CAP S.A. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996(Thousands of US dollars)
1. THE GROUP STRUCTURE AND OFFICIAL REGISTRATION
The Company and its subsidiaries Compañía Siderúrgica Huachipato S.A. and Compañía Minera del Pacífico S.A. are inscribed in the Securities Register of the Superintendency of Securities and Insurance and are subject to its regulatory authority.
The consolidated group comprises CAP S.A. (the Company) and the following direct and indirect subsidiaries:
RUT (Tax ID No.)
% Total Holding
Compañía Siderúrgica Huachipato S.A. 94,637,000-2 99.999
Compañía Minera del Pacífico S.A. 94,638,000-8 99.999
Compañía Distribuidora de Petroleos del Pacífico Ltda. 79,942,400-2 99.999 Soc. de Ingeniería y Movimientos de Tierra del Pacífico Ltda. 79,807,570-5 99.999
Pacific Ores & Trading N.V. Foreign 99.999
Pacific Ores & Trading B.V. Foreign 99.999
Manganesos Atacama S.A. 90,915,000-0 98.743
Abastecimientos CAP S.A. 94,235,000-7 99.999
P.O.R.T. Investments Ltd. N.V. Foreign 100.000
P.O.R.T. Finance Ltd. N.V. Foreign 100.000
2. SUMMARY OF ACCOUNTING PRINCIPLES APPLIED
a. Presentation – The consolidated financial statements are prepared in accordance with accounting principles generally accepted in Chile and the instructions of the Superintendency of Securities and Insurance
b. Consolidation– Significant transactions between the consolidated companies have been eliminated in the consolidated financial statements..
c. Currency of the financial statements– The financial statements of the Company and most of the Chilean subsidiaries are prepared in US dollars. The financial statements of subsidiaries abroad are translated into US dollars in accordance with generally accepted accounting principles. The financial statements of other subsidiaries in Chile are prepared in local currency and are translated into US dollars at the year-end exchange rate.
d. Currency translation– Assets and liabilities in currencies other than the US dollar are shown at the closing exchange rates. Exchange differences are booked in the results.
e. Time deposits– Time deposits include principal plus accrued interest.
f.- Marketable securities – Trade paper is shown at cost plus accrued indexation and interest. Fixed-income securities are shown at the lower of present value, calculated at the same discount rate used at the time of purchase, and market value at the end of each year.
2 C A P S.A.
Steel products, at the last quarter’s production cost.
Finished products and minerals, at average production cost or at cost. Raw materials, materials in warehouse and others, at average cost. Materials in transit, at cost.
The cost of inventories does not exceed net realization values.
h. Fixed assets - Fixed assets are shown at cost or technical appraisal value as the case may be, and include interest costs during construction periods and the main renovations and improvements. Maintenance and repairs costs are charged to income
i. Leased assets – Assets leased with a purchase option by subsidiaries under contracts with the characteristics of a financial lease, are booked as acquisitions of fixed assets, recording the total of installments as a liability and the interest on an accrued basis. These assets do not legally belong to the subsidiaries and so cannot be freely disposed of unless the purchase option is exercised.
j. Depreciation – The cost of fixed assets is depreciated using the straight-line method according to the useful lives of the assets. In the subsidiaries Compañía Siderúrgica Huachipato S.A. and Compañía Minera del Pacífico S.A. the depreciation calculated is adjusted as a function of production (between 70% and 120% of linear depreciation).
During 1996, Compañía Siderúrgica Huachipato S.A. and Compañía Minera del Pacífico S.A. changed the estimated useful lives of some fixed assets, based on studies made by American Appraisal Associates Inc.. The net effect of this change meant a smaller charge to income for that year of approximately MUS$ 7.400.
k. Research and development costs – Research and development costs are charged to income. No significant payments in this respect have been made over the past 5 years.
l. Mining claims - Disbursements on mining claims and mining companies that are not included in exploitation are charged to income.
m. Exploration costs– Costs incurred in searching for minerals or mines are charged to income.
n. Investments in related companies – Investments in related companies that are not consolidated are shown at their equity value..
o. Negative goodwill– Negative goodwill is amortized over the estimated life of the investment.
p. Severance indemnities– Provisions are made to cover indemnities for years of service established in labor contracts, mainly employing the present value method of the accrued cost of the benefit, using a discount rate of 8% and considering an average future permanence of between 10 and 19 years.
q. Vacations– The cost of personnel vacations and other benefits is booked on an accrual basis.
r. Deferred taxes – The Company and most of its subsidiaries record in their financial statements the effect of deferred taxes relating to significant timing differences to be reversed in the near future without being compensated by new timing differences of the same kind. There were no significant timing differences of this kind in 1997 and 1996. Timing differences whose reversal is offset by future similar differences are treated as permanent differences.
s. Statement of cash flow – Cash and cash equivalents include cash and bank balances, time deposits of no longer than 90 days term and indexed notes of Central Bank of Chile (PRBC and PRC).
3 C A P S.A.
The accounting principles and criteria explained in Note 2 have been applied uniformly during 1997 and 1996.
4. STATEMENT OF CASH FLOW
The net positive cash flow from operating activities represents the net cash and cash equivalents entering during the year from operations supporting the results of CAP S.A. and subsidiaries.
