FORM 6-K

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

REPORT OF FOREIGN PRIVATE ISSUER

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

SECURITIES EXCHANGE ACT OF 1934

 

Dated October 30, 2019

 

Commission File Number 1-14878

 

GERDAU S.A.

(Exact Name as Specified in its Charter)

 

N/A

(Translation of Registrant’s Name)

 

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

o

 

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

 

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

 

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

 

Yes o

No x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  Not applicable.

 

 

 


 

SIGNATURES

 

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

 

Date:  October 30, 2019

 

 

 

GERDAU S.A.

 

 

 

 

 

By:

/s/ Harley Lorentz Scardoelli

 

Name:

Harley Lorentz Scardoelli

 

Title:

Investor Relations Director

 

2


 

EXHIBIT INDEX

 

Exhibit

 

Description of Exhibit 

99.1

 

GERDAU S.A. Condensed consolidated interim financial statements as of September 30, 2019

 

3


Exhibit 99.1

 

GERDAU S.A.

 

Condensed consolidated interim financial statements

 

as of September 30, 2019

 


 

Independent Auditors’ Report on Review of condensed consolidated interim financial statements

 

To the Shareholders and Board of Directors

Gerdau S.A.

Brazil - São Paulo - SP

 

Introduction

 

We have reviewed the accompanying condensed consolidated balance sheet of Gerdau S.A. (“the Company”) as of September 30, 2019, and the related condensed consolidated statements of income,  comprehensive income, condensed consolidated statements of changes in equity and condensed consolidated statements of cash flows for the nine-month period ended September 30, 2019, and notes, comprising significant accounting policies and other explanatory information (“the condensed consolidated interim financial statements”). Management is responsible for the preparation and fair presentation of these condensed consolidated interim financial statements in accordance with IAS 34, ‘Interim Financial Reporting’.  Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review.

 

Scope of Review

 

We conducted our review in accordance with the International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of condensed consolidated interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements is not prepared, in all material respects, in accordance with IAS 34, ‘Interim Financial Reporting’

 

Porto Alegre, October 30, 2019

 

KPMG Auditores Independentes

CRC SP-014428/F-7

 

/s/ Cristiano Jardim Seguecio

 

Cristiano Jardim Seguecio

 

Accountant CRC SP-244525/O-9 T-RS

 

 


 

GERDAU S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

 

 

 

Note

 

September 30, 2019

 

December 31, 2018

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

4

 

2,291,416

 

2,890,144

 

Short-term investments

 

4

 

1,140,196

 

459,470

 

Trade accounts receivable - net

 

5

 

3,483,208

 

3,201,656

 

Inventories

 

6

 

9,005,860

 

9,167,689

 

Tax credits

 

 

 

538,095

 

527,428

 

Income and social contribution taxes recoverable

 

 

 

330,867

 

445,561

 

Unrealized gains on financial instruments

 

14

 

 

30,711

 

Other current assets

 

 

 

714,340

 

780,423

 

 

 

 

 

17,503,982

 

17,503,082

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

 

 

Tax credits

 

 

 

55,109

 

32,065

 

Deferred income taxes

 

 

 

3,842,125

 

3,874,054

 

Unrealized gains on financial instruments

 

14

 

3,203

 

2,706

 

Related parties

 

16

 

149,664

 

27,939

 

Judicial deposits

 

15

 

1,986,242

 

2,135,414

 

Other non-current assets

 

 

 

563,281

 

449,592

 

Prepaid pension cost

 

 

 

47,644

 

17,952

 

Advance for future investment in joint venture

 

 

 

100,483

 

375,456

 

Investments in associates and joint ventures

 

8

 

1,746,635

 

1,367,802

 

Goodwill

 

10

 

9,768,835

 

9,112,390

 

Leasing

 

2.1

 

587,459

 

 

Other Intangibles

 

 

 

724,305

 

836,096

 

Property, plant and equipment, net

 

 

 

15,967,125

 

15,546,481

 

 

 

 

 

35,542,110

 

33,777,947

 

TOTAL ASSETS

 

 

 

53,046,092

 

51,281,029

 

 

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

 


 

GERDAU S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

 

 

 

Note

 

September 30, 2019

 

December 31, 2018

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Trade accounts payable

 

11

 

3,890,091

 

4,335,054

 

Short-term debt

 

12

 

2,193,333

 

1,822,183

 

Debentures

 

13

 

68,678

 

2,755

 

Taxes payable

 

 

 

396,508

 

351,545

 

Income and social contribution taxes payable

 

 

 

138,252

 

395,682

 

Payroll and related liabilities

 

 

 

542,336

 

588,627

 

Dividends payable

 

 

 

 

169,616

 

Leasing payable

 

2.1

 

216,275

 

 

Employee benefits

 

 

 

464

 

157

 

Environmental liabilities

 

 

 

57,179

 

60,419

 

Unrealized losses on financial instruments

 

14

 

9,975

 

5,245

 

Other current liabilities

 

 

 

706,689

 

772,970

 

 

 

 

 

8,219,780

 

8,504,253

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

 

Long-term debt

 

12

 

10,339,046

 

11,545,658

 

Debentures

 

13

 

2,892,548

 

1,536,118

 

Related parties

 

16

 

3,862

 

1,350

 

Deferred income taxes

 

 

 

71,620

 

118,368

 

Provision for tax, civil and labor liabilities

 

15

 

