duratex s.a. · carlos henrique pinto haddad investor relations officer . duratex s.a. a publicly...
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Listed company
National Register of Corporate Taxpayers - (CNPJ)
No. 97.837.181/0001-47
NIRE -35300154410
Financial Statements at December 31, 2017.
Duratex S.A.
DURATEX S.A. CNPJ. 97.837.181/0001-47 A Publicly Listed Company NIRE 35300154410
SUMMARIZED MINUTES OF THE MEETING OF THE EXECUTIVE BOARD HELD ON FEBRUARY 5, 2018
DATE, TIME AND PLACE: on February 5, 2018 at 8:00 am, at Avenida Paulista, 1938,
Terrace floor, in the city and state of São Paulo.
PRESIDING: Antonio Joaquim de Oliveira (Chairman); and Carlos Henrique Pinto Haddad
(Secretary).
QUORUM: the totality of the elected members.
RESOLUTIONS ADOPTED UNANIMOUSLY: following examination of the financial
statements for the fiscal year ending December 31, 2017 as well as the report from Ernst &
Young Auditores Independentes S/S, the Executive Board decided unanimously and
pursuant to the provisions in Sub-items V and VI, Article 25 of CVM Instruction 480/09, as
amended, to declare that:
a) it has reviewed, discussed and agreed with the opinions expressed in the report issued
by Ernst & Young Auditores Independentes S/S; and
b) it has reviewed, discussed and agreed with the financial statements for the fiscal year
ending December 31, 2017.
CONCLUSION: with the work of the meeting concluded, these minutes were drafted, read,
approved and signed by all. São Paulo (SP), February 5, 2018. (aa) Antonio Joaquim de
Oliveira – Chief Executive Officer; Raul Penteado de Oliveira Neto – Vice President of the
Deca Business Unit; Henrique Guaragna Marcondes – Vice President of the Wood Business
Unit; Bruno Basile Antonaccio, Carlos Henrique Pinto Haddad; José Ricardo Paraíso Ferraz,
Marcelo Koji Tahara, Marco Antonio Milleo, Maria Julieta Pinto Rodrigues Nogueira and
Nelson Ricardo Teixeira – Officers.
CARLOS HENRIQUE PINTO HADDAD Investor Relations Officer
DURATEX S.A.
A Publicly Traded Company CNPJ: 97.837.181/0001-47
REPORT OF THE AUDIT AND RISKS MANAGEMENT COMMITTEE
Introduction Created in November 2009, the Audit and Risks Management Committee of Duratex S.A., has as its principal responsibilities: (i) to supervise the processes of internal controls, in accordance with laws, regulations and internal regulations, and management of the risks inherent to the activities of the Company and those of its subsidiaries as well as the work undertaken by the Internal and External Audits; and (ii) to assess the quality and integrity of the financial statements.
Responsibilities Management is responsible for the correct preparation of the financial statements of Duratex S.A. and those of its subsidiaries and associates as well as the implementation and maintenance of internal controls and risks management systems appropriate to the size and structure of the Company. It is also incumbent on the Management to establish procedures for guaranteeing the quality and processes which generate the financial information. The duties of the Internal Audit are to evaluate the risks of the principal processes and controls used to mitigate these risks as well as to verify compliance with the policies and procedures determined by Management, including those policies and procedures relating to the preparation of the financial statements. Ernst & Young Auditores Independentes S.S. is responsible for the auditing of the financial statements and must ensure that these represent adequately in all material aspects the equity and financial standing of Duratex S.A. and its subsidiaries and that they are prepared in accordance with the current accounting practices in Brazil as established by the Brazilian Securities and Exchange Commission – CVM. Pursuant to its duties, the Committee’s analyses and evaluations were based on information received from Management, the Internal Audit, the external auditors and from the executives responsible for the management of risks and the internal controls in the various segments of the Organization.
Committee’s Activities During the course of 2017, the Audit and Risks Management Committee met on eleven occasions with the following objectives:
» Review of the Indebtedness and of the Financial Financial Investments.
» Analysis of financial, operational and environmental risks and principal mitigating internal risks controls in meetings with the Organization’s officers.
» To take cognizance of the work undertaken by the Risks Commission and verify compliance with the Risks Management Policy.
» To take cognizance of measures adopted by Management to adjust the Company’s processes and controls to the requirements of the Anti-corruption Law.
» To take cognizance of the principal projects which involve the information technology area.
» Discussion and analysis of the principal accounting practices used in the preparation of the quarterly financial statements and the annual balance sheet.
» To take cognizance of the principal contingencies involving the Company.
» Analysis of certain aspects of the Reference Form, principally those relating to risks, prior to its filing with the Brazilian Securities and Exchange Commission – CVM.
» Discussion and approval of the External Audit’s work plan for the year 2017.
» To take knowledge of the Internal Controls Report prepared by the External Audit as of the baseline date of 12.31.2016. » Discussion of points for attention or improvement noted in the course of the work of the External Audit with respect to internal
controls and accounting considerations.
» Approval of the Internal Audit’s work plan for 2018.
» Approval of the Internal Controls area works plan for 2018.
» Analysis of the results of work conducted by the Internal Audit. » Monitoring of action plans in the light of the Internal Audit’s recommendations through the intermediary of meetings with the
Company’s officers. » To take cognizance and to monitor the activities of the Internal Ombudsman.
» Analysis and discussion of the main audit issues, which are part of the independent auditor’s report.
» To conduct of the evaluation of the external and internal audits and the self-evaluation of the Committee.
The financial statements for 12.31.2017 were discussed and analyzed at a meeting held on February 5, 2018.
Conclusion The Audit and Risks Management Committee recognizes and supports the initiatives of the Company in reviewing processes and implementing improvements in internal controls and in risks management practices, as well as initiatives to increase the performance of the Compliance area.
Based on information received and activities undertaken during the period, and consideration having been given to its responsibilities and limitations due to the scope of the activities undertaken in the period, the Audit and Risks Management Committee is of the view that the individual and consolidated financial statements as of 12.31.2017 were prepared in accordance with accounting practices adopted in Brazil and with the international financial reporting standards (IFRS) published by the International Accounting Standards Board (IASB), and recommends their approval by the Board of Directors.
São Paulo, February 5, 2018.
The Audit and Risks Management Committee
Tereza Cristina Grossi Togni – President
Juliana Rozenbaum Munemori
Raul Calfat
Ricardo Egydio Setubal
Rodolfo Villela Marino
Salo Davi Seibel CARLOS HENRIQUE PINTO HADDAD
Investor Relations Officer
São Paulo Corporate Towers Av. Presidente Juscelino Kubitschek, 1.909 Vila Nova Conceição 04543-011 - São Paulo – SP - Brasil Tel: +55 11 2573-3000 ey.com.br
Uma empresa-membro da Ernst & Young Global Limited
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A free translation from Portuguese into English of Independent Auditor’s Report on Individual and Consolidated Financial Statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and International Financial Standards (IFRS), issued by International Accounting Standards - IASB.
Independent auditor’s report on individual and consolidated financial statements To the Shareholders, Board of Directors and Officers of
Duratex S.A São Paulo - SP Opinion We have audited the individual and consolidated financial statements of Duratex S.A. (“Company”), identified as Company and Consolidated, respectively, which comprise the statement of financial position as at December 31, 2017 and the related statements of profit or loss, of comprehensive income (loss), of changes in equity, and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting practices. In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the individual and consolidated financial position of the Company as at December 31, 2017, its individual and consolidated financial performance and its individual and consolidated cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB). Basis for opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities, under those standards, are further described in the “Auditor’s responsibilities for the audit of individual and consolidated financial statements" section of our report. We are independent of the Company and its subsidiaries and comply with the relevant ethical principles set forth in the Code of Professional Ethics for Accountants and the professional standards issued by the Brazil’s National Association of State Boards of Accountancy (CFC) and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to support our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current year. These matters were selected in the context of our audit of the overall individual and consolidated financial statement, and in forming our opinion thereon and, accordingly, we do not express a separate opinion on these matters. .
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For each matter below, a description of how our audit has addressed the matter, including any comments on the results of our procedures, is disclosed in the context of the financial statement taken as a whole. We have fulfilled the responsibilities described in the “Auditor’s responsibilities for the audit of individual and consolidated financial statements” section, including those relating to these key audit matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement in the financial statements. The results of our procedures, including those performed to address the matters below, provide the basis for our audit opinion on the Company’s financial statements. Measurement of the fair value of biological assets The Company accounts for its forests, named biological assets, in Noncurrent assets, which are measured at fair value. At December 31, 2017, the fair value of these assets, recognized in the Company’s and its subsidiaries’ consolidated noncurrent assets amounted to R$1,698,855 thousand. The estimated fair value of biological assets was determined taking into consideration a number of assumptions, such as: forest growth rate, interest rates for cash flows discounts, estimated productivity and price of standing wood. This matter is disclosed in Notes 2, 3 and 15 to the individual and consolidated financial statements. This matter was considered a key audit matter due to the significance of the values of Company assets in connection with the usual uncertainties of this type of estimate and the judgment necessary which should be exercised by management when determining the assumptions of calculations of the fair value of the assets. How our audit addressed the matter: Our audit procedures included, among others, the use of subject matter experts to assist us in evaluating the assumptions and methodology used by Company, particularly those relating to the estimated forest growth rate, interest rates for cash flows discounts, estimated productivity and price of standing wood. We also evaluated the appropriateness of Company disclosures on the most sensitive key assumptions in the measurement of the fair value of the biological assets included in Notes 2, 3 and 15 to the financial statements. Based on the result of the audit procedures on the audit of the fair value of biological assets, which is consistent with the management evaluation, we considered that the criteria and assumptions used in management measurement of the fair value of biological assets, as well as the disclosures included in Notes 2, 3 and 15 are appropriate in the context of the overall financial statements.
Estimated realization of deferred taxes At December 31, 2017 the balance of deferred income and social contribution tax assets, recorded by the Company and its subsidiaries amounted to R$ 230,089 thousand (individual) and R$ 313.146 thousand (consolidated), which are disclosed in Notes 2 and 11 to the individual and consolidated financial statements, together with the information that Company management considers this estimate to involve the need of a critical accounting judgment related to the accounting recognition of these assets and their future recoverability. This item was considered a key audit matter, since the estimated recoverability of these taxes is complex and involves the use of a number of assumptions to estimate such amount and the related year in which such deferred taxes will be recovered in the ordinary course of the Company’s and its subsidiaries’ operations. These estimates rely on the studies of future profitability projection prepared by management, which includes forecasts of future market and business conditions regarding the business environment in which Company and its subsidiaries operate, which will allow recovering these deferred taxes in the coming years. How our audit addressed the matter: Our audit procedures included, among others, the review of projected future profitability prepared by management; the consistency of projected future profitability prepared by management when compared to the historical data related to prior year estimates. Furthermore, we engaged subject matter experts to assist us with the assumptions and methodology used by the Company and its subsidiaries when preparing these future profitability estimates. We also evaluated the fairness of Company disclosures of the estimated realization of deferred taxes in Notes 2 and 11 to financial statements. Based on the result of the audit procedures on the estimated recoverability of deferred taxes, which is consistent with the management evaluation, we considered that the criteria and assumptions used in management estimation of recoverability of deferred taxes, as well as the disclosures included in the Notes 2 and 11 are appropriate in the context of the overall financial statements. Recoverability of intangible assets - Goodwill In accordance with the accounting practices adopted in Brazil and international financial reporting standards, the Company is required to annually perform a test of recoverability of the amounts recorded as indefinite life intangible assets, including goodwill. At December 31, 2017 the goodwill balance was R$254,798 thousand and R$ 358,861 thousand, individual and consolidated respectively, as disclosed in Notes 2, 3, 16 and 17 to individual and consolidated financial statements. This item was considered a key audit matter, as the evaluation of the recoverability of these intangible assets is complex and involves a high degree of subjectivity, based on various assumptions such as: determination of cash generating units, discount rates, percentage of growth and profitability of the Company’s and its subsidiaries’ business for a number of future years. Such assumptions may be significantly affected by market conditions or future economic scenarios in Brazil, which cannot yet be estimated accurately.
How our audit addressed the matter: Our audit procedures included, among others, the involvement of subject matter experts to assist us with evaluating the assumptions and methodologies used by the Company and its subsidiaries, especially those relating to future sales, growth rate, rate used in discounted cash flows, and profit margin of all cash generating units. We also evaluated the fairness of Company disclosures of key assumptions which are more sensitive when testing the recoverability of intangible assets (goodwill), included in Notes 2, 3, 16 and 17 to financial statements. Based on the result of the audit procedures on the recoverability of intangible assets (goodwill), which is consistent with the management evaluation, we considered that the criteria and assumptions used in management estimation of recoverability of intangible assets (goodwill), as well as the disclosures included in the Notes 2, 3, 16 and 17 are appropriate in the context of the overall financial statements. Other matters Statements of value added The individual and consolidated statements of value added for the year ended December 31, 2017, prepared under Company management responsibility, the presentation of which is required as supplementary information under IFRS, have been subject to audit procedures in conjunction with the audit of the Company’s financial statements. In order to form our opinion, we analyzed whether these statements are reconciled to the financial statements and accounting records, as applicable, and whether their form and content meet the criteria defined in Accounting Pronouncement CPC 09 - Statements of Value Added. In our opinion, these statements of value added were fairly prepared, in all material respects, in accordance with the criteria defined in referred to Accounting Pronouncement and are consistent with the overall individual and consolidated financial statements. Other information accompanying the individual and consolidated financial statements and independent auditor’s report Company management is responsible for other information included in the Management Report. Our opinion on the individual and consolidated financial statements does not encompass the Management Report; accordingly, we do not express any form of audit conclusion thereon. In connection with the individual and consolidated financial statements, we are responsible for reading the Management Report and, in so doing, considering whether such report presents significant inconsistency with the financial statements or with our knowledge obtained in the audit, or otherwise seems to present material misstatements. If, based on the work performed, we conclude that the Management Report presents material misstatements, we are required to communicate such fact. We have nothing to report in this regard.
Responsibilities of management and of those charged with governance for the individual and consolidated financial statements Management is responsible for the preparation and fair presentation of these individual and consolidated financial statements in accordance with accounting practices adopted in Brazil and international financial reporting standards issued by the International Accounting Standards Board (IASB), and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free of material misstatement, whether due to fraud or error. In preparing the individual and consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance of Company and subsidiaries are responsible for overseeing the financial reporting process, which comprise the executive board of the Company and of its subsidiaries, the Audit and Risk Management Committee and the Board of Directors. Auditor’s responsibilities for the audit of individual and consolidated financial statements Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International standards on auditing will always detect material misstatements when they exist. Misstatements can arise from fraud or error and are considered material if they could, individually or as a whole, reasonably be expected to influence the economic decisions of users made on the basis of these financial statements. As part of the audit conducted in accordance with Brazilian and International standards on auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess risks of material misstatements of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error, as fraud may involve override of internal controls, collusion, forgery, intentional omissions or misrepresentations.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control of the Company and its subsidiaries.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast substantial doubt as to the ability of the Company and its subsidiaries to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and its subsidiaries to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the corresponding transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the individual and consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provided those charged with governance with a statement that we have complied with relevant ethical requirements, including those regarding independence, and communicated with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we are required to determine those matters that were of most significance in the audit of the individual and consolidated financial statements of the current period and are therefore the key audit matters. We are required to describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. São Paulo, February 5, 2018. ERNST & YOUNG Auditores Independentes S.S. CRC-2SP034519/O-6 Drayton Teixeira de Melo Contador CRC-1SP236947/O-3
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Financial Statements Index for 2017 and 2016
Management Report ................................................................................................................................................................. 02 Balance Sheet .......................................................................................................................................................................... 09 Statement of Income ................................................................................................................................................................ 10 Statement of Comprehensive Income ...................................................................................................................................... 11 Statement of Cash Flows …………………………...................................................................................................................... 12 Statement of Value Added ...................................................................................................................................................... 13 Statement of Changes in Stockholders’ Equity 2016 ............................................................................................................... 14 Statement of Changes in Stockholders’ Equity 2017 ............................................................................................................... 15 Note 1 – Operations ................................................................................................................................................................ 16 Note 2 – Summary of significant accounting policies……………….…....................................................................................... 16 2.1 Basis of preparation........................................................................................................................................................... 16 2.2 Consolidation………………………………………………..................................................................................................... 17 2.3 Preparation of segmented information…………………………….…................................................................................... 21 2.4 Foreign currency translation……………………………………………………………………………………………………….. 21 2.5 Cash and cash equivalents……………............................................................................................................................. 21 2.6 Financial assets…………………………............................................................................................................................. 22 2.7 Derivative financial instruments and hedging activities..................................................................................................... 23 2.8 Trade accounts receivable…………….............................................................................................................................. 24 2.9 Inventory…………………………………............................................................................................................................. 24 2.10 Intangible assets………………………............................................................................................................................. 24 2.11 Property, plant and equipment………............................................................................................................................. 25 2.12 Impairment of non-financial assets….............................................................................................................................. 25 2.13 Biological assets……………………….............................................................................................................................. 25 2.14 Loans and financing……………………………………………………………………………………………………………….. 25 2.15 Accounts payable to suppliers and provisions………………………………………………………………………………….. 26 2.16 Current and deferred income tax and social contributions ……………………………………………………………………. 26 2.17 Employee benefits…………………………………………………………………………………………………………………. 26 2.18 Capital……………………………………………………………………………………………………………………………….. 27 2.19 Revenue recognition……………………………………………………………………………………………………………….. 27 2.20 Variation in the fair value of biological assets………………………………………………..………………………………….. 28 2.21 Leases……………………………………………………………………………………………………………………………….. 28 2.22 Distribution of dividends and interests on capital………………………………………………………………………………… 28 Note 3 – Critical Accounting Judgments and Estimates ............................................................................................................ 28 Note 4 – Financial Risk Management ....................................................................................................................................... 29 4.1 Financial Risk Factors ….................................................................................................................................................. 29 4.2 Capital Management ........................................................................................................................................................ 32 4.3 Fair Value Estimates ........................................................................................................................................................ 33 Note 5 – Cash and Cash Equivalents ….................................................................................................................................... 33 Note 6 – Securities……………...….............................................................................................................................................. 33 Note 7 – Trade Accounts Receivable ........................................................................................................................................ 34 Note 8 – Inventory ..................................................................................................................................................................... 35 Note 9 – Other Receivables ...................................................................................................................................................... 35 Note 10 – Recoverable Taxes and Contributions ........................................................................................................................ 36 Note 11 – Deferred Income Tax and Social Contribution …...................................................................................................... 36 Note 12 – Related Parties ......................................................................................................................................................... 38 Note 13 – Investments in Subsidiaries………………................................................................................................................... 40 Note 14 – Property, Plant and Equipment ................................................................................................................................. 42 Note 15 – Biological Assets (Forest Reserves) ......................................................................................................................... 44 Note 16 – Intangible Assets ...................................................................................................................................................... 46 Note 17 – Impairment testing of goodwill................................................................................................................................... 47 Note 18 – Loans and Financing................................................................................................................................................. 49 Note 19 – Accounts Payable ..................................................................................................................................................... 52 Note 20 – Taxes and contributions............................................................................................................................................. 52 Note 21 – Contingencies............................................................................................................................................................ 53 Note 22 – Rural Leases …….................................................................................................................................................... 54 Note 23 – Stockholders’ Equity ................................................................................................................................................. 55 Note 24 – Insurance Coverage ................................................................................................................................................. 57 Note 25 – Net Sales Revenue ………........................................................................................................................................ 58 Note 26 – Expenses, by Nature ............................................................................................................................................... 58 Note 27 – Financial Income and Expenses ............................................................................................................................... 59 Note 28 – Other Operating Income (Expenses), Net ................................................................................................................ 59 Note 29 – Sales of farms……………………………... ................................................................................................................ 59 Note 30 – Income Tax and Social Contribution …..................................................................................................................... 60 Note 31 – Stock Option Plan ..................................................................................................................................................... 60 Note 32 – Private Pension Plan ................................................................................................................................................ 61 Note 33 – Medical Assistance Plan “Post-Employment”………………………………………………………………………………. 63 Note 34 – Earnings Per Share .................................................................................................................................................. 64 Note 35 –Business Segments ................................................................................................................................................... 65 Note 36 – Subsequent events………………… .......................................................................................................................... 66
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MANAGEMENT REPORT 2017 MARKET AND BUSINESS SCENARIO The fourth quarter of 2017 has brought the consolidation of economic recovery in Brazil, reflecting positively on our operations. Inflation below the target’s lower band, along with the downward path of interest rates and the return of credit and consumption have provided the necessary foundations for the recovery of activity in the Wood and Deca divisions. One of the propellers behind the return of activity in our business has been the recovery of demand, driven mainly by an increase in consumption by part of Brazilian families which, after undergoing a tough period of deleveraging, have now started to take credit once again. The Brazilian Institute for Geography and Statistics (IBGE) has registered a net increase of 9.8% in the consumption of furniture and electric appliances up to November, after two consecutive downturns in 2015 and 2016. In the wood panel segment, the Brazilian Institute of Trees (Instituto Brasileiro de Árvores - IBÁ) has registered an increase in domestic demand of 13% in the fourth quarter and 4% in the year. The demand in the foreign market has increased 21% in the year and 6% in the quarter. The demand for wood panels has grown 6% in the year when considering both internal and foreign markets. The Brazilian Institute of Construction Materials (Associação Brasileira da Indústria de Materiais de Construção - ABRAMAT), which is responsible for measuring evolution in the construction sector, points towards a fall in revenues of 4% in the year, in line with their projections, and a decrease of 5.7% in employment within the industry. The institute estimates a discreet growth of 1.5% in 2018, which is in line with our assumption of gradual recovery in demand. The Brazilian economy is expected to stabilize in 2018, and GDP to grow at 2.66%, according to the average of estimates in the FOCUS report published by the Central Bank on 01/26/2017. We remain cautiously optimistic with the recovery of our sectors of activity which have been negatively impacted by the politic and economic crises of the past few years. STRATEGIC MANAGEMENT & INVESTMENT Total investments totaled BRL 82.6 million within the last three months of the year, of which BRL 39.0 million have been directed to forest OPEX and BRL 43.6 million to factory maintenance and projects. In 2017, investments have represented BRL 365.9 million, below our original estimate of BRL 420 million. This result illustrates Duratex’s commitment to maximizing cash generation and financial deleveraging. The results of recently acquired Ceusa, a reference in the ceramic tiles industry, have been consolidated into Duratex in October, after CADE’s- Conselho Administrativo de Defesa Econômica approval. As previously disclosed, Ceusa was acquired for BRL 280.0 million (before the debt acquisition and variance in working capital) and marked the Duratex’s entrance into the ceramic tiles industry, thus complimenting the Company’s solution portfolio. We expect to integrate operations, thus further leveraging the businesses’ returns, in 2018. One of the highlights of 2017 was the consolidation of the Duratex Management System (Sistema de Gestão Duratex – SGD), encompassing all of the company’s efforts in terms of gains in efficiency, productivity, cost management and asset returns. An office with a dedicated team was created specifically for the management and dissemination of this project, besides the structuring of a methodology to measure progress. These initiatives, with the objective of offsetting the slow economic recovery, closed the year with a saving of BRL 76 million. The result reflects the Company’s commitment and discipline to a more effective cost and expenses management. The Company has reached an important landmark in its journey towards cultural transformation, where all leaderships have been capacitated and dissemination for 100% of the Company. It has been two years since we embarked on this transformation, and one can already take notice of a more rejuvenated and innovative company, ever committed to the return of its operations. In addition, we completed the assessment of Great
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Place to Work’s, and were recognized for our good environment for employees, in their opinion. Regarding the next periods, the commitment and accountability of everyone, especially the leadership, is going to be fundamental in encouraging the development of teams in terms of performance and behavior, thus ensuring Duratex’s prominence in its sectors of activity and as an employer. We have disclosed on January 31, 2018, as a subsequent event, the disposal of installations and equipment dedicated to the production of Thin Wood Fiber Boards (hardboard) located in the city of Botucatu. The evolution of the wood panel market in Brazil, and the decision to resume activities in the Itapetininga unit, has made these lines, which are directed mainly towards exports, small within Duratex’s portfolio of solutions. This product has therefore lost relevance within the Company’s strategy. The transaction refers to the swap of installation and equipment for a production farm located in the city of Capão Bonito, in the State of São Paulo, strategically closer to our unit in Itapetininga, at the base amount of BRL 60 million. The remaining lines of Thick and Thin Wood Fiber Board (MDF and HDF) continue to be operated as usual by Duratex. As legally required, this operation is being forwarded to CADE and will be finalized as soon as approval is received. The management of these lines remain with Duratex in the regular production standards for the time being. Being the search for higher returns and greater efficiency central objective in our strategy, we have announced on February 5th, 2018, the sale of land and forests located in the the state of São Paulo to Suzano Papel e Celulose. The evolution of forest management and technology within the last six decades has allowed the Duratex to increase its productivity, and therefore, to hold a volume of land and forests that exceeds the current and projected needs of its wood panel factories. Duratex has opted for the sale of such exceeding assets. The transaction foresees the sale of land and forests in the the central region of the state of São Paulo, and is structured in two parts, being: (i) Acquisition of about 9,500 (nine thousand and five hundred) hectares of rural property and forests assets in the total value of BRL 308.1 million. (ii) Exclusive option for Suzano to purchase an additional 20,000 (twenty thousand) hectares of land and forests assets in the total amount of BRL 749.4 million, to be exercised until 07/02/2018. This operation is subject to the conditions usual to this type of transaction and to approval by the Conselho Administrativo de Defesa Econômica - CADE. The values received will be directed towards the significant reduction of net debt, thus reducing financial costs and positioning the company at a strategic level of competitiveness. These movements take place in the direction of increasing productivity, efficiency and of improving the use of our assets and reduce financing costs, and thus contribute to a higher return on operations. DIVIDENDS Duratex’s dividend policy requires a minimum dividend distribution of 30% of the adjusted net earnings. According to the proposal addressed by the Board, it was considered BRL 60.8 million as dividends, as interest on equity, equivalent to BRL 0.08826330461 per share. CONSOLIDATED FINANCIAL HIGHLIGHTS
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1. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization): Measure of operational performance in accordance with CVM Instruction 527/12. 2. EBITDA adjusted for non-cash events arising from variation in the fair value of biological assets and combination of businesses, in addition to extraordinary events. 3. Current liquidity: Current Assets Divided by Current Liabilities. Indicates the amount available in BRL to cover each BRL of short-term obligations. 4. Net Indebtedness: Total Financial Debt (–) Cash balance. 5. Financial leverage calculated on the rolling EBITDA over the last 12 months, adjusted for events of a purely accounting and non-cash nature. 6. ROE (Return on Equity): measure of performance obtained by taking the Net Earnings over the period, annualized, by Average Net Equity. 7. Net earnings per share is calculated by dividing the earnings attributable to the Company’s shareholders by the average weighted number of ordinary shares issued during the period, excluding the ordinary shares held by the Treasury.