5. TIME DEPOSITS
The detail of these is as follows:
1997 1996
Currency MUS$ MUS$
Swiss Bank Corporation - New York Branch US$ 939 890
MeesPierson (THE HAGUE) N.V. US$ 500 300
MeesPierson (CURACAO) N.V. US$ 1,668 2,017
Total ( Code11020 ) 3,107 3,207
6. MARKETABLE SECURITIES
Investments in marketable securities at December 31, 1996 are the following (there were none at 31.12.97):
1996
MUS$ Indexed notes of the Central Bank of Chile (PRBC)
Cost 12.031
Accrued Interest 30
12.061 Indexed notes with coupons of the Central Bank of Chile (PRC)
Par value 48.936
Premium 1.456
Amortization of premium (48)
50.344
Adjustment to market value (134)
50.210
Total ( Code 11030 ) 62.271
4 C A P S.A. 7. INVENTORIES These include: 1997 1996 MUS$ MUS$ Steel products: Finished products 13.115 18.167
Semi-finished and being processed 26.433 40.819
Primary products etc. 9.829 8.854
Byproducts 7.569 4.955 Sub total 56.946 72.795 Mining products: Finished pellets 3.162 10.308 Pellet chips 789 295 Pre-concentrates 20.893 13.870
Fines and lumps 5.094 5.194
Other minerals being processed 956 1.211
Sub total 30.894 30.878
Raw materials:
Imported coal 8.619 8.510
Alum-Zinc-silicon alloy 2.078 4.017
Iron ore 3.296 1.965
Lime, limestone and others 6.908 7.070
Raw materials in transit 3.092 4.743
Sub total 23.993 26.305
Materials and others:
Materials, spares and supplies 42.380 50.420
Equipment and materials for sale 1.687 1.147
Materials in transit 6.040 4.140
Sub total 50.107 55.707
Total ( Code 11090 ) 161.940 185.685
8. FIXED ASSETS
These relate principally to land, buildings, infrastructure, mine machinery and equipment, pellets plant, mineral loading ports, steel mill and ports.
1997 1996 Cost MUS$ Technical appraisals MUS$ Total MUS$ Total MUS$ Land 3,211 843 4,054 3,661
Improvements to land and roads 1,335 2,442 3,777 3,777
Buildings 351,787 6,120 357,907 357,951
Infrastructure 77,946 18,998 96,944 96,738
Machinery & equipment 1,241,554 50,814 1,292,368 1,287,960
Transport & handling equipment 95,424 4,927 100,351 102,214
Leased assets 6,610 - - 6,610 6,390 Others 16,160 - - 16,160 18,377 Works in progress 20,085 - - 20,085 917 Sub total 1,814,112 84,144 1,898,256 1,877,985 Depreciation (less) (1,013,612) (91,780) (1,105,392) (1,050,610) Total ( Code 12000 ) 800,500 (7,636) 792,864 827,375
Depreciation amounts to MUS$ 61,843 in 1997 and MUS$ 62,106 in 1996, and includes MUS$ (360) and MUS$ (573) respectively corresponding to depreciation of the appraisals.
5 C A P S.A.
9. INVESTMENTS IN RELATED COMPANIES
The main details of non-consolidated related companies is as follows:
a) At December 31, 1997 Number of paid shares Direct percentage holding % Equity of the issuing company MUS$ Book value of investment MUS$ Result recorded by the investor MUS$
Compañía Minera Huasco S.A. 872,250 50,000 17,445 8,723
-Compañía Minera La Jaula 10,500 50,000 20,990 4,607 (1)
Cía. Minera Carmen de Andacollo 1,647 27,000 13,143 3,549 (41)
Total ( Code 13010 ) 16,879 b) At December 31, 1996: Number of paid shares Direct percentage holding % Equity of the issuing company MUS$ Book value of investment MUS$ Result recorded by investor MUS$
Compañía Minera Huasco S.A. 263,400 50,000 5,268 2,634
-Compañía Minera La Jaula 10,500 50,000 20,992 4,608 (4)
Cía. Minera Carmen de Andacollo 1,620 27,000 12,779 3,450
-Total ( Code 13010 ) 10,692
These shares are not quoted on the stock exchange.
The value of the investment in Compañía Minera Carmen de Andacollo is calculated after deducting from the company’s equity the reserve for future capitalizations. This reserve consists of a non-monetary contribution made by Enami which is to be converted into equity in the future to the extent necessary to maintain its percentage holding.
On January 23, 1996, Sociedad Contractual Minera “Compañía Minera La Jaula” was constituted. Compañía Minera del Pacífico S.A. subscribed and paid for 10,500 shares for MUS$ 10,500, equivalent to 50% of the capital of the company. Payment for these shares was made through the contribution of mining claims; this generated an unrealized gain of MUS$ 5,888.
10. OTHER ASSETS
Apart from Investments in related companies (Note 9) and long-term receivables from related companies (Note 17b), Other assets include:
1997 MUS$
1996 MUS$ a) Investments in other companies:
Agronova Fruta S.A. (Legal successor to Aster S.A.) 77 77
Terranova S.A. - - 4
Total ( Code 13025 ) 77 81
b) Negative goodwill:
Cía. Minera Carmen de Andacollo (1,570) (1,744)
Total ( Code 13027 ) (1,570) (1,744)
c) Long-term debtors:
Loans to personnel 11,880 12,724
Others 2,966 1,922
Total ( Code 13030 ) 14,846 14,646
d) Other long-term assets:
6 C A P S.A.
Inventories saleable after one year, net of provision ( Note 16 ) 22,340 20,988 Actuarial adjustments of deferred indemnities for years of service 452 629
Fixed assets for sale 2,371 3,107
Unaccrued part of discount on bonds placement - - 3,199
Unaccrued part of credit insurance premium 3,794 4,578
Unaccrued part of long-term credit financial costs 8,278 5,937
Unaccrued part of special bonus due under collective agreement 5,338 534
Others 1,558 747
C A P S. A. 7
11. SHORT-TERM BORROWINGS FROM BANKS ( Code 21010 )
The detail of these is as follows: (in thousands of US dollars)
Currency
US dollars Other foreign currencies Unidades de Fomento Pesos Total Bank 1997 MUS$ 1996 MUS$ 1997 MUS$ 1996 MUS$ 1997 MUS$ 1996 MUS$ 1997 MUS$ 1996 MUS$ 1997 MUS$ 1996 MUS$
Banque Sudameris Int. - Panama - - 4,606 - - - 4,606
Swiss Bank Corporation - New York - - 10,081 - - - 10,081
ANZ Banking Group Ltd. - New York - - 1,701 - - - 1,701
Banco Sud Americano 5,046 - - - 5,046
-Corp Banca 10,092 - - - 10,092
-Credit Lyonnais – New York - - 5,043 - - - 5,043
Banco de Crédito e Inversiones - - 5,233 - - - 5,233
Total ( Code 21010 ) 15,138 26,664 - - - - - - - - - - - - 15,138 26,664
Principal outstanding 15,000 15,000
Average annual interest rate 9.10% 9.10%
(weighted by balances of principal)
Percentage liabilities in foreign currency 100% Percentage liabilities in local currency -The amounts shown include interest accrued until the year-end.
