FORM 6-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
Dated October 30, 2019
Commission File Number 1-14878
GERDAU S.A.
(Exact Name as Specified in its Charter)
N/A
(Translation of Registrants Name)
Av. Dra. Ruth Cardoso, 8,501 8° andar
São Paulo, São Paulo - Brazil CEP 05425-070
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F |
x |
Form 40-F |
o |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes o |
No x |
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: October 30, 2019
|
GERDAU S.A. | |
|
| |
|
| |
|
By: |
/s/ Harley Lorentz Scardoelli |
|
Name: |
Harley Lorentz Scardoelli |
|
Title: |
Investor Relations Director |
GERDAU S.A.
Condensed consolidated interim financial statements
as of September 30, 2019
Independent Auditors Report on Review of condensed consolidated interim financial statements
To the Shareholders and Board of Directors
Gerdau S.A.
Brazil - São Paulo - SP
Introduction
We have reviewed the accompanying condensed consolidated balance sheet of Gerdau S.A. (the Company) as of September 30, 2019, and the related condensed consolidated statements of income, comprehensive income, condensed consolidated statements of changes in equity and condensed consolidated statements of cash flows for the nine-month period ended September 30, 2019, and notes, comprising significant accounting policies and other explanatory information (the condensed consolidated interim financial statements). Management is responsible for the preparation and fair presentation of these condensed consolidated interim financial statements in accordance with IAS 34, Interim Financial Reporting. Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review.
Scope of Review
We conducted our review in accordance with the International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of condensed consolidated interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements is not prepared, in all material respects, in accordance with IAS 34, Interim Financial Reporting
Porto Alegre, October 30, 2019
KPMG Auditores Independentes
CRC SP-014428/F-7
/s/ Cristiano Jardim Seguecio |
|
Cristiano Jardim Seguecio |
|
Accountant CRC SP-244525/O-9 T-RS |
|
GERDAU S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of Brazilian reais (R$)
|
|
Note |
|
September 30, 2019 |
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
4 |
|
2,291,416 |
|
2,890,144 |
|
Short-term investments |
|
4 |
|
1,140,196 |
|
459,470 |
|
Trade accounts receivable - net |
|
5 |
|
3,483,208 |
|
3,201,656 |
|
Inventories |
|
6 |
|
9,005,860 |
|
9,167,689 |
|
Tax credits |
|
|
|
538,095 |
|
527,428 |
|
Income and social contribution taxes recoverable |
|
|
|
330,867 |
|
445,561 |
|
Unrealized gains on financial instruments |
|
14 |
|
|
|
30,711 |
|
Other current assets |
|
|
|
714,340 |
|
780,423 |
|
|
|
|
|
17,503,982 |
|
17,503,082 |
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS |
|
|
|
|
|
|
|
Tax credits |
|
|
|
55,109 |
|
32,065 |
|
Deferred income taxes |
|
|
|
3,842,125 |
|
3,874,054 |
|
Unrealized gains on financial instruments |
|
14 |
|
3,203 |
|
2,706 |
|
Related parties |
|
16 |
|
149,664 |
|
27,939 |
|
Judicial deposits |
|
15 |
|
1,986,242 |
|
2,135,414 |
|
Other non-current assets |
|
|
|
563,281 |
|
449,592 |
|
Prepaid pension cost |
|
|
|
47,644 |
|
17,952 |
|
Advance for future investment in joint venture |
|
|
|
100,483 |
|
375,456 |
|
Investments in associates and joint ventures |
|
8 |
|
1,746,635 |
|
1,367,802 |
|
Goodwill |
|
10 |
|
9,768,835 |
|
9,112,390 |
|
Leasing |
|
2.1 |
|
587,459 |
|
|
|
Other Intangibles |
|
|
|
724,305 |
|
836,096 |
|
Property, plant and equipment, net |
|
|
|
15,967,125 |
|
15,546,481 |
|
|
|
|
|
35,542,110 |
|
33,777,947 |
|
TOTAL ASSETS |
|
|
|
53,046,092 |
|
51,281,029 |
|
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements
GERDAU S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of Brazilian reais (R$)
|
|
Note |
|
September 30, 2019 |
|
December 31, 2018 |
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Trade accounts payable |
|
11 |
|
3,890,091 |
|
4,335,054 |
|
Short-term debt |
|
12 |
|
2,193,333 |
|
1,822,183 |
|
Debentures |
|
13 |
|
68,678 |
|
2,755 |
|
Taxes payable |
|
|
|
396,508 |
|
351,545 |
|
Income and social contribution taxes payable |
|
|
|
138,252 |
|
395,682 |
|
Payroll and related liabilities |
|
|
|
542,336 |
|
588,627 |
|
Dividends payable |
|
|
|
|
|
169,616 |
|
Leasing payable |
|
2.1 |
|
216,275 |
|
|
|
Employee benefits |
|
|
|
464 |
|
157 |
|
Environmental liabilities |
|
|
|
57,179 |
|
60,419 |
|
Unrealized losses on financial instruments |
|
14 |
|
9,975 |
|
5,245 |
|
Other current liabilities |
|
|
|
706,689 |
|
772,970 |
|
|
|
|
|
8,219,780 |
|
8,504,253 |
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
|
|
Long-term debt |
|
12 |
|
10,339,046 |
|
11,545,658 |
|
Debentures |
|
13 |
|
2,892,548 |
|
1,536,118 |
|
Related parties |
|
16 |
|
3,862 |
|
1,350 |
|
Deferred income taxes |
|
|
|
71,620 |
|
118,368 |
|
Provision for tax, civil and labor liabilities |
|
15 |
|
765,567 |
|
770,305 |
|
Environmental liabilities |
|
|
|
62,586 |
|
72,228 |
|
Employee benefits |
|
|
|
1,368,738 |
|
1,356,560 |
|
Obligations with FIDC |
|
17 |
|
999,953 |
|
938,526 |
|
Leasing payable |
|
2.1 |
|
392,315 |
|
|
|
Other non-current liabilities |
|
|
|
431,757 |
|
499,092 |
|
|
|
|
|
17,327,992 |
|
16,838,205 |
|
EQUITY |
|
18 |
|
|
|
|
|
Capital |
|
|
|
19,249,181 |
|
19,249,181 |
|
Treasury stocks |
|
|
|
(254,856 |
) |
(280,426 |
) |
Capital reserves |
|
|
|
11,597 |
|
11,597 |
|
Retained earnings |
|
|
|
5,667,442 |
|
4,806,089 |
|
Operations with non-controlling interests |
|
|
|
(2,870,825 |
) |
(2,870,825 |
) |
Other reserves |
|
|
|
5,479,840 |
|
4,814,988 |
|
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT |
|
|
|
27,282,379 |
|
25,730,604 |
|
|
|
|
|
|
|
|
|
NON-CONTROLLING INTERESTS |
|
|
|
215,941 |
|
207,967 |
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
27,498,320 |
|
25,938,571 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
|
|
53,046,092 |
|
51,281,029 |
|
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements
GERDAU S.A.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
In thousands of Brazilian reais (R$)
|
|
|
|
For the three-month period ended |
