6-K 1 ck1004156-6k_20191231.htm 6-K ck1004156-6k_20191231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of December, 2019

(Commission File No. 33-99720)

 

ARAUCO AND CONSTITUTION PULP INC.

(Translation of registrant’s name into English)

 

El Golf 150

Fourteenth Floor

Santiago, Chile

(Address of registrant’s principal executive office)

 

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- 

 


 

 


 

 

ARAUCO AND CONSTITUTION PULP INC

 

TABLE OF CONTENTS

 

 

 

 

 


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2019Amounts 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

12-31-2019

12-31-2018

 

ThU.S.$

ThU.S.$

Current assets

3,931,381

3,441,160

Non-current assets

11,928,649

11,152,588

Total assets

15,860,030

14,593,748

 

 

Liabilities

12-31-2019

12-31-2018

 

ThU.S.$

ThU.S.$

Current liabilities

1,261,522

1,579,764

Non-current liabilities

7,229,093

5,675,013

Non–parent participation

35,011

37,192

Net equity attributable to parent company

7,334,404

7,301,779

Total net equity and liabilities

15,860,030

14,593,748

 

As of December 31, 2019, total assets increased MU.S.$1,266 compared to December 31, 2018, equivalent to a 8.68% variation. This variation was driven mainly by increases in the balance of property, plant and equipment and current tax assets which were partially offset by a decrease in trade and other current receivables and investment in related parties.

 

In turn, total liabilities increased by MU.S.$1,236 principally due to an increase in financial liabilities (mainly bonds issuances), partially offset by decreases in tax liabilities and current non-financial liabilities (minimum dividend).

 

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

 

Liquidity ratios

12-31-2019

12-31-2018

Current Liquidity (current assets / current liabilities)

3.12

2.18

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

2.06

1.33

current liabilities)

 

 

 

Debt indicators

12-31-2019

12-31-2018

Debt to equity ratio (total liabilities / equity)

1.15

0.99

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

0.15

0.22

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

0.85

0.78

 

 

 

 

12-31-2019

12-31-2018

Financial expenses coverage ratio (earnings before

1.23

5.44

taxes + interest expense / interest expense)

 

 

 

Activity ratio

 

12-31-2019

12-31-2018

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

2.92

2.95

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

3.75

3.92

 

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

123.17

121.96

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

95.93

91.80

 

 

1


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

As of December 31, 2019, the short-term debt to total debt ratio represented 15% of total liabilities (22% as of December 31, 2018).

 

Our financial expenses coverage ratio decreased from 5.44 to 1.23, mainly due to lower earnings before taxes for period ended December 31, 2019, compared to the same period of 2018.

 

b)

Statement of profit or loss

Profit before income tax

 

Profit before income tax registered a profit of approximately MU.S.$63 compared to a profit of approximately MU.S.$954 in the same period of 2018. The negative variation of MU.S.$891 is explained by the factors described in the following table:

 

 

Item

                                            

MU.S.$

Gross profit

(813)

Distribution and Administrative Expenses

(23)

Other financial income and expenses

(47)

Others

(8)

Net change in profit before income tax

(891)

 

 

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

 

 

Revenues

 

12-31-2019

ThU.S.$

12-31-2018

ThU.S.$

Pulp

2,323,675

3,044,506

Timber

2,869,406

2,761,878

Forestry

135,691

113,981

Other

442

34,468

Total revenues

5,329,214

5,954,833

 

Sales costs

 

12-31-2019

ThU.S.$

12-31-2018

ThU.S.$

Wood

879,583

691,129

Forestry work and other services

547,749

672,233

Depreciation and amortization

473,876

377,557

Other costs

2,009,170

1,981,830

Total sales costs

3,910,378

3.722.749

 

Profitability index

 

12-31-2019

12-31-2018

 

Profitability on equity

0.84

10.05

Profitability on assets

0.41

5.08

Return on operating assets

1.90

8.19

 

Profitability ratios

12-31-2019

12-31-2018

 

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

0.55

6,41

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

61,970

726,759

Gross margin (ThU.S.$)

1,418,836

2,232,084

Finance costs (ThU.S.$)

(273,639)

(214,779)

(1)

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

(2)

Includes non-controlling interest.

 


2


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

EBITDA

12-31-2019

ThU.S.$

12-31-2018

ThU.S.$

Profit (loss)

61,970

726,759

Finance costs

273,639

214,779

Finance income

(32,582)

(20,895)

Income tax expense

535

226,765

EBIT

303,562

1,147,408

Depreciation and amortization

519,380

407,422

EBITDA

822,942

1,554,830

Cost at fair value of the harvest

323,271

319,448

Gain from changes in fair value of biological assets

(154,705)

(84,476)

Exchange difference

32,507

26,470

Others*

123,353

34,264

Adjusted EBITDA

1,147,368

1,850,536

* Considers impairment provision for property, plant and equipment.

 

 

2. MAIN SOURCES OF FINANCING

 

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

 

3. DIFFERENCE BETWEEN ECONOMIC VALUES AND BOOK ASSETS

 

Assets and liabilities are presented in the Consolidated Financial Statements according to International Financial Reporting Standards and instructions issued by Chilean Commission for the Financial Market. We believe that there are no material differences between the economic value of our assets and the value reflected in these Financial Statements.

4. MARKET SITUATION

 

Pulp Division

 

The market situation during the last quarter of 2019 remained affected by trade conflicts between China and the US. Nevertheless, the cycle appears to have bottomed out and prices started to stabilize stopping the downward trend that we saw since the beginning of 2019. The decrease we saw during the third quarter in inventory levels continued through the fourth quarter, reaching the lowest levels of the last 14 months. Additionally, the fourth quarter showed greater balance between supply and demand.

