U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

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

SECURITIES EXCHANGE ACT OF 1934

 

Dated November 6, 2023

 

Commission File Number 1-14878

 

GERDAU S.A.

(Translation of Registrant’s Name into English)

 

Av. Dra. Ruth Cardoso, 8,501 – 8° andar

São Paulo, São Paulo - Brazil CEP 05425-070

(Address of principal executive offices)

 

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

 

  Form 20-F  x Form 40-F   ¨

 

 

 

 

 

 

Exhibit Index

 

Exhibit Description of Exhibit
   
99.1 GERDAU S.A. Condensed consolidated interim financial statements as of September 30, 2023

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date:  November 6, 2023  
   
  GERDAU S.A.
   
  By: /s/ Rafael Dorneles Japur
  Name: Rafael Dorneles Japur
  Title: Executive Vice President Investor Relations Director

 

 

 

Exhibit 99.1

 

GERDAU S.A.

 

Condensed consolidated interim financial statements

 

as of September 30, 2023

 

 

 

 

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

(Unaudited)

 

   Note   September 30, 2023   December 31, 2022 
CURRENT ASSETS               
Cash and cash equivalents   4    2,914,529    2,475,863 
Short-term investments   4    3,088,139    2,959,135 
Trade accounts receivable   5    5,738,421    4,999,004 
Inventories   6    15,815,393    17,817,585 
Tax credits        1,888,435    1,392,417 
Income and social contribution taxes recoverable        705,226    815,197 
Dividends receivable        4,168    5,048 
Fair value of derivatives   14    11,591    3,272 
Other current assets        725,852    789,901 
         30,891,754    31,257,422 
                
NON-CURRENT ASSETS               
Tax credits        1,035,485    511,547 
Deferred income taxes        2,017,050    2,164,477 
Judicial deposits   15    2,056,508    1,825,899 
Other non-current assets        514,433    700,377 
Prepaid pension cost        -    9,179 
Investments in associates and joint ventures   8    5,002,183    3,896,518 
Goodwill   10    11,181,241    11,634,464 
Leasing        1,272,094    960,876 
Other Intangibles        420,196    415,159 
Property, plant and equipment, net        22,019,439    20,422,734 
         45,518,629    42,541,230 
                
TOTAL ASSETS        76,410,383    73,798,652 

 

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

 

 

 

 

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

(Unaudited)

 

   Note   September 30, 2023   December 31, 2022 
CURRENT LIABILITIES               
Trade accounts payable - domestic market   11    3,934,212    4,241,819 
Trade accounts payable - debtor risk   11    663,071    653,085 
Trade accounts payable - imports   11    1,098,972    1,724,019 
Short-term debt   12    1,310,978    2,492,262 
Debentures   13    44,963    628,886 
Taxes payable        465,966    395,212 
Income and social contribution taxes payable        199,747    497,243 
Payroll and related liabilities        789,120    1,056,325 
Leasing payable        370,617    275,934 
Employee benefits        10    516 
Environmental liabilities        232,261    262,018 
Fair value of derivatives   14    9,746    19,056 
Other current liabilities        1,414,495    1,216,206 
         10,534,158    13,462,581 
                
NON-CURRENT LIABILITIES               
Long-term debt   12    9,323,006    8,687,355 
Debentures   13    799,131    798,887 
Related parties   16    25,288    24,890 
Deferred income taxes        230,542    96,341 
Provision for tax, civil and labor liabilities   15    2,166,261    2,026,003 
Environmental liabilities        193,697    222,634 
Employee benefits        848,186    893,378 
Leasing payable        995,471    754,709 
Other non-current liabilities        507,143    533,681 
         15,088,725    14,037,878 
                
EQUITY   17           
Capital        20,215,343    19,249,181 
Treasury stocks        (151,650)   (179,995)
Capital reserves        11,597    11,597 
Retained earnings        26,159,159    22,172,561 
Transactions with non-controlling interests without change of control        (2,904,670)   (2,904,670)
Other reserves        7,271,158    7,767,520 
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT        50,600,937    46,116,194 
                
NON-CONTROLLING INTERESTS        186,563    181,999 
                
EQUITY        50,787,500    46,298,193 
                
TOTAL LIABILITIES AND EQUITY        76,410,383    73,798,652 

 

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

 

 

 

 

GERDAU S.A.

CONSOLIDATED STATEMENTS OF INCOME

In thousands of Brazilian reais (R$)

(Unaudited)

 

       For the three-month period ended   For the nine-month period ended 
   Note   September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
NET SALES        17,063,258    21,149,232    54,200,931    64,448,165 
Cost of sales   20    (14,270,585)   (16,411,378)   (44,501,242)   (48,625,378)
GROSS PROFIT        2,792,673    4,737,854    9,699,689    15,822,787 
Selling expenses   20    (184,064)   (183,818)   (532,434)   (529,944)
General and administrative expenses   20    (354,804)   (371,254)   (1,106,820)   (1,035,448)
Other operating income   20    37,602    72,768    951,425    169,289 
Other operating expenses   20    (85,253)   (80,584)   (214,928)   (141,623)
Impairment of financial assets   20    (4,084)   6,056    (5,065)   4,705 
Equity in earnings of unconsolidated companies   8    182,070    281,494    769,614    976,913 
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES        2,384,140    4,462,516    9,561,481    15,266,679 
Financial income   21    241,133    158,944    700,792    388,360 
Financial expenses   21    (362,962)   (387,705)   (1,042,617)   (1,200,114)
Exchange variations, net   21    (359,558)   (315,084)   (849,191)   (603,439)
Tax credits monetary update   21    -    -    253,002    - 
Gains (Losses) on financial instruments, net   21    3,633    13,666    (12,570)   20,536 
INCOME BEFORE TAXES        1,906,386    3,932,337    8,610,897    13,872,022 
Current   7    (406,628)   (738,435)   (1,541,982)   (3,054,771)
Deferred   7    92,307    (171,656)   (118,728)   (556,121)
Income and social contribution taxes        (314,321)   (910,091)   (1,660,710)   (3,610,892)
                          
NET INCOME        1,592,065    3,022,246    6,950,187    10,261,130 
                          
ATTRIBUTABLE TO:                         
Owners of the parent        1,581,791    3,010,857    6,923,619    10,217,898 
Non-controlling interests        10,274    11,389    26,568    43,232 
         1,592,065    3,022,246    6,950,187    10,261,130 
                          
Basic earnings per share - common - (R$)   18    0.90    1.70    3.96    5.73 
Basic earnings per share - preferred - (R$)   18    0.90    1.70    3.96    5.73 
                          
Diluted earnings per share - common - (R$)   18    0.90    1.69    3.93    5.70 
Diluted earnings per share - preferred - (R$)   18    0.90    1.69    3.93    5.70 

 

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

 

 

 

 

GERDAU S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In thousands of Brazilian reais (R$)

(Unaudited)

 

   For the three-month period ended   For the nine-month period ended 
   September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
Net income for the period   1,592,065    3,022,246    6,950,187    10,261,130 
Items that may be reclassified subsequently to profit or loss                    
Other comprehensive income from associates and joint ventures   110,837    85,003    211,800    (12,427)
Cumulative translation adjustment   818,363    698,316    (964,466)   (507,926)
Recycling of cumulative translation adjustment to net income   -    -    -    13,239 
Unrealized (Losses) Gains on net investment hedge   (167,306)   (164,322)   194,352    303,928 
Unrealized (Losses) Gains on financial instruments, net of tax   (983)   (1,540)   783    1,235 
Other comprehensive income for the period, net of tax   760,911    617,457    (557,531)   (201,951)
                     
Total comprehensive income for the period, net of tax   2,352,976    3,639,703    6,392,656    10,059,179 
                     
Total comprehensive income attributable to:                    
Owners of the parent   2,342,265    3,628,555    6,371,827    10,020,312 
Non-controlling interests   10,711    11,148    20,829    38,867 
    2,352,976    3,639,703    6,392,656    10,059,179 

 

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

 

 

 

 

GERDAU S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

in thousands of Brazilian reais (R$)

(Unaudited)

 

                 
   Attributed to parent company's interest             
               Retained earnings       Other Reserves             
                                   Gains   Gains                         
                       Investments           and   and                         
                       and       Operations   losses   losses           Long             
                   Tax   working       with   on net   on   Cumulative       term    Total parent        Total 
       Treasury   Capital   Legal   Incentives   capital   Retained   non-controlling   investment   financial   translation   Pension   incentive   company's    Non-controlling   Shareholder's 
   Capital   stocks   Reserve   reserve   Reserve   reserve   earnings   interests   hedge   instruments   adjustment   Plan   plan    interest    interests    Equity 
Balance as of January 1, 2022  19,249,181   (152,409)  11,597   1,665,280   1,255,020   14,918,194   -   (2,870,825)  (9,567,216)  (12,127)  18,250,052   (165,547)  23,082   42,604,282   211,367   42,815,649 
2022 Changes in Equity                                                                
Net income  -   -   -   -   -   -   10,217,898   -   -   -   -   -   -   10,217,898   43,232   10,261,130 
Other comprehensive income (loss) recognized in the period  -   -   -   -   -   -   -   -   303,928   1,235   (502,749)  -   -   (197,586)  (4,365)  (201,951)
Total comprehensive income (loss) recognized in the period  -   -   -   -   -   -   10,217,898   -   303,928   1,235   (502,749)  -   -   10,020,312   38,867   10,059,179 
Effects of the share buyback program  -   (934,768)  -   -   -   -   -   -   -   -   -   -   -   (934,768)  -   (934,768)
Long term incentive plan cost recognized in the period  -   -   -   -   -   -   -   -   -   -   -   -   1,842   1,842   4   1,846 
Long term incentive plan exercised during the period  -   21,106   -   -   -   24,038   -   -   -   -   -   -   -   45,144   12   45,156 
Effects of interest changes in subsidiaries  -   -   -   -   -   -   -   (33,845)  -   -   -   -   -   (33,845)  (22,729)  (56,574)
Dividend in excess of the minimum estatutory undistributed in 2021  -   -   -   -   -   -   (341,555)  -   -   -   -   -   -   (341,555)  -   (341,555)
Dividends/interest on equity  -   -   -   -   -   -   (2,173,255)  -   -   -   -   -   -   (2,173,255)  (37,021)  (2,210,276)
Balance as of September 30, 2022 (Note 17)  19,249,181   (1,066,071)  11,597   1,665,280   1,255,020   14,942,232   7,703,088   (2,904,670)  (9,263,288)  (10,892)  17,747,303   (165,547)  24,924   49,188,157   190,500   49,378,657 
                                                                 