ADDED VALUE The Added Value for the quarter totaled BRL 479.6m. Of this amount, BRL 133.6m, equivalent to 27.9% of the total Value Added, was destined for the federal, state and municipal governments in the form of taxes and contributions. In 2017, the added value distributed was BRL 1,749.3 million. Regarding this distribution, 28% or BRL 483.6 million was destined for government remuneration, in all of its aspects.
BRL '000 4Q17 4Q16 % 3Q17 % 2017 2016 %
Highlights
Volume shipped Deca (‘000 items) 6.224 5.944 4,7% 6.771 -8,1% 26.053 24.590 5,9%
Volume shipped Deca (‘000 m2) 531.463 531.463
Volume shipped wood (m3) 671.731 638.596 5,2% 614.845 9,3% 2.399.134 2.433.246 -1,4%
Consolidated net revenue 1.102.632 1.028.665 7,2% 1.019.521 8,2% 3.990.866 3.909.760 2,1%
Gross profit 369.562 265.287 39,3% 296.809 24,5% 1.143.769 1.009.132 13,3%
Gross margin 33,5% 25,8% 29,1% 28,7% 25,8%
EBITDA according to CVM No. 527/12(1) 279.879 289.294 -3,3% 295.402 -5,3% 986.788 901.184 9,5%
EBITDA Margin CVM No. 527/12 25,4% 28,1% 29,0% 24,7% 23,0%
Adjustments for non-cash events (93.915) (44.041) 113,2% (43.709) 114,9% (220.191) (161.090) 36,7%
Non-recurring events 42.906 (28.146) (46.821) -191,6% (6.587) (59.133)
Recurring and adjusted EBITDA(2) 228.870 217.107 5,4% 204.872 11,7% 760.010 680.961 11,6%
Recurring and adjusted EBITDA margin 20,8% 21,1% 20,1% 19,0% 17,4%
Net income 84.618 25.207 235,7% 83.144 1,8% 185.015 26.229 605,4%
Recurring net income 112.936 6.463 1647,4% 52.242 116,2% 180.668 (12.966) -1493,4%
Recurring net margin 10,2% 0,6% 5,1% 4,5% -0,3%
INDICATORS
Current ratio(3) 1,95 2,69 -27,4% 2,08 -6,1% 1,95 2,69 -27,4%
Net debt(4) 2.100.460 2.040.681 2,9% 2.069.537 1,5% 2.100.460 2.040.681 2,9%
Net debt/EBITDA LTM(5) 2,76 2,997 -7,8% 2,77 -0,1% 2,76 2,997 -7,8%
Average net equity 4.697.209 4.570.741 2,8% 4.637.743 1,3% 4.625.991 4.563.840 1,4%
ROE (6) 7,2% 2,2% 7,2% 4,0% 0,6%
Recurring ROE 9,6% 0,6% 4,5% 3,9% -0,3%
SHARES
Basic net earning per share (BRL)(7) 0,1227 0,0368 233,4% 0,1205 1,8% 0,2682 0,0346 675,1%
Closing share price (BRL) 9,20 6,80 35,3% 9,47 -2,9% 9,20 6,80 35,3%
Net equity per share (BRL) 6,84 6,63 3,2% 6,79 0,8% 6,84 6,63 3,2%
Shares held in treasury (shares) 2.478.659 2.485.759 -0,3% 2.478.659 0,0% 2.478.659 2.485.759 -0,3%
Market Value (BRL1.000) 6.341.614 4.687.231 35,3% 6.527.726 -2,9% 6.341.614 4.687.231 35,3%
5
OPERATIONS Wood Division
(1) EBITDA (Earnings Before Interest,Taxes, Depreciation and Amortization): Measure of operational performance
according to Instruction CVM527/12. (2) Extraordinary events, including: 3Q16: (i) result from the sale of lands from the subsidiary Duratex Florestal (-) BRL
30,814 K ; (ii) devolution of excess from the private pension plan (-) BRL 3.309 K; 4Q16: result from the sale of lands from
the subsidiary Duratex Florestal (-) BRL 30,939 K; results from the sale of furniture line pertaining to da Duratex Colômbia: (+) BRL 2.793 K; 1Q17: result from the sale of lands from the subsidiary Duratex Florestal (-) BRL 2,672 K; 3Q17: result
from the sale of lands from the subsidiary Duratex Florestal (-) BRL 46,821 K ; 4Q17: result from the sale of lands from the
subsidiary Duratex Florestal (-) BRL 7,890 K; provision for non-recovered assets BRL (+) 50,796. 2017 ended on a positive tone for the Wood Division, reflecting Duratex’s new positioning in wood panels and a gradual improvement of demand. Several initiatives were successfully implemented throughout the year, including price increases, and commercial and product development actions aimed at stimulating demand and improving the mix, along with efforts in cost reduction, as previously stated. As registered by IBÁ, the positive scenario in demand propelled the volume of wood panels marketed, which, along with the normalization of market share, lead to an expedition of 671.7 thousand m³. This quarter registered the best expedition of the year, 5.2% above 2016. We have noticed a slight deterioration of the mix in this quarter, due to the fact that most of the growth in volume was concentrated in the standard lines that have a smaller added value. This deterioration was offset by a more efficient cost dilution, a consequence of operational leveraging. The result was a fourth quarter EBITDA of BRL 157.4 million, and a margin of 22.7%, in line with the results registered in the previous quarter. Efforts related to cost reduction and gains in efficiency within the scope of the SGD will continue to be our focus in 2018. We have the opportunity to rearrange the mix of our production by exploring our logistic system and the competitive advantage of each of our five wood panel production units. We are taking measures to stimulate the demand for wood panels and the fidelity of clients, by offering high quality services while maintaining prices at levels that benefit the return of our operations.
HIGHTLIGHTS 4Q17 4Q16 % 3Q17 % 2017 2016 %
SHIPMENTS (IN M3)
STANDARD 419.948 373.698 12,4% 360.064 16,6% 1.388.355 1.381.624 0,5%
COATED 251.783 264.898 -5,0% 254.781 -1,2% 1.010.779 1.051.622 -3,9%
TOTAL 671.731 638.596 5,2% 614.845 9,3% 2.399.134 2.433.246 -1,4%
FINANCIAL HIGHLIGHTS (BRL '000)
NET REVENUE 692.122 692.011 0,0% 651.148 6,3% 2.515.732 2.594.548 -3,0%
DOMESTIC MARKET 524.511 521.286 0,6% 489.220 7,2% 1.902.306 1.902.396 0,0%
EXPORT MARKET 167.611 170.725 -1,8% 161.928 3,5% 613.426 692.152 -11,4%
Net unit revenue (BRL/m3 shipped) 1030,36 1083,64 -4,9% 1059,04 -2,7% 1048,60 1066,29 -1,7%
Unit cash cost (1) (BRL/m3 shipped) (629,31) (649,63) -3,1% (644,27) -2,3% (671,00) (680,64) -1,4%
Gross profit 257.133 170.303 51,0% 185.327 38,7% 698.265 645.748 8,1%
Gross margin 37,2% 24,6% - 28,5% - 27,8% 24,9% -
Sales expenses (101.798) (90.667) 12,3% (96.584) 5,4% (373.383) (360.558) 3,6%
General and administrative expenses (18.320) (18.538) -1,2% (17.711) 3,4% (73.597) (77.571) -5,1%
Operating profit before financial results 95.296 89.038 7,0% 124.197 -23,3% 274.663 247.755 10,9%
Depreciation, amortization and depletion 81.579 93.509 -12,8% 86.315 -5,5% 327.091 337.087 -3,0%
Depletion tranche of biological assets 31.284 64.596 -51,6% 30.372 3,0% 123.118 142.297 -13,5%
EBITDA according to CVM No. 527/12(1) 208.159 247.143 -15,8% 240.884 -13,6% 724.872 727.139 -0,3%
EBITDA margin according to CVM No. 527/12 30,1% 35,7% - 37,0% - 28,8% 28,0% -
Variation in fair value of biological assets (93.603) (43.135) 117,0% (40.027) 133,8% (214.933) (157.973) 36,1%
Employee benefits (63) (626) -89,9% (1.632) -96,1% (1.297) (2.675) -51,5%
Extraordinary event(2) 42.906 (28.146) -252,4% (46.821) -191,6% (6.587) (62.269) -89,4%
Recurring and adjusted EBITDA 157.399 175.236 -10,2% 152.404 3,3% 502.055 504.222 -0,4%
Recurring and adjusted EBITDA margin 22,7% 25,3% - 23,4% - 20,0% 19,4% -
6
Deca Division
(1) EBITDA (Earnings Before Interest,Taxes, Depreciation and Amortization): Measure of operational performance
according to Instruction CVM527/12. (2) Extraordinary Events: 3Q16: (i) devolution of excess from the private pension plan (-) BRL 4,443 K; (ii)Non-recurring
employee restitutions (+) BRL 7,579 K.
The civil construction materials industry registered a quarter of mild contraction, and we now begin to glimpse at a discreet growth of the sector in 2018. Despite this challenging scenario, Deca presented a growth of 2.4% in volumes in comparison to 2016. Net revenue was positively affected in the quarter by the incorporation of the results of the recently-acquired Ceusa, which recorded an expedition of 531.5 thousand m² in the quarter. When excluding this effect, Deca’s net revenue presented an increase of 8.8% in comparison to the same period of 2016. We have noticed a positive expansion in Deca’s sales this year, reflecting the strength and recognition of the brand and quality of portfolio products that are instrumental in the development of our activities in this difficult moment. We have also noticed a mild deterioration of mix of sold products, which is natural due to the seasonality of Deca’s products that show a lighter participation of finished products. This effect is mainly due to the smaller expedition of electric shower heads due to the higher temperatures this time of the year. The gross margin, however, increased from 28.2% to 27.4%, mainly a consequence of the incorporation of Ceusa into the results. Additionally, there were planned stops within Deca’s production units. These stops resulted in a negative impact of approximately BRL 10 million in the costs of the division. The investments in advertising and promotions were intensified during the last months of the year, due mainly to efforts in the positioning of the brand and more aggressive competition. In addition to this effect, there was an increase in freight costs and larger administrative expenses resulting from adjustments made throughout the second semester. With regards to Ceusa, there was the recognition of BRL 25.4 million as revenue resulting from the adhesion to the REFIS PERT program. This amount was accounted as other operational results, and had a positive impact on Deca this quarter.
HIGHLIGHTS 4Q17 4Q16 % 3Q17 % 2017 2016 %
SHIPMENTS (IN ‘000 ITEMS)
BASIC PRODUCTS 1.902 1.757 8,3% 2.045 -7,0% 7.666 7.257 5,6%
FINISHING PRODUCTS 4.322 4.187 3,2% 4.726 -8,5% 18.387 17.333 6,1%
TOTAL 6.224 5.944 4,7% 6.771 -8,1% 26.053 24.590 5,9%
SHIPMENTS (in ‘m2)
FINISHING PRODUCTS 531.463 531.463
FINANCIAL HIGHLIGHTS (BRL1,000)
NET REVENUE (sales in items) 410.510 336.654 21,9% 368.373 11,4% 1.475.134 1.315.212 12,2%
DOMESTIC MARKET 387.377 320.479 20,9% 354.701 9,2% 1.413.094 1.257.078 12,4%
EXPORT MARKET 23.133 16.175 43,0% 13.672 69,2% 62.040 58.134 6,7%
Net unit revenue (BRL per item shipped) 58,85 56,64 3,9% 54,40 8,2% 54,92 53,49 2,7%
Net unit revenue (BRL per m2 shipped) 83,21 - - - 83,21 -
Unit cash cost (BRL per item shipped) (39,95) (36,71) 8,8% (34,29) 16,5% (34,81) (34,88) -0,2%
Unit cash cost (BRL per m2 shipped) (45,24) - - - (45,24) -
Gross profit 112.429 94.984 18,4% 111.482 0,8% 445.504 363.384 22,6%
Gross margin 27,4% 28,2% - 30,3% - 30,2% 27,6% -
Sales expenses (71.107) (63.403) 12,2% (69.277) 2,6% (265.138) (230.871) 14,8%
General and administrative expenses (18.797) (15.780) 19,1% (18.546) 1,4% (69.711) (63.981) 9,0%
Operating profit before financial results 39.525 16.880 134,2% 26.422 49,6% 146.678 69.360 111,5%
Depreciation and amortization 32.195 25.271 27,4% 28.096 14,6% 115.238 104.685 10,1%
EBITDA according to CVM No. 527/12(1) 71.720 42.151 70,2% 54.518 31,6% 261.916 174.045 50,5%
EBITDA margin according to CVM No. 527/12 17,5% 12,5% - 14,8% - 17,8% 13,2% -
Employees benefits (249) (280) -11,1% (2.050) -87,9% (3.961) (442) 796,2%
Extraordinary event (2) - 0 - - - - 3.136 -
Recurring and adjusted EBITDA 71.471 41.871 70,7% 52.468 36,2% 257.955 176.739 46,0%
Recurring and adjusted EBITDA margin 17,4% 12,4% - 14,2% - 17,5% 13,4% -
7
As a result, Deca’s Adjusted and Recurring EBITDA was BRL 71.5 million and BRL 257.9 million in the year, respectively, with a margin of 17.5%. The annual result presented an evolution of 46% in comparison to 2016. This improvement is a reflection of all the adjustments made in this division, even in a period of crisis. Considering the slow and gradual recovery of the sector, we continue to focus on the differentiated positioning of the division, brought forth by the brands Deca, Hydra, and the recently-acquired Ceusa, along with the emphasis on relationships with clients, consumers and specifiers, allied with consistent cost-management, as the main proponents of results in 2018. CAPITAL MARKETS AND CORPORATE GOVERNANCE Duratex closed 2017 with a Market Cap of BRL 6,341.6 million, based on a closing share price of BRL 9.20. There were 459.4 thousand trades in DTEX3 at the B3 spot market within the fourth quarter. This represents a trading volume equivalent to BRL 1,639.9 million, or a daily trading volume of BRL 27.8 million. In 2017, there were 1,330.5 thousand trades in at the B3 sport market, which represented a financial volume of BRL 4,372.0 million or a daily average trading volume of BRL 17.8 million. Our shares are listed on the Novo Mercado sections of B3 which brings together companies with the highest standards of corporate governance. We also have a differentiated dividend policy, with the distribution of 30% of adjusted net earnings to shareholders, while also adhering to the Abrasca Code for Self-Regulation and Good Practices for Listed Companies. SOCIAL AND ENVIRONMENTAL RESPONSIBILITY There was an increase in our headcount once Ceusa was incorporated into Duratex. We closed 2017 with 11,400 employees. It is worth mentioning that, despite the increase in headcount, the amount dedicated to employee remuneration varied with less intensity in 2017, thus reflecting our efforts in adjusting processes and capturing cost cuts in the Duratex Management system (SGD).
INDEPENDENT AUDITORS – CVM INSTRUCTION nº 381 Procedures adopted by the Company and its subsidiaries The Company's policy for procuring non-external audit services from its independent auditors is based on internationally accepted principles that preserve the independence of the auditors, and consists of the following principles: (a) the auditor should not audit their own work, (b) the auditor should not carry out management functions within the client, and (c) the auditor must not promote the interests of the client. During 2017, the independente auditors Ernst & Young Auditores Independentes S.S. provided the following services not related to external auditing:
Review of accounting and tax accounting records – (in Portuguese, ECF), hired on April 11, 2017, for the total amount of BRL 99 thousand.
Advisory services on the renewal of visas for foreigners and their families, hired on August 4, 2017 for the total amount of BRL 4 thousand.
(BRL'000) 4Q17 4Q16 % 3Q17 % 2017 2016 %
Employees (quantity) 11.400 11.055 3,1% 11.150 2,2% 11.400 11.055 3,1%
Remuneration 107.270 105.317 1,9% 104.532 2,6% 421.459 419.363 0,5%
Obligatory legal charges 55.411 50.374 10,0% 52.496 5,6% 216.330 219.354 -1,4%
Differentiated benefits 27.026 26.726 1,1% 27.345 -1,2% 106.324 104.425 1,8%
8
The amount of these services representes 6.6% of the total audit fees in 2017. Explanation from the Independent Auditors – Ernst & Young Auditores Independentes S.S. The professional services described above does not affect the independence or the objectivity in conducting the external audit examinations provided to the Company and its subsidiaries. The policy of providing the Company and its subsidiaries in services not related to external auditing is based on the principles that preserve the independence of the Independent Auditor and all the services are in compliance with this policy. ACKNOWLEDGEMENTS
We are grateful for all the support received from our shareholders, the dedication and commitment of our employees, the partnerships we have with our suppliers and the confidence placed in us by our clients and consumers.
