentarea produces a wide range of wood and remanufactured products with different kinds of uses and appearances, which include a wide variety of uses in the furniture, packing, construction and refurbishing industries.

With 98 saw mills in operation (8(7 in Chile and 1 in Argentina), the Company has a production capacity of 32.9 million cubic metersm3 of sawn wood.

Furthermore, the Company has 5 remanufacturing plants, 4 in Chile and 1 in Argentina. These plants reprocess sawn wood and produce high quality remanufactured products, such as finger joint and solid moldings as well as precut pieces.

Forestry

The Forestry reportable segment is Arauco’s core business. It provides raw materials for all products manufactured and sold by the Company. By directly controlling the growth of the forests to be processed, Arauco guarantees itself quality wood for each of its products.

Arauco holds forestry assets distributed throughout Chile, Argentina, Brazil and Uruguay, reaching 1.71.77 million hectares as of December 31, 2016,2018, of which 11.02 million hectares are used for plantations, 409441 thousand hectares for native forests, 191199 thousand hectares for other uses and 52111 thousand hectares are to be planted.

Arauco’s principal plantations consist of radiata and taeda pine and eucalyptus to a lesser degree. These are species that have fast growth rates and short harvest cycles compared with other long fiber commercial woods.

Arauco has no customers representing 10% or more of its revenues.

Below, please find summarized information concerning the assets, liabilities and profits and losses at the end of each period, by segments. The profit (loss) of each segment informed takes into consideration that taxes and income and financial costs have not been allocated to the various segments, and are shown as part of the Corporate’s segment:

Year ended December 31, 2016

  Pulp
ThU.S.$
   Forestry
ThU.S.$
   Timber
ThU.S.$
   Others
ThU.S.$
 Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Year ended December 31, 2018

  Pulp
ThU.S.$
   Forestry
ThU.S.$
 Panels
ThU.S.$
   Others
ThU.S.$
   Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Revenues from goods sale

   2,956,863    105,170   2,761,878    33,673    —     5,857,584    5,857,584 

Revenues from services sale

   87,643    8,811   —      795    —     97,249    97,249 

Revenues from external customers

   2,146,079    96,488    2,494,750    24,068   —     4,761,385   —     4,761,385    3,044,506    113,981   2,761,878    34,468    —     5,954,833    5,954,833 

Revenues from transactions with other reportable segments

   41,586    1,105,220    6,938    34,085   —     1,187,829   (1,187,829  —   

Revenues from transactions with other operating segments

   42,434    1,038,624   9,058    37,568    —     1,127,684   (1,127,684  —   
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Finance income

   —      —      —      —     29,701   29,701   —     29,701    —      —     —      —      20,895   20,895    20,895 

Finance costs

   —      —      —      —     (258,467  (258,467  —     (258,467   —      —     —      —      (214,779  (214,779   (214,779

Net finance costs

   —      —      —      —     (228,766  (228,766  —     (228,766   —      —     —      —      (193,884  (193,884   (193,884
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Depreciation and amortizations

   240,699    19,996    139,844    2,524   6,319   409,382   —     409,382    232,275    19,448   145,299    3,313    7,087   407,422    407,422 

Sum of significant income accounts

   212    227,776    269    —     —     228,257   —     228,257    1,888    86,763   3,195    —      —     91,846    91,846 

Sum of significant expense accounts

   —      15,193    12,561    —     —     27,754   —     27,754    19,619    3,885   4,555    —      —     28,059    28,059 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Profit (loss) of each reportable segment

   308,536    98,955    165,887    (2,559  (353,242  217,577   —     217,577    1,173,249    (146,538  232,914    7,506    (540,372  726,759    726,759 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

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

                        

Associates

   —      —      —      —     16,348   16,348   —     16,348    —      —     —      —      3,043   3,043    3,043 

Joint ventures

   —      —      5,475    —     2,116   7,591   —     7,591    —      —     12,549    —      1,654   14,203    14,203 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Income tax expense

   —      —      —      —     (45,647  (45,647  —     (45,647   —      —     —      —      (226,765  (226,765   (226,765
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Geographical information on revenues

                        

Revenue – Chilean entities

   1,756,659    52,161    1,275,937    885   —     3,085,642   —     3,085,642    2,303,086    55,579   1,319,766    795    —     3,679,226    3,679,226 

Revenue – Foreign entities

   389,420    44,327    1,218,813    23,183   —     1,675,743   —     1,675,743    741,420    58,402   1,442,112    33,673    —     2,275,607    2,275,607 