Balance as of January 1, 2023  19,249,181   (179,995)  11,597   2,210,531   1,775,498   18,186,532   -   (2,904,670)  (9,079,070)  (12,734)  16,725,542   80,117   53,665   46,116,194   181,999   46,298,193 
2023 Changes in Equity                                                                
Net income  -   -   -   -   -   -   6,923,619   -   -   -   -   -   -   6,923,619   26,568   6,950,187 
Other comprehensive income (loss) recognized in the period  -   -   -   -   -   -   -   -   194,352   783   (746,927)  -   -   (551,792)  (5,739)  (557,531)
Total comprehensive income (loss) recognized in the period  -   -   -   -   -   -   6,923,619   -   194,352   783   (746,927)  -   -   6,371,827   20,829   6,392,656 
Increase in Capital through capitalization of Retained earnings  966,162   -   -   -   -   (966,162)  -   -   -   -   -   -   -   -   -   - 
Long term incentive plan cost recognized in the period  -   -   -   -   -   -   -   -   -   -   -   -   55,430   55,430   26   55,456 
Long term incentive plan exercised during the period  -   28,345   -   -   -   6,520   -   -   -   -   -   -   -   34,865   17   34,882 
Effects of interest changes in subsidiaries  -   -   -   -   -   -   -   -   -   -   -   -   -   -   (9,951)  (9,951)
Dividend in excess of the minimum estatutory undistributed in 2022  -   -   -   -   -   (333,151)  -   -   -   -   -   -   -   (333,151)  -   (333,151)
Dividends/interest on equity  -   -   -   -   -   -   (1,644,228)  -   -   -   -   -   -   (1,644,228)  (6,357)  (1,650,585)
Balance as of September 30, 2023 (Note 17)  20,215,343   (151,650)  11,597   2,210,531   1,775,498   16,893,739   5,279,391   (2,904,670)  (8,884,718)  (11,951)  15,978,615   80,117   109,095   50,600,937   186,563   50,787,500 

 

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

 

 

 

 

GERDAU S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands of Brazilian reais (R$)

(Unaudited)

 

       For the nine-month period ended 
   Note   September 30, 2023   September 30, 2022 
Cash flows from operating activities               
Net income for the period        6,950,187    10,261,130 
Adjustments to reconcile net income for the period to net cash provided by operating activities:               
Depreciation and amortization   20    2,256,376    2,097,534 
Equity in earnings of unconsolidated companies   8    (769,614)   (976,913)
Exchange variation, net   21    849,191    603,439 
Gains and losses on derivative financial instruments, net   21    12,570    (20,536)
Post-employment benefits        190,264    190,144 
Long-term incentive plans        122,801    69,257 
Income tax   7    1,660,710    3,610,892 
Gain (Loss) on disposal of property, plant and equipment        26,210    (18,513)
Impairment (Reversal) of financial assets        5,065    (4,705)
Provision of tax, civil, labor and environmental liabilities, net        140,549    125,201 
Tax credits recovery        (1,098,218)   - 
Interest income on short-term investments        (426,093)   (201,654)
Interest expense on debt and debentures   21    630,927    802,747 
Interest on loans with related parties   16    -    139 
(Reversal) Provision for net realizable value adjustment in inventory, net   6    (20,667)   21,677 
         10,530,258    16,559,839 
Changes in assets and liabilities               
Increase in trade accounts receivable        (1,006,171)   (1,206,860)
Decrease (Increase) in inventories        1,158,473    (2,654,174)
(Decrease) Increase in trade accounts payable        (775,582)   1,120,625 
Increase in other receivables        (100,429)   (267,975)
Decrease in other payables        (318,777)   (1,172,862)
Dividends from associates and joint ventures        77,661    106,464 
Purchases of short-term investments        (5,687,783)   (1,797,882)
Proceeds from maturities and sales of short-term investments        5,595,166    2,197,056 
Cash provided by operating activities        9,472,816    12,884,231 
                
Interest paid on loans and financing        (458,667)   (618,656)
Interest paid on lease liabilities        (78,632)   (59,509)
Income and social contribution taxes paid        (1,410,109)   (2,780,069)
Net cash provided by operating activities        7,525,408    9,425,997 
                
Cash flows from investing activities               
Purchases of property, plant and equipment   9    (3,668,775)   (2,607,753)
Proceeds from sales of property, plant and equipment, investments and other intangibles        10,336    36,657 
Additions in other intangibles        (91,008)   (128,337)
Stock buyback from joint ventures        47,006    - 
Capital increase in joint ventures        (96,653)   (26,751)
Net cash used in investing activities        (3,799,094)   (2,726,184)
                
Cash flows from financing activities               
Acquisition of interest in subsidiary        -    (46,153)
Purchases of Treasury stocks        -    (916,145)
Dividends and interest on capital paid        (1,855,072)   (2,408,191)
Proceeds from loans and financing        1,658,770    442,527 
Payment of loans and financing        (2,692,611)   (1,667,288)
Leasing payment        (308,819)   (246,112)
Intercompany loans, net        398    8,699 
Net cash used by financing activities        (3,197,334)   (4,832,663)
                
Exchange variation on cash and cash equivalents        (90,314)   157,847 
                
Increase in cash and cash equivalents        438,666    2,024,997 
Cash and cash equivalents at beginning of period        2,475,863    4,160,654 
Cash and cash equivalents at end of period        2,914,529    6,185,651 

 

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited) 

 

 

NOTE 1 - GENERAL INFORMATION

 

Gerdau S.A. is a publicly traded corporation (sociedade anônima) with its corporate domicile in the city of São Paulo, Brazil. Gerdau S.A and subsidiaries (collectively referred to as the “Company”) is a leading producer of long steel in the Americas and one of the largest suppliers of special steel in the world. In Brazil, the Company also produces flat steel and iron ore, activities which expanded the product mix and made its operations even more competitive. The Company believes it is the largest recycler in Latin America and around the world it transforms each year millions of tons of scrap into steel, reinforcing its commitment to sustainable development of the regions where it operates. Gerdau is listed on the São Paulo, New York and Madrid stock exchanges.

 

The Condensed Consolidated Interim Financial Statements of the Company were approved by the Management on November 6, 2023.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

 

2.1 - Basis of Presentation

 

The Company's Condensed Consolidated Interim Financial Statements for the three-month and nine-month periods ended on September 30, 2023 have been prepared in accordance with International Accounting Standard (IAS) Nº 34, which establishes the content of condensed interim financial statements. These Condensed Consolidated Interim Financial Statements should be read in conjunction with the Consolidated Financial Statements of Gerdau S.A., as of December 31, 2022, which were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board - IASB.

 

The preparation of the Condensed Consolidated Interim Financial Statements in accordance with IAS 34 requires Management to make accounting estimates. The Condensed Consolidated Interim Financial Statements have been prepared using the historical cost as its basis, except for the valuation of certain financial instruments, which are measured at fair value.

 

The accounting policies applied in this Condensed Consolidated Interim Financial Statements are the same as those applied in the Consolidated Financial Statements for the year ended December 31, 2022.

 

2.2 – New IFRS and Interpretations of the IFRIC (International Financial Reporting Interpretations Committee)

 

The issued and/or reviewed IFRS standards made by the IASB that are effective for the year started in 2023 had no impact on the Company's Financial Statements. In addition, the IASB issued/reviewed some IFRS standards, which have mandatory adoption for the year 2024 and/or after, and the Company is assessing the adoption impact of these standards in its Consolidated Financial Statements.

 

- Amendment to IFRS 16 – Lease Liability in a Sale and Leaseback. It clarifies aspects to be considered in the accounting treatment of an asset transfer in a sale. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2024. The Company does not expect material impacts on its Financial Statements.

 

- Amendment to IAS 1 – Non-current Liabilities with Covenants. It clarifies aspects of separate classifications in the balance sheet of current and non-current assets and liabilities, establishing the presentation based on liquidity when it provides information that is reliable and more relevant. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2024. The Company does not expect material impacts on its Financial Statements.

 

- Amendment to IAS 12 – Income Taxes. It clarifies aspects related to the recognition and disclosure of deferred tax assets and liabilities related to the Pillar Two Model Rules published by the Organisation for Economic Co-operation and Development (OECD). This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2023. The Company has no material impacts on its Financial Statements regarding the adoption of this standard amendment.

 

- Amendments to IAS 7 and IFRS 7 – Supplier finance arrangements. They clarify aspects related to the disclosure of information on supplier finance that allow users of financial statements to assess the effects of these arrangements on the Company's liabilities and cash flows, as well as exposure to liquidity and risk. These amendments to the standards are effective for fiscal years beginning on/or after January 1, 2024. The Company does not expect material impacts on its Financial Statements.

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited) 

 

 

- Amendment to IAS 21 – Lack of Exchangeability. It clarifies aspects related to accounting treatment and disclosure when a currency lacks exchangeability into another currency. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2025. The Company does not expect material impacts on its Financial Statements.

 

- Issuance of standards IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 – Climate-related Disclosures, which were issued by the ISSB - International Sustainability Standards Board. These standards establish new disclosure requirements for sustainability-related risks and opportunities and specific climate-related disclosures. These standards are effective for years beginning on/or after January 1, 2024. For public companies in Brazil, CVM Resolution No. 193, issued on October 20, 2023, establishes the voluntary adoption of these standards for years beginning on/or after January 1, 2024 and mandatory adoption for years beginning on/or after January 1, 2026. The Company is assessing the adoption impacts of these standards.

 

NOTE 3 - CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

3.1 - Subsidiaries

 

The Company did not have material changes of interest in subsidiaries for the period ended on September 30, 2023, when compared to those existing on December 31, 2022.

