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Arauco & Constitution Pulp Inc – ‘6-K’ for 3/31/20

On:  Friday, 5/22/20, at 9:42am ET   ·   For:  3/31/20   ·   Accession #:  1193125-20-149483   ·   File #:  33-99720

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Report by a Foreign Issuer   —   Form 6-K   —   Rule 13a-16 / 15d-16
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Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Table of Contents
"Ratio Analysis of the Interim Consolidated Financial Statements
"Unaudited Interim Consolidated Statements of Financial Position
"Unaudited Interim Consolidated Statements of Profit or Loss
"Unaudited Interim Consolidated Statements of Comprehensive Income
"Unaudited Interim Consolidated Statements of Changes in Equity
"Unaudited Interim Consolidated Statements of Cash Flow
"Unaudited Notes to the Interim Consolidated Financial Statements
"Annex: Press Release

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  Form 6-K  
Table of Contents

 

 

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of March, 2020

Commission File Number 33-99720

 

 

ARAUCO AND CONSTITUTION PULP INC.

(Translation of registrant’s name into English)

 

 

El Golf 150

Fourteenth Floor

Santiago, Chile

(Address of principal executive offices)

 

 

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

Form 20-F  ☑            Form 40-F  ☐

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

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

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

Yes  ☐            No  ☑

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

 

 

 


Table of Contents

ARAUCO AND CONSTITUTION PULP INC

TABLE OF CONTENTS

 

Item         Page  

1.

   Ratio Analysis of the Interim Consolidated Financial Statements      1  

2.

   Unaudited Interim Consolidated Statements of Financial Position      7  

3.

   Unaudited Interim Consolidated Statements of Profit or Loss      9  

4.

   Unaudited Interim Consolidated Statements of Comprehensive Income      10  

5.

   Unaudited Interim Consolidated Statements of Changes in Equity      11  

6.

   Unaudited Interim Consolidated Statements of Cash Flow      12  

7.

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


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

1. ANALYSIS OF FINANCIAL POSITION

 

  a)

Statement of Financial Position

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

 

Assets

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

Current assets

     3,633,135        3,931,381  

Non-current assets

     11,884,475        11,928,649  
  

 

 

    

 

 

 

Total assets

     15,517,610        15,860,030  
  

 

 

    

 

 

 

 

Liabilities

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

Current liabilities

     1,309,520        1,261,522  

Non-current liabilities

     7,216,002        7,229,093  

Non–parent participation

     35,129        35,011  

Net equity attributable to parent company

     6,961,959        7,334,404  
  

 

 

    

 

 

 

Total net equity and liabilities

     15,517,610        15,860,030  
  

 

 

    

 

 

 

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

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

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

 

Liquidity ratios

   03-31-2020      12-31-2019  

Current Liquidity (current assets / current liabilities)

         2.77            3.12  

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

     1.77        2.06  

 

Debt indicators

   03-31-2020      12-31-2019  

Debt to equity ratio (total liabilities / equity)

     1.22        1.15  

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

     0.15        0.15  

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

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

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

         0.45            3.46  

 

Activity ratio

   03-31-2020      12-31-2019  

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

     2.55        2.92  

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

     3.20        3.75  

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

     141.13        123.17  

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

     112.51        95.93  

 

1


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

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

 

  b)

Statement of profit or loss

Profit before income tax

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

 

Item

   MU.S.$  

Gross profit

     (163

Distribution and Administrative Expenses

     23  

Other income and expenses

     (19

Other financial income and expenses

     (14

Others

     (7
  

 

 

 

Net change in profit before income tax

     (180
  

 

 

 

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

 

Revenues

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

Pulp

     450,910        652,215  

Timber

     646,550        697,781  

Forestry

     29,624        30,747  

Other

     82        7,443  
  

 

 

    

 

 

 

Total revenues

     1,127,166        1,388,186  
  

 

 

    

 

 

 

Sales costs

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

Wood

     191,255        184,242  

Forestry work and other services

     107,457        133,003  

Depreciation and amortization

     113,214        115,187  

Other costs

     431,634        509,484  
  

 

 

    

 

 

 

Total sales costs

        843,560           941,916  
  

 

 

    

 

 

 

Profitability index

   03-31-2020      12-31-2019  

Profitability on equity

     (1.65      0.84  

Profitability on assets

     (0.76      0.41  

Return on operating assets

              0.68                 1.90  

Profitability ratios

   03-31-2020      03-31-2019  

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

     (0.26      1.11  

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

     (29,706      126,099  

Gross margin (ThU.S.$)

          283,606             446,270  

Finance costs (ThU.S.$)

     (71,782      (57,391

 

(1)

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

 

(2)

Includes non-controlling interest.

 

2


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

EBITDA

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

Profit (loss)

     (29,706      126,099  

Finance costs

     71,782        57,391  

Finance income

     (7,207      (6,746

Income tax expense

     (9,761      15,100  

EBIT

     25,108        191,844  

Depreciation and amortization

     125,411        124,684  

EBITDA

     150,519        316,528  

Cost at fair value of the harvest

     67,024        74,837  

Gain from changes in fair value of biological assets

     (52,018      (36,981

Exchange difference

     3,427        (2,127

Others*

     25,615        2,627  

Adjusted EBITDA

     194,567        354,884  

 

*

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

2. MAIN SOURCES OF FINANCING

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

3. MARKET SITUATION

Pulp Division

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

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

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

 

3


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

Composite Panel

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

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

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

Sawn timber

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

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

Plywood

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

 

4


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

4. ANALYSIS OF CASH FLOW

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

 

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

Positive (negative) Cash flow

     

Net cash flows from operating activities

     (15,742      130,251  

Cash flows from (used in) financing activities:

     

Loan and bond obtention and payments

     95,091        (53,483

Payment of lease liabilities

     (21,230      (20,949

Others

     69        (316

Cash flows from (used in) investment activities:

     

Purchase and sale of property, plant and equipment

     (354,147      (161,616

Purchase and sale of biological assets

     (64,487      (72,629

Purchase and sale of intangible assets

     (6,084      (3,603

Additions (Disposals), Investments in joint ventures and associates

     (15,090      (151,294

Dividends received

     3,539        6,206  

Others

     (596      —    

Positive (negative) net cash flow

     (378,677      (327,433

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

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

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

 

5


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Ratio Analysis of the Interim Consolidated Financial Statements

March 31, 2020

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

 

 

5. MARKET RISK ANALYSIS

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

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

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

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

 

 

6


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

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

Assets

        

Current Assets

        

Cash and cash equivalents

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

Other current financial assets

   23      52,638        3,370  

Other current non-financial assets

   25      174,893        174,110  

Trade and other current receivables

   23      667,435        642,315  

Accounts receivable from related companies

   13      15,233        17,526  

Current inventories

   4      1,055,235        1,053,867  

Current biological assets

   20      260,744        275,792  

Current tax assets

   6      247,202        199,953  

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

        3,628,838        3,926,945  

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

   22      4,297        4,436  

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

        4,297        4,436  

Total Current Assets

        3,633,135        3,931,381  

Non-Current Assets

        

Other non-current financial assets

   23      73        9,395  

Other non-current non-financial assets

   25      126,850        112,414  

Trade and other non-current receivables

   23      8,576        9,456  

Investments accounted for using equity method

   15-16      288,070        293,118  

Intangible assets other than goodwill

   19      104,096        106,252  

Goodwill

   17      59,349        65,751  

Property, plant and equipment

   7      7,681,483        7,648,183  

Right of use assets

   8      261,743        284,379  

Non-current biological assets

   20      3,347,839        3,393,634  

Deferred tax assets

   6      6,396        6,067  

Total Non-Current Assets

        11,884,475        11,928,649  

Total Assets

        15,517,610        15,860,030  
     

 

 

    

 

 

 

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

 

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

Equity and Liabilities

       

Liabilities

       

Current Liabilities

       

Other current financial liabilities

   23      586,263       460,846  

Current lease liabilities

   23      60,914       69,208  

Trade and other current payables

   23      614,487       673,057  

Accounts payable to related companies

   13      3,956       8,880  

Other current provisions

   18      1,234       1,259  

Current tax liabilities

   6      2,568       2,242  

Current provisions for employee benefits

   10      5,323       5,965  

Other current non-financial liabilities

   25      34,775       40,065  

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

        1,309,520       1,261,522  

Total Current Liabilities

        1,309,520       1,261,522  

Non-Current Liabilities

       

Other non-current financial liabilities

   23      5,546,655       5,452,194  

Non-current lease liabilities

   23      169,681       201,817  

Non-current payables

   23      2,230       2,230  

Other non-current provisions

   18      31,068       31,765  

Deferred tax liabilities

   6      1,316,326       1,360,187  

Non-current provisions for employee benefits

   10      62,057       69,464  

Other non-current non-financial liabilities

   25      87,985       111,436  

Total Non-Current Liabilities

        7,216,002       7,229,093  

Total Liabilities

        8,525,522       8,490,615  

Equity

       

Issued capital

   3      353,618       353,618  

Retained earnings

        7,844,190       7,873,650  

Other reserves

        (1,235,849     (892,864

Equity attributable to parent company

        6,961,959       7,334,404  

Non-controlling interests

        30,129       35,011  

Total Equity

        6,992,088       7,369,415  

Total Equity and Liabilities

        15,517,610       15,860,030  
     

 

 

   

 

 

 

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

 

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

Statements of profit or loss

       

Revenue

   9      1,127,166       1,388,186  

Cost of sales

   3      (843,560     (941,916

Gross profit

        283,606       446,270  

Other income

   3      55,246       45,539  

Distribution costs

   3      (137,429     (142,858

Administrative expenses

   3      (123,503     (141,280

Other expense

   3      (50,938     (22,317

Profit from operating activities

        26,982       185,354  

Finance income

   3      7,207       6,746  

Finance costs

   3      (71,782     (57,391

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

   3-15      1,553       4,363  

Gains (losses) on exchange differences on translation

        (3,427     2,127  

Profit before income tax

        (39,467     141,199  

Income Tax

   6      9,761       (15,100

Net Profit

        (29,706     126,099  
     

 

 

   

 

 

 

Net profit attributable to

       

Net profit attributable to parent company

        (29,460     125,836  

Net profit attributable to non-controlling interests

        (246     263  

Net Profit

        (29,706     126,099  
     

 

 

   

 

 

 

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

       

Basic and diluted earnings per share from continuing operations

        (0.2603     1.1120  
     

 

 

   

 

 

 

Basic and diluted earnings per share

        (0.2603     1.1120  
     

 

 

   

 

 

 

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

 

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Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

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

Net profit

        (29,706     126,099  

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

       

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

     10        109       811  

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

        109       811  

Components of other comprehensive income that will be reclassified to profit or loss before tax:

       

Exchange differences on translation

       

Gains (losses) on exchange differences on translation, before tax

     11        (264,389     (8,622

Other Comprehensive Income before tax exchange differences on translation

        (264,389     (8,622

Cash flow hedges

       

Gains (losses) on cash flow hedges, before tax

     23        (103,466     (4,823

Recycle of cash flow hedges to profit or loss before tax

     23        (2,797     (2,148

Other Comprehensive Income before tax Cash flow hedges

        (106,263     (6,971

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

       

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

        (6,029     592  

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

        (6,029     592  

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

        (376,681     (15,001

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

       

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

        (64     (199

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

        (64     (199

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

       

Income tax relating to cash flow hedges of other comprehensive income

     6        27,786       3,718  

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

        1,264       (137

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

        29,050       3,581  

Other comprehensive income (loss)

        (347,586     (10,808

Comprehensive income (loss)

        (377,292     115,291  
     

 

 

   

 

 

 

Comprehensive Income (loss) attributable to

       

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

        (372,445     115,276  

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

        (4,847     15  

Total comprehensive income (loss)

        (377,292     115,291  
     

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

03-31-2020

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

Opening balance at 01-01-2020

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

Changes in Equity:

                   

Comprehensive income

                   

Net profit

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

Other comprehensive income, net of tax

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

Comprehensive income

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

Dividends

                —         —         (35     (35

Increase (decrease) from transfers and other changes

                —         —         —         —    

Changes in equity

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

Closing balance at 03-31-2020

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

03-31-2019

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

Opening balance at 01-01-2019

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

Increase (decrease) for changes in accounting policies

                (188     (188     —         (188

Re-expressed opening balance

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

Changes in Equity:

                   

Comprehensive income

                   

Net profit

                125,836       125,836       263       126,099  

Other comprehensive income, net of tax

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

Comprehensive income

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

Dividends

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

Increase (decrease) from transfers and other changes

                143       143       —         143  

Changes in equity

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

Closing balance at 03-31-2019

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

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

STATEMENTS OF CASH FLOWS

    

Cash Flows from (used in) Operating Activities

    

Classes of cash receipts from operating activities

    

Receipts from sales of goods and rendering of services

     1,122,841       1,377,157  

Other cash receipts from operating activities

     198,106       93,953  

Classes of cash payments

    

Payments to suppliers for goods and services

     (962,459     (1,063,142

Payments to and on behalf of employees

     (159,328     (174,271

Other cash payments from operating activities

     (123,000     (30,115

Interest paid

     (41,828     (48,124

Interest received

     6,483       4,666  

Income taxes paid

     (55,469     (28,085

Other inflows (outflows) of cash, net

     (1,088     (1,788

Net Cash flow from Operating Activities

     (15,742     130,251  
  

 

 

   

 

 

 

Cash flows from (used in) Investing Activities

    

Cash flow used in obtaining control of subsidiaries and other businesses

     —         (150,824

Cash used for the purchase of non-controlling interests

     (15,090     (470

Proceeds from sale of property, plant and equipment

     2,611       4,239  

Purchase of property, plant and equipment

     (356,758     (165,855

Purchase of intangible assets

     (6,084     (3,603

Proceeds from sales of other long-term assets

     3,060       1,230  

Purchase of other non-current assets

     (67,547     (73,859

Dividends received

     3,539       6,206  

Other inflows (outflows) of cash, net

     (596     —    

Cash flows from (used in) Investing Activities

     (436,865     (382,936
  

 

 

   

 

 

 

Cash flows from (used in) Financing Activities

    

Total borrowings obtained

     140,000       7,000  

Debt obtained in long-term

     —         7,000  

Debt obtained in short-term

     140,000       —    

Repayments of borrowings

     (44,909     (60,483

Payments of lease liabilities

     (21,230     (20,949

Other outflows of cash, net

     69       (316

Cash flows from (used in) Financing Activities

     73,930       (74,748
  

 

 

   

 

 

 

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

     (378,677     (327,433

Effect of exchange rate changes on cash and cash equivalents

     (25,877     (738
  

 

 

   

 

 

 

Net increase (decrease) of Cash and Cash Equivalents

     (404,554     (328,171

Cash and cash equivalents, at the beginning of the period

     1,560,012       1,075,942  

Cash and cash equivalents, at the end of the period

     1,155,458       747,771  
  

 

 

   

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

NOTE 1. PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Entity Information

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

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

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

As of March 31, 2020, Arauco is controlled by Empresas Copec S.A., tax identification number 90,690,000-9, which owns 99.9780% of Arauco, and is registered in the Securities Registry as No. 0028. Each of the above mentioned companies is subject to the oversight of the CMF.

Moreover, Empresas Copec S.A. is controlled by the public corporation AntarChile S.A., tax identification number 96,556,310-5, which owns 60.8208% of Empresas Copec S.A. Furthermore, the ultimate shareholders of AntarChile S.A. and, consequently, of Empresas Copec S.A., are Mr. Roberto Angelini Rossi, tax identification number 5,625,652-0, and Mrs. Patricia Angelini Rossi, tax identification number 5,765,170-9.

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Presentation of Interim Consolidated Financial Statements

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

Explanatory disclosures (notes)

Period Covered by the Interim Consolidated Financial Statements

Periods ended March 31, 2020 and 2019.

Date of Approval of the Interim Consolidated Financial Statements

These interim consolidated financial statements were approved by the Board of Directors of the Company (the “Board”) at the Extraordinary Meeting No. 631 on May 12, 2020.

Abbreviations used in this report:

IFRS - International Financial Reporting Standards

IASB - International Accounting Standards Board

IAS - International Accounting Standards

IFRIC - International Financial Reporting Standards Interpretations Committee

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

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

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

UTA - Annual Tax Unit

ICMS - Tax movement of inventories and services (Brazil)

Functional and Presentation Currency

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

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

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

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

Summary of significant accounting policies

 

a)

Basis for preparation of the interim consolidated financial statements

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

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

 

b)

Critical accounting estimates and judgments

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

- Biological Assets

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

- Goodwill

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

- Litigation and Contingencies

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

 

c)

Consolidation

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

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

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

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

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

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

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

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

c) rights arising from other contractual arrangements; and

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

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

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

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

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

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

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

d)    Segments

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

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

 

   

Pulp

 

   

Wood products

 

   

Forestry

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

e)

Functional currency

 

(i)

Functional currency

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

 

(ii)

Translation to the presentation currency of Arauco

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

 

(iii)

Foreign Currency Transactions

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

 

f)

Cash and cash equivalents

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

 

g)

Financial Instruments

Financial assets

Initial classification

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

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

(a) Financial assets at fair value through profit or loss: these instruments are initially measured at fair value. Net income and losses, including any income from interest or dividends, are registered in the profit or loss of the period. Financial assets are classified in the category of financial assets at fair value through profit or loss when they are maintained for negotiation or designated in their initial registration as assets at fair value through profit or loss. A financial asset can be classified in this category if it is acquired mainly for the purposes of being sold in the short-term. Gain or losses of assets held for negotiations are registered in the consolidated statements of Profit or Loss, and the related interest is registered independently as financial income. Derivatives are classified as acquired for negotiation also unless they are designated as hedging instruments.

(b) Assets measured at amortized cost: they are initially registered at the fair value of the transaction, adding or subtracting the transaction costs that are directly attributable to the issuance of the financial asset or financial liability. The financial asset is maintained within a business model, the objective of which is to maintain financial assets to obtain contractual cash flows and the contractual conditions of the asset give rise, on specified dates, to cash flows that are solely payments of principal and interests (“SPPI”) over the amount of the outstanding principal.

Subsequent measurement

Financial instruments are subsequently measured at fair value through profit or loss or amortized cost.

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

a) Financial assets at fair value through profit or loss: these instruments are subsequently measured at fair value. Net earnings and losses, including income from interests and dividends, are registered as profits or losses for the period. These instruments are held for negotiation and they are mainly acquired to be sold in the short term. Derivatives are also classified as held for negotiation, unless they are registered as hedging instruments. Financial instruments of this type are classified as Other Current and Non-Current Financial Assets. They are subsequently valuated by determining their fair value, registering changes in value in the interim consolidated statements of Profit or Loss, in the items of Financial Income or Financial Costs.

b) Financial assets measured at amortized cost: These instruments are subsequently measured at amortized cost minus accumulated amortizations, using the effective interest method and adjusted by loss allowance and volume discounts, in the case of financial assets. Financial income and expenses, foreign exchange income and losses, and impairment are registered in results. Any earnings or losses due to initial or subsequent reductions of the value of the asset are registered in the statement of profit or loss of the period. Loans and receivables are non-derivative financial instruments with fixed or determinable payments not traded in any active market. They are registered at amortized cost, registering accrued conditions directly in profit or loss.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Arauco measures accumulated losses in a quantity equivalent to expected credit losses during the lifelong commitment. Expected credit losses are based on contractual cash flow differences based on the allowance of each contract and the cash flows that Arauco expects. The difference is then discounted based on an approximation of the asset’s original effective interest rate. The asset’s carrying value is reduced as the allowance is used, and the loss is recognized in sales expenses in the interim consolidated statements of profit or loss. When an account receivable cannot be collected, it is regularized against the allowance account for receivables. Subsequent recoveries of previously impaired amounts are recognized as a debit in distribution costs.

Derivative financial instruments are explained in Note 1 h).

Financial liabilities

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

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

Financial liabilities are initially recognized at fair value, and in the case of loans, they include the costs directly attributable to the transaction. The subsequent measurement of the financial liabilities depends on their classification:

Financial Liabilities at fair value through profit or loss

Financial liabilities are included in the category of financial liabilities at fair value through profit or loss when they are held for trading or originally designated at fair value through profit or loss. Income and losses from liabilities held for trading are recognized in profit or loss. This category includes non-designated derivatives for hedging accounting.

Financial Liabilities at amortized cost

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

h)

Derivative financial instruments

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

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

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

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

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

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

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

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

i)

Inventories

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

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

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

Biological assets are transferred to inventories when forests are harvested.

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

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

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

 

j)

Non-current assets held for sale

Arauco classifies certain property, plant and equipment, intangible assets, investments in associates and disposal groups (groups of assets to be sold together with their directly associated liabilities) as non-current assets held for sale which as of the date of the interim consolidated statements of financial position are the subject of active sale efforts which are estimated to be highly probable.

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

k)

Business Combinations

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

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

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

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

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

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

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

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

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

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

 

l)

Investments in associates and joint arrangements

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

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

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

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

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

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

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

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

m)

Intangible assets other than goodwill

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

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

 

(i)

Computer Software

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

 

(ii)

Water Rights, Easements and Other Rights

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

 

(iii)

Customers and trade relations with customers

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

 

n)

Goodwill

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

Goodwill is not amortized but tested for impairment on annual basis.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For purposes of impairment testing, goodwill in a business combination is allocated as of the acquisition date to the cash generating unit or a group of cash generating units expected to benefit from the synergies of the combination irrespective of whether other assets or liabilities of the acquired company are allocated to those units or group of units.

The goodwill generated on acquisitions of foreign companies, is expressed in the functional currency of such foreign company.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

 

o)

Property, Plant and Equipment

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

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

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

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

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

 

p)

Leases

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

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

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

The cost of the asset for right of use comprises:

 

  -

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

 

  -

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

 

  -

The initial direct costs incurred by the lessee; and

 

  -

An estimation of the costs to be incurred by the lessee when dismantling and eliminating the underlying asset, restoring the location where the same is located, or restoring the underlying asset to the condition required under the terms and conditions of the lease, unless such costs are incurred in order to produce inventories. The lessee assumes obligations stemming from such costs either at the commencement date, or as a result of having used the underlying asset during a specific period.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

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

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

Arauco presents the assets by right of use in the Interim Consolidated Statement of Financial Position and are further disclosed in Note 8. Likewise, lease liabilities are presented in the Interim Consolidated Statement of Financial Position and further disclosed in Note 23.

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

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

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

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

q)

Biological Assets

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

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

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

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

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

 

r)

Income taxes

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

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

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

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

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

 

s)

Provisions

Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of past events, under which, it is probable that an outflow of resources will be required to settle the obligation; and when a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

t)

Revenue recognition

Revenues are valued at fair value of the consideration received or to be received, derived from them.

Arauco analyses and takes under consideration all relevant facts and circumstances to apply the five-step model established under IFRS 15 to customer contracts: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price, and (v) recognise revenue. Additionally, Arauco evaluates the incremental costs of obtaining a contract and the costs incurred to comply with a contract.

Arauco recognizes revenues when the steps established in IFRS have been satisfactorily complied with.

Accounts receivable are recognized when control over goods or services has been transferred to the customer, because at this point of the time collection is unconditional and the passage of time is only needed to receive payment.

 

(i)

Revenue recognition from the Sale of Goods

Revenue from the sale of goods is recognized when Arauco has transferred to the buyer the significant risks and rewards of ownership of the committed goods, when the amount of revenue can be reliably measured, when Arauco does not retain any managerial involvement over the goods sold and when it is probable that the economic benefits associated with the transaction will flow to Arauco and the costs incurred in respect of the transaction can be measured reliably. Revenue from the sale of goods are recognized when there is no obligation unsatisfied that could affect the customer’s acceptance of the product. The delivery is effective when the products are sent to the specific location, the risks of obsolescence and loss have been transferred to the customer and when Arauco has objective evidence that all acceptance criteria have been satisfied.

Sales are recognized in terms of the price agreed to in the sales contract, less any volume discounts and estimated product returns at the date of the sale. There is no significant financing component given that receivables from sales are collected within a short period, which is in line with market practices.

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

The main Incoterms used by Arauco are the following:

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

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

(ii)

Revenue recognition from Rendering of Services

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

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

There is no significant financing component, given that sales are made with a reduced average collection period, which is in line with market practice.

Arauco mainly provides power supply services which are transacted principally in the spot market of the Sistema Eléctrico Nacional (SEN) (“National Electrical System”). According to current regulations, the prices on that market called “Marginal Costs” are calculated by the Coordinador Eléctrico Nacional (CEN) (“National Electrical Coordinator”) and are generally recognized in the period in which the services are rendered.

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

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

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

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

 

u)

Minimum dividend

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

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

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

v)

Earning per share

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

 

w)

Impairment

Non-financial Assets

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

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

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

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

Goodwill

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

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

 

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March 31, 2020

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

 

 

any goodwill allocated to the unit and then to other assets pro rata based on the carrying amount of each asset in the unit. Any impairment loss of goodwill is recognized directly in the interim consolidated statement of profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

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

Financial Assets

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

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

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

 

x)

Employee Benefits

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

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

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

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

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

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

y) Employee Vacations

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

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

 

z)

Recent accounting pronouncements

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

 

Amendments and

   improvements   

  

Content

  

Mandatory application
for annual periods
  beginning on or after  

IAS 1 y IAS 8

  

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

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

 

  

January 1, 2020

IFRS 3   

Definition of a Business

Narrows the definitions of a business

 

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

Interest rate benchmark reform

Provides certain reliefs in connection with interest rate benchmark reform.

 

   January 1, 2020

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

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

 

Standards and
   interpretations   

  

Content

  

Mandatory application
for annual periods
  beginning on or after  

IFRS 17   

Insurance Contracts

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

 

   January 1, 2021

 

Amendments and

   improvements   

  

Content

  

Mandatory application
for annual periods
  beginning on or after  

IFRS 10 y IAS 28-Amendments

  

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

  

Indeterminate

IAS 1   

Presentation of Financial Statements

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

   January 1, 2022

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 2. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES

Changes to accounting policies

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

Changes to accounting estimates

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

NOTE 3. DISCLOSURE OF OTHER INFORMATION

 

a)

Disclosure of information on Issued Capital

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

100% of Capital corresponds to ordinary shares.

 

     03-31-2020    12-31-2019

Description of Ordinary Capital Share Types

   100% of Capital corresponds
to ordinary shares

Number of Authorized Shares by Type of Capital in Ordinary Shares

   113,159,655

Nominal Value of Shares by Type of Capital in Ordinary Shares

   ThU.S.$0.0031210 per share

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

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

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

   113,159,655

 

b)

Dividends paid

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

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

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

 

Detail of Dividend Paid, Ordinary Shares

  

Dividend Paid

   Final Dividend

Type of Shares for which there is a Dividend Paid

   Ordinary Shares

Date of Dividend Paid

   05-08-2019

Amount of Dividend

   ThU.S.$ 182,040

Number of Shares for which Dividends are Paid

   113,159,655

Dividend per Share

   U.S.$ 1.60870

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

c)

Disclosure of Information on Reserves

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

Reserves of exchange differences on translation

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

Reserves of cash flow hedges

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

Reserve of Actuarial Losses in Defined Benefit Plans

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

Other reserves

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

d)

Other items in the Interim Consolidated Statements of Profit or Loss

The table below sets forth other income, other expenses, finance income, finance costs and share of profit (loss) of associates and joint ventures for the periods ended March 31, 2020 and 2019 are as follows:

 

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

Classes of Other Income

     

Other Income, Total

     55,246        45,539  

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

     52,017        36,981  

Net income from insurance compensation

     20        708  

Revenue from export promotion

     276        358  

Lease income

     346        620  

Gain on sales of assets

     1,488        4,268  

Compensations received

     1        33  

Other operating results

     1,098        2,571  

Classes of Other Expenses by activity

     

Total of Other Expenses by activity

     (50,938      (22,317

Legal expenses

     (1,390      (1,338

Impairment provision for property, plant and equipment and others

     (18,059      (2,627

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

     (13,111      (3,713

Expenses related to projects

     (3,550      (7,332

Loss of asset sales

     (948      (1,411

Loss and repair of assets

     (2,512      (34

Loss of forest due to fires

     (5,056      —    

Other Taxes

     (3,916      (3,737

Research and development expenses

     (501      (587

Fines, readjustments and interests

     (571      (97

Other expenses

     (1,324      (1,441

Classes of financing income

     

Financing income, total

     7,207        6,746  

Financial income from mutual funds—term deposits

     5,331        4,859  

Financial income resulting from swap—forward instruments

     343        —    

Other financial income

     1,533        1,887  

Classes of financing costs

     

Financing costs, Total

     (71,782      (57,391

Interest expense, Banks loans

     (8,206      (7,301

Interest expense, Bonds

     (43,658      (35,697

Interest expense, other financial instruments

     (9,485      (6,227

Interest expense for right of use

     (2,532      (2,869

Other financial costs

     (7,901      (5,297

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

     

Total

     1,553        4,363  

Investments in associates

     1,919        262  

Joint ventures

     (366      4,101  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

 

     January - March  

Cost of sales (*)

   2020
ThU.S.$
     2019
ThU.S.$
 

Timber

     191,255        184,242  

Forestry labor costs and other services

     107,457        133,003  

Depreciation and amortization

     98,268        96,649  

Depreciation for right of use

     14,946        18,538  

Maintenance costs

     58,937        74,041  

Chemical costs

     118,425        141,217  

Sawmill Services

     27,893        36,544  

Other Raw Materials

     50,531        57,350  

Other Indirect costs

     32,653        41,805  

Energy and fuel

     41,747        54,538  

Cost of electricity

     8,811        8,767  

Wages and salaries

     92,637        95,222  

Total

     843,560        941,916  
  

 

 

    

 

 

 

 

(*)

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

 

     January - March  

Distribution costs

   2020
ThU.S.$
     2019
ThU.S.$
 

Selling costs

     8,696        9,651  

Commissions

     3,110        3,376  

Insurance

     837        917  

Provision for doubtful accounts

     (44      (208

Other selling costs

     4,793        5,566  

Shipping and freight costs

     128,733        133,207  

Port services

     8,619        5,659  

Freights

     110,343        119,246  

Depreciation for right of use

     413        —    

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

     9,358        8,302  

Total

     137,429        142,858  
  

 

 

    

 

 

 

 

     January - March  

Administrative expenses

   2020
ThU.S.$
     2019
ThU.S.$
 

Wages and salaries

     53,461        59,349  

Marketing, advertising, promotion and publications expenses

     3,385        6,627  

Insurances

     5,719        4,936  

Depreciation and amortization

     7,615        7,029  

Depreciation for right of use

     2,775        2,131  

Computer services

     5,301        8,026  

Lease rentals (offices, other property and vehicles)

     1,508        3,782  

Donations, contributions, scholarships

     2,599        3,426  

Fees (legal and technical advisors)

     9,325        10,838  

Property taxes, city permits and rights

     3,871        3,986  

Cleaning services, security services and transportation

     5,193        5,902  

Third-party variable services (maneuvers, logistics)

     8,196        10,474  

Basic services (electricity, telephone)

     1,757        2,259  

Maintenance and repair

     1,355        1,362  

Seminars, courses, training materials

     528        587  

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

     10,915        10,566  

Total

     123,503        141,280  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

e)

Auditor Fees and Number of Employees

 

Auditors fees

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

Audit services

     576        729  

Other services

     

Tax services

     221        421  

Others

     42        57  

TOTAL

     839        1,207  
  

 

 

    

 

 

 

Number of employees

    
     18,119        17,252  

NOTE 4. INVENTORIES

 

Components of Inventory

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

Raw materials

     106,940        129,004  

Production supplies

     125,370        128,229  

Work in progress

     73,570        69,760  

Finished goods

     564,623        532,200  

Spare Parts

     184,732        194,674  

Total Inventories

     1,055,235        1,053,867  
  

 

 

    

 

 

 

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

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

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

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 5. CASH AND CASH EQUIVALENTS

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

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

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

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

 

Components of Cash and Cash Equivalents

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

Cash on hand

     146        177  

Bank checking account balances

     214,562        314,804  

Time deposits

     918,762        611,073  

Mutual funds

     21,988        633,958  

Total

     1,155,458        1,560,012  
  

 

 

    

 

 

 

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

 

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

AAAfm

     13,513        624,534  

No classification

     8,475        9,424  

Total Mutual Funds

     21,988        633,958  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Changes in Financial Liabilities

 

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

Borrowings from banks

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

Hedging liabilities

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

Bonds and promissory notes

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

Other financial liabilities, Total

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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

Lease liabilities (IFRS 16)

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

Lease liabilities, Total

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

    

Opening balance

01-01-2019
ThU.S.$

    

Increase

(decrease)

for

changes in

accounting

policies

ThU.S.$

    

Re-

expressed

opening

balance

ThU.S.$

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

Borrowings from banks

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

Hedging liabilities

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

Bonds and promissory notes

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Other financial liabilities, Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

    

Opening balance

01-01-2019
ThU.S.$

    

Increase

(decrease)

for

changes in

accounting

policies

ThU.S.$

    

Re-

expressed

opening

balance

ThU.S.$

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

Lease liabilities (IFRS 16)

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Lease liabilities, Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 6. INCOME TAXES

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

On December 29, 2017, Law No. 27,430 was published in the Official Gazette of Argentina, which amended several articles of the Income Tax Act. The most relevant amendments include the reduction of the federal income tax rate from 35% to 30% by 2018 and 2019 fiscal years, and 25% by 2020. Law 27,541 suspended the withdrawal for the year 2020, so the tax rate for this fiscal year is 30%.

On March 25, 2019, the subsidiary Arauco Argentina S.A. chose to conduct the Tax Reappraisal set forth in Title X – Chapter 1 of Law No. 27,430. The option was exercised for all Properties, Plants and Equipments included in the category of amortizable movable assets, pursuant to the income tax law, which were adjusted to inflation using the coefficients published in such law for the purposes of calculating the aforementioned tax. The effect of the special tax in the presentation US$ 3 millions, which was paid in six instalments during year 2019. Additionally, the increase of the value of these tax assets, arising from this adjustment, generated a decrease of the liabilities for deferred taxes as of December 31, 2019 of approximately ThU.S.$12,629. Both the loss for the special tax as well as the profits for the decrease of the deferred tax, are shown in the Income tax line in period 2019.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Deferred Tax Assets

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

 

     03-31-2020      12-31-2019  

Deferred Tax Assets

   ThU.S.$      ThU.S.$  

Deferred tax Assets relating to Provisions

     5,555        5,749  

Deferred tax Assets relating to Accrued Liabilities

     5,512        7,182  

Deferred tax Assets relating to Post-Employment benefits

     18,153        20,378  

Deferred tax Assets relating to Property, Plant and equipment

     15,131        16,609  

Deferred tax Assets relating to Impairment provision

     21,080        20,169  

Deferred tax Assets relating to Financial Instruments

     69,247        68,390  

Deferred tax Assets relating to Tax Loss Carryforward

     163,491        144,652  

Deferred tax Assets relating to Inventories

     12,679        12,460  

Deferred tax Assets relating to Provisions for Income

     8,095        6,631  

Deferred tax Assets relating to Allowance for Doubtful Accounts

     3,937        4,349  

Deferred tax Assets relating to Intangible revaluation

     4,481        6,044  

Deferred tax Assets relating to tax credits

     18,753        8,029  

Deferred tax Assets relating to Other Deductible Temporary Differences

     19,217        16,161  

Total Deferred Tax Assets

     365,331        336,803  
  

 

 

    

 

 

 

Offsetting presentation

     (358,935      (330,736
  

 

 

    

 

 

 

Net Effect

     6,396        6,067  

Certain subsidiaries of Arauco mainly in Chile, Brazil, Argentina and USA, as of the date of these interim consolidated financial statements, present tax losses for which we estimate that, given the projection of future profits, will allow the recovery of these assets. The total amount of these tax losses is ThU.S.$598,126 (ThU.S.$ 550,551 at December 31, 2019), which are mainly originated by operational and financial losses.

In addition, as of the closing date of these interim consolidated financial statements there are ThU.S.$148,788 (ThU.S.$ 188,474 at December 31, 2019) of non-recoverable tax losses from companies in Uruguay as joint operations based on the participation of Arauco and subsidiaries in USA, for which deferred tax assets have not been recognized. The estimated recovery period exceeds the expiry date of such tax losses.