C A P S. A. 8
12. OTHER SHORT-TERM LIABILITIES (Codes: 21025 to 21110)
a) The detail of other short-term liabilities is: (in thousands of US dollars)
Currency
US dollars Other foreign currencies Unidades de Fomento Pesos Total 1997 MUS$ 1996 MUS$ 1997 MUS$ 1996 MUS$ 1997 MUS$ 1996 MUS$ 1997 MUS$ 1996 MUS$ 1997 MUS$ 1996 MUS$ Bonds issued - - - 4,161 - - - 4,161
Current portion of other long-term
liabilities * 2,773 3,724 - - - - * 2 252 - - - - * 2,775 3,976
Notes payable * 51,032 17,428 - - - 22 - - * 51,054 17,428
Accounts payable to related
companies - - 32 - - - 271 125 271 157 Dividends payable - - - 3,603 3,714 3,603 3,714 Accounts payable 6,824 5,169 - - - 22,205 24,026 29,029 29,195 Sundry creditors 1,365 1,142 - - - 241 179 1,606 1,321 Provisions ( Note 16 ) 8,669 3,850 - - - 27,344 22,279 36,013 26,129 Withholdings - - - 3,585 3,496 3,585 3,496
Income tax ( Note 18 ) 158 61 - - - 31 - - 189 61
Unearned income 404 222 - - - 164 63 568 285
Other current liabilities - - - 198 - - 10 - - 208
Total ( Codes 21025 to 21110 ) 71,225 31,628 - - - - 2 4,611 57,466 53,892 128,693 90,131
Principal outstanding 70,440 2 57,466 127,908
Average annual interest rate * 6.10% * 12.39% * 6.10%
(weighted according to balances of principal)
Percentage liabilities in foreign currency 55.3%
C A P S.A. 9
b. Detail of principal liabilities:
The detail of the principal current liabilities not mentioned in other notes, is as follows:
1997 1996 Maturity
MUS$ MUS$ 1997
Accounts payable:
Pan Ocean 253 116 January 1998
Harbison Walker 130 - - January 1998
Mitsubishi Corporation (Brazil) 294 - - January 1998
Ferrostaal A.G. 284 - - January 1998
Villares S.A. 166 - - January 1998
Allied Colloids 221 - - January 1998
Refratechnik GMBH 114 262 January 1998
S.G.L. Carbón 137 - - January 1998
Winckler Int. Co. Ltd. 162 132 January 1998
Magotteaux Andino Ltda. 246 514 January 1998
Detroit Diesel-MTU Allison S.A. 184 199 January 1998
Hechett Multiserv S.A. 335 537 January 1998
Empresa Nacional de Explosivos S.A. 608 703 January 1998
Compañía de Petroleos de Chile S.A 623 554 January 1998
Empresa Nacional de Electricidad S.A. 2,958 3,182 January 1998
Finning Chile S.A. (formerly Gildemeister) 668 548 January 1998
Refractarios Chilenos S.A. 787 - - January 1998
Mauricio Hochschild S.A. 373 - - January 1998
Shell Chile S.A. 163 - - January 1998
Comercial Eguiguren 493 - - January 1998
Sodimac 611 577 January 1998
Calixto Chicharro S.A. 296 371 January 1998
Ferronor S.A. 236 203 January 1998
Industria Nacional de Cemento S.A. 471 496 January 1998
ICI Explosives Chile 192 218 January 1998
Luar Aluminio Argentino S.A.I. - - 283
Dolomitwerke GMBH - - 121
Petrox S.A. - - 2,101
Refractarios Lota Green S.A. - - 448
Vulco S.A. - - 228
Others of minor individual value 18,024 17,402 January 1998
Total ( Code 21050 ) 29,029 29,195
Notes payable:
Ferrostaal A.G. 36,384 - - January to April 1998
BHP Australia Coal Pty. Ltd. 7,708 10,660 February to May 1998
Fording Coal Limited 3,358 3,396 April and June 1998
Luscar Ltd. 1,791 1,686 March and June 1998
Consol of Canada Inc. 1,791 1,686 March and June 1998
Others of minor individual amounts 22 - - January 1998
C A P S. A. 10
13. LONG-TERM LIABILITIES TO BANKS AND FINANCIAL INSTITUTIONS (Codes 21015 & 22010)
The detail of these is the following (including the short-term portions): (in thousands of US dollars)
Currency or adjust-ment index Short-term portion
Long-term maturities Principal At 31.12.96
1999 2000 2001 2002 2003 2004 onward * Total at 31.12.97 Annual interest ratel Outstandi ng at 31.12.97 Short-term portion Long-term portion Bank or Financial Institution MUS$ MUS$ MUS$ MUS$ MUS$ MUS$ MUS$ MUS$ % MUS$ MUS$ MUS$
