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 August 9, 2017
Commission File Number 1-14878
GERDAU S.A.
(Exact Name as Specified in its Charter)
N/A
(Translation of Registrants Name)
Av. Farrapos 1811
Porto Alegre, Rio Grande do Sul - Brazil CEP 90220-005
(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: August 9, 2017
|
GERDAU S.A. | |
|
| |
|
| |
|
By: |
/s/ Harley Lorentz Scardoelli |
|
Name: |
Harley Lorentz Scardoelli |
|
Title: |
Investor Relations Director |
Exhibit 99.1
GERDAU S.A.
Condensed consolidated interim financial statements
as of June 30, 2017
GERDAU S.A.
CONSOLIDATED BALANCE SHEETS
In thousands of Brazilian reais (R$)
(Unaudited)
|
|
Note |
|
June 30, 2017 |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
4 |
|
4,305,434 |
|
5,063,383 |
|
Short-term investments |
|
|
|
|
|
|
|
Held for Trading |
|
4 |
|
1,124,769 |
|
1,024,411 |
|
Trade accounts receivable - net |
|
5 |
|
3,920,408 |
|
3,576,699 |
|
Inventories |
|
6 |
|
6,995,222 |
|
6,332,730 |
|
Tax credits |
|
|
|
432,951 |
|
504,429 |
|
Income and social contribution taxes recoverable |
|
|
|
442,829 |
|
623,636 |
|
Unrealized gains on financial instruments |
|
13 |
|
|
|
2,557 |
|
Other current assets |
|
|
|
674,381 |
|
668,895 |
|
|
|
|
|
17,895,994 |
|
17,796,740 |
|
NON-CURRENT ASSETS |
|
|
|
|
|
|
|
Tax credits |
|
|
|
43,299 |
|
56,703 |
|
Deferred income taxes |
|
|
|
3,047,007 |
|
3,407,230 |
|
Unrealized gains on financial instruments |
|
13 |
|
4,050 |
|
10,394 |
|
Related parties |
|
15 |
|
54,052 |
|
57,541 |
|
Judicial deposits |
|
14 |
|
1,985,057 |
|
1,861,784 |
|
Other non-current assets |
|
|
|
528,056 |
|
447,260 |
|
Prepaid pension cost |
|
|
|
11,517 |
|
56,797 |
|
Investments in associates and jointly-controlled entities |
|
8 |
|
1,343,010 |
|
798,844 |
|
Goodwill |
|
10 |
|
9,586,600 |
|
9,470,016 |
|
Other Intangibles |
|
|
|
1,174,432 |
|
1,319,941 |
|
Property, plant and equipment, net |
|
|
|
18,502,051 |
|
19,351,891 |
|
|
|
|
|
36,279,131 |
|
36,838,401 |
|
TOTAL ASSETS |
|
|
|
54,175,125 |
|
54,635,141 |
|
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements
GERDAU S.A.
CONSOLIDATED BALANCE SHEETS
In thousands of Brazilian reais (R$)
(Unaudited)
|
|
Note |
|
June 30, 2017 |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Trade accounts payable |
|
|
|
3,062,395 |
|
2,743,818 |
|
Short-term debt |
|
11 |
|
4,186,259 |
|
4,458,220 |
|
Taxes payable |
|
|
|
256,545 |
|
341,190 |
|
Income and social contribution taxes payable |
|
|
|
60,025 |
|
74,458 |
|
Payroll and related liabilities |
|
|
|
415,391 |
|
464,494 |
|
Employee benefits |
|
|
|
395 |
|
409 |
|
Environmental liabilities |
|
|
|
18,502 |
|
17,737 |
|
Unrealized losses on financial instruments |
|
13 |
|
|
|
6,584 |
|
Other current liabilities |
|
|
|
608,645 |
|
514,599 |
|
|
|
|
|
8,608,157 |
|
8,621,509 |
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
|
|
Long-term debt |
|
11 |
|
15,646,225 |
|
15,959,590 |
|
Debentures |
|
12 |
|
131,797 |
|
165,423 |
|
Deferred income taxes |
|
|
|
292,947 |
|
395,436 |
|
Provision for tax, civil and labor liabilities |
|
14 |
|
1,079,894 |
|
2,239,226 |
|
Environmental liabilities |
|
|
|
70,284 |
|
66,069 |
|
Employee benefits |
|
|
|
1,451,576 |
|
1,504,394 |
|
Obligations with FIDC |
|
16 |
|
1,076,751 |
|
1,007,259 |
|
Other non-current liabilities |
|
|
|
471,717 |
|
401,582 |
|
|
|
|
|
20,221,191 |
|
21,738,979 |
|
EQUITY |
|
17 |
|
|
|
|
|
Capital |
|
|
|
19,249,181 |
|
19,249,181 |
|
Treasury stocks |
|
|
|
(77,550 |
) |
(98,746 |
) |
Capital reserves |
|
|
|
11,597 |
|
11,597 |
|
Retained earnings |
|
|
|
4,650,781 |
|
3,763,207 |
|
Operations with non-controlling interests |
|
|
|
(2,873,335 |
) |
(2,873,335 |
) |
Other reserves |
|
|
|
4,122,574 |
|
3,976,232 |
|
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT |
|
|
|
25,083,248 |
|
24,028,136 |
|
|
|
|
|
|
|
|
|
NON-CONTROLLING INTERESTS |
|
|
|
262,529 |
|
246,517 |
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
25,345,777 |
|
24,274,653 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
|
|
54,175,125 |
|
54,635,141 |
|
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 six-month period ended |
| ||||
|
|
Note |
|
June 30, 2017 |
|
June 30, 2016 |
|
June 30, 2017 |
|
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES |
|
|
|
9,165,853 |
|
10,248,778 |
|
17,624,517 |
|
20,333,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
20 |
|
(8,229,142 |
) |
(9,165,474 |
) |
(16,033,919 |
) |
(18,437,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
|
936,711 |
|
1,083,304 |
|
1,590,598 |
|
1,895,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
20 |
|
(133,297 |
) |
(175,609 |
) |
(271,743 |
) |
(389,941 |
) |
General and administrative expenses |
|
20 |
|
(287,139 |
) |
(401,965 |
) |
(588,186 |
) |
(831,519 |
) |
Other operating income |
|
20 |
|
70,968 |
|
54,833 |
|
139,934 |
|
102,057 |
|
Other operating expenses |
|
20 |
|
(32,246 |
) |
(26,519 |
) |
(37,702 |
) |
(33,928 |
) |
Results in operations with subsidiaries |
|
3.4 |
|
(72,478 |
) |
(105,048 |
) |
(72,478 |
) |
(105,048 |
) |
Reversal of contingent liabilities, net |
|
14 |
|
|
|
|
|
929,711 |
|
|
|
Equity in earnings of unconsolidated companies |
|
8 |
|
(2,429 |
) |
(109 |
) |
(3,239 |
) |
(7,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES |
|
|
|
480,090 |
|
428,887 |
|
1,686,895 |
|
629,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income |
|
21 |
|
44,087 |
|
45,022 |
|
125,914 |
|
120,812 |
|
Financial expenses |
|
21 |
|
(453,780 |
) |
(484,200 |
) |
(917,017 |
) |
(1,009,302 |
) |
Exchange variations, net |
|
21 |
|
(96,389 |
) |
433,186 |
|
(21,351 |
) |
942,616 |
|
Reversal of monetary update of contingent liabilities, net |
|
14 |
|
|
|
|
|
369,819 |
|
|
|
Gain and losses on financial instruments, net |
|
21 |
|
1,125 |
|
(16,700 |
) |
(8,606 |
) |
(38,220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES |
|
|
|
(24,867 |
) |
406,195 |
|
1,235,654 |
|
645,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
7 |
|
(96,395 |
) |
(47,146 |
) |
(145,927 |
) |
(80,454 |
) |
Deferred |
|
7 |
|
197,779 |
|
(279,840 |
) |
(189,666 |
) |
(471,970 |
) |
Income and social contribution taxes |
|
|
|
101,384 |
|
(326,986 |
) |
(335,593 |
) |
(552,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
|
|
76,517 |
|
79,209 |
|
900,061 |
|
93,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ATTRIBUTABLE TO: |
|
|
|
|
|
|
|
|
|
|
|
Owners of the parent |
|
|
|
75,023 |
|
73,078 |
|
890,364 |
|
81,773 |
|
Non-controlling interests |
|
|
|
1,494 |
|
6,131 |
|
9,697 |
|
11,622 |
|
|
|
|
|
76,517 |
|
79,209 |
|
900,061 |
|
93,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share - preferred and common - (R$) |
|
18 |
|
0.04 |
|
0.04 |
|
0.52 |
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share - preferred and common - (R$) |
|
18 |
|
0.04 |
|
0.04 |
|
0.52 |
|
0.05 |
|
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements
GERDAU S.A.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands of Brazilian reais (R$)
(Unaudited)
|
|
For the three-month period ended |
|
For the six-month period ended |
| ||||
|
|
June 30, 2017 |
|
June 30, 2016 |
|
June 30, 2017 |
|
June 30, 2016 |
|
Net income for the period |
|
76,517 |
|
79,209 |
|
900,061 |
|
93,395 |
|
Items that may be reclassified subsequently to profit or loss |
|
|
|
|
|
|
|
|
|
Other comprehensive income (losses) from associates and jointly-controlled entities |
|
58,299 |
|
(130,290 |
) |
60,449 |
|
(238,650 |
) |
Cumulative translation adjustment |
|
726,191 |
|
(2,598,847 |
) |
335,796 |
|
(5,113,825 |
) |
Recycling of cumulative translation adjustment to net income |
|
(76,430 |
) |
(970,276 |
) |
(76,430 |
) |
(970,276 |
) |
Unrealized (Losses)/Gains on net investment hedge |
|
(355,743 |
) |
880,845 |
|
(141,229 |
) |
1,800,061 |
|
Cash flowh hedges: |
|
|
|
|
|
|
|
|
|
Unrealized Gains (Losses) on cash flow hedges |
|
1,085 |
|
(2,364 |
) |
(6,578 |
) |
(45 |
) |
|
|
353,402 |
|
(2,820,932 |
) |
172,008 |
|
(4,522,735 |
) |
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) for the period, net of tax |
|
429,919 |
|
(2,741,723 |
) |
1,072,069 |
|
(4,429,340 |
) |
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
Owners of the parent |
|
420,896 |
|
(2,729,206 |
) |
1,055,437 |
|
(4,406,371 |
) |
Non-controlling interests |
|
9,023 |
|
(12,517 |
) |
16,632 |
|
(22,969 |
) |
|
|
429,919 |
|
(2,741,723 |
) |
1,072,069 |
|
(4,429,340 |
) |
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 companys interest |
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
Other Reserves |
|
|
|
|
|
|
| ||||||||||||||
|
|
Capital |
|
Treasury |
|
Capital |
|
Legal reserve |
|
Tax Incentives |
|
Investments |
|
Retained |
|
Operations |
|
Gains and |
|
Gains and |
|
Cumulative |
|
Pension Plan |
|
Stock Option |
|
Total parent |
|
Non-controlling |
|
Total |
|
Balance as of January 1, 2016 |
|
19,249,181 |
|
(383,363 |
) |
11,597 |
|
628,228 |
|
611,531 |
|
5,668,300 |
|
|
|
(2,877,488 |
) |
(6,083,288 |
) |
16,084 |
|
15,021,878 |
|
(314,981 |
) |
138,122 |
|
31,685,801 |
|
284,582 |
|
31,970,383 |
|
2016 Changes in Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
81,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
81,773 |
|
11,622 |
|
93,395 |
|
Other comprehensive income (loss) recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,799,571 |
|
(37 |
) |
(6,287,678 |
) |
|
|
|
|
(4,488,144 |
) |
(34,591 |
) |
(4,522,735 |
) |
Total comprehensive income (loss) recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
81,773 |
|
|
|
1,799,571 |
|
(37 |
) |
(6,287,678 |
) |
|
|
|
|
(4,406,371 |
) |
(22,969 |
) |
(4,429,340 |
) |
Long term incentive plan cost recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,405 |
|
11,405 |
|
(67 |
) |
11,338 |
|
Long term incentive plan exercised during the period |
|
|
|
6,971 |
|
|
|
|
|
|
|
(4,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,825 |
|
63 |
|
2,888 |
|
Assignment of preferred shares |
|
|
|
369,499 |
|
|
|
|
|
|
|
(163,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205,800 |
|
|
|
205,800 |
|
Effects of interest changes in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,153 |
|
|
|
|
|
|
|
|
|
|
|
4,153 |
|
(4,224 |
) |
(71 |
) |
Balance as of June 30, 2016 (Note 17) |
|
19,249,181 |
|
(6,893 |
) |
11,597 |
|
628,228 |
|
611,531 |
|
5,500,455 |
|
81,773 |
|
(2,873,335 |
) |
(4,283,717 |
) |
16,047 |
|
8,734,200 |
|
(314,981 |
) |
149,527 |
|
27,503,613 |
|
257,385 |
|
27,760,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2017 |
|
19,249,181 |
|
(98,746 |
) |
11,597 |
|
628,228 |
|
611,531 |
|
2,523,448 |
|
|
|
(2,873,335 |
) |
(4,404,436 |
) |
16,323 |
|
8,532,065 |
|
(357,072 |
) |
189,352 |
|
24,028,136 |
|
246,517 |
|
24,274,653 |
|
2017 Changes in Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
890,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
890,364 |
|
9,697 |
|
900,061 |
|
Other comprehensive income (loss) recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141,245 |
) |
(6,557 |
) |
312,875 |
|
|
|
|
|
165,073 |
|
6,935 |
|
172,008 |
|
Total comprehensive income (loss) recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
890,364 |
|
|
|
(141,245 |
) |
(6,557 |
) |
312,875 |
|
|
|
|
|
1,055,437 |
|
16,632 |
|
1,072,069 |
|
Long term incentive plan cost recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,731 |
) |
(18,731 |
) |
(36 |
) |
(18,767 |
) |
Long term incentive plan exercised during the period |
|
|
|
21,196 |
|
|
|
|
|
|
|
(2,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,406 |
|
30 |
|
18,436 |
|
Effects of interest changes in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
950 |
|
950 |
|
Dividends/interest on capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,564 |
) |
(1,564 |
) |
Balance as of June 30, 2017 (Note 17) |
|
19,249,181 |
|
(77,550 |
) |
11,597 |
|
628,228 |
|
611,531 |
|
2,520,658 |
|
890,364 |
|
(2,873,335 |
) |
(4,545,681 |
) |
9,766 |
|
8,844,940 |
|
(357,072 |
) |
170,621 |
|
25,083,248 |
|
262,529 |
|
25,345,777 |
|
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 six-month period ended |
| ||
|
|
Note |
|
June 30, 2017 |
|
June 30, 2016 |
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
Net income for the period |
|
|
|
900,061 |
|
93,395 |
|
Adjustments to reconcile net income for the period to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
20 |
|
1,054,233 |
|
1,298,492 |
|
Equity in earnings of unconsolidated companies |
|
8 |
|
3,239 |
|
7,690 |
|
Exchange variation, net |
|
21 |
|
21,351 |
|
(942,616 |
) |
Loss (Gains) on financial instruments, net |
|
21 |
|
8,606 |
|
38,220 |
|
Post-employment benefits |
|
|
|
103,692 |
|
111,614 |
|
Long term incentive plan |
|
|
|
17,777 |
|
20,786 |
|
Income and social contribution taxes |
|
7 |
|
335,593 |
|
552,424 |
|
Gains on disposal of property, plant and equipment, net |
|
|
|
(61,456 |
) |
(2,085 |
) |
Results in operations with subsidiaries |
|
3.4 |
|
72,478 |
|
105,048 |
|
Allowance for doubtful accounts |
|
|
|
7,738 |
|
51,656 |
|
Provision for tax, labor and civil claims |
|
|
|
141,481 |
|
147,538 |
|
Reversal of contingent liabilities, net |
|
14 |
|
(929,711 |
) |
|
|
Interest income on trading securities |
|
|
|
(44,608 |
) |
(40,635 |
) |
Interest expense on loans |
|
21 |
|
703,772 |
|
771,580 |
|
Reversal of monetary update of contingent liabilities, net |
|
14 |
|
(369,819 |
) |
|
|
Interest on loans with related parties |
|
15 |
|
|
|
2,532 |
|
(Reversal) Provision for net realizable value adjustment in inventory, net |
|
6 |
|
(12,884 |
) |
(48,380 |
) |
|
|
|
|
1,951,543 |
|
2,167,259 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
Increase in trade accounts receivable |
|
|
|
(332,409 |
) |
(384,706 |
) |
(Increase) Decrease in inventories |
|
|
|
(768,705 |
) |
398,820 |
|
Increase in trade accounts payable |
|
|
|
314,644 |
|
176,439 |
|
Increase in other receivables |
|
|
|
(212,125 |
) |
(93,070 |
) |
Decrease in other payables |
|
|
|
(124,381 |
) |
(226,895 |
) |
Dividends from associates and jointly-controlled entities |
|
|
|
20,985 |
|
36,839 |
|
Purchases of trading securities |
|
|
|
(490,074 |
) |
(367,631 |
) |
Proceeds from maturities and sales of trading securities |
|
|
|
441,968 |
|
458,425 |
|
Cash provided by operating activities |
|
|
|
801,446 |
|
2,165,480 |
|
|
|
|
|
|
|
|
|
Interest paid on loans and financing |
|
|
|
(728,383 |
) |
(600,642 |
) |
Income and social contribution taxes paid |
|
|
|
(56,279 |
) |
(92,006 |
) |
Net cash provided by operating activities |
|
|
|
16,784 |
|
1,472,832 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
9 |
|
(431,850 |
) |
(811,496 |
) |
Proceeds from sales of property, plant and equipment, investments and other intangibles |
|
|
|
415,524 |
|
2,969 |
|
Additions to other intangibles |
|
|
|
(16,619 |
) |
(41,730 |
) |
Capital increase in jointly-controlled entity |
|
|
|
(178,670 |
) |
|
|
Net cash used in investing activities |
|
|
|
(211,615 |
) |
(850,257 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Dividends and interest on capital paid |
|
|
|
(2,282 |
) |
|
|
Proceeds from loans and financing |
|
|
|
349,584 |
|
1,032,953 |
|
Repayment of loans and financing |
|
|
|
(917,767 |
) |
(2,798,441 |
) |
Intercompany loans, net |
|
|
|
3,489 |
|
6,271 |
|
Net cash used in financing activities |
|
|
|
(566,976 |
) |
(1,759,217 |
) |
|
|
|
|
|
|
|
|
Exchange variation on cash and cash equivalents |
|
|
|
3,858 |
|
(702,014 |
) |
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
|
(757,949 |
) |
(1,838,656 |
) |
Cash and cash equivalents at beginning of period |
|
|
|
5,063,383 |
|
5,648,080 |
|
Cash and cash equivalents at end of period |
|
|
|
4,305,434 |
|
3,809,424 |
|
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 June 30, 2017
(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 Rio de Janeiro, 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 expands the product mix and make its operations even more competitive. 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 Board of Directors on August 8, 2017.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
2.1 - Basis of Presentation
The Companys Condensed Consolidated Interim Financial Statements for the three-month and six-month periods ended on June 30, 2017 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, 2016, 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 same accounting policies and methods of calculation were used in these Condensed Consolidated Interim Financial Statements as they were applied in the Consolidated Financial Statements as of December 31, 2016.