The Management
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016
CURRENT ASSETS Note 2,022,042 1,883,684 3,023,458 3,214,706 CURRENT LIABILITIES Note 1,219,308 1,016,227 1,551,576 1,197,206
Cash and cash equivalents 5 402,698 361,923 1,074,364 1,416,360 Loans and financing 18 696,882 641,201 764,824 681,110
Securities 6 57,292 - - - Suppliers 216,040 174,409 296,372 214,226
Trade accounts receivable 7 765,188 670,724 932,917 797,920 Related parties suppliers 12 22,958 18,416 - -
Related parties accounts receivable 7 53,307 60,970 35,146 37,309 Personnel 95,538 76,923 119,037 89,346
Inventory 8 614,843 699,045 760,093 802,498 Accounts payable 19 92,311 64,519 163,704 134,692
Other receivables 9 25,915 23,976 63,529 47,969 Related parties accounts payable 12 2,050 2,640 2,640 2,640
Recoverable taxes and contributions 10 87,955 53,696 138,878 95,839 Taxes and contributions 20 32,390 31,579 143,726 68,558
Other credits 9,336 7,842 13,023 11,303 Dividends and interest on capital 61,139 6,540 61,273 6,634
Non current assets available for sale 5,508 5,508 5,508 5,508
NON-CURRENT ASSETS 5,753,996 5,725,276 6,442,116 6,126,090 NON-CURRENT LIABILITIES 1,841,365 2,023,226 3,197,679 3,572,938
Restricted deposits 48,183 48,033 51,343 49,626 Loans and financing 18 1,541,038 1,678,130 2,410,000 2,775,931
Other receivables 9 53,544 39,043 106,493 68,158 Contingencies 21 82,641 90,793 114,432 109,595
Pension plan credits 32 96,093 92,202 105,740 100,482 Deferred income tax and social contribution 11 162,331 199,348 483,338 488,028
Recoverable taxes and contributions 10 10,999 15,319 13,215 17,645 Accounts payable 19 49,206 44,395 181,989 174,850
Deferred income tax and social contribution 11 230,089 204,516 313,146 255,142 Related parties 12 6,149 10,560 7,920 10,560
Investments in subsidiaries and associates 13 2,397,310 2,209,575 6,260 - Taxes and contributions - - - 13,974
Other investments 921 921 1,638 921
Property, plant and equipment 14 2,435,529 2,610,180 3,490,141 3,571,895 STOCKHOLDERS' EQUITY 23 4,715,365 4,569,507 4,716,319 4,570,652
Biological assets 15 - - 1,698,855 1,528,917 Capital 1,970,189 1,970,189 1,970,189 1,970,189
Intangible assets 16 481,328 505,487 655,285 533,304 Costs on issue of shares (7,823) (7,823) (7,823) (7,823)
Capital reserves 345,300 342,212 345,300 342,212
Capital transactions with partners (18,731) (18,731) (18,731) (18,731)
Revaluation reserves 57,344 60,903 57,344 60,903
Revenue reserves 1,980,082 1,852,527 1,980,082 1,852,527
Treasury shares (27,851) (27,931) (27,851) (27,931)
Carrying value adjustments 416,855 398,161 416,855 398,161
Equity attributable to equity holders - - - -
of the parent company 4,715,365 4,569,507 4,715,365 4,569,507
Noncontrolling interests - - 954 1,145
TOTAL ASSETS 7,776,038 7,608,960 9,465,574 9,340,796 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 7,776,038 7,608,960 9,465,574 9,340,796
(A free translation of the original in Portuguese)
Duratex S.A. - Listed companyNational Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47
BALANCE SHEET
PARENT COMPANY CONSOLIDATED PARENT COMPANY CONSOLIDATED
(In thousands of Reais)
9
Note 12/31/2017 12/31/2016 12/31/2017 12/31/2016
NET SALES REVENUE 25 3,300,056 3,191,997 3,990,866 3,909,760
Variations in the fair value of biological assets 15 - - 214,933 157,973
Cost of products sold (2,626,403) (2,581,536) (3,062,030) (3,058,601)
GROSS PROFIT 673,653 610,461 1,143,769 1,009,132
Selling expenses (516,155) (482,866) (638,521) (591,429)
General and administrative expenses (104,954) (108,333) (143,308) (141,552)
Management fees (14,505) (13,486) (15,612) (14,331)
Other operating income (expenses), net 28 (12,914) (2,476) 75,013 55,295
Equity in the results of investees 233,440 186,070 - -
OPERATING PROFIT BEFOREFINANCIAL RESULT AND TAXES 258,565 189,370 421,341 317,115
Financial income 27 84,808 73,761 163,031 147,964
Financial expenses 27 (220,416) (300,510) (369,144) (447,236)
PROFIT BEFORE INCOME TAX ANDSOCIAL CONTRIBUTION 122,957 (37,379) 215,228 17,843
Income tax and social contribution - current 30 - (25,756) (58,244) (74,470)
Income tax and social contribution - deferred 30 61,918 86,781 28,031 82,856
NET INCOME FOR THE YEAR 184,875 23,646 185,015 26,229
Net income attributable to:
Owners of the company 184,875 23,646 184,875 23,646
Noncontrolling interests - - 140 2,583
Net income per share (R$):
Basic: 34 0.2682 0.0346 0.2682 0.0346
Diluted: 34 0.2653 0.0341 0.2653 0.0341
Duratex S.A. - Listed companyNational Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47
STATEMENT OF INCOME
PARENT COMPANY
(A free translation of the original in Portuguese)
CONSOLIDATED
10
(A free translation of the original in Portuguese)
Periods ended December 31
(In thousands of reais)
12/31/2017 12/31/2016 12/31/2017 12/31/2016
NET INCOME FOR THE YEAR 184,875 23,646 185,015 26,229
Other components of comprehensive income
Items that will be reclassified for net income
Actuarial gain and (loss) (1,977) (7,901) (1,977) (7,901)
Tax effects on actuarial gain (loss) 672 2,686 672 2,686
Accumulated conversion adjustments 19,999 (54,179) 20,205 (65,436)
COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX 203,569 (35,748) 203,915 (44,422)
Attributable to:
Owners of the company 203,569 (35,748) 203,569 (35,748)
Noncontrolling interests - - 346 (8,674)
Duratex S.A. - Listed companyNational Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47
STATEMENT OF COMPREHENSIVE INCOME
PARENT COMPANY CONSOLIDATED
11
(A free translation of the original in Portuguese)
12/31/2017 12/31/2016 12/31/2017 12/31/2016
OPERATING ACTIVITIES:
122,957 (37,379) 215,228 17,843
ADJUSTMENTS:
Depreciation, amortization and depletion 304,420 295,675 565,449 584,102
Variations in the fair value of biological assets - - (214,933) (157,973)
Interest, foreign exchange and monetary variations, net 207,257 291,560 332,540 411,517
Equity in the results of investees (233,440) (186,070) - -
Allowance for doubtful accounts 12,889 17,328 12,600 21,805
Provisions, disposal of assets 66,966 36,628 103,456 55,068
(Increase)/Decrease in Assets
Trade accounts receivable (168,457) (4,007) (168,617) (62,955)
Inventory 80,339 (30,772) 62,201 (10,404)
Other assets (17,423) 27,541 (107,663) (6,729)
Increase (Decrease) in Liabilities
Suppliers 46,173 1,588 51,164 12,673
Personnel liabilities 18,615 (13,918) 22,873 (19,155)
Accounts payable (13,386) (5,698) (140,982) 17,902
Taxes and contributions 9,137 (20,285) 26,805 (47,852)
Other liabilities (29,224) (24,796) (50,907) (29,229)
Cash provided by operations 406,823 347,395 709,214 786,613
Income tax and social contribution paid (8,326) (6,584) (44,906) (14,771)
Interest paid (142,953) (215,912) (259,610) (321,244)
CASH PROVIDED BY OPERATING ACTIVITIES 255,544 124,899 404,698 450,598
INVESTMENT ACTIVITIES:
Securities (56,000) - - -
Investments in fixed assets (131,165) (127,636) (178,162) (177,255)
Investments in intangible assets (8,904) (12,653) (8,975) (12,797)
Investments in biological assets - - (178,775) (190,783)
Acquisition of subsidiary, net cash acquired (50,827) - (50,270) -
Dividends received from subsidiaries 250,000 199,999 - -
Payment of capital in subsidiaries - (288,787) - -
Acquisition of company shares under common control - - - (92,907)
Acquisition of company shares - (4) - -
Advance for future capital increase in subsidiaries (124,310) - - -
CASH USED IN INVESTMENT ACTIVITIES (121,206) (229,081) (416,182) (473,742)
FINANCING ACTIVITIES:
Financing 517,613 376,161 529,248 2,015,008
Debentures - (152,611) - (152,611)
Amortization of financing (605,210) (330,977) (855,187) (1,241,178)
Interest on capital and dividends (6,046) (102,984) (6,084) (105,516)
Capital increase by private subscription of shares - 20,640 - 20,640
Treasury shares 80 - 80 -
NET CASH FLOW FROM FINANCING ACTIVITIES (93,563) (189,771) (331,943) 536,343
Exchange variations on cash and cash equivalents - - 1,431 (7,560)
INCREASE (DECREASE) IN CASH FOR THE YEAR 40,775 (293,953) (341,996) 505,639
OPENING BALANCE 361,923 655,876 1,416,360 910,721
FINAL BALANCE 402,698 361,923 1,074,364 1,416,360
Duratex S.A. - Listed company
National Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47
STATEMENT OF CASH FLOWS
PARENT COMPANY CONSOLIDATED
PROFIT (LOSS) BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION
12
(In thousands of Reais)
12/31/2017 12/31/2016 12/31/2017 12/31/2016
REVENUE 4,224,331 4,077,945 5,138,968 4,964,538
Gross sales revenue 4,202,115 4,060,098 5,027,342 4,892,035
Other revenue 35,105 35,175 124,226 94,308
Allowance for doubtful accounts (12,889) (17,328) (12,600) (21,805)
Inputs acquired from third parties (2,983,056) (2,827,983) (2,987,231) (2,870,970)
Cost of sales (2,512,315) (2,383,707) (2,406,645) (2,331,197)
Materials, energy, outsourced services and others (470,741) (444,276) (580,586) (539,773)
Gross value added 1,241,275 1,249,962 2,151,737 2,093,568
Depreciation, amortization and depletion (304,420) (295,675) (565,449) (584,102)
Net value added 936,855 954,287 1,586,288 1,509,466
Value added received through transfer 318,248 259,831 163,031 147,964
Financial income 84,808 73,761 163,031 147,964
Equity in the results of investees 233,440 186,070 - -
Value added to be distributed 1,255,103 1,214,118 1,749,319 1,657,430
Personnel compensation 556,092 530,675 712,914 668,591
Direct compensation 443,748 417,919 568,409 525,878
Benefits 80,912 80,157 106,323 104,424
Severance indemnity fund (FGTS) 30,382 31,237 36,910 36,672
Other 1,050 1,362 1,272 1,617
Government taxes 293,831 359,886 483,621 516,486
Federal 237,626 219,467 417,028 365,744
State 49,565 133,605 53,212 140,545
Municipal 6,640 6,814 13,381 10,197
Financing remuneration (interest) 220,305 299,911 367,769 446,124
Stockholders' remuneration 184,875 23,646 185,015 26,229
Dividends/ Interest on capital 60,840 6,052 60,840 6,052
Retained earnings 124,035 17,594 124,035 17,594
Noncontrolling interests - - 140 2,583 - - - -
Total value added distributed 1,255,103 1,214,118 1,749,319 1,657,430
13
DISTRIBUTION OF VALUE ADDED
Duratex S.A. - Listed company
National Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47
STATEMENT OF VALUE ADDED
(Required by accounting practices adopted in Brazil and supplementary information under IFRS)
PARENT COMPANY CONSOLIDATED
(A free translation of the original in Portuguese)
(In thousands of Reais) (A free translation of the original in Portuguese)
BALANCES AS AT DECEMBER 31, 2015 1,875,800 (7,823) 337,140 - 66,005 1,829,831 459,459 (27,931) - 4,532,481 83,995 4,616,476
COMPREHENSIVE INCOME FOR THE YEAR
Net Income for the year - - - - - - - 23,646 23,646 2,583 26,229
Accumulated conversion adjustments - - - - - (54,179) - - (54,179) (11,257) (65,436)
Actuarial net gain (loss) - - - - - (5,215) - - (5,215) - (5,215)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR - - - - - (59,394) - 23,646 (35,748) (8,674) (44,422)
Noncontrolling Interest acquisition - - - (18,731) - - - - - (18,731) (74,176) (92,907)
Capital Increase 94,389 - - - - - - - 94,389 - 94,389
Premium on the subscription of shares - - 11 - - - - - 11 - 11
Share options granted 28 - - 5,061 - - - - - 5,061 - 5,061
Adjustment of debentures convertible into shares - - - - - (1,904) - - (1,904) - (1,904)
Realization of revaluation reserve - - - (5,102) - - - 5,102 - - -
APPROPRIATION OF NET INCOME FOR THE YEAR
Allocated to the legal reserve - - - - 1,182 - - (1,182) - - -
Proposed dividends - - - - - - - (6,052) (6,052) - (6,052)
Appropriation to tax incentives (Article 195-A - Law no. 6.404/76) - - - - 7,394 - - (7,394) - - -
Appropriation to reserves - - - - 14,120 - - (14,120) - - -
BALANCES AS AT DECEMBER 31, 2016 1,970,189 (7,823) 342,212 (18,731) 60,903 1,852,527 398,161 (27,931) - 4,569,507 1,145 4,570,652
14
Total
Stockholders'
equity
Duratex S.A - Listed company
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYNational Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47
Note CapitalCosts on issue
of sharesCapital reserves
Revaluation
reserves
Capital
transactions
with partners
Revenue
reserves
Carrying value
adjustments
Treasury
shares
Retained
earningsTotal
Noncontrolling
interests
(In thousands of Reais) (A free translation of the original in Portuguese)
BALANCES AS AT DECEMBER 31, 2016 1,970,189 (7,823) 342,212 (18,731) 60,903 1,852,527 398,161 (27,931) - 4,569,507 1,145 4,570,652
COMPREHENSIVE INCOME FOR THE YEAR
Net Income for the year - - - - - - - - 184,875 184,875 140 185,015
Accumulated conversion adjustments - - - - - - 19,999 - - 19,999 206 20,205
Actuarial net gain (loss) - - - - - - (1,305) - - (1,305) - (1,305)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR - - - - - - 18,694 - 184,875 203,569 346 203,915
Noncontrolling interest acquisition - - - - - - - - - - (246) (246)
Ceusa acquisition - non controlling interest - - - - - - - - - - (291) (291)
Share options granted - - 3,088 - - - - - - 3,088 - 3,088
Realization of revaluation reserve - - - - (3,559) - - - 3,559 - - -
Sale of treasury shares - - - - - - - 80 (39) 41 - 41
Interests on capital - - - - - - - - (60,840) (60,840) - (60,840)
APPROPRIATION OF NET INCOME FOR THE YEAR - - - - - - - - - - - -
Allocated to the legal reserve - - - - - 9,244 - - (9,244) - - -
Appropriation of tax incentives article 195-A Law 6.404/76 - - - - - 26,786 - - (26,786) - - -
Appropriation to reserves - - - - - 91,525 - - (91,525) - - -
BALANCES AS AT DECEMBER 31, 2017 1,970,189 (7,823) 345,300 (18,731) 57,344 1,980,082 416,855 (27,851) - 4,715,365 954 4,716,319
15
Revenue
reserves
Carrying value
adjustments
Treasury
shares
Retained
earningsTotal
Noncontrolling
interests
Total
Stockholders'
equity
Duratex S.A - Listed company
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYNational Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47
Note CapitalCosts on issue
of sharesCapital reserves
Revaluation
reserves
Capital
transactions
with partners
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
16
NOTES TO THE FINANCIAL INFORMATION AS AT DECEMBER 31, 2017
(All amounts in thousands of Brazilian Reais, unless otherwise indicated)
Note 1 – Operations a) General information Duratex S.A. (“the Company”) is a publicly-traded corporation headquartered in the city of São Paulo, SP, Brazil. Its controlling stockholders are Itaúsa - Investimentos Itaú S.A., which has significant operations in the financial and industrial sectors, and Companhia Ligna de Investimentos, which operates principally in the retail market and distribution of civil construction and woodworking materials, and in property construction and rental. The main activities of Duratex and its subsidiaries (collectively “Group”) comprise the manufacture of wood panels (Wood Division), ceramics and sanitary metals, showers and ceramic tiles (Deca Division). Duratex presently has 15 industrial plants in Brazil and 3 industrial plants in Colombia, through of its subsidiary Duratex S.A. (current name of Tablemac S.A.), maintaining branches in the main Brazilian cities and commercial subsidiaries in the United States, Belgium and Peru. The Wood Division operates five industrial plants in the country and three in Colombia, responsible for the production of hardboard, medium density particle (MDP) panels, medium and high density fiberboard (MDF and HDF) panels, laminate flooring of Durafloor trademark and semi-finished components for furnitures. The Deca Division operates with twelve industrial plants in the country, responsible for the production of sanitary ceramic, metal products, showers and ceramic tiles under the trademarks Deca, Hydra, Belize, Elizabeth, Hydra Corona and Ceusa. b) Approval of financial statements The financial statements of Duratex S.A. and subsidiaries (parent company and consolidated) were approved by the Board of Directors of Duratex S.A. on February 05, 2018. Note 2 – Summary of significant accounting policies The main accounting policies applied in the preparation of these financial statements are as set out below. These policies were consistently applied to the exercises presented. 2.1 – Basis of preparation
The financial statements were prepared considering historical costs as base of value, with financial assets held for trading and financial liabilities (including derivative instruments) measured at fair value. The preparation of financial statements requires the use of certain critical accounting estimates and also the use of judgment by the Company's management in the process of applying the Group's accounting policies. Those areas that requiring the highest level of judgment and having the greatest complexity, as well as the areas where assumptions and estimates are significant for the financial statements, are disclosed in Note nº 3. The non-financial data included in these financial statements, such as planted area and number of units, and others, have not been object of audit, or review by the independent auditors.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
17
Going concern The Management evaluated the Company and its subsidiaries the capacity to continue in normally operating and is convinced that has resources to give continually in its business in the future. Additionally, the Management doesn’t have knowledge of any material uncertainty that can generate significate doubts about its capacity to continue operating. So, these financial statements were prepared based on the presupposed of continuity. Consolidated and Separate Financial Statements The separate (parent company) and consolidated financial statements were prepared and are being presented according to the accounting practices adopted in Brazil, which comprise the rules of CVM and pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPCs), which are comply with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The presentation of individuals and consolidates Statements of Value Added Statement is required by the Brazilian corporate legislation and Brazilian accounting practices for listed companies. As result, the IFRS does not require the disclosure of that statement. It is considered supplementary information, without prejudice to the financial statements. They were prepared following CPC 09 - Statement of Added Value. Its purpose is to evidence the wealth created by the Company during the year, as well as to demonstrate its distribution among the various stakeholders. 2.2 – Consolidation 2.2.1 – Consolidated financial statements The following accounting policies were applied to the preparation of the financial statements: (a) Subsidiaries The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at December, 31 2017. The control is obtained when the Company is exposed or entitled to variable returns based on its involvement with the investee and has the capacity to affect those returns through the power exercised in relation to the investee. Specifically, the Company controls an investee if, and only if, it has: i) power related to the investee (that is, existing rights that guarantee the current capacity to direct the relevant activities of the investee); ii) exposure or right to variable returns based on their involvement with the investee; and (iii) the capacity to use its power related to the investee to affect results. Generally, there is a presumption that a majority of voting rights results in control. In order to support this presumption and when the Company has less than the majority of the voting rights or similar of an investee, the Company considers all the facts and circumstances pertinent when assessing whether it has power related to an investee, including: i) the agreement contractual relationship with other investees; ii) rights arising from contractual agreements; and iii) the voting rights and potential voting rights of the Company. The consolidated financial statements includes the following companies: Duratex S.A. and its direct subsidiaries: Duratex Florestal Ltda., Hydra Corona Sistemas de Aquecimento de Água Ltda., ( current name of Duchacorona Ltda.), Cerâmica Urussanga S.A. (Ceusa), Massima Revestimentos Cerâmicos Ltda., Estrela do Sul Participações Ltda., Duratex Empreendimentos Ltda., Bale Comércio de Produtos para Construção S.A., Pescara Administração e Participações S.A., Trento Administração e Participações S.A., Duratex Europe N.V., Duratex Andina S.A.C. and its indirect
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
18
subsidiaries: Duratex North America Inc., Duratex Belgium N.V., Duratex S.A. (current name of Tablemac S.A.), Tablemac MDF S.A.S and Forestal Rio Grande S.A.S.. (b) Business combination The Group uses the acquisition method for book the business combination. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, liabilities incurred and equity instruments issued by the Group. The consideration transferred includes the fair value of assets and liabilities resulting from a contingent consideration agreement, if applicable. Acquisition-related costs are recognized in the net income of the year as incurred. The identifiable assets acquired and contingent liabilities assumed in a business combination are initially measured at their fair value on the acquisition date. The group recognizes non-controlling interests in acquires either at their fair value or at the non-controlling interest's proportionate share of the acquires fair value of net assets. The measurement of the non-controlling interest is determined for each acquisition realized. The excess of the consideration transferred and the acquisition date fair value of any previous equity interest in the acquire over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If the acquisition cost is less than the fair value of the net assets of the acquired subsidiary, the difference is recognized directly in the statement of income as gain. Intercompany transactions between consolidated companies, as well as the balances and unrealized gains and losses in relation to those transactions, were eliminated. When required, the subsidiaries' accounting policies were adjusted to ensure consistency with the accounting policies of the Company. (c) Transactions and participation of non-controlling They are registered as identical manner to operations with stockholders of the Group. For acquisitions of non-controlling ownership interests, the difference between any consideration paid and the acquired portion of the parent company’s net assets are recorded in stockholders’ equity (on capital transactions with partners), as well as gains or losses on sales to non-controlling stockholders. (d) Investment in jointly controlled entity (joint operation) Duratex Florestal Ltda. subsidiary of Duratex S.A., which holds 99,99% of its capital and Usina Caeté S.A. have partnership agreement to jointly control the Caetex Florestal S.A., a joint operation created for the formation of eucalyptus forests in northeastern of Brazil. This association will mature in 39 years and each partner has a 50% share of the voting capital of Caetex Florestal S.A. 2.2.2 – New accounting standards, amendments and interpretations They were issued by the International Accounting Standards Board (IASB) but were not effective until on December 31, 2017 for early adoption in Brasil. The Company and its subsidiaries not adopted these changes in the preparation of these financial statements. The Group is obligate to adopt CPC 48/ IFRS 9 Financial Instruments and CPC 47/ IFRS 15 Revenues from contracts with customers beginning from January 1st, 2018. The Group have already valuated the estimated impact that the initial application from CPC 48/ IFRS 9 (a) and CPC 47/ IFRS 15 (b) will have in its consolidated financial statements. The estimated impact of adoption of these standards on equity from the Group on January 1st, 2018 is based in valuations realized until the issue date of these financial statements. The new accounting policies are subject
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
19
to changes until the Group presents its first financial statements that include the initial application date. Estimated impact of adoption of CPC 48/ IFRS 9 and CPC 47/ IFRS 15 The total estimated adjust (net of tax) in the initial balance from stockholders’ equity of the Group on January 1st, 2018 is R$ 4,215. The mainly components of the estimated adjust are as follows: (a) A reduction in retained earnings of R$ 1,654 (net of taxes), due to losses by decrease to the
recoverable value of trade accounts receivable. (b) A reduction in retained earnings of R$ 2,561 (net of taxes), due to recognition of deductions
from sales by bonus given to the customers by achievement of volumes from purchase of products.
(a) CPC 48/ IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 - Financial Instruments, which replaces IAS 39 – Financial Instruments: Recognition and Measurement and all early versions of IFRS 9. The IFRS 9 gather three aspects of the project of accounting financial instruments: classification and measurement, reduction to the recoverable value of asset and accounting of hedge. The IFRS 9 is in force for annual periods beginning from January 1st, 2018, being allowed its early application. Except in the accounting of hedge, it is necessary the retrospective application; however, the supply of comparatives information is not compulsory. The Group will adopt the new standard in the effective date required and do not submit again the comparatives information. In 2017, the Group realizes a detailed valuation of impact of the three aspects of IFRS 9. In general, the Group doesn’t predict any significate impact in the balance sheet and statement of changes in stockholders’ equity, except by the effect from application of the requirements of reduction of recoverable value of IFRS 9. The Group expects an increase of provision for losses, resulting in a negative impact on stockholders’ equity, in according to described below: (a1) Classification and measurement The Group does not expect significant impacts in its balance sheet or stockholders’ equity in the application of classification and measurement requirements of IFRS 9. Loans, as well as, trade accounts receivable are maintained for capture contractual cash flow and should generate cash flow representing just payments of principal and interests. The Group analyses the contractual characteristics of cash flow from these instruments and conclude that they meet the criteria of amortized cost measurement in accordance to IFRS 9. Therefore, do not necessary the reclassification for these instruments. (a2) Reduction to the recoverable value The IFRS 9 require that the Group record the expected credit losses in all its debt titles, loans and trade accounts receivable. The Group will apply the simplified approach and will record expected losses during all life in trade accounts receivable. The Group determines that due to the nature not guaranteed from its receivables, the provision for losses will increase in R$ 2,506, with correspondent reduction of the deferred fiscal liability in the amount of R$ 852.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
20
(a3) Accounting of hedge Once IFRS 9 does not change the general principles as the entity record effectives hedges, the requirements application of hedge from IFRS 9 won’t have significates impacts in the financial statements from the Group. In resume, expects that the impact of adoption of IFRS 9 be the follow:
Asset
Accounts receivable from customers (2,506)
Deferred income tax and social contribution 852
Stockholders' equity
Retained earnings (1,654) (b) CPC 47/ IFRS 15 Revenue from contracts with clients The IFRS 15 was issued in May 2014, changed in April 2016 and establishes a model of five steps for accounting of revenues from contracts with clients. In accordance to IFRS 15, the revenue is recognized by a value that reflects the counterpart that an entity expects to have rights in return of transfer of goods or services for a client. The new standard will replaces all current requirements of recognition of revenue in accordance to IFRS. The complete retrospective application or the modified retrospective application will be required for annual periods beginning from January 1st, 2018. The Group will apply the new standard in the current date required based on the complete retrospective method. Sale of goods For contracts with clients that in generally expects that the sale of products be the only obligation of execution, the adoption of IFRS 15 shouldn’t have impact and in the revenue and in the result from the Group. The Group expects that the revenue recognition occurs in the moment that the control of goods is transferred for the client, generally by delivery of goods. The reduction in retained earnings of R$ 2,561 (net of taxes) due to recognition of deduction from sales by bonus given to the clients by achievement of estimative of volumes from purchase of products. In resume, expects that the impact of adoption of IFRS 15 be the follow:
Asset
Deferred income tax and social contribution 1,319
Liability
Accounts payable 3,880
Stockholders' equity
Retained earnings (2,561) IFRS 16 - Leases, which replaces IAS 17, unifying the accounting treatment of operating and finance leases for the model similar to financial leasing with impact on fixed asset and financial liability. This standard will effective in January 1st, 2019 and the Company is evaluating the content and the possible impacts of the adoption of this pronouncement.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
21
There are no other standards and interpretations issued and not yet adopted that, in Management's opinion, have a significant impact on the results or stockholders’ equity disclosed by the Company. 2.3 – Presentation of segmented information Segmented information is presented consistently with the main operating decision maker. The main operating decision maker, responsible for allocating funds and evaluating the performance of operating segments, is the Company's Board of Directors, which is in charge of the Group's strategic decision making, with the support of the Supervisory Board. 2.4 – Foreign currency translation (a) Functional currency and presentation currency The items included in the financial statements of each of the companies are measured using the main currency of the economic environment in which the respective company operates (“the functional currency”). The individual and consolidated financial statements are presented in Brazilian Reais, which is the Company’s functional and also presentation currency of financial statements.