 

In China, uncertainty regarding the trade war between China and the US diminished after the phase one of the trade deal, which left proposed tariff increases on Chinese products without effect. At the same time, the agreement implied that tariffs on certain US products did not increase, such as pulp. Chinese paper producers faced good margins due to higher demand and lower raw materials costs. Paper producers started buying port inventories, not necessarily to use them right away but to buy at low prices.

 

In Europe, paper demand started to recover especially at the end of the fourth quarter. Normally, at the end of the year paper producers lower their inventories, but this time was

3


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

different, and they bought at the usual levels. Paper producer margins remain low, as the increase in paper demand has not been enough to lead price increases.

 

Production during the fourth quarter was affected by the programmed maintenance stoppages of the Montes del Plata and the Valdivia mills.

 

Composite Panel

 

Sales decreased compared to the third quarter, with sales volume and prices decreasing by 8.4% and 0.7%, respectively.

 

During the fourth quarter, the Latin American market was more complex than the third quarter. In Chile, our results were affected by the civil unrest. Brazil, was affected by higher MDF supply and a weaker than expected economy. In Argentina, sales volumes were lower, but compensated by some price increases.

 

In the US and Canada prices remained stable, even though the seasonality normally affects sales during the fourth quarter. Nevertheless, we have experienced some oversupply due to more imports, which also affected our sales.

 

Sawn timber

 

During the fourth quarter, price and sales volume for sawn timber were affected by the trade war and greater supply from Europe, Brazil and Russia, among others. Sales volume decreased by 6.9% compared to the last quarter. Results for remanufactured wood products were good mainly because of a stable American market and less competition from Chinese producers.

 

Plywood

 

Sales volume slightly decreased by 2.5% during the fourth quarter. In general, markets were affected by oversupply. Sales in the North American market remained stable, even though they were impacted by the holiday season at the end of the quarter.


4


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

5. ANALYSIS OF CASH FLOW

 

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

 

 

12-31-2019

ThU.S.$

12-31-2018

ThU.S.$

Positive (negative) Cash flow

 

 

Net cash flows from operating activities

672,838

1,287,545

 

 

 

Cash flows from (used in) financing activities:

  Loan and bond obtention and payments  

1,420,487

388,267

  Payment of lease liabilities

(80,323)

(6,624)

  Dividends paid

(182,109)

(257,421)

  Others

(10,623)

(975)

    

Cash flows from (used in) investment activities:

 

 

  Purchase and sale of property, plant and equipment

(990,019)

(666,566)

  Purchase and sale of biological assets

(241,743)

(216,592)

  Purchase and sale of intangible assets

(32,032)

(2,682)

  Additions (Disposals), Investments in joint ventures and associates

(67,441)

(20,070)

  Dividends received

13,007

10,880

  Others

487

1,048

Positive (negative) net cash flow

502,529

516,810

 

Cash flow from operating activities shows a lower positive balance of MU.S.$673 for the current period, representing a negative variation of MU.S.$615 compared to the same period of 2018, resulting mainly from higher tax payments and higher payments to accounts payables.

 

The financing cash flow shows a positive balance of MU.S.$1,147 for the current period, representing a variation in respect of the same period of 2018 (positive balance of MU.S.$123), resulting mainly from bonds issuances, which was partially offset by higher dividends payments.

 

Regarding the investment cash flow, the current period shows a higher negative balance of MU.S.$1,318 (compared to the negative balance of MU.S.$894 for the same period of 2018), mainly due to higher disbursements for the purchase of property, plant and equipment and the purchase of plants to Masisa in Mexico, partially offset by the disposal of Puertos y Logística S.A.  

 


5


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Consolidated Financial Statements

December 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

6. MARKET RISK ANALYSIS

 

In respect of the economic risks resulting from interest rate variations, the Company maintains, as of December 31, 2019, a ratio of fixed rate debt to total consolidated debt of approximately 89%, 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 Consolidated Financial Statements as of December 31, 2019, a detailed analysis of the risks associated with the business of Arauco is available (See Note 23).

 

 

6


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial StatementsDecember 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

Note

12-31-2019

12-31-2018

 

 

ThU.S.$

ThU.S.$

 

 

 

 

Assets

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

5-23

1,560,012

1,075,942

Other current financial assets

23

3,370

497

Other current non-financial assets

25

174,110

129,854

Trade and other current receivables

23

642,315

839,184

Accounts receivable from related companies

13

17,526

7,324

Current inventories

4

1,053,867

1,030,196

Current biological assets

20

275,792

315,924

Current tax assets

 6

199,953

36,513

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

 

3,926,945

3,435,434

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

22

4,436

5,726

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

 

4,436

5,726

Total Current Assets  

 

3,931,381

3,441,160

Non-Current Assets

 

 

 

Other non-current financial assets

23

9,395

20,346

Other non-current non-financial assets

25

112,414

86,948

Trade and other non-current receivables

23

9,456

15,149

Accounts receivable from related companies, non-current

13

-

481

Investments accounted for using equity method

15-16

293,118

358,053

Intangible assets other than goodwill

19

106,252

90,093

Goodwill

17

65,751

65,851

Property, plant and equipment

7

7,932,562

7,174,693

Non-current biological assets

20

3,393,634

3,336,339

Deferred tax assets

6,067

4,635

Total Non-Current Assets

 

11,928,649

11,152,588

Total Assets

 

15,860,030

14,593,748

 

 

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


7


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial StatementsDecember 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

 

 

Note

12-31-2019

12-31-2018

 

 

ThU.S.$

ThU.S.$

 

 