Total Ordinary Income

   2,146,079    96,488    2,494,750    24,068   —     4,761,385   —     4,761,385    3,044,506    113,981   2,761,878    34,468    —     5,954,833    5,954,833 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Year ended December 31, 2016

  Pulp
ThU.S.$
   Forestry
ThU.S.$
   Timber
ThU.S.$
   Others
ThU.S.$
 Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Year ended December 31, 2018

  Pulp
ThU.S.$
   Forestry
ThU.S.$
 Panels
ThU.S.$
   Others
ThU.S.$
   Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Amounts of additions tonon-current assets

                        

Acquisition of property,plant and equipment and biological assets

   205,205    182,743    118,408    1,479   3,883   511,718   —     511,718 

Acquisition of property, plant and equipment and biological assets

   324,482    251,574   323,675    645    293   900,669   —     900,669 

Acquisition and contribution of investments in associates and joint venture

   —      —      153,135    —     —     153,135   —     153,135           19,627   19,627   —     19,627 
         

 

  

 

  

 

  

 

 

Year ended December 31, 2018

  Pulp
ThU.S.$
   Forestry
ThU.S.$
 Panels
ThU.S.$
   Others
ThU.S.$
   Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Segment assets

   5,252,765    5,114,163   2,905,670    49,588    1,317,041   14,639,227   (45,479  14,593,748 

Segments assets (excluding deferred tax assets)

   5,252,765    5,114,163   2,905,670    49,588    1,312,406   14,634,592   (45,479  14,589,113 

Deferred tax assets

   —      —     —      —      4,635   4,635    4,635 

Investments accounted through equity method

            

Associates

   —      38,497   —      —      117,112   155,609    155,609 

Joint Ventures

   —      —     181,103    —      21,341   202,444    202,444 

Segment liabilities

   396,332    180,259   405,551    13,727    6,258,908   7,254,777    7,254,777 

Segments liabilities (excluding deferred tax liabilities)

   396,332    180,259   405,551    13,727    4,841,250   5,837,119    5,837,119 

Deferred tax liabilities

   —      —     —      —      1,417,658   1,417,658    1,417,658 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Geographical information onnon-current assets

            

Chile

   2,667,179    3,259,801   806,253    20,382    120,231   6,873,846   (3,842  6,870,004 

Foreign countries

   1,657,532    1,304,390   1,247,008    19,507    54,147   4,282,584   —     4,282,584 

Non-current assets, Total

   4,324,711    4,564,191   2,053,261    39,889    174,378   11,156,430   (3,842  11,152,588 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Year ended December 31, 2016

 Pulp
ThU.S.$
   Forestry
ThU.S.$
  Timber
ThU.S.$
  Others
ThU.S.$
  Corporate
ThU.S.$
  Sub Total
ThU.S.$
  Elimination
ThU.S.$
  Total
ThU.S.$
 

Segment assets

  5,077,300    5,492,364   2,515,092   30,970   932,059   14,047,785   (41,604  14,006,181 

Segments assets (excluding deferred tax assets)

  5,077,300    5,492,364   2,515,092   30,970   925,962   14,041,688   (41,604  14,000,084 

Deferred tax assets

  —      —     —     —     6,097   6,097   —     6,097 

Investments accounted through equity method

         

Associates

  —      160,490   —     —     105,285   265,775   —     265,775 

Joint Ventures

  —      —     161,703   —     19,070   180,773   —     180,773 

Segment liabilities

  277,474    161,091   311,667   11,836   6,244,830   7,006,898   —     7,006,898 

Segments liabilities (excluding deferred tax liabilities)

  277,474    161,091   311,667   11,836   4,613,765   5,375,833   —     5,375,833 

Deferred tax liabilities

  —      —     —     —     1,631,065   1,631,065   —     1,631,065 
 

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Geographical information onnon-current assets

         

Chile

  2,572,702    3,509,727   721,418   27   135,808   6,939,682   (3,575  6,936,107 

Foreign countries

  1,740,559    1,525,190   1,016,633   23,040   42,292   4,347,714   —     4,347,714 

Non-current assets, Total

  4,313,261    5,034,917   1,738,051   23,067   178,100   11,287,396   (3,575  11,283,821 

Year ended December 31, 2015

 Pulp
ThU.S.$
   Forestry
ThU.S.$
 Timber
ThU.S.$
 Others
ThU.S.$
 Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Year ended December 31, 2017

  Pulp
ThU.S.$
   Forestry
ThU.S.$
 Wood products
ThU.S.$
   Others
ThU.S.$
   Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Revenues from goods sale

