6-K 1 d820315d6k.htm FORM 6-K Form 6-K
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

 

 

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of October 2019

Commission File Number 33-99720

 

 

ARAUCO AND CONSTITUTION PULP INC.

(translation of registrant’s name into English)

 

 

El Golf 150

Fourteenth Floor

Santiago, Chile

(address of principal executive offices)

 

 

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

Form 20-F  ☒            Form 40-F  ☐

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

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

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

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

  Management’s Discussion and Analysis of Financial Condition and Results of Operation      1  
  Unaudited Interim Consolidated Financial Statements as of and for the Six-Month Periods Ended June 30, 2018 and 2019      13  

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion is based on, and should be read in conjunction with, our unaudited interim consolidated financial statements as of and for the six-month periods ended June 30, 2018 and 2019, included in this Form 6-K. Our unaudited interim consolidated financial statements are prepared in US dollars in accordance with IFRS.

This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth under “Risk Factors” in our annual report on Form 20-F for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission on April 17, 2019 (our “2018 Form 20-F”).

Overview

We believe that we are one of Latin America’s largest forest plantation owners and one of the world’s largest producers of bleached and unbleached softwood kraft pulp, bleached hardwood kraft pulp and wood products in terms of production capacity. We have industrial operations in Chile, Argentina, Brazil, Mexico, the United States and Canada. We also have industrial operations in Uruguay through our 50% share in Montes del Plata and in Spain, Portugal, Germany and South Africa through our 50% share in Sonae Arauco. As of June 30, 2019, we had more than 1.0 million hectares of plantations in Chile, Argentina, Brazil and Uruguay combined.

During 2018 and the six-month period ended June 30, 2019, (i) we sold 3.7 million and 1.8 million metric tonnes of pulp, respectively, in the form of hardwood bleached pulp, softwood bleached pulp, softwood unbleached pulp and fluff pulp; (ii) we sold 8.2 million and 4.2 million cubic meters of wood products, respectively, including sawn timber (green and kiln-dried lumber), remanufactured wood products, plywood and fiberboard panels; and (iii) we harvested 22.3 million and 10.1 million cubic meters of sawlogs and pulplogs, respectively. In 2018 and the six-month period ended June 30, 2019, export sales constituted approximately 67.8% and 63.8% of our total revenue, respectively. During 2018, sales in Asia, South and Central America and North America accounted for 40.1%, 23.4% and 24.8% of our total revenue for such year, respectively.

As of June 30, 2019, our planted forests consisted of approximately 64.3% radiata, taeda and elliottii pine and approximately 33.4% eucalyptus. We seek to manage our forestry resources sustainably, 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 and the six-month period ended June 30, 2019, we planted a total of 85,243 and 32,189 hectares, respectively, and harvested a total of 65,441 and 23,050 hectares, respectively, in Chile, Argentina, Brazil and Uruguay.

We operate our forestry business through three main divisions: pulp, wood products and forestry products. During 2018 and the six-month period ended June 30, 2019, (i) our pulp revenues were US$2,955 million and US$1,227 million, respectively, representing 49.6% and 44.8% of our total revenue for such respective periods; (ii) our wood products revenues were US$2,762 million and US$1,424 million, respectively, representing 46.4% and 52.0% of our total revenue for such respective periods and (iii) our forestry products revenues (from sales to third parties) were US$107.4 million and US$61.1 million, respectively, representing 1.8% and 2.2% of our total revenue for such respective periods.

Factors Affecting Our Results of Operations

Our results of operations are affected by numerous factors. Our profitability is highly sensitive to changes in sales volumes and prices, one of the primary drivers of which is demand in our principal export markets. Demand levels are highly dependent on cyclical and structural changes in the world economy, changes in industry capacity, output levels and customer inventory levels. As with many commodities, pulp is subject to significant cyclical price fluctuations determined by global supply and demand, and, accordingly, our results of operations are subject to cyclical fluctuations. Prices for wood products and forestry products also fluctuate significantly. 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 of operations.

Because many of these factors are beyond our control, and certain of these factors have historically been volatile, our past performance is not necessarily indicative of our future performance which is difficult to predict with any degree of certainty.

 

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Exchange Rate Fluctuations

We generally price our exports in US dollars, whereas our domestic sales in Chile are priced in Chilean pesos except for pulp sales, which are priced in US dollars; domestic sales in Brazil are priced in Brazilian reals; domestic sales in Argentina are priced in Argentine pesos except for pulp sales, which are priced in US dollars; domestic sales in Mexico are priced in Mexican pesos and domestic sales in the US and Canada are priced in US dollars. To the extent that the Chilean peso depreciates against the US dollar, our domestic revenues may be adversely affected when expressed in US dollars. The same effects may occur for our domestic sales in Argentina, Brazil and Mexico for products sold in Argentine pesos, Brazilian reals and Mexican pesos, respectively.

The Chilean peso has been subject to devaluation in the past and could be subject to significant fluctuations in the future. During 2018, the value of the Chilean peso relative to the US dollar decreased by 14.0% in nominal terms. During the six-month period ended June 30, 2019, the value of the Chilean peso relative to the US dollar decreased 2.2% in nominal terms. The observed exchange rate on June 30, 2019, as published in the Official Gazette on July 1, 2019, was Ch$679.15 to US$1.00. For information regarding historical rates of exchange in Chile from January 1, 2012, see “Item 3. Key Information—Exchange Rates” in our 2018 Form 20-F.

The effect of exchange rate fluctuations is partially offset by the fact that certain of our operating expenses are denominated in US dollars (such as our freight costs, chemicals, spare parts, and others, as well as our selling expenses in the form of commissions paid to our sales agents abroad) and a significant part of our indebtedness is denominated in US dollars. As of June 30, 2019, our US dollar-denominated indebtedness was US$5.7 billion. In addition, as the US dollar appreciates against the legal currency in any of our export markets, we must from time to time price our sales in the legal currency of the relevant jurisdiction to compete effectively.

Exchange rate fluctuations (as well as other economic, political and regulatory developments) in the Chilean, Argentine, Brazilian, Uruguayan, Canadian and Mexican economies may impair our ability to execute our business 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 our 2018 Form 20-F.

Prices for our Products

Price volatility in our markets is a principal factor affecting our results of operation. The prices for each of our pulp, wood products and forestry products depend on conditions in the markets in which they are sold. While prices are generally similar for a given product on a global basis, regionalized market conditions affect prices in markets such as Asia, Europe and the United States.

The following table presents average unit prices of our main products for the periods indicated (based on internally collected data).

 

     Year ended
December 31,
     Six months
ended June 30,
 
Product    2016      2017      2018      2018      2019  

Pulp(1)

              

Bleached pulp

   US$ 549.5      US$ 619.7      US$ 795.6      US$ 797.0      US$ 683.5  

Unbleached pulp

     592.4        659.0        846.7        848.6        730.9  

Wood Products(2)

              

Fiberboard panels

     322.6        337.7        318.9        326.4        318.3  

Plywood

     402.4        420.5        480.7        477.7        448.0  

Sawn timber

     246.8        258.5        272.7        272.1        259.7  

Remanufactured wood products

     556.1        582.8        577.1        571.3        595.6  

Forestry Products(2)

              

Logs

     35.3        32.7        28.3        29.5        26.6  

 

(1)

Prices are shown in US dollars per tonne. Each category of product contains different grades and types and the shipping terms vary with the product and customer.

(2)

Prices are shown in US dollars per cubic meters. We generally quote our prices in US dollars for export sales and in Chilean pesos, Argentine pesos, Brazilian reals, or Mexican pesos, as applicable, for domestic sales.

 

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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. Risk Factors—Risks Relating to Us and the Forestry Industry— Fluctuations in market price for our products could adversely affect our financial condition, results of operations and cash flows” in our 2018 Form 20-F.

Prices for bleached grades of hardwood pulp, including eucalyptus, generally follow the same cyclical pattern as prices for NBSK (as defined below), which is the benchmark for bleached softwood kraft 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. Based on information published by Hawkins Wright Ltd., unbleached softwood market pulp represents approximately 3.6% 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 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”) or bleached hardwood kraft pulp (pulp made from eucalyptus or birch which is sold in Europe and is the benchmark for Bleached Eucalyptus Kraft Pulp, 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 US$811.2 per tonne in October 2015. Following the October 2015 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 US$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 US$652.58 per tonne. A new pulp mill located in Indonesia began its ramp-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 US$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 US$808.83 per tonne.

During 2017, average prices of BEKP and NBSK followed an upward trend, with NBSK reaching US$999.63 per tonne at the end of the year, the highest level since 2011. BEKP prices increased significantly during 2017 reaching US$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 actual capacity of the mill located in Indonesia was lower than the expected capacity for the next three to four years and the lower production of other existing mills due to operational problems. Average prices of Norscan bleached softwood kraft market pulp sold in China (“NBSK (China)”) and bleached hardwood kraft pulp sold in China (“BEKP (China)”) also increased in 2017 reaching US$886.35 per tonne and US$768.57 per tonne, respectively, at the end of 2017. Demand had a steady rise during 2017, which also drove prices to reach higher levels.

During 2018, average prices of NBSK, BEKP, NBSK (China) and BEKP (China) followed an upward trend, slightly decreasing in the last part of the year, with NBSK, BEKP, NBSK (China) and BEKP (China) reaching US$1,200.02 per tonne, US$1,025.73 per tonne, US$723.07 per tonne and US$652.51 per tonne, respectively. 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 trade tensions between China and the United States. Inventory levels increased in 2018, with inventories held by pulp producers and consumers reaching approximately 7.4 million tonnes and 3.5 million tonnes, respectively, in December 2018, compared to 5.5 million tonnes and 4.2 million tonnes, respectively, in December 2017.

During the six-month period ended June 30, 2019, average prices of NBSK, BEKP, NBSK (China) and BEKP (China) declined to US$1,000.31 per tonne, US$902.24 per tonne, US$593.97 per tonne and US$547.55 per tonne, respectively, due to a decrease at the end of June. This decrease in average prices was primarily due to escalating trade tensions between the

 

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United States and China, which generated lower paper demand and historically high inventory levels, which, in turn, resulted in lower pulp demand. Inventories held by pulp producers and consumers reached approximately 8.1 million tonnes and 3.0 million tonnes, respectively, in June 3019. With respect to production capacity, no new capacity entered the market during this period, and no events that could limit the total production capacity occurred.

Prices of NBSK

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

 

As of

   Price      Change  
     (US$)      %  

December 31, 2016

     808.83        0.7  

December 31, 2017

     999.63        23.6  

December 31, 2018

     1,200.02        20.0  

June 30, 2019

     1,000.31        (16.6

 

 

Source: RISI

Prices of BEKP

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

 

As of

   Price      Change  
     (US$)      %  

December 31, 2016

     652.58        (17.3

December 31, 2017

     979.31        50.1  

December 31, 2018

     1,025.73        4.7  

June 30, 2019

     902.24        (12.4

 

 

Source: RISI

Prices of NBSK (China)

The following table sets forth the prices for NBSK (China) as of the dates indicated, as well as the variation with respect to the previous period, as listed on the NBSK (China) index for the periods indicated:

 

As of

   Price      Change  
     (US$)      %  

December 31, 2016

     607.32        1.1  

December 31, 2017

     886.35        45.9  

December 31, 2018

     723.07        (18.4

June 30, 2019

     593.97        (17.9

 

 

Source: RISI

Prices of BEKP(China)

The following table sets forth the prices for BEKP(China) as of the dates indicated, as well as the variation with respect to the previous period, as listed on the BEKP(China) index for the periods indicated:

 

As of

   Price      Change  
     (US$)      %  

December 31, 2016

     528.06        (9.7

December 31, 2017

     768.57        45.5  

December 31, 2018

     652.51        (15.1

June 30, 2019

     547.55        (16.1

 

 

Source: RISI

 

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Prices of UKP

The following table sets forth the market price of UKP (long fiber raw pulp) as of the dates indicated, as well as the variation with respect to the previous period:

 

As of

   Price      Change  
     (US$)      %  

December 31, 2016

     573.82        (4.6

December 31, 2017

     768.03        33.8  

December 31, 2018

     853.77        11.2  

June 30, 2019

     675.33        (20.9

 

 

Source: Internally collected data

Wood Products Prices

During 2016, average prices for our fiberboard panels and sawn timber (which for 2016 includes plywood and remanufactured products) declined 0.7% and 2.7% respectively, in each case compared to 2015. Sales volumes decreased compared to 2015, with fiberboard panels sales volume dropping 3.3% and sawn timber sales volume (which for 2016 includes plywood and remanufactured products) dropping 4.6% in 2016. 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 US dollar made costs 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 in 2016 and increase our presence in those markets.

