6-K 1 d926644d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of March, 2020

Commission File Number 33-99720

 

 

ARAUCO AND CONSTITUTION PULP INC.

(Translation of registrant’s name into English)

 

 

El Golf 150

Fourteenth Floor

Santiago, Chile

(Address of principal executive offices)

 

 

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

Form 20-F  ☑            Form 40-F  ☐

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

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

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

Yes  ☐            No  ☑

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

 

 

 


Table of Contents

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item         Page  

1.

   Ratio Analysis of the Interim Consolidated Financial Statements      1  

2.

   Unaudited Interim Consolidated Statements of Financial Position      7  

3.

   Unaudited Interim Consolidated Statements of Profit or Loss      9  

4.

   Unaudited Interim Consolidated Statements of Comprehensive Income      10  

5.

   Unaudited Interim Consolidated Statements of Changes in Equity      11  

6.

   Unaudited Interim Consolidated Statements of Cash Flow      12  

7.

   Unaudited Notes to the Interim Consolidated Financial Statements      13  
   Annex: Press Release   


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

1. ANALYSIS OF FINANCIAL POSITION

 

  a)

Statement of Financial Position

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

 

Assets

   03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Current assets

     3,633,135        3,931,381  

Non-current assets

     11,884,475        11,928,649  
  

 

 

    

 

 

 

Total assets

     15,517,610        15,860,030  
  

 

 

    

 

 

 

 

Liabilities

   03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Current liabilities

     1,309,520        1,261,522  

Non-current liabilities

     7,216,002        7,229,093  

Non–parent participation

     35,129        35,011  

Net equity attributable to parent company

     6,961,959        7,334,404  
  

 

 

    

 

 

 

Total net equity and liabilities

     15,517,610        15,860,030  
  

 

 

    

 

 

 

As of March 31, 2020, total assets decreased MU.S.$342 compared to December 31, 2019, equivalent to a 2.16% variation. This variation was driven mainly by decreases in cash equivalents (bank checking accounts and mutual funds) and biological assets.

In turn, total liabilities increased by MU.S.$35 principally due to an increase in financial liabilities, partially offset by decreases in deferred tax liabilities and trade and other current payables.

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

 

Liquidity ratios

   03-31-2020      12-31-2019  

Current Liquidity (current assets / current liabilities)

         2.77            3.12  

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

     1.77        2.06  

 

Debt indicators

   03-31-2020      12-31-2019  

Debt to equity ratio (total liabilities / equity)

     1.22        1.15  

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

     0.15        0.15  

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

         0.85            0.85  
     03-31-2020      03-31-2019  

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

         0.45            3.46  

 

Activity ratio

   03-31-2020      12-31-2019  

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

     2.55        2.92  

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

     3.20        3.75  

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

     141.13        123.17  

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

     112.51        95.93  

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

As of March 31, 2020, the short-term debt to total debt ratio represented 15% of total liabilities (15% too as of December 31, 2019).

Our financial expenses coverage ratio decreased from 3.46 to 0.45, mainly due to lower earnings before taxes for period ended March 31, 2020, compared to the same period of 2019.

 

  b)

Statement of profit or loss

Profit before income tax

Profit before income tax registered a loss of approximately MU.S.$39 compared to a profit of approximately MU.S.$141 in the same period of 2019. The negative variation of MU.S.$180 is explained by the factors described in the following table:

 

Item

   MU.S.$  

Gross profit

     (163

Distribution and Administrative Expenses

     23  

Other income and expenses

     (19

Other financial income and expenses

     (14

Others

     (7
  

 

 

 

Net change in profit before income tax

     (180
  

 

 

 

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

 

Revenues

   03-31-2020
ThU.S.$
     03-31-2019
ThU.S.$
 

Pulp

     450,910        652,215  

Timber

     646,550        697,781  

Forestry

     29,624        30,747  

Other

     82        7,443  
  

 

 

    

 

 

 

Total revenues

     1,127,166        1,388,186  
  

 

 

    

 

 

 

Sales costs

   03-31-2020
ThU.S.$
     03-31-2019
ThU.S.$
 

Wood

     191,255        184,242  

Forestry work and other services

     107,457        133,003  

Depreciation and amortization

     113,214        115,187  

Other costs

     431,634        509,484  
  

 

 

    

 

 

 

Total sales costs

        843,560           941,916  
  

 

 

    

 

 

 

Profitability index

   03-31-2020      12-31-2019  

Profitability on equity

     (1.65      0.84  

Profitability on assets

     (0.76      0.41  

Return on operating assets

              0.68                 1.90  

Profitability ratios

   03-31-2020      03-31-2019  

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

     (0.26      1.11  

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

     (29,706      126,099  

Gross margin (ThU.S.$)

          283,606             446,270  

Finance costs (ThU.S.$)

     (71,782      (57,391

 

(1)

Earnings per share refer to the profit to net equity to parent company.

 

(2)

Includes non-controlling interest.

 

2


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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

EBITDA

   03-31-2020
ThU.S.$
     03-31-2019
ThU.S.$
 

Profit (loss)

     (29,706      126,099  

Finance costs

     71,782        57,391  

Finance income

     (7,207      (6,746

Income tax expense

     (9,761      15,100  

EBIT

     25,108        191,844  

Depreciation and amortization

     125,411        124,684  

EBITDA

     150,519        316,528  

Cost at fair value of the harvest

     67,024        74,837  

Gain from changes in fair value of biological assets

     (52,018      (36,981

Exchange difference

     3,427        (2,127

Others*

     25,615        2,627  

Adjusted EBITDA

     194,567        354,884  

 

*

Considers incidents and impairment provision for industrial property, plant and equipment and biological assets.

2. MAIN SOURCES OF FINANCING

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

3. MARKET SITUATION

Pulp Division

The first quarter of 2020 was challenging, especially due to the effects of COVID-19 in the global markets. The tissue market was positively affected due to a higher demand, but P&W markets suffered a significant adverse impact because of the shutdown of offices, schools and universities. Global inventories for long fiber pulp remained stable, yet those of short fiber increased on a quarterly basis (although not reaching 1Q 2019 levels). All of this led to prices remaining stable for both fibers in most of the markets we take part in.

In China, the quarter began with a positive trend in terms of demand prior to the Chinese New Year. During those festivities, the COVID-19 breakout led to a prolonged holiday as well as quarantines across the country in order to prevent movements of people. This generated disruptions to supply chains which, nevertheless, didn’t have any major impact on our sales. The market showed positive signs up until mid-March, when demand for P&W paper and specialties started to decline associated to lower economic activity both in domestic and export markets.

In Europe, the quarter began with a strong demand even with some clients asking to anticipate deliveries. During March, the COVID-19 broke out in Italy to then expand to other countries. As in other markets, demand for tissue remained strong. This contrasts with the demand for P&W which fell, with clients announcing plant stoppages and production cuts. Prices remained stable throughout the quarter, with a slight decrease at the end of it.

 

3


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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Production increased during the quarter by 6.1% or approximately 52 th. tonnes, mainly due to less maintenance stoppages during this quarter. This increase was partially offset by the Licancel mill stoppage, which wasn’t operating since December 2019, because of low water flow in the Mataquito river. This mill resumed operations on March 20th. During this period, we also undertook the annual maintenance stoppage of the mentioned mill. Additionally, the Constitución mill undertook its annual maintenance stoppage (6 days). Moreover, both production lines of our Arauco mill had to stop because of a quarantine required by the health authorities because a contractor’s employee tested positive for COVID-19 in the canteen. Line 2 was stopped for 5 days, and Line 1 for nearly a month as we anticipated our annual maintenance stoppage initially programmed for June 2020.

Composite Panel

Sales decreased compared to the fourth quarter, with sales volume and prices decreasing by 1.6% and 1.5%, respectively.

During the beginning of the first quarter the Latin American market showed encouraging signs, but the impact of COVID-19 has been significant in the region due to ongoing quarantines in some countries. This started to affect our sales at the end of March, and uncertainty going forward remains.

In the US and Canada sales volumes and prices remained stable.

Sawn timber

During the first quarter, sales volume and prices were similar to the previous quarter. Even as we noted signs of recovery from Asian markets, total sales volume decreased by 3.4% compared to the last quarter.

Results for remanufactured wood products were stable. We were able to capture additional market share in part due to competitors facing possible tariffs, and a generalized supply deficit.