   2,356,782    104,392   2,633,773    38,391    —     5,133,338    5,133,338 

Revenues from services sale

   94,581    9,730   —      692    —     105,003    105,003 

Revenues from external customers

  2,363,973    116,368   2,633,211   33,188   —     5,146,740   —     5,146,740    2,451,363    114,122   2,633,773    39,083    —     5,238,341   —     5,238,341 

Revenues from transactions with other reportable segments

  43,414    491,703   10,673   32,543   —     578,333   (578,333  —   

Revenues from transactions with other operating segments

   43,829    970,384   6,297    35,659    —     1,056,169   (1,056,169  —   
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 
 

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

             

Finance income

  —      —     —     —     50,284   50,284   —     50,284    —      —     —      —      19,640   19,640   —     19,640 

Finance costs

  —      —     —     —     (262,962  (262,962  —     (262,962   —      —     —      —      (287,958  (287,958  —     (287,958) 

Net finance costs

  —      —     —     —     (212,678  (212,678  —     (212,678   —      —     —      —      (268,318  (268,318  —     (268,318) 
 

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Depreciation and amortizations

  231,916    18,211   139,446   3,913   6,659   400,145   —     400,145    246,382    22,011   142,504    3,568    7,086   421,551   —     421,551 

Sum of significant income accounts

  31    220,907   4,823   —     —     225,761   —     225,761    581    91,089   1,304    —      —     92,974   —     92,974 

Sum of significant expense accounts

  585    35,610   3,383   35   —     39,613   —     39,613    —      138,139   3,333    —      —     141,472   —     141,472 
 

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Profit (loss) of each reportable segment

  455,190    137,829   264,473   1,815   (491,596  367,711   —     367,711    589,934    (210,566  225,317    6,668    (341,001  270,352   —     270,352 
 

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

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

                     

Associates

  —      —     —     —     5,572   5,572   —     5,572    —      —     —      —      4,855   4,855   —     4,855 

Joint ventures

  —      —     (470  —     1,646   1,176   —     1,176    —      —     10,378    —      1,784   12,162   —     12,162 
 

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Income tax expense

  —      —     —     —     (129,694  (129,694  —     (129,694   —      —     —      —      30,992   30,992   —     30,992 
 

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Geographical information on revenues

                     

Revenue – Chilean entities

  1,913,303    68,986   1,325,985   597   —     3,308,871   —     3,308,871    1,781,769    55,946   1,265,161    692    —     3,103,568   —     3,103,568 

Revenue – Foreign entities

  450,670    47,382   1,307,226   32,591   —     1,837,869   —     1,837,869    669,594    58,176   1,368,612    38,391    —     2,134,773   —     2,134,773 

Total Ordinary Income

  2,363,973    116,368   2,633,211   33,188   —     5,146,740   —     5,146,740    2,451,363    114,122   2,633,773    39,083    —     5,238,341   —     5,238,341 
 

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Year ended December 31, 2017

  Pulp
ThtgU.S.$
   Forestry
ThU.S.$
 Wood products
ThU.S.$
   Others
ThU.S.$
   Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Amounts of additions tonon-current assets

            

Acquisition of property, plant and equipment and biological assets

   191,771    211,245   230,395    428    4,127   637,966   —     637,966 

Acquisition and contribution of investments in associates and joint venture

   —      —     —      —      15,918   15,918   —     15,918 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Year ended December 31, 2017

  Pulp
ThU.S.$
   Forestry
ThU.S.$
 Wood products
ThU.S.$
   Others
ThU.S.$
   Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Segment assets

   5,035,105    5,040,500   3,024,120    52,640    881,000   14,033,365   (38,765  13,994,600 

Segments assets (excluding deferred tax assets)

   5,035,105    5,040,500   3,024,120    52,640    872,734   14,025,099   (38,765  13,986,334 

Deferred tax assets

   —      —     —      —      8,266   8,266   —     8,266 

Investments accounted through equity method

            

Associates

   —      48,921   —      —      110,046   158,967   —     158,967 

Joint Ventures

   —      —     189,568    —      20,237   209,805   —     209,805 

Segment liabilities

   325,598    184,721   489,022    16,100    5,862,266   6,877,707   —     6,877,707 

Segment liabilities (excluding deferred tax liabilities)

   325,598    184,721   489,022    16,100    4,376,902   5,392,343   —     5,392,343 

