Suzano 6K Current report | SUZ 4 Mar 20

Exhibit 99.4

Suzano S.A.
Consolidated financial statements
Year ended December 31, 2019 and 2018
(In thousands of R$, unless otherwise stated)

CONSOLIDATED BALANCE SHEETS

	Note		December 31, 2019		December 31, 2018
ASSET
CURRENT
Cash and cash equivalents		5		3,249,127		4,387,453
Marketable securities		6		6,150,631		21,098,565
Trade accounts receivable		7		3,035,817		2,537,058
Inventories		8		4,685,595		1,853,104
Recoverable taxes		9		997,201		296,832
Derivative financial instruments		4		260,273		352,454
Advances to suppliers		10		170,481		98,533
Assets held for sale						5,718
Other assets				335,112		169,175
Total current assets				18,884,237		30,798,892

NON-CURRENT
Marketable securities		6		179,703
Recoverable taxes		9		708,914		231,498
Deferred taxes		12		2,134,040		8,998
Derivative financial instruments		4		838,699		141,480
Advances to suppliers		10		1,087,149		218,493
Judicial deposits				268,672		129,005
Other assets				228,881		93,935

Biological assets		13		10,571,499		4,935,905
Investments		14		322,446		14,338
Property, plant and equipment		15		41,120,945		17,020,259
Right of use		19.1		3,850,237
Intangible		16		17,712,803		339,841
Total non-current				79,023,988		23,133,752
TOTAL ASSET				97,908,225		53,932,644

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

Suzano S.A.
Consolidated financial statements
Year ended December 31, 2019 and 2018
(In thousands of R$, unless otherwise stated)

CONSOLIDATED BALANCE SHEETS

	Note		December 31, 2019			December 31, 2018
LIABILITIES
CURRENT
Trade accounts payable		17		2,376,459			632,565
Loans, financing and debentures		18.1		6,227,951			3,426,696
Lease liabilities		19.2		656,844
Derivative financial instruments		4.5		893,413			596,530
Taxes payable				307,639			243,835
Payroll and charges				400,435			234,192
Liabilities for assets acquisitions and subsidiaries		23		94,414			476,954
Dividends payable				5,720			5,434
Advance from customers				59,982			75,159
Other liabilities				456,338			367,313
Total current liabilities				11,479,195			6,058,678

NON-CURRENT
Loans, financing and debentures		18.1		57,456,375			32,310,813
Lease liabilities		19.2		3,327,226
Derivative financial instruments		4.5		2,024,500			1,040,170
Liabilities for assets acquisitions and subsidiaries		23		447,201			515,558
Provision for judicial liabilities		20		3,512,477			351,270
Employee benefit plans		21		736,179			430,427
Deferred taxes		12		578,875			1,038,133
Share-based compensation plans		22		136,505			124,318
Other liabilities				121,723			37,342
Total non-current liabilities				68,341,061			35,848,031
TOTAL LIABILITIES				79,820,256			41,906,709

EQUITY		25
Share capital				9,235,546			6,241,753
Capital reserves				6,416,864			674,221
Treasury shares				(218,265	)		(218,265	)
Retained earnings reserves				317,144			2,992,590
Other reserves				2,221,341			2,321,708
Controlling shareholder´s				17,972,630			12,012,007
Non-controlling interest				115,339			13,928
Total equity				18,087,969			12,025,935
TOTAL LIABILITIES AND EQUITY				97,908,225			53,932,644

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

Suzano S.A.
Consolidated financial statements
Year ended December 31, 2019, 2018 and 2017
(In thousands of R$, unless otherwise stated)

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

			12 months YTD
	Note		December 31, 2019			December 31, 2018			December 31, 2017
NET SALES		28		26,012,950			13,443,376			10,580,673
Cost of sales		30		(20,743,482	)		(6,922,331	)		(6,496,304	)
GROSS PROFIT				5,269,468			6,521,045			4,084,369

OPERATING INCOME (EXPENSES)
Selling		30		(1,905,279	)		(598,726	)		(423,325	)
General and administrative		30		(1,173,358	)		(825,209	)		(528,974	)
Income from associates and joint ventures		14		31,993			7,576			5,872
Other, net		30		405,754			(96,875	)		140,510
OPERATING PROFIT BEFORE NET FINANCIAL INCOME (EXPENSES)				2,628,578			5,007,811			3,278,452

NET FINANCIAL INCOME (EXPENSES)		27
Financial expenses				(4,178,848	)		(1,500,374	)		(1,218,476	)
Financial income				493,246			459,707			305,778
Derivative financial instruments				(1,075,252	)		(2,735,196	)		73,271
Monetary and exchange variations, net				(1,964,927	)		(1,066,650	)		(179,413	)
NET INCOME (LOSS) BEFORE TAXES				(4,097,203	)		165,298			2,259,612

Current income taxes		12		(246,110	)		(586,568	)		(202,187	)
Deferred income taxes		12		1,528,571			741,084			(236,431	)
NET INCOME (LOSS) FOR THE YEAR				(2,814,742	)		319,814			1,820,994

Attributable to
Controlling shareholders’				(2,817,518	)		319,693			1,820,994
Non-controlling interest				2,776			121

Earnings (loss) per share		26
Basic				(2.08825	)		0.29236			1.66804

Diluted				(2.08825	)		0.29199			1.66433

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

Suzano S.A.
Consolidated financial statements
Year ended December 31, 2019, 2018 and 2017
(In thousands of R$, unless otherwise stated)

CONSOLIDATE STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	12 months YTD
	December 31, 2019			December 31, 2018			December 31, 2017
Net income (loss) for the year		(2,814,742	)		319,814			1,820,994

Items that will not be reclassified to profit or loss
Exchange rate variation and fair value on financial assets measured at fair value through of comprehensive income
Ensyn Corporation⁽¹⁾		3,153
CelluForce Inc.		1,667
Spinnova Oy⁽¹⁾		(1,244	)
Tax effect of the above items		(1,216	)
Subsidiary effect		2,749
Tax effect of the subsidiary effect		(935	)
Actuarial gain (loss)		(147,640	)		(69,305	)		4,173
Tax effect on actuarial liabilities		50,198			23,564			(1,419	)
		(2,908,010	)		274,073			1,823,748

Item that may be subsequently reclassified to profit or loss
Exchange variation on conversion of financial statements and on foreign investments		45,819			137,546			38,006

Total comprehensive income (loss)		(2,862,191	)		411,619			1,861,754

Attributable to
Controlling shareholders’		(2,864,967	)		411,498			1,861,754
Non-controlling interest		2,776			121

In 2019 the Company revaluated the investment, previously classified as financial investment measured through other comprehensive income, note 3.1.5.

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

Suzano S.A.
Consolidated financial statements
Year ended December 31, 2019, 2018 and 2017
(In thousands of R$, unless otherwise stated)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Share Capital					Capital reserves														Retained earnings reserves
	Share Capital		Share issuance costs			Tax incentives			Stock options granted			Share issuance costs			Other		Treasurys shares			Tax incentives			Legal Reserve			Reserve for capital increase			Special statutory reserve			Dividends proposed			Other reserves			Retained earnings			Total			Non- controlling interest		Total equity
Balances at December 31, 2016		6,241,753					199,402			19,754			(15,442	)				(273,665	)					316,526			1,206,874			115,220						2,314,567						10,124,989				10,124,989
Total comprehensive income (loss)
Net income for the year																																							1,820,994			1,820,994				1,820,994
Actuarial gain net of deferred taxes																																				2,754						2,754				2,754
Exchange variation on conversion of financial statements of foreign subsidiaries																																				38,006						38,006				38,006
Transactions with shareholders
Stock option program										1,521																																1,521				1,521
Sale of treasury shares to meet stock-based compensation plan																		8,514																								8,514				8,514
Treasury shares acquired																		(82	)																							(82	)			(82	)
Interest on own capital																																							(199,835	)		(199,835	)			(199,835	)
Reversal of time-barred dividends																																							29			29				29
Internal changes in equity:
Realization of deemed cost, net of deferred taxes																																				(56,999	)		56,999
Cancelation of treasury																		17,107																					(17,107	)
Reserve for tax incentives Sudene-reduction of 75%							196,604																																(196,604	)
Transfer between reserves																								90,372			1,074,444			119,380									(1,284,196	)
Issue of treasury shares to employees										(7,038	)							7,038
Minimum mandatory dividends																																							(180,280	)		(180,280	)			(180,280	)
Balances at December 31, 2017		6,241,753					396,006			14,237			(15,442	)				(241,088	)					406,898			2,281,318			234,600						2,298,328						11,616,611				11,616,611
Total comprehensive income (loss)
Net income (loss) for the year																																							319,693			319,693			121	319,814
Actuarial gain (loss) net of deferred taxes																																				(45,741	)					(45,741	)			(45,741	)
Exchange variation on conversion of financial statements of foreign subsidiaries																																				137,546						137,546				137,546
Transactions with shareholders:
Stock options granted										5,170																																5,170				5,170
Sale of treasury shares to meet stock-based compensation plan																		8,516																								8,516				8,516
Non-controlling interest arising on business combination																																													13,807	13,807
Reversal of time-barred dividends																														66												66				66
Internal changes in equity:
Realization of deemed cost, net of deferred taxes																																				(68,424	)		68,424
Stock options granted										(14,307	)							14,307
Reserve for tax incentives Sudene-reduction of 75%							288,557																																(288,557	)
Dividends distributed
Constitution of special statutory reserve																														7,882									(7,882	)
Constitution of the legal reserve																								15,917															(15,917	)
Constitution of a reserve for capital increase																											70,940												(70,940	)
Dividends																											(29,976	)														(29,976	)			(29,976	)
Unclaimed dividends forfeited																											(596,534	)					596,534
Dividends subject to approval
Minimum mandatory dividends																																							(3,466	)		(3,466	)			(3,466	)
Unrealized net revenue of 2017																											4,880			62									(1,355	)		3,588				3,588
Balances at December 31, 2018		6,241,753					684,563			5,100			(15,442	)				(218,265	)					422,815			1,730,629			242,612			596,534			2,321,708						12,012,007			13,928	12,025,935
Total comprehensive income
Net (loss) for the year																																							(2,817,518	)		(2,817,518	)		2,776	(2,814,742	)
Other comprehensive income for the year																																				(47,449	)					(47,449	)			(47,449	)
Transactions with shareholders
Loss absorption																					(684,563	)		(105,671	)		(1,730,629	)		(242,612	)								2,763,475
Share capital increase (note 1.1.1.1 and 22.1)		3,027,528																																								3,027,528				3,027,528
Share issuance costs (1)				(33,735	)								15,442																													(18,293	)			(18,293	)
Stock options granted										879																																879				879
Non-controlling interest arising from business combination																																													98,635	98,635
Unclaimed dividends forfeited																																							1,125			1,125				1,125
Dividends paid (note 22.2)																																	(596,534	)								(596,534	)			(596,534	)
Internal changes in equity							(684,563	)													684,563
Transfers of tax incentives
Realization of deemed cost, net of taxes																																				(52,918	)		52,918
Issue of common shares related to business combination (note 1.1.1.1)																6,410,885																										6,410,885				6,410,885
Balances at December 31, 2019		9,269,281		(33,735	)					5,979						6,410,885		(218,265	)					317,144												2,221,341						17,972,630			115,339	18,087,969

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

Suzano S.A.
Consolidated financial statements
Year ended December 31, 2019, 2018 and 2017
(In thousands of R$, unless otherwise stated)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	December 31, 2019			December 31, 2018			December 31, 2017
OPERATING ACTIVITIES
Net income (loss) for the year		(2,814,742	)		319,814			1,820,994
Adjustment to
Depreciation, depletion and amortization (note 30)		4,286,730			1,563,223			1,402,778
Amortization of fair value adjustment on business combination with Fibria/Facepa/Ibema (note 30)		3,651,005
Amortization of right of use (note 30)		154,217
Amortization of fair value adjustment on business combination with Fibria classified at financial results (note 27)		(38,960	)
Interest expense on lease liabilities		226,103
Results from sale, disposals and provision for losses (impairment) of property, plant and equipment and biological assets, net (note 30)		77,930			13,580			37,702
Income from associates and joint ventures (note 14.2)		(31,993	)		(7,576	)		(5,872	)
Exchange rate and monetary variations, net (note 27)		1,964,927			1,446,207			2,273
Interest expenses with financing and loans, debentures and debentures, net (note 27)		3,358,806			872,208			852,030
Accrual of interest on marketable securities		(392,018	)		(127,037	)		(24,234	)
Amortization of fundraising costs (notes 18.2)		185,807			44,499			49,517
Derivative (gains) losses, net (note 27)		1,075,252			2,735,196			(73,271	)
Tax credits - gains in tax lawsuit (ICMS from the PIS/COFINS calculation basis) (note 9 and 20.3)		(128,115	)
Fair value adjustment of biological assets (note 12 and 30)		(185,399	)		129,187			(192,504	)
Deferred income tax and social contribution expenses (note 12.1)		(1,528,571	)		(741,084	)		241,869
Interest on employee benefits (note 20.2)		44,496			35,920			38,022
Provision/(reversal) for judicial liabilities		26,807			13,285			35,645
Allowance for doubtful accounts, net (note 7.3)		(12,286	)		6,450			32,397
Provision for (reversal of) inventory losses and write-offs					(25,096	)		26,653
Partial write-off of intangible assets (8.1)		107,269						18,845
Provision for loss of ICMS credits, net		129,283
Other		(56,517	)		235,081			60,267

Decrease (increase) in assets:
Trade accounts receivables		991,476			(186,026	)		(726,808	)
Inventories		873,420			(622,151	)		115,493
Recoverable taxes		241,934			50,960			8,702
Other assets		(26,478	)		(12,720	)		414,818

Increase (decrease) in liabilities:
Trade accounts payables		(1,555,697	)		1,473			63,236
Taxes payable		240,871			432,603			265,698
Payroll and charges		(234,948	)		(100,124	)		(135,053	)
Other liabilities		(62,294	)		225,616			(133,819	)
Cash provided by operations, net		10,568,315			6,303,488			4,195,378
Payment of interest with financing, loans and debentures		(2,977,957	)		(806,758	)		(1,006,869	)
Interest received from marketable securities		377.804
Payment of income taxes		(391,725	)		(327,282	)		(121,177	)
Cash provided by operating activities		7,576,437			5,169,448			3,067,332
INVESTING ACTIVITIES
Additions to property, plant and equipment (note 15)		(2,001,674	)		(1,251,486	)		(859,880	)
Additions to intangible assets (note 16)		(17,715	)		(7,217	)		(8,054	)
Additions to biological assets (note 13)		(2,849,038	)		(1,164,995	)		(912,368	)
Proceeds from sale of assets		198,644			95,481			84,694
Increase of capital in subsidiaries and associates		(45,856	)
Marketable securities, net		19,378,893			(19,340,022	)		687,274
Advance for acquisition of wood from operations with development		(355,447	)		1,402			527
Acquisition of subsidiaries, net cash (note 1.2.1.2)		(26,002,540	)		(294,473	)
Other investments		(286	)
Cash used in investing activities, net		(11,695,019	)		(21,961,310	)		(1,007,807	)
FINANCING ACTIVITIES
Proceeds from loans, financing and debentures (note 18.2)		18,993,837			25,645,822			2,561,954
Payment of derivative transactions (note 4.5.4)		(135,449	)		(1,586,415	)		39,695
Payment of loans, financing and debentures (note 18.2)		(13,994,708	)		(3,738,577	)		(4,533,736	)
Payment of dividends		(606,632	)		(210,205	)		(570,568	)
Payment of leases (note 19.2)		(645,071	)
Sale of treasury shares to meet stock-based compensation plan		(879	)		8,514			8,514
Liabilities for assets acquisitions and subsidiaries		(479,480	)		(84,090	)		(117,865	)
Repurchase of treasury shares								(83	)
Other financing		10,191
Cash provided (used) by financing activities, net		3,141,809			20,035,049			(2,612,089	)
Exchange variation on cash and cash equivalents		(161,553	)		67,433			14,700
Increase (reduction) in cash and cash equivalents		(1,138,326	)		3,310,620			(537,864	)
Cash and cash equivalents at the beginning for the year		4,387,453			1,076,833			1,614,697
Cash and cash equivalents at the end for the year		3,249,127			4,387,453			1,076,833
Statement of increase (reduction) in cash and cash equivalents		(1,138,326	)		3,310,620			(537,864	)

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

Suzano S.A.

Notes to the consolidated financial statements
Year ended December 31, 2019
(In thousands of R$, unless otherwise stated)

COMPANY´S OPERATIONS

Suzano S.A., (current corporate name of Suzano Papel e Celulose S.A., as approved by Extraordinary General Meeting hold on April 1^st, 2019), together with its subsidiaries (“Suzano” or collectively “Company”), is a public company with its headquarters office in the city of Salvador, State of Bahia, Brazil.

Suzano owns shares traded in B3 S.A. (“Brasil, Bolsa, Balcão -“B3”), listed on the New Market under the ticker SUZB3. On December 10, 2018, Suzano began trading its American Depositary Receipts ("ADRs") in a ratio of 1 (one) common share, Level II, traded in the New York Stock Exchange under the ticker SUZ, pursuant to a program approved by the Brazilian Securities and Exchange Commission (“CVM”).

After conclusion of business combination with Fibria Celulose S.A. (“Fibria”), on January 14, 2019, the Company now holds 11 industrial units, located in Aracruz (Espírito Santo, State), Belém (Pará, State), Eunápolis (Bahia, State) and Mucuri (Bahia, State), Fortaleza (Ceará, State), Imperatriz (Maranhão, State), Jacareí, Limeira, Rio Verde and Suzano (São Paulo, State) and Três Lagoas (Mato Grosso, State).

These units produce hardwood pulp from eucalyptus, paper (coated paper, paperboard, uncoated paper and cut size paper) and packages of sanitary paper (consumer goods - tissue) to serve the domestic and foreign markets.

Pulp and paper are sold in the foreign market directly by Suzano, as well as through its subsidiaries in Argentina, the United States of America, Switzerland and Austria and its sales offices in China.

The Company's corporate purpose also includes the commercial operation of eucalyptus forest for its own use, the operation of port terminals, and the holding of interest, as partner or shareholder, in any other company or project, and the generation and sale of electricity.

The Company is controlled by Suzano Holding S.A., through a Voting Agreement whereby it holds 45.85% of the common shares of its share capital.

These consolidated financial statements was approved by the Board of Directors on March 4, 2020.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

1.1.

Equity interest

The Company holds equity interest in the following entities:

% equity interest

Entity

Main activity

Country

Type of investment

Accounting method

December 31, 2019

December 31, 2018

AGFA – Com. Adm. e Participações Ltda.

Holding

Brazil

Direct

Consolidated

100

Asapir Produção Florestal e Comércio Ltda.⁽¹⁾

Eucalyptus cultivation

Brazil

Direct

Consolidated

100

CelluForce Inc.

Nanocrystalline pulp research and development

Canada

Direct

Fair value through other comprehensive income

8,3

Comercial e Agrícola Paineiras Ltda.

Lease of reforestation land

Brazil

Direct

Consolidated

100

Ensyn Corporation

Bio fuel research and development

United States of America

Direct

Equity

25.3

Eucalipto Holding S.A.⁽²⁾

Holding

Brazil

Direct

Consolidated

100

Facepa - Fábrica de Papel da Amazônia S.A.

Industrialization and commercialization of tissue paper

Brazil

Direct/Indirect

Consolidated

92.8

92,8

Fibria Celulose (USA) Inc.

Business office

United States of America

Direct

Consolidated

100

Fibria Terminal de Celulose de Santos SPE S.A.

Port operation

Brazil

Direct

Consolidated

100

Fibria Overseas Finance Ltd.

Financial fundraising

Cayman Island

Direct

Consolidated

100

Fibria Overseas Holding KFT.⁽³⁾

Consolidated

100

Fibria Terminais Portuários S.A.

Port operation

Brazil

Direct

Consolidated

100

FuturaGene AgriDev Xinjiang Company Ltd.

Biotechnology research and development

China

Indirect

Consolidated

100

FuturaGene Biotechnology Shangai Company Ltd.

Biotechnology research and development

China

Indirect

Consolidated

100

FuturaGene Brasil Tecnologia Ltda.

Biotechnology research and development

Brazil

Direct/Indirect

Consolidated

100

FuturaGene Delaware Inc.

Biotechnology research and development

United States of America

Indirect

Consolidated

100

FuturaGene Hong Kong Ltd.

Biotechnology research and development

Hong Kong

Indirect

Consolidated

100

FuturaGene Inc.

Biotechnology research and development

United States of America

Indirect

Consolidated

100

FuturaGene Israel Ltd.

Biotechnology research and development

Israel

Indirect

Consolidated

100

FuturaGene Ltd.

Biotechnology research and development

England

Indirect

Consolidated

100

F&E Tecnologia do Brasil S.A.

Biofuel production, except alcohol

Brazil

Indirect

Consolidated

F&E Tecnologies LLC

Biofuel production, except alcohol

United States of America

Direct

Equity

Gansu FuturaGene Biotech Co. Ltd.

Biotechnology research and development

China

Indirect

Consolidated

100

Ibema Companhia Brasileira de Papel

Industrialization and commercialization of paperboard

Brazil

Direct

Joint venture

49.9

Itacel - Terminal de Celulose de Itaqui S.A.

Port operation

Brazil

Indirect

Consolidated

100

Maxcel Empreendimentos e Participações S.A.

Holding

Brazil

Direct

Consolidated

100

Mucuri Energética S.A.

Power generation and distribution

Brazil

Direct

Consolidated

100

Ondurman Empreendimentos Imobiliários Ltda.

Lease of reforestation land

Brazil

Direct/Indirect

Consolidated

100

Paineiras Logística e Transporte Ltda.

Road freight transport

Brazil

Direct /Indirect

Consolidated

100

Portocel - Terminal Espec. Barra do Riacho S.A.

Port operation

Brazil

Direct

Consolidated

Projetos Especiais e Investimentos Ltda.

Commercialization of equipment and parts

Brazil

Direct

Consolidated

100

Rio Verde Participações e Propriedades Rurais S.A.⁽³⁾

Forest assets

Brazil

Indirect

Consolidated

100

Spinnova Oy

Research and development of sustainable raw materials (wood) for the textile industry

Finland

Direct

Equity

24,06

Stenfar S.A. Indl. Coml. Imp. Y. Exp.

Commercialization of computer paper and materials

Argentine

Direct /Indirect

Consolidated

100

Sun Paper and Board Limited⁽⁴⁾

Shared expenses

Consolidated

100

Suzano Áustria GmbH

Business office

Austria

Direct

Consolidated

100

Suzano Canada Inc.⁽⁵⁾

Lignin research and development

Canada

Direct

Consolidated

100

Suzano International Trade GmbH⁽⁶⁾

Business office

Austria

Direct

Consolidated

100

Suzano Luxembourg⁽⁷⁾

Financial fundraising

Luxembourg

Direct

Consolidated

100

Suzano Participações do Brasil Ltda⁽⁸⁾

Holding

Brazil

Direct

Consolidated

100

Suzano Pulp and Paper America Inc.

Business office

United States of America

Direct

Consolidated

100

Suzano Pulp and Paper Europe S.A.

Business office

Switzerland

Direct

Consolidated

100

Suzano Trading Ltd.

Business office

Cayman Island

Direct

Consolidated

100

Suzano Trading International KFT⁽⁹⁾

Business office

Hungary

Direct

Consolidated

100

Veracel Celulose S.A.⁽¹⁰⁾

Industrialization, commercialization and exportation of pulp

Brazil

Joint operation

Consolidated

The full control was acquired arising from the business combination with Fibria.

Company merged on January 2, 2019, as mentioned in note 1.2.1.1.

Company established as a result of corporate restructuring on December 12, 2019.

Company dissolution on June 2, 2019.

Corporate name changed on September 30, 2019, former Fibria Innovations Inc.

Corporate name changed on August 28, 2019, former Fibria International Trade GmbH.

Company dissolution on September 17, 2019.

Corporate name changed on December 06, 2019, former F&E Participações do Brasil Ltda.

Corporate name changed on August 9, 2019, former Fibria Trading International.

10)

Joint operation with Stora Enso, a company located in Amsterdan.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

1.2.

Major events in the year ended

1.2.1.

Business combination with Fibria

On January 3, 2019, acquisition date of control by Suzano, after all fulfilled conditions for the conclusion of business combination and shareholding base, Fibria’s shares were exchanged for Suzano’s shares and on January 14, 2019, Suzano concluded the corporate reorganization process, following the terms of the Agreement signed by both entities on March 15, 2018.

The transferred consideration by Suzano for acquisition of control of Fibria, defined in terms of the Agreement, was as follows:

1.2.1.1.

Share exchange ratio

On January 2, 2019, according to Notice to Shareholders, the exchange ratio of the common shares issued by Eucalipto Holding S.A. (“Holding”) held by Fibria’s shareholders for shares issued by Suzano was adjusted from 0.4611 to 0.4613, being the exchange ratio of 0.4613 considered as final. The adjustment in the exchange ratio, compared to the originally announced, was due to (i) a change in the total number of shares issued by Fibria ex-treasury and disregarding the shares resulting from the vesting of option plans between those in the Protocol and Justification and that date of 553,080,611 shares for 553,733,881 shares and (ii) alteration of the number of shares issued by Suzano ex-treasury and disregarding the shares resulting from the vesting of option plans between that contained in the Protocol and Justification and that present date of 1,091,984,141 shares to 1,093,784,141 shares.