Plywood

Sales volume increased by 4.1% during the first quarter. The year began with an improvement in some markets with respect to the previous quarter. In terms of supply, we have noted competitors leaving the market due to low profitability.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

4. ANALYSIS OF CASH FLOW

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

 

     03-31-2020
ThU.S.$
     03-31-2019
ThU.S.$
 

Positive (negative) Cash flow

     

Net cash flows from operating activities

     (15,742      130,251  

Cash flows from (used in) financing activities:

     

Loan and bond obtention and payments

     95,091        (53,483

Payment of lease liabilities

     (21,230      (20,949

Others

     69        (316

Cash flows from (used in) investment activities:

     

Purchase and sale of property, plant and equipment

     (354,147      (161,616

Purchase and sale of biological assets

     (64,487      (72,629

Purchase and sale of intangible assets

     (6,084      (3,603

Additions (Disposals), Investments in joint ventures and associates

     (15,090      (151,294

Dividends received

     3,539        6,206  

Others

     (596      —    

Positive (negative) net cash flow

     (378,677      (327,433

Cash flow from operating activities shows a negative balance of MU.S.$16 for the current period, representing a variation to the same period of 2019 (a positive balance MU.S.$130 as of March 31, 2019), resulting mainly from lower revenues from customer collections and higher payments due to derivatives instruments.

The financing cash flow shows a positive balance of MU.S.$74 for the current period, representing a variation in respect of the same period of 2019 (negative balance of MU.S.$75), resulting mainly from cash received from bank loans.

Regarding the investment cash flow, the current period shows a higher negative balance of MU.S.$437 (compared to the negative balance of MU.S.$383 for the same period of 2019), mainly due to higher disbursements for the purchase of property, plant and equipment in the current period, partially offset by the purchase of plants to Masisa in Mexico in 2019.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

5. MARKET RISK ANALYSIS

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of March 31, 2020, a ratio of fixed rate debt to total consolidated debt of approximately 89.2%, which we believe is consistent with industry standards.

Regarding variations in prices of pulp and forestry products, the Company does not participate in futures trading as to maintain one of the lowest cost structures in the industry, the risks for price fluctuations are bounded.

The Company and most of its subsidiaries maintain their accounting records and prepare their financial statements in U.S. dollars. Both the accounts receivable and most financial liabilities are denominated in U.S. dollars or are covered by an exchange rate swap, as well as most of their revenues. As a result, exposure to changes in the exchange rate has decreased significantly.

In the Interim Consolidated Financial Statements as of March 31, 2020, a detailed analysis of the risks associated with the business of Arauco is available (See Note 23).

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

     Note    03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Assets

        

Current Assets

        

Cash and cash equivalents

   5-23      1,155,458        1,560,012  

Other current financial assets

   23      52,638        3,370  

Other current non-financial assets

   25      174,893        174,110  

Trade and other current receivables

   23      667,435        642,315  

Accounts receivable from related companies

   13      15,233        17,526  

Current inventories

   4      1,055,235        1,053,867  

Current biological assets

   20      260,744        275,792  

Current tax assets

   6      247,202        199,953  

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

        3,628,838        3,926,945  

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

   22      4,297        4,436  

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

        4,297        4,436  

Total Current Assets

        3,633,135        3,931,381  

Non-Current Assets

        

Other non-current financial assets

   23      73        9,395  

Other non-current non-financial assets

   25      126,850        112,414  

Trade and other non-current receivables

   23      8,576        9,456  

Investments accounted for using equity method

   15-16      288,070        293,118  

Intangible assets other than goodwill

   19      104,096        106,252  

Goodwill

   17      59,349        65,751  

Property, plant and equipment

   7      7,681,483        7,648,183  

Right of use assets

   8      261,743        284,379  

Non-current biological assets

   20      3,347,839        3,393,634  

Deferred tax assets

   6      6,396        6,067  

Total Non-Current Assets

        11,884,475        11,928,649  

Total Assets

        15,517,610        15,860,030  
     

 

 

    

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

     Note    03-31-2020
ThU.S.$
    12-31-2019
ThU.S.$
 

Equity and Liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      586,263       460,846  

Current lease liabilities

   23      60,914       69,208  

Trade and other current payables

   23      614,487       673,057  

Accounts payable to related companies

   13      3,956       8,880  

Other current provisions

   18      1,234       1,259  

Current tax liabilities

   6      2,568       2,242  

Current provisions for employee benefits

   10      5,323       5,965  

Other current non-financial liabilities

   25      34,775       40,065  

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

        1,309,520       1,261,522  

Total Current Liabilities

        1,309,520       1,261,522  

Non-Current Liabilities

       

Other non-current financial liabilities

   23      5,546,655       5,452,194  

Non-current lease liabilities

   23      169,681       201,817  

Non-current payables

   23      2,230       2,230  

Other non-current provisions

   18      31,068       31,765  

Deferred tax liabilities

   6      1,316,326       1,360,187  

Non-current provisions for employee benefits

   10      62,057       69,464  

Other non-current non-financial liabilities

   25      87,985       111,436  

Total Non-Current Liabilities

        7,216,002       7,229,093  

Total Liabilities

        8,525,522       8,490,615  

Equity

       

Issued capital

   3      353,618       353,618  

Retained earnings

        7,844,190       7,873,650  

Other reserves

        (1,235,849     (892,864

Equity attributable to parent company

        6,961,959       7,334,404  

Non-controlling interests

        30,129       35,011  

Total Equity

        6,992,088       7,369,415  

Total Equity and Liabilities

        15,517,610       15,860,030  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

          For the years ended March 31,  
          2020     2019  
     Note    ThU.S.$     ThU.S.$  

Statements of profit or loss

       

Revenue

   9      1,127,166       1,388,186  

Cost of sales

   3      (843,560     (941,916

Gross profit

        283,606       446,270  

Other income

   3      55,246       45,539  

Distribution costs

   3      (137,429     (142,858

Administrative expenses

   3      (123,503     (141,280

Other expense

   3      (50,938     (22,317

Profit from operating activities

        26,982       185,354  

Finance income

   3      7,207       6,746  

Finance costs

   3      (71,782     (57,391

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

   3-15      1,553       4,363  

Gains (losses) on exchange differences on translation

        (3,427     2,127  

Profit before income tax

        (39,467     141,199  

Income Tax

   6      9,761       (15,100

Net Profit

        (29,706     126,099  
     

 

 

   

 

 

 

Net profit attributable to

       

Net profit attributable to parent company

        (29,460     125,836  

Net profit attributable to non-controlling interests

        (246     263  

Net Profit

        (29,706     126,099  
     

 

 

   

 

 

 

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

       

Basic and diluted earnings per share from continuing operations

        (0.2603     1.1120  
     

 

 

   

 

 

 

Basic and diluted earnings per share

        (0.2603     1.1120  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

            For the years ended March 31  
            2020     2019  
     Note      ThU.S.$     ThU.S.$  

Net profit

        (29,706     126,099  

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

       

Other comprehensive income before tax gains losses on remeasurements of defined benefit plans

     10        109       811  

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

        109       811  

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        (264,389     (8,622

Other Comprehensive Income before tax exchange differences on translation

        (264,389     (8,622

Cash flow hedges

       

Gains (losses) on cash flow hedges, before tax

     23        (103,466     (4,823

Recycle of cash flow hedges to profit or loss before tax

     23        (2,797     (2,148

Other Comprehensive Income before tax Cash flow hedges

        (106,263     (6,971

Share of other comprehensive income of associates and joint ventures accounted for using equity method that will be reclassified to profit or loss before tax

       

Share of other comprehensive income of associates and joint ventures accounted for using equity method that will be reclassified to profit or loss before tax

        (6,029     592  

Share of other comprehensive income of associates and joint ventures accounted for using equity method that will be reclassified to profit or loss before tax

        (6,029     592  

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

        (376,681     (15,001

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

       

Income tax relating to remeasurements of defined benefit plans of other comprehensive income

        (64     (199

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

        (64     (199

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 of other comprehensive income

     6        27,786       3,718  

Income tax relating to share of other comprehensive income of associates and joint ventures accounted for using equity method that will be reclassified to profit or loss

        1,264       (137

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

        29,050       3,581  

Other comprehensive income (loss)

        (347,586     (10,808

Comprehensive income (loss)

        (377,292     115,291  
     

 

 

   

 

 

 

Comprehensive Income (loss) attributable to

       

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

        (372,445     115,276  

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

        (4,847     15  

Total comprehensive income (loss)