 

3.2 - Joint Ventures

 

Listed below are the interests in joint ventures:

 

      Equity Interests 
Joint ventures  Country  Total capital(*) 
      September 30, 2023   December 31, 2022 
Bradley Steel Processors  Canada   50.00    50.00 
MRM Guide Rail  Canada   50.00    50.00 
Gerdau Corsa S.A.P.I. de C.V.  Mexico   75.00    75.00 
Gerdau Metaldom Corp.  Dominican Rep.   50.00    50.00 
Gerdau Summit Aços Fundidos e Forjados S.A.  Brazil   58.73    58.73 
Diaco S.A.  Colombia   49.85    49.87 
Juntos Somos Mais Fidelização S.A.  Brazil   27.50    27.50 
Addiante S.A  Brazil   50.00    50.00 
Ubiratã Tecnologia S.A  Brazil   50.00    50.00 
Brasil ao Cubo S.A. (Note 3.4)  Brazil   44.66    - 
Newave Energia S.A. (Note 3.4)  Brazil   33.33    - 

 

 

(*) The voting capital is substantially equal to the total capital. The interests reported represent the ownership percentage held directly and indirectly held in the joint venture.

 

Although the Company owns more than 50% of Gerdau Corsa S.A.P.I. de C.V. and Gerdau Summit Aços Fundidos e Forjados S.A., it does not consolidate the financial statements of these joint venture entities, due to joint control agreements with the other shareholders that prevent the Company from controlling the decisions in conducting the joint venture’s business.

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited) 

 

 

The Company presents the joint venture information in aggregate, since the investments in these entities are not individually material. The financial information of these joint ventures, accounted for under the equity method, is shown below:

 

   Joint ventures 
Joint ventures  September 30, 2023   December 31, 2022 
Cash and cash equivalents   1,637,225    948,019 
Total current assets   6,427,125    5,358,394 
Total non current assets   6,127,393    4,817,960 
Short-term debt   529,989    454,518 
Total current liabilities   3,747,891    3,574,475 
Long-term debt   649,467    921,164 
Total non current liabilities   934,036    1,232,537 
Equity   7,872,590    5,369,343 

 

   Joint ventures 
   For the three-month period ended   For the nine-month period ended 
Joint ventures  September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
Net Sales   3,243,119    3,705,242    10,375,852    11,559,656 
Cost of sales   (2,678,323)   (3,015,405)   (8,406,040)   (9,224,475)
Income before financial income (expenses) and taxes   450,873    580,441    1,641,208    1,998,053 
Financial income   46,294    88,465    138,062    286,123 
Financial expenses   (92,995)   (131,778)   (209,030)   (409,678)
Income and social contribution taxes   (43,028)   (102,534)   (256,631)   (375,952)
Net Income   279,043    392,160    1,144,242    1,468,658 
Depreciation and amortization   82,507    74,126    243,428    226,765 
Other comprehensive income   -    (1,428)   -    (6,154)
Total comprehensive income   279,043    390,732    1,144,242    1,462,505 

 

3.3 — Associate company

 

Listed below is the interest in associate company:

 

      Equity interests 
Associate company  Country  Total capital (*) 
      September 30, 2023   December 31, 2022 
Dona Francisca Energética S.A.  Brazil   51.82    51.82 

 

 

(*) The voting capital is substantially equal to the total capital. The interests reported represent the ownership percentage held directly and indirectly.

 

Although the Company owns more than 50% of Dona Francisca Energética S.A., it does not consolidate the financial statements of this associate because according to the associate by-laws it is necessary 65% of interest to control the company.

 

The summarized financial information of the associate company, accounted for under the equity method, is shown as follows:

 

   Associate company 
Associate company  September 30, 2023   December 31, 2022 
Cash and cash equivalents   15    12 
Total current assets   20,715    10,148 
Total non current assets   157,840    165,267 
Total current liabilities   19,883    22,374 
Total non current liabilities   20,699    31,266 
Equity   137,974    121,776 

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited)

 

 

   Associate company 
   For the three-month period ended   For the nine-month period ended 
Associate company  September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
Net Sales   16,677    16,677    49,488    49,486 
Cost of sales   (7,571)   (7,228)   (23,855)   (20,713)
Income before financial income (expenses) and taxes   8,693    8,774    23,020    27,082 
Financial income   422    211    819    1,088 
Financial expenses   (1,143)   (1,628)   (3,753)   (4,879)
Income and social contribution taxes   (707)   (604)   (1,888)   (1,952)
Net Income   7,265    6,753    18,198    21,339 
Depreciation and amortization   2,176    2,110    7,387    6,328 
Total comprehensive income   7,265    6,753    18,198    21,339 

 

3.4 — Acquisition of Joint Ventures

 

I) On January 10, 2023, the Company converted into equity interest a convertible loan with the Brasil ao Cubo S.A. in the amount of R$ 141 million. On the same date, the Company also acquired some shareholdings from the original shareholders in the amount of R$ 37 million and, as a result of these operations, became the holder of 44.66% of the total capital of this company. Brasil ao Cubo S.A. operates in the construction of buildings, the manufacture of metallic structures, the manufacture of metal frames, the manufacture of locksmith articles, with the exception of frames, retail trade of construction materials in general and engineering services.

 

II) On March 15, 2023, the Company’s subsidiary Gerdau Next S.A. (“Gerdau Next”) and Fundo Newave Energia I Advisory Fundo de Investimento em Participações Multiestratégia (“NW Capital”), signed an agreement for the subscription of an equity interest in the share capital of Newave Energia S.A. (“Newave”) by Gerdau Next and NW Capital, in the proportions of 33.33% and 66.67%, respectively. In this first phase of the transaction, Gerdau Next subscribed R$ 500 million, which must be paid in up to 18 months, according to capital calls and conditions and provided that the conditions related to the capital contributions agreed with Newave are met. On October 10, 2023, the Company announced that Newave entered into the definitive instruments for the acquisition of all shares in Solar Arinos Holding S.A., held by the Voltalia Group, with the aim of developing, building and operating a new solar energy generation park in Arinos, in the state of Minas Gerais, which should have an installed capacity of approximately 420 MWp and includes an energy substation. The total investment for the construction of the Arinos Solar Park will be approximately R$ 1.4 billion and will be fully supported by Newave, with a combination of its own capital and debt. Through the signing of the definitive instruments, the conditions are met for the Company to complete the payment of its share of the capital in Newave throughout the construction of the project. Once operational, the Arinos Solar Park should supply 30% of its volume of renewable energy produced to Gerdau's steel production units in Brazil, in the form of self-production, contributing to the achievement of greenhouse emissions reduction targets and reinforcing Gerdau's objectives for greater competitiveness. On September 30, 2023, the amount paid in by the Company is R$ 20 million. Additionally, on October 10, 2023, the Company paid in R$ 145 million.

 

NOTE 4 - CASH AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS

 

Cash and cash equivalents

 

   September 30, 2023   December 31, 2022 
Cash   15,110    11,957 
Banks and immediately available investments   2,899,419    2,463,906 
Cash and cash equivalents   2,914,529    2,475,863 

 

Immediately available investments include investments with maturity up to 90 days, immediate liquidity and low risk of fair value variation.

 

Short-term investments

 

   September 30, 2023   December 31, 2022 
Short-term investments   3,088,139    2,959,135 

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited)

 

 

Short-term investments include Bank Deposit Certificates and marketable securities, which are stated at their fair value. Income generated by these investments is recorded as financial income.

 

NOTE 5 - ACCOUNTS RECEIVABLE

 

   September 30, 2023   December 31, 2022 
Trade accounts receivable - in Brazil   2,867,718    2,641,881 
Trade accounts receivable - exports from Brazil   635,366    262,306 
Trade accounts receivable - foreign subsidiaries   2,326,231    2,187,404 
(-) Impairment of financial assets   (90,894)   (92,587)
    5,738,421    4,999,004 

 

Accounts receivable by aging are as follows:

 

   September 30, 2023   December 31, 2022 
Current   5,166,074    4,303,352 
Past-due:          
Up to 30 days   497,972    629,018 
From 31 to 60 days   65,317    50,587 
From 61 to 90 days   36,218    37,065 
From 91 to 180 days   33,487    24,627 
From 181 to 360 days   7,893    18,934 
Above 360 days   22,354    28,008 
(-) Impairment on financial assets   (90,894)   (92,587)
    5,738,421    4,999,004 

 

NOTE 6 - INVENTORIES

 

   September 30, 2023   December 31, 2022 
Finished products   7,139,501    7,942,003 
Work in progress   3,435,371    4,480,989 
Raw materials   3,409,989    3,257,362 
Storeroom supplies   1,415,567    1,349,130 
Imports in transit   440,919    835,598 
(-) Allowance for adjustments to net realizable value   (25,954)   (47,497)
    15,815,393    17,817,585 

 

The allowance for adjustment to net realizable value of inventories, on which the provision and reversal of provision are registered with impact on cost of sales, is as follows:

 

Balance as of January 01, 2022   (3,375)
Provision for the year   (56,441)
Reversal of adjustments to net realizable value   12,598 
Exchange rate variation   (279)
Balance as of December 31, 2022   (47,497)
Provision for the year   (14,040)
Reversal of adjustments to net realizable value   34,707 
Exchange rate variation   876 
Balance as of September 30, 2023   (25,954)

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited) 

 

 

NOTE 7 - INCOME AND SOCIAL CONTRIBUTION TAXES

 

In Brazil, income taxes include federal income tax (IR) and social contribution (CS), which represents an additional federal income tax. The statutory rates for income tax and social contribution are 25% and 9%, respectively, and are applicable for the periods ended on September 30, 2023 and 2022. The foreign subsidiaries of the Company are subject to taxation at rates ranging between 23% and 35%. The differences between the Brazilian tax rates and the rates of other countries are presented under “Difference in tax rates in foreign companies” in the reconciliation of income tax and social contribution below.