|
For the nine-month period ended |
| ||||
|
|
Note |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES |
|
|
|
9,930,829 |
|
12,835,621 |
|
30,110,543 |
|
35,259,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
21 |
|
(8,945,657 |
) |
(10,973,599 |
) |
(26,583,803 |
) |
(30,413,955 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
|
985,172 |
|
1,862,022 |
|
3,526,740 |
|
4,845,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
21 |
|
(115,783 |
) |
(144,173 |
) |
(358,551 |
) |
(431,938 |
) |
Impairment loss on trade receivables |
|
21 |
|
(7,717 |
) |
2,919 |
|
(15,695 |
) |
(17,316 |
) |
General and administrative expenses |
|
21 |
|
(248,810 |
) |
(277,071 |
) |
(719,311 |
) |
(820,449 |
) |
Other operating income |
|
21 |
|
159,720 |
|
63,674 |
|
307,561 |
|
153,380 |
|
Other operating expenses |
|
21 |
|
(80,803 |
) |
(55,701 |
) |
(109,466 |
) |
(124,340 |
) |
Gains and losses on assets held for sale and sales of interest in subsidiaries |
|
21 |
|
|
|
(177,627 |
) |
|
|
(228,948 |
) |
Equity method investees |
|
8 |
|
9,685 |
|
(2,589 |
) |
(14,674 |
) |
38,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES |
|
|
|
701,464 |
|
1,271,454 |
|
2,616,604 |
|
3,415,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income |
|
22 |
|
48,874 |
|
57,134 |
|
137,647 |
|
122,420 |
|
Financial expenses |
|
22 |
|
(367,644 |
) |
(401,244 |
) |
(1,065,918 |
) |
(1,154,539 |
) |
Exchange variations, net |
|
22 |
|
(234,450 |
) |
(114,400 |
) |
(292,854 |
) |
(509,673 |
) |
Gain and losses on derivative financial instruments, net |
|
22 |
|
(9,177 |
) |
16,996 |
|
(16,271 |
) |
44,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES |
|
|
|
139,067 |
|
829,940 |
|
1,379,208 |
|
1,917,406 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
Current |
|
7 |
|
(61,339 |
) |
(118,198 |
) |
(292,412 |
) |
(418,642 |
) |
Deferred |
|
7 |
|
211,577 |
|
78,775 |
|
27,886 |
|
438,453 |
|
Income and social contribution taxes |
|
|
|
150,238 |
|
(39,423 |
) |
(264,526 |
) |
19,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
|
|
289,305 |
|
790,517 |
|
1,114,682 |
|
1,937,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ATTRIBUTABLE TO: |
|
|
|
|
|
|
|
|
|
|
|
Owners of the parent |
|
|
|
285,629 |
|
784,910 |
|
1,104,167 |
|
1,920,527 |
|
Non-controlling interests |
|
|
|
3,676 |
|
5,607 |
|
10,515 |
|
16,690 |
|
|
|
|
|
289,305 |
|
790,517 |
|
1,114,682 |
|
1,937,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share - preferred and common - (R$) |
|
19 |
|
0.17 |
|
0.46 |
|
0.65 |
|
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share - preferred and common - (R$) |
|
19 |
|
0.17 |
|
0.46 |
|
0.65 |
|
1.12 |
|
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements
GERDAU S.A.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands of Brazilian reais (R$)
|
|
For the three-month period ended |
|
For the nine-month period ended |
| ||||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
Net income for the period |
|
289,305 |
|
790,517 |
|
1,114,682 |
|
1,937,217 |
|
Items that may be reclassified subsequently to profit or loss |
|
|
|
|
|
|
|
|
|
Comprehensive income from associates and joint ventures |
|
64,244 |
|
57,645 |
|
57,568 |
|
202,259 |
|
Cumulative translation adjustment |
|
1,224,051 |
|
572,180 |
|
1,102,341 |
|
3,211,552 |
|
Recycling of cumulative translation adjustment to net income |
|
|
|
|
|
|
|
(413,694 |
) |
Unrealized Losses on net investment hedge |
|
(538,302 |
) |
(373,480 |
) |
(478,370 |
) |
(1,792,505 |
) |
Unrealized (Losses) Gains on financial instruments, net of tax |
|
(1,059 |
) |
1,631 |
|
517 |
|
13,305 |
|
|
|
748,934 |
|
257,976 |
|
682,056 |
|
1,220,917 |
|
|
|
|
|
|
|
|
|
|
|
Items that will not be reclassified subsequently to profit or loss |
|
|
|
|
|
|
|
|
|
Remeasurement of defined benefit pension plan, net of tax |
|
|
|
13,403 |
|
|
|
13,403 |
|
|
|
|
|
13,403 |
|
|
|
13,403 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of tax |
|
748,934 |
|
271,379 |
|
682,056 |
|
1,234,320 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period, net of tax |
|
1,038,239 |
|
1,061,896 |
|
1,796,738 |
|
3,171,537 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
|
|
|
|
|
|
Owners of the parent |
|
1,024,137 |
|
1,050,118 |
|
1,773,337 |
|
3,122,797 |
|
Non-controlling interests |
|
14,102 |
|
11,878 |
|
23,401 |
|
48,740 |
|
|
|
1,038,239 |
|
1,061,996 |
|
1,796,738 |
|
3,171,537 |
|
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements
GERDAU S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
in thousands of Brazilian reais (R$)
|
|
Attributed to parent companys interest |
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
Other Reserves |
|
|
|
|
|
|
| ||||||||||||||
|
|
Capital |
|
Treasury stocks |
|
Capital Reserve |
|
Legal reserve |
|
Tax Incentives |
|
Investments and |
|
Retained |
|
Operations with |
|
Gains and losses |
|
Gains and losses |
|
Cumulative |
|
Pension Plan |
|
Stock Option |
|
Total parent |
|
Non-controlling |
|
Total |
|
Balance as of January 1, 2018 |
|
19,249,181 |
|
(76,085 |
) |
11,597 |
|
628,228 |
|
611,531 |
|
2,075,615 |
|
|
|
(2,870,831 |
) |
(4,552,984 |
) |
4,972 |
|
8,841,450 |
|
(472,458 |
) |
194,985 |
|
23,645,201 |
|
248,740 |
|
23,893,941 |
|
2018 Changes in Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,920,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,920,527 |
|
16,690 |
|
1,937,217 |
|
Other comprehensive income (loss) recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,792,231 |
) |
13,175 |
|
2,967,999 |
|
13,327 |
|
|
|
1,202,270 |
|
32,050 |
|
1,234,320 |
|
Total comprehensive income (loss) recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,920,527 |
|
|
|
(1,792,231 |
) |
13,175 |
|
2,967,999 |
|
13,327 |
|
|
|
3,122,797 |
|
48,740 |
|
3,171,537 |
|
Long term incentive plan cost recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,473 |
) |
(18,473 |
) |
(88 |
) |
(18,561 |
) |
Assignment of preferred shares |
|
|
|
11,622 |
|
|
|
|
|
|
|
7,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,984 |
|
|
|
18,984 |
|
Effects of IFRS 9 adoption |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,085 |
) |
|
|
|
|
|
|
(10,085 |
) |
(65 |
) |
(10,150 |
) |