 

 

Equity and Liabilities

 

 

 

Liabilities

 

 

 

Current Liabilities

 

 

 

Other current financial liabilities

23

530,054

537,596

Trade and other current payables

23

673,057

659,618

Accounts payable to related companies

13

8,880

10,229

Other current provisions

18

1,259

413

Current tax liabilities

6

2,242

153,642

Current provisions for employee benefits

10

5,965

5,656

Other current non-financial liabilities

25

40,065

212,610

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

 

1,261,522

1,579,764

Total Current Liabilities

 

1,261,522

1,579,764

Non-Current Liabilities

 

 

 

Other non-current financial liabilities

23

5,654,011

4,044,279

Non-current payables

 

2,230

2,230

Other non-current provisions

18

31,765

33,884

Deferred tax liabilities

6

1,360,187

1,417,658

Non-current provisions for employee benefits

10

69,464

64,895

Other non-current non-financial liabilities

25

111,436

112,067

Total Non-Current Liabilities

 

7,229,093

5,675,013

Total Liabilities

 

8,490,615

7,254,777

Equity

 

 

 

Issued capital

353,618

353,618

Retained earnings

 

7,873,650

7,824,045

Other reserves

 

(892,864)

(875,884)

Equity attributable to parent company

 

7,334,404

7,301,779

Non-controlling interests

 

35,011

37,192

Total Equity

 

7,369,415

7,338,971

Total Equity and Liabilities

 

15,860,030

14,593,748

 

 

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

 

 

 

 

 


8


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial StatementsDecember 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

 

 

Note

For the years ended December 31,

 

 

2019

2018

 

 

ThU.S.$

ThU.S.$

Statements of profit or loss

 

 

 

 

 

 

 

Revenue

9

5,329,214

5,954,833

Cost of sales

3

(3,910,378)

(3,722,749)

Gross profit

 

1,418,836

2,232,084

Other income

3

232,393

124,304

Distribution costs

3

(586,873)

(556,805)

Administrative expenses

3

(554,038)

(561,284)

Other expense

3

(203,698)

(95,880)

Other gains (losses)

 

21,674

14,213

Profit from operating activities

 

328,294

1,156,632

Finance income

3

32,582

20,895

Finance costs

3

(273,639)

(214,779)

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

3-15

7,775

17,246

Exchange rate differences

 

(32,507)

(26,470)

Profit before income tax

 

62,505

953,524

Income Tax

6

(535)

(226,765)

Net Profit

 

61,970

726,759

Net profit attributable to

 

 

 

Net profit attributable to parent company

 

61,784

725,482

Net profit attributable to non-controlling interests

 

186

1,277

Net Profit

 

61,970

726,759

 

 

 

 

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

 

 

 

Basic and diluted earnings per share from continuing operations

 

0.5460

6,4111

Basic and diluted earnings per share

 

0.5460

6,4111

 

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

 


9


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial StatementsDecember 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

Note

For the years

ended December 31

 

 

2019

2018

 

 

ThU.S.$

ThU.S.$

 

 

 

 

Net profit

 

61,970

726,759

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

(2,655)

1,856

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

 

(2,655)

1,856

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

(30,971)

(184,876)

Other Comprehensive Income before tax exchange differences on translation

 

(30,971)

(184,876)

Cash flow hedges

 

 

 

Gains (losses) on cash flow hedges, before tax

23

23,156

30,321

Recycle of cash flow hedges to profit or loss before tax

23

(29,227)

(15,286)

Other Comprehensive Income before tax Cash flow hedges

 

(6,071)

15,035

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

 

13,847

(1,657)

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

 

13,847

(1,657)

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

 

(23,195)

(171.498)

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

 

717

(501)

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

 

717

(501)

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

1,686

(4,474)

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

 

(6,582)

176

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

 

(4,896)

(4,298)

Other comprehensive income (loss)

 

(30,029)

(174,441)

Comprehensive income (loss)

 

31,941

552,318

 

 

 

 

Comprehensive Income (loss) attributable to

 

 

 

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

 

37,732

555,294

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

 

(791)

(2,976)

Total comprehensive income (loss)

 

31,941

552,318

 

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

10


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial StatementsDecember 31, 2019Amounts in thousands of U.S. dollars, except as indicated

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

 

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.$

 

 12-31-2019

Opening balance at 01-01-2019

353,618

(872,395)

13,395

(17,571)

687

(875,884)

7,824,045

7,301,779

37,192

7,338,971

Increase (decrease) for changes in accounting policies

-

-

-

-

-

-

(107)

(107)

-

(107)

Restated opening balance

353,618

(872,395)

13,395

(17,571)

687

(875,884)

7,823,938

7,301,672

37,192

7,338,864

Changes in Equity:

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

Net profit

-

-

-

-

-

-

61,784

61,784

186

61,970

 

 

Other comprehensive income, net of tax

-

(29,992)

(4,385)

(1,940)

7,265

(29,052)

-

(29,052)

(977)

(30,029)

 

 

Comprehensive income

-

(29,992)

(4,385)

(1,940)

7,265

(29,052)

61,784

32,732

(791)

31,941

 

Dividends

-

-

-

-

-

-

-

-

(1,390)

(1,390)

 

Increase (decrease) from transfers and other changes

-

-

-

-

12,072

12,072

(12,072)

-

-

-

 

Changes in equity

-

(29,992)

(4,385)

(1,940)

19,337

(16,980)

49,712

32,732

(2,181)

30,551

Closing balance at 12-31-2019

353,618

(902,387)

9,010

(19,511)

20,024

(892,864)

7,873,650

7,334,404

35,011

7,369,415

 

 

 