 

a) Reconciliations of income and social contribution taxes at statutory rates to amounts presented in the Statement of Income are as follows:

 

   For the three-month period ended 
   September 30, 2023   September 30, 2022 
Income before income taxes   1,906,386    3,932,337 
Statutory tax rates   34%   34%
Income and social contribution taxes at statutory rates   (648,171)   (1,336,994)
Tax adjustment with respect to:          
- Difference in tax rates in foreign companies   181,289    245,969 
- Equity in earnings of unconsolidated companies   61,904    95,708 
- Interest on equity   (709)   (2,327)
- Tax incentives   5,164    7,690 
- Deferred tax assets not recognized / Realization, net   (4,548)   10,813 
- Interests on tax lawsuits*   12,385    - 
- Other permanent differences, net   78,365    69,050 
Income and social contribution taxes   (314,321)   (910,091)
Current   (406,628)   (738,435)
Deferred   92,307    (171,656)

 

   For the nine-month period ended 
   September 30, 2023   September 30, 2022 
Income before income taxes   8,610,897    13,872,022 
Statutory tax rates   34%   34%
Income and social contribution taxes at statutory rates   (2,927,705)   (4,716,487)
Tax adjustment with respect to:          
- Difference in tax rates in foreign companies   417,646    226,248 
- Equity in earnings of unconsolidated companies   261,669    332,150 
- Interest on equity   302,450    329,000 
- Tax incentives   14,215    32,828 
- Deferred tax assets not recognized / Realization, net   (15,548)   69,057 
- Interests on tax lawsuits*   118,586    - 
- Other permanent differences, net   167,977    116,312 
Income and social contribution taxes   (1,660,710)   (3,610,892)
Current   (1,541,982)   (3,054,771)
Deferred   (118,728)   (556,121)

 

 

* On September 24, 2021, the Federal Supreme Court finalized the judgment of Topic 962, deciding unanimously that the IR and CS levy was not due on the amounts related to interests (Selic rate) on tax lawsuits. Thus, the effects of such judgment were considered to the tax calculation applied to the interests recorded in the period.

 

b) Tax Assets not booked:

 

The Company did not recognize a portion of tax assets regarding tax losses and negative social contribution from some operations in Brazil in the amount of R$ 275,313 (R$ 239,989 on December 31, 2022), which do not have an expiration date. The subsidiaries abroad had R$ 1,055,036 (R$ 1,105,130 as of December 31, 2022) of tax credits on capital losses for which deferred tax assets have not been booked and which expire between 2029 and 2035 and also several tax losses of state credits in the amount of R$ 276,359 (R$ 334,475 as of December 31, 2022), which expire at various dates between 2023 and 2044.

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited)

 

NOTE 8 - INVESTMENTS

 

   Investments in
North America
   Investments in
South America
   Investments in
Special Steel
   Others   Total 
Balance as of January 01, 2022   1,871,275    1,071,333    251,668    146,499    3,340,775 
Equity in earnings   884,437    277,108    9,243    (18,961)   1,151,827 
Cumulative Translation Adjustment   (76,795)   (127,099)   (414)   (1,284)   (205,592)
Capital increase   -    -    -    35,001    35,001 
Dividends/Interest on equity   (250,680)   (160,572)   (3,684)   (10,557)   (425,493)
Balance as of December 31, 2022   2,428,237    1,060,770    256,813    150,698    3,896,518 
Equity in earnings   550,986    200,271    3,972    14,385    769,614 
Cumulative Translation Adjustment   172,673    31,648    5,153    2,326    211,800 
Capital increase   -    -    -    60,000    60,000 
Conversion of intercompany loan into equity interest   -    -    -    141,070    141,070 
Acquisition of equity interest   -    -    -    36,653    36,653 
Negative goodwill in acquisition of equity interest   -    -    -    11,195    11,195 
Shares repurchase   -    (47,006)   -    -    (47,006)
Dividends/Interest on equity   (17,048)   (50,959)   (4,025)   (5,629)   (77,661)
Balance as of September 30, 2023   3,134,848    1,194,724    261,913    410,698    5,002,183 

 

NOTE 9 - PROPERTY, PLANT AND EQUIPMENT

 

a) Summary of changes in property, plant and equipment – during the three-month period ended on September 30, 2023, acquisitions amounted to R$ 1,485,714 (R$ 1,055,914 as of September 30, 2022), and disposals amounted to R$ 11,928 (R$ 1,418 as of September 30, 2022). During the nine-month period ended on September 30, 2023, acquisitions amounted to R$ 3,668,775 (R$ 2,607,753 as of September 30, 2022), and disposals amounted to R$ 36,546 (R$ 13,122 as of September 30, 2022).

 

b) Capitalized borrowing costs – borrowing costs capitalized during the three-month period ended on September 30, 2023 amounted to R$ 15,406 (R$ 6,194 as of September 30, 2022). Borrowing costs capitalized during the nine-month period ended on September 30, 2023 amounted to R$ 40,200 (R$ 20,452 as of September 30, 2022).

 

c) Guarantees – no property, plant and equipment were pledged as collateral for loans and financing on September 30, 2023 and December 31, 2022.

 

NOTE 10 - GOODWILL

 

The changes in goodwill are as follows:

 

   Goodwill   Accumulated
impairment losses
   Goodwill after
Impairment losses
 
Balance as of January 1, 2022   23,340,880    (10,913,353)   12,427,527 
(+/-) Foreign exchange effect   (1,595,333)   802,270    (793,063)
Balance as of December 31, 2022   21,745,547    (10,111,083)   11,634,464 
(+/-) Foreign exchange effect   (757,913)   304,690    (453,223)
Balance as of September 30, 2023   20,987,634    (9,806,393)   11,181,241 

 

The amounts of goodwill by segment are as follows:

 

   September 30, 2023   December 31, 2022 
Brazil   373,135    373,135 
Special Steels   3,689,516    3,844,314 
North America   7,118,590    7,417,015 
    11,181,241    11,634,464 

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited) 

 

 

NOTE 11 - TRADE ACCOUNTS PAYABLE (domestic market, debtor risk and imports)

 

   September 30, 2023   December 31, 2022 
Trade accounts payable - domestic market   3,934,212    4,241,819 
Trade accounts payable - debtor risk   663,071    653,085 
Trade accounts payable - imports   1,098,972    1,724,019 
    5,696,255    6,618,923 

 

Under “Trade Accounts Payable - Domestic Market”, the Company presents balances payable arising from the acquisition of goods and services in the domestic markets of each of the countries where the Company and its subsidiaries operate.

 

The Company has contracts with financial institutions in order to allow its suppliers to anticipate their receivables through an operation called “Trade Accounts Payable – Debtor Risk”. In this operation, suppliers can transfer, at their discretion, the right to receive the securities to a financial institution, which, in turn, becomes the holder of the rights of the suppliers' receivables. The average discount rate on risk transactions carried out by our suppliers with financial institutions in Brazil and with subsidiaries in the United States was based on market conditions. The transfer of the right to receive the Company's securities, at the supplier's discretion, does not result in a relevant change in the payment term, nor does it imply the payment of interest by the Company, as the financial cost of such transfer is the responsibility of the supplier.

 

The balances presented as “Trade Accounts Payable - Imports” substantially refer to the purchase of coal and other raw materials abroad, where in commercial transactions the supplier may require the issuance of a letter of credit or similar risk mitigation instrument to ship the products. On September 30, 2023, contracts negotiated via letter of credit had a payment term of up to 180 days and rates that also varied, depending on market conditions.

 

The Company permanently monitors the composition of the portfolio and the conditions established with suppliers, which have not undergone significant changes in relation to what had been practiced historically.

 

NOTE 12 - LOANS AND FINANCING

 

Loans and financing are as follows:

 

   September 30, 2023   December 31, 2022 
Ten/Thirty Years Bonds   7,314,104    8,514,787 
Other financing   3,319,880    2,664,830 
Total financing   10,633,984    11,179,617 
Current   1,310,978    2,492,262 
Non-current   9,323,006    8,687,355 
           
           
Principal amount of the financing   10,297,257    11,029,354 
Interest amount of the financing   336,727    150,263 
Total financing   10,633,984    11,179,617 

 

Weighted average effective interest cost on September 30, 2023 is 5.7% p.a. for debt instruments denominated in dollar, 103.6% of CDI for debt instruments denominated in Brazilian reais and 7.6% p.a. for other currencies.

 

Loans and financing, denominated in Reais, are substantially adjusted at a fixed rate or indexed to the CDI (Interbank Deposit Certificates).

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited) 

 

 

Summary of loans and financing by currency:

 

   September 30, 2023   December 31, 2022 
Brazilian Real (R$)   2,773,451    1,273,180 
U.S. Dollar (US$)   7,460,780    9,581,266 
Other currencies   399,753    325,171 
    10,633,984    11,179,617 

 

The amortization schedules of long-term loans and financing are as follows:

 

   September 30, 2023   December 31, 2022 
2024 (*)   809,098    809,098 
2025   1,156,718    410,840 
2026   168,378    10,410 
2027   2,229,111    2,236,582 
2028 on   4,959,701    5,220,425 
    9,323,006    8,687,355 

 

 

(*) For the period as of September 30, 2023, the amounts represents payments from October 1, 2024 to December 31, 2024.

 

a) Credit Lines

 

In September 2022, the Company completed the renewal of the Global Credit Line in the total amount of US$ 875 million (equivalent to R$ 4,382 million as of September 30, 2023). The transaction aims to provide liquidity to operations in North America and Latin America, including Brazil. The companies Gerdau S.A., Gerdau Açominas S.A. and Gerdau Aços Longos S.A. provide guarantee for this transaction, which matures in September 2027. As of September 30, 2023, no amount of this credit line was used.

 

The Company and its subsidiaries are not subject to default clauses (covenants) linked to financial ratios. Non-financial performance clauses have been complied with.

 

b) Main debt funding and amortization

 

During the year of 2023, the subsidiaries Gerdau Açominas S.A. and Gerdau Aços Longo S.A. got loans with top-tier financial institutions, in the amount of R$ 750 million and maturing in 2 years. Regarding debt amortizations in the period, the subsidiary Gerdau Trade Inc. made the total payment of its Bonds that matured in April/23 in the amount of US$ 188.3 million (equivalent to R$ 931.1 million on the settlement date).

 

In September 2023, Gerdau S.A. and the subsidiaries Gerdau Açominas S.A. and Gerdau Aços Longos S.A. raised debt from top-tier financial institutions, in the amount of R$ 600.5 million and with a maturity period of up to 3 years. This funding was carried out in conjunction with a protective derivative financial instrument, with the objective of represent, in the set of two operations, a cost indexed to the CDI.

 

NOTE 13 - DEBENTURES

 

      Quantity as of September 30, 2023             
Issuance  General Meeting  Issued   Held in treasury   Maturity   September 30, 2023   December 31, 2022 
14th  August, 26, 2014   20,000    20,000    08/30/2024    -    - 
16th - A  April, 25, 2019   -    -    05/06/2023    -    612,159 
16th - B  April, 25, 2019   800,000    -    05/06/2026    844,094    815,614 
Total Consolidated                     844,094    1,427,773 
                             
Current                     44,963    628,886 
Non-current                     799,131    798,887 

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited) 

 

 

Maturities of long-term amounts are as follows:

 

   September 30, 2023   December 31, 2022 
2026   799,131    798,887 
    799,131    798,887 

 

The debentures are denominated in Brazilian Reais, are nonconvertible, and pay variable interest as a percentage of the CDI – Interbank Deposit Certificate.