        (377,292     115,291  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

03-31-2020

  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 01-01-2020

    353,618       (902,387     9,010       (19,511     20,024       (892,864     7,873,650       7,334,404       35,011       7,369,415  

Changes in Equity:

                   

Comprehensive income

                   

Net profit

                (29,460     (29,460     (246     (29,706

Other comprehensive income, net of tax

    —         (259,789     (78,477     46       (4,765     (342,985       (342,985     (4.601     (347,586

Comprehensive income

    —         (259,789     (78,477     46       (4,765     (342,985     (29,460     (372,445     (4.847     (377,292

Dividends

                —         —         (35     (35

Increase (decrease) from transfers and other changes

                —         —         —         —    

Changes in equity

    —         (259,789     (78,477     46       (4,765     (342,985     (29,460     (372,445     (4,882     (377,327

Closing balance at 03-31-2020

    353,618       (1,162,176     (69,467     (19,465     15,259       (1,235,849     7,844,190       6,961,959       30,129       6,992,088  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

03-31-2019

  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

                (188     (188     —         (188

Re-expressed opening balance

    353,618       (872,395     13,395       (17,571     687       (875,884     7,823,857       7,301,591       37,192       7,338,783  

Changes in Equity:

                   

Comprehensive income

                   

Net profit

                125,836       125,836       263       126,099  

Other comprehensive income, net of tax

    —         (8,374     (3,253     612       455       (10,560       (10,560     (248     (10,808

Comprehensive income

    —         (8,374     (3,253     612       455       (10,560     125,836       115,276       15       115,291  

Dividends

                (53,105     (53,105     57       (53,048

Increase (decrease) from transfers and other changes

                143       143       —         143  

Changes in equity

    —         (8,374     (3,253     612       455       (10,560     72,874       62,314       72       62,386  

Closing balance at 03-31-2019

    353,618       (880,769     10,142       (16,959     1,142       (886,444     7,896,731       7,363,905       37,264       7,401,169  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the years ended March 31,  
     2020     2019  
     ThU.S.$     ThU.S.$  

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     1,122,841       1,377,157  

Other cash receipts from operating activities

     198,106       93,953  

Classes of cash payments

    

Payments to suppliers for goods and services

     (962,459     (1,063,142

Payments to and on behalf of employees

     (159,328     (174,271

Other cash payments from operating activities

     (123,000     (30,115

Interest paid

     (41,828     (48,124

Interest received

     6,483       4,666  

Income taxes paid

     (55,469     (28,085

Other inflows (outflows) of cash, net

     (1,088     (1,788

Net Cash flow from Operating Activities

     (15,742     130,251  
  

 

 

   

 

 

 

Cash flows from (used in) Investing Activities

    

Cash flow used in obtaining control of subsidiaries and other businesses

     —         (150,824

Cash used for the purchase of non-controlling interests

     (15,090     (470

Proceeds from sale of property, plant and equipment

     2,611       4,239  

Purchase of property, plant and equipment

     (356,758     (165,855

Purchase of intangible assets

     (6,084     (3,603

Proceeds from sales of other long-term assets

     3,060       1,230  

Purchase of other non-current assets

     (67,547     (73,859

Dividends received

     3,539       6,206  

Other inflows (outflows) of cash, net

     (596     —    

Cash flows from (used in) Investing Activities

     (436,865     (382,936
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total borrowings obtained

     140,000       7,000  

Debt obtained in long-term

     —         7,000  

Debt obtained in short-term

     140,000       —    

Repayments of borrowings

     (44,909     (60,483

Payments of lease liabilities

     (21,230     (20,949

Other outflows of cash, net

     69       (316

Cash flows from (used in) Financing Activities

     73,930       (74,748
  

 

 

   

 

 

 

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

     (378,677     (327,433

Effect of exchange rate changes on cash and cash equivalents

     (25,877     (738
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash Equivalents

     (404,554     (328,171

Cash and cash equivalents, at the beginning of the period

     1,560,012       1,075,942  

Cash and cash equivalents, at the end of the period

     1,155,458       747,771  
  

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2020 AND 2019 AND DECEMBER 31, 2019

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 March 31, 2020, 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 Mr. Roberto Angelini Rossi, tax identification number 5,625,652-0, and Mrs. Patricia Angelini Rossi, tax identification number 5,765,170-9.

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Presentation of Interim Consolidated Financial Statements

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

 

   

Interim Consolidated Statements of Financial Position as of March 31, 2020 and December 31, 2019.

 

   

Interim Consolidated Statements of Profit or Loss for the periods ended March 31, 2020 and 2019.

 

   

Interim Consolidated Statements of Comprehensive Income for the periods ended March 31, 2020 and 2019.

 

   

Interim Consolidated Statements of Changes in Equity for the periods ended March 31, 2020 and 2019.

 

   

Interim Consolidated Statements of Cash Flows for the periods ended March 31, 2020 and 2019.

 

   

Explanatory disclosures (notes)

Period Covered by the Interim Consolidated Financial Statements

Periods ended March 31, 2020 and 2019.

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. 631 on May 12, 2020.

Abbreviations used in this report:

IFRS - International Financial Reporting Standards

IASB - International Accounting Standards Board

IAS - International Accounting Standards

IFRIC - International Financial Reporting Standards Interpretations Committee

MU.S.$ - Millions of U.S. dollars

ThU.S.$ - Thousands of U.S. dollars

U.F. - Inflation index-linked units of account

UTA - Annual Tax Unit

ICMS - Tax movement of inventories and services (Brazil)

Functional and Presentation Currency

Arauco and most of its subsidiaries determined the United States (“U.S.”) Dollar as its functional currency since the majority of its revenues from sales of its products are derived from exports denominated in U.S. Dollars, while their costs of sales are to a large extent related or indexed to the U.S. Dollar.

For the pulp reportable segment, most of the sales are exports denominated in U.S. Dollars and costs are mainly related to plantation costs which are settled in U.S. Dollars.

For the wood products and forestry reportable segments, although total sales include a mix of domestic and exports sales, prices of the products are established in U.S. Dollars, which is also the case for the cost structure of the related raw materials.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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 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

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

The interim consolidated financial statements have been prepared on 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 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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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 interim 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 interim 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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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 interim consolidated 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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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 interim consolidated statements of profit or loss. 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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

March 31, 2020

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

Arauco 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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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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 interim consolidated 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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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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 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.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

After the initial recognition date, 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 remeasurement of the liability for lease.

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 and are further disclosed in Note 8. Likewise, lease liabilities are presented in the Interim Consolidated Statement of Financial Position and further disclosed in Note 23.

IFRS 16 maintains substantially the accounting requirements of the lessor from IAS 17. Therefore, Arauco has continued to classify its leases as operational or financial, as the case may be.

Income from operating leases in which Arauco is the lessor are recognized on a straight-line basis during the term of the lease. Initial direct costs are added to the book value of the underlying asset and are recognized as expenses during the term of the lease on the same basis as the lease income. Leased assets are included within the statement of financial position, in property, plant and equipment. Arauco did not make adjustments with respect to assets that maintains as a lessor, as a result of IFRS 16 adoption.

When assets are leased under a financial lease, the present value of lease payments are recognized as financial accounts receivable. The difference between the gross receivable and the present value of such amount, is recognized as financial return on capital.

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

q)

Biological Assets

IAS 41 requires that biological assets, such as standing trees, are measured at fair value less cost to sell in the interim 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 statements of profit or loss.

 

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.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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 circumstances 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. Additionally, 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.

 

(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.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

(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.

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.

On October 28, 2019, Arauco approved to amend the Company’s by-laws in order to establish that the Ordinary Shareholders’ Meeting will be determining, on an annually basis, the dividends to be distributed, without being subject to the 30% distributable minimum indicated by Chilean Corporations Law.

For the purposes of the annual distribution of the net profits on each period, it will be responsibility of the Ordinary Shareholders’ Meeting to determine the portion of such profits that will be distributed as dividend to the shareholders. Such determination will be made by the Shareholders’ meeting without being subject to the 30% minimum established in article 79 of Law No. 18,046 (regarding Corporations), who may agree on the distribution of a smaller percentage. In any case, the Board of Directors may, under the personal responsibility of the directors participating in the respective agreement, distribute interim dividends out of the profits of the corresponding year, provided there are no accumulated losses.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

v)

Earning per share

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

 

w)

Impairment

Non-financial Assets

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

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

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

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

Goodwill

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

A cash-generating unit, for which goodwill has been allocated, is tested for impairment annually or more frequently when there are circumstances indicating that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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 the interim consolidated statement of 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.