As consequence of this adjustment, (i) Suzano issued, as a result of the merger of the Holding, 255,437,439 new common shares in the market value of R$36.95, totaling amount of R$9,438,413, of which R$3,027,528 was recognized as capital increase and R$6,410,885, as capital reserve and (ii) the amount attributed to Suzano's common share to calculate the capital gain, as disclosed in the Notice of Shareholders on November 29, 2018, increased from R$15.38 attributed to 0.4611 common share for R$15.39 attributed to 0.4613 common share of Suzano.

1.2.1.2.

Cash installment

On January 10, 2019, by means of the Notice to Shareholders, the Company communicated the final value of the Adjusted Cash Installment, corresponding to the redemption value of each Holding's redeemable preferred share, originally equivalent to R$52.50, (i) reduced by the amount of dividends declared by Fibria on December 3, 2018 and paid in Brazil on December 12, 2018 in the amount of R$5.03 per share issued by Fibria (ii) plus R$2.73, corresponding to the variation of the average daily rate of Brazilian interbank deposits expressed as an annual percentage, based on 252 business days, measured and disclosed daily by B3 ("DI Rate"), between March 15, 2018 and the Expiration Date of the Transaction including January 10, 2019 (including) and January 14, 2019 (including), the DI Rate was estimated at 6.40% per annual, with a total and final amount of R$50.20 per share, making up the final amount of the Adjusted Cash Amount of R$27,797,441.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

The amounts mentioned above are gross, not considering any tax impacts on the payment to Fibria Resident or Non-Resident Shareholders, which are detailed in the Notice to Shareholders disclosed on November 29, 2018.

Suzano performed a valuation analysis of the fair value of the assets acquired and liabilities assumed of Fibria and, using the total transferred consideration for the Merger, and allocated for such assets and liabilities.

The following table summarizes the final purchase price allocation based on the appraisal report prepared by an independent and specialized entity:

Cash consideration	27,797,441
Issuance of shares by Suzano	9,438,413
Total consideration	37,235,854

Book value of Fibria's shareholders' equity	14,149,004
Write-off of the book value of existing goodwill, net of the deferred income taxes	(3,495,077	)
Mandatory minimum dividends (eliminated from the balance sheet at the date of acquisition)	724,829
Book value of Fibria's shareholders' equity, net of goodwill	11,378,756

Fair value adjustment on business combination with Fibria (assets and liabilities):
Inventories	2,178,903	⁽¹⁾
Property, plant and equipment	9,362,315	⁽²⁾
Customer relationship	9,030,779	⁽³⁾
Port assets	749,060	⁽⁴⁾
Contingent liabilities	(2,970,546	)⁽⁵⁾
Loans and financing	(59,921	)⁽⁶⁾
Taxes recoverable	(235,843	)⁽⁷⁾
Other assets and liabilities, net	451,624	⁽⁸⁾
Deferred taxes, net	(546,324	)⁽⁹⁾
Total impact of fair value	17,960,047
Goodwill on the expectation of future profitability	7,897,051	⁽¹⁰⁾

1)	Measured considering the balance of finished products based on selling price, net of selling expenses and an accepted margin based on the results achieved in 2018.

Determined based on the analysis of market data on comparable transactions and cost quantification, based on the estimate of replacement or replacement value of the assets.

In order to determine the fair value adjustment in the customer portfolio, the income approach and the method were used to measure the present value of the income that will be generated during the remaining useful life of the asset. Considering the 5-year history of Fibria's sales data and the churn rate that measures customer satisfaction and customer permanence in the portfolio, the adjustment was measured using estimated discounted cash flows. The churn rate and the discounted cash flows were considered as significant assumptions to determine the fair value of the customer portfolio.

Fibria has concession contracts and port assets to assist in port operations in Brazil. For fair value measurement of these assets was considered the income approach, the Multi Period Excess Earnings Method (“MPEEM”) that measures the present value of the income that will be generated during the remaining useful life of the asset and method of direct cost differential.

In the business combination, for the contingencies fair value measurement, whose chances of loss were classified as possible and remote, Fibria's Management and its external and independent advisors were considered for their fair values, whose amounts were measured based on the analyzes of Company’s external lawyers. Thus, the estimated and assumptions with respect to the probability of loss of the possible and remote lawsuit, for the fair value calculation of contingent liabilities assumed were considered as significant assumptions to determine the fair value of the contingent liabilities.

The adjustment to fair value of loans and financing was measured based on the fair value of the Bonds, based on the quotation of the security in the secondary market, and the adjustment to present value considering the market rate at the base date on December 31, 2018.

For the measurement of the fair value of the taxes to be recovered, the amount to be recovered, discounted to the present value considering the expected Selic rate for the tax period, was considered.

In other net assets and liabilities, including supply contracts, accounts receivable and advances to suppliers, the income evaluation methodology, the present value and the direct cost differential were used.

Deferred asset on income tax on fair value adjustments of assets of Veracel and Portocel. For the remaining fair value, we did not recognize deferred liability on income taxes liabilities due to Fibria’s Legal Merger in April 2019.

10)

Goodwill is attributable to the strong market position and expected future profitability of Fibria in negotiations in the eucalyptus pulp market.

For more information on the business combination refer note 14.4.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

1.2.2.

Approval of the legal merger of Fibria

On April 1st, 2019, the Company approved in the Extraordinary Shareholders Meeting of Suzano the legal merger of Fibria, a wholly-owned subsidiary of Suzano, with the transfer of all its equity to Suzano and its consequent winding up ("Legal Merger"), provided that the share capital of the Company not changed due to the Legal Merger. Because of the Legal Merger, the Suzano succeeded Fibria in all its rights and obligations.

The following table summarizes, the main items balance sheet of Fibria as of March 31, 2019.

ASSETS
CURRENT
Cash and cash equivalents			29,086
Marketable securities			2,734,027
Derivative financial instruments			256,675
Trade accounts receivable			3,572,059
Inventories			1,714,560
Recoverable taxes			768,439
Other assets			161,238
			9,236,084


NON CURRENT
Marketable securities			175,559
Derivative financial instruments			723,084
Recoverable taxes			546,234
Deferred taxes			1,364,363
Advances to suppliers			696,767
Judicial deposits			190,533
Other assets			100,877
Biological assets			4,355,102
Investments			9,481,900
Property, plant and equipment			14,633,114
Right of use			2,301,427
Intangible assets			118,920
			34,687,880

TOTAL ASSETS			43,923,964

LIABILITIES
CURRENT
Loans and financing			816,180
Lease liabilities			420,241
Trade accounts payable			955,210
Derivative financial instruments			254,444
Payroll and charges			104,246
Taxes payable			36,057
Related parties			1,179,254
Dividends payable			4,015
Other liabilities			946,099
			4,715,746
NON CURRENT
Loans and financing			8,139,390
Derivative financial instruments			678,833
Lease liabilities			1,972,531
Related parties			16,305,560
Employee benefits			144,557
Provision for judicial liabilities			190,698
Other liabilities			175,934
			27,607,503

TOTAL LIABILITIES			32,323,249

Equity			11,600,715

TOTAL EQUITY AND LIABILITIES			43,923,964

BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

The Company’s consolidated financial statements are prepared in accordance with and in compliance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and disclose all the applicable significant information related to the financial statements, which is consistent with the information utilized by Management in the performance of its duties.

The Company’s consolidated financial statements are expressed in thousands of Brazilian Reais (“R$”), as well as the amounts of other currencies disclosed in the financial statements, when applicable, were also expressed in thousands, unless otherwise stated.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The preparation of consolidated financial statements requires Management to make judgments, use estimates and adopt assumptions in the process of applying accounting practices, that affect the disclosed amounts of revenues, expenses, assets and liabilities, including contingent liabilities. The accounting practices requiring a higher level of judgment and which are more complex, as well as areas in which assumptions and estimates are significant, are disclosed in note 3.2.34.

The consolidated financial statements were prepared on the historical cost basis, except for the following material items recognized:

(i)

derivative and non-derivative financial instruments measured at fair value;

(ii)

share-based payments and employee benefits measured at fair value; and

(iii)

biological assets measured at fair value.

The main accounting polices applied in the preparation of these consolidated financial statements are presented in note 3.

The consolidated financial statements were prepared under the going concern assumption.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements were prepared in accordance with the accounting polices consistent with those used in the preparation of the consolidated financial statements for the year ended December 31, 2018, except for the application of the new accounting pronouncements and new accounting policies as of January 1, 2019, as described in the Note 3.1.

The consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and Fibria for the year ended December 31, 2018, considering that its purpose is to provide an update on the activities, events and significant circumstances in relation to those disclosed in the consolidated financial statements.

The accounting policies have been consistently applied to all consolidated companies.

3.1.

New and changes in the accounting policies adopted

3.1.1.

Lease – IFRS 16

The Company adopted IFRS 16 as of January 1, 2019. This standard determines that lessees must recognize future liabilities in their liabilities and their right to use the leased asset for all lease agreements, with exemption allowed to short-term or low-value contracts. Short-term or low-value contracts for the exemption of the standard refers to contracts where the individual value of the assets is lower than U.S.$5 and maturity date is before 12 months, represented, mainly, by equipment of technology and vehicles. The Company adopted the standard using a modified retrospective approach that does not require the restatement of the comparative balances.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

In adopting IFRS 16, the Company recognized the gross PIS/COFINS lease liabilities in relation to the agreements that meet the definition of lease, whose liabilities were measured at the present value of the remaining lease payments, discounted based on the incremental loan nominal rate. Assets associated with the right of use were measured at the amount equal to the lease liability on January 1st, 2019, with no impact on retained earnings.

The Company used the following practical expedients allowed by the standard:

(i)

the use of a single discount rate for a portfolio of leases with similar characteristics;

(ii)

leases whose maturity will occur within 12 months of the date of initial adoption of the standard, accounting was as short-term leases directly in the income statement;

(iii)

the accounting of lease payments as expenses in the case of leases for which the underlying asset is of low value;

(iv)

the use of hindsight in determining the lease term, when the agreement contains options to extend or terminate the lease; and

(v)

the Company excluded initial direct costs of measuring the right to use asset at the date of initial adoption.

The effects of adopting this new standard are set forth in note 19.

3.1.2.

Uncertainty over Income Tax Treatments – IFRIC 23

The interpretation is applicable when there are uncertainties as to the acceptance of the treatment by the Fiscal Authority. If acceptance is not likely, the values of tax assets and liabilities should be adjusted to reflect the best resolution of the uncertainty.

The Company has evaluated the changes introduced by this new standard and based on the analysis carried out, did not identify material impacts on its consolidated financial statements, or modify the recognition and measurement of uncertainties about tax treatment of income.

3.1.3.

Fair value amortization of subsidiaries

Fair value amortization of assets and liabilities are classified in cost of goods sold, selling, general and administrative expenses, other operating income (expenses) net and financial result, according to the realization of the items that originated them.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

3.1.4.

Comparability of the statement of cash flows

The Company made certain reclassifications on its statements of cash flows regarding the year ended December 31, 2018 and 2017, substantially in operating activities, for a better comparison with the Statements of cash flows for the year ended December 31, 2019.

3.1.5.

Revaluation of investment – Ensyn and Spinnova Oy

Ensyn and Spinnova investments were previously classified as financial investment measured through other comprehensive income. However, respectively in the second and third quarter of 2019, based on the shareholders’ agreement and recent capital contribution to Ensyn and Spinnova, the Company increased their stake in these investments and obtained significant influence.

Therefore, respectively, as from the second and third quarter of 2019, the Company has recorded their investments prospectively under the equity method using the fair value as deemed cost’ method, with the consequent presentation of the investment under “Investments in subsidiaries, affiliates, joint operations and joint ventures” and no longer under “Other investments”, as disclosed in note 14.2.

In relation to Ensyn, the Company identified and recorded a goodwill based on expected future profitability in the amount of U.S.$40,049 (equivalent to R$154,578), arising from the difference of the consideration paid of U.S.$43,000 (equivalent to R$165,928) and the carrying amount of the net assets of the investee of U.S.$2,941 (equivalent to R$11,350).

In relation to Spinnova, the Company identified a bargain purchase in this transaction in the amount of EUR6,748 (equivalent to R$32,705), arising from the difference of the consideration paid of EUR12,500 (equivalent to R$55,928) and the carrying amount of the net assets of the investee of EUR19,248 (equivalent to R$87,915).

3.1.6.

Biological assets

The Company's biological assets are eucalyptus forests exclusively from renewable plantations and intended for the production process of pulp and paper, measured at fair value less estimated cost to sell at the time of harvest. Fair value measurement is performed on a semiannually basis, since Management understand that its interval is enough, so that, there is no significant gap in the fair value of biological assets recorded in the consolidated financial statements and uses the discounted cash flow method according to the projected productivity cycle of such assets.

Considering that Suzano and Fibria used different assumptions to the biological assets fair value, in the first measurement after business combination, the Company reviewed the assumption for “effective planting area”, keeping the immature forest (up to 2 years from the date of planting) at historical cost. As a result of the Management’s considers that during this period, the historical cost of biological assets approximates to its fair value. Additionally, the purpose of this change is to reflect the experience acquired in the biological assets measurements process and the alignment of calculation approach with the Company’s forest management, which perform continuous forest inventories for the purpose of estimating the wood stock or future production forecast, represented by the average annual increment (“IMA”), from the 3rd year of planting.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Considering the fact that in the first two years of forest formation, the historical cost approximates to its fair value, as described above, this assumption alignment did not generate significant impacts on the Company's financial statements.

There are no changes in the remaining assumptions.

The gain or loss on the variation of the fair value of the biological assets is recognized under other operating income (expenses), net. The value of the depletion is measured based on the amount of the biological asset depleted (harvested).

Significant assumptions applied in determining on the biological assets of fair value measurements are disclosed in Note 13.

3.1.7.

Income tax – IAS 12

This pronouncement was amended and clarifies that the income tax consequences of dividends on financial instruments classified as equity should be recognized according to where the past transactions or events that generated distributable profits were recognized. These requirements apply to all income tax consequences of dividends. The Company assessed the content of this pronouncement and did not identify any material impacts.

3.1.8.

Borrowing costs –IAS 23

This pronouncement was amended and clarifies that if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use or sale, it becomes part of general borrowings. The Company assessed the content of this pronouncement and did not identify any material impacts.

3.1.9.

Business combinations –IFRS 3

This pronouncement was amended and clarifies that obtaining control of a business that is a joint operation, is a business combination achieved in stages. The acquirer should re-measure its previously held interest the joint operation at fair value at the acquisition date. The Company assessed the content of this pronouncement and did not identify any material impacts.

3.1.10.

Joint arrangements –IFRS 11

This pronouncement was amended and clarifies that the party obtaining joint control of a business that is a joint operation should not re-measure its previously held interest in the joint operation. The Company assessed the content of this pronouncement and did not identify any material impacts.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

3.1.11.

Employee benefits – IAS 19

This pronouncement was amended and clarifies that, when occur an event of amendment, curtailment or settlement related to a defined benefit, the entity must update the previously used and remeasured the current service cost and the net interest for the remaining period, after amendments. The Company assessed the content of this pronouncement and did not identify any material impacts.

3.1.12.

Investment in associates – IAS 28

IFRS 9 - Financial Instruments excluded from its scope equity interests in associates and joint ventures, which are accounted for using the equity method in accordance with IAS 28. The amendment to IAS 28 clarified that the aforementioned scope exclusion in IFRS 9 applies only to investment elements that are accounted for using the equity method. Accordingly, the accounting of long-term financial instruments with an associate or joint venture which, in substance, is part of the net investment in these investees, but for which the equity method does not apply, must follow the requirements of the IFRS 9. The Company assessed the content of this pronouncement and did not identify any material impacts.

3.2.

Accounting policies adopted

3.2.1.

Consolidated financial statements

The consolidated financial statements were prepared based on the information of Suzano and its subsidiaries in the year ended December 31, 2019, as well as in accordance with consistent accounting practices and policies, except to Futuragene PLC, which period end is November 31, 2019, however, has no material impact in the consolidated financial statements, and if there is any significant event up to December 31, 2019, it is adjusted in the consolidated financial statement. The Company consolidates all subsidiaries over which it has direct or indirect control, that is, when it is exposed or has rights to variable returns on its investment with the investee and has the capacity and ability to direct the relevant activities of the investee and has the ability to direct the investee's relevant activities.

Additionally, all transactions and balances between Suzano and its subsidiaries, associates and joint ventures are eliminated in the consolidated financial statements, as well as unrealized gains or losses arising from these transactions, net of tax effects. Non-controlling interest is highlighted.

The consolidated financial statement of the balance sheet, statements of income (loss), statements of comprehensive income (loss), statements of changes in equity and statements of cash flows, as well the corresponding notes to the financial information regarding to the year ended December 31, 2019, included on this consolidated financial statements are not comparable with the consolidated financial statement as at December 31, 2018 due to the conclusion of the business combination of Fibria in January 2019, as disclosed in note 1.2.1 above. During the period from January 1, 2019 to March 31, 2019 Suzano consolidated Fibria's interim accounting information. However, as from April 1, 2019, Fibria was merged into Suzano, as Note 1.2.2.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

3.2.2.

Subsidiaries

These all entities over which the Company has the power to govern the financial and operating policies of the entity, generally through a majority voting rights. The Company controls an entity when the Company is exposed to, or has rights to, variable returns on its investment with the investee and has the ability to affect those returns through its power over the entity.

Subsidiaries are consolidated from the date on which control is transferred to Fibria and de-consolidated from the date that control ceases

3.2.3.

Joint operations

These are all entities in which the Company maintains the contractually established control over its economic activity and exists only when the strategic, financial and operational decisions regarding the activity require the unanimous consent of the parties sharing the control.

In the consolidated financial statements, the balance of assets, liabilities, revenues and expenses are recognized proportionally to the interest in joint operation.

3.2.4.

Associated and joint ventures

These are all entities are initially recognized at cost and adjusted thereafter for the equity method, being increased or reduced from its interest in the investee's income after the acquisition date.

In the investments in associates, the Company must have significant influence, which is the power to participate in the financial and operating policy decisions of the investee, without having its control or joint control of those policies. In investments in joint ventures there is a contractually agreed sharing of control through an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

In the consolidated financial statements, the balance of assets, liabilities, revenues and expenses are eliminated, as well as unrealized gains and losses and investments in these entities and their respective equity accounting results.

In relation to associates Ensyn and Spinnova, which period end is November 30, 2019 for their financial information, they have no material impact in the consolidated financial statement, and if there is any significant event up to December 31, 2019, it is adjusted in the consolidated financial statement.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

3.2.5.

Translation of financial statements into functional, presentation and foreign currency

The Company defined as functional and presentation currencies, Brazilian Real (“Real”, “Reais” or “R$”).

The individual financial statements of each foreign subsidiaries included in the consolidated financial statement, are prepared in accordance with local currency of the subsidiary operates and translated into Company’s functional and presentation currency.

3.2.5.1.

Translation into currency presentation

Due to the merger with Fibria, the Company had several changes in the structure, activities and operations during 2019 that led management to conclude that they needed to reassess the functional currency of its subsidiaries whose functional currency was different from Brazilian Reais.

Those facts resulted in the corporate reorganization, as well as, it has impacted how management conducted the Company's business in order to achieve the alignment between the cultures of the two Companies, the unification of processes, operating, tax systems and strategies, through synergy gains arising from the business combination. In this process some of Company’s wholly-owned subsidiaries have lost autonomy and become an extension of the activities of the parent company.

These circumstances collectively justify the change in the functional currency to Brazilian Real and they have occurred gradually during 2019, therefore it was not practicable to determine the date of the change at a precise point during the reporting period. Thus, the Company changed the functional currency of those wholly-owned subsidiaries as of January 1, 2020.

The cumulative translation adjustment (“CTA”) arising from the translation of a foreign operation previously recognized in other comprehensive income will not be reclassified from equity to profit or loss until the disposal of the operations. The total or partial disposal of interest in wholly-owned subsidiaries occurs through sale or dissolution, of all or part of operation.

Therefore, the financial statements of foreign subsidiaries, whose functional currency was different from Brazilian Reais in 2019, were translated using the criteria established below, which will only be changed as from January 1, 2020, following the same criteria described in note 3.2.5.2:

(i)

assets and liabilities are translated at the exchange rate in effect at year-end;

(ii)

revenues and expenses are translated based on the monthly average rate;

(iii)

the cumulative effects of gains or losses upon translation are recognized as accumulated foreign currency translation adjustments component of other comprehensive income.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

3.2.5.2.

Transactions and balances in foreign currency

These are translated using the following criteria:

(i)

monetary assets and liabilities are translated at the exchange rate in effect at year-end;

(ii)

non-monetary assets and liabilities are translated at the historical rate of the transaction;

(iii)

revenues and expenses are translated based on monthly average rate;

(iv)

the cumulative effects of gains or losses upon translation are recognized in the other comprehensive income.

3.2.6.

Hyperinflationary economies

The wholly-owned Stenfar, based in Argentine, is subject to the requirements of IAS 29- Financial Reporting in Hyperinflationary Economies, considering that the main country of this entity has been classified as hyperinflationary economy since 2018.

Non-monetary items and income statement balances were restated to reflect the terms of the measuring unit current at the end of the reporting exercise. The balances were calculated by applying the changes on the index from the initial recognition date to the reporting date.

The translation of the balance sheet and income statement balances into the reporting currency Brazilian Reais were based on the closing rate of the reporting period.

3.2.7.

Business combinations

These are accounted for using the acquisition method when control is transferred to acquirer. The cost of an acquisition is the sum of the consideration paid, evaluated based on the fair value at acquisition date, and the amount of any non-controlling interests in the acquire. For each business combination, the Company recognizes any non-controlling interest in the acquire either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s net assets. The costs directly attributable to the acquisition are recorded as expense when incurred, except for costs related to the issuance of debt instruments or equity instruments, which are presented as debt reduction or equity, respectively.

In a business combination, assets acquired and liabilities assumed are evaluate in order to classify and allocate them assessing the terms of the agreement, economic circumstances and other conditions at the acquisition date.

Goodwill is initially measured as the excess of the consideration paid over the fair value of the net assets acquired. After initial recognition, goodwill is measured at cost, net of any accumulated impairment losses. For purposes of impairment testing, the goodwill recognized in a business combination, as from the acquisition date, is allocated to each of the Company’s cash generating units.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Gains on an advantageous purchase are recognized immediately in the result. The borrowing costs are recorded in the income statement as incurred.

Contingent liabilities related to tax, civil and labor classified in the acquired company as possible and remote risk is recognized by the acquirer.

Transactions in the acquisition of shares with shared control over the net assets traded apply complementary guidance to IFRS 3 - Business Combination, IFRS 11 - and IAS 28 - Investments in Associates and Joint Ventures. Based on the equity method, investment is initially recognized at cost. The carrying amount of the investment is adjusted for recognition of changes in the Company's share in the acquirer's Shareholders' equity as of the acquisition date. Goodwill is segregated from carrying amount of the investment. Other intangible assets identified in the transaction shall be allocated in proportion to the interest acquired by the Company, by the difference between the carrying amounts recorded in the acquired entity and its fair value assets, which may be amortized.

3.2.8.

Segment information

An operating segment is a component of the Company that carries out business activities from which it can obtain revenues and incur expenses. The operating segments reflect how the Company’s management reviews financial information to make decisions. The Company’s management has identified reportable segments, which meet the quantitative and qualitative disclosure requirements. The segments identified for disclosure represent mainly sales channels.

3.2.9.

Cash and cash equivalents

Include cash on hand, bank deposits and highly liquid short-term investments with maturities, upon acquisition, of 90 days or less, which are readily convertible into known amounts of cash and subject to insignificant risk of change in value. The investments classified in this group, due to their nature, are measured at fair value through the profit or loss.

3.2.10.

Financial assets

3.2.10.1.

Classification

Financial assets are classification based on the purpose for which the financial assets were acquired, as set forth below:

(i)

financial assets at amortized cost;

(ii)

financial assets at fair value through other comprehensive income;

(iii)

financial assets at fair value through profit or loss.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Regular purchases and sales of financial assets are recognized on the trade date, it means, the date on which the Company commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred but only if Fibria has transferred substantially all risks and rewards of ownership.

3.2.10.1.1.

Financial instruments measured at amortized cost

Financial assets at amortized cost are financial assets held by the Company (i) in order to receive their contractual cash flow and not to sell to realization a profit or loss and (ii) whose contractual terms give rise, on specified dates, to cash flows that exclusively, payments of principal and interest on the principal amount outstanding. Any changes are recognized under financial income (expense) in income statement.

It includes the balance of cash and cash equivalents, trade accounts receivable and other assets.

3.2.10.1.2.

Financial assets at fair value through other comprehensive income

Financial assets at fair value through other comprehensive income are financial assets held by the Company (i) either to receive their contractual cash flow as the for sale with realization of profit or loss and (ii) whose contractual terms give rise on specified dates, to cash flows constituting, exclusively, payments of principal and interest on the principal amount outstanding. In addition, investments in equity instruments where, on initial recognition, the Company elected to present subsequent changes in its fair value to other comprehensive income, are classified in this category. Any changes are recognized under net financial income (expense) in income statement, except for the fair value of investment in equity instruments, which are recognized in other comprehensive income.

This category includes the balance of other investments (Note 14).

3.2.10.1.3.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are either designated in this category or not classified in any of the other categories. . Any changes are recognized under financial income (expense) in income statement for non-derivative financial instruments and for financial derivative instruments under income from derivative financial instruments.

This category includes the balance of marketable securities, financial assets at fair value through profit or loss are the balance of derivative financial instruments, including embedded derivatives, stock options and other securities.

3.2.10.2.

Settlement of financial instruments

Financial assets and liabilities are settled and the net amount is recorded in the balance sheet when there is a (i) legally enforceable right to settle the recognized amounts and (ii) there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

3.2.10.3.