 

For the instruments listed above, the average interest rate weighted by the amounts was 3.41% and 10.20% for the three and nine-month periods ended on September 30, 2023, respectively (3.48% and 9.10% for the three and nine-month periods ended on September 30, 2022, respectively).

 

NOTE 14 - FINANCIAL INSTRUMENTS

 

a) General considerations - Gerdau S.A. and its subsidiaries enter into transactions with financial instruments whose risks are managed through market strategies discussed and shared with senior management and in accordance with internal guidelines and control systems for exposure limits to them. All financial instruments are recorded in the accounting books and presented as short-term investments, trade accounts receivable, trade accounts payable – domestic market, trade accounts payable – debtor risk, trade accounts payable - imports, loans and financing, debentures, related parties, fair value of derivatives, other current assets, other non-current assets, other current liabilities and other non-current liabilities.

 

The Company has derivatives and non-derivative instruments, such as the hedge for some operations under hedge accounting. These operations are intended to protect the Company against exchange rate fluctuations on foreign currency loans, interest rate and commodity prices fluctuations. These transactions are carried out considering direct active or passive exposures, without leverage.

 

b) Fair Value — the Fair Value of the financial instruments is as follows:

 

   September 30, 2023   December 31, 2022 
   Book   Fair   Book   Fair 
   value   value   value   value 
Assets                    
Short-term investments   3,088,139    3,088,139    2,959,135    2,959,135 
Trade accounts receivable   5,738,421    5,738,421    4,999,004    4,999,004 
Fair value of derivatives   11,591    11,591    3,272    3,272 
Other current assets   725,852    725,852    789,901    789,901 
Other non-current assets   514,433    514,433    700,377    700,377 
Liabilities                    
Trade accounts payable - domestic market   3,934,212    3,934,212    4,241,819    4,241,819 
Trade accounts payable - debtor risk   663,071    663,071    653,085    653,085 
Trade accounts payable - imports   1,098,972    1,098,972    1,724,019    1,724,019 
Loans and Financing   10,633,984    10,335,788    11,179,617    11,267,779 
Debentures   844,094    886,214    1,427,773    1,421,187 
Related parties   25,288    25,288    24,890    24,890 
Fair value of derivatives   9,746    9,746    19,056    19,056 
Other current liabilities   1,414,495    1,414,495    1,216,206    1,216,206 
Other non current liabilities   507,143    507,143    533,681    533,681 

 

The fair values of Loans and Financing and Debentures are based on market premises, which may take into consideration discounted cash flows using equivalent market rates and credit rating. All other financial instruments, which are recognized in the Consolidated Financial Statements at their carrying amount, are substantially similar to those that would be obtained if they were traded in the market. However, because there is no active market for these instruments, differences could exist if they were settled in advance. The fair value hierarchy of the financial instruments above are presented in Note 14.g.

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited) 

 

 

c) Risk factors that could affect the Company’s and its subsidiaries’ businesses:

 

Price risk of commodities: this risk is related to the possibility of changes in prices of the products sold by the Company or in prices of raw materials and other inputs used in the productive process. Since the Company operates in a commodity market, net sales and cost of sales may be affected by changes in the international prices of their products or materials. In order to minimize this risk, the Company constantly monitors the price variations in the domestic and international markets. Furthermore, the Company may contract derivatives in order to reduce this risk.

 

Interest rate risk: this risk arises from the effects of fluctuations in interest rates applied to the Company’s financial liabilities or assets and future cash flows and income. The Company evaluates its exposure to these risks: (i) comparing financial assets and liabilities denominated at fixed and floating interest rates and (ii) monitoring the variations of interest rates like SOFR and CDI. Accordingly, the Company may enter into interest rate swaps in order to reduce this risk.

 

Exchange rate risk: this risk is related to the possibility of fluctuations in exchange rates affecting the amounts of financial assets or liabilities or of future cash flows and income. The Company assesses its exposure to the exchange rate by measuring the difference between the amount of its assets and liabilities in foreign currency. The Company understands that the accounts receivables originated from exports, its cash and cash equivalents denominated in foreign currencies and its investments abroad are more than equivalent to its liabilities denominated in foreign currency. Since the management of these exposures occurs at each operation level, if there is a mismatch between assets and liabilities denominated in foreign currency, the Company may contract derivative financial instruments in order to mitigate the effect of exchange rate fluctuations.

 

Credit risk: this risk arises from the possibility of the Company not receiving amounts arising from sales to customers or investments made with financial institutions. In order to minimize this risk, the Company adopt the procedure of analyzing in details of the financial position of their customers, establishing a credit limit and constantly monitoring their balances. Regarding financial investments, the Company only carries out transactions with first-rate institutions and with low credit risk, as assessed by rating agencies and risk mitigation parameters defined in the Company's internal guidelines.

 

Capital management risk: this risk comes from the Company’s choice in adopting a financing structure for its operations. The Company manages its capital structure, which consists of a ratio between the financial debts and its own capital (Equity) based on internal policies and benchmarks. The Key Performance Indicators (KPI) related to the “Capital Structure Management” objective are: WACC (Weighted Average Cost of Capital), Net Debt/EBITDA (Earnings before interest, income tax, depreciation and amortization), Coverage Ratio of Net Financial Expenses (EBITDA/Net Financial Expenses) and Debt/Total Capitalization Ratio. Net Debt is formed by the principal of the debt reduced by cash, cash equivalents and short-term investments (notes 4, 12 and 13). Total Capitalization is formed by the Total Debt (composed of the principal of the debt) and the Equity (Note 17). The Company may change its capital structure, according to economic and financial conditions, in order to optimize its financial leverage and debt management. At the same time, the Company seeks to improve its ROCE (Return on Capital Employed) through the implementation of working capital management and an efficient program of investments in property, plant and equipment. In the long term, the Company seeks to remain within the parameters below, admitting occasional variations in the short term:

 

Net debt/EBITDA  Less or equal to 1.5 times
Gross debt limit  R$ 12 billion
Average maturity  more than 6 years

 

These key indicators are used to monitor the objectives described above and may not be used as indicators for other purposes, such as impairment test.

 

Liquidity risk: The Company’s management policy of indebtedness and cash on hand is based on using the committed lines and the currently available credit lines with or without a guarantee in export receivables for maintaining adequate levels of short, medium, and long-term liquidity. The maturity of long-term loans and financing, and debentures are presented in Notes 12 and 13, respectively.

 

 

 

 

GERDAU S.A. 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

as of September 30, 2023 

(In thousands of Brazilian Reais – R$, unless otherwise stated) 

(Unaudited) 

 

 

Sensitivity analysis:

 

The Company performed a sensitivity analysis, which can be summarized as follows:

 

Impacts on Statements of Income
Assumptions  Percentage of change   September 30, 2023   September 30, 2022 
Foreign currency sensitivity analysis   5%    21,623    116,385 
Interest rate sensitivity analysis   10 bps    29,601    31,138 
Sensitivity analysis of changes in prices of products sold   1%    170,633    211,492 
Sensitivity analysis of changes in raw material and commodity prices   1%    106,352    138,900 
Currency forward contracts   5%    (14,583)   22,679 
Commodity forward contracts   5%    1,067    2,626 
Swaps USD x DI   50 bps    (104)   - 
Swaps IPCA x DI   50 bps    (1)   - 

 

Foreign currency sensitivity analysis: As of September 30, 2023, the Company is mainly exposed to variations between the Real and the Dollar. The sensitivity analysis carried out by the Company considers the effects of a 5% increase or decrease between the Real and the Dollar in its non-hedged debts, trade accounts receivable - exports from Brazil and trade accounts payable - imports (also including the variation between the Argentinian Peso and the Dollar). In this analysis, if the Real/Argentinian Peso appreciates against the Dollar, this would represent a gain of R$ 21,623 (R$ 116,385 as of September 30, 2022). If the Real/Argentinian Peso depreciates against the Dollar, this would represent an expense of the same amount.

 

The net values of other assets and other liabilities in foreign currencies do not present significant risks of impacts due to fluctuations in the exchange rate.

 

Interest rate sensitivity analysis: The interest rate sensitivity analysis made by the Company considers the effects of an increase or reduction of 10 basis point (bps) on the average interest rate applicable to the floating part of its debt. The calculated impact, considering this variation in the interest rate totals R$ 29,601 as of September 30, 2023 (R$ 31,138 as of September 30, 2022) and would impact the Financial expenses account in the Consolidated Statements of Income. The specific interest rates to which the Company is exposed are related to the loans, financing, and debentures presented in Notes 12 and 13, and are mainly comprised by SOFR and CDI — Interbank Deposit Certificate.

 

Sensitivity analysis of changes in sales price of products and price of raw materials and other inputs used in production: The Company is exposed to changes in the price of its products. This exposure is associated with the fluctuation of the sales price of the Company’s products and the price of raw materials and other inputs used in the production process, mainly for operating in a commodity market. The sensitivity analysis made by the Company considers the effects of an increase or of a reduction of 1% on both prices. The impact measured considering this variation in the price of products sold, considering the revenues and costs for the year ended on September 30, 2023, totals R$ 170,633 (R$ 211,492 as of September 30, 2022) and the variation in the price of raw materials and other inputs totals R$ 106,352 as of September 30, 2023 (R$ 138,900 as of September 30, 2022). The impact in the price of products sold and raw materials would be recorded in the accounts Net Sales and Cost of Sales, respectively, in the Consolidated Statements of Income. The Company does not expect to be more vulnerable to a change in one or more specific product or raw material.

 

Sensitivity analysis of currency forward contracts: the Company has exposure to dollar forward contracts for some of its assets and liabilities. The sensitivity analysis carried out by the Company considers the effects of a 5% increase or decrease in the Dollar against the Brazilian Real/Argentinian Peso, and its effects on the mark to market of these derivatives. A 5% increase in the Dollar against the Real/Argentinian Peso represents an expense of R$ 14,583 as of September 30, 2023 (an income of R$ 22,679 as of September 30, 2022) and a 5% decrease in the Dollar against the Real/Argentinian Peso represents an expense of the same amount. Forward contracts in Dollar/Real/Argentinian Peso were intended to cover asset and liability positions in Dollars and the effects of the mark to market of these contracts were recorded in the Consolidated Statement of Income. Dollar forward contracts to which the Company is exposed are presented in note 14.e.