M.H. Panamá S.A.- Coke Tranche I YEN 9,286 9,059 9,059 4,530 - - - 31,934 Tasa Fija 4.00 31,706 10,495 35,557 M.H. Panamá S.A.- Coke T. II & III US$ 4,537 4,328 4,328 2,164 - - - 15,357 Fija 6.495+1.25 15,149 4,597 15,148 Kreditanstalt Für Wiederaufbau – Coke US$ 2,369 2,191 2,191 1,095 - - - 7,846 Tasa fija 6.49 7,667 2,420 7,668 M.H. Panamá S.A. – Galvanizing US$ 1,283 1,185 - - - 2,468 Fija 6.87 + 1.25 2,369 1,334 2,370
M.H. Panamá S.A.-C.C.P. Tranche I YEN - - - 733
-M.H. Panamá S.A.-C.C.P. Tranches II & III US$ - - - 3,404
-M.H. Panamá SA-Cold Roller T. I to III & IX US$ 2,732 2,593 2,593 2,593 2,593 2,593 5,185 20,882 Libor + 0.95 20,743 2,734 20,743 M.H. Panamá S.A.-Cold roller Tranche IV US$ 7,330 7,185 7,185 - - - 21,700 Libor + 0.95 21,556 7,359 21,555 Banque Paribas – Cold Roller US$ 4,037 4,037 4,038 4,037 4,037 4,037 6,056 30,279 Tasa fija 7.90 30,279 4,037 30,280 Chase Manhattan Bank US$ 2,984 2,918 2,918 2,918 2,919 2,918 4,378 21,953 Libor + 0.45 21,888 2,984 21,888 The Bank of Tokyo-Mitsubishi Ltd.-N.York US$ 7,498 6,208 6,207 6,208 6,207 6,207 12,415 50,950 Libor + 0.60 49,659 7,624 49,659 The Bank of Tokyo-Mitsubishi Ltd.- Tokyo US$ 2,401 2,176 2,177 2,176 2,176 2,177 4,352 17,635 Libor + 2.00 17,410 2,825 17,410
The Sumitomo Corp. – MDF US$ 734 1,360 - - - 2,094 Fija 6.87 + 1.50 2,080 720 2,800
Kreditanstalt Für Wiederaubau US$ - - - 1,980
-Kreditanstalt Für Wiederaufbau US$ - - - 58
-Kreditanstalt Für Wiederaufbau US$ - - - 425
-Finnish Export Credit Ltd. US$ - - - 533 794
International Finance Corp. (Direct) US$ - - - 2,023 5,000
International Finance Corp (Subordinated) US$ 6 - - - - 2,000 - - - 2,006 Libor 2,000 5 2,000
Union Bank of Switzerland NY (Syndicated) US$ 522 - - - - 75,000 - - - 75,522 Libor + 0.65 75,000 816 75,000
Union Bank of Switzerland N.Y. US$ 2,437 1,188 - - - 3,625 Libor + 0.65 3,563 - -
-Santander Investment Bank Limited US$ 10,024 18,724 18,724 18,724 - - - 66,196 Libor + 0.75 65,535 653 65,534 Santander Investment Bank Limited US$ 1,451 - - - - 65,000 - - - 66,451 Libor + 0.75 65,000 1,472 65,000
Banco Santander London Branch US$ 2,015 2,000 1,000 - - - 5,015 Libor + 0.2405 5,000 - -
-Bank of America Illinois - IBF US$ - - - 13,215
-Banco de Crédito e Inversiones US$ - - - 5,033
-Banco Santander US$ - - - 12,531
-Banco Sud Americano US$ - - - 10,428
-Total ( Codes 21025 & 22020 ) 61,646 65,152 60,420 186,445 17,932 17,932 32,386 441,913 436,604 100,438 438,406
(*) Corresponds to maturities in 2004 amounting to MUS$ 17,932 and in 2005 to MUS$ 14,454.- Total amount in foreign currency MUS$ 441,913 The amounts shown in the short-term portion include interest accrued to the year-end. Total amount in local currency MUS$
-C A P S. A. 11
The Company has carried out the following swap operations:
a. Currency swap of a credit from Kreditanstalt für Wiederaufbau whose principal amounts was MUS$ 7,667 at December 31, 1997. This credit was granted in German marks and the swap operation converted this obligation into US dollars at DM 1.691 per US$, maintaining the interest rate at 6.49%.
b. Interest swaps changing the floating interest rate on some loans as follows:
Bank or financial institution Swap period
Principal outstanding at
12.31.97
Swap rate
MUS$ %
MH Panamá – Contin. galvanizing 07.07.1993 to 07.07.1999 2,369 6.870
MH Panamá – Coke tranches II & III 30.04.1993 to 30.10.2000 15,149 6.495
Sumitomo Corporation - (MDF) 03.07.1993 to 03.07.1999 2,080 6.870
c. On August 12, 1996, a loan agreement was signed whereby CAP S.A. replaced Surandinas S.A. as the debtor under a credit for 7,058 million yen, granted by Santander Investment Bank Limited. This credit carries a swap by which it was converted into an obligation for US$ 65,535, with interest at Libor + 0.75%.