Deferred Tax Liabilities

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

 

     03-31-2020      12-31-2019  

Deferred Tax Liabilities

   ThU.S.$      ThU.S.$  

Deferred tax Liabilities relating to Property, Plant and Equipment

     893,686        900,415  

Deferred tax Liabilities relating to Financial Instruments

     25,197        25,630  

Deferred tax Liabilities relating to Biological Assets

     636,681        642,221  

Deferred tax Liabilities relating to Inventory

     37,992        38,251  

Deferred tax Liabilities relating to Prepaid Expenses

     44,127        41,338  

Deferred tax Liabilities relating to Intangible

     15,630        17,942  

Deferred tax Liabilities relating to Other Taxable Temporary Differences

     21,948        25,126  

Total Deferred Tax Liabilities

     1,675,261        1,690,923  
  

 

 

    

 

 

 

Offsetting presentation

     (358,935      (330,736
  

 

 

    

 

 

 

Net Effect

     1,316,326        1,360,187  
  

 

 

    

 

 

 

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Reconciliation of deferred tax assets and liabilities

 

    

Opening
Balance
01-01-2019

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

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

     5,749        229       —         (423     5,555  

Deferred tax Assets relating to Accrued Liabilities

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

Deferred tax Assets relating to Post-Employment benefits

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

Deferred tax Assets relating to Property, Plant and equipment

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

Deferred tax Assets relating to Impairment provision

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

Deferred tax Assets relating to Financial Instruments

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

Deferred tax Assets relating to Tax Loss Carryforward

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

Deferred tax Assets relating to Inventories

     12,460        585       —         (366     12,679  

Deferred tax Assets relating to Provisions for Income

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

Deferred tax Assets relating to Allowance for Doubtful Accounts

     4,349        (67     —         (345     3,937  

Deferred tax Assets relating to Intangible revaluation

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

Deferred tax Assets relating to tax credits

     8,029        10,724       —         —         18,753  

Deferred tax Assets relating to Other Deductible Temporary Differences

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

Total Deferred Tax Assets

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

 

 

    

 

 

   

 

 

   

 

 

   

 

 

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

Increase

(decrease)
Net exchange
differences

    Closing
balance
12-31-2019
 

Deferred Tax Liabilities

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

Deferred tax Liabilities relating to Property, Plant and Equipment

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

Deferred tax Liabilities relating to Financial Instruments

     25,630        (433     —         —         25,197  

Deferred tax Liabilities relating to Biological Assets

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

Deferred tax Liabilities relating to Inventory

     38,251        (182     —         (77     37,992  

Deferred tax Liabilities relating to Prepaid Expenses

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

Deferred tax Liabilities relating to Intangible

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

Deferred tax Liabilities relating to Other Taxable Temporary Differences

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

Total Deferred Tax Liabilities

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

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Deferred Tax Assets

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

Deferred tax Assets relating to Provisions

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

Deferred tax Assets relating to Accrued Liabilities

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

Deferred tax Assets relating to Post-Employment benefits

     19,072        423       717        150        16       20,378  

Deferred tax Assets relating to Property, Plant and equipment

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

Deferred tax Assets relating to Impairment provision

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

Deferred tax Assets relating to Financial Instruments

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

Deferred tax Assets relating to Tax Loss Carryforward

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

Deferred tax Assets relating to Inventories

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

Deferred tax Assets relating to Provisions for Income

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

Deferred tax Assets relating to Allowance for Doubtful Accounts

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

Deferred tax Assets relating to Intangible revaluation

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

Deferred tax Assets relating to tax credits

     —          8,029       —          —          —         8,029  

Deferred tax Assets relating to Other Deductible Temporary Differences

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

Total Deferred Tax Assets

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

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

Increase

(decrease)
Net
exchange
differences

    Closing
balance
12-31-2019
 

Deferred Tax Liabilities

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

Deferred tax Liabilities relating to Property, Plant and Equipment

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

Deferred tax Liabilities relating to Financial Instruments

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

Deferred tax Liabilities relating to Biological Assets

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

Deferred tax Liabilities relating to Inventory

     39,025        (774     —          —          —         38,251  

Deferred tax Liabilities relating to Prepaid Expenses

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

Deferred tax Liabilities relating to Intangible

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

Deferred tax Liabilities relating to Other Taxable Temporary Differences

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

Total Deferred Tax Liabilities

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Temporary Differences

The following tables summarize the deductible and taxable temporary differences:

 

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

Detail of classes of Deferred Tax Temporary Differences

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

Deferred Tax Assets

     201,840        —          192,151     

Deferred Tax Assets—Tax loss carryforward

     163,491        —          144,652     

Deferred Tax Liabilities

     —          1,675,261           1,690,923  

Total

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

 

 

    

 

 

    

 

 

    

 

 

 
     January - March                
     2020      2019                

Detail of Temporary Difference Income and Loss Amounts

   ThU.S.$      ThU.S.$                

Deferred Tax Assets

     9,188        19,295        

Deferred Tax Assets—Tax loss carryforward

     8,411        17,136        

Deferred Tax Liabilities

     (20,809      (1,490      

Total

     (3,210      34,941        
  

 

 

    

 

 

       

Income Tax Expense

Income tax expense consists of the following:

 

     January – March  

Income Tax composition

   2020
ThU.S.$
     2019
ThU.S.$
 

Current income tax expense

     13,662        (46,825

Prior period current income tax adjustments

     (4      (2,815

Other current benefit tax (expenses)

     (687      (401

Current Tax Expense, Net

     12,971        (50,041

Deferred tax expense relating to origination and reversal of temporary differences

     (11,621      17,805  

Tax benefit arising from previously unrecognized tax loss carryforward

     8,411        17,136  

Total deferred Tax benefit (expense), Net

     (3,210      34,941  

Income Tax benefit (expense), Total

     9,761        (15,100
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

 

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

Foreign current income tax expense

     22,015        (9,303

Domestic current income tax expense

     (9,044      (40,738

Total current income tax expense

     12,971        (50,041

Foreign deferred tax benefit (expense)

     (26,482      19,861  

Domestic deferred tax benefit (expense)

     23,272        15,080  

Total deferred tax benefit (expense)

     (3,210      34,941  

Total income tax benefit (expense)

     9,761        (15,100
  

 

 

    

 

 

 

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

The reconciliation of income tax expense is as follows:

 

     January - March  

Reconciliation of Income tax from Statutory Rate to Effective Tax Rate

   2020
ThU.S.$
    2019
ThU.S.$
 

Statutory domestic (Chile) income tax rate

     27.0     27.0

Tax Expense at statutory tax rate

     10,656       (38,124

Tax effect of foreign tax rates

     (181     552  

Tax effect of revenues exempt from taxation

     (21     38,462  

Tax effect of not deductible expenses

     (14,420     (23,772

Tax effect of Previously Unrecognized Tax Benefit in the Income Statement

     14,393       —    

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

     (374     11,553  

Tax rate effect of adjustments for current tax of prior periods

     (4     (2,815

Other tax rate effects

     (288     (956

Total adjustments to tax expense at applicable tax rate

     (895     23,024  

Tax benefit (expense) at effective tax rate

     9,761       (15,100
  

 

 

   

 

 

 

Current tax assets and liabilities

The current tax assets and liabilities balances are as follow:

 

Current tax Assets

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

Monthly Provisional Payments (MPP)

     222,538        190,169  

Income tax receivable

     49,158        27,628  

Fixed assets tax credits

     54        57  

Provision tax income

     (47,491      (39,490

Other tax receivables

     22,943        21,589  

Total

     247,202        199,953  

Current tax Liabilities

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

Provision tax income (First category)

     12,032        10,626  

Monthly Provisional Payments (MPP)

     (11,680      (9,309

Article No. 21 tax

     1        1  

Other tax payables

     2,215        924  

Total

     2,568        2,242  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

Property, Plant and Equipment, Net

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

Construction work in progress

     1,379,986        1,128,431  

Land

     938,692        971,061  

Buildings

     2,182,696        2,247,996  

Plant and equipment

     3,020,776        3,139,761  

Information technology equipment

     20,986        20,906  

Fixtures and fittings

     13,425        13,421  

Motor vehicles

     15,414        14,922  

Other property, plant and equipment

     109,508        111,685  

Total Net

     7,681,483        7,648,183  

Property, Plant and Equipment, Gross

     

Construction work in progress

     1,379,986        1,128,431  

Land

     938,692        971,061  

Buildings

     4,213,559        4,268,590  

Plant and equipment

     6,872,240        7,004,549  

Information technology equipment

     92,187        91,585  

Fixtures and fittings

     45,755        45,703  

Motor vehicles

     56,978        56,771  

Other property, plant and equipment

     128,195        131,030  

Total Gross

     13,727,592        13,697,720  

Accumulated depreciation and impairment

     

Buildings

     (2,030,863      (2,020,594

Plant and equipment

     (3,851,464      (3,864,788

Information technology equipment

     (71,201      (70,679

Fixtures and fittings

     (32,330      (32,282

Motor vehicles

     (41,564      (41,849

Other property, plant and equipment

     (18,687      (19,345

Total

     (6,046,109      (6,049,537
  

 

 

    

 

 

 

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

As of March 31, 2020, there are no significant assets pledged as collateral to be disclosed in these interim consolidated financial statements.

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

 

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

Amount committed for the acquisition of property, plant and equipment

     1,083,148        1,200,111  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Reconciliation of Property, Plant and Equipment

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

 

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

Reconciliation of Property, Plant and Equipment

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

Opening Balance  01-01-2020

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

Changes

                  

Additions

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

Disposals

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

Withdrawals

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

Depreciation

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

Impairment loss recognized in profit or loss

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

Increase (decrease) through net exchange differences

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

Increase (decrease) through transfers from construction in progress

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

Reclassification from lease to Property, plant and equipment

     —         —         —         424       —         —         90       —         514  

Total changes

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

Closing balance 03-31-2020

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

Reconciliation of Property, Plant and Equipment

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

Opening Balance  01-01-2019

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

Increase (decrease) for changes in accounting policies

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

Restated opening balance

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

Changes

                  

Additions

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

Acquisitions through business combinations

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

Disposals

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

Withdrawals

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

Depreciation

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

Impairment loss recognized in profit or loss

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

Increase (decrease) through net exchange differences

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

Reclassification to assets held for sale

     —         —         —         990       —         —         —         —         990  

Increase (decrease) through transfers from construction in progress

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

Reclassification from lease to Property, plant and equipment

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

Total changes

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

Closing balance 12-31-2019

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

 

     January - March  

Depreciation for the year

   2020
ThU.S.$
     2019
ThU.S.$
 

Cost of sales

     98,268        96,649  

Administrative expenses

     4,086        3,857  

Other expenses

     1,394        337  

Total

     103,748        100,843  
  

 

 

    

 

 

 

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

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

 

     Years of Useful Life
(Average)
 

Buildings

     58  

Plant and equipment

     30  

Information technology equipment

     8  

Fixtures and fittings

     28  

Motor vehicles

     7  

Other property, plant and equipment

     14  

See Note 12 for details of capitalized borrowing costs.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 8. LEASES

Arauco acting as lessee

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

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

Right of use assets

 

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

Property, Plant and Equipment by right of use, Net

     

Land

     62,611        67,804  

Buildings

     24,396        25,940  

Plant and equipment

     36,511        44,753  

Information technology equipment

     588        574  

Fixtures and fittings

     1,011        1,138  

Motor vehicles

     117,067        126,587  

Other property, plant and equipment

     19,559        17,583  

Total Net

     261,743        284,379  
  

 

 

    

 

 

 

Property, Plant and Equipment by right of use, Gross

     

Land

     71,418        75,403  

Buildings

     31,969        32,266  

Plant and equipment

     68,402        71,394  

Information technology equipment

     799        757  

Fixtures and fittings

     1,595        1,595  

Motor vehicles

     165,054        164,683  

Other property, plant and equipment

     22,095        19,580  

Total Gross

     361,332        365,678  
  

 

 

    

 

 

 

Accumulated depreciation and impairment by right of use

     

Land

     (8,807      (7,599

Buildings

     (7,573      (6,326

Plant and equipment

     (31,891      (26,641

Information technology equipment

     (211      (183

Fixtures and fittings

     (584      (457

Motor vehicles

     (47,987      (38,096

Other property, plant and equipment

     (2,536      (1,997

Total

     (99,589      (81,299
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Reconciliation of Property, Plant and Equipment by Right of Use

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

 

Reconciliation of Property, Plant and Equipment by
right of use

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

Opening Balance 01-01-2020

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

Changes

                

Additions

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

Withdrawals

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

Depreciation

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

Increase (decrease) through net exchange differences

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

Increase (decrease) through others

     53       (829     27       —         —         659       —         (90

Reclassification from lease to Property, plant and equipment

     —         —         —         —         —         —         (514     (514

Total changes

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

Closing balance 03-31-2020

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Reconciliation of Property, Plant and Equipment by
right of use

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

Opening Balance 01-01-2019

     —         —         —         —         —         —         —         —    

Increase (decrease) for changes in accounting policies

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

Restated opening balance Changes

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

Additions

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

Business combination

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

Withdrawals

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

Depreciation

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

Increase (decrease) through net exchange differences

     466       (216     137       (2     —         (131     —         254  

Increase (decrease) through others

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

Reclassification from lease to Property, plant and equipment

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

Total changes

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

Closing balance 12-31-2019

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

     January – March  

Depreciation for the period

   2020
ThU.S.$
     2019
ThU.S.$
 

Cost of sales

     14,946        18,538  

Distribution costs

     413        —    

Administrative expenses

     2,775        2,131  

Total

     18,134        20,669  
  

 

 

    

 

 

 

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

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

 

     January - March  

Depreciation for the year

   2020
ThU.S.$
     2019
ThU.S.$
 

Expenses from payments of variable leases

     32,048        34,195  

Expenses from low value leases

     1,371        2,022  

Expenses from short-term leases

     15,856        9,143  

Total

     49,275        45,360  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Arauco acting as lessor

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

Reconciliation of Financial Lease Minimum Payments:

 

     03-31-2020  

Periods

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

Less than one year

     787        39        748  

Between one and five years

     144        —          144  

More than five years

     —          —          —    

Total

     931        39        892  
  

 

 

    

 

 

    

 

 

 

 

     12-31-2019  

Periods

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

Less than one year

     960        48        912  

Between one and five years

     200        —          200  

More than five years

     —          —          —    

Total

     1,160        48        1,112  
  

 

 

    

 

 

    

 

 

 

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

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

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

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 9. REVENUE

 

     January - March  

Classes of revenue

   2020
ThU.S.$
     2019
ThU.S.$
 

Revenue from sales of goods

     1,107,035        1,371,253  

Revenue from rendering of services

     20,131        16,933  

Total

     1,127,166        1,388,186  
  

 

 

    

 

 

 

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

NOTE 10. EMPLOYEE BENEFITS

Classes of Benefits and Expenses by Employee

 

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

Employee expenses

     152,709        170,202  

Wages and salaries

     149,050        165,678  

Severance indemnities

     3,659        4,524  
  

 

 

    

 

 

 

 

     03-31-2020     12-31-2019  

Discount rate

     1.81     1.81

Inflation

     3.00     3.00

Annual rate of wage growth

     5.22     5.22

Mortality rate (1)

     RV-2014       RV-2014  
  

 

 

   

 

 

 

 

(1)

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

 

Sensitivities to assumptions

   ThU.S.$  

Discount rate

  

Increase in 100 bps

     (5,211

Decrease in 100 bps

     6,026  

Wage growth rates

  

Increase in 100 bps

     5,321  

Decrease in 100 bps

     (4,648

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

 

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

Current

     5,322        5,965  

Non-current

     62,057        69,464  

Total

     67,379        75,429  
  

 

 

    

 

 

 

Reconciliation of the present value of severance indemnities obligations

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

Opening balance

     75,429        70,551  

Business combinations

     —          462  

Current service cost

     1,303        5,884  

Interest cost

     793        3,855  

(Gains) losses from changes in actuarial assumptions

     —          6,095  

Actuarial gains and losses arising from experience

     (109      (3,440

Benefits paid

     (807      (3,028

Increase (decrease) for foreign currency exchange rates changes

     (9,230      (4,950

Closing balance

     67,379        75,429  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

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

 

March 31, 2020

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

Assets

                          

Current Assets

                          

Cash and Cash Equivalents

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

Other current financial assets

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

Other current non-financial assets

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

Trade and other current receivables

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

Accounts receivable due from related companies

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

Current Inventories

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

Current biological assets

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

Current tax assets

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

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

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

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

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Current Assets

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-Current Assets

                          

Other non-current financial assets

     73        —          —          —          —          —          —          —          73  

Other non-current non-financial assets

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

Trade and other non-current receivables

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

Investments accounted for using equity method

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

Intangible assets other than goodwill

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

Goodwill

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

Property, plant and equipment

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

Right of use assets

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

Non-current biological assets

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

Deferred tax assets

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Non-Current Assets

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

March 31, 2020

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

Liabilities

                          

Current Liabilities

                          

Other current financial liabilities

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

Current lease liabilities

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

Trade and other current payables

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

Accounts payable to related companies

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

Other current provisions

     419        —          —          —          815        —          —          —          1,234  

Current tax liabilities

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

Current provisions for employee benefits

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

Other current non-financial liabilities

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities, current

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-Current Liabilities

                          

Other non-current financial liabilities

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

Non-current lease liabilities

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

Other non-current payables

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

Other non-current provisions

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

Deferred tax liabilities

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

Non-current provisions for employee benefits

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

Other non-current non-financial liabilities

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-current liabilities

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

54


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

December 31, 2019

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

Assets

                          

Current Assets

                          

Cash and Cash Equivalents

     1,412,688        2,264        50,868        11,292        13,684        6,756        62,460        —          1,560,012  

Other current financial assets

     3,370        —          —          —          —          —          —          —          3,370  

Other current non-financial assets

     24,554        95        15,134        8,014        1,244        6,742        118,327        —          174,110  

Trade and other current receivables

     435,663        8,483        56,039        11,218        33,981        7,287        86,954        2,690        642,315  

Accounts receivable due from related companies

     1,319        —          197        —          —          —          15,512        498        17,526  

Current Inventories

     931,619        —          90,362        —          31,886        —          —          —          1,053,867  

Current biological assets

     209,844        —          65,948        —          —          —          —          —          275,792  

Current tax assets

     7,955        234        9,246        2,908        2,936        2,658        174,016        —          199,953  

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

     3,027,012        11,076        287,794        33,432        83,731        23,443        457,269        3,188        3,926,945  

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

     3,814        —          572        —          50        —          —          —          4,436  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Current Assets

     3,030,826        11,076        288,366        33,432        83,781        23,443        457,269        3,188        3,931,381  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-Current Assets

                          

Other non-current financial assets

     9,395        —          —          —          —          —          —          —          9,395  

Other non-current non-financial assets

     1,889        —          10,962        1,054        884        90        97,535        —          112,414  

Trade and other non-current receivables

     3,691        —          351        —          —          —          2,983        2,431        9,456  

Investments accounted for using equity method

     77,725        168,880        41,811        —          —          —          4,702        —          293,118  

Intangible assets other than goodwill

     104,165        —          1,992        —          95        —          —          —          106,252  

Goodwill

     43,373        —          22,378        —          —          —          —          —          65,751  

Property, plant and equipment

     7,024,518        —          471,620        —          151,692        —          353        —          7,648,183  

Right of use assets

     256,524        —          27,855        —          —          —          —          —          284,379  

Non-current biological assets

     3,021,411        —          372,223        —          —          —          —          —          3,393,634  

Deferred tax assets

     5,897        —          —          —          170        —          —          —          6,067  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Non-Current Assets

     10,548,589        168,880        949,191        1,054        152,841        90        105,573        2,431        11,928,649  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

     13,579,415        179,956        1,237,557        34,486        236,622        23,533        562,842        5,619        15,860,030  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2019

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

Liabilities

                          

Current Liabilities

                          

Other current financial liabilities

     215,453        41        4,391        —          —          —          —          240,961        460,846  

Current lease liabilities

     7,357        52        6,108        —          2,361        117        33,575        19,638        69,208  

Trade and other current payables

     155,524        20,414        70,259        14,365        22,272        10,322        348,155        31,746        673,057  

Accounts payable to related companies

     454        —          —          —          —          —          8,426        —          8,880  

Other current provisions

     444        —          —          —          815        —          —          —          1,259  

Current tax liabilities

     1,784        —          —          —          246        —          212        —          2,242  

Current provisions for employee benefits

     —          —          —          —          —          —          5,965        —          5,965  

Other current non-financial liabilities

     7,353        59        20,022        3,128        2,711        2,335        4,457        —          40,065  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities, current

     388,369        20,566        100,780        17,493        28,405        12,774        400,790        292,345        1,261,522  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-Current Liabilities

                          

Other non-current financial liabilities

     4,245,493        116,218        1,791        —          —          —          —          1,088,692        5,452,194  

Non-current lease liabilities

     76,228        —          22,299        —          7,664        160        73,471        21,995        201,817  

Other non-current payables

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

Other non-current provisions

     12        —          5,226        26,527        —          —          —          —          31,765  

Deferred tax liabilities

     1,271,282        —          84,420        —          4,485        —          —          —          1,360,187  

Non-current provisions for employee benefits

     836        —          —          —          285        —          68,343        —          69,464  

Other non-current non-financial liabilities

     24        —          111,380        19        —          —          13        —          111,436  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-current liabilities

     5,596,105        116,218        225,116        26,546        12,434        160        141,827        1,110,687        7,229,093  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                                             —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities

     5,984,474        136,784        325,896        44,039        40,839        12,934        542,617        1,403,032        8,490,615  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

55


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

     03-31-2020      12-31-2019  
     Up to 90
days
ThU.S.$
     From 91
days

to 1 year
ThU.S.$
     Total
ThU.S.$
     Up to 90
days
ThU.S.$
     From 91
days

to 1 year
ThU.S.$
     Total
ThU.S.$
 

Total Liabilities, current

     802,108        507,412        1,309,520        844,866        416,657        1,261,523  

Other current financial liabilities

     133,628        452,635        586,263        93,182        367,664        460,846  

U.S Dollar

     98,545        264,051        362,596        89,688        125,765        215,453  

Euros

     368        —          368        —          41        41  

Brazilian Real

     1,132        1,257        2,389        1,462        2,929        4,391  

Other currencies

     2        —          2        —          —          —    

U.F.

     33,581        187,327        220,908        2,032        238,929        240,961  

Bank Loans

     54,824        251,827        306,651        69,971        113,334        183,305  

U.S Dollar

     53,324        250,570        303,894        68,509        110,364        178,873  

Euros

     368        —          368        —          41        41  

Brazilian Real

     1,132        1,257        2,389        1,462        2,929        4,391  

Other Loans

     78,804        200,808        279,612        23,211        254,330        277,541  

U.S Dollar

     45,221        13,481        58,702        21,179        15,401        36,580  

U.F.

     33,581        187,327        220,908        2,032        238,929        240,961  

Current lease liabilities

     15,640        45,274        60,914        21,518        47,690        69,208  

U.S Dollar

     1,984        8,208        10,192        4,570        2,787        7,357  

Euros

     —          —          —          24        28        52  

Brazilian Real

     1,186        2,786        3,972        1,644        4,464        6,108  

Mexican Pesos

     374        749        1,123        1,235        1,126        2,361  

Other currencies

     26        90        116        26        91        117  

Chilean Pesos

     7,336        22,010        29,346        8,313        25,262        33,575  

U.F.

     4,734        11,431        16,165        5,706        13,932        19,638  

Trade and other current payables

     607,637        6,850        614,487        672,809        248        673,057  

U.S Dollar

     170,564        443        171,007        155,501        23        155,524  

Euros

     6,071        —          6,071        20,414        —          20,414  

Brazilian Real

     52,007        6,180        58,187        70,140        119        70,259  

Argentine Pesos

     18,762        —          18,762        14,365        —          14,365  

Mexican Pesos

     26,133        227        26,360        22,166        106        22,272  

Other currencies

     8,806        —          8,806        10,322        —          10,322  

Chilean Pesos

     298,461        —          298,461        348,155        —          348,155  

U.F.

     26,833        —          26,833        31,746        —          31,746  

Accounts payable to related companies

     3,956        —          3,956        8,880        —          8,880  

U.S Dollar

     2,350        —          2,350        454        —          454  

Chilean Pesos

     1,606        —          1,606        8,426        —          8,426  

Other current provisions

     419        815        1,234        444        815        1,259  

U.S Dollar

     419        —          419        444        —          444  

Mexican Pesos

     —          815        815        —          815        815  

Current tax liabilities

     1,442        1,126        2,568        2,031        211        2,242  

U.S Dollar

     1,299        —          1,299        1,784        —          1,784  

Brazilian Real

     141        242        383        —          —          —    

Mexican Pesos

     1        —          1        246        —          246  

Chilean Pesos

     1        884        885        1        211        212  

Current provisions for employee benefits

     4,686        637        5,323        5,938        27        5,965  

Chilean Pesos

     4,686        637        5,323        5,938        27        5,965  

Other current non-financial liabilities

     34,700        75        34,775        40,063        2        40,065  

U.S Dollar

     3,279        —          3,279        7,353        —          7,353  

Euros

     —          —          —          59        —          59  

Brazilian Real

     16,243        —          16,243        20,022        —          20,022  

Argentine Pesos

     26        —          26        3,128        —          3,128  

Mexican Pesos

     2,386        62        2,448        2,711        —          2,711  

Other currencies

     2,973        —          2,973        2,335        —          2,335  

Chilean Pesos

     9,793        13        9,806        4,455        2        4,457  

 

56


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

     03-31-2020      12-31-2019  
     From 13
months to 3
years
ThU.S.$
     From 3
years to 5
years
ThU.S.$
     More than
5 years
ThU.S.$
     Total
ThU.S.$
     From 13
months to 3
years
ThU.S.$
     From 3
years to 5
years
ThU.S.$
     More than
5 years
ThU.S.$
     Total
ThU.S.$
 

Total non-current liabilities

     1,685,265        1,097,723        4,433,014        7,216,002        1,534,114        1,169,993        4,524,986        7,229,093  

Other non-current financial liabilities

     767,738        1,038,805        3,740,112        5,546,655        531,475        1,080,656        3,840,063        5,452,194  

U.S Dollar

     682,733        940,047        2,845,473        4,468,253        432,496        968,514        2,844,483        4,245,493  

Euros

     18,943        26,916        67,127        112,986        22,236        29,648        64,334        116,218  

Brazilian Real

     1,315        —          —          1,315        1,791        —          —          1,791  

U.F.

     64,747        71,842        827,512        964,101        74,952        82,494        931,246        1,088,692  

Bank Loans

     193,141        471,279        67,127        731,547        196,611        502,772        64,334        763,717  

U.S Dollar

     172,883        444,363        —          617,246        172,584        473,124        —          645,708  

Euros

     18,943        26,916        67,127        112,986        22,236        29,648        64,334        116,218  

Brazilian Real

     1,315        —          —          1,315        1,791        —          —          1,791  

Other Loans

     574,597        567,526        3,672,985        4,815,108        334,865        577,884        3,775,728        4,688,477  

U.S Dollar

     509,850        495,684        2,845,473        3,851,007        259,913        495,390        2,844,482        3,599,785  

U.F.

     64,747        71,842        827,512        964,101        74,952        82,494        931,246        1,088,692  

Non-current lease liabilities

     94,949        29,724        45,008        169,681        117,608        46,408        37,801        201,817  

U.S Dollar

     19,348        14,099        37,896        71,343        27,570        21,621        27,037        76,228  

Brazilian Real

     5,295        4,893        6,374        16,562        6,970        6,336        8,993        22,299  

Mexican Pesos

     4,442        2,362        —          6,804        3,546        3,296        822        7,664  

Other currencies

     162        —          —          162        160        —          —          160  

Chilean Pesos

     50,874        6,383        101        57,358        61,283        12,072        116        73,471  

U.F.

     14,828        1,987        637        17,452        18,079        3,083        833        21,995  

Other non-current payables

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

U.S Dollar

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

Other non-current provisions

     31,068        —          —          31,068        31,765        —          —          31,765  

U.S Dollar

     9        —          —          9        12        —          —          12  

Brazilian Real

     4,435        —          —          4,435        5,226        —          —          5,226  

Argentine Pesos

     26,624        —          —          26,624        26,527        —          —          26,527  

Deferred tax liabilities

     695,808        —          620,518        1,316,326        741,164        7,254        611,769        1,360,187  

U.S Dollar

     628,167        —          620,518        1,248,685        659,513        —          611,769        1,271,282  

Brazilian Real

     64,197        —          —          64,197        77,166        7,254        —          84,420  

Mexican Pesos

     3,444        —          —          3,444        4,485        —          —          4,485  

Non-current provisions for employee benefits

     62,057        —          —          62,057        69,464        —          —          69,464  

U.S Dollar

     —          —          —          —          836        —          —          836  

Mexican Pesos

     935        —          —          935        285        —          —          285  

Chilean Pesos

     61,122        —          —          61,122        68,343        —          —          68,343  

Other non-current non-financial liabilities

     31,415        29,194        27,376        87,985        40,407        35,675        35,354        111,436  

U.S Dollar

     25        —          —          25        24        —          —          24  

Brazilian Real

     31,366        29,194        27,376        87,936        40,351        35,675        35,354        111,380  

Argentine Pesos

     18        —          —          18        19        —          —          19  

Chilean Pesos

     6        —          —          6        13        —          —          13  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The table below sets forth the subsidiaries that have determined a functional currency other than the U.S. Dollar as follows:

 

Subsidiary

  

Country

  

Functional Currency

Arauco Canada Ltd.    Canada    Canadian Dollar
Arauco do Brasil S.A.    Brazil    Brazilian Real
Arauco Florestal Arapoti S.A.    Brazil    Brazilian Real
Arauco Forest Brasil S.A.    Brazil    Brazilian Real
Arauco Industria de Mexico, S.A. de C.V.    Mexico    Mexican pesos
Arauco Industria de Paineis Ltda.    Brazil    Brazilian Real
Arauco Quimica S.A. de C.V.    Mexico    Mexican pesos
Arauco Serviquimex, S.A. de C.V.    Mexico    Mexican pesos
Araucomex Servicios, S.A. de C.V.    Mexico    Mexican pesos
Consorcio Protección Fitosanitaria Forestal S.A.    Chile    Chilean Pesos
Empreendimentos Florestais Santa Cruz Ltda.    Brazil    Brazilian Real
Leasing Forestal S.A.    Argentina    Argentine pesos
Mahal Empreendimentos e Participacoes S.A.    Brazil    Brazilian Real
Novo Oeste Gestao de Ativos Florestais S.A.    Brazil    Brazilian Real
Tablered Araucomex, S.A. de C.V.    Mexico    Mexican pesos

The table below shows a detail per company of the effect in the period of the Reserve of Exchange Differences on translation:

 

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

Arauco do Brasil S.A.

     (90,877      (2,327

Arauco Forest Brasil S.A.

     (84,621      (2,326

Arauco Florestal Arapoti S.A.

     (21,440      (509

Sonae Arauco S.A.

     (3,540      (3,439

Arauco Argentina S.A.

     (3      (330

Arauco Canada Ltd.

     (14,677      1,304  

Arauco Industria México S.A. de C.V.

     (43,394      (736

Others

     (1,237      (11
  

 

 

    

 

 

 

Total reserve of exchange differences on translation

     (259,789      (8,374
  

 

 

    

 

 

 

Effect of foreign exchange rates changes

 

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

Exchange differences recognized in profit or loss, except for those arising on financial instruments measured at fair value through profit or loss

     (3,427      2,127  
  

 

 

    

 

 

 

Reserve of exchange differences on translation (with Non-controlling interests)

     (264,389      (8,622

NOTE 12. BORROWING COSTS

Arauco capitalizes interest at effective rate on current investment projects.

At the date of issuance of these interim consolidated financial statements, Arauco has capitalized financial interest related to the modernization and extension of Planta Arauco (MAPA) project in Chile and to the Grayling project in the United States.

 

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

Property, plant and equipment capitalized cost

    

Property, plant and equipment capitalized interest cost rate

     4.70     3.97

Amount of the capitalized interest cost, property, plant and equipment

     8,495       6,705  
  

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 13. RELATED PARTIES

Related Party Disclosures

Related parties are those entities defined in IAS 24 and under the rules of the Chilean Commission for the Financial Market and the Chilean Corporations Law.

The receivable and payable amounts among related parties at the end of each period correspond to commercial and financing transactions denominated in Chilean Pesos, U.S. dollars and Brazilian Real, where collection or payment deadlines are shown in the following tables and in general do not bear interest, except for financing transactions.

As of the date of these interim consolidated financial statements, the main transactions with related parties are related to fuel purchases with Compańía de Petróleos de Chile S.A. and sodium chlorate purchases at EKA Chile S.A.

As of the date of these interim consolidated financial statements, there are neither provisions for accounts of doubtful collection nor any guarantees granted or received related to the balances with related parties.

Name of Group’s Main Shareholders

The ultimate shareholders of Arauco, direct and indirectly, are Mr. Roberto Angelini Rossi and Mrs. Patricia Angelini Rossi.

Name of the Intermediate Controlling Entity that Produces Consolidated Financial Statements for Public Use

Empresas Copec S.A.

Compensation to Key Management Personnel

Compensation to key management personnel, including directors, managers and deputy managers, consist of a fixed monthly salary, and managers and deputy managers also receive an annual bonus subject to the results of the Company and the fulfillment of goals of the business as well as individual performance.

Pricing Strategy Terms and Conditions Corresponding to Transactions with Related Parties

Transactions carried out with related parties are intended to contribute to the corporate interest, are adjusted in price, terms and conditions to those prevailing in the market at the time of approval, and meet the requirements and procedures set forth in the law.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The table below sets forth information about the Relationship between the Parent Company and its Subsidiaries

 

               Functional    % Ownership interest
03-31-2020
     % Ownership interest
12-31-2019
 
ID N°   

Company Name

   Country    Currency    Direct      Indirect      Total      Direct      Indirect      Total  
-    Agenciamiento y Servicios Profesionales S.A.    Mexico    U.S. Dollar      0.0020        99.9970        99.9990        0.0020        99.9970        99.9990  
-    Arauco Argentina S.A.    Argentina    U.S. Dollar      9.9707        90.0093        99.9800        9.9753        90.0048        99.9801  
-    Arauco Australia Pty Ltd.    Australia    U.S. Dollar      —          99.9990        99.9990        —          99.9990        99.9990  
96547510-9    Arauco Bioenergía S.A.    Chile    U.S. Dollar      98.0000        1.9999        99.9999        98.0000        1.9999        99.9999  
-    Arauco Canada Ltd.    Canada    Canadian
dollar
     —          99.9990        99.9990        —          99.9990        99.9990  
-    Arauco Colombia S.A.    Colombia    U.S. Dollar      1.4778        98.5204        99.9982        1.4778        98.5204        99.9982  
-    Arauco do Brasil S.A.    Brazil    Brazilian
Real
     1.0681        98.9309        99.9990        1.0681        98.9309        99.9990  
-    Arauco Europe Cooperatief U.A.    Netherlands    U.S. Dollar      0.5416        99.4574        99.9990        0.5493        99.4497        99.9990  
-    Arauco Florestal Arapoti S.A.    Brazil    Brazilian
Real
     —          79.9992        79.9992        —          79.9992        79.9992  
-    Arauco Forest Brasil S.A.    Brazil    Brazilian
Real
     10.0809        89.9182        99.9991        10.0809        89.9182        99.9991  
-    Arauco Industria de México, S.A.de C.V.    Mexico    Mexican
pesos
     —          99.9990        99.9990        —          99.9990        99.9990  
-    Arauco Industria de Paineis Ltda.    Brazil    Brazilian
Real
     —          99.9990        99.9990        —          99.9990        99.9990  
-    Arauco Middle East DMCC    Dubai    U.S. Dollar      —          99.9990        99.9990        —          99.9990        99.9990  
-    Arauco North America, Inc.    United
States
   U.S. Dollar      0.0001        99.9989        99.9990        0.0001        99.9989        99.9990  
76620842-8    Arauco Nutrientes Naturales SPA    Chile    U.S. Dollar      —          99.9484        99.9484        —          99.9484        99.9484  
-    Arauco Perú S.A.    Peru    U.S. Dollar      0.0013        99.9977        99.9990        0.0013        99.9977        99.9990  
-    Arauco Química S.A. de C.V.    Mexico    Mexican
pesos
     —          99.9990        99.9990        —          99.9990        99.9990  
-    Arauco Serviquimex, S.A. de C.V.    Mexico    Mexican
pesos
     —          99.9990        99.9990        —          99.9990        99.9990  
-    Arauco Wood (China) Company Limited    China    U.S. Dollar      —          99.9990        99.9990        —          99.9990        99.9990  
-    Araucomex S.A. de C.V.    Mexico    U.S. Dollar      0.0005        99.9985        99.9990        0.0005        99.9985        99.9990  
-    Araucomex Servicios, S.A. de C.V.    Mexico    Mexican
pesos
     —          99.9990        99.9990        —          99.9990        99.9990  
96657900-5    Consorcio Protección Fitosanitaria Forestal S.A.    Chile    Chilean
pesos
     —          57.0831        57.0831        —          57.0831        57.0831  
-    Empreendimentos Florestais Santa Cruz Ltda.    Brazil    Brazilian
Real
     —          99.9985        99.9985        —          99.9985        99.9985  
85805200-9    Forestal Arauco S.A.    Chile    U.S. Dollar      99.9484        —          99.9484        99.9484        —          99.9484  
93838000-7    Forestal Cholguán S.A.    Chile    U.S. Dollar      —          98.5676        98.5676        —          98.5676        98.5676  
78049140-K    Forestal Los Lagos S.A.    Chile    U.S. Dollar      —          79.9587        79.9587        —          79.9587        79.9587  
-    Forestal Nuestra Seńora del Carmen S.A.    Argentina    Argentine
pesos
     —          —          —          —          99.9805        99.9805  
-    Forestal Talavera S.A.    Argentina    Argentine
pesos
     —          —          —          —          99.9942        99.9942  
-    Greenagro S.A.    Argentina    Argentine
pesos
     —          —          —          —          97.9805        97.9805  
96563550-5    Inversiones Arauco Internacional Ltda.    Chile    U.S. Dollar      98.0186        1.9804        99.9990        98.0186        1.9804        99.9990  
79990550-7    Investigaciones Forestales Bioforest S.A.    Chile    U.S. Dollar      1.0000        98.9489        99.9489        1.0000        98.9489        99.9489  
-    Leasing Forestal S.A.    Argentina    Argentine
pesos
     —          99.9800        99.9800        —          99.9801        99.9801  
-    Maderas Arauco Costa Rica S.A.    Costa Rica    U.S. Dollar      —          99.9990        99.9990        —          99.9990        99.9990  
96510970-6    Maderas Arauco S.A.    Chile    U.S. Dollar      99.0000        0.9995        99.9995        99.0000        0.9995        99.9995  
-    Mahal Empreendimentos e Participacoes S.A.    Brasil    Brazilian
Real
     —          99.9990        99.9990        —          99.9990        99.9990  
-    Novo Oeste Gestao de Ativos Florestais S.A.    Brasil    Brazilian
Real
     —          99.9990        99.9990        —          99.9990        99.9990  
-    Prime-Line, Inc.    United
States
   U.S. Dollar      —          99.9990        99.9990        —          99.9990        99.9990  
-    Savitar S.A.    Argentina    Argentine
pesos
     —          —          —          —          99.9841        99.9841  
76375371-9    Servicios Aéreos Forestales Ltda.    Chile    U.S. Dollar      0.0100        99.9890        99.9990        0.0100        99.9890        99.9990  
96637330-K    Servicios Logísticos Arauco S.A.    Chile    U.S. Dollar      45.0000        54.9997        99.9997        45.0000        54.9997        99.9997  
-    Tablered Araucomex, S.A. de C.V.    Mexico    Mexican
pesos
     —          99.9990        99.9990        —          99.9990        99.9990  

The companies in the table below are classified as joint operations in accordance with IFRS 11. The assets, liabilities, income and expenses are recorded in relation to the Company’s ownership percentage in accordance with accounting standards applicable in each case.