 

Sensitivity analysis of commodity forward contracts: the Company has exposure to Commodity forward contracts (coal, natural gas and nickel) for some of its liabilities. The sensitivity analysis carried out by the Company considers the effects of a 5% increase or decrease in the price of the commodity, and its effects on the mark to market of these derivatives. A 5% increase in the price of the commodity represents an income of R$ 1,067 as of September 30, 2023 (R$ 2,626 as of September 30, 2022), and a 5% decrease in the price of the commodity represents an expense of the same amount. Coal, nickel and natural gas forward contracts were intended to cover liability positions and the mark to market effects of these contracts were recorded in the Consolidated Statement of Income. Commodity forward contracts to which the Company is exposed are presented in Note 14.e.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2023

(In thousands of Brazilian Reais – R$, unless otherwise stated)

(Unaudited)

 

 

Sensitivity analysis of USD x DI swaps: the Company has USD x DI swaps to protect some of its Loans and financing. The sensitivity analysis carried out by the Company considers the impact on the MTM of a 50 bps increase in the DI x Pre interest curve for all vertices of the respective operations. This variation would represent an expense of R$ 104 (R$ 0 as of September 30, /2022). These effects would be recognized in the Consolidated Income Statement. The USD x DI swaps that the Company is exposed to are presented in Note 17.e.

 

Sensitivity analysis of IPCA x DI swaps: the Company has IPCA x DI swaps to protect some of its loans and financing. The sensitivity analysis carried out by the Company considers the impact on the MTM of a 50 bps increase in the DI x Pre interest curve for all vertices of the respective operations. This variation would represent a gain of R$ 1 (R$ 0 as of September 30, 2022). These effects would be recognized in the Consolidated Income Statement. The IPCA x DI swaps to which the Company is exposed to are presented in Note 17.e.

 

d) Financial Instruments per Category

 

Summary of the financial instruments per category:

 

September 30, 2023
Assets
  Financial asset at
amortized cost
   Financial asset at fair
value through proft or
loss
   Total 
Short-term investments   -    3,088,139    3,088,139 
Trade accounts receivable   5,738,421    -    5,738,421 
Fair value of derivatives   -    11,591    11,591 
Other current assets   725,852    -    725,852 
Other non-current assets   514,433    -    514,433 
Total   6,978,706    3,099,730    10,078,436 
Financial income (expenses) for the three-month period ended on September 30, 2023   199,802    178,463    378,265 
Financial income (expenses) for the nine-month period ended on September 30, 2023   473,396    473,509    946,905 

 

Liabilities  Financial liability at fair
value through profit or
loss
   Financial liability at
amortized cost
   Total 
Trade accounts payable - domestic market   -    3,934,212    3,934,212 
Trade accounts payable - debtor risk   -    663,071    663,071 
Trade accounts payable - imports   -    1,098,972    1,098,972 
Loans and financing   600,493    10,033,491    10,633,984 
Debentures   -    844,094    844,094 
Related parties   -    25,288    25,288 
Fair value of derivatives   9,746    -    9,746 
Other current liabilities   -    1,414,495    1,414,495 
Other non-current liabilities   -    507,143    507,143 
Total   610,239    18,520,766    19,131,005 
Financial income (expenses) for the three-month period ended on September 30, 2023   (12,570)   (843,449)   (856,019)
Financial income (expenses) for the nine-month period ended on September 30, 2023   (28,591)   (1,868,898)   (1,897,489)

 

December 31, 2022
Assets
  Financial asset at
amortized cost
   Financial asset at fair
value through proft or
loss
   Total 
Short-term investments   -    2,959,135    2,959,135 
Trade accounts receivable   4,999,004    -    4,999,004 
Fair value of derivatives   -    3,272    3,272 
Other current assets   789,901    -    789,901 
Other non-current assets   559,389    140,988    700,377 
Total   6,348,294    3,103,395    9,451,689 
Financial income (expenses) for the three-month period ended on September 30, 2022   205,865    128,507    334,372 
Financial income (expenses) for the nine-month period ended on September 30, 2022   473,396    473,509    946,905 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2023

(In thousands of Brazilian Reais – R$, unless otherwise stated)

(Unaudited)

 

 

Liabilities  Financial liability at fair
value through profit or
loss
   Financial liability at
amortized cost
   Total 
Trade accounts payable - domestic market   -    4,241,819    4,241,819 
Trade accounts payable - debtor risk   -    653,085    653,085 
Trade accounts payable - imports   -    1,724,019    1,724,019 
Loans and financing   -    11,179,617    11,179,617 
Debentures   -    1,427,773    1,427,773 
Related parties   -    24,890    24,890 
Fair value of derivatives   19,056    -    19,056 
Other current liabilities   -    1,216,206    1,216,206 
Other non-current liabilities   -    533,681    533,681 
Total   19,056    21,001,090    21,020,146 
Financial income (expenses) for the three-month period ended on September 30, 2022   (9,440)   (855,111)   (864,551)
Financial income (expenses) for the nine-month period ended on September 30, 2022   (28,591)   (1,868,898)   (1,897,489)

 

e) Operations with derivative financial instruments

 

Risk management objectives and strategies: In order to execute its strategy of sustainable growth, the Company implements risk management strategies in order to mitigate market risks.

 

The objective of derivative transactions is always related to mitigating market risks as stated in our policies and guidelines. The monitoring of the effects of these transactions is performed monthly by the senior leadership of Corporate Financial Committee, which validates the fair value of these transactions. All derivative financial instruments are recognized at fair value in the Consolidated Financial Statements of the Company.

 

Policy for use of derivatives: The Company is exposed to various market risks, including changes in exchange rates, commodities prices and interest rates. The Company uses derivatives and other financial instruments to reduce the impact of such risks on the fair value of its assets and liabilities or in future cash flows and income. The Company has established policies to evaluate the market risks and to approve the use of derivative transactions related to these risks. The Company enters into derivative financial instruments solely to manage the market risks mentioned above and never for speculative purposes. Derivative financial instruments are used only when they have a related position (asset or liability exposure) resulting from business operations, investments and financing.

 

Policy for determining fair value: the fair value of derivative financial instruments is determined using models and other valuation techniques, including future prices and market curves.

 

Derivative transactions may include: interest rate and/or currency swaps, currency futures contracts and currency options contracts.

 

Currency forward contracts: The Company may contract forward contract operations, through which it receives a fixed dollar amount and pays a fixed Argentinian peso amount, both in local currency. Counterparties are always top-tier financial institutions with low credit risk.

 

The derivatives instruments can be summarized and categorized as follows:

 

   Notional value  Amount receivable   Amount payable 
Contracts  Position  September 30, 2023  December 31, 2022   September 30, 2023   December 31, 2022   September 30, 2023   December 31, 2022 
Currency forward contracts                               
Maturity in 2023/2024  sold in US$   US$ 58,6 milhões    US$ 30.9 milhões     7,553    -    8,176    17,950 
Commodity contracts                               
Maturity in 2023/2024  buyed in US$   US$ 4,1 milhões    US$ 2.4 milhões     2,323    3,272    1,449    1,106 
Swaps IPCA x DI                               
Maturity in 2024  99,2% do CDI   R$ 450,0 milhões   -    557    -    121    - 
Swaps USD x DI                               
Maturity in 2026  107,9% do CDI   US$ 30,6 milhões   -    1,158    -    -    - 
                                
Total fair value of financial instruments        11,591    3,272    9,746    19,056 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2023

(In thousands of Brazilian Reais – R$, unless otherwise stated)

(Unaudited)

 

 

   September 30, 2023   December 31, 2022 
Fair value of derivatives        
Current assets   11,591    3,272 
    11,591    3,272 
Fair value of derivatives          
Current liabilities   9,746    19,056 
    9,746    19,056 

 

   For the nine-month period ended
  September 30, 2023   September 30, 2022 
Net Income        
Gains on financial instruments   16,022    44,358 
Losses on financial instruments   (28,592)   (23,822)
    (12,570)   20,536 
Other comprehensive income          
Gains on financial instruments   783    1,235 
    783    1,235 

 

f) Net investment hedge

 

The Company designated as hedge of part of its net investments in subsidiaries abroad the operations of Ten/Thirty Years Bonds. As a consequence, the effect of exchange rate changes on these debts on the amount of US$ 0.9 billion (designated as a hedge) has been recognized in the Statement of Comprehensive Income.

 

The Company demonstrated effectiveness of the hedge as of its designation dates and demonstrated the high effectiveness of the hedge from the contracting of each debt for the acquisition of these companies abroad, whose effects were measured and recognized directly in the Statement of Comprehensive Income as an unrealized loss, net of taxes, in the amount R$ 167,306 for the three-month period ended on September 30, 2023 (loss of R$ 164,322 for the three-month period ended on September 30, 2022) and as an unrealized gain, net of taxes, in the amount R$ 194,352 for the nine-month period ended on September 30, 2023 (gain of R$ 303,928 for the nine-month period ended on September 30, 2022).

 

The objective of the hedge is to protect, during the existence of the debt, the amount of part of the Company’s investment in the subsidiaries abroad mentioned above against positive and negative changes in the exchange rate. This objective is consistent with the Company’s risk management strategy. Prospective and retrospective tests demonstrated the effectiveness of these instruments.

 

g) Measurement of fair value:

 

IFRS defines fair value as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The standard also establishes a three-level hierarchy for the fair value, which prioritizes information when measuring the fair value by the company, to maximize the use of observable information and minimize the use of non-observable information. This IFRS describes the three levels of information to be used to measure fair value:

 

Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities.

 

Level 2 - Inputs other than quoted prices included in Level 1 available, where (unadjusted) quoted prices are for similar assets and liabilities in non-active markets, or other data that is available or may be corroborated by market data for substantially the full term of the asset or liability.

 

Level 3 - Inputs for the asset or liability that are not based on observable market data, because market activity is insignificant or does not exist.

 

As of September 30, 2023, the Company had some assets which the fair value measurement is required on a recurring basis. These assets include investments in private securities and derivative instruments.