12 C A P S. A.
14. OTHER LONG-TERM LIABILITIES (Codes: 22040-22050-22070)
The maturities and main characteristics of other long-term liabilities is as follows: (in thousands of US dollars)
Years to maturity Total at
Average annual interest rate Principal outstand-ing 31.12.96 Currency or adjust-ment unit 1999 2000 2001 2002 2003 2004 on-ward 31.12.97 al 31.12.97 Short-term portion Long-term portion
MUS$ MUS$ MUS$ MUS$ MUS$ MUS$ MUS$ % MUS$ MUS$ MUS$
Bonds issued ( Note 15 )
U.F. - - - 4.161 65.329
Sundry creditors $ - - - 1
US$ 6,956 2,404 5,779 288 105 315 15,847 9.21 15,847 - - 19,042
Long-term provisions $ 7,085 4,504 3,864 2,998 3,218 19,221 40,890 5.87 40,890 3,510 40,770
US$ 584 584 433 433 431 - - 2,465 Libor 2,465 - - 8,289
Other long-term liabilities U.F. 2 - - - 2 2 - -
-US$ - - - - 2,371 - - - 2,371 2,371 - - 3,107
Total (Codes 22040,22050 & 22070) 14,627 7,492 12,447 3,719 3,754 19,536 61,575 61,575 7,671 136,538
Total due in foreign currency MUS$ 20,683
Total due in local currency MUS$ 40,892
13 C A P S. A. 15. BONDS ISSUED 1997 1996 MUS$ MUS$ Short term
Current portion of long-term bonds - - - 3,126
Accrued interest - - - 1,035
Total (Code 21025) - - - 4,161
Long term
Issue No.151 (Series B.1) - - - 59,390
Issue No.151 (Series B.2) - - - 5,939
Total (Codes 22020) - - - 65,329
On June 24, 1997, CAP S. A. made a voluntary redemption offer for this series of bonds; this offer expired on July 14, 1997. Their full redemption was completed on July 4, 1997.
Their characteristics were:
Amount of the issues: No.151 (Series B.1) UF 2,000,000 No.151 (Series B.2) UF 2,000,000 Individual amount of
bonds
No.151 (Series B.1) UF 5,000 each No.151 (Series B.2) UF 5,000 each
Issue date: No.151 (Series B.1 &
B.2)
October 23, 1991
Term: No.151 (Series B.1) 25 years
No.151 (Series B.2) 27 years
Last maturity: No.151 (Series B.1) October 1, 2016
No.151 (Series B.2) October 1, 2018 Indexation: No.151 (Series B.1 &
B.2)
According to the Unidad de Fomento
Principal repayments No.151 (Series B.1) Annually as from October 1, 1997 No.151 (Series B.2) Annually as from October 1, 1999
Interest rate: No.151 (Series B1/B2) 6% annually in arrears
Prepayments: No.151 Partial or total as from October 1, 1997
for the Series B.1 and October 1, 1999 for the Series B.2. If made prior to September 30, 2000 for the Series B.1 and September 30, 2002 for the Series B.2, the bonds would be redeemed at 110% of principal plus accrued interest. This surcharge gradually reduced and was eliminated after 2010 for the Series B.1. and 2012 for the Series B.2..
14 C A P S. A.
16. SHORT AND LONG-TERM PROVISIONS AND WRITE-OFFS
a) Short-term provisions are as follows: 1997 1996
MUS$ MUS$
Shown under current liabilities:
Severance indemnities 7,353 3,510
Vacations 10,991 10,125
Long-service awards 5,966 5,831
Other personnel-related provisions 2,668 2,397
Operating & maintenance provisions 3,607
-Other sundry provisions 5,428 4,266
Total ( Code 21080 ) 36,013 26,129
Deducted from the respective asset accounts:
Short and long-term debtors 4,820 3,880
Inventories 9,006 9,140
It is the policy of the Company and its subsidiaries to make provisions for all receivables subject to judicial recovery and to make specific and global provisions for outstanding accounts with some risk of non-payment. The specific debtors mentioned in Circular No.458 of the Superintendency of Securities and Insurance (in suspension of payments or bankruptcy) are for insignificant amounts and are fully provided for. There are no accounts receivable from related companies representing any risk of non-payment. The management of the Company and its subsidiaries therefore believes that the provisions made cover reasonably the risks of bad debts in all its accounts receivable.
b) Write-offs:
There were no significant write-offs during 1997. In 1996, non-operating assets of MUS$ 796 were written off.
c) Long-term provisions are as follows:
1997 1996
MUS$ MUS$
Severance indemnities 30,607 32,878
Other personnel provisions 9,843 7,452
Major repairs to fixed assets - - 5,625
Sundries 2,905 3,104
Total ( Code 22050 ) 43,355 49,059
The long-term provision for severance indemnities showed the following movement:
1997 1996
MUS$ MUS$
Balance at January 1 32,878 31,197
Provision for the year 8,011 9,209
Payments in the year & transfers to current provisions (10,282) (7,528)
15 C A P S. A.
17. ACCOUNTS RECEIVABLE AND PAYABLE AND TRANSACTIONS WITH RELATED COMPANIES
a. Main related companies:
During 1997 and 1996, the Company and subsidiaries had transactions with the following related companies:
RUT (Tax No.) Shareholders & Directors in common:
Forestal Terranova S.A. 96,708,490-5
Invercap S.A. (Associate) 96,707,470-0
Director in common:
Sociedad Naviera Ultragas Ltda. 80,927,500-0
Associates:
Compañía Minera Carmen de Andacollo 78,126,110-6
Compañía Minera Huasco S.A. 96,778,700-0
Compañía Minera La Jaula 78,781,830-7
Subsidiaries of Forestal Terranova S.A.:
Terranova S.A. 96,533,620-6
Andinos S.A. 96,469,000-6
Sociedad Forestal Millalemu S.A 96,527,410-3
Fibranova S.A. 96,623,490-3
Subsidiaries & associates of Invercap S.A.:
Aster S.A. 96,622,880-6
Agronova Fruta S.A. 96,625,330-4
Inmobiliaria y Constructora San Vicente Ltda. 79,756,730-2
Sabimet S.A. 91,596,000-6
Centroacero S.A. 96,619,660-2
Cintac S.A. 92,544,000-0
Inversiones Quilicura S.A. 96,639,150-2
Tecno Steel S.A. 96,706,060-7
b. Balances receivable and payable: These arise from the ordinary course of business and are as follows:
1997 1996 Maturities
MUS$ MUS$ 1997
Short-term receivables:
Compañía Minera Carmen de Andacollo 105 3 Ct. Acct.
Compañía Minera Huasco S.A. 304 298 Ct. Acct.