Effects of IAS29 adoption in the subsidiary of Argentina |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,044 |
|
|
|
|
|
343,044 |
|
274 |
|
343,318 |
|
Treasury stocks |
|
|
|
(149,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149,711 |
) |
(327 |
) |
(150,038 |
) |
Long term incentive plan exercised during the period |
|
|
|
27,265 |
|
|
|
|
|
|
|
(4,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,265 |
|
77 |
|
23,342 |
|
Effects of interest changes in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
(79,838 |
) |
(79,832 |
) |
Dividends/interest on capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
(425,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(425,465 |
) |
(4,843 |
) |
(430,308 |
) |
Balance as of September 30, 2018 (Note 18) |
|
19,249,181 |
|
(186,909 |
) |
11,597 |
|
628,228 |
|
611,531 |
|
2,078,977 |
|
1,495,062 |
|
(2,870,825 |
) |
(6,345,215 |
) |
8,062 |
|
12,152,493 |
|
(459,131 |
) |
176,512 |
|
26,549,563 |
|
212,670 |
|
26,762,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2019 |
|
19,249,181 |
|
(280,426 |
) |
11,597 |
|
743,421 |
|
628,582 |
|
3,434,086 |
|
|
|
(2,870,825 |
) |
(6,044,258 |
) |
486,788 |
|
10,533,612 |
|
(320,303 |
) |
159,149 |
|
25,730,604 |
|
207,967 |
|
25,938,571 |
|
2019 Changes in Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104,167 |
|
10,515 |
|
1,114,682 |
|
Other comprehensive income (loss) recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(478,347 |
) |
517 |
|
1,147,000 |
|
|
|
|
|
669,170 |
|
12,886 |
|
682,056 |
|
Total comprehensive income (loss) recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104,167 |
|
|
|
(478,347 |
) |
517 |
|
1,147,000 |
|
|
|
|
|
1,773,337 |
|
23,401 |
|
1,796,738 |
|
Long term incentive plan cost recognized in the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,318 |
) |
(4,318 |
) |
884 |
|
(3,434 |
) |
Long term incentive plan exercised during the period |
|
|
|
25,570 |
|
|
|
|
|
|
|
(5,093 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,477 |
|
6 |
|
20,483 |
|
Effects of interest changes in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,000 |
) |
(3,000 |
) |
Complementary dividends |
|
|
|
|
|
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101 |
) |
|
|
(101 |
) |
Dividends/interest on equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
(237,620 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(237,620 |
) |
(13,317 |
) |
(250,937 |
) |
Balance as of September 30, 2019 (Note 18) |
|
19,249,181 |
|
(254,856 |
) |
11,597 |
|
743,421 |
|
628,582 |
|
3,428,892 |
|
866,547 |
|
(2,870,825 |
) |
(6,522,605 |
) |
487,305 |
|
11,680,612 |
|
(320,303 |
) |
154,831 |
|
27,282,379 |
|
215,941 |
|
27,498,320 |
|
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements
GERDAU S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands of Brazilian reais (R$)
|
|
|
|
For the nine-month period ended |
| ||
|
|
Note |
|
September 30, 2019 |
|
September 30, 2018 |
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
Net income for the period |
|
|
|
1,114,682 |
|
1,937,217 |
|
Adjustments to reconcile net income for the period to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
21 |
|
1,534,623 |
|
1,387,888 |
|
Equity method investees |
|
8 |
|
14,674 |
|
(38,937 |
) |
Exchange variation, net |
|
22 |
|
292,854 |
|
509,673 |
|
Gains and losses on derivative financial instruments, net |
|
22 |
|
16,271 |
|
(44,051 |
) |
Post-employment benefits |
|
|
|
119,050 |
|
144,352 |
|
Stock based compensation |
|
|
|
34,426 |
|
34,452 |
|
Income and social contribution taxes |
|
7 |
|
264,526 |
|
(19,811 |
) |
Gains on disposal of property, plant and equipment, net |
|
|
|
(1,690 |
) |
(27,873 |
) |
Gains and losses on assets held for sale and sales of interest in subsidiaries |
|
|
|
|
|
228,948 |
|
Impairment loss on trade receivables |
|
|
|
15,695 |
|
17,316 |
|
Provision for tax, labor and civil claims |
|
|
|
(5,275 |
) |
71,281 |
|
Interest income on short-term investments |
|
|
|
(44,346 |
) |
(34,572 |
) |
Interest expense on debt and debentures |
|
22 |
|
756,227 |
|
880,825 |
|
Interest on loans with related parties |
|
16 |
|
(2,657 |
) |
(194 |
) |
Provision for net realizable value adjustment in inventory, net |
|
6 |
|
52,103 |
|
6,591 |
|
|
|
|
|
4,161,163 |
|
5,053,105 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
Increase in trade accounts receivable |
|
|
|
(113,419 |
) |
(1,115,101 |
) |
Decrease (Increase) in inventories |
|
|
|
337,161 |
|
(2,386,479 |
) |
(Decrease) Increase in trade accounts payable |
|
|
|
(600,628 |
) |
621,748 |
|
Increase (Decrease) in other receivables |
|
|
|
172,532 |
|
(123,985 |
) |
Decrease in other payables |
|
|
|
(564,336 |
) |
(711,211 |
) |
Present value adjustment portion on leases |
|
|
|
(5,821 |
) |
|
|
Dividends from associates and joint ventures |
|
|
|
38,952 |
|
49,139 |
|
Purchases of trading securities |
|
|
|
(1,170,608 |
) |
(1,063,386 |
) |
Proceeds from maturities and sales of trading securities |
|
|
|
509,198 |
|
974,303 |
|
Cash provided by operating activities |
|
|
|
2,764,194 |
|
1,298,133 |
|
|
|
|
|
|
|
|
|
Interest paid on loans and financing |
|
|
|
(683,099 |
) |
(798,922 |
) |
Income and social contribution taxes paid |
|
|
|
(220,929 |
) |
(216,823 |
) |
Net cash provided by operating activities |
|
|
|
1,860,166 |
|
282,388 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
9 |
|
(1,260,640 |
) |
(834,834 |
) |
Proceeds from sales of property, plant and equipment, investments and other intangibles |
|
|
|
20,307 |
|
1,776,326 |
|
Purchases of other intangibles |
|
|
|
(64,441 |
) |
(42,147 |
) |
Advance for future investment in joint venture |
|
|
|
(94,687 |
) |
|
|
Net cash (used in) provided by investing activities |
|
|
|
(1,399,461 |
) |
899,345 |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Purchases of Treasury stocks |
|
|
|
|
|
(149,711 |
) |
Dividends and interest on capital paid |
|
|
|
(416,219 |
) |
(378,343 |
) |
Proceeds from loans and financing |
|
|
|
3,472,819 |
|
964,216 |
|
Repayment of loans and financing |
|
|
|
(3,870,873 |
) |
(1,706,231 |
) |
Leasing payment |
|
|
|
(158,622 |
) |
|
|
Intercompany loans, net |
|
|
|
(116,555 |
) |
11,961 |
|