 

Company Name

  

Country

  

Functional
Currency

Eufores S.A.    Uruguay    U.S. Dollar
Celulosa y Energía Punta Pereira S.A.    Uruguay    U.S. Dollar
Zona Franca Punta Pereira S.A.    Uruguay    U.S. Dollar
Forestal Cono Sur S.A.    Uruguay    U.S. Dollar
Stora Enso Uruguay S.A.    Uruguay    U.S. Dollar
El Esparragal Asociación Agraria de R.L.    Uruguay    U.S. Dollar
Ongar S.A.    Uruguay    U.S. Dollar
Terminal Logística e Industrial M’Bopicua S.A.    Uruguay    U.S. Dollar

There are no significant restrictions on the ability of subsidiaries to transfer funds to Arauco, in the form of cash dividends or repayment of loans and/or advances.

Employee Benefits for Key Management Personnel

 

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

Salaries and bonuses

     14,984        17,905  

Per diem compensation to members of the Board of Directors

     713        617  

Termination benefits

     475        846  

Total

     16,172        19,368  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Related Party Receivables, Current

 

Name of Related Party

   Tax ID No.      Nature of Relationship      Country      Currency      Maturity      03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Forestal Mininco S.A.

     91.440.000-7        Common Stockholder        Chile        Chilean pesos        30 days        4        14  

Eka Chile S.A.

     99.500.140-3        Joint Venture        Chile        Chilean pesos        30 days        2,483        1,834  

Forestal del Sur S.A.

     79.825.060-4       

Associate of a
subsidiary’s minority
shareholder
 
 
 
     Chile        Chilean pesos        30 days        5,932        10,519  

Unilin Arauco Pisos Ltda.

     —          Joint Venture        Brazil        Brazilian Real        30 days        233        197  

Colbún S.A.

     96.505.760-9        Common Stockholder        Chile        Chilean pesos        —          —          43  

CMPC Maderas S.A.

     95.304.000-K        Common Stockholder        Chile        Chilean pesos        30 days        2        —    

CMPC Pulp S.A.

     96.532.330-9        Common Stockholder        Chile        Chilean pesos        30 days        1,673        834  

Fundación Educacional Arauco

     71.625.000-8       

Parent company is
founder and
contributor
 
 
 
     Chile        Chilean pesos        30 days        1,477        931  

Fundación Acerca Redes

     65.097.218-K       

Parent company is
founder and
contributor
 
 
 
     Chile        Chilean pesos        30 days        1,437        1,319  

Parque Eólico Ovejera del Sur SpA

     76.839.949-2        Associate        Chile        Chilean pesos        30 days        100        —    

Sonae Arauco Portugal S.A.

     —         
Subsidiary of a Joint
Venture
 
 
     Portugal        U.S. Dollar        —          370        —    

Compańía Puerto de Coronel S.A.

     79.895.330-3       
Subsidiary of an
Associate
 
 
     Chile        UF        30 days        —          498  

E2E S.A.

     76.879.577-0        Associate        Chile        Chilean pesos        10-May-20        445        440  

E2E S.A.

     76.879.577-0        Associate        Chile        Chilean pesos        28-Oct-20        280        278  

E2E S.A.

     76.879.577-0        Associate        Chile        Chilean pesos        30 days        797        618  

Colbún Transmisión S.A.

     76.218.856-2        Common Stockholder        Chile        Chilean pesos        —          —          1  
                 

 

 

    

 

 

 

TOTAL

                    15,233        17,526  
                 

 

 

    

 

 

 

Related Party Payables, Current

 

Name of Related Party

   Tax ID No.      Nature of Relationship      Country      Currency      Maturity      03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Compańía de Petróleos de Chile S.A.

     99.520.000-7        Common controlling parent        Chile        Chilean pesos        30 days        2,174        8,075  

Abastible S.A.

     91.806.000-6        Common controlling parent        Chile        Chilean pesos        30 days        104        156  

Red to Green S.A.

     86.370.800-1        Common Stockholder        Chile        Chilean pesos        —          —          1  

Portaluppi, Guzman y Bezanilla Asesorías Ltda.

     78.096.080-9        Common director        Chile        Chilean pesos        30 days        46        68  

Empresa Nacional de Telecomunicaciones S.A.

     92.580.000-7        Common Stockholder        Chile        Chilean pesos        30 days        2        96  

Servicios Corporativos Sercor S.A.

     96.925.430-1        Associate        Chile        Chilean pesos        30 days        10        5  

Compańía Puerto de Coronel S.A.

     79.895.330-3        Subsidiary of an associate        Chile        U.S. Dollar        30 days        1,606        447  

Colbún Transmisión S.A.

     76.218.856-2        Common Stockholder        Chile        Chilean pesos        30 days        2        —    

Colbún S.A.

     96.505.760-9        Common Stockholder        Chile        Chilean pesos        30 days        4        —    

Elemental S.A.

     76.659.730-0       
Associate of controlling
parent
 
 
     Chile        Chilean pesos        —          —          4  

Orizon S.A.

     96.929.960-7        Common controlling parent        Chile        Chilean pesos        30 days        2        2  

Vía Limpia SPA

     79.874.200-0        Common controlling parent        Chile        Chilean pesos        30 days        6        11  

Air BP Copec

     96.942.120-8       
Joint venture of controlling
parent
 
 
     Chile        Chilean pesos        —          —          8  

Sonae Arauco Portugal S.A.

     —         
Subsidiary of a Joint
Venture
 
 
     Portugal        U.S. Dollar        —          —          7  
                 

 

 

    

 

 

 

TOTAL

                    3,956        8,880  
                 

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Related Party Transactions

Purchases

 

Name of Related Party

   Tax ID No.    Nature of Relationship    Country    Currency    Transaction
Descriptions
   03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Abastible S.A.

   91.806.000-6    Common controlling parent    Chile    Chilean pesos    Fuel      468        2,864  

Compańía de Petróleos de Chile S.A.

   99.520.000-7    Common controlling parent    Chile    Chilean pesos    Fuel and
other
     13,328        64,271  

Compańía Puerto de Coronel S.A.

   79.895.330-3    Subsidiary of the Associate    Chile    U.S. Dollar    Transport and
stowage
     3,650        10,662  

Puerto Lirquén S.A.

   96.959.030-1    Subsidiary of the Associate    Chile    U.S. Dollar    Port services      —          2,206  

EKA Chile S.A.

   99.500.140-3    Joint Venture    Chile    Chilean pesos    Sodium
chlorate
     9,498        41,349  

Forestal del Sur S.A.

   79.825.060-4    Associate of a subsidiary’s
minority shareholder
   Chile    Chilean pesos    Wood and
chips
     1,365        4,547  

Portaluppi, Guzman y Bezanilla Asesorías Ltda.

   78.096.080-9    Common director    Chile    Chilean pesos    Legal
services
     173        828  

Empresa Nacional de Telecomunicaciones S.A.

   92.580.000-7    Common Stockholder    Chile    Chilean pesos    Telephone
services
     82        524  

Colbún Transmisión S.A.

   76.218.856-2    Common Stockholder    Chile    Chilean pesos    Electrical
Power
     81        240  

Woodtech S.A.

   76.724.000-7    Indirect associate of
controlling parent
   Chile    Chilean pesos    Wood
volumen
measurement
services
     466        1,988  

Inversiones Siemel S.A.

   94.082.000-6    Common Stockholder    Chile    Chilean pesos    Rentals      68        256  

Vía Limpia SPA

   79.874.200-0    Common controlling parent    Chile    Chilean pesos    Other
purchases
     59        215  
  

 

  

 

  

 

  

 

  

 

  

 

 

    

 

 

 

Sales

 

Name of Related Party

   Tax ID No.    Nature of Relationship    Country    Currency    Transaction
Descriptions
  03-31-2020
ThU.S.$
     12-31-2019
ThU.S.$
 

Colbún S.A.

   96.505.760-9    Common Stockholder    Chile    Chilean
pesos
   Electrical Power     50        543  

EKA Chile S.A.

   99.500.140-3    Joint venture    Chile    Chilean
pesos
   Electrical Power     4,842        18,764  

Forestal del Sur S.A.

   79.825.060-4    Associate of a
subsidiary’s minority
shareholder
   Chile    Chilean
pesos
   Harvesting
services, wood
and chips
    8,246        29,543  

CMPC Pulp S.A.

   96.532.330-9    Common Stockholder    Chile    Chilean
pesos
   Wood and chips     1,722        1,467  

Unilin Arauco Pisos Ltda.

   —      Joint venture    Brazil    Brazilian
Real
   Wood     807        3,350  

E2E S.A.

   76.879.577-0    Associate    Chile    Chilean
pesos
   Loan (capital +
interests)
    6        718  

E2E S.A.

   76.879.577-0    Associate    Chile    Chilean
pesos
   Wood, plywood
and boards
    273        787  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 14. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

On September 1, 2019, the corporation Prime-Line, Inc. was acquired through the subsidiary Arauco North America, Inc. The price paid was ThU.S.$12,626. This transaction generated a goodwill for ThU.S.$ 732.

On January 31, 2019, Arauco’s subsidiaries Inversiones Arauco Internacional Limitada and Araucomex, S.A. de C.V., closed the purchase of all of the shares of Masisa’s Mexican subsidiaries, namely Maderas y Sintéticos de México, S.A. de C.V. (currently Arauco Industria de Mexico, S.A. de C.V.), Maderas y Sintéticos Servicios, S.A. de C.V. (currently Araucomex Servicios, S.A. de C.V.), Masisa Manufactura, S.A. de C.V. (currently Arauco Serviquimex, S.A. de C.V.), Placacentro Masisa México, S.A. de C.V. (currently Tablered Araucomex, S.A. de C.V.) y Masnova Química, S.A. de C.V. (currently Arauco Química S.A. de C.V.).

The final price of the transaction was ThU.S.$168,680 and was paid in 2019.

The main assets acquired, consist of two industrial complexes located in Durango and Zitácuaro, that jointly have three Particleboard (PB) lines with an annual installed capacity of 339,000 m3; a MDF line of with an annual installed capacity of 220,000 m3; melamine (or TFL) lines with an annual total installed capacity of 309,000 m3 ; a chemical plant with an installed capacity of 60,000 tons of resins and 60,600 tons of formaldehyde; and impregnation lines with an aggregate annual installed capacity of 28.9 million of m2.

Arauco carried out the initial recognition of the acquisition of these companies based on the information available as of that date, performing a preliminary determination about the allocation of the fair values during the acquisition of the same. The amounts of acquired assets and liabilities are deemed to be provisional amounts and could be adjusted during the measurement period of this acquisition, in order to reflect new information obtained based on facts and circumstances that existed as of the acquisition date and which, if known, would have affected the measurement of the amounts recognized as of that date. The measurement period will not exceed the term of one year as from the acquisition date. During the year 2019, after finalizing the determination of fair values for the acquisition of these companies in Mexico, Arauco recognized a profit of ThU.S.$ 21,674 in Other Gains (Losses) in the Consolidated Statements of Profit or Loss.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The table below shows the fair values of assets and liabilities at the date of the transaction:

 

Masisa Mexico Group

   01-31-2019
ThU.S.$
 

Cash and cash equivalent

     9,164  

Other current non-financial

     321  

Trade and other current receivables (*)

     23,163  

Accounts receivable from related companies

     27,702  

Inventories

     30,477  

Current tax assets

     8,769  

Investments accounted for using equity method

     278  

Property, plant and equipment

     155,722  

Deferred tax assets

     3,701  

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

     49  
  

 

 

 

Total assets

     259,346  
  

 

 

 

Trade and other current payables

     2,024  

Accounts payable to related companies

     27,100  

Other current provisions

     17,832  

Current tax liabilities

     3,243  

Deferred tax liabilities

     14,368  

Non-current provisions for employee benefits

     4,426  
  

 

 

 

Total liabilities

     68,993  
  

 

 

 

Total equity

     190,353  
  

 

 

 

 

(*)

Trade receivables and other current receivables have an insignificant risk of bad debt. At the acquisition date, the bad debt provision was near to 1%, which is in accordance with the Arauco policy.

The following table shows revenue and net profit recognized from the acquisition date through December 31, 2019:

 

Masisa Mexico Group

   02-01-2019 to  12-31-2019
ThU.S.$
 

Revenue

     138,803  

Net loss

     995  
  

 

 

 

If the acquisition had occurred on January 1, 2019, consolidated pro-forma revenue and profit for the year ended December 31, 2019 would have been:

 

CELULOSA ARAUCO Y CONSTITUCIÓN S.A. AND SUBSIDIARIES

   January-December 2019
(Pro-forma)
ThU.S.$
 

Revenue

     5,353,354  

Net profit

     58,472  
  

 

 

 

The details of the subsidiaries included in the consolidation of Arauco are disclosed in Note 13.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 15. INVESTMENTS IN ASSOCIATES

As of March 31, 2020, there were no new investments in associates to report.

Between January and February 2020, Arauco through its subsidiary Maderas Arauco S.A. has contributed M$ 12.000.000 (equivalent to MUS$ 15.022) to E2E S.A.

On April 5, 2019 Celulosa Arauco y Constitución S.A. sold its participation in Puertos y Logística S.A. to DP World Group for a total amount of ThU.S.$ 101,972. This operation generated a profit of ThU.S$ 18,875.

The following tables set forth information about Investments in associates.

 

Name    Inversiones Puerto Coronel S.A.
Country    Chile
Functional Currency    U.S. Dollar
Corporate purpose    Investments in movables and real estate, acquisition of companies, securities and investment instruments, investment management and development and/or participation in all kind of businesses and companies related to industrial, shipping, forestry and commercial activities.
Ownership interest (%)    50.0000%
   03-31-2020    12-31-2019
Carrying amount accounted for using equity method    ThU.S.$56,790    ThU.S.$55,030
Name    Servicios Corporativos Sercor S.A.
Country    Chile
Functional Currency    Chilean Pesos
Corporate purpose    Consulting services related to business management to Boards of Directors and Senior Management of all Arauco’s entities.
Ownership interest (%)    20.0000%
   03-31-2020    12-31-2019
Carrying amount accounted for using equity method    ThU.S.$ 145    ThU.S.$ 172
Name    Genómica Forestal S.A.
Country    Chile
Functional Currency    Chilean Pesos
Corporate purpose    Developing forestry genomics, through the use of biotechnological, molecular and bioinformatics tools with the purpose of strengthening genetic programs so as to improve the competitive position of the Chilean forestry industry for priority tree species.
Ownership interest (%)    25.0000%
   03-31-2020    12-31-2019
Carrying amount accounted for using equity method    ThU.S.$(9)    ThU.S.$(2)

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Name    Consorcio Tecnológico Bioenercel S.A.
Country    Chile
Functional Currency    Chilean Pesos
Corporate purpose    Developing of technologies which will promote the development of a biofuels industry in Chile, obtained from lingo-cellulosic materials. The future execution of this sustainable project is financed by the Innova Chile Committee.
Ownership interest (%)    20.0000%
   03-31-2020    12-31-2019
Carrying amount accounted for using equity method    ThU.S.$7    ThU.S.$7
Name    Vale do Corisco S.A.
Country    Brazil
Functional Currency    Brazilian Real
Corporate purpose    Management of forestry activities.
Ownership interest (%)    49.0000%
   03-31-2020    12-31-2019
Carrying amount accounted for using equity method    ThU.S.$29,438    ThU.S.$38,370
Name    E2E S.A.
Country    Chile
Functional Currency    Chilean pesos
Corporate purpose    Development of construction solutions
Ownership interest (%)    50.0000%
   03-31-2020    12-31-2019
Carrying amount accounted for using equity method    ThU.S.$16,056    ThU.S.$1,739
Name    Parque Eólico Ovejera Sur SpA
Country    Chile
Functional Currency    Chilean pesos
Corporate purpose    Electrical power projects
Ownership interest (%)    50.0000%
   03-31-2020    12-31-2019
Carrying amount accounted for using equity method    ThU.S.$728    ThU.S.$796

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Summarized Financial Information of Associates

 

                            Assets                          

03-31-2020

  Puertos y
Logística S.A.
ThU.S.$
    Inversiones
Puerto

Coronel S.A.
ThU.S.$
    Serv.Corporativos
Sercor S.A.
ThU.S.$
    E2E S.A.
ThU.S.$
    Parque Eólico
Ovejera del
Sur SpA.
ThU.S.$
    Vale do
Corisco S.A.
ThU.S.$
    Consorcio
Tecnológico
Bioenercel S.A.
ThU.S.$
    Genómica
Forestal S.A.
ThU.S.$
    Total
ThU.S.$
 

Current

    —         29       3,438       32,112       106       3,044       2       15       38,746  

Non-current

    —         115,400       2,988       2,819       1,555       77,206       36       46       200,050  

Total

    —         115,429       6,426       34,931       1,661       80,250       38       61       238,796  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                 
    Puertos y
Logística S.A.
ThU.S.$
    Inversiones
Puerto

Coronel S.A.
ThU.S.$
    Serv.Corporativos
Sercor S.A.
ThU.S.$
    E2E S.A.
ThU.S.$
    Liabilities
Parque Eólico
Ovejera del
Sur SpA.
ThU.S.$
    Vale do
Corisco S.A.
ThU.S.$
    Consorcio
Tecnológico
Bioenercel S.A.
ThU.S.$
    Genómica
Forestal S.A.
ThU.S.$
    Total
ThU.S.$
 

Current

    —         83       3,644       1,597       205       274       —         5       5,808  

Non-current

    —         —         2,055       1,222       0       19,898       5       32       23,212  

Equity

    —         115,346       727       32,112       1,456       60,078       33       24       209,776  

Total

    —         115,429       6,426       34,931       1,661       80,250       38       61       238,796  
03-31-2020                                                      

Revenues

    —         —         1,003       456       —         1,629       —         —         3,088  

Expenses

    —         3,505       (947     (846     (8     (879     —         (2     823  

Profit or loss (continuing

operations)

    —         3,505       56       (390     (8     750       —         (2     3,911  

Other comprehensive income

    —         —         —         —         —         —         —         —         —    

Comprehensive income

    —         3,505       56       (390     (8     750       —         (2     3,911  

Dividends

    —         —         —         —         —         783       —         —         783  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       
12-31-2019   Puertos y
Logística S.A.
ThU.S.$
    Inversiones
Puerto

Coronel S.A.
ThU.S.$
    Serv.Corporativos
Sercor S.A.
ThU.S.$
    E2E S.A.
ThU.S.$
    Assets
Parque Eólico
Ovejera del
Sur SpA.
ThU.S.$
    Vale do
Corisco S.A.
ThU.S.$
    Consorcio
Tecnológico
Bioenercel S.A.
ThU.S.$
    Genómica
Forestal S.A.
ThU.S.$
    Total
ThU.S.$
 

Current

    —         29       9,974       3,045       95       4,992       2       25       18,162  

Non-current

    —         111,896       3,436       3,099       1,505       99,943       36       19       219,934  

Total

    —         111,925       13,410       6,144       1,600       104,935       38       44       238,096  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       
    Puertos y
Logística S.A.
ThU.S.$
    Inversiones
Puerto

Coronel S.A.
ThU.S.$
    Serv.Corporativos
Sercor S.A.
ThU.S.$
    E2E S.A.
ThU.S.$
    Liabilities
Parque Eólico
Ovejera del
Sur SpA.
ThU.S.$
    Vale do
Corisco S.A.
ThU.S.$
    Consorcio
Tecnológico
Bioenercel S.A.
ThU.S.$
    Genómica
Forestal S.A.
ThU.S.$
    Total
ThU.S.$
 

Current

    —         98       10,222       1,331       2       965       —         9       12,627  

Non-current

    —         —         2,325       1,336       5       25,664       5       42       29,377  

Equity

    —         111,827       863       3,477       1,593       78,306       33       (7     196,092  

Total

    —         111,925       13,410       6,144       1,600       104,935       38       44       238,096  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
03-31-2019                                                      

Revenues

    46,763       476       1,272       1       3       563       —         —         49,078  

Expenses

    (46,751     —         (1,215     (154     (1     (253     —         —         (48,374

Profit or loss (continuing

operations)

    12       476       57       (153     2       310       —         —         704  

Other comprehensive income

    7,540       —         —         —         —         —         —         —         7,540  

Comprehensive income

    7,552       476       57       (153     2       310       —         —         8,244  

Dividends

    —         —         —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Reconciliation of Investment in Associates and Joint Ventures

 

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

Opening balance as of January 1

     293,118        358,053  

Changes

     

Investment in joint ventures, Additions (*)

     15,090        2,741  

Disposals, investment in associates and joint ventures (**)

     —          (58,850

Share of profit (loss) in investment in associates

     1,919        6,786  

Share of profit (loss) in investment in joint ventures

     (366      989  

Dividends Received, Investments in Associates

     (3,174      (13,601

Increase (Decrease) in foreign exchange currency on translation of Associates and Joint Ventures

     (12,855      (5,440

Other increase (decrease) in investment and associates and joint ventures

     (5,662      2,440  

Total changes

     (5,048      (64,935

Closing balance

     288,070        293,118  
  

 

 

    

 

 

 

 

(*)

As of February 1, 2020, Arauco Bioenegía S.A. contributed ThU.S.$ 88 corresponding to 53 shares to Parque Eólico Ovejera del Sur SpA. During the first quarter of 2020, Maderas Arauco S.A. has made two contributions, one for M$300,000 on January 29, and the second for M$11,700,000 on February 03, both equivalent to ThU.S.$ 15,022.

(**)

ThU.S.$ 56,492 account for the carrying amount of investment in Puertos y Logística S.A., which was sold on April 5, 2019.

 

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

Carrying amount of associates accounted for using equity method

     103,170        96,114  

Carrying amount of joint ventures accounted for using equity method

     184,900        197,004  

Total investment accounted for using equity method

     288,070        293,118  
  

 

 

    

 

 

 

NOTE 16. INTERESTS IN JOINT ARRANGEMENTS

Investments and contributions made

On April 1, 2019 Arauco through its subsidiary Forestal Arauco S.A. entered into a shareholders agreement with respect to Agrícola San Gerado SpA, which was established with the special purpose of developing an agricultural project in Molina. The capital contributed by Forestal Arauco S.A. was M$1,570,000 (equivalent to ThU.S.$ 2,162 as of December 31, 2019).

As of March 31, 2020 and December 31, 2019, Arauco has not made contributions to Uruguayan companies Celulosa y Energía Punta Pereira S.A. and Zona Franca Punta Pereira S.A.

The investments in Uruguay qualify as a joint operation. In relation to “other rights and contractual conditions”, the joint operation has the primary objective of providing the parties an output. As established in the “Pulp Supply Agreement”, both Arauco and its partner have the obligation to acquire 100% of the yearly pulp produced by the joint operation. Arauco has recognized the assets, liabilities, income and expenses associated with its interest ownership, as of January 1, 2013, pursuant to IFRS 11.

Arauco holds a 50% interest in Sonae Arauco, which subsidiary produces and commercializes wood panels, of the type of MDF, PB and OSB, and sawn timber, through the operation of 2 panel plants and one sawmill in Spain; 2 panel plants and one resin plant in Portugal; 4 panel plants in Germany and 2 panel plants in South Africa.

Furthermore, Arauco holds a 50% ownership interest in Unilin Arauco Pisos Laminados Ltda., a Brazilian company, and in Eka Chile S.A. (“Eka”), a company that sells sodium chlorate to cellulose plants in Chile. There is a contractual agreement with these companies whereby Arauco has engaged in an economic activity subject to common control, which is classified as a joint venture.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The following tables set forth summarized financial information of the more significant interests in joint arrangements, which qualify as joint operations:

 

     03-31-2020      12-31-2019  

Celulosa y Energía Punta Pereira S.A. (Uruguay)

   Assets
ThU.S.$
     Liabilities
ThU.S.$
     Assets
ThU.S.$
     Liabilities
ThU.S.$
 

Current

     306,866        219,012        346,498        206,683  

Non-current

     2,142,009        391,903        2,158,586        444,181  

Equity

     —          1,837,960        —          1,854,220  

Total Joint Arrangement

     2,448,875        2,448,875        2,505,084        2,505,084  
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment

     918,980           927,110     
  

 

 

       

 

 

    

 

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

Income

     144,574        235,359  

Expenses

     (143,505      (155,393

Joint Arrangement Net Income (Loss)

     1,069        79,966  
  

 

 

    

 

 

 

 

     03-31-2020      12-31-2019  

Forestal Cono Sur S.A. (consolidated)

   Assets
ThU.S.$
     Liabilities
ThU.S.$
     Assets
ThU.S.$
     Liabilities
ThU.S.$
 

Current

     52,319        1,973        37,625        2,180  

Non-current

     158,545        11,208        172,913        9,046  

Equity

     —          197,683        —          199,312  

Total Joint Arrangement

     210,864        210,864        210,538        210,538  
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment

     98,842           99,656     
  

 

 

       

 

 

    

 

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

Income

     16,472        14,332  

Expenses

     (18,102      (12,795

Joint Arrangement Net Income (Loss)

     (1,630      1,537  
  

 

 

    

 

 

 

 

     03-31-2020      12-31-2019  

Eufores S.A. (consolidated)

   Assets
ThU.S.$
     Liabilities
ThU.S.$
     Assets
ThU.S.$
     Liabilities
ThU.S.$
 

Current

     171,377        257,504        148,550        209,665  

Non-current

     833,670        135,945        808,647        117,443  

Equity

     —          611,598        —          630,089  

Total Joint Arrangement

     1,005,047        1,005,047        957,197        957,197  
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment

     305,799           315,045     
  

 

 

       

 

 

    

 

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

Income

     59,773        69,046  

Expenses

     (75,662      (65,019

Joint Arrangement Net Income (Loss)

     (15,889      4,027  
  

 

 

    

 

 

 

 

     03-31-2020      12-31-2019  

Zona Franca Punta Pereira S.A. (Uruguay)

   Assets
ThU.S.$
     Liabilities
ThU.S.$
     Assets
ThU.S.$
     Liabilities
ThU.S.$
 

Current

     6,936        116,363        5,823        115,627  

Non-current

     461,410        28,891        464,151        19,740  

Equity

     —          323,092        —          334,607  

Total Joint Arrangement

     468,346        468,346        469,974        469,974  
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment

     161,546           167,304     
  

 

 

       

 

 

    

 

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

Income

     4,550        4,510  

Expenses

     (16,065      (5,811

Joint Arrangement Net Income (Loss)

     (11,515      (1,301
  

 

 

    

 

 

 

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The following tables set forth summarized financial information of the more significant interests in joint ventures accounted in for equity method:

 

     03-31-2020      12-31-2019  

Unilin Arauco Pisos Ltda.

   Assets
ThU.S.$
     Liabilities
ThU.S.$
     Assets
ThU.S.$
     Liabilities
ThU.S.$
 

Current

     5,298        2,852        6,674        3,761  

Non-current

     2,996        43        4,024        55  

Equity

     —          5,399        —          6,882  

Total Joint Arrangement

     8,294        8,294        10,698        10,698  
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment

     2,700           3,441     
  

 

 

       

 

 

    

 

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

Income

     2,704        4,492  

Expenses

     (2,626      (4,448

Joint Arrangement Net Income (Loss)

     78        44  

Other comprehensive income

     —          —    

Comprehensive income

     78        44  

Dividends

     —          —    
  

 

 

    

 

 

 

 

     03-31-2020      12-31-2019  

Eka Chile S.A.

   Assets
ThU.S.$
     Liabilities
ThU.S.$
     Assets
ThU.S.$
     Liabilities
ThU.S.$
 

Current

     16,269        4,736        21,449        4,930  

Non-current

     33,832        4,652        33,442        4,917  

Equity

     —          40,713        —          45,044  

Total Joint Arrangement

     50,101        50,101        54,891        54,891  
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment

     20,357           22,522     
  

 

 

       

 

 

    

 

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

Income

     9,971        11,930  

Expenses

     (9,519      (10,293

Joint Arrangement Net Income (Loss)

     452        1,637  

Other comprehensive income

     —          —    

Comprehensive income

     452        1,637  

Dividends

     2,391        —    
  

 

 

    

 

 

 

 

     03-31-2020      12-31-2019  

Sonae Arauco S.A.

   Assets
ThU.S.$
     Liabilities
ThU.S.$
     Assets
ThU.S.$
     Liabilities
ThU.S.$
 

Current

     244,824        233,483        216,342        215,632  

Non-current

     675,016        366,468        695,902        358,851  

Equity

     —          319,889        —          337,761  

Total Joint Arrangement

     919,840        919,840        912,244        912,244  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net assets

     131,720           140,146     

Net asset adjustment (Goodwill)

     28,225           28,735     

Investment

     159,945           168,881     
  

 

 

       

 

 

    

 

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

Income

     885,812        243,157  

Expenses

     (887,230      (236,494

Joint Arrangement Net Income (Loss)

     (1,418      6,663  

Other comprehensive income

     —          —    

Comprehensive income

     (1,418      6,663  

Dividends

     —          7,480  
  

 

 

    

 

 

 

 

     03-31-2020      12-31-2019  

Agrícola San Gerardo SpA.

   Assets
ThU.S.$
     Liabilities
ThU.S.$
     Assets
ThU.S.$
     Liabilities
ThU.S.$
 

Current

     1,386        —          —          —    

Non-current

     2,416        3        2,162        —    

Equity

     —          3,799        —          2,162  

Total Joint Arrangement

     3,802        3,802        2,162        2,162  
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment

     1,900           1,081     
  

 

 

       

 

 

    

 

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

Income

     —          —    

Expenses

     (18      —    

Joint Arrangement Net Income (Loss)

     (18      —    

Other comprehensive income

     —          —    

Comprehensive income

     (18      —    

Dividends

     —          —    
  

 

 

    

 

 

 

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 17. IMPAIRMENT OF ASSETS

As a result of current market conditions generated by the fall in prices, the impairment tests carried out at the CGU. yielded a provision of ThU.S.$43,181 (ThU.S.$38,913 of Property, plant and equipment, and ThU.S.$4,268 of spare parts from Inventories) in connection with two plants of Wood products business area in USA. For these calculations a discount rate of 8% was used.

In addition, due to the modernization and expansion project of the Arauco Mill (Proyecto de Modernización y Ampliación de la Planta Arauco, or MAPA Project), as of March 31, 2020, an impairment provision due to a reduction in the useful lives for the CGU Line 1 of Arauco Mill (Pulp business) was recorded in an amount of ThU.S.$50,422 (ThU.S.$33,570 as of December 31, 2019). For this calculation a discount rate of 6.1% was used. The Line 1 of the Arauco mill will be permanently shut down when the MAPA project is completed.

Both impairment provision charges are presented in the consolidated statement of Profit or Loss in Other expenses line.

Provisions for impairment of property, plant and equipment due to technical obsolescence (does not include the CGU impairments discussed above) have been recorded as of March 31, 2020 and December 31, 2019, respectively, as shown below:

 

Disclosure of Asset Impairment

    

Principal classes of Assets affected by Impairment and Reversal of Losses

   Machinery and Equipment

Principal Facts and Circumstances that lead to Recognizing Impairment and Reversal of losses

   Technical Obsolescence
     03-31-2020    12-31-2019

Provisions for impairment of property, plant and equipment

   ThU.S.$13,774    ThU.S.$13,774

Goodwill

Goodwill is allocated to the groups of cash-generating units that are expected to benefit from the synergies of the combination.

At the date of these interim consolidated financial statements, the balance of goodwill is ThU.S.$59,349 (ThU.S.$ 65,751 at December 31, 2019), as shown below:

 

     03-31-2020      12-31-2019  

Goodwill

   ThU.S.$      ThU.S.$  

Arauco Canada Ltd. (Flakeboard Company Ltd)

     40,582        40,765  

Arauco do Brasil S.A. (Pien mill)

     17,350        22,378  

Arauco North America, Inc. (Prime-Line, Inc.)

     732        732  

Arauco Argentina S.A. (Forestal Nuestra Seńora del Carmen S.A.)

     —          1,191  

Forestal Arauco S.A. (Forestal Los Lagos S.A.)

     685        685  

Closing balance

     59,349        65,751  
  

 

 

    

 

 

 

 

     03-31-2020      12-31-2019  

Goodwill

   ThU.S.$      ThU.S.$  

Opening balance at January 1

     65,751        65,851  

Increase (decrease) due to business combination

     —          732  

Increase (decrease) due to merge

     (1,191      —    

Increase (decrease) in foreign currency exchange

     (5,211      (832

Closing balance

     59,349        65,751  
  

 

 

    

 

 

 

Of the total of goodwill, ThU.S.$40,582 (ThU.S.$ 40,765 as of December 31, 2019) are generated by the acquisition of “Flakeboard” (currently Arauco Canada Ltd.), a company that, directly and/or through its subsidiaries, possesses and operates 7 panel plants, for

 

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March 31, 2020

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

 

 

which Arauco acquired and paid, on September 24, 2012, the price of ThU.S.$242,502 for the 100% interest ownership. The remaining balance of ThU.S.$ 732 corresponds to the acquisition of Prime-Line Inc, on September 1, 2019, for which Arauco North America Inc, a subsidiary of Arauco Canada Ltd. paid ThU.S.$ 18,880 for all the shares of said company.

The recoverable amount for Flakeboard’s cash generating unit was determined based on the calculations of its value in use, and this calculation was made using cash flow projections covering a 7-year term, applying a real discount rate of 8% which reflects current market assessments for the wood products segment in North America.

The investment in the panel plant in Pien, Brazil generated a goodwill of ThU.S.$17,350 (ThU.S.$ 22,378 as of December 31, 2019).

The recoverable amount for the Pien plant’s cash generating unit was determined based on the calculations of its value in use, and this calculation was made using cash flow projections based on the operational plan approved by the Administration, covering a 5-year term, applying a 7% real discount rate that reflects current evaluations for the panel segment in Brazil.