Sabimet S.A. 790 1,036 Ct. Acct.
Compañía Minera La Jaula 9 10 Ct. Acct.
Cintac S.A. 1,609 2,280 Ct. Acct.
Inversiones Quilicura S.A. 267 84 Ct. Acct.
Tecno Steel S.A. 104 27 Ct. Acct.
Invercap S.A. 108 - - Ct. Acct.
Centroacero S.A. 129 213 Ct. Acct.
Terranova S.A. - - 20 Ct. Acct.
Sociedad Forestal Millalemu S.A. - - 7 Ct. Acct.
Andinos S.A. - - 4 Ct. Acct.
Fibranova S.A. - - 1 Ct. Acct.
16 C A P S. A.
1997 1996 Maturities
MUS$ MUS$ 1997
Long-term receivables:
Compañía Minera Carmen de Andacollo 12,295 11,482
Compañía Minera Huasco S.A. 481 387
Total ( Code 13035 ) 12,776 11,869
Short-term payables:
Sabimet S.A. 88 117 Ct. Acct.
Andinos S.A. 76 36 Ct. Acct.
Cintac S.A. 107 4 Ct. Acct.
Total ( Code 21075 ) 271 157
c. Transactions:The main transactions with non-consolidated related companies are as follows:
1997 1996
MUS$ MUS$
Sales of steel products & others to:
Cintac S.A. 27,847 26,504
Sabimet S.A. 11,189 11,995
Centroacero S.A. 3,535 2,215
Inversiones Quilicura S.A. 3,239 2,486
Sociedad Naviera Ultragas Ltda. - - - 153
Tecno Steel S.A. 1,195 599
Interest and other credits to income received from:
Inmobiliaria y Constructora San Vicente Ltda. - - - 178
Aster S.A. - - - 731
Agronova Fruta S.A. - - - 599
Compañía Minera Huasco S.A. 2,663 1,869
Compañía Minera Carmen de Andacollo 931 2,038
Cintac S.A. - - - 13
Sociedad Naviera Ultragas Ltda. 4
-Forestal Terranova S.A. and subsidiaries 89 183
Invercap S.A. 100 10
Purchases of products, services, etc. from:
Fibranova S.A. 77 100
Cintac S.A. 292 483
Sabimet S.A. 193 255
Centroacero S.A. - - - 70
Sociedad Naviera Ultragas Ltda. 6,786 6,434
17 C A P S. A.
18. INCOME TAX
In 1997 and 1996, the Company and some of its subsidiaries made no provision for income tax as they had tax losses for the year. At December 31, 1997, the remaining balance of these losses in the subsidiaries is estimated at approximately MUS$ 3,862 and there is no expiry date. The tax losses of CAP S.A. were fully absorbed in 1997 and 1996 by the taxed income fund.
CAP S.A. showed a credit to Other non-operating income of taxes recovered amounting to MUS$ 1,353 in 1997 and MUS$ 33 in 1996 by taking advantage of credits for tax losses absorbed by dividends received from its subsidiaries.
At December 31,1997, CAP S.A. has retained tax losses amounting to MUS$ 426 approximately, without rights to fiscal credit, and has no exempt income or income not constituting tax income. In the case of the subsidiaries, tax profits amount to MUS$ 82,919, tax credits to MUS$ 11,246 and non-taxable income to MUS$ 2,246.
The tax payable shown in the accounts corresponds to that of the Company and certain subsidiaries, as follows:
1997 1996
MUS$ MUS$
Income tax prior to applying accumulated tax losses
(4,861) (5,836)
Special Article 21 tax (114) (108)
Income before tax (4,975) (5,944)
Extraordinary income from application of accumulated
tax losses of subsidiary 1,788 2,252
Net charge to income for tax (3,187) (3,692)
Provisional payments & other credits 5,718 4,775
Net tax recoverable 2,531 1,083
At December 31, 1997 and 1996, net taxes recoverable are shown in the current assets for MUS$ 2,720 and MUS$ 1,144 respectively, and in Income tax in the current liabilities for MUS$ 189 and MUS$ 61 respectively.
At December 31, 1997, the potential liability in the subsidiaries for deferred income tax, related to timing differences whose reversal is compensated by future differences of the same origin, amount to MUS$ 42,829. This includes MUS$ 7,171 with respect to the year.
18 C A P S. A.
19. SHAREHOLDERS’ EQUITY
The equity accounts showed the following movement:
Reserves Retained earnings Paid-in capital Share in reserves of subsidiaries Accummu -lated For the year Interim dividends TOTAL
MUS$ MUS$ MUS$ MUS$ MUS$ MUS$
January- December 1996
Balance at January 1, 1996 379,444 3,057 53,952 28,069 (9,381) 455,141
Transfers - - - - 18,688 (28,069) 9,381
-Final dividends - - - - (4,654) - - - - (4,654)
Nat equity changes in
subsidiaries - - 240 - - - 240
Net income for the year - - - 22,892 - - 22,892
Interim dividends - - - (9,755) (9,755)
Balances at Dec. 31, 1996 379,444 3,297 67,986 22,892 (9,755) 463,864
January-December 1997
Transfers - - - - 13,137 (22,892) 9,755
-Final dividends - - - - (1,691) - - - - (1,691)
Net equity changes in
subsidiaries - - 392 - - - 392
Net income for year - - - 39,828 - - 39,828
Interim dividends - - - (12,490) (12,490)
Balances at Dec. 31, 1997 379,444 3,689 79,432 39,828 (12,490) 489,903
Paid-in capital:
At December 31, 1997 and 1996, the authorized, issued and paid capital was represented by 149,448,112 shares of no par value.
Share of the reserves of subsidiaries:
These reserves arise from equity changes in subsidiary and associate companies which maintain their accounting in local currency.