2.2 New IFRS and Interpretations of the IFRIC (International Financial Reporting Interpretations Committee)
The IASB releases of IFRS standards with effect for periods beginning in 2017 had no impact in the Companys Financial Statements. Some new IASB accounting procedures and IFRIC interpretations were issued and/or reviewed and have their mandatory adoption for the year 2018 and/or after. The Company is assessing the adoption impact of these standards in its Consolidated Financial Statements.
· IFRS 9 - Financial Instruments. Has the objective of replacing the standard IAS 39 and addresses some application questions and introduced a fair value through other comprehensive income measurement category for particular simple debt instruments, besides adding the impairment requirements relating to the accounting for an entitys expected credit losses on its financial assets, commitments to extend credit and hedge accounting. This standard is effective for annual reporting periods beginning on or after January 1, 2018. The Company believes that the new guidance of IFRS 9 will not bring a significant impact in its classification and measurement of financial assets and liabilities, as well as on the hedge operations.
· IFRS 15 - Revenue from Contracts with Customers and subsequently the issuance of document for clarification on this standard. The objective of IFRS 15 is to establish the principles of revenue recognition and disclosure of information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer, as well as the subsequent document issued, which clarifies on important matters of this standard. This standard is effective for years beginning on or after January 1, 2018. The Companys evaluation process of all the impacts of the new standard is ongoing and in a preliminary and non-conclusive stage. This preliminary assessment of the impacts on the measurement and timing for revenue recognition from contracts with our customers does not indicate significant changes or impacts in the Companys Financial Statements. The company is currently in the process of evaluating other aspects of the application of the standard to complete the analysis.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
· IFRS 16 - Lease. Establishes aspects of recognition, measurement and disclosure of leases. This standard is effective for fiscal years beginning on or after January 1, 2019. The Company is evaluating the impacts on its Financial Statements of the register of its operating leasing operations, however does not expect significant impacts in relation to total property, plant and equipment and existing debt.
· Amendments to IFRS 2 - Classification and Measurement of Share-based Payment Transactions. It addresses changes in some paragraphs to better clarify the application of the standard. This change in the standard is effective for years beginning on or after January 1, 2018.
· IFRIC 23 Uncertainty over Income Tax Treatments. Establishes aspects of recognition and measurement of the 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 is evaluating the impacts 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 June 30, 2017, when compared to those existing on December 31, 2016, except for the operation described in note 3.4.
3.2 - Jointly-Controlled Entities
The Company did not have material changes of interest in jointly controlled entities for the period ended on June 30, 2017, when compared to those existing on December 31, 2016, except for the operations of creation of the jointly controlled entities (i) Gerdau Summit Aços Fundidos e Forjados S.A., as described below and (ii) Diaco S.A. in Colombia, as described in note 3.4.
On January 5, 2017, Gerdau S.A. made a payment of capital to Gerdau Summit Aços Fundidos e Forjados S.A. through the contribution of some of its assets and liabilities, which were evaluated by a specialized independent valuation company. On January 31, 2017, the Extraordinary General Meeting of Gerdau Summit Aços Fundidos e Forjados S.A. was held, where Sumitomo Corporation and The Japan Steel Works, Ltd. subscribed capital stock in this company, and a joint control agreement was signed among the partners. Accordingly, Gerdau Summit Aços Fundidos e Forjados S.A. will have accounting treatment of a jointly controlled entity in the Financial Statements of Gerdau S.A., with a 58.73% interest and will not have a significant impact on the Companys total Assets.
3.3 Associate companies
The Company did not have material changes in interest in associate companies for the period ended on June 30, 2017, when compared to those existing on December 31, 2016.
3.4 Results in operations with subsidiaries
On June 30, 2017, the Company concluded the operation to create a jointly controlled entity, based on the sale of 50% interest in Diaco S.A., in Colombia, to Putney Capital Management, which is already partner in its operation in the Dominican Republic. The new companys assets are Gerdaus long-steel industrial units in Colombia, with an annual installed steel capacity of 674 thousand tons. The transaction attributed an economic value to the jointly controlled entity of US$ 165 million (equivalent to R$ 546 million on June 30, 2017). As a result of the transaction, the Company received US$ 44.7 million in cash (equivalent to R$ 145.1 million) and recognized an expense of R$ 72.5 million in the row Results in operations with subsidiaries of its Consolidated Statements of Income, mainly due to the fair value adjustment of the remaining interest in accordance with IFRS.
The transaction is aligned with the process to optimize Companys assets with focus on profitability and deleveraging and allowed the Company to reduce its indebtedness and working capital levels in the amounts of R$ 226 million and R$ 175 million, respectively.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
NOTE 4 CASH AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Cash and cash equivalents
|
|
June 30, 2017 |
|
December 31, 2016 |
|
Cash |
|
16,374 |
|
9,412 |
|
Banks and immediately available investments |
|
4,289,060 |
|
5,053,971 |
|
Cash and cash equivalents |
|
4,305,434 |
|
5,063,383 |
|
Short term investments
|
|
June 30, 2017 |
|
December 31, 2016 |
|
Held for trading |
|
1,124,769 |
|
1,024,411 |
|
Short-term investments |
|
1,124,769 |
|
1,024,411 |
|
Held for Trading
Held for trading securities include Bank Deposit Certificates and marketable securities investments, which are stated at their fair value. Income generated by these investments is recorded as financial income.
NOTE 5 ACCOUNTS RECEIVABLE
|
|
June 30, 2017 |
|
December 31, 2016 |
|
Trade accounts receivable - in Brazil |
|
1,335,902 |
|
1,251,739 |
|
Trade accounts receivable - exports from Brazil |
|
116,606 |
|
265,252 |
|
Trade accounts receivable - foreign subsidiaries |
|
2,637,300 |
|
2,259,014 |
|
(-) Allowance for doubtful accounts |
|
(169,400 |
) |
(199,306 |
) |
|
|
3,920,408 |
|
3,576,699 |
|
NOTE 6 - INVENTORIES
|
|
June 30, 2017 |
|
December 31, 2016 |
|
Finished products |
|
3,373,902 |
|
2,987,785 |
|
Work in progress |
|
1,367,944 |
|
1,201,327 |
|
Raw materials |
|
1,578,334 |
|
1,487,971 |
|
Storeroom supplies |
|
363,893 |
|
430,731 |
|
Imports in transit |
|
327,107 |
|
253,729 |
|
(-) Allowance for adjustments to net realizable value |
|
(15,958 |
) |
(28,813 |
) |
|
|
6,995,222 |
|
6,332,730 |
|
The allowance for adjustment to net realizable value of inventories, on which the provision and reversal of provision are registered with impact on cost of sales, is as follows:
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
Balance as of January 01, 2016 |
|
(101,121 |
) |
Provision for adjustments to net realizable value |
|
(62,899 |
) |
Reversal of adjustments to net realizable value |
|
94,391 |
|
Exchange rate variation |
|
10,711 |
|
Effect of selling of subsidiary |
|
30,105 |
|
Balance as of December 31, 2016 |
|
(28,813 |
) |
Provision for adjustments to net realizable value |
|
(15,359 |
) |
Reversal of adjustments to net realizable value |
|
28,243 |
|
Exchange rate variation |
|
(29 |
) |
Balance as of June 30, 2017 |
|
(15,958 |
) |
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 June 30, 2017 and 2016. The foreign subsidiaries of the Company are subject to taxation at rates ranging between 25.0% and 38.5%. 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 |
| ||
|
|
June 30, 2017 |
|
June 30, 2016 |
|
Income (Loss) before income taxes |
|
(24,867 |
) |
406,195 |
|
Statutory tax rates |
|
34 |
% |
34 |
% |
Income and social contribution taxes at statutory rates |
|
8,455 |
|
(138,106 |
) |
Tax adjustment with respect to: |
|
|
|
|
|
- Difference in tax rates in foreign companies |
|
81,026 |
|
(195,396 |
) |
- Equity in earnings of unconsolidated companies |
|
(826 |
) |
(37 |
) |
- Interest on equity * |
|
28 |
|
|
|
- Tax credits and incentives |
|
10,750 |
|
1,426 |
|
- Tax deductible goodwill recorded in statutory books |
|
|
|
9,117 |
|
- Other permanent differences, net |
|
1,951 |
|
(3,990 |
) |
Income and social contribution taxes |
|
101,384 |
|
(326,986 |
) |
Current |
|
(96,395 |
) |
(47,146 |
) |
Deferred |
|
197,779 |
|
(279,840 |
) |
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
|
|
For the six-month period ended |
| ||
|
|
June 30, 2017 |
|
June 30, 2016 |
|
Income before income taxes |
|
1,235,654 |
|
645,819 |
|
Statutory tax rates |
|
34 |
% |
34 |
% |
Income and social contribution taxes at statutory rates |
|
(420,122 |
) |
(219,578 |
) |
Tax adjustment with respect to: |
|
|
|
|
|
- Difference in tax rates in foreign companies |
|
54,673 |
|
(364,294 |
) |
- Equity in earnings of unconsolidated companies |
|
(1,101 |
) |
(2,615 |
) |
- Interest on equity * |
|
56 |
|
|
|
- Tax credits and incentives |
|
15,062 |
|
2,626 |
|
- Tax deductible goodwill recorded in statutory books |
|
|
|
36,469 |
|
- Other permanent differences, net |
|
15,839 |
|
(5,032 |
) |
Income and social contribution taxes |
|
(335,593 |
) |
(552,424 |
) |
Current |
|
(145,927 |
) |
(80,454 |
) |
Deferred |
|
(189,666 |
) |
(471,970 |
) |
(*) The Brazilian Law 9,249/95 provides that a company may, at its sole discretion, consider dividends distributions to shareholders to be considered as interest on own capital subject to specific limitations - which has the effect of a taxable deduction in the determination of income tax and social contribution. The limitation considers the greater of (i) shareholders equity multiplied by the TJLP (Long Term Interest Rate) rate or (ii) 50% of the net income in the fiscal year. This expense is not recognized for financial reporting purposes and thus it does not impact accounting profit.
b) Tax Assets not booked:
Due to the lack of expectation of usage, the Company has not recorded a portion of tax assets arising from its operations in Brazil of R$ 315,255 (R$ 317,889 as of December 31, 2016), and negative basis of social contribution in subsidiaries, which do not have an expiration date. The subsidiaries abroad had R$ 357,213 (R$ 349,072 as of December 31, 2016) of tax credits on capital losses 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$ 986,413 (R$ 857,215 as of December 31, 2016), which expire at various dates between 2017 and 2037.