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.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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.

 

z)

Recent accounting pronouncements

a) Standards, interpretations and amendments that are mandatory for the first time for annual periods beginning on January 1, 2020:

 

Amendments and

   improvements   

  

Content

  

Mandatory application
for annual periods
  beginning on or after  

IAS 1 y IAS 8

  

Presentation of Financial Statements and Accounting Policies, Changes in Accounting Estimates and Errors.

Clarifies the definition of material and align the definition used in the Conceptual Framework and the standards themselves.

 

  

January 1, 2020

IFRS 3   

Definition of a Business

Narrows the definitions of a business

 

   January 1, 2020
IFRS 9, IAS 39 and IFRS 7   

Interest rate benchmark reform

Provides certain reliefs in connection with interest rate benchmark reform.

 

   January 1, 2020

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

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 investments 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   

Presentation of Financial Statements

Provides more general approach to the classification of liabilities as Current or Non-current based on the contractual arrangements in place at the reporting date. Also, it clarifies what is meant by ‘settlement’ of liabilities.

   January 1, 2022

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 2. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES

Changes to accounting policies

As of March 31, 2020, there have been no changes regarding the accounting policies with respect to the 2019 financial year.

Changes to accounting estimates

As of March 31, 2020, there have been no changes regarding the accounting estimates with respect to the 2019 financial year.

NOTE 3. DISCLOSURE OF OTHER INFORMATION

 

a)

Disclosure of information on Issued Capital

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

100% of Capital corresponds to ordinary shares.

 

     03-31-2020    12-31-2019

Description of Ordinary Capital Share Types

   100% of Capital corresponds
to ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

   113,159,655

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$0.0031210 per share

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

   ThU.S.$353,618
     03-31-2020    12-31-2019

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

   113,159,655

 

b)

Dividends paid

As of March 31, 2020, and 2019, no dividends were paid.

As of March 31, 2020, and December 31, 2019 according to the current dividends policy, it is not required to recognize a minimum dividend provision.

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

 

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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

c)

Disclosure of Information on Reserves

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

Reserves of exchange differences on translation

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

Reserves of cash flow hedges

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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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 March 31, 2020 and 2019 are as follows:

 

     January - March  
     2020
ThU.S.$
     2019
ThU.S.$
 

Classes of Other Income

     

Other Income, Total

     55,246        45,539  

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

     52,017        36,981  

Net income from insurance compensation

     20        708  

Revenue from export promotion

     276        358  

Lease income

     346        620  

Gain on sales of assets

     1,488        4,268  

Compensations received

     1        33  

Other operating results

     1,098        2,571  

Classes of Other Expenses by activity

     

Total of Other Expenses by activity

     (50,938      (22,317

Legal expenses

     (1,390      (1,338

Impairment provision for property, plant and equipment and others

     (18,059      (2,627

Operating expenses related to staff restructuring or from plants stoppage or closed

     (13,111      (3,713

Expenses related to projects

     (3,550      (7,332

Loss of asset sales

     (948      (1,411

Loss and repair of assets

     (2,512      (34

Loss of forest due to fires

     (5,056      —    

Other Taxes

     (3,916      (3,737

Research and development expenses

     (501      (587

Fines, readjustments and interests

     (571      (97

Other expenses

     (1,324      (1,441

Classes of financing income

     

Financing income, total

     7,207        6,746  

Financial income from mutual funds—term deposits

     5,331        4,859  

Financial income resulting from swap—forward instruments

     343        —    

Other financial income

     1,533        1,887  

Classes of financing costs

     

Financing costs, Total

     (71,782      (57,391

Interest expense, Banks loans

     (8,206      (7,301

Interest expense, Bonds

     (43,658      (35,697

Interest expense, other financial instruments

     (9,485      (6,227

Interest expense for right of use

     (2,532      (2,869

Other financial costs

     (7,901      (5,297

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

     

Total

     1,553        4,363  

Investments in associates

     1,919        262  

Joint ventures

     (366      4,101  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

 

     January - March  

Cost of sales (*)

   2020
ThU.S.$
     2019
ThU.S.$
 

Timber

     191,255        184,242  

Forestry labor costs and other services

     107,457        133,003  

Depreciation and amortization

     98,268        96,649  

Depreciation for right of use

     14,946        18,538  

Maintenance costs

     58,937        74,041  

Chemical costs

     118,425        141,217  

Sawmill Services

     27,893        36,544  

Other Raw Materials

     50,531        57,350  

Other Indirect costs

     32,653        41,805  

Energy and fuel

     41,747        54,538  

Cost of electricity

     8,811        8,767  

Wages and salaries

     92,637        95,222  

Total

     843,560        941,916  
  

 

 

    

 

 

 

 

(*)

Total amount is composed by the cost of inventory sales for ThU.S.$ 833,737 (ThU.S.$ $ 928,199 as of March 31, 2019) and by cost of rendering services for ThU.S.$ 9,823 (ThU.S.$ 13,717 as of March 31, 2019)

 

     January - March  

Distribution costs

   2020
ThU.S.$
     2019
ThU.S.$
 

Selling costs

     8,696        9,651  

Commissions

     3,110        3,376  

Insurance

     837        917  

Provision for doubtful accounts

     (44      (208

Other selling costs

     4,793        5,566  

Shipping and freight costs

     128,733        133,207  

Port services

     8,619        5,659  

Freights

     110,343        119,246  

Depreciation for right of use

     413        —    

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

     9,358        8,302  

Total

     137,429        142,858  
  

 

 

    

 

 

 

 

     January - March  

Administrative expenses

   2020
ThU.S.$
     2019
ThU.S.$
 

Wages and salaries

     53,461        59,349  

Marketing, advertising, promotion and publications expenses

     3,385        6,627  

Insurances

     5,719        4,936  

Depreciation and amortization

     7,615        7,029  

Depreciation for right of use

     2,775        2,131  

Computer services

     5,301        8,026  

Lease rentals (offices, other property and vehicles)

     1,508        3,782  

Donations, contributions, scholarships

     2,599        3,426  

Fees (legal and technical advisors)

     9,325        10,838  

Property taxes, city permits and rights

     3,871        3,986  

Cleaning services, security services and transportation

     5,193        5,902  

Third-party variable services (maneuvers, logistics)

     8,196        10,474  

Basic services (electricity, telephone)

     1,757        2,259  

Maintenance and repair

     1,355        1,362  

Seminars, courses, training materials

     528        587  

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

     10,915        10,566  

Total

     123,503        141,280  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

e)

Auditor Fees and Number of Employees

 

Auditors fees

   03-31-2020
ThU.S.$
     03-31-2019
ThU.S.$
 

Audit services

     576        729  

Other services

     

Tax services

     221        421  

Others

     42        57  

TOTAL

     839        1,207  
  

 

 

    

 

 

 

Number of employees

    
     18,119        17,252  

NOTE 4. INVENTORIES

 

Components of Inventory

   03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Raw materials

     106,940        129,004  

Production supplies

     125,370        128,229  

Work in progress

     73,570        69,760  

Finished goods

     564,623        532,200  

Spare Parts

     184,732        194,674  

Total Inventories

     1,055,235        1,053,867  
  

 

 

    

 

 

 

Inventories recognized as cost of sales as of March 31, 2020 were ThU.S.$ 833,737 (ThU.S.$ 928,199 as of March 31, 2019).

In order to have the inventories recorded at net realizable value as of March 31, 2020, a net increase of inventories was recognized associated with a lower provision of obsolescence of ThU.S.$ 6,786 (increase of ThU.S.$ 553 as of March 31, 2019). As of March 31, 2020, the amount of obsolescence provision is ThU.S.$46,394 (ThU.S.$ 53,180 as of December 31, 2019).

As of March 31, 2020, there were inventory write-offs of ThU.S.$335 (ThU.S.$ 1,511 as of March 31, 2019).

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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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 5. CASH AND CASH EQUIVALENTS

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

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

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

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

 

Components of Cash and Cash Equivalents

   03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Cash on hand

     146        177  

Bank checking account balances

     214,562        314,804  

Time deposits

     918,762        611,073  

Mutual funds

     21,988        633,958  

Total

     1,155,458        1,560,012  
  

 

 

    

 

 

 

The risk classification of the Company’s mutual funds as of March 31, 2020 and December 31, 2019 is shown below.