Income distribution:
Under current legislation, at least 30% of the net income for the year must be distributed in cash dividends, unless otherwise agreed unanimously at a shareholders’ meeting. During 1997 and 1996, the board or shareholders’ meeting agreed to distribute the following dividends:
Dividend Income of
year
Date of agreement
Payment date MUS$
No. 48 Final 1995 18.04.96 26.04.96 3,628 No. 49 Final 1995 18.04.96 24.07.96 1,026 No. 50 Interim 1996 05.07.96 24.07.96 2,619 No. 51 Interim 1996 04.10.96 30.10.96 3,619 No. 52 Interim 1996 13.12.96 22.01.97 3,517 No. 53 Interim 1996 11.04.97 23.04.97 1,691 No. 54 Interim 1997 11.04.97 23.04.97 1,902 No. 55 Interim 1997 04.07.97 25.07.97 3,584 No. 56 Interim 1997 03.10.97 29.10.97 3,601 No. 57 Interim 1997 05.12.97 21.01.98 3,403
The policy agreed by the shareholders is to distribute 50% of net income as dividends and retain the remaining 50% as a reserve.
19 C A P S. A.
20. SHAREHOLDER STRUCTURE
The book value of the shares at December 31, 1997 is 3.2781 dollars, equivalent to 1,440 pesos per share, (1996 : 3.1038 dollars equivalent to 1,319 pesos per share).
The distribution of shareholders at December 31, 1997 is as follows:
Kind of shareholder Total percentage holding Number of share-holders Holding of 10% or more 27.37% 1
Less than 10% holding:
With investment of UF 200 or over 71.22% 1,779
With investment of less than UF 200: 1.41% 5,909
Total 100.00% 7,689
20 C A P S. A.
21. SHARE TRANSACTIONS
Share transactions made during 1997 and 1996 by the main shareholders, the chairman, directors and managers of the Company are the following:
Number of shares
Name Relationship 1997 1996
a) Purchases:
Invercap S.A. Majority shareholder - - 1,030,000
Sergio Verdugo Aguirre Manager 1,600 4,000
Jaime Arbildua Aramburu General Manager - - 2,088
Sonia Cárdenas Pavincich Wife of Manager - - 2,000
b) Sales:
Sonia Cárdenas Pavincich Wife of Manager - - 2,000
Fernando Alvear Artaza Director - - 1,600
22. DIRECTORS’ REMUNERATION
The detail of remuneration paid to the directors of the Company and it subsidiaries is as follows:
1997 1996
MUS$ MUS$
Attendance fees 352 337
Representation expenses 96 92
21 C A P S. A.
23. OPERATING INCOME AND EXPENSES
The following is a detail of these:
1997 1996 MUS$ MUS$ Sales: Domestic market: Steel products 444,176 363,986 Other products 22,618 28,950 Services 3,130 2,189 External market: Steel products 23,791 29,576 Pellets 113,746 112,622
Lumps & fines 49,786 44,431
Other products 711 482 Services 10,589 9,516 Total ( Code 41110 ) 668,547 591,752 Operating expenses: Personnel 126,553 124,574 Raw materials 122,777 86,807 Materials 95,546 89,477
Purchase of products for sale 8,488 15,110
Services bought or rented 114,499 114,021
General expenses 19,878 20,517
Depreciation 61,854 62,156
Transfer of costs (9,408) (14,475)
Change in products inventories 16,145 3,127
Total ( Code 41120 ) 556,332 501,314
Composition of costs:
Fixed 47.2 % 45.5%
Variable 52.8 % 54.5%
24. OTHER NON-OPERATING INCOME AND EXPENSES
The detail of these is as follows:1997 1996
MUS$ MUS$
Other income:
Services provided 1,870 1,824
Adjustments & exchange differences 4,049 4,793
Recovery of expenses 1,212
-Gain on sale of fixed and other assets (net) 1,016 8,838
Other 3,309 2,856
Total (Code 42130) 11.456 18,311
Other expenses:
Net cost of bonds redemption 2,751
-Adjustment to market of marketable securities 2,003
-Adjustment to provisions 2,100 1,296
Write-off of non-operating assets - - 796
Process engineering, project research & development
2,800 2,216
Other 2,359 2,126
22 C A P S. A.
25. CONTINGENCIES AND COMMITMENTS
Contingencies and commitments comprise:
a. Direct commitments: 1997 1996
MUS$ MUS$
Guarantees given
National Customs Service 824 3,468
Other minor guarantees 55 34
Other direct commitments Short term:
Commitments for mineral sales 167,661 134,017
Customer orders for future purchases of steel products
82,946 79,164
Purchase orders placed 108,749 39,772
Customer invoices sold to a financial institution
18,117 12,794
Deferred customs duties 1,153 556
Other 2,197 3,710
Long term:
Mineral sale commitments 378,081 120,264
Deferred customs duties 1,926 2,814
Mineral sale commitments refer to contracts signed with foreign customers, valued at sale prices prevailing at the year-end. These contracts are revised periodically with the customers. The average term of the contracts is three years.
As part of the association agreement with MC Inversiones Ltda., described below, Compañía Minera Huasco S.A. will sell to Compañía Minera del Pacífico S.A. the whole of its production of pre-concentrates for their transformation into pellets. In turn, the whole of the pellets production will be sold to Compañía Minera Huasco S.A.. The mineral sale commitments mentioned above do not include the effects of this agreement.
Deferred customs duties are not shown as liabilities as it is expected to benefit from export incentives which exempt it from payment of these duties.
Compañía Siderúrgica Huachipato S.A. is jointly liable for long-term loans taken by CAP S.A. which amount to MUS$ 429,173 at December 31, 1997..
Compañía Minera del Pacífico S.A. is jointly liable for loans taken by CAP S.A. with Union Bank of Switzerland and Santander Investment Bank Limited which amount to MUS$ 208.170 at December 31, 1997 and is committed to grant guarantees for up to MUS$ 200,000 in favor of the Company.