During 2017, average prices for our wood products division increased 5.1% compared to 2016. The fiberboard panels market increased in average prices and sales volume by 4.7% and 2.4%, respectively, in 2017 compared to 2016. Our sawn timber average prices increased 4.7% in 2017 compared to 2016, partially 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 improved in sales volume in 2017. Despite the new medium-density fiberboard (“MDF”) mills in Brazil and Mexico that increased competition, we were able to maintain and increase prices in those 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 1.7% compared to 2017. In 2018, average prices for our fiberboard panels decreased 5.6% while sales volumes increased 11.2%, in each case compared to 2017. The downward trend in average prices was explained by an oversupply mainly from Brazil, Chile, the United States and Asia and seasonality in the northern hemisphere. Average prices for our sawn timber increased 5.5% in 2018, partially offset by a 2.9% decrease in sales volume, which was mainly explained by lower demand from China, which in turn was related to the uncertainty surrounding the trade tensions between China and the United States.

During the six-month period ended June 30, 2019, average prices for our wood products decreased 3.5%, and sales volume increased by 3.3%, in each case compared to the same period in 2018. Average prices for our fiberboard panels and sawn timber decreased 2.5% and 4.6%, respectively, during the six-month period ended June 30, 2019 compared to the same period in 2018. The decrease in prices in both fiberboard panels and sawn timber was primarily due to an oversupply from Brazil, Chile, the United States and Asia and lower demand from China, respectively. The downward trend seen in the six-month period ended June 30, 2019 was primarily attributable to escalating trade tensions between China and the United States.

 

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Results of Operations

The following table provides a breakdown of our results of operations and sales volumes for the periods indicated. Both 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, 2016, 2017 and 2018 and our unaudited consolidated interim financial statements as of June 30, 2019 and for the six-month periods ended June 30, 2018 and 2019. Our audited and unaudited consolidated financial statements are prepared in US dollars and in accordance with IFRS.

 

    For the year ended December 31,     For the six-month period ended June 30,  
    2016     2017     2018     2018     2019  
    Millions
of US$
    %     Volume     Millions
of US$
    %     Volume     Millions
of US$
    %     Volume     Millions
of US$
    %     Volume     Millions
of US$
    %     Volume  

Revenue:

                             

Pulp(1)

                             

Bleached

    1,780.6       37.4       3,240.8       2,062.4       39.4       3,327.8       2,536.9       42.6       3,188.6       1,289.1       42.6       1,617.5       1,066.4       38.9       1,560.4  

Unbleached

    260.5       5.5       439.7       293.3       5.6       445.1       418.4       7.0       494.2       213.1       7.0       251.1       160.8       5.9       220,0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total pulp

    2,041.1       42.9       3,680.4       2,355.7       45.0       3,772.9       2,955.3       49.6       3,682.7       1,502.2       49.7       1,868.6       1,227.2       44.8       1,780.4  

Wood Products (2)

                             

Fiberboard panels

    1,533.6       32.2       4,753.9       1,643.3       31.4       4,866.2       1,725.1       29.0       5,410.0       866.5       28.7       2,654.5       897.7       32.8       2,820.2  

Plywood

    226.9       4.8       563.9       238.2       4.5       566.5       255.5       4.3       531.6       132.5       4.4       277.3       102.6       3.7       229.0  

Sawn timber

    479.8       10.1       1,943.8       476.1       9.1       1,841.6       487.7       8.2       1,788.4       240.0       7.9       882.1       236.7       8.6       911.6  

Remanufactured wood

    245.5       5.2       441.4       259.3       5.0       445.0       252.6       4.2       437.7       128.0       4.2       224.1       125.0       4.6       209.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total wood products

    2,485.8       52.2       7,703.2       2,616.9       50.0       7,719.3       2,721.0       45.7       8,167.8       1,367.1       45.2       4,038.1       1,362.0       49.7       4,170.8  

Forestry(2)

                             

Logs (net)

    63.1       1.3       1,787.5       72.6       1.4       2,223.7       71.9       1.2       2,540.0       37.7       1.2       1,276.0       42.1       1.5       1,585.2  

Chips

    20.8       0.4       366.2       25.2       0.5       443.4       31.4       0.5       546.0       18.5       0.6       249.1       17.9       0.7       210.1  

Other

    6.1       0.1       7.8       8.2       0.1       5.2       4.1       0.1       0.1       1.9       0.1       0.1       1.1       0.0       0.4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total forestry

    90.0       1.9       2,161.4       106.0       2.0       2,672.3       107.4       1.8       3,086.1       58.1       1.9       1,525.2       61.1       2.2       1,795.7  

Energy

    103.4       2.2       —         93.8       1.8       —         86.7       1.5       —         53.5       1.8       —         30.8       —         —    

Other

    41.1       0.9       —         65.9       1.2       —         84.4       1.4       —         43.2       1.4       —         58.6       —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    4,761.4       100.0         5,238.3       100         5,954.8       100         3,024.0       100         2,739.8       100    

Cost of sales:

                             

Timber

    (736.4     —         —         (725.1     —         —         (691.1     —         —         (355.8     —         —         (395.5     —         —    

Forestry labor costs

    (600.3     —         —         (631.3     —         —         (672.2     —         —         (332.0     —         —         (280.5     —         —    

Maintenance costs

    (313.5     —         —         (262.8     —         —         (280.7     —         —         (130.6     —         —         (139.4     —         —    

Chemical costs

    (479.3     —         —         (517.5     —         —         (560.2     —         —         (276.2     —         —         (278.8     —         —    

Depreciation

    (378.0     —         —         (389.8     —         —         (377.6     —         —         (192.3     —         —         (234.6     —         —    

Other costs of sales

    (991.4     —         —         (1,048.0     —         —         (1,140.9     —         —         (571.1     —         —         (577.1     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

    (3,498.9     —         —         (3,574.5         (3,722.7         (1,858.1         (1,905.9    

Gross profit

    1,262.5       26.5       —         1,663.8       31.8         2,232.1       37.5         1,165.9       38.6         833.9       30.4    

Other income

    257.9       —         —         111.5       —         —         124.3       —         —         66.5       —         —         132.0       —         —    

Distribution costs

    (496.5     —         —         (523.3     —         —         (556.8     —         —         (267.7     —         —         (288.2     —         —    

Administrative expenses

    (474.5     —         —         (521.3     —         —         (561.3     —         —         (282.5     —         —         (287.5     —         —    

Other expenses

    (77.4     —         —         (240.1         (95.9         (33.6         (50.0    

Other income (loss)

    —         —         —         —         —         —         14.2       —         —           —         —           —         —    

Finance income

    29.7       —         —         19.6       —         —         20.9       —         —         7.3       —         —         14.8       —         —    

Finance costs

    (258.5     —         —         (287.9     —         —         (214.8     —         —         (103.1     —         —         (126.9     —         —    

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

    23.9       —         —         17.0       —         —         17.2       —         —         24.0       —         —         9.7       —         —    

Exchange rate differences

    (3.9     —         —         0.1       —         —         (26.5     —         —         (16.2     —         —         (7.2     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

    263.2       —         —         239.4       —         —         953.5       —         —         560.6       —         —         230.5       —         —    

Income tax

    (45.6     —         —         31.0       —         —         (226.8     —         —         (124.7     —         —         (47.0     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit

    217.6       —         —         270.4       —         —         726.8       —         —         435.9       —         —         183.5       —         —    

 

(1)

Volumes measured in thousands of tonnes. It does not include subproduct sales (i.e. energy and chemicals) which are presented in the pulp reportable segment in Note 25 to our unaudited interim consolidated financial statements.

(2)

Volumes measured in thousands of cubic meters. It does not include subproduct sales (i.e. energy and chemicals) which are presented in the wood products reportable segment in Note 25 to our unaudited interim consolidated financial statements.

 

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Six-Month Period Ended June 30, 2018 Compared to Six-Month Period Ended June 30, 2019

Revenue

Our revenue decreased 9.4% in the six-month period ended June 30, 2019, from US$3,024.0 million for the six-month period ended June 30, 2018 to US$2,739.8 million for the same period in 2019, primarily as a result of a decrease of 18.3%, or US$275.0 million, in revenue from pulp and 0.4%, or US$5.1 million, in revenue from wood products, which was partially offset by an increase of 5.2%, or US$3.0 million, in revenue from forestry products.

Pulp

Revenue from sales of bleached and unbleached pulp decreased 18.3% in the six-month period ended June 30, 2019, from US$1,502.2 million in the six-month period ended June 30, 2018 to US$1,227.2 million in the same period of 2019. This decrease was primarily attributable to a decrease in average pulp prices and sales volume of 14.3% and 4.7%, respectively, in the six-month period ended June 30, 2019. Revenue from bleached pulp decreased 17.3% in the six-month period ended June 30, 2019, from US$1,289.1 million in the six-month period ended June 30, 2018 to US$1,066.4 million in the same period of 2019, mainly due to a decrease of 14.2% and 3.5% in average prices and sales volume in the six-month period ended June 30, 2019, respectively. Revenue from unbleached pulp decreased 24.5% in the six-month period ended June 30, 2019, from US$213.1 million in the six-month period ended June 30, 2018 to US$160.8 million in the same period of 2019, mainly due to a decrease of 13.9% and 12.4% in average prices and sales volume in the six-month period ended June 30, 2019, respectively.

Pulp prices (for both NBSK and BEKP indexes) reached historically high levels in the first half of 2018 and decreased at the end of 2018 and through the first half of 2019. During the six-month period ended June 30, 2019, NBSK and BEKP indexes average prices were US$1,000.31 and US$902.24 per tonne, respectively, compared to US$1,199.99 and US$1,050.00 per tonne, respectively in the same period in 2018. This decrease in average prices was primarily attributable to escalating trade tensions between the United States and China in 2019, which affected paper and packaging demand and production, which in turn negatively affected pulp demand primarily from China, exerting significant downward pressure on pulp prices and sales volumes. As a result of this decrease in pulp demand, pulp inventories increased at ports and competitors’ warehouses, further intensifying the decrease in pulp prices in the six-month period ended June 30, 2019.

Wood Products

Revenue from wood products decreased 0.37% in the six-month period ended June 30, 2019, from US$1,367.1 million during the six-month period ended June 30, 2018 to US$1,362.0 million during the same period in 2019. This slight decrease was primarily attributable to a 22.5% decrease in revenue from plywood, offset by a 3.6% increase in revenue from fiberboard panels.

Revenue from fiberboard panels increased 3.6% in the six-month period ended June 30, 2019, from US$866.5 million in the six-month period ended June 30, 2018 to US$897.7 million during the same period in 2019. This increase was primarily attributable to a 6.2% increase in sales volume, partially offset by a 2.5% decrease in average prices. Sales volume of particleboard (“PBO”) increased 13.3% in the six-month period ended June 30, 2019 compared to the same period in 2018, primarily as a result of (i) the acquisition of our Mexican subsidiaries in January 2019 that increased our sales and (ii) higher demand in the US and Canada. Medium-density fiberboard (“MDF”) sales volume remained stable in the six-month period ended June 30, 2019, increasing only 0.6% in such period compared to the same period in 2018. Prices of MDF and PBO decreased 2.0% and 1.1% in the six-month period ended June 30, 2019, respectively, mainly attributable to Latin American demand being affected by slow economies, particularly in Brazil and Argentina. In addition, MDF oversupply from Brazil was exported to some Latin American countries, which resulted in downward pressure on MDF prices. MDF demand in North America remained stable.