 

     03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

AAAfm

     13,513        624,534  

No classification

     8,475        9,424  

Total Mutual Funds

     21,988        633,958  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Changes in Financial Liabilities

 

            Cash Flow                           
     Opening balance
01-01-2020
ThU.S.$
     Borrowings
obtained
ThU.S.$
     Borrowings
paid
ThU.S.$
    Interest
paid
ThU.S.$
    Accrued
interest
ThU.S.$
     Inflation
adjustment
ThU.S.$
    Non-cash
movements
ThU.S.$
    Closing
balance
03-31-2020
ThU.S.$
 

Borrowings from banks

     947,022        140,000        (44,776     (7,772     7,512        (2,349     (1,439     1,038,198  

Hedging liabilities

     134,275        —          —         (2,848     2,848        —         256,552       390,827  

Bonds and promissory notes

     4,831,743        —          (133     (28,690     50,241        (151,274     2,006       4,703,893  

Other financial liabilities, Total

     5,913,040        140,000        (44,909     (39,310     60,601        (153,623     257,119       6,132,918  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

            Cash Flow                           
     Opening balance
01-01-2020
ThU.S.$
     Borrowings
obtained
ThU.S.$
     Borrowings
paid
ThU.S.$
    Interest
paid
ThU.S.$
    Accrued
interest
ThU.S.$
     Inflation
adjustment
ThU.S.$
    Non-cash
movements
ThU.S.$
    Closing
balance
03-31-2020
ThU.S.$
 

Lease liabilities (IFRS 16)

     271,025        —          (21,230     (2,518     2,445        (14,549     (4,578     230,595  

Lease liabilities, Total

     271,025        —          (21,230     (2,518     2,445        (14,549     (4,578     230,595  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

    

Opening balance

01-01-2019
ThU.S.$

    

Increase

(decrease)

for

changes in

accounting

policies

ThU.S.$

    

Re-

expressed

opening

balance

ThU.S.$

     Cash Flow                  Increase
(decrease)
due to
business
combination
ThU.S.$
              
     Borrowings
obtained
ThU.S.$
     Borrowings
paid
ThU.S.$
    Commissions
paid
ThU.S.$
    Interest
paid
ThU.S.$
    Accrued
interest
ThU.S.$
     Inflation
adjustment
ThU.S.$
     Non-cash
movements
ThU.S.$
    Closing
balance
12-31-2019
ThU.S.$
 

Borrowings from banks

     940,435        —          940,435        156,350        (143,998     (4,797     (36,902     31,480        (125     6,738        (2,159     947,022  

Hedging liabilities

     71,599        —          71,599        —          —         —         (29,464     29,464        —         —          62,676       134,275  

Bonds and promissory notes

     3,501,654        —          3,501,654        1,986,089        (577,954     (5,900     (188,748     190,765        (66,385     4,324        (12,102     4,831,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Other financial liabilities, Total

     4,513,688        —          4,513,688        2,142,439        (721,952     (10,697     (255,114     251,709        (66,510     11,062        48,415       5,913,040  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

    

Opening balance

01-01-2019
ThU.S.$

    

Increase

(decrease)

for

changes in

accounting

policies

ThU.S.$

    

Re-

expressed

opening

balance

ThU.S.$

     Cash Flow                  Increase
(decrease)
due to
business
combination
ThU.S.$
               
     Borrowings
obtained
ThU.S.$
     Borrowings
paid
ThU.S.$
    Commissions
paid
ThU.S.$
     Interest
paid
ThU.S.$
    Accrued
interest
ThU.S.$
     Inflation
adjustment
ThU.S.$
     Non-cash
movements
ThU.S.$
     Closing
balance
12-31-2019
ThU.S.$
 

Lease liabilities (IFRS 16)

     68,187        249,317        317,504        —          (80,323     —          (10,905     10,601        (9,339     4,133        39,354        271,025  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Lease liabilities, Total

     68,187        249,317        317,504        —          (80,323     —          (10,905     10,601        (9,339     4,133        39,354        271,025  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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 and Mexico, 34% in Brazil, 25% in Uruguay and 21% in the United States (federal tax).

On December 29, 2017, Law No. 27,430 was published 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. Law 27,541 suspended the withdrawal for the year 2020, so the tax rate for this fiscal year is 30%.

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 such law for the purposes of calculating the aforementioned tax. The effect of the special tax in the presentation US$ 3 millions, which was paid in six 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 December 31, 2019 of approximately ThU.S.$12,629. 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 in period 2019.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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:

 

     03-31-2020      12-31-2019  

Deferred Tax Assets

   ThU.S.$      ThU.S.$  

Deferred tax Assets relating to Provisions

     5,555        5,749  

Deferred tax Assets relating to Accrued Liabilities

     5,512        7,182  

Deferred tax Assets relating to Post-Employment benefits

     18,153        20,378  

Deferred tax Assets relating to Property, Plant and equipment

     15,131        16,609  

Deferred tax Assets relating to Impairment provision

     21,080        20,169  

Deferred tax Assets relating to Financial Instruments

     69,247        68,390  

Deferred tax Assets relating to Tax Loss Carryforward

     163,491        144,652  

Deferred tax Assets relating to Inventories

     12,679        12,460  

Deferred tax Assets relating to Provisions for Income

     8,095        6,631  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     3,937        4,349  

Deferred tax Assets relating to Intangible revaluation

     4,481        6,044  

Deferred tax Assets relating to tax credits

     18,753        8,029  

Deferred tax Assets relating to Other Deductible Temporary Differences

     19,217        16,161  

Total Deferred Tax Assets

     365,331        336,803  
  

 

 

    

 

 

 

Offsetting presentation

     (358,935      (330,736
  

 

 

    

 

 

 

Net Effect

     6,396        6,067  

Certain subsidiaries of Arauco mainly in Chile, Brazil, Argentina and USA, 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.$598,126 (ThU.S.$ 550,551 at December 31, 2019), 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.$148,788 (ThU.S.$ 188,474 at December 31, 2019) 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:

 

     03-31-2020      12-31-2019  

Deferred Tax Liabilities

   ThU.S.$      ThU.S.$  

Deferred tax Liabilities relating to Property, Plant and Equipment

     893,686        900,415  

Deferred tax Liabilities relating to Financial Instruments

     25,197        25,630  

Deferred tax Liabilities relating to Biological Assets

     636,681        642,221  

Deferred tax Liabilities relating to Inventory

     37,992        38,251  

Deferred tax Liabilities relating to Prepaid Expenses

     44,127        41,338  

Deferred tax Liabilities relating to Intangible

     15,630        17,942  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     21,948        25,126  

Total Deferred Tax Liabilities

     1,675,261        1,690,923  
  

 

 

    

 

 

 

Offsetting presentation

     (358,935      (330,736
  

 

 

    

 

 

 

Net Effect

     1,316,326        1,360,187  
  

 

 

    

 

 

 

The effect of changes in current and deferred tax liabilities related to financial hedging instruments corresponds to a credit of ThU.S.$27,786 as of March 31, 2020 (ThU.S.$3,718 as of March 31, 2019), which is presented net in Reserves for Cash Flow Hedges in the Interim Consolidated Statement of Changes in Equity.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Reconciliation of deferred tax assets and liabilities

 

    

Opening
Balance
01-01-2019

     Deferred tax
Income
(Expenses)
    Deferred tax of
items charged
to other
comprehensive
income
    Increase
(decrease)
Net exchange
differences
    Closing
balance
12-31-2019
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     5,749        229       —         (423     5,555  

Deferred tax Assets relating to Accrued Liabilities

     7,182        (1,644     —         (26     5,512  

Deferred tax Assets relating to Post-Employment benefits

     20,378        (2,116     (64     (45     18,153  

Deferred tax Assets relating to Property, Plant and equipment

     16,609        (1,523     —         45       15,131  

Deferred tax Assets relating to Impairment provision

     20,169        3,023       —         (2,112     21,080  

Deferred tax Assets relating to Financial Instruments

     68,390        (5,020     7,309       (1,432     69,247  

Deferred tax Assets relating to Tax Loss Carryforward

     144,652        8,411       20,477       (10,049     163,491  

Deferred tax Assets relating to Inventories

     12,460        585       —         (366     12,679  

Deferred tax Assets relating to Provisions for Income

     6,631        1,552       —         (88     8,095  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     4,349        (67     —         (345     3,937  