765,567

 

770,305

 

Environmental liabilities

 

 

 

62,586

 

72,228

 

Employee benefits

 

 

 

1,368,738

 

1,356,560

 

Obligations with FIDC

 

17

 

999,953

 

938,526

 

Leasing payable

 

2.1

 

392,315

 

 

Other non-current liabilities

 

 

 

431,757

 

499,092

 

 

 

 

 

17,327,992

 

16,838,205

 

EQUITY

 

18

 

 

 

 

 

Capital

 

 

 

19,249,181

 

19,249,181

 

Treasury stocks

 

 

 

(254,856

)

(280,426

)

Capital reserves

 

 

 

11,597

 

11,597

 

Retained earnings

 

 

 

5,667,442

 

4,806,089

 

Operations with non-controlling interests

 

 

 

(2,870,825

)

(2,870,825

)

Other reserves

 

 

 

5,479,840

 

4,814,988

 

EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT

 

 

 

27,282,379

 

25,730,604

 

 

 

 

 

 

 

 

 

NON-CONTROLLING INTERESTS

 

 

 

215,941

 

207,967

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

27,498,320

 

25,938,571

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

 

 

53,046,092

 

51,281,029

 

 

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

 


 

GERDAU S.A.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

In thousands of Brazilian reais (R$)

 

 

 

 

 

For the three-month period ended

 

For the nine-month period ended

 

 

 

Note

 

September 30, 2019

 

September 30, 2018

 

September 30, 2019

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

NET SALES

 

 

 

9,930,829

 

12,835,621

 

30,110,543

 

35,259,776

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

21

 

(8,945,657

)

(10,973,599

)

(26,583,803

)

(30,413,955

)

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

 

985,172

 

1,862,022

 

3,526,740

 

4,845,821

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling expenses

 

21

 

(115,783

)

(144,173

)

(358,551

)

(431,938

)

Impairment loss on trade receivables

 

21

 

(7,717

)

2,919

 

(15,695

)

(17,316

)

General and administrative expenses

 

21

 

(248,810

)

(277,071

)

(719,311

)

(820,449

)

Other operating income

 

21

 

159,720

 

63,674

 

307,561

 

153,380

 

Other operating expenses

 

21

 

(80,803

)

(55,701

)

(109,466

)

(124,340

)

Gains and losses on assets held for sale and sales of interest in subsidiaries

 

21

 

 

(177,627

)

 

(228,948

)

Equity method investees

 

8

 

9,685

 

(2,589

)

(14,674

)

38,937

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES

 

 

 

701,464

 

1,271,454

 

2,616,604

 

3,415,147

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial income

 

22

 

48,874

 

57,134

 

137,647

 

122,420

 

Financial expenses

 

22

 

(367,644

)

(401,244

)

(1,065,918

)

(1,154,539

)

Exchange variations, net

 

22

 

(234,450

)

(114,400

)

(292,854

)

(509,673

)

Gain and losses on derivative financial instruments, net

 

22

 

(9,177

)

16,996

 

(16,271

)

44,051

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE TAXES

 

 

 

139,067

 

829,940

 

1,379,208

 

1,917,406

 

 

 

7

 

 

 

 

 

 

 

 

 

Current

 

7

 

(61,339

)

(118,198

)

(292,412

)

(418,642

)

Deferred

 

7

 

211,577

 

78,775

 

27,886

 

438,453

 

Income and social contribution taxes

 

 

 

150,238

 

(39,423

)

(264,526

)

19,811

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

 

289,305

 

790,517

 

1,114,682

 

1,937,217

 

 

 

 

 

 

 

 

 

 

 

 

 

ATTRIBUTABLE TO:

 

 

 

 

 

 

 

 

 

 

 

Owners of the parent

 

 

 

285,629

 

784,910

 

1,104,167

 

1,920,527

 

Non-controlling interests

 

 

 

3,676

 

5,607

 

10,515

 

16,690

 

 

 

 

 

289,305

 

790,517

 

1,114,682

 

1,937,217

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share - preferred and common - (R$)

 

19

 

0.17

 

0.46

 

0.65

 

1.13

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share - preferred and common - (R$)

 

19

 

0.17

 

0.46

 

0.65

 

1.12

 

 

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

 


 

GERDAU S.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In thousands of Brazilian reais (R$)

 

 

 

For the three-month period ended

 

For the nine-month period ended

 

 

 

September 30, 2019

 

September 30, 2018

 

September 30, 2019

 

September 30, 2018

 

Net income for the period

 

289,305

 

790,517

 

1,114,682

 

1,937,217

 

Items that may be reclassified subsequently to profit or loss

 

 

 

 

 

 

 

 

 

Comprehensive income from associates and joint ventures

 

64,244

 

57,645

 

57,568

 

202,259

 

Cumulative translation adjustment

 

1,224,051

 

572,180

 

1,102,341

 

3,211,552

 

Recycling of cumulative translation adjustment to net income

 

 

 

 

(413,694

)

Unrealized Losses on net investment hedge

 

(538,302

)

(373,480

)

(478,370

)

(1,792,505

)

Unrealized (Losses) Gains on financial instruments, net of tax

 

(1,059

)

1,631

 

517

 

13,305

 

 

 

748,934

 

257,976

 

682,056

 

1,220,917

 

 

 

 

 

 

 

 

 

 

 

Items that will not be reclassified subsequently to profit or loss

 