Revenue from plywood decreased 22.6% in the six-month period ended June 30, 2019, from US$132.5 million in the six-month period ended June 30, 2018 to US$102.6 million during the same period in 2019. This decrease was primarily attributable to a decrease of 17.4% and 6.2% in sales volume and average prices in the six-month period ended June 30, 2019. This decrease in plywood average prices was primarily driven by a combination of lower demand and oversupply particularly from Brazil, Chile and China.

Revenue from sawn timber decreased 1.4% in the six-month period ended June 30, 2019, from US$240.0 million in the six-month period ended June 30, 2018 to US$236.7 million during the same period in 2019. This decrease was primarily attributable to a 4.6% decrease in average prices, partially offset by a 3.3% increase in sales volume in the six-month period ended June 30, 2019. The decrease in average prices of sawn timber was mainly attributable to oversupply from Brazil, Europe and Canada.

 

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Revenue from remanufactured wood products decreased 2.3% in the six-month period ended June 30, 2019, from US$128.0 million in the six-month period ended June 30, 2018 to US$125 million during the same period in 2019. This decrease was primarily attributable to a 6.3% decrease in sales volume, partially offset by a 4.2% increase in average prices primarily attributable to lower supply and healthy demand from the United States.

Forestry Products

Revenue from forestry products increased 5.2% in the six-month period ended June 30, 2019, from US$58.1 million during the six-month period ended June 30, 2018 to US$61.1 million during the same period in 2019. This increase was primarily attributable to an increase of 53.7% and 5.5% in revenue from pulplogs and sawlogs, respectively, as a result of higher sales volume.

Other

Revenue from other sources, consisting primarily of sales of energy and chemicals, decreased 7.6% in the six-month period ended June 30, 2019, from US$96.7 million in the six-month period ended June 30, 2018 to US$89.4 million for the same period in 2019. This decrease was primarily attributable to a 42.5% decrease, or US$22.7 million, in revenue from the sale of energy, due to lower third parties sales. This decrease in revenues from the sale of energy was partially offset by a 46.5% increase, or US$11.2 million, in revenues from sales of chemicals.

Cost of Sales

The following table shows the breakdown of our cost of sales for the six-month periods ended June 30, 2018 and 2019.

 

     For the six–month period ended June 30,
(unaudited)
 
     2018      2019      2018/2019  
     (in thousands of US dollars)      % change  

Timber

     355,838        395,485        11.1  

Forestry labor costs

     332,029        280,481        (15.5

Depreciation and amortization

     192,343        198,138        3.0  

Depreciation for the right of use

     —          36,470        —    

Maintenance costs

     130,622        139,417        6.7  

Chemical costs

     276,166        278,775        0.9  

Sawmill services

     77,309        76,268        (1.3

Other raw materials

     109,720        105,251        (4.1

Indirect costs

     90,980        81,265        (10.7

Energy and fuel

     97,225        105,743        8.8  

Cost of electricity

     20,923        18,258        (12.7

Wages and salaries

     174,907        190,320        8.8  
  

 

 

    

 

 

    

 

 

 

Total

     1,858,062        1,905,871        2.6  

Cost of sales increased 2.6% in the six-month period ended June 30, 2019, from US$1,858.0 million for the six-month period ended June 30, 2018 to US$1,905.9 million for the same period of 2019. This increase was primarily as a result of (i) an 11.1% increase, or US$39.7 million, in timber cost, mainly due to a higher timber purchase volume and the ramp-up of our Grayling mill in the United States; and (ii) an increase of US$36.5 million in depreciation for the right of use pursuant to operational leases with a term exceeding 12 months (which we now register as assets, in accordance with IFRS 16 which became effective on January 1, 2019). These increases were offset by a 15.5%, or US$51.5 million, decrease in forestry labor costs in the six-month period ended June 30, 2019 compared to the same period in 2018, primarily attributable to lower sales volume.

 

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Gross Profit

Our gross profit decreased from US$1,165.9 million for the six-month period ended June 30, 2018 to US$833.9 for the same period in 2019, primarily attributable to a 9.4% decrease in our revenue, mainly explained by the decrease in pulp revenue described above. As a percent of total revenues, our gross profit decreased from 38.6% for the six-month period ended June 30, 2018 to 30.4% for the same period in 2019, primarily attributable to lower revenues.

Other Income

Other income increased 98.5% in the six-month period ended June 30, 2019, from US$66.5 million in the six-month period ended June 30, 2018 to US$132.0 million in the same period in 2019. This increase was primarily attributable to an increase of US$40.8 million in gain on sales of associates due to our sale of shares of Puertos y Logística S.A. in April 2019 and an increase of 43.3%, or US$22.5 million, in gain of change in fair value of biological assets.

Distribution Costs

Distribution costs increased 7.7% in the six-month period ended June 30, 2019, from US$267.7 million in the six-month period ended June 30, 2018 to US$288.1 million in the same period in 2019, primarily as a result of a 17.4%, or US$34.6 million, increase in freight costs, mainly driven by higher freight rates.

The following table shows the breakdown of our distribution costs for the six-month periods ended June 30, 2018 and 2019.

 

     For the six–month period ended June 30,
(unaudited)
 
     2018      2019      2018/2019  
     (in thousands of US dollars)      % change  

Selling costs

     15,805        20,074        27.0  

Commissions

     7,627        6,593        (13.6

Insurance

     2,185        2,242        2.6  

Provision for doubtful accounts receivable

     10        652        6,420.0  

Other selling costs

     5,983        10,587        77.0  

Shipping and freight costs

     251,900        268,104        6.4  

Port services

     13,859        16,321        17.8  

Freights

     199,277        233,873        17.4  

Other shipping and freight costs

     38,764        17,910        (53.8
  

 

 

    

 

 

    

 

 

 

Total

     267,705        288,178        7.7  

Administrative Expenses

Administrative expenses increased 1.8% in the six-month period ended June 30, 2019, from US$282.5 million in the six-month period ended June 30, 2018 to US$287.5 million in the same period in 2019, primarily as a result of a 96.7%, or US$5.6 million, increase in marketing and advertising, and a 28.5%, or US$4.4 million, increase in computer licensing expenses.

 

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The following table shows the breakdown of our administrative expenses for the six-month periods ended June 30, 2018 and 2019.

 

     For the six-month period ended June 30,
(unaudited)
 
     2018      2019      2018/2019  
     (in thousands of US dollars)      % change  

Wage and salaries

     122,467        121,977        (0.4

Marketing, advertising, promotion and publicity expenses

     5,750        11,311        96.7  

Insurance

     7,437        9,552        28.4  

Depreciation and amortization

     13,703        13,762        0.4  

Depreciation for the right of use

     —          3,287     

Computer services

     15,302        19,668        28.5  

Lease rentals (offices, warehouses and machinery)

     7,262        4,575        (37.0

Donations, contributions, scholarships

     5,814        5,911        1.7  

Fees (legal and technical advisories)

     26,888        23,352        (13.2

Property taxes, patents and municipality rights

     9,884        8,979        (9.2

Other administrative expenses

     67,960        65,130        (4.2
  

 

 

    

 

 

    

 

 

 

Total

     282,467        287,504        1.8  

Other Expenses

Other expenses increased 48.8% in the six-month period ended June 30, 2019, from US$33.6 million in the six-month period ended June 30, 2018 to US$50.0 million for the same period in 2019, primarily as a result of an increase in our provision for forestry losses due to fire, from US$0.6 million in the six-month period ended June 30, 2018 to US$6.2 million in the same period of 2019.

Finance Costs

Finance costs increased 23.1% in the six-month period ended June 30, 2019, from US$103.1 million in the six-month period ended June 30, 2018 to US$126.9 million in the same period in 2019, primarily as a result of a US$8.5 million increase in our bond interest expense associated with our international bond issuance in April 2019 and a US$6.4 million increase in leasing interest expense (due to interest costs relating to leases, which we now register as lease liabilities in accordance with IFRS 16 that became effective on January 1, 2019).

Exchange Rate Differences

We recorded a 55.6% decrease in exchange rate difference in the six-month period ended June 30, 2019, from a loss of US$16.2 million for the six-month period ended June 30, 2018 to a loss of US$7.2 million for the same period in 2019, primarily as a result of the depreciation of the average Argentine peso against the US dollar of approximately 90.0% and a depreciation of approximately 10.4% of the average Chilean peso against the US dollar, both of which had the effect of reducing the amount of our Argentine and Chilean peso-denominated cash and cash equivalents when converted to US dollars.

Income Tax

We recorded an income tax expense of US$47.0 million in the six-month period ended June 30, 2019, which represented a decrease of 62.3% compared to US$124.7 million in income tax expense for the six-month period ended June 30, 2018, primarily as a result of lower profit before tax in the six-month period ended June 30, 2019.

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.

We also have access to two committed credit facility lines aggregating approximately US$318.5 million. The first line has an available amount of UF 2,885,000, or approximately US$118.5 million, based on the exchange rates as of June 30, 2019 and is scheduled to expire on January 29, 2020. The second line has a maximum available amount of US$200.0 million and is scheduled to expire on March 27, 2020. To date, we have not utilized either of these credit facilities.

 

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Cash Flow from Operating Activities

Our net cash flow provided by operating activities decreased 72.6% in the six-month period ended June 30, 2019, from US$481.9 million in the six-month period ended June 30, 2018 to US$132.0 million in the same period in 2019, primarily as a result of a US$203.2 million increase in income tax paid in 2019, associated to higher profit before tax in 2018, which is the base for the annual income tax paid in April, 2019.

Cash Flow Used in Investing Activities

Our net cash used in investing activities increased 64.6% in the six-month period ended June 30, 2019, from US$376.2 million for the six-month period ended June 30, 2018 to US$619.2 million for the same period in 2019, primarily due to a 78.0% increase, or US$194.5 million, in purchase of property, plant and equipment associated to the MAPA Project. Additionally, cash flow used in investing activities was affected by our acquisition of the Mexican subsidiaries for US$160.0 million in January 2019. This increase in cash used in investing activities was partially offset by the cash inflow from the sale of our shares of Puertos y Logística S.A. for US$102.1 million in April 2019.

Cash Flow from Financing Activities

Our net cash from financing activities increased 746.8% in the six-month period ended June 30, 2019, from US$101.4 million used in the six-month period ended June 30, 2018 to US$655.6 million in the same period of 2019, primarily as a result of a US$989.5 million increase in outstanding debt due to our issuance of an international bond in April 2019. This increase in outstanding debt was partially offset by a 92.8% decrease, or US$186.0 million, in incurrence of short-term debt.

Contractual Obligations

In accordance with customary practice in the pulp industry, we generally do not enter into long-term sales contracts with our customers. Instead, we generally prefer to maintain long-term relationships with certain customers with whom we reach agreements from time to time on specific volumes and prices.

The following table sets forth certain of our contractual obligations as of June 30, 2019 and the period in which such contractual obligations are scheduled to come due.