Impairment of financial assets

3.2.10.3.1.

Financial instruments measured at amortized cost

Annually, the Company assesses if there is evidence that a financial asset is impaired. A financial is impaired only if there is evidence of an impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

The criteria that the Company uses to determine if there is evidence of an impairment loss include:

(i)

significant financial difficulty of the issuer or debtor;

(ii)

default or late interest or principal payments in the agreement;

(iii)

where Company, for economic or legal reasons relating to the borrower's financial difficulty, grants to the borrower a concession that the lender would not otherwise receive;

(iv)

it becomes probable that the borrower will enter bankruptcy or other financial reorganization;

(v)

the disappearance of an active market for that financial asset because of financial difficulties;

(vi)

observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio.

The amount of an impairment loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. If the financial asset is impaired the carrying amount of the asset is reduced and a loss is recognized in the income statement.

In a subsequent measurement, if there is an improvement in the asset rating, such as an improvement in the debtor's credit rating, the reversal of the previously recognized impairment loss is recognized in the income statement.

3.2.10.3.2.

Financial assets at fair value through other comprehensive income

Annually, the Company evaluate if there is evidence that a financial asset is impaired.

For such financial assets, a significant or prolonged decrease in the fair value of the security below its cost is an evidence that the assets are impaired. If any such evidence exists, impairment loss is measured by the difference between the acquisition cost and the current fair value, less any loss previously recognized in other comprehensive income, shall be recognized in the income statement.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

3.2.11.

Derivative financial instruments and hedging activities

Derivatives financial instruments are recognized at fair value on the date the derivative agreement is entered into and are subsequently remeasured at fair value. Changes in fair value are recorded in under result of derivative financial instruments in the income statement.

Embedded derivatives in non-derivative main contracts are required to be separated when their risks and characteristics are not-closely related to those of main contracts and these are not measured at fair value through profit or loss.

Non-option embedded derivatives are separated from the main contracts in accordance with its stated or implied substantive terms, so that they have zero fair value on initial recognition.

3.2.12.

Trade accounts receivables

These are recorded at the invoiced amount, in the normal course of the Company´s business, adjusted to exchange rate variation when denominated in foreign currency and, if applicable, net of expected credit losses.

The Company applies the aging-based provision matrix with the appropriate grouping of your portfolio.

The Company adopts procedures and analysis to establish credit limits.

The Company examines on a monthly basis the maturity of receivables and identifies those customers with overdue balances assessing the specific situation of each client including the risk of loss, the existence of contracted insurance, letters of credit, collateral and the customer’s financial situation. In the event of default, collection attempts are made, which include direct contact with customers and collection through third parties. Should these efforts prove unsuccessful, court measures are considered and credit expected loss is recognized. The notes are written-off from the credit expected loss when Management considers that they are not recoverable after taking all appropriate measures to collect them.

3.2.13.

Inventories

These are evaluated at average acquisition or formation cost of finished products, net of recoverable taxes, not exceeding their net realizable value.

Finished products and work-in-process consist of raw materials, direct labor, production costs, freight, storage and general production expenses, which are related to the processes required to make the products available for sale.

Imports in transit are presented at the cost incurred until the balance sheet date.

The raw materials derived from biological assets are measured based on their fair value less cost to sell at the point of harvest and freight costs.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Provisions for obsolescence, adjustments to net realizable value, impaired items and slow-moving inventories are recorded when necessary. Usual production losses are recorded and are an integral part of the production cost of the respective month, whereas abnormal losses, if any, are recorded directly as cost of sales.

3.2.14.

Non-current assets held for sale

These are measured at carrying amount or fair value less costs to sell, whichever is lower, and are not depreciated or amortized. Such items are only classified under this account when the sale is highly probable and they are available for immediate sale under their current conditions.

3.2.15.

Property, plant and equipment

Stated at the cost of acquisition, formation, construction or dismantling, net of recoverable taxes. Such cost is deducted of accumulated depreciation and accumulated impairment losses, when incurred, at the highest of the value of use and sale, less cost to sell. The borrowing costs are capitalized as a component of construction in progress, pursuant to with IAS 23, considering the weighted average interest rate of the Company’s debt at the capitalization date.

Depreciation is recognized based on the estimated economic useful life of each asset on a straight-line basis. The estimated useful life, residual values and depreciation methods are annually reviewed and the effects of any changes in estimates are accounted for prospectively. Land is not depreciated.

The Company annually performs an analysis of impairment indicators of property, plant and equipment. An impairment for loss for property, plant and equipment, is only recognized if the related cash-generating unit is devalued. Such condition is also applied if the asset’s recoverable amount is less than it is carrying amount. The recoverable amount of asset or cash-generating unit is the highest of its value in use and its fair value less cost to sell.

The cost of major renovations is capitalized if the future economic benefits exceed the performance standard initially estimated for the asset and are depreciated over the remaining useful life of the related asset.

Repairs and maintenance are expensed when incurred.

Gains and losses on disposals of property, plant and equipment are measured by comparing the proceeds with the book value and are recognized as other operating income a (expense), net at the disposal date.

3.2.16.

Intangible assets

These are measured at cost at the time they are initially recognized. The cost of intangible assets acquired in a business combination corresponds to the fair value at the acquisition date. After initial recognition, intangible assets are presented at cost less accumulated amortization and impairment losses, when applicable.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The useful life of intangible assets is assessed as finite or indefinite.

Intangible assets with a finite life are amortized over the economic useful life and reviewed for impairment whenever there is an indication that their carrying values may be impaired. The amortization period and method for an intangible asset with a finite useful life are reviewed at least at the end of each fiscal year. The amortization of intangible assets with a finite useful life is recognized in the statement of income as an expense related to its use and consistently with the economic useful life of the intangible asset.

Intangible assets with indefinite useful lives are not amortized, but are tested annually for impairment losses, individually or at the level of the CGU. The allocation is made to the CGU or group of CGUs that represents the lowest level within the entity, in which the goodwill is monitored for management's internal purposes, and that has benefited from the business combination. The Company records in this subgroup mainly goodwill for expected future profitability (goodwill) and easement of passage.

Such test involved the adoption of assumptions and judgments, disclosed in Note 16.

3.2.17.

Current and deferred income tax and social contribution

Income taxes comprise income tax and social contribution on net income, current and deferred. These taxes are recognized in the income statement, except to the extent that they are related to items recognized directly in equity. In this case, they are recognized in equity under the equity adjustment.

The current charge is calculated based on the tax laws enacted in the countries in which the Company and its subsidiaries and affiliates operate and generate taxable income. Management periodically evaluates the positions assumed in the income tax returns with respect to situations in which the applicable tax regulations give rise to interpretations and establishes provisions, when appropriate, based on the amounts that must be paid to the tax authorities.

Deferred tax and contribution liabilities are recognized on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred taxes and contributions are determined based on the rates in force on the balance sheet date and, which must be applied when they are realized or when they are settled.

Deferred tax assets and contributions are recognized to the extent that it is probable that future taxable profit will be available to be used to offset temporary differences, based on projections of future results prepared and based on internal assumptions and future economic scenarios that may, therefore, undergo changes.

Deferred income tax and social contribution are recognized on temporary differences arising from investments in subsidiaries and associates, except when the timing of the reversal of temporary differences is controlled by the Company, and if it is probable that the temporary difference will not be reversed in a foreseeable future.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Deferred taxes and contributions, assets and liabilities, are presented at the net amount in the balance sheet when there is a legal right and the intention to offset them when calculating current taxes, generally related to the same legal entity and the same tax authority.

3.2.18.

Trade accounts payable

Corresponds to the obligations payable for goods or services acquired in the normal course of the Company´s business, recognized at fair value and, subsequently, measured at amortized cost using the effective interest rate method, adjusted to present value and exchange rate variation when denominated in foreign currency, when applicable.

3.2.19.

Loans and financing

Loans and financing are initially recognized at their fair value, net of costs incurred in the transaction and are subsequently stated at amortized cost. Any difference between the amounts raised and settled is recognized in the statement of income during the period in which the loans and financing are outstanding, using the effective tax rate method.

General or specific borrowing costs, directly attributed to the acquisition, construction or production of a qualified asset, are capitalized as a part of the cost of asset when it is probable that they will result in future economic benefits for the entity and that these costs may be measured with reliability. Other loan costs are recognized as expense in the period they are incurred.

3.2.20.

Provision, contingent assets and liabilities

Contingent assets are not recorded. The recognition is only performed when are guarantees or judicial decisions favorable and the amount can be measured with safety. Contingent assets, for which such conditions are not met, are only disclosed in the notes to the financial statements when material.

The provisions are provided to the extent that the Company expects that is probable that it will disburse cash and the amount can be reliably estimated. Tax, civil and labor proceedings are accrued when losses are assessed as probable and the amounts involved can be reliably measured. When the expectation of loss is possible, a description of the processes and amounts involved is disclosed in the notes to the financial statements. Tax and civil contingent liabilities assessed as remote losses are neither accrued nor disclosed.

A contingent liabilities of business combinations are recognized if they arise from a present obligation that arose from past events and if their fair value can be measured reliably and subsequently are measured at the higher of:

(i)

the amount that would be recognized in accordance with the accounting policy for the provisions above that comply with IAS 37; or

(ii)

the amount initially recognized less, where appropriate, of recognized revenue in accordance with the policy of recognizing revenue from customer contracts IFRS 15.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

3.2.21.

Asset retirement obligations

These primarily relate to future costs for the decommissioning of industrial landfill and related assets. A provision is recorded as a long-term obligation against property, plant and equipment. The provision and the corresponding property, plant and equipment are initially recorded at fair value, based on the present value of estimated cash flows for future cash payments discounted by an adjusted risk-free rate. The long-term obligation accrues interest using a long-term discount rate. The property, plant and equipment are depreciated on a straight-line basis over the useful life of the principal against to cost of sales of the income statement.

3.2.22.

Share based payments

The Company’s executives and managers receive their compensation partially as share-based payment plans to be settled in cash and shares, and alternatively in cash.

Plan-related expenses are recognized in the income statement as a corresponding entry to financial liabilities during the vesting period when services will be rendered. The financial liability is measured by its fair value every balance sheet date and its variation is recorded in the income statement as administrative expenses.

At the option exercise date, if such options are exercised by executive in order to receive Company’s shares, financial liabilities are reclassified under stock options granted in shareholders’ equity. In case of option exercise paid in cash, the Company settles the financial liability in favor to the Company’s executives.

3.2.23.

Employee benefits

The Company offers benefits related to supplementary contribution plan to all employees and medical assistance and insurance life for a determined group of former employees, and for the last two benefits an actuarial appraisal is annually prepared by an independent actuary and are reviewed by Management.

Actuarial gains and losses are recognized in other reserves when incurred. The interest incurred, resulting from changes in the present value of the actuarial liability, is recorded in income statement under the financial expenses.

3.2.24.

Other assets and liabilities current and non-current

Assets are recognized only when it is probable that the economic benefit associated with the transaction will flow to the entity and its cost or value can be measured reliably.

A liability is recognized when the Company has a legal or constructive obligation arising from a past event, and it is probable that an economic resource will be required to settle this liability.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

3.2.25.

Government grants and assistance

Government grants and assistance are recognized at fair value when it is reasonably certain that the conditions established by the granting Governmental Authority were observed and that these subsidies will be obtained. These are recorded as revenue or expense deduction in the income statement for the period of enjoyment of benefit and subsequently are allocated to the tax incentives reserve under shareholders’ equity.

3.2.26.

Dividend and interest on own capital

The distribution of dividends or interest on shareholders' equity is recognized as a liability, calculated based on Corporate Law, the bylaws and the Company's Dividend Policy, which establishes that the minimum annual dividend is the lowest amount between (i) 25% of adjusted net income or (ii) the consolidated operating cash flow for the year and, provided they are declared before the end of the year. Any portion in excess of the minimum mandatory dividends, if declared after the balance sheet date, must be recorded under the additional dividends proposed in shareholders' equity, until approved by the shareholders at the General Assembly. After approval, reclassification to current liabilities is made.

The tax benefit of interest on equity is recognized in the income statement.

3.2.27.

Share capital

Common shares are classified under shareholders’ equity. Incremental costs directly attributable to a public offer are stated under shareholders’ equity as a deduction from the amount raised, net of taxes.

In 2019, the Company reclassified the share issuance costs from capital reserve to share capital.

3.2.28.

Revenue recognition

Revenue from contracts with customers are recognized as at which the products to customers transfer of control, represented by the ability to determine the use of products and obtain substantially all the remaining benefits from the products.

The Company follows the five-step model: (i) identification of contracts with customers; (ii) identification of performance obligations under contracts; (iii) determining the transaction price; (iv) allocation of the transaction price to the performance obligation provided for in the contracts and (v) recognition of revenue when the performance obligation is met.

For operating segment Pulp, revenue recognition is based on the parameters provided by (i) International Commercial Terms (“Incoterms”), when destined for the foreign market and (ii) lead time, when destined for the internal market.

For operating segment Paper and Consumer Goods, revenue recognition is based on the parameters provided by lead time and are products destined for internal market.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Are measured at the fair value of the consideration received or receivable, net of taxes, returns, rebates and discounts and recognized in accordance with the accrual basis of accounting, when the amount is reliably measured.

Accumulated experience is used to estimate and provide for the rebates and discounts, using the expected value method, and revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur. A refund liability (included in trade accounts receivable) is recognized for expected rebates and discounts payable to customers in relation to sales made until the end of the reporting period. No significant element of financing is deemed present as the sales are made with a short credit term.

3.2.29.

Financial income and expenses

Include interest income on financial assets, at the effective interest rate that includes the amortization of funding raising costs, gains and losses on derivative financial instruments, interest on loans and financing, exchange variations on loans and financing and other assets and financial liabilities and monetary variations on other assets and liabilities. Interest income and expenses are recognized in the income statement using the effective interest method.

3.2.30.

Earnings (losses) per share

Basic earnings (losses) per share are calculated by dividing the net profit (loss) attributable to the holders of ordinary shares of the Company by (losses) the weighted average number of ordinary shares during the year.

Diluted earnings per share are calculated by dividing the net profit (loss) attributable to the holders of ordinary shares of the Company by the weighted average number of ordinary shares during the year, plus the weighted average number of ordinary shares that would be issued when converting all dilutive potential ordinary shares into ordinary shares.

3.2.31.

Employee and management profit sharing

Employees are entitled to profit sharing based on certain goals agreed annually. For the Administrators, the statutory provisions proposed by the Board of Directors and approved by the shareholders are used as a basis. Provisions for participation are recognized in the administrative expense, during the period in which the targets are attained.

3.2.32.

Accounting judgments, estimates and assumptions

As disclosed in note 2, Management used judgments, estimates and accounting assumptions regarding the future, whose uncertainty may lead to results that require a significant adjustment to the book value of certain assets, liabilities, income and expenses in future years, are presented below:

(i)

business combination (Note 1.2.1);

(ii)

fair value of financial instruments (Note 4);

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

(iii)

annual analysis of the impairment of non-financial assets (Notes 5 and 18);

(iv)

fair value of biological assets (Note 13);

(v)

useful life of property, plant and equipment and intangible assets with defined useful life (Notes 15 and 16);

(vi)

provision for legal liabilities (Note 20);

(vii)

pension and post-employment plans (Note 21); and

(viii)

share-based payment transactions (Note 22).

The Company reviews the estimates and underlying assumptions used in its accounting estimates on annual basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised.

3.2.33.

New standards, revisions and interpretations not yet in force

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company’s consolidated financial statements.

Financial Instruments and Risks Management

4.1.

Financial risks management

4.1.1.

Overview

As a result of its activities, the Company is exposed to several financial risks, the main factors considered by management are set forth below:

(i)

liquidity;

(ii)

credit;

(iii)

exchange rate;

(iv)

interest rate;

(v)

fluctuations of commodity prices; and

(vi)

capital.

The Management is focused on generating consistent and sustainable results over time, however, arising from external risk factors, unintended level of volatility can influence the Company’s cash flows and income statement.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The Company has policies and procedures for managing market risk which aims:

(i)

reduce, mitigate or transfer exposure aiming to protect the Company’s cash flows and assets against fluctuations of market prices of raw material and products, exchange rates and interest rates, price and adjustment index ("market risk") or other assets or instruments traded in liquid markets or not to which the value of the assets, liabilities and cash flows are exposed;

(ii)

establish limits and instruments with the purpose of allocating the Company's cash within acceptable credit risk exposure parameters of financial institutions; and

(iii)

optimize the process of hiring financial instruments for protection against exposure to risk, drawing on natural hedges and correlations between the prices of different assets and markets, avoiding any waste of funds used to hiring inefficient transactions. All financial transactions entered into by the Company aim to protect existing exposures, with the assumption of new risks prohibited, except those arising from its operating activities.

Hedging instruments are hired exclusively for hedging purposes and are based on the following terms:

(i)

cash flow protection against currency mismatch;

(ii)

revenue flow protection for debt settlement and interest to fluctuation of interest rate and currencies; and

(iii)

fluctuation in pulp price and other risk factors.

Treasury team is responsible for identification, evaluating and seeking protection against possible financial risk. Board of Directors approves the financial policies that establish the principles and guidance for global risk management, the areas involved in these activities, the use of derivative and non-derivative financial instruments and the allocation of cash surplus.

The Company uses the most liquid financial instruments, and:

(i)

does not hired leveraged transactions or with other forms of embedded options that change its purpose of protection (hedge);

(ii)

does not have double indexed debt or other forms of implied options; and

(iii)

does not have any transaction that require margin deposits or other forms of collateral for counterparty credit risk.

The Company does not adopt hedge accounting. Therefore, gains and losses from derivative operations are fully recognized in the statements of income, as disclosed in Note 27.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

4.1.2.

Rating

All transactions with financial instruments are recognized for accounting purposes and classified in the following categories:

	December 31, 2019		December 31, 2018
Assets
Amortized cost
Cash and cash equivalents (Note 5)		3,249,127		4,387,453
Trade accounts receivable (Note 7)		3,035,817		2,537,058
Other assets		563,993		263,110
		6,848,937		7,187,621
Fair value through other comprehensive income
Other investments (Note 14)		20,048
		20,048

Fair value through profit or loss
Derivative financial instruments (Note 4.6)		1,098,972		493,934
Marketable securities (Note 6)		6,330,334		21,098,565
		7,429,306		21,592,499
		14,298,290		28,780,120
Liabilities
Amortized cost
Loans, financing and debentures (Note 18.1)		63,684,326		35,737,509
Lease liabilities (Note 19.2)		3,984,070
Liabilities for assets acquisitions and subsidiaries (Note 23)		541,615		992,512
Trade accounts payable (Note 17)		2,376,459		632,565
Other liabilities		578,061		404,655
		71,164,531		37,767,241
Fair value through profit or loss
Derivative financial instruments (Note 4.6)		2,917,913		1,636,700
		2,917,913		1,636,700
		74,082,444		39,403,941

4.1.3.

Fair value of loans and financing

The financial instruments are recognized at their contractual amounts. Derivative financial instrument agreements, used exclusively for hedging purposes, are measured at fair value.

In order to determine the market values of financial instruments traded in public and liquid markets, the market closing prices were used at the balance sheet dates. The fair value of interest rate and indexes swaps is calculated as the present value of their future cash flows discounted at the current interest rates available for operations with similar remaining terms and maturities. This calculation is based on the quotations of B3 and ANBIMA for interest rate transactions in Brazilian Reais and the British Bankers Association and Bloomberg forLondon Interbank Offered Rate (“LIBOR”)rate transactions. The fair value of forward or forward exchange agreements is determined using the forward exchange rates prevailing at the balance sheet dates, in accordance with B3 prices.

In order to determine the fair value of financial instruments traded in over-the-counter or unliquidated markets, a number of assumptions and methods based on normal market conditions and not for liquidation or forced sale, are used at each balance sheet date, including the use of option pricing models such asGarman-Kohlhagen, and estimates of discounted future cash flows. The fair value of agreements for the fixing of oil bunker prices is obtained based on the Platts index.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The result of the trading of financial instruments is recognized at the closing or hiring dates, where the Company undertakes to buy or sell these instruments. The obligations arising from the hiring of financial instruments are eliminated from our financial statements only when these instruments expire or when the risks, obligations and rights arising there from are transferred.

The estimated fair values of loans and financing are set forth below:

	Yield used to discount	December 31, 2019		December 31, 2018
Quoted in the secondary market
In foreign currency
Bonds	U.S.$		30,066,087		15,035,165
Estimated to present value
In foreign currency
Export credits (“Pre-payment”)	LIBOR U.S.$		17,213,963		12,819,072
Export credits (“Finnvera”)	LIBOR U.S.$				832,907
Export credits (“ACC/ACE”)	DI 1		575,521		1,732,088
In local currency
BNP – Forest Financing	DI 1		193,646
BNDES – TJLP	DI 1		1,895,959		206,601
BNDES - TLP	DI 1		535,812
BNDES – Fixed	DI 1		113,979		348,827
BNDES – Selic (“Special Settlement and Custody System”)	DI 1		693,969
BNDES - Currency basket	DI 1		54,420		169,243
CRA (“Agribusiness Receivables Certificate”)	DI 1		6,039,983		2,383,775
Debentures	DI 1		5,534,691		4,721,603
FINAME (“Special Agency of Industrial Financing”)	DI 1		14,168
FINEP (“Financier of Studies and Projects”)	DI 1		5,138
NCE (“Export Credit Notes”)	DI 1		1,445,383		1,501,623
NCR (“Rural Credit Notes”)	DI 1		288,122		297,375
Export credits (“Pre-payment”)	DI 1		1,464,798
FDCO (“West Center Development Fund”)	DI 1		571,904
			66,707,543		40,048,279

The Management considers that for its other financial liabilities measured at amortized cost, its book values approximate to their fair values and therefore the information on their fair values is not being presented.

4.2.

Liquidity risk

The Company’s guidance is to maintain a strong cash and marketable securities position to meet its financial and operating obligations. The amount kept as cash is used for payments expected in the normal course of its operations, while the cash surplus amount is invested in highly liquid financial investments according Cash Management Policy.

All derivatives financial instruments were in the over-the-counter derivatives and do not require deposit of guarantee margins.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The remaining contractual maturities of financial liabilities are disclosed at the reporting date. The amounts as set forth below, consist in the undiscounted cash flows and include interest payments and exchange rate variation, and therefore may not be reconciled with the amounts disclosed in the balance sheet.

	December 31, 2019
	Total book value		Total future value		Up to 1 year		1 - 2 years		2 - 5 years		More than 5 years
Liabilities
Trade accounts payables		2,376,459		2,376,459		2,376,459
Loans, financing and debentures		63,684,326		89,708,210		8,501,278		5,692,149		29,088,292		46,426,491
Lease liabilities		3,984,070		7,109,966		559,525		1,426,011		1,186,386		3,938,044
Liabilities for asset acquisitions and subsidiaries		541,615		618,910		103,132		101,149		315,989		98,640
Derivative financial instruments		2,917,913		8,299,319		1,488,906		415,791		1,258,200		5,136,422
Other liabilities		578,061		578,061		456,338		121,723
		74,082,444		108,690,925		13,485,638		7,756,823		31,848,867		55,599,597

	December 31, 2018
	Total book value		Total future value		Up to 1 year		1 - 2 years		2 - 5 years		More than 5 years
Liabilities
Trade accounts payables		632,565		632,565		632,565
Loans, financing and debentures		35,737,509		54,020,082		5,158,441		4,091,669		18,372,597		26,397,375
Liabilities for asset acquisitions and subsidiaries		992,512		1,099,331		495,862		100,715		316,730		186,024
Derivative financial instruments		1,636,700		2,149,710		790,679		736,715		465,853		156,462
Other liabilities		404,655		404,655		367,314		37,341
		39,403,941		58,306,342		7,444,861		4,966,440		19,155,180		26,739,859

4.3.

Credit risk management

It is related to the possibility of non-compliance with the counterparty commitment in an operation. Credit risk is managed on a group and arises from cash equivalents, marketable securities, derivative financial instruments, bank deposits, Bank Deposit Certificates ("CDB"), fixed income box, repurchase agreements, letters of credit, insurance, receivable terms of customers, advances to suppliers for new projects, among others.

4.3.1.

Customers and advances to supplier

The Company has commercial and credit policies aimed at mitigating any risks arising from its customers' default, mainly through hiring of credit insurance policies, bank guarantees provided by first-tier banks and collaterals according to liquidity. Moreover, portfolio customers are subject to internal credit analysis aimed at assessing the risk regarding payment performance, both for exports and for domestic sales.

For customer credit assessment, the Company applies a matrix based on the analysis of qualitative and quantitative aspects to determine individual credit limits to each customer according to the identified risk. Each analyze is submitted for approval according to established hierarchy and, if applicable, to approval from the Management’s meeting and the Credit Committee.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The risk classification of trade accounts receivable is set forth below:

	December 31, 2019		December 31, 2018
Low⁽¹⁾		2,775,364		2,447,184
Average⁽²⁾		168,836		66,587
High⁽³⁾		133,613		60,466
		3,077,813		2,574,237

¹⁾

Current and overdue to 30 days.

²⁾

Overdue between 30 and 90 days.

³⁾

Overdue more than 90 days and renegotiated with the customer or with guarantees.

Part of the amounts above does not consider the expected credit losses calculated based on the provision matrix of R$41,996 and R$37,179 as of December 31, 2019 and 2018, respectively.

4.3.2.

Banks and financial institutions

The Company, in order to mitigate credit risk, maintains its financial operations diversified among banks, with a main focus on first-tier financial institutions classified as high-grade by the main risk rating agencies.