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.$

 

 12-31-2018

Opening balance at 01-01-2018

353,618

(691,772)

4,752

(18,926)

2,168

(703,778)

7,425,133

7,074,973

41,920

7,116,893

Increase (decrease) for changes in accounting policies

 

 

(1,918)

 

 

(1,918)

(1,957)

(3,875)

-

(3,875)

Restated opening balance

353,618

(691,772)

2,834

(18,926)

2,168

(705,696)

7,423,176

7,071,098

41,920

7,113,018

Changes in Equity:

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

Net profit

-

-

-

-

-

-

725,482

725,482

1,277

726,759

 

 

Other comprehensive income, net of tax

-

(180,623)

10,561

1,355

(1,481)

(170,188)

-

(170,188)

(4,253)

(174,441)

 

 

Comprehensive income

-

(180,623)

10,561

1,355

(1,481)

(170,188)

725,482

555,294

(2,976)

552,318

 

Dividends

-

-

-

-

-

-

(324,295)

(324,295)

(1,752)

(326,047)

 

Increase(decrease) from transfers and other changes

-

-

-

-

-

-

(318)

(318)

-

(318)

 

Changes in equity

-

-

10,561

1,355

(1,481)

(170,188)

400,869

230,681

(4,728)

225,953

Closing balance at 12-31-2018

353,618

(872,395)

13,395

(17,571)

687

(875,884)

7,824,045

7,301,779

37,192

7,338,971

 

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

11


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

For the years ended December 31,

 

2019

2018

 

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

5,913,495

6,129,806

Other cash receipts from operating activities

495,471

377,085

Classes of cash payments

 

 

Payments to suppliers for goods and services

(4,387,161)

(4,198,750)

Payments to and on behalf of employees

(600,386)

(558,230)

Other cash payments from operating activities

(176,128)

(208,461)

Interest paid

(266,019)

(172,280)

Interest received

29,655

11,738

Income taxes paid

(329,864)

(90,556)

Other inflows (outflows) of cash, net

(6,225)

(2,807)

Net Cash flow from Operating Activities

672,838

1,287,545

 

 

 

Cash flows from (used in) Investing Activities

 

 

                          

 

 

Cash flow from loss of control of subsidiaries and other businesses

102,080

-

Cash flow used in obtaining control of subsidiaries or other businesses

(171,261)

(17,049)

Cash used for the purchase of non-controlling interests

(580)

(3,023)

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

2,320

2

Proceeds from sale of property, plant and equipment

10,354

9,392

Purchase of property, plant and equipment

(1,000,373)

(675,958)

Purchase of intangible assets

(32,032)

(2,682)

Proceeds from sales of other long-term assets

6,059

5,437

Purchase of other non-current assets

(247,802)

(222,029)

Dividends received  

13,007

10,880

Other inflows (outflows) of cash, net

487

1,048

Cash flows from (used in) Investing Activities

(1,317,741)

(893,982)

 

 

 

Cash flows from (used in) Financing Activities

 

 

                          

 

 

Total borrowings obtained

2,142,439

863,551

   Debt obtained in long-term

2,125,332

485,077

   Debt obtained in short-term

17,107

378,474

Repayments of borrowings

(721,952)

(475,284)

Payments of lease liabilities

(80,323)

(6,624)

Dividends paid

(182,109)

(257,421)

Other outflows of cash, net

(10,623)

(975)

Cash flows from (used in) Financing Activities

1,147,432

123,247

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

502,529

516,810

Effect of exchange rate changes on cash and cash equivalents

(18,459)

(30,754)

Net increase (decrease) of Cash and Cash Equivalents

484,070

486,056

Cash and cash equivalents, at the beginning of the period

1,075,942

589,886

Cash and cash equivalents, at the end of the period  

1,560,012

1,075,942

 

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


12


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

NOTES TO the Consolidated financial statements as of December 31, 2019 and 2018

 

 

NOTE 1.  PRESENTATION OF 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 December 31, 2019, Arauco is controlled by Empresas Copec S.A., tax identification number 90,690,000-9, which owns 99.9780% of Arauco, and is registered in the Securities Registry as No. 0028. Each of the above mentioned companies is subject to the oversight of the CMF.

 

Moreover, Empresas Copec S.A. is controlled by the public corporation AntarChile S.A., tax identification number 96,556,310-5, which owns 60.8208% of Empresas Copec S.A. Furthermore, the ultimate shareholders of AntarChile S.A. and, consequently, of Empresas Copec S.A., are 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 Consolidated Financial Statements were prepared on a going concern basis.

 


13


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

Presentation of Consolidated Financial Statements  

 

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

 

 

-

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

 

-

Consolidated Statements of Profit or Loss for the periods ended December 31, 2019 and 2018.

 

-

Consolidated Statements of Comprehensive Income for the periods ended December 31, 2019 and 2018.  

 

-

Consolidated Statements of Changes in Equity for the periods ended December 31, 2019 and 2018.

 

-

Consolidated Statements of Cash Flows for the periods ended December 31, 2019 and 2018.

 

-

Explanatory disclosures (notes)

 

 

Period Covered by the Consolidated Financial Statements

 

Period ended December 31, 2019 and 2018.

 

Date of Approval of the Consolidated Financial Statements

 

These consolidated financial statements were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Meeting No. 627 on March 5, 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.

 

14


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

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

 

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

 

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

 

 

Summary of significant accounting policies

 

a)Basis for preparation of the consolidated financial statements

 

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

 

The consolidated financial statements have been prepared on 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 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.


15


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

- Goodwill

 

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

 

- Litigation and Contingencies

 

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

 

c)

Consolidation

 

 

The 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.