Deferred tax Assets relating to Intangible revaluation

     6,044        (321     —         (1,242     4,481  

Deferred tax Assets relating to tax credits

     8,029        10,724       —         —         18,753  

Deferred tax Assets relating to Other Deductible Temporary Differences

     16,161        3,766       —         (710     19,217  

Total Deferred Tax Assets

     336,803        17,599       27,722       (16,793     365,331  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Opening
Balance
01-01-2019
     Deferred tax
Income
(Expenses)
    Deferred tax of
items charged
to other
comprehensive
income
   

Increase

(decrease)
Net exchange
differences

    Closing
balance
12-31-2019
 

Deferred Tax Liabilities

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

Deferred tax Liabilities relating to Property, Plant and Equipment

     900,415        6,780       —         (13,509     893,686  

Deferred tax Liabilities relating to Financial Instruments

     25,630        (433     —         —         25,197  

Deferred tax Liabilities relating to Biological Assets

     642,221        12,258       —         (17,798     636,681  

Deferred tax Liabilities relating to Inventory

     38,251        (182     —         (77     37,992  

Deferred tax Liabilities relating to Prepaid Expenses

     41,338        2,976       —         (187     44,127  

Deferred tax Liabilities relating to Intangible

     17,942        (64     —         (2,248     15,630  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     25,126        (526     —         (2,652     21,948  

Total Deferred Tax Liabilities

     1,690,923        20,809       —         (36,471     1,675,261  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     Opening
Balance
01-01-2019
     Deferred tax
Income
(Expenses)
    Deferred tax of
items charged
to other
comprehensive
income
     Increase
(decrease)
through
business
combinations
     Increase
(decrease)
Net
exchange
differences
    Closing
balance
12-31-2019
 

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     6,105        (517     —          244        (83     5,749  

Deferred tax Assets relating to Accrued Liabilities

     10,906        (3,921     —          197        —         7,182  

Deferred tax Assets relating to Post-Employment benefits

     19,072        423       717        150        16       20,378  

Deferred tax Assets relating to Property, Plant and equipment

     10,125        6,484       —          —          —         16,609  

Deferred tax Assets relating to Impairment provision

     11,963        8,385       —          —          (179     20,169  

Deferred tax Assets relating to Financial Instruments

     9,761        55,087       3,609        —          (67     68,390  

Deferred tax Assets relating to Tax Loss Carryforward

     109,320        35,577       —          1,505        (1,750     144,652  

Deferred tax Assets relating to Inventories

     5,532        6,288       —          279        361       12,460  

Deferred tax Assets relating to Provisions for Income

     7,443        (657     —          112        (267     6,631  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     5,001        (645     —          68        (75     4,349  

Deferred tax Assets relating to Intangible revaluation

     7,651        (1,345     —          —          (262     6,044  

Deferred tax Assets relating to tax credits

     —          8,029       —          —          —         8,029  

Deferred tax Assets relating to Other Deductible Temporary Differences

     11,328        4,470       —          731        (368     16,161  

Total Deferred Tax Assets

     214,207        117,658       4,326        3,286        (2,674     336,803  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

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

Increase

(decrease)
Net
exchange
differences

    Closing
balance
12-31-2019
 

Deferred Tax Liabilities

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

Deferred tax Liabilities relating to Property, Plant and Equipment

     831,471        66,656       —          4,234        (1,946     900,415  

Deferred tax Liabilities relating to Financial Instruments

     14,225        11,405       —          —          —         25,630  

Deferred tax Liabilities relating to Biological Assets

     661,582        (15,770     —          —          (3,591     642,221  

Deferred tax Liabilities relating to Inventory

     39,025        (774     —          —          —         38,251  

Deferred tax Liabilities relating to Prepaid Expenses

     37,897        3,487       —          69        (115     41,338  

Deferred tax Liabilities relating to Intangible

     20,240        (1,914     —          —          (384     17,942  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     22,790        2,905       —          182        (751     25,126  

Total Deferred Tax Liabilities

     1,627,230        65,995       —          4,485        (6,787     1,690,923  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

     03-31-2020      12-31-2019  
     Deductible      Taxable      Deductible      Taxable  
     Difference      Difference      Difference      Difference  

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

     201,840        —          192,151     

Deferred Tax Assets—Tax loss carryforward

     163,491        —          144,652     

Deferred Tax Liabilities

     —          1,675,261           1,690,923  

Total

     365,331        1,675,261        336,803        1,690,923  
  

 

 

    

 

 

    

 

 

    

 

 

 
     January - March                
     2020      2019                

Detail of Temporary Difference Income and Loss Amounts

   ThU.S.$      ThU.S.$                

Deferred Tax Assets

     9,188        19,295        

Deferred Tax Assets—Tax loss carryforward

     8,411        17,136        

Deferred Tax Liabilities

     (20,809      (1,490      

Total

     (3,210      34,941        
  

 

 

    

 

 

       

Income Tax Expense

Income tax expense consists of the following:

 

     January – March  

Income Tax composition

   2020
ThU.S.$
     2019
ThU.S.$
 

Current income tax expense

     13,662        (46,825

Prior period current income tax adjustments

     (4      (2,815

Other current benefit tax (expenses)

     (687      (401

Current Tax Expense, Net

     12,971        (50,041

Deferred tax expense relating to origination and reversal of temporary differences

     (11,621      17,805  

Tax benefit arising from previously unrecognized tax loss carryforward

     8,411        17,136  

Total deferred Tax benefit (expense), Net

     (3,210      34,941  

Income Tax benefit (expense), Total

     9,761        (15,100
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The following table presents the current income tax expense detailed by foreign and domestic (Chile) companies at March 31, 2020 and 2019:

 

     January - March  
     2020
ThU.S.$
     2019
ThU.S.$
 

Foreign current income tax expense

     22,015        (9,303

Domestic current income tax expense

     (9,044      (40,738

Total current income tax expense

     12,971        (50,041

Foreign deferred tax benefit (expense)

     (26,482      19,861  

Domestic deferred tax benefit (expense)

     23,272        15,080  

Total deferred tax benefit (expense)

     (3,210      34,941  

Total income tax benefit (expense)

     9,761        (15,100
  

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - March  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   2020
ThU.S.$
    2019
ThU.S.$
 

Statutory domestic (Chile) income tax rate

     27.0     27.0

Tax Expense at statutory tax rate

     10,656       (38,124

Tax effect of foreign tax rates

     (181     552  

Tax effect of revenues exempt from taxation

     (21     38,462  

Tax effect of not deductible expenses

     (14,420     (23,772

Tax effect of Previously Unrecognized Tax Benefit in the Income Statement

     14,393       —    

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

     (374     11,553  

Tax rate effect of adjustments for current tax of prior periods

     (4     (2,815

Other tax rate effects

     (288     (956

Total adjustments to tax expense at applicable tax rate

     (895     23,024  

Tax benefit (expense) at effective tax rate

     9,761       (15,100
  

 

 

   

 

 

 

Current tax assets and liabilities

The current tax assets and liabilities balances are as follow:

 

Current tax Assets

   03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Monthly Provisional Payments (MPP)

     222,538        190,169  

Income tax receivable

     49,158        27,628  

Fixed assets tax credits

     54        57  

Provision tax income

     (47,491      (39,490

Other tax receivables

     22,943        21,589  

Total

     247,202        199,953  

Current tax Liabilities

   03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Provision tax income (First category)

     12,032        10,626  

Monthly Provisional Payments (MPP)

     (11,680      (9,309

Article No. 21 tax

     1        1  

Other tax payables

     2,215        924  

Total

     2,568        2,242  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

Property, Plant and Equipment, Net

   03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Construction work in progress

     1,379,986        1,128,431  

Land

     938,692        971,061  

Buildings

     2,182,696        2,247,996  

Plant and equipment

     3,020,776        3,139,761  

Information technology equipment

     20,986        20,906  

Fixtures and fittings

     13,425        13,421  

Motor vehicles

     15,414        14,922  

Other property, plant and equipment

     109,508        111,685  

Total Net

     7,681,483        7,648,183  

Property, Plant and Equipment, Gross

     

Construction work in progress

     1,379,986        1,128,431  

Land

     938,692        971,061  

Buildings

     4,213,559        4,268,590  

Plant and equipment

     6,872,240        7,004,549  

Information technology equipment

     92,187        91,585  

Fixtures and fittings

     45,755        45,703  

Motor vehicles

     56,978        56,771  

Other property, plant and equipment

     128,195        131,030  

Total Gross

     13,727,592        13,697,720  

Accumulated depreciation and impairment

     

Buildings

     (2,030,863      (2,020,594

Plant and equipment

     (3,851,464      (3,864,788

Information technology equipment

     (71,201      (70,679

Fixtures and fittings

     (32,330      (32,282

Motor vehicles

     (41,564      (41,849

Other property, plant and equipment

     (18,687      (19,345

Total

     (6,046,109      (6,049,537
  

 

 

    

 

 

 

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

As of March 31, 2020, 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.