As of March 31, 2020 and December 31, 2019, the carrying value of the goodwill of the plants did not exceed their recoverable value, and therefore there was no need to recognize impairment losses.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 18. PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES

The contingent liabilities for outstanding litigations are as follows:

Celulosa Arauco y Constitución S.A.

1. On August 25, 2005, the Chilean Servicio de Impuestos Internos (the “Chilean IRS”) issued tax resolutions No. 184 and No. 185 of 2005, and objected certain income tax returns made by Arauco on April 16, 2001 and October 31, 2001, and furthermore, requested the reimbursement of the amounts returned in connection with tax losses, along with the amendment of the FUT (Tax Profits Fund) Registry balance. In consideration to the foregoing, the above mentioned tax resolutions ordered the restitution of the historical amount as of October 31, 2002 of $4,571,664,617 (equal to ThU.S.$5,366 as of March 31, 2020). On November 7, 2005, the Company requested a Review of the Supervision Action (Revisión de la Actuación Fiscalizadora, or “RAF”), which is an administrative review of the tax action brought by the Chilean IRS, and filed a claim disputing the above mentioned tax resolutions No. 184 and 185 of 2005. The RAF was resolved on January 9, 2009 by the Chilean IRS, partially sustaining the Company’s request, granting a discount to the total amount of $1,209,399,164 (equal to ThU.S.$1,419 as of March 31, 2020), resulting in a total disputed amount of $3,362,265,453 (equal to ThU.S.$3,946 as of March 31, 2020) plus fines and interests. On February 19, 2010, the Court acknowledged receipt of the Company’s request.

On September 26, 2014, Arauco requested the submission of this claim to the competent jurisdiction of the new Tax and Customs Courts. On October 10, 2014, Arauco’s request was granted. Currently the action is being considered by these new Courts under the Docket No. RUC 14-9-0002087-3. On September 20, 2017, the Court issued its first instance decision confirming the liquidations.

On October 12, 2017, Arauco challenged the decision through an appeal, requesting the Court of Appeals of Santiago to revoke the first instance decision and uphold Arauco’s claim instead. On June 29, 2018, the Court of Appeals of Santiago issued a ruling on appeal, confirming the first instance decision. On July 19, 2018, Arauco lodged a cassation appeal based on formal and substantial flaws before the Supreme Court. (case file 24,758-2018).

On June 21, 2019, Celulosa Arauco y Constitución S.A. filed a claim before the Constitutional Court to declare the legal provision contemplated under section 53, paragraph 3 of the Tax Code unconstitutional and, as a consequence, inapplicable.

On October 29, 2019 the Constitutional Court accepted the claim filed by Celulosa Arauco y Constitución S.A., finding unconstitutional and declaring the inapplicability of section 53, paragraph 3 of the Tax Code in the context of the proceeding “Celulosa Arauco y Constitución S.A. with SII Large taxpayers”, which is in the Supreme Court docket as a result of a cassation appeal (based on form and content) under case file 24,758-2018.

Currently, the case is related to the Supreme Court.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore as of March 31, 2020, Arauco has not made any provision whatsoever in connection with this contingency.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

2. Through Res. Ex. N° 1 issued by the Superintendence of the Environment (“SMA”) on January 8, 2016, notified on January 14, 2016, the SMA formulated 11 charges against the Company, due to alleged breaches of certain Environmental Qualification Resolutions for the Valdivia Plant and of DS No. 90/2000. The 11 charges were classified as follows by the SMA: 1 critical, 5 severe, 5 minor.

On February 12, 2016, the Company submitted its defenses.

On December 15, 2017, the Superintendence of the Environment issued Exempted Resolution No. 1,487, closing the punitive administrative proceeding, absolving the company with regards to one of the charges and convicting for other 10 charges, applying a fine of 7,777 UTA (equal to ThU.S.$ 5,479 as of March 31, 2020). On December 22, 2017, the Company submitted a motion for reconsideration regarding Exempted Resolution No. 1,487, before the SMA, requesting that we be absolved of all infringements, with the exception of the charge specified under number 7 (late submission of the water quality report regarding the Cruces river). On March 23, 2018, the reconsideration appeal lodged by the company was rejected. On April 5, 2018, a judicial claim was submitted before the Third Environmental Court.

On February 11, 2020 the judgment of the Third Environmental Court was notified, which partially accepted the legal claim of the Company, only as to the inadequate severity qualification of one of the charges (charge No. 2, consisting of not deriving as last resource to the effluent treatment system, the green liquor spill occurred on January 17, 2014).

On February 28, 2020, both the Company and the SMA submitted cassation appeals based on form and content, to be heard and resolved by the Supreme Court. The case is pending.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company, and therefore as of March 31, 2020, Arauco has not made any provision whatsoever in connection with this contingency.

Celulosa Arauco y Constitución S.A., Forestal Arauco S.A., Maderas Arauco S.A. and Servicios Logísticos Arauco S.A.

1. On August 13, 2018, Asociación Gremial de Dueńos de Camiones de Constitución (ASODUCAM) filed a complaint seeking the performance of a contract and claiming compensation for damages against Celulosa Arauco y Constitución S.A., Forestal Arauco S.A., Maderas Arauco S.A. and Servicios Logísticos Arauco S.A. The complaint is based on alleged breaches of some agreements for the allocation, distribution and supply of cargo volumes for the years 2001 and 2005, initially executed by associates of ASODUCAM with Forestal Arauco S.A., and then, allegedly, with Servicios Logísticos Arauco S.A., in favor of the other two defendants, Celulosa Arauco and Constitución S.A. and Maderas Arauco S.A.

The complaint seeks to enforce the contract, plus $575,000,000 (equal to ThU.S.$ 675 as of March 31, 2020) in compensation for damages. In the alternative, it claims (a) $11,189,270,050 (equivalent to ThU.S.$ 13,132 as of March 31, 2020), for actual damages; (b) $ 11,189,270,050 monthly during the entire course of the trial, until the termination of the contract is declared in the final ruling, for loss of profits, and (c) $5,000,000,000 (equivalent to ThU.S.$ 5,868 as of March 31, 2020) for moral damages.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

On August 28, 2018 the claim was served upon Celulosa Arauco y Constitución S.A., Forestal Arauco S.A. and Maderas Arauco S.A.; service is pending on Servicios Logísticos Arauco S.A. (Case file C-757-2018 with the Civil Court of Constitución).

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and, therefore, as of March 31, 2020, Arauco has not made any provision whatsoever in connection with this contingency.

Forestal Arauco S.A.

1. On July 11, 2017, the company was notified of a civil claim for recovery in ordinary proceedings, filed by Mrs. Carmen Muńoz Domínguez on behalf of Forestal Ezrece S.A. The plaintiff argues that its client would be the rightful owner – as a result of an assignment and sale – of 87.5% of the hereditary rights in the rural real estate property called “Pino Huacho,” located in the boroughs of Los Alamos and of Cańete, province of Lebu, Eighth Region, for a surface area amounting to 5,144.22 hectares, which actions would be under the possession of Forestal Arauco S.A. The claimant has requested the court to order Forestal Arauco S.A. to be sentenced to restitute these actions and rights. Forestal Arauco S.A. answered the claim, requesting its total dismissal, with litigation costs, and further filing a counterclaim based on the ordinary prescription and, in lieu thereof, based on extraordinary prescription.

On July 30, 2019, the final ruling was issued down rejecting both the main and the reconventional lawsuits in all of its parts (Case File C-109-2017 First Instance and Guarantee Court of Lebu).

On August 12, 2019, the plaintiff filed an appeal against the final ruling. On September 2, 2019, Forestal Arauco S.A. adhered to the appeal, which resolution is pending in the Court of Appeals of Concepción (Case file 1853-2019).

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of March 31, 2020, Arauco has not made any provision whatsoever in connection with this contingency.

2. Mrs. Estela Jaramillo, filed a lawsuit in a special indigenous procedure, before the First Civil Court of Osorno (Case C-2540-2018), requesting the absolute nullity of the contract of sale signed in 1999, by which Consorcio Forestal S.A. sold to Forestal Valdivia S.A., today Forestal Arauco S.A., 1,505.6 hectares under the name of Fundo San Nicolás Dos Lote Uno Norte. It also demands compensation for damages for the exploitation and use of indigenous lands against Forestal Arauco S.A.

On November 10, 2018, Forestal Arauco SA was notified of the lawsuit. On January 16, 2019, the Court dismissed the lawsuit regarding Consorcio Forestal S.A., who was not notified of the complaint.

On March 18, 2019, the answer and settlement hearing took place, and, during such hearing, the court decided to proceed to the production of evidence stage.

On November 11, 2019, the parties were summoned to hear the ruling, which is pending.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of March 31, 2020, Arauco has not made any provision whatsoever in connection with this contingency.

3. Inversiones Forestales Los Alpes Limitada and Forestal Neltume-Carrasco S.A. filed a claim against Forestal Arauco S.A. before the Civil Court of Angol (C-502-2015), in which they request that Forestal Arauco S.A. restitute the material possession of 1,855.9 hectares, which would be part of their property “Resto del Fundo Los Alpes”, which would have an area of approximately 2,700 hectares. Likewise, they requested that it be declared that the property is the exclusive domain of the actors, the restitution of the civil and natural fruits, in addition to the deteriorations that the property would have experienced, with litigation costs.

On May 29, 2019, the lawsuit was answered and the counterclaim of the acquisitive prescription was filed.

On March 3, 2020, a conciliation hearing was held; the resolution that opens the period to produce evidence is still pending.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of March 31, 2020, Arauco has not made any provision whatsoever in connection with this contingency.

4. On August 2, 2019, the company was notified of a lawsuit for termination of contract and compensation for damages filed by “Sociedad Recuperadora de Fibra S.A.” before the First Court of Valdivia (Case C-2215-2019). In the lawsuit, the plaintiff questions the anticipated termination of a contract by Forestal Arauco.

It also claims that the company would have breached various contractual obligations regarding to 2 groups of contracts:

A. (i) Aggregates Transport Contract and (ii) Production, Cargo, Storage and Construction Management Contract for Platforms and flooring.

B. (i) Contract for the Production of Aggregates, (ii) Contract for Long Freight Services for Aggregates and (iii) Contract for Construction Services for Granular floor and Short Freight for Aggregates.

Based on the foregoing, it requests payment of compensation for an amount of $3,486,187,431 (equivalent to ThU.S.$ 4,092 as of March 31, 2020) plus interests, readjustments and litigation costs.

On September 17, 2019, Forestal Arauco S.A. answered the claim and filed a counterclaim for compensation of damages which is in the process of a conciliation hearing, requesting that the main claimant be ordered to pay $421,723,281 (equivalent to ThU.S$563 as of December 31, 2019).

Through the resolution dated as of January 9, 2020, the court received the case to commence the production of evidence; the notification of such resolution is pending.

 

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March 31, 2020

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

 

 

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of March 31, 2020, Arauco has not made any provision whatsoever in connection with this contingency.

5. On April 15, 2020, Forestal Arauco S.A. was notified of a lawsuit filed against it by the company “Agrícola, Forestal, Transportes y Inversiones El Quillay SpA”, which is being reviewed by the Court of Constitución (Case C-298-2020).

The plaintiff claims to be owner of rights and shares corresponding to 4.17% or 1/24 of all the rights to the property called “Bodega de la subdelegación de Quivolgo”, under the domain of the estate of Mr. José Arcos Gonzalez, there existing parallel inscriptions between the domain registration of said property and the domain registrations of Forestal Arauco S.A. relating to the properties: (i) “property that was part of the Hijuela Sur Poniente, of Hijuela Sur from Fundo Quivolgo”, (ii) “Lomas de Quivolgo” and, (iii) “Hijuela Astillero”, generating as a result an overlap of 3,424.38 hectares.

The plaintiff indicates that it would have been deprived of possession of the property “Bodega de la subdelegación de Quivolgo”, further indicating that Forestal Arauco S.A. has been developing forestry tasks on the property since December 21, 2019, and as a consequence that the applicant cannot enjoy said property.

By virtue of the foregoing, it requests, in summary:

A. To be declared that the plaintiff owns an undivided interest of 4.17% or 1/24 of the property called “Bodega de la subdelegación de Quivolgo”.

B. To cancel the registration of the following properties of Forestal Arauco SA: (i) “property that was part of the Hijuela Sur Poniente, of Hijuela Sur from Fundo Quivolgo”, (ii) “Lomas de Quivolgo” and (iii) “Hijuela Astillero”, deeming it as a bad-faith holder.

C. To order Forestal Arauco S.A. to make restitution of the piece of land occupied, of 3,424 hectares.

D. That, alternatively, the existence of a condominium be declared between the plaintiff and Forestal Arauco S.A. on the overlapping part, and to order the defendant to make restitution of the piece of land used.

E. To order Forestal Arauco S.A. to make restitution of all natural and civil benefits, as well as all goods and products, which are deemed to be part of the claimed property.

F. To order the defendant to pay the costs.

Currently, the answer to the lawsuit is pending.

 

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March 31, 2020

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

 

 

Arauco Argentina S.A.

Pursuant to law No. 25,080, the former Secretary of Agriculture, Livestock, Fishing and Foodstuffs, the enforcement agency referred to in the law approved, by Res. No. 952/2000, the forestry and industrial-forestry projects submitted by Arauco Argentina S.A. In the context of these projects, the Company afforested: 1) 4,777 hectares during 2000, in observance of its committed yearly plan; and 2) 23,012 hectares between 2000 and 2006 as a part of the multi-year afforestation plan. Likewise, a sawmill was built with installed capacity to produce 250,000 m3 of sawn timber per year.

On January 11, 2001, Arauco Argentina S.A. submitted an expansion for the approved industrial-forestry project. The expansion was approved via Res. No. 84/03 issued by the former Secretary of Agriculture, Livestock, Fishing and Foodstuffs. In accordance with the assumed obligations, the Company built a MDF board (panels) plant and afforested 8,089 hectares between 2001 and 2006.

Additionally, the Company has filed yearly forestry plans between years 2007 and 2018 for its local operations in the provinces of Misiones and Buenos Aires.

On March 25, 2019, the Secretary of Agriculture, Livestock and Fishing approved the resolution No. 2019-55-APN-SECAGYP#MPYT, approving the annual forestry plan for 2007. In addition, said organism through the resolution No. 2019-114-APN-SECAGYP#MPYT approved the annual forestry plan for 2009 on June 12, 2019, and through the resolution No. 2019-228-APN-SECAGYP#MPYT approved the annual forestry plan for 2008 on November 29, 2019. For this reason, Arauco Argentina S.A. may compute the exemption in the income tax related to the forest appraisal on the plantations to be harvested from the lands included in those plans as from the 2019 period.

In March 2005, Note No. 145/05 of the Subsecretary of Agriculture, Livestock and Afforestation suspended the benefit that exempted Arauco Argentina S.A. from paying export duties under Law No. 25,080. This measure is currently under discussion by the Company. On November 8, 2006, the V Chamber of the National Appeals Court for Adversarial Administrative and Federal Matters issued a ruling ordering Arauco Argentina S.A. to continue to enjoy an exemption from paying the exportation duties, in the same manner and scope it had prior to the suspension ordered by Note No. 145/05, if the clearance of merchandise is performed pursuant to the guarantee regime established in article 453, subsection a) of the Customs Code, for the exempted tax obligation. The judicial measure became effective beginning on March of 2007 by collateralization through the granting of bond (caution) policies for each shipment permits exempted from payment of export duty. The company maintains an assignment of funds equivalent to $1,406,696,320 Argentine Pesos (ThU.S.$ 21,847 as of March 31, 2020) for guaranteed export duties between 2007-2015, which appears under not current provisions. Additionally, the Company filed a restitution claim for a total amount of US$6,555,207, plus interests accrued from the service of the claim, corresponding to export duties between March 2005 and March 2007, as a result of the application of Note 145/05 issued by the Undersecretary of Agriculture, Livestock and Afforestation. The Company’s claim is being heard under case file No. 21830/2006 before the Federal Contentious Administrative Court No. 4. On October 28, 2019, a judgment of first instance was issued in said case, rejecting the claim and imposing the litigation costs on Arauco. Against that judgment, the Company filed an appeal and expressed the corresponding arguments in December 2019.

 

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March 31, 2020

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

 

 

On the other hand, in April 2016, the Secretary of Agriculture, Livestock and Fishing issued Resolution No.154 – E/2016, that requires that the holders of enterprises that have received the fiscal benefits envisaged by Law No. 25,080, establish collateral to cover a third of the duration of the project, with a minimum term of five years. During May of 2019, the Company modified the duly established collateral in accordance to the terms of said Resolution, for which reason the security was ultimately established at an amount of $384,317,563 Argentine Pesos (ThU.S.$5,969 as of March 31, 2020).

Arauco Argentina S.A. believes that it has complied with all of the obligations imposed upon it by the system set forth under Law No. 25,080.

Arauco do Brasil S.A.

On November 8, 2012, the Brazilian tax authorities issued an Infringement Notice against one of our Brazilian subsidiaries, Arauco do Brasil S.A., for allegedly unpaid taxed owed by said company during the period from 2006 to 2010. Specifically, the tax authorities (i) objected to the deductibility of certain payments made, and expenses incurred (including the amortization of premiums, interest and litigation costs) by Arauco do Brasil between 2005 and 2010, and, (ii) argued that Arauco do Brasil made certain insufficient payments regarding the Brazilian Corporate Tax (“IRPJ”) and the Corporate Contribution over Net Profits (“CSLL”) during 2010.

On July 20, 2015, Arauco do Brasil was notified of the first-level administrative ruling which partially upheld the Infringement, at the estimated amount of R$164,159,000 (ThU.S.$31,568 as of March 31, 2020). Against this ruling, a Voluntary Appeal was filed seeking to revoke the Infringement Notice before the Brazilian Administrative Tax Council (Conselho Administrativo de Recursos Fiscais de Brasil or “CARF”), which is the second administrative level. The CARF’s decision was issued on May 16, 2017, and took into consideration certain arguments presented by the Company regarding the premium, but preserving other charges. On September 27, 2018, Arauco do Brasil was notified of the CARF’s decision, representing the final amount of this case R$57,556,262 (ThU.S.$ 11,068 as of March 31, 2020), and interests and readjustments will be added to that value until the discussion is over. Arauco do Brasil S.A. filed an appeal for declaration embargoes, to elicit clarifications from the CARF regarding certain points of the decision.

On January 25, 2019, the CARF ruled that there were no clarifications or omissions to be made and, consequently, granted a term for filing the last remedy within the administrative realm (“Special Remedy”). This Special Remedy was submitted before the Upper Chamber of Fiscal Remedies of the CARF (CSRF) on February 11, 2019, reiterating the Company’s defense allegations regarding the matters and charges that remained in such process; we are currently expecting the decision on such Special Remedy.

On July 17, 2019, the Company became aware of an intermediate decision issued by CARF that, when examining the legal conditions for the admissibility of the Special Remedy submitted, decided to admit it only in relation to point “4”, which is the challenge to the isolated fine of 50%. In relation to the other points (“1” Comment of the contractual expenses deducted in the purchase of Tafisa; “2” Comment of interests and legal expenses on debts paid in the amnesty program; “3” Less IRPJ and CSLL in the second part of 2010) CARF understood that there were no legal conditions for the admissibility of the appeal. Thus, in relation to point “4”, the process will go to the CSRF for trial.

 

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March 31, 2020

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

 

 

In relation to the other points (“1”, “2” and “3”), another administrative appeal (“Grievance of Instrument”) was presented in order to modify the understanding of the inadmissibility of those points.

Based on the last decision of the declaratory liens, the CARF submitted that the current value under discussion would amount to R$58,059,580.30 (ThU.S.$ 11,165 as of March 31, 2020), with basis as of January 31, 2019. Interests and adjustments must be added to the aforesaid amount as from January 31, 2019 and until the discussion concludes.

The company believes that its challenge against the Infringement Notice is based on sound legal grounds and that a reasonable possibility exists that this matter will be resolved in favor of the company. Otherwise, as the next step, the Company will discuss the Infringement Notice before the Brazilian Justice Courts.

Considering that the Company’s position is based on solid legal grounds, there is a reasonable margin for obtaining a favorable result for the Company and therefore, as of March 31, 2020, Arauco has not made any provision whatsoever in connection with this contingency.

At the closing date, there are no other contingencies in which the Companies act as obligor, that may significantly affect their financial, economic or operational conditions.

Provisions recorded as of March 31, 2020 and December 31, 2019 are as follows:

 

     03-31-2020      12-31-2019  

Classes of Provisions

   ThU.S.$      ThU.S.$  

Provisions, Current

     1,234        1,259  

Provisions for litigations

     1,234        1,259  

Provisions, non-Current

     31,068        31,765  

Provisions for litigations

     7,566        8,265  

Other provisions

     23,502        23,500  
  

 

 

    

 

 

 

Total Provisions

     32,302        33,024  
  

 

 

    

 

 

 

 

     03-31-2020  
     Litigations     

Other

Provisions

     Total  

Movements in Provisions

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

Opening balance

     9,524        23,500        33,024  

Changes in provisions

        

Increase in existing provisions

     742        3        745  

Used provisions

     (115      —          (115

Increase (decrease) in foreign currency exchange

     (1,483      —          (1,483

Other Increases (Decreases)

     132        (1      131  

Total Changes

     (724      2        (722

Closing balance

     8,800        23,502        32,302  
  

 

 

    

 

 

    

 

 

 

 

     12-31-2019  
     Litigations     

Other

Provisions

     Total  

Movements in Provisions

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

Opening balance

     10,797        23,500        34,297  

Changes in provisions

        

Increase in existing provisions

     1,196        —          1,196  

Increase through business combinations

     815        —          815  

Used provisions

     (1,988      —          (1,988

Increase (decrease) in foreign currency exchange

     (1,942      —          (1,942

Other Increases (Decreases)

     646        —          646  

Total Changes

     (1,273      —          (1,273

Closing balance

     9,524        23,500        33,024  
  

 

 

    

 

 

    

 

 

 

Provisions for litigations are related to labor and tax claims whose payment period is uncertain. Other provisions mainly include the recognition of a liability related to investments in associates and joint ventures accounted under the equity method with net asset deficiency at the end of the reporting period, and the constitution of provision for the lawsuit of export duties (see Arauco Argentina’s contingent liability set forth in this note).

 

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March 31, 2020

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

 

 

NOTE 19. INTANGIBLE ASSETS

 

     03-31-2020      12-31-2019  

Classes of Intangible Assets, Net

   ThU.S.$      ThU.S.$  

Intangible assets, net

     104,096        106,252  

Computer software

     46,920        39,065  

Water rights

     5,966        5,966  

Customer

     37,903        39,981  

Other identifiable intangible assets

     13,307        21,240  
  

 

 

    

 

 

 

Classes of intangible Assets, Gross

     220,876        220,222  

Computer software

     123,300        113,487  

Water rights

     5,966        5,966  

Customer

     73,461        74,723  

Other identifiable intangible assets

     18,149        26,046  
  

 

 

    

 

 

 

Classes of accumulated amortization and impairment

     

Total accumulated amortization and impairment

     (116,780      (113,970

Accumulated amortization and impairment, intangible assets

     (116,780      (113,970

Computer software

     (76,380      (74,422

Customer

     (35,558      (34,742

Other identifiable intangible assets

     (4,842      (4,806
  

 

 

    

 

 

 

Reconciliation of the carrying amount of intangible assets at the beginning and end of each reporting period balances

 

     03-31-2020        
     Computer
Software
   

Water

Rights

     Customer     Others     TOTAL  

Reconciliation of intangible assets

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

Opening Balance

     39,065       5,966        39,981       21,240       106,252  

Changes

           

Additions

     1,455       —          —         1,303       2,758  

Disposals

     (32     —          —         —         (32

Amortization

     (2,164     —          (1,283     (82     (3,529

Increase (Decrease) related to foreign currency translation

     (445     —          (795     (113     (1,353

Other Increases (Decreases)

     9,041       —          —         (9,041     —    

Changes Total

     7,855       —          (2,078     (7,933     (2,156

Closing Balance

     46,920       5,966        37,903       13,307       104,096  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

     12-31-2019        
     Computer
Software
    Water
Rights
     Customer     Others     TOTAL  

Reconciliation of intangible assets

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

Opening Balance

     26,545       5,966        41,634       15,948       90,093  

Changes

           

Additions

     17,908       —          —         4,472       22,380  

Additions through business combination

     223       —          2,800       1,300       4,323  

Disposals

     (67     —          —         —         (67

Amortization

     (8,008     —          (4,769     (360     (13,137

Increase (Decrease) related to foreign currency translation

     177       —          316       (120     373  

Other Increases (Decreases)

     2,287       —          —         —         2,287  

Changes Total

     12,520       —          (1,653     5,292       16,159  

Closing Balance

     39,065       5,966        39,981       21,240       106,252  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

     Years of Useful life
(Average)
 

Computer Software

     5  

Customer

     15  

Brands

     7  

The amortization of customer and computer software is presented in the Interim Consolidated Statements of Profit or Loss under the Administrative Expenses line item.

 

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March 31, 2020

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

 

 

NOTE 20. BIOLOGICAL ASSETS

Biological assets comprise forestry plantations, mainly radiata and taeda pine, and to a lesser extent eucalyptus. The plantations are located in Chile, Argentina, Brazil and Uruguay, with a total surface of 1.7 million hectares as of March 31, 20120 out of which 1 million hectares are used for forestry planting, 511 thousand hectares are native forest, 106 thousand hectares are used for other purposes and 108 thousand hectares not yet planted.

For the period ended March 31, 2020, the production volume of logs totaled 4.3 million m3 (5.1 million m3 as of March 31, 2019).

Measurements of fair value of Arauco’s biological assets are classified as Level 3, due to the fact that inputs are not observable. However, this information reflects the assumptions that market participants would use in pricing the asset, including assumptions about risk.

These unobservable inputs were developed using the best information available and includes internal data from Arauco. These unobservable inputs can be adjusted if the available information indicates that other market participants would use different information or there is something specific in Arauco that is not available to other market participants.

The main considerations in determining the fair value of biological assets include the following:

 

 

Arauco uses discounted expected future cash flows of its forest plantations, which are based on a harvest projection date for all existing plantations.

 

 

Current forestry plantations are projected based on a net volume that will not decrease, with a minimum growth equivalent to the current supply demand.

 

 

Future plantations are not considered.

 

 

The harvest of forestry plantations supplies raw materials for all other products that Arauco produces and trades. By directly controlling the development of forests that will be processed, Arauco ensures high quality timber for each of its products.

 

 

Expected cash flows are determined in terms of harvest and expected sale of forestry products, associated with the demand from the Company’s own industrial centers and sales to third parties at market prices. Sales margin of the different products that are harvested in the forest is also considered in the valuation. The changes in the value of the plantations pursuant to the criteria defined above are accounted for in the results for the fiscal year, as established in IAS 41. These changes are presented in the interim Consolidated Statements of Profit or Loss under the line item Other income per function, which as of March 31, 2020 amounted to ThU.S.$52,017 (ThU.S.$ 36,981 as of March 31, 2019). The appraisal of biological assets resulted in a greater cost of the lumber sold in comparison to the real incurred cost, which is presented included in the cost of sales which as of March 31, 2020 amounted to ThU.S.$32,676 (ThU.S.$ 45,876 as of March 31, 2019).

 

 

Forestry plantations are harvested according to the needs of Arauco’s production plants.

 

 

The discount rates used are 6.4% in Chile, 7.9% Brazil, 10.5% in Argentina and 6.9% in Uruguay.

 

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March 31, 2020

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

 

 

 

It is expected that prices of harvested timber are constant in real terms based on market prices.

 

 

Cost expectations with respect to the lifetime of the forests are constant based on estimated costs included in the projections made by Arauco.

 

 

The average crop age by species and country is:

 

     Chile      Argentina      Brazil      Uruguay  

Pine

     24        15        15        —    

Eucalyptus

     12        10        7        10  

The following table sets forth changes in fair value of biological assets considering variations in significant assumptions considered in calculating the fair value of the assets:

 

            ThU.S.$  

Discount rate

     0,5        (129,207
     -0,5        137,426  

Margins (%)

     10        392,634  
     -10        (392,634

The significant unobservable input data used in the measurement of the fair value of biological assets are discount rates and sales margins of the different products that are harvested from the forest. Increases (decreases) in any of these input data considered in isolation would result in a smaller or greater fair value measurement. A change in the assumption used for the probability of a change in the discount rate is accompanied by a change in the opposite direction in the assumption used before a change in the sales margins.

The adjustment to fair value of biological assets is recorded in the Interim Consolidated Statements of Profit or Loss, under the line item Other Income or Other Expenses, depending on whether it corresponds to profits or losses.

Forestry plantations classified as current Biological assets are those to be harvested and sold within twelve months after the reporting period.

The Company has contracted fire insurance policies for its forestry plantations, which in conjunction with the Company’s resources, allow risks to be minimized.

As of the date of these interim consolidated financial statements, there are no committed disbursements for the acquisition of biological assets.

Detail of Biological Assets Pledged as Security

As of March 31, 2020, there are no forestry plantations pledged as security.

 

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March 31, 2020

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

 

 

Detail of Biological Assets with Restricted Ownership

As of the date of these interim consolidated financial statements, there are no biological assets with restricted ownership.

No significant government grants have been received.

Current and Non-Current Biological Assets

As of the date of these interim consolidated financial statements, the Current and Non-current biological assets are as follows:

 

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

Current

     260,744        275,792  

Non-current

     3,347,839        3,393,634  

Total

     3,608,583        3,669,426  
  

 

 

    

 

 

 

Reconciliation of carrying amount of biological assets

 

     03-31-2020  
     Current      Non-current      Total  

Movement

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

Opening Balance

     275,792        3,393,634        3,669,426  

Changes in real incurred cost

     (16,868      (50,389      (67,257

Additions through acquisition and costs of new plantations

     1,725        61,388        63,113  

Sales

     —          (1,206      (1,206

Harvest

     (28,039      —          (28,039

Increases (decreases) in Foreign Currency Translation

     (13,895      (84,490      (98,385

Loss of forest due to fires

     —          (2,740      (2,740

Transfers from non-current to current

     23,341        (23,341      —    

Changes in fair value

     1,820        4,595        6,415  

Gain (losses) arising from changes in fair value minus sale costs

     —          52,017        52,017  

Sales

     —          (851      (851

Harvest

     (42,435      —          (42,435

Loss of forest due to fires

     —          (2,316      (2,316

Transfers from non-current to current

     44,255        (44,255      —    

Total Changes

     (15,048      (45,794      (60,842

Closing balance

     260,744        3,347,840        3,608,584  
  

 

 

    

 

 

    

 

 

 
     12-31-2019  
     Current      Non-current      Total  

Movement

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

Opening Balance

     315,924        3,336,339        3,652,263  

Changes in real incurred cost

     (22,719      90,999        68,280  

Additions through acquisition and costs of new plantations

     9,195        217,562        226,757  

Sales

     —          (2,722      (2,722

Harvest

     (133,335      —          (133,335

Increases (decreases) in Foreign Currency Translation

     4,699        (23,091      (18,392

Loss of forest due to fires

     —          (3,823      (3,823

Transfers from non-current to current

     96,875        (96,875      —    

Other Increases (decreases)

     (153      (52      (205

Changes in fair value

     (17,413      (33,704      (51,117

Gain (losses) arising from changes in fair value minus sale costs

     (6,588      161,294        154,706  

Sales

     —          (4,015      (4,015

Harvest

     (198,089      —          (198,089

Loss of forest due to fires

     —          (3,718      (3,718

Transfers from non-current to current

     187,264        (187,264      —    

Total Changes

     (40,132      57,295        17,163  

Closing balance

     275,792        3,393,634        3,669,426  
  

 

 

    

 

 

    

 

 

 

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 21. ENVIRONMENTAL MATTERS

Environment Management

For Arauco, sustainability means management strategy. This strategy incorporates values, commitments and standards, that together with the adoption of best practices as well as the use of the latest available technologies, seek to continuously improve the Company’s environmental management. It is the environmental department and each of its specialists that ensure these guidelines are met and are put in to practice in everyday company operations.    

All Arauco’s production units have certified environmental management systems, which reinforce the Company’s commitment to environmental performance and ensure the traceability of all raw materials used.

Arauco uses several supplies in its productive processes such as wood, chemical products, and water, etc., which in turn produce liquid and gas emissions. As a way to make the Company’s environmental management more efficient, significant progress has been made to reduce consumption and emissions.

Environmental investments have been made related to the control of atmospheric emissions, process improvements, water and waste management, as well as effluent treatment, in order to improve the environmental performance of all Arauco’s business units.    

These investments are reflected in the Interim Consolidated Financial Statements as Properties, Plants and Equipment when they refer to disbursements in major works executed and are reflected in Expenses when they refer to improvements or management not directly associated with investment projects.

Detail information of disbursements related to the environment

As of March 31, 2020, and December 31, 2019 Arauco has made and / or has committed the following disbursements in major environmental projects:

 

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Unaudited Consolidated Financial Statements

December 31, 2019

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

 

 

03-31-2020

   Disbursements undertaken 2020    Committed
Disbursements
 

Company

  

Name of project

   State of
project
     Amount
ThU.S.$
     Asset
Expense
     Asset/expense
destination item
   Amount
ThU.S.$
     Estimated
date
 

Arauco Florestal Arapoti S.A.

   Environmental improvement studies      In process        —          Assets      Property, plant
and equipment
     241        2020  

Celulosa Arauco y Constitucion S.A.

   Investment projects for the control and management of gas emissions from industrial process      In process        51        Assets      Property, plant
and equipment
     1,826        2020  

Celulosa Arauco y Constitucion S.A.

   Environmental improvement studies      In process        7,052        Assets      Property, plant
and equipment
     46,812        2020  

Celulosa Arauco y Constitucion S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      In process        918        Assets      Property, plant
and equipment
     10,043        2020  

Celulosa Arauco y Constitucion S.A.

   Environmental improvement studies      In process        2,849        Expense      Operating cost      9,915        2020  

Celulosa Arauco y Constitucion S.A.

   Expansion of solid industrial waste dumpsite for management of these in the future      In process        2,440        Expense      Operating cost      6,506        2020  

Arauco Argentina S.A.

   Construction emissary      In process        —          Assets      Property, plant
and equipment
     697        2020  

Arauco Argentina S.A.

   Expansion of solid industrial waste dumpsite for management of these in the future      In process        208        Assets      Property, plant
and equipment
     10,861        2020  

Arauco Argentina S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      In process        32        Assets      Property, plant
and equipment
     311        2020  

Maderas Arauco S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      In process        116        Expense      Operating cost      349        2020  

Maderas Arauco S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      In process        116        Assets      Property, plant
and equipment
     373        2020  

Forestal Arauco S.A.

   Environmental improvement studies      In process        73        Expense      Administration
expenses
     413        2020  

Celulosa y Energía Punta Pereira S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      In process        740        Assets      Property, plant
and equipment
     2,690        2020  

Celulosa y Energía Punta Pereira S.A.

   Environmental improvement studies      Finished        221        Expense      Administration
expenses
     —          —    

Celulosa y Energía Punta Pereira S.A.

   Expansion of solid industrial waste dumpsite for management of these in the future      Finished        545        Assets      Property, plant
and equipment
     —          —    

Celulosa y Energía Punta Pereira S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      Finished        350        Assets      Property, plant
and equipment
     —          —    

Forestal Los Lagos S.A.

   Environmental improvement studies      In process        34        Expense      Operating cost      215        2020  

Arauco North America, Inc

   Environmental improvement studies      In process        925        Assets      Property, plant
and equipment
     —          —    

Arauco North America, Inc

   Environmental improvement studies      Finished        327        Assets      Property, plant
and equipment
     —          —    
        

 

 

          

 

 

    
        TOTAL        16,997              91,252     
        

 

 

          

 

 

    

 

12-31-2019

   Disbursements undertaken 2019    Committed
Disbursements
 

Company

  

Name of project

   State of
project
     Amount
ThU.S.$
     Asset
Expense
     Asset/expense
destination item
   Amount
ThU.S.$
     Estimated
date
 

Celulosa Arauco y Constitución S.A.

   Investment projects for the control and management of gas emissions from industrial process      In process        267        Assets      Property, plant
and equipment
     792        2020  

Celulosa Arauco y Constitución S.A.

   Environmental improvement studies      In process        21,927        Assets      Property, plant
and equipment
     53,111        2020  

Celulosa Arauco y Constitución S.A.

   Investment projects for the control and management of gas emissions from industrial process      Finished        375        Expense      Operating cost      —          —    

Celulosa Arauco y Constitución S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      In process        3,535        Assets      Property, plant
and equipment
     6,595        2020  

Celulosa Arauco y Constitución S.A.