The book value of financial assets representing the exposure to credit risk is set forth below:

	December 31, 2019		December 31, 2018
Cash and cash equivalents		3,249,127		4,387,453
Marketable securities		6,330,334		21,098,565
Derivative financial instruments		830,426		493,934
		10,409,887		25,979,952

The counterparties, substantially financial institutions, in which transactions are performed classified under cash and cash equivalents, marketable securities and derivatives financial instruments, are rated by the rating agencies. The risk rating is set forth below:

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

	Cash and cash equivalents and marketable securities				Derivative financial instruments
	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Risk rating⁽¹⁾
AAA		190,360		19,736,151				141,296
AA+				5,257,518
AA				68,207				259,711
AA-		56,388		422,899
A+		606,757				27,363
A		188,458		80		165,851		51,281
A-		211,238		1,160		222,761
brAAA		7,153,079				404,693
brAA+		745,177				9,758
brAA		372,188
brAA-		23,050
brA		17,847
Others		14,919		1				41,646
		9,579,461		25,486,016		830,426		493,934

¹⁾

We use the Brazilian Risk Rating and the rating is given by agencies Fitch Ratings, Standard & Poor’s and Moody’s.

4.4.

Market risk management

The Company is exposed to several market risks, mainly, related to fluctuations in exchange rate variation, interest rates, inflation rates and commodity prices that may affect its results and financial situation.

To mitigate the impacts, the Company has processes to monitor exposures and policies that support the implementation of risk management.

The policies establish the limits and the instruments to be implemented for the purpose of:

(i)

protecting cash flow due to currency mismatch,

(ii)

mitigating exposure to interest rates,

(iii)

reducing the impacts of fluctuation in commodity’s prices, and

(iv)

change of debt indexes.

The market risk management comprises the identification, the assessment and the implementation of the strategy, with the effective hiring of adequate financial instruments.

4.4.1.

Exchange rate risk management

The fundraising financing and the currency hedge policy of the Company are guided considering substantial part of net revenue arises from exports with prices negotiated in U.S.Dollar, while substantial part of the production costs is attached to the Brazilian Real. This structure allows the Company to hired export financing in U.S.Dollar and to reconcile financing payments with the cash flows of receivables from sales in foreign market, using the international bond market as an important portion of its capital structure, and providing a natural cash hedge for these commitments.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Moreover, the Company hires U.S.Dollar selling transactions in the futures markets, including strategies involving options, to ensure attractive levels of operating margins for a portion of revenue. Such transactions are limited to a percentage of the net surplus foreign currency over an 18-months’ time horizon and therefore, are matched to the availability of currency for sale in the short term.

The net exposure of assets and liabilities in foreign currency which is substantially in U.S. dollars, is set forth below:

	December 31, 2019			December 31, 2018
Assets
Cash and cash equivalents		2,527,834			1,143,968
Trade accounts receivables		2,027,018			1,661,108
Derivative financial instruments		9,440,141			493,685
		13,994,993			3,298,761
Liabilities
Trade accounts payables		(1,085,207	)		(72,680	)
Loans and financing		(45,460,138	)		(26,384,721	)
Liabilities for asset acquisitions and subsidiaries		(288,172	)		(333,049	)
Derivative financial instruments		(11,315,879	)		(1,464,569	)
		(58,149,396	)		(28,255,019	)
Net liability exposure		(44,154,403	)		(24,956,258	)

4.4.1.1.

Sensitivity analysis – foreign exchange rate exposure – except financial instruments derivatives

For market risk analysis, the Company uses scenarios to jointly evaluate assets and liabilities positions in foreign currency, and the possible effects on its results. The probable scenario represents the amounts recognized, as they reflect the translation into BrazilianReais on the base date of the balance sheet (R$/U.S.$ = R$4.0307).

This analysis assumes that all other variables, particularly, the interest rates, remains constant. The other scenarios considered the appreciation/depreciation of the Brazilian real against the U.S.$. at the rates of 25% and 50%, before taxes.

The following table set forth the potential impacts in absolute amounts:

	December 31, 2019
	Effect on profit or loss and equity
	Probable		Possible (25%)		Remote (50%)
Cash and cash equivalents		2,527,834		631,959		1,263,917
Trade accounts receivable		2,027,018		506,755		1,013,509
Trade accounts payable		1,085,207		271,302		542,604
Loans and financing		45,460,138		11,365,035		22,730,069
Liabilities for asset acquisitions and subsidiaries		288,172		72,043		144,086

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

4.4.1.2.

Sensitivity analysis – foreign exchange rate exposure – financial instruments derivatives

The following table set forth the potential impacts assuming these scenarios:

	December 31, 2019
	Effect on profit or loss and equity
	Probable			Possible (+25%)			Remote (+50%)			Possible (-25%)			Remote (-50%)
Financial instruments derivatives
Derivative options		(2,198,750	)		(4,087,518	)		(8,175,033	)		(4,087,510	)		(8,175,024	)
Derivative swaps		66,981			(2,710,465	)		(6,048,324	)		(3,011,787	)		(6,383,188	)

4.4.2.

Interest rate risk management

Fluctuations in interest rates could result in increase or decrease in costs of new financing and transactions already hired.

The Company constantly pursuit of alternatives to use financial instruments in order to avoid negative impacts on its cash flows.

Considering LIBOR's risk of extinction over the next few years the Company has negotiating its contracts with clauses that envisage the discontinuation of the interest rate. Most debt agreements attached to LIBOR has some clause of substitution of the rate by a reference index or interest rate equivalent. For agreements that do not have a specific clause, the parties will renegotiate. The derivative agreements attached to LIBOR, provide for negotiations between the parties to define a new rate or an equivalent rate will be provided by the calculation agent.

Over the next few years, until LIBOR expires, the Company will actively work to reflect an equivalent replacement rate in all of its agreements.

4.4.2.1.

Sensitivity analysis – exposure to interest rates – except financial instruments derivatives

For market risk analysis, the Company uses scenarios to evaluate the sensitivity that variations in operations impacted by the rates: Interbank Deposit Rate (“CDI”), Long Term Interest Rate (“TJLP”), Special System for Settlement and Custody ("SELIC") and the London Interbank Offered Rate (“LIBOR”) may have on its results. The probable scenario represents the amounts already booked, as they reflect the best estimate of the Management.

This analysis assumes that all other variables, particularly exchange rates, remain constant. The other scenarios considered appreciation/depreciation of 25% and 50% in the market interest rates.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The following table set forth the potential impacts in absolute amounts:

	December 31, 2019
	Effect on profit or loss and equity
	Probable		Possible (25%)		Remote (50%)
CDI
Cash and cash equivalents		630,075		6,931		13,862
Marketable securities		6,330,334		69,634		139,267
Loans and financing		11,482,992		581,039		252,626

TJLP
Loans and financing		9,720,880		622,671		270,727

LIBOR
Loans and financing		16,229,715		356,183		154,862

4.4.2.2.

Sensitivity analysis – exposure to interest rates – financial instruments derivatives

This analysis assumes that all other variables, particularly exchange rates, remain constant. The other scenarios considered appreciation/depreciation of 25% and 50% in the market interest rates.

The following table set forth the potential impacts assuming these scenarios:

	December 31, 2019
	Effect on profit or loss and equity
	Probable			Probable (+25%)			Remote (+50%)			Probable (-25%)			Remote (-50%)
CDI
Financial instruments derivatives
Liabilities
Derivative options		66,981			(72,473	)		(142,327	)		75,530			154,446
Derivative swaps		(2,198,750	)		(42,752	)		(83,345	)		44,995			92,339
Libor
Financial instruments derivatives
Liabilities
Derivative swaps		(2,198,750	)		163,314			326,151			(163,811	)		(328,121	)

4.4.2.3.

Sensitivity analysis for changes in the consumer price index of the US economy

For the measurement of the probable scenario, the United States Consumer Price Index (US-CPI) was considered on December 31, 2019. The probable scenario was extrapolated considering an appreciation/depreciation of 25 % and 50% in the US-CPI to define the possible and remote scenarios, respectively, in absolute amounts.

December 31,
2019

Impact of an increase/decrease of
US-CPI on the fair value

Probable

Possible (25%)

Remote (50%)

Embedded derivative in forestry partnership and standing wood supply agreements

268,547

107,815

220,514

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

4.4.3. Commodity price risk management

The Company is exposed to commodity prices that reflect mainly on the pulp sale price in the foreign market. The dynamics of opening and closing production capacities in the global market and the macroeconomic conditions may have an impact on the Company´s operating results.

Through a specialized team, the Company monitors the pulp price and analyses future trends, adjusting the forecast which that aims to assisting preventive measures to properly conduct the different scenarios. There is no liquid financial market to sufficiently mitigate the risk of a material portion of the Company's operations. Price protection operations cellulose available on the market have low liquidity and volume and large distortion in price formation.

The Company is also exposed to international oil prices, which is reflected on logistical costs for selling to the export market. In this case, the Company assess, when comprehend necessary, hiring derivative financial instruments to set oil price.

On December 31, 2019, there is long position in bunker oil U.S.$0.364 to hedge its logistics costs. (U.S.$5,344 as of December 31, 2018).

4.4.3.1.

Commodity price risk management

This analysis assumes that all other variables, particularly price risk, remain constant. The other scenarios considered appreciation/depreciation of 25% and 50% in the market interest rates.

The following table set forth the potential impacts assuming these scenarios:

	December 31, 2019
	Impact of an increase/decrease of price risk
	Probable			Possible (25%)		Remote (50%)
Oil derivative		(92	)		478		864

4.5.

Derivative financial instruments

The Company determines the fair value of derivative contracts, which differ from the amounts realized in the event of early settlement due to bank spreads and market factors at the time of quotation. The amounts presented by the Company are based on an estimate using market factors and use data provided by third parties, measured internally and compared to calculations performed by external consultants.

Fair value does not represent an obligation for immediate disbursement or cash receipt, given that such effect will only occur on the dates of contractual fulfillment or on the maturity of each transaction, when the result will be determined, depending on the case and market conditions on the agreed dates.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

A summary of the methodologies used for purposes of determining fair value by type of instrument is presented below:

(i)

Swap: the future value of the asset and liability are estimated by the cash flows projected by the market interest rate of the currency in which the tip of the swap is denominated. The present value of the US dollar-denominated tip is measured using the discount using the exchange coupon curve (the remuneration, in US dollars, of the Reais invested in Brazil) and in the case of the BRL-denominated tip, the discount is made using Brazil's interest curve, being the future curve of the DI, considering both the credit risk of the Company and the counterparty. The exception is pre-fixed contracts x US$ where the present value at the tip denominated in US$ is measured through the discount using the LIBOR curve, disclosed by Bloomberg. The fair value of the contract is the difference between these two points. Interest rate curves were obtained from B3.

(ii)

Options (Zero Cost Collar): the fair value was calculated based on the Garman-Kohlhagen model, considering both Company’s and the counterparty credit risk. Volatility information and interest rates are observable and obtained from B3 exchange information to calculate the fair values.

(iii)

Non-deliverable forward (NDF): a projection of the future currency quote is made, using the exchange coupon curves and the future DI curve for each maturity. Next, it is verified the difference between this quotation obtained and the rate that was contracted for the operation, considering the credit risk of the Company and the counterparty. This difference is multiplied by the notional value of each contract and brought to present value by the future DI curve. Interest rate curves were obtained from B3.

(iv)

Swap US-CPI: liability cash flows are projected by the US inflation curve US-CPI, obtained by the implicit rates for inflation-linked US securities (“Treasury Protected against Inflation - TIPS”), disclosed by Bloomberg. Cash flows from the asset components are projected at the fixed rate implicit in the embedded derivative. The fair value of the embedded derivative is the difference between the two components, adjusted to present value by the curve of the exchange coupon obtained from B3.

(v)

Swap Bunker (oil): a future projection of the asset price is made, using the future price curve disclosed by Bloomberg. Next, it is verified the difference between this projection obtained and the rate that the operation was contracted, considering both of Company’s and counterpart’s credit risk. This difference is multiplied by the notional value of each contract and adjusted to present value by the LIBOR curve disclosed by Bloomberg.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

The yield curves used to calculate the fair value in December 31, 2019, are as set forth below:

Interest rate curves
Term	Brazil	United States of America	Dollar coupon
1M	4.41% p.a.	1.91% p.a.	13.33% p.a.
6M	4.33% p.a.	1.84% p.a.	4.37% p.a.
1A	4.56% p.a.	1.77% p.a.	3.40% p.a.
2A	5.28% p.a.	1.68% p.a.	2.93% p.a.
3A	5.79% p.a.	1.66% p.a.	2.81% p.a.
5A	6.43% p.a.	1.70% p.a.	2.87% p.a.
10A	7.01% p.a.	1.86% p.a.	3.31% p.a.

4.5.1.

Outstanding derivatives by type of contract, including embedded derivatives

The positions of outstanding derivatives are set forth below:

	Notional value in U.S.$				Fair value
	December 31, 2019		December 31, 2018		December 31, 2019			December 31, 2018
Instruments contracted with protection strategy
Operational Hedge
NDF (R$ x U.S.$)				150,000					17,036
Zero Cost Collar (R$ x U.S.$)		3,425,000		3,040,000		67,078			(134,814	)

Debt hedge
Interest rate hedge
Swap LIBOR to Fixed (U.S.$)		2,750,000		2,757,143		(444,910	)		(170,707	)
Swap IPCA to CDI (notional inReais)		843,845				233,255
Swap IPCA to Fixed (U.S.$)		121,003				30,544
Swap CDI x Fixed (U.S.$)		3,115,614		2,402,110		(1,940,352	)		(853,141	)
Pre-fixed Swap to U.S.$ (U.S.$)		350,000				(33,011	)

Hedge de Commodity
Swap US-CPI standing wood (U.S.$)		679,485				268,547
Swap Bunker (oil)		365		5,344		(92	)		(1,140	)
						(1,818,941	)		(1,142,766	)

Current assets						260,273			352,454
Non-current assets						838,699			141,480
Current liabilities						(893,413	)		(596,530	)
Non-current liabilities						(2,024,500	)		(1,040,170	)
						(1,818,941	)		(1,142,766	)

Outstanding agreements on December 31, 2019, are over-the-counter operations without any margin or early settlement clause imposed due to mark-to-market variations.

Each existing agreement and respective protected risks are set forth below:

CDI Swap x Fixed U.S.$.: positions in conventional swaps by changing the rate of Interbank Deposits (“DI”) by pre-fixed U.S.$ rate. The purpose is to change the debt index from Brazilian Reais to U.S.$.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

ii)

IPCA Swap x CDI: positions in conventional swaps by changing from Amplified Consumer Price Index (“IPCA”) to rate of DI. The purpose is to change the debt index to Brazilian Reais.

iii)

IPCA Swap x Fixed U.S.$.: positions in conventional swaps by changing from Amplified Consumer Price Index (“IPCA”) to pre-fixed U.S.$ rate. The purpose is to change the debt index from Brazilian Reais to U.S.$.

iv)

Swap LIBOR x Fixed U.S.$.: positions in conventional swaps exchanging floating rates from pre-fixed rate (LIBOR) to U.S.$. The purpose is to protect the cash flow of variations in the U.S.$ interest rate.

Swap pre-Fixed x Fixed U.S.$: positions in conventional swaps exchanging from pre-fixed rate in Brazilian Reais to pre-fixed rate in U.S.$. The purpose is to change the exposure of debt from Brazilian Reais to U.S.$.

vi)

Zero-Cost Collar: positions in an instrument consisting of the simultaneous combination of the purchase of put options and the sale of U.S.$ call options, with the same principal and maturity, in order to protect the cash flow of exports. This strategy establishes an interval where there is no deposit or receipt of financial margin on the position adjustments.

vii)

NDF - Non-Deliverable Forward:NDF U.S.$.: Positions sold in futures contracts of U.S.$, with the purpose of protecting the cash flow of exports.

viii)

Swap Bunker (oil): positions purchased in oil bunker, with the purpose of protecting logistics costs related to the see freight agreements.

ix)

Swap US-CPI: The embedded derivative refers to the swap for the sale of US-CPI variations within the term of the forest partnership and the provision of standing wood agreements.

4.5.2.

Fair value by maturity schedule

	December 31, 2019			December 31, 2018
2019					(244,069	)
2020		(633,644	)		(180,333	)
2021		98,850			87,851
2022		(154,734	)		83,692
2023		185,209			80,052
2024		(197,718	)		82,963
2025		(606,827	)		(486,958	)
2026 onwards		(510,077	)		(565,964	)
		(1,818,941	)		(1,142,766	)

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

4.5.3.

Outstanding of assets and liabilities derivatives positions

The outstanding derivatives positions are set forth below:

	Notional value					Fair value
	Currency	December 31, 2019		December 31, 2018		December 31, 2019			December 31, 2018
Debt hedge
Assets
Swap CDI x Fixed (U.S.$)	R$		11,498,565		8,722,620		11,673,117			119,178
Swap Pre-Fixed to U.S.$ (U.S.$)	R$		1,317,226				1,478,336
Swap LIBOR x Fixed (U.S.$)	U.S.$		2,750,000		2,757,143		11,063,970
Swap IPCA xCDI	IPCA		933,842				1,093,067
Swap IPCA x U.S.$	IPCA		499,441				579,307
							25,887,797			119,178
Liabilities
Swap CDI x Fixed (U.S.$)	U.S.$		3,115,614		2,402,110		(13,613,469	)		(972,319	)
Swap LIBOR x Fixed (U.S.$)	U.S.$		350,000		2,757,143		(1,511,347	)		(170,707	)
Swap LIBOR x Fixed (U.S.$)	U.S.$		2,750,000				(11,508,880	)
Swap IPCA xCDI	R$		843,845				(859,812	)
Swap IPCA x U.S.$	U.S.$		121,003				(548,763	)
							(28,042,271	)		(1,143,026	)
							(2,154,474	)		(1,023,848	)
Operational hedge
Zero cost collar (U.S.$ x R$)	U.S.$		3,425,000		3,040,000		67,078			(134,814	)
NDF (R$ x U.S.$)	U.S.$				150,000					17,036
							67,078			(117,778	)
Commodity hedge
Swap US-CPI (standing wood)	U.S.$		679,485				268,547
Swap Bunker (oil)	U.S.$		365		5,344		(92	)		(1,140	)
							268,455			(1,140	)
							(1,818,941	)		(1,142,766	)

4.5.4.

Fair value settled amounts

The settled derivatives positions are set forth below:

	December 31, 2019			December 31, 2018
Operational hedge
Zero cost collar (R$ x U.S.$)		(104,040	)		(110,271	)
NDF (R$ x U.S.$)		63,571			(1,235,448	)
		(40,469	)		(1,345,719	)
Commodity hedge
Swap Bunker (oil)		3,804
		3,804
Debt hedge
Swap CDI x Fixed (U.S.$)		(68,362	)		19,145
Swap IPCA x CDI		23,024
Swap Pre-Fixed to U.S.$ (U.S.$)		(26,358	)
Swap LIBOR x Fixed (U.S.$)		(27,088	)		(4,939	)
		(98,784	)		14,206
		(135,449	)		(1,331,513	)

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

4.6.

Fair value hierarchy

For the year ended on December 31, 2019, there were no changes between the 3 (three) levels of hierarchy, except for Ensyn’s and Spinnova’s investments as disclosed in Note 3.1.5, which became to be recognized trough by equity method. There were no transfers between levels 1, 2 and 3 during the periods disclosed.

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
Fair value through profit or loss
Derivative financial instruments				1,098,972				1,098,972
Marketable securities		1,631,319		4,699,015				6,330,334
		1,631,319		5,797,987				7,429,306

Fair value through other comprehensive income
Other investments - CelluForce						20,048		20,048
						20,048		20,048

Biological assets						10,571,499		10,571,499
						10,571,499		10,571,499
Total assets		1,631,319		5,797,987		10,591,547		18,020,853

Liabilities
Fair value through profit or loss
Derivative financial instruments				2,917,913				2,917,913
				2,917,913				2,917,913
Total liabilities				2,917,913				2,917,913

	December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets
Fair value through profit or loss
Derivative financial instruments				493,934				493,934
Marketable securities		14,933,513		6,165,052				21,098,565
		14,933,513		6,658,986				21,592,499

Biological assets						4,935,905		4,935,905
						4,935,905		4,935,905
Total Assets		14,933,513		6,658,986		4,935,905		26,528,404

Liabilities
Fair value through profit or loss
Derivative financial instruments				1,636,700				1,636,700
				1,636,700				1,636,700
Total Liabilities				1,636,700				1,636,700

4.7.

Capital management

The main objective is to strengthen its capital structure, aiming to maintain an adequate financial leverage, and to mitigate risks that may affect the availability of capital in business development.


Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)


The Company monitors constantly significant indicator, such as, consolidated financial leverage, which is the ratio of total net debt to its adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”).

5.	CASH AND CASH EQUIVALENTS

	Average yield p.a. %		December 31, 2019		December 31, 2018
Cash and banks		1.83		2,464,097		1,151,766

Cash equivalents
Local currency
Fixed-term deposits⁽¹⁾		99.52% ofCDI		630,075		3,215,252

Foreign currency
Fixed-term deposits⁽¹⁾		1.58		154,955		20,435
				3,249,127		4,387,453

1) Refers to Time Deposit and Sweep Account applications, maturing up to 90 days.

Time Deposit is a remunerated bank deposit with a specific maturity period.

Sweep Account: is a paid sweep account. At the end of the day, the balance remaining in the account is automatically applied and automatically made available the next business day in the morning.

MARKETABLE SECURITIES

	Average yield p.a. %	December 31, 2019		December 31, 2018
In local currency
Investment funds	61.51% of CDI		6,683
Private funds	98.73% of CDI		1,431,303		14,933,513
Public titles measured at fair value through profit or loss			1,631,319		2,049,281
Private Securities (Compromised)	98.73% of CDI		3,081,326		4,115,771
Private Securities (Compromised) - Escrow Account⁽¹⁾	101.02% of CDI		179,703
			6,330,334		21,098,565

Current			6,150,631		21,098,565
Non-Current			179,703

Refers to the guarantee account, which will be released only after obtaining the applicable governmental approvals and compliance by the Company with the precedent conditions to the conclusion of the Losango Project provided for in the agreement entered with CMPC Celulose Riograndense SA ("CMPC"). The Losango Project was a transaction to buy and sell lands and forests involving Fibria and CMPC, entered into in December 2012.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

TRADE ACCOUNTS RECEIVABLE

7.1

Breakdown of balances

	December 31, 2019			December 31, 2018
Domestic customers
Third parties		1,027,034			853,684
Receivables Investment Fund ("FIDC")					22,299
Related parties (note 11)		23,761			36,727

Foreign customers
Third parties		2,027,018			1,661,527

(-) Expected credit losses		(41,996	)		(37,179	)
		3,035,817			2,537,058

The Company performs factoring transactions for certain customers’ receivables where, substantially all risks and rewards related to these receivables are transferred to the counterpart, so that these receivables are derecognized from accounts receivable in the balance sheet. This transaction refers to an additional cash generation opportunity and may be discontinued at any time without significant impact on the Company's operation and is therefore classified as a financial asset measured at amortized cost. The impact of these factoring transactions on the accounts receivable in the balance sheet as at December 31, 2019, is R$3,544,625 (R$396,563 as at December 31, 2018).

7.2

Breakdown of trade accounts receivable by maturity

	December 31, 2019		December 31, 2018
Current		2,552,459		2,119,188
Overdue
Up to 30 days		180,909		291,050
From 31 to 60 days		148,388		54,845
From 61 to 90 days		20,448		10,982
From 91 to 120 days		20,680		7,446
From 121 to 180 days		17,899		6,285
More than 180 days		95,034		47,262
		3,035,817		2,537,058

7.3

Rollforward of the expected credit losses

	December 31, 2019			December 31, 2018
Beginning balance		(37,179	)		(38,740	)
Business combination with Fibria⁽¹⁾		(5,947	)
Addition		(18,650	)		(11,578	)
Reversal		6,364			5,128
Write-off		13,383			8,993
Exchange rate variation		33			(982	)
Ending balance		(41,996	)		(37,179	)

Business combination with Fibria and its subsidiaries held on January 3, 2019, Note 1.2.1.

The Company maintains guarantees for overdue securities in its commercial operations, through credit insurance policies, letters of credit and other guarantees. These guarantees avoid the need to recognize expected credit losses, in accordance with the Company's credit policy.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

7.4

Main customers

The Company has one customer for 10% of net sales of pulp segment for the year ended on December 31, 2019 and 2018.

INVENTORIES

	December 31, 2019		December 31, 2018
Finished goods
Pulp
Domestic (Brazil)		575,335		167,317
Foreign		2,229,206		485,226
Paper
Domestic (Brazil)		199,635		227,303
Foreign		70,199		67,872
Work in process		75,377		52,882
Raw material		1,047,433		626,150
Spare parts and other		488,410		226,354
		4,685,595		1,853,104

On December 31, 2019, inventories are net of estimated losses in the amounts of R$106,713 (R$33,195 as of December 31, 2018).

8.1

Rollforward of estimated losses

	December 31, 2019			December 31, 2018
Beginning balance		(33,195	)		(51,911	)
Business combination with Fibria⁽¹⁾		(11,117	)
Addition⁽²⁾		(111,077	)		(10,605	)
Reversal		9,734			5,873
Write-off⁽³⁾		38,942			23,448
Ending balance		(106,713	)		(33,195	)

Business combination with Fibria and its subsidiaries held on January 3, 2019, Note 1.2.1.

On December 31, 2019, refers, substantially, to estimated losses of inventories of finished goods and raw material, in the amounts of R$42,470 and R$39,382, respectively.