(b) Transactions and balances Transactions in foreign currencies are converted into the functional currency using the exchange rates prevailing on the transaction or evaluation dates in the event that the items are remeasured. Exchange gains and losses arising from the settlement of those transactions and from the conversion at period-end exchange rates of monetary assets and liabilities in foreign currencies are recognized in the statement of income as financial income or expenses, except when they are recorded directly in stockholders' equity and considered to be a hedge of net investments. (c) Companies of the group with different functional currencies The net income and financial position of the subsidiaries located abroad (none of which operate in hyperinflationary economy), whose functional currency is different from the presentation currency (Brazilian Reais), are converted into the presentation currency as follow:
assets and liabilities are translated at the exchange rate on the balance sheet date;
income and expenses are translated at the average exchange rate for the month in which they are recorded;
all resulting exchange-related differences are recognized in stockholders' equity as “accumulated conversion adjustments” and are recognized in the net income when the investments are realized;
goodwill and fair value adjustments resulting from the acquisition of a foreign entity are recognized as assets and liabilities of the foreign entity and translated at the closing exchange rate. 2.5 – Cash and cash equivalents Cash and cash equivalents include cash, bank deposits and other short-term highly liquid investments with original maturities of three months or less, and subject to an insignificant risk of changes in value.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
22
2.6 – Financial assets 2.6.1 – Classification The classification of financial assets is determined by Management when they are initially recognized, and depends on the purpose for which they were acquired. The financial assets are classified into two categories: (a) Financial assets measured at fair value through profit or loss A financial asset is classified in this category if it was acquired, mainly, for short-term sale purposes and it is booked as current assets. Derivatives are also categorized as held for trading, unless they have been designated as hedging instruments. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market. They are included in current assets, except for those maturing at least 12 months after the balance sheet issue date, which are classified as non-current assets. Loans and receivables represent accounts receivable from clients, other accounts receivable and cash and cash equivalents, except for short-term investments. 2.6.2 – Recognition and measurement Purchases and sales of financial assets are recognized on the trading date, which is the date when the Company and its subsidiaries commit to buy or sell the asset. Loans and receivables are recorded at amortized cost using the effective interest rate method. Financial assets classified at fair value through profit or loss is initially recognized at their fair value, and transaction costs are charged to the statement of income. Financial assets are written off when the rights to receive cash flow from the investments have been realized or transferred, and, in the latter case, as long as the Company and its subsidiaries have transferred significantly all of the risks and benefits of ownership. Financial assets measured at fair value through profit or loss is subsequently recorded at fair value. Gains or losses resulting from fluctuations in the fair values of financial assets measured at fair value through profit or loss are presented in the statement of income in the year in which they occur. The fair values of publicly quoted assets and liabilities are based on their current purchase prices. If the market of a financial asset (for securities not listed in a stock exchange) is not active, the Company establishes fair value by using valuation techniques. These techniques include the use of transactions with third parties, reference to other substantially similar instruments, analysis of discounted cash flow models and option pricing models making the maximum use of information generated by the market and the least possible use of information generated by the Management of the Company.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
23
2.6.3 – Offsetting of financial instruments Financial assets and liabilities can be reported at their net amounts in the balance sheet only when there is a legal right to offset the amounts recognized and there is intent to settle them on a net basis, or to realize the asset and settle the liability simultaneously. 2.6.4 – Impairment of financial assets At the end of each reporting year, the Company and its subsidiaries evaluates whether there is objective evidence that a financial asset or group of financial assets has been impaired. An asset or group of financial assets is deemed to be impaired, and impairment losses are incurred, only if there is objective evidence of impairment as a result of one or more events occurring after the initial recognition of the assets (a “loss event”) and that event (or events) of impairment have an impact on the estimated future cash flow from the financial asset or group of financial assets which can be reliably estimated. The criteria used by the Company and its subsidiaries to determine whether there is objective evidence of an impairment loss include:
relevant financial difficult of the issuer or debtor;
a breach of contract, such as a default or delay in the payment of interest or principal;
the disappearance of an active market for that financial asset due to financial difficulties, or
observable data indicating a measurable reduction in the estimated future cash flow from a financial asset portfolio since the initial recognition of those assets, even if the decrease cannot yet be allocated to the individual financial assets in the portfolio, including:
a) adverse changes in the payment situation of the portfolio's borrowers; b) national or local economic conditions correlating with adverse changes in the payment
situation of the portfolio's borrowers; c) national or local economic conditions correlating with defaults on the portfolio's assets. The Company and its subsidiaries first evaluate whether there is objective evidence of impairment. The loss amount by impairment is measured as the difference between the book value of the assets and the present value of estimated future cash flow (excluding future credit losses not yet incurred) discounted based on the original interest rates of the financial assets. The book value of the assets is reduced and the amount of the loss is recognized in the statement of income. If a loan or investment maintained until maturity date has a variable interest rate, the discount rate utilized to measure the impairment loss is the current effective interest rate determined in accordance with the contract. For practical purposes, the Company and its subsidiaries can measure the impairment based on the fair value of the instrument, utilizing an observable market price. If, in a subsequent period, the value of the impairment loss decreases and the decrease can be objectively related to an event that has occurred after the impairment has been recognized, (such as an improvement in the debtor's credit classification), the reversal of the previously recognized impairment loss is recognized in the statement of income. 2.7 – Derivative financial instruments and hedging activities Derivatives are initially recognized at fair value on the date when the derivative agreement is entered into, and are subsequently, remeasured at fair value through the results. Derivatives are contracted as a form of financial risk management, and the Company’s policy is not to enter into leveraged derivative transactions.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
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Although the Company does not have a hedge accounting policy, it has designated certain debts at fair value through profit or loss, because of the existence of derivative financial assets directly related to loans, as a means of avoiding the recognition of gains and losses in different periods. 2.8 – Trade accounts receivable Trade accounts receivable are recorded and maintained at the nominal value of the titles obtained from sales of products, plus exchange variations, when applicable. Trade accounts receivable mainly relate to short-term operations, and are therefore not discounted to their present value, because no represents significant adjustments on the financial statements. The estimated loss with impairment in the accounts receivable is made based on the analysis of the risk of realization of the credit receivables, at an amount considered sufficient by Management to cover potential losses on the realization of these assets. 2.9 – Inventory Inventory is stated at the average purchase or production cost, not exceeding the replacement cost or realizable amount, between two, the lower. Imports in transit are stated at the cost of each import. The cost of finished goods and work in progress comprises the cost of raw materials, direct labor, other direct costs and related direct production costs (based on normal capacity). The net realizable value is the estimated selling price in the normal course of business, less the estimated costs of conclusion and the estimated costs necessary to make the sale. 2.10 – Intangible assets The account group that comprise the intangible assets are as follows: Goodwill Goodwill is represented by the positive difference between the amount paid and or payable for the acquisition of a business and the net fair value of the assets and liabilities of the acquired subsidiary in a business combination. Goodwill is not amortized in the accounting and only will be written off by sale or by impairment, through annual test to identify whether there is any need to record of losses. This goodwill is realized (amortized) for tax purposes, having base the current law, being that the corresponding income tax and social contribution is constituted. Goodwill is allocated to Cash Generating Units (UGCs) for impairment. The allocation is made for the Cash Generating Unit or for the group of Cash Generating Units that should to benefit from the business combination on which the goodwill arose. Trademarks and patents Separately acquired trademarks and licenses are initially stated at historical cost. Trademarks and licenses acquired during a business combination are recognized at their fair value on the acquisition date. Contractual relationships with customers – customer portfolio Customer relationships acquired just in a business combination are recognized at fair value on the acquisition date. Customer relationships have finite useful lives and therefore are amortized. Amortization is calculated using the straight line method over the expected useful life of the customer relationship.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
25
Softwares Acquired software licenses are recorded as capital expenditure at the amount of the costs incurred to acquire the software and prepare it for use. The cost is amortized over the estimated useful life of the software. 2.11 – Property, plant and equipment Items of property, plant and equipment are stated at their cost of acquisition, formation or construction, including financing costs related to the acquisition of assets that require some time to get done, net of accumulated depreciation calculated by straight line method, and taking into consideration the estimated economically useful lives of the respective assets and, which are reviewed at the end of each year. Subsequent costs are included in a book value of asset, or are recognized as a separate asset, as applicable, only when it is likely that the future economic benefits associated to the item and that the cost can be measured with security. The book values of replaced items and parts are written off. All other repair and maintenance costs are recorded against results for the year in the period of occurrence. The value of property, plant and equipment is reduced to its recoverable amount if the book value exceeds the estimated recoverable amount. Gains and losses on disposals are determined by comparing the results with the book value and are recognized in "other operating income (losses), net". 2.12 – Impairment of non-financial assets Assets which have an indeterminate useful life, such as Goodwill, are not subject to amortization and are tested annually for impairment. The assets subject to depreciation or amortization are tested whenever there is objective evidence (events or changes of circumstances) that the book value may not be recoverable. For this purpose, the companies take into consideration the effects arising from obsolescence, demand, competition and other economic factors. For impairment testing purposes, assets are grouped at the lowest level for which there is separately identifiable cash flow (Cash Generating Unit - UGCs). 2.13 – Biological assets Forest reserves are recognized at their fair value, less the estimated selling costs at harvest time, as described in Note 15. For immature plantations (up to one year old), the cost is considered to approximate at the fair value. Gains or losses arise from the recognition of biological assets at their fair value, less selling costs, are recognized in the statement of income. The depletion appropriated to the results is made by the formation costs portion and the fair value adjustments portion. The effect of the variation in the fair value of a biological asset is presented in a separate account in the statement of income. 2.14 – Loans and financing Borrowing is initially recognized at its fair value when funds are received, net of transaction costs, and subsequently stated at amortized cost, in other words, with the addition of charges and interest proportional interests to the incurred period (calculated on a pro rata basis), using the effective interest rate method, except for those which has derivative instruments of protection, which will be valuated at fair value.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
26
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, i.e. an asset that requires a substantial period of time to be done for its use or sale, are capitalized as part of the cost of the asset when it is probable that will result in future economic benefits to the entity which can be reliably measured. Other borrowing costs are recognized as expenses in the year in which they are incurred. 2.15 – Accounts payable to suppliers and provisions Suppliers Accounts payable to suppliers are obligations to pay for goods or services that were purchased in the ordinary course of business, and are classified as current liabilities if payment is due in the period as at one year. Otherwise, the accounts payable are presented as non-current liabilities. Accounts payable are initially recognized at their nominal value, which is equivalent to the fair value, and, subsequently, measured at amortized cost using the effective interest rate method. Provisions Provisions are recognized when there is a present legal or no formalized as result from past events, and which being probable the necessity of disbursement of funds will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognized to the future operating losses. Provisions are measured at the present value of the expenses that should be necessary to settle the obligation, and reflecting the risks specific to the obligation. 2.16 – Current and deferred income tax and social contributions The income tax and social contributions are calculated based on the net income for the year before constitution of income tax and social contribution, adjusted by inclusions and exclusions in accordance to current tax legislation. Deferred income tax and social contributions are recognized on temporary differences between the tax basis of assets and liabilities and their book values in the financial statements. In practice, on accounting profit inclusions of expenses and exclusion of revenue, both are temporary no taxable, generate records of credit or debit of deferred tax. These taxes are recognized in the statement of income, except for the proportion related to items directly recognized in stockholders’ equity. In this case, the tax is also recorded in stockholders’ equity. Current income tax and social contributions are presented in liabilities on a net basis when there are amounts payable or in assets when the amount paid in advance exceeds the total owed at the reporting date. Assets and liabilities deferred taxes are presented net, if exists the legal right or contractual to offset the fiscal asset against fiscal liability, and the deferred tax are related to the same taxable entity and subject to the same taxable authority. Deferred taxes and contributions are recognized only if their offsetting against future taxable income is probable. 2.17 – Employee benefits (a) Pension and health plans The Company and some of its subsidiaries offer to all of their employees a defined contribution plan managed by Fundação Itaúsa Industrial. The regulations of the plan establish that the
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
27
sponsoring companies will make a contribution ranging from 50% to 100% of the amount contributed by the employees. The Company previously offered a defined benefit plan to its employees, but this plan is being phased out, with enrollment not permitted for new participants. In relation to the defined contribution plan, the Company and its subsidiaries have no further additional of payment obligations after the contributions are made. The contributions are recognized as employee benefit expenses when they are due. Contributions made in advance are recognized as an asset to the extent that these contributions lead to an effective reduction in future payments. The Company offers both contributory plans, currently with co-participation, as contributories plans (Tubarão – SC unit) to its employees and their dependents, through 13 health care providers, totaling 29,394 lives (actives, dismissed, retired and dependents) characterizing the obligation of extension to coverage for dismissed and retired persons according to Law 9,656/98. (b) Share-based compensation The Company offers to its executives a compensation plan based on stock options, according to which it receives their services from executives as consideration for the stock options granted. The fair value of stock options granted, is recognized as an expense, with a corresponding entry to stockholders’ equity during the year in which the executives render the services and acquire the right to exercise the stock options. The fair value of the options granted is calculated at the grant date of the options, and at each balance sheet, the Company revises its estimates of the quantity of shares it expects to issue, based on the vesting conditions. (c) Profit sharing The Company and its subsidiaries compensate their employees through profit sharing if established performance targets are met in the year. This remuneration is recognized as a liability and an expense in the operating results when the employee fulfils the established performance conditions. 2.18 – Capital The common shares are classified in stockholders’ equity. Incremental costs directly attributable to the issue of new shares or options are presented in stockholders’ equity as a deduction from the funds obtained, net of taxes. The amount paid for the acquisition of treasury shares, including any directly additional attributable costs, is deducted from the equity attributable to the stockholders until the shares are cancelled, sold or utilized in the stock option plan. 2.19 – Revenue recognition Revenue represents the fair value of the consideration received or receivable for the sale of products in the normal course of the activities of the Company and its subsidiaries. Revenue is stated net of taxes, returns, discounts or rebates granted, as well as the elimination of intercompany sales, and is recognized when its amount can be reliably measured, and when it is probable that future economic benefits will be obtained by the Company and specific criteria, detailed below, for each of the relevant activities have been met.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
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(a) Sales of goods Sales revenue is recognized on the delivery of the products, as well as by the transfer of the risks and benefits to the buyer. (b) Financial income Financial income is recognized in accordance with the elapsed period, using the effective interest rate method. When a loss (impairment) is identified on a financial instrument, the Company and its subsidiaries reduce the book value to its recoverable value, which corresponds to the estimated future cash flow, discounted at the original effective contractual interest rate of the instrument. 2.20 - Variation in the fair value of biological assets They are recognized by the valuation of the expected volumes at harvest point, by the current market prices based on the volume estimates. 2.21 – Leases The Company has lease contracts on land utilized for forestry activities. In these contracts, the risks and rights of ownership are retained by the lessor, and the leases are therefore classified as operating leases. The costs incurred in operating lease agreements are recorded as part of the cost of formation of biological assets, using the straight line method, over the contractual period. 2.22 – Distribution of dividends and interests on capital The distribution of dividends or interests on capital to Company stockholders is recognized as a liability in the financial statements at the end of each year, or on interim dates, as determined by the Supervisory Board. The balance is calculated based on the minimum dividend established in the Company's bylaws, net of the amounts approved and paid during the year. Note 3 – Critical accounting judgments and estimates During the preparation of the financial statements, accounting judgments, estimates and assumptions are utilized to record the amounts of certain assets, liabilities and other transactions. The definition of estimates and accounting judgments adopted by Management were based on the information available on the date, involving experience of past events and forecasts of future events. The financial statements includes several estimates, as: the useful lives of property plant and equipment, realization of deferred tax credits, impairment in the trade accounts receivable, inventory losses, the evaluation of the fair value of biological assets, and provision for contingencies, impairment testing of goodwill, pension plan and health benefits and others. The main estimates and assumptions that entail a substantial risk with probability to causes adjustments in the book values of assets and liabilities are presented below: a) Risk of variations in the fair value of biological assets The Group used several estimates to evaluate its forestry reserves in accordance with the methodology established by CPC 29/IAS 41 – “Biological asset and agriculture product”. These estimates were based on market references, and are subject to scenarios changes which could impact the financial statements. Specifically, a 5% reduction in standing wood market prices would result in a reduction in the fair value of biological assets in order to R$ 55.7 million, net of tax effects. If the discount rate used were increased by 0.5%, this would result in a reduction in the fair value of biological assets of about R$ 11.6 million, net of tax effects.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
29
b) Estimated impairment of goodwill The Company and its subsidiaries test the goodwill on annual basis or if there is an indication any time possible impairment of goodwill in accordance with accounting policy presented in the notes 2.10 and 2.12. The balance can be impacted by changes in the economic and market scenario. c) Pension plan and health benefits The current value of assets/ liabilities related to pension plans and health depends on a number of factors that are determined using actuarial calculations. These calculations involve a series of assumptions, including the discount rate and current market conditions. Any changes in these assumptions will affect the corresponding book values. d) Provision for contingencies The Group constitute provision for tax, labor, civil and social security contingencies, based on valuation of probability of loss that are made by legal advisors from the Company, the amounts are updated and believe that the constituted provisions as at closing date are sufficient for cover eventual losses with lawsuits and administrative in progress. e) Fair value of financial instruments When the fair value from financial assets and liabilities presented in the balance sheet cannot be obtained of market assets, are determined utilizing valuation techniques, including cash flow discounted method. The data for these methods is based in those practiced in the market, when it possible, however, when this does not viable, a determined level of judgement is required for establishes the fair value. The judgment includes considerations on used data, for example, risk of liquidity, risk of credit and volatility. Changes in the assumptions on these factors could affect the fair value presented of the financial statements. Note 4 – Financial risk management 4.1 Financial risk factors The Company and its subsidiaries are exposed to market risk in relation to fluctuations of interest, exchange rates and credit. So, the risk manage follows the policies approved by Board of Directors, including monitoring by Audit and Management of Risk Committee. The Company and its subsidiaries have procedures to manage these situations and can use hedging instruments to reduce the impact of the risks. These procedures include monitoring the level of exposure to each market risk, in addition to establish limits for the respective decision-making. All hedging transactions entered into by the Group are intended to protect its debts and investments. The Group does not utilize any leveraged financial derivatives. Market risk (I) Exchange rate risk: Exchange rate risk corresponds to a reduction in the value of the Group's assets or an increase in its liabilities due to changes in exchange rates. The Company and its subsidiaries have indebtedness policy that establishes the maximum amount in foreign currency to which it is exposed to exchange rate variations.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
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In line with the risk management procedures, the objective is to minimize the foreign exchange exposure of the Company and its subsidiaries, hedging mechanisms are maintained, in order to mitigate, in large part, the foreign exchange exposure. (II) Derivatives: In terms of derivative instruments, there are no verifications, monthly settlements or margin calls are made, and the contracts are settled upon maturity and recorded at fair value, considering the market conditions for terms and interest rates. The outstanding contracts as at December 31, 2017 were as follow: a) US$ vs. Interbank deposit certificate (CDI) swap agreements The Company has four agreements of this nature, whose aggregate notional amount is US$ 181,300,000, and varying maturities up to August 16, 2019, with an asset (purchase) position in US Dollars and a liability (sale) position in CDI. The Company made these agreements in order to change its debts denominated in US Dollars into debts indexed to the CDI. b) Fixed rate vs. Interbank deposit certificate (CDI) swap agreements The Company has two agreements with an aggregate amount of R$ 20,000, maturing through January 12, 2018, consisting of an asset position at a fixed rate and a liability position at a percentage of the CDI. The Company contracted these operations with the purpose of change the debits with fixed interests rates in debts indexed to CDI. c) Non Deliverable Forward (NDF) agreement
The Company has one agreement of this nature, whose contracted amount totalizes US$ 31,000,000 maturing through January 31, 2018 and position sold in US Dollars.
The Company contracted these agreements in order to reset the foreign exchange exposure on the contracted date (December 27, 2017). In this transaction the contracted is settled at their respective maturity, considering the difference between the exchange rate to term (NDF) and exchange rate in the end of the period (Ptax). d) Calculation of the fair value of positions The fair value of the financial instruments was calculated utilizing the estimated present value of both liability and asset positions, where the difference between the two represents the market value of the Swap.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
31
Amount Amount
12/31/2017 12/31/2016 12/31/2017 12/31/2016 receivable/ payable/
received paid
I. Swap contracts
Asset position
Foreign currency (USD) 584,333 884,291 607,911 1,007,883 16,334 -
Fixed rate 20,000 58,000 20,236 57,772 49 -
Liability position
CDI (604,333) (942,291) (611,764) (968,471) - -
II. Futures contracts (NDF)
Agreement of Sale
NDF 102,420 26,602 102,153 26,546 - (27)
Statement of consolidated position of derivative financial instruments
Reference Value
(notional)Fair Value
Accumulated Effect on
12/31/2017
Gains or losses on the transactions listed above were offset in interest rates and foreign currency positions, assets and liabilities, whose effects are already registered on the result of the Company. e) Sensitivity analysis The table below sets out a sensitivity analysis of financial instruments, including derivatives, that describes the risk scenarios which could generate material losses for the Company and its subsidiaries with a Probable Scenario (Base Scenario) plus two other scenarios under the terms determined by CVM 475/08 representing 25% and 50% possible and remote, respectively, of deterioration in the risk variables. For the variables rates of risk used in the probable scenario, BM&FBOVESPA (São Paulo Stock, Futures and Commodities Exchange)/ Bloomberg quotations in the maturity dates of the financial instruments exposed with foreign exchange and interest rates. The average dollar of R$ 3.4568 and the average CDI of 7.53% p.a. was used.
Sensitivity analysis table Sensitivity analysis table
Amounts in
thousands of
R$
Risk Instrument/Operation Description Probable Possible Remote
Scenario Scenario Scenario
Interest rate risk SWAP - FIXED / CDI Increase CDI 6 (4) (14)
Subject of hedge: fixed rate loans. (6) 4 14
Net Effect - - -
Foreign exchange SWAP - US$ / CDI ( Res. 4131 ) Decrease US$ (8,262) (171,777) (335,292)
Subject of hedge: foreign currency debt ( US$ ) (increase US$) 8,262 171,777 335,292
Net Effect - - -
Foreign exchange NDF (US$) Decrease US$ - 25,694 51,388
Subject of hedge: foreign currency debt ( US$ ) (increase US$) - (25,694) (51,388)
Net Effect - - -
Total - - -
(III) Cash flow or fair value risk associated with interest rate Interest rate risk is the risks of the Company suffer economic losses due to adverse changes in these interest rates. This risk is continually monitored in order to evaluate any possible need to contract derivative transactions to hedge against interest rate volatility.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
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(a) Credit Risk The Company policy of sales are directly associated to the level of credit risk that are willing to accept in the course of its business. The diversification of its portfolio of receivables, selection of its customers, as well as monitoring of the sales financing terms and individual limits are procedures adopted in order to minimize defaults or losses on the realization of accounts receivable. In relation to temporary cash investments and all other investments, the Group follows the policy of working only with blue-chip institutions and not concentrating its investments on any one economic group. (b) Liquidity risk The Company and its subsidiaries have a indebtedness policy which defines the limits and parameters for debt, and the minimum funds which should be maintained, the latter being the higher of the following values: an amount equivalent to 60 days of consolidated net revenue of the last quarter or the amount of the debt servicing expenses plus dividends and/or interest on capital forecast for the following six months. The control of liquidity position occurs daily through of cash flow monitoring. The table below shows the maturities of certain financial liabilities and obligation with suppliers contracted by the Company and its subsidiaries in the financial statements:
12/31/2017
Loans 696,882 1,490,261 50,777 764,824 1,625,658 784,342
Suppliers 216,040 - - 296,372 - -
Suppliers related parties 22,958 - - - - -
Total 935,880 1,490,261 50,777 1,061,196 1,625,658 784,342
Parent company Consolidated
Less than
one year
2019 and
2020
From
2021 to
2025
Less than
one year
2019 and
2020
From 2021
to 2025
The budget projection approved by the Board of Directors for the next fiscal year, shows capacity and generation of cash to meet its obligations. 4.2 Capital management The Company and its subsidiaries manage their capital to ensure the continuity of their operations, as well as providing return to its stockholders, including the optimization of the cost of capital and controlling the level of indebtedness by monitoring of the financial leverage index. This index corresponds to net debit value divided by stockholders’ equity.