   Environmental improvement studies      Finished        15,570        Expense      Operating cost      —          —    

Celulosa Arauco y Constitución S.A.

   Expansion of solid industrial waste dumpsite for management of these in the future      Finished        348        Assets      Property, plant
and equipment
     —          —    

Celulosa Arauco y Constitución S.A.

   Expansion of solid industrial waste dumpsite for management of these in the future      Finished        7,745        Expense      Operating cost      —          —    

Arauco Argentina S.A.

   Construction emissary      In process        40        Assets      Property, plant
and equipment
     697        2020  

Arauco Argentina S.A.

   Expansion of solid industrial waste dumpsite for management of these in the future      In process        1,174        Assets      Property, plant
and equipment
     1,816        2020  

Arauco Argentina S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      In process        987        Assets      Property, plant
and equipment
     343        2020  

Maderas Arauco S.A.

   Expansion of solid industrial waste dumpsite for management of these in the future      In process        208        Expense      Operating cost      —          —    

Maderas Arauco S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      In process        647        Expense      Operating cost      —          —    

Maderas Arauco S.A.

   Environmental improvement studies      Finished        305        Assets      Property, plant
and equipment
     —          —    

Forestal Arauco S.A.

   Environmental improvement studies      In process        626        Expense      Administration
expenses
     401        2020  

Celulosa y Energía Punta Pereira S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      In process        684        Assets      Property, plant
and equipment
     2,567        2020  

Celulosa y Energía Punta Pereira S.A.

   Expansion of solid industrial waste dumpsite for management of these in the future      In process        400        Assets      Property, plant
and equipment
     100        2020  

Celulosa y Energía Punta Pereira S.A.

   Investment projects for the control and management of hazardous liquids and water energy optimization of industrial plants      Finished        448        Assets      Property, plant
and equipment
     —          —    

Forestal Los Lagos S.A.

   Environmental improvement studies      In process        210        Expense      Operating cost      63        2020  

Arauco North America, Inc

   Environmental improvement studies      In process        945        Assets      Property, plant
and equipment
     530        2020  
        

 

 

          

 

 

    
        TOTAL        56,441              67,015     
        

 

 

          

 

 

    

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 22. NON-CURRENT ASSETS HELD FOR SALE

Arauco decided to sell assets in previous periods corresponding mainly to sawmills in Chile and remains committed to its sales plan.

The following table sets forth information on the main types of non-current assets held for sale:

 

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

Land

     2,407        2,422  

Buildings

     1,256        1,256  

Property, plant and equipment

     634        758  

Total

     4,297        4,436  
  

 

 

    

 

 

 

As of March 31, 2020 and 2019, there were no significant effects on results related to the sale of assets held for sale.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 23. FINANCIAL INSTRUMENTS

23.1 Classification

Arauco’s financial instruments as of March 31, 2020 and December 31, 2019, are displayed in the table below. Regarding those instruments valued at an amortized cost, an estimation of their fair value is displayed for informational purposes.

 

     March 2020      December 2019  

Financial Instruments

Thousands of dollars

   Carrying
amount
     Fair Value      Carrying
amount
     Fair Value  
           

Financial assets at fair value through profit or loss (held for trading)

     22,007        22,007        634,079        634,079  

Derivatives (1)

     19        19        121        121  

Mutual funds (2)

     21,988        21,988        633,958        633,958  

Financial assets at amortized cost

     1,877,338        1,877,338        1,597,356        1,597,356  

Cash and cash equivalents (amortized cost)

     1,133,470        1,133,470        926,054        926,054  

Cash

     214,708        214,708        314,981        314,981  

Time deposits

     918,762        918,762        611,073        611,073  

Accounts Receivable (net)

     676,011        676,011        651,771        651,771  

Trade and other receivables

     589,204        589,204        562,419        562,419  

Lease receivable

     892        892        1,112        1,112  

Other receivables

     85,915        85,915        88,240        88,240  

Accounts receivable due from related parties

     15,233        15,233        17,526        17,526  

Other financial assets (3)

     52,624        52,624        2,005        2,005  

Hedging assets

     68        68        10,639        10,639  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities at amortized cost (4)

     6,593,359        6,189,134        6,733,957        7,001,457  

Bonds issued denominated in U.S. Dollars

     3,518,884        2,968,349        3,502,090        3,554,538  

Bonds issued denominated in U.F. (5)

     1,185,009        1,301,238        1,329,653        1,475,667  

Bank Loans in U.S. Dollars

     921,140        929,576        824,581        874,584  

Bank borrowing denominated in U.S. Dollars

     117,058        138,703        122,441        141,476  

Lease liabilities

     230,595        230,595        271,025        271,025  

Trade and other payables

     616,717        616,717        675,287        675,287  

Accounts payable to related parties

     3,956        3,956        8,880        8,880  

Financial liabilities at fair value through profit or loss

     303        303        33        33  

Hedging Liabilities

     390,524        390,524        134,242        134,242  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The derivatives are presented in the line item “other financial assets” in the interim consolidated statements of financial position.

(2)

Although mutual funds are measured at fair value through profit or loss for purposes of the consolidated statements of financial position mutual funds are classified as “Cash and cash equivalents” due to the are highly liquid short-term investment.

(3)

Corresponds to the balance of assets from margin call for current derivatives (collateral).

(4)

Financial liabilities measured at amortized cost, other than “Trade and other payables”, “Accounts payable to related parties” and derivatives are presented in the interim consolidated statements of financial position in the line item “Other financial liabilities” as current and non-current based on their maturity.

(5)

The Unidad de Fomento (“U.F.”) is a unit of account that is linked to, and is adjusted daily to reflect changes in the Chilean consumer price index.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

23.2 Fair Value Hierarchy of Financial Assets and Liabilities

The assets and liabilities measured at fair value in the interim consolidated statements of financial position as of March 31, 2020, have been measured based on the valuation methodologies provided in IFRS 13. The methodologies applied for each financial instrument are classified according to their hierarchy as follows:

 

 

Level 1: Securities or quoted prices in active markets for identical assets and liabilities

 

 

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

 

 

Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

 

Fair Value

   March 2020
ThU.S.$
     Level 1
ThU.S.$
     Level 2
ThU.S.$
     Level 3
ThU.S.$
 

Financial assets at fair value

           

Derivatives

     19           19     

Mutual Funds

     21,988        21,988        

Hedging assets

     68           68     

Financial liabilities at fair value through profit or loss

     303           303     

Hedging liabilities

     390,524           390,524     

At the closing date of these interim consolidated financial statements, there have been no transfers between the different hierarchy levels.

23.3 Explanation of the valuation of Financial Instruments.

Cash and cash equivalent and accounts receivable

The carrying amount of accounts receivable, cash and cash equivalents (including mutual funds), and other financial assets and liabilities approximate their fair value due to the short-term nature of such instruments.

Derivative financial instruments

Interest rate and currency swaps are valued under the cash flow discount method at the rate applicable according to the transaction’s and counterparties’ risk, using an internal methodology based on the information obtained from Bloomberg. In this particular case, given that cross currency swaps correspond to future flows in UF, U.S. dollars and Euros, Arauco calculates the current value of such flows by using discount curves: the UF zero coupon curve, Dollar zero coupon and the Euro zero coupon.

The fair value of the interest rate swap contracts is calculated by reference to the rate differential between the agreed upon rate and the market rate as of the end date of these financial statements.

The fair value of the currency forward contracts is calculated by reference to the current forward exchange rates of contracts with similar maturity profiles.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The counterparty risk, for the 3 cases, uses the Z-Spread obtained from the curve of the bonds issued by counterparties, and they are deducted from each flow as appropriate.

Financial Liabilities

The fair value of bonds issued was determined with reference to quoted market prices as they have standard terms and conditions.

The fair value of bank borrowings was determined based on discounted cash flow analysis applying the corresponding discount yield curves to the remaining term to maturity.

Disclosures of the fair value of financial liabilities at amortized cost are determined via the use of discounted cash flows, calculated over variables of the observable markets as of the date of informing the consolidated financial statements, and correspond to Level 2 of the fair value hierarchy.

The following table shows the compliance with the financial covenants (level of indebtedness, detailed in section 23.9.3), for the bonds issued prior to the year 2015, as required by domestic indentures (Chile):

 

     March 2020      December 2019  
     ThU.S.$      ThU.S.$  

Interest bearing loans, current (a)

     639,627        529,217  

Other financial liabilities, current

     586,263        460,846  

Current Lease liabilities

     60,914        69,208  

Hedging liabilities current + Financial liabilities at fair value through profit or loss current

     7,550        837  

Interest bearing loans, non-current (b)

     5,333,059        5,520,573  

Other financial liabilities, non-current

     5,546,655        5,452,194  

Non-current lease liabilities

     169,681        201,817  

Hedging liabilities non-current + Financial liabilities at fair value through profit or loss non-current

     383,277        133,438  

Financial debt total (c)

     5,972,686        6,049,790  

Cash and cash equivalents

     1,155,458        1,560,012  

Other financial assets current

     52,638        3,370  

Total Cash (d)

     1,208,096        1,563,382  

Net Financial Debt (e)

     4,764,590        4,486,408  

Non-controlling interests

     6,961,959        7,334,404  

Equity attributable to owners of parent

     30,129        35,011  

Total Equity (f)

     6,992,088        7,369,415  

Debt to equity ratio (g)

     0.68        0.61  

 

(a)

Other Current Financial Liabilities + Current lease liabilities – (Current Hedge Liabilities + Financial Liabilities with changes in current results)

(b)

Other Non-Current Financial Liabilities + Non-current Lease liabilities – (Non-current Hedge Liabilities + Financial Liabilities with changes in non-current results)

(c)

Interest bearing loans, current + Interest bearing loans, non-current

(d)

Cash and Cash Equivalents + Other Current Financial Assets

(e)

Total Financial Debt – Total Cash

(f)

Equity attributable to owners of controlling parent + Non-controlling interests

(g)

Net Financial Debt / Total Equity

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The following table shows the compliance with the financial covenants (level of indebtedness, detailed in section 23.9.3), for the bonds issued after year 2015, as required by domestic indentures (Chile):

 

     March 2020
ThU.S.$
     December 2019
ThU.S.$
 

Other financial liabilities (a)

     6,132,918        5,913,040  

Other financial liabilities, current

     586,263        460,846  

Other financial liabilities, non-current

     5,546,655        5,452,194  

Lease liabilities (b)

     230,595        271,025  

Current lease liabilities

     60,914        69,208  

Non-current lease liabilities

     169,681        201,817  

Financial liabilities at fair value through profit or loss

     303        33  

Hedging liabilities (c)

     390,524        134,242  

Swaps

     381,156        133,390  

Forward

     9,368        852  

Financial debt total (d)

     5,972,686        6,049,790  

Cash and cash equivalents

     1,155,458        1,560,012  

Total Cash (e)

     1,155,458        1,560,012  

Net Financial Debt (f)

     4,817,228        4,489,778  

Non-controlling interests

     6,961,959        7,334,404  

Equity attributable to owners of parent

     30,129        35,011  

Total Equity (g)

     6,992,088        7,369,415  

Debt to equity ratio (h)

     0.69        0.61  

 

(a)

Other Financial Liabilities current + Other Financial Liabilities non-current

(b)

Current lease liabilities + Non-current lease liabilities

(c)

Swaps + Forwards + Options

(d)

Other financial liabilities +Financial liabilities at fair value through profit or loss + Hedging liabilities

(e)

Cash and Cash Equivalents + Other Current Financial Assets

(f)

Total Financial Debt – Total Cash

(g)

Equity attributable to owners of controlling parent + Non-controlling interests

(h)

Net Financial Debt / Total Equity

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The following table sets forth a reconciliation between the financial liabilities and the consolidated statements of financial position as of March 31, 2020 and December 31, 2019:

 

Thousands of dollars

   March 2020  
   Up to 90
days
     From 91
days to 1
year
     Other
current
financial
liabilities,
Total
     From 1
year to 3
years
     From 3
years to 5
years
     More than
5 years
     Other
non-current
financial
liabilities,
Total
     Total  

Bonds obligations

     71,254        200,808        272,062        191,320        567,526        3,672,985        4,431,831        4,703,893  

Bank borrowing

     54,824        251,827        306,651        193,141        471,279        67,127        731,547        1,038,198  

Swap and Forward

     7,550        —          7,550        383,277        —          —          383,277        390,827  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Financial Liabilities, Total (a)

     133,628        452,635        586,263        767,738        1,038,805        3,740,112        5,546,655        6,132,918  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Thousands of dollars

   March 2020  
   Up to 90
days
     From 91
days to 1
year
     Total
Current
     From 1
year to 3
years
     From 3
years to 5
years
     More than
5 years
     Total
non-current
     Total  

Lease liabilities

     15,640        45,274        60,914        94,949        29,724        45,008        169,681        230,595  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Lease liabilities, Total (b)

     15,640        45,274        60,914        94,949        29,724        45,008        169,681        230,595  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Thousands of dollars

   March 2020  
   Up to 90
days
     From 91
days to 1
year
     Total
Current
     From 1
year to 3
years
     From 3
years to 5
years
     More than
5 years
     Total
non-current
     Total  

Trades and other payables

     607,637        6,850        614,487        2,230        —          —          2,230        616,717  

Accounts payable to related companies

     3,956        —          3,956        —          —          —          —          3,956  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accounts Payable, Total (c)

     611,593        6,850        618,443        2,230        —          —          2,230        620,673  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities, Total (a) + (b) + (c)

     760,861        504,759        1,265,620        864,917        1,068,529        3,785,120        5,718,566        6,984,186  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Thousands of dollars

   December 2019  
   Up to 90
days
     From 91
days to 1
year
     Other
current
financial
liabilities,
Total
     From 1
year to 3
years
     From 3
years to 5
years
     More than
5 years
     Other
non-current
financial
liabilities,
Total
     Total  

Bonds obligations

     22,374        254,330        276,704        201,427        577,884        3,775,728        4,555,039        4,831,743  

Bank borrowing

     69,971        113,334        183,305        196,611        502,772        64,334        763,717        947,022  

Swap and Forward

     837        —          837        133,438        —          —          133,438        134,275  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Financial Liabilities, Total (a)

     93,182        367,664        460,846        531,476        1,080,656        3,840,062        5,452,194        5,913,040  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Thousands of dollars

   December 2019  
   Up to 90
days
     From 91
days to 1
year
     Total
Current
     From 1
year to 3
years
     From 3
years to 5
years
     More than
5 years
     Total
non-current
     Total  

Lease liabilities

     21,518        47,690        69,208        117,608        46,408        37,801        201,817        271,025  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Lease liabilities, Total (b)

     21,518        47,690        69,208        117,608        46,408        37,801        201,817        271,025  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Thousands of dollars

   December 2019  
   Up to 90
days
     From 91
days to 1
year
     Total
Current
     From 1
year to 3
years
     From 3
years to 5
years
     More than
5 years
     Total
non-current
     Total  

Trades and other payables

     672,809        248        673,057        2,230        —          —          2,230        675,287  

Accounts payable to related companies

     8,880        —          8,880        —          —          —          —          8,880  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accounts Payable, Total (c)

     681,689        248        681,937        2,230        —          —          2,230        684,167  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities, Total (a) + (b) + (c)

     796,389        415,602        1,211,991        651,314        1,127,064        3,877,863        5,656,241        6,868,232  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

23.4 Derivative Instruments

Hedging instruments recorded as of March 31, 2020 are cash flow hedges. Arauco uses derivatives for hedging purposes, such as cross currency swaps, currency and commodity forwards, interest rate swaps, and options. Depending on the fair value of each instrument, the position could be either an asset or a liability, and they are listed in the Interim Contolidated Statements of Financial Position under Other Non-Current Financial Assets or Other Non-Current Financial Liabilities, respectively. The effects for the period are presented in Consolidated statement of changes in equity as Other Comprehensive Income or the Statements of Comprehensive Income as Finance Income or Finance Costs, net of differences in exchange rate of the hedged items and the deferred tax.

A summary of the derivative financial instruments included in the interim consolidated statements of financial position as of March 31, 2020 and December 31, 2019, is presented below:

 

Financial Instruments

   March 2020
Fair Value ThU.S.$
     December 2019
Fair Value ThU.S.$
 

Assets at fair value through profit or loss (held for trading)

     19        121  

Derivatives (1)

     —          121  

Forward (2)

     19        —    

Hedging Assets

     68        10,639  

Derivatives (1)

     68        5,827  

Cross Currency Swaps

     —          4,812  

Financial liabilities at fair value through profit or loss

     (303      (33

Derivatives (1)

     (287      (19

Forward (2)

     (16      (14

Hedging Liabilities

     (390,524      (134,242

Cross Currency Swaps

     (56,171      (22,842

Derivatives (1)

     (334,353      (111,400

 

(1)

Includes Swap and Forward from Uruguay tables and Forward from Chile.

(2)

Includes Forwards from Colombia and Chile.

23.4.1. Chile

Cross currency swaps

Arauco is exposed to the risk of variability in cash flows from changes in foreign exchange rates and inflation, mainly due to balances of assets denominated in U.S. Dollars and other currencies different from the functional currency, which causes mismatches that could affect operating results.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Below are the cross currency swaps that Arauco has as of March 31, 2020 and December 31, 2019 to cover the exposure to the exchange rate risk generated from bonds denominated in U.F.:

 

Bond

  

Institution

   Amount U.S.$      Amount U.F.      Starting date      Ending date      March 2020
Fair Value
ThU.S.$
    December 2019
Fair Value
ThU.S.$
 

F

   Deutsche - England      39,653,006        909,091        10-30-2011        10-30-2021        (8,418     (4,435

F

   JP Morgan - N.A.      39,653,006        909,091        10-30-2011        10-30-2021        (8,376     (4,392

F

   Scotiabank - Chile      34,933,122        909,091        10-30-2014        04-30-2023        (3,861     615  

F

   Scotiabank - Chile      34,889,941        909,091        10-30-2014        04-30-2023        (3,685     801  

F

   Santander - Chile      34,524,604        909,091        10-30-2014        04-30-2023        (3,301     1,214  

F

   BCI - Chile      34,201,420        909,091        10-30-2014        04-30-2023        (2,932     1,611  

F

   Banco de Chile - Chile      34,524,605        909,091        04-30-2019        10-30-2029        (4,795     418  

J

   Itau - Chile      42,864,859        1,000,000        09-01-2010        09-01-2020        (9,105     (5,123

J

   Scotiabank - Chile      42,864,859        1,000,000        09-01-2010        09-01-2020        (9,105     (5,123

J

   Deutsche - U.K.      42,864,859        1,000,000        09-01-2010        09-01-2020        (9,109     (5,132

J

   Santander - Spain      42,873,112        1,000,000        09-01-2010        09-01-2020        (9,106     (5,118

J

   Scotiabank - Chile      42,864,257        1,000,000        09-01-2010        09-01-2020        (9,081     (5,075

P

   Itau - Chile      46,474,122        1,000,000        05-15-2012        11-15-2021        (11,287     (7,100

P

   JP Morgan - N.A.      47,163,640        1,000,000        11-15-2012        11-15-2021        (11,579     (7,420

P

   Scotiabank - Chile      42,412,852        1,000,000        11-15-2013        11-15-2023        (7,142     (2,416

P

   Santander - Chile      41,752,718        1,000,000        11-15-2013        11-15-2023        (6,402     (1,609

P

   Deutsche - U.K.      41,752,718        1,000,000        11-15-2013        11-15-2023        (6,388     (1,594

Q

   BCI - Chile      16,194,459        375,000        10-01-2014        04-01-2021        (3,452     (1,755

Q

   BCI - Chile      16,198,761        375,000        10-01-2014        04-01-2021        (3,444     (1,747

R

   Santander - Chile      128,611,183        3,000,000        10-01-2014        04-01-2024        (25,114     (11,059

R

   JP Morgan - U.K      43,185,224        1,000,000        10-01-2014        04-01-2024        (8,146     (3,461

R

   Itau - Chile      43,277,070        1,000,000        10-01-2014        04-01-2024        (8,166     (3,486

S

   Santander - Chile      201,340,031        5,000,000        11-15-2016        11-15-2026        (27,219     153  

W

   Goldman Sachs - N.A.      40,521,750        1,000,000        10-10-2018        10-10-2028        (8,961     (3,360

W

   Scotiabank - Chile      40,537,926        1,000,000        10-10-2018        10-10-2028        (8,934     (3,169

W

   Goldman Sachs - N.A.      40,066,555        1,000,000        10-10-2018        10-10-2028        (8,455     (2,766

X

   Santander - Chile      118,400,504        3,000,000        10-10-2018        10-10-2038        (26,684     (1,036

X

   Santander - Chile      97,971,786        2,500,000        10-10-2018        10-10-2038        (22,088     (614
                 

 

 

   

 

 

 
                    (274,335     (82,178
                 

 

 

   

 

 

 

Additionally, as of March 31, 2020 and December 31, 2019, Arauco maintains cross currency swaps contracts to cover the exposure to the risk of the exchange rate for bank contracts in Euro, as shown in the following table:

 

Institution

   Amount U.S.$      Amount EUR      Starting date      Ending date      March 2020
Fair Value ThU.S.$
    December 2019
Fair Value ThU.S.$
 

Santander - Chile

     118,670,000        100,000,000        06-15-2021        12-15-2029        (12,039     (4,903

Banco de Chile - Chile

     59,335,000        50,000,000        06-15-2021        12-15-2029        (5,998     (2,428

MUFG - N.A.

     118,670,000        100,000,000        06-15-2021        12-15-2029        (11,991     (4,846

JP Morgan - N.A.

     237,340,000        200,000,000        06-15-2021        12-15-2029        (23,989     (9,740

HSBC - N.A.

     59,335,000        50,000,000        06-15-2021        12-15-2029        (6,001     (2,493
              

 

 

   

 

 

 
                 (60,018     (24.410
              

 

 

   

 

 

 

Arauco needs to minimize the risk of the exchange rate, as it holds debt in other currencies different from U.S. dollars. The objective of this position in the swap is to eliminate the uncertainty of the exchange rate, exchanging the flows derived from obligations expressed in other currencies of the liabilities described above, with flows in U.S. dollars (Arauco’s functional currency), at a fixed and determined exchange rate as of the agreement’s execution date.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Forward

Arauco maintains, as of March 31, 2020 and December 31, 2019, forward contracts to hedge the exchange rate risk exposure in connection with construction company contracts in local currency, as follows:

 

Institution

   Amount U.S.$      Amount CLP      Starting date      Ending date      March 2020
Fair Value

ThU.S.$
    December 2019
Fair Value

ThU.S.$
 

Banco de Chile - Chile

     33,208,937        22,904,204,187        10-11-2019        12-11-2020        (6,061     (3,543

Banco de Chile - Chile

     33,165,659        22,904,204,187        10-11-2019        12-11-2020        (6,018     (3,482

BCI - Chile

     33,112,916        22,904,204,187        10-11-2019        12-11-2020        (5,967     (3,408

Itau - Chile

     33,141,664        22,904,204,187        10-11-2019        12-11-2020        (5,995     (3,449

Itau - Chile

     32,955,689        22,904,204,187        10-11-2019        12-11-2020        (5,814     (3,188

Itau - Chile

     33,539,772        23,468,449,346        10-11-2019        12-11-2020        (5,737     (3,065

BCI - Chile

     32,708,640        23,468,449,346        10-11-2019        12-11-2020        (4,928     (1,855

Itau - Chile

     38,996,478        30,340,039,912        01-10-2020        12-11-2020        (3,158     2,131  

Scotiabank - Chile

     38,962,424        30,340,039,912        01-10-2020        12-11-2020        (3,125     2,175  
              

 

 

   

 

 

 
                 (46,803     (17,684
              

 

 

   

 

 

 

Through an effectiveness test, and pursuant to IFRS 9, we were able to validate that the aforementioned hedging instruments are highly effective within an acceptable range for Arauco, for the purposes of eliminating the uncertainty of the exchange rate in the commitments derived from the hedged object.

23.4.2. Colombia

Forward contracts that are in force and effect, executed by Arauco Colombia as of March 31, 2020 and December 31, 2019, are detailed in the following table:

 

Exchange rate

   Institution      Amount ThU.S.$      Starting date      Ending date      March 2020
Fair Value
ThU.S.$
 

USDCOP

     Itaú Corpbanca Colombia        1,500        02-11-2020        04-13-2020        (16

USDCOP

     Itaú Corpbanca Colombia        2,100        02-26-2020        05-19-2020        19  

USDCOP

     Itaú Corpbanca Colombia        1,400        03-27-2020        06-23-2020        —    
              

 

 

 
                 3  
              

 

 

 

Exchange rate

   Institution      Amount
ThU.S.$
     Starting date      Ending date      December 2019
Fair Value
ThU.S.$
 

USDCOP

     Corpbanca Colombia        2,100        11-07-2019        01-14-2020        (8

USDCOP

     Corpbanca Colombia        1,700        11-25-2019        02-11-2020        (6
              

 

 

 
                 (14
              

 

 

 

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

23.4.3. Uruguay

Forward

As of March 31, 2020 and December 31, 2019, Arauco through its subsidiaries as a joint operation (50%) in Uruguay maintains the following forward contracts in force and effect for the purposes of ensuring an exchange rate for sale of dollars:

 

Exchange rate

   Institution      Notional
ThU.S.$
     March 2020
Fair Value
ThU.S.$
 

UYUUSD

     Santander - Uruguay            12.055        (1,540

UYUUSD

     HSBC - Uruguay        10.765        (1,478

UYUUSD

     Itaú - Uruguay        2.310        (248

EURUSD

     Citibank U.K.        833        (41
     

 

 

    

 

 

 
           (3,307 )
        

 

 

 

Exchange rate

   Institution      Notional
ThU.S.$
     December 2019
Fair Value
ThU.S.$
 

UYUUSD

     Santander - Uruguay        8,070        (182

UYUUSD

     HSBC - Uruguay        12,915        (264

UYUUSD

     Citibank U.K.        1,500        (101

UYUUSD

     Itaú - Uruguay        3,710        (4

EURUSD

     Citibank U.K.        833        (20
     

 

 

    

 

 

 
           (571
        

 

 

 

Arauco Uruguay’s profits and through its subsidiaries as a joint operation (50%), also face exposure to the price variation of certain fuels, as occurs with Fuel Oil N°6, which is used during the pulp manufacturing process. In order to minimize this risk, the volatility of future flows associated to the purchase of Fuel Oil No. 6 for years 2020 and 2021 has been limited through forwards of this commodity. The agreements that are in force and effect as of March 31, 2020 and December 31, 2019, are detailed below:

 

Commodity

   Institution    Notional
ThU.S.$
     March 2020
Fair Value
ThU.S.$
 

Fuel Oil N°6

   JP Morgan - N.A.      8,626        (3,389

Fuel Oil N°6

   DNB Bank ASA      4,751        (2,178
     

 

 

    

 

 

 
           (5,567
        

 

 

 

Commodity

   Institution    Notional
ThU.S.$
     December 2019
Fair Value
ThU.S.$
 

Fuel Oil N°6

   JP Morgan - N.A.      6,925        878  

Fuel Oil N°6

   DNB Bank ASA      5,241        472  
     

 

 

    

 

 

 
           1,350  
        

 

 

 

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Interest Rate Swap

In addition, Arauco through its subsidiaries as a joint operation (50%) in Uruguay maintains an Interest Rate Swap in force and effect, a derivative instrument which purpose is to set the interest rate of a variable rate debt in the same currency (USD). The valuation off this instrument as of March 31, 2020 and December 31, 2019 is shown below:

 

Exchange rate

   Institution    Notional
ThU.S.$
     March 2020
Fair Value
ThU.S.$
 

USD

   DNB Bank ASA      29,539        (713

Exchange rate

   Institution    Notional
ThU.S.$
     December 2019
Fair Value
ThU.S.$
 

USD

   DNB Bank ASA      33,758        (8

23.5 Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. In the interim consolidated statements of financial position, they are included in line items “Cash and cash equivalents” (certain components of cash and cash equivalents), “Trade and Other Current/Non-Current Receivables” and “Accounts receivable from related parties”.

Loans and receivables are measured at amortized cost using the effective interest method and are tested for impairment. Financial assets that are classified as loans and receivables are: cash and cash-equivalents, time deposits, repurchase agreements, trade and other current/non-current receivables, and accounts receivable from related parties

As of March 31, 2020 and December 31, 2019, there are provisions for impairment for ThU.S.$ 16,317 and ThU.S.$ 16,368, respectively.

 

     March 2020
ThU.S.$
     December 2019
ThU.S.$
 

Financial assets at amortized cost

     1,877,338        1,597,356  

Cash and cash equivalents (Mutual Funds not included)

     1,133,470        926,054  

Cash

     214,708        314,981  

Time Deposits

     918,762        611,073  

Trade and other receivables (net)

     691,244        669,297  

Trade and other receivables

     589,204        562,419  

Lease receivable

     892        1,112  

Other receivables

     85,915        88,240  

Accounts receivable from related parties

     15,233        17,526  

Other financial assets

     52,624        2,005  

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

23.5.1. Cash and Cash Equivalents

Includes cash on hand, bank checking account balances and time deposits and other short term highly liquid investments with an original maturity of three months or less. They are short-term, highly liquid investments that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of changes in value.

The composition of cash and cash equivalents (including the balance of mutual funds displayed in this note as valuation, instruments at fair value with profit or loss) at March 31, 2020 and December 31, 2019, classified by currency is as follows:

 

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

Cash and Cash Equivalents

     1,155,458        1,560,012  

U.S. Dollars

     966,267        1,412,688  

Euro

     2,525        2,264  

Mexican pesos

     19,850        13,684  

Other currencies

     67,624        68,916  

Chilean pesos

     99,192        62,460  

23.5.2 Time Deposits and Repurchase Agreements: The investment objective of time deposits and repurchase agreements is to maximize in the short-term the amounts of cash surpluses. These instruments are authorized by Arauco’s Investment Policy, which allows investing in fixed income securities. These instruments have a maturity of less than three months from the date of acquisition.

23.5.3 Trade and Other Receivables: These represent enforceable rights for Arauco resulting from the normal course of the business.

23.5.4 Other Receivables: These correspond to receivables from sales, services or loans that are not considered within the normal course of the business.

The allowance for doubtful accounts is presented as a deduction of trade and other receivables. The provision for doubtful accounts is established based on an analysis of the age of the portfolio and considering the insurance coverage on accounts receivable. Other conditions are assessed for example when there is objective evidence that Arauco will not receive payments under the original sale terms and when the customer is a party to a bankruptcy court agreement or cessation of payments, and is written-off when Arauco has exhausted all levels of recovery of the receivable in a reasonable time.

 

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March 31, 2020

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

 

 

23.5.5 Accounts receivable from related parties: Represent enforceable rights for Arauco resulting from the normal course of business, calling normal to the line of business, activity or purpose of exploitation and financing, and which Arauco owns a non-controlling ownership of the counterparty.

The following table sets forth trade and other current/non-current receivables classified by currencies as of March 31, 2020 and December 31, 2019:

 

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

Trades and other current receivables

     667,435        642,315  

U.S. Dollars

     486,327        435,663  

Euros

     9,515        8,483  

Mexican pesos

     35,839        33,981  

Other currencies

     54,221        74,544  

Chilean pesos

     79,071        86,954  

U.F.

     2,462        2,690  

Accounts receivable from related parties, current

     15,233        17,526  

U.S. Dollars

     1,548        1,319  

Other currencies

     430        197  

Chilean pesos

     12,757        15,512  

U.F.

     498        498  

Trade and other non-current receivables

     8,576        9,456  

U.S. Dollars

     3,673        3,691  

Other currencies

     180        351  

Chilean pesos

     2,423        2,983  

U.F.

     2,300        2,431  

23.6 Financial Liabilities

Arauco’s financial liabilities to the date of these interim consolidated financial statements are as follows:

 

Financial Liabilities

   March 2020
ThU.S.$
     December 2019
ThU.S.$
 

Total Financial Liabilities

     6,984,186        6,868,232  

Financial liabilities at fair value through profit or loss (held for trading)

     303        33  

Hedging Liabilities

     390,524        134,242  

Financial Liabilities Measured at Amortized Cost

     6,593,359        6,733,957  

The following table sets forth the current portion of the non-current bank borrowings and debt issued as of March 31, 2020 and December 31, 2019.

 

     March 2020
ThU.S.$
     December 2019
ThU.S.$
 

Bank borrowings - current portion

     62,079        62,220  

Bonds issued - current portion

     103,805        85,641  

Total

     165,884        147,861  
  

 

 

    

 

 

 

 

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March 31, 2020

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

 

 

23.7 Financial Liabilities Measured at Amortized Cost

Financial liabilities correspond to non-derivative financial instruments with contractual cash-flow payments that can be either fixed or variable.    

Also, this category includes those non-derivative financial liabilities for services or goods delivered to Arauco at the end of each reporting period that have not yet been paid. These amounts are not insured and are generally paid within thirty days after being recognized.

At the end of each reporting period, Arauco includes in this category bank borrowings, bonds issued denominated in U.S. Dollars and in U.F., lease liabilities, and trade and other payables.

 

          03-31-2020      12-31-2019      03-31-2020      12-31-2019  
     Currency    ThU.S.$      ThU.S.$      ThU.S.$      ThU.S.$  
     Amortized Cost      Fair Value  

Total Financial Liabilities

        6,593,359        6,733,957        6,189,134        7,001,457  

Bonds Issued

   U.S. Dollar      3,518,884        3,502,090        2,968,349        3,554,538  

Bonds Issued

   U.F.      1,185,009        1,329,653        1,301,238        1,475,667  

Bank borrowings

   U.S. Dollar      921,140        824,581        929,576        874,584  

Bank borrowings

   Euro      113,354        116,259        138,703        141,476  

Bank borrowings

   Other currencies      3,704        6,182        —          —    

Lease liabilities

   U.F.      33,617        41,633        33,617        41,633  

Lease liabilities

   Chilean pesos      86,704        107,046        86,704        107,046  

Lease liabilities

   Mexican pesos      7,927        10,025        7,927        10,025  

Lease liabilities

   U.S. Dollar      81,535        83,585        81,535        83,585  

Lease liabilities

   Euro      —          52        —          52  

Lease liabilities

   Other currencies      20,812        28,684        20,812        28,684  

Trades and Other Payables

   U.S. Dollar      173,237        157,754        173,237        157,754  

Trades and Other Payables

   Euro      6,071        20,414        6,071        20,414  

Trades and Other Payables

   Mexican pesos      26,360        22,272        26,360        22,272  

Trades and Other Payables

   Other currencies      85,755        94,946        85,755        94,946  

Trades and Other Payables

   Chilean pesos      298,461        348,155        298,461        348,155  

Trades and Other Payables

   U.F.      26,833        31,746        26,833        31,746  

Accounts payable to related parties

   U.S. Dollar      2,350        454        2,350        454  

Accounts payable to related parties

   Chilean pesos      1,606        8,426        1,606        8,426  
  

 

  

 

 

    

 

 

    

 

 

    

 

 

 

The financial liabilities at amortized cost presented in the consolidated statements of financial positions as of March 31, 2020 and December 31, 2019 are as follows:

 

     March 2020
ThU.S.$
 
     Current      Non-Current      Total  

Other financial liabilities

     578,713        5,163,378        5,742,091  

Lease liabilities

     60,914        169,681        230,595  

Trade and other payables

     614,487        2,230        616,717  

Accounts payable to related parties

     3,956        —          3,956  
  

 

 

    

 

 

    

 

 

 

Total Financial Liabilities Measured at Amortized Cost

     1,258,070        5,335,289        6,593,359  
  

 

 

    

 

 

    

 

 

 
     December 2019
ThU.S.$
 
     Current      Non-Current      Total  

Other financial liabilities

     460,009        5,318,756        5,778,765  

Lease liabilities

     69,208        201,817        271,025  

Trade and other payables

     673,057        2,230        675,287  

Accounts payable to related parties

     8,880        —          8,880  
  

 

 

    

 

 

    

 

 

 

Total Financial Liabilities Measured at Amortized Cost

     1,211,154        5,522,803        6,733,957  
  

 

 

    

 

 

    

 

 

 

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

23.8 Cash Flow Hedges Reserve Reconciliation

The following table sets forth the reconciliation balances of cash flow hedges presented in the interim consolidated statements of comprehensive income:

 

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

Opening balance

     9,010        13,395  

Gains (losses) on cash flow hedges

     (103,466      (4,823

Recycle of cash flow hedges to profit or loss

     (2,797      (2,148

Income tax

     27,786        3,718  

Closing balance

     (69,467      10,142  
  

 

 

    

 

 

 

23.9 Capital Disclosures

23.9.1 Information on Objectives, Policies and Processes applied by the Company regarding Capital Management

Arauco’s policies on capital management have the objective of:

 

a)

Ensuring business continuity and normal operations in the long term;

 

b)

Ensuring funding for new investments to achieve sustainable growth over time;

 

c)

Keeping adequate capital structure considering all economic cycles that impact the business and the nature of the industry; and

 

d)

Maximizing the Company’s value and providing an adequate return to shareholders.