Deferred tax liabilities

   —      —     —      —      1,485,364   1,485,364   —     1,485,364 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Geographical information onnon-current assets

            

Chile

   2,537,947    3,221,911   666,234    22,220    187,639   6,635,951   (4,635  6,631,316 

Foreign countries

   1,700,240    1,648,557   1,191,895    21,571    30,658   4,592,921   —     4,592,921 

Non-current assets, Total

   4,238,187    4,870,468   1,858,129    43,791    218,297   11,228,872   (4,635  11,224,237 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Year ended December 31, 2015

  Pulp
ThU.S.$
   Forestry
ThU.S.$
   Timber
ThU.S.$
   Others
ThU.S.$
   Corporate
ThU.S.$
   Sub Total
ThU.S.$
   Elimination
ThU.S.$
 Total
ThU.S.$
 

Year ended December 31, 2016

  Pulp
ThU.S.$
   Forestry
ThU.S.$
   Wood products
ThU.S.$
   Others
ThU.S.$
 Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Revenues from goods sale

   2,041,897    89,750    2,494,750    23,183    4,649,580    4,649,580 

Revenues from services sale

   104,182    6,738    —      885    111,805    111,805 

Revenues from external customers

   2,146,079    96,488    2,494,750    24,068   —     4,761,385   —     4,761,385 

Revenues from transactions with other reportable segments

   41,586    1,105,220    6,938    34,085   —     1,187,829   (1,187,829  —   
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Finance income

   —      —      —      —     29,701   29,701   —     29,701 

Finance costs

   —      —      —      —     (258,467  (258,467  —     (258,467

Net finance costs

   —      —      —      —     (228,766  (228,766  —     (228,766
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Depreciation and amortizations

   240,699    19,996    139,844    2,529   6,319   409,387   —     409,387 

Sum of significant income accounts

   212    227,776    269    —     —     228,257   —     228,257 

Sum of significant expense accounts

   —      15,193    12,565    —     —     27,758   —     27,758 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Profit (loss) of each reportable segment

   308,536    98,955    165,887    (2,559  (353,242  217,577   —     217,577 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

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

            

Associates

   —      —      —      —     16,348   16,348   —     16,348 

Joint ventures

   —      —      5,475    —     2,116   7,591   —     7,591 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Income tax expense

   —      —      —      —     (45,647  (45,647  —     (45,647
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Geographical information on revenues

            

Revenue – Chilean entities

   1,521,453    52,161    1,275,937    885   —     2,850,436   —     2,850,436 

Revenue – Foreign entities

   624,626    44,327    1,218,813    23,183   —     1,910,949   —     1,910,949 

Total Ordinary Income

   2,146,079    96,488    2,494,750    24,068   —     4,761,385   —     4,761,385 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Year ended December 31, 2016

  Pulp
ThU.S.$
   Forestry
ThU.S.$
   Wood products
ThU.S.$
   Others
ThU.S.$
 Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Amounts of additions tonon-current assets

                           

Acquisition of property, plant and equipment and biological assets

   199,094    155,872    94,191    1,754    7,001    457,912    —     457,912    205,205    182,743    118,408    1,479   3,883   511,718   —     511,718 

Acquisition and contribution of investments in associates and joint venture

   —      814    —      —      —      814    —     814    —      —      153,135    —     —     153,135   —     153,135 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Year ended December 31, 2015

  Pulp
ThU.S.$
   Forestry
ThU.S.$
   Timber
ThU.S.$
   Others
ThU.S.$
   Corporate
ThU.S.$
   Sub Total
ThU.S.$
   Elimination
ThU.S.$
 Total
ThU.S.$
 

Year ended December 31, 2016

  Pulp
ThU.S.$
   Forestry
ThU.S.$
   Wood products
ThU.S.$
   Others
ThU.S.$
 Corporate
ThU.S.$
 Sub Total
ThU.S.$
 Elimination
ThU.S.$
 Total
ThU.S.$
 

Segment assets

   5,172,095    5,471,322    2,374,134    31,679    669,703    13,718,933    (48,542  13,670,391    5,077,300    5,492,364    2,515,092    30,970   932,059   14,047,785   (41,604  14,006,181 

Segments assets (excluding deferred tax assets)

   5,172,095    5,471,322    2,374,134    31,679    665,968    13,715,198    (48,542  13,666,656    5,077,300    5,492,364    2,515,092    30,970   925,962   14,041,688   (41,604  14,000,084 

Deferred tax assets

   —      —      —      —      3,735    3,735    —     3,735    —      —      —      —     6,097   6,097   —     6,097 