12/31/2017 12/31/2016 12/31/2017 12/31/2016
A -Loans and financing 2,237,920 2,319,331 3,174,824 3,457,041
Short - term 696,882 641,201 764,824 681,110
Long - term 1,541,038 1,678,130 2,410,000 2,775,931
B-(-) Cash and cash equivalents 402,698 361,923 1,074,364 1,416,360
C-(-) Securities 57,292 - - -
D=(A-B-C) Net debt 1,777,930 1,957,408 2,100,460 2,040,681
E- Stockholders' equity 4,715,365 4,569,507 4,716,319 4,570,652
D/E=Financial leverage index 38% 43% 45% 45%
Parent company Consolidated
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
33
4.3 Fair value estimates It is assumed that the book values of trade account receivable and accounts payable to suppliers, less the provision for loss (impairment), are close to their fair values. The fair value of the financial liabilities for disclosure purposes is estimated by discounting of the future contractual cash flow by current market interest rate which is available for the Company and its subsidiaries for similar financial instruments. The Company and its subsidiaries apply CPC 40-R1/ IFRS 7 “Financial instruments: disclosures” for financial instruments measured on balance sheet at fair value, which requires the disclosure of the measurement criteria used. As the Company has only Level 2 derivatives, it uses the following valuation techniques: • The fair value of the interest rate “swap” is calculated based on the present value of the estimated future cash flow based on the yield curves adopted by the market; • The fair values foreign currency forward contracts are determined based on future exchange rates at the balance sheet dates, with the resulting amounts discounted to their present values. The consolidated financial instruments (by category/level) are presented below:
12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016
ASSETS
Cash equivalents 992,558 1,369,541 - - - - 992,558 1,369,541
Trade accounts receivable 932,917 797,920 - - - - 932,917 797,920
Trade accounts receivable related parties 35,146 37,309 - - - - 35,146 37,309
Restricted deposits 51,343 49,626 - - - - 51,343 49,626
Total 2,011,964 2,254,396 - - - - 2,011,964 2,254,396
LIABILITIES
Loans - - 2,563,060 2,488,570 611,764 968,471 3,174,824 3,457,041
Suppliers - - - 214,226 - - - 214,226
Dividends/ Interest on capital - - 61,273 6,634 - - 61,273 6,634
Total - - 2,624,333 2,709,430 611,764 968,471 3,236,097 3,677,901
Loans and receivables Financial liabilities
Financial liabilities
designated at fair value Total
Note 5 – Cash and cash equivalents
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Cash and banks 3,331 2,623 54,536 12,919
Banks remunerated accounts of foreign
subsidiaries - - 27,270 33,900
Fixed income securities 562 1,617 564 1,619
Bank deposit certificates 398,805 357,683 991,994 1,367,922
Total 402,698 361,923 1,074,364 1,416,360
Parent company Consolidated
The bank deposit certificates in Brazil earn interest with reference to the CDI rate, and deposits abroad in US Dollars earn a fixed interest rate. The bank deposit certificates (CDB) are remunerated at rates higher than the CDI rates. Although they have long-term maturities, bank deposit certificates can be redeemed at any time without loss of remuneration. Note 6 – Securities On August 28, 2017, the Company acquired Cerâmica Urussanga S.A., 56,000,000 of simple debentures, single series with personal guarantee and real guarantee, nominal, no convertible in shares with nominal value of R$ 1.00, in the amount of R$ 56,000 totally integralized. On December 31, 2017, this asset was eliminated in the consolidated balance sheet.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
34
The maturity term of debentures are six months counted from issue date, when will be received the single nominal value together with interest remuneration in order to 105% of CDI, incident from integralization date. On December 31, 2017 the updated integralized value is R$ 57,292. Note 7 - Trade accounts receivable
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Domestic customers 733,615 692,076 894,044 780,817
Foreign customers 102,062 40,449 117,605 87,077
Impairment in accounts receivable (70,489) (61,801) (78,732) (69,974)
Total customers - Third parties 765,188 670,724 932,917 797,920
Total customers - Related parties 53,307 60,970 35,146 37,309
Total accounts receivable 818,495 731,694 968,063 835,229
Parent company Consolidated
The balances of accounts receivable by maturity are as follow:
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Not yet due 775,641 703,219 910,720 800,051
Past-due up to 30 days 32,055 13,730 38,754 19,687
From 31 to 60 days 10,997 5,816 14,216 6,954
From 61 to 90 days 4,444 3,510 6,883 4,611
From 91 to 180 days 5,277 10,147 8,087 11,839
More than 180 days 60,570 57,073 68,135 62,061
Total 888,984 793,495 1,046,795 905,203
Parent company Consolidated
The Company and its subsidiaries have a Credit Policy whose objective is to establish the procedures to be followed when granting credit in commercial operations, and sales of products and services, both domestically and abroad market. The credit limit is determined based on a credit analysis, considering the history of the customer, its capacity as a borrower, and market information. The credit limit is defined with reference to a percentage of net revenue and the stockholders’ equity, or a combination of these, still considering the average volume of monthly purchases, but always supported by an evaluation of the economic and financial situation, an examination of the relevant documents and the customer's reputation. Customers are classified as A, B, C and D based on the length of the Company’s relationship with the customer and their payment history.
Length of Payment historyrelationship
12/31/2017 12/31/2016
over 5 years Current 58% 54%
over 3 years Up to 1 day late, on average 3% 5%
below 3 years Over 1 day late, on average 31% 33%
Overdue 8% 8%
% of the balance from
customer portfolio
A
B
C
D
Classification
The maximum credit risk exposure at the date of this report is the book value of each class of trade accounts receivable listed above.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
35
The impairment in the accounts receivable (allowance for doubtful accounts) is recorded based on the trade notes overdue more than 180 days and as individual analysis of the relevant overdue amounts (note 2.8). We show below the changes of impairment in the accounts receivable (allowance for doubtful accounts) for the year ended on December 31, 2017.
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Opening Balance (61,801) (48,385) (69,974) (54,348)
Constitution/ reversion (12,889) (17,328) (12,600) (21,805)
Write-offs 4,201 3,912 3,842 6,179
Closing Balance (70,489) (61,801) (78,732) (69,974)
Parent company Consolidated
Note 8 - Inventory
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Finished goods 246,660 281,017 344,183 354,147
Raw materials 174,449 207,517 224,917 243,088
Work in progress 78,007 98,804 104,150 120,860
General warehouse 104,003 103,882 110,566 107,913
Advances to suppliers (*) 29,550 22,798 2,520 1,807
Provision for losses (-) (17,826) (14,973) (26,243) (25,317)
Total 614,843 699,045 760,093 802,498
Parent company Consolidated
(*) On the consolidated position the advances from parent company to subsidiary Duratex Florestal Ltda. have been eliminated.
Note 9 – Other receivables
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Fundação Itaúsa Industrial (pension plan) (1) 2,983 2,700 2,983 2,700
Sale of farms/ properties and other assets 13,037 7,209 47,427 31,198
Retention values from business acquisitions 2,931 3,482 2,931 3,482
Claims to receive 2,357 841 2,728 841
Electricity sales 3,601 8,820 3,601 8,820
Others 1,006 924 3,859 928
Total Current 25,915 23,976 63,529 47,969
Fundação Itaúsa Industrial (pension plan) (1) 1,490 4,051 1,490 4,051
Sale of farms/ properties 2,422 12,120 32,024 22,166
Forest incentives (2) - - 13,218 13,835
Amounts receivable from participating partners of SCPs - - 5,206 5,206
Indemnifiable assets (3) 19,464 - 19,464 -
Retention values from business acquisitions 27,437 19,629 27,437 19,629
Others 2,731 3,243 7,654 3,271
Total Non-Current 53,544 39,043 106,493 68,158
Parent company Consolidated
(1) Credits from the review of defined benefit plan of Fundação Itaúsa Industrial; (2) Forest planting modality in which the company provides incentives, raw materials and technical assistance and maintenance as established in the contract; (3) The amounts have recorded in the acquisition of subsidiaries Ceusa and Massima related to rights to receive of old owners in case of Duratex to have future disbursements arise from referred acquisition.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
36
Note 10 – Recoverable taxes and contributions The Company and its subsidiaries have recoverable federal and state tax credits, the composition of which is as follows:
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Income tax and social contribution to be offset 52,973 27,713 74,252 49,866
ICMS, PIS and COFINS on the acquisition of property,
plant and equipment (*) 9,929 12,557 12,204 14,033
PIS and COFINS to be offset 10,519 5,373 16,786 5,397
ICMS and IPI recoverable 12,105 6,792 30,405 22,466
Others 2,429 1,261 5,231 4,077
Total current 87,955 53,696 138,878 95,839
ICMS, PIS and COFINS on the acquisition of property,
plant and equipment (*) 10,999 15,319 13,215 17,645
Total non current 10,999 15,319 13,215 17,645
Parent company Consolidated
(*) State Value-Added Tax (ICMS), Social Integration Program (PIS) and Social Contribution on Revenue (COFINS) to be offset were mainly generated from the acquisitions of property, plant and equipment items for the industrial plants. Under current legislation, the PIS/COFINS credits will be utilized within 12 and 24 months, and the ICMS credits within 48 months.
Note 11 – Deferred income tax and social contribution
Deferred income tax and social contributions are calculated on income tax losses and negative base of social contribution, temporary differences between tax calculation bases on assets and liabilities and on the application of CPCs/IFRS. The tax rates defined to determination of deferred income tax are 25% for income tax and of 9% for social contribution. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available to utilize in the offset of temporary differences, considering the projections of future income. These projections are prepared on the basis of internal assumptions and using future economic scenarios, can be, therefore, subject to change. On December 31, 2017 the Group had tax credits not constituted on fiscal losses and negative base from social contribution in the amount of R$ 19,168 no recognized in the consolidated financial statements, This value represents a part of held credits by its new subsidiary Cerâmica Urussanga S.A. that in accordance to tax profit projected for the next years, could not recorded by respective subsidiary.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
37
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Deferred tax assets to be recovered within 12 months 46,353 20,431 55,654 26,383
Income tax and social contribution losses 1,982 939 6,808 2,781
Temporarily non-deductible provisions:
Provision for sundry labor charges 9,517 1,488 10,766 1,285
Provisions for losses on inventory 6,304 5,097 6,366 6,722
Provision for adjustment of assets to market value 18,352 2,392 18,347 2,392
Provision for commission payable 1,263 1,269 1,428 1,386
Sundry provisions 8,935 9,246 11,939 11,817
Deferred tax asset to be recovered after 12 months 183,736 184,085 257,492 228,759
Income tax and social contribution losses 125,241 133,304 188,137 172,189
Temporarily non-deductible provisions:
Provision for sundry labor charges 21,707 17,746 29,425 21,274
Tax provisions 9,554 19,078 10,095 18,980
Provision for impairment of trade accounts receivable 8,194 8,654 8,459 9,941
Provision for losses on investments 492 492 492 492
Provision on post-employment benefits 3,908 2,872 3,908 2,872
Provision on fair value financing 1,673 919 1,673 919
Income tax on foreign profits 10,635 - 10,635 -
Sundry provisions 2,332 1,020 4,668 2,092
Total deferred tax assets 230,089 204,516 313,146 255,142
Non-current liabilities
Revaluation reserve (21,390) (22,834) (44,989) (47,310)
Present value adjustment of financing (3,792) (6,815) (3,792) (6,815)
Swap result (cash vs. accruals basis) (3,898) (32,078) (3,898) (32,078)
Income tax - Accelerated depreciation - - (14,567) (12,953)
Sale of real estate (869) (1,840) (19,039) (18,281)
Biological assets - - (223,274) (192,253)
Customer portfolio Satipel (49,716) (57,173) (49,716) (57,173)
Fair value complementary pension (32,671) (31,349) (35,952) (34,164)
Customer portfolio Tablemac - - (20,573) (18,572)
Other (49,995) (47,259) (67,538) (68,429)
Total deferred tax liabilities (162,331) (199,348) (483,338) (488,028)
Parent company Consolidated
Statement of estimated realization of income tax on fiscal loss and negative base of deferred social contribution on net income.
YearParent
companyConsolidated
2018 1,982 6,808
2019 5,622 11,986
2020 18,166 30,893
2021 29,733 36,861
2022 38,058 46,338
2023 Onwards 136,528 180,260
Total 230,089 313,146 Changes in the deferred income tax and social contribution
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
38
Parent company Consolidated
Balance as at December 31, 2016 - Net of deferred income tax and social
contribution assets and liabilities 5,168 (232,886)
(Expenses) and revenues of deferred tax 61,918 28,031
Acquisition effect from subsidiaries Ceusa and Massima - 37,294
Exchange variation on translation of balance sheet from foreign companies(*) - (3,303)
Income tax and social contribution on post-employment benefits(*) 672 672
Balance as at December 31, 2017 - Net of deferred income tax and social
contribution assets and liabilities 67,758 (170,192)
(*) Registered as comprehensive income in the stockholders’ equity.
Note 12 – Related parties a) Balances and transactions with subsidiaries
Description
12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Assets
Trade accounts receivable - - 235 162 933 2,536 - -
Simple debentures (1) - - - - - - 57,292 -
Liabilities
Suppliers (2) 20,733 18,416 2,225 - - - - -
Results
Sales (3) 28 - 1,032 90 3,333 3,474 - -
Purchases (4) (255,129) (256,389) (9,537) - - - - -
Financial (143) 4 866 107 (1) - (983) -
Direct subsidiariesCerâmica UrussangaDuratex Florestal Hydra Corona Duratex Andina
(1) Debentures operation in according to note nº 6; (2) Accounts payable for the acquisition of raw material listed in item (3); (3) Supplies of products; (4) Regular acquisition of wood harvested eucalyptus for production of wood panels.
Description
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Assets
Trade accounts receivable (1) 31,051 25,748 2,226 11,499
Results
Sales (2) 66,304 67,278 44,128 28,919
Financial (797) 2,127 (206) 322
Indirect subsidiaries
Duratex North America Duratex Colombia
(1) Trade accounts receivables about sales listed in item (2). (2) Supplies of products for sales in the United States, Canada and Colombia.
b) Balances and transactions with the Parent company
Results 12/31/2017 12/31/2016
Sales (1) 71 124
Rent expenses (2) (4,789) (4,881)
Description Itausa Invest. Itaú S.A.
(1) Supplies of products (2) Rent expenses rooms at building of the Company's headquarters.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
39
c) Transactions with other related parties
Description
12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016
Assets
Trade accounts receivable (1) 18,862 21,025 - - - - 16,284 16,284
Results
Sales (2) 123,545 120,805 - 52,627 - - - 38,289
Lease costs (3) - - - - (24,009) (22,410) - -
Leo Madeiras Maqs.& Fer.
Ltda
Leroy Merlin Cia Bras.
BricolagemLigna Florestal Ltda. Fibria Celulose
(1) Trade accounts receivables about sales listed in item (2). (2) Supply of products for domestic market sales. (3) Refers to the costs of the rural leasing agreement with Ligna Florestal Ltda. (controlled by Ligna de Investimentos) entered into by the subsidiary Duratex Florestal Ltda. in connection with land used for reforestation. The monthly charges for this lease amount to R$ 2,045 from July, 2017 as established in the contract. The agreement will expire in July 2038, but may be renewed automatically for a further 15 years, readjusted annually based on the variation of the National Consumer Price Index (INPC), calculated by the Brazilian Institute of Geography and Statistics (IBGE).
Description
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Assets
Financial investments (1) - - 21,881 17,576
Others liabilities (2) - - 10,560 13,200
Results
Remuneration on financial investments (3) - - 2,067 3,653
Financial expenses (4) - - (852) (950)
Other operating income (expenses), net (5) (600) (516) - -
Itaú Unibanco
Liabilities
Itaúsa Empreendimentos
S.A.
(1) Financial investments at Itaú Unibanco, done under the conditions agreed between the parties and within the limits established by Company Management; (2) Provision of services and payment; (3) Gains from financial investments listed in item (1); (4) Expenses with demands for payment; (5) Services contracted of analysis, economic and corporate planning.
The transactions with related parties are realized in the course of the Company's business, under agreement between the parties. The transactions between related parties are assessed by committee composed of independent directors. As at December 31, 2017 it was not necessary to constitute impairment (provision for allowance for doubtful accounts) involving transactions with related parties. d) Remuneration of executives from Management The remuneration paid or payable to the Management executives of the Company and its subsidiaries relative to the period ended on December 31, 2017 was R$ 15,612 as fees (R$ 14,331 – December 31, 2016), R$ 7,676 as profit sharing (Did not have provision on December 31, 2016)), long-term remuneration based on stock options R$ 3,088 (R$ 5,061 – December 31, 2016).
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
40
Note 13 – Investments in subsidiaries a) Change in investments
Associate
Number of shares/quotas held (Thousand) 301 12 374 - - 1 47 100 3,112 220,240 1,637 10,335 282,863 - -
Interest % 99.99 99.99 99.99 90.00 90.00 100.00 100.00 5.05 63.08 100.00 100.00 99.99 99.94 28.57 -
Capital 901,542 12 374 10 1 1 392,358 50,872 426 220,240 1,771 33,067 103,512 10 - Equity 1,507,488 288 1,607 10 1 1 470,750 56,938 (2,024) 192,169 1,623 45,584 (73,537) 1,684 - Net income (loss) for the year 158,571 6 96 - - - 42,793 4,904 (1,422) 12,535 (33) 4,006 15,928 - -
Changes in investments
As at December 31, 2015 1,471,097 271 1,443 9 1 1 374,594 - - 110,034 - - - - 1,957,450
Equity in results of investees 123,496 11 68 - - - 57,059 240 (205) 5,397 4 - - - 186,070
Exchange variations on equity - - - - - - (52,121) (1,860) - - (198) - - - (54,179)
Dividends (199,999) - - - - - - - - - - - - - (199,999)
Acquisition - Duratex Andina - - - - - - - - - - 4 - - - 4
Capital Transactions with partners (515) - - - - - (18,216) - - - - - - - (18,731)
Capital Increase 200,001 - - - - - 46,848 4,110 62 36,000 1,767 - - - 288,788
Capital increase with net assets - - - - - - - - - 53,488 - - - - 53,488
Provision for unsecured liability - - - - - - - - 143 - - - - - 143
Variation of unrealized results 2,080 - - - - - - - - - - - - - 2,080
Amortization of appreciation of assets, net of taxes - - - - - - - - - (5,539) - - - - (5,539)
As at December 31, 2016 1,596,160 282 1,511 9 1 1 408,164 2,490 - 199,380 1,577 - - - 2,209,575
Equity in results of investees 158,571 6 96 - - - 42,792 248 (689) 12,535 (33) 4,006 15,763 - 233,295
Acquisition - associate - - - - - - - - - - - - - 481 481
Acquisition - book value - - - - - - - - - - - 24,432 (160,675) - (136,243)
Appreciation of assets - acquisition of subsidiaries - - - - - - - - - - - 29,430 88,392 - 117,822
Amount receivable referring to reimbursement of
provisions that will be discounted from the amount
payable on the acquisition of Ceusa. - - - - - - - - - - - - (20,710) - (20,710)
Goodwill - expectation of future profitability - - - - - - - - - - - 6,111 92,943 5,779 104,833
Advance for future capital increase - - - - - - - - - 39,410 - 15,262 69,638 - 124,310
Exchange variations on equity - - - - - - 19,784 138 - - 79 - - - 20,001
Change in unrealized result 145 - - - - - - - - - - - - - 145
Dividends (250,000) - - - - - - - - - - - - - (250,000)
Provision for unsecured liability - - - - - - - - 689 - - - - - 689
Amortization of appreciation of assets, net of taxes - - - - - - - - - (3,561) - (651) (447) - (4,659)
Amortization of appreciation of inventories, net of taxes - - - - - - - - - - - (1,628) (601) - (2,229)
As at December 31, 2017 1,504,876 288 1,607 9 1 1 470,740 2,876 - 247,764 1,623 76,962 84,303 6,260 2,397,310
TotalMassima
Revest.
Cerâmica
Urussanga
Viva
Decora
Direct subsidiaries
Descrition Duratex
Florestal
Estrela
do Sul
Duratex
Empreend.
Bale Com.
Prod.
Pescara
Admin. Part.
Trento
Admin. Part.