 

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

16


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

 

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

 

If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for transactions and other events in similar circumstances, appropriate adjustments are made to the 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 consolidated financial statements and non-controlling interest is presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent company.

 

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

 

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

 

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

 

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.

e)

17


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

Functional currency

 

(i)Functional currency

 

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

 

(ii)Translation to the presentation currency of Arauco

 

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

 

(iii)Foreign Currency Transactions

 

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

 

f)Cash and cash equivalents

 

Cash and cash equivalents include cash-on-hand, deposits held on demand at financial entities and other short term highly liquid investments with an original maturity of three months or less and which are subject to an insignificant risk of changes in value.

 

g)Financial Instruments

 

Financial assets

 

Initial classification

 

Arauco classifies its financial assets into the following categories: fair value through profit or loss and amortized cost.

 

Arauco does not have financial assets at fair value through other comprehensive income.

 

The classification is based on the business model used to manage the assets and the characteristics of their contractual cash flows.  

 

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

 

18


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

(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 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.

 

 

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.

19


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

The difference is then discounted based on an approximation of the asset’s original effective interest rate. The asset’s carrying value is reduced as the allowance is used, and the loss is recognized in sales expenses in the financial statements. When an account receivable cannot be collected, it is regularized against the allowance account for receivables. Subsequent recoveries of previously impaired amounts are recognized as a debit in distribution costs.

 

Derivative financial instruments are explained in Note 1 h).

 

Financial liabilities

 

Arauco classifies its financial liabilities as follows: fair value through profit or loss, derivatives designated as effective hedging instruments and amortized costs.

 

Management determines the classification of its financial liabilities upon initial recognition. Financial liabilities are derecognized when the obligation is cancelled, settled or expired. When an existing financial liability is replaced with another of the same provider under substantially different terms, or where the terms of an existing liability are substantially amended, such exchange or modification is treated as a write-off of the original liability, with a new liability being recognized, and the difference between the respective carrying amounts is recognized in the 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.

 

 

h)

20


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

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 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.

 

 

21


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

i)Inventories

 

Inventories are measured at the lower of cost or net realizable value. Cost is determined using the weighted average cost method.

 

The cost of finished and in process products includes the cost of raw materials, direct labor, other direct costs and manufacturing overhead expenses.

 

Initial costs of harvested wood are determined at fair value less cost of sale at the point of harvest.

 

Biological assets are transferred to inventories when forests are harvested.

 

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

 

When market conditions result in the production costs of a product exceeding its net realizable value, the inventories are written-down to their net realizable value. This write-down also includes obsolescence amounts resulting from slow moving inventories and technical obsolescence.

 

Spare parts that will be consumed in a period of less than twelve months are presented in inventories and recognized as an expense when they are consumed.

 

 

j)Non-current assets held for sale

 

The Group classifies certain property, plant and equipment, intangible assets, investments in associates and disposal groups (groups of assets to be sold together with their directly associated liabilities) as non-current assets held for sale which as of the date of the  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.

 

 

k)

22


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

Business Combinations

 

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

 

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

 

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

 

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

 

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

 

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


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

 

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

 

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

 

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

23


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

 

Business combinations that are under common control transactions are accounted using as a reference the pooling of interest. Under this method, assets and liabilities related to the transaction carry over the previous carrying values. Any difference between assets and liabilities included in the consolidation and the consideration transferred, is accounted in equity.

 

l)Investments in associates and joint arrangements

 

Associates are entities over which Arauco exercises significant influence, but not control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

 

Joint arrangement is defined as an entity over which there is joint control, which exists only when the decisions about strategic of activities, both financial and operational, require the unanimous consent of the parties sharing control.

 

Investments in joint arrangements are classified as a joint venture or as a joint operation. A joint operation is a joint arrangement in which the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement in which the parties that have joint control of the arrangement (i.e., participants in a joint venture) have rights to the net assets of the arrangement.

 

Investments in associates and joint ventures are accounted for using the equity method and are initially recognized at cost. Their carrying amount is increased or decreased to recognize the portion corresponding to the statement of profit or loss or to the statement of comprehensive income. Dividends received are recognized by deducting the amount received from the carrying amount of the investment. Arauco’s investment in associates includes goodwill (both net of any accumulated impairment loss).

 

The investments in joint operations are recognized through consolidation of assets, liabilities and results of operations in relation to Arauco's ownership percentage.

 

If the acquisition cost is lower than the fair value of the net assets of the associate acquired, the difference is recognized directly in statement of profit or loss in line Other gains (losses).

 

Investments in associates and joint ventures are presented in the consolidated statement of financial position in the line item “Investments accounted for using equity method”.

 

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

 

m)

24


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

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.

 

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.

25


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

 

o)Property, Plant and Equipment

 

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

 

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

 

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

 

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

 

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

 

p)Leases

 

Arauco applies 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.

 

26


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

After the initial recognition date (January 1, 2019), Arauco, as lessee, recognizes its asset for right of use by applying the cost model, minus the accumulated depreciation and impairment losses, and adjusted for 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 Consolidated Statement of Financial Position, within Properties, Plants and Equipment, and are further disclosed in Note 7. Likewise, lease liabilities are included in the Consolidated Statement of Financial Position within Other Current and Non-Current Financial Liabilities, and further disclosed as Lease liabilities 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.

 

Until December 31, 2018, Arauco applied IFRIC 4 to assess whether an arrangement was, or contained, a lease. Leases of assets in which Arauco substantially held all the risks and rewards of ownership were classified as financial leases. All other leases were classified as operating leases.

 

Financial leases were initially recognized at the beginning of the leases, at the lower of the fair value at the inception of the lease of the leased property and the present value of the minimum lease payments.