NOTE 8 INVESTMENTS
|
|
Jointly controlled entities |
|
Associate companies |
|
|
| ||||||||||||||
|
|
Joint Ventures |
|
Gerdau Corsa |
|
Gerdau |
|
Gerdau |
|
Diaco S.A. |
|
Dona Francisca |
|
Corsa |
|
Corporación |
|
Others |
|
Total |
|
Balance as of January 01, 2016 |
|
60,733 |
|
88,785 |
|
575,845 |
|
|
|
|
|
89,595 |
|
359,568 |
|
216,272 |
|
2,084 |
|
1,392,882 |
|
Equity in earnings |
|
13,533 |
|
(96,306 |
) |
16,362 |
|
|
|
|
|
17,780 |
|
12,155 |
|
23,705 |
|
|
|
(12,771 |
) |
Cumulative Translation Adjustment |
|
(9,492 |
) |
(11,748 |
) |
(88,051 |
) |
|
|
|
|
|
|
(105,420 |
) |
(36,134 |
) |
(350 |
) |
(251,195 |
) |
Effect of selling of subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(203,843 |
) |
(1,734 |
) |
(205,577 |
) |
Dividends/Interest on equity |
|
(8,282 |
) |
|
|
(99,634 |
) |
|
|
|
|
(16,579 |
) |
|
|
|
|
|
|
(124,495 |
) |
Balance as of December 31, 2016 |
|
56,492 |
|
(19,269 |
) |
404,522 |
|
|
|
|
|
90,796 |
|
266,303 |
|
|
|
|
|
798,844 |
|
Equity in earnings |
|
3,337 |
|
(41,996 |
) |
18,821 |
|
6,187 |
|
(1,302 |
) |
9,619 |
|
2,095 |
|
|
|
|
|
(3,239 |
) |
Cumulative Translation Adjustment |
|
2,385 |
|
8,922 |
|
10,370 |
|
|
|
(3,854 |
) |
|
|
42,626 |
|
|
|
|
|
60,449 |
|
Capital increase |
|
|
|
178,670 |
|
|
|
184,187 |
|
|
|
|
|
|
|
|
|
|
|
362,857 |
|
Creation of jointly controlled entity |
|
|
|
|
|
|
|
|
|
145,084 |
|
|
|
|
|
|
|
|
|
145,084 |
|
Dividends/Interest on equity |
|
(6,828 |
) |
|
|
|
|
|
|
|
|
(14,157 |
) |
|
|
|
|
|
|
(20,985 |
) |
Balance as of June 30, 2017 |
|
55,386 |
|
126,327 |
|
433,713 |
|
190,374 |
|
139,928 |
|
86,258 |
|
311,024 |
|
|
|
|
|
1,343,010 |
|
NOTE 9 PROPERTY, PLANT AND EQUIPMENT
a) Summary of changes in property, plant and equipment during the three-month period ended on June 30, 2017, acquisitions amounted to R$ 195,252 (R$ 326,184 as of June 30 2016), and disposals amounted to R$ 95,290 (R$ 309 as of June 30, 2016). During the six-month period ended on June 30, 2017, acquisitions amounted to R$ 431,850 (R$ 811.496 as of June 30 2016), and disposals amounted to R$ 272,161 (R$ 904 as of June 30, 2016). As described in note 3.4, the Company has no longer consolidated amounts, regarding its former subsidiary in Colombia, in the total amount of R$ 424,989.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
b) Capitalized borrowing costs borrowing costs capitalized during the three-month period ended on June 30, 2017 amounted to R$ 12,873 (R$ 62,629 as of June 30, 2016). Borrowing costs capitalized during the six-month period ended on June 30, 2017 amounted to R$ 27,867 (R$ 126.534 as of June 30, 2016).
c) Guarantees property, plant and equipment have been pledged as collateral for loans and financing in the amount of R$ 640,241 as of June 30, 2017 (R$ 632,376 as of December 31, 2016).
NOTE 10 GOODWILL
The changes in goodwill are as follows:
|
|
Goodwill |
|
Accumulated |
|
Goodwill after |
|
Balance as of January 1, 2016 |
|
18,099,186 |
|
(2,974,756 |
) |
15,124,430 |
|
(+/-) Foreign exchange effect |
|
(2,645,368 |
) |
63,516 |
|
(2,581,852 |
) |
(-) Impairment (note 23) |
|
|
|
(2,678,582 |
) |
(2,678,582 |
) |
(-) Effect of selling of subsidiary |
|
(393,980 |
) |
|
|
(393,980 |
) |
Balance as of December 31, 2016 |
|
15,059,838 |
|
(5,589,822 |
) |
9,470,016 |
|
(+/-) Foreign exchange effect |
|
273,270 |
|
(156,686 |
) |
116,584 |
|
Balance as of June 30, 2017 |
|
15,333,108 |
|
(5,746,508 |
) |
9,586,600 |
|
The amounts of goodwill by segment are as follows:
|
|
June 30, 2017 |
|
December 31, 2016 |
|
|
|
Brazil |
|
380,644 |
|
380,644 |
|
|
|
Special Steels |
|
2,522,462 |
|
2,508,056 |
|
|
|
North America |
|
6,683,494 |
|
6,581,316 |
|
|
|
|
|
9,586,600 |
|
9,470,016 |
|
|
|
NOTE 11 LOANS AND FINANCING
Loans and financing are as follows:
|
|
Annual interest rate (*) |
|
June 30, 2017 |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
Working capital |
|
9.13 |
% |
3,020,284 |
|
3,468,490 |
|
Financing of property, plant and equipment and others |
|
8.23 |
% |
2,554,150 |
|
2,855,860 |
|
Ten/Thirty Years Bonds |
|
6.24 |
% |
14,258,050 |
|
14,093,460 |
|
Total financing |
|
|
|
19,832,484 |
|
20,417,810 |
|
Current |
|
|
|
4,186,259 |
|
4,458,220 |
|
Non-current |
|
|
|
15,646,225 |
|
15,959,590 |
|
|
|
|
|
|
|
|
|
Principal amount of the financing |
|
|
|
19,498,064 |
|
20,049,854 |
|
Interest amount of the financing |
|
|
|
334,420 |
|
367,956 |
|
Total financing |
|
|
|
19,832,484 |
|
20,417,810 |
|
(*) Weighted average effective interest costs on June 30, 2017.
Loans and financing denominated in Brazilian Reais are indexed at fixed rates or to the following indicators: the TJLP (long-term interest rate), CDI (Interbank Deposit Certificate), the IGP-M (general market price index, a Brazilian inflation rate measured by Fundação Getúlio Vargas) and IPCA (Extended National Consumer Price Index).
Summary of loans and financing by currency:
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
|
|
June 30, 2017 |
|
December 31, 2016 |
|
Brazilian Real (R$) |
|
2,985,728 |
|
3,228,759 |
|
U.S. Dollar (US$) |
|
16,250,117 |
|
16,487,116 |
|
Other currencies |
|
596,639 |
|
701,935 |
|
|
|
19,832,484 |
|
20,417,810 |
|
The amortization schedules of long-term loans and financing are as follows:
|
|
June 30, 2017 |
|
December 31, 2016 |
|
2018(*) |
|
1,188,730 |
|
1,679,416 |
|
2019 |
|
892,431 |
|
875,319 |
|
2020 |
|
3,294,983 |
|
3,261,435 |
|
2021 |
|
3,555,930 |
|
3,500,937 |
|
2022 |
|
147,072 |
|
150,916 |
|
2023 on |
|
6,567,079 |
|
6,491,567 |
|
|
|
15,646,225 |
|
15,959,590 |
|
(*) For the period as of June 30, 2017, the amounts represents payments from July 01, 2018 to December 31, 2018.
a) Monitoring indexes
Only operations with BNDES include the Companys contract established debt ratios. In the event of a possible breach of the indicator at the annual measurement, the Company enters into a curing period and a subsequent warranties renegotiation, not characterizing the possibility of a default event.
b) Guarantees
All loans contracted under the FINAME/BNDES program, totaling R$ 119.2 million on June 30, 2017, are guaranteed by the assets being financed.
c) Credit Lines
In June 2009, the subsidiaries of the Company, Gerdau Açominas S.A., Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A. and the former subsidiary Aços Villares S.A., obtained a pre-approved credit line with BNDES in the total amount of R$ 1.5 billion to be used for the revamp and modernization of several areas, an increase in the production capacity of certain product lines, investment in logistics and energy generation, and also environmental and sustainability projects. The funds are made available at the time each subsidiary starts its specific investment and presents to BNDES the evidence of the investment made. The interest rate for this credit line is determined at the time of each disbursement, and is composed by indexes linked to of TJLP + 2.16% p.a. As of June 30, 2017, the outstanding balance of this credit facility was R$ 561.7 million.
In November 2015, the Company concluded the renewal and increase of the volume of the Senior Unsecured Global Working Capital Credit Agreement, which is a US$ 1 billion revolving credit line with the purpose of providing liquidity to its subsidiaries. The line is divided into two tranches, US$ 250 million destined for Gerdaus North American subsidiaries borrowing needs and US$ 750 million for Gerdaus Latin American subsidiaries borrowing needs. The total term of the transaction is 3 years and the following companies guarantee this agreement: Gerdau S.A., Gerdau Açominas S.A., Gerdau Aços Longos S.A. and Gerdau Aços Especiais S.A. As of June 30, 2017, the outstanding balance of this credit line was US$ 47 million (R$ 155.5 million as of June 30, 2017).
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
NOTE 12 DEBENTURES
|
|
|
|
Quantity as of June 30, 2017 |
|
|
|
|
|
|
| ||
Issuance |
|
General Meeting |
|
Issued |
|
Held in treasury |
|
Maturity |
|
June 30, 2017 |
|
December 31, 2016 |
|
3rd- A and B |
|
May 27,1982 |
|
144,000 |
|
137,174 |
|
06/01/2021 |
|
41,111 |
|
44,292 |
|
7th |
|
July 14, 1982 |
|
68,400 |
|
66,122 |
|
07/01/2022 |
|
17,895 |
|
35,942 |
|
8th |
|
November 11, 1982 |
|
179,964 |
|
170,631 |
|
05/02/2023 |
|
47,901 |
|
57,191 |
|
9th |
|
June 10, 1983 |
|
125,640 |
|
124,358 |
|
09/01/2024 |
|
10,070 |
|
10,731 |
|
11th - A and B |
|
June 29, 1990 |
|
150,000 |
|
148,010 |
|
06/01/2020 |
|
14,820 |
|
17,267 |
|
Total Consolidated |
|
|
|
|
|
|
|
|
|
131,797 |
|
165,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current |
|
|
|
|
|
|
|
|
|
131,797 |
|
165,423 |
|
Maturities of long-term amounts are as follows:
|
|
June 30, 2017 |
|
December 31, 2016 |
|
2020 |
|
14,820 |
|
17,267 |
|
2021 |
|
41,111 |
|
44,292 |
|
2022 |
|
17,895 |
|
35,942 |
|
2023 on |
|
57,971 |
|
67,922 |
|
|
|
131,797 |
|
165,423 |
|
The debentures are denominated in Brazilian Reais, are nonconvertible, and pay variable interest as a percentage of the CDI Interbank Deposit Certificate. The average notional interest rate was 12.85% and 14.00% for the six-month period ended on June 30, 2017 and year ended on December 31, 2016, respectively.
The Company has guarantees provided by the parent entity for debentures of the 7ª, 8ª, 9ª and 11ª issuances.
NOTE 13 - FINANCIAL INSTRUMENTS
a) General considerations - Gerdau S.A. and its subsidiaries enter into transactions with financial instruments whose risks are managed by means of strategies and exposure limit controls. All financial instruments are recorded in the accounting books and presented as cash and cash equivalents, short-term investments, trade accounts receivable, trade accounts payable, Loans and financing, debentures, related-party transactions, unrealized gains on derivatives, unrealized losses on derivatives, other current assets, other non-current assets, FIDC Obligation, 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 non-speculative in nature and are intended to protect the company against exchange rate fluctuations on foreign currency loans and against interest rate fluctuations.
b) Market value the market value of the aforementioned financial instruments is as follows:
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
|
|
June 30, 2017 |
|
December 31, 2016 |
| ||||
|
|
Book |
|
Fair |
|
Book |
|
Fair |
|
|
|
value |
|
value |
|
value |
|
value |
|
Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
4,305,434 |
|
4,305,434 |
|
5,063,383 |
|
5,063,383 |
|
Short-term investments |
|
1,124,769 |
|
1,124,769 |
|
1,024,411 |
|
1,024,411 |
|
Trade accounts receivable |
|
3,920,408 |
|
3,920,408 |
|
3,576,699 |
|
3,576,699 |
|
Related parties |
|
54,052 |
|
54,052 |
|
57,541 |
|
57,541 |
|
Unrealized gains on derivatives |
|
4,050 |
|
4,050 |
|
12,951 |
|
12,951 |
|
Judicial Deposits |
|
1,985,057 |
|
1,985,057 |
|
1,861,784 |
|
1,861,784 |
|
Other current assets |
|
674,381 |
|
674,381 |
|
668,895 |
|
668,895 |
|
Other non-current assets |
|
528,056 |
|
528,056 |
|
447,260 |
|
447,260 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
3,062,395 |
|
3,062,395 |
|
2,743,818 |
|
2,743,818 |
|
Loans and Financing |
|
19,832,484 |
|
20,269,664 |
|
20,417,810 |
|
20,716,266 |
|
Debentures |
|
131,797 |
|
131,797 |
|
165,423 |
|
165,423 |
|
Unrealized losses on derivatives |
|
|
|
|
|
6,584 |
|
6,584 |
|
Obligations with FIDC |
|
1,076,751 |
|
1,076,751 |
|
1,007,259 |
|
1,007,259 |
|
Other current liabilities |
|
608,645 |
|
608,645 |
|
514,599 |
|
514,599 |
|
Other non-current liabilities |
|
471,717 |
|
471,717 |
|
401,582 |
|
401,582 |
|
The fair values of Loans and Financing 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.
c) Risk factors that could affect the Companys 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.
Interest rate risk: this risk arises from the effects of the fluctuations in interest rates applied to the Companys 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 Libor 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 and 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 believes 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 employ derivative financial instruments in order to mitigate the effect of exchange rate fluctuations.
Credit risk: this risk arises from the possibility of the subsidiaries not receiving amounts arising from sales to customers or investments made with financial institutions. In order to minimize this risk, the subsidiaries adopt the procedure of analyzing in details the financial position of their customers, establishing a credit limit and constantly monitoring their balances. Regarding cash investments, the Company invests solely in financial institutions with low credit risk, as assessed by rating agencies. In addition, each financial institution has a maximum limit for investment, determined by the Companys Credit Committee.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
Capital management risk: this risk comes from the Companys 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 KPIs (Key Performance Indicators) related to the objective Capital Structure Management are: WACC (Weighted Average Cost of Capital), Net Debt/ EBITDA, Net Financial Expenses Coverage Ratio, and Indebtedness/Equity Ratio. The Net Debt is composed of the outstanding principal of the debt, less cash, cash equivalents and short-term investments (notes 4, 11 and 12). The total capitalization is formed by Total Debt (composed by the outstanding principal of the debt) and Equity (note 17). The Company may change its capital structure, as economic and financial conditions to optimize its financial leverage and its debt management. At the same time, the Company seeks to improve its ROCE (Return on Capital Employed) by implementing a working capital management and an efficient program of capital expenditures. In the long-term, the Company seeks to remain between the parameters below, admitting specific short-term variations:
WACC |
|
between 10% to 13% a year |
Net debt/EBITDA |
|
less or equal to 2.5 times |
Net Financial Expenses Coverage Ratio |
|
greater or equal to 5.5 times |
Debt/Equity Ratio |
|
less than or equal to 60% |
These key indicators are used to monitor objectives described above and may not necessarily be used as indicators for other purposes, such as impairment tests.
Liquidity risk: the Companys 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, financing, and debentures are presented in Notes 11 and 12, respectively.