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2023

(In thousands of Brazilian Reais – R$, unless otherwise stated)

(Unaudited)

 

 

Financial assets and liabilities of the Company, measured at fair value on a recurring basis and subject to disclosure requirements of IFRS 7 as of September 30, 2023 and December 31, 2022, are as follows:

 

   Fair Value Measurements at Reporting Date Using
   Balance per financial statements   Quoted Prices in Non-Active Markets for Similar Assets
(Level 2)
 
   September 30, 2023   December 31, 2022   September 30, 2023   December 31, 2022 
Current assets                    
Short-term investments   3,088,139    2,959,135    3,088,139    2,959,135 
Fair value of derivatives   11,591    3,272    11,591    3,272 
Other current assets   725,852    789,901    725,852    789,901 
                     
Non-current assets                    
Other non-current assets   514,433    700,377    514,433    700,377 
    4,340,015    4,452,685    4,340,015    4,452,685 
                     
Current liabilities                    
Short-term debt   1,310,978    2,492,262    1,310,978    2,492,262 
Debentures   44,963    628,886    44,963    628,886 
Fair value of derivatives   9,746    19,056    9,746    19,056 
Other current liabilities   1,414,495    1,216,206    1,414,495    1,216,206 
                     
Non-current liabilities                    
Long-term debt   9,323,006    8,687,355    9,323,006    8,687,355 
Debentures   799,131    798,887    799,131    798,887 
Related parties   25,288    24,890    25,288    24,890 
Other non-current liabilities   507,143    533,681    507,143    533,681 
    13,434,750    14,401,223    13,434,750    14,401,223 

 

h) Changes in liabilities from Cash flow from financing activities:

 

The Company has summarized below the changes in the liabilities of cash flow from financing activities, from its Statement of Cash Flows:

 

       Cash effects   Non-cash effects     
   January 01,
2022
   Received/(Paid)
from financing
activities
   Interest Payment   Interest on loans,
financing and loans
with related parties
   Exchange
Variance and
others
   September, 30,
2022
 
Related Parties, net   21,970    8,699    -    139    -    30,808 
Leasing payable   918,365    (246,112)   (59,509)   59,509    335,688    1,007,941 
Loans and Financing, Debentures and Fair value of derivatives   14,036,447    (1,224,761)   (618,656)   802,747    (157,516)   12,838,261 

 

       Cash effects   Non-cash effects     
   December 31,
2022
   Received/(Paid)
from financing
activities
   Interest Payment   Interest on loans,
financing and loans
with related parties
   Exchange
Variance and
others
   September 30,
2023
 
Related Parties, net   24,890    398    -    -    -    25,288 
Leasing payable   1,030,643    (308,819)   (78,632)   78,632    644,264    1,366,088 
Loans and Financing, Debentures and Fair value of derivatives   12,623,174    (1,033,841)   (458,667)   630,927    (285,360)   11,476,233 

 

NOTE 15 - TAX, CIVIL AND LABOR CLAIMS AND CONTINGENT ASSETS

 

The Company and its subsidiaries are party in judicial and administrative proceedings involving tax, civil and labor matters. Based on the opinion of its legal advisors, Management believes that the provisions recorded for these judicial and administrative proceedings is sufficient to cover probable and reasonably estimable losses from unfavorable court decisions and that the final decisions will not have significant effects on the financial position, operational results and liquidity of the Company and its subsidiaries.

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2023

(In thousands of Brazilian Reais – R$, unless otherwise stated)

(Unaudited)

 

 

For claims whose expected loss is considered probable, the provisions have been recorded considering the judgment of the Management of the Company with the assistance of its legal advisors and the provisions are considered enough to cover expected probable losses.

 

I) Provisions

 

   September 30, 2023   December 31, 2022 
a) Tax provisions   1,662,028    1,530,040 
b) Labor provisions   468,740    463,452 
c) Civil provisions   35,493    32,511 
    2,166,261    2,026,003 

 

a) Tax Provisions

 

Tax provisions refer mainly to discussions related to ICMS, IPI, Income tax and social contribution, social security contributions, offsetting of PIS and COFINS credits and incidence of PIS and COFINS on other revenues.

 

b) Labor Provisions

 

The Company is party to a group of individual and collective labor and/or administrative lawsuits involving various labor amounts and the provision arises from unfavorable decisions and/or the probability of loss in the ordinary course of proceedings with the expectation of outflow of financial resources by the Company.

 

c) Civil Provisions

 

The Company is party to a group of civil, arbitration and/or administrative lawsuits involving various claims and the provision arises from unfavorable decisions and/or probable losses in the ordinary course of proceedings with the expectation of outflow of financial resources for the Company.

 

The changes in the tax, civil and labor provisions are shown below:

 

   September 30, 2023   December 31, 2022 
Balance at the beginning of the year   2,026,003    1,741,026 
(+) Additions   180,874    385,662 
(+) Monetary correction   142,432    194,170 
(-) Reversal of accrued amounts   (182,758)   (293,536)
(+) Foreign exchange effect on provisions in foreign currency   (290)   (1,319)
Balance at the end of period   2,166,261    2,026,003 

 

II) Contingent liabilities for which provisions were not recorded as of September 30, 2023

 

Considering the opinion of legal advisors and management’s assessment, contingencies listed below have the probability of loss considered as possible (but not likely) and due to this classification, accruals have not been made in accordance with IFRS.

 

a) Tax contingencies

 

a.1) The Company and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A. have lawsuits related to the ICMS (state VAT) which are mostly related to credit rights and rate differences, whose demands totaled R$ 600,923.

 

a.2) The Company and certain of its subsidiaries in Brazil are parties to claims related to: (i) Imposto sobre Produtos Industrializados - IPI, substantially related to IPI credit on inputs, whose demands total the updated amount of R$ 471,786; (ii) PIS and COFINS, substantially related to disallowance of credits on inputs totaling R$ 1,974,113, (iii) social security contributions in the total of R$ 143,224 and (iv) other taxes, whose updated total amount is currently R$ 847,626.

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2023

(In thousands of Brazilian Reais – R$, unless otherwise stated)

(Unaudited)

 

 

a.3) The Company and its subsidiary Gerdau Aços Longos S.A. are parties to administrative proceedings related to Withholding Income Tax, levied on interest remitted abroad, linked to export financing formalized through "Prepayment of Exports Agreements "(PPE) or" Advance Export Receipt "(RAE), in the updated amount of R$ 1,504,168, of which: (i) R$ 808,289 correspond to five lawsuits of the subsidiary Gerdau Aços Longos S.A. that are processed in the administrative sphere where, currently, four lawsuits are at the first instance of the Administrative Board of Tax Appeals (CARF) awaiting the judgment of the Voluntary Appeals filed by the Company and one lawsuit that is in the Superior Chamber of Tax Appeals (CSRF) of CARF, for judgment of the Special Appeal filed by the Company; and (ii) R$ 695,879 correspond to three lawsuits of subsidiary Gerdau S.A., of which two processes are in the Superior Chamber of Tax Appeals (CSRF) of CARF, for judgment of Special Resources and Appeal filed, and one lawsuit that is currently at the Administrative Board of Tax Appeals (CARF) for judgment of the Voluntary Appeal filed by the Company.

 

a.4) The Company is party to administrative proceedings related to goodwill amortization pursuant to articles 7 and 8 of Law 9,532/97, from the basis of calculation of Income Tax (IRPJ) and Social Contribution (CSLL), resulting from a corporate restructuring started in 2010. The updated total amount of the assessments is R$ 547,468, of which: (i) R$ 29,220 corresponds to a process in which the opposite Declaration Embargoes were rejected against the decision that granted the official appeal in favor of the National Treasury, and the Special Appeal filed by the Company is pending of judgment; (ii) R$ 249,598 correspond to a lawsuit in which the Company had its Voluntary Appeal granted at the Administrative Board of Tax Appeals (CARF), pending analysis of the Special Appeal filed by the National Treasury Attorney's Office; (iii) R$ 91,842 correspond to a lawsuit in which the Company had its challenge partially provided and filed a Voluntary Appeal with the Administrative Board of Tax Appeals (CARF), recently upheld, pending analysis of the Special Appeal filed by the National Treasury Attorney's Office; and (iv) R$ 176,808 correspond to a lawsuit whose Opposition presented by the Company was partially accepted by the Federal Revenue Judgment Office (DRJ), with the Voluntary Appeal lodged pending of judgment at the Administrative Board of Tax Appeals (CARF).

 

a.5) Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.) and its subsidiary Gerdau Internacional Empreendimentos Ltda. – Grupo Gerdau are parties to judicial proceedings relating to IRPJ — Income Tax and CSLL — Social Contribution, in the current amount of R$ 1,399,467. Such lawsuits relate to profits generated abroad, of which: (i) R$ 1,149,941 corresponds to two lawsuits of the subsidiary Gerdau Internacional Empreendimentos Ltda. – Grupo Gerdau. One of the lawsuits is pending at the lower court, awaiting judgment of the Tax Enforcement Embargoes filed by the Company, and another is pending at the Federal Regional Court of the 4th Region, where the motion for clarification opposed against the decision that unanimously granted the appeal filed by Gerdau, to extinguish the Tax Execution and dismissed the Federal Government's appeal, is pending of judgment; and (ii) R$ 249,526 correspond to a lawsuit involving Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.), in which the appeal lodged by the Federal Government against the judgment that upheld the Embargoes of Tax Enforcement opposed by the Company is pending of judgement.