Net cash used in financing activities |
|
|
|
(1,089,450 |
) |
(1,258,108 |
) |
|
|
|
|
|
|
|
|
Exchange variation on cash and cash equivalents |
|
|
|
30,017 |
|
316,233 |
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash and cash equivalents |
|
|
|
(598,728 |
) |
239,858 |
|
Cash and cash equivalents at beginning of period |
|
|
|
2,890,144 |
|
2,555,338 |
|
Cash and cash equivalents at end of period |
|
|
|
2,291,416 |
|
2,795,196 |
|
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
NOTE 1 - GENERAL INFORMATION
Gerdau S.A. is a publicly traded corporation (sociedade anônima) with its corporate domicile in the city of São Paulo, Brazil. Gerdau S.A and subsidiaries (collectively referred to as the Company) is a leading producer of long steel in the Americas and one of the largest suppliers of special steel in the world. In Brazil, the Company also produces flat steel and iron ore, activities which expanded the product mix and made its operations even more competitive. The Company believes it is the largest recycler in Latin America and around the world it transforms each year millions of tons of scrap into steel, reinforcing its commitment to sustainable development of the regions where it operates. Gerdau is listed on the São Paulo, New York and Madrid stock exchanges.
The Condensed Consolidated Interim Financial Statements of the Company were approved by the Management on October 29, 2019.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
2.1 - Basis of Presentation
The Companys Condensed Consolidated Interim Financial Statements for the three and nine-month periods ended on September 30, 2019 have been prepared in accordance with International Accounting Standard (IAS) Nº 34, which establishes the content of condensed interim financial statements. These Condensed Consolidated Interim Financial Statements should be read in conjunction with the Consolidated Financial Statements of Gerdau S.A., as of December 31, 2018, which were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board - IASB.
The preparation of the Condensed Consolidated Interim Financial Statements in accordance with IAS 34 requires Management to make accounting estimates. The Condensed Consolidated Interim Financial Statements have been prepared using the historical cost as its basis, except for the valuation of certain financial instruments, which are measured at fair value.
Changes in accounting policies
Except as described below, the accounting policies applied in this Condensed Consolidated Interim Financial Statements are the same as those applied in the Consolidated Financial Statements for the year ended December 31, 2018. The Company initially adopted IFRS 16 - Lease, as of January 1, 2019.
a) IFRS 16 - Leases. This standard introduces a single model for accounting for leases in the balance sheet for lessees. A lessee recognizes a right of use asset that represents its right to use the leased asset and a lease liability that represents its obligation to make lease payments. Exemptions are available for short term leases and low value items. This standard replaces existing lease standards, including IAS 17 - Leasing Operations and IFRIC 4, SIC 15 and SIC 27 - Complementary Aspects of Leasing Operations. The Company recognizes as from 2019 new assets and liabilities for its operating leases. The nature of the expenses related to these leases changes because the Company recognizes a depreciation of right of use assets and financial expense on lease obligations. The Company recognized until 2018 an operating lease expense during the lease term. No significant impact is expected on the Companys financial leases.
The new standard provides practical expedients whose election is optional. The Company adopted the following practical expedients:
1) The Company did not reassess whether the contract is or contains lease at the initial application date, instead applied IAS 17 to contracts that were previously identified as a lease using IAS 17 and IFRIC 4;
2) The Company did not separate non-lease components from leasing components by considering them as a single lease component;
3) The Company did not register contracts with a term exceeding 12 months, which on the date of transition, they ends within 12 months of the date of initial application;
4) The Company did not register contracts of low value;
5) The Company did not exclude initial direct costs of measuring the right to use asset on the date of initial application;
6) The Company did make use of judgement in determining the term of the lease, if the contract contains options to extend or terminate the lease, among others; and
7) The Company did apply a single discount rate to the lease portfolio with fairly similar characteristics (such as similar remaining lease term, similar classes of underlying assets in a similar economic environment).
Variable elements of payments related to leases (such as a lease of machinery and/or equipment with parts of payments based on asset productivity) are not included in the liability calculation and recorded as operating expense. The discount rates used by the Company were obtained according to market conditions. On January 1, 2019, the right of use of asset, as well as the lease obligation, represents the amount of R$ 799,361. On September 30, 2019, the Company has recognized a right-of-use asset in the amount of R$ 587,459, a current lease liability of R$ 216,275 and a non-current lease liability of R$ 392,315. The Company adopted this standard on January 1, 2019 without updating the comparative information, as well as applied the standard for all contracts entered before January 1, 2019 that were identified as leases in accordance with IAS 17 and IFRIC 4.
b) IFRIC 23 Uncertainty over Income Tax Treatments. Establishes aspects of recognition and measurement of provision in accordance with IAS 12 when there are uncertainties about the treatment of income tax related to tax assets or liabilities and current or deferred taxes, based on taxable income, tax losses, taxable bases, unused tax losses, unused tax credits and tax rates. This interpretation is effective for fiscal years beginning on or after January 1, 2019. The Company did not have material impact in its Financial Statements.