23.9.2 Qualitative Information on Objectives, Policies and Processes applied by the Company regarding Capital Management

Arauco determines and manages its capital structure based on its carrying amount of equity plus its financial debt (bank borrowings and bonds issued).

23.9.3 Quantitative Information on Capital Management

The following table sets forth the financial covenants that the Company has to comply with as part of the terms of certain of its obligations:

 

Instrument

   March 2020
ThU.S.$
     December 2019
ThU.S.$
     Interest
coverage
>= 2,0x
   Debt level
(1)
<= 1,2x

Domestic bonds (Chile)

     1,185,009        1,329,653      N/A   

Syndicate Loan Scotiabank

     199,154        200,703        

Syndicate Loan Banco Estado - Grayling

     304,130        301,452        

Syndicate ECA Banco BNP Paribas

     113,354        116,259        

N/R: Not required for the financial obligation

(1)

Debt to equity ratio (financial debt divided by equity plus non-controlling interests)

As of March 31, 2020 and December 31, 2019, Arauco has complied with all of its financial covenants.

 

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March 31, 2020

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

 

 

The following table sets forth the credit ratings of our debt instruments as of March 31, 2020 and December 31, 2019, are as follows:

 

Instrument

   Standard &
Poor’s
     Fitch Ratings      Moody’s      Feller Rate  

Local bonds

     —          AA-        —          AA  

Foreign bonds

     BBB-        BBB        Baa3        —    

Capitalization requirements are established based on the Company’s financial needs and on maintaining an adequate liquidity level and complying with financial covenants established in current debt arrangements. The Company manages its capital structure and makes adjustments based on the prevailing economic conditions in order to mitigate the risks associated with adverse market conditions and based on opportunities that may arise to improve the Company’s level of liquidity.

The capitalization of Arauco as of March 31, 2020 and December 31, 2019 is as follows:

 

     March 2020      December 2019  
     ThU.S.$      ThU.S.$  

Equity

     6,992,088        7,369,415  

Bank borrowings

     1,038,198        947,022  

Lease liabilities

     230,595        271,025  

Bonds issued

     4,703,893        4,831,743  
  

 

 

    

 

 

 

Capitalization

     12,964,774        13,419,205  
  

 

 

    

 

 

 

23.10 Risk Management

Arauco’s financial instruments are exposed to various financial risks: credit risk, liquidity risk and market risk (including exchange rate risks, interest rate risks and price risks).

Arauco’s overall risk management program focuses on uncertainty in financial markets and aims to minimize potential adverse effects on Arauco’s financial profitability.

Arauco’s financial risk management is overseen by the Corporate Finance Department. This department identifies, assesses and hedges financial risks in close collaboration with Arauco’s operational units.

23.10.1 Type of Risk: Credit Risk

Description

Credit risk refers to financial uncertainty at different periods of time relating to the fulfillment of obligations with counterparties, at the time of exercising the contract rights to receive cash or other financial assets on behalf of Arauco.    

 

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March 31, 2020

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

 

 

Explanation of Credit Risk Exposure and How This Risk Arises

Arauco’s exposure to credit risk is directly related to each of its customer’s individual abilities to fulfill their contractual commitments, reflected in trade receivables.

Accounts exposed to credit risk are: trade receivables, financial lease debtors and other debtors.

Arauco does not have a securitized portfolio.

 

     March 2020      December 2019  
     ThU.S.$      ThU.S.$  

Current Receivables

     

Trade receivables

     586,196        559,164  

Financial lease receivables

     748        912  

Other debtors

     80,491        82,239  

Net subtotal

     667,435        642,315  

Trade receivables

     595,178        568,123  

Financial lease receivables

     748        912  

Other debtors

     84,168        85,848  

Gross subtotal

     680,094        654,883  

Provision for doubtful trade receivables

     8,982        8,959  

Provision for doubtful lease receivables

     —          —    

Provision for doubtful other debtors

     3,677        3,609  

Subtotal Bad Debt

     12,659        12,568  

Non-Current Receivables

     

Trade receivables

     3,008        3,255  

Financial lease receivables

     144        200  

Other debtors

     5,424        6,001  

Net Subtotal

     8,576        9,456  

Trade receivables

     6,666        7,055  

Financial lease receivables

     144        200  

Other debtors

     5,424        6,001  

Gross subtotal

     12,234        13,256  

Provision for doubtful trade receivables

     3,658        3,800  

Provision for doubtful lease receivables

     —          —    

Provision for doubtful other debtors

     —          —    

Subtotal Bad Debt

     3,658        3,800  

Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods

The Credit and Collections Sub-Division, dependent from the Treasury Division, is the area entrusted with minimizing the credit risk of the accounts receivable, supervising the delinquency of the accounts. The regulations and procedures applicable for the control and administration of the Arauco Group can be found in the Corporate Credit Policy.

As of March 31, 2020, Arauco’s balance for commercial Debtors was ThU.S.$ 601,844 of which, according to the agreed sales conditions, 62.28% corresponded to sales on credit (open account), 36.85% to sales with letters of credit and 0.87% to other types of sales, distributed in 2,902 debtors. The client with the largest Open Account debt represented 3.29% of the total accounts receivable as of that date.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Below we provide detail regarding accounts receivable, classified in tranches:

 

March 31, 2020

 

Age of trade receivables  

Days

   Non-past due     1 to 30     31 to 60     61 to 90     91 to 120     121 to 150     151 to 180     181 to 210     211 to 250     More
than
250
    Total  

ThU.S.$

     552,836       34,921       726       11       237       432       130       64       78       12,409       601,844  

%

     91.86     5.80     0.12     0.00     0.04     0.07     0.02     0.01     0.01     2.06     100

December 31, 2019

 

                   
Age of trade receivables

 

Days

   Non-past due     1 to 30     31 to 60     61 to 90     91 to 120     121 to 150     151 to 180     181 to 210     211 to 250     More
than
250
    Total  

ThU.S.$

     531,881       28,469       899       309       18       846       22       34       389       12,311       575,178  

%

     92.47     4.95     0.16     0.05     0.00     0.15     0.00     0.01     0.07     2.14     100

Arauco applies the simplified approach regarding the expected losses from commercial debtors, which allows for the use of an estimate of expected credit losses over the instrument’s lifespan for all commercial accounts receivable. In order to establish this estimate, the commercial debtors have been grouped in relation to the corresponding risks for sales conditions as well as for tranches, including clients that are up-to-date or in default.

 

Days

  Non-past due     1 to 30     31 to 60     61 to 90     91 to 120     121 to 150     151 to 180     181 to 210     211 to 250     More
than
250
    Total  

Letters of credit

    218,396       3,310       48       —         —         —         —         —         —         —         221,754  

Loss allowance provision

    —         —         —         —         —         —         —         —         —         —         —    

Expected loss rate

    0.00     0.00     0.00     0.00     0.00     0.00     0.00     0.00     0.00     0.00  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Credit line

    331,021       30,075       488       10       237       432       130       64       77       12,302       374,836  

Loss allowance provision

    —         —         5       1       24       44       13       64       77       12,302       12,530  

Expected loss rate

    0.00     0.00     1.00     10.00     10.00     10.00     10.00     100.00     100.00     100.00  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Others

    3,419       1,536       190       1       —         —         —         —         1       107       5,254  

Loss allowance provision

    —         —         2       —         —         —         —         —         1       107       110  

Expected loss rate

    0.00     0.00     1.00     0.00     0.00     0.00     0.00     0.00     100.00     100.00  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Trade receivables, total (ThU.S.$)

    552,836       34,921       726       11       237       432       130       64       78       12,409       601,844  

Allowance for doubtful accounts, total (ThU.S.$)

    —         —         7       1       24       44       13       64       78       12,409       12,640  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Arauco does not conduct rescheduling or renegotiations with its clients that imply an amendment to the maturity of the invoices and, should it be necessary, any debt renegotiation with a client shall be analyzed on a case-by-case basis and subjected to the approval of the Corporate Finance Division.

Regarding the loss allowance provision for trade receivables and others, below we provide detail for the movements as of March 31, 2020 and December 31, 2019:

 

     March 2020      December 2019  
     ThU.S.$      ThU.S.$  

Opening loss allowance as at January 1

     (16,368      (15,147

Increase in loan loss allowance recognised in profit or loss during the year

     (193      (2,506

Receivables written off during the year as uncollectible

     12        163  

Unused amount reversed

     232        1,122  

Closing balance

     (16,317      (16,368
  

 

 

    

 

 

 

Currently there is a policy for provisions for doubtful accounts receivable under IFRS for all the Arauco group companies.

 

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March 31, 2020

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

 

 

Explanation regarding the Sales Risk with Letters of Credit

The sales with letters of credit mainly occur in markets in Asia and the Middle East. Periodically, a credit assessment is conducted regarding the banks that issue the letters of credit with the purpose of obtaining their score over the basis of risk-qualification ratings, country-specific risk and financial statements. The decision of approving the issuing bank or asking for confirmation of the letter of credit is made in consideration to this assessment.

Explanation of the Sales Risk with Credit Line

Sales on credit are subject to the credit limit for each customer. The approval or rejection of a credit limit for all term sales is conducted by the Corporate Credit Sub-Division, as well as by the Credit and Collections area for North America, Brazil and Argentina, which report to the Corporate Finance Division. The regulations and procedures applicable for the correct control and risk management over the sales on credit are ruled by the Credit Policy.

A procedure that must be applied by all the companies of the Arauco group has been established for the approval and/or modification of client credit lines. Credit line requests are entered to the SAP that analyzes all available information. Afterwards, the same are either approved or rejected in each one of the internal committees of each company belonging to the Arauco group, depending on the maximum amount authorized by the Credit Policy. Lines of credit are renewed during this internal process on a yearly basis.

All sales are automatically controlled by a credit verification system, which has been configured to block any orders from clients who are delinquent in a given percentage of a debt and/or from clients whose line of credit, as of the time of the product’s shipping, has been exceeded or is overdue.

In order to minimize the credit risk for term or Open Account sales, it is Arauco’s policy to take out insurance to cover the export sales of companies Celulosa Arauco y Constitución S.A., Maderas Arauco S.A., Forestal Arauco S.A., Arauco Argentina S.A., and Arauco do Brasil S.A., as well as the domestic sales of Arauco Europe Coöperatief U.A., Arauco Argentina S.A., Araucomex S.A. de C.V., Arauco Industria de México, S.A. de C.V., Arauco Colombia S.A., Arauco Perú S.A., Arauco North America, Inc., Arauco Canada Ltd., Celulosa Arauco y Constitución S.A., Maderas Arauco S.A., Arauco Florestal Arapoti, Arauco Forest Brasil S.A., Arauco do Brasil S.A., Arauco Industria de Paineis Ltda. and Arauco Nutrientes SPA. Arauco works with credit insurance company Euler Hermes World Agency (Aa3 rating, as per risk rating companies Moody’s and AA by S&P). The company grant a 90% coverage over the amount of each invoice, without deductibles, for registered clients and of 90% for non-registered clients (*).

(*) Non-registered clients are those whose lines are under ThU.S.$ 100 (equivalent currency of their invoicing) of the credit sales for all companies in the Arauco group that have a valid insurance policy. The top lines are from nominated clients.

As another way of minimizing risk and supporting a line of credit approved by the Credit Committee, Arauco holds guarantees such as mortgages, pledges, Standby letters of credit, bank performance bonds, checks, promissory notes, loans or any other that could be required under the laws of each country. The total amount held in guarantees amounts to ThU.S.$91,989, effective as of March 2020, as summarized in the following chart. The procedure for guarantees is regulated by Arauco’s Policy on Guarantees, whose purpose is to control their accounting, due date and custody.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Guarantees Arauco Group (ThU.S.$)  

Guarantees Debtors (received from clients)

     

Certificate of deposits

     7,106        7.7

Standby

     8,657        9.4

Promissory notes

     69,225        75.2

Finance

     2,630        2.9

Mortgage

     2,233        2.4

Pledge

     138        0.2

Promissory notes

     2,000        2.2
  

 

 

    

 

 

 

Total Guarantees

     91,989        100
  

 

 

    

 

 

 

The maximum exposure to credit risk is limited to the value at amortized cost of the Debtors’ account for sales registered as of the date of this report, minus the percentage of sales insured by the aforementioned credit insurance companies and the guarantees granted in favor of Arauco.

In summary, the open account debt covered by the various insurance policies and guarantees amounts to 94.8% and, therefore, Arauco’s portfolio exposure amounts to 5.2%.

 

Secured Open Accounts Receivable    ThU.S.$      %  

Total open accounts receivable

     406,502        100.0

Secured receivables (*)

     385,364        94.8

Unsecured receivables

     21,138        5.2

(*) Insured Debt is deemed to be the portion of accounts receivable that is covered by a credit company or by guarantees such as standby letters of credit, mortgages, performance bonds, among others

Investment Policy:

Arauco has an Investment Policy which identifies and limits the financial instruments and the entities into which the Arauco companies, in particular Celulosa Arauco y Constitucion S.A., are authorized to invest. The Company’s Treasury Department is centralized with operations in Chile. The Head Office is responsible for carrying out investments, cash flow surplus investments, and short and long-term debt subscriptions. Exceptions to this rule apply to short and long-term debt, and will be for specific investments made through other companies where authorization is required from the Chief Financial Officer.

For financial instruments, the only permitted investments are fixed income investments with adequate liquidity. Each instrument has defined classifications and limits, depending on duration and type of issuer.

Regarding intermediaries (such as banks, securities brokers and dealers of mutual funds that are bank affiliates), a scoring methodology is used to determine the relative degree of risk of each intermediary based on their financial position and assign score points that result in a credit risk rating to each intermediary. Arauco uses this scoring system to determine its investment limits for each intermediary.

The required information to evaluate the various criteria are obtained from published financial statements from the banks under evaluation and from the credit risk ratings of short and long-term debt securities obtained from rating agencies authorized by the Superintendence of Banks and Financial Institutions (Fitch Ratings Chile, Humphreys and Feller Rate).

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Any necessary exceptions regarding investment limits in each particular instrument or entity must have the authorization from Arauco’s Chief Financial Officer.

23.10.2 Type of Risk: Liquidity Risk

Description

This risk corresponds to Arauco’s ability to fulfill its financial obligations upon maturity.

Explanation of Liquidity Risk Exposure and How This Risk Arises

Arauco’s exposure to liquidity risk is mainly from its obligations to bondholders, banks and financial institutions, creditors and other payables. Liquidity risk may arise if Arauco is unable to meet the net cash flow requirements, which sustain its operations under both normal and exceptional circumstances.

Explanation of Objectives, Policies and Processes for Risk Management, and Measurement Methods

The Corporate Financial Management Division monitors on an ongoing basis the Company’s cash flow forecasts based on short and long-term forecasts and available financing alternatives. In order to manage the risk level of financial assets, Arauco follows its investment policy.    

The following tables detail Arauco’s liquidity analysis for its financial liabilities as of March 31, 2020 and December 31, 2019. The tables have been drawn up based on the contractual undiscounted cash outflows and their remaining contractual maturities:

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

March 31, 2020

  Maturity     Total            

Tax ID

 

Name

 

Currency

 

Loans with
banks

 

Up to 3
months
ThU.S.$

   

3 to 12
months
ThU.S.$

   

1 to 2
years
ThU.S.$

   

2 to 3
years
ThU.S.$

   

3 to 4
years
ThU.S.$

   

4 to 5
years
ThU.S.$

   

More
than 5
years
ThU.S.$

   

Current
ThU.S.$

   

Non
Current
ThU.S.$

   

Effective
rate

   

Nominal rate

93.458.000-1

  Celulosa Arauco
y Constitución
S.A.
  U.S. Dollars   Scotiabank     —         5,979       5,979       5,979       203,014       —         —         5,979       214,972       2.95%     Libor 6M + 1.1%

93.458.000-1

  Celulosa Arauco
y Constitución
S.A.
  Euros   BNP Paribas /
ECA
    609       599       7,792       14,316       14,175       14,038       68,044       1,208       118,365       1.06%     1.06%

93.458.000-1

  Celulosa Arauco
y Constitución
S.A.
  U.S. Dollars   Banco Crédito
e Inversiones
    —         40,365       —         —         —         —         —         40,365       —         1.80%     1.80%

93.458.000-1

  Celulosa Arauco
y Constitución
S.A.
  U.S. Dollars   Santander     —         101,021       —         —         —         —         —         101,021       —         2.02%     2.02%

  Zona Franca
Punta Pereira
S.A.
  U.S. Dollars   Banco
Interamericano
de Desarrollo
A
    —         2,278       2,220       2,161       1,058       —         —         2,278       5,439       2.79%     Libor 6M + 2.05%

  Zona Franca
Punta Pereira
S.A.
  U.S. Dollars   Banco
Interamericano
de Desarrollo
B
    —         2,833       —         —         —         —         —         2,833       —         2.54%     Libor 6M + 1.80%

  Celulosa y
Energía Punta
Pereira S.A.
  U.S. Dollars   Banco
Interamericano
de Desarrollo
A
    —         9,213       8,977       8,738       4,280       —         —         9,213       21,995       2.79%     Libor 6M + 2.05%

  Celulosa y
Energía Punta
Pereira S.A.
  U.S. Dollars   Banco
Interamericano
de Desarrollo
B
    —         11,460       —         —         —         —         —         11,460       —         2.54%     Libor 6M + 1.80%

  Celulosa y
Energía Punta
Pereira S.A.
  U.S. Dollars   Finn Vera/
Finnish Export
Credit
    —         51,585       50,061       48,524       —         —         —         51,585       98,585       3.20%     3.20%

  Celulosa y
Energía Punta
Pereira S.A.
  U.S. Dollars   DNB Nor
ASA
    —         282       196       109       22       —         —         282       327       0.00%     0.00%

  Eufores S.A.   U.S. Dollars   BBVA     —         14,222       —         —         —         —         —         14,222       —         3.22%     Libor 6M + 1.3%

  Eufores S.A.   U.S. Dollars   Banco
República
Oriental del
Uruguay
    26,769       —         —         —         —         —         —         26,769       —         3.22%     Libor 6M + 1.3%

  Stora Enso
Uruguay S.A.
  U.S. Dollars   Banco
República
Oriental del
Uruguay
    559       —         —         —         —         —         —         559       —         3.22%     Libor 6M + 1.3%

  Eufores S.A.   U.S. Dollars   Citibank     4,062       —         —         —         —         —         —         4,062       —         3.14%     Libor 6M + 1.25%

  Eufores S.A.   U.S. Dollars   ITAU     12,695       —         —         —         —         —         —         12,695       —         3.20%     Libor 6M + 1.3%

  Eufores S.A.   U.S. Dollars   Heritage     1,359       —         —         —         —         —         —         1,359       —         2.50%     Libor 3M + 1.3%

  Eufores S.A.   U.S. Dollars   Santander     —         20,203       —         —         —         —         —         20,203       —         2.04%     Libor 6M + 1.3%

  Eufores S.A.   U.S. Dollars   Santander     5,080       —         —         —         —         —         —         5,080       —         3.21%     Libor 6M + 1.3%

  Eufores S.A.   U.S. Dollars   Scotiabank     2,541       —         —         —         —         —         —         2,541       —         3.22%     Libor 6M + 1.3%

  Arauco Forest
Brasil S.A.
  Brazilian Real   Banco
Votorantim
    —         21       226       215       —         —         —         21       441       5.00%     5.00%

  Arauco Forest
Brasil S.A.
  Brazilian Real   BNDES
Subcrédito A
    5       79       140       66       —         —         —         84       206       8.00%     TJLP + 2.91%

  Arauco Forest
Brasil S.A.
  Brazilian Real   BNDES
Subcrédito B
    3       49       85       40       —         —         —         52       125       9.00%     TJLP + 3.91%

  Arauco Forest
Brasil S.A.
  U.S. Dollars   BNDES
Subcrédito C
    5       78       156       86       —         —         —         83       242       7.03%     Cesta + 2.91%

  Arauco Forest
Brasil S.A.
  Brazilian Real   BNDES
Subcrédito D
    4       55       96       45       —         —         —         59       141       10.20%     TJLP + 5.11%

  Arauco Florestal
Arapoti S.A.
  Brazilian Real   Banco
Votorantim
    —         23       254       243       —         —         —         23       497       5.00%     5.00%

  Mahal
Empreendimentos
e Participaçőes
S.A.
  Brazilian Real   BNDES
Subcrédito E-I
    500       491       —         —         —         —         —         991       —         8.00%     TJLP + 2.91%

  Mahal
Empreendimentos
e Participaçőes
S.A.
  Brazilian Real   BNDES
Subcrédito F-J
    301       295       —         —         —         —         —         596       —         9.00%     TJLP + 3.91%

  Mahal
Empreendimentos
e Participaçőes
S.A.
  Brazilian Real   BNDES
Subcrédito
H-L
    336       328       —         —         —         —         —         664       —         10.20%     TJLP + 5.11%

  Mahal
Empreendimentos
e Participaçőes
S.A.
  U.S. Dollars   BNDES
Subcrédito
G-K
    527       689       —         —         —         —         —         1,216       —         7.03%     Cesta + 2.91%

  Arauco North
America, Inc.
  U.S. Dollars   Banco del
Estado de
Chile—NY
Branch
    5,463       3,923       38,378       37,519       36,659       213,016       —         9,386       325,572       2.83%     Libor 6M + 1.65%
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     
      Total     60,818       266,071       114,560       118,041       259,208       227,054       68,044       326,889       786,907      
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

March 31, 2020

  Maturity     Total            

Tax ID

 

Name

 

Currency

 

Bonds

 

Up to 3

months
ThU.S.$

   

3 to 12

months
ThU.S.$

   

1 to 2

years
ThU.S.$

   

2 to 3

years
ThU.S.$

   

3 to 4

years
ThU.S.$

   

4 to 5

years
ThU.S.$

   

More
than 5

years
ThU.S.$

   

Current
ThU.S.$

   

Non

Current
ThU.S.$

   

Effective
rate

   

Nominal
rate

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.F.   Barau-F     15,171       14,946       29,219       28,321       27,422       26,524       119,146       30,117       230,632       4.25%     4.25%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.F.   Barau-J     —         170,525       —         —         —         —         —         170,525       —         3.25%     3.25%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.F.   Barau-P     3,323       3,323       6,647       21,752       21,148       20,544       142,596       6,646       212,687       4.00%     4.00%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.F.   Barau-Q     8,766       8,641       8,516       —         —         —         —         17,407       8,516       3.00%     3.00%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.F.   Barau-R     2,994       2,994       5,988       5,988       5,988       5,988       230,695       5,988       254,647       3.60%     3.60%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.F.   Barau-S     2,002       2,002       4,004       4,004       4,004       4,004       175,827       4,004       191,843       2.40%     2.40%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.F.   Barau-W     1,052       1,052       2,103       2,103       2,103       2,103       109,106       2,104       117,518       2.10%     2.10%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.F.   Barau-X     2,476       2,476       4,951       4,951       4,951       4,951       278,671       4,952       298,475       2.70%     2.70%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.S. Dollars   Yankee
2022
    —         5,993       132,161       —         —         —         —         5,993       132,161       4.75%     4.75%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.S. Dollars   Yankee
2024
    —         22,500       22,500       22,500       22,500       511,250       —         22,500       578,750       4.50%     4.50%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.S. Dollars   Yankee
2027
    9,688       9,688       19,375       19,375       19,375       19,375       558,125       19,376       635,625       3.88%     3.88%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.S. Dollars   Yankee
2047
    11,000       11,000       22,000       22,000       22,000       22,000       906,000       22,000       994,000       5.50%     5.50%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.S. Dollars   Yankee
2029
    10,625       10,625       21,250       21,250       21,250       21,250       595,625       21,250       680,625       4.25%     4.25%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.S. Dollars   Yankee
2049
    13,750       13,750       27,500       27,500       27,500       27,500       1,173,750       27,500       1,283,750       5.50%     5.50%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.S. Dollars   Yankee
2030
    —         21,000       21,000       21,000       21,000       21,000       605,000       21,000       689,000       4.25%     4.25%

93.458.000-1

  Celulosa
Arauco y
Constitución
S.A.
  U.S. Dollars   Yankee
2050
    —         25,750       25,750       25,750       25,750       25,750       1,143,750       25,750       1,246,750       5.50%     5.50%

  Prime-Line,
Inc.
  U.S. Dollars   Bond
ADFA
2014
    128       384       512       512       512       512       1,877       512       3,925       4.84%     4.84%

  Prime-Line,
Inc.
  U.S. Dollars   Bond
ADFA
2013
    38       114       150       149       75       —         —         152       374       4.00%     4.00%
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     
          81,013       326,763       353,626       227,155       225,578       712,751       6,040,168       407,776       7,559,278      
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

March 31, 2020

  Maturity     Total  

Tax ID

 

Name

  Currency  

Underlying asset class

  Up to 3
months
ThU.S.$
    3 to 12
months
ThU.S.$
    1 to 2
years
ThU.S.$
    2 to 3
years
ThU.S.$
    3 to 4
years
ThU.S.$
    4 to 5
years
ThU.S.$
    More
than 5

years
ThU.S.$
    Current
ThU.S.$
    Non
Current
ThU.S.$
 
85.805.200-9   Forestal Arauco S.A.   U.F.   Motor vehicles     423       1,308       1,667       1,255       664       415       488       1,731       4,489  
85.805.200-9   Forestal Arauco S.A.   U.F.   Other property, plant and equipment     3,771       8,500       5,610       2,302       —         —         —         12,271       7,912  
85.805.200-9   Forestal Arauco S.A.   Chilean pesos   Lands     3       12       14       14       14       15       168       15       225  
85.805.200-9   Forestal Arauco S.A.   Chilean pesos   Other property, plant and equipment     707       1,745       489       167       32       —         —         2,452       688  
  Arauco Argentina   U.S. Dollars   Buildings and constructions     122       354       368       —         —         —         —         476       368  
  Arauco Argentina   U.S. Dollars   IT equipment     347       1,040       1,386       1,290       1,002       418       —         1,387       4,096  
  Arauco Argentina   U.S. Dollars   Other property, plant and equipment     13       39       53       22       —         —         —         52       75  
  Arauco Argentina   U.S. Dollars   Motor vehicles     382       1,100       1,027       809       630       149       —         1,482       2,615  
  Arauco Industria de Paineis S.A.   Brazilian Real   Other property, plant and equipment     131       383       487       70       —         —         —         514       557  
  Arauco Industria de Paineis S.A.   Brazilian Real   IT equipment     10       31       41       14       —         —         —         41       55  
  Arauco Industria de Paineis S.A.   Brazilian Real   Motor vehicles     3       10       13       4       —         —         —         13       17  
  Arauco Forest Brasil S.A.   Brazilian Real   IT equipment     7       20       22       14       —         —         —         27       36  
  Arauco Forest Brasil S.A.   Brazilian Real   Lands     675       2,025       2,476       2,701       2,701       2,701       6,751       2,700       17,330  
  Arauco Florestal Arapoti S.A.   Brazilian Real   IT equipment     5       14       10       4       —         —         —         19       14  
  Arauco do Brasil S.A.   Brazilian Real   Buildings and constructions     123       128       35       29       —         —         —         251       64  
  Arauco do Brasil S.A.   U.S. Dollars   Buildings and constructions     98       293       333       299       291       —         —         391       923  
  Novo Oeste Gestao de Ativos Florestais S.A.   Brazilian Real   Lands     469       597       —         —         —         —         —         1,066       —    
93.458.000-1   Celulosa Arauco y Constitucion S.A.   U.F.   Buildings and constructions     361       1,070       1,388       1,302       635       —         —         1,431       3,325  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   U.F.   Motor vehicles     179       510       566       475       176       102       74       689       1,393  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   Chilean pesos   Buildings and constructions     17       50       61       61       —         —         —         67       122  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   U.S. Dollars   Other property, plant and equipment     —         1,612       —         —         —         —         —         1,612       —    
93.458.000-1   Celulosa Arauco y Constitucion S.A.   Chilean pesos   Motor vehicles     4,218       12,654       16,872       15,533       2,966       —         —         16,872       35,371  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   U.S. Dollars   Motor vehicles     45       136       166       —         —         —         —         181       166  
  Arauco North America, Inc.   U.S. Dollars   Lands     1       4       193       83       —         —         —         5       276  
  Arauco North America, Inc.   U.S. Dollars   Buildings and constructions     14       54       2,740       1,302       1,334       1,366       4,414       68       11,156  
  Arauco North America, Inc.   U.S. Dollars   Motor vehicles     —         2       83       72       —         —         —         2       155  
  Arauco North America, Inc.   U.S. Dollars   Other property, plant and equipment     2       3       142       —         —         —         —         5       142  
  Arauco Canada Limited   Canadian
Dollars
  Other property, plant and equipment     1       1       1       1       1       1       1       2       5  
  Arauco Canada Limited   Canadian
Dollars
  Motor vehicles     —         2       80       52       40       —         —         2       172  
  Celulosa y Energía Punta Pereira   U.S. Dollars   Buildings and constructions     1,477       4,432       5,909       5,909       5,909       5,909       75,344       5,909       98,980  
  Celulosa y Energía Punta Pereira   U.S. Dollars   Other property, plant and equipment     262       661       504       373       373       373       7,182       923       8,805  
  Eufores S.A.   U.S. Dollars   Lands     785       2,326       5,425       5,279       5,095       4,787       34,625       3,111       55,211  
  Eufores S.A.   U.S. Dollars   Other property, plant and equipment     306       917       1,222       1,222       1,222       1,222       3,361       1,223       8,249  
  Eufores S.A.   U.S. Dollars   Buildings and constructions     119       308       239       117       117       20       —         427       493  
96.510.970-6   Maderas Arauco S.A.   Chilean pesos   Motor vehicles     3,342       9,944       11,363       9,263       3,466       —         —         13,286       24,092  
96.510.970-6   Maderas Arauco S.A.   U.F.   Motor vehicles     111       311       343       257       42       17       6       422       665  
96.510.970-6   Maderas Arauco S.A.   U.F.   Lands     —         4       4       4       4       4       49       4       65  
  Arauco Colombia S.A.   U.S. Dollars   Buildings and constructions     8       17       8       —         —         —         —         25       8  
  Arauco Colombia S.A.   U.S. Dollars   Fixed facilities and accessories     116       195       499       —         —         —         —         311       499  
  Arauco Europe Cooperatief U.A.   U.S. Dollars   Motor vehicles     8       14       10       10       4       —         —         22       24  
  Arauco Europe Cooperatief U.A.   U.S. Dollars   Buildings and constructions     16       52       74       76       78       46       —         68       274  
  Araucomex S.A. de C.V.   Mexican pesos   Buildings and constructions     389       131       2,703       1,691       1,393       1,062       —         520       6,849  
  Araucomex S.A. de C.V.   U.S. Dollars   Buildings and constructions     126       85       —         —         —         —         —         211       —    
  Arauco Industria de México, S.A. de C.V.   Mexican pesos   Motor vehicles     647       216       —         —         —         —         —         863       —    
  Arauco Industria de México, S.A. de C.V.   U.S. Dollars   Motor vehicles     326       580       —         —         —         —         —         906       —    
  Arauco Industria de México, S.A. de C.V.   Mexican pesos   Buildings and constructions     —         5       7       7       2       —         —         5       16  
  Arauco Industria de México, S.A. de C.V.   Mexican pesos   Lands     —         3       —         —         —         —         —         3       —    
  Arauco Industria de México, S.A. de C.V.   U.S. Dollars   Lands     —         255       311       —         —         —         —         255       311  
  Araucomex Servicios S.A. de C.V.   U.S. Dollars   Buildings and constructions     —         172       230       230       77       —         —         172       537  
  Araucomex Servicios S.A. de C.V.   U.S. Dollars   Motor vehicles     —         64       66       14       —         —         —         64       80  
96.637.330-K   Servicios Logisticos Arauco S.A.   U.F.   Motor vehicles     20       60       66       56       —         —         —         80       122  
79.990.550-7   Investigaciones Forestales Bioforest S.A.   U.F.   Lands     —         19       19       19       19       19       97       19       173  
79.990.550-7   Investigaciones Forestales Bioforest S.A.   U.F.   Motor vehicles     26       62       44       31       12       2       —         88       89  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      Total     20,211       54,530       65,369       52,433       28,299       18,628       132,560       74,741       297,289  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As part of the policy of Arauco, it considers compliance with all Accounts Payable, whether with related (see Note 13) or third parties, within a period not exceeding 30 days.