Sensitivity analysis:
The Company performed a sensitivity analysis, which can be summarized as follows:
Impacts on Statements of Income
Assumptions |
|
Percentage of change |
|
June 30, 2017 |
|
June 30, 2016 |
|
Foreign currency sensitivity analysis |
|
5 |
% |
197,991 |
|
247,783 |
|
Interest rate changes sensitivity analysis |
|
10bps |
|
59,064 |
|
71,602 |
|
Sensitivity analysis of changes in prices of products sold |
|
1 |
% |
176,245 |
|
203,333 |
|
Sensitivity analysis of changes in raw material and commodity prices |
|
1 |
% |
111,068 |
|
123,868 |
|
Interest rate and Foreign currency Swaps |
|
10bps/5 |
% |
10,391 |
|
9,697 |
|
Sensitivity analysis of NDFs (Non Deliverable Forwards) |
|
5 |
% |
1,335 |
|
16,352 |
|
Foreign currency sensitivity analysis: As of June 30, 2017, the Company is mainly exposed to variations between the Brazilian real and US Dollar. The sensitivity analysis made by the Company considers the effects of an increase or a reduction of 5% between the Brazilian real and the US Dollar on debts that do not have hedge operations. The impact calculated considering such variation in the foreign exchange rate totals R$ 197,991 and R$ 108,975 after the effects of changes in the net investment hedge described in note 13.f, as of June 30, 2017 (R$ 247.783 and R$ 179.426 as of June 30, 2016, respectively) and represents income if appreciation of the Brazilian real against the US Dollar occurs or an expense in the case of a depreciation of the Brazilian real against the US Dollar, however due to the investment hedge these effects would be mitigated when considered the income tax and exchange rate variance accounts.
The net amounts of trade accounts receivable and trade accounts payable denominated in foreign currency do not represent any relevant risk in the case of any fluctuation of exchange rates.
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$ 59,064 as of June 30, 2017 (R$ 71.602 as of June 30, 2016) and would impact the Financial expenses account in the Consolidated Statements of Income. The specific interest
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
rates to which the Company is exposed are related to the loans, financing, and debentures presented in Notes 11 and 12, and are mainly comprised by Libor and CDI Interbank Deposit Certificate.
Sensitivity analysis of changes in sales price of products and price of raw materials and other inputs used in production: the Company is exposed to changes in the price of its products. This exposure is associated with the fluctuation of the sale price of the Companys products and the price of raw materials and other inputs used in the production process, mainly for operating in a commodity market. The sensitivity analysis made by the Company considers the effects of an increase or of a reduction of 1% on both prices. The impact measured considering this variation in the price of products sold, considering the net income and costs of the six month period ended on June 30, 2017, totals R$ 176,245 (R$ 203,333 as of June 30, 2016) and the variation in the price of raw materials and other inputs totals R$ 111,068 as of June 30, 2017 (R$ 123,868 as of June 30, 2016). 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 interest rate and foreign currency swaps: the Company has exposure to interest rate swaps for some of its loans and financing. The sensitivity analysis calculated by the Company considers the effects of either an increase or a decrease of 10 bps in the interest curve and of 5% in the interest rate, and its impacts in the swaps mark to market. These variations represent an income or expense of R$ 10,391 (R$ 9,697 as of June 30, 2016). These effects would be registered in the statement of comprehensive income. The interest rate swaps to which the Company is exposed to are presented in note 13.e.
Sensitivity analysis of forward contracts in US Dollar: the Company has exposure in forward contracts in US Dollar to some of its assets and liabilities. The sensitivity analysis calculated by the Company considers an effect of a 5% US Dollar depreciation or appreciation against the Indian Rupee and corresponds to the effects on the mark to market of such transactions. An increase of 5% on the US Dollar against the Indian Rupee represents a gain of R$ 1,335 as of June 30, 2017 (R$ 16,352 as of June 30, 2016, considering that in this amount there were Dollar/Colombian Pesos forward contracts) and a decrease of 5% on the US Dollar against the Indian Rupee represents a loss in the same amount presented above. The Dollar/Indian Rupee forward contracts were entered into to hedge liabilities (debt) and these effects in the mark to market would be recognized in the Consolidated Statement of Income. The forward contracts in US Dollar, in which the Company is exposed, are presented in note 13.e.
d) Financial Instruments per Category
Summary of the financial instruments per category:
June 30, 2017 |
|
Loans and receivables |
|
Assets at fair value |
|
Assets at fair value with |
|
Total |
|
Cash and cash equivalents |
|
4,305,434 |
|
|
|
|
|
4,305,434 |
|
Short-term investments |
|
|
|
1,124,769 |
|
|
|
1,124,769 |
|
Unrealized gains on financial instruments |
|
|
|
|
|
4,050 |
|
4,050 |
|
Trade accounts receivable |
|
3,920,408 |
|
|
|
|
|
3,920,408 |
|
Related parties |
|
54,052 |
|
|
|
|
|
54,052 |
|
Judicial Deposits |
|
1,985,057 |
|
|
|
|
|
1,985,057 |
|
Other current assets |
|
674,381 |
|
|
|
|
|
674,381 |
|
Other non-current assets |
|
438,692 |
|
89,364 |
|
|
|
528,056 |
|
Total |
|
11,378,024 |
|
1,214,133 |
|
4,050 |
|
12,596,207 |
|
Financial result for the three-month period ended on Jun 30, 2017 |
|
109,471 |
|
18,797 |
|
|
|
128,268 |
|
Financial result for the six-month period ended on Jun 30, 2017 |
|
124,170 |
|
51,750 |
|
|
|
175,920 |
|
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
Liabilities |
|
Liabilities at fair value |
|
Other financial liabilities at |
|
Total |
|
Trade accounts payable |
|
|
|
3,062,395 |
|
3,062,395 |
|
Loans and Financing |
|
|
|
19,832,484 |
|
19,832,484 |
|
Debentures |
|
|
|
131,797 |
|
131,797 |
|
FIDC Obligation |
|
|
|
1,076,751 |
|
1,076,751 |
|
Other current liabilities |
|
|
|
608,645 |
|
608,645 |
|
Other non-current liabilities |
|
|
|
471,717 |
|
471,717 |
|
Total |
|
|
|
25,183,789 |
|
25,183,789 |
|
Financial result for the three-month period ended on June 30, 2017 |
|
713 |
|
(633,938 |
) |
(633,225 |
) |
Financial result for the six-month period ended on June 30, 2017 |
|
(11,145 |
) |
(616,016 |
) |
(627,161 |
) |
December 31, 2016 |
|
Loans and receivables |
|
Assets at fair value |
|
Assets at fair value with |
|
Total |
|
Cash and cash equivalents |
|
5,063,383 |
|
|
|
|
|
5,063,383 |
|
Short-term investments |
|
|
|
1,024,411 |
|
|
|
1,024,411 |
|
Unrealized gains on financial instruments |
|
|
|
|
|
12,951 |
|
12,951 |
|
Trade accounts receivable |
|
3,576,699 |
|
|
|
|
|
3,576,699 |
|
Related parties |
|
57,541 |
|
|
|
|
|
57,541 |
|
Judicial Deposits |
|
1,861,784 |
|
|
|
|
|
1,861,784 |
|
Other current assets |
|
668,895 |
|
|
|
|
|
668,895 |
|
Other non-current assets |
|
380,211 |
|
67,049 |
|
|
|
447,260 |
|
Total |
|
11,608,513 |
|
1,091,460 |
|
12,951 |
|
12,712,924 |
|
Financial result for the three-month period ended on June 30, 2016 |
|
(35,751 |
) |
53,606 |
|
|
|
17,855 |
|
Financial result for the six-month period ended on June 30, 2016 |
|
(72,643 |
) |
208,757 |
|
|
|
136,114 |
|
Liabilities |
|
Liabilities at market |
|
Other financial liabilities at |
|
Total |
|
Trade accounts payable |
|
|
|
2,743,818 |
|
2,743,818 |
|
Loans and Financing |
|
|
|
20,417,810 |
|
20,417,810 |
|
Debentures |
|
|
|
165,423 |
|
165,423 |
|
FIDC Obligation |
|
|
|
1,007,259 |
|
1,007,259 |
|
Other current liabilities |
|
|
|
514,599 |
|
514,599 |
|
Other non-current liabilities |
|
|
|
401,582 |
|
401,582 |
|
Unrealized losses on financial instruments |
|
6,584 |
|
|
|
6,584 |
|
Total |
|
6,584 |
|
25,250,491 |
|
25,257,075 |
|
Financial result for the three-month period ended on June 30, 2016 |
|
(14,919 |
) |
(25,627 |
) |
(40,546 |
) |
Financial result for the six-month period ended on June 30, 2016 |
|
(45,467 |
) |
(74,741 |
) |
(120,208 |
) |
As of June 30, 2017, the Company has derivative financial instruments such as currency swaps and forward contracts in US Dollar. Part of these instruments are classified as cash flow hedges and their effectiveness can be measured, having their unrealized losses and /or gains classified directly in Other Comprehensive Income. The other derivative financial instruments have their realized and unrealized losses and/or gains presented in the account Gains and losses on derivatives, net in the Consolidated Statement of Income.
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 Cash Management and Debt Committee, which validates the mark to market of these transactions. All derivative financial instruments gains and losses are recognized at fair value in the Consolidated Financial Statements of the Company.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
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 results. 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.
The derivative transactions may include: interest rate swaps, (both in the Libor dollar, as in other currencies), currency swaps and currency forward contracts.
Forward Contracts in US Dollar
The Company has entered into NDFs (Non Deliverable Forward) in order to mitigate the exchange variance risk on liabilities denominated in foreign currencies, mainly US dollar. The counterparties of these transactions are financial institutions with a low credit risk.
Swap Contracts
The Company entered into cross currency swap, designated as a cash flow hedge, contract whereby it receives a variable interest rate based on LIBOR in US dollars and pays a fixed interest rate based in the local currency. The counterparties to these transactions are financial institutions with low credit risk.
The derivatives instruments can be summarized and categorized as follows:
|
|
|
|
|
|
Notional value |
|
Amount receivable |
|
Amount payable |
| ||||||
Contracts |
|
Position |
|
June 30, 2017 |
|
December 31, 2016 |
|
June 30, 2017 |
|
December 31, 2016 |
|
June 30, 2017 |
|
December 31, 2016 |
| ||
Forward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity at 2017 |
|
|
|
long in US$ |
|
US$8.2 million |
|
US$84.8 million |
|
454 |
|
734 |
|
|
|
(6,584 |
) |
Maturity at 2017 |
|
|
|
short in US$ |
|
|
|
US$15.0 million |
|
|
|
1,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity in 2017 |
|
receivable under the swap payable under the swap |
|
Libor 6M + 2.25% INR 11.02% |
|
US$25.0 million |
|
US$25.0 million |
|
1,172 |
|
5,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity in 2018 |
|
receivable under the swap payable under the swap |
|
Libor 6M +2% INR 10.17% |
|
US$40.0 million |
|
US$40.0 million |
|
2,424 |
|
4,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of financial instruments |
|
|
|
|
|
|
|
|
|
4,050 |
|
12,951 |
|
|
|
(6,584 |
) |
Prospective and retrospective tests demonstrated the effectiveness of the instruments qualified as cash flow hedge.
|
|
June 30, 2017 |
|
December 31, 2016 |
|
Unrealized gains on financial instruments |
|
|
|
|
|
Current assets |
|
|
|
2,557 |
|
Non-current assets |
|
4,050 |
|
10,394 |
|
|
|
4,050 |
|
12,951 |
|
Unrealized losses on financial instruments |
|
|
|
|
|
Current liabilities |
|
|
|
(6,584 |
) |
|
|
|
|
(6,584 |
) |
|
|
June 30, 2017 |
|
June 30, 2016 |
|
Net Income |
|
|
|
|
|
Gains on financial instruments |
|
9,093 |
|
13,320 |
|
Losses on financial instruments |
|
(17,699 |
) |
(51,540 |
) |
|
|
(8,606 |
) |
(38,220 |
) |
Other comprehensive income |
|
|
|
|
|
Losses on financial instruments |
|
(6,578 |
) |
(45 |
) |
|
|
(6,578 |
) |
(45 |
) |
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
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 has been recognized in the Statement of Comprehensive Income.
The exchange variation generated on the operations of Ten/Thirty Years Bonds in the amount of US$ 2.5 billion (designated as hedges) is recognized in the Statement of Comprehensive Income, while the exchange rate on the portion of US$ 0.8 billion (not designated as hedges) is recognized in income. Additionally, the Company opted to designate as hedge of the net investment financing operations held by the subsidiary Gerdau Açominas SA, in the amount of US$ 0.1 billion, which were made in order to provide part of the funds to purchase these investments abroad.
The Company has proven the effectiveness of the hedge from its designation dates and demonstrated high effectiveness of the hedge as from the debt hiring for 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 of R$ 355,743 and R$ 141,229 for the three-month and six-month periods ended on June 30, 2017 (gain of R$ 880,845 and R$ 1,800,061 for the three and six month period ended on June 30, 2016).
The objective of the hedge is to protect, during the existence of the debt, the amount of part of the Companys investment in the subsidiaries mentioned above against positive and negative oscillations in the exchange rate. This objective is consistent with the Companys risk management strategy. Prospective and retrospective tests demonstrated the effectiveness of these instruments.
g) Measurement of fair value:
The IFRS defines fair value as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms 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 June 30, 2017, the Company had some assets that the fair value measurement is required on a recurring basis. These assets include investments in private securities and derivative instruments.