Investments accounted through equity method

               

Associates

   —      121,359    —      —      119,781    241,140    —     241,140 

Investments accounted through equity method Associates

   —      160,490    —      —     105,285   265,775   —     265,775 

Joint Ventures

   —      —      3,573    —      20,099    23,672    —     23,672    —      —      161,703    —     19,070   180,773   —     180,773 

Segment liabilities

   318,880    147,432    269,963    11,526    6,276,145    7,023,946    —     7,023,946    277,474    161,091    311,667    11,836   6,244,830   7,006,898   —     7,006,898 

Segments liabilities (excluding deferred tax liabilities)

   318,880    147,432    269,963    11,526    4,657,133    5,404,934    —     5,404,934 

Segment liabilities (excluding deferred tax liabilities)

   277,474    161,091    311,667    11,836   4,613,765   5,375,833   —     5,375,833 

Deferred tax liabilities

   —      —      —      —      1,619,012    1,619,012    —     1,619,012    —      —      —      —     1,631,065   1,631,065   —     1,631,065 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Geographical information onnon-current assets

               

Chile

   2,565,307    3,536,372    758,936    30    128,185    6,988,830    (2,955  6,985,875 

Geographical information onnon-current assets Chile

   2,572,702    3,509,727    721,418    27   135,808   6,939,682   (3,575  6,936,107 

Foreign countries

   1,782,286    1,313,685    735,924    23,406    142,803    3,998,104    —     3,998,104    1,740,559    1,525,190    1,016,633    23,040   42,292   4,347,714   —     4,347,714 

Non-current assets, Total

   4,347,593    4,850,057    1,494,860    23,436    270,988    10,986,934    (2,955  10,983,979    4,313,261    5,034,917    1,738,051    23,067   178,100   11,287,396   (3,575  11,283,821 
  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Year ended December 31, 2014

  Pulp
ThU.S.$
   Forestry
ThU.S.$
   Timber
ThU.S.$
   Others
ThU.S.$
   Corporate
ThU.S.$
  Sub Total
ThU.S.$
  Elimination
ThU.S.$
  Total
ThU.S.$
 

Revenues from external customers

   2.343.020    148.517    2.817.204    33.902    0   5.342.643   0   5.342.643 

Revenues from transactions with other operating segments

   50.015    457.527    10.068    34.327    0   551.937   (551.937  0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Finance income

   0    0    0    0    30.772   30.772   0   30.772 

Finance costs

   0    0    0    0    (246.473  (246.473  0   (246.473

Net finance costs

   0    0    0    0    (215.701  (215.701  0   (215.701
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Depreciation and amortizations

   185.121    14.145    141.587    3.901    8.680   353.434   0   353.434 

Sum of significant income accounts

   5.442    321.971    1.043    0    0   328.456   0   328.456 

Sum of significant expense accounts

   0    31.513    0    0    0   31.513   0   31.513 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Profit (loss) of each reportable segment

   440.367    177.974    304.848    13.885    (500.184  436.890   0   436.890 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

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

             

Associates

   0    0    0    0    6.958   6.958   0   6.958 

Joint ventures

   0    0    3    0    520   523   0   523 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Income tax expense

   0    0    0    0    (155.935  (155.935  0   (155.935
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Geographical information on revenues

             

Revenue – Chilean entities

   2.025.811    83.823    1.469.465    1.538    0   3.580.637   0   3.580.637 

Revenue – Foreign entities

   317.209    64.694    1.347.739    32.364    0   1.762.006   0   1.762.006 

Total Ordinary Income

   2.343.020    148.517    2.817.204    33.902    0   5.342.643   0   5.342.643 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Year ended December 31, 2014

 Pulp
ThU.S.$
  Sawn  timber
ThU.S.$
   Forestry
ThU.S.$
  Panels
ThU.S.$
  Others
ThU.S.$
  Corporate
ThU.S.$
  Sub Total
ThU.S.$
  Elimination
ThU.S.$
  Total
ThU.S.$
 
          

Amounts of additions tonon-current assets

          

Acquisition of property,plant and equipment and biological assets

  303.918   0    178.748   126.753   1.489   1.127   612.035   0   612.035 

Acquisition and contribution of investments in associates and joint venture

  0   0    0   1.882   0   0   1.882   0   1.882 
 

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Information required by geographic area:

 

   

Geographical area

 
2016  

Local

country

  Foreign country 
   

Chile

  Argentina   Brazil   USA/Canada   Uruguay   Total 

Disclosure of geographical areas

  