 

109


Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

December 31, 2019

  Maturity     Total            

Tax ID

 

Name

 

Currency

 

Loans with banks

 

Up to 3
months
ThU.S.$

   

3 to 12
months
ThU.S.$

   

1 to 2
years
ThU.S.$

   

2 to 3
years
ThU.S.$

   

3 to 4
years
ThU.S.$

   

4 to 5
years
ThU.S.$

   

More
than 5
years
ThU.S.$

   

Current
ThU.S.$

   

Non
Current
ThU.S.$

   

Effective
rate

   

Nominal rate

93.458.000-1

  Celulosa Arauco y Constitución S.A.   U.S. Dollars   Scotiabank     3,179       3,014       5,979       5,979       205,979       —         —         6,193       217,937       3.14%     Libor 6M + 1.1%

93.458.000-1

  Celulosa Arauco y Constitución S.A.   Euros   BNP Paribas / ECA     —         1,209       7,792       14,316       14,175       14,038       68,044       1,209       118,365       1.06%     1.06%

  Zona Franca Punta Pereira   U.S. Dollars   Banco Interamericano
de Desarrollo A
    1,216       1,196       2,325       2,238       2,152       —         —         2,412       6,715       4.10%     Libor 6M +
2.05%

  Zona Franca Punta Pereira   U.S. Dollars   Banco Interamericano
de Desarrollo B
    2,906       2,852       —         —         —         —         —         5,758       —         3.85%     Libor 6M +
1.80%

  Celulosa y Energía Punta Pereira S.A.   U.S. Dollars   Banco Interamericano
de Desarrollo A
    4,919       4,838       9,403       9,052       8,702       —         —         9,757       27,157       4.10%     Libor 6M +
2.05%

  Celulosa y Energía Punta Pereira S.A.   U.S. Dollars   Banco Interamericano
de Desarrollo B
    11,754       11,536       —         —         —         —         —         23,290       —         3.85%     Libor 6M +
1.80%

  Celulosa y Energía Punta Pereira S.A.   U.S. Dollars   Finn Vera/Finnish
Export Credit
    26,366       26,008       50,823       49,286       24,065       —         —         52,374       124,174       3.20%     3.20%

  Eufores S.A.   U.S. Dollars   BBVA     —         14,222       —         —         —         —         —         14,222       —         3.22%     Libor 6M +
1.30%

  Eufores S.A.   U.S. Dollars   Banco República
Oriental del Uruguay
    —         27,328       —         —         —         —         —         27,328       —         3.22%     Libor 6M +
1.30%

  Eufores S.A.   U.S. Dollars   Citibank     —         4,062       —         —         —         —         —         4,062       —         3.14%     Libor 6M +
1.25%

  Eufores S.A.   U.S. Dollars   ITAU     —         12,695       —         —         —         —         —         12,695       —         3.20%     Libor 6M +
1.30%

  Eufores S.A.   U.S. Dollars   Heritage     1,361       —         —         —         —         —         —         1,361       —         3.21%     Libor 3M +
1.30%

  Eufores S.A.   U.S. Dollars   Santander     20,328       —         —         —         —         —         —         20,328       —         3.29%     Libor 6M +
1.30%

  Eufores S.A.   U.S. Dollars   Santander     —         5,080       —         —         —         —         —         5,080       —         3.21%     Libor 6M +
1.30%

  Eufores S.A.   U.S. Dollars   Scotiabank     —         2,541       —         —         —         —         —         2,541       —         3.22%     Libor 6M +
1.30%

  Arauco Forest Brasil S.A.   Brazilian Real   Banco Votorantim     —         27       291       278       —         —         —         27       569       5.00%     5.00%

  Arauco Forest Brasil S.A.   Brazilian Real   BNDES Subcrédito A     7       63       185       130       —         —         —         70       315       8.48%     TJLP + 2.91%

  Arauco Forest Brasil S.A.   Brazilian Real   BNDES Subcrédito B     5       39       112       78       —         —         —         44       190       9.48%     TJLP + 3.91%

  Arauco Forest Brasil S.A.   U.S. Dollars   BNDES Subcrédito C     5       43       159       124       —         —         —         48       283       7.22%     Cesta + 2.91%

  Arauco Forest Brasil S.A.   Brazilian Real   BNDES Subcrédito D     6       45       127       87       —         —         —         51       214       10.68%     TJLP + 5.11%

  Arauco Florestal Arapoti S.A.   Brazilian Real   Banco Votorantim     —         30       328       313       —         —         —         30       641       5.00%     5.00%

  Mahal Empreendimentos e Participaçőes S.A.   Brazilian Real   BNDES Subcrédito E-I     658       1,279       —         —         —         —         —         1,937       —         8.48%     TJLP + 3.91%

  Mahal Empreendimentos e Participaçőes S.A.   Brazilian Real   BNDES Subcrédito F-J     397       769       —         —         —         —         —         1,166       —         9.48%     TJLP + 3.91%

  Mahal Empreendimentos e Participaçőes S.A.   Brazilian Real   BNDES Subcrédito
H-L
    444       858       —         —         —         —         —         1,302       —         10.68%     TJLP + 5.11%

  Mahal Empreendimentos e Participaçőes S.A.   U.S. Dollars   BNDES Subcrédito
G-K
    537       1,217       —         —         —         —         —         1,754       —         7.22%     Cesta + 2.91%

  Arauco North America, Inc.   U.S. Dollars   Banco del Estado de
Chile - NY Branch
    —         10,895       40,563       39,480       38,396       213,803       —         10,895       332,242       3.56%     Libor 6M +
1.65%
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     
      Total     74,088       131,846       118,087       121,361       293,469       227,841       68,044       205,934       828,802      
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

December 31, 2019

  Maturity     Total              

Tax ID

 

Name

  Currency   Bonds   Up to 3
months
ThU.S.$
    3 to 12
months
ThU.S.$
    1 to 2
years
ThU.S.$
    2 to 3
years
ThU.S.$
    3 to 4
years
ThU.S.$
    4 to 5
years
ThU.S.$
    More than 5
years
ThU.S.$
    Current
ThU.S.$
    Non
Current
ThU.S.$
    Effective
rate
    Nominal
rate
 
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.F.   Barau-F     —         33,928       32,916       31,904       30,892       29,880       134,219       33,928       259,811       4.25%       4.25%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.F.   Barau-J     3,047       192,098       —         —         —         —         —         195,145       —         3.25%       3.25%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.F.   Barau-P     —         7,488       7,488       24,504       23,823       23,143       160,636       7,488       239,594       4.00%       4.00%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.F.   Barau-Q     —         19,609       9,593       —         —         —         —         19,609       9,593       3.00%       3.00%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.F.   Barau-R     —         6,746       6,746       6,746       6,746       6,746       259,880       6,746       286,864       3.60%       3.60%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.F.   Barau-S     —         4,510       4,510       4,510       4,510       4,510       198,071       4,510       216,111       2.40%       2.40%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.F.   Barau-W     —         2,370       2,370       2,370       2,370       2,370       122,909       2,370       132,389       2.10%       2.10%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.F.   Barau-X     —         5,577       5,577       5,577       5,577       5,577       313,926       5,577       336,234       2.70%       2.70%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2019     —         —         —         —         —         —         —         —         —         7.25%       7.25%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2021     —         —         —         —         —         —         —         —         —         5.00%       5.00%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2022     2,996       2,996       5,993       129,164       —         —         —         5,992       135,157       4.75%       4.75%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2024     11,250       11,250       22,500       22,500       22,500       522,500       —         22,500       590,000       4.50%       4.50%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2027     —         19,375       19,375       19,375       19,375       19,375       558,125       19,375       635,625       3.88%       3.88%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2047     —         22,000       22,000       22,000       22,000       22,000       906,000       22,000       994,000       5.50%       5.50%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2029     —         21,250       21,250       21,250       21,250       21,250       595,625       21,250       680,625       4.25%       4.25%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2049     —         27,500       27,500       27,500       27,500       27,500       1,173,750       27,500       1,283,750       5.50%       5.50%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2030     5,250       10,500       21,000       21,000       21,000       21,000       615,500       15,750       699,500       4.25%       4.25%  
93.458.000-1  

Celulosa Arauco y Constitución S.A.

  U.S. Dollars   Yankee 2050     6,438       12,875       25,750       25,750       25,750       25,750       1,156,625       19,313       1,259,625       5.50%       5.50%  
—    

Prime-Line, Inc.

  U.S. Dollars   Bond ADFA 2014     128       384       512       512       512       512       2,005       512       4,053       4.84%       4.84%  
—    

Prime-Line, Inc.

  U.S. Dollars   Bond ADFA 2013     38       114       152       149       112       —         —         152       413       4.00%       4.00%  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     
      Total     29,147       400,570       235,232       364,811       233,917       732,113       6,197,271       429,717       7,763,344      
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

LOGO

 

December 31, 2019

  Maturity     Total  

Tax ID

 

Name

  Currency   Underlying asset class   Up to 3
months
ThU.S.$
    3 to 12
months
ThU.S.$
    1 to 2
years
ThU.S.$
    2 to 3
years
ThU.S.$
    3 to 4
years
ThU.S.$
    4 to 5
years
ThU.S.$
    More
than
5 years
ThU.S.$
    Current
ThU.S.$
    Non
Current
ThU.S.$
 
85.805.200-9   Forestal Arauco S.A.   U.F.   Motor vehicles     465       1,462       1,932       1,459       977       528       649       1,927       5,545  
85.805.200-9   Forestal Arauco S.A.   U.F.   Other property, plant and equipment     4,644       9,357       7,576       3,823       38       —         —         14,001       11,437  
85.805.200-9   Forestal Arauco S.A.   Chilean pesos   Lands     —         16       16       16       16       16       190       16       254  
85.805.200-9   Forestal Arauco S.A.   Chilean pesos   Other property, plant and equipment     860       2,431       885       259       74       —         —         3,291       1,218  
—     Arauco Argentina   U.S. Dollars   Buildings and constructions     122       361       450       35       —         —         —         483       485  
—     Arauco Argentina   U.S. Dollars   IT equipment     13       39       53       35       —         —         —         52       88  
—     Arauco Argentina   U.S. Dollars   Other property, plant and equipment     347       1,040       1,386       1,386       1,002       668       —         1,387       4,442  
—     Arauco Argentina   U.S. Dollars   Motor vehicles     382       1,145       1,162       809       684       297       —         1,527       2,952  
—     Arauco Industria de Paineis S.A.   Brazilian Real   Other property, plant and equipment     192       577       722       288       —         —         —         769       1,010  
  Arauco Industria de Paineis S.A.   Brazilian Real   Motor vehicles     4       13       17       10       —         —         —         17       27  
—     Arauco Forest Brasil S.A.   Brazilian Real   IT equipment     6       17       18       11       —         —         —         23       29  
—     Arauco Forest Brasil S.A.   Brazilian Real   Lands     871       2,612       3,193       3,483       3,483       9,579       —         3,483       19,738  
—     Novo Oeste Gestao de Ativos Florestais S.A.   Brazilian Real   Lands     595       1,389       —         —         —         —         —         1,984       —    
—     Arauco Florestal Arapoti S.A.   Brazilian Real   IT equipment     6       17       18       —         —         —         —         23       18  
—     Arauco do Brasil S.A.   Brazilian Real   Buildings and constructions     272       655       454       393       376       94       —         927       1,317  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   U.F.   Buildings and constructions     407       1,217       1,582       1,477       1,082       —         —         1,624       4,141  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   U.F.   Motor vehicles     201       593       670       558       288       131       106       794       1,753  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   Chilean pesos   Buildings and constructions     19       58       70       70       17       —         —         77       157  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   U.S. Dollars   Other property, plant and equipment     1,612       —         1,612       —         —         —         —         1,612       1,612  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   Chilean pesos   Motor vehicles     4,800       14,399       19,199       19,199       6,651       —         —         19,199       45,049  
93.458.000-1   Celulosa Arauco y Constitucion S.A.   U.S. Dollars   Motor vehicles     45       136       181       30       —         —         —         181       211  
—     Arauco North America, Inc.   U.S. Dollars   Lands     1       4       193       83       —         —         —         5       276  
—     Arauco North America, Inc.   U.S. Dollars   Buildings and constructions     15       55       2,741       1,303       1,335       1,367       4,415       70       11,161  
—     Arauco North America, Inc.   U.S. Dollars   Motor vehicles     —         2       80       52       40       —         —         2       172  
—     Arauco Canada Limited   Canadian Dollars   Other property, plant and equipment     2       3       142       —         —         —         —         5       142  
—     Arauco Canada Limited   Canadian Dollars   Motor vehicles     —         2       83       72       —         —         —         2       155  
—     Celulosa y Energía Punta Pereira S.A.   U.S. Dollars   Buildings and constructions     1,477       4,432       5,909       5,909       5,909       5,909       76,821       5,909       100,457  
—     Celulosa y Energía Punta Pereira S.A.   U.S. Dollars   Other property, plant and equipment     262       786       373       373       373       373       7,275       1,048       8,767  
—       Eufores S.A.   U.S. Dollars   Lands     546       1,637       5,383       5,240       5,057       4,752       34,676       2,183       55,108  
—     Eufores S.A.   U.S. Dollars   Other property, plant and equipment     306       917       1,222       1,222       1,222       1,222       3,667       1,223       8,555  
—     Eufores S.A.   U.S. Dollars   Buildings and constructions     119       358       280       117       117       49       —         477       563  
96.510.970-6   Maderas Arauco S.A.   Chilean pesos   Motor vehicles     3,804       11,411       13,487       12,093       5,545       —         —         15,215       31,125  
96.510.970-6   Maderas Arauco S.A.   U.F.   Motor vehicles     126       359       413       319       97       26       7       485       862  
96.510.970-6   Maderas Arauco S.A.   U.F.   Lands     —         5       5       5       5       5       55       5       75  
—     Arauco Colombia S.A.   U.S. Dollars   Buildings and constructions     10       31       10       —         —         —         —         41       10  
—     Arauco Colombia S.A.   U.S. Dollars   Fixed facilities and accessories     137       411       548       —         —         —         —         548       548  
—     Arauco Europe Cooperatief U.A.   Euros   Motor vehicles     7       17       12       11       7       —         —         24       30  
—     Araucomex S.A. de C.V.   Mexican pesos   Buildings and constructions     549       614       1,933       1,932       1,834       1,784       904       1,163       8,387  
—     Araucomex S.A. de C.V.   U.S. Dollars   Buildings and constructions     125       125       80       —         —         —         —         250       80  
—     Arauco Industria de México, S.A. de C.V.   Mexican pesos   Motor vehicles     —         772       578       —         —         —         —         772       578  
—     Arauco Industria de México, S.A. de C.V.   U.S. Dollars   Motor vehicles     —         139       404       404       —         —         —         139       808  
—     Arauco Industria de México, S.A. de C.V.   Mexican pesos   Buildings and constructions     —         —         8       8       8       3       —         —         27  
—     Arauco Industria de México, S.A. de C.V.   Mexican pesos   Lands     —         —         5       —         —         —         —         —         5  
—     Arauco Industria de México, S.A. de C.V.   U.S. Dollars   Lands     —         —         318       291       —         —         —         —         609  
—     Araucomex Servicios S.A. de C.V.   U.S. Dollars   Buildings and constructions     —         —         277       277       277       93       —         —         924  
—     Araucomex Servicios S.A. de C.V.   U.S. Dollars   Motor vehicles     —         25       110       58       16       —         —         25       184  
96.637.330-K   Servicios Logisticos Arauco S.A.   U.F.   Motor vehicles     22       67       79       65       15       —         —         89       159  
79.990.550-7   Investigaciones Forestales Bioforest S.A.   U.F.   Lands     —         22       22       22       22       22       109       22       197  
79.990.550-7   Investigaciones Forestales Bioforest S.A.   U.F.   Motor vehicles     30       75       56       35       20       5       —         105       116  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      Total     23,401       59,803       75,947       63,232       36,587       26,923       128,874       83,204       331,563  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As part of the policy of Arauco, it considers compliance with all Accounts Payable, whether with related (see Note 13) or third parties, within a period not exceeding 30 days.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Guarantees

As of the date of these interim consolidated financial statements, Arauco has financial assets of approximately MU.S.$31 that have been pledged to third parties (beneficiaries), as direct guarantee. If Arauco does not fulfill its obligations, the guarantors could execute the guarantees.

As of March 31, 2020, the total assets pledged as an indirect guarantee were MU.S.$ 497. In contrast to direct guarantees, indirect guarantees are given to secure obligations assumed by a third party.

On September 29, 2011, Arauco entered into a Security Agreement under which it granted a non-joint guarantee limited to 50% of the obligations of the Uruguayan companies (joint ventures) Celulosa y Energía Punta Pereira S.A. and Zona Franca Punta Pereira S.A., under the IDB Facility Agreement in the amount of up to MU.S.$454 and the Finnevera Guaranteed Facility Agreement in the amount of up to MU.S.$900. Both loan agreements were signed with the International Development Bank. Such guarantee is included in the table below, under indirect guarantees.

Direct and indirect guarantees granted by Arauco:

DIRECT

 

Subsidiary

   Guarantee      Assets
Pledged
   Currency    ThU.S.$     

Guarantor

Celulosa Arauco y Constitución S.A.

    
Guarantee
letter
 
 
   —      Chilean Pesos      488      Directorate General of Maritime Territory and Merchant Marine

Celulosa Arauco y Constitución S.A.

    
Guarantee
letter
 
 
   —      Chilean Pesos      209      Directorate General of Maritime Territory and Merchant Marine

Arauco Forest Brasil S.A.

    




Mortgage
Industrial
Plant of
Jaguariaíva of
Arauco do
Brasil
 
 
 
 
 
 
   Property
plant and
equipment
   Brazilian Real      29,490      BNDES

Arauco Forest Brasil S.A.

    

Endorsement
of Arauco do
Brasil
 
 
 
   —      Brazilian Real      410      Bank Votorantim S.A.

Arauco Florestal Arapoti S.A.

    

Endorsement
of Arauco do
Brasil
 
 
 
   —      Brazilian Real      462      Bank Votorantim S.A.
      Total         31,059     
           

 

 

    

INDIRECT

              

Subsidiary

   Guarantee      Assets
Pledged
   Currency    ThU.S.$     

Guarantor

Celulosa Arauco y Constitución S.A.

    

Suretyship not
supportive and
cumulative
 
 
 
   —      U.S. Dollar      193,058      Joint Ventures (Uruguay)

Celulosa Arauco y Constitución S.A.

     Full Guarantee      —      U.S. Dollar      300,000      Arauco North America, Inc. (USA)

Celulosa Arauco y Constitución S.A.

    
Guarantee
letter
 
 
   —      U.S. Dollar      1,485      Arauco Forest Brasil y Mahal (Brasil)

Celulosa Arauco y Constitución S.A.

    
Guarantee
letter
 
 
   —      Brazilian Real      2,796      Arauco Forest Brasil y Mahal (Brasil)
      Total         497,339     
           

 

 

    

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

23.10.3 Type of Risk: Market Risk – Exchange Rate

Description

Market risk arises from the probability of being affected by losses from fluctuations in currencies exchange rates in which assets and liabilities are denominated, in a functional currency other than the functional currency of Arauco.

Explanation of Currency Risk Exposure and How This Risk Arises

Arauco is exposed to the foreign currency risk from currency fluctuations arising from sales, purchases and obligations undertaken in foreign currencies, such as the Chilean Peso, Euro, Brazilian Real or other foreign currencies. In the case of significant exchange rate variations, the Chilean Peso is the currency that represents the main currency risk. See Note 11 for details assets and liabilities classified by currency.

Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods

Arauco performs sensitivity analyses to measure the effect of this variable on equity and net result.

Sensitivity analysis considers a variation of +/- 10% of the exchange rate over the Chilean Peso. This fluctuation range is considered possible given current market conditions as of the date of these financial statements. With all other variables at a constant rate, a U.S. Dollar exchange rate variation of +/- 10% in relation to the Chilean Peso would mean a change in the net income year after tax +/- 12.92% (equivalent to ThU.S.$ -/+ 15,353), and +/- 0.13% of equity (equivalent to ThU.S.$ -/+ 9,212).

Additionally, a sensitivity analysis is carried out assuming a variation of +/- 10% in the closing exchange rate on the Brazilian Real, which is considered a possible range of fluctuation given the market conditions as of the date of these financial statements. With all the other variables constant, a variation of +/- 10% in the exchange rate of the dollar on the Brazilian Real would mean a variation on the net income after tax +/- 2.04% (equivalent to ThU.S.-/+$2,423) and a change on the equity of +/- 1.17% (equivalent to ThU.S. -/+$82,142).

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

23.10.4 Type of Risk: Market Risk – Interest rate risk

Description

Interest rate risk refers to the sensitivity of the value of financial assets and liabilities in terms of interest rate fluctuations.

Explanation of Interest Rate Risk Exposure and How This Risk Arises

Arauco is exposed to risks due to interest rate fluctuations for bonds issued, bank borrowings and financial instruments that bear interest at a variable rate.

Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods

Arauco completes its risk analysis by reviewing its exposure to changes in interest rates. As of March 31, 2020, 10.8% our financial debt accrues interest at variable rates. A change of +/- 10% in the interest rate is considered a possible range of fluctuation. Such market conditions would affect the income after tax at rate of +/- 1.03% (equivalent to ThU.S.$-/+ 1,223) and +/- 0.01% (equivalent to ThU.S.$-/+ 734) on equity.

 

Thousands of dollars

   March 2020
ThU.S.$
     Total  

Fixed rate

     5,327,285        89.2

Bonds issued

     4,703,893     

Bank borrowings (*)

     392,797     

Lease liabilities

     230,595     

Variable rate

     645,401        10.8

Bonds issued

     —       

Loans with Banks

     645,401     

Total

     5,972,686        100.0
  

 

 

    

 

 

 

Thousands of dollars

   December 2019
ThU.S.$
     Total  

Fixed rate

     5,382,970        89.0

Bonds issued

     4.831,743     

Bank borrowings (*)

     280,202     

Lease liabilities

     271,025     

Variable rate

     666,820        11.0

Bonds issued

     —       

Loans with Banks

     666.820     

Total

     6.049.790        100.0
  

 

 

    

 

 

 

 

(*)

Includes variable rate bank borrowings changed by fixed rate swaps.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

23.10.5 Type of Risk: Market Risk – Price of Pulp Risks

Description

Pulp prices are determined by world and regional market conditions. Prices fluctuate based on demand, production capacity, commercial strategies adopted by large-scale forestry companies, pulp and paper producers and by the availability of substitutes.    

Explanation of Price Risk Exposure and How This Risk Arises

Pulp prices are reflected in revenue from sales and directly affect the net income for the period.

As of March 31, 2020, revenue due to pulp sales accounted for 40% of total sales. Pulp prices are fixed on a monthly basis in accordance with the market. Forward contracts or other financial instruments are not used for pulp sales.

Explanation of Risk Management Objectives, Policies and Processes, and Measurement Methods

This risk is approached in different ways. Arauco has a team of specialists who perform periodic market and competition analyses, providing tools to analyze and evaluate trends and adjust forecasts. Similarly, Arauco performs price financial sensitivity analysis in order to take the necessary safeguards to confront different scenarios in the best possible manner.    

Sensitivity analysis considers a variation of +/- 10% in the average pulp price, a possible fluctuation range given current market conditions at the date of the closing balance. With all other variables constant, a variation of +/- 10% in the average pulp price would mean a variation of +/- 26.48% (equivalent to ThU.S.$-/+ 31,460) on the income for the year after tax and +/- 0.27% (equivalent to ThU.S.$18,876) on equity.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 24. REPORTABLE SEGMENTS

The main products that generate revenue for each reportable segment are described as follows:

 

   

Pulp: The main products sold by this reportable segment are long fiber bleached pulp (BSKP), short fiber bleached pulp (BHKP), long fiber raw pulp (UKP), and pulp fluff.

 

   

Wood products: The range of products sold by this reportable segment are plywood panels, MDF panels (medium density fiberboard), Hardboard Panels, PB Panels (agglomerated) different sizes of sawn wood and remanufactured products such as moldings, precut pieces and finger joints.

 

   

Forestry: This reportable segment produces and sells sawn logs, pulpable logs, posts and chips made from owned forests of Radiata and Taeda pine, eucalyptus globulus and nitens forests. Additionally, purchases logs and woodchip from third parties, which it sells to its other reportable segment.

Pulp

The Pulp reportable segment uses wood exclusively from pine and eucalyptus plantations for the production of different classes of wood cellulose or pulp. Bleached pulp is mainly used as raw material for producing printing and writing paper, as well as toilet paper and high-quality wrapping paper. Unbleached pulp is used to produce packing paper, filters, fiber cement products, dielectric paper and others. On the other hand, fluff pulp is mainly used in the production of diapers and female hygiene products.

Arauco has seven plants, five in Chile, one in Argentina and one in Uruguay (50% property of Arauco) and they have a total production capacity of approximately 4 million tons per year. Pulp is sold in more than 46 countries, mainly in Asia and Europe.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Wood products

The Panels area produces a wide range of panel products and several kinds of moldings aimed at the furniture, decoration and construction industries. It consists of 23 industrial plants: 5 in Chile, 2 in Argentina, 4 in Brazil, 2 in Mexico, and 10 plants around USA and Canada. The Company has a total annual production capacity of 8.7 million cubic meters of PBO, MDF, Hardboard, plywood and moldings.

Through the joint venture Sonae Arauco (see note 16), Arauco produces and sells wood panels, of the type of MDF, PB and OSB, and sawn timber, through the operation of 2 panel plants and one sawmill in Spain; 2 panel plants and one resin plant in Portugal; 4 panel plants in Germany and 2 panel plants in South Africa. In total, Sonae Arauco’s production capacity is approximately 1.5 million m3 of MDF, 2.3 million m3 of PB, 516,000 m3 of OSB and 50,000 m3 of sawn lumber.

Including Sonae Arauco at 50%, Arauco totalize a capacity of 4.8 million m3 of MDF, 4.8 million m3 of PB and 258,000 m3 of OSB in its plants.

The Sawn Timber area produces a wide range of wood and remanufactured products with different kinds of uses and appearances, which include a wide variety of uses in the furniture, packing, construction and refurbishing industries.

With 8 saw mills in operation (7 in Chile and 1 in Argentina), the Company has a production capacity of 3.0 million m3 of sawn wood.

Furthermore, the Company has 5 remanufacturing plants, 4 in Chile and 1 in Argentina. These plants reprocess sawn wood and produce high quality remanufactured products, such as finger joint and solid moldings as well as precut pieces.

Forestry

The Forestry reportable segment is Arauco’s core business. It provides raw materials for all products manufactured and sold by the Company. By directly controlling the growth of the forests to be processed, Arauco guarantees itself quality wood for each of its products.

Arauco holds forestry assets distributed throughout Chile, Argentina, Brazil and Uruguay, reaching 1.7 million hectares as of March 31, 2020, of which 1 million hectares are used for plantations, 511 thousand hectares for native forests, 106 thousand hectares for other uses and 108 thousand hectares are to be planted.

Arauco’s principal plantations consist of radiata and taeda pine and eucalyptus to a lesser degree. These are species that have fast growth rates and short harvest cycles compared with other long fiber commercial woods.    

Arauco has no customers representing 10% or more of its revenues.

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Below, please find summarized information concerning the assets, liabilities and profits and losses at the end of each period, by segments. The profit (loss) of each segment informed takes into consideration that taxes and income and financial costs have not been allocated to the various segments, and are shown as part of the Corporate’s segment:

 

Period ended March 31, 2020

   Pulp
ThU.S.$
    Forestry
ThU.S.$
     Wood products
ThU.S.$
    Others
ThU.S.$
    Corporate
ThU.S.$
    Subtotal
ThU.S.$
    Elimination
ThU.S.$
    Total
ThU.S.$
 

Revenues from goods sale

     432,684       27,801        646,550       —         —         1,107,035         1,107,035  

Revenues from rendering of services

     18,226       1,823        —         82       —         20,131         20,131  

Revenues from external customers

     450,910       29,624        646,550       82       —         1,127,166         1,127,166  

Revenues from transactions with other operating segments

     9,146       259,117        5,643       7,711       —         281,617       (281,617     —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Finance income

     —         —          —         —         7,207       7,207         7,207  

Finance costs

     —         —          —         —         (71,782     (71,782       (71,782

Net finance costs

     —         —          —         —         (64,575     (64,575       (64,575
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortizations

     64,219       9,450        49,245       387       2,110       125,411         125,411  

Other income

     409       52,984        1,734       —         119       55,246         55,246  

Other expenses

     27,682       6,997        13,012       —         3,247       50,938         50,938  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                 

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

                 

Associates

     —         367        —         —         1,552       1,919         1,919  

Joint ventures

     —         —          (574     —         208       (366       (366
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     —         —          —         —         9,761       9,761         9,761  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) of each reportable segment

     (1,392     41,349        13,382       (35     (83,010     (29,706       (29,706
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Geographical information on revenues

                 

Revenue – Chilean entities

     317,355       11,450        248,941       82       —         577,828         577,828  

Revenue – Foreign entities

     133,555       18,174        397,609       —         —         549,338         549,338  

Total Ordinary Income

     450,910       29,624        646,550       82       —         1,127,166         1,127,166  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period ended March 31, 2020

   Pulp
ThU.S.$
    Forestry
ThU.S.$
     Wood products
ThU.S.$
    Others
ThU.S.$
    Corporate
ThU.S.$
    Subtotal
ThU.S.$
    Elimination
ThU.S.$
    Total
ThU.S.$
 

Amounts of additions to non-current assets

                 

Acquisition of property, plant and equipment and biological assets

     294,153       84,653        48,888       295       2,400       430,389       —         430,389  

Acquisition and contribution of investments in associates and joint venture

              15,090       15,090       —         15,090  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Period ended March 31, 2020

   Pulp
ThU.S.$
     Forestry
ThU.S.$
     Wood products
ThU.S.$
     Others
ThU.S.$
     Corporate
ThU.S.$
     Subtotal
ThU.S.$
     Elimination
ThU.S.$
    Total
ThU.S.$
 

Segment assets

     5,822,180        5,091,630        2,928,535        21,080        1,692,904        15,556,329        (38,719     15,517,610  

Segments assets (excluding deferred tax assets)

     5,822,180        5,091,630        2,928,535        21,080        1,686,508        15,549,933        (38,719     15,511,214  

Deferred tax assets

                 6,396        6,396          6,396  

Investments accounted through equity method

                      

Associates

     —          29,438        —          —          73,732        103,170          103,170  

Joint Ventures

     —          —          162,644        —          22,256        184,900          184,900  

Segment liabilities

     193,609        169,029        372,706        7,947        7,782,231        8,525,522          8,525,522  

Segment liabilities (excluding deferred tax liabilities)

     193,609        169,029        372,706        7,947        6,465,905        7,209,196          7,209,196  

Deferred tax liabilities

                 1,316,326        1,316,326          1,316,326  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Geographical information on non-current assets

                      

Chile

     3,450,013        3,356,998        633,017        20,131        261,543        7,721,702        (2,748     7,718,954  

Foreign countries

     1,590,709        1,194,777        1,287,904        —          92,131        4,165,521          4,165,521  

Non-current assets, Total

     5,040,722        4,551,775        1,920,921        20,131        353,674        11,887,223        (2,748     11,884,475  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Period ended March 31, 2019

   Pulp
ThU.S.$
     Forestry
ThU.S.$
    Wood products
ThU.S.$
     Others
ThU.S.$
    Corporate
ThU.S.$
    Subtotal
ThU.S.$
    Elimination
ThU.S.$
    Total
ThU.S.$
 

Revenues from goods sale

     649,697        28,635       693,225        —           1,371,557         1,371,557  

Revenues from rendering of services

     14,343        2,112       —          174         16,629         16,629  

Revenues from external customers

     664,040        30,747       693,225        174         1,388,186         1,388,186  

Revenues from transactions with other operating segments

     9,812        272,861       7,686        9,186         299,545       (299,545     —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Finance income

     —          —         —          —         6,746       6,746         6,746  

Finance costs

     —          —         —          —         (57,391     (57,391       (57,391

Net finance costs

     —          —         —          —         (193,884     (193,884       (193,884
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortizations

     67,061        14,684       40,221        588       2,130       124,684         124,684  

Other income

     2,883        39,421       2,925        59       251       45,539         45,539  

Other expenses

     4,086        2,350       12,995        —         2,886       22,317         22,317  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

                  

Associates

     —          (12     —          —         274       262         262  

Joint ventures

     —          —         3,282        —         819       4,101         4,101  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     —          —         —          —         (15,100     (15,100       (15,100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) of each reportable segment

     178,238        15,828       29,322        (720     (96,569     126,099         126,099  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Geographical information on revenues

                  

Revenue – Chilean entities

     494,065        14,564       191,857        174         700,660         700,660  

Revenue – Foreign entities

     169,975        16,183       501,368        —           687,526         687,526  

Total Ordinary Income

     664,040        30,747       693,225        174         1,388,186         1,388,186  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period ended March 31, 2019

   Pulp
ThU.S.$
     Forestry
ThU.S.$
    Wood products
ThU.S.$
     Others
ThU.S.$
    Corporate
ThU.S.$
    Subtotal
ThU.S.$
    Elimination
ThU.S.$
    Total
ThU.S.$
 

Amounts of additions to non-current assets

                  

Acquisition of property, plant and equipment and biological assets

     110,301        79,758       52,561        544       153       243,317         243,317  

Acquisition and contribution of investments in associates and joint venture

     —          —         —          —         151,294       151,294         151,294  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Period ended December 31, 2019

   Pulp
ThU.S.$
     Forestry
ThU.S.$
     Wood products
ThU.S.$
     Others
ThU.S.$
     Corporate
ThU.S.$
     Subtotal
ThU.S.$
     Elimination
ThU.S.$
    Total
ThU.S.$
 

Segment assets

     5,566,128        5,222,381        3,101,716        21,180        1,985,595        15,897,000        (36,970     15,860,030  

Segments assets (excluding deferred tax assets)

     5,566,128        5,222,381        3,101,716        21,180        1,979,528        15,890,933        (36,970     15,853,963  

Deferred tax assets

     —          —          —          —          6,067        6,067          6,067  

Investments accounted through equity method

                      

Associates

     —          38,370        —          —          57,744        96,114          96,114  

Joint Ventures

     —          —          172,321        —          24,683        197,004          197,004  

Segment liabilities

     140,243        194,282        425,116        8,466        7,722,508        8,490,615          8,490,615  

Segment liabilities (excluding deferred tax liabilities)

     140,243        194,282        425,116        8,466        6,362,321        7,130,428          7,130,428  

Deferred tax liabilities

     —          —          —          —          1,360,187        1,360,187          1,360,187  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Geographical information on non-current assets

                      

Chile

     3,260,990        3,300,806        640,275        20,530        265,930        7,488,531        (3,440     7,485,091  

Foreign countries

     1,596,632        1,350,467        1,408,923        —          87,536        4,443,558        —         4,443,558  

Non-current assets, Total

     4,857,623        4,651,273        2,068,982        20,530        353,466        11,932,089        (3,440     11,928,649  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

The following table shows information related to cash flows by segments which is presented as a complementary information as required by our regulatory entities:

 

Period ended March 31, 2020

   Pulp
ThU.S.$
    Forestry
ThU.S.$
    Wood products
ThU.S.$
    Others
ThU.S.$
    Corporate
ThU.S.$
    Subtotal
ThU.S.$
    Elimination
ThU.S.$
     Total
ThU.S.$
 

Segment Cash Flows

                 

Cash Flows from (used in) Operating Activities

     (23,138     41,236       61,132       577       (95,548     (15,741     —          (15,741

Cash flows (used in) investing activities

     (292,750     (77,884     (66,915     (295     979       (436,865     —          (436,865

Cash flows from (used in) Financing Activities

     99,459       (10,345     (14,227     (132     (826     73,929       —          73,929  

Net increase (decrease) in Cash and Cash Equivalents

     (216,429     (46,993     (20,010     150       (95,395     (378,677     —          (378,677
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Period ended March 31, 2019

   Pulp
ThU.S.$
    Forestry
ThU.S.$
    Wood products
ThU.S.$
    Others
ThU.S.$
    Corporate
ThU.S.$
    Subtotal
ThU.S.$
    Elimination
ThU.S.$
     Total
ThU.S.$
 

Segment Cash Flows

                 

Cash Flows from (used in) Operating Activities

     183,761       (4,780     12,289       1,018       (62,037     130,251       —          130,251  

Cash flows (used in) investing activities

     (101,800     (78,534     (2,259     (544     (199,799     (382,936     —          (382,936

Cash flows from (used in) Financing Activities

     (49,023     (22,331     2,505       864       (6,763     (74,748     —          (74,748

Net increase (decrease) in Cash and Cash Equivalents

     32,938       (105,645     12,535       1,338       (268,599     (327,433     —          (327,433
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

Information required by geographic area:

 

     Geographical area  
2020    Local country      Foreign country  
     Chile      Argentina      Brazil      USA/Canada      Uruguay      Mexico      Total  

Disclosure of geographical areas

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

Revenues from goods sale

     565,624        86,096        109,368        234,558        74,789        36,600        1,107,035  

Revenues from rendering of services

     12,204        —          —          —          7,927        —          20,131  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Revenues at 03-31-2020

     577,828        86,096        109,368        234,558        82,716        36,600        1,127,166  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-current Assets at 03-31-2020 other than deferred tax

     7,714,217        769,942        729,725        823,029        1,721,156        120,010        11,878,079  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Geographical area  
2019    Local country      Foreign country  
     Chile      Argentina      Brazil      USA/Canada      Uruguay      Mexico      Total  

Disclosure of geographical areas

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

Revenues from goods sale

     672,715        99,558        126,838        336,206        112,722        23,518        1,371,557  

Revenues from rendering of services

     16,120        —          —          —          509        —          16,629  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Revenues at 03-31-2019

     688,835        99,558        126,838        336,206        113,231        23,518        1,388,186  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-current Assets at 12-31-2019 other than deferred tax

     7,480,456        781,693        947,265        832,570        1,724,698        155,900        11,922,582  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 25. OTHER NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES

 

     03-31-2020      12-31-2019  

Current non-financial assets

   ThU.S.$      ThU.S.$  

Roads to amortize current

     43,341        48,380  

Prepayment to amortize (insurance and others)

     30,409        17,965  

Recoverable taxes (GST and others)

     94,114        102,875  

Other current non-financial assets

     7,029        4,890  

Total

     174,893        174,110  
  

 

 

    

 

 

 
     03-31-2020      12-31-2019  

Non-current non-financial assets

   ThU.S.$      ThU.S.$  

Roads to amortize, non-current

     113,698        96,530  

Guarantee values

     3,715        4,442  

Recoverable taxes

     5,661        4,568  

Other non-current non-financial assets

     3,776        6,874  

Total

     126,850        112,414  
  

 

 

    

 

 

 
     03-31-2020      12-31-2019  

Current non-financial liabilities

   ThU.S.$      ThU.S.$  

Provision of minimum dividend (1)

     2,635        2,451  

ICMS, PIS-COFINS and other tax payables - Brasil

     14,213        18,195  

Other tax payable

     16,851        18,206  

Other Current non-financial liabilities

     1,076        1,213  

Total

     34,775        40,065  
  

 

 

    

 

 

 

 

(1)

In late 2019, the Parent’s dividend policy was modified as disclosed in notes 1 and 26. Provision includes a minimum dividend of subsidiary minority.

 

     03-31-2020      12-31-2019  

Non-current non-financial liabilities

   ThU.S.$      ThU.S.$  

ICMS tax payable - Brasil

     87,674        111,012  

Other non-current non-financial liabilities

     311        424  

Total

       87,985        111,436  
  

 

 

    

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 26. DISTRIBUTABLE NET PROFIT AND EARNINGS PER SHARE

Distributable net profit

As a general policy, the Board of Directors of Arauco agreed that the net profit to be distributed as dividend is determined based on realized net gains/(losses) of any relevant variations in the value of unrealized assets and liabilities, which are excluded from the calculation of net profit during the period such changes are made.

As a result of the foregoing, for purposes of determining the distributable net profit of the Company, which is the same considered for calculating the minimum dividend required and additional dividend, the following unrealized gains/losses are excluded from the net profit for the year:

 

  1)

Unrealized gains/losses relating to the fair value recorded for forestry assets under IAS 41, adding them back to distributable net profit when they are realized through sale or disposed of by other means.

 

  2)

Those generated through the acquisition of entities. These results will be added back to net profit when they are realized through sale.

The deferred taxes associated with the amounts described in 1) and 2) above are also excluded.