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 June 30, 2017 and December 31, 2016, are as follows:
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
|
|
Fair Value Measurements at Reporting Date Using |
| ||||||||||
|
|
|
|
|
|
Quoted Prices Active Markets for Identical |
|
Quoted Prices in Non-Active Markets for |
| ||||
|
|
June 30, 2017 |
|
December 31, 2016 |
|
June 30, 2017 |
|
December 31, 2016 |
|
June 30, 2017 |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
4,305,434 |
|
5,063,383 |
|
|
|
|
|
4,305,434 |
|
5,063,383 |
|
Short-term investments - Held for Trading |
|
1,124,769 |
|
1,024,411 |
|
252,669 |
|
458,639 |
|
872,100 |
|
565,772 |
|
Trade accounts receivable |
|
3,920,408 |
|
3,576,699 |
|
|
|
|
|
3,920,408 |
|
3,576,699 |
|
Unrealized gains on financial instruments |
|
|
|
2,557 |
|
|
|
|
|
|
|
2,557 |
|
Other current assets |
|
674,381 |
|
668,895 |
|
|
|
|
|
674,381 |
|
668,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties |
|
54,052 |
|
57,541 |
|
|
|
|
|
54,052 |
|
57,541 |
|
Unrealized gains on financial instruments |
|
4,050 |
|
10,394 |
|
|
|
|
|
4,050 |
|
10,394 |
|
Judicial deposits |
|
1,985,057 |
|
1,861,784 |
|
|
|
|
|
1,985,057 |
|
1,861,784 |
|
Other non-current assets |
|
528,056 |
|
447,260 |
|
|
|
|
|
528,056 |
|
447,260 |
|
|
|
12,596,207 |
|
12,712,924 |
|
252,669 |
|
458,639 |
|
12,343,538 |
|
12,254,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
3,062,395 |
|
2,743,818 |
|
|
|
|
|
3,062,395 |
|
2,743,818 |
|
Short-term debt |
|
4,186,259 |
|
4,458,220 |
|
|
|
|
|
4,186,259 |
|
4,458,220 |
|
Unrealized losses on financial instruments |
|
|
|
6,584 |
|
|
|
|
|
|
|
6,584 |
|
Other current liabilities |
|
608,645 |
|
514,599 |
|
|
|
|
|
608,645 |
|
514,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
15,646,225 |
|
15,959,590 |
|
|
|
|
|
15,646,225 |
|
15,959,590 |
|
Debentures |
|
131,797 |
|
165,423 |
|
|
|
|
|
131,797 |
|
165,423 |
|
FIDC Obligation |
|
1,076,751 |
|
1,007,259 |
|
|
|
|
|
1,076,751 |
|
1,007,259 |
|
Other non-current liabilities |
|
471,717 |
|
401,582 |
|
|
|
|
|
471,717 |
|
401,582 |
|
|
|
25,183,789 |
|
25,257,075 |
|
|
|
|
|
25,183,789 |
|
25,257,075 |
|
h) Changes in liabilities from Cash flow from financing activities:
As required by IAS 7, the Company demonstrates below the changes in the liabilities of Cash Flow from financing activities, of the Statement of Cash Flows:
|
|
|
|
Cash effects |
|
Non-cash effects |
|
|
| ||||
|
|
December |
|
Received/(Paid) |
|
Interest Payment |
|
Interest on loans, |
|
Exchange |
|
June 30, 2017 |
|
Related Parties, net |
|
(57,541 |
) |
3,489 |
|
|
|
|
|
|
|
(54,052 |
) |
Loans and Financing, Debentures and Unrealized Gains and Losses on financial instruments |
|
20,576,866 |
|
(568,183 |
) |
(728,383 |
) |
703,772 |
|
(23,841 |
) |
19,960,231 |
|
|
|
|
|
Cash effects |
|
Non-cash effects |
|
|
| ||||
|
|
December |
|
Received/(Paid) |
|
Interest Payment |
|
Interest on loans, |
|
Exchange |
|
June 30, 2016 |
|
Related Parties, net |
|
(53,506 |
) |
6,271 |
|
|
|
2,532 |
|
(16,011 |
) |
(60,714 |
) |
Loans and Financing, Debentures and Unrealized Gains and Losses on financial instruments |
|
26,417,256 |
|
(1,765,488 |
) |
(600,642 |
) |
771,580 |
|
(4,146,324 |
) |
20,676,382 |
|
NOTE 14 PROVISIONS FOR TAX, CIVIL AND LABOR CLAIMS
The Company and its subsidiaries are party in judicial and administrative proceedings involving labor, civil and tax matters. Based on the opinion of its legal counsel, 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 and operational results of the Company and its subsidiaries.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
For claims whose expected loss is considered more likely than not, the provisions have been recorded considering the judgment of the Companys legal advisors and of Management and the provisions are considered sufficient to cover more likely than not expected losses. The balances of the provisions are as follows:
I) Provisions
|
|
June 30, 2017 |
|
December 31, 2016 |
|
a) Tax provisions |
|
493,631 |
|
1,829,771 |
|
b) Labor provisions |
|
539,711 |
|
358,901 |
|
c) Civil provisions |
|
46,552 |
|
50,554 |
|
|
|
1,079,894 |
|
2,239,226 |
|
As the net result of the reversal of the accounting provision described below (tax provisions), related to the discussion of the exclusion of the ICMS (Imposto sobre a circulação de Mercadorias e Serviços ICMS State VAT) from the tax base for contributions to PIS (Contribuição ao Programa de Integração Social- PIS) and COFINS (Contribuição para o Financiamento da Seguridade Social - COFINS), and the recognition of other accounting provisions for the six-month period ended on June 30, 2017, the Company recorded the amounts of R$ 929,711 on the item Reversal of contingent liabilities, net (Operating Result), and R$ 369,819, on the item Reversal of monetary update of contingent liabilities, net (Financial Income), in its Consolidated Statements of Income.
a) Tax Provisions
The Company and its subsidiaries are parties to lawsuits related to the exclusion of the ICMS from the tax base for contributions to PIS and COFINS, with respect to which the Company made judicial deposits and accounting provisions, which in turn were updated in accordance with the SELIC rate. The balances recorded as of December 31, 2016 refer to the unpaid amounts of PIS and COFINS since 2009, the collection of which was fully suspended, due to these judicial deposits.
Recently, 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 of the judicial proceedings in progress, due to its general repercussion. However, it is expected that, once this decision is published, the National Treasury Attorney will ask the STF to modulate this decision prospectively, which could limit the production of its effects for taxpayers.
Pursuant to paragraph 14 of IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, a provision is recognized only when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, among other requirements. On March 31, 2017 the Company, based on (i) the conclusion of this judgment by the STF (sitting en banc) in Extraordinary Appeal No. 574,706/RG with general repercussion, which ruled that the inclusion of the ICMS in the PIS and COFINS calculation tax base was unconstitutional, and (ii) the accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS), reversed the aforementioned accounting provision. The Companys decision is supported by the position of its legal advisors who, when reassessing the likelihood of loss in the ongoing lawsuits related to the matter, concluded that the probability of loss, as to the merits of these lawsuits, became remote as of the date of the enactment of this decision.
The Company emphasizes, however, that in view of the possibility that the STF may understand that the modulation mechanism necessarily applies to its decision, and that the application of such a mechanism could limit the effects of the same, a revaluation of the risk of loss associated with the aforementioned lawsuits may be required, pursuant to paragraph 59 of IAS 37. Accordingly, depending on the terms of the modulation, as defined by the STF, such revaluation may result in the need to record new provisions in connection with this matter in the future.
The balance of judicial deposits as of June 30, 2017, in the amount of R$ 1,643,386, referring to the same discussion on the inclusion of the ICMS in the tax base of PIS and COFINS, awaits termination of the relevant lawsuits before the Brazilian courts in order to be returned to the Company.
The other tax provisions refer substantially to discussions related to the ICMS, the settlement of PIS credits and the assessment of PIS and COFINS on other revenues.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
b) Labor Provisions
The Company is party to individual and collective labor lawsuits, and the claims substantially refer to overtime payment, nightshift premium, time spent during transportation time, health hazard and hazardous duty premiums, labor accident damages, labor-related diseases and damages for mental anguish, among others.
c) Civil Provisions
The Company and its subsidiaries are also a party to civil lawsuits arising in the normal course of its business, which totaled as of June 30, 2017 the amount shown as provision liabilities.
II) Contingent liabilities for which provisions were not recorded
Considering the opinion of legal advisors and managements assessment, contingencies listed below have chance of loss considered as possible (but not likely) and due to this classification accruals have not been made in accordance with IFRS.
a) Tax contingencies
a.1) The Company and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A., have other lawsuits related to the ICMS (state VAT) which are mostly related to credit rights and rate differences, whose demands totaled R$ 1,998,754.
a.2) The Company and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A., Gerdau Aços Especiais and Gerdau S.A., are parties to the lawsuits relating to other taxes. The total amount of these lawsuits is R$ 909,096.
a.3) Subsidiary Gerdau Aços Longos S.A. is a party to an administrative proceeding relating to Withholding Income Tax, in the amount of R$ 119,773, assessed on the remittance abroad of interest charged on export financings under Export Prepayment or Export Advance Agreements. The Company submitted an administrative claim challenging the tax assessment on January 13, 2017, which was rejected by the Brazilian Federal Revenue Judgment Office (Delegacia de Julgamento da Receita Federal do Brasil), reason for which the Company is preparing a voluntary appeal, to be submitted to the Brazilian Board of Tax Appeals (Conselho Administrativo de Recursos Fiscais CARF, administrative body of the Ministry of Finance of Brazil)
a.4) Subsidiaries Gerdau Internacional Empreendimentos Ltda. and Gerdau Aços Especiais S.A., are parties to administrative and judicial proceedings relating to IRPJ Corporate Income Tax and CSLL Social Contribution Tax, in the current amount of R$ 1,455,853. Said proceedings relate to profits generated abroad, of which (i) R$ 1,288,123 correspond to two proceedings involving Gerdau Internacional Empreendimentos Ltda., of which (i.a.) R$ 930,081 relate to a proceeding that is no longer subject to appeal in CARF and was referred for judicial collection, which collection is being challenged in the competent judicial lower court; and (i.b) R$ 358,042 relate to a voluntary appeal which was partially granted in the lower tribunal of the Brazilian Board of Tax Appeals (Conselho Administrativo de Recursos Fiscais CARF, administrative body of the Ministry of Finance of Brazil), and was subject to special appeal which was partially granted in CARFs superior tribunal with the publication of the judgment on May 25, 2017, and is currently awaiting due diligence by the Internal Revenue Service, as determined by the CARF decision, and new appeals may be filed after the conclusion of such procedure; and (ii) R$ 167,730 correspond to a proceeding involving Gerdau Aços Especiais S.A., whose voluntary appeal in CARFs lower tribunal was dismissed, for which a special appeal was filed, and currently awaits judgment in CARFs superior tribunal.
a.5) Subsidiaries Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A. and Gerdau Açominas S.A., are parties to administrative proceedings relating to the disallowance of the deductibility of goodwill 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 from the tax base of the Corporate Income tax - IRPJ and Social Contribution on Net Income - CSLL. The total updated amount of the proceedings is R$ 5,788,292, of which (i) R$ 4,563,274 correspond to four proceedings involving subsidiaries Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A. and Gerdau Açominas S.A., for which administrative discussions already ended and are currently in the administrative collection stage; and the Companies obtained injunctive relief to permit it to offer a judicial guarantee using a liability insurance policy in the amount of R$ 4,696,249, for judicial discussions on Embargoes to Execution by the subsidiary Gerdau Aços Longos S.A. were initiated, in their respective proceedings, which total the amount of R$ 3,122,552; (ii) R$ 525,370 correspond to two proceedings involving Gerdau Aços Longos S.A., whose
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
voluntary appeal is currently pending in CARFs lower tribunal; (iii) R$ 119,629 correspond to a proceeding involving the subsidiary Gerdau Aços Especiais S.A., whose voluntary appeal is currently pending in CARFs lower tribunal; and (iv) R$ 580,019 correspond to one proceeding involving the subsidiary Gerdau Aços Longos S.A., the challenge to which was filed by the Company on January 13, 2017 and was partially granted by the Brazilian Federal Revenue Judgment Office (Delegacia de Julgamento da Receita Federal do Brasil) on June 30, 2017, decision which is currently pending a court summons to the company for opposition of the applicable appeal.
Some of the decisions obtained at the CARF related to those proceedings along with other matters involving the Company included in the scope of the so-called Operation Zelotes (Operation) are being investigated by Brazilian federal authorities including the Judiciary Branch, with the purpose of verifying the occurrence or not of alleged illegal acts.
Considering the involvement of Gerdaus name in press reports concerning the Operation, the Board of Directors decided to engage outside counsel, which would report to a Special Committee of the Board, to conduct an investigation to determine, among other things: (i) whether, in light of current knowledge, proper protocol was followed in the relationship of the Company with governmental authorities, including CARF, and in the hiring of firms representing the Company in cases before CARF; (ii) whether such firms have remained within the scope of their work/hiring; (iii) whether the engagement terms for such firms included clauses intended to prevent activity that violates ethical codes or laws currently in force; (iv) whether the engagement terms for such firms included the establishment of sanctions for any violations (whether contractual breaches or otherwise); and (v) if there is any evidence of fraud, deceit, bad faith, or any expression of an intent to commit an illegal act on the part of directors and/or officers of the Company in the relationship of the Company with governmental authorities, including CARF, in the negotiation, signing or carrying out of the aforementioned contracts (Internal Investigation).
The Internal Investigation is ongoing, and the Company is cooperating with the Federal Police an as of the date of the approval of these interim financial statements, the Company believes it is not possible to predict either the duration or the outcome of the Operation by the Federal Police or of the Internal Investigation. Additionally, the Company believes that currently there is not enough information to determine whether a provision for losses is required or disclose any contingency.
The Companys legal advisors confirm that the procedures adopted by the Company with respect to the tax treatment of profits abroad and the deductibility of goodwill were strictly legal, and, therefore, the likelihood of loss with respect to said proceedings is possible (but not likely).
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), 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 accounting on August 01, 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 lack of a cartel. The Court, upon offer of bank guarantee letter, granted the suspension of the effects of CADEs decision. Sentences were handed down for the dismissal of the actions and both are found in appeal phase.
The Company denies having been engaged in any type of anti-competitive conduct and believes based on information available, including the opinion of its legal counsel, that it is possible that the decision will be reverted.
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$ 232,519. For these demands was not performed accounting accrual, since were considered as possible losses, based on the opinion of its legal advisors.
b.3) On May 26, 2016, a securities class action complaint was filed in the United States District Court for the Southern District of New York against Gerdau and certain executives and former executives of the Company by purchasers of
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
American Depositary Receipts (ADRs) of the Company that trade on the New York Stock Exchange. On August 9, 2016, the court appointed the Policemens Annuity and Benefit Fund of Chicago as lead plaintiff. On October 31, 2016, lead plaintiff filed an amended complaint under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a purported class of purchasers of Gerdau ADRs between April 23, 2012 and May 16, 2016. Among other things, the amended complaint alleged that the Company and certain executives had engaged in a bribery scheme involving members of the Brazilian Board of Tax Appeals (CARF), which had purportedly resulted in the nonpayment of approximately US$ 429 million in taxes and resulted in defendants statements in Gerdaus securities filings about Gerdaus business, operations, and prospects being false and misleading and/or lacking a reasonable basis. The amended complaint did not specify an amount of alleged damages, and it also included claims pertaining to the transaction relating to the acquisition of equity interests described in note (c) below. On January 17, 2017, the Company filed a motion to dismiss, but before its review by the Court, the parties asked for a stay of the proceedings, so that they could engage in a mediation process. As a result of the mediation, on July 5, 2017 lead plaintiff and the defendants reached a settlement, in the amount of US$ 15 million, which remains subject to final approval by the court. The amount of the settlement was substantially covered by insurance. The settlement does not acknowledge any liability by the defendants and, in the opinion of the Company and its legal advisors, is the best alternative to eliminate the uncertainties, burdens and costs to be incurred if the dispute were to continue.
c) Administrative proceeding Brazilian Securities Comission (CVM)
On July 14, 2015, the Company acquired non-controlling interests in the following companies: Gerdau Aços Longos S.A. (4.77%), Gerdau Açominas S.A. (3.50%), Gerdau Aços Especiais S.A. (2.39%) and Gerdau América Latina Participações S.A. (4.90%), having as counterparty Itaú Unibanco S.A. and ArcelorMittal Netherlands BV. This transaction was approved by the Board of Directors of Gerdau S.A. by unanimous vote of the directors on July 13, 2015, based on the market opportunity and the analysis that the prices were appropriate considering: economic evaluations conducted by independent report, the financial instruments used, the payment terms, capturing value through a more concentrated cash flow and long-term vision for the Company. The Company, in compliance with CVM requests for clarification on the acquisition, disclosed that the decision to its acquisition had exclusively business merit and was duly considered and unanimously approved by the Board of Directors. The terms and conditions for the acquisition considered long-term market prospects. On October 21, 2016, Metalúrgica Gerdau S.A. and certain directors and former directors of Gerdau S.A. filed a defense in the administrative proceeding brought by CVM on the acquisition of non-controlling interests in the subsidiaries, in the sense that the operation was businesslike justified, as above stated. There is no estimate for a final decision of the matter. Metalúrgica Gerdau S.A. believes that, currently, there is not enough information to disclose or determine if a provision for losses is required.