 

 

 

 

 

 

 

 

Remeasurement of defined benefit pension plan, net of tax

 

 

13,403

 

 

13,403

 

 

 

 

13,403

 

 

13,403

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss), net of tax

 

748,934

 

271,379

 

682,056

 

1,234,320

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period, net of tax

 

1,038,239

 

1,061,896

 

1,796,738

 

3,171,537

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

 

 

 

 

 

Owners of the parent

 

1,024,137

 

1,050,118

 

1,773,337

 

3,122,797

 

Non-controlling interests

 

14,102

 

11,878

 

23,401

 

48,740

 

 

 

1,038,239

 

1,061,996

 

1,796,738

 

3,171,537

 

 

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

 


 

GERDAU S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

in thousands of Brazilian reais (R$)

 

 

 

Attributed to parent company’s interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

Other Reserves

 

 

 

 

 

 

 

 

 

Capital

 

Treasury stocks

 

Capital Reserve

 

Legal reserve

 

Tax Incentives
Reserve

 

Investments and
working capital
reserve

 

Retained
earnings

 

Operations with
non-controlling
interests

 

Gains and losses
on net
investment
hedge

 

Gains and losses
on financial
instruments

 

Cumulative
translation
adjustment

 

Pension Plan

 

Stock Option

 

Total parent
company’s interest

 

Non-controlling
interests

 

Total
Shareholder’s Equity

 

Balance as of January 1, 2018

 

19,249,181

 

(76,085

)

11,597

 

628,228

 

611,531

 

2,075,615

 

 

(2,870,831

)

(4,552,984

)

4,972

 

8,841,450

 

(472,458

)

194,985

 

23,645,201

 

248,740

 

23,893,941

 

2018 Changes in Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

1,920,527

 

 

 

 

 

 

 

1,920,527

 

16,690

 

1,937,217

 

Other comprehensive income (loss) recognized in the period

 

 

 

 

 

 

 

 

 

(1,792,231

)

13,175

 

2,967,999

 

13,327

 

 

1,202,270

 

32,050

 

1,234,320

 

Total comprehensive income (loss) recognized in the period

 

 

 

 

 

 

 

1,920,527

 

 

(1,792,231

)

13,175

 

2,967,999

 

13,327

 

 

3,122,797

 

48,740

 

3,171,537

 

Long term incentive plan cost recognized in the period

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,473

)

(18,473

)

(88

)

(18,561

)

Assignment of preferred shares

 

 

11,622

 

 

 

 

7,362

 

 

 

 

 

 

 

 

18,984

 

 

18,984

 

Effects of IFRS 9 adoption

 

 

 

 

 

 

 

 

 

 

(10,085

)

 

 

 

(10,085

)

(65

)

(10,150

)

Effects of IAS29 adoption in the subsidiary of Argentina

 

 

 

 

 

 

 

 

 

 

 

 

343,044

 

 

 

343,044

 

274

 

343,318

 

Treasury stocks

 

 

(149,711

)

 

 

 

 

 

 

 

 

 

 

 

(149,711

)

(327

)

(150,038

)

Long term incentive plan exercised during the period

 

 

27,265

 

 

 

 

(4,000

)

 

 

 

 

 

 

 

23,265

 

77

 

23,342

 

Effects of interest changes in subsidiaries

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

(79,838

)

(79,832

)

Dividends/interest on capital

 

 

 

 

 

 

 

(425,465

)

 

 

 

 

 

 

(425,465

)

(4,843

)

(430,308

)

Balance as of September 30, 2018 (Note 18)

 

19,249,181

 

(186,909

)

11,597

 

628,228

 

611,531

 

2,078,977

 

1,495,062

 

(2,870,825

)

(6,345,215

)

8,062

 

12,152,493

 

(459,131

)

176,512

 

26,549,563

 

212,670

 

26,762,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2019

 

19,249,181

 

(280,426

)

11,597

 

743,421

 

628,582

 

3,434,086

 

 

(2,870,825

)

(6,044,258

)

486,788

 

10,533,612

 

(320,303

)

159,149

 

25,730,604

 

207,967

 

25,938,571

 

2019 Changes in Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

1,104,167

 

 

 

 

 

 

 

1,104,167

 

10,515

 

1,114,682

 

Other comprehensive income (loss) recognized in the period

 

 

 

 

 

 

 

 

 

(478,347

)

517

 

1,147,000

 

 

 

669,170

 

12,886

 

682,056

 

Total comprehensive income (loss) recognized in the period

 

 

 

 

 

 

 

1,104,167

 

 

(478,347

)

517

 

1,147,000

 

 

 

1,773,337

 

23,401

 

1,796,738

 

Long term incentive plan cost recognized in the period

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,318

)

(4,318

)

884

 

(3,434

)

Long term incentive plan exercised during the period

 

 

25,570

 

 

 

 

(5,093

)

 

 

 

 

 

 

 

20,477

 

6

 

20,483

 

Effects of interest changes in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,000

)

(3,000

)

Complementary dividends

 

 

 

 

 

 

(101

)

 

 

 

 

 

 

 

(101

)

 

(101

)

Dividends/interest on equity

 

 

 

 

 

 

 

(237,620

)

 

 

 

 

 

 

(237,620

)

(13,317

)

(250,937

)

Balance as of September 30, 2019 (Note 18)

 

19,249,181

 

(254,856

)