 

     03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Amount committed for the acquisition of property, plant and equipment

     1,083,148        1,200,111  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Reconciliation of Property, Plant and Equipment

The following tables set forth the reconciliation of the carrying amount of property, plant and equipment as of March 31, 2020 and December 31, 2019:

 

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

Reconciliation of Property, Plant and Equipment

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

Opening Balance  01-01-2020

     1,128,431       971,061       2,247,996       3,139,761       20,906       13,421       14,922       111,685       7,648,183  

Changes

                  

Additions

     284,925       2,739       588       8,545       50       322       23       3,285       300,477  

Disposals

     —         (140     (26     (26     —         —         (56     (1     (249

Withdrawals

     (12     —         (39     (330     (32     —         —         (7     (420

Depreciation

     —         —         (36,208     (70,919     (1,576     (770     (1,222     (294     (110,989

Impairment loss recognized in profit or loss

     —         —         (7,671     (8,977     (153     —         (51     —         (16,852

Increase (decrease) through net exchange differences

     (5,338     (34,974     (26,300     (66,592     (338     (182     (297     (5,160     (139,181

Increase (decrease) through transfers from construction in progress

     (28,020     6       4,356       18,890       2,129       634       2,005       —         —    

Reclassification from lease to Property, plant and equipment

     —         —         —         424       —         —         90       —         514  

Total changes

     251,555       (32,369     (65,300     (118,985     80       4       492       (2,177     33,300  

Closing balance 03-31-2020

     1,379,986       938,692       2,182,696       3,020,776       20,986       13,425       15,414       109,508       7,681,483  
     Construction
work in
progress
    Land     Buildings     Plant and
equipment
    IT
Equipment
    Fixtures
and
fittings
    Motor
vehicles
    Other
Property,
Plant and
Equipment
    TOTAL  

Reconciliation of Property, Plant and Equipment

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

     889,882       6,722       13,561       44,800       1,637       960       3,808       10,779       972,149  

Acquisitions through business combinations

     12,839       3,915       24,118       110,701       238       156       313       6,272       158,552  

Disposals

     —         (2,241     (2,167     (2,821     (94     (1     (213     (29     (7,566

Withdrawals

     (6,992     (3,442     (3,435     (23,231     (2     (1     (36     (13,202     (50,341

Depreciation

     —         —         (130,454     (297,332     (6,426     (2,722     (4,111     (1,180     (442,225

Impairment loss recognized in profit or loss

     —         —         (15,398     (60,219     (337     (14     (74     —         (76,042

Increase (decrease) through net exchange differences

     (1,066     (7,530     (479     (1,347     (74     27       (31     (918     (11,418

Reclassification to assets held for sale

     —         —         —         990       —         —         —         —         990  

Increase (decrease) through transfers from construction in progress

     (796,962     1,494       299,363       500,140       2,672       (890     340       (6,157     —    

Reclassification from lease to Property, plant and equipment

     —         —         —         1,633       —         —         10       —         1,643  

Total changes

     97,701       (1,082     185,109       273,314       (2,386     (2,485     6       (4,435     545,742  

Closing balance 12-31-2019

     1,128,431       971,061       2,247,996       3,139,761       20,906       13,421       14,922       111,685       7,648,183  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The depreciation expense for the period ending March 31, 2020 and 2019 is as follows:

 

     January - March  

Depreciation for the year

   2020
ThU.S.$
     2019
ThU.S.$
 

Cost of sales

     98,268        96,649  

Administrative expenses

     4,086        3,857  

Other expenses

     1,394        337  

Total

     103,748        100,843  
  

 

 

    

 

 

 

Depreciation charged to profit or loss differs from the movement of the period for Property, Plant and Equipment. This is mainly due to the periodic cost processes in which a portion of the depreciation charge remains in the Inventories. Furthermore, this deviation is also affected by the conversion differences of the companies with a functional currency other than U.S. dollars.

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

 

     Years of Useful Life
(Average)
 

Buildings

     58  

Plant and equipment

     30  

Information technology equipment

     8  

Fixtures and fittings

     28  

Motor vehicles

     7  

Other property, plant and equipment

     14  

See Note 12 for details of capitalized borrowing costs.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

In the application of IFRS 16, Arauco chose not to apply the requirements to recognize a liability and an asset for right of use for leases which term ends within 12 months from January 1, 2019 and for leases in which the underlying asset is of low value.

Lease liabilities and their maturity are presented in Notes 11 and 23.

Right of use assets

 

     03-31-2020      12-31-2019  
     ThU.S.$      ThU.S.$  

Property, Plant and Equipment by right of use, Net

     

Land

     62,611        67,804  

Buildings

     24,396        25,940  

Plant and equipment

     36,511        44,753  

Information technology equipment

     588        574  

Fixtures and fittings

     1,011        1,138  

Motor vehicles

     117,067        126,587  

Other property, plant and equipment

     19,559        17,583  

Total Net

     261,743        284,379  
  

 

 

    

 

 

 

Property, Plant and Equipment by right of use, Gross

     

Land

     71,418        75,403  

Buildings

     31,969        32,266  

Plant and equipment

     68,402        71,394  

Information technology equipment

     799        757  

Fixtures and fittings

     1,595        1,595  

Motor vehicles

     165,054        164,683  

Other property, plant and equipment

     22,095        19,580  

Total Gross

     361,332        365,678  
  

 

 

    

 

 

 

Accumulated depreciation and impairment by right of use

     

Land

     (8,807      (7,599

Buildings

     (7,573      (6,326

Plant and equipment

     (31,891      (26,641

Information technology equipment

     (211      (183

Fixtures and fittings

     (584      (457

Motor vehicles

     (47,987      (38,096

Other property, plant and equipment

     (2,536      (1,997

Total

     (99,589      (81,299
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Reconciliation of Property, Plant and Equipment by Right of Use

The following tables set forth the reconciliation of the carrying amount of property, plant and equipment by right of use as of March 31, 2020 and December 31, 2019:

 

Reconciliation of Property, Plant and Equipment by
right of use

   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 01-01-2020

     67,804       25,940       44,753       574       1,138       126,587       17,583       284,379  

Changes

                

Additions

     1,268       1,275       —         203       —         —         3,205       5,951  

Withdrawals

     —         —         (3,018     —         —         (75     —         (3,093

Depreciation

     (1,994     (1,593     (5,283     (70     (127     (9,705     (715     (19,487

Increase (decrease) through net exchange differences

     (4,520     (397     32       (119     —         (392     —         (5,396

Increase (decrease) through others

     53       (829     27       —         —         659       —         (90

Reclassification from lease to Property, plant and equipment

     —         —         —         —         —         —         (514     (514

Total changes

     (5,193     (1,544     (8,242     14       (127     (9,520     1,976       (22,636

Closing balance 03-31-2020

     62,611       24,396       36,511       588       1,011       117,067       19,559       261,743  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Reconciliation of Property, Plant and Equipment by
right of use

   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

     —         —         —         —         —         —         —         —    

Increase (decrease) for changes in accounting policies

     65,363       20,865       76,258       310       —         144,304       17,237       324,337  

Restated opening balance Changes

     65,363       20,865       76,258       310       —         144,304       17,237       324,337  

Additions

     8,668       10,580       5,817       449       1,595       20,531       4,745       52,385  

Business combination

     906       1,129       3,257       —         —         290       —         5,582  

Withdrawals

     —         —         (13,750     —         —         —         —         (13,750

Depreciation

     (7,599     (6,326     (26,641     (183     (457     (38,096     (2,756     (82,058

Increase (decrease) through net exchange differences

     466       (216     137       (2     —         (131     —         254  

Increase (decrease) through others

     —         (92     (325     —         —         (311     —         (728

Reclassification from lease to Property, plant and equipment

     —         —         —         —         —         —         (1,643     (1,643

Total changes

     2,441       5,075       (31,505     264       1,138       (17,717     346       (39,958

Closing balance 12-31-2019

     67,804       25,940       44,753       574       1,138       126,587       17,583       284,379  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The depreciation expense for the period ending March 31, 2020 and 2019 Property, Plant and Equipment by right of use is as follows:

 

     January – March  

Depreciation for the period

   2020
ThU.S.$
     2019
ThU.S.$
 

Cost of sales

     14,946        18,538  

Distribution costs

     413        —    

Administrative expenses

     2,775        2,131  

Total

     18,134        20,669  
  

 

 

    

 

 

 

Depreciation charged to profit or loss differs from the movement of the period for Property, Plant and Equipment for right of use. This is mainly due to the periodic cost processes in which a portion of the depreciation charge remains in the Inventories. Furthermore, this deviation is also affected by the conversion differences of the companies with a functional currency other than U.S. dollars.