On December 31, 2019, refers, substantially, to write-off of spare parts and raw material, in the amounts of R$5,786 and R$26,083, respectively.

On December 31, 2019, additional write-offs were booked in the income statement in the amount of R$5,190 (R$29,828 as of December 31, 2018).

On December 31, 2019 and December 31, 2018, there were no inventory items pledged as collateral.


Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)


9.	RECOVERABLE TAXES

	December 31, 2019			December 31, 2018
IRPJ/CSLL – prepayments and withheld taxes		679,699			103,939
PIS/COFINS – on acquisition of property, plant and equipment⁽¹⁾		61,376			55,518
PIS/COFINS – operations		589,142			12,426
PIS/COFINS – exclusion ICMS⁽²⁾		128,115
ICMS – on acquisition of property, plant and equipment⁽³⁾		115,560			78,154
ICMS – operations⁽⁴⁾		1,519,017			215,361
Reintegraprogram⁽⁵⁾		118,944			48,879
Other taxes and contributions		18,799			24,845
Provision for loss of ICMS credits⁽⁶⁾		(1,304,329	)		(10,792	)
Provision for loss of PIS/COFINS credits		(21,132	)
Fair value adjustment on business combination with Fibria		(199,076	)
		1,706,115			528,330
Current		997,201			296,832
Non-current		708,914			231,498

Social Integration Program (“PIS”) and Social Security Funding Contribution (“COFINS”): Credits whose realization is in connection with depreciation year of the corresponding asset.

The Company filed legal actions claiming the exclusion of ICMS from the PIS and COFINS contribution tax basis, in relation to certain operations for certain periods starting from March 1992.

Regarding this subject, the Federal Supreme Court (“STF”) initially decided on March 15th, 2017, that ICMS is not included in the tax basis of the aforementioned contributions. The Federal Government made an appeal(“Embargos de Declaração”) in October 2017, requesting the reversal of the Supreme Court’s initial decision among other items. The appeal has yet to be judged.

Based on the Supreme Court’s initial decision and the legal opinion provided by external legal consultants, the Company believes that the probability of the Supreme Court altering its decision is remote. The Company thus started to exclude the ICMS from the tax basis of the referred contributions since August 2018, a practice also supported by court decisions.

For certain PIS and COFINS credits to be recovered, the Company has received final favorable court decisions. In the quarter ended September 30th, 2019, the Company recorded an asset of R$128,115 relating to PIS and COFINS tax credits within recoverable taxes and a gain in the statement of income (loss) within other operational results (note 30), regarding certain claims for the calculation period from 2006 to July 2018. The Company has estimated the amount attributable to these claims based on the available relevant fiscal documents, and this amount is subject to adjustments to be recorded by management in the future periods.

The Company has additional claims for which a final decision has not been received and for which no asset or gain have been recorded.

Tax on Sales and Services (“ICMS”): Credits from the acquisition of property, plant and equipment are recovered on a linear basis over a four period, from the acquisition date, in accordance with the relevant regulation, ICMS Control on Property, Plant and Equipment (“CIAP”).

ICMS credits accrued due to the volume of exports and credit generated in operations of entry of products: Credits are concentrated in the state of Maranhão, Espírito Santo, Bahia and Mato Grosso do Sul, where the Company realizes the credits through sale of credits to third parties, after approval from the State Ministry of Finance. Credits are also being realized through consumption in its consumer goods (tissue) operations in the domestic market that are already operational in Maranhão.

Special Regime of Tax Refunds for Export Companies ("Reintegra"): Reintegra is a program that aims to refund the residual costs of taxes paid throughout the exportation chain to taxpayers, to make them more competitive in foreign markets.

Includes the provision for discount on sale to third parties of the accumulated ICMS credit in Maranhão and the provision for full loss of the low probability of realization of the units of Espírito Santo, Bahia and Mato Grosso do Sul due to the difficulty of its realization.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

9.1.

Rollforward of provision for loss

	December 31, 2019
	ICMS			PIS e COFINS			Total
Beginning balance		(10,792	)					(10,792	)
Business combination with Fibria⁽¹⁾		(1,211,109	)					(1,211,109	)
Addition		(82,428	)		(21,132	)		(103,560	)
Ending balance		(1,304,329	)		(21,132	)		(1,325,461	)

Business combination with Fibria and its subsidiaries held on January 3, 2019, Note 1.2.1.

10.

ADVANCE TO SUPPLIERS

	December 31, 2019		December 31, 2018
Forestry development program		1,087,149		231,063
Advance to suppliers		170,481		85,963
		1,257,630		317,026

Current		170,481		98,533
Non-current		1,087,149		218,493

The forestry development program consists of an incentive partnership for regional forest production, where independent producers plant eucalyptus in their own land to supply the agricultural product wood to Company. Suzano provides eucalyptus seedlings, input subsidies and cash advances, and the latter are not subject to valuation at present value since they will be settled, preferably, in forests. In addition, the Company supports producers through technical advice on forest management but does not have joint control over decisions effectively implemented. At the end of the production cycles, the Company has contractually guaranteed the right to make an offer to purchase the forest and/or wood for market value, however, this right does not prevent producers from negotiating the forest and / or wood with other market participants, provided that the incentive amounts are fully paid.

11.

RELATED PARTIES

The Company's commercial and financial operations with controlling shareholder and Companies owned by controlling shareholder Suzano Holding S.A. ("Suzano Group"). For transactions with related parties, it is determined that the usual market prices and conditions for these transactions are observed, as well as the corporate governance practices adopted by the Company and those recommended and/or required by the legislation.

On December 31, 2019, there were no material changes in the terms of the agreements, deal and transactions entered into, nor were there any new contracts, agreements or transactions of different natures entered into between the Company and its related parties in relation to those disclosed in the annual financial statements of December 31, 2018, except for the transactions involving the Company’s that belonged to the Fibria, which became related parties of the Company due to the conclusion of the business combination in January 2019.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)


11.1	Balances recognized in assets and liabilities

			Balances receivable (payable)
		Nature	December 31, 2019			December 31, 2018
Transactions with controlling shareholders
Suzano Holding		Granting of guarantees and administrative expenses		3			(125	)
				3			(125	)
Transactions with companies of the Suzano Group and other related parties
Bexma		Reimbursement for expenses		1			1
Bizma		Reimbursement for expenses		1			2
Ecofuturo		Social services		(9	)		(33	)
Ibema		Sale of pulp		23,755			36,721
Ibema		Purchase of products		(2,467	)		(1,643	)
Management		Reimbursement for expenses		(1	)
				21,280			35,048
	��			21,283			34,923
Assets
Trade accounts receivable				23,761			36,727
Liabilities
Trade accounts payable				(2,478	)		(1,804	)
				21,283			34,923

11.2

Amounts transacted in the year

		Expenses (income)
	Nature	December 31, 2019			December 31, 2018
Transactions with controlling shareholders
Suzano Holding	Granting of guarantees and administrative expenses		(5,945	)		(12,723	)
			(5,945	)		(12,723	)
Transactions with companies of the Suzano Group and other related parties:
Bexma	Reimbursement for expenses		11			10
Bizma	Reimbursement for expenses		10
Ecofuturo	Social services		(5,272	)		(4,184	)
Ibema	Sale of pulp		111,325			107,252
Ibema	Purchase of products		(7,744	)		16
IPFL	Reimbursement for expenses		4			4
Lazam - MDS	Sale of paper		7			(31	)
Mabex	Aircraft services (freight)		(100	)		(390	)
Management	Reimbursement for expenses		(9,178	)		541
Nemonorte	Real estate advisory		(330	)		(491	)
			88,733			102,727
			82,788			90,004

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

11.3

Management compensation

Expenses related to the compensation of key management personnel, which include the Board of Directors, Fiscal Council and Board of Statutory Executive Officers, recognized in the statement of income for the year, are set for the below:

	December 31, 2019		December 31, 2018		December 31, 2017
Short-term benefits
Salary or compensation		39,459		48,663		24,774
Direct and indirect benefits		1,747		2,828		2,959
Bonus		8,007		16,752		26,819
		49,213		68,243		54,552
Long-term benefits
Share-based compensation plan		45,739		62,150		33,554
		45,739		62,150		33,554
		94,952		130,393		88,106

Short-term benefits include fixed compensation (salaries and fees, vacation, mandatory bonus and “13^th salary” bonus), payroll charges (Company share of contributions to social security – INSS) and variable compensation such as profit sharing, bonus and benefits (company car, health plan, meal voucher, market voucher, life insurance and private pension plan).

Long-term benefits include the stock option plan and phantom shares for executives and key members of the Management, in accordance with the specific regulations as disclosed in Note 22.

12.

INCOME AND SOCIAL CONTRIBUTION TAXES

The Company and its wholly-owned subsidiaries located in Brazil are subject to the tax regime based on taxable income. The wholly-owned subsidiaries located abroad are taxed in their respective jurisdictions, according to local regulations.

In Brazil, the Law nº. 12,973/14 revoked article 74 of Provisional Measure nº.2,158/01 and determines that the parcel of the adjustment of the value of the investment in wholly-owned subsidiary, direct and indirect, located abroad, equivalent to the profit earned by it before income tax, except for exchange rate variation, must be added in the determination of taxable income and the social contribution calculation basis of the controlling entity located in Brazil, at the each year ended.

Management’s Company believes on the validity of the provisions of international treaties entered into Brazil to avoid double taxation. In order to guarantee its right to non-double taxation, the Company filed a lawsuit in Abril 2019, which aims at a non-double taxation, in Brazil, of profit earned by its wholly-owned subsidiary located in Austria, according to Law n°. 12,973/14. Due to the preliminary injunction granted in favor of the Company in the records of the aforementioned lawsuit, the Company decided to not to add the profit from Suzano International Trading GmbH, located in Austria, in determining of taxable income and social contribution basis of the net profit of the Company for the year 2019. There is no provision for tax related to the profit of such wholly-owned subsidiary in 2019.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

12.1.

Deferred income and social contribution taxes

	December 31, 2019		December 31, 2018
Tax loss carryforwards		600,249		310,293	��
Negative tax base		146,346		6,627
Provision for judicial liabilities		265,571		101,667
Operating provisions and other losses		933,818		286,616
Exchange rate variation - Taxation on a cash basis		2,001,942		534,093
Losses on derivatives		618,427		291,254
Fair value adjustment on business combination – Amortization		713,656		5,327
Unrealized profit on inventories		293,322		227,830
Lease		2,922		6,196
Other temporary differences				4,056
Assets temporary differences		5,576,253		1,773,959

Goodwill - Tax benefit on unamortized goodwill		216,857		13,161
Property, plant and equipment - deemed cost adjustment		1,506,220		1,552,579
Accelerated tax depreciation		1,113,200		1,196,182
Borrowing cost		104,549
Fair value of biologic assets		53,502
Tax provision on results of subsidiaries abroad		463,850
Fair value adjustment on business combination with Fibria – Deferred taxes, net		502,347
Tax credits - gains in tax lawsuit (ICMS from the PIS/COFINS calculation basis)		43,559
Other temporary differences		17,004		41,172
Liabilities temporary differences		4,021,088		2,803,094

Non-current assets		2,134,040		8,998
Non-current liabilities		578,875		1,038,133

Except for tax loss carryforwards, the negative basis of social contribution and accelerated depreciation are only achieved by the Income Tax (“IRPJ”), other tax bases were subject to both taxes.

The breakdown of accumulated tax losses and social contribution tax loss carryforwards is set forth below:

	December 31, 2019		December 31, 2018
Tax loss carry forward		2,400,998		1,241,172
Social contribution tax loss carryforward		1,626,064		73,633

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

The rollforward of net balance of deferred income tax is set for the below:

	December 31, 2019			December 31, 2018
Beginning balance		(1,029,135	)		(1,787,354	)
Business combination with Fibria⁽¹⁾		1,034,842

Tax loss		270,559			(264,955	)
Tax loss carryforwards		139,719			(23,203	)
(Reversal)/provision for judicial liabilities		31,262			(1,964	)
Operating provisions and other losses		(21,757	)		82,785
Exchange rate variation - Taxation on a cash basis		552,421			451,300
Derivative losses		319,860			390,198
Fair value adjustment on business combination – Amortization		699,527			5,327
Unrealized profit on inventories		65,492			124,454
Lease		(3,274	)		69
Adjustment to present value					174
Tax benefit on unamortized goodwill		(203,696	)		(3,098	)
Property, plant and equipment - Deemed cost		46,359			51,408
Accelerated depreciation		82,982			(13,067	)
Borrowing cost		44,727			(23,145	)
Fair value of biological assets		(60,778	)		(22,307	)
Tax provision on results of subsidiaries abroad		(351,485	)
Tax credits - gains in tax lawsuit (ICMS from the PIS/COFINS calculation basis)		(43,559	)
Other temporary differences		(18,901	)		4,243
Ending balance		1,555,165			(1,029,135	)

1) Business combination with Fibria and its subsidiaries held on January 3, 2019, Note 1.2.1.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

12.2.

Reconciliation of the effects of income tax and social contribution on profit or loss

	December 31, 2019			December 31, 2018
Net income (loss) before taxes		(4,097,203	)		165,298
Income tax and social contribution benefit (expense) at statutory nominal rate of 34%		1,393,049			(56,201	)

Tax effect on permanent differences:
Taxation (difference) on profit of subsidiaries abroad⁽¹⁾		(24,933	)		(97,439	)
Tax incentive – Reduction SUDENE					261,910
Equity method		10,878			2,576
Thin capitalisation		(95,003	)		(2,553	)
Credit related toReintegra Program		4,515			37,627
Tax incentives applied to income tax⁽²⁾		18,919			20,505
Unrealized profit on operations with subsidiaries					16,786
Director bonus		(43,913	)
Other		18,949			(28,695	)
		1,282,461			154,516
Income tax
Current		(220,311	)		(300,438	)
Deferred		1,093,200			604,190
		872,889			303,752
Social Contribution
Current		(25,799	)		(286,130	)
Deferred		435,371			136,894
		409,572			(149,236	)

Income and social contribution benefits (expenses) on the year		1,282,461			154,516

Effective rate of income and social contribution tax expenses		31	%		(93.5	)%

The effect of the difference in taxation of subsidiaries is substantially due to the difference between the nominal rates of Brazil and subsidiaries abroad.

Income tax deduction amount referring to the use of the PAT (“Worker Feeding Program”) benefit and donations made in cultural and sports projects.

12.3.

Tax incentives

Company has a tax incentive for the partial reduction of the income tax obtained by the operations carried out in areas of the Northeast Development Superintendency (“SUDENE”) in the Mucuri (BA) and Imperatriz (MA) regions. The IRPJ reduction incentive is calculated based on the activity profit (exploitation profit) and considers the allocation of the operating profit by the incentive production levels for each product. The incentive of lines 1 and 2 of Mucuri (BA) facility expire, respectively, in 2024 and 2027 and Imperatriz facility expire in 2024.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

13.

BIOLOGICAL ASSETS

The rollforward of biological assets is set forth below:

Balances on December 31, 2017	4,548,897
Addition	1,285,490
Depletion	(709,547	)
Loss on fair value adjustment	(129,187	)
Disposal	(47,124	)
Other write-offs	(12,624	)
Balances on December 31, 2018	4,935,905
Business combination with Fibria⁽¹⁾	4,579,526
Addition	2,849,039
Depletion	(1,905,118	)
Gain on fair value adjustment	185,399
Disposal	(23,764	)
Other write-offs	(49,488	)
Balances on December 31, 2019	10,571,499

Business combination with Fibria and its subsidiaries held on January 3, 2019, Note 1.2.1.

The calculation of fair value of the biological assets falls under Level 3 in the hierarchy set forth in IFRS 13 — Measurement of Fair Value, due to the complexity and structure of calculation.

The main assumptions, IMA, discount rate, and selling price stand out as being the most sensitive where increases or reductions in these assumptions generate significant gains or losses in the measurement of fair value.

The Company’s biological assets are mainly of eucalyptus forest for reforestation used to supply wood to pulp and paper manufactory facility and are located in the states of São Paulo, Bahia, Espírito Santo, Maranhão, Minas Gerais, Pará, Piauí and Tocantins. Permanent preservation and legal reserve areas were not included in the biological assets fair value measurements due to its nature.

The fair value of eucalyptus forests is determined semiannually through the income approach method by using the discounted cash flow method.

The assumptions used in measurement of the fair value of biological assets were:

Average cycle of forest formation of 6 and 7 years;

ii)

Effective area of forest from the 3^rd year of planting;

iii)

Average annual increment consists of the estimated volume of production of wood with bark in m³ per hectare, ascertained based on the genetic material used in each region, silvicultural practices and forest management, production potential, climate factors and ground conditions;

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

iv)

The estimated average standard cost per hectare includes expenses on silvicultural and forest management applied to each year of formation of the biological cycle of forests, plus costs of land lease agreements and opportunity cost of own land;

The average gross selling prices of eucalyptus were based on specialized research on transactions carried out by the Company with independent third parties and/or weighted by the cost of formation plus cost of capital plus estimated margin for regions where there is no market benchmark available; and

vi)

The discount rate used in cash flows is measured based on capital structure and other economic assumptions in an independent market participant in the sale of standing wood (forests).

The following table discloses the measurement of the premises adopted:

	December 31, 2019
Planted useful area (hectare)		988,720
Mature assets		86,352
Immature assets		902,368
Average annual growth (IMA) – m3/hectare/year		38.34
Average gross sale price of eucalyptus – R$/m3		66.81
Discount rate - %		8.4	%

The pricing model considers net cash flows, after deduction of taxes on profit at the applicable rates.

The fair value adjustment recognized in year ended December 31, 2019 is justified by variation of indicators mentioned above, which combined resulted in a positive variation of R$185,399. The fair value adjustment was recognized under other operating income (expense), net.

	December 31, 2019
Physical changes		(347.409	)
Price		532,808
		185,399

The Company manages the financial risks related to agricultural activities in a preventive manner. To reducing risks from edaphoclimatic factors, the weather is monitored through meteorological stations and, in the event of pests and diseases, our Department of Forestry Research and Development, an area specialized in physiological and phytosanitary aspects, has procedures to diagnose and act rapidly against any occurrences and losses.

The Company has no biological assets pledged in the year ended December 31, 2019.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

14.

INVESTMENTS

14.1.

Investments breakdown

	December 31, 2019		December 31, 2018
Investments in associates and joint ventures		140,934		14,338
Goodwill		161,464
Other investments evaluated at fair value through other comprehensive income		20,048
		322,446		14,338

14.2.

Investments in associates and joint ventures

	Information of joint ventures as of December 31,								Company Participation
	2019								In equity				In the income of the year
	Equity		Income of the year			Participation equity (%)			December 31, 2019		December 31, 2018		December 31, 2019			December 31, 2018
Associate
Ensyn Corporation⁽¹⁾		252		(268	)		25.30	%		21,437				12,860
Spinnova⁽¹⁾							24.06	%		86,969				(1,332	)
										108,406				11,528

Joint ventures
Ibema							49.90	%		28,487		14,338		20,307		8,676
F&E Technologies LLC
							50.00	%		4,041				134
										32,528		14,338		20,441		8,676
										140,934		14,338		31,969		8,676

Investment by which the Company has had significant influence and, therefore, value by the equity method, Note 3.1.5.

14.3.

Business combination with Fibria

To determine the accounting criteria for recording this transaction with Fibria, we observed the provisions of IFRS 3 – Business Combination.

The direct costs related to the operation, recorded directly in general and administrative expenses for the year when incurred, totaled approximately R$100,387, substantially consisting of expenses with legal fees, auditing and other consulting services.

The net assets were evaluated by Management and an independent appraiser was hired to assist in determining their fair values. The methodology adopted for the determination of fair value adjustments on business combination with Fibria is described in Note 1.2.1.

The assets and liabilities were evaluated by Management and an independent appraiser was hired to assist in determining the fair values, and some qualified for booking in accordance with IAS 38 – Intangible Assets.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

As disclosed in note 1.1, on January 3, 2019, Suzano has acquired the control of Fibria.

The assets acquired and liabilities assumed at the fair value are set forth below in millions of BrazilianReais:

	Fair value			Fair value
Assets			Liabilities
Current			Current
Cash and cash equivalents		1,795	Loans and financing		3,136
Marketable securities		4,316	Derivative financial instruments		276
Derivative financial instruments		211	Lease liabilities		376
Trade accounts receivable		1,302	Trade accounts payable		3,427
Inventories		6,187	Payroll and charges		402
Recoverable taxes		261	Taxes payable		129
Other assets		213	Dividends payable		6
			Other liabilities		126
Total current assets		14,285	Total current liabilities		7,878

Non-current			Non-current
Marketable securities		173	Loans and financing		17,591
Derivative financial instruments		455	Lease liabilities		2,599
Recoverable taxes		988	Derivative financial instruments		126
Advances to suppliers		604	Provision for contingencies, net		3,182
Judicial deposits		210	Deferred taxes		558
Deferred taxes		1,567	Other liabilities		251
Other assets		227
		4,224	Total non-current liabilities		24,307
			Total liabilities		32,185
Investments		200
Biological assets		4,580
Property, plant and equipment		24,961
Right of use		2,916
Intangible assets
Other intangible assets		309
Customer portfolio		9,031
Software		21
Cultivars		143
Supplier agreements		172	Equity
Port concession		749
Fair value adjustment of lease agreements		44	Shareholders‘ equity		37,236
Goodwill		7,897
		51,023	Non-controlling interest		111
Total non-current assets		55,247	Total equity		37,347
Total asset		69,532	Total liabilities and shareholders’ equity		69,532

During the measurement process of the assets acquired and liabilities assumed at the fair value, the Company has identified adjustments to the fair value of some assets and liabilities, as described below, however there were no changes in the goodwill amount.

(i)

An adjustment in the amount of R$72 million in the opening balance of the measurement of right of use and lease liabilities;

(ii)

Reclassification of financing leasing liability in the amount of R$142 million to lease liabilities that were previously classified as other liabilities; and

(iii)

Reclassification of financing leasing assets in the amount of R$83 million to lease rights that were previously classified as PP&E.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

15.

PROPERTY, PLANT AND EQUIPMENT

	Lands			Buildings			Machinery, equipment and facilities			Work in progress			Other⁽¹⁾			Total
Annual average depreciation rate %					3			5						10 to 20

Cost
Balance as of December 31, 2017		4,348,593			2,815,673			15,846,331			483,735			288,395			23,782,727
Additions		705			2,319			143,058			1,321,350			25,913			1,493,345
Fair value adjustment from business combination – Facepa		27,381			(3,014	)		27,506			(4,880	)		2,821			49,814
Business combination – Facepa		7,446			18,505			46,165			3,395			1,920			77,431
Business combination - PCH		4,291			102,176			3,831			2			26			110,326
Write-offs		(34,523	)		(8,654	)		(67,280	)					(1,183	)		(111,640	)
Interest capitalization											1,772						1,772
Transfer and other⁽²⁾		750,824			131,515			441,420			(1,339,218	)		14,197			(1,262	)
Balance as of December 31, 2018		5,104,717			3,058,520			16,441,031			466,156			332,089			25,402,513
Additions		337,932			1,943			136,855			1,477,420			47,524			2,001,674
Write-offs		(92,705	)		(36,276	)		(172,458	)		(1,462	)		(34,858	)		(337,759	)
Business combination with Fibria		2,151,338			3,918,552			20,255,811			425,868			454,759			27,206,328
Fair value adjustment - Fibria		2,637,671			1,502,021			5,109,939						195,684			9,445,315
Fair value adjustment – Facepa								3,072			(883	)		(111	)		2,078
Fair value adjustment – Ibema								5,448									5,448
Transfer and other⁽²⁾		182,621			323,029			740,879			(1,397,398	)		(61,761	)		(212,630	)
Balance as of December 31, 2019		10,321,574			8,767,789			42,520,577			969,701			933,326			63,512,967

Depreciation
Balance as of December 31, 2017					(829,821	)		(6,545,959	)					(195,718	)		(7,571,498	)
Write-offs					1,462			60,506						196			62,164
Depreciation					(78,264	)		(760,634	)					(29,844	)		(868,742	)
Fair value adjustment from business combination - Facepa								(3,447	)					(731	)		(4,178	)
Transfer and other⁽²⁾					7			1,391						(1,398	)
Balance as of December 31, 2018					(906,616	)		(7,248,143	)					(227,495	)		(8,382,254	)
Additions					(255,888	)		(2,123,193	)					(91,170	)		(2,470,251	)
Write-offs					26,886			115,732						13,944			156,562
Business combination with Fibria⁽³⁾					(1,804,967	)		(9,552,825	)					(249,087	)		(11,606,879	)
Additions - Fair value adjustment from business combination - Fibria					(63,495	)		(543,468	)					(17,364	)		(624,327	)
Fair value adjustment from business combination - Facepa					(5,742	)		(6,481	)					(95	)		(12,318	)
Fair value adjustment from business combination - Ibema								(593	)								(593	)
Transfer and other⁽²⁾					29,906			508,585						9,547			548,038
Balance as of December 31, 2019					(2,979,916	)		(18,850,386	)					(561,720	)		(22,392,022	)

Net
Balance as of December 31, 2018		5,104,717			2,151,904			9,192,888			466,156			104,594			17,020,259
Balance as of December 31, 2019		10,321,574			5,787,873			23,670,191			969,701			371,606			41,120,945

Includes vehicles, furniture and utensils and computer equipment.

Includes transfers carried out between the items of property, plant and equipment, intangible assets, right of use arising from lease agreements and inventories.

Business combination with Fibria and its subsidiaries held on January 3, 2019, Note 1.2.1.