11,597

 

743,421

 

628,582

 

3,428,892

 

866,547

 

(2,870,825

)

(6,522,605

)

487,305

 

11,680,612

 

(320,303

)

154,831

 

27,282,379

 

215,941

 

27,498,320

 

 

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

 


 

GERDAU S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands of Brazilian reais (R$)

 

 

 

 

 

For the nine-month period ended

 

 

 

Note

 

September 30, 2019

 

September 30, 2018

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income for the period

 

 

 

1,114,682

 

1,937,217

 

Adjustments to reconcile net income for the period to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

21

 

1,534,623

 

1,387,888

 

Equity method investees

 

8

 

14,674

 

(38,937

)

Exchange variation, net

 

22

 

292,854

 

509,673

 

Gains and losses on derivative financial instruments, net

 

22

 

16,271

 

(44,051

)

Post-employment benefits

 

 

 

119,050

 

144,352

 

Stock based compensation

 

 

 

34,426

 

34,452

 

Income and social contribution taxes

 

7

 

264,526

 

(19,811

)

Gains on disposal of property, plant and equipment, net

 

 

 

(1,690

)

(27,873

)

Gains and losses on assets held for sale and sales of interest in subsidiaries

 

 

 

 

228,948

 

Impairment loss on trade receivables

 

 

 

15,695

 

17,316

 

Provision for tax, labor and civil claims

 

 

 

(5,275

)

71,281

 

Interest income on short-term investments

 

 

 

(44,346

)

(34,572

)

Interest expense on debt and debentures

 

22

 

756,227

 

880,825

 

Interest on loans with related parties

 

16

 

(2,657

)

(194

)

Provision for net realizable value adjustment in inventory, net

 

6

 

52,103

 

6,591

 

 

 

 

 

4,161,163

 

5,053,105

 

Changes in assets and liabilities

 

 

 

 

 

 

 

Increase in trade accounts receivable

 

 

 

(113,419

)

(1,115,101

)

Decrease (Increase) in inventories

 

 

 

337,161

 

(2,386,479

)

(Decrease) Increase in trade accounts payable

 

 

 

(600,628

)

621,748

 

Increase (Decrease) in other receivables

 

 

 

172,532

 

(123,985

)

Decrease in other payables

 

 

 

(564,336

)

(711,211

)

Present value adjustment portion on leases

 

 

 

(5,821

)

 

Dividends from associates and joint ventures

 

 

 

38,952

 

49,139

 

Purchases of trading securities

 

 

 

(1,170,608

)

(1,063,386

)

Proceeds from maturities and sales of trading securities

 

 

 

509,198

 

974,303

 

Cash provided by operating activities

 

 

 

2,764,194

 

1,298,133

 

 

 

 

 

 

 

 

 

Interest paid on loans and financing

 

 

 

(683,099

)

(798,922

)

Income and social contribution taxes paid

 

 

 

(220,929

)

(216,823

)

Net cash provided by operating activities

 

 

 

1,860,166

 

282,388

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

9

 

(1,260,640

)

(834,834

)

Proceeds from sales of property, plant and equipment, investments and other intangibles

 

 

 

20,307

 

1,776,326

 

Purchases of other intangibles

 

 

 

(64,441

)

(42,147

)

Advance for future investment in joint venture

 

 

 

(94,687

)

 

Net cash (used in) provided by investing activities

 

 

 

(1,399,461

)

899,345

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Purchases of Treasury stocks

 

 

 

 

(149,711

)

Dividends and interest on capital paid

 

 

 

(416,219

)

(378,343

)

Proceeds from loans and financing

 

 

 

3,472,819

 

964,216

 

Repayment of loans and financing

 

 

 

(3,870,873

)

(1,706,231

)

Leasing payment

 

 

 

(158,622

)

 

Intercompany loans, net

 

 

 

(116,555

)

11,961

 

Net cash used in financing activities

 

 

 

(1,089,450

)

(1,258,108

)

 

 

 

 

 

 

 

 

Exchange variation on cash and cash equivalents

 

 

 

30,017

 

316,233

 

 

 

 

 

 

 

 

 

(Decrease) Increase in cash and cash equivalents

 

 

 

(598,728

)

239,858

 

Cash and cash equivalents at beginning of period

 

 

 

2,890,144

 

2,555,338

 

Cash and cash equivalents at end of period

 

 

 

2,291,416

 

2,795,196

 

 

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, 2019

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

 

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 October 29, 2019.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

 

2.1 - Basis of Presentation

 

The Company’s Condensed Consolidated Interim Financial Statements for the three and nine-month periods ended on September 30, 2019 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, 2018, 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.

 

Changes in accounting policies

 

Except as described below, 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, 2018. The Company initially adopted IFRS 16 - Lease, as of January 1, 2019.

 

a) IFRS 16 - Leases. This standard introduces a single model for accounting for leases in the balance sheet for lessees. A lessee recognizes a right of use asset that represents its right to use the leased asset and a lease liability that represents its obligation to make lease payments. Exemptions are available for short term leases and low value items. This standard replaces existing lease standards, including IAS 17 - Leasing Operations and IFRIC 4, SIC 15 and SIC 27 - Complementary Aspects of Leasing Operations. The Company recognizes as from 2019 new assets and liabilities for its operating leases. The nature of the expenses related to these leases changes because the Company recognizes a depreciation of right of use assets and financial expense on lease obligations. The Company recognized until 2018 an operating lease expense during the lease term. No significant impact is expected on the Company’s financial leases.