Additionally, Arauco has recognized directly in the interim consolidated statement of profit or loss, the following leases concepts excluded from the application of IFRS 16:

 

     January - March  

Depreciation for the year

   2020
ThU.S.$
     2019
ThU.S.$
 

Expenses from payments of variable leases

     32,048        34,195  

Expenses from low value leases

     1,371        2,022  

Expenses from short-term leases

     15,856        9,143  

Total

     49,275        45,360  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Arauco acting as lessor

IFRS 16 substantially maintains the accounting requirements of the lessor of IAS 17. Consequently, Arauco has continued to classify its leases as operating or financial.

Reconciliation of Financial Lease Minimum Payments:

 

     03-31-2020  

Periods

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

Less than one year

     787        39        748  

Between one and five years

     144        —          144  

More than five years

     —          —          —    

Total

     931        39        892  
  

 

 

    

 

 

    

 

 

 

 

     12-31-2019  

Periods

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

Less than one year

     960        48        912  

Between one and five years

     200        —          200  

More than five years

     —          —          —    

Total

     1,160        48        1,112  
  

 

 

    

 

 

    

 

 

 

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

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 9. REVENUE

 

     January - March  

Classes of revenue

   2020
ThU.S.$
     2019
ThU.S.$
 

Revenue from sales of goods

     1,107,035        1,371,253  

Revenue from rendering of services

     20,131        16,933  

Total

     1,127,166        1,388,186  
  

 

 

    

 

 

 

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

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

     January - March  
     2020
ThU.S.$
     2019
ThU.S.$
 

Employee expenses

     152,709        170,202  

Wages and salaries

     149,050        165,678  

Severance indemnities

     3,659        4,524  
  

 

 

    

 

 

 

 

     03-31-2020     12-31-2019  

Discount rate

     1.81     1.81

Inflation

     3.00     3.00

Annual rate of wage growth

     5.22     5.22

Mortality rate (1)

     RV-2014       RV-2014  
  

 

 

   

 

 

 

 

(1)

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

 

Sensitivities to assumptions

   ThU.S.$  

Discount rate

  

Increase in 100 bps

     (5,211

Decrease in 100 bps

     6,026  

Wage growth rates

  

Increase in 100 bps

     5,321  

Decrease in 100 bps

     (4,648

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The following tables set forth the balances and the reconciliation of the present value of severance indemnities obligations as of March 31, 2020 and December 31, 2019:

 

     03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Current

     5,322        5,965  

Non-current

     62,057        69,464  

Total

     67,379        75,429  
  

 

 

    

 

 

 

Reconciliation of the present value of severance indemnities obligations

   03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Opening balance

     75,429        70,551  

Business combinations

     —          462  

Current service cost

     1,303        5,884  

Interest cost

     793        3,855  

(Gains) losses from changes in actuarial assumptions

     —          6,095  

Actuarial gains and losses arising from experience

     (109      (3,440

Benefits paid

     (807      (3,028

Increase (decrease) for foreign currency exchange rates changes

     (9,230      (4,950

Closing balance

     67,379        75,429  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

 

March 31, 2020

   U.S Dollar
ThU.S.$
     Euros
ThU.S.$
     Brazilian
Real
ThU.S.$
     Argentine
Pesos
ThU.S.$
     Mexican
Pesos
ThU.S.$
     Other
currencies
ThU.S.$
     Chilean
Pesos
ThU.S.$
     U.F.
ThU.S.$
     Total
ThU.S.$
 

Assets

                          

Current Assets

                          

Cash and Cash Equivalents

     966,267        2,525        52,344        10,669        19,850        4,611        99,192        —          1,155,458  

Other current financial assets

     52,619        —          —          —          —          19        —          —          52,638  

Other current non-financial assets

     36,326        78        14,460        9,714        712        7,777        105,826        —          174,893  

Trade and other current receivables

     486,327        9,515        37,078        11,009        35,839        6,134        79,071        2,462        667,435  

Accounts receivable due from related companies

     1,548        —          430        —          —          —          12,757        498        15,233  

Current Inventories

     952,265        —          79,251        —          22,343        —          1,376        —          1,055,235  

Current biological assets

     206,669        —          54,075        —          —          —          —          —          260,744  

Current tax assets

     36,161        178        5,044        3,191        2,402        1,528        198,698        —          247,202  

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

     2,738,182        12,296        242,682        34,583        81,146        20,069        496,920        2,960        3,628,838  

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

     3,815        —          443        —          39        —          —          —          4,297  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Current Assets

     2,741,997        12,296        243,125        34,583        81,185        20,069        496,920        2,960        3,633,135  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-Current Assets

                          

Other non-current financial assets

     73        —          —          —          —          —          —          —          73  

Other non-current non-financial assets

     1,724        —          8,534        1,211        835        90        114,456        —          126,850  

Trade and other non-current receivables

     3,673        —          180        —          —          —          2,423        2,300        8,576  

Investments accounted for using equity method

     77,292        159,945        32,138        —          —          —          18,695        —          288,070  

Intangible assets other than goodwill

     102,587        —          1,455        —          54        —          —          —          104,096  

Goodwill

     41,999        —          17,350        —          —          —          —          —          59,349  

Property, plant and equipment

     7,198,255        —          366,652        —          116,272        —          304        —          7,681,483  

Right of use assets

     241,410        —          20,333        —          —          —          —          —          261,743  

Non-current biological assets

     3,063,710        —          284,129        —          —          —          —          —          3,347,839  

Deferred tax assets

     5,277        —          664        —          455        —          —          —          6,396  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Non-Current Assets

     10,736,000        159,945        731,435        1,211        117,616        90        135,878        2,300        11,884,475  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

     13,477,997        172,241        974,560        35,794        198,801        20,159        632,798        5,260        15,517,610  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

March 31, 2020

   U.S Dollar
ThU.S.$
     Euros
ThU.S.$
     Brazilian
Real
ThU.S.$
     Argentine
Pesos
ThU.S.$
     Mexican
Pesos
ThU.S.$
     Other
currencies
ThU.S.$
     Chilean
Pesos
ThU.S.$
     U.F.
ThU.S.$
     Total
ThU.S.$
 

Liabilities

                          

Current Liabilities

                          

Other current financial liabilities

     362,596        368        2,389        —          —          2        —          220,908        586,263  

Current lease liabilities

     10,192        —          3,972        —          1,123        116        29,346        16,165        60,914  

Trade and other current payables

     171,007        6,071        58,187        18,762        26,360        8,806        298,461        26,833        614,487  

Accounts payable to related companies

     2,350        —          —          —          —          —          1,606        —          3,956  

Other current provisions

     419        —          —          —          815        —          —          —          1,234  

Current tax liabilities

     1,299        —          383        —          1        —          885        —          2,568  

Current provisions for employee benefits

     —          —          —          —          —          —          5,323        —          5,323  

Other current non-financial liabilities

     3,279        —          16,243        26        2,448        2,973        9,806        —          34,775  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities, current

     551,142        6,439        81,174        18,788        30,747        11,897        345,427        263,906        1,309,520  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-Current Liabilities

                          

Other non-current financial liabilities

     4,468,253        112,986        1,315        —          —          —          —          964,101        5,546,655  

Non-current lease liabilities

     71,343        —          16,562        —          6,804        162        57,358        17,452        169,681  

Other non-current payables

     2,230        —          —          —          —          —          —          —          2,230  

Other non-current provisions

     9        —          4,435        26,624        —          —          —          —          31,068  

Deferred tax liabilities

     1,248,685        —          64,197        —          3,444        —          —          —          1,316,326  

Non-current provisions for employee benefits

     —          —          —          —          935        —          61,122        —          62,057  

Other non-current non-financial liabilities

     25        —          87,936        18        —          —          6        —          87,985  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-current liabilities

     5,790,545        112,986        174,445        26,642        11,183        162        118,486        981,553        7,216,002  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities

     6,341,687        119,425        255,619        45,430        41,930        12,059        463,913        1,245,459        8,525,522