 

     Payments due by Period (unaudited)         
     Less than
1 year
     1-3 years      3-5 years      More than
5 years
     Total  
     (in thousands of US dollars)  

Debt obligations(1)

     461,223        1,233,498        930,860        5,120,698        7,746,279  

Purchase obligations(2)

     412,145        706,739        —          —          1,118,884  

Lease obligations

     98,954        148,824        71,764        72,176        391,718  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     972,322        2,089,061        1,002,624        5,192,874        9,256,881  

 

 

(1)

Includes estimated interest payments related to long-term debt obligations based on market values as of June 30, 2019. In the case of floating rate debt, interest rate is calculated using the current index setting in place as of June 30, 2019, and assuming no changes in the year-end index for any future periods. The interest rate on our floating rate debt is determined principally by reference to the London inter-bank offered rate (LIBOR), and, as of June 30, 2019, the average spread for our US dollar floating rate debt over six-month LIBOR was 1.55%. Approximately 10.5% of our total debt is floating rate debt as of June 30, 2019.

(2)

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

 

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Financial Debt

As of June 30, 2019, the scheduled amortization our financial debt was as follows:

 

     2019      2020      2021      2022      2023      2024      2025      2026      2027      2028      2029      2030
(and
sub.)
 
     (in millions of US dollars)  

Bank debt

     197        185        166        154        307        263        44        8        8        8        8        0  

Outstanding notes

     249        244        171        299        45        539        45        243        533        164        527        1,359  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     446        429        337        453        352        802        89        251        541        172        535        1,359  

Investment Activities

During the six-month period ended June 30, 2019, our main investment activities were as follows:

 

   

US$215.8 million relating to the MAPA Project;

 

   

US$115.0 million relating to investments in biological assets;

 

   

US$56.9 million relating to investments in our Dissolving Pulp Project; and

 

   

US$30.2 million relating to investments in the construction of our particleboard plant in Grayling, Michigan, United States.

Financing Activities

During the six-month period ended June 30, 2019, our main financing activities were as follows:

 

   

On April 1, 2019, we entered into an Export Credit Agreement (ECA) for a total of € 555.0 million.

 

   

On April 30, 2019, we issued two bonds in the international market: (i) US$500 million principal amount of 4.25% Notes due 2029 and (ii) US$500 million principal amount of 5.50% Notes due 2049. We used part of the proceeds from the issuance of such notes to repurchase a portion of our outstanding 7.250% Notes due 2019 and 5.000% Notes due 2021.

As of June 30, 2019, we had US$196.8 million of short-term bank debt, of which 96.6% was US dollar-denominated, and US$757.9 million of long-term bank debt, of which 90.8% was US dollar-denominated. In addition, as of June 30, 2019, we guaranteed US$363.3 million of obligations of our Montes del Plata joint operation in Uruguay.

As of June 30, 2019, we had US$4,417.6 million of outstanding bonds (including the current portion of such debt), of which 66.7% was US dollar-denominated and 33.3% was UF-denominated swapped to US dollars.

The interest rate on our variable rate debt is determined mainly by reference to the London inter-bank offered rate (LIBOR), and, as of June 30, 2019, the average interest rate for our US dollar floating rate debt over six-month LIBOR was 1.55%. As of June 30, 2019, the average interest rate for our US dollar fixed rate debt was 4.19%. These average rates do not reflect the effect of swap agreements and subsequent unwinds effective as of June 30.

The instruments and agreements governing our bank loans and local bonds contain certain financial covenants that limit our incurrence of debt and other liabilities. The main financial covenants contained in our bank loan agreements are that our (i) debt to equity ratio must not exceed 1.2 to 1 and (ii) net interest coverage ratio must not be less than 2.0 to 1. The main financial covenant contained in our local bond agreements is that our debt to equity ratio must not exceed 1.2 to 1.

Off-Balance Sheet Arrangements

At June 30, 2019, we did not have any material off-balance sheet arrangements.

 

12


Table of Contents

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2019

 

Unaudited Interim Consolidated Statements of Financial Position

     14  

Unaudited Interim Consolidated Financial Statements of Profit or Loss

     16  

Unaudited Interim Consolidated Statements of Comprehensive Income

     17  

Unaudited Interim Consolidated Statements of Changes in Equity

     18  

Unaudited Interim Consolidated Statements of Cash Flows

     19  

Unaudited Notes to the Interim Consolidated Financial Statements

     20  

 

 

13


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note      06-30-2019
ThU.S.$
     12-31-2018
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

     5-23        1,250,863        1,075,942  

Other current financial assets

     23        1,027        497  

Other current non-financial assets

     25        192,934        129,854  

Trade and other current receivables

     23        851,994        839,184  

Accounts receivable from related companies

     13        4,445        7,324  

Current inventories

     4        1,153,685        1,030,196  

Current biological assets

     20        308,589        315,924  

Current tax assets

        60,723        36,513  

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

        3,824,260        3,435,434  

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

     22        5,668        5,726  

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

        5,668        5,726  

Total Current Assets

        3,829,928        3,441,160  

Non-Current Assets

        

Other non-current financial assets

     23        49,165        20,346  

Other non-current non-financial assets

     25        114,187        86,948  

Trade and other non-current receivables

     23        11,334        15,149  

Accounts receivable from related companies, non-current

     13        —          481  

Investments accounted for using equity method

     15-16        304,971        358,053  

Intangible assets other than goodwill

     19        96,720        90,093  

Goodwill

     17        66,299        65,851  

Property, plant and equipment

     7        7,810,175        7,174,693  

Non-current biological assets

     20        3,374,596        3,336,339  

Deferred tax assets

     6      6,203        4,635  

Total Non-Current Assets

        11,833,650        11,152,588  

Total Assets

        15,663,578        14,593,748  
     

 

 

    

 

 

 

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

 

14


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

     Note    06-30-2019
ThU.S.$
    12-31-2018
ThU.S.$
 

Equity and Liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      544,377       537,596  

Trade and other current payables

   23      696,657       659,618  

Accounts payable to related companies

   13-23      8,099       10,229  

Other current provisions

   18      1,279       413  

Current tax liabilities

   6      7,196       153,642  

Current provisions for employee benefits

   10      5,973       5,656  

Other current non-financial liabilities

   25      118,320       212,610  

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

        1,381,901       1,579,764  

Total Current Liabilities

        1,381,901       1,579,764  

Non-Current Liabilities

       

Other non-current financial liabilities

   23      5,191,161       4,044,279  

Non-current payables

        2,591       2,230  

Other non-current provisions

   18      34,114       33,884  

Deferred tax liabilities

   6      1,389,959       1,417,658  

Non-current provisions for employee benefits

   10      68,968       64,895  

Other non-current non-financial liabilities

   25      120,347       112,067  

Total Non-Current Liabilities

        6,807,140       5,675,013  

Total Liabilities

        8,189,041       7,254,777  

Equity

       

Issued capital

   3      353,618       353,618  

Retained earnings

        7,925,144       7,824,045  

Other reserves

        (841,900     (875,884

Equity attributable to parent company

        7,436,862       7,301,779  

Non-controlling interests

        37,675       37,192  

Total Equity

        7,474,537       7,338,971  

Total Equity and Liabilities

        15,663,578       14,593,748  
     

 

 

   

 

 

 

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

 

15


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

            January-June     April-June  
            2019     2018     2019     2018  
     Note      ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Statements of profit or loss

           

Revenue

     9        2,739,756       3,023,991       1,351,570       1,559,337  

Cost of sales

     3        (1,905,871     (1,858,062     (965,993     (936,471

Gross profit

        833,885       1,165,929       385,577       622,866  

Other income

     3        131,952       66,459       86,413       29,227  

Distribution costs

     3        (288,178     (267,705     (143,282     (135,305

Administrative expenses

     3        (287,504     (282,467     (146,224     (140,942

Other expense

     3        (50,006     (33,619     (27,689     (16,792

Profit from operating activities

        340,149       648,597       154,795       359,054  

Finance income

     3        14,845       7,345       8,099       2,563  

Finance costs

     3        (126,940     (103,081     (69,549     (51,419

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

     3-15        9,657       24,009       5,294       18,164  

Exchange rate differences

        (7,219     (16,230     (9,346     (17,279

Profit before income tax

        230,492       560,640       89,293       311,083  

Income tax expense

     6        (46,965     (124,696     (31,865     (72,855

Net Profit

        183,527       435,944       57,428       238,228  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net profit attributable to

           

Net profit attributable to Parent company

        183,159       436,235       57,323       238,429  

Net profit attributable to Non-controlling interests

        368       (291     105       (201

Net Profit

        183,527       435,944       57,428       238,228  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

           

Basic and diluted earnings per share from continuing operations

        1.6186       3.8550       0.5066       2.1070  
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per share

        1.6186       3.8550       0.5066       2.1070  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

 

16


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

            January-June     April-June  
            2019     2018     2019     2018  
     Note      ThU.S.$     ThU.S.$     ThU.S.$     ThU.S.$  

Net profit

        183,527       435,944       57,428       238,228  

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

           

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

     10        499       (1,685     (312     (1,367

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

        8,162       (508     7,570       (2,202

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

        8,661       (2,193     7,258       (3,569

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        13,479       (167,860     22,101       (162,335

Other Comprehensive Income before tax exchange differences on translation

        13,479       (167,860     22,101       (162,335

Cash flow hedges

           

Gains (losses) on cash flow hedges, before tax

     23        32,398       51,391       37,221       25,550  

Recycle of cash flow hedges to profit or loss before tax

     23        (12,907     (6,120     (10,759     (4,220

Other Comprehensive Income before tax Cash flow hedges

        19,491       45,271       26,462       21,330  

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

        32,970       (122,589     48.563       (141,005

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

        (135     455       64       370  

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

        (2,171     (1,522     (2,034     (1,099

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

        (2,306     (1,067     (1,970     (729

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

           

Income tax relating to cash flow hedges

     6        (5,159     (12,292     (8,877     (5,888

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

        (5,159     (12,292     (8,877     (5,888

Other comprehensive income (loss)

        34,166       (138,141     44,974       (151,191

Comprehensive income (loss)

        217,693       297,803       102,402       87,037  
     

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income (loss) attributable to

           

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

        217,143       302,211       101,867       91,041  

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

        550       (4,408     535       (4,004

Total comprehensive income (loss)

        217,693       297,803       102,402       87,037  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

 

17


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

06-30-2019

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

Opening balance at 01-01-2019

     353,618        (872,395     13,395        (17,571     687       (875,884     7,824,045       7,301,779       37,192       7,338,971  

Increase (decrease) for changes in accounting policies

     —          —         —          —         —         —         (107     (107     —         (107

Restated opening balance

     353,618        (872,395     13,395        (17,571     687       (875,884     7,823,938       7,301,672       37,192       7,338,864  

Changes in Equity:

                      

Comprehensive income

                      

Net profit

     —          —         —          —         —         —         183,159       183,159       368       183,527  

Other comprehensive income, net of tax

     —          13,297       14,332        364       5,991       33,984       —         33,984       182       34,166  

Comprehensive income

     —          13,297       14,332        364       5,991       33,984       183,159       217,143       550       217,693  

Dividends

     —          —         —          —         —         —         (80,992     (80,992     (91     (81,083

Increase (decrease) from transfers and other changes

     —          —         —          —         —         —         (961     (961     24       (937

Changes in equity

     —          13,297       14,332        364       5,991       33,984       101,206       135,190       483       135,673  

Closing balance at 06-30-2019

     353,618        (859,098     27,727        (17,207     6,678       (841,900     7,925,144       7,436,862       37,675       7,474,537  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

06-30-2018

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

Opening balance at 01-01-2018

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

Increase (decrease) for changes in accounting policies

     —          —         —          —         —         (1,918     (1,956     (3,874     —         (3,874

Restated opening balance

     353,618        (691,772     2,834        (18,926     2,168       (705,696     7,423,177       7,071,099       41,920       7,113,019  

Changes in Equity:

                      

Comprehensive income

                      

Net profit

     —          —         —          —         —         —         436,235       436,235       (291     435,944  

Other comprehensive income, net of tax

     —          (163,743     32,979        (1,230     (2,030     (134,024     —         (134,024     (4,117     (138,141