 

When assets are leased under a 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.

q)

27


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

Biological Assets

 

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

 

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

 

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

 

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

 

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

 

 

r)Income taxes

 

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

 

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

 

Deferred taxes are recognized in accordance with the standards established in IAS 12 - Income Tax.

 

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

 

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

 

 

s)Provisions

 

Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of past events, 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.

28


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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.

 

29


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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 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

30


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

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.

 

 

v)Earning per share

 

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

 

w)Impairment

 

Non-financial Assets

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

 

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

 

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

 

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

 

Goodwill

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

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

31


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

 

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.

 

y)

32


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

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 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, 2019:

 

Standards and interpretations

Content

Mandatory application for annual periods beginning on or after

IFRS 16

 

 

 

 

 

IFRIC 23

 

 

 

 

Leases

The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value.

 

Uncertain tax positions

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

 

January 1, 2019

 

 

 

 

 

January 1, 2019

 

 

 

 

 

Amendments and

improvements

Content

Mandatory application for annual periods beginning on or after

IAS 19

 

 

 

 

 

IAS 28

 

 

 

 

 

IFRS 9

 

 

IFRS 3

 

 

 

IFRS 11

 

 

 

 

IAS 12

 

 

 

 

IAS 23

 

 

 

 

Employee Benefits

Prescribe the accounting and disclosure for employee benefits, requiring an entity to recognise a liability where an employee has provided service and an expense when the entity consumes the economic benefits of employee service.

 

Investments in associates and joint ventures

It clarifies that an entity applies IFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.

 

Financial instruments

Allows assets to be measured at amortised cost.

 

Business Combinations

Clarifies that when an entity obtains control of a business that is a joint operation, it is a business combination achieve by steps.

 

Joint Arrangements

Clarifies that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business.

 

Income taxes

Clarifies the income tax consequences of dividends from financial instruments at amortized cost should be recognized according to the past transactions or events that generated distributable profits.

 

Borrowing Costs

Clarifies that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the general borrowings.

January 1, 2019

 

 

 

 

 

January 1, 2019

 

 

 

 

 

January 1, 2019

 

 

January 1, 2019

 

 

 

January 1, 2019

 

 

 

 

January 1, 2019

 

 

 

 

January 1, 2019

 

 

 

33


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

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

 

IFRS 16 - Leases

 

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

 

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

 

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

 

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

 

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

 

 

 

January 1, 2019

ThU.S.$

Right of use assets

252,085

Advances granted

(4,308)

Sublease

1,540

Lease liabilities

249,317

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

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

 

 

2019

ThU.S.$

Operating leases as of December 31, 2018

111,927

Discounted using the lessee’s incremental borrowing rate as of January 1, 2019

89,605

Finance lease liabilities recognized as of December 31, 2018

68,187

Lease liabilities recognized due to IFRS 16 implementation

159,712

Total Lease liabilities as of January 1, 2019.

317,504

 

 

January 1, 2019

ThU.S.$

Right of use assets - IFRS 16

252,085

Right of use assets - IAS 17

72,252

Increase (decrease) for changes in accounting policies

324,337

 

 

January 1, 2019

ThU.S.$

Lease liabilities - IFRS 16

249,317

Lease liabilities - IAS 17

68,187

Increase (decrease) for changes in accounting policies

317,504

 


34


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

b) Standards, interpretations and amendments, the application of which is not yet mandatory, which have not been adopted in advance:

 

 

Standards and interpretations

Content

Mandatory application for annual periods beginning on or after

IFRS 17

 

Insurance Contracts

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

 

January 1, 2021

 

 

 

Amendments and

improvements

Content

Mandatory application for annual periods beginning on or after

IFRS 10 y IAS 28-Amendments

 

 

IAS 1 y IAS 8

 

 

 

 

 

IFRS 3

 

 

 

IFRS 9, IAS 39 and IFRS 7

 

 

 

Sale or Contribution of assets among an Investor and its Associates or Joint Ventures.

 

 

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.

 

 

Definition of a Business

Narrows the definitions of a business

 

 

Interest rate benchmark reform

Provides certain reliefs in connection with interest rate benchmark reform.

Indeterminate

 

 

 

January 1, 2020

 

 

 

 

 

January 1, 2020

 

 

 

January 1, 2020

 

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.

 

 


35


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

NOTE 2. ACCOUnTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES

 

Changes to accounting policies

 

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

 

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

 

The lease liabilities under IFRS 16 were measured at the present value of the remaining payments for leases, discounted using the average incremental rate of 4.82%, applied as of January 1, 2019.

 

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

 

As a consequence of the adoption of IFRS 16, Properties, Plants and Equipment increased by ThU.S.$252,085 and Other Financial Liabilities by ThU.S.$249,317 on January 1, 2019. The following table shows a reconciliation between both amounts.

 

 

 

January 1, 2019

ThU.S.$

Right of use assets

252,085

Advances granted

(4,308)

Sublease

1,540

Lease liabilities

249,317

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

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

 

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

 

 

Changes to accounting estimates

 

As of December 31, 2019, there have been no changes regarding the accounting estimates with respect to the 2018 financial year.

 


36


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

NOTE 3. DISCLOSURE OF OTHER INFORMATION

 

a)

Disclosure of information on Issued Capital

 

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

 

100% of Capital corresponds to ordinary shares.