The Board of Directors agreed to modify the Company’s dividend policy established by the Board of Directors in Session No. 587 dated as of April 24, 2018, in the sense that, notwithstanding the powers of the Shareholders’ Meeting to determine the portion of the profits of the year to be distributed as dividend, it will be proposed, with respect to the results of the years 2019 and 2020, not to distribute dividends, due to the financial requirements that the Company has in the coming months, especially those related to the MAPA Project.

Therefore, as of March 31, 2020 there is no minimum dividend provision registered. In addition, as of March 31, 2020 the distributable net profit is a loss effect.

The following table details the adjustments made for the determination of distributable net profit as of March 31, 2020 and 2019 to determine the provision of 40% of the distributable net profit for each period:

 

     Distributable Net Profit
ThU.S.$
 

Net profit attributable to owners of parent at 03-31-2020

     (29,460

Adjustments:

  

Biological assets

  

Unrealized gains/losses

     (52,284

Realized gains/losses

     35,700  

Deferred income taxes

     6,617  
  

 

 

 

Total adjustments

     (9,967
  

 

 

 

Distributable Net Profit at 03-31-2020

     (39,427
  

 

 

 

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

     Distributable Net Profit
ThU.S.$
 

Net profit attributable to owners of parent at 03-31-2019

     125,836  

Adjustments:

  

Biological assets

  

Unrealized gains/losses

     (36,674

Realized gains/losses

     45,114  

Deferred income taxes

     (1,514
  

 

 

 

Total adjustments

     6,926  
  

 

 

 

Distributable Net Profit at 03-31-2019

     132,762  
  

 

 

 

Basic and diluted earnings per share

Basic and diluted earnings per share are calculated by dividing the profit or loss attributable to ordinary equity holders of parent by the weighted average number of ordinary shares outstanding. Arauco does not have any shares with potential dilutive effect.

 

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

Profit or loss attributable to ordinary equity holder of parent

     (29,460      125,836  

Weighted average of number of shares

     113,159,655        113,159,655  

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

     (0.2603      1.1120  

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 27. COVID-19

In late December 2019 a notice of pneumonia originating from Wuhan, Hubei province (COVID-19, caused by a novel coronavirus) was reported to the World Health Organization, with cases soon confirmed in multiple provinces in China, as well as in other countries. Several measures have been undertaken by governments around the globe, including the use of quarantine, screening at airports and other transport hubs, travel restrictions, suspension of visas, nation-wide lockdowns, closing of public and private institutions, suspension of sport events, restrictions to museums and tourist attractions and extension of holidays, among many others. However, the virus continues to spread globally and, as of the date of these consolidated financial statements, has affected more than 180 countries and territories around the world, including Chile, Argentina, Brazil, Uruguay, Mexico and the United States, among others. To date, the outbreak of the novel coronavirus has caused significant social and market disruption. The long-term effects to the global economy and the Company of epidemics and other public health crises, such as the on-going novel coronavirus, are difficult to assess or predict, and may include a decline in market prices (including the market price of our securities), risks to employee health and safety, and reduced sales in geographic locations impacted. Any prolonged restrictive measures put in place in order to control an outbreak of a contagious disease or other adverse public health development in any of our targeted markets may have a significant effect on our business operations. Moreover, considering that some of our clients (especially in our pulp business) are located in China and other affected countries, the demand of our products and the logistics associated with the sale of those products may be impacted, which would have a negative effect on our business operations. We may also be affected by the need to implement policies limiting the efficiency and effectiveness of our operations, including home office policies. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term. Additionally, we cannot predict how the disease will evolve (and potentially, spread) in the countries where we have industrial operations, nor anticipate what additional restrictions governments of those countries or other countries may impose.

 

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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES

Unaudited Interim Consolidated Financial Statements

March 31, 2020

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

 

 

NOTE 28. SUBSEQUENT EVENTS

1) In the Board of Directors’ meeting held on April 28, 2020 it was agreed to convene an Extraordinary Shareholders’ Meeting to be held on May 19, 2020, for such Shareholders´ Meeting to decide on the proposal of the Board of Directors to increase the capital of the Company, up to a maximum amount of US$700 million, through the issuance of shares that would be payable in cash. Of the total amount proposed for the capital increase, it is estimated that US$250 million will be required to be paid during the year 2020, while the remaining US$ 450 million would be paid during the course of the year 2021, depending on the required resources in such year.

The capital increase would aim to contribute to the financing of the projects developed by the Company, especially the MAPA Project, and to strengthen the Company´s financial position, which has been affected by the capital requirements of the different projects that is carrying and has carried out, by the effects on the market as a result of the trade war between China and the United States of America and by the decrease in the demand of products that is observed worldwide as a consequence of the Covid-19 pandemic.

In compliance with article 19 of the Rules of Corporations Law No. 18.046 (Reglamento de la Ley N°18.046 de Sociedades Anónimas), in addition to the above-mentioned capital increase proposal, it would correspond to carry out in the Shareholders’ Meeting the capitalization of corporate reserves arising from profits and legal revaluations existing as of the date of the last balance sheet, through the issuance of shares free of payment, unless otherwise unanimously agreed by all the shares issued by the Company.

In case such capital increase is approved, it will be proposed in the same Extraordinary Shareholders’ Meeting to replace article fifth of the Company’s bylaws and to add into the bylaws necessary transitional provisions to implement the reforms to be agreed by the Shareholders’ Meeting.

2) The authorization for the issuance and publication of these interim consolidated financial statements for the period ended March 31, 2020 was approved by the Board of Directors of Arauco at the Extraordinary Session No. 631 held on May 12, 2020.

Subsequent to March 31, 2020 and until the date of issuance of these interim consolidated financial statements, there have been no events, other than those discussed above, that could materially affect the presentation of these financial statements.

 

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Press Release 1Q 2020


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1Q 2020 RESULTS Highlights For more details on ARAUCO´s financial statements please visit www.cmfchile.cl or www.arauco.com Readers are referred to the documents filed by ARAUCO with the United States Securities and Exchange Commission, specifically the most recent filing on Form 20-F that identifies important risk factors that could cause actual results to differ from those contained in the forward-looking statements. All forward-looking statements are based on information available to ARAUCO on the date hereof and ARAUCO does not assume any obligation to update such statements. References herein to “U.S.$” are to United States dollars. Discrepancies in any table between totals and sums of the amounts listed are due to rounding. This report is unaudited. REVENUES US$1,127.2 million ARAUCO’s revenues reached US$1,127.2 million during the first quarter of 2020, a 6.2% decrease compared to the US$1,202.3 million obtained during the fourth quarter of 2019 and a 18.8% decrease compared to the first quarter of 2019. NET INCOME -US$29.7 million ARAUCO’s net income was -US$29.7 million, a reduction in losses equivalent to US$62.3 million, compared to the -US$92.0 million net income obtained during the fourth quarter of 2019, and a US$155.8 million decrease compared to the first quarter of 2019. ADJUSTED EBITDA US$194.6 million Adjusted EBITDA reached US$194.6 million, a 7.8% or US$16.5 million decrease compared to the US$211.0 million obtained during the fourth quarter of 2019, and a 45.2% or US$160.3 million decrease compared to the same period of 2019. NET DEBT TO EBITDA 4.9x Net Financial Debt increased by US$327.4 million or 7.3% compared to the last quarter. Net Financial Debt / LTM Adjusted EBITDA ratio reached 4.9x in this quarter, an increase compared to 3.9x in the fourth quarter of 2019 and to the 2.3x reached in the first quarter of 2019. CAPEX US$445.5 million CAPEX reached US$445.5 million during this quarter, 2.6% or US$11.3 million higher than the US$434.3 million from the fourth quarter of 2019.


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1Q 2020 RESULTS Overview ARAUCO´s first quarter 2020 net income was -US$29.7 million, which translates to a decrease in losses of US$62.3 million compared to the fourth quarter of 2019. This is mainly explained by a better operational result and lower other expenses. Our Adjusted EBITDA was 7.8% lower than the fourth quarter, reaching US$194.6 million. Adjusted EBITDA margin decreased to 17.3% compared to the 17.6% of the fourth quarter. Net Financial Debt increased by US$327.4 million or 7.3% compared to the last quarter. Our Net Debt/LTM EBITDA ended up in 4.9x, compared to the 3.9x reached in the fourth quarter of 2019. In US$ Million Q1 2020 Q4 2019 Q1 2019 QoQ YoY YTD 2020 YTD 2019 YoY Acum Revenue 1,127.2 1,202.3 1,380.9 -6.2% -18.8% 1,127.2 1,388.2 -18.8% Net income (29.7) (92.0) 70.1 -67.7% -123.6% (29.7) 126.1 -123.6% Adjusted EBITDA 194.6 211.0 354.9 -7.8% -45.2% 194.6 354.9 -45.2% Adjusted EBITDA 17.3% 17.6% 25.6% -1.7% -32.5% 17.3% 25.6% -32.5% Margin LTM Adj. EBITDA 987.1 1,147.4 1,748.4 -14.0% -43.5% 987.1 1,748.4 -43.5% CAPEX 445.5 434.3 394.6 2.6% 12.9% 445.5 394.6 12.9% Net Financial Debt 4,817.2 4,489.8 4,017.8 7.3% 19.9% 4,817.2 4,017.8 19.9% Net Financial Debt / 4.9x 3.9x 2.3x 24.7% 112.4% 4.9x 2.3x 112.4% LTM Adj. EBITDA Adjusted EBITDA and EBITDA Margin (in US$ Million) FY 2018 FY 2019 YTD 2020 1,850.5 1,147.4 194.6


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1Q 2020 RESULTS Net income shows a reduction in losses of 67.7% during the first quarter Income of 2020 reaching -US$29.7 million. This is explained by better operational results compared to the last quarter, mainly due to a higher decrease in cost of sales than in revenues, particularly in our pulp (maintenance Statement costs) and forestry business segments. Additionally, other expenses decreased because of less impairment provisions of property plant and equipment. In US$ Million Q1 2020 Q4 2019 QoQ Revenues 1,127.2 1,202.3 -6.2% Cost of sales (843.6) (950.2) -11.2% Distribution costs (137.4) (138.3) -0.6% Administrative expenses (123.5) (126.1) -2.1% Other income 55.2 58.8 -6.1% Other expenses (50.9) (116.5) -56.3% Financial income 7.2 10.3 -29.7% Financial costs (71.8) (80.9) -11.3% Share of profit (loss) of associates and joint ventures accounted for using equity method 1.6 3.9 -60.1% Other income (loss) 0.0 21.7 -100.0% Exchange rate differences (3.4) (13.0) -73.6% Income before income tax (39.5) (128.1) -69.2% Income tax 9.8 36.1 -73.0% Net income (29.7) (92.0) -67.7%


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1Q 2020 RESULTS Revenues ARAUCO’s revenues reached US$1,127.2 million in the first quarter, a decrease of 6.2% when compared to the previous quarter. This variation is mainly explained by lower revenues in our pulp division, due to lower sales volume of 5.9% and lower average prices of 4.7%. Revenues in our wood products segment remained stable, only increasing 0.6% or US$3.6 million. The following table shows a breakdown of our revenues by business segment: In US$ Million Q1 2020 Q4 2019 QoQ Pulp(*) 450.9 526.7 -14.4% Wood Products(*) 646.6 642.9 0.6% Forestry 29.6 32.5 -8.9% Others 0.1 0.1 -43.1% Total 1,127.2 1,202.3 -6.2% 1Q 2020 Revenue’s breakdown (*) Pulp and Wood products division sales include energy.


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1Q 2020 RESULTS Cost of sales Decreased by 11.2% or US$106.7 million compared to the fourth quarter of 2019. This is primarily explained by lower timber costs, associated to a decrease in timber prices and purchased volumes. Additionally, the decrease in maintenance costs is mainly because of less maintenance stoppages when compared to the previous quarter. Also, forestry labor costs decreased due to cost reductions in felling, transportation, processing and road construction. In US$ Million Q1 2020 Q4 2019 QoQ Timber 191.3 237.2 -19.4% Forestry labor costs 107.5 118.5 -9.3% Depreciation and amortization 98.3 101.8 -3.4% Depreciation for right of use 14.9 16.4 -9.0% Maintenance costs 58.9 75.0 -21.4% Chemical costs 118.4 127.2 -6.9% Sawmill services 27.9 30.7 -9.1% Other raw materials and indirect costs 83.2 96.2 -13.6% Energy and fuel 41.7 46.6 -10.5% Cost of electricity 8.8 8.1 8.5% Wage, salaries and severance indemnities 92.6 92.5 0.2% Cost of Sales 843.6 950.2 -11.2% Administrative expenses Decreased by 2.1% or US$2.6 million compared to the previous quarter, mainly due to a decrease in other administration expenses due to lower travel expenses. Additionally, computer services expenses decreased because of less software licenses payments. This was partially offset by a 14.4% increase in wages, salaries and severance indemnities equivalent to US$6.7 million, mainly as a result of adjustments to bonus provisions during the past quarter, and new provisions made during this quarter. In US$ Million Q1 2020 Q4 2019 QoQ Wages, salaries and severance indemnities 53.5 46.7 14.4% Marketing, advertising, promotion and publications expenses 3.4 2.9 15.0% Insurance 5.7 5.0 13.7% Depreciation and amortization 7.6 8.3 -7.9% Depreciation for the right of use 2.8 3.3 -16.7% Computer services 5.3 8.9 -40.1% Lease rentals (offices, warehouses and machinery) 1.5 1.2 26.1% Donations, contributions, scholarships 2.6 2.5 4.1% Fees (legal and technical advisories) 9.3 11.4 -18.3% Property taxes, patents and municipality rights 3.9 2.9 33.4% Other administration expenses 27.9 32.9 -15.1% Administrative Expenses 123.5 126.1 -2.1%


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1Q 2020 RESULTS Distribution costs Distribution costs remained stable. There were no significant variations related to distribution costs during this quarter. In US$ Million Q1 2020 Q4 2019 QoQ Commissions 3.1 2.5 25.6% Insurance 0.8 0.7 19.7% Other selling costs 4.7 3.8 26.0% Port services 8.6 9.3 -7.3% Freights 110.3 110.4 -0.1% Depreciation for the 0.4 0.4 -5.7% right of use Other shipping and 9.4 11.2 -16.3% freight costs Distribution Costs 137.4 138.3 -0.6% Other income Decreased by 6.1% equivalent to US$3.6 million, mainly explained by other operating results which decreased due to a provision reversal occurred during the previous quarter, and due to lower gains on sales of assets due to one-time effects during the past quarter. This was partially offset by an increase in gains from changes in fair value of biological assets. In US$ Million Q1 2020 Q4 2019 QoQ Gain from changes in fair 52.0 44.2 17.7% value of biological assets Net income from 0.0 0.8 -97.4% insurance compensation Leases received 0.3 0.3 0.3% Gains on sales of assets 1.5 4.1 -63.8% Gain on sales of — associates Other operating results 1.4 9.4 -85.4% Other Income 55.2 58.8 -6.1%


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1Q 2020 RESULTS Other expenses Decreased by US$65.6 million or 56.3% compared to the previous quarter, primarily due to a decrease in impairment provisions of property, plant and equipment and others due to provisions made during the previous quarter related to some of our North American panel mills. The provisions made during this quarter are mostly related to the Line 1 of the Arauco mill, which will be shut down once the Line 3 starts its operations. In US$ Million Q1 2020 Q4 2019 QoQ Legal payments 1.4 2.3 -40.0% Impairment provision property, plant and 18.1 87.1 -79.3% equipment and others Operating expenses related to plant 13.1 11.4 14.7% stoppages Project expenses 3.6 3.9 -8.5% Loss (gain) from asset 0.9 2.8 -66.7% sales Loss and repair of assets 2.5 0.6 310% Provision for forestry fire 5.1 1.3 279.6% losses Other taxes 3.9 4.8 -19.1% Research and 0.5 0.9 -44.9% development expenses Other expenses (donations, repayments 1.9 1.2 57.3% insurance) Other expenses 50.9 116.5 -56.3% Foreign exchange differences Showed a net loss of US$3.4 million, a US$9.6 million reduction when compared to the fourth quarter that ended with a US$13.0 million loss. The main significant effects are given by the variation of the currencies of the countries where we have industrial operations. These currency variations affected our cash and cash equivalents as measured in US dollar. Income tax For the fourth quarter, income tax reached US$9.8 million, US$26.3 million lower than the US$36.1 million gain in the previous quarter. This gain is mainly due to this quarter’s negative income before tax.


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1Q 2020 RESULTS Adjusted EBITDA for the first quarter of 2020 was US$194.6 million. In terms Adjusted of Adjusted EBITDA by business, the most significant variation was in our pulp division with an increase of 17.7% or US$12.0 million. This was mostly related to lower maintenance costs when compared to the previous quarter. This EBITDA was partially offset by a decrease in the Adjusted EBITDA of our wood products and forestry divisions of 10.3% and 0.8% respectively. In US$ Million Q1 2020 Q4 2019 Q1 2019 QoQ YoY Net Income (29.7) (92.0) 126.1 -67.7% -123.6% Financial costs 71.8 80.9 57.4 -11.3% 25.1% Financial income (7.2) (10.3) (6.7) -29.7% 6.8% Income tax (9.8) (36.1) 15.1 -73.0% -164.6% EBIT 25.1 (57.4) 191.8 -143.7% -86.9% Depreciation & amortization 125.4 132.5 124.7 -5.3% 0.6% EBITDA 150.5 75.1 316.5 100.5% -52.4% Fair value cost of timber harvested 67.0 78.7 74.8 -14.8% -10.4% Gain from changes in fair value of (52.0) (44.2) (37.0) 17.7% 40.7% biological assets Exchange rate differences 3.4 13.0 (2.1) -73.6% -261.1% Others (*) 25.6 88.5 2.6 -71.0% 875.1% Adjusted EBITDA 194.6 211.0 354.9 -7.8% -45.2% (*) Includes provision from forestry fires and provisions from property, plants and equipment, and others Adjusted EBITDA variation by business segment (in US$ million)


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1Q 2020 RESULTS Forestry The Adjusted EBITDA for our forestry business was US$71.3 million for the first quarter, which translates to a US$0.6 million decrease compared to the previous quarter. Business The production during the fourth quarter was 4.4 million m3, 16.3% down compared to the previous quarter. Sales volume reached 7.2 million m3, a decrease of 3.2% compared to the last quarter. Production, Purchase and Sales Volume (in thousand m3)


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The first quarter of 2020 was challenging, especially due to the effects of COVID-19 in the global markets. The tissue market was positively affected due 1Q 2020 RESULTS to a higher demand, but P&W markets suffered a significant adverse impact because of the shutdown of offices, schools and universities. Global inventories for long fiber pulp remained stable, yet those of short fiber increased on a quarterly basis (although not reaching 1Q 2019 levels). All of this led to prices remaining stable for both fibers in most of the markets we take part in. Global Pulp Demand Change North America -7.1% West Europe 1.3% China 10.6% Others 7.6% Total 4.3% Last 2 months, Jan-Feb 2019 and 2020 Pulp Source: World-20 Bleached Chemical Pulp Demand. Hawkins Wright Report In China, the quarter began with a positive trend in terms of demand prior to Business the Chinese New Year. During those festivities, the COVID-19 breakout led to a prolonged holiday as well as quarantines across the country in order to prevent movements of people. This generated disruptions to supply chains which, nevertheless, didn’t have any major impact on our sales. The market showed positive signs up until mid-March, when demand for P&W paper and specialties started to decline associated to lower economic activity both in domestic and export markets. In Europe, the quarter began with a strong demand even with some clients asking to anticipate deliveries. During March, the COVID-19 broke out in Italy to then expand to other countries. As in other markets, demand for tissue remained strong. This contrasts with the demand for P&W which fell, with clients announcing plant stoppages and production cuts. Prices remained stable throughout the quarter, with a slight decrease at the end of it. Production increased during the quarter by 6.1% or approximately 52 th. tonnes, mainly due to less maintenance stoppages during this quarter. This increase was partially offset by the Licancel mill stoppage, which wasn’t operating since December 2019, because of low water flow in the Mataquito river. This mill resumed operations on March 20th. During this period, we also undertook the annual maintenance stoppage of the mentioned mill. Additionally, the Constitución mill undertook its annual maintenance stoppage (6 days). Moreover, both production lines of our Arauco mill had to stop because of a quarantine required by the health authorities because a contractor’s employee tested positive for COVID-19 in the canteen. Line 2 was stopped for 5 days, and Line 1 for nearly a month as we anticipated our annual maintenance stoppage initially programmed for June 2020. Production and Sales Volume (In thousand tonnes) 910 932 856 902 909 849 Q1 2019 Q4 2019 Q1 2020 Production Sales


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1Q 2020 RESULTS The Adjusted EBITDA for our pulp business reached US$80.2 million during this quarter, which translates to a 17.7% or US$12.0 million increase compared to the fourth quarter 2019. Pulp EBITDA Mg reached 17.8%, 4.8% up from the last quarter. Days of Stoppages 2019 2020 Mill 3Q 4Q 1Q 2Q Arauco—Line 1 19 6 Arauco—Line 2 13 5 Constitución 6 Licancel 67 9 16 Nueva Aldea 6 Valdivia 60 Alto Paraná Montes del Plata 12


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Panels 1Q 2020 RESULTS Sales decreased compared to the fourth quarter, with sales volume and prices decreasing by 1.6% and 1.5%, respectively. During the beginning of the first quarter the Latin American market showed encouraging signs, but the impact of COVID-19 has been significant in the region due to ongoing quarantines in some countries. This started to affect our sales at the end of March, and uncertainty going forward remains. In the US and Canada sales volumes and prices remained stable. Production and Sales Volume: Panels (1) (In thousand m3) Wood Sawn timber Products During the first quarter, sales volume and prices were similar to the previous quarter. Even as we noted signs of recovery from Asian markets, total sales volume decreased by 3.4% compared to the last quarter. Business Results for remanufactured wood products were stable. We were able to capture additional market share in part due to competitors facing possible tariffs, and a generalized supply deficit. Production and Sales Sawn Timber (2) Volume: (In thousand m3) Plywood Sales volume increased by 4.1% during the first quarter. The year began with an improvement in some markets with respect to the previous quarter. In terms of supply, we have noted competitors leaving the market due to low profitability. Production and Sales Volume: Plywood (In thousand m3) Includes OSB and HB. Includes sawn timber, kilned sawn timber, remanufactured wood products, pallets. Note: Sales include trading


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1Q 2020 RESULTS Adjusted EBITDA for our wood products business reached US$65.4 million during the first quarter of 2020, which translates to a 10.3% or US$7.5 million decrease, compared to the fourth quarter. Wood products EBITDA Mg was 10.1%, lower than the 11.3% reached in the fourth quarter.


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1Q 2020 RESULTS During this quarter, capital expenditures reached US$445.5 million, Capital US$11.2 million or 2.6% higher than the previous quarter. This was mainly due to a 2.6% or US$8.9 million increase in purchase and sale of property, plant and equipment, mostly related to the ongoing Expenditures MAPA project. Our main project-related expenditures during the first quarter were: MAPA Project: US$213.8 million Dissolving Pulp Project: US$13.3 million US$ Million Q1 2020 Q4 2019 Q1 2019 YTD 2020 FY 2019 Cash flow used to obtain control of—(0.6) 150.8—69.2 subsidiaries or other businesses Cash flow used to purchase in 15.1 (0.1) 0.5 15.1 0.6 associates Purchase and sale of property, plant 356.8 347.9 165.9 356.8 1,000.4 and equipment Purchase and sale of intangible assets 6.1 16.8 3.6 6.1 32.0 Purchase of other long-term assets 67.5 70.1 73.9 67.5 247.8 Total CAPEX 445.5 434.3 394.6 445.5 1,350.0


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1Q 2020 RESULTS During the first quarter, free cash flow decreased by US$212.0 million compared to Free the previous quarter, ending with a deficit of US$499.6 million. Cash provided by operating activities decreased by US$182.7 million mainly due to working capital variation, and a decrease in Adjusted EBITDA. Cash used in investment activities Cash Flow remained stable increasing by 2.4% or US$10.3 million. Cash used in financing activities decreased by 8.9% or US$2.1 million. US$ Million Q1 2020 Q4 2019 Q1 2019 Adjusted EBITDA 194.6 211.0 354.9 Working Capital Variation (87.7) 121.4 (70.9) Interest paid and received (35.3) (97.4) (43.5) Income tax paid (55.5) (56.4) (28.1) Other cash inflows (outflows) (31.8) (11.7) (82.2) Cash from Operations (15.7) 167.0 130.3 Capex (445.5) (434.3) (394.6) Proceeds from investment activities 5.7 5.3 5.5 Other inflows of cash, net 2.9 2.5 6.2 Cash from (used in) Investment Activities (436.9) (426.5) (382.9) Dividends paid ——Other inflows of cash, net (21.2) (23.2) (21.3) Cash from (used in) Financing Activities—Net of Proceeds and Repayments (21.2) (23.2) (21.3) Effect of exchange rate changes on cash and cash equivalents (25.9) (4.9) (0.7) Free Cash Flow (499.6) (287.7) (274.7) Net Debt Variation Q1 2020 – Q4 2019 (in US$ million) (*) The total amount corresponds to leasing variation.


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ARAUCO ‘s total financial debt as of March 31, 2020 reached US$5,972.7 1Q 2020 RESULTS million, a decrease of 1.3% or US$77.1 million when compared to December 31, 2019. Our consolidated net financial debt increased 7.3% or US$327.4 million when compared with December 2019, while cash and cash equivalents decreased by US$404.6 million. Our leverage, measured as Net Financial Debt/LTM Adjusted EBITDA was 4.9x, which compares to the 3.9x in the last quarter. In US$ Million Mar 2020 Dec 2019 Mar 2019 Short term financial debt 639.6 529.2 576.2 Financial Long term financial debt 5,333.1 5,520.6 4,189.3 TOTAL FINANCIAL DEBT 5,972.7 6,049.8 4,765.5 Cash and cash 1,155.5 1,560.0 747.8 Debt and equivalents Cash NET FINANCIAL DEBT 4,817.2 4,489.8 4,017.8 LTM Adjusted EBITDA 987.1 1,147.4 1,748.4 Net Financial Debt and Leverage (In US$ Million) Debt by Currency Debt by Instrument (*) UF is a Chilean monetary unit indexed to inflation.


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1Q 2020 RESULTS Cash Our cash position was US$1,155.5 million at the end of the first quarter, which translates to a 25.9% decrease or US$404.6 million when comparted to the end of the fourth quarter of 2019. Cash provided by operating activities decreased by US$182.7 million, mainly due to a decrease in sales. Cash provided by financing activities decreased by US$608.3 million or 89.2% mainly because during the previous quarter we issued US$1,000 million through a sustainable US bond. In terms of liquidity, and additionally to our strong cash position, the Company has a committed credit facility for a total amount of US$375 million, which as of the date of this report hasn’t been withdrawn. This facility is due in February 2025. Cash by Currency Cash by Instrument Financial Debt Profile For the remainder of 2020, bank and bond obligations (which include accrued interest) sum up US$609.9 million. Bank obligations include the following maturities: US$140.5 million in Chile (Pre-export financing), US$129.2 million of loans for Montes del Plata, US$60.1 million in leasing, US$5.3 million of loans in the United States and US$3.6 million of our Brazilian subsidiaries. Bond obligations for the remainder of the year sum up US$272.1 million. Amortization payments for local bonds amount to US$206.0 million, which include the final amortization payment of US$167.8 million for the BARAU-J on September, and amortization of 2 local bonds (BARAU-F and BARAU-Q). Debt Amortization Profile as of March 31, 2020 (In US$ Million)


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1Q 2020 RESULTS First Quarter Subsequent Events and News COVID-19 update During March 2020, our industrial activities were declared as essential businesses by the authorities in most of the countries where we have operations. We have implemented enhanced health and safety protocols in all our facilities in order to prevent COVID-19 contagions. These include social distancing, body temperature measurement, home office policies, limiting the number of people in meetings, preventive testing, increasing workplace sanitation frequency, suspending domestic and international travels, among others. We have also requested our contractors, including those of the MAPA project, to take similar measures. These efforts have been further extended to support local communities and hospitals with medical devices and a wide range of sanitary and health related actions. Capital Increase On April 28, 2020, the ARAUCO Board of Directors agreed to convene an Extraordinary Shareholder’s Meeting to be held on May 19, 2020, for such Shareholders’ Meeting to decide on the proposal of the Board of Directors to increase the capital of ARAUCO, up to a maximum amount of US$700 million. Of the total amount proposed for the capital increase, it is estimated that US$250 million will be required to be paid during 2020, while the remaining US$450 million could be paid during the course of 2021, depending on the required resources in such year. The capital increase would aim to strengthen ARAUCO’s financial position which has been affected by ongoing and past projects, trade tensions between China and the US, and the decrease in the demand of products that is observed worldwide as a result of the COVID-19 pandemic. Dissolving Pulp Project update The Dissolving Pulp Project was completed as of February 2020. The start-up is expected by June 2020. Originally it was programmed for January 2020 but was delayed as a precautionary measure to start production closer to the autumn/winter when water flow of the Cruces River usually increases. Total investment for this brownfield project was approximately US$200 million. MAPA Project update MAPA Project progress as of the end of April 2020 was 48.6%. During this quarter, we started a 14-day adjustment process in construction activities in order to enhance the health and safety protocols to prevent possible contagions of COVID-19 among the workers. On April 6th this adjustment process was finished, and enhanced health and safety protocols are in place. Approximately 6,000 people are currently working at the site. The start-up of the new Line 3 is expected to take place during the second quarter of 2021. At that point the existing eucalyptus line (Line 1) will be permanently shut down. North American Mills update On April 22, 2020, we announced that we will be ending operations of our Bennettsville MDF mill effective May 18, 2020. The reasons of this difficult decision are related to our permanent efforts to maintain and enhance the operational efficiency of our mills. This mill was built in 1991 and has a production capacity of 251,000 m3 of MDF. Forestry Fires update During the 2019-2020 forestry fire season the area affected reached 2,700 hectares, which had a fair value of approximately US$5 million. This compares to 1,347 hectares affected during the 2018-2019 forestry fire season.


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1Q 2020 RESULTS CONFERENCE CALL May 20, 2020 12:00 Santiago Time 12:00 Eastern Time (New York) Dial in: +1 (844) 450 3845 from USA UPCOMING +56 (44) 208 1274 from Chile EVENTS +1 (412) 317 6368 from other countries Conference ID: Arauco For further information, please contact: Marcelo Bennett Treasurer marcelo.bennett@arauco.com Phone: +56 2 2461 7309 Gonzalo Jofré Investor Relations gonzalo.jofre@arauco.com Phone: +56 2 2461 7494 investor_relations@arauco.cl


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1Q 2020 RESULTS Financial Statements Income Statement In US$ Million Q1 2020 Q4 2019 Q1 2019 YTD 2020 YTD 2019 Revenues 1,127.2 1,202.3 1,388.2 1,127.2 1,388.2 Cost of sales (843.6) (950.2) (941.9) (843.6) (941.9) Gross profit 283.6 252.1 446.3 283.6 446.3 Other income 55.2 58.8 45.5 55.2 45.5 Distribution costs (137.4) (138.3) (142.9) (137.4) (142.9) Administrative expenses (123.5) (126.1) (141.3) (123.5) (141.3) Other expenses (50.9) (116.5) (22.3) (50.9) (22.3) Financial income 7.2 10.3 6.7 7.2 6.7 Financial costs (71.8) (80.9) (57.4) (71.8) (57.4) Share of profit (loss) of associates and joint 1.6 3.9 4.4 1.6 4.4 ventures accounted for using equity method Other income (loss) 0.0 21.7 0.0 0.0 0.0 Exchange rate differences (3.4) (13.0) 2.1 (3.4) 2.1 Income before income tax (39.5) (128.1) 141.2 (39.5) 141.2 Income tax 9.8 36.1 (15.1) 9.8 (15.1) Net income (29.7) (92.0) 126.1 (29.7) 126.1 Profit attributable to parent company (29.5) (91.9) 125.8 (29.5) 125.8 Profit attributable to non-parent company (0.2) (0.1) 0.3 (0.2) 0.3


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1Q 2020 RESULTS Balance Sheet In US$ Million 31-03-2020 31-12-2019 31-03-2019 Cash and cash equivalents 1,155.5 1,560.0 747.8 Other financial current assets 52.6 3.4 1.3 Other current non-financial assets 174.9 174.1 223.1 Trade and other receivables-net 667.4 642.3 930.4 Related party receivables 15.2 17.5 5.0 Inventories 1,055.2 1,053.9 1,094.6 Biological assets, current 260.7 275.8 317.1 Tax assets 247.2 200.0 40.0 Non-Current Assets classified as held for sale 4.3 4.4 5.8 Total Current Assets 3,633.1 3,931.4 3,365.0 Other non-current financial assets 0.1 9.4 26.7 Other non-current and non-financial assets 126.9 112.4 88.5 Non-current receivables 8.6 9.5 12.0 Investments accounted through equity method 288.1 293.1 353.6 Intangible assets 104.1 106.3 95.1 Goodwill 59.3 65.8 65.8 Property, plant and equipment 7,943.2 7,932.6 7,651.3 Biological assets, non-current 3,347.8 3,393.6 3,366.2 Deferred tax assets 6.4 6.1 5.6 Total Non-Current Assets 11,884.5 11,928.6 11,664.6 TOTAL ASSETS 15,517.6 15,860.0 15,029.6 Other financial liabilities, current 647.2 530.1 577.0 Trade and other payables 614.5 673.1 741.0 Related party payables 4.0 8.9 11.3 Other provisions, current 1.2 1.3 1.3 Tax liabilities 2.6 2.2 162.3 Current provision for employee benefits 5.3 6.0 5.8 Other non-financial liabilities, current 34.8 40.1 279.8 Total Current Liabilities 1,309.5 1,261.5 1,778.5 Other non-current financial liabilities 5,716.3 5,654.0 4,244.6 Trade and Other payables non-current 2.2 2.2 2.2 Other provisions, non-current 31.1 31.8 33.7 Deferred tax liabilities 1,316.3 1,360.2 1,386.7 Non-current provision for employee benefits 62.1 69.5 67.5 Other non-financial liabilities, non-current 88.0 111.4 115.3 Total Non-Current Liabilities 7,216.0 7,229.1 5,850.0 Non-parent participation 30.1 35.0 37.3 Net equity attributable to parent company 6,962.0 7,334.4 7,363.9 TOTAL LIABILITIES AND EQUITY 15,517.6 15,860.0 15,029.6


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1Q 2020 RESULTS Cash Flow Statement US$ Million Q1 2020 Q4 2019 Q1 2019 YTD 2020 YTD 2019 Receipts from sales of goods and rendering of 1,122.8 1,450.7 1,377.2 1,122.8 1,377.2 services Other cash receipts (payments) 75.1 78.2 63.8 75.1 63.8 Payments of suppliers and personnel (less) (1,121.8) (1,206.8) (1,237.4) (1,121.8) (1,237.4) Interest paid and received (35.3) (97.4) (43.5) (35.3) (43.5) Income tax paid (55.5) (56.4) (28.1) (55.5) (28.1) Other (outflows) inflows of cash, net (1.1) (1.4) (1.8) (1.1) (1.8) Net Cash Provided by (Used in) Operating (15.7) 167.0 130.3 (15.7) 130.3 Activities Capital Expenditures (445.5) (434.3) (394.6) (445.5) (394.6) Other investment cash flows 8.6 7.7 11.7 8.6 11.7 Net Cash Provided by (Used in) Investing Activities (436.9) (426.5) (382.9) (436.9) (382.9) Proceeds from borrowings 140.0 996.2 7.0 140.0 7.0 Repayments of borrowings (44.9) (290.8) (60.5) (44.9) (60.5) Dividends paid 0.0 0.0 0.0 0.0 0.0 Other inflows of cash, net (21.2) (23.2) (21.3) (21.2) (21.3) Net Cash Provided by (Used in) Financing Activities 73.9 682.2 (74.7) 73.9 (74.7) Total Cash Inflow (Outflow) of the Period (378.7) 422.6 (327.4) (378.7) (327.4) Effect of exchange rate changes on cash and cash (25.9) (4.9) (0.7) (25.9) (0.7) equivalents Cash and Cash equivalents at beginning of the 1,560.0 1,142.2 1,075.9 1,560.0 1,075.9 period Cash and Cash Equivalents at end of the Period 1,155.5 1,560.0 747.8 1,155.5 747.8


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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Celulosa Arauco y Constitución, S.A.
                    (Registrant)
Date: May 22, 2020     By:  

/s/ Matías Domeyko Cassel

    Name:   Matías Domeyko Cassel
    Title:   Chief Executive Officer

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