Comprehensive income

     —          (163,743     32,979        (1,230     (2,030     (134,024     436,235       302,211       (4,408     297,803  

Dividends

     —          —         —          —         —         —         (189,546     (189,546     (54     (189,600

Increase (decrease) from transfers and other changes

     —          —         —          —         —         —         (171     (171     (33     (204

Changes in equity

     —          (163,743     32,979        (1,230     (2,030     (134,024     246,518       112,494       (4,495     107,999  

Closing balance at 06-30-2018

     353,618        (855,515     35,813        (20,156     138       (839,720     7,669,695       7,183,593       37,425       7,221,018  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

18


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the six months ended
June 30,
 
     2019
ThU.S.$
    2018
ThU.S.$
 

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     2,926,536       2,924,236  

Other cash receipts from operating activities

     200,672       207,165  

Classes of cash payments

    

Payments to suppliers for goods and services

     (2,258,263     (2,116,940

Payments to and on behalf of employees

     (327,293     (295,463

Other cash payments from operating activities

     (84,321     (134,239

Interest paid

     (111,297     (85,882

Interest received

     12,136       3,959  

Income taxes paid

     (222,651     (19,455

Other inflows (outflows) of cash, net

     (3,484     (1,511

Net Cash flow from Operating Activities

     132,035       481,870  
  

 

 

   

 

 

 

Cash flows from (used in) Investing Activities

    

Cash flow from loss of control of subsidiaries and other businesses

     102,080       —    

Cash flow used in obtaining control of subsidiaries or other businesses, net of cash acquired

     (150,862     (16,551

Cash used for the purchase of non-controlling interests

     (470     (732

Proceeds from sale of property, plant and equipment

     6,322       5,578  

Purchase of property, plant and equipment

     (443,637     (249,185

Purchase of intangible assets

     (8,788     (472

Proceeds from sales of other long-term assets

     2,304       763  

Purchase of other non-current assets

     (133,051     (118,490

Dividends received

     6,705       2,910  

Other inflows (outflows) of cash, net

     168       (47

Cash flows from (used in) Investing Activities

     (619,229     (376,226
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total borrowings obtained

     1,088,036       284,474  

Debt obtained in long-term

     1,073,536       84,000  

Debt obtained in short-term

     14,500       200,474  

Repayments of borrowings

     (201,730     (267,871

Payments of lease liabilities

     (43,040     (2,761

Dividends paid

     (182,109     (114,442

Other outflows of cash, net

     (5,554     (763

Cash flows from (used in) Financing Activities

     655,603       (101,363
  

 

 

   

 

 

 

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

     168,409       4,281  

Effect of exchange rate changes on cash and cash equivalents

     6,512       (22,341
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash Equivalents

     174,921       (18,060

Cash and cash equivalents, at the beginning of the period

     1,075,942       589,886  

Cash and cash equivalents, at the end of the period

     1,250,863       571,826  
  

 

 

   

 

 

 

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

 

19


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2019 AND 2018 AND DECEMBER 31, 2018

NOTE 1. PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Entity Information

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

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

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

As of June 30, 2019, Arauco is controlled by Empresas Copec S.A., tax identification number 90,690,000-9, which owns 99.9780% of Arauco, and is registered in the Securities Registry as No. 0028. Each of the above mentioned companies is subject to the oversight of the CMF.

Moreover, Empresas Copec S.A. is controlled by the public corporation AntarChile S.A., tax identification number 96,556,310-5, which owns 60.8208% of Empresas Copec S.A. Furthermore, the ultimate shareholders of AntarChile S.A. and, consequently, of Empresas Copec S.A., are Mrs. María Noseda Zambra de Angelini, Mr. Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi. It is noted in this regard, that Mrs. María Noseda Zambra de Angelini passed away on April 15, 2018, and the effective possession of her property is in process.

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

Presentation of Interim Consolidated Financial Statements

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

 

   

Interim Consolidated Statements of Financial Position as of June 30, 2019 and December 31, 2018.

 

   

Interim Consolidated Statements of Profit or Loss for the periods ended June 30, 2019 and 2018.

 

   

Interim Consolidated Statements of Comprehensive Income for the periods ended June 30, 2019 and 2018.

 

   

Interim Consolidated Statements of Changes in Equity for the periods ended June 30, 2019 and 2018.

 

   

Interim Consolidated Statements of Cash Flows for the periods ended June 30, 2019 and 2018.

 

   

Explanatory disclosures (notes)

Period Covered by the Interim Consolidated Financial Statements

Six month period ended June 30, 2019 and 2018.

Date of Approval of the Interim Consolidated Financial Statements

These interim consolidated financial statements were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Meeting No. 615 on August 19, 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 wood products and forestry reportable segments, although total sales include a mix of domestic and exports sales, prices of the products are established in U.S. Dollars, which is also the case for the cost structure of the related raw materials.

 

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AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

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

The currency used to finance operations is mainly the U.S. Dollar.

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

Summary of significant accounting policies

 

a)

Basis for preparation of the interim consolidated financial statements

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

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

 

b)

Critical accounting estimates and judgments

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

- Biological Assets

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

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

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

- Goodwill

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

- Litigation and Contingencies

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

 

c)

Consolidation

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

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

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

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

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

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

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

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

c) rights arising from other contractual arrangements; and

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

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

 

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AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

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

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

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

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

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

Certain consolidated subsidiaries have Brazilian Real, Argentine 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 as indicated in Note 1 (e) (ii).

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

 

d)

Segments

Arauco has defined its reportable segments according to its business areas, based on the products and services sold to its customers. This definition is consistent with the management, resource allocation and performance assessment made by key personnel responsible for making relevant decisions related to the Company’s operation. The personnel responsible for making such decisions are the Executive Vice-president and the Chief Executive Officer who are the highest authorities for making decisions and are supported by the Corporate Managing Directors of each segment.

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

 

   

Pulp

 

   

Wood products

 

   

Forestry

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

 

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June 30, 2019

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

 

 

e)

Functional currency

 

(i)

Functional currency

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

 

(ii)

Translation to the presentation currency of Arauco

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

 

(iii)

Foreign Currency Transactions

Transactions in currencies other than the functional currency are recognized at the exchange rates prevailing at the dates of the transactions. Profit or loss on transactions in currencies other than the functional currency resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the statements of profit or loss, except those which are recorded in other comprehensive income and accumulated in equity such as cash flows hedging derivatives.

 

f)

Cash and cash equivalents

Cash and cash equivalents include cash-on-hand, deposits held on demand at financial 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 and amortized cost.

Arauco does not have financial assets at 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.

 

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AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

Management determines the classification of its financial assets at the time of their initial recognition.

(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 in the category 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 the related interest is registered independently as financial income. 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 fair value of the transaction, adding or subtracting the transaction costs that 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 or amortized cost.

The classification is based on two criteria: i) the Company’s business model for the management of financial instruments, and ii) whether the contractual cash flows related to the financial instruments represent “Solely Payments of Principal and Interests”.

a) Financial assets at fair value through profit or loss: these instruments are subsequently measured at fair value. Net earnings and losses, including income from interests and dividends, are registered as profits or losses for the period. These instruments are held for negotiation and they are mainly acquired to be sold in the 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 and Non-Current Financial Assets. They are subsequently valuated by determining their fair value, registering changes in value in the interim 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 are non-derivative financial instruments with fixed or determinable payments not traded in any active market. They are registered at amortized cost, registering accrued conditions directly in profit or loss.

 

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AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

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. 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 are 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 a write-off of the original liability, with a new liability being recognized, and the difference between the respective carrying amounts is recognized in the interim consolidated statement of profit or loss.

Financial liabilities are initially recognized at fair value, and 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 includes non-designated derivatives for hedging accounting.

Financial Liabilities at amortized cost

Other financial liabilities are subsequently valued at their amortized cost based on the effective interest rate method. The amortized cost is calculated taking into account any premium or acquisition discount, and includes the costs of transactions that are an integral part of the effective interest rate. This category includes Commercial Accounts Payable and Other Accounts Payable, lease liabilities, as well as the loans included in Other Current and Non-Current Financial Liabilities.

 

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June 30, 2019

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

 

 

h)

Derivative financial instruments

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

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently re-measured at fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss unless the derivative is designated as a hedging instrument and complies with hedge accounting requirements, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

(ii) Embedded derivatives - The Company assesses the existence of embedded derivatives in financial instrument contracts. Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at FVTPL as a whole. Arauco has determined that no embedded derivatives currently exist.

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

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

-Fair Value Hedges - Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

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

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

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

i)

Inventories

Inventories are measured at the lower of cost or 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) as non-current assets held for sale which as of the date of the interim consolidated statements of financial position are the subject of active sale efforts which are estimated to be highly probable.

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

 

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June 30, 2019

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

 

 

k)

Business Combinations

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

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

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

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

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

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

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

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

Arauco measures the fair value of the acquired company in the business combination achieved in each stage (“step acquisition”), recognizing the effects of remeasurement of previously held equity in the acquiree in the statements of profit or loss.

If the initial accounting for a business combination is not completed by the end of the reporting period in which the combination occurs, Arauco reports preliminary amounts for the items for which the accounting is incomplete. During the measurement period (no more than one year), these preliminary amounts are retrospectively adjusted, or additional assets or liabilities are recognized to reflect new information about facts and circumstances that existed at the acquisition date, if known, would have affected the amounts recognized at that date.

 

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June 30, 2019

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

 

 

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 interim consolidated statement of financial position in the line item “Investments accounted for using equity method”.

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

 

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June 30, 2019

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

 

 

m)

Intangible assets other than goodwill

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

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

 

(i)

Computer Software

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

 

(ii)

Water Rights, Easements and Other Rights

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

 

(iii)

Customers and trade relations with customers

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

 

n)

Goodwill

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

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.

 

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June 30, 2019

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

 

 

Goodwill recognized in subsidiaries Arauco Canada Ltd., Arauco do Brasil S.A. and Arauco Argentina S.A., generated on subsidiaries acquisitions whose functional currency is different from the functional currency of the parent company and presentation of these financial statements, are translated into U.S. Dollars at the closing exchange rate.

 

o)

Property, Plant and Equipment

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

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

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

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

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

 

p)

Leases

Arauco applies IFRS 16 for recognizing leases in a manner consistent with contracts with similar features and akin circumstances.

At the beginning of a contract, Arauco assesses whether the contract is, or if it contains, a lease. A contract is, or contains, a lease if it transfers the right to control the use of a given asset for a certain period of time, in exchange for consideration.

As of the initial date for recording a lease, Arauco, as lessee, recognizes an asset by the right of use at cost.

The cost of the asset for right of use comprises:

 

  -

The amount of the initial measurement of the lease liability. This measurement is at present value of the payments for leases that have not been disbursed as of that date. Payments for leases are discounted using the incremental interest rate for financial loans;

 

  -

Payments for leases performed prior to or as of the initiation date, minus the lease incentives that have been received;

 

  -

The initial direct costs incurred by the lessee; and

 

  -

An estimation of the costs to be incurred by the lessee when dismantling and eliminating the underlying asset, restoring the location where the same is located, or restoring the underlying asset to the condition required under the terms and conditions of the lease, unless such costs are incurred in order to produce

 

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June 30, 2019

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

 

 

  inventories. The lessee assumes obligations stemming from such costs either at the commencement date, or as a result of having used the underlying asset during a specific period.

After the initial recognition date (January 1, 2019), Arauco, as lessee, recognizes its asset for right of use by applying the cost model, minus the accumulated depreciation and impairment losses, and adjusted for remesurement of the lease liability.

At the beginning, Arauco in the capacity of lessee, recognizes the lease liability at present value of the lease payments that have not been disbursed as of that date. Lease payments are discounted using the incremental interest rate for financial loans.