Duratex
Europe
Duratex
Belgium
Griferia
Sur
Hydra
Corona
Duratex
Andina
Number of shares/quotas held (Thousand) 500 33,622,363 1,880
Interest % 100.00 99.73 94.95
Capital 886 54,332 50,872
Equity 13,823 372,943 56,938
Net income for the year 732 44,332 4,904
Changes in investments
As at December 31, 2015 14,227 311,040 46,726
Equity in results of investees 1,362 56,154 6,535
Exchange variations on equity (2,710) (45,499) (5,107)
Dividends - (38,893) -
Reflex participation in the acquisition of shares from non-controlling - - (1,348)
Aquisition of shares from non-controlling - 65,872 -
As at December 31, 2016 12,879 348,674 46,806
Equity in results of investees 732 44,212 4,656
Exchange variations on equity 212 8,250 2,600
Dividends - (29,191) -
As at December 31, 2017 13,823 371,945 54,062
Description
Indirect subsidiaries
North
America
Duratex
Colombia
Duratex
Belgium
b) Acquisition of subsidiaries On October 24, 2017 Duratex S.A. acquired 99.82% of shares of capital from Cerâmica Urussanga S.A. and 100% of quotas of capital from Massima Revestimentos Cerâmicos Ltda. (together Ceusa), specialized company in the production of ceramic tiles. The consideration amount paid/ to pay was R$ 79,579. The acquisition of shares and quotas from Ceusa is align to the strategy of growth of the Company in synergetic segments to the current business. Since the acquisition date, Ceusa contributed for the Company with a net revenue of R$ 44,222 and net income of R$ 19,935.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
41
The companies acquisition was recorded based on studies for determination of fair value of assets and liabilities acquired and in compliance to CPC-15-R1 – Business combination, the Company will track the variables used in this study and the facts and circunstances related to the companies during the period as at 12 months, with the purpose to proceed to eventual adjustments (which does not expect to be relevants), if necessary. The preliminar fair value of identicable assets and liabilities from Ceusa, in the acquisition date is presented:
Fair value
acquisition
Cash and cash equivalents 557
Trade accounts receivable 44,931
Inventories 21,003
Deferred income tax and social contribution 37,294
Other accounts receivable 8,053
Property, plant and equipment 100,445
Intangible assets - brand 47,601
Loans and Financing and debentures (82,669)
Suppliers (30,192)
Accounts payable and personnel (10,949)
Taxes and contributions (17,660)
Installment of taxes (132,906)
Contingencies and others liabilities (5,115)
Total net assets (19,607)
Non-controlling interest 0.18% (132)
Consideration paid and payable in the acquisition 99.82% 79,579
Goodwill (goodwill for expectation of future profitability) (99,054)
Cash flow at the time of acquisition
Net cash acquired with the subsidiary 557
Paid cash (50,827)
Cash outflow, net (50,270)
The costs related to acquisition of R$ 505 were recognized in the statement of income as general and administrative expenses. The Company expects to have future tax benefits with amortization of goodwill and others appreciations recognized in the business combination. The Company has opted to mensure the noncontrolling interest at fair value. The goodwill of R$ 99,054 comprises the value of future results from acquisition. The nominal gross value from receivables acquired is R$ 44,931 of short term and were not calculated significates differences between nominal values and fair values. There wasn’t loss by reduction in the recoverable value of any trade account receivable and expects that the contractual value can be integrally received.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
42
c) Advance for future capital increase On June 29, 2017 and on October 05, 2017 Duratex S.A. granted to its subsidiary Hydra Corona Sistemas de Aquecimento de Água Ltda., advance for future capital increase in the amount of R$ 9,410 and R$ 30,000, respectively. On October 30, 2017 Duratex S.A. granted a advance for future capital increase for Ceusa, in the amount of R$ 169,300 to be transferred as installments as at April 2018. This resources will be used to settle liabilities from subsidiaries acquired. On December 31, 2017, R$ 84,900 already been transferred for Ceusa, being R$ 15,262 for Massima and R$ 69,638 for Ceusa. d) Acquisition of participation in associate On November 24, 2017 Duratex S.A. celebrate an investment agreement in the startup Viva Decora Internet Ltda. (Viva Decora), in the amount of R$ 6,260 for acquisition of participation in 28.57% of its capital. The ordinary management of the business of startups will continue in a independent and autonomous way. To effectveness of the investment, there was condition, the change of limited society for anonimous society, such change was concretized in registered minute at Junta Comercial on December 22, 2017. In this date, Duratex record the amount of R$ 6,260 of investment that when compared to 28.57% of fair value stockholders’ equity from Viva Decora, present an expected of future profitability of R$ 5,779. The goodwill comprises the value of future benefits resulting from acquisition. Note 14 – Property, plant and equipment a) Change
Balance as at 12/31/2015
Cost 129,040 870,078 3,710,549 154,000 42,203 22,921 151,740 5,080,531
Accumulated depreciation - (331,722) (1,829,511) - (25,652) (21,677) (96,232) (2,304,794)
Net book value 129,040 538,356 1,881,038 154,000 16,551 1,244 55,508 2,775,737
As at 12/31/2016
Opening balance 129,040 538,356 1,881,038 154,000 16,551 1,244 55,508 2,775,737
Acquisitions - 519 21,583 95,544 922 - 9,196 127,764
Write-offs - - (584) (178) (5) (8) (83) (858)
Depreciation - (30,264) (215,980) - (2,471) (546) (11,474) (260,735)
Transfers - 13,940 130,463 (149,827) 240 226 4,958 -
Conference assets - main (559) (2,735) (34,013) - (967) (116) (5,985) (44,375)
Conference assets - Accumulated depreciation - 313 10,915 - 330 108 981 12,647
Net book value 128,481 520,129 1,793,422 99,539 14,600 908 53,101 2,610,180
Balance as at 12/31/2016
Cost 128,481 881,802 3,827,998 99,539 42,393 23,023 159,826 5,163,062
Accumulated depreciation - (361,673) (2,034,576) - (27,793) (22,115) (106,725) (2,552,882)
Net book value 128,481 520,129 1,793,422 99,539 14,600 908 53,101 2,610,180
As at 12/31/2017
Opening balance 128,481 520,129 1,793,422 99,539 14,600 908 53,101 2,610,180
Acquisitions 8,500 1,947 26,522 97,894 805 17 5,178 140,863
Write-offs - - (270) (24) (6) - (2) (302)
Provision for losses on asset recovery - (2,863) (47,780) - (57) - (96) (50,796)
Depreciation - (29,515) (219,310) - (2,490) (361) (12,740) (264,416)
Transfers - 8,248 59,480 (75,879) 611 350 7,190 -
Net book value 136,981 497,946 1,612,064 121,530 13,463 914 52,631 2,435,529
Balance as at 12/31/2017
Cost 136,981 889,134 3,865,950 121,530 43,746 23,390 172,096 5,252,827
Accumulated depreciation - (391,188) (2,253,886) - (30,283) (22,476) (119,465) (2,817,298)
Net book value 136,981 497,946 1,612,064 121,530 13,463 914 52,631 2,435,529
Furniture and
fixturesVehicles Other assets TotalParent company Land
Structures and
improvements
Machinery,
equipment and
facilities
Assets in
progress
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
43
Balance as at 12/31/2015
Cost 745,535 1,005,197 3,945,708 160,651 52,762 55,438 166,713 6,132,004
Accumulated depreciation - (351,601) (1,838,227) - (33,550) (46,983) (102,411) (2,372,772)
Net book value 745,535 653,596 2,107,481 160,651 19,212 8,455 64,302 3,759,232
As at 12/31/2016
Opening balance 745,535 653,596 2,107,481 160,651 19,212 8,455 64,302 3,759,232
Acquisitions 1,026 657 32,198 128,601 1,027 144 14,300 177,953
Write-offs (4,942) (60) (6,508) (232) (129) (22) (985) (12,878)
Depreciation - (32,424) (247,101) - (2,797) (1,854) (14,749) (298,925)
Transfers - 12,315 155,026 (182,203) 330 1,267 13,265 -
Exchange variations (16,251) (31,410) (247) (43) (864) (265) (616) (49,696)
Amortization - Appreciation of assets - (367) (3,207) - (25) (7) (185) (3,791)
Net book value 725,368 602,307 2,037,642 106,774 16,754 7,718 75,332 3,571,895
Balance as at 12/31/2016
Cost 725,368 986,332 4,122,970 106,774 53,101 56,555 192,492 6,243,592
Accumulated depreciation - (384,025) (2,085,328) - (36,347) (48,837) (117,160) (2,671,697)
Net book value 725,368 602,307 2,037,642 106,774 16,754 7,718 75,332 3,571,895
As at 12/31/2017
Opening balance 725,368 602,307 2,037,642 106,774 16,754 7,718 75,332 3,571,895
Acquisitions 8,797 2,218 34,049 132,472 1,106 462 9,044 188,148
Write-offs (20,836) (14) (1,159) (24) (21) (75) (2,534) (24,663)
Provision for losses on asset recovery - (2,863) (47,780) - (57) - (96) (50,796)
Depreciation - (31,717) (249,538) - (2,815) (1,815) (17,052) (302,937)
Transfers - 9,564 90,847 (116,108) 629 2,943 12,125 -
Acquisition of subsidiaries Ceusa and Massima 2,061 20,446 27,772 2,279 804 92 986 54,440
Appreciation of assets Ceusa and Massima 6,573 24,370 10,920 - - - 3,405 45,268
Amortization - Appreciation of assets - (969) (3,483) - (22) (7) (178) (4,659)
Exchange variations 8,637 1,351 3,282 31 11 5 128 13,445
Net book value 730,600 624,693 1,902,552 125,424 16,389 9,323 81,160 3,490,141
Balance as at 12/31/2017
Cost 730,600 1,040,435 4,237,418 125,424 55,551 59,975 215,372 6,464,775
Accumulated depreciation - (415,742) (2,334,866) - (39,162) (50,652) (134,212) (2,974,634)
Net book value 730,600 624,693 1,902,552 125,424 16,389 9,323 81,160 3,490,141
Furniture
and fixturesVehicles
Other
assetsTotalConsolidated Land
Structures and
improvements
Machinery,
equipment and
facilities
Assets in
progress
b) Assets in progress
Assets in progress refer to investments on the units of: (i) Wood Division the industrial plants in Agudos-SP, Itapetininga-SP, Botucatu-SP, Uberaba-MG and Taquari-RS for producing wood panels (ii) Deca Division the industrial plants of Paraíba-PB, Recife-PE, São Leopoldo-RS, Queimados-RJ and Jundiaí-SP for producing sanitary ceramic and in plants São Paulo-SP, Jundiaí-SP and Jacareí-SP for producing metals, Tubarão-SC and Aracaju-SE for producing showers products and in Urussanga – SC for producing ceramic tiles, (iii) in the forests plants of Agudos – SP, Botucatu – SP, Itapetininga – SP, Lençóis Paulista – SP, Monte Carmelo – MG and Uberaba – MG. As at December 31, 2017, these formalized contracts for the expansion of industrial plants totaled approximately R$ 66.3 million. During the year of 2017, it didn’t have capitalized expenses in the property, plant and equipment, mainly by the no existence of qualified assets. c) Review of the useful life of the assets As provided in the Pronouncement CPC 27 – Property, Plant and Equipment, the Company and its subsidiaries, revised the estimated useful lives of the assets for the calculation of depreciation. The following methodology was adopted in the review of depreciation rates: - internal antecedents: Investments in replacements of goods, information about the survival of the assets, technical specifications; - external antecedents: Economic environment in which the Group operates new technologies, benchmarking, recommendations and manufacturer's literature; - conservation status and operations of the goods: Maintenance, failures and efficiency of goods and other information used for analysis and determination of residual useful life; - residual value of assets, maintenance history and use until destination for scrap; - alignment to the general planning of business of the Company.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
44
Annual depreciation rates 12/31/2017 12/31/2016
Structures and improvements 4.0% 4.0%
Machinery, equipment and facilities 6.6% 6.6%
Furniture and fixtures 10.0% 10.0%
Vehicles 20% to 25% 20% to 25%
Other assets 10% to 20% 10% to 20% d) Assets offered as guarantee As at December 31, 2017, the Company had in its fixed assets, lands, farms e vehicles offered as guarantee in lawsuits totalizing R$ 19,358. Note 15 – Biological assets (forest reserves) Through its subsidiaries Duratex Florestal Ltda. and Duratex S.A. (new name of Tablemac S.A.), as well as, its jointly controlled, Caetex Florestal S.A., eucalyptus and pine forest reserves, which are primarily utilized as raw materials for producing wood panels, floors and complementarily for sale to third parties. The reserves guarantee supplies to the factories, and also protect the Company against the risk of future wood price increases. Operating in a sustainable way and integrated with the manufacturing facilities, these reserves, together with a supply network, provide the Company with a high degree of self-sufficiency in terms of wood supplies. As at December 31, 2017 the Group had roughly 179,600 hectares, of planted areas (December 31, 2016: 176,700 hectares) that are cultivated in the States of São Paulo, Minas Gerais, Rio Grande do Sul, Alagoas and in Colombia. a) Fair value estimate The fair value is calculated based on an estimate of the volume of wood ready for harvesting, at the current prices for standing wood, exception for: the Eucalyptus forests until one year old, and Pinus until 4 years old, which are stated at cost, because the values approximates to the fair value. Biological assets are measured at fair value, less selling costs at the time of harvesting. Fair value is determined by valuing the estimated ready-to-harvest volumes at current market prices, based on volume estimates. The assumptions utilized were: i. Discounted cash flow – the estimated volume of ready-to-harvest wood, considering current market prices, net of costs to be incurred and the capital costs of the lands (brought to their present value) by the discount rate of 5.7% p.a. as at December 31, 2017. The discount rate used in cash flow corresponds to the weighted average cost of the Company, which is reviewed annually by the Management. ii. Prices – the cubic meter prices in R$ are obtained from market price surveys disclosed by specialized firms in regions and similar products to the Group, in addition to prices obtained from third party transactions, also in active markets. iii. Differentiation - the volumes harvested were categorized and valued according to: specie, (a) pinus and eucalyptus, (b) region, (c) destination: sawmill and processing. iv. Volume – the estimated volumes to be harvested (in the sixth year for eucalyptus and in the twelfth year for pine) based on the projected average productivity for each region and specie. Average productivity may vary based on age, rotation, climatic conditions, quality of seedlings,
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
45
fires, and other natural risks. For mature forests are utilized the current volumes of wood. The estimates of volume are corroborate for rotating physical inventory realized for technical specialists from the second year of a forest's life, and its effects incorporated into the financial statements. v. Regularity - expectations regarding to future wood prices and volumes are reviewed at least every quarter, or when the rotational physical inventory is concluded. b) Composition of balance The biological assets balance is made up of the cost of forest formation and adjustments to fair value, as shown below:
12/31/2017 12/31/2016
Formation cost of biological assets 1,044,450 966,180
Difference between cost and fair value 654,405 562,737
Fair value of the biological assets 1,698,855 1,528,917 The forests are unencumbered by any third party liens or pledges, including to financial institutions. In addition, none of the Company's forests has a restricted legal title. c) Changes in balance The following are the changes in the balance from the beginning to the end of the period:
12/31/2017 12/31/2016
Opening balance 1,528,917 1,441,571
Variation in fair value
Volume/price 214,933 157,973
Depletion (123,118) (142,297)
Variation in book value
Formation 176,343 178,179
Depletion (98,220) (106,509)
Final balance 1,698,855 1,528,917
12/31/2017 12/31/2016
Variation in fair value 214,933 157,973
Depletion at fair value (123,118) (142,297)
Effect of the variation in fair value of biological assets
The amount of depletion for the year is presented in the Statement of income under "Cost of products sold”. d) Sensitivity analysis Among the variables that affect the calculation of the fair value of biological assets, we highlight the variation in the price of wood and the discount rate used in the cash flow. The average price on December 31, 2017 was R$ 43.24/ m³ (on December 31, 2016 was R$ 43.32/ m³). Price increases lead to an increase in the fair value of forests. At each 5% of variation in price, the impact on the fair value of forests would be in order of R$ 84,342. In relation to the discount rate, was used 5.7% p.a. on December 31, 2017. Increases in the rate lead to a drop in the fair value of the forest. Each 0.5% p.a. the variation in the rate would affect the fair value in approximately R$ 17,643.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
46
Note 16 – Intangible assets
Balance as at 12/31/2015
Cost 72,157 7,101 254,798 396,161 730,217
Accumulated amortization (45,683) (989) - (158,918) (205,590)
Net book value 26,474 6,112 254,798 237,243 524,627
As at 12/31/2016
Opening balance 26,474 6,112 254,798 237,243 524,627
Additions 11,676 975 - - 12,651
Write-offs (78) - - - (78)
Amortization (4,681) - - (26,465) (31,146)
Conference assets - main (960) - - - (960)
Conference assets - Accumulated amortization 393 - - - 393
Net book value 32,824 7,087 254,798 210,778 505,487
Balance as at 12/31/2016
Cost 82,795 8,076 254,798 396,161 741,830
Accumulated amortization (49,971) (989) - (185,383) (236,343)
Net book value 32,824 7,087 254,798 210,778 505,487
As at 12/31/2017
Opening balance 32,824 7,087 254,798 210,778 505,487
Additions 8,904 - - - 8,904
Amortization (6,596) - - (26,467) (33,063)
Net book value 35,132 7,087 254,798 184,311 481,328
Balance as at 12/31/2017
Cost 91,699 8,076 254,798 396,161 750,734
Accumulated amortization (56,567) (989) - (211,850) (269,406)
Net book value 35,132 7,087 254,798 184,311 481,328
TotalParent Company SoftwareTrademarks
and patentsGoodwill
Customer
portfolio
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
47
Balance as at 12/31/2015
Cost 74,146 20,461 254,957 413,823 763,387
Accumulated amortization (46,438) (989) - (161,015) (208,442)
Net book value 27,708 19,472 254,957 252,808 554,945
As at 12/31/2016
Opening balance 27,708 19,472 254,957 252,808 554,945
Additions 11,733 1,065 - - 12,798
Write-offs (78) - - - (78)
Amortization (5,191) - - (27,421) (32,612)
Foreign exchange variances (112) - - (2,087) (2,199)
Assets from business combination Duchacorona - (4,400) - - (4,400)
Goodwill - Aquisition Duchacorona - - 4,850 - 4,850
Net book value 34,060 16,137 259,807 223,300 533,304
Balance as at 12/31/2016
Cost 85,689 17,126 259,807 411,736 774,358
Accumulated amortization (51,629) (989) - (188,436) (241,054)
Net book value 34,060 16,137 259,807 223,300 533,304
As at 12/31/2017
Opening balance 34,060 16,137 259,807 223,300 533,304
Additions 8,975 - - - 8,975
Amortization (6,951) - - (27,307) (34,258)
Foreign exchange variances 14 - - 579 593
Acquisition of subsidiaries Ceusa and Massima 16 - - - 16
Goodwill - expectation of future profitability Ceusa and
Massima - - 99,054 - 99,054
Appreciation of assets - Ceusa - 47,601 - - 47,601
Net book value 36,114 63,738 358,861 196,572 655,285
Balance as at 12/31/2017
Cost 94,694 64,727 358,861 412,315 930,597
Accumulated amortization (58,580) (989) - (215,743) (275,312)
Net book value 36,114 63,738 358,861 196,572 655,285
TotalConsolidated SoftwareTrademarks
and patentsGoodwill
Customer
portfolio
Note 17 – Impairment testing of goodwill The goodwill paid for future profitability and intangible assets with undefined useful life. The goodwill acquired through business combination is allocated to cash generating units (UGCs) that produces Panels, Ceramics, Metals and Showers and composes the business units Wood (Panels) and Deca (Ceramics, Metals and Showers).
2017 2016 2017 2016 2017 2016 2017 2016
Book value of goodwill 187,573 187,573 2,402 2,402 39,246 39,246 30,586 30,586
Book value of other assets 2,639,726 2,745,966 50,471 53,258 196,501 197,464 180,798 107,959
Book value of UGCs 2,827,299 2,933,539 52,873 55,660 235,747 236,710 211,384 138,545
Value of UGCs by cash flow 2,883,069 3,193,075 117,011 56,765 513,785 372,776 503,499 264,053
Wood Deca
Panels Metals Ceramics Showers
The Company realized the testing of recoverable amount in the year ended on December, 31 2017 and 2016 and considers the relation between the capitalization in the market and its book amount, when make revision to identify loss indicators by reduction to the amount recoverable. On December, 31 2017, the capitalization market of the Company was upper than book amount of its capital.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
48
Panels The amount recoverable of cash generating unit (UGC) of Panels in the amount of R$ 2,883,069, on December, 31 2017 (R$ 3,193,075 on December 31, 2016), was calculated with its value in use and the projections was calculated with strategic planning of the Company approved by direction which consider macroeconomics projections of growth and inflation, as well operational conditions of the Company. The explicit period of projection used was 10 years, because of in the 5 years early of projection the unit does not reach the full operation level of its current capacity prejudicing the calculation of perpetuity. The adoption of this period, in according to the Management opinion, allows a better representation of results and cash flow of the Company in the long term and reflects the specific characteristics of the business. The cash flow was discounted for the rate of 10.35% p.a. (12.32% p.a. in 2016) and the perpetuity was calculated using the last year of explicit period and considering a growth rate of 2.0% p.a.. It was concluded that the fair value amount exceeds the amount in use in R$ 55,770 on December 31, 2017 (R$ 259,536 on December 31, 2016) and the Management did not identify reduction to recoverable amount for this UGC. Ceramics, metals and showers The amount recoverable in the cash generating unit (UGCs) of Ceramics, Metals and Showers, in the amount of R$ 1,134,295, on December, 31 2017 (R$ 693,594 on December 31, 2016) was calculated in its value in use and the projections was based on strategic planning approved by direction of the Company, which considers macroeconomics projections of growth and inflation as well operational conditions of the Company. The period explicit of projection used was 10 years, because of in the 5 years early of projection the unit does not reach the full operation level of its current capacity prejudicing the calculation of perpetuity. The adoption of this period, in according to the Management opinion, allows a better representation of results and cash flow of the company in the long term and reflects the specific characteristics of the business. The cash flow was discounted for the rate of 10.35% p.a. on December 31, 2017 (12.32% p.a. in 2016) and the perpetuity was calculated using the last year of explicit period and considering a growth rate of 2.0% p.a.. It was concluded that the fair value amount exceeds the amount in use in R$ 634,291 on December 31, 2017 (R$ 262,679 on December 31, 2016) and the Management did not identify reduction to recoverable amount for this UGCs. Main variables used in the calculation of value in use For the calculation of value in use of cash generating units of Panels, Ceramic, Metals and showers follow variables were used:
Gross margin
Discount rates
Growth rates used in perpetuity Gross Margins The gross margins were projected considering a recovery of prices and volumes align with historical results and in gains forecasted with dilution of fixed costs due to reduction of idleness in the factories. This growth represents an average percent of 1.2% p.a. in panels, 0.8% p.a. for ceramics, 0.5% p.a. for metals and 0.6% p.a. for showers.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
49
Discount rate The discount rate represents the evaluation of current risks of the Company and was calculated by the Weighted Average Cost of Capital (WACC) methodology that considers the financing debits components and own capital used by the Company to finance its activities. The cost of own capital of Duratex was calculated by the method CAPM (Capital Asset Pricing Model) that considers the specific risk of the business through beta. This calculation is revised annually. An increase in the perception of specific risk (beta), market risk, country risk or of financing cost could result in an increase of discount rate. A rate increase of 1.3 p.p. could reduce the value in use by cash flow for the limit level to the fair value in analyzed UGCs. Growth rate used in perpetually The growth rate used to calculate perpetually in the cash flow after the explicit period was 2.0% p.a.. The Company believes that this percent is suitable to the average growth of the sector, as well as to be a projected inflation target by several central banks in abroad. Note 18 – Loans and financing
TYPE CHARGES AMORTIZATION GUARANTEESCURRENT
NON
CURRENTCURRENT
NON
CURRENTParent Company - Local currency
BNDES TJLP + 2.2% p.a. Monthly and Quarterly Surety - Itaúsa - Investimentos Itaú S.A. 289 - 5,542 284
BNDES TJLP + 2.7% p.a. Monthly Guarantee - Cia Ligna de Investimentos 361 419 358 770
BNDES TJLP + 2.8% p.a. Monthly and Quarterly Surety - 70% Itaúsa Investimentos Itaú S.A. and 30% natural person 23,518 42,438 83,930 64,740
BNDES Fixed 2.5% p.a. up to 7% p.a. Monthly and QuarterlySurety - 70% Itaúsa Investimentos Itaú S.A. and 30% natural person
1,410 759 3,654 2,394
BNDES Selic + 2.16% p.a. MonthlySurety - 70% Itaúsa Investimentos Itaú S.A. and 30% natural person
885 - 975 883
FINAME TJLP + 2.3% p.a./Fixed 6% p.a. Monthly and Quarterly Chattel mortgage and Promissory note 11,015 43,990 9,817 36,278
FINAME 6% p.a. Monthly Chattel mortgage and guarantee 850 4,633 850 5,471
EXPORT CREDIT with Swap 8 % p.a. Up to January 2018 - 20,186 - 38,939 20,120
EXPORT CREDIT 104.8 % of CDI Up to January 2021 - 203,411 404,167 14,380 573,707
EXPORT CREDIT 107.5 % of CDI Up to October 2019 - - 130,251 - 117,621
Commercial papers 104.5% of CDI Up to October 2020 - - 505,632 - -
FUNDIEST 30 % IGP-M per month Up to December 2020 Guarantee - Companhia Ligna de Investimentos 28,555 49,973 27,520 74,451
FUNDOPEM IPCA + 3% p.a. Up to January 2026Surety - 70% Itaúsa Investimentos Itaú S.A. and 30% natural person
- - 3,181 48,323
PROINVEST / PRO FLORESTA IGP-M + 4% p.a./IPCA + 6% p.a. Up to January 2018 Guarantee - Cia Ligna de investimentos and Mortgage of assets 99 - 1,197 99
Discounted Rural Promissory Note 9.5 % p.a. Up to March 2017 Promissory Note - - 39,966 -
EXIM TJLP TJLP + 3.3% p.a. Up to September 2018 Promissory Note 117,406 - 1,158 114,982
EXIM SELIC Selic + 3.6% p.a. Up to September 2018 Promissory Note 56,429 - 212 51,101
Total Parent Company - Local currency 464,414 1,182,262 231,679 1,111,224
Parent company - Foreign currency
BNDES Basket of currencies + 2.2 % p.a. Monthly Surety - Itaúsa - Investimentos Itaú S.A. - - 937 -
BNDES US$ + Libor + 1.6 % p.a. Monthly Surety - Itaúsa - Investimentos Itaú S.A. - - 958 -
BNDES US$ + Libor + 2.1 % p.a. MonthlySurety - 70% Itaúsa Investimentos Itaú S.A. and 30% natural person
- - 283 -
ACC US$ + 3.8 % p.a. Monthly Promissory Note - - 66,264 -
RESOLUTION 4131 with Swap US$ + Libor + 1.5% p.a. August 2019 Promissory Note 756 177,631 601 179,316
RESOLUTION 4131 with Swap US$ + 2.82% p.a. June 2018 Promissory Note 175,690 - 158 176,153
RESOLUTION 4131 with Swap US$ + 2.11% p.a. June 2018 Promissory Note 53,735 - 80,443 26,212
RESOLUTION 4131 with Swap US$ + 2.71% p.a. October 2017 Promissory Note - - 128,949 -
RESOLUTION 4131 with Swap US$ + 2.58% p.a. January 2017 Promissory Note - - 128,677 -
RESOLUTION 4131 with Swap US$ + 3.66% p.a. August 2019 Promissory Note 2,287 181,145 2,252 185,225
Total Parent company - Foreign currency 232,468 358,776 409,522 566,906
TOTAL PARENT COMPANY 696,882 1,541,038 641,201 1,678,130
Subsidiaries - Local currency
RURAL CREDIT NOTE 12.75% p.a. November 2018 Surety - Duratex S.A. - - - 176,583
RURAL CREDIT NOTE 12.75% p.a. March 2017 - - - 13,532 -
EXPORT CREDIT NOTE 104.9% of CDI Up to January 2021 Surety - Duratex S.A. 39,632 106,073 6,931 141,139
BNDES TJLP + 2.8% p.a. Monthly and QuarterlySurety - 70% Itaúsa Investimentos Itaú S.A. and 30% natural person
18,843 59,136 1,944 52,368
BNDES 5.5 % p.a. MonthlySurety - 70% Itaúsa Investimentos Itaú S.A. and 30% natural person
- - 242 23,592
BNDES 3.5 % p.a. MonthlySurety - 70% Itaúsa Investimentos Itaú S.A. and 30% natural person
1,150 1,337 1,151 2,483
CRA 98% of CDI Semiannually Guarantee - Duratex S.A. 726 692,429 899 692,429
FINAME Fixed 5.6 % p.a. Monthly and Quarterly Chattel mortgage and surety Duratex S.A. 675 1,068 1,667 5,871
FINAME Fixed 9 % p.a. Semiannually Chattel mortgage and surety Duratex S.A. 645 1,479 23 76
FINAME TJLP + 4 % p.a. Monthly Chattel mortgage and surety Duratex S.A. 582 6,181 2 313
FINAME SELIC + 4.28% p.a. Quarterly Chattel mortgage and surety Duratex S.A. 7 632 - -
DISCOUNTED INVOICES 1.65% per month Monthly - 3,631 - - -
CCB 100.5% of CDI Monthly Promissory Note 366 - - -
Total Subsidiaries - Local currency 66,257 868,335 26,391 1,094,854
Subsidiaries - Foreign currency
LEASING DTF + 2 % Monthly Promissory Note 293 627 501 784
DEG/CII 5.4 % p.a. Semiannually Pledge and mortgage of equipments - - 10,413 1,730
CII Libor + 3.95 % p.a. Semiannually Pledge and mortgage of equipments 1,054 - 2,604 433
ACC 9.0 % p.a. Monthly - 338 - - -
Total Subsidiaries - Foreign currency 1,685 627 13,518 2,947
TOTAL SUBSIDIARIES 67,942 868,962 39,909 1,097,801
TOTAL CONSOLIDATED 764,824 2,410,000 681,110 2,775,931
12/31/2017 12/31/2016
Loans and financing designated at fair value The Company's management has elected to designate, at initial recognition, certain loans and financing (which may be identified in the previous table as swap) as liabilities at fair value through the results.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
50
The adoption of fair value on the debt justify the necessity to avoid accounting mismatch between debt instrument and protect instrument contracted by the Company, that is classified to fair value through the results. a) Sureties and letters of guarantee Sureties and letters of guarantee securing of borrowing of Duratex S.A. were granted by Itaúsa S.A., totaling R$ 48,596 (R$ 153,574 as at December 31, 2016), by Companhia Ligna de Investimentos, amounting to R$ 79,407 (R$ 104,395 as at December 31, 2016). In the case of loans and financing obtained by subsidiaries, sureties were granted by Itaúsa S.A., totaling R$ 56,326 (R$ 57,246 as at December 31, 2016), and by Duratex S.A., totaling R$ 850,129 (R$ 1,025,932 as at December 31, 2016). b) Covenants Loans and financing from the National Bank for Economic and Social Development (BNDES) are subject to restrictive clauses in accordance with usual market practice, which establishes in addition to certain common obligations, specify the following: b.1) The MDF plant in Uberaba – presentation of operating licenses, adoption of measures and actions intended to avoid or remedy damage to the environment, and measures related to occupational health and safety. In the financing agreement for the Uberaba MDF plant, the maintenance of “covenants” are based on the balance sheet of Duratex S.A., should the Company maintain a debt coverage limit by means: (i) EBITDA (*)/ Net financial expenses: equal or above 3.0; (ii) Stockholders’ equity/ total assets: equal or above 0.45, and (iii) EBITDA (*)/ Net operating revenue equal or above 0.20. b.2) HDF plant in Botucatu, MDFII plant in Agudos, Industrial Resins in Agudos, Ceramics in Jundiaí, Deca Sanitary Metals in São Paulo and Jundiaí and forestry area – maintenance during the contractual period, of the follow index based on Duratex S.A. annual audited balance sheet: (i) EBITDA (*)/Net Financial Expenses: above or equal to 3.0; (ii) EBITDA (*)/Net operating revenue equal or above 0.20, and (iii) Stockholders' Equity/Total Assets: equal or above 0.45. If these contractual obligations are not met, Duratex S.A. should provide additional guarantees. The Company declares that on December 31, 2017 the contractual obligations above are fully complied. (*) EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization).