On December 31, 2019, the Company analyses the event and did not identified tan impairment of property, plant and equipment.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

15.1.

Items pledged as collateral

On December 31, 2019, property, plant and equipment items that are pledge as collateral for loans transactions and lawsuits, consisting substantially of the units of Aracruz, Imperatriz, Limeira, Mucuri, Suzano and Três Lagoas totaled R$24,985,741 (R$11,505,386 consisting substantially of the units of Imperatriz, Limeira, Mucuri and Suzano as of December 31, 2018).

15.2.

Capitalized expenses

During the year ended December 31, 2019, the Company capitalized interest in the amount of R$4.213 (R$1,772 as of December 31, 2018). The weighted average interest rate utilized to determine the capitalized amount was 9.50 % p.a. (6.55% p.a. as of December 31, 2018).

16.

INTANGIBLE

16.1.

Goodwill and intangible assets with indefinite useful life

	December 31, 2019		December 31, 2018
Vale Florestar		45,435		45,435
Paineiras Logística⁽¹⁾				10
PCHM⁽¹⁾				307
FACEPA		119,332		112,582
Fibria⁽²⁾		7,897,051
Other⁽³⁾		1,196		1,196
		8,063,014		159,530

On December 31, 2019, the Company tested goodwill on expected future profitability (goodwill) arising from business combinations with PCH Mucuri and Paineiras Logística and identified an impairment of R$317 recognized in other operating results.

Purchase price allocation in Note 1.2.2.

The amount of R$1,196 related to other intangible assets with indefinite useful life such as servitude and electricity in the year ended December 31, 2019 and 2018.

The goodwill is based on expected future profitability supported by valuation reports, after purchase price allocation.

Goodwill are allocated to cash-generating units as presented in Note 29.4.

The calculation of the value in use of non-financial assets is done annually using the discounted cash flow method. In 2019, the Company used the strategic plan and annual budget with growing projections until2024and the average perpetuity of the cash generating units considering a nominal tax of 3.6% p.a. from this date, based on historical information of previous years, economic and financial projections from each specific market that the Company has operations and additionally include official information disclosed by independent institutions and government agencies.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The discount rate adopted by the Management was 9.1% p.a, calculated based on weighted average cost of capital (“WACC”). The assumptions in the table set forth below were considered as significant assumptions:

	2020		2021		2022		2023		2024
Net average pulp price – Foreign market (USD/t)
Asia		502.30		670.00		767.00		577.00		588.60
Europa		506.70		603.00		691.80		553.90		565.00
North America		559.40		638.90		733.00		586.80		598.60
Latin America		545.50		660.40		757.60		606.60		618.70
Net average pulp price – Internal market (USD/t)		439.50		631.00		723.90		579.60		600.10
Average exchange rate (R$/U.S.$)		3.94		3.92		3.96		4.02		4.08
Discount rate (pos-tax)		9.1% p.a.		9.1% p.a.		9.1% p.a.		9.1% p.a.		9.1% p.a.
Discount rate (pre-tax)		12.5% p.a.		12.5% p.a.		12.5% p.a.		12.5% p.a.		12.5% p.a.

The recoverability of property, plant and equipment was tested in 2019 and no impairment loss was identified.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

16.2.

Intangible assets with determined useful life

		December 31, 2019			December 31, 2018
Beginning balance			180,311			141,785
Business combination with Fibria⁽¹⁾			308,681
Additions			17,715			7,983
Fair value adjustment on business combination with Facepa						53,477
Fair value adjustment on business combination with Ibema			702
Amortization			(74,332	)		(44,340	)
Fair value adjustment on business combination with Fibria			10,159,550
Customer portfolio			9,030,779
Supplier agreements			172,094
Port services agreements			694,590
Port concession			54,470
Lease agreements			44,371
Cultivars			142,744
Software			20,502
Fair value adjustment on business combination with Fibria - Amortization:			(956,577	)
Customer portfolio			(820,980	)
Supplier agreements			(72,097	)
Port services agreements			(29,362	)
Port concession			(2,147	)
Lease agreements			(7,499	)
Cultivars			(20,392	)
Software			(4,100	)
Fair value adjustment on business combination with Facepa - Amortization			(15,430	)
Fair value adjustment on business combination with Ibema - Amortization			(24	)
Exchange rate variation			2,930			12,461
Transfers and others			26,263			8,945
Ending balance			9,649,789			180,311

Represented by	Average Annual Amortization Rate %
Trademarks and patents	5 to 10		20,649			19,477
Software	20		119,265			59,112
Customer portfolio	2.5 to 5		7,393			19,004
Non-compete agreement	5		2,150			2,812
Research and development agreement	19		74,643			79,906
Development and implementation of systems	20		1,687
Right of exploitation - Terminal concession of Macuco	4		166,932
Supplier Relationship - Chemicals	5		51,562
Others			1,857
Intangible assets (fair value adjustments) acquired in the business combination, net – Ibema			678
Intangible assets (fair value adjustments) acquired in the business combination, net – Fibria			9,202,973
Customer portfolio	9		8,209,799
Supplier agreements	13 to 100		99,997
Port services agreements	4		665,228
Ports concession	4		52,324
Lease agreements	17		36,871
Cultivars	14		122,352
Software	20		16,402
			9,649,789			180,311

Business combination with Fibria and its subsidiaries held on January 3, 2019, Note 1.2.1.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Amortization of supplier and port services agreements, ports concession, lease agreements and cultivars are recognized as a cost of sales, amortization of customer portfolio is recognized in selling expenses, amortization of trademarks and patents, non-compete agreement, research and development agreement, development and implementation of systems are recognized administrative expenses, while software is recorded according to its use as cost of sales, administrative or sales expenses.

17.

TRADE ACCOUNTS PAYABLE

	December 31, 2019		December 31, 2018
In local currency
Related party (Companies of the Suzano group)		2,478		1,804
Third party		1,288,774		558,041

In foreign currency
Third party⁽¹⁾		1,085,207		72,720
		2,376,459		632,565

The Company had a take or pay agreement with Klabin S.A., under conditions differentiated in terms of volume, exclusivity, guarantees and payment terms in up to 360 days, and prices were practiced under conditions of contractually established. Following the requirements imposed by the European Union's competition authority, the contract with Klabin expired in July 2019. On December 31, 2019, the amount of R$936,887 in the consolidated refers to purchases of Klabin's pulp.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

18.

LOANS, FINANCING AND DEBENTURES

18.1.

Breakdown by type

		Average annual		Current					Non-current				Total
Type	Interest rate	interest rate - %		December 31, 2019			December 31, 2018		December 31, 2019		December 31, 2018		December 31, 2019			December 31, 2018
In foreign currency
BNDES	UMBNDES		6.6		26,307			21,577		27,620		139,940		53,927			161,517
Bonds	Fixed		5.7		640,177			216,624		27,375,673		11,189,403		28,015,850			11,406,027
Syndicated loan	LIBOR		2.7		29,268			37,546		12,269,251		11,787,588		12,298,519			11,825,134
Finnvera/EKN (“Export Credit Agencies”)	LIBOR							236,385				560,689					797,074
Financial lease	U.S.$							5,608				12,617					18,225
Export credits (ACC - pre-payment)	LIBOR/Fixed		4.1		1,965,600			1,896,717		3,162,227		274,673		5,127,827			2,171,390
Others					3,481									3,481
					2,664,833			2,414,457		42,834,771		23,964,910		45,499,604			26,379,367

In local currency
BNDES	TJLP		7.8		283,658			28,867		1,517,649		183,269		1,801,307			212,136
BNDES	TLP		9.2		18,404					441,233				459,637
BNDES	Fixed		5.2		39,325			26,119		77,333		95,034		116,658			121,153
BNDES	SELIC		5.9		78,458					718,017				796,475
FINAME	Fixed		6.6		4,781			970		9,564		2,010		14,345			2,980
BNB	Fixed		6.7		37,815			25,038		156,904		191,976		194,719			217,014
CRA (“Agribusiness Receivables Certificates”)	CDI/IPCA		5.9		2,860,938			789,892		2,952,451		1,588,986		5,813,389			2,378,878
Export credit note	CDI		6.2		131,914			93,001		1,270,065		1,327,378		1,401,979			1,420,379
Rural producer Certificate	CDI		7.6		5,840			6,809		273,303		273,029		279,143			279,838
Export credits (“Pre payment”)	Fixed		6.2		77,694					1,312,586				1,390,280
FCO (“Central West Fund”), FDCO (“Central West Development Fund”) and FINEP	Fixed		8.0		76,596			7,725		475,905		5,135		552,501			12,860
Others (Revolving Cost, Working capital and Industrial Development Fund (“FDI”))	Fixed		0.4		954			10,467		4,559		16,930		5,513			27,397
FDIC Funds of credit rights	Fixed							22,054									22,054
Fair value adjustment on business combination with Fibria					(63,256	)								(63,256	)
Debentures	CDI		6.7		9,997			1,297		5,412,035		4,662,156		5,422,032			4,663,453
					3,563,118			1,012,239		14,621,604		8,345,903		18,184,722			9,358,142
					6,227,951			3,426,696		57,456,375		32,310,813		63,684,326			35,737,509

Interest on financing					886,886			345,988		136,799				1,023,685			345,988
Non-current funding					5,341,065			3,080,708		57,319,576		32,310,813		62,660,641			35,391,521
					6,227,951			3,426,696		57,456,375		32,310,813		63,684,326			35,737,509

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

18.2.

Rollforward in loans, financing and debentures

	December 31, 2019			December 31, 2018
Beginning balance		35,737,509			12,191,856
Amounts from the business combination with Fibria⁽¹⁾		20,667,096
Reclassification - accounts payable from lease operations⁽²⁾		(18,225	)
Fundraising		18,993,837			25,539,994
Business combination with PCH / FACEPA					79,923
Interest accrued		3,362,250			839,278
Exchange rate variation, net		1,781,562			1,457,989
Settlement of principal		(13,994,708	)		(3,738,577	)
Settlement of interest		(2,977,957	)		(669,088	)
Fair value adjustment on business combination with Fibria		(63,256	)
Amortization of fundraising costs		185,807			36,134
Other		10,411
Ending balance		63,684,326			35,737,509

Business combination with Fibria its subsidiaries held on January 3, 2019, Note 1.2.1.

As of January 1, 2019, the lease balance was reclassified to "Accounts payable from lease operations", due to adoption of IFRS 16 by the Company.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

18.3.

Breakdown by maturity – non current

	2021		2022		2023		2024		2025		2026		2027 onwards		Total
In foreign currency
BNDES - Currency basket		9,175		10,061		8,384										27,620
Bonds		762,320						2,402,437		2,379,661		2,812,354		19,018,901		27,375,673
Syndicated Loan		1,343,567		3,197,689		7,727,996										12,269,252
Export credits (ACC pre-payment)		136,320		13,143				2,015,350		997,414						3,162,227
		2,251,382		3,220,893		7,736,380		4,417,787		3,377,075		2,812,354		19,018,901		42,834,772

In local currency

BNDES – TJLP		269,593		265,467		266,362		239,883		292,573		169,102		14,668		1,517,648
BNDES – TLP		18,866		18,866		18,866		18,866		17,617		20,120		328,032		441,233
BNDES – Fixed		28,959		24,567		18,601		5,206								77,333
BNDES – Selic		76,117		73,304		96,312		88,347		210,392		173,545				718,017
FINAME		3,829		2,786		1,656		1,197		96						9,564
BNB		35,285		33,201		35,285		33,001		10,285		9,847				156,904
CRA (“Agribusiness Receivables Certificates”)				1,512,680		1,439,771										2,952,451
Export credit note										640,800		629,265				1,270,065
Rural producer certificate										137,500		135,803				273,303
Export credits (“Pre payment”)								1,312,586								1,312,586
FCO (“Central West Fund”), FDCO (“Central West Development Fund”) and FINEP		67,986		67,986		67,986		67,989		67,986		67,986		67,986		475,905
Others (Revolving costs, working capital, FIDC and FDI)		4,559														4,559
Debentures										2,340,550		2,324,307		747,178		5,412,035
		505,194		1,998,857		1,944,839		1,767,075		3,717,799		3,529,975		1,157,864		14,621,603
		2,756,576		5,219,750		9,681,219		6,184,862		7,094,874		6,342,329		20,176,765		57,456,375

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

18.4.

Breakdown by currency

	December 31, 2019		December 31, 2018
BrazilianReais		17,362,903		9,358,142
U.S. Dollar		45,460,138		26,217,850
Selic⁽¹⁾		807,358
Currency basket		53,927		161,517
		63,684,326		35,737,509

1)	Contractual definition of currency in contracts with Brazilian National Bank for Economic and Social Development (“Banco Nacional de Desenvolvimento Econômico e Social or “BNDES”) that are in BrazilianReais plus SELIC interest.

18.5.

Fundraising costs

The fundraising costs are amortized based on terms agreements and effective interest rate.

					Balance to be amortized
Nature	Cost		Amortization		December 31, 2019		December 31, 2018
Bonds		343,642		129,297		201,467		67,189
CRA and NCE		125,222		73,508		47,443		20,195
Import (“ECA”)		101,811		101,811				16,235
Syndicated Loan		72,774		33,209		40,382		30,552
Debentures		21,592		4,674		19,065		18,944
BNDES (“IOF”)⁽¹⁾		53,730		13,702		38,447
Others		18,147		8,381		4,590		3,188
		736,918		364,582		351,394		156,303

1)	Tax on Financial Operations

18.6.

Relevant operations settled in the year

18.6.1.

Early settlement of CRA’s

On January 3, 2019, the Company settled the amount of R$878,573 of two series of CRA’s, with original maturities in 2021 and 2023 and a cost of 99% of CDI and IPCA + 4.5055% p.a. This settlement refers to the two of the nine series that were not obtained prior approval of the holders of the Certificates for the business combination between the Companies.

18.6.2.

BNDES

On March 15, 2019, the Company carried out the early settled of R$299,682 with the BNDES, comprising an installment to be amortized from the balance of the outstanding debt plus the corresponding remuneration up to the payment date.

18.6.3.

Export prepayment ("PPE")

On June 17, 2019, the Company, through its subsidiary Suzano International Trade GmbH (former Fibria International Trade GmbH), voluntarily prepaid the amount of U.S.$631,138 (equivalent to R$2,454,443), related to an export prepayment agreement, with quarterly interest payments of 1.15% p.a. plus quarterly LIBOR, which was scheduled to mature in 2022.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

On June 18, 2019, the Company, through its subsidiary Suzano International Trade GmbH (former Fibria International Trade GmbH, voluntarily prepaid the amount of U.S.$156,032 (equivalent to R$602,410), related to an export prepayment agreement, with quarterly interest payments of 1.15% p.a. plus quarterly LIBOR, which was scheduled to mature in October 2022.

18.6.4.

Finnvera

On April 29 and April 30, 2019,the Companyvoluntarily prepaid U.S.$ 208,400 (equivalent to R$822,200) related to certain financing agreements that were guaranteed by the export credit agencies Finnvera and EKN.

On June 17, 2019, the Company voluntarily prepaid the outstanding amount of U.S.$378,471 (equivalent to R$1,473,114) related to certain financing agreements that were guaranteed by the export credit agency Finnvera initially contracted in May 2016, which maturity date was 2025.

18.6.5.

Debentures

On March 27, 2019, the Company made the partial optional extraordinary amortization on the balance of the nominal unit value of all the debentures of this 7th issue, upon payment of the total amount of R$2,056,173, comprising aninstallmentto be amortized balance of the nominal unit value of all debentures plus the corresponding remuneration.

On May 31, 2019, the Company redeemed in full its unsecured debentures of its 7th issuance, non-convertible into shares, with maturity on January 7, 2020, by paying the total outstanding amount of R$2,019,587, comprising the total balance of the face value per unit of the totality of the debentures of such issuance plus the corresponding remuneration.

18.7.

Relevant operations contracted in the year

18.7.1.

Senior Notes (“Notes 2029”)

On January 29, 2019, the Company,through its subsidiary Suzano Austria GmbH,reopened the Senior Notes 2029 with the additional issue of debt securities in the amount of U.S.$750,000 (equivalent to R$2,874,150). The notes mature in January 2029 and were issued with interest of 5.465% p.a., which will be paid semiannually. This transaction is fully and unconditionally guaranteed by Suzano S.A.

18.7.2.

Export prepayment contracts ("PPE")

On February 25, 2019, the Company entered into an export prepayment agreement in the amount of R$738,800, with annual interest payment of 8.35% p.a. and maturing in 2024.

On June 14, 2019, the Company,through its wholly-owned subsidiaryFibria International Trade GmbH, entered into a syndicated export prepayment transaction in the amount of U.S.$ 750,000 (equivalent to R$2,910,975), with a term of six years and grace period of five years. This transaction is fully and unconditionally guaranteed by Suzano S.A.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

On June 14, 2019, the Company entered into an export prepayment agreement in the amount of R$578,400, with annual interest payment of 7.70% p.a. and maturing in 2024.

18.7.3.

Senior Notes ("Notes 2047")

On May 21, 2019,the Company, through its subsidiary Suzano Austria GmbH,issued an additional amount of U.S.$250,000 (equivalent to R$1,020,250) of its 7.00% Senior Notes due 2047, with yield at the rate of 6.245% p.a. and spread at the rate of 7.0% p.a., to be paid semiannually, in March and September, with maturity on March 16, 2047. This transaction is fully and unconditionally guaranteed by Suzano S.A.

18.7.4.

Senior Notes ("Notes 2030")

On May 21, 2019,the Company, through its subsidiary Suzano Austria GmbH,issued an aggregate amount of U.S.$1,000,000 (equivalent to R$4,081,000) of 5.00% Senior Notes due 2030, with yield at the rate of 5.18% p.a. and spread at the rate of 5.0% p.a., to be paid semiannually, in January and July, with maturity on January 15, 2030. This transaction is fully and unconditionally guaranteed by Suzano S.A.

18.7.5.

BNDES

On May 17, 2019, BNDES released funds to the Company in the amount of R$108,050, with interest rates varying from Long Term Rate (“TLP”) plus interest rate of 0.96% p.a. to 1.44% p.a. to be paid from 2020 to 2028. The resources were applied to projects in the industrial, social and technological innovation areas.

On December 17, 2019, BNDES released funds to the Company in the amount of R$300,000, with interest rates of Long-Term Rate (“TLP”) plus interest rate 1.77% p.a. with maturity date on 2034. The resources were applied to projects in the forestry areas.

18.7.6.

Debentures

On January 7, 2019, the Company issued R$4,000,000 in 7th issue, single series, non-convertible shares, due in January 2020 and with interest rates of 103% up to 112% of the CDI rate.

On October 17, 2019, the Company issued 750,000, not-convertible into shares, unsecured, single series in the amount of R$750,000, with maturity date on September 15, 2028 and interest rate of 100% of CDI plus spread of 1.20% p.a.

18.7.7.

Advances on foreign exchange contracts (“ACC”), Advances on foreign exchange delivered (“ACE”) and Export prepayment (“PPE”)

Between October 21 and December 3, 2019, the Company entered into 10 ACCs, ACEs and PPEs agreements for a total of U.S.$450,000 (equivalent to R$1,868,743), with a maturity of up to 1 year. These transactions is fully and unconditionally guaranteed by Suzano S.A.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

18.7.8.

Revolving Credit Facility

On February 20, 2019, the Company, through its wholly-owned subsidiaries Suzano Austria GmbH and Suzano Pulp and Paper Europe SA, entered into a syndicated Revolving Credit Facility agreement in the amount of US$500,000 (equivalent to R$1,855,000), with a term of 5 years. This transaction is fully and unconditionally guaranteed by Suzano S.A.

18.8.

Guarantees

Some loan and financing agreements have guarantees clauses, in which the financed equipment or other property, plant and equipment are offered by the Company, as disclosed in Note 15.1.

The Company does not have contracts with restrictive financial clauses (financial covenants) to be complied with.

19.

LEASE

19.1.

Right of use assets

As described in Note 3.1.1, the Company adopted IFRS 16 and applied the IFRS retrospectively with the cumulative effect of adoption recorded at the date of initial application. Accordingly, comparative periods were not restated.

On January 1, 2019, the amounts corresponding to the right to use the current agreements were recognized, in amounts equivalent to the present value of the obligations assumed with the counterparties. The amortization of these balances will occur according to the terms defined for the leases. Except for land agreements that are automatically extended for the same period by means of notification to the lessor, for the other agreements are not allowed automatic renewals and for an indefinite period, as well as the exercise of termination is a right of both parties.

The Company does not have lease agreements with clauses of (i) variable payments that are based on the performance of the leased assets (ii) guarantee of residual value (iii) restrictions, such as, for example, obligation to maintain financial ratios.

In addition, the Company recognized under right of use the residual value of the right to use the agreements previously classified as financial leases under IAS 17 and which were recognized in the Property, plant and equipment group until December 31, 2018,being reclassified the amount of R$89,338in the initial adoption.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The effect of its adoption of the balances for the year ended December 31, 2019 is set forth below:

	Lands and Farms			Machines and Equipment’s			Buildings			Ships and boats			Vehicles			Total
Balance as of December 31, 2018
Initial adoption on January 1, 2019		1,762,943			143,685			41,570			1,408,640			1,012			3,357,850
Additions		260,982			1,529			39,794			612,022						914,327
Amortization⁽¹⁾		(254,280	)		(15,163	)		(35,365	)		(116,207	)		(925	)		(421,940	)
Balance as of December 30, 2019		1,769,645			130,051			45,999			1,904,455			87			3,850,237

¹⁾	The amount of R$268,081 is reclassified to biological assets to compose the formation cost.

In the year ended December 31, 2019, the Company is committed to lease agreements not yet in force for ships expected to be delivered one unit in first quarter 2019 and one unit in first quarter 2020.

19.2.

Lease liabilities

At the adoption of IFRS 16, the Company recognized lease liabilities for the current agreements, and which were previously classified as operating leases in accordance with IAS 17 - Leasing Operations, except for agreements included in the practical expedient permitted by the standard and adopted by the Company, as described in Note 3.1.1.

The liabilities recognized as of January 1, 2019 correspond to the remaining balances payable of the lease contracts, measured to present value by the discount rates on the date of their adoption.

In addition, the Company recognized under lease liabilities the remaining balances of agreements previously classified as financial leases under IAS 17 and which were recognized in the group of loans and financing until December 31, 2018, being reclassified the amount of R$18,225 in the initial adoption, as set forth below:

Nature of agreement	Average rate - % per annual⁽¹⁾	Maturity⁽²⁾	Present value of liabilities
Lands and farms	10.89	November 2046		1,761,273
Machines and Equipment’s	10.15	July 2032		214,569
Buildings	10.92	April 2027		41,391
Ships and boats	10.76	February 2039		1,410,474
Vehicles	8.99	April 2020		1,190
				3,428,897

1)	To determine the discount rates, quotes were obtained from financial institutions for agreements with characteristics and average terms similar to the lease agreements.

2)	Refers to the original maturities of the agreements and, therefore, do not consider eventual renewal clause.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The rollforward in the balances in the year ended December 31, 2019 are as follows:

Balance as of December 31, 2018
Initial adoption on January 1, 2019	3,428,897
Additions	914,327
Payments	(646,487	)
Accrual of financial charges⁽¹⁾	275,404
Exchange rate variation	11,929
Balance as of December 31, 2019	3,984,070

Current	656,844
Non-current	3,327,226

1)	The amount of R$50,795 related to interest expenses on leased lands is capitalized to biological assets to compose the formation cost.

The maturity schedule of future payment not discounted to present value related to lease liabilities is disclosed in Note 4.2.

19.2.1.

Discount rate

The discount rates applied on new lease agreements for year ended December 31, 2019 are similar to those applied on adoption of IFRS 16.

19.2.2.

Amounts recognized in the statement of income for the year

In the year ended December 31, 2019, were recognized the amounts:


Expenses relating to short-term assets			37,007
Expenses relating to low-value assets			14,349
			51,356

19.2.3.

Reconciliation of operating lease commitments

Operating lease commitments disclosed as of December 31, 2018	1,448,241
Business combination with Fibria	2,974,729
Discounted through a lessee’s incremental loan rate at initial adoption	(1,011,726	)
Reclassification from loans and financing⁽¹⁾	18,225
Agreements revalued as service agreements	(572	)
	3,428,897

2)	As of January 1, 2019, the lease balance was reclassified from "Loans and financing", due to adoption of IFRS 16 by the Company, as disclosed in note 19.2.

19.2.4.

CVM (Brazilian Security and Exchange Commission) Circular Memorandum

On December 18, 2019, the CVM issued a circular memorandum (“Ofício/Circular/CVM/SNC/SEP/nº 02/2019”) containing a guidance on relevant aspects of IFRS 16 to be observed in the preparation of the consolidated financial statements of the lessee companies for the year ended December 31, 2019.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

As result of the implementation of this guidance, the Company has changed incremental loan rate from the real rate to the nominal rate and has included the sales taxes (PIS and COFINS) in the calculation of lease liabilities.

The application of this new accounting guidance represents a new accounting policy.

20.

PROVISION FOR JUDICIAL LIABILITIES

The Company and its subsidiaries are involved in certain legal proceedings arising from the normal course of business, which include tax, labor and civil risks.

The Company classifies the risk of unfavorable decisions in the legal proceedings as probable, possible or remote. The Company records provisions for losses classified as probable, as determined by the Company’s Management, based on legal advice, which reflect the estimated probable losses. Contingencies classified as possible loss are disclosed based on reasonably estimated amounts.

The Company’s management believes that, based on the elements existing at the base date of these financial statements, its provision for tax, civil, commercial and other, as well for labor risks, accounted for according to IAS 37 is sufficient to cover estimated losses related to its legal proceedings, as set forth below:

20.1.