ThU.S.$

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

Revenues at12-31-2016

  3,085,642   360,224    354,170    779,356    181,993    4,761,385 

Non-current Assets at12-31-2016 other than deferred tax

  6,931,755   960,596    1,186,538    397,924    1,800,911    11,277,724 
   

Geographical area

 
2015  

Local
country

  Foreign country 
   

Chile

  Argentina   Brazil   USA/Canada   Uruguay   Total 

Disclosure of geographical areas

  

ThU.S.$

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

Revenues at12-31-2015

  3,308,871   481,881    378,719    787,036    190,233    5,146,740 

Non-current Assets at12-31-2015 other than deferred tax

  6,986,236   978,285    837,886    364,889    1,812,948    10,980,244 

   

Geographical area

2014  

Local

country

  

Foreign country

   

Chile

  

Argentina

  Brazil   

USA/Canada

  

Uruguay

  

Total

Disclosure of geographical areas

  

ThU.S.$

  

ThU.S.$

  ThU.S.$   

ThU.S.$

  

ThU.S.$

  

ThU.S.$

Revenues at12-31-2014

  3,580,637  436,524   481,275   774,805  69,402  5,342,643
   Geographical area 
2018  Local
country
   Foreign country 
    Chile   Argentina   Brazil   USA/Canada   Uruguay   Total 

Disclosure of geographical areas

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

Revenues from sales of goods

   3,608,017    479,698    504,589    815,668    449,612    5,857,584 

Revenues from sales of services

   71,209    —      —      —      26,040    97,249 

Revenues at12-31-2018

   3,679,226    479,698    504,589    815,668    475,652    5,954,833 

Non-current Assets at12-31-2018 other than deferred tax

   6,865,406    825,915    984,746    810,461    1,661,425    11,147,953 
   Geographical area 
2017  Local
country
   Foreign country 
    Chile   Argentina   Brazil   USA/Canada   Uruguay   Total 

Disclosure of geographical areas

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

Revenues from sales of goods

   3,028,025    494,479    395,416    801,092    414,326    5,133,338 

Revenues from sales of services

   75,543    —      —        29,460    105,003 

Revenues at12-31-2017

   3,103,568    494,479    395,416    801,092    443,786    5,238,341 

Non-current Assets at12-31-2017 other than deferred tax

   6,624,381    956,511    1,274,536    575,231    1,785,312    11,215,971 
   Geographical area 
2016  Local
country
   Foreign country 
   Chile   Argentina   Brazil   USA/Canada   Uruguay   Total 

Disclosure of geographical areas

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

Revenues from sales of goods

   2,765,975    414,084    350,352    801,821    317,348    4,649,580 

Revenues from sales of services

   84,461    —      —      —      27,344    111,805 

Revenues at12-31-2016

   2,850,436    414,084    350,352    801,821    344,692    4,761,385 

Non-current Assets at12-31-2016 other than deferred tax

   6,931,755    960,596    1,186,538    397,924    1,800,911    11,277,724 

NOTE 25.

OTHERNON-FINANCIAL ASSETS ANDNON-FINANCIAL LIABILITIES

 

Currentnon-financial assets

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

Roads to amortize current

   41,812    47,731 

Prepayment to amortize (insurance + others)

   23,086    20,398 

Recoverable taxes (Relating to purchases)

   71,357    62,468 

Other currentnon-financial assets

   8,660    3,359 

Total

   144,915    133,956 

Non-currentnon-financial assets

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

Roads to amortize, non current

   121,894    111,319 

Guarantee values

   3,302    2,635 

Recoverable taxes

   1,493    7,767 

Other non currentnon-financial assets

   3,630    3,795 

Total

   130,319    125,516 

Currentnon-financial liabilities

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

Provision of minimum dividend (1)

   60,312    102,305 

ICMS tax payable

   14,856    6,172 

Other tax payable

   16,202    19,442 

Other Currentnon-financial liablities

   7,793    3,804 

Total

   99,163    131,723 

(1) Provision includes a minimum dividend of subsidiary minority.