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
51
c) Loans and financing from non-current liability by maturity
Year
Local Foreign Local Foreign
currency currency Total currency currency Total
2019 291,393 358,775 650,168 367,053 358,951 726,004
2020 840,093 - 840,093 899,551 103 899,654
2021 42,097 - 42,097 81,837 85 81,922
2022 5,037 - 5,037 698,171 64 698,235
2023 2,234 - 2,234 2,415 71 2,486
2024 1,378 - 1,378 1,540 78 1,618
2025 31 - 31 31 50 81
Total 1,182,263 358,775 1,541,038 2,050,598 359,402 2,410,000
Loans and financing - Maturities
12/31/2017
Parent company Consolidated
Year
Local Foreign Local Foreign
currency currency Total currency currency Total
2018 371,576 202,364 573,940 602,076 204,748 806,824
2019 263,141 364,542 627,683 335,751 364,639 700,390
2020 400,174 - 400,174 456,224 101 456,325
2021 44,793 - 44,793 81,330 89 81,419
2022 12,305 - 12,305 711,090 76 711,166
2023 8,597 - 8,597 8,793 71 8,864
2024 6,440 - 6,440 6,616 79 6,695
Onwards 4,198 - 4,198 4,198 50 4,248
Total 1,111,224 566,906 1,678,130 2,206,078 569,853 2,775,931
Parent company Consolidated
12/31/2016
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
52
Note 19 – Accounts payable
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Advances from customers 12,564 4,221 19,163 8,022
Statutory share 7,676 - 7,676 -
Freight and insurance payable 9,669 9,962 14,439 15,435
Acquisition of Business 36,930 19,916 36,930 19,916
Distributed earnings (from SCP's) to shareholders (1) - - 17,347 10,538
Commission payable 5,700 7,228 7,740 8,263
Product warranty, technical support and maintenance 10,630 10,843 12,697 14,560
Technology license - 1,721 - 1,721
Acquisition of land used for reforestation - - 5,334 11,653
Accounts payable (from SCPs) to shareholders - - 27,043 27,043
Consigned loans 1,406 1,361 1,702 1,644
Sales for future delivery 5,171 6,327 5,171 6,327
Others 2,565 2,940 8,462 9,570
Total Current 92,311 64,519 163,704 134,692
Acquisition of Business 32,254 31,566 32,254 31,566
Advances from customers - - 5,392 5,123
Partnerships in which some partners are passive (2) - - 93,538 93,538
Product warranty and technical support 4,118 3,585 4,118 3,585
Commercial leasing - - 9,403 10,190
Liabilities provisioned with joint operation partner - - 25,303 22,193
Post-employment benefits(3) 11,495 8,449 11,495 8,449
Other 1,339 795 486 206
Total Non-Current 49,206 44,395 181,989 174,850
Parent company Consolidated
(1) SCPs: Partnerships in which some partners are passive (2) Refers to the value of the participation of third parties in reforestation projects at the Group, which the subsidiary Duratex Florestal has contributed with forest assets, basically forest reserves and equity holders has contributed in kind. (3) Refers to post-employment benefits related to medical assistance.
Note 20 – Taxes and contributions The Company and its subsidiaries have provisions and federal and state taxes liabilities to pay, in according to composition presented:
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Income tax and social contribution payable / provision 314 2,146 16,331 25,429
PIS and COFINS payable / provision 4,517 5,308 4,542 7,483
ICMS and IPI payable 22,113 23,409 33,663 33,827
INSS payable 406 333 1,283 1,263
Tax installment - PERT (1) 4,782 - 87,585 -
Other taxes payable 258 383 322 556
Total current 32,390 31,579 143,726 68,558
ICMS - PSDI - - - 13,974
Total non current - - - 13,974
Parent company Consolidated
In the heading tax installment – PERT are recorded the amounts of federal tax object of Special Program of Tax Regularization (PERT) together with Procuradoria da Fazenda Nacional, under the terms of Law 13.496/2017, considering the discounts arising by adhesion to this program. In the companies Cerâmica Urussanga and Massima, that became to be controlled by Duratex in October 2017, the balance in the liability on December 31, 2017, related to the tax included on PERT totalizes R$ 82,803. On net income of the year from these companies, after the acquisition of control by Duratex was registered the gain concerning to the PERT discount in the amount of R$ 25,968, arising from additional advantages of PERT occurred in the conversion from MP 783/2017 for the Law 13.496/2017. In the parent company, Duratex S.A., the balance in the liabilities of tax in PERT on December 31, 2017 totalizes R$ 4,782 and in net income of the year the adhesion to the program generates gain of R$ 4,737. Duratex will settle the totality of amount due in the PERT on December 31, 2017, using tax credit of income tax from accumulated fiscal loss, as provide the Law.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
53
Note 21 - Contingencies a) Contingent liabilities The Company and its subsidiaries are parties to judicial and administrative processes relating to labor, civil, tax matters and social security which arise in the normal course of their business. The respective provisions for contingencies were constituted takes into consideration the evaluation of the probability of loss by the Company's legal advisors. Based on the opinion of its legal advisors, the Company's Management believes that the recorded provision for contingencies is sufficient to cover any potential losses with lawsuits and administrative in progress, as shown: Parent company Tax Labor Civil Total Consolidated Tax Labor Civil Environmental Total
Balance as at December 31, 2015 55,205 37,540 1,480 94,225 Balance as at December 31, 2015 57,174 50,030 1,480 3,000 111,684
Monetary variance and interest 5,425 13,179 236 18,840 Monetary variance and interest 5,434 17,572 292 - 23,298
Constitution 1,963 16,908 1,045 19,916 Constitution 1,964 22,186 1,552 - 25,702
Reversal (2,173) (5,937) (504) (8,614) Reversal (2,776) (9,107) (572) - (12,455)
Payments - (12,707) - (12,707) Payments - (16,682) - - (16,682)
Exchange variation abroad subsidiaries (149) - - - (149)
Closing balance as at December 31, 201660,420 48,983 2,257 111,660
Closing balance as at December 31, 201661,647 63,999 2,752 3,000 131,398
Judicial deposits (8,514) (12,353) - (20,867) Judicial deposits (8,514) (13,289) - - (21,803)
Balance as at December 31, 2016 after
offsetting of judicial deposits 51,906 36,630 2,257 90,793 Balance as at December 31, 2016 after
offsetting of judicial deposits 53,133 50,710 2,752 3,000 109,595
Parent company Tax Labor Civil Total Consolidated Tax Labor Civil Environmental Total
Balance as at December 31, 2016 60,420 48,983 2,257 111,660 Balance as at December 31, 2016 61,647 63,999 2,752 3,000 131,398
Monetary variance and interest 3,864 6,009 318 10,191 Monetary variance and interest 3,910 7,744 414 - 12,068
Constitution 6,024 29,780 2,386 38,190 Constitution 7,859 36,747 2,912 - 47,518
Reversal (15,708) (11,799) (1,371) (28,878) Reversal (15,708) (11,546) (2,918) - (30,172)
Payments (11,136) (12,813) (1,000) (24,949) Payments (11,136) (22,380) (9,900) - (43,416)
Offset deposit (2,896) - - (2,896) Offset deposit (2,896) - - - (2,896)
Transfer to current (*) (5,475) - - (5,475) Transfer to current (*) (5,475) - - - (5,475) Ceusa and Massima business combination 8,854 - 1,086 9,940 Acquisition of subsidiaries - Massima and Ceusa - 5,829 16,909 2,000 24,738
Ceusa and Massima business combination 8,854 - 1,086 - 9,940
Exchange variation abroad subsidiaries 24 - - - 24
Closing balance as at December 31, 201743,947 60,160 3,676 107,783
Closing balance as at December 31, 201747,079 80,393 11,255 5,000 143,727
Judicial deposits (8,977) (16,165) - (25,142) Judicial deposits (8,977) (20,318) - - (29,295)
Balance as at December 31, 2017 after
offsetting of judicial deposits 34,970 43,995 3,676 82,641 Balance as at December 31, 2017 after
offsetting of judicial deposits 38,102 60,075 11,255 5,000 114,432
(*) Transfer by adhesion to the PERT (Special Program of Tax Regularization)
Tax contingencies mainly relate discussions regarding: 1-) PIS – six-monthly - Declaratory action with the purpose of recognizing the right of paying PIS pursuant to Complementary Law Nº. 7/70, six months after the revenue recognition. The provision is regarding divergence about the beginning of updated of credits with SELIC, from November, 1997, in according to Treasury or January, 1996, the first month effective of SELIC, in according to understanding of the Company. As at December 31, 2017 the amount accrued for this discussion is R$ 11,204 (R$ 13,844 as at December 31, 2016). 2- ) ICMS - Disallowance of ICMS credits on wood purchases made with a supplier declared disreputable by the Treasury, being credits have been booked and disallowed retroactively. On 3rd quarter 2017, the amount was reversed due to adhesion to PEPSP “Special Program of Installment SP” (R$ 19,089 as at December 31, 2016). 3- ) IR and CS – Lawsuits and administratives to cancel the tax credit regarding the incidence of IR and CSLL on profits of foreign subsidiaries from 1996 to 2002 and 2003 periods (non-recognition of the right to compensation IR paid in abroad by subsidiaries, in accordance with Article 26 of Law No. 9.249/95 and removal of the incidence of fines by judicial deposit made after the revocation of the injunction). As at December 31, 2017 the amount accrued for this discussion is R$ 4,943 (R$ 4,779 as at December 31, 2016). 4- ) CSLL and IRPJ - Administrative process regarding to deduction of Worker’s Food Program - PAT expenses directly from net income, based on the law, and not as a deduction from the IR, as determined by the decree. On 3rd quarter, 2017 the amount was reversed due to adhesion to PERT “Special Program of Tax Regularization” (R$ 3,562 as at December 31, 2016).
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
54
5-) Craft’s fine (Delta IPC) - Legal action to annul the charge through fiscal execution, of craft’s fine proceeding from an administrative process instituted by the Treasury to prevent decay, drawn up with suspension of enforceability, but with a fine. Amount collected in REFIS, but not ratified. As at December 31, 2017 the amount accrued for this discussion is R$ 2,946 (R$ 2,849 as at December 31, 2016). 6-) Fine and interests charged against the Company due to alleged irregular use of Company's Operating Fund of the State of Rio Grande do Sul - FUNDOPEM, in the months of May /June /July 2016. On December 31, 2017, the amount accrued for this discussion is R$ 3,429. b) Possible losses The Company and its subsidiaries are involved in other tax, social security, civil and labor lawsuits with a risk of loss classified as possible in according to evaluation of the legal advisors in the amount of R$ 364,386. The main amounts are: 1) R$ 279,432 related to taxation (IR/ CS), on supposed capital gain (revaluation reserve), on the corporate operations of split-off, with incorporation of assets (lands and forests), measured at book value, realized in the 2006 (lands) and 2009 (forests) periods of subsidiary Estrela do Sul Participações Ltda.. The lawsuit from 2006 is in discussion on the CARF and the lawsuit from 2009 on the Judiciary and 2) legal and administrative discussions involving disallowance of credit, collection and fine related to ICMS, totaling R$ 46,046. Other process totaling R$ 38,908 are relating to process whose contingences does not exceed individually R$ 5 million (approximately 50 processes). c) Contingent assets The Company and its subsidiaries have filed legal and administrative actions for the refunding of certain taxes as table below, with probable likelihood of success, in according to the legal advisors. Because the amounts, presented below represent contingent assets, they have not been recognized in the Company’s financial statements:
12/31/2017 12/31/2016
IPI credit premium from 1980 to 1985(*) 118,965 135,921
Monetary Restatement of Federal Power Company (Eletrobás) credits 12,709 14,396
INSS (Social Security) (**) 37,320 46,889
CPMF - differential of percentage 3,064 -
PIS - (inconstitutionality of DLs nº 2.445 and 2.449) 1,215 1,149
PIS and COFINS - Manaus Free-Trade Zone 1,562 522
PIS and COFINS - remittance of commission on overseas sales - 2,585
Other 8,293 5,669
Total 183,128 207,131
(*) In May 2017, it has transited in judgement, in the scope of the STJ, the judicial measure nº. 0003293-75.1989.4.03.6100 granting to the Company the right to refund (compensation) of the IPI Premium Credit, from the year of 1984, as a result of having, at the time, the Export Incentive Program - BEFIEX, which granted this incentive fully between 1976 and 1985. To the right to offset the credit in the amount of R$ 40,230 was recognized on the books R$ 6,511 in December/ 2017 and R$ 33,719 in June/ 2017 credit on the result, and the financial offset against the IPI is being realized directly in the monthly calculation of this tax from July/ 2017, under the conditions of the transited judgment decision and in compliance with Decree-Law 491/69. (**) The balance reduction refers, mainly, for the prognosis change in this contingent asset, from probable to remote, in according to Company’s legal advisors valuation.
Note 22 – Rural leases Amounts involved Rural leases are agreements entered into by the subsidiary Duratex Florestal Ltda. (controlled by the Company) and Ligna Florestal Ltda. (controlled by Companhia Ligna de Investimentos), in
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
55
connection with lands in the States of Minas Gerais and Rio Grande do Sul, where the Company’s forests are located. The monthly charges for these leases are R$ 2,045. Duratex Florestal Ltda. will pay until 2038 R$ 24,540 per year. Additionally, in compliance to requirements of CPC 06 – R1 – “Leases”, the subsidiary Duratex Florestal Ltda. records the effects of straight line method costs of its rural leases agreement. Note 23 – Stockholders’ equity a) Capital The Company's authorized capital is 920,000,000 (nine hundred and twenty million) of shares, and fully subscribed and paid-up is R$ 1,970,189, represented by 691,784,501 registered common shares with no par value.
b) Treasury shares
nº of shares
Amount in
thousand R$
Balance as at December 31, 2016 2,485,759 27,931
Acquisitions in the year - -
Sale of treasury shares (7,100) (80) (*)
Balance as at December 31, 2017 2,478,659 27,851
Minimum Maximum
2.86 15.67 11.24 9.20
Share price
Weighted
Average
Lastest
Quotation
(*) These write-offs refer to the delivery of shares for the exercise of stock options by the Company’s executives.
Based on the last market quotation as at December 28, 2017, the value of the Company's treasury shares is R$ 22,804 (R$ 16,903 as at December 29, 2016). c) Equity reserves
12/31/2017 12/31/2016
Capital Reserves 345,300 342,212
Premium on the subscription of shares 218,731 218,731
Tax incentives 13,705 13,705
Prior to Law 6404 18,426 18,426
Options granted 97,303 97,636
Options granted to be appropriated (Note 31) (2,865) (6,286)
Capital transactions with partners (18,731) (18,731)
Other Comprehensive Income 474,199 459,064
Revaluation Reserves 57,344 60,903
Carrying Value Adjustments 416,855 398,161
Revenue Reserves 1,980,082 1,852,527
Legal 184,130 174,886
Statutory 1,718,204 1,626,679
Tax incentives (Article 195 - Law no. 6.404/76) 77,748 50,962
Treasury shares (27,851) (27,931)
Parent company and
Consolidated
The amount presented in the Capital Reserves balance as a premium on the subscription of shares refers to the additional amount paid by the stockholders in relation to the nominal value at the time of the subscription of shares.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
56
The amount of Options Granted in the Capital Reserves represents the recognition of the awarding of the options on the grant date. As provided in the bylaws, the balance appropriated to the statutory reserve will be utilized for: (i) The Reserve for Dividend Equalization, (ii) The Reserve for Increasing Working Capital, and (iii) The Reserve for Capital Increases in Investees. Reserve for Dividend Equalization: Will be limited to 40% (forty percent) of the capital and its purpose will be the payment of dividends, including as interest on capital (Article 29,2) or its advances, to maintain the payment to stockholders being formed with resources: (a) the equivalent to up to 50% (fifty percent) of net income, adjusted in accordance with Article 202 of Brazilian Corporation Law; (b) equivalent to up to 100% (one hundred percent) of the portion of the Revaluation Reserves, recorded as retained earnings; (c) equivalent to up to 100% (one hundred percent) of prior year adjustments, recorded as retained earnings; and (d) resulting from the credit to dividends anticipation (Article 29,1 of the bylaws) The Reserve for Increasing Working Capital: Will be limited to 30% (thirty percent) of the capital and its purpose is to guarantee funds for the company's operations, comprising resources equivalent to up to 20% (twenty percent) of net income, adjusted in accordance with Article 202 of Brazilian Corporation Law.
The Reserve for Capital Increases in Investees: Will be limited to 30% (thirty percent) of registered capital and its purpose will be of exercising preemptive subscription right in capital increases of such companies, being made resources equivalent of to up to 50% (fifty percent) of the net income, adjusted in accordance with Article 202 of Brazilian Corporation Law.
Reservations tax incentives: The general meeting may, by proposal of the management bodies, allocate to the tax incentive reserve the portion of net income resulting from donations or government subsidies for investments , which can be excluded from the mandatory dividend calculation base (item I of the caput of article 202 Law 6.404/76). (Included by Law Nº 11,638, from 2007).
Tax incentives refer to: R$ 37,738 (R$ 34,686 in 2016) of PRODEPE - Pernambuco State Development Program, R$ 11,149 (R$ 10,369 in 2016) of the FAIN - Paraíba Industrial Development Support Fund and R$ 5,907 (R$ 5,907 in 2016) of SUDENE - The Superintendency for the Development of the Northeast and R$ 22,953 (balance zero in 2016) of FUNDOPEM – Operation Company Funds from State of Rio Grande do Sul. d) Destination of net income The Board of Directors at a meeting on February 05, 2018 approved the financial statements and consequently, the destination of net income of the year 2017 that will be submitted for approval on the Extraordinary General Meeting.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
57
e) Dividends (interest on capital)
Destination of net income 12/31/2017 12/31/2016
Net income of the year 184,875 23,646
(-) Legal reserve (9,244) (1,182)
(-) Tax incentives reserve (26,786) (7,394)
(+) Realization of revaluation reserve 3,559 5,102
(-) Proposed dividends/Interest on capital (60,840) (6,052)
(-) Statutory reserves 91,564 14,120
Sale of shares in treasury (stock options) (39) -
Allocation for profit reserves:
Equalization of dividends (47,618) (8,505)
Working capital (35,126) (4,492)
Capital increase in subsidiaries (8,781) (1,123)
= Statutory reserves after allocation - -
A minimum dividend is guaranteed, in statutory, correspondent to 30% of adjusted net income. Presented below is the dividend calculation, the amount paid/ credited and the balance to pay:
The dividends as at December 31, 2017 and 2016 were calculated as follows:
12/31/2017 12/31/2016
Net income for the year 184,875 23,646
(-) Legal reserve (9,244) (1,182)
(-) Tax incentives (26,786) (7,394)
(-) Realization of revaluation reserve 3,559 5,102
Adjusted net income 152,404 20,172
Minimum mandatory dividend (30%) 45,721 6,052
Dividends / Interest on capital of net income for the year 60,840 6,052
IRRF on interest on capital ( 15%) (9,126) -
Dividends / Interest on capital declared, net of Income Tax Withheld at
source (IRRF) 51,714 -
The Board of Directors, at a meeting held on 12/11/2017 "adreferendum" of
the General Shareholders 'Meeting, decided to credit interest on capital' on
12/29/2017, due to the mandatory dividend of 2017, the amount of R$
0.08826330461 per share totaling R$ 60,840. 60,840 -
Note 24 – Insurance coverage As at December 31, 2017, the Company and its subsidiaries had insurance coverage against fire and various risks relating to property, plant and equipment and inventory. Under the terms of the insurance policies, the value of the coverage are R$ 4,184 million. The Group does not have insurance coverage for its forests. To minimize the risk to these assets, it maintains an internal fire brigade, observation towers system, fire trucks and motorized forest guards. The Group has not suffered losses as a result of forest fires.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
58
Note 25 – Net sales revenue The reconciliation of gross and net sales revenue is as follows:
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Gross sales revenue 4,202,115 4,060,098 5,027,342 4,892,035
Domestic market 3,846,165 3,707,022 4,290,020 4,079,262
Foreign market 355,950 353,076 737,322 812,773
Taxes and contributions on sales (902,059) (868,101) (1,036,476) (982,275)
Net sales revenue 3,300,056 3,191,997 3,990,866 3,909,760
Parent Company Consolidated
Note 26 – Expenses, by nature
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Variation in fair value of biological assets - - 214,933 157,973
Variations in the inventories of finished products
and work in process 295,705 507,291 171,092 357,735
Raw materials and consumption materials (1,938,221) (2,137,175) (1,893,937) (2,082,382)
Remuneration, charges and benefits to employees (663,509) (646,248) (835,751) (800,086)
Depreciation charges, amortization and depletion (267,864) (263,144) (528,584) (550,562)
Transport expenses (258,223) (274,396) (313,998) (321,003)
Advertising expenses (96,019) (75,892) (128,862) (106,937)
Other expenses (319,381) (283,171) (313,819) (288,347)
Total expenses, by nature (3,247,512) (3,172,735) (3,628,926) (3,633,609)
Parent Company Consolidated
The expenses by nature described above represent the following captions of the statement of income.