Provisions for probable losses

The rollforward of provisions according to lawsuit natures is set forth below:

	December 31, 2019							December 31, 2018
	Judicial deposits			Provision		Provision, net		Provision, net
Taxes		(124,133	)		3,176,503		3,052,370		296,869
Labor		(50,464	)		227,139		176,675		50,869
Civil		273			283,159		283,432		3,532
		(174,324	)		3,686,801		3,512,477		351,270

The change in the provision according to the nature of the proceedings is set forth below:

	December 31, 2019
	Tax			Labor			Civil and environment			Total
Beginning balance		296,869			50,869			3,532			351,270
Business combination with Fibria⁽¹⁾		139,462			185,157			64,974			389,593
Payments		(34	)		(34,794	)		(5,532	)		(40,360	)
Write-off		(3,875	)		(55,730	)		(13,434	)		(73,039	)
Additions		46,603			50,521			10,100			107,224
Monetary adjustment		13,387			31,116			5,258			49,761
Fair value adjustment on business combination with Fibria		2,684,090						218,262			2,902,352
Ending balance		3,176,502			227,139			283,160			3,686,801

1)	Business combination with Fibria and its subsidiaries held on January 3, 2019, Note 1.2.1.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

	December 31, 2018
	Tax			Labor			Civil and environment			Total
Beginning balance		273,324			40,363			3,382			317,069
Business combination with Facepa					1,900						1,900
Payments		(18,351	)		(22,580	)		(81	)		(41,012	)
Write-off		(13,605	)		(5,011	)		(394	)		(19,010	)
Additions		49,754			28,716			150			78,620
Monetary adjustment		5,747			7,481			475			13,703
Ending balance		296,869			50,869			3,532			351,270

20.1.1.

Tax

On December 31, 2019, the Company was a defendant in 43 administrative proceedings as well as tax lawsuits in which the disputed matters related, CSLL, IRRF, PIS, COFINS, ICMS, Tax on Services (“ISS”), among others whose amounts are provisioned for when the likelihood of loss is deemed probable by the Company’s external legal counsel and the Management.

20.1.2.

Labor

On December 31, 2019, the Company was a defendant in 1,236 labor lawsuits.

In general, labor lawsuits are related primarily to matters frequently contested by employees in agribusiness companies, such as certain wages and/or severance payments, in addition to suits filed by outsourced employees of the Company.

20.1.3.

Civil and environment

On December 31, 2019, the Company is a defendant in approximately 24 civil and environmental lawsuits.

Civil proceedings are related primarily to payment of damages, such as those resulting from contractual obligations, traffic-related injuries, possessory actions, environmental restoration obligations, claims and others.

20.2.

Provisions for possible losses

The Company is involved in tax, civil and labor lawsuits, for which losses have been assessed as possible by management with the support from legal counsel and therefore no provision was recorded:

	December 31, 2019		December 31, 2018
Taxes⁽¹⁾		7,504,398		1,077,761
Labor		279,934		85,309
Civil⁽¹⁾		2,995,576		43,271
		10,779,908		1,206,341

1)	Amounts net of the fair value adjustment on business combination with Fibria related to possible contingencies, as mentioned above.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

20.2.1.

Tax

The Company is a defendant in 831 tax proceedings whose likelihood of loss is considered possible, in the total amount of R$7,511,435, for which there is no provision was recorded.

The other tax lawsuits refer to various taxes, such as IRPJ, CSLL, PIS, COFINS, ICMS, ISS, Withholding Income Tax ("IRRF"), PIS and COFINS, mainly due to differences in interpretation of applicable tax rules and information provided in accessory obligations.

The most relevant tax cases are set forth below:

(i)

Income tax assessment - IRPJ/CSLL - Swap of industrial and forestry assets: In December 2012, the Company received a tax assessment for the collection of income tax and social contribution, alleging unpaid tax on a capital gain in February 2007, closing of the transaction, when the Company executed an agreement with International Paper for the swap of industrial and forestry assets.

On January 19, 2016, the Tax Federal Administrative Court (“CARF - Conselho Administrativo de Recursos Fiscais”) rejected as per the casting vote of CARF’s President, the appeal filed by the Company in the administrative process. The Company was notified of the decision on May 25, 2016 and due to the impossibility of new appeal and the consequent closure of the case at the administrative level, decided to continue the discussion with the Judiciary. The Company presented judicial guarantee, which was accepted, and is now awaiting the judgement of the case. We maintain our position to not constitute provisions for contingencies, based on the Company’s and its external legal advisors’ opinion that the probability of loss on this case is possible. The documents have been concluded for judgment since November 25, 2017. The updated amount involved up to December 31, 2019 is R$2,251,462.

(ii)

Income tax assessment - IRPJ/CSLL - disallowance of depreciation, amortization and depletion expenses – 2010: In December 2015, we received a tax assessment requiring the payment of IRPJ and CSLL, questioning the deductibility of depreciation, amortization and depletion expenses of 2010 included by us in the calculation of income tax expense. We present administrative appeal on the legal period, judged partially valid. The decision was object of voluntary recourse, presented by us in November 2017. On October 16, 2018, the judgement was converted into a diligence, through resolution n. 1402-000723. Currently, the resolution is expected to be formalized. The updated amount involved up to December 31, 2019 is R$695,679.

(iii)

IRPJ/CSLL - partial approval: The Company requested approval to offset 1997 tax losses with amounts owed to the tax authorities. The authorities approved in March 2009, only R$83,000, which generated a difference of R$51,000. The Company is still awaiting the conclusion of the analysis of the credits discussed at the administrative level following a favorable decision of CARF in August 2019, which granted the Voluntary Appeal filed by the Company. For the remaining credit, the Company has appealed the rejection of the tax credits and obtained a partially favorable decision and the final decision is under discussion in the judicial level. Shortly after, an appeal was filed, which was judged in session, it was determined the conversion of the done in diligence. On November 6, 2018, a decision was filed reinforcing the tax authorities’ conclusion at the first approval and our arguments. The updated amount involved up to December 31, 2019 is R$254,081.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

(iv)

Tax incentive - Agency for the Development of Northeastern Brazil (“ADENE”): In 2002 the Company was granted its request by the Brazilian Federal Revenue Service (“Receita Federal do Brasil”) to benefit from reductions in corporate income tax and non-refundable surcharges calculated on operating profits (as defined) for Aracruz facilities A and B (period from 2003 to 2013) and plant C (period from 2003 to 2012), when the qualification reports for the tax reductions are approved by ADENE.

In 2004, the Company was served an Official Notice by the liquidator of the former Superintendence for the Development of the Northeast (“SUDENE”), who reported that, the right to use the benefit previously granted is unfounded and would be cancelled. In 2005, the Brazilian Federal Revenue Service served the Company an assessment notice requiring the payment of the amounts of the tax incentive used, plus interest. After administrative discussion, the assessment notice was partially upheld and recognized the Company’s right to the tax incentive through 2003.

The Company's Management, supported by its legal counsel, believes that the decision to cancel the tax benefits is erroneous and should not prevail, either with respect to benefits already used, or with respect to benefits not used until the corresponding final periods. The updated amount involved up to December 31, 2019 is R$125,191.

(v)

PIS/COFINS – Goods and services – 2009 to 2011: In December 2013, the Company was assessed by the Brazilian Federal Revenue Service demanding the collection of PIS and COFINS credits disallowed because they are not allegedly linked to its operating activities. In the first instance, the objection filed by the Company was dismissed. After the Voluntary Appeal was filed, it was partially provided in April 2016. From this decision, the National Treasury filed a Special Appeal to the Superior Chamber and the Company filed a Statement of Appeal, which are still pending judgment. The updated amount involved up to December 31, 2019 is R$162,750.

(vi)

Offsetting - IRRF - period 2000: The Company filed a lawsuit for offsetting IRRF credits measured in the year ended December 31, 2000 with debts owed to the Brazilian Federal Revenue Service. In April 2008, the Brazilian Federal Revenue Service partially recognized the credit in favor of the Company. From this decision, the Company filed a Voluntary Appeal with CARF, which is pending judgment. The updated amount involved up to December 31, 2019 is R$108,320.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

20.2.2.

Labor

On December 31, 2019, the Company was a defendant in 1,797 labor lawsuits, totaling R$279,934.

The Company also has several lawsuits in which employees’ unions in the states of Bahia, Espírito Santo, Maranhão, São Paulo and Mato Grosso do Sul are included.

20.2.3.

Civil and environmental

On December 31, 2019, the Company is a defendant in approximately 1.059 civil and environmental lawsuits, totaled the amount of R$2,995,576. Most of these civil lawsuits refers to claims for compensation by former employees or third parties for alleged occupational illnesses and workers' compensation, collection lawsuits and bankruptcy situations, reimbursement of funds claimed from delinquent landowners and possessory actions filed in order to protect the Company's equity. The Company has insurance for public liability that covers, within the limits set in the policy, unfavorable sentences in the civil courts for claims for compensation of losses.

Regarding civil matters, we are involved in 2 (“two”) Public Civil Claims (“Ação Civil Pública”) filed by the Federal Public Prosecution Office requesting (i) a preliminary injunction to prohibit Company’s trucks from transporting wood in federal highways above legal weight restrictions (ii) an increase in the fine for cases of overweight and (iii) compensation for damages to property allegedly caused to federal highways, the environment and the economic order, and compensation for moral damages. One of the Claims was ruled against the Company. Suzano presented an appeal to the Court of Appeals, requesting an interim relief to stay the effects of such ruling until a final decision is reached. We are currently waiting for the ruling on the interim relief by the 1st Regional Federal Court Appeals.

The Company is still defendant in a 2 (“two”) Public Civil Claim filed by the Federal Prosecutor’s Office regarding real properties acquired by Company in the northern region of the state of Espírito Santo. In the 1st. the Federal Prosecutor requested (i) the nullity of the deeds (ii) compensation for moral damages and (iii) suspension of financing for Company’s operations in the municipalities of São Mateus and Conceição da Barra, both located in the state of Espírito Santo. A preliminary injunction was granted, which blocked around 6,000 hectares of Company’s land in such municipalities and suspended any financing for Suzano by BNDES for either production or planting of eucalyptus pulp on the properties relating to the Public Civil Claim. In the 2nd, the Federal Prosecutor’s Office, requesting the nullity of the deeds of some other proprieties acquired in the northern of the state of Espírito Santo. A preliminary injunction was granted blocking around 5,601 hectares of Company’s lands in the same municipalities of São Mateus and Conceição da Barra. Suzano presented its judicial defense and an appeal against such injunction, which is still pending decision. Both cases are pending ruling by the Federal District Court of São Mateus and remain in pre-trial phase. The Company believes that are good grounds for our defense since the acquisition of the lands discussed in both Public Civil Claims was made in accordance with applicable laws and practices applicable at the time of purchase.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Regarding environmental matters, we are involved in 3 (“three”) relevant Public Civil Claims filed by the Federal Public Prosecution Office in the northeast region of Brazil challenging the State’s environmental agency’s jurisdiction to grant environmental licenses. The Federal Public Prosecution Office alleges that the environmental licensing proceedings related to the forest formation and installation of our industrial plant in the state of Maranhão should be carried out by the Brazilian Federal Environmental Agency (“Agência Federal do Meio Ambiente - IBAMA”). The risks involved in such cases are delays in our plantation schedule and the suspension of the Maranhão unit activities until new permit is issued. Although an injunction was granted on one of this claims suspending the forest formation in a certain region of the State of Maranhão, we believe there are good grounds for our defense, since IBAMA does not acknowledge having jurisdiction to perform the licensing proceedings and there is no clear legal ground to sustain such jurisdiction. Superior court’s is still to rule on an appeal against the injunction granted against Suzano and the other claims are still pending a decision by the trial judge.

In addition, we are involved in a dispute related to possible environmental damage in Cubatão city located in the State of São Paulo), allegedly caused by Companhia Santista, a company that was acquired by Ripasa, which in turn was acquired by Suzano in 2008. This lawsuit is ongoing for over 30 (“thirty”) years and involves more than 20 (“twenty”) other companies. The lawsuit seeks reparation for the environmental damage allegedly caused in area under environmental protection of Serra do Mar’s State Park by several companies that maintained activities in the industrial district of Cubatão until the 1990s. On September 2017, the lawsuit was ruled in favor of the plaintiff, sentencing the defendant companies to recover the damages allegedly caused or, should the environment be already recovered, to pay a compensation of equal value of the cost of the recovery. This compensation is to be allocated to expand Serra do Mar’s State Park. The ruling, however, did not determined the amount that should be paid as compensation, leaving the definition of this value to a latter procedural stage. This ruling was contested by the companies on an appeal and a decision by the State Supreme Court is still pending.

20.3.

Contingent assets

20.3.1.

Exclusion of VAT (ICMS) from PIS and COFINS tax base

The Company and its wholly-owned subsidiaries have filed lawsuits to discuss their rights to exclude ICMS from the PIS and COFINS tax basis, comprising periods since March 1992 and comprising, eventual amendments in the regulation after the issuance of Law nº 12,973/2014.

Regarding this matter, the Federal Supreme Court (“STF”) ruled on March 15, 2017, at first without the possibility of reversing the understanding on the merits, that the ICMS does not part of the calculation basis of relating contributions. The Federal Government filed an amendment of judgment in October 2017 aiming, among other requests, to modulate the effects of related decision based on the judgment of said amendment of judgment, which are still pending judgment.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

Based on the decision of the Supreme Court and the legal opinions of its legal advisors, the Company understands that a change in the outcome of the Supreme Court judgment is unlikely. Accordingly, the ICMS was excluded from the calculation basis of such contributions as from August 2018, based on a favorable decision rendered by the Company, still pending final judgment.

21.

EMPLOYEE BENEFIT PLANS

21.1.

Pension plan

In 2005, the Company established the Suzano Prev pension plan managed by BrasilPrev, an open private pension entity, which serves employees of Suzano Group Companies, in the defined contribution plan. Under the terms of the benefit plan agreement, the Company's contributions to the employee are 0.5% of the nominal salary that does not exceed 10 Suzano reference units (“URS”), with no contribution from the employee. For employees whose salary exceeds 10 URS's, in addition to the contribution of 0.5%, the contributions of the company follow the contributions of employees and apply to the portion of the salary that exceeds 10 URS's, which may vary from 1% to 6% of the nominal salary. Contributions made by the Company for the period ended December 31, 2019 totaled R$5,993 (R$6,560 as of December 31, 2018) recognized in under employee benefits.

Entities from the business combination with Fibria, managed by a private pension entity, which provide post-employment benefits to employees, under defined contribution plans. In this type of plan participants and sponsor contribute to the formation of an individual savings. In 2000, the Company became a sponsor of the Senador José Ermírio de Moraes Foundation (FUNSEJEM), a not-for-profit pension fund for the employees of the Votorantim Group. Under the fund's regulations, employees' contributions to FUNSEJEM, which may range from 0.5% to 6% of nominal salary. The contributions for the year ended December 31, 2019 amounted to R$9,920 (R$12,840 as of December 31, 2018), recognized under labor expenses.

21.2.

Defined benefits plan

The Company offers the following post-employment in addition to the pension plans, which are measured by actuarial calculation and recognized in the financial statement.

21.2.1.

Medical assistance

The Company guarantees health care program cost coverage for a group of former employees who retired until 1998 and until 2003 at the Suzano, São Paulo administrative office and Limeira and until 2007 at the Jacareí unit, as well as their spouses for life and dependents while they are underage.

For other group of former employees, who exceptionally, according to the Company’s criteria and resolution or according with rights related to the compliance with pertinent legislation, the Company ensures the healthcare program.

Main actuarial risks related are (i) lower interest rates (ii) longer than expected mortality tables, (iii) higher than expected turnover and (iv) higher than expected medical costs growth.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

21.2.2.

Life insurance

The Company offers the life insurance benefit to the group of former employees who retired until 2005 at Suzano and São Paulo administrative office and did not choose for the supplementary retirement plan.

Main actuarial risks related are (i) lower interest rates and (ii) higher than expected mortality.

21.2.3.

Rollforward of actuarial liability

The rollforward of actuarial liability prepared based on actuarial report, are set forth below:

Balance at December 31, 2017	351,263
Interest on employee benefits	35,920
Actuarial loss	69,305
Benefits paid in the year	(26,061	)
Balance at December 31, 2018	430,427
Business combination with Fibria⁽¹⁾	147,877
Interest on employee benefits	44,496
Actuarial loss	147,640
Benefits paid in the year	(34,261	)
Balance on December 31, 2019	736,179

Business combination with Fibria its subsidiaries held on January 3, 2019, Note 1.2.1.

21.2.4.

Economic actuarial assumptions and biometric data

The main economic actuarial assumptions and biometric data used in the actuarial calculations are set forth below:

	December 31, 2019	December 31, 2018
Discount rate – medical assistance and life insurance	3.56% p.a.	4.91% p.a.
Medical cost growth rate above basic inflation	3.25% p.a.	3.25% p.a.
Economic inflation	3.50% p.a.	4.00% p.a.
Biometric table of general mortality	AT-2000	AT-2000
Biometric table of mortality of disable persons	IAPB 57	IAPB 57
Retirement age	65 years	65 years
Family composition	90% married Men 4 years + old	90% married Men 4 years + old
Turnover	1,00% p.a.	1,00% p.a.
Permanency in the plan	100%	100%
Aging factor	0 to 24 years: 1.50% p.a 25 to 54 years: 2.50% p.a 55 to 79 years: 4.50% p.a Above 80 years: 2.50% p.a	0 to 24 years: 1.50% p.a 25 to 54 years: 2.50% p.a 55 to 79 years: 4.50% p.a Above 80 years: 2.50% p.a

21.2.5.

Sensitivity analysis

The Company made the sensitivity analysis regarding the relevant assumptions of the plans on December 31, 2019, as set forth below:

Relevant assumptions

Changes in premise

Increase in premisse

Decrease in premisse

Discount rate

0.50

Decrease of 4.88%

Increase of 8.56%

Medical costs growth rate

0.50

Increase of 8.27%

Decrease of 5.60%

Mortality

1.00

Increase of 7.23%

Decrease of 4.40%

Estimated inflation rate

0.50

No change

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

21.2.6.

Forecast and average duration of payments of obligations

The following amounts represent the expected benefit payments for future years (10 years), from the obligation of benefits granted and the average duration of the plan obligations:

Payments	Medical assistance and life insurance
2020		31,458
2021		32,701
2022		33,864
2023		35,014
2024		36,122
2025 on onwards		194,145

22.

SHARE-BASED COMPENSATION PLAN

On December 31, 2019, the Company had 3 (three) share-based, long-term compensation plans, (i) Phantom stock option plan (“PS”) and (ii) Share Appreciation Rights (“SAR”), both settled in local currency and (iii) common stock options, settled in shares.

22.1

Long term compensation plans (“PS and SAR”)

Certain executives and key members of the Management have a long-term compensation plan linked to the share price with payment in cash.

Throughout 2019, the Company granted the SAR and PLUS (Share Appreciation Rights) (“SAR”) plans of phantom stock options. In this plan, the beneficiaries should invest 5% of the total amount corresponding to the number of options of phantom shares at the grant date and 20% after 3 (three) years to acquire the option. The Company also granted long-term incentive plans to its key members as part of its retention policy. In this program, the beneficiary does not make any investment.

The vesting period of options may vary from 3 (three) to 5 (five) years, as of the grant date, in accordance with the characteristics of each plan.

The price of the share is calculated based on the average share quote of the 90 previous trading sessions starting from the closing quote on the last business day of the month prior to the month of the grant. The installments of these programs will be adjusted by the variation in the price of the SUZB3 at B3, between the granting and the payment period. On dates when the SUZB3 shares is not traded, the quote of the previous trading session will be considered.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The phantom share options will only be due if the beneficiary is an employee of the Company on the payment date. In case of termination of the employment by initiative of the Company or by initiative of the beneficiary, before the vesting period is completed, the executive will not be entitled to receive all benefits, unless otherwise established in the agreements.

	December 31, 2019			December 31, 2018			December 31, 2017
	Number of shares
Beginning balance		5,045,357			5,055,519			3,048,991
Granted during of the year		2,413,038			1,415,476			3,035,488
Exercised⁽¹⁾		(827,065	)		(751,859	)		(695,532	)
Exercised due to resignation⁽¹⁾		(106,983	)		(153,601	)		(161,270	)
Abandoned / prescribed due to resignation		(527,910	)		(520,178	)		(172,158	)
Ending balance		5,996,437			5,045,357			5,055,519

For share options exercised and those exercised due to termination of employment, the average price on December 31, 2019 and December 31, 2018 was R$31.75 and R$47.77, respectively.

On December 31, 2019, the consolidated outstanding phantom shares option plans are as set forth below:

December 31, 2019

Plan

Grant date

Exercise date

Fair value on grant date⁽¹⁾

Quantity of
outstanding
options granted

SAR 2015

01/04/2015

01/04/2020

11.69

3,635

Deferral 2015

01/03/2016

01/03/2019

16.93

Deferral 2015

01/03/2016

01/03/2020

16.93

61,851

SAR 2016

01/04/2016

01/04/2021

15.96

64,075

PLUS 2016

01/04/2016

01/04/2021

15.96

16,708

SAR 2016 - Oct

03/10/2016

03/10/2021

11.03

8,934

SAR 2017

03/04/2017

03/04/2022

13.30

831,546

PLUS 2017

03/04/2017

03/04/2022

13.30

225,553

ILP 2017 - 36

03/04/2017

03/04/2020

13.30

304,512

ILP 2017 - 48

03/04/2017

03/04/2021

13.30

304,512

ILP 2017 - 60

03/04/2017

03/04/2022

13.30

304,512

ILP 2017 - CAB

01/05/2017

01/05/2020

13.30

307,141

ILP 2017 - 36 Oct

02/10/2017

02/10/2020

15.87

84,436

Deferral 2017

01/03/2018

01/03/2021

19.88

169,575

Deferral 2017

01/03/2018

01/03/2022

19.88

169,575

SAR 2018

02/04/2018

02/04/2023

21.45

726,537

PLUS 2018

02/04/2018

02/04/2023

21.45

74,592

ILP 2019 - 24

01/03/2019

01/03/2024

41.10

520,000

ILP 2019 - 36

01/03/2019

01/03/2024

41.10

520,000

Deferral 2018

01/03/2019

01/03/2022

41.10

92,356

Deferral 2018

01/03/2019

01/03/2023

41.10

92,356

ILP 2019 - 36 H

25/03/2019

25/03/2024

42.19

7,500

ILP 2019 - 48 H

25/03/2019

25/03/2024

42.19

7,500

ILP 2019 - 24 Apr

01/04/2019

01/04/2024

42.81

20,000

ILP 2019 - 36 Ar

01/04/2019

01/04/2024

42.81

20,000

SAR 2019

01/04/2019

01/04/2024

42.81

792,565

PLUS 2019

01/04/2019

01/04/2024

42.81

15,572

ILP - Retention 2019 - 12

01/10/2019

01/10/2020

31.86

105,964

ILP - Retention 2019 - 24

01/10/2019

01/10/2021

31.86

105,930

ILP 2019 - 24 Oct

01/10/2019

01/10/2021

31.75

7,800

ILP 2019 - 36 Oct

01/10/2019

01/10/2022

31.75

19,500

ILP 2019 - 48 Oct

01/10/2019

01/10/2023

31.75

11,700

5,996,437

⁽¹⁾

Amounts expressed in Reais.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

22.2

Common stock option plan

Additionally, in 2019 the Company established a Restricted Shares plan based on the Company's performance (Program 5). The Plan associates the quantity of Restricted Shares granted to the Company's performance in relation to the EBITDA mark. The quantity of the restricted stock granted is defined in financial terms and is subsequently converted into shares based on the last 60 (sixty) stock exchange trading days on December 31, 2019 of SUZB3 at B3.

After measurement of 2019 EBITDA, the Restricted Shares will be granted immediately, as they not have to comply to the vesting period. However, the beneficiaries of the grant must comply to the lockup period of thirty-six (36) months during which they will not be able to market the shares.

In the event that the beneficiaries leave the Company before the end of the fiscal year for the measurement of EBITDA, they will lose the right to the grant of Restricted Share.

Program

Date of grant

Deadline for the
options to become
exercisable

Price on
grant date

Shares
Granted

Restricted year for
transfer of shares

Program 4

01/02/2018

01/02/2019

R$39.10

130,435

01/02/2022

22.3

Measurement assumptions

In the case of the phantom shares plan, since the settlement is in cash, the fair value of options is remeasured at the end of each period based on the Monte Carlo Method (“MMC”), which is multiplied by the Total Shareholder Return (“TSR”) in the period (which varies between 75% and 125%, depending on the performance of SUZB3 in relation to its peers in Brazil).

The fair value of the plan of common shares of Program V, was estimated based on the binomial probability model, which considers the dividends distribution rate and the following assumptions:

(i)

the expectation of volatility was calculated for each exercise date, considering the remaining time to complete the vesting year, as well as the historical volatility of returns, considering a standard deviation of 745 observations of returns;

(ii)

the expectation of average life of phantom stocks and stock options was defined by the remaining term until the limit exercise date;

(iii)

the expectation of dividends was defined based on historical earnings per share of the Suzano;

(iv)

risk-free weighted average interest rate used was the Brazilian Reais yield curve (DI expectation) observed on the open market, which is the best comparison basis with the Brazilian market risk-free interest rates. The rate used for each exercise date changes according to the vesting year.

Suzano S.A.