Currentnon-financial assets

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

Roads to amortize current

   41,456    43,301 

Prepayment to amortize (insurance and others)

   14,020    21,257 

Recoverable taxes (GST and others)

   67,778    60,823 

Other currentnon-financial assets

   6,600    4,456 

Total

   129,854    129,837 

Non-currentnon-financial assets

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

Roads to amortize,non-current

   78,418    112,937 

Guarantee values

   3,295    2,893 

Recoverable taxes

   1,519    1,835 

Othernon-currentnon-financial assets

   3,716    3,856 

Total

   86,948    121,521 

Currentnon-financial liabilities

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

Provision of minimum dividend (1)

   182,890    116,123 

ICMS tax payable

   9,109    12,593 

Other tax payable

   14,034    23,040 

Other Currentnon-financial liablities

   6,577    2,194 

Total

   212,610    153,950 
    

 

Non-currentnon-financial liabilities

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

ICMS tax payable

   58,606    45,365 

Othernon-currentnon-financial liablities

   2,027    1,876 

Total

   60,633    47,241 
(1)

Provision includes a minimum dividend of subsidiary minority.

Non-currentnon-financial liabilities

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

ICMS tax payable

   111,134    110,532 

Othernon-currentnon-financial liablities

   933    1,808 

Total

   112,067    112,340 

NOTE 26.

DISTRIBUTABLE NET PROFIT AND EARNINGS PER SHARE

Distributable net profit

As a general policy, the Board of Directors of Arauco agreed that the net profit to be distributed as dividend is determined based on realized net gains/(losses) of any relevant variations in the value of unrealized assets and liabilities, which are excluded from the calculation of net profit during the period such changes are made.

As a result of the foregoing, for purposes of determining the distributable net profit of the Company, which is the same considered for calculating the minimum dividend required and additional dividend, the following unrealized gains/losses are excluded from the net profit for the year:

 

1)

Unrealized gains/losses relating to the fair value recorded for forestry assets under IAS 41, adding them back to distributable net profit when they are realized through sale or disposed of by other means.

 

2)

Those generated through the acquisition of entities. These results will be added back to net profit when they are realized through sale.

The deferred taxes associated with the amounts described in 1) and 2) above are also excluded.

The following table details the adjustments made for the determination of distributable net profit as December 31, 2016, 20152018, 2017 and 20142016 in order to determine the provision of 40% of the distributable net profit for each year:

Distributable Net  Profit
ThU.S.$

Net profit attributable to owners of parent at12-31-2018

725,482

Adjustments:

Biological Assets

Unrealized gains/losses

(83,243

Realized gains/losses

208,362

Deferred income taxes

(30,482

Total Biological assets

94,637

Profit due bargain adquisition (net)

(9,381

Total adjustments

85,256

Distributable Net Profit at12-31-2018

810,738

Distributable Net  Profit
ThU.S.$

Net profit attributable to owners of parent at12-31-2017

269,724

Adjustments:

Biological Assets

Unrealized gains/losses

(82,782

Realized gains/losses

303,668

Deferred income taxes

(54,944

Total adjustments

165,942

Distributable Net Profit at12-31-2017

435,666

 

   Distributable Net  Profit
ThU.S.$
 

Net profit attributable to owners of parent at12-31-2016

   213,801 

Adjustments:

  

Biological Assets

  

Unrealized gains/losses

   (204,671

Realized gains/losses

   210,223 

Deferred income taxes

   2,089 

Total adjustments

   7,641 

Distributable Net Profit at12-31-2016

   221,442 

Distributable Net  Profit
ThU.S.$

Net profit attributable to owners of parent at12-31-2015

362,689

Adjustments:

Biological Assets

Unrealized gains/losses

(205,527

Realized gains/losses

203,730

Deferred income taxes

(3,889

Total adjustments

(5,686

Distributable Net Profit at12-31-2015

357,003

Distributable Net  Income
ThU.S.$

Net profit attributable to owners of parent at12-31-2014

139,803

Adjustments

Biological Assets

Unrealized gains/losses

(278,884

Realized gains/losses

237,272

Deferred income taxes

9,354

Total Biological Assets (net)

(32,258

Deferred Tax effect of tax rate change (attributable to owners of parent) (*)

292,155

Total adjustments

259,897

Distributable Net Profit at12-31-2014

399,700

(*)The Superintendency of Securities and Insurance (SVS), issued Circular No. 856 on October 17, 2014 which instructs regulated entities to record in its statutory financial statements differences in deferred taxes arising as a direct effect of the increase in the tax rate to equity as stated by Law 20,780. The impact of this circular has been incorporated in the statutory financial statements which are used to determine the distributable profit. This circular differs from International Financial Reporting Standards (IFRS) which require the impact to be recorded as part of the Statements of Profit or Loss.