2.2 New IFRS and Interpretations of the IFRIC (International Financial Reporting Interpretations Committee)
The IASB has issued and/or reviewed some IFRS standards, which have mandatory adoption for the year 2020 and/or after. The Company is assessing the adoption impact of these standards in its Consolidated Financial Statements.
· Amendment of IFRS 3 - Definition of business. Clarifies aspects for the definition of business, in order to clarify when a transaction must have accounting treatment of business combination or acquisition of assets. This change in the standard is effective for years beginning on or after January 1, 2020. The Company does not expect significant impacts on possible future events of business combinations or acquisition of assets.
· Amendment of IAS 1 and IAS 8 - Definition of materiality Clarifies definition of materiality to the framework of the accounting standard where this concept is applicable. These changes are effective for years beginning on or after January 1, 2020. The Company does not expect material impacts on its Financial Statements.
· Amendment of IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform. Clarifies interest rate aspects of hedge financial instruments. These changes are effective for years beginning on or after January 1, 2020. The Company is evaluating the impacts of this change on its Financial Statements.
NOTE 3 CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
3.1 - Subsidiaries
The Company did not have material changes of interest in subsidiaries for the period ended on September 30, 2019, when compared to those existing on December 31, 2018.
3.2 - Joint Ventures
The Company did not have material changes of interest in joint ventures for the period ended on September 30, 2019, when compared to those existing on December 31, 2018, except for the capital increase in Gerdau Corsa S.A.P.I. de C.V., which changed the interest held by the Company in this entity to 58.71%, remaining as a joint venture.
3.3 Associate companies
The Company did not have material changes in interest in associate companies for the period ended on September 30, 2019, when compared to those existing on December 31, 2018, except for the merger of its associate Corsa Controladora, S.A. de C.V. in the joint venture Gerdau Corsa S.A.P.I. de C.V.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
NOTE 4 CASH AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Cash and cash equivalents
|
|
September 30, 2019 |
|
December 31, 2018 |
|
Cash |
|
5,316 |
|
6,800 |
|
Banks and immediately available investments |
|
2,286,100 |
|
2,883,344 |
|
Cash and cash equivalents |
|
2,291,416 |
|
2,890,144 |
|
Short-term investments
|
|
September 30, 2019 |
|
December 31, 2018 |
|
Short-term investments |
|
1,140,196 |
|
459,470 |
|
Short-term investments include Bank Deposit Certificates and marketable securities, which are stated at their fair value. Income generated by these investments are recorded as financial income. The income from short-term investments recognized in the three and nine-month periods ended on September 30, 2019 and September 30, 2018 are presented in note 22.
NOTE 5 ACCOUNTS RECEIVABLE
|
|
September 30, 2019 |
|
December 31, 2018 |
|
Trade accounts receivable - in Brazil |
|
1,381,733 |
|
1,056,625 |
|
Trade accounts receivable - exports from Brazil |
|
110,867 |
|
373,593 |
|
Trade accounts receivable - foreign subsidiaries |
|
2,121,052 |
|
1,929,595 |
|
(-) Impairment loss on trade receivables |
|
(130,444 |
) |
(158,157 |
) |
|
|
3,483,208 |
|
3,201,656 |
|
NOTE 6 - INVENTORIES
|
|
September 30, 2019 |
|
December 31, 2018 |
|
Finished products |
|
4,099,340 |
|
3,985,964 |
|
Work in progress |
|
1,746,815 |
|
1,688,794 |
|
Raw materials |
|
1,912,254 |
|
2,296,074 |
|
Storeroom supplies |
|
968,590 |
|
784,517 |
|
Imports in transit |
|
346,477 |
|
426,044 |
|
(-) Allowance for adjustments to net realizable value |
|
(67,616 |
) |
(13,704 |
) |
|
|
9,005,860 |
|
9,167,689 |
|
The allowance for adjustment to net realizable value of inventories, on which the provision and reversal of provision are registered with impact on cost of sales, is as follows:
Balance as of January 01, 2018 |
|
(3,556 |
) |
Provision for the year |
|
(11,943 |
) |
Reversal of adjustments to net realizable value |
|
3,715 |
|
Exchange rate variation |
|
(871 |
) |
Assets held for sale |
|
(1,049 |
) |
Balance as of December 31, 2018 |
|
(13,704 |
) |
Provision for adjustments to net realizable value |
|
(57,861 |
) |
Reversal of adjustments to net realizable value |
|
5,758 |
|
Exchange rate variation |
|
(1,809 |
) |
Balance as of September 30, 2019 |
|
(67,616 |
) |
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
NOTE 7 INCOME AND SOCIAL CONTRIBUTION TAXES
In Brazil, income taxes include federal income tax (IR) and social contribution (CS), which represents an additional federal income tax. The statutory rates for income tax and social contribution are 25% and 9%, respectively, and are applicable for the periods ended on September 30, 2019 and 2018. The foreign subsidiaries of the Company are subject to taxation at rates ranging between 25.0% and 34.0%. The differences between the Brazilian tax rates and the rates of other countries are presented under Difference in tax rates in foreign companies in the reconciliation of income tax and social contribution below.