 

The new standard provides practical expedients whose election is optional. The Company adopted the following practical expedients:

 

1) The Company did not reassess whether the contract is or contains lease at the initial application date, instead applied IAS 17 to contracts that were previously identified as a lease using IAS 17 and IFRIC 4;

2) The Company did not separate non-lease components from leasing components by considering them as a single lease component;

3) The Company did not register contracts with a term exceeding 12 months, which on the date of transition, they ends within 12 months of the date of initial application;

4) The Company did not register contracts of low value;

5) The Company did not exclude initial direct costs of measuring the right to use asset on the date of initial application;

6) The Company did make use of judgement in determining the term of the lease, if the contract contains options to extend or terminate the lease, among others; and

7) The Company did apply a single discount rate to the lease portfolio with fairly similar characteristics (such as similar remaining lease term, similar classes of underlying assets in a similar economic environment).

 


 

Variable elements of payments related to leases (such as a lease of machinery and/or equipment with parts of payments based on asset productivity) are not included in the liability calculation and recorded as operating expense. The discount rates used by the Company were obtained according to market conditions. On January 1, 2019, the right of use of asset, as well as the lease obligation, represents the amount of R$ 799,361. On September 30, 2019, the Company has recognized a right-of-use asset in the amount of R$ 587,459, a current lease liability of R$ 216,275 and a non-current lease liability of R$ 392,315. The Company adopted this standard on January 1, 2019 without updating the comparative information, as well as applied the standard for all contracts entered before January 1, 2019 that were identified as leases in accordance with IAS 17 and IFRIC 4.

 

b) IFRIC 23 —Uncertainty over Income Tax Treatments. Establishes aspects of recognition and measurement of provision in accordance with IAS 12 when there are uncertainties about the treatment of income tax related to tax assets or liabilities and current or deferred taxes, based on taxable income, tax losses, taxable bases, unused tax losses, unused tax credits and tax rates. This interpretation is effective for fiscal years beginning on or after January 1, 2019. The Company did not have material impact in its Financial Statements.

 

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

 

The IASB has issued and/or reviewed some IFRS standards, which have mandatory adoption for the year 2020 and/or after. The Company is assessing the adoption impact of these standards in its Consolidated Financial Statements.

 

· Amendment of IFRS 3 - Definition of business. Clarifies aspects for the definition of business, in order to clarify when a transaction must have accounting treatment of business combination or acquisition of assets. This change in the standard is effective for years beginning on or after January 1, 2020. The Company does not expect significant impacts on possible future events of business combinations or acquisition of assets.

 

· Amendment of IAS 1 and IAS 8 - Definition of materiality Clarifies definition of materiality to the framework of the accounting standard where this concept is applicable. These changes are effective for years beginning on or after January 1, 2020. The Company does not expect material impacts on its Financial Statements.

 

· Amendment of IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform. Clarifies interest rate aspects of hedge financial instruments. These changes are effective for years beginning on or after January 1, 2020. The Company is evaluating the impacts of this change on its Financial Statements.

 

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, 2019, when compared to those existing on December 31, 2018.

 

3.2 - Joint Ventures

 

The Company did not have material changes of interest in joint ventures for the period ended on September 30, 2019, when compared to those existing on December 31, 2018, except for the capital increase in Gerdau Corsa S.A.P.I. de C.V., which changed the interest held by the Company in this entity to 58.71%, remaining as a joint venture.

 

3.3 — Associate companies

 

The Company did not have material changes in interest in associate companies for the period ended on September 30, 2019, when compared to those existing on December 31, 2018, except for the merger of its associate Corsa Controladora, S.A. de C.V. in the joint venture Gerdau Corsa S.A.P.I. de C.V.

 


 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2019

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

 

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

 

Cash and cash equivalents

 

 

 

September 30, 2019

 

December 31, 2018

 

Cash

 

5,316

 

6,800

 

Banks and immediately available investments

 

2,286,100

 

2,883,344

 

Cash and cash equivalents

 

2,291,416

 

2,890,144

 

 

Short-term investments

 

 

 

September 30, 2019

 

December 31, 2018

 

Short-term investments

 

1,140,196

 

459,470

 

 

Short-term investments include Bank Deposit Certificates and marketable securities, which are stated at their fair value. Income generated by these investments are recorded as financial income. The income from short-term investments recognized in the three and nine-month periods ended on September 30, 2019 and September 30, 2018 are presented in note 22.

 

NOTE 5 — ACCOUNTS RECEIVABLE

 

 

 

September 30, 2019

 

December 31, 2018

 

Trade accounts receivable - in Brazil

 

1,381,733

 

1,056,625

 

Trade accounts receivable - exports from Brazil

 

110,867

 

373,593

 

Trade accounts receivable - foreign subsidiaries

 

2,121,052

 

1,929,595

 

(-) Impairment loss on trade receivables

 

(130,444

)

(158,157

)

 

 

3,483,208

 

3,201,656

 

 

NOTE 6 - INVENTORIES

 

 

 

September 30, 2019

 

December 31, 2018

 

Finished products

 

4,099,340

 

3,985,964

 

Work in progress

 

1,746,815

 

1,688,794

 

Raw materials

 

1,912,254

 

2,296,074

 

Storeroom supplies

 

968,590

 