 

a.6) Gerdau S.A. (by itself and as successor of Gerdau Aços Especiais S.A.) and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A. are parties to administrative and judicial proceedings relating to the disallowance of goodwill amortization generated in accordance with Article 7 and 8 of Law 9,532/97, as a result of a corporate restructuring carried out in 2004/2005, regarding tax base of the Income tax - IRPJ and Social Contribution - CSLL. The updated total amount of the assessments amounts to R$ 9,145,193, of which: (i) R$ 6,009,547 correspond to four lawsuits of Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.) and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A., in the phase of judicial collection, with the companies offering judicial guarantees, under precautionary measures, through Guarantee Insurance, and initiated the legal discussions of Embargoes to Execution, in the respective lawsuits, and in the Embargoes to Execution filed by Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.), on April 8, 2021, in a judgment made at the Federal Regional Court of the 4th Region, the appeal filed by the National Treasury was dismissed, being pending of judgment the special and extraordinary appeals filed by the National Treasury; and in the Embargoes to Execution filed by the subsidiary Gerdau Aços Longos S.A. (as successor of Gerdau Comercial de Aços S.A.), the appeal filed by the National Treasury against the sentence that is pending of judgment by the Regional Federal Court of the 2nd Region; and in the process of the subsidiary Gerdau Aços Longos S.A., the appeal filed by the National Treasury is pending of judgment at the Federal Regional Court of the 2nd Region; and also, the Embargoes of Tax Enforcement filed by the subsidiary Gerdau Açominas S.A are awaiting judgment at the lower court; (ii) R$ 361,263 corresponds to a lawsuit of the subsidiary Gerdau Aços Longos S.A., in which part of the debt whose administrative discussion has already ended and is under judicial discussion, and the appeal is pending of judgment by the Regional Federal Court of the 2nd Region filed by the National Treasury against the sentence that upheld the Embargoes to Execution and acknowledged the non-substantiation of the tax assessment; (iii) R$ 336,981 corresponds to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., in which part of the debt whose administrative discussion has ended is under judicial discussion, in which is pending of judgment the appeal filed by the Company against the sentence that dismissed its Embargoes to Tax Enforcement; (iv) R$ 5,875 corresponds to a lawsuit of the subsidiary Gerdau Aços Longos S.A., in which the administrative discussion has ended, and it is being processed in the lower court awaiting judgment in the Embargoes to Tax Enforcement filed by the Company; (v) R$ 94,760 correspond to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., whose administrative discussion ended, and is currently under judicial discussion, in which are pending of judgement the appeals lodged by the parties against the sentence that upheld the Embargoes on Tax Execution; (vi) R$ 132,316 corresponds to a lawsuit filed by Gerdau S.A. (as successor to Gerdau Aços Especiais S.A.), whose administrative discussion has ended, and which will be forwarded shortly for judicial collection and will be discussed in the context of Embargoes on Tax Execution to be opportunely opposed by the Company; (vii) R$ 204,676 corresponds to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., which is at the Superior Chamber of Tax Appeals (CSRF) of CARF to judge the Special Appeals filed by the Company and the National Treasury; (viii) R$ 126,804 corresponds to a lawsuit filed by Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.), which is at the Superior Chamber of Tax Appeals (CSRF) of CARF for judgment of the Special Appeal filed by the Company; (ix) R$ 664,064 correspond to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., in which the Voluntary Appeal filed by the Company was partially granted, being pending of judgment the appeal filed by the Company at the CARF; (x) R$ 585,403 pending before the first instance of the Administrative Board of Tax Appeals (CARF), which awaits judgment of the Voluntary Appeal filed by the Company; (xi) R$ 165,138 corresponds to a lawsuit of the subsidiary Gerdau Aços Longos S.A., separated from the process mentioned in item "vii" above, and which is currently in the judicial collection phase, being pending of judgment the appeal filed against the judgment that dismissed the Embargoes to Tax Enforcement filed by the Company; and (xii) R$ 458,364 corresponds to a lawsuit of the subsidiary Gerdau Aços Longos S.A., separated from the lawsuit mentioned in item “vii” above, and that it is currently in the judicial collection stage, pending judgment at the Federal Regional Court of the 2nd Region the appeals filed by the Company and the National Treasury against the sentence that upheld the Embargoes to Execution and recognized the non-substantiation of the credits object of the tax enforcement.

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2023

(In thousands of Brazilian Reais – R$, unless otherwise stated)

(Unaudited)

 

 

The Company's tax advisors confirm that the procedures adopted by the Company regarding the tax treatment of profits earned abroad and the goodwill amortization, which led to the aforementioned lawsuits, have complied with the strict legality and, therefore, these lawsuits are classified as possible loss (but not likely).

 

Brazilian federal authorities and the judiciary branch are investigating certain issues relating to Administrative Board of Tax Appeals (CARF) proceedings, as well as specific political contributions made by the Company, with the purpose of determining whether the Company engaged in any illegal conduct.  The Company previously disclosed that, in addition to its interactions with Brazilian authorities, the Company was providing information requested by the U.S. Securities and Exchange Commission (“SEC”).  The Company has since been informed by the SEC’s staff that it has closed its inquiry and therefore is not seeking any further information from the Company regarding these matters. The Company believes it is not possible at this time to predict the term or outcome of the proceedings in Brazil, and that there currently is not enough information to determine whether a provision for losses is required or any additional disclosures.

 

Neither the Company, its controlling shareholders, board members and executive officers are part of any ongoing criminal publicly disclosed investigations, procedures or legal actions associated to the investigations made by the Brazilian federal authorities and judiciary branch related to CARF proceedings and political contributions made by the Company.

 

b) Civil contingencies

 

b.1) A lawsuit arising from the request by two civil construction unions in the state of São Paulo alleging that Gerdau S.A. and other long steel producers in Brazil share customers, thus, violating the antitrust legislation. After investigations carried out by the Economic Law Department (SDE — Secretaria de Direito Econômico), the final opinion was that a cartel exists. The lawsuit was therefore forwarded to the Administrative Council for Economic Defense (CADE) for judgment, which resulted in a fine to the Company and other long steel producers, on September 23, 2005, an amount equivalent to 7% of gross revenues in the year before the Administrative Proceeding was commenced, excluding taxes (fine of R$ 245,070, updated by the judicial accountant on August 1, 2013 to R$ 417,820).

 

Two lawsuits challenge the investigation conducted by the Competition Defense System and its merits judgment, whose grounds are procedural irregularities, especially the production of evidence, based on an economic study, to prove the inexistence of a cartel. The Court, upon offer of bank guarantee letter, granted the suspension of the effects of CADE’s decision. Both actions were dismissed, and their respective appeals were also rejected by the Federal Regional Court of the 1st Region.

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2023

(In thousands of Brazilian Reais – R$, unless otherwise stated)

(Unaudited)

 

 

Against both decisions, appeals were lodged with the Superior Court of Justice and the Federal Supreme Court, after admissibility judgment, the appeal to the Superior Court of Justice was admitted and well as substitution of the guarantee offered by insurance guarantee in a decision of October 8, 2019.

 

In the same order in which the Vice president Judge gave suspensive effect to the Special Appeal, in order to change the guarantee, the Extraordinary Appeal was dismissed, on the grounds of violation of res judicata with recognized general repercussion. Against this decision, the Company filed an Internal Appeal for the TRF1 Plenary, which was dismissed.

 

According to the decision published on November 10, 2022, in a unanimous vote, the STJ annulled the fine and recognized that there was no due process of law, as CADE would have concluded without the necessary study of the market and the facts (Cf. STJ, REsp n.º 1.979.138 - DF (2021/0405949-3), Judge Benedito Gonçalves).

 

The STJ's decision is subject to appeal by the Brazilian government and Gerdau will continue to seek all appropriate legal remedies to defend its rights.

 

The Company denies having been engaged in any type of anti-competitive conduct and it is certain that it has not practiced the conduct attributed to it, understanding shared by its legal consultants.

 

b.2) The Company and its subsidiaries are parties to other demands of a civil nature that collectively have a discussion amount of approximately R$ 627,060. For these demands, no accounting provision was recorded, since they were considered as possible losses, based on the opinion of its legal counsel.

 

c) Labor Contingencies

 

The Company and its subsidiaries are parties to other labor claims that together have an amount of approximately R$ 1,069,686. For these claims, no accounting provision was made, since these were considered as possible losses, based on the opinion of its legal counsel.

 

III) Judicial deposits

 

The Company has judicial deposits related to tax, labor and civil lawsuits as listed below:

 

   September 30, 2023   December 31, 2022 
Tax   1,817,675    1,603,136 
Labor   64,337    67,911 
Civil   174,496    154,852 
    2,056,508    1,825,899 

 

The balance of tax judicial deposits as of September 30, 2023 includes the amount of R$ 1,632,727 which corresponds to judicial deposits made up to June 2017, referring to the same discussion on the inclusion of the ICMS in the tax base of PIS and COFINS and awaits termination of the lawsuits before the Brazilian courts in order to be returned to the Company.

 

The Company and its subsidiaries made judicial deposits and accounting provisions, which in turn were updated in accordance with the SELIC rate, which were referred to the unpaid amounts of PIS and COFINS since 2009, because the collection of which was fully suspended, due to the mentioned judicial deposits.

 

On March 15, 2017, the Brazilian Federal Supreme Court (STF — Supremo Tribunal Federal) ruled on a claim related to this matter, and by 6 votes to 4, concluded: “The ICMS does not comprise the tax base for PIS and COFINS assessment purposes”. The STF decision, in principle, affects all the nine judicial proceedings, due to its general repercussion. Eight of these lawsuits already have a final favorable decision, and the gain was recognized when the decision was final and unappealable, considering for the purposes of calculation the exclusion of the ICMS informed in the invoices, as recognized in the final and unappealable decisions, and is preparing the documents to carry out the qualification of its credit and be able to start the compensation procedures and/or have already qualified before the Federal Revenue Service of Brazil. It is important to note that the Company still has a lawsuit for repetition of undue payments, which is awaiting the respective final and unappealable decision. In this lawsuit the Company seeks the recognition of R$ 683 million (R$ 643 million, net of related expenses) referring to credits prior to the filing of the lawsuit.

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2023

(In thousands of Brazilian Reais – R$, unless otherwise stated)

(Unaudited)

 

 

On May 13, 2021, the Federal Supreme Court ruled the Embargoes for Declaration that the National Treasury Attorney's Office had opposed, alleging that the Supreme Court's decision was silent on certain points, and requesting the modulation of the effects of the decision. In that judgment, the STF accepted, in part, the Embargoes for Declaration, to modulate the effects of the judgment whose production took place after March 15, 2017 (date on which RE No. 574.706 was judged), except for lawsuits or administrative proceedings filed up to that date, and rejected the embargoes regarding the allegation of omission, obscurity or contradiction and, in the point related to the ICMS excluded from the calculation basis of the PIS-COFINS contributions, it signed the understanding that it is the ICMS informed in the invoice. After this judgment, the concept of virtually certain for the purposes of the entry of economic benefits and recognition of the asset and the corresponding gain started to be demonstrated. Thus, even though there was no final and unappealable decision on two lawsuits that were pending of judgment, the Company recognized in 2021, with sufficient reliability, the amounts of tax credits to which it is entitled, referring to credits prior to the filing of the lawsuits.

 

The amounts recognized in the Company's results related to the recovery of credits arising from the ICMS in the tax base of PIS and COFINS lawsuits (net of related expenses) was R$ 1.2 billion in 2021,