a) Reconciliations of income and social contribution taxes at statutory rates to amounts presented in the Statement of Income are as follows:
|
|
For the three-month period ended |
| ||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
Income before income taxes |
|
139,067 |
|
829,940 |
|
Statutory tax rates |
|
34 |
% |
34 |
% |
Income and social contribution taxes at statutory rates |
|
(47,283 |
) |
(282,180 |
) |
Tax adjustment with respect to: |
|
|
|
|
|
- Difference in tax rates in foreign companies |
|
139,379 |
|
117,245 |
|
- Equity method investees |
|
3,293 |
|
(880 |
) |
- Interest on equity * |
|
|
|
82,106 |
|
- Tax credits and incentives |
|
262 |
|
2,960 |
|
- Recognition of previously unrecognized tax losses |
|
(352 |
) |
29,337 |
|
- Other permanent differences, net |
|
54,939 |
|
11,989 |
|
Income and social contribution taxes |
|
150,238 |
|
(39,423 |
) |
Current |
|
(61,339 |
) |
(118,198 |
) |
Deferred |
|
211,577 |
|
78,775 |
|
|
|
For the nine-month period ended |
| ||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
Income before income taxes |
|
1,379,208 |
|
1,917,406 |
|
Statutory tax rates |
|
34 |
% |
34 |
% |
Income and social contribution taxes at statutory rates |
|
(468,931 |
) |
(651,918 |
) |
Tax adjustment with respect to: |
|
|
|
|
|
- Difference in tax rates in foreign companies |
|
145,073 |
|
449,624 |
|
- Equity method investees |
|
(4,989 |
) |
13,239 |
|
- Interest on equity * |
|
69 |
|
128,398 |
|
- Tax credits and incentives |
|
3,717 |
|
8,785 |
|
- Recognition of previously unrecognized tax losses |
|
100 |
|
37,806 |
|
- Other permanent differences, net |
|
60,435 |
|
33,877 |
|
Income and social contribution taxes |
|
(264,526 |
) |
19,811 |
|
Current |
|
(292,412 |
) |
(418,642 |
) |
Deferred |
|
27,886 |
|
438,453 |
|
(*) The Brazilian Law 9,249/95 provides that a company may, at its sole discretion, consider dividends distributions to shareholders to be considered as interest on equity subject to specific limitations - which has the effect of a taxable deduction in the determination of income tax and social contribution. The limitation considers the greater of (i) shareholders equity multiplied by the TJLP (Long Term Interest Rate) rate or (ii) 50% of the net income in the fiscal year. This expense is not recognized for financial reporting purposes and thus it does not impact accounting profit.
b) Tax Assets not booked:
Due to the lack of expectation of usage, the Company has not recorded a portion of tax assets arising from its operations in Brazil of R$ 262,553 (R$ 265,403 as of December 31, 2018), and negative basis of social contribution in subsidiaries, which do not have an expiration date. The subsidiaries abroad had R$ 680,013 (R$ 531,657 as of December 31, 2018) of
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
tax credits on capital losses for which deferred tax assets have not been booked and which expire between 2029 and 2035 and also several tax losses of state credits in the amount of R$ 862,547 (R$ 795,775 as of December 31, 2018), which expire at various dates between 2019 and 2039.
NOTE 8 INVESTMENTS
|
|
Investments in |
|
Investments in |
|
Investments in |
|
Investments in |
|
Others |
|
Total |
|
Balance as of January 01, 2018 |
|
346,080 |
|
584,899 |
|
199,647 |
|
|
|
149,673 |
|
1,280,299 |
|
Equity in earnings |
|
(77,909 |
) |
51,648 |
|
15,629 |
|
(1,700 |
) |
22,473 |
|
10,141 |
|
Cumulative Translation Adjustment |
|
33,101 |
|
96,045 |
|
(1,377 |
) |
(2,050 |
) |
|
|
125,719 |
|
Capital increase |
|
|
|
|
|
|
|
7,000 |
|
|
|
7,000 |
|
Dividends/Interest on equity |
|
|
|
(31,359 |
) |
|
|
|
|
(23,998 |
) |
(55,357 |
) |
Balance as of December 31, 2018 |
|
301,272 |
|
701,233 |
|
213,899 |
|
3,250 |
|
148,148 |
|
1,367,802 |
|
Equity in earnings |
|
(88,478 |
) |
52,287 |
|
5,722 |
|
(1,110 |
) |
16,905 |
|
(14,674 |
) |
Cumulative Translation Adjustment |
|
20,490 |
|
34,501 |
|
527 |
|
2,050 |
|
|
|
57,568 |
|
Capital increase |
|
367,891 |
|
|
|
|
|
7,000 |
|
|
|
374,891 |
|
Dividends/Interest on equity |
|
(1,843 |
) |
(20,247 |
) |
|
|
|
|
(16,862 |
) |
(38,952 |
) |
Balance as of September 30, 2019 |
|
599,332 |
|
767,774 |
|
220,148 |
|
11,190 |
|
148,191 |
|
1,746,635 |
|
NOTE 9 PROPERTY, PLANT AND EQUIPMENT
a) Summary of changes in property, plant and equipment for the three-month period ended on September 30, 2019, acquisitions amounted to R$ 532,367 (R$ 319,031 for the three-month period ended on September 30, 2018), and disposals amounted to R$ 2,951 (R$ 725,056 for the three-month period ended on September 30, 2018). For the nine-month period ended on September 30, 2019, acquisitions amounted to R$ 1,260,640 (R$ 834,834 for the nine-month period ended on September 30, 2018), and disposals amounted to R$ 21,429 (R$ 1,023,288 for the nine-month period ended on September 30, 2018).
b) Capitalized borrowing costs borrowing costs capitalized during the three-month period ended on September 30, 2019 amounted to R$ 6,766 (R$ 6,211 as of September 30, 2018). Borrowing costs capitalized during the nine-month period ended on September 30, 2019 amounted to R$ 17,913 (R$ 18,810 as of September 30, 2018)
c) Guarantees property, plant and equipment have been pledged as collateral for loans and financing in the amount of R$ 79,562 as of September 30, 2019 (R$ 90,463 as of December 31, 2018).