After the initial recognition date (January 1, 2019), Arauco, as lessee, recognizes a liability for leases by increasing the book value, so as to reflect the interest over the liability for lease, reducing the amount in order to reflect the payments for leases that have been performed and once again recognizing the book value, so as to reflect the remeasurement and also to reflect the essential fixed payments for leases that have been revised.

Arauco presents the assets by right of use in the Interim Consolidated Statement of Financial Position, within Properties, Plants and Equipment, and are further disclosed in Note 7. Likewise, lease liabilities are included in the Interim Consolidated Statement of Financial Position within Other Current and Non-Current Financial Liabilities, and further disclosed as Lease liabilities in note 23.

 

q)

Biological Assets

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

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

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

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

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

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

r)

Income taxes

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

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

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, under which, it is probable that an outflow of resources will be required to settle the obligation; and when 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 control over goods or services has been transferred to the customer, because at this point of the time collection is unconditional and the passage of time is only needed to receive payment.

 

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June 30, 2019

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

 

 

(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 recognized 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. There is no significant financing component given that receivables from sales are collected within a short period, which is in line with market practices.

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

The main Incoterms used by Arauco are the following:

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

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

 

(ii)

Revenue recognition from Rendering of Services

Revenue from the rendering of services is recognized as long as the performance obligation have been satisfied.

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

There is no significant financing component, given that sales are made with 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 Eléctrico Nacional (SEN) (“National Electrical System”). According to current regulations, the prices on that market called “Marginal Costs” are calculated by the Coordinador Eléctrico Nacional (CEN) (“National Electrical Coordinator”) and are generally recognized in the period in which the services are rendered.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

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

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

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

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

 

u)

Minimum dividend

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

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

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

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

 

v)

Earning per share

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

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

w)

Impairment

Non-financial Assets

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

A previously recognized impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount however a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.

For the purposes of assessing impairment losses, assets are grouped at the lowest level for which there is identifiable cash flows separately for each cash-generating unit. Non-financial assets, other than goodwill, which had recognized an impairment loss, are reviewed at the end of each reporting period whether there are any circumstances indicating that an impairment loss previously recognized may no longer exists or has decreased.

“Cash-generating units” are the smallest identifiable groups of those cash inflows that are largely independent of the cash inflow from other assets or groups of assets.

Goodwill

Goodwill and intangible assets with indefinite useful life are tested annually for impairment or whenever circumstances indicate it. The recoverable amount of an intangible asset is the higher of its fair value less costs to sell and its value in use. An impairment loss is recognized whenever the carrying amount exceeds the recoverable amount.

A cash-generating unit, for which goodwill has been allocated, is tested for impairment annually or more frequently when there are circumstances indicating that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets pro rata based on the carrying amount of each asset in the unit. Any impairment loss of goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

Goodwill is allocated to cash-generating units for impairment testing purposes. The allocation is made between cash-generating units or groups of cash generating units expected to benefit from the synergies of the combination.

Financial Assets

At the end of each reporting period, an assessment is performed in order to identify whether there is any objective evidence that a financial asset or a group of financial assets may have been impaired.

 

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June 30, 2019

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

 

 

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

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

 

x)

Employee Benefits

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

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

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

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

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

 

y)

Employee Vacations

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

This obligation is presented in line item “Trade and Other current payables” in the interim consolidated statements of financial position.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

z)

Recent accounting pronouncements

a) Standards, interpretations and amendments that are mandatory for the first time for annual periods beginning on January 1, 2019:

 

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

 

Amendments and
   improvements   

  

Content

  

Mandatory application
for annual periods
  beginning on or after  

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

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

The adoption of the standards, amendments and interpretations described above do not have a significant impact on Arauco’s Interim Consolidated Financial Statements during its initial application period, with exception of the following paragraphs related to IFRS 16.

IFRS 16 - Leases

Arauco has decided to apply IFRS 16 for the first time, starting on January 1, 2019.

IFRS 16 introduces a single lessee accounting model. The lessee is required to recognize an asset a right of use representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. There are recognition exceptions for short-term leases or low-value leases. Accounting for lessors remains similar to IAS 17, that means, lessors continue classifiying the leases as financial or operational.

Entities can apply IFRS 16 using either a full retrospective or a modified retrospective approach for leases. If the company applies the modified retrospective approach it is not required to restate the comparative financial information and the cumulative effect of the initial application of IFRS 16 must be presented as an adjustment to the opening balances of retained earnings.

Arauco has adopted to recognize the cumulative effect of the initial application of the standard as an adjustment to the opening balance of retained earnings as of January 1, 2019. Given this alternative, it is not required to restate the comparative information

The following table shows the initial effects of the adoption of IFRS 16 as of January 1, 2019 on the Arauco Interim Consolidated Financial Statements:

 

     January 1, 2019
ThU.S.$
 

Right of use assets

     286,387  

Advances granted

     (4,308

Sublease

     1,540  

Lease liabilities

     283,619  

Advances granted are presented net in the line of other financial liabilities.

Sublease has a net impact on the Acumulated earnings on January 1, 2019 of ThU.S.$ 107.

 

     January 1, 2019
ThU.S.$
 

Operating lease commitments as at December 31, 2018

     110,922  

Discounted using the lessee’s incremental borrowing rate of at the date of initial application

     88,628  

Finance lease liabilities recognised as at December 31, 2018

     68,187  

Lease liabilities recognised due to IFRS 16 implementation

     194,991  

Lease liability recognised as at January 1, 2019

     351,806  

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

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 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.    Indeterminate
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

Arauco estimates that the adoption of the standards, amendments and interpretations described above do not have a significant impact on Arauco’s Interim Consolidated Financial Statements during its initial application period.

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

NOTE 2. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES

Changes to accounting policies

Arauco has decided to apply IFRS 16 Leases, in accordance with the transition options of this standard, retroactively with the accumulated effect of the initial application, recognized on January 1, 2019, without re-expressing its comparative financial statements as of December 31, 2018.

Arauco has adopted IFRS 16, recognizing liabilities in connection with leases that had been previously classified as operating leases under IAS 17 – Leases.

The lease liabilities under IFRS 16 were measured at the present value of the remaining payments for leases, discounted using the average incremental rate of 3.99%, applied as of January 1, 2019.

The assets by right of use were measured by an amount equivalent to the lease liability, adjusted by the amount of any lease payment that was prepaid or accumulated, in connection with the lease recognized in the balance sheet as of December 31, 2018.

As a consequence of the adoption of IFRS 16, Properties, Plants and Equipment increased by ThU.S.$286,387 and Other Financial Liabilities by ThU.S.$283,619 on January 1, 2019. The following table shows a reconciliation between both amounts.

 

     January 1, 2019
ThU.S.$
 

Right of use assets

     286,387  

Advances granted

     (4,308

Sublease

     1,540  

Lease liabilities

     283,619  

Advances granted are presented net in the line of other financial liabilities.

Sublease has a net impact on the Acumulated earnings on January 1, 2019 of ThU.S.$ 107.

Upon applying IFRS 16, Arauco chose not to apply the requirements for recognizing a liability and an asset for right of use for the leases which term expires within the 12 months following January 1, 2019 and for those where the underlying asset had insignificant value. The payments related to those leases are recognized on a straight-line basis as an expense in the interim consolidated statement of profit or loss.

Changes to accounting estimates

As of June 30, 2019, there have been no changes regarding the accounting estimates with respect to the 2018 financial year.

 

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June 30, 2019

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

 

 

NOTE 3. DISCLOSURE OF OTHER INFORMATION

 

a)

Disclosure of information on Issued Capital

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

100% of Capital corresponds to ordinary shares.

 

     06-30-2019    12-31-2018

Description of Ordinary Capital Share Types

   100% of Capital corresponds
to ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

   113,159,655

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$0.0031210 per share

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

   ThU.S.$353,618
     06-30-2019    12-31-2018

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 2018 was equivalent to 20% of the distributable net profit calculated as of the end of September 2018 and was considered a decrease in the interim consolidated statements of changes in equity.

The final dividend paid each year in May corresponds to the difference between the 40% of the prior year distributable net profit and the amount of the interim dividend paid, which is considered a decrease to the interim dividend already paid.

The amount of ThU.S.$80,992 (ThU.S.$ 189,546 as of June 30, 2018) presented in the interim consolidated statements of changes in equity correspond to the minimum dividend provision recorded for the period 2019.

In the interim consolidated statements of cash flows, the Dividends Paid line shows an amount of ThU.S.$ 182,109 as of June 30, 2019 (ThU.S.$ 114,442 as of June 30, 2018), of which ThU.S.$ 182,040 (ThU.S.$ 113,773 as of June 30, 2018) correspond to the payment of dividends of the Parent Company.

The following are the dividends paid and the corresponding per share amounts during the periods 2019 and 2018:

 

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

   05-08-2019

Amount of Dividend

   ThU.S.$ 182,040

Number of Shares for which Dividends are Paid

   113,159,655

Dividend per Share

   U.S.$ 1.60870

 

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Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

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

 

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

The hedging reserve includes the cash flow hedge reserve and the costs of hedging reserve. The cash flow hedge reserve is used to recognise the effective portion of gains or losses on derivatives that 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.

 

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June 30, 2019

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

 

 

d)

Other items in the Interim Consolidated Statements of Profit or Loss

The table below sets forth other income, other expenses, finance income, finance costs and share of profit (loss) of associates and joint ventures for the periods ended June 30, 2019 and 2018 are as follows:

 

     January - June      April - June  
     2019
ThU.S.$
     2018
ThU.S.$
     2019
ThU.S.$
     2018
ThU.S.$
 

Classes of Other Income

           

Other Income, Total

     131,952        66,459        86,413        29,227  

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

     74,410        51,876        37,429        22,301  

Net income from insurance compensation

     1,154        1,259        446        1,228  

Revenue from export promotion

     680        2,076        322        1,037  

Lease income

     1,314        1,012        694        299  

Gain on sales of assets

     9,355        6,577        5,087        1,779  

Access easement

     —          145        —          60  

Compensations received

     60        509        27        507  

Gain on sales of associates

     40,842        —          40,842        —    

Other operating results

     4,137        3,005        1,566        2,016  

Classes of Other Expenses by activity

           

Total of Other Expenses by activity

     (50,006      (33,619      (27,689      (16,792

Depreciation

     —          (239      —          (116

Legal expenses

     (3,224      (1,529      (1,886      (760

Impairment provision for property, plant and equipment and others

     (8,801      (8,418      (6,174      (1,403

Operating expenses related to plants stoppage

     (4,325      (988      (612      (458

Expenses related to projects

     (9,078      (4,572      (1,746      (2,934

Loss of asset sales

     (4,392      (1,951      (2,981      (1,429

Loss and repair of assets

     (511      (216      (477      (192

Loss of forest due to fires

     (6,209      (629      (6,209      (620

Other Taxes

     (7,789      (8,319      (4,052      (4,983

Research and development expenses

     (1,659      (1,296      (1,072      (998

Fines, readjustments and interests

     (645      (536      (548      (356

Other expenses

     (3,373      (4,926      (1,932      (2,543

Classes of financing income

           

Financing income, total

     14,845        7,345        8,099        2,563  

Financial income from mutual funds - term deposits

     10,192        5,032        5,333        2,658  

Financial income resulting from swap - forward instruments

     168        67        168        (570

Other financial income

     4,485        2,246        2,598        475  

Classes of financing costs

           

Financing costs, Total

     (126,940      (103,081      (69,549      (51,419

Interest expense, Banks loans

     (16,349      (14,594      (9,048      (7,441

Interest expense, Bonds

     (80,040      (71,592      (44,343      (35,923

Interest expense, other financial instruments

     (12,576      (7,074      (6,349      (3,696

Interest expence for right-of-use

     (6,368      —          (3,499      —    

Other financial costs

     (11,607      (9,821      (6,310      (4,359

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

           

Total

     9,657        24,009        5,294        18,164  

Investments in associates

     1,144        1,523        882        1,352  

Joint ventures

     8,513        22,486        4,412        16,812  

 