In the attached financial statements prepared in accordance with IFRS, the effect of the change in the tax rate of first category in assets and liabilities relating to deferred taxes results in a expense of ThU.S.$292,717 (ThU.S.$292,155 attributable to owners of parent) reclassified to the Statements of Profit or Loss. Therefore, as a result of the impact of the changes of the regulatory framework, the increase of the first category tax rate on the treatment of deferred taxes did not impact the determination of Arauco’s distributable net profit.

The Company expects to maintain its policy of distributing 40% of its net distributable profit as dividends for all future fiscal years, but will also consider the alternative of distributing a provisional dividend at year end.

As of December 31, 20162018, in the Statements of Financial Position, under the line item Other currentnon-financial liabilities for an amount of ThU.S.$99,163, a total of ThU.S.$59,005182,040 correspond to a provision for the minimum dividend for the 20162018 period, corresponding to the Parent Company, after discounting the provisional dividend distribution of ThU.S.$ 29,572,142,256, paid to the shareholders in December 2016.2018.

Basic and diluted earnings per share

Basic and diluted earnings per share are calculated by dividing the profit or loss attributable to ordinary equity holders of parent by the weighted average number of ordinary shares outstanding. Arauco does not have any shares with potential dilutive effect.

 

  January-December 
  2016   2015   2014   January-December 
  ThU.S.$   ThU.S.$   ThU.S.$   2018
ThU.S.$
   2017
ThU.S.$
   2016
ThU.S.$
 

Profit or loss attributable to ordinary equity holder of parent

   213,801    362,689    139,803    725,482    269,724    213,801 

Weighted average of number of shares

   113,159,655    113,159,655    113,159,655    113,159,655    113,159,655    113,159,655 

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

   1.8894    3.2051    1.2354    6.4111    2.3836    1.8894 

NOTE 27.

SUBSEQUENT EVENTS

1) After closingOn January 31, 2019, Arauco’s subsidiaries Inversiones Arauco Internacional Limitada (“Arauco Internacional”) and AraucoMex, S.A. de C.V. (“AraucoMex”), closed the purchase of these Financial Statements, and as a resultall of the fires that affectedshares of Masisa’s Mexican subsidiaries, namely Maderas y Sintéticos de México, S.A. de C.V. (“Masisa México”), Maderas y Sintéticos Servicios, S.A. de C.V., Masisa Manufactura, S.A. de C.V., Placacentro Masisa México, S.A. de C.V. and Masnova Química, S.A. de C.V.

The price of the country (Chile), particularlytransaction, in the regionsamount of MauleUS$160 million, was paid on that day.

The main assets to be acquired, consist of two industrial complexes located in Durango and Bio Bio,Zitácuaro, that jointly have three Particleboard (PB) lines with an annual installed capacity of 339,000 m3;; a MDF line of with an annual installed capacity of 220,000 m3; melamine (or TFL) lines with an annual total installed capacity of 309,000 m3 ; a chemical plant with an installed capacity of 60,000 tons of resins and 60,600 tons of formaldehyde; and impregnation lines with an aggregate annual installed capacity of 28.9 million of m2. Further, Masisa México is the Company sufferedlessee of a chemical plant in Lerma, with an installed capacity of 43,200 tons of resins and 21,600 tons of formaldehyde.

With this transaction, Arauco reaches an installed capacity of wood based panel of more tha 10 million m3, consolidating its position as the burning of approximately 80,000 hectares of forest plantations, whose accounting value amountssecond manufacturer on a worldwide scale in such industry.

Arauco estimates that this transaction will bring about positive effects in the Company’s results, although, at this time, it is not possible to approximately US$240 million, as perquantify those effects.

The transaction has been approved by the IFRS accounting rules. This amounts represents 6%Mexican antitrust authority (Comisión Federal de Competencia Económica or “COFECE”), which was one of the Company’s total forest plantations value.

The affected forest plantations will be managed byconditions precedent established in the Company to minimize the damages caused by the fires. It is estimated that this management will allow for a final recovery between 10% and 20% of the aforementioned US$ 240 million. Additionally, the forest plantations affected by the fires are insured, with their respective deductibles and limitations. Due to the foregoing, it is estimated that up to US$ 35 million will be recovered for this concept.purchase agreement executed in December 2017.

2) The authorization for the issuance and publication of these consolidated financial statements for the period ended December 31, 20162018 was approved by the Board of Directors of Arauco on April 25, 2017.17, 2019.

Subsequent to December 31, 20162018 and until the date of issuance of these consolidated financial statements, there have been no events, other than those discussed above, that could materially affect the presentation of these financial statements.

 

F-120F-116