NOTE 10 GOODWILL
The changes in goodwill are as follows:
|
|
Goodwill |
|
Accumulated |
|
Goodwill after |
|
Balance as of January 01, 2018 |
|
14,500,381 |
|
(6,609,239 |
) |
7,891,142 |
|
(+/-) Foreign exchange effect |
|
2,283,577 |
|
(1,062,329 |
) |
1,221,248 |
|
Balance as of December 31, 2018 |
|
16,783,958 |
|
(7,671,568 |
) |
9,112,390 |
|
(+/-) Foreign exchange effect |
|
1,168,671 |
|
(512,226 |
) |
656,445 |
|
Balance as of September 30, 2019 |
|
17,952,629 |
|
(8,183,794 |
) |
9,768,835 |
|
The amounts of goodwill by segment are as follows:
|
|
September 30, 2019 |
|
December 31, 2018 |
|
|
|
Brazil |
|
373,135 |
|
373,135 |
|
|
|
Special Steels |
|
3,068,260 |
|
2,854,888 |
|
|
|
North America |
|
6,327,440 |
|
5,884,367 |
|
|
|
|
|
9,768,835 |
|
9,112,390 |
|
|
|
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
NOTE 11 TRADE ACCOUNTS PAYABLE
|
|
September 30, 2019 |
|
December 31, 2018 |
|
|
|
Trade accounts payable - domestic market |
|
2,898,524 |
|
3,368,834 |
|
|
|
Trade accounts payable - debtor risk |
|
285,099 |
|
215,998 |
|
|
|
Trade accounts payable - intercompany |
|
4,399 |
|
7,400 |
|
|
|
Trade accounts payable - imports |
|
702,069 |
|
742,822 |
|
|
|
|
|
3,890,091 |
|
4,335,054 |
|
|
|
NOTE 12 LOANS AND FINANCING
Loans and financing are as follows:
|
|
Annual interest rate (*) |
|
September 30, 2019 |
|
December 31, 2018 |
|
Working capital |
|
5.75 |
% |
682,446 |
|
2,424,246 |
|
Financing of property, plant and equipment and others |
|
9.10 |
% |
1,237,102 |
|
1,205,281 |
|
Ten/Thirty Years Bonds |
|
5.81 |
% |
10,612,831 |
|
9,738,314 |
|
Total financing |
|
|
|
12,532,379 |
|
13,367,841 |
|
Current |
|
|
|
2,193,333 |
|
1,822,183 |
|
Non-current |
|
|
|
10,339,046 |
|
11,545,658 |
|
|
|
|
|
|
|
|
|
Principal amount of the financing |
|
|
|
12,267,066 |
|
13,178,457 |
|
Interest amount of the financing |
|
|
|
265,313 |
|
189,384 |
|
Total financing |
|
|
|
12,532,379 |
|
13,367,841 |
|
(*) Weighted average effective interest costs on September 30, 2019, which in a consolidated basis represents 6.09%
Loans and financing denominated in Brazilian Reais are substantially indexed at fixed rates or by the CDI (Interbank Deposit Certificates).
Summary of loans and financing by currency:
|
|
September 30, 2019 |
|
December 31, 2018 |
|
Brazilian Real (R$) |
|
422,405 |
|
2,361,610 |
|
U.S. Dollar (US$) |
|
12,011,198 |
|
10,924,355 |
|
Other currencies |
|
98,776 |
|
81,876 |
|
|
|
12,532,379 |
|
13,367,841 |
|
The amortization schedules of long-term loans and financing are as follows:
|
|
September 30, 2019 |
|
December 31, 2018 |
|
2020(*) |
|
307,249 |
|
2,253,958 |
|
2021 |
|
1,284,236 |
|
1,199,045 |
|
2022 |
|
128,359 |
|
121,490 |
|
2023 |
|
1,299,431 |
|
1,209,109 |
|
2024 |
|
2,625,234 |
|
2,426,456 |
|
2025 on |
|
4,694,537 |
|
4,335,600 |
|
|
|
10,339,046 |
|
11,545,658 |
|
(*) For the period as of September 30, 2019, the amounts represents payments from October 1, 2020 to December 31, 2020.
a) Principal funding in 2019
Throughout 2019, the subsidiary Gerdau Aços Longos and Gerdau Açominas obtained working capital loans from top-tier institutions. As of September 30, 2019, the outstanding balance related to these loans was US$ 125 million (equivalent to R$ 520 million as of September 30, 2019) with short-term maturities.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
b) Monitoring indexes
Only operations with BNDES contemplate monitoring of the Companys debt ratios established in the agreement. In a possible breach of the ratio in the annual measurement, the Company would enter into a remediation period and a subsequent renegotiation of guarantees, not characterizing the possibility of a default event.
c) Guarantees
All loans contracted under the FINAME/BNDES program, totalizing R$ 76.6 million on September 30, 2019, are guaranteed by the assets (property, plant and equipment) being financed.
d) Credit Lines
In October 2019, the Company completed the renewal of the Global Credit Line in the total amount of US$ 800 million (equivalent to R$ 3,331 million as of September 30, 2019). The transaction aims to provide liquidity to subsidiaries in North America and Latin America, including Brazil. The companies Gerdau S.A., Gerdau Açominas S.A. and Gerdau Aços Longos S.A. provide guarantee for this transaction, which matures in October 2024.
NOTE 13 DEBENTURES
|
|
|
|
Quantity as of September 30, 2019 |
|
|
|
|
|
|
| ||
Issuance |
|
General Meeting |
|
Issued |
|
Held in treasury |
|
Maturity |
|
September 30, 2019 |
|
December 31, 2018 |
|
3rd- A and B |
|
May 27,1982 |
|
|
|
|
|
06/01/2021 |
|
|
|
18,871 |
|
7th |
|
July 14, 1982 |
|
|
|
|
|
07/01/2022 |
|
|
|
1,102 |
|
8th |
|
November 11, 1982 |
|
|
|
|
|
05/02/2023 |
|
|
|
8,080 |
|
9th |
|
June 10, 1983 |
|
|
|
|
|
09/01/2024 |
|
|
|
2,349 |
|
11th - A and B |
|
June 29, 1990 |
|
|
|
|
|
06/01/2020 |
|
|
|
5,716 |
|
15th |
|
November, 9, 2018 |
|
1,500,000 |
|
|
|
11/21/2022 |
|
1,531,822 |
|
1,502,755 |
|
16th - A |
|
April 24, 2019 |
|
600,000 |
|
|
|
05/06/2023 |
|
612,496 |
|
|
|
16th - B |
|
April 24, 2019 |
|
800,000 |
|
|
|
05/06/2026 |
|
816,908 |
|
|
|
Total Consolidated |
|
|
|
|
|
|
|
|
|
2,961,226 |
|
1,538,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
68,678 |
|
2,755 |
|
Non-current |
|
|
|
|
|
|
|
|
|
2,892,548 |
|
1,536,118 |
|
Maturities of long-term amounts are as follows:
|
|
September 30, 2019 |
|
December 31, 2018 |
|
2020(*) |
|
|
|
5,716 |
|
2021 |
|
|
|
18,871 |
|
2022 |
|
1,496,299 |
|
1,501,102 |
|
2023 |
|
598,422 |
|
8,080 |
|
2024 |
|
|
|
2,349 |
|
2025 on |
|
797,827 |
|
|
|
|
|
2,892,548 |
|
1,536,118 |
|
(*) For the period as of September 30, 2019, the amounts represents payments from October 1, 2020 to December 31, 2020.