 

 

12-31-2019

12-31-2018

Description of Ordinary Capital Share Types

100% of Capital corresponds to ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

113,159,655

Nominal Value of Shares by Type of Capital in Ordinary Shares

ThU.S.$0.0031210 per share

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

ThU.S.$353,618

 

12-31-2019

12-31-2018

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

113,159,655

 

 

 

b)

Dividends paid

 

In the 2019 period there was no interim dividend payment. The interim dividend paid in December 2018 was equivalent to 20% of the distributable net profit calculated as of the end of September 2018 and was considered a decrease in the consolidated statements of changes in equity.

 

As of December 31, 2019, in accordance with the current dividends policy, it is not required to recognize a minimum dividend provision. The ThU.S. $324,295 as of December 31, 2018 presented in the consolidated statements of changes in equity correspond to the minimum dividend provision recorded for the 2018 period.

 

In the consolidated statements of cash flows, the Dividends Paid line shows an amount of ThU.S.$ 182,109 as of December 31, 2019 (ThU.S.$257,421 is presented for the year ended December 31, 2018), of which ThU.S.$ 182,040 (ThU.S.$256,029 as of December 31, 2018) correspond to the payment of dividends of the Parent Company.

 

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

 

 


Detail of Dividend Paid, Ordinary Shares  

 

Dividend Paid  

Final Dividend

Type of Shares for which there is a Dividend Paid  

Ordinary Shares

Date of Dividend Paid

05-08-2019

Amount of Dividend  

ThU.S.$ 182,040

Number of Shares for which Dividends are Paid  

113,159,655

Dividend per Share

U.S.$ 1.60870

 


37


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 


Detail of Dividend Paid, Ordinary Shares  

 

Dividend Paid  

Interim Dividend

Type of Shares for which there is a Dividend Paid  

Ordinary Shares

Date of Dividend Paid

12-12-2018

Amount of Dividend  

ThU.S.$ 142,256

Number of Shares for which Dividends are Paid  

113,159,655

Dividend per Share

U.S.$ 1.25712

 


Detail of Dividend Paid, Ordinary Shares

 

Dividend Paid  

Final Dividend

Type of Shares for which there is a Dividend Paid  

Ordinary Shares

Date of Dividend Paid

05-10-2018

Amount of Dividend  

ThU.S.$113,773

Number of Shares for which Dividends are Paid  

113,159,655

Dividend per Share

U.S.$ 1.00542

 

c)

Disclosure of Information on Reserves  

 

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

 

Reserves of exchange differences on translation

 

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

 

Reserves of cash flow hedges

 

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

 

Reserve of Actuarial Losses in Defined Benefit Plans

 

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

 

Other reserves

 

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

d)


38


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

Other items in the 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 December 31, 2019 and 2018 are as follows:

 

 

January - December

  

2019

2018

 

ThU.S.$

ThU.S.$

Classes of Other Income

 

 

Other Income, Total

232,393

124,304

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

154,705

84,476

Net income from insurance compensation

2,098

1,788

Revenue from export promotion

1,185

3,570

Lease income

1,995

2,156

Gain on sales of assets

15,685

13,164

Access easement

296

260

Compensations received

1,210

4,554

Gain on sales of associates

40,842

                       -

Other operating results

14,377

                 14,336

 

 

 

Classes of Other Expenses by activity

 

 

Total of Other Expenses by activity

(203,698)

(95,880)

Depreciation

-

(523)

Legal expenses

(5,465)

(3,832)

Impairment provision for property, plant and equipment and others

(115,812)

(31,680)

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

(20,301)

(2,718)

Expenses related to projects

(13,407)

(15,497)

Loss of asset sales

(11,783)

(8,533)

Loss and repair of assets

(1,287)

(430)

Loss of forest due to fires

(7,541)

(2,584)

Other Taxes

(15,835)

(16,821)

Research and development expenses

(3,851)

(1,888)

Fines, readjustments and interests

(1,513)

(788)

Other expenses

(6,903)

               (10,586)

 

 

 

 

 

 

 

 

 

Classes of financing income

 

 

Financing income, total

32,582

20,895

Financial income from mutual funds - term deposits

21,841

13,177

Financial income resulting from swap - forward instruments

490

596

Other financial income

10,251

7,122

 

 

 

 

 

 

Classes of financing costs

 

 

Financing costs, Total

(273,639)

(214,779)

Interest expense, Banks loans

(34,576)

(29,320)

Interest expense, Bonds

(178,801)

(142,846)

Interest expense, other financial instruments

(28,326)

(18,716)

Interest expense for right ofuse

(11,436)

-

Other financial costs

(20,500)

(23,897)

 

 

 

 

 

 

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

 

 

Total

7,775

17,246

Investments in associates

6,786

3,043

Joint ventures

989

14,203


39


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

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

 

 

January - December

Cost of sales (*)

2019

2018

 

ThU.S.$

ThU.S.$

Timber

879,583

691,129

Forestry labor costs and other services

547,749

672,233

Depreciation and amortization

409,442

377,557

Depreciation for right of use

64,434

-

Maintenance costs

294,853

280,715

Chemical costs

557,074

560,241

Sawmill Services

140,220

140,106

Other Raw Materials

236,250

228,701

Other Indirect costs

149,853

185,424

Energy and fuel

212,655

207,712

Cost of electricity

34,871

34,301

Wages and salaries

383,394

344,630

Total

3,910,378

3,722,749

(*) Total amount is composed by the cost of inventory sales for ThU.S.$ 3,861,891 (ThU.S.$ 3,662,348 as of December 31, 2018) and by cost of rendering services for ThU.S.$ 48,487 (ThU.S.$ 60,401 as of December 31, 2018)

 

 

January - December

Distribution costs

2019

2018

 