III) Judicial deposits
The Company has judicial deposits related to tax, labor and civil lawsuits as listed below:
|
|
June 30, 2017 |
|
December 31, 2016 |
|
Tax |
|
1,828,250 |
|
1,716,996 |
|
Labor |
|
117,325 |
|
107,191 |
|
Civil |
|
39,482 |
|
37,597 |
|
|
|
1,985,057 |
|
1,861,784 |
|
IV) Eletrobrás Compulsory Loan
The Compulsory Loan, instituted by the Brazilian government in order to expand and improve the energy sector of the country was charged and collected from industrial consumers with monthly consumption equal or superior to 2000kwh through the electricity bills issued by the electric power distribution companies, was converted into credits to the taxpayers based on the annual value of these contributions made between 1977 and 1993. The legislation sets a maximum 20 years period to return the compulsory loan to the taxpayers, providing Eletrobrás the possibility of anticipating this return through the conversion of those loans in shares of its own issue. Prior to the conversion of the credits into shares, those credits were adjusted through an indexer and quantifier, called Standard Unit (SU). It happens that the compulsory loan was charged to the companies in their monthly electricity bills, consolidated during the year, and only indexed by the SU in January of next year, resulting in a lack of monthly monetary adjustment during the years of collection, as well as
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
interest. This procedure imputed to taxpayers considerable financial losses, particularly during the periods when the monthly inflation rates stood at high levels.
In order to claim the appropriate interest and monetary correction, subtracted by the methodology applied by Eletrobrás, the Company (understood to be legal entities existing at the time and later became part of Gerdau S.A.) filed lawsuits claiming credits resulting from differences on the monetary correction of principal, interest, moratory and other accessory amounts owed by Eletrobrás due to the compulsory loans, totaling approximately R$ 1,260 million. Recently, particularly in 2015, processes involving representative amounts were definitively judged by the Superior Court of Justice - STJ favorable to the Company so that no further appeals against such decisions apply (final judgment). For claims with a final judgment, it yet remains the enforcement of ruling (or execution phase) where the actual amounts to be settled will be calculated. Obtaining favorable decisions represented by the final judgment mentioned above, in accordance with IAS 37, suggests that the inflow of economic benefits has become probable. However, it is not yet practicable to reasonably determine the realization of the gain in the form of fitting of resources arising from these decisions has reached a level of virtually certain and that the Company has control over such assets, which under the above standards, implies that such gains are not recorded until such conditions are demonstrably present.
NOTE 15 - RELATED-PARTY TRANSACTIONS
a) Intercompany loans
|
|
June 30, 2017 |
|
December 31, 2016 |
|
Assets |
|
|
|
|
|
Jointly-controlled entities |
|
|
|
|
|
Gerdau Corsa SAPI de C.V. |
|
|
|
48 |
|
|
|
|
|
|
|
Others |
|
|
|
|
|
Fundação Gerdau |
|
54,052 |
|
57,493 |
|
|
|
54,052 |
|
57,541 |
|
|
|
|
|
|
|
|
|
For the three-month period ended |
| ||
|
|
June 30, 2017 |
|
June 30, 2016 |
|
Net financial loss |
|
|
|
(2,532 |
) |
Operations with related parties
During the three and six-month periods ended on June 30, 2017 and 2016, the Company, through its subsidiaries, performed commercial operations with some of its associate companies and jointly controlled entities in sales of R$ 152,569 and R$ 241,219 as of June 30, 2017, respectively (R$ 107,434 and R$ 186,056 as of June 30, 2016, respectively) and purchases in the amount of R$ 29,726 and R$ 61,541 as of June 30, 2017, respectively (R$ 25,546 and R$ 60,383 as of June 30, 2016, respectively). The net balance totals R$ 179,679 as of June 30, 2017 (R$ 125,673 as of June 30, 2016).
During the three and six-month periods ended on June 30, 2017 and 2016, the Company, through its subsidiaries, performed transactions with controlling shareholders, directly or indirectly, mainly of guarantees provided by the controlling in guarantees of debentures, on which the Company pays a fee of 0.95 % p.a. on the amount guaranteed. The effect of these transactions was an expense of R$ 281 and R$ 551, respectively (R$ 413 and R$ 1,365 on June 30, 2016). Additionally, the Company recorded revenues of R$ 216 and R$ 416 in the three and six-month periods, respectively (R$ 251 and R$ 503 on June 30, 2016, respectively), derived from rental agreement.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
Guarantees granted
Related Party |
|
Relationship |
|
Object |
|
Original |
|
Maturity |
|
Balance as of |
|
Balance as of |
|
GTL Trade Finance Inc. |
|
Subsidiary |
|
10-year Bond |
|
1,744,000 |
|
oct/17 |
|
2,616,125 |
|
2,577,296 |
|
GTL Trade Finance Inc. |
|
Subsidiary |
|
30-year Bond |
|
1,118,000 |
|
apr/44 |
|
1,654,100 |
|
1,629,550 |
|
Diaco S.A. |
|
Jointly-controlled entity |
|
Financing Agreements |
|
302,314 |
|
aug/18 - june/19 |
|
290,354 |
|
397,238 |
|
Gerdau Holding Inc. |
|
Subsidiary |
|
10-year Bond |
|
2,188,125 |
|
jan/20 |
|
1,828,528 |
|
1,801,389 |
|
Gerdau Trade Inc. |
|
Subsidiary |
|
10-year Bond |
|
2,117,750 |
|
jan/21 |
|
3,395,619 |
|
3,345,222 |
|
Gerdau Corsa S.A.P.I. de C.V. |
|
Jointly-controlled entity |
|
Financing Agreements |
|
2,038,379 |
|
july/17 - dec/20 |
|
2,055,450 |
|
2,061,260 |
|
GTL Trade Finance Inc., Gerdau Holdings Inc. |
|
Subsidiary |
|
10-year Bond |
|
2,606,346 |
|
apr/24 |
|
3,032,157 |
|
2,987,154 |
|
Sipar Aceros S.A. |
|
Subsidiary |
|
Financing Agreements |
|
436,959 |
|
sep/18-sep/21 |
|
118,677 |
|
434,706 |
|
Gerdau Trade Inc. |
|
Subsidiary |
|
10-year Bond |
|
1,501,275 |
|
apr/23 |
|
1,792,399 |
|
1,832,625 |
|
Gerdau Steel India Ltd. |
|
Subsidiary |
|
Financing Agreements |
|
295,471 |
|
aug/17 - feb/19 |
|
368,903 |
|
354,585 |
|
Gerdau Steel India Ltd. |
|
Subsidiary |
|
Financing Agreements |
|
285,673 |
|
Undetermined |
|
142,095 |
|
55,130 |
|
Comercial Gerdau Bolivia |
|
Subsidiary |
|
Financing Agreements |
|
12,980 |
|
nov/17 |
|
13,233 |
|
13,036 |
|
Gerdau Açominas S.A. |
|
Subsidiary |
|
Financing Agreements |
|
3,160,958 |
|
july/18 - feb/21 |
|
2,507,565 |
|
2,627,205 |
|
Gerdau Ameristeel Us. Inc. |
|
Subsidiary |
|
25-year Bond |
|
103,596 |
|
oct/37 |
|
244,807 |
|
166,214 |
|
Gerdau Aços Longos S.A. |
|
Subsidiary |
|
Financing Agreements |
|
556,247 |
|
oct/24 - dec/30 |
|
300,921 |
|
318,784 |
|
Gerdau Aços Longos S.A. |
|
Subsidiary |
|
Financing Agreements |
|
299,918 |
|
dec/17 - july/18 |
|
311,629 |
|
304,194 |
|
Siderúrgica Zuliana, C.A. |
|
Subsidiary |
|
Financing Agreements |
|
50,010 |
|
dec/17 |
|
33,082 |
|
65,182 |
|
Gerdau Aços Especiais S.A. |
|
Subsidiary |
|
Financing Agreements |
|
70,000 |
|
feb/20 |
|
56,000 |
|
63,000 |
|
b) Debentures
Debentures are held by parent companies, directly or indirectly, in the amount of R$ 25,975 as of June 30, 2017 (R$ 33,438 as of December 31, 2016), which corresponds to 4,375 debentures (5,964 as of December 31, 2016).
c) Price conditions and charges
Loan agreements between Brazilian companies carry interest based on the CDI (Interbank Deposit Certificate) and Libor rate plus exchange variance, when applicable. Sales of products and purchases of inputs are made under terms and conditions agreed between the parties.
d) Management compensation
The Company paid to its management salaries, benefits and variable compensation totaling R$ 8,426 and R$ 16,725 for the three and six-month periods ended on June 30, 2017 (R$ 9,351 and R$ 19,424 for the three and six-month periods ended on June 30, 2016). The contributions for the defined contribution plan, related to the management of the Company, totaled R$ 291 and R$ 576 for the three and six-month period ended on June 30, 2017, respectively (R$ 468 and R$ 695 on June 30, 2016).
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
The cost of long-term incentive plans recognized in income and attributable to key management (members of Board of Directors and executive officers) totaled R$ 3,678 and R$ 7,327 during the three and six-month period ended on June 30, 2017, respectively (R$ 2,806 and R$ 4,634 for the three and six-month period ended on June 30, 2016).
Additionally, for the three and six-month period ended on June 30, 2017, the compensation for the members of the Advisory Board was R$ 0 (R$ 490 and R$ 979 in the three and six-month periods ended on June 30, 2016).
NOTE 16 - OBLIGATIONS WITH FIDC - INVESTMENT FUND IN CREDIT RIGHTS
Part of the assets resulting from the favorable judgments of credits with Eletrobras mentioned in Note 14 iv were used to set up a Non Standardized Credit Right Investment Fund, constituted and duly authorized to operate by the Securities and Exchange Commission of Brazil (FIDC NP Barzel), whose fair value at the FIDC Inception date was R$ 800 million. The single quota of this FIDC was sold in 2015 in the acquisition of minority interests transaction in subsidiaries of Gerdau S.A.
The Company assures the FIDC, through the transfer agreement price adjustments clause, minimum return on the transferred amount of the credits rights on the lawsuits. However, where the amounts received in the lawsuits exceed the transferred amount, monetarily adjusted, the Company will be entitled to a substantial percentage of that gain. Additionally, the Company has the right of first offer to repurchase those receivables in the event of sale by the Fund, in accordance to the contract subscribed, and has the amount of R$ 1,076,751 recognized in the account Payables to FIDC as of June 30, 2017 (R$ 1,007,259 as of December 31, 2016).
NOTE 17 EQUITY
a) Capital The Board of Directors may, without need to change the bylaws, issue new shares (authorized capital), including the capitalization of profits and reserves up to the authorized limit of 1,500,000,000 common shares and 3,000,000,000 preferred shares, all without nominal value. In the case of capital increase through subscription of new shares, the right of preference shall be exercised in up to 30 days, except in the case of a public offering, when the limit is not less than 10 days.
Reconciliation of common and preferred outstanding shares is presented below:
|
|
June 30, 2017 |
|
December 31, 2016 |
| ||||
|
|
Common shares |
|
Preferred shares |
|
Common shares |
|
Preferred shares |
|
Balance at the beginning of the period |
|
571,929,945 |
|
1,137,018,570 |
|
571,929,945 |
|
1,114,744,538 |
|
Repurchase of Shares |
|
|
|
|
|
|
|
(10,000,000 |
) |
Exercise of stock option |
|
|
|
205,093 |
|
|
|
2,274,032 |
|
Transfer of Shares |
|
|
|
|
|
|
|
30,000,000 |
|
Balance at the end of the period |
|
571,929,945 |
|
1,137,223,663 |
|
571,929,945 |
|
1,137,018,570 |
|
On June 30, 2017, 573,627,483 common shares and 1,146,031,245 preferred shares are subscribed and paid up, with a total capital of R$ 19,249,181 (net of share issuance costs). Ownership of the shares is presented below:
|
|
Shareholders |
| ||||||||||||||||||||||
|
|
June 30, 2017 |
|
December 31, 2016 |
| ||||||||||||||||||||
Shareholders |
|
Common |
|
% |
|
Pref. |
|
% |
|
Total |
|
% |
|
Common |
|
% |
|
Pref. |
|
% |
|
Total |
|
% |
|
Metalúrgica Gerdau S.A. and subsidiary* |
|
483,922,176 |
|
84.4 |
|
169,447,856 |
|
14.8 |
|
653,370,032 |
|
38.0 |
|
449,712,654 |
|
78.4 |
|
202,806,626 |
|
17.7 |
|
652,519,280 |
|
37.9 |
|
Brazilian institutional investors |
|
31,241,647 |
|
5.4 |
|
93,998,273 |
|
8.2 |
|
125,239,920 |
|
7.3 |
|
41,883,032 |
|
7.3 |
|
92,721,295 |
|
8.1 |
|
134,604,327 |
|
7.8 |
|
Foreign institutional investors |
|
18,440,996 |
|
3.2 |
|
713,762,621 |
|
62.3 |
|
732,203,617 |
|
42.6 |
|
11,122,498 |
|
1.9 |
|
705,652,715 |
|
61.5 |
|
716,775,213 |
|
41.8 |
|
Other shareholders |
|
38,325,126 |
|
6.7 |
|
160,014,913 |
|
13.9 |
|
198,340,039 |
|
11.5 |
|
69,211,761 |
|
12.1 |
|
135,837,934 |
|
11.9 |
|
205,049,695 |
|
11.9 |
|
Treasury stock |
|
1,697,538 |
|
0.3 |
|
8,807,582 |
|
0.8 |
|
10,505,120 |
|
0.6 |
|
1,697,538 |
|
0.3 |
|
9,012,675 |
|
0.8 |
|
10,710,213 |
|
0.6 |
|
|
|
573,627,483 |
|
100.0 |
|
1,146,031,245 |
|
100.0 |
|
1,719,658,728 |
|
100.0 |
|
573,627,483 |
|
100.0 |
|
1,146,031,245 |
|
100.0 |
|
1,719,658,728 |
|
100.0 |
|
*Metalurgica Gerdau S.A. is the controlling shareholder and Stichting Gerdau Johannpeter is the ultimate controlling shareholder of the Company.
Preferred shares do not have voting rights and cannot be redeemed but have the same rights as common shares in the distribution of dividends and also priority in the capital distribution in case of liquidation of the Company.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
b) Treasury stocks
Changes in treasury shares are as follows:
|
|
June 30, 2017 |
|
December 31, 2016 |
| ||||||||||||
|
|
Common |
|
R$ |
|
Preferred shares |
|
R$ |
|
Common |
|
R$ |
|
Preferred |
|
R$ |
|
Balance at the beginning of the period |
|
1,697,538 |
|
557 |
|
9,012,675 |
|
98,189 |
|
1,697,538 |
|
557 |
|
31,286,707 |
|
382,806 |
|
Repurchase of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000 |
|
95,343 |
|
Exercise of stock option |
|
|
|
|
|
(205,093 |
) |
(21,196 |
) |
|
|
|
|
(2,274,032 |
) |
(10,461 |
) |
Transfer of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,000,000 |
) |
(369,499 |
) |
Balance at the end of the period |
|
1,697,538 |
|
557 |
|
8,807,582 |
|
76,993 |
|
1,697,538 |
|
557 |
|
9,012,675 |
|
98,189 |
|
These shares will be held in treasury for subsequent cancelling or will service the long-term incentive plan of the Company and its subsidiaries or subsequently sold on the market. The average acquisition cost of the treasury preferred shares was R$ 8.74.
c) Capital reserves - consists of premium on issuance of shares.
d) Retained earnings
I) Legal reserves - under Brazilian Corporate Law, the Company must transfer 5% of the annual net income determined on its statutory books in accordance with Brazilian accounting practices to the legal reserve until this reserve equals 20% of the paid-in capital. The legal reserve can be utilized to increase capital or to absorb losses, but cannot be used for dividend purposes.
II) Tax incentive reserve - under Brazilian Corporate Law, the Company may transfer to this account part of net income resulting from government benefits which can be excluded from the basis for dividend calculation.