16th Issuance of Debentures: At the Board of Directors Meeting held on April 25, 2019, the Sixteenth Issuance of Non-convertible Debentures, in Two Series, was approved. The amount of the Issuance, subscribed and paid in, was R$ 1,400 million, of which R$ 600 million in the first series and R$ 800 million in the second series, with a unit par value of R$ 1,000.00, and net proceeds were used for cash reinforcement, in order to serve its ordinary management business. The 1st Series debentures mature in 48 months and yield interest equivalent to 105.5% of the CDI. The 2nd Series Debentures mature in 84 months and yield interest equivalent to 107.25% of the CDI.
Early Redemption: At the Board of Directors meeting held on July 2, 2019, it was decided to authorize the early redemption of all debentures of the 3rd A and B, 7th, 8th, 9th and 11th A and B issuances. The amounts paid to debenture holders were adjusted until the settlement date pursuant to the corresponding Debenture Issues.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
The debentures are denominated in Brazilian Reais, nonconvertible, and pay variable interest as a percentage of the CDI Interbank Deposit Certificate.
The average interest rate was 1.63% and 4.87% for the three and nine-month periods ended on September 30, 2019, respectively(1.57% and 4.68% for the three and nine-month periods ended on September 30, 2018, respectively).
The Company has guarantees provided by the parent entity for debentures of the 7th, 8th, 9th and 11th issuances.
NOTE 14 - FINANCIAL INSTRUMENTS
a) General considerations - Gerdau S.A. and its subsidiaries enter into transactions with financial instruments whose risks are managed through financial position strategies and exposure limit control systems. All financial instruments are recorded in the accounting books and presented as short-term investments, loans and financing, debentures, related-party transactions, unrealized gains on financial instruments, unrealized losses on financial instruments, obligations with FIDC, other current assets, other non-current assets, other current liabilities and other non-current liabilities.
The Company has derivatives and non-derivative instruments, such as the hedge for some operations under hedge accounting. These operations are intended to protect the Company against foreign exchange rate variations on foreign currency-denominated loans and interest rate fluctuations. These transactions are performed considering direct asset or liability exposures, without leverage.
b) Fair value the fair value of the aforementioned financial instruments is as follows:
|
|
September 30, 2019 |
|
December 31, 2018 |
| ||||
|
|
Book |
|
Fair |
|
Book |
|
Fair |
|
|
|
value |
|
value |
|
value |
|
value |
|
Assets |
|
|
|
|
|
|
|
|
|
Short-term investments |
|
1,140,196 |
|
1,140,196 |
|
459,470 |
|
459,470 |
|
Related parties |
|
149,664 |
|
149,664 |
|
27,939 |
|
27,939 |
|
Unrealized gains on financial instruments |
|
3,203 |
|
3,203 |
|
33,417 |
|
33,417 |
|
Other current assets |
|
714,340 |
|
714,340 |
|
780,423 |
|
780,423 |
|
Other non-current assets |
|
563,281 |
|
563,281 |
|
449,592 |
|
449,592 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Loans and Financing |
|
12,532,379 |
|
13,549,757 |
|
13,367,841 |
|
13,533,306 |
|
Debentures |
|
2,961,226 |
|
2,961,226 |
|
1,538,873 |
|
1,538,873 |
|
Related parties |
|
3,862 |
|
3,862 |
|
1,350 |
|
1,350 |
|
Unrealized losses on financial instruments |
|
9,975 |
|
9,975 |
|
5,245 |
|
5,245 |
|
Obligations with FIDC |
|
999,953 |
|
999,953 |
|
938,526 |
|
938,526 |
|
Other current liabilities |
|
706,689 |
|
706,689 |
|
772,970 |
|
772,970 |
|
Other non-current liabilities |
|
431,757 |
|
431,757 |
|
499,092 |
|
499,092 |
|
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. The fair value hierarchy of the financial instruments above are presented in Note 14.g.
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 possibility of losses or gains due to 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
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
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 or liabilities or of future cash flows and income. The Company assesses its exposure to the exchange rate by measuring the difference between the amount of its assets and liabilities in foreign currency. The Company understands that the accounts receivables originated from exports, its cash and cash equivalents denominated in foreign currencies and its investments abroad are more than equivalent to its liabilities denominated in foreign currency. Since the management of these exposures occurs at each operation level, if there is a mismatch between assets and liabilities denominated in foreign currency, the Company may employ derivative financial instruments in order to mitigate the effect of exchange rate fluctuations.
Credit risk: this risk arises from the possibility of the Company not receiving amounts arising from sales to customers or investments made with financial institutions. In order to minimize this risk, the Company adopt the procedure of analyzing in details of the financial position of their customers, establishing a credit limit and constantly monitoring their balances. Regarding 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.
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 Key Performance Indicators (KPIs) related to the Capital Structure Management objective are: WACC, Net Debt / EBITDA, Net Financial Expenses Coverage Ratio (Ebitda / Net Financial Expenses) and Debt / Total Capitalization Ratio. Net Debt consists of debt reduced by cash, cash equivalents and financial investments (notes 4, 12 and 13). Total Capitalization consists of Total Debt (composed of debt principal) and Equity (Note 18). The Company can change its capital structure, according to economic-financial conditions, in order to optimize its financial leverage and its debt management. At the same time, the Company seeks to improve its ROCE (Return on Capital Employed) through the implementation of working capital management and an efficient investment program in property, plant and equipment. In the long term, the Company seeks to remain within the parameters below, admitting occasional variations in the short term:
Net debt/ EBITDA |
|
From 1.0 to 1.5 times |
Gross debt limit |
|
R$12 billion |
Average maturity |
|
more than 6 years |
These key indicators are used to monitor objectives described above and may not necessarily be used as indicators for other purposes, such as impairment tests.
Liquidity risk: the Companys management policy of indebtedness and cash on hand is based on using the committed lines and the currently available credit lines with or without a guarantee in export receivables for maintaining adequate levels of short, medium, and long-term liquidity. The maturity of long-term loans and financing, and debentures are presented in notes 12 and 13, respectively.
Sensitivity analysis:
The Company performed a sensitivity analysis, which can be summarized as follows:
Impacts on Statements of Income |
|
Percentage of change |
|
September 30, 2019 |
|
September 30, 2018 |
|
Foreign currency sensitivity analysis |
|
5 |
% |
181,641 |
|
176,222 |
|
Interest rate changes sensitivity analysis |
|
10bps |
|
60,666 |
|
68,963 |
|
Sensitivity analysis of changes in prices of products sold |
|
1 |
% |
301,105 |
|
352,598 |
|
Sensitivity analysis of changes in raw material and commodity prices |
|
1 |
% |
194,566 |
|
225,719 |
|
Interest rate and Foreign currency Swaps |
|