46


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CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

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

 

     January - June      April - June  

Cost of sales (*)

   2019
ThU.S.$
     2018
ThU.S.$
     2019
ThU.S.$
     2018
ThU.S.$
 

Timber

     395,485        355,838        211,243        177,407  

Forestry labor costs and other services

     280,481        332,029        147,478        173,443  

Depreciation and amortization

     198,138        192,343        101,489        97,320  

Depreciation for right of use

     36,470        —          17,932        —    

Maintenance costs

     139,417        130,622        65,376        65,543  

Chemical costs

     278,775        276,166        137,558        144,216  

Sawmill Services

     76,268        77,309        39,724        38,870  

Other Raw Materials

     105,251        109,720        47,901        53,067  

Other Indirect costs

     81,265        90,980        41,498        42,137  

Energy and fuel

     105,743        97,225        51,205        48,482  

Cost of electricity

     18,258        20,923        9,491        9,799  

Wages and salaries

     190,320        174,907        95,098        86,187  

Total

     1,905,871        1,858,062        965,993        936,471  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Total amount is composed by the cost of inventory sales for ThU.S.$ 1,880,586 (ThU.S.$1,820,460 at June 30, 2018) and by cost of rendering services for ThU.S.$ 25,285 (ThU.S.$ 37,602 as of June 30, 2018)

 

     January - June      April - June  

Distribution cost

   2019
ThU.S.$
     2018
ThU.S.$
     2019
ThU.S.$
     2018
ThU.S.$
 

Selling costs

     20,074        15,805        10,423        8,026  

Commissions

     6,593        7,627        3,217        3,912  

Insurance

     2,242        2,185        1,325        1,207  

Provision for doubtful accounts

     652        10        860        2  

Other selling costs

     10,587        5,983        5,021        2,905  

Shipping and freight costs

     268,104        251,900        132,859        127,279  

Port services

     16,321        13,859        8,624        5,967  

Freights

     233,873        213,390        114,627        109,380  

Depreciation for right of use

     920        —          920        —    

Other shipping and freight costs (internation, warehousing, stowage, customs and other costs)

     16,990        24,651        8,688        11,932  

Total

     288,178        267,705        143,282        135,305  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     January - June      April - June  

Administrative expenses

   2019
ThU.S.$
     2018
ThU.S.$
     2019
ThU.S.$
     2018
ThU.S.$
 

Wages and salaries

     121,977        122,467        62,628        56,643  

Marketing, advertising, promotion and publications expenses

     11,311        5,750        4,684        3,077  

Insurances

     9,552        7,437        4,616        3,809  

Depreciation and amortization

     13,762        13,703        6,733        6,758  

Depreciation for right of use

     3,287        —          1,156        —    

Computer services

     19,668        15,302        11,642        11,191  

Lease rentals (offices, other property and vehicles)

     4,575        7,262        793        3,147  

Donations, contributions, scholarships

     5,911        5,814        2,485        2,554  

Fees (legal and technical advisors)

     23,352        26,888        12,514        13,395  

Property taxes, city permits and rights

     8,979        9,884        4,993        5,338  

Cleaning services, security services and transportation

     11,437        12,658        5,535        6,207  

Third-party variable services (maneuvers, logistics)

     20,461        22,994        9,987        11,430  

Basic services (electricity, telephone)

     4,640        4,941        2,381        2,424  

Maintenance and repair

     3,254        3,470        1,892        1,717  

Seminars, courses, training materials

     1,329        1,276        742        773  

Other administration expenses (travels, clothing and safety equipment, enviromental expenses, audits and others)

     24,009        22,621        13,443        12,479  

Total

     287,504        282,467        146,224        140,942  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

47


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

NOTE 4. INVENTORIES

 

Components of Inventory

   06-30-2019
ThU.S.$
     12-31-2018
ThU.S.$
 

Raw materials

     160,267        111,483  

Production supplies

     124,006        122,794  

Work in progress

     62,208        66,432  

Finished goods

     622,414        554,933  

Spare Parts

     184,790        174,554  

Total Inventories

     1,153,685        1,030,196  
  

 

 

    

 

 

 

Inventories recognized as cost of sales at June 30, 2019 were ThU.S.$1,880,586 (ThU.S.$1,820,460 at June 30, 2018).

In order to have the inventories recorded at net realizable value at June 30, 2019, a net decrease of inventories was recognized associated with a higher provision of obsolescence of ThU.S.$5,808 (ThU.S.$491 at June 30, 2018). As of June 30, 2019, the amount of obsolescence provision is ThU.S.$32,111 (ThU.S.$26,303 at December 31, 2018).

At June 30, 2019, there were inventory write-offs of ThU.S.$1,166 (ThU.S.$ 851 at June 30, 2018)

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

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

NOTE 5. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, bank checking account balances, time deposits and mutual funds. These are short-term highly liquid investments that are readily convertible to known amounts of cash, and are subject to an insignificant risk of changes in value.

The investment objective of time deposits is to maximize the amounts of cash surpluses in the short-term. These instruments are permitted under Arauco’s Investment Policy which allows investing in fixed income securities. These instruments have a maturity of less than three months from the date of acquisition.

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

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

 

Components of Cash and Cash Equivalents

   06-30-2019
ThU.S.$
     12-31-2018
ThU.S.$
 

Cash on hand

     163        126  

Bank checking account balances

     313,469        327,006  

Time deposits

     643,042        478,775  

Mutual funds

     294,189        270,035  

Total

     1,250,863        1,075,942  
  

 

 

    

 

 

 

The risk classification of the Company’s mutual funds as of June 30, 2019 and December 31, 2018 is shown below.

 

     06-30-2019
ThU.S.$
     12-31-2018
ThU.S.$
 

AAAfm

     291,990        268,237  

No classification

     2,199        1,798  

Total Mutual Funds

     294,189        270,035  
  

 

 

    

 

 

 

Changes in Financial Liabilities

 

     Opening balance
01-01-2019
ThU.S.$
     Increase
(decrease)
for
changes in
accounting
policies
ThU.S.$
     Re-
expressed
opening
balance
ThU.S.$
     Cash Flow                            
     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
06-30-2019
ThU.S.$
 

Borrowings from banks

     940,435        —          940,435        95,466        (80,230     (17,195     16,735        750        (1,274     954,687  

Hedging liabilities

     71,599        —          71,599        —          —         (9,973     9,973        —          (41,756     29,843  

Bonds and promissory notes

     3,501,654        —          3,501,654        992,570        (121,499     (77,900     83,722        51,811        (12,810     4,417,548  

Lease liabilities (IFRS 16)

     68,187        283,619        351,806        —          (43,041     (6,229     6,234        3,790        20,900       333,460  

Total

     4,581,875        283,619        4,865,494        1,088,036        (244,770     (111,297     116,664        56,351        (34,940     5,735,538  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

     Opening
balance
01-01-2018
ThU.S.$
     Cash Flow                        Closing
balance
12-31-2018
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.$
 

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  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

49


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A.

AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

NOTE 6. INCOME TAXES

The tax rates applicable in the countries in which Arauco operates are 27% in Chile, 30% in Argentina, 34% in Brazil, 25% in Uruguay and 21% in the United States (federal tax).

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

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

On March 25, 2019, the subsidiary Arauco Argentina S.A. chose to conduct the Tax Reappraisal set forth in Title X – Chapter 1 of Law No. 27,430. The option was exercised for all Properties, Plants and Equipments included in the category of amortizable movable assets, pursuant to the income tax law, which were adjusted to inflation using the coefficients published in that law for the purposes of calculating the aforementioned tax. The effect of the special tax in the presentation is to $122,835,595 argentinian pesos (equivalent to ThU.S.$2,892 as of June 30, 2019), which was paid in five instalments during year 2019. Additionally, the increase of the value of these tax assets, arising from this adjustment, generated a decrease of the liabilities for deferred taxes as of June 30, 2019 of to approximately ThU.S.$16,177. Both the loss for the special tax as well as the profits for the decrease of the deferred tax, are shown in the Income tax line.

 

50


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

Deferred Tax Assets

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

 

Deferred Tax Assets

   06-30-2019
ThU.S.$
     12-31-2018
ThU.S.$
 

Deferred tax Assets relating to Provisions

     6,201        6,105  

Deferred tax Assets relating to Accrued Liabilities

     6,987        10,906  

Deferred tax Assets relating to Post-Employment benefits

     20,279        19,072  

Deferred tax Assets relating to Property, Plant and equipment

     8,999        10,125  

Deferred tax Assets relating to Financial Instruments

     24,046        9,761  

Deferred tax Assets relating to Tax Loss Carryforward

     136,956        109,320  

Deferred tax Assets relating to Inventories

     6,552        5,532  

Deferred tax Assets relating to Provisions for Income

     7,702        7,443  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     5,210        5,001  

Intangible revaluation differences

     7,871        7,651  

Deferred tax Assets relating to Other Deductible Temporary Differences

     38,414        21,108  

Total Deferred Tax Assets

     269,217        212,024  
  

 

 

    

 

 

 

Offsetting presentation

     (263,014      (207,389
  

 

 

    

 

 

 

Net Effect

     6,203        4,635  
  

 

 

    

 

 

 

Certain subsidiaries of Arauco mainly in Chile, Brazil and Uruguay, as of the date of these interim consolidated financial statements, present tax losses for which we estimate that, given the projection of future profits, will allow the recovery of these assets. The total amount of these tax losses is ThU.S.$491,260 (ThU.S.$ 368,938 at December 31, 2018), which are mainly originated by operational and financial losses.

In addition, as of the closing date of these interim consolidated financial statements there are ThU.S.$144,787 (ThU.S.$ 183,162 at December 31, 2018) of non-recoverable tax losses from companies in Uruguay as joint operations based on the participation of Arauco and subsidiaries in USA, for which deferred tax assets have not been recognized. The estimated recovery period exceeds the expiry date of such tax losses.

Deferred Tax Liabilities

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

 

Deferred Tax Liabilities

   06-30-2019
ThU.S.$
     12-31-2018
ThU.S.$
 

Deferred tax Liabilities relating to Property, Plant and Equipment

     846,203        829,288  

Deferred tax Liabilities relating to Financial Instruments

     21,363        14,225  

Deferred tax Liabilities relating to Biological Assets

     646,470        661,582  

Deferred tax Liabilities relating to Inventory

     43,673        39,025  

Deferred tax Liabilities relating to Prepaid Expenses

     45,934        37,897  

Deferred tax Liabilities relating to Intangible

     20,921        20,240  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     28,409        22,790  

Total Deferred Tax Liabilities

     1,652,973        1,625,047  
  

 

 

    

 

 

 

Offsetting presentation

     (263,014      (207,389
  

 

 

    

 

 

 

Net Effect

     1,389,959        1,417,658  
  

 

 

    

 

 

 

The effect of changes in current and deferred tax liabilities related to financial hedging instruments corresponds to a debit of ThU.S.$5,159 as of June 30, 2019 (compared to a credit of ThU.S.$ 12,292 for the period ended June 30, 2018), which is presented net in Reserves for Cash Flow Hedges in the Interim Consolidated Statement of Changes in Equity.