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Variation in the fair value of the biological assets - - 214,933 157,973
Cost of products sold (2,626,403) (2,581,536) (3,062,030) (3,058,601)
Selling expenses (516,155) (482,866) (638,521) (591,429)
General and administrative expenses (104,954) (108,333) (143,308) (141,552)
Total (3,247,512) (3,172,735) (3,628,926) (3,633,609)
Parent company Consolidated
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
59
Note 27 – Financial income and expenses
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Financial income
Remuneration on financial investments 33,040 70,034 103,563 133,721
Foreign exchange variances 4,240 (17,099) 2,929 (11,846)
Indexation adjustment 12,531 12,283 13,046 13,689
Interest and discounts obtained 34,106 8,439 42,595 11,937
Other 891 104 898 463
Total 84,808 73,761 163,031 147,964
Financial expenses
Charges on financing -Local currency (130,118) (167,093) (240,570) (275,017)
Charges on financing -Foreign currency (22,142) 194,673 (23,159) 191,958
Foreign exchange variances (712) 12,531 (6,462) (6,765)
Indexation adjustment (5,688) (6,907) (6,916) (10,784)
Derivatives (53,411) (323,968) (49,470) (311,465)
Bank charges (4,653) (4,727) (7,289) (7,199)
Tax on financial operations (111) (599) (1,375) (1,112)
Other (3,581) (4,420) (33,903) (26,852)
Total (220,416) (300,510) (369,144) (447,236)
Total financial result (135,608) (226,749) (206,113) (299,272)
Parent company Consolidated
Note 28 – Other operating income (expenses), net
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Amortization of customer portfolio (26,467) (26,465) (27,307) (27,421)
Amortization of appreciation of assets (6,941) (3,791) (6,941) (3,791)
Profit sharing and Stock Option (10,764) (5,061) (10,764) (5,061)
Pension plan credits 3,890 2,210 5,258 2,218
IPI premium credit(*) 37,708 - 37,708 -
Prodep-Reintegra credits 12,356 5,115 12,514 5,125
Result net, with sales of farms from Duratex Florestal - - 57,383 61,753
Reversal of tax contingencies due to the adhesion to PERT and PEPSP(**) 11,059 - 37,027 -
Gain (loss) on disposal of assets and other
operating income and expenses (33,755) 25,516 (29,865) 22,472
Total other operating income, (expenses) net (12,914) (2,476) 75,013 55,295
Parent company Consolidated
(*) The amount below of R$ 37,708 and plus R$ 2,522 recorded as interests on financial result, totalizes R$ 40,230, according to note nº 21 C. (**) PERT “Special Program of Tax Regularization” and PEPSP “Special Program of Installment SP”.
Note 29 – Sales of farms During the year 2017, the subsidiary Duratex Florestal Ltda. sold 08 farms (just lands),Farms Mamedina, Santa Tereza, Capivari, Santa Branca, Santa Verônica, Nova Esperança and Santa Edwiges, totaling the amount of R$ 57,383 net of write off costs, of which R$ 28,705 were received as at December, 31 2017. These farms are distant of industrial plants and had high value for other economic activities, giving continuity to the plan medium/ long term of the Company and its subsidiaries of demobilization of non-essential assets, began in 2016. Follow the amount involved in the negotiation:
12/31/2017 12/31/2016
Value of sales of farms 78,218 69,184
(-) Cost of write-offs (20,835) (7,431)
Results of sales 57,383 61,753
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
60
Note 30 – Income tax and social contribution a) Reconciliation of income tax and social contribution expenses The reconciliation of income and social contribution tax expenses, at their nominal and effective rates, is as follows:
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Profit (loss) before Income tax and social contribution 122,957 (37,379) 215,228 17,843
Income Tax and Social Contribution at the rates of 25%
and 9%, respectively (41,805) 12,709 (73,178) (6,067)
Income tax and social contribution on additions and deductions from the result 103,723 48,316 42,965 14,453
Income from foreign investments - - (2,005) 7,302
Interest on Capital 20,686 - 20,686 -
Equity in results of investees 79,370 63,263 - -
Subsidiary tax difference - - 29,092 19,835
Other additions and exclusions 3,667 (14,947) (4,808) (12,684)
Income tax and social contribution on the result of the year 61,918 61,025 (30,213) 8,386
In the results:
Current income tax and social contribution - (25,756) (58,244) (74,470)
Deferred income tax and social contribution 61,918 86,781 28,031 82,856
Effective rate % 50% -163% -14% 47%
Parent company Consolidated
Note 31 – Stock option plan As provided for in the bylaws, the Company has a stock option plan, whose objective is to integrate executives in the process of development of the Company in a medium and long-term, enabling them to benefit from the value that their work and dedication adds to Duratex's shares representatives of the capital from Duratex. These options grant their owners the right, pursuant to the Plan's conditions, to subscribe to common shares of Duratex's authorized capital. The rules and operating procedures of the Plan are proposed by a People, Governance and Appointing Committee designated by the Company's Board of Directors. Periodically, this Committee submits proposals to the Board of Directors regarding the implementation of the Plan. Options will only be granted for fiscal years during which sufficient profits are earned to permit the mandatory minimum dividend distribution to stockholders. The total quantity of options to be granted during each fiscal year should not exceed 0.5% of the total number of shares from Duratex owned by the controlling and non-controlling stockholders at the end balance of the same fiscal year. The exercise price payable to Duratex will be defined by the People, Governance and Appointing Committee when granting the option. In order to define the exercise price, the People Committee will consider the average price of Duratex's common shares in BM&FBOVESPA trading sessions for a period of five to ninety days prior to the option issue date. This will be at the discretion of the Committee, which may make an upward or downward adjustment of up to 30%. The prices established will be readjusted, until the prior month to the exercise of the options, based on the IGP-M index, or, in its absence, by index designated by the people Committee.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
61
2007 2008 2009 2010 2011 2012 2013 2014 2016
Total stock options granted 2,787,034 2,678,887 2,517,937 1,333,914 1,875,322 1,290,994 1,561,061 1,966,869 1,002,550
Exercise price on the grant date 11.82 15.34 9.86 16.33 13.02 10.21 14.45 11.44 5.74
Fair value on the grant date 8.88 7.26 3.98 7.04 5.11 5.69 6.54 4.48 4.00
Deadline to exercise 10 years 10 years 8 years 8 years 8.5 years 8.8 years 8.9 years 8.10 years 8,9 anos
Vesting period 1.5 years 1.5 years 3 years 3 years 3.5 years 3.8 years 3.9 years 3.10 years 3,9 anos
The following economic assumptions were utilized to determine these amounts:
2007 2008 2009 2010 2011 2012 2013 2014 2016
Volatility of share price 36.60% 36.60% 46.20% 38.50% 32.81% 37.91% 34.13% 28.41% 39.82%
Dividend yield 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Risk-free rate of return (1) 7.60% 7.20% 6.20% 7.10% 5.59% 4.38% 3.58% 6.39% 6.95%
Actual exercise rate 96.63% 96.63% 96.63% 96.63% 96.63% 96.63% 96.63% 96.63% 96.63%
The Company settles this benefit plan by transferring shares, which are kept in treasury until the actual exercise of the options by the executives.
In 2015 and 2017 there were no stock option grant of the Company.
(1) General Market Price Index (IGP-M) Statement of value and appropriation of the options granted:
Grant Qty Vesting Term for Grant Option Total Other
Date Granted Date Maturity price 12/31/2016 12/31/2017 Price Value Value from 2007
to 2014 2015 2016 2017Periods
02/08/2006 2,659,180 06/30/2007 12/31/2016 11.16 - - 9.79 - 586 586 - - - -
01/31/2007 2,787,034 06/30/2008 12/31/2017 11.82 1,294,078 - 8.88 - 24,758 24,758 - - - -
02/13/2008 2,678,887 06/30/2009 12/31/2018 15.34 1,340,260 1,132,434 7.26 19,456 - 19,456 - - - -
06/30/2009 2,517,937 06/30/2012 12/31/2017 9.86 839,525 - 3.98 - 9,194 9,194 - - - -
04/14/2010 1,333,914 12/31/2013 12/31/2018 16.33 808,763 685,019 7.04 8,716 - 8,716 - - - -
06/29/2011 1,875,322 12/31/2014 12/31/2019 13.02 1,523,797 1,227,778 5.11 9,208 - 9,208 - - - -
04/09/2012 1,290,994 12/31/2015 12/31/2020 10.21 780,997 658,552 5.69 6,390 - 5,203 1,187 - - -
04/17/2013 1,561,061 12/31/2016 12/31/2021 14.45 1,222,907 1,025,843 6.54 8,443 - 4,399 2,290 1,754 - -
02/11/2014 1,966,869 12/31/2017 12/31/2022 11.44 2,144,813 1,872,257 4.48 8,214 - 2,062 2,240 2,232 1,680 -
03/09/2016 1,002,550 12/31/2019 12/31/2024 5.74 1,002,550 990,050 4.00 5,731 - - - 1,251 1,515 2,965
Total 19,673,748 10,957,690 7,591,933 66,158 34,538 83,582 5,717 5,237 3,195 2,965
Effective exercise rate 96.63% 96.63% 96.63% 96.63% 96.63% 96.63% 96.63%
Value established 63,928 33,374 80,764 (1) 5,524 (2) 5,061 (3) 3,088 (4) 2,865 (5)
(1) Amount recorded against income from 2007 to 2014
(2) Amount recorded against income for 2015
(3) Amount recorded against income for 2016
(4) Amount recorded against income for 2017
(5) Amount to be recorded against income in other periods
Balance to be Exercised Competence
As at December 31, 2017, the Company had 2,478,659 treasury shares that could be utilized for the eventual exercise of options. Note 32 – Private pension plan The Company and its subsidiaries are part of a group of sponsors of Fundação Itaúsa Industrial, a non-profit organization which has as its objective the administration of private plans providing pensions or supplementary income benefits, similar to those of the National Social Security. The Fundação manages a Defined Contribution Plan (DC Plan) and a Defined Benefit Plan (DB Plan). Defined contribution plan – (DC Plan) This plan is offered to every employee eligible to the plan and as at December 31, 2017 had 6,201 participants (6,186 participants as at December 31, 2016). In the DC Plan - PAI (Individual Retirement Plan) there is no actuarial risk, and the investment risk is borne by the participants. The current regulation stipulates sponsor contributions of 50% to 100% of the amounts paid in by participants. Pension Program Fund The contributions by sponsors that remain in the plan as a result of participants who opted to be paid out or who anticipated their retirement formed the Pension Program Fund, which, according to the plan's regulations, is being utilized to compensate the contributions by sponsors.
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
62
The present value of normal future contributions, calculated by Towers Watson, according to average percentual of normal contribution of sponsors, totalized on December 31, 2017 the amount of R$ 105,740 (R$ 100,482 as at December 31, 2016). The increase of R$ 5,258 was recognized in the Statement of income under “Other net operating income (expenses)”. Presented below is the reconciliation with the recognized amounts in the financial statements:
12/31/2017 12/31/2016
Present value of the actuarial obligations (913,655) (868,052)
Fair value of assets 1,303,523 1,227,194
Asset calculated 389,868 359,142
Restriction on asset due to limit (284,128) (258,660)
105,740 100,482Asset to be recognized in the financial statements
Assets and liabilities to be recognized in the balance sheet
Defined benefit Plan – (DB Plan) The DB Plan has the basic purpose of granting benefits in the form of a lifetime monthly income to complement National Social Security payments, according to the plan’s regulations. This plan is being discontinued, and enrollment by new participants is not permitted. The plan includes the following benefits: a retirement supplement, based on the period of contribution, special conditions by age, disability, lifetime monthly income, retirement premium, and a death benefit. On July 4, 2016, PREVIC approved the destination of special reserve of Defined Benefit Plan (DB Plan) with reversion of values to the sponsors in amount of R$ 7,752, (R$ 5,116 net of tax effects). This amount will recognize in 36 installments in accordance to resolution CGPC nº 26 on December 31, 2017 the amount to receive is R$ 4,473 (R$ 6,751 on December 31, 2016), in accordance to note 9. Presented below, the position on December 31, 2017:
12/31/2017 12/31/2016
Present value of the actuarial obligations (71,509) (69,945)
Fair value of assets 113,050 110,951
(Liabilities) / Assets calculated based of CPC 33 R1/IAS 19 41,541 41,006
Irrecoverable surplus at the end of the year (29,644) (34,030)
Net assets from defined benefit (Liability) 11,897 6,976
Assets and liabilities to be recognized in the balance sheet
Duratex S.A. - Notes to the Financial Information as at December 31, 2017.
63
Actuarial Assumptions
12/31/2017 12/31/2016
Discount rate 9.75% 11.14%
Inflation 4.25% 4.85%
Salary increases rate 6.62% 7.23%
Growth of benefits 4.25% 4.85%
Capacity factor
Salaries 100% 100%
Benefits 100% 100%
12/31/2017 12/31/2016
Mortality Table AT - 2000 AT - 2000
Mortality table for disabled RRB 1983 RRB 1983
Entry into disability table Modified RRB 1944 Modified RRB 1944
Turnover table Null Null
Retirement age
% of participation of married active participants on 95% 95%
retirement date
Age difference between participant and spouse
Actuarial method Projected Unit Credit Projected Unit Credit
Wives are 4 years
younger than husbands
Wives are 4 years
younger than husbands
First age entitled to one
of the benefits
First age entitled to one
of the benefits
Economic assumptions
Economic assumptions
Note 33 – Medical assistance Plan “Post-employment” The Company offers both contributory plans, currently with co-participation, as contributories plans (Tubarão – SC unit) to its employees and their dependents, through 13 health care providers, totaling 29,394 lives (actives, dismissed, retired and dependents) characterizing the obligation of extension to coverage for dismissed and retired persons according to Law 9,656/98. In this context, the Company hired Bematize Consultoria e Gestão de Benefícios for realization of actuarial evaluation from liabilities positioned on December 31, 2017 and 2016 for preparation of report of record CPC 33 (R1) – CVM 695. The assumptions and actuarial method used in this evaluation are in accordance to principles and actuarial practices usually accept, with local law and with CPC 33 (R1). The actuarial evaluation used projected unit credit method to determine the liability and normal cost. The discount rate is based on available titles on Brazilian market. Considering the duration of liability from evaluated plan, the discount rate calculated was 5.43% p.a. for 2017 and 6.00% p.a. for 2016, both net of inflation. When added to inflation rated expected in long term, of 4.15% p.a. for 2017 and 4.85% p.a. for 2016, we have a nominal discount rate of 9.91% p.a. and 11.14% p.a., respectively.
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Financial Assumptions
12/31/2017 12/31/2016
Discount rate 9.91% p.a. (5.43% real p.a.) 11.14% p.a. (6.00% real p.a.)
Return of investments rate 9.91% p.a. (5.43% real p.a.) 11.14% p.a. (6.00% real p.a.)
Growth of salary 6.16% p.a. (1.83% real p.a.) 6.33% p.a. (1.41% real p.a.)
Medical inflation 7.63% p.a. (3.00% real p.a.) 8,67% p.a. (3.00% real p.a.)
Aging Factor 3.00% p.a. 3.00% p.a.
Long term inflation estimated rate 4.85% p.a. 4.85% p.a. Biometric Assumptions as at December, 31 2017 and December, 31 2016
General mortality table AT 2000 softened in 10% segregated by sex
Entry into disability table RRB-1944 desagravatted in 70% segregated by sex
Mortality table for disabled table RRB - 1983
Based on salary and time of service
From 0 – 10 minimum salary: 0.60 / (TS+1);
From 10 – 20 minimum salary: 0.45 / (TS+1);
Above 20 minimum salary: 0.30 / (TS+1);
Minimum salary (R$ 937.00) 2017 and (R$ 788.00) 2016
Probability of retirement 100% to the 55 years old
Retirement rate 62%
Family composition future retired 95% of married, wifes are 4 years younger
Family composition retired and pensioners Family group informed
Turnover
Liability (asset) reconciliation recognized in the balance sheet:
12/31/2017 12/31/2016
Net actuarial liability at beginning of year 8,449 -
Expense recognized on the net income of the year 1,069 548
Amount recognized on other comprenensive income 1,977 7,901
Net actuarial liability at the end of the year 11,495 8,449
Amounts recognized on the net income of the year
12/31/2017 12/31/2016
Cost of current service 116 43
Interests on the obligations 953 505
Total expenses recognized on the results 1,069 548 Assumption’s sensitivity analysis
Sensitivity level + 0,5% - 0,5% + 1,0% - 1,0% + 10% - 10,%
Effect on current cost on services and
interests on actuarial obligations (256,878) 379,213 997,899 (566,001) 97,862 (29,325)
Effect on present value of obligations (2,390,516) 3,689,053 7,911,274 (4,771,847) 762,320 (70,697)
Discount rate Medical inflation Retirement
Note 34 – Earnings per share (a) Basic The basic earnings per share are calculated dividing the net income attributable to the Company’s stockholders by the weighted average number of common shares outstanding during the period, excluding common shares purchased by the Company as treasury shares.
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12/31/2017 12/31/2016
Earnings attributable to the Company's stockholders 184,875 23,646
Weighted average number of common shares issued (In thousands) 691,784 685,230
Weighted average of treasury shares (In thousands) (2,483) (2,486)
Weighted average number of common shares outstanding (In thousands) 689,301 682,744
Basic earnings per share 0.2682 0.0346 (b) Diluted Diluted earnings per share are calculated dividing the net income attributable to the Company’s stockholders after the adjustments of weighted average common shares outstanding, assuming the conversion of all potential diluted common shares adjusted by the program of Stock Options.
12/31/2017 12/31/2016
Earnings attributable to the Company's stockholders 184,875 23,646
Weighted average number of common shares issued (In thousands) 691,784 685,230
Call options for shares 7,592 10,958
Weighted average of treasury shares (In thousands) (2,483) (2,486)
Weighted average number of diluted common shares outstanding
and call options for shares (In thousands) 696,893 693,702
Diluted earnings per share 0.2653 0.0341 Note 35 – Business segments The Management defined the operational segments based on reports used for decision-making if strategic decisions, revised by directors. The Board analyzes the business based on two main segments: the Wood Division and the Deca Division. The segments presented in the financial statements are strategic business units that provide different goods and services. There are no sales between the segments.
Wood Deca Consolidated Wood Deca Consolidated
Net sales revenue 2,515,732 1,475,134 3,990,866 2,594,548 1,315,212 3,909,760
Domestic market 1,902,306 1,413,094 3,315,400 1,902,396 1,257,078 3,159,474
Foreign market 613,426 62,040 675,466 692,152 58,134 750,286
Variation in the fair value of the biological assets 214,933 - 214,933 157,973 - 157,973
Cost of products sold (1,609,823) (931,051) (2,540,874) (1,656,166) (857,588) (2,513,754)
Depreciation, amortization and depletion (299,459) (98,579) (398,038) (308,310) (94,240) (402,550)
Depletion of adjustment in the biological assets (123,118) - (123,118) (142,297) - (142,297)
Gross profit 698,265 445,504 1,143,769 645,748 363,384 1,009,132
Selling expenses (373,383) (265,138) (638,521) (360,558) (230,871) (591,429)
General and administrative expenses (73,597) (69,711) (143,308) (77,571) (63,981) (141,552)
Management fees (8,733) (6,879) (15,612) (8,503) (5,828) (14,331)
Other operating income 32,111 42,902 75,013 48,639 6,656 55,295
Operating income before financial result 274,663 146,678 421,341 247,755 69,360 317,115
12/31/2017 12/31/2016
These operating segments have been defined based on the reports used for decision making by the Supervisory Board. The accounting policies of each segment are the same as described in Note 2. The Company has a customer portfolio sprayed with no revenue concentration.
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Note 36 – Subsequent events a) Disposal of facilities and equipment destined to production of thin wood fiberboard On January 31, 2018, Duratex communicates to its stockholders and for general market that accept by it or by intermediate of its affiliates, binding proposal from Eucatex Group involving the purchase of facilities and equipment destined for production of thin wood fiberboard. Located in the municipality of Botucatu, the production of thin wood fiberboard began in 1973. The effective productive capacity from these assets is 200,000 mᶟ per year and currently these lines employ 280 employees. The decision to resume the activities in Itapetininga unit programmed for April 2018 made with the operation of these lines mainly focused for export, lost the strategic relevance for Duratex. The transition includes the exchange of these facilities and equipment for a farm, located in the municipally of Capão Bonito, in São Paulo State, strategically next to the Duratex Itapetininga unit, having as base the value R$ 60 million. The others production lines of thick and thin wood fiberboard (MDF and HDF) continue to be operating normally by Duratex. The acceptance by Duratex of binding proposal won’t result relevant effects in its results or in its early celebrate contracts. Duratex will celebrate agreement for supply of wood to this operation of thin wood fiberboard at the period of until 7 (seven) years. Based in the current law, the consummation of this operation is conditioned to its approval by Conselho Administrativo de Defesa Econômica – CADE. Until the approval, the management of the lines will remain with Duratex, in usual rhythm of production. In the understanding of the Company, the business will bring benefits to both of parts, to the market, that remains stocked of products and, in special, to the society, with maintenance of jobs and tax generates. Duratex reaffirm the commitment with its stakeholders to maximize the profitability of its operations, through the best utilizing of its assets, and in the increase of its efficiency and competitiveness in the market. b) Disposal of lands and farms In February 05, Duratex communicates to its stockholders and to the market in general that celebrated with Suzano Papel e Celulose, a Purchase and Sale of Forestry Assets Agreement, of Purchase and Sale of Rural Properties Commitment, of Purchase Option and others Covenants, with Suspensive Clause (“Operation”), involving the disposal of lands and forests to be realized by Duratex or by intermediate of its affiliates. Duratex, as long as 67 years old of technologic development in the forestry activity, accumulated relevant equity in lands and plantation. The evolution of forestry handling allowed that the Company obtained growth productivity in the plantations, aligned with the best benchmarking of the world. This has led the Company to have volumes of lands and forests that exceed current necessities and planned of its factories of wood panels. Consonant with permanent seek of improve the profitability of its assets, Duratex opted by disposal those exceeds available. The operation that forecast the sale of lands and forests in the central region of São Paulo State is structured in 2 steps, being:
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(i) Firm sale of about 9,500 (nine thousands and five hundred) hectares of rural areas and forestry assets in its existents, in the value of R$ 308.1 million. This step should results in the recognition of extraordinary profit in order of R$ 140 million, when concretized the operation.
(ii) Exclusive option to Suzano, at prices already established, of acquisition of other portion of about 20,000 (twenty thousands) hectares of rural areas and forestry assets there existents, to be exercised as at July 02, 2018, totalizing R$ 749.4 million. If exercised this option, the Company should recognize an extraordinary profit in order of R$ 360 million, when concretized the operation. The conclusion of this operation is subject to determinate usual conditions for this type of transaction, including the approval by Conselho Administrativo de Defesa Econômica – CADE. The amounts received are targeted primarily for significate reduction of net indebtedness, reducing financing costs and positioning the Company in strategic level of competitiveness. Even after conclusion of these agreements, Duratex maintain remaining forests and lands for supply of all its plants, without any impact of costs in its operations. Duratex renew the compromise with its stockholders to prioritize its profitability, and prepare the Company for future challenges. Fruit of this compromise is the diligent manage of its assets, and unmake surplus when it necessary.