III) Investments and working capital reserve - consists of earnings not distributed to shareholders and includes the reserves required by the Companys by-laws. The Board of Directors may propose to the shareholders the transfer of at least 5% of the profit for each year determined in its statutory books in accordance with accounting practices adopted in Brazil to this reserve. Amounts can be allocated to the reserve only after the minimum dividend requirements have been met and its balance cannot exceed the amount of paid-in capital. It is also recognized in this account the difference between the average amount of the treasury stocks and transactional value of the share in the case of stock option exercised and assignment of preferred shares. The reserve can be used to absorb losses, if necessary, for capitalization, for payment of dividends or for the repurchase of shares.
e) Operations with non-controlling interests - correspond to amounts recognized in equity for changes in non-controlling interests.
f) Other reserves - Includes gains and losses on available for sale securities, gains and losses on net investment hedge, gains and losses on derivatives accounted as cash flow hedge, cumulative translation adjustments, expenses recorded for stock option plans and actuarial gains and losses on postretirement benefits.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
NOTE 18 EARNINGS PER SHARE (EPS)
Basic
|
|
For the three-month period ended on |
| ||||||||||
|
|
June 30, 2017 |
|
June 30, 2016 |
| ||||||||
|
|
Common |
|
Preferred |
|
Total |
|
Common |
|
Preferred |
|
Total |
|
|
|
(in thousands, except share and per share data) |
|
(in thousands, except share and per share data) |
| ||||||||
Basic numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated net income available to Common and Preferred shareholders |
|
25,111 |
|
49,912 |
|
75,023 |
|
24,443 |
|
48,635 |
|
73,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average outstanding shares, after deducting the average of treasury shares |
|
571,929,945 |
|
1,136,773,427 |
|
|
|
571,929,945 |
|
1,138,008,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (in R$) Basic |
|
0.04 |
|
0.04 |
|
|
|
0.04 |
|
0.04 |
|
|
|
|
|
For the six-month period ended on |
| ||||||||||
|
|
June 30, 2017 |
|
June 30, 2016 |
| ||||||||
|
|
Common |
|
Preferred |
|
Total |
|
Common |
|
Preferred |
|
Total |
|
|
|
(in thousands, except share and per share data) |
|
(in thousands, except share and per share data) |
| ||||||||
Basic numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated net income (loss) available to Common and Preferred shareholders |
|
298,019 |
|
592,345 |
|
890,364 |
|
27,511 |
|
54,262 |
|
81,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average outstanding shares, after deducting the average of treasury shares |
|
571,929,945 |
|
1,136,773,427 |
|
|
|
571,929,945 |
|
1,128,067,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (in R$) Basic |
|
0.52 |
|
0.52 |
|
|
|
0.05 |
|
0.05 |
|
|
|
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
Diluted
|
|
For the three-month period ended on |
| ||
|
|
June 30, 2017 |
|
June 30, 2016 |
|
Diluted numerator |
|
|
|
|
|
Allocated net income available to Common and Preferred shareholders |
|
|
|
|
|
Net income allocated to preferred shareholders |
|
49,912 |
|
48,635 |
|
Add: |
|
|
|
|
|
Adjustment to net income allocated to preferred shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of the long term incentive plan |
|
195 |
|
98 |
|
|
|
50,107 |
|
48,733 |
|
|
|
|
|
|
|
Net income allocated to common shareholders |
|
25,111 |
|
24,443 |
|
Less: |
|
|
|
|
|
Adjustment to net income allocated to common shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of the long term incentive plan |
|
(195 |
) |
(98 |
) |
|
|
|
|
|
|
|
|
24,916 |
|
24,345 |
|
|
|
|
|
|
|
Diluted denominator |
|
|
|
|
|
Weighted - average number of shares outstanding |
|
|
|
|
|
Common Shares |
|
571,929,945 |
|
571,929,945 |
|
Preferred Shares |
|
|
|
|
|
Weighted-average number of preferred shares outstanding |
|
1,136,773,427 |
|
1,138,008,484 |
|
Potential increase in number of preferred shares outstanding due to the long term incentive plan |
|
13,411,564 |
|
6,871,291 |
|
Total |
|
1,150,184,991 |
|
1,144,879,775 |
|
|
|
|
|
|
|
Earnings per share Diluted (Common and Preferred Shares) - in R$ |
|
0.04 |
|
0.04 |
|
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
|
|
For the six-month period ended on |
| ||
|
|
June 30, 2017 |
|
June 30, 2016 |
|
Diluted numerator |
|
|
|
|
|
Allocated net income available to Common and Preferred shareholders |
|
|
|
|
|
Net income allocated to preferred shareholders |
|
592,345 |
|
54,262 |
|
Add: |
|
|
|
|
|
Adjustment to net income allocated to preferred shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of the long term incentive plan |
|
2,483 |
|
129 |
|
|
|
594,828 |
|
54,391 |
|
|
|
|
|
|
|
Net income allocated to common shareholders |
|
298,019 |
|
27,511 |
|
Less: |
|
|
|
|
|
Adjustment to net income allocated to common shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of the long term incentive plan |
|
(2,483 |
) |
(129 |
) |
|
|
|
|
|
|
|
|
295,536 |
|
27,382 |
|
|
|
|
|
|
|
Diluted denominator |
|
|
|
|
|
Weighted - average number of shares outstanding |
|
|
|
|
|
Common Shares |
|
571,929,945 |
|
571,929,945 |
|
Preferred Shares |
|
|
|
|
|
Weighted-average number of preferred shares outstanding |
|
1,136,773,427 |
|
1,128,067,246 |
|
Potential increase in number of preferred shares outstanding due to the long term incentive plan |
|
14,358,052 |
|
7,978,234 |
|
Total |
|
1,151,131,479 |
|
1,136,045,480 |
|
|
|
|
|
|
|
Earnings per share Diluted (Common and Preferred Shares) - in R$ |
|
0.52 |
|
0.05 |
|
NOTE 19 LONG-TERM INCENTIVE PLANS
a) Restricted Shares and Performance Shares Plan:
Quantity on January 01, 2016 |
|
12,525,256 |
|
Granted |
|
13,357,922 |
|
Forfeited/Canceled |
|
(3,046,593 |
) |
Exercised |
|
(2,403,094 |
) |
Quantity on December 31, 2016 |
|
20,433,491 |
|
Granted |
|
3,170,952 |
|
Forfeited/Canceled |
|
(1,522,833 |
) |
Exercised |
|
(1,988,573 |
) |
Quantity on June 30, 2017 |
|
20,093,037 |
|
In 2017, the Company approved changes to the long-term incentive plan allowing the use of multiple forms of stock-based compensation and changing the vesting period for each grant to three years. In 2017 Restricted Shares and Performance Shares were granted.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
b) Stock Options Plan:
|
|
June 30, 2017 |
|
December 31, 2016 |
| ||||
|
|
Number of |
|
Average exercise |
|
Number of |
|
Average exercise |
|
|
|
|
|
R$ |
|
|
|
R$ |
|
Available at beginning of the year |
|
569,115 |
|
16.64 |
|
1,074,246 |
|
18.36 |
|
Options Forfeited |
|
(259,376 |
) |
14.74 |
|
(505,131 |
) |
20.49 |
|
Available at the end of the period |
|
309,739 |
|
18.05 |
|
569,115 |
|
16.64 |
|
The average market price of the share in the six month period ended on June 30, 2017 was R$ 11.06 (R$ 7.68 in the year ended December 31, 2016).
As of June 30, 2017 the Company has a total of 8,807,582 preferred shares in treasury. These shares may be used for serving this plan.
Exercise price |
|
Quantity |
|
Average period of |
|
Average |
|
Number |
|
|
|
|
|
|
|
R$ |
|
|
|
R$ 14.39 |
|
40,873 |
|
1.7 |
|
13.84 |
|
40,873 |
|
R$ 10,58 a R$ 29,12 |
|
268,866 |
|
5.0 |
|
18.69 |
|
13,660 |
|
|
|
309,739 |
|
|
|
|
|
54,533 |
|
*The total of options vested that are exercisable on June 30, 2017 is 54,533 (57,678 on December 31, 2016).
During the three and six month period ended on June 30, 2017, the long-term incentive plans costs recognized in income were R$ 7,564 and R$ 12,393 respectively (R$ 9,362 and R$ 16,113 on June 30, 2016).
The Company recognizes costs of employee compensation based on the fair value of the options granted, considering their fair value on the date of granting. The Company uses the Black-Scholes model for determining the fair value of the options. There were no options granted for this plan in the six-month period ended June 30, 2017 and for the year ended December 31, 2016.
c) Other Plans North America
The Company terminated the existing long-term incentive plan (LTIP), and no further awards will be granted under the LTIP. All outstanding awards under the LTIP will remain outstanding until either exercised, forfeited or they expire. On June 30, 2017, there were 147,210 cash settled SARs - Share Appreciation Rights outstanding under the LTIP. These awards are accrued over the vesting period of 4 years. As of June 30, 2017 and December 31, 2016, the outstanding liability for share-based payment transactions included in other non-current liabilities of the subsidiaries in North America was US$ 6 thousand (R$ 19.8) and US$ 10 thousand (R$ 32.6), respectively.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
NOTE 20 EXPENSES BY NATURE
The Company opted to present its Consolidated Statement of Income by function. As required by IAS 1, the Consolidated Statement of Income by nature is as follows:
|
|
For the three-month periods ended |
|
For the six-month periods ended |
| ||||
|
|
June 30, 2017 |
|
June 30, 2016 |
|
June 30, 2017 |
|
June 30, 2016 |
|
Depreciation and amortization |
|
(526,175 |
) |
(617,304 |
) |
(1,054,233 |
) |
(1,298,492 |
) |
Labor expenses |
|
(1,413,710 |
) |
(1,691,137 |
) |
(2,776,300 |
) |
(3,530,418 |
) |
Raw material and consumption material |
|
(5,722,512 |
) |
(6,228,472 |
) |
(11,106,753 |
) |
(12,386,840 |
) |
Freight |
|
(566,743 |
) |
(628,560 |
) |
(1,096,632 |
) |
(1,221,557 |
) |
Other expenses/income |
|
(381,716 |
) |
(549,261 |
) |
(757,698 |
) |
(1,153,331 |
) |
Reversal of contingent liabilities, net |
|
|
|
|
|
929,711 |
|
|
|
Results in operations with subsidiaries |
|
(72,478 |
) |
(105,048 |
) |
(72,478 |
) |
(105,048 |
) |
|
|
(8,683,334 |
) |
(9,819,782 |
) |
(15,934,383 |
) |
(19,695,686 |
) |
|
|
|
|
|
|
|
|
|
|
Classified as: |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
(8,229,142 |
) |
(9,165,474 |
) |
(16,033,919 |
) |
(18,437,307 |
) |
Selling expenses |
|
(133,297 |
) |
(175,609 |
) |
(271,743 |
) |
(389,941 |
) |
General and administrative expenses |
|
(287,139 |
) |
(401,965 |
) |
(588,186 |
) |
(831,519 |
) |
Other operating income |
|
70,968 |
|
54,833 |
|
139,934 |
|
102,057 |
|
Other operating expenses |
|
(32,246 |
) |
(26,519 |
) |
(37,702 |
) |
(33,928 |
) |
Reversal of contingent liabilities, net |
|
|
|
|
|
929,711 |
|
|
|
Results in operations with subsidiaries |
|
(72,478 |
) |
(105,048 |
) |
(72,478 |
) |
(105,048 |
) |
|
|
(8,683,334 |
) |
(9,819,782 |
) |
(15,934,383 |
) |
(19,695,686 |
) |
NOTE 21 FINANCIAL INCOME
|
|
For the three-month periods ended |
|
For the six-month periods ended |
| ||||
|
|
June 30, 2017 |
|
Jun 30, 2016 |
|
June 30, 2017 |
|
Jun 30, 2016 |
|
Income from short-term investments |
|
19,400 |
|
26,816 |
|
49,692 |
|
67,694 |
|
Interest income and other financial incomes |
|
24,687 |
|
18,206 |
|
76,222 |
|
53,118 |
|
Financial income total |
|
44,087 |
|
45,022 |
|
125,914 |
|
120,812 |
|
|
|
|
|
|
|
|
|
|
|
Interest on debts |
|
(346,261 |
) |
(374,345 |
) |
(703,772 |
) |
(771,580 |
) |
Monetary variation and other financial expenses |
|
(107,519 |
) |
(109,855 |
) |
(213,245 |
) |
(237,722 |
) |
Financial expenses total |
|
(453,780 |
) |
(484,200 |
) |
(917,017 |
) |
(1,009,302 |
) |
|
|
|
|
|
|
|
|
|
|
Exchange variations, net |
|
(96,389 |
) |
433,186 |
|
(21,351 |
) |
942,616 |
|
Reversal of monetary update of contingent liabilities, net |
|
|
|
|
369,819 |
|
|
| |
Gains and Losses on derivatives, net |
|
1,125 |
|
(16,700 |
) |
(8,606 |
) |
(38,220 |
) |
Financial result, net |
|
(504,957 |
) |
(22,692 |
) |
(451,241 |
) |
15,906 |
|
NOTE 22 SEGMENT REPORTING
In the fourth quarter of 2016, the Company made a change in the composition of its segments, with changes with effect as of 2016 year end, with the objective of obtaining greater strategic, operational and management synergies in the markets of South America and North America. The change relates to the jointly controlled entity Gerdau Metaldom Corp., in the Dominican Republic, which became part of the business segment South America and thus its results and equity are no longer presented in the North America segment and are from now on presented in the South America segment. For disclosure purposes, the comparative information has been modified regarding the originally presented information, in order to reflect the changes approved by the Gerdau Executive Committee, according to the criteria established by IFRS 8.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
Information by business segment:
|
|
For the three-month periods ended |
| ||||||||||||||||||||||
|
|
Brazil Operation |
|
North America |
|
South America |
|
Special Steels |
|
Eliminations and |
|
Consolidated |
| ||||||||||||
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
Net sales |
|
3,060,033 |
|
3,047,381 |
|
3,903,389 |
|
4,291,221 |
|
967,572 |
|
1,210,158 |
|
1,615,652 |
|
1,962,971 |
|
(380,793 |
) |
(262,953 |
) |
9,165,853 |
|
10,248,778 |
|
Cost of sales |
|
(2,683,666 |
) |
(2,703,265 |
) |
(3,712,001 |
) |
(3,942,078 |
) |
(849,524 |
) |
(1,025,395 |
) |
(1,364,198 |
) |
(1,752,612 |
) |
380,247 |
|
257,876 |
|
(8,229,142 |
) |
(9,165,474 |
) |
Gross profit |
|
376,367 |
|
344,116 |
|
191,388 |
|
349,143 |
|
118,048 |
|
184,763 |
|
251,454 |
|
210,359 |
|
(546 |
) |
(5,077 |
) |
936,711 |
|
1,083,304 |
|
Selling, general and administrative expenses |
|
(136,288 |
) |
(161,564 |
) |
(145,294 |
) |
(201,192 |
) |
(50,161 |
) |
(60,704 |
) |
(46,900 |
) |
(79,028 |
) |
(41,793 |
) |
(75,086 |
) |
(420,436 |
) |
(577,574 |
) |
Other operating income (expenses) |
|
3,126 |
|
(683 |
) |
4,848 |
|
194 |
|
1,192 |
|
17,056 |
|
2,344 |
|
(53 |
) |
27,212 |
|
11,800 |
|
38,722 |
|
28,314 |
|
Results in operations with subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,478 |
) |
(105,048 |
) |
(72,478 |
) |
(105,048 |
) |
Equity in earnings of unconsolidated companies |
|
|
|
|
|
(17,680 |
) |
(11,363 |
) |
5,697 |
|
6,722 |
|
4,811 |
|
|
|
4,743 |
|
4,532 |
|
(2,429 |
) |
(109 |
) |
Operational income (Loss) before financial income (expenses) and taxes |
|
243,205 |
|
181,869 |