784,517

 

Imports in transit

 

346,477

 

426,044

 

(-) Allowance for adjustments to net realizable value

 

(67,616

)

(13,704

)

 

 

9,005,860

 

9,167,689

 

 

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, 2018

 

(3,556

)

Provision for the year

 

(11,943

)

Reversal of adjustments to net realizable value

 

3,715

 

Exchange rate variation

 

(871

)

Assets held for sale

 

(1,049

)

Balance as of December 31, 2018

 

(13,704

)

Provision for adjustments to net realizable value

 

(57,861

)

Reversal of adjustments to net realizable value

 

5,758

 

Exchange rate variation

 

(1,809

)

Balance as of September 30, 2019

 

(67,616

)

 


 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2019

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

 

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, 2019 and 2018. The foreign subsidiaries of the Company are subject to taxation at rates ranging between 25.0% and 34.0%. 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, 2019

 

September 30, 2018

 

Income before income taxes

 

139,067

 

829,940

 

Statutory tax rates

 

34

%

34

%

Income and social contribution taxes at statutory rates

 

(47,283

)

(282,180

)

Tax adjustment with respect to:

 

 

 

 

 

- Difference in tax rates in foreign companies

 

139,379

 

117,245

 

- Equity method investees

 

3,293

 

(880

)

- Interest on equity *

 

 

82,106

 

- Tax credits and incentives

 

262

 

2,960

 

- Recognition of previously unrecognized tax losses

 

(352

)

29,337

 

- Other permanent differences, net

 

54,939

 

11,989

 

Income and social contribution taxes

 

150,238

 

(39,423

)

Current

 

(61,339

)

(118,198

)

Deferred

 

211,577

 

78,775

 

 

 

 

For the nine-month period ended

 

 

 

September 30, 2019

 

September 30, 2018

 

Income before income taxes

 

1,379,208

 

1,917,406

 

Statutory tax rates

 

34

%

34

%

Income and social contribution taxes at statutory rates

 

(468,931

)

(651,918

)

Tax adjustment with respect to:

 

 

 

 

 

- Difference in tax rates in foreign companies

 

145,073

 

449,624

 

- Equity method investees

 

(4,989

)

13,239

 

- Interest on equity *

 

69

 

128,398

 

- Tax credits and incentives

 

3,717

 

8,785

 

- Recognition of previously unrecognized tax losses

 

100

 

37,806

 

- Other permanent differences, net

 

60,435

 

33,877

 

Income and social contribution taxes

 

(264,526

)

19,811

 

Current

 

(292,412

)

(418,642

)

Deferred

 

27,886

 

438,453

 

 


(*) The Brazilian Law 9,249/95 provides that a company may, at its sole discretion, consider dividends distributions to shareholders to be considered as interest on equity — subject to specific limitations - which has the effect of a taxable deduction in the determination of income tax and social contribution. The limitation considers the greater of (i) shareholders’ equity multiplied by the TJLP (Long Term Interest Rate) rate or (ii) 50% of the net income in the fiscal year.  This expense is not recognized for financial reporting purposes and thus it does not impact accounting profit.

 

b) Tax Assets not booked:

 

Due to the lack of expectation of usage, the Company has not recorded a portion of tax assets arising from its operations in Brazil of R$ 262,553 (R$ 265,403 as of December 31, 2018), and negative basis of social contribution in subsidiaries, which do not have an expiration date. The subsidiaries abroad had R$ 680,013 (R$ 531,657 as of December 31, 2018) of

 


 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2019

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

 

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$ 862,547 (R$ 795,775 as of December 31, 2018), which expire at various dates between 2019 and 2039.

 

NOTE 8 — INVESTMENTS

 

 

 

Investments in
North America

 

Investments in
South America

 

Investments in
Special Steel

 

Investments in
Brazil

 

Others

 

Total

 

Balance as of January 01, 2018

 

346,080

 

584,899

 

199,647

 

 

149,673

 

1,280,299

 

Equity in earnings

 

(77,909

)

51,648

 

15,629

 

(1,700

)

22,473

 

10,141

 

Cumulative Translation Adjustment

 

33,101

 

96,045

 

(1,377

)

(2,050

)

 

125,719

 

Capital increase

 

 

 

 

7,000

 

 

7,000

 

Dividends/Interest on equity

 

 

(31,359

)

 

 

(23,998

)

(55,357

)

Balance as of December 31, 2018

 

301,272

 

701,233

 

213,899

 

3,250

 

148,148

 

1,367,802

 

Equity in earnings

 

(88,478

)

52,287

 

5,722

 

(1,110

)

16,905

 

(14,674

)

Cumulative Translation Adjustment

 

20,490

 

34,501

 

527

 

2,050

 

 

57,568

 

Capital increase

 

367,891

 

 

 

7,000

 

 

374,891

 

Dividends/Interest on equity

 

(1,843

)

(20,247

)

 

 

(16,862

)

(38,952

)

Balance as of September 30, 2019

 

599,332

 

767,774

 

220,148

 

11,190

 

148,191

 

1,746,635

 

 

NOTE 9 — PROPERTY, PLANT AND EQUIPMENT

 

a) Summary of changes in property, plant and equipment — for the three-month period ended on September 30, 2019, acquisitions amounted to R$ 532,367 (R$ 319,031 for the three-month period ended on September 30, 2018), and disposals amounted to R$ 2,951 (R$ 725,056 for the three-month period ended on September 30, 2018). For the nine-month period ended on September 30, 2019, acquisitions amounted to R$ 1,260,640 (R$ 834,834 for the nine-month period ended on September 30, 2018), and disposals amounted to R$ 21,429 (R$ 1,023,288 for the nine-month period ended on September 30, 2018).