ThU.S.$

ThU.S.$

Selling costs

38,097

39,402

Commissions

13,573

14,629

Insurance

4,405

4,266

Provision for doubtful accounts

981

3,144

Other selling costs

19,138

17,363

Shipping and freight costs

548,776

517,403

Port services

36,145

28,064

Freights

472,542

440,886

Depreciation for right of use

1,792

-

Other shipping and freight costs (internment, warehousing,

stowage, customs and other costs)

38,297

48,453

Total

586,873

556,805

 

 

 

January - December

Administrative expenses

2019

2018

 

ThU.S.$

ThU.S.$

Wages and salaries

229,224

247,927

Marketing, advertising, promotion and publications expenses

18,127

12,650

Insurances

19,825

15,538

Depreciation and amortization

29,412

27,879

Depreciation for right of use

10,775

-

Computer services

34,931

27,434

Lease rentals (offices, other property and vehicles)

7,038

14,249

Donations, contributions, scholarships

9,980

13,952

Fees (legal and technical advisors)

47,889

51,039

Property taxes, city permits and rights

16,371

17,645

Cleaning services, security services and transportation

22,959

24,089

Third-party variable services (maneuvers, logistics)

40,432

43,573

Basic services (electricity, telephone)

9,537

9,467

Maintenance and repair

7,238

6,973

Seminars, courses, training materials

3,091

3,117

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

47,209

45,752

Total

554,038

561,284

 

 

e)


 

40


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

Auditor Fees and Number of Employees

 

 

Auditors fees

 

12-31-2019

12-31-2018

 

 

ThU.S.$

ThU.S.$

Audit services

 

2,837

2,878

Other services

 

 

 

 

Tax services

1,470

931

 

Others

149

313

TOTAL

 

4,456

4,122

Number of employees

 

 

 

18,119

17,252

 

 

NOTE 4.  INVENTORIES

 

 

 

12-31-2019

12-31-2018

Components of Inventory

ThU.S.$

ThU.S.$

Raw materials

129,004

111,483

Production supplies

128,229

122,794

Work in progress

69,760

66,432

Finished goods

532,200

554,933

Spare Parts

194,674

174,554

Total Inventories

1,053,867

1,030,196

 

Inventories recognized as cost of sales as of December 31, 2019 were ThU.S.$3,861,891 (ThU.S.$3,662,348 as of December 31, 2018).

 

In order to have the inventories recorded at net realizable value as of December 31, 2019, a net decrease of inventories was recognized associated with a higher provision of obsolescence of ThU.S.$26,877 (ThU.S.$2,038 as of December 31, 2018). As of December 31, 2019, the amount of obsolescence provision is ThU.S.$53,180 (ThU.S.$26,303 as of December 31, 2018).

 

As of December 31, 2019, there were inventory write-offs of ThU.S.$1,734 (ThU.S.$6,760 as of December 31, 2018).

 

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

 

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


41


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

NOTE 5. CASH AND CASH EQUIVALENTS

 

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

 

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

 

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

 

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

 

 

12-31-2019

12-31-2018

Components of Cash and Cash Equivalents

ThU.S.$

ThU.S.$

Cash on hand

177

126

Bank checking account balances

314,804

327,006

Time deposits

611,073

478,775

Mutual funds

633,958

270,035

Total

1,560,012

1,075,942

 

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

 

 

12-31-2019

ThU.S.$

12-31-2018

ThU.S.$

AAAfm

624,534

268,237

No classification

9,424

1,798

Total Mutual Funds

633,958

270,035

 


42


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

Changes in Financial Liabilities

 

 

 

 

 

 

Cash Flow

 

 

 

 

 

 

Opening

balance

01-01-2019

Increase (decrease) for changes in accounting

policies

Re-expressed opening balance

Borrowings

obtained

Borrowings

paid

Commissions

paid

Interest

paid

Accrued

interest

Inflation

adjustment

Increase (decrease) due to business combination

Non-cash

movements

Closing

balance

12-31-2019

 

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

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

Lease liabilities (IFRS 16)

68,187

249,317

317,504

-

(80,323)

-

(10,905)

10,601

(9,339)

4,133

39,354

271,025

Total

4,581,875

249,317

4,831,192

2,142,439

(802,275)

(10,697)

(266,019)

262,310

(75,849)

15,195

87,769

6,184,065

 

 

 

Cash Flow

 

 

 

 

 

Opening

balance

01-01-2018

Borrowings

obtained

Borrowings

paid

Interest

paid

Accrued

interest

Inflation

adjustment

Non-cash

movements

Closing

balance

12-31-2018

 

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

ThU.S.$

Borrowings from banks

858,457

534,474

(453,789)

(28,397)

30,133

761

(1,204)

940,435

Hedging liabilities

5,393

-

-

(803)

-

(138)

67,147

71,599

Bonds and promissory notes

3,302,685

329,077

(21,495)

(143,080)

144,116

(112,773)

3,124

3,501,654

Lease liabilities (IFRS 16)

112,376

-

(6,624)

-

-

(1,431)

(36,134)

68,187

Total

4,278,911

863,551

(481,908)

(172,280)

174,249

(113,581)

32,933

4,581,875

 


43


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

NOTE 6. INCOME TAXES

 

The tax rates applicable in the countries in which Arauco operates are 27% in Chile, 30% in Argentina 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.

 

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 was $122,835,595 argentine pesos (equivalent to ThU.S.$2,053 as of December 31, 2019), 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.

 


44


CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Consolidated Financial Statements

December 31, 2019

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

 

Deferred Tax Assets

 

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

 

 

12-31-2019

12-31-2018

Deferred Tax Assets

ThU.S.$

ThU.S.$

Deferred tax Assets relating to Provisions

5,749

6,105

Deferred tax Assets relating to Accrued Liabilities

7,182