|
33,262 |
|
136,782 |
|
74,776 |
|
147,837 |
|
211,709 |
|
131,278 |
|
(82,862 |
) |
(168,879 |
) |
480,090 |
|
428,887 |
|
Finacial result, net |
|
(138,672 |
) |
(161,625 |
) |
(10,301 |
) |
(18,734 |
) |
(9,349 |
) |
(33,786 |
) |
(33,178 |
) |
(40,241 |
) |
(313,457 |
) |
231,694 |
|
(504,957 |
) |
(22,692 |
) |
Income (Loss) before taxes |
|
104,533 |
|
20,244 |
|
22,961 |
|
118,048 |
|
65,427 |
|
114,051 |
|
178,531 |
|
91,037 |
|
(396,319 |
) |
62,815 |
|
(24,867 |
) |
406,195 |
|
Income and social contribution taxes |
|
(25,370 |
) |
(6,281 |
) |
26,893 |
|
(16,510 |
) |
(27,690 |
) |
(35,104 |
) |
(52,155 |
) |
(19,762 |
) |
179,706 |
|
(249,329 |
) |
101,384 |
|
(326,986 |
) |
Net income (Loss) |
|
79,163 |
|
13,963 |
|
49,854 |
|
101,538 |
|
37,737 |
|
78,947 |
|
126,376 |
|
71,275 |
|
(216,613 |
) |
(186,514 |
) |
76,517 |
|
79,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales between segments |
|
337,450 |
|
212,212 |
|
15,526 |
|
23,344 |
|
1,669 |
|
1,140 |
|
26,148 |
|
26,257 |
|
|
|
|
|
380,793 |
|
262,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation/amortization |
|
229,860 |
|
220,484 |
|
171,583 |
|
215,304 |
|
38,326 |
|
46,211 |
|
86,406 |
|
135,305 |
|
|
|
|
|
526,175 |
|
617,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
Investments in associates and jointly-controlled entities |
|
|
|
|
|
492,737 |
|
303,526 |
|
573,642 |
|
404,522 |
|
190,374 |
|
|
|
86,257 |
|
90,796 |
|
1,343,010 |
|
798,844 |
|
Total assets |
|
16,613,582 |
|
18,672,770 |
|
16,862,983 |
|
16,459,784 |
|
4,928,132 |
|
5,582,926 |
|
11,594,792 |
|
11,970,203 |
|
4,175,636 |
|
1,949,458 |
|
54,175,125 |
|
54,635,141 |
|
Total liabilities |
|
9,282,603 |
|
10,761,705 |
|
3,482,403 |
|
3,407,444 |
|
1,123,596 |
|
1,651,590 |
|
6,129,389 |
|
6,519,255 |
|
8,811,357 |
|
8,020,494 |
|
28,829,348 |
|
30,360,488 |
|
Information by business segment:
|
|
For the six-month periods ended |
| ||||||||||||||||||||||
|
|
Brazil Operation |
|
North America |
|
South America |
|
Special Steels |
|
Eliminations and |
|
Consolidated |
| ||||||||||||
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
Net sales |
|
5,844,283 |
|
5,740,963 |
|
7,527,481 |
|
8,588,010 |
|
1,971,050 |
|
2,446,179 |
|
2,972,298 |
|
4,133,230 |
|
(690,595 |
) |
(575,093 |
) |
17,624,517 |
|
20,333,289 |
|
Cost of sales |
|
(5,168,209 |
) |
(5,175,413 |
) |
(7,226,125 |
) |
(7,937,564 |
) |
(1,750,852 |
) |
(2,056,682 |
) |
(2,579,346 |
) |
(3,836,590 |
) |
690,613 |
|
568,942 |
|
(16,033,919 |
) |
(18,437,307 |
) |
Gross profit |
|
676,074 |
|
565,550 |
|
301,356 |
|
650,446 |
|
220,198 |
|
389,497 |
|
392,952 |
|
296,640 |
|
18 |
|
(6,151 |
) |
1,590,598 |
|
1,895,982 |
|
Selling, general and administrative expenses |
|
(276,645 |
) |
(355,029 |
) |
(294,787 |
) |
(421,917 |
) |
(102,822 |
) |
(132,035 |
) |
(88,391 |
) |
(180,017 |
) |
(97,284 |
) |
(132,462 |
) |
(859,929 |
) |
(1,221,460 |
) |
Other operating income (expenses) |
|
5,252 |
|
3,684 |
|
10,093 |
|
3,865 |
|
6,497 |
|
17,164 |
|
7,891 |
|
10,597 |
|
72,499 |
|
32,819 |
|
102,232 |
|
68,129 |
|
Results in operations with subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,478 |
) |
(105,048 |
) |
(72,478 |
) |
(105,048 |
) |
Reversal of contingent liabilities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
929,711 |
|
|
|
929,711 |
|
|
|
Equity in earnings of unconsolidated companies |
|
|
|
|
|
(36,564 |
) |
(34,928 |
) |
17,518 |
|
16,731 |
|
6,187 |
|
|
|
9,620 |
|
10,507 |
|
(3,239 |
) |
(7,690 |
) |
Operational income (Loss) before financial income (expenses) and taxes |
|
404,681 |
|
214,205 |
|
(19,902 |
) |
197,466 |
|
141,391 |
|
291,357 |
|
318,639 |
|
127,220 |
|
842,086 |
|
(200,335 |
) |
1,686,895 |
|
629,913 |
|
Finacial result, net |
|
(298,859 |
) |
(327,651 |
) |
(23,376 |
) |
(22,984 |
) |
(32,592 |
) |
(45,054 |
) |
(65,912 |
) |
(84,727 |
) |
(30,502 |
) |
496,322 |
|
(451,241 |
) |
15,906 |
|
Income (Loss) before taxes |
|
105,822 |
|
(113,446 |
) |
(43,278 |
) |
174,482 |
|
108,799 |
|
246,303 |
|
252,727 |
|
42,493 |
|
811,584 |
|
295,987 |
|
1,235,654 |
|
645,819 |
|
Income and social contribution taxes |
|
(27,351 |
) |
28,115 |
|
81,563 |
|
17,330 |
|
(47,725 |
) |
(75,430 |
) |
(78,155 |
) |
(14,477 |
) |
(263,925 |
) |
(507,962 |
) |
(335,593 |
) |
(552,424 |
) |
Net income (Loss) |
|
78,471 |
|
(85,331 |
) |
38,285 |
|
191,812 |
|
61,074 |
|
170,873 |
|
174,572 |
|
28,016 |
|
547,659 |
|
(211,975 |
) |
900,061 |
|
93,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales between segments |
|
611,325 |
|
482,449 |
|
30,580 |
|
46,181 |
|
3,110 |
|
2,572 |
|
45,580 |
|
43,891 |
|
|
|
|
|
690,595 |
|
575,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation/amortization |
|
456,958 |
|
435,788 |
|
344,050 |
|
452,859 |
|
81,602 |
|
96,045 |
|
171,623 |
|
313,800 |
|
|
|
|
|
1,054,233 |
|
1,298,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
Investments in associates and jointly-controlled entities |
|
|
|
|
|
492,737 |
|
303,526 |
|
573,642 |
|
404,522 |
|
190,374 |
|
|
|
86,257 |
|
90,796 |
|
1,343,010 |
|
798,844 |
|
Total assets |
|
16,613,582 |
|
18,672,770 |
|
16,862,983 |
|
16,459,784 |
|
4,928,132 |
|
5,582,926 |
|
11,594,792 |
|
11,970,203 |
|
4,175,636 |
|
1,949,458 |
|
54,175,125 |
|
54,635,141 |
|
Total liabilities |
|
9,282,603 |
|
10,761,705 |
|
3,482,403 |
|
3,407,444 |
|
1,123,596 |
|
1,651,590 |
|
6,129,389 |
|
6,519,255 |
|
8,811,357 |
|
8,020,494 |
|
28,829,348 |
|
30,360,488 |
|
The main products by business segment are:
Brazil Operation: rebar, bars, shapes, drawn products, billets, blooms, slabs, wire rod, structural shapes and iron ore.
North America Operation: rebar, bars, wire rod, light and heavy structural shapes.
South America Operation: rebar, bars and drawn products.
Special Steel Operation: stainless steel, round, square and flat bars, wire rod.
The column of eliminations and adjustments includes the elimination of sales between segments applicable to the Company in the context of the Condensed Consolidated Interim Financial Statements.
The Companys geographic information with net sales classified according to the geographical region where the products were shipped is as follows:
Information by geographic area:
|
|
For the three-month periods ended |
| ||||||||||||||||||
|
|
Brazil |
|
Latin America (1) |
|
North America (2) |
|
Europe/Asia |
|
Consolidated |
| ||||||||||
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
Net sales |
|
3,248,268 |
|
3,219,259 |
|
1,159,501 |
|
1,503,769 |
|
4,620,672 |
|
4,908,157 |
|
137,412 |
|
617,593 |
|
9,165,853 |
|
10,248,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
Total assets |
|
23,485,473 |
|
24,266,983 |
|
6,029,109 |
|
6,159,387 |
|
23,869,069 |
|
23,463,447 |
|
791,474 |
|
745,324 |
|
54,175,125 |
|
54,635,141 |
|
(1) Does not include operations of Brazil
(2) Does not include operations of Mexico
|
|
For the six-month periods ended |
| ||||||||||||||||||
|
|
Brazil |
|
Latin America (1) |
|
North America (2) |
|
Europe/Asia |
|
Consolidated |
| ||||||||||
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
Net sales |
|
6,149,229 |
|
5,919,982 |
|
2,332,667 |
|
3,020,586 |
|
8,895,179 |
|
9,935,723 |
|
247,442 |
|
1,456,998 |
|
17,624,517 |
|
20,333,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
June 30, |
|
December |
|
Total assets |
|
23,485,473 |
|
24,266,983 |
|
6,029,109 |
|
6,159,387 |
|
23,869,069 |
|
23,463,447 |
|
791,474 |
|
745,324 |
|
54,175,125 |
|
54,635,141 |
|
(1) Does not include operations of Brazil
(2) Does not include operations of Mexico
IFRSs require that the Company disclose the net sales per product unless the information is not available and the cost to obtain it would be excessive. Accordingly, management does not consider this information useful for its decision making process, because it would entail aggregating sales for different markets with different currencies, subject to the effects of exchange differences. Steel consumption patterns and the pricing dynamics of each product or group of products in different countries and different markets within these countries are poorly correlated, and thus the information would not be useful and would not serve to conclude on historical trends and progresses. In light of this scenario and considering that the information on net sales by product is not maintained on a consolidated basis and the cost to obtain net sales per product would be excessive compared to the benefits that would be derived from this information, the Company is not presenting the breakdown of net sales by product.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
NOTE 23 IMPAIRMENT OF ASSETS
The impairment test of goodwill and other long-lived assets is tested based on the analysis and identification of facts or circumstances that may involve the need to perform the impairment test. The Company performs impairment tests of goodwill and other long-lived assets, based on projections of discounted cash flows, which take into account assumptions such as: cost of capital, growth rate and adjustments applied to flows in perpetuity, methodology for working capital determination, investment plans, and long-term economic-financial forecasts.
To determine the recoverable amount of each business segment, the Company uses the discounted cash flow method, taking as basis, financial and economic projections for each segment. The projections are updated to take into consideration any observed changes in the economic environment of the market in which the Company operates, as well as premises of expected results and historical profitability of each segment.
The goodwill impairment test allocated to business segments is performed annually in December, also being performed at interim reporting dates if events or circumstances indicate possible impairment. In the test performed for the year ended on 2016, the Company performed a sensitivity analysis in the assumptions of discount rate and perpetuity growth rate, due to the potential impact in the discounted cash flows, therefore, an increase of 0.5% in the discount rate to discount the cash flow of each segment would result in recoverable amounts that are below the book value and/or that exceeded the book value as shown below: a) North America: below book value of R$ 872 million; b) Special Steel: exceeded book value by R$ 1,170 million; c) South America: exceeded book value by R$ 486 million; and d) Brazil: exceeded the book value by R$ 425 million. On the other hand, a decrease of 0.5 % in the perpetuity growth rate of the cash flow of each business segment would result in a recoverable amount below the book value and / or that exceeded the book value as shown below: a) North America: below the book value by R$ 661 million; b) Special Steel: exceeded the book value by R$ 1,301 million; c) South America: exceeded the book value by R$ 561 million; and d) Brazil: exceeded the book value by R$ 673 million.
The Company concluded that there are no indications that an impairment test of goodwill and other long-lived assets for the period ended on June 30, 2017 is required.
The Company will maintain over 2017 its constant monitoring of the steel market in order to identify any deterioration, significant drop in demand from steel consuming sectors (notably automotive and construction), stoppage of industrial plants or activities relevant changes in the economy or financial market that result in increased perception of risk or reduction of liquidity and refinancing capacity. Although the projections made by the Company provide a more challenging scenario than that in recent years, the events mentioned above, if manifested in a greater intensity than that anticipated in the assumptions made by management, may lead the Company to revise its projections of value in use and eventually result in impairment losses.
NOTE 24 - SUBSEQUENT EVENTS
I) On July 20, 2017, Gerdau S.A. and Metalúrgica Gerdau S.A. issued a material fact, in connection with the application to register the public stock tender offer to increase interest through the exchange of common shares for preferred shares issued by Gerdau S.A. (Offer) and, supplementing the Material Fact notice dated March 8, 2017; complemented by the Notice to the Market dated March 13, 2017; by the Material Fact notice dated March 22, 2017; and by the Notice to the Market dated May 22, 2017, inform to their shareholders and the general market that they received on July 19, 2017 Official Letter 198/2017/CVM/SRE/GER-1 from the Brazilian Securities Commission (CVM) granting the registration of the Offer and in view of the decision of the Board of Commissioners of the CVM, in a meeting held on June 13, 2017, determining the maintenance of the proportionate limit for the exchange of common (GGBR3) and preferred (GGBR4) shares issued by the Company, as provided for in Article 15 of CVM Instruction 361/2002, the Offer is subject to adherence by the holders of at least thirty nine million, five hundred fifty thousand and four hundred seventy-four (39,550,474) common shares issued by the Company, which corresponds to two-thirds (2/3) of the free-float common shares. On July 21, 2017 the Offer notice was published, which will remain valid between July 22, 2017 and August 22, 2017, date on which the auction will be held. The notice and other documents related to the Offer, as applicable, were made available after their publication on the websites of the Companies, of Banco Bradesco BBI S.A., of the CVM and of B3 S.A. - Brasil, Bolsa, Balcão and at the headquarters of the Companies, of Bradesco BBI, of the CVM and of B3.
II) On August 7, 2017, the Company proposed the anticipation of the mandatory minimum dividend on income of the current fiscal year, stipulated in its Bylaws, to be paid in the form of dividends, which will be calculated and credited on the shareholding interest owned on August 21, 2017, in the amount of R$ 34.2 million (R$ 0.02 per common and preferred
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2017
(In thousands of Brazilian Reais R$, unless otherwise stated)
(Unaudited)
share), with payment on September 1, 2017, which was submitted and approved by the Board of Directors on August 8, 2017.
********************************