 

51


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

Reconciliation of deferred tax assets and liabilities

 

    

Opening
Balance
01-01-2019

     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
through
business
combinations
     Increase
(decrease)
Net exchange
differences
    Closing
balance
06-30-2019
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     6,105        (171     —         244        23       6,201  

Deferred tax Assets relating to Accrued Liabilities

     10,906        (4,197     —         197        81       6,987  

Deferred tax Assets relating to Post-Employment benefits

     19,072        1,172       (133     150        18       20,279  

Deferred tax Assets relating to Property, Plant and equipment

     10,125        (1,126     —         —          —         8,999  

Deferred tax Assets relating to Financial Instruments

     9,761        17,184       (2,898     —          (1     24,046  

Deferred tax Assets relating to Tax Loss Carryforward

     109,320        25,737       —         1,505        394       136,956  

Deferred tax Assets relating to Inventories

     5,532        740       —         279        1       6,552  

Deferred tax Assets relating to Provisions for Income

     7,443        132       —         112        15       7,702  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     5,001        131       —         68        10       5,210  

Intangible revaluation differences

     7,651        163       —         —          57       7,871  

Deferred tax Assets relating to Other Deductible Temporary Differences

     21,108        16,566       —         731        9       38,414  

Total Deferred Tax Assets

     212,024        56,331       (3,031     3,286        607       269,217  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     Opening
Balance
01-01-2019
IAS 39
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
through
business
combinations
    

Increase

(decrease)
Net exchange
differences

    Closing
balance
06-30-2019
 

Deferred Tax Liabilities

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

Deferred tax Liabilities relating to Property, Plant and Equipment

     829,288        12,633       —         4,234        48       846,203  

Deferred tax Liabilities relating to Financial Instruments

     14,225        7,138       —         —          —         21,363  

Deferred tax Liabilities relating to Biological Assets

     661,582        (16,001     —         —          889       646,470  

Deferred tax Liabilities relating to Inventory

     39,025        4,602       —         —          46       43,673  

Deferred tax Liabilities relating to Prepaid Expenses

     37,897        7,966       —         69        2       45,934  

Deferred tax Liabilities relating to Intangible

     20,240        484       —         —          197       20,921  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     22,790        4,968       —         182        469       28,409  

Total Deferred Tax Liabilities

     1,625,047        21,790       —         4,485        1,651       1,652,973  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

     Opening
Balance
01-01-2018
IAS 39
     Amounts
restated
     Opening
Balance
01-01-2018
IFRS 9
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
Net
exchange
differences
    Closing
balance
12-31-2018
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     7,433           7,433        (1,015     —         (313     6,105  

Deferred tax Assets relating to Accrued Liabilities

     11,267           11,267        (361     —         —         10,906  

Deferred tax Assets relating to Post-Employment benefits

     19,276           19,276        297       (504     3       19,072  

Deferred tax Assets relating to Property, Plant and equipment

     11,657           11,657        (1,532     —         —         10,125  

Deferred tax Assets relating to Financial Instruments

     4,348        709        5,057        (507     5,211       —         9,761  

Deferred tax Assets relating to Tax Loss Carryforward

     62,706           62,706        53,103       —         (6,489     109,320  

Deferred tax Assets relating to Inventories

     5,941           5,941        (378     —         (31     5,532  

Deferred tax Assets relating to Provisions for Income

     21,354           21,354        (13,910     —         (1     7,443  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     5,149        918        6,067        (843     —         (223     5,001  

Intangible revaluation differences

     10,389           10,389        (1,244     —         (1,494     7,651  

Deferred tax Assets relating to Other Deductible Temporary Differences

     27,364           27,364        (3,838     —         (2,418     21,108  

Total Deferred Tax Assets

     186,884        1,627        188,511        29,772       4,707       (10,966     212,024  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Opening
Balance
01-01-2018
IAS 39
     Amounts
restated
     Opening
Balance
01-01-2018
IFRS 9
     Deferred tax
Expenses
(Income)
    Deferred tax of
items charged
to other
comprehensive
income
   

Increase

(decrease)
Net
exchange
differences

    Closing
balance
12-31-2018
 

Deferred Tax Liabilities

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

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     06-30-2019      12-31-2018  

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

     132,261           102,704     

Deferred Tax Assets - Tax loss carryforward

     136,956           109,320     

Deferred Tax Liabilities

        1,652,973           1,625,047  

Total

     269,217        1,652,973        212,024        1,625,047  
  

 

 

    

 

 

    

 

 

    

 

 

 
     January - June      April - June  

Detail of Temporary Difference Income and Loss Amounts

   2019
ThU.S.$
     2018
ThU.S.$
     2019
ThU.S.$
     2019
ThU.S.$
 

Deferred Tax Assets

     30,594        (23,456      11,299        (9,150

Deferred Tax Assets - Tax loss carryforward

     25,737        17,774        8,601        8,270  

Deferred Tax Liabilities

     (21,790      5,059        (20,300      (62

Total

     34,541        (623      (400      (942
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Tax Expense

Income tax expense consists of the following:

 

     January - June      April - June  

Income Tax composition

   2019
ThU.S.$
     2018
ThU.S.$
     2019
ThU.S.$
     2018
ThU.S.$
 

Current income tax expense

     (81,699      (123,709      (34,874      (71,354

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

     3,771        2,714        3,771        2,714  

Prior period current income tax adjustments

     (2,871      (1,766      (56      (2,412

Other current benefit tax (expenses)

     (707      (1,312      (306      (861

Current Tax Expense, Net

     (81,506      (124,073      (31,465      (71,913

Deferred tax expense relating to origination and reversal of temporary differences

     8,804        (18,397      (9,001      (9,212

Tax benefit arising from previously unrecognized tax loss carryforward

     25,737        17,774        8,601        8,270  

Total deferred Tax benefit (expense), Net

     34,541        (623      (400      (942

Income Tax benefit (expense), Total

     (46,965      (124,696      (31,865      (72,855
  

 

 

    

 

 

    

 

 

    

 

 

 

 

53


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

The following table presents the current income tax expense detailed by foreign and domestic (Chile) companies at June 30, 2019 and 2018:

 

     January - June      April - June  
     2019
ThU.S.$
     2018
ThU.S.$
     2019
ThU.S.$
     2018
ThU.S.$
 

Foreign current income tax expense

     (17,336      (12,667      (8,033      (3,790

Domestic current income tax expense

     (64,170      (111,406      (23,432      (68,123

Total current income tax expense

     (81,506      (124,073      (31,465      (71,913

Foreign deferred tax benefit (expense)

     32,098        (1,749      12,237        (5,893

Domestic deferred tax benefit (expense)

     2,443        1,126        (12,637      4,951  

Total deferred tax benefit (expense)

     34,541        (623      (400      (942

Total income tax benefit (expense)

     (46,965      (124,696      (31,865      (72,855
  

 

 

    

 

 

    

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - June     April - June  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   2019
ThU.S.$
    2018
ThU.S.$
    2019
ThU.S.$
    2018
ThU.S.$
 

Statutory domestic (Chile) income tax rate

     27.0     27.0     27.0     27.0

Tax Expense at statutory tax rate

     (62,233     (151,373     (24,109     (83,993

Tax effect of foreign tax rates

     858       2,827       306       2,830  

Tax effect of revenues exempt from taxation

     44,451       31,185       5,989       12,562  

Tax effect of not deductible expenses

     (44,235     (9,414     (20,463     (3,049

Tax rate effect of tax loss carry forwards

     —         374       —         126  

Tax effect of Previously Unrecognized Tax Benefit in the Income Statement

     —         108       —         108  

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

     16,041       —         4,488       —    

Tax rate effect of adjustments for current tax of prior periods

     (2,871     (1,766     (56     (2,412

Other tax rate effects

     1,024       3,363       1,980       973  

Total adjustments to tax expense at applicable tax rate

     15,268       26,677       (7,756     11,138  

Tax benefit (expense) at effective tax rate

     (46,965     (124,696     (31,865     (72,855
  

 

 

   

 

 

   

 

 

   

 

 

 

Current tax assets and liabilities

The current tax assets and liabilities balances are as follow:

 

Current tax Liabilities

   06-30-2019
ThU.S.$
     12-31-2018
ThU.S.$
 

Monthly Provisional Payments (MPP)

     85,236        1,662  

Income tax receivable

     27,023        19,538  

Provision tax income

     (63,901      (1,371

Other tax receivables

     12,365        16,684  

Total

     60,723        36,513  
  

 

 

    

 

 

 

Current tax Liabilities

   06-30-2019
ThU.S.$
     12-31-2018
ThU.S.$
 

Provision tax income (First category)

     11,850        260,538  

Monthly Provisional Payments (MPP)

     (6,067      (107,023

Other tax payables

     1,413        127  

Total

     7,196        153,642  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

     06-30-2019      12-31-2018  

Property, Plant and Equipment

   ThU.S.$      ThU.S.$  

Property, Plant and Equipment

     7,473,712        7,174,693  

Property, Plant and Equipment by right of use

     336,463        —    

Total

     7,810,175        7,174,693  
  

 

 

    

 

 

 

Property, Plant and Equipment

 

     06-30-2019      12-31-2018  

Property, Plant and Equipment, Net

   ThU.S.$      ThU.S.$  

Construction work in progress

     1,281,658        1,030,730  

Land

     982,975        972,143  

Buildings

     2,127,157        2,062,887  

Plant and equipment

     2,913,716        2,921,462  

Information technology equipment

     21,584        23,292  

Fixtures and fittings

     10,137        15,906  

Motor vehicles

     13,983        14,916  

Other property, plant and equipment

     122,502        133,357  

Total Net

     7,473,712        7,174,693  
  

 

 

    

 

 

 

Property, Plant and Equipment, Gross

     

Construction work in progress

     1,281,658        1,030,730  

Land

     982,975        972,143  

Buildings

     4,092,962        3,959,186  

Plant and equipment

     6,567,255        6,388,843  

Information technology equipment

     89,474        86,558  

Fixtures and fittings

     41,649        44,694  

Motor vehicles

     54,379        53,507  

Other property, plant and equipment

     141,246        157,301  

Total Gross

     13,251,598        12,692,962  
  

 

 

    

 

 

 

Accumulated depreciation and impairment

     

Buildings

     (1,965,805      (1,896,299

Plant and equipment

     (3,653,539      (3,467,381

Information technology equipment

     (67,890      (63,266

Fixtures and fittings

     (31,512      (28,788

Motor vehicles

     (40,396      (38,591

Other property, plant and equipment

     (18,744      (23,944

Total

     (5,777,886      (5,518,269
  

 

 

    

 

 

 

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

As of June 30, 2019, there are no significant assets pledged as collateral to be disclosed in these interim consolidated financial statements.

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

 

     06-30-2019      12-31-2018  
     ThU.S.$      ThU.S.$  

Amount committed for the acquisition of property, plant and equipment

     994,626        798,631  
  

 

 

    

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

June 30, 2019

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

 

 

Reconciliation of Property, Plant and Equipment

The following tables set forth the reconciliation of the carrying amount of property, plant and equipment as of June 30, 2019 and December 31, 2018:

 

Reconciliation of Property, Plant and Equipment

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

Opening Balance 01-01-2019

    1,030,730       972,143       2,062,887       2,921,462       23,292       15,906       14,916       133,357       7,174,693  

Increase (decrease) for changes in accounting policies

    —         —         —         (55,015     —         —         —         (17,237     (72,252

Restated opening balance

    1,030,730       972,143       2,062,887       2,866,447       23,292       15,906       14,916       116,120       7,102,441  

Changes

                 

Additions

    442,398       6,821       2,362       9,594       466       213       1,499       9,145       472,498  

Acquisitions through business combinations

    12,839       3,865       22,431       80,355       168       197       1       6,272       126,128  

Disposals

    —         (1,109     (4,455     (1,352     —         (4     (4     —         (6,924

Withdrawals

    (4,888     (499     (1,401     (7,013     (1     (1     (11     (1,589     (15,403

Depreciation

    —         —         (62,876     (147,866     (3,108     (1,301     (2,067     (599     (217,817

Impairment loss recognized in profit or loss

    —         —         (7     (1     —         (9     —         —         (17

Increase (decrease) through net exchange differences

    (1,038     1,097       6,324       5,655       56       12       56       (311     11,851  

Reclassification to assets held for sale

    —         —         —         (101     —         —         —         —         (101

Increase (decrease) through transfers from construction in progress

    (198,383     657       101,892       106,952       711       (4,876     (417     (6,536     —