Compañía Minera del Pacífico S.A. granted its guarantee for 30% of the liabilities under a loan by its associate Compañía Minera Carmen de Andacollo with Canada Tungsten (Cayman) Inc.. The amount of the credit outstanding at December 31, 1997 is MUS$ 45,000.
Association agreements:
Compañía Minera del Pacífico S.A. has subscribed for 3,807 shares, equivalent to MUS$ 5,972, in a capital increase of its associate Compañía Minera Carmen de Andacollo. This is payable up to March 1998. The sum paid to date amounts to MUS$ 42.
23 C A P S. A.
During 1995, Compañía Minera del Pacífico S.A. (C.M.P.) and MC Inversiones Ltda., a subsidiary of Mitsubishi Corporation, agreed to carry out a joint project for expanding the Los Colorados mine, to produce iron pre-concentrates, convert these into pellets and sell the pellets. Consequently, C.M.P. sold to MC Inversiones Ltda. 50% of the absolute rights over the mining claims and water rights related to the Los Colorados mine. In 1996, both companies each contributed for MUS$ 10,500 their respective capital rights in Compañía Minera La Jaula. C.M.P. also holds 50% of Compañía Minera Huasco S.A., a close corporation to exploit the above mining claims. It should contribute MUS$ 10,500 to this company between 1996 and 1998. At December 31,1997, the contributions made amount to MUS$8,723. For a ten-year period, neither of the parties may cede, assign, transfer, mortgage, encumbrance, pledge or dispose in any other way of its shares in the two new companies mentioned above without the prior written consent of the other party.
The project is being fully financed by a loan MUS$ 71,700 by the Mitsubishi Corporation group, through MV Cayman Limited. The amount of the loan plus accrued interest at December 31, 1997 amounts to MUS$ 58,099. As its sponsors, C.M.P. and MC Inversiones Limitada have committed to provide Compañía Minera Huasco S.A. with the resources necessary for completing the project should the financing from MV Cayman Limited prove to be insufficient. In addition, they have committed to supporting the liability of Compañía Minera Huasco S.A. by making certain financial reserves against the project’s cash flow during its first two years of production for a total of up to MUS$ 10,700 approximately. Each sponsor is jointly liable for 50% of the commitments and their eventual materialization would be by subordinated loans.
After twenty years from the project’s production start-up, expected for 1998, and after C.M.P. has fully depreciated the pellets plant, Compañía Minera Huasco S.A. shall have the option to retain the plant.
Other agreements:
Compañía Minera del Pacífico S.A.: Ship charter contract, which expires in 2003. The total value of this amounts to MUS$ 53,622 at December 31, 1997 (MUS$ 64,089 in 1996).
En 1994, Compañía Minera del Pacífico S.A. signed a five-year operating lease agreement covering operating equipment for the El Romeral mines operation. The value of un-accrued future installments at December 31, 1997 amounts to approximately MUS$ 3.161.
b. Contingencies for lawsuits that could result in losses for the Company.
On March 22, 1993, the subsidiary Compañía Minera del Pacífico received a demand for damages from olive-growers in Huasco valley. They are demanding an amount of approximately MUS$ 60,000 with respect to particle emissions from the pellet plant.
The subsidiary is contesting the case and in turn demanding the payment by the olive-growers jointly of approximately MUS$ 29,000 for material damages and jointly and severally approximately MUS$ 38,000 for moral damages.
In December 1997, both parties were notified that, in judgment given in the first instance by the First Court of La Serena, both the demand of the olive-growers and the counter-demand of Compañía Minera del Pacífico S.A. had been dismissed. Both parties have appealed against this judgment.
This lawsuit continues pending but the Company’s legal counsel believes no losses will arise for the subsidiary.
c. Management or financial covenants.
The loan agreements between the Company and Union Bank of Switzerland and Santander Investment Bank Limited require compliance with certain covenants, referring mainly to providing periodic consolidated financial information, maintaining current its liabilities to third parties, obtaining the prior consent of the banks for disposing of or selling all or a substantial part of its assets and for encumbrancing these. The agreements also require the Company to meet, on the basis of the consolidated financial statements, financial ratios relating mainly to interest cover, liquidity, minimum equity and debt to equity. The requirements in terms of liquidity and long-term debt payments also appear in another loan agreement.
24 C A P S. A.
26. INSURANCES AND GUARANTEES RECEIVED
At December 31, 1997, insurances contracted and guarantees received were the following:
a) The Company and its subsidiaries have taken insurance cover for their fixed assets and other business risks for an amount of approximately MUS$ 1,115,000, whose maximum cover per claim is approximately MUS$ 200,000. These policies expire on July 31, 1998.
b) Guarantees received from third parties are as follows:
1997 1996
MUS$ MUS$
Amounts in guarantee for sales 7,324 6,875
Mortgages and pledges for loans to personnel 17,467 18,634
Amounts and documents received from suppliers and
contractors to guarantee works, and advances 4,041 4,001
Current contracts & others 2,355 3,849
Guarantee received from a financial institution to
guarantee a foreign bank loan 5,015
-Total 36,202 33,359
27. PENALTIES
In July 1997, the Superintendency of Securities and Insurance censured the general manager of Compañía Siderúrgica Huachipato S.A. for the late correction of a diskette accompanying the FECU (financial statements) which had contained mistakes in its preparation.
Apart from the above, during 1997 and 1996, the Superintendency of Securities and Insurance has applied no other kind of sanction to the Company or its subsidiaries, nor to their directors or managers with respect to their duties as such.
28. POST BALANCE-SHEET EVENTS
There has been no significant event between January 1st and 19th, 1998, that affects these financial statements.
Jaime Arbildua Aramburu Patricio Valdivia Muñoz
General Manager Accountant