 

b) Capitalized borrowing costs — borrowing costs capitalized during the three-month period ended on September 30, 2019 amounted to R$ 6,766 (R$ 6,211 as of September 30, 2018). Borrowing costs capitalized during the nine-month period ended on September 30, 2019 amounted to R$ 17,913 (R$ 18,810 as of September 30, 2018)

 

c) Guarantees — property, plant and equipment have been pledged as collateral for loans and financing in the amount of R$ 79,562 as of September 30, 2019 (R$ 90,463 as of December 31, 2018).

 

NOTE 10 — GOODWILL

 

The changes in goodwill are as follows:

 

 

 

Goodwill

 

Accumulated
impairment losses

 

Goodwill after
Impairment losses

 

Balance as of January 01, 2018

 

14,500,381

 

(6,609,239

)

7,891,142

 

(+/-) Foreign exchange effect

 

2,283,577

 

(1,062,329

)

1,221,248

 

Balance as of December 31, 2018

 

16,783,958

 

(7,671,568

)

9,112,390

 

(+/-) Foreign exchange effect

 

1,168,671

 

(512,226

)

656,445

 

Balance as of September 30, 2019

 

17,952,629

 

(8,183,794

)

9,768,835

 

 

The amounts of goodwill by segment are as follows:

 

 

 

September 30, 2019

 

December 31, 2018

 

 

 

Brazil

 

373,135

 

373,135

 

 

 

Special Steels

 

3,068,260

 

2,854,888

 

 

 

North America

 

6,327,440

 

5,884,367

 

 

 

 

 

9,768,835

 

9,112,390

 

 

 

 


 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2019

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

 

NOTE 11 — TRADE ACCOUNTS PAYABLE

 

 

 

September 30, 2019

 

December 31, 2018

 

 

 

Trade accounts payable - domestic market

 

2,898,524

 

3,368,834

 

 

 

Trade accounts payable - debtor risk

 

285,099

 

215,998

 

 

 

Trade accounts payable - intercompany

 

4,399

 

7,400

 

 

 

Trade accounts payable - imports

 

702,069

 

742,822

 

 

 

 

 

3,890,091

 

4,335,054

 

 

 

 

NOTE 12 — LOANS AND FINANCING

 

Loans and financing are as follows:

 

 

 

Annual interest rate (*)

 

September 30, 2019

 

December 31, 2018

 

Working capital

 

5.75

%

682,446

 

2,424,246

 

Financing of property, plant and equipment and others

 

9.10

%

1,237,102

 

1,205,281

 

Ten/Thirty Years Bonds

 

5.81

%

10,612,831

 

9,738,314

 

Total financing

 

 

 

12,532,379

 

13,367,841

 

Current

 

 

 

2,193,333

 

1,822,183

 

Non-current

 

 

 

10,339,046

 

11,545,658

 

 

 

 

 

 

 

 

 

Principal amount of the financing

 

 

 

12,267,066

 

13,178,457

 

Interest amount of the financing

 

 

 

265,313

 

189,384

 

Total financing

 

 

 

12,532,379

 

13,367,841

 

 


(*) Weighted average effective interest costs on September 30, 2019, which in a consolidated basis represents 6.09%

 

Loans and financing denominated in Brazilian Reais are substantially indexed at fixed rates or by the CDI (Interbank Deposit Certificates).

 

Summary of loans and financing by currency:

 

 

 

September 30, 2019

 

December 31, 2018

 

Brazilian Real (R$)

 

422,405

 

2,361,610

 

U.S. Dollar (US$)

 

12,011,198

 

10,924,355

 

Other currencies

 

98,776

 

81,876

 

 

 

12,532,379

 

13,367,841

 

 

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

 

 

 

September 30, 2019

 

December 31, 2018

 

2020(*)

 

307,249

 

2,253,958

 

2021

 

1,284,236

 

1,199,045

 

2022

 

128,359

 

121,490

 

2023

 

1,299,431

 

1,209,109

 

2024

 

2,625,234

 

2,426,456

 

2025 on

 

4,694,537

 

4,335,600

 

 

 

10,339,046

 

11,545,658

 

 


(*) For the period as of September 30, 2019, the amounts represents payments from October 1, 2020 to December 31, 2020.

 

a) Principal funding in 2019

 

Throughout 2019, the subsidiary Gerdau Aços Longos and Gerdau Açominas obtained working capital loans from top-tier institutions. As of September 30, 2019, the outstanding balance related to these loans was US$ 125 million (equivalent to R$ 520 million as of September 30, 2019) with short-term maturities.

 


 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2019

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

 

b) Monitoring indexes

 

Only operations with BNDES contemplate monitoring of the Company’s debt ratios established in the agreement. In a possible breach of the ratio in the annual measurement, the Company would enter into a remediation period and a subsequent renegotiation of guarantees, not characterizing the possibility of a default event.

 

c) Guarantees

 

All loans contracted under the FINAME/BNDES program, totalizing R$ 76.6 million on September 30, 2019, are guaranteed by the assets (property, plant and equipment) being financed.