Consolidated financial statements

Notes to Consolidated Financial Statements at December 31, 2019

(In thousands of R$, unless otherwise stated)

The amounts corresponding to the services received and recognized in the consolidated financial statements are set forth below:

	Liabilities and equity				Income Statement
	December 31, 2019		December 31, 2018		December 31, 2019			December 31, 2018			December 31, 2017
Non-current liabilities
Provision for phantom stock plan		136,505		124,318		(46,389	)		(126,439	)		(32,192	)
Shareholders' equity
Stock option granted		5,979		5,100		(879	)		(5,170	)		(1,521	)
Total general and administrative expenses from share-based transactions						(47,268	)		(131,609	)		(33,713	)

23	LIABILITIES FOR ASSETS ACQUISITIONS AND SUBSIDIARIES

	December 31, 2019		December 31, 2018
Lands and forests acquisition
Real estate receivables certificates⁽¹⁾		78,345		91,085
Duratex⁽²⁾				385,397
		78,345		476,482
Business combination
Facepa⁽³⁾		42,533		41,185
Vale Florestar Fundo de Investimento em Participações ("VFFIP")⁽⁴⁾		420,737		474,845
		463,270		516,030
		541,615		992,512

Current liabilities		94,414		476,954
Non-current liabilities		447,201		515,558

Refers to obligations with the acquisition of land, farms, reforestation and houses built in Maranhão, restated by the IPCA.

Refers to the commitments related to the acquisition of rural properties and forests (biological assets), restated by the IPCA settled in August 2019.

Acquired in March 2018, for the amount of R$307,876, upon payment of R$267,876 and the remaining restated at the Amplified Consumer Price Index (“IPCA”), adjusted by any losses incurred through the payment date, with maturities in March 2023 and March 2028.

On August 2014, the Company acquired the Vale Florestar S.A. through VFFIP, for the total amount of R$528,941 with a upon payment of R$44,998 and remaining with maturity to August 2029. The monthly settlements are subject to interest and restated at the variation of the U.S. dollar exchange rate and partially restated by variation of the IPCA.

24	LONG-TERM COMMITMENTS

The Company entered into long-term take-or-pay agreements with pulp, transportation, diesel, and chemical and natural gas suppliers. These agreements contain termination and supply interruption clauses in the event of default of certain essential obligations. Generally, the Company purchases the minimum agreed under the agreements, hence there is no liability recorded at December 31, 2019. The total contractual obligations assumed at December 31, 2019 equivalent to R$7,335,609 per year (R$11,258,885 at December 31, 2018).

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

25	SHAREHOLDERS’ EQUITY

25.1

Share capital

In January 2019, the Company's share capital was increased in the amount of R$3,027,528, with the issuance of 255,437,439 registered common shares, with no par value, in accordance with resolutions adopted at the Extraordinary Shareholders’ Meeting, which the incorporation by the Company its subsidiary Eucalipto Holding S.A. was approved in connection with the business combination with Fibria, as described in Note 1.2.1.

On December 31, 2019, the share capital of Suzano is R$9,269,281 divided into 1,361,263,584 common shares, all nominative, book-entry shares without par value. The value of the share capital is net of the public offering expenses of R$33,735.

The breakdown of the share capital is set forth below:

	Ordinary
	Quantity		(%)
Shareholder
Controlling Shareholders
Suzano Holding S.A.		367,612,329		27.01
Controller		194,800,797		14.31
Managements		35,532,742		2.61
Alden Fundo de Investimento em Ações		26,154,741		1.92
		624,100,609		45.85
Treasury		12,042,004		0.88
BNDESPAR		150,217,425		11.04
Votorantim S.A.		75,180,059		5.52
Other shareholders		499,723,487		36.71
		1,361,263,584		100.00

By resolution of the Board of Directors, the share capital may be increased, irrespective of any amendment to the Bylaws, up to the limit of 780,119,712 common shares, all exclusively book-entry shares.

On December 31, 2019, SUZB3 common shares ended the year quoted at R$39.68 (R$38.08 on December 31, 2018).

25.2

Dividends

The Company´s bylaws establishes that the minimum annual dividend is the lowest value between:

(i)

25% of adjusted net income for the year pursuant to Article 202 of Brazilian Law nº.6,404/76, or

(ii)

10% of the Company's consolidated operating cash generation for the year.

On April 18, 2019, on Ordinary Shareholders’ Meeting was approved a payment of dividends in the amount of R$600,000, being complementary in the amount of R$596,534 paid through the reserve of profits and minimum mandatory dividends in the amount of R$3,466, the disbursement occurred on April 30, 2019.

On December 31, 2019, no dividends were distributed as the Company presented a loss in the year (R$3,466 on December 31, 2018 as the Company presented a profit).

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

25.3

Reserves

25.3.1

Income reserve

They are constituted by the allocation of the Company's profits, after the allocation for the payment of the minimum mandatory dividends and after the allocation to the various profit reserves, as set forth below:

(i)

legal: it is measured based on 5% (five percent) of net profit of each fiscal year as specified in article 193 of Brazilian Law nº.6,404/76, which shall not exceed 20% (twenty percent) of the share capital, whereas in the year in which the balance of the legal reserve plus the capital reserve amounts exceeds 30% (thirty percent) of the share capital, the allocation of part of the profit will not be mandatory. The use of this reserve is restricted to loss compensation and capital increase and aims to ensure the integrity of the share capital. On December 31, 2019, this reserve absorbed R$105,671 related of loss and corresponds to 5% of share capital.

(ii)

capital increase: it is measured basis of up to 90% (ninety percent) of the remaining balance of net income for the year and limited to 80% (eighty percent) of the share capital, pursuant to the Company's Bylaws, after the allocation to the legal reserve and minimum mandatory dividends. The constitution of this reserve aims to ensure to the Company adequate operating conditions. On December 31, 2019, this reserve absorbed R$1,730,629 related of loss and was used in full.

(iii)

special statutory: it is measured basis of up to 10% (ten percent) of the remaining balance of net income for the year and aims to ensure the continuity of the semiannual distribution of dividends, up to the limit of 20% (twenty percent) of the share capital. On December 31, 2019, this reserve absorbed R$242,612 related of loss and was used in full.

(iv)

tax incentives: it is measured as specified in article 195-A of the Brazilian Law No. 6,404/76, modified by Brazilian Law nº.11,638/07, based on donation or the amounts of government grants for investment. On December 31, 2019 this reserve absorbed R$684,563 and was used in full.

25.3.2

Capital reserve

They consist of amounts received by the Company arising from transactions with shareholders that do not pass through the income statement and may be used to absorb losses when they exceed profit reserves and redemption, reimbursement and purchase of shares.

The breakdown of capital reserves is arising from stock options in the amount of R$5,979 and the issuance of shares related to the business combination with Fibria in the amount of R$6,410,885, as disclosed in note 1.2.1.1. As of December 31, 2019, this reserve was not used to absorb losses and the balance corresponded to 69% of the share capital.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

25.4

Other reserves

These are changes that occur in shareholders' equity arising from transactions and other events that do not originate with shareholders and are disclosed net of tax effects, as set forth below:

	Debenture conversion 5th issue			Actuarial gain (loss)			Exchange variation on conversion of financial statements of foreign subsidiaries		Deemed cost			Total
Balances at December 31, 2017		(45,745	)		(52,749	)		26,622		2,370,200			2,298,328
Actuarial gain (loss)					(45,741	)							(45,741	)
Gain (loss) on conversion of financial statements and on foreign investments								137,546					137,546
Realization of deemed cost, net of taxes										(68,424	)		(68,424	)
Balances at December 31, 2018		(45,745	)		(98,490	)		164,168		2,301,776			2,321,708
Actuarial gain (loss)					(95,283	)							(95,283	)
Gain (loss) on conversion of financial statements and on foreign investments								47,834					47,834
Realization of deemed cost, net of taxes										(52,918	)		(52,918	)
Balances at December 31, 2019		(45,745	)		(193,773	)		212,002		2,248,858			2,221,342

25.5

Treasury shares

	Quantity			Average cost per share		Historical value			Market value
Balances at December 31, 2017		13,842,004			17.42		241,088			258,797
Sale		(1,800,000	)		12.68		(22,823	)		(66,636	)
Balances at December 31, 2018		12,042,044			18.13		218,265			458,560
Balances at December 31, 2019		12,042,044			18.13		218,265			477,827

25.6

Result absorption

	Limit on			Result absorption						Reserve balances
	share capital%			December 31, 2019			December 31, 2018			December 31, 2019		December 31, 2018
Realization of deemed cost, net of taxes					(52,918	)		(68,424	)
Tax incentive reserve					(684,563	)		288,557					684,563
Special statutory reserve					(242,612	)		7,882					242,612
Legal reserve		20	%		(105,671	)		15,917			317,144		422,815
Capital increase reserve		80	%		(1,730,629	)		70,940					1,730,629
Minimum mandatory dividends								3,466
					(2,816,393	)		318,339			317,144		3,080,619

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

26	EARNINGS (LOSS) PER SHARE

26.1

Basic

The basic (loss) earnings per share is measured by dividing the profit attributable to the Company’s shareholders by the weighted average common shares issued during the year, excluding the common shares acquired by the Company and held as treasury shares.

	December 31, 2019			December 31, 2018			December 31, 2017
Resulted of the year attributable for controlling shareholders’		(2,817,518	)		319,693			1,820,994
Weighted average number of shares in the year		1,361,264			1,105,826			1,106,297
Weighted average treasury shares		(12,042	)		(12,333	)		(14,597	)
Weighted average number of outstanding shares		1,349,222			1,093,493			1,091,700
Basic loss per common share - R$		(2.08825	)		0.29236			1.66804

26.2

Diluted

The diluted earnings per share is measured by adjusting the weighted average of outstanding common shares, assuming the conversion of all common shares that would cause dilution.

	December 31, 2019			December 31, 2018		December 31, 2017
Resulted of the year attributed to controlling shareholders’		(2,817,518	)		319,693		1,820,994
Weighted average number of shares in the year (except treasury shares)		1,349,222			1,093,493		1,091,700
Adjustment by stock options					1,386		2,428
Weighted average number of shares (diluted)		1,349,222			1,094,879		1,094,128
Diluted loss per common share - R$		(2.08825	)		0.29199		1.66433

Due to the loss in the year, the Company does not consider the dilution effect in the measurement.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

27	NET FINANCIAL RESULT

	December 31, 2019			December 31, 2018			December 31, 2017
Financial expenses
Interest on loans, financing and debentures⁽¹⁾		(3,358,806	)		(1,033,485	)		(988,382	)
Amortization of fundraising costs		(220,642	)		(44,499	)		(49,517	)
Other financial expenses		(600,948	)		(422,390	)		(180,577	)
Amortization of fair value adjustment on business combination with Fibria		1,548
		(4,178,848	)		(1,500,374	)		(1,218,476	)
Financial income
Marketable securities		392,018			442,378			285,888
Other financial income		63,816			17,329			19,890
Amortization of fair value adjustment on business combination with Fibria		37,412
		493,246			459,707			305,778
Income from derivative financial instruments
Income		2,711,394			588,049			332,961
Expenses		(3,786,646	)		(3,323,245	)		(259,690	)
		(1,075,252	)		(2,735,196	)		73,271
Monetary and exchange rate variation, net
Exchange rate variation on loans, financing and debentures		(1,764,035	)		(1,311,061	)		(163,418	)
Monetary and exchange rate variations - other assets and liabilities⁽²⁾		(200,892	)		244,411			(15,995	)
		(1,964,927	)		(1,066,650	)		(179,413	)
		(6,725,781	)		(4,842,513	)		(1,018,840	)

Not include the amount of R$4,213 arising from capitalized interest in the year ended on December 31, 2019 (R$1,772 in the year ended on December 31, 2018). Additionally, included the amount of R$770 related to interest of FIDC (R$2,268 in the year ended on December 31, 2018).

Includes effects of exchange rate variations of customers, suppliers, cash and cash equivalents, marketable securities and others.

28	NET SALES

	December 31, 2019			December 31, 2018			December 31, 2017
Gross sales		31,395,955			14,802,821			11,752,459
Sales deductions
Adjustment to present value		(5,316	)		(4,984	)
Returns and cancelations		(109,641	)		(75,477	)		(50,199	)
Discounts and rebates⁽¹⁾		(3,835,140	)		(15,695	)		(6,589	)
		27,445,858			14,706,665			11,695,671

Taxes on sales⁽²⁾		(1,432,908	)		(1,263,289	)		(1,114,998	)

Net sales		26,012,950			13,443,376			10,580,673

The customer contracts of Fibria, a wholly-owned subsidiary incorporated on April 1, 2019, provide for contractual discounts that were maintained and that, therefore, impacted the Company's income in 2019.

In 2018, included the social contribution to the National Institute of Social Security (“INSS”), which represents 2.5% of the gross sales revenue in the domestic market. This is a tax obligation pursuant to Law nº.12.546/11, article 8, Appendix I and their respective amendments.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

29	SEGMENT INFORMATION

29.1

Criteria for identifying operating segments

The Company evaluates the performance of its business segments through the operating result. The information disclosed under “Not Segmented” is related to income statement and balance sheet items not directly attributed to the pulp and paper segments, such as, net financial result and income and social contribution taxes expenses, in addition to the balance sheet classification items of assets and liabilities.

The operating segments defined by Management are set forth below:

Pulp: comprises production and sale of hardwood eucalyptus pulp and fluff pulp mainly to supply the foreign market, with any surplus sold in the domestic market.

ii)

Paper: comprises production and sale of paper to meet the demands of both domestic and foreign markets. Consumer goods (tissue) sales are classified under this segment due to its immateriality.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

29.2

Information of operating segments

	December 31, 2019
	Pulp			Paper			Not segmented			Total
Net sales		21,027,686			4,985,264						26,012,950
Domestic market (Brazil)		1,833,936			3,480,279						5,314,215
Foreign market		19,193,750			1,504,985						20,698,735
Asia		9,605,799			136,882						9,742,681
Europe		5,950,832			221,697						6,172,529
North America		3,592,563			382,628						3,975,191
South and Central America		44,556			710,086						754,642
Africa					53,692						53,692
Cost of sales		(17,440,018	)		(3,303,464	)					(20,743,482	)
Gross profit		3,587,668			1,681,800						5,269,468
Gross margin (%)		17.1	%		33.7	%					20.3	%

Operating income (expenses)		(2,089,286	)		(679,719	)		128,115			(2,640,890	)
Selling		(1,503,775	)		(401,504	)					(1,905,279	)
General and administrative		(806,774	)		(366,584	)					(1,173,358	)
Other operating, net		209,577			68,062			128,115			405,754
Income from associates and joint ventures		11,686			20,307						31,993

Operating profit before net financial income (“EBIT”)⁽¹⁾		1,498,382			1,002,081			128,115			2,628,578
Operating margin (%)		7.1	%		20.1	%					10.1	%

Financial result, net								(6,725,781	)		(6,725,781	)
Net income (loss) before taxes		1,498,382			1,002,081			(6,597,666	)		(4,097,203	)

Income taxes								1,282,461			1,282,461

Net income (loss) for the year		1,498,382			1,002,081			(5,315,205	)		(2,814,742	)
Profit (loss) margin for the year (%)		7.1	%		20.1	%					(10.8	%)
Result of the year attributable to controlling Shareholders		1,498,382			1,002,081			(5,317,981	)		(2,817,518	)
Result of the year attributed to non-controlling shareholders								2,776			2,776

Depreciation, depletion and amortization		7,575,630			516,301						8,091,931

Earnings before interest and tax.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

	December 31, 2018
	Pulp			Paper			Not segmented			Total
Net sales		8,783,274			4,660,102						13,443,376
Domestic market (Brazil)		744,566			3,307,074						4,051,640
Foreign market		8,038,708			1,353,028						9,391,736
Asia		3,837,998			101,695						3,939,693
Europe		2,810,899			225,111						3,036,010
North America		1,340,907			210,831						1,551,738
South and Central America		48,904			774,730						823,634
Africa					40,661						40,661
Cost of sales		(3,965,912	)		(2,956,419	)					(6,922,331	)
Gross profit		4,817,362			1,703,683						6,521,045
Gross margin (%)		54.8	%		36.6	%					48.5	%

Operating income (expenses)		(626,887	)		(886,347	)					(1,513,234	)
Selling expenses		(212,869	)		(385,857	)					(598,726	)
General and administrative expenses		(275,859	)		(549,350	)					(825,209	)
Other operating income (expenses), net		(138,159	)		41,284						(96,875	)
Income from associates and joint ventures					7,576						7,576

Operating profit before net financial income⁽¹⁾		4,190,475			817,336						5,007,811
Operating margin (%)		47.7	%		17.5	%					37.3	%
Financial result, net								(4,842,513	)		(4,842,513	)
Net income (loss) before taxes		4,190,475			817,336			(4,842,513	)		165,298
Income taxes								154,516			154,516

Net income (loss) for the year		4,190,475			817,336			(4,687,997	)		319,814
Profit margin for the year (%)		47.7	%		17.5	%					2.5	%
Result of the year attributable to controlling shareholders		4,190,475			817,336			(4,688,118	)		319,693
Result of the year attributed to non-controlling shareholders								121			121

Depreciation, depletion and amortization		1,105,381			457,842						1,563,223

Earnings before interest and tax.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

	December 31, 2017
	Pulp			Paper			Not segmented			Total
Net sales revenue		6,920,494			3,660,179						10,580,673
Domestic market (Brazil)		624,320			2,597,838						3,222,158
Foreign market		6,296,174			1,062,341						7,358,515
Asia		2,976,504			32,950						3,009,454
Europe		2,262,162			139,572						2,401,734
North America		966,789			254,971						1,221,760
South and Central America		90,719			608,445						699,164
Africa					26,403						26,403
Cost of sales		(3,937,036	)		(2,559,268	)					(6,496,304	)
Gross profit		2,983,458			1,100,911						4,084,369
Gross margin (%)		43.1	%		30.1	%					38.6	%

Operating income (expenses)		(104,985	)		(749,449	)		48,517			(805,917	)
Selling		(163,879	)		(259,446	)					(423,325	)
General and administrative		(185,141	)		(343,833	)					(528,974	)
Other operating, net		244,035			(152,042	)		48,517			140,510
Income from associates and joint ventures					5,872						5,872

Operating profit before net financial income (“EBIT”)⁽¹⁾		2,878,473			351,462			48,517			3,278,452
Operating margin (%)		41.6	%		9.6	%					31.0	%

Financial result, net								(1,018,840	)		(1,018,840	)
Net income (loss) before taxes		2,878,473			351,462			(970,323	)		2,259,612

Income taxes								(438,618	)		(438,618	)

Net income (loss) for the year		2,878,473			351,462			(1,408,941	)		1,820,994
Profit (loss) margin for the year (%)		41.6	%		9.6	%					17.2	%
Result of the year attributable to controlling shareholders		2,878,473			351,462			(1,408,941	)		1,820,994

Depreciation, depletion and amortization		1,007,280			395,498						1,402,778

Earnings before interest and tax.

29.3

Net sales by product

The following table set forth the breakdown of consolidated net sales by product:

Products	December 31, 2019		December 31, 2018		December 31, 2017
Market pulp⁽¹⁾		21,027,686		8,783,274		6,920,494
Printing and writing paper⁽²⁾		4,100,502		3,834,380		2,265,093
Paperboard		823,360		764,701		1,273,540
Other		61,402		61,021		121.546
Net sales		26,012,950		13,443,376		10,580,673

Revenue from fluff pulp represents (around 1% of total net sales) and, therefore, was included in market pulp sales.

Tissue is a recently launched product and its revenues represent less than 2% of total net sales. Therefore, it was included in the sales of printing and writing paper.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

29.4

Goodwill based on expected future profitability

The goodwill based on expected future profitability arising from the business combination were allocated to the disclosable segments, which correspond to the Company's cash-generating units (“CGU”), considering the economic benefits generated by such intangible assets. The allocation of intangibles is set forth below:

	December 31, 2019		December 31, 2018
Pulp		7,942,486		45,752
Consumer goods		119,332		112,582
		8,061,818		158,334

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

EXPENSES BY NATURE

	December 31, 2019			December 31, 2018			December 31, 2017
Cost of sales⁽¹⁾
Personnel expenses		(1,374,331	)		(649,741	)		(546,090	)
Variable cost		(10,067,716	)		(3,197,895	)		(2,994,349	)
Logistics cost		(2,776,021	)		(1,044,899	)		(963,379	)
Depreciation, depletion and amortization		(4,290,308	)		(1,523,935	)		(1,367,856	)
Amortization of fair value adjustment on business combination with Fibria and Facepa		(2,844,741	)
Other		609,635			(505,861	)		(624,630	)
		(20,743,482	)		(6,922,331	)		(6,496,304	)
Selling expenses
Personnel expenses		(215,640	)		(145,844	)		(106,083	)
Services		(85,161	)		(78,227	)		(45,593	)
Logistics cost		(618,089	)		(297,129	)		(220,944	)
Depreciation and amortization		(84,018	)		(4,471	)		(3,547	)
Amortization of fair value adjustment on business combination with Fibria		(820,730	)
Other⁽²⁾		(81,641	)		(73,055	)		(47,158	)
		(1,905,279	)		(598,726	)		(423,325	)
General and Administrative expenses
Personnel expenses		(642,543	)		(469,661	)		(309,019	)
Services		(323,841	)		(235,544	)		(105,522	)
Depreciation and amortization		(52,830	)		(34,817	)		(31,375	)
Amortization of fair value adjustment on business combination with Fibria		26,609
Other⁽³⁾		(180,753	)		(85,187	)		(83,058	)
		(1,173,358	)		(825,209	)		(528,974	)
Other operating (expenses) income net
Rents and leases		5,805
Result from sale of other products, net⁽⁴⁾		15,229			8,785			4,765
Result from sale and disposal of property, plant and equipment and biological assets, net		(63,454	)		4,523			4,700
Result on fair value adjustment of biological assets		185,399			(129,187	)		192,504
Partial write-off of intangible assets								(18,845	)
Provision for loss and write-off of property, plant and equipment and biological assets					(18,103	)		(66,707	)
Amortization of intangible assets		(8,193	)		(9,947	)		(8,303	)
Receipt of royalties								2,603
Judicial agreements								20,231
Land conflict agreement								(11,779	)
Insurance reimbursement		7,917
Trade agreement credits⁽⁵⁾		87,000			51,846			10,671
Provision for loss of judicial deposits		(3,284	)
Amortization of fair value adjustment on business combination with Fibria, Facepa and Ibema		(12,143	)
Tax credits - gains in tax lawsuit (ICMS from the PIS/COFINS calculation basis)⁽⁶⁾		128,115			335			5,613
Other operating income (expenses), net		63,363			(5,127	)		5,057
		405,754			(96,875	)		140,510

Includes the amount of R$615.394, related to idle capacity and maintenance downtime.

Includes expected credit losses, insurance, materials of use and consumption, expenses with travel, accommodation, participation in trade fairs and events.

Includes corporate expenses, insurance, materials of use and consumption social projects and donations, expenses with travel and accommodation.

Includes depletion from wood sold in the amount of R$5,598 (On December 31, 2018 R$9,869).

The amount refers to the receipt of credits from compulsory loans discussed in lawsuits against Centrais Elétricas Brasileiras S.A. (Eletrobrás).

For further information see Note 9.

Suzano S.A.
Consolidated financial statements
Notes to Consolidated Financial Statements at December 31, 2019
(In thousands of R$, unless otherwise stated)

INSURANCE COVERAGE

The Company has insurance coverage for operational risks, with a maximum coverage of R$8,822,000. Additionally, the Company has insurance coverage for civil general liabilities in the amount of U.S.$20,000,000 corresponding to R$80,614,000 on December 31, 2019.

Company's Management considers these amounts adequate to cover any potential liability, risks and damages to its assets and loss of profits.

The Company does not have insurance coverage for its forests. To mitigate the risk of fire, the Company maintains internal fire brigades, a watchtower network, and a fleet of fire trucks. There is no history of material losses from forest fires.

The Company has a domestic and international transportation insurance policy effective through May 2020, renewable for additional 12 months.

In addition, it has insurance coverage for civil responsibility for Directors and Executives for amounts considered adequate by Management.

The assessment of the sufficiency of insurance coverage is not part of the scope of the examination of the financial statements by our independent auditors.

SUBSEQUENT EVENTS

32.1

Export Prepayment Agreements (“EPP”)

On February 14, 2020, Suzano, through its wholly-owned subsidiaries Suzano Pulp and Paper Europe S.A., Suzano Austria GmbH and Fibria Overseas Finance Ltd., entered into a syndicated export prepayment agreement in the amount of US$850.000 (equivalent to R$3,426,095), with a term of six years. This transaction is fully and unconditionally guaranteed by Suzano S.A.

On February 14, 2020, Suzano, through its wholly-owned subsidiary Suzano Pulp and Paper Europe S.A., voluntarily prepaid the principal amount of U.S.$750.000 (equivalent to R$3,023.025), related to a syndicated export prepayment agreement entered into on February 7, 2018, with quarterly interest payments of 1.15% p.a. plus quarterly LIBOR, which was scheduled to mature in February 2023.

32.2

Make-whole bonds 2021

On February 28, 2020 the Company informed its shareholders and the market that on that date, its wholly-owned subsidiary Suzano Trading Ltd. (“Suzano Trading”) exercised its right to redeem all of the outstanding aggregate principal amount of the 5.875% senior notes issued by it and guaranteed by Suzano due 2021 (“2021 Notes”) currently outstanding, in the total aggregate principal amount of US$189.630. Suzano Trading notified the holders of the 2021 Notes of its intention to redeem all the outstanding 2021 Notes and pay the related make-whole premium calculated in accordance with the terms.

Suzano (SUZ) 6-KCurrent report (foreign)