 

d) Credit Lines

 

In October 2019, the Company completed the renewal of the Global Credit Line in the total amount of US$ 800 million (equivalent to R$ 3,331 million as of September 30, 2019). The transaction aims to provide liquidity to subsidiaries 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 October 2024.

 

NOTE 13 — DEBENTURES

 

 

 

 

 

Quantity as of September 30, 2019

 

 

 

 

 

 

 

Issuance

 

General Meeting

 

Issued

 

Held in treasury

 

Maturity

 

September 30, 2019

 

December 31, 2018

 

3rd- A and B

 

May 27,1982

 

 

 

06/01/2021

 

 

18,871

 

7th

 

July 14, 1982

 

 

 

07/01/2022

 

 

1,102

 

8th

 

November 11, 1982

 

 

 

05/02/2023

 

 

8,080

 

9th

 

June 10, 1983

 

 

 

09/01/2024

 

 

2,349

 

11th - A and B

 

June 29, 1990

 

 

 

06/01/2020

 

 

5,716

 

15th

 

November, 9, 2018

 

1,500,000

 

 

11/21/2022

 

1,531,822

 

1,502,755

 

16th - A

 

April 24, 2019

 

600,000

 

 

05/06/2023

 

612,496

 

 

16th - B

 

April 24, 2019

 

800,000

 

 

05/06/2026

 

816,908

 

 

Total Consolidated

 

 

 

 

 

 

 

 

 

2,961,226

 

1,538,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

68,678

 

2,755

 

Non-current

 

 

 

 

 

 

 

 

 

2,892,548

 

1,536,118

 

 

Maturities of long-term amounts are as follows:

 

 

 

September 30, 2019

 

December 31, 2018

 

2020(*)

 

 

5,716

 

2021

 

 

18,871

 

2022

 

1,496,299

 

1,501,102

 

2023

 

598,422

 

8,080

 

2024

 

 

2,349

 

2025 on

 

797,827

 

 

 

 

2,892,548

 

1,536,118

 

 


(*) For the period as of September 30, 2019, the amounts represents payments from October 1, 2020 to December 31, 2020.

 

16th Issuance of Debentures: At the Board of Directors Meeting held on April 25, 2019, the Sixteenth Issuance of Non-convertible Debentures, in Two Series, was approved. The amount of the Issuance, subscribed and paid in, was R$ 1,400 million, of which R$ 600 million in the first series and R$ 800 million in the second series, with a unit par value of R$ 1,000.00, and net proceeds were used for cash reinforcement, in order to serve its ordinary management business. The 1st Series debentures mature in 48 months and yield interest equivalent to 105.5% of the CDI. The 2nd Series Debentures mature in 84 months and yield interest equivalent to 107.25% of the CDI.

 

Early Redemption: At the Board of Directors meeting held on July 2, 2019, it was decided to authorize the early redemption of all debentures of the 3rd A and B, 7th, 8th, 9th and 11th A and B issuances. The amounts paid to debenture holders were adjusted until the settlement date pursuant to the corresponding Debenture Issues.

 


 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2019

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

 

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

 

The average interest rate was 1.63% and 4.87% for the three and nine-month periods ended on September 30, 2019, respectively(1.57% and 4.68% for the three and nine-month periods ended on September 30, 2018, respectively).

 

The Company has guarantees provided by the parent entity for debentures of the 7th, 8th, 9th and 11th issuances.

 

NOTE 14 - FINANCIAL INSTRUMENTS

 

a) General considerations - Gerdau S.A. and its subsidiaries enter into transactions with financial instruments whose risks are managed through financial position strategies and exposure limit control systems. All financial instruments are recorded in the accounting books and presented as short-term investments, loans and financing, debentures, related-party transactions, unrealized gains on financial instruments, unrealized losses on financial instruments, obligations with FIDC, 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 foreign exchange rate variations on foreign currency-denominated loans and interest rate fluctuations. These transactions are performed considering direct asset or liability exposures, without leverage.

 

b) Fair value — the fair value of the aforementioned financial instruments is as follows:

 

 

 

September 30, 2019

 

December 31, 2018

 

 

 

Book

 

Fair

 

Book

 

Fair

 

 

 

value

 

value

 

value

 

value

 

Assets

 

 

 

 

 

 

 

 

 

Short-term investments

 

1,140,196

 

1,140,196

 

459,470

 

459,470

 

Related parties

 

149,664

 

149,664

 

27,939

 

27,939

 

Unrealized gains on financial instruments

 

3,203

 

3,203

 

33,417

 

33,417

 

Other current assets

 

714,340

 

714,340

 

780,423

 

780,423

 

Other non-current assets

 

563,281

 

563,281

 

449,592

 

449,592

 

Liabilities

 

 

 

 

 

 

 

 

 

Loans and Financing

 

12,532,379

 

13,549,757

 

13,367,841

 

13,533,306

 

Debentures

 

2,961,226

 

2,961,226

 

1,538,873

 

1,538,873

 

Related parties

 

3,862

 

3,862

 

1,350

 

1,350

 

Unrealized losses on financial instruments

 

9,975

 

9,975

 

5,245

 

5,245

 

Obligations with FIDC

 

999,953

 

999,953

 

938,526

 

938,526

 

Other current liabilities

 

706,689

 

706,689

 

772,970

 

772,970

 

Other non-current liabilities

 

431,757

 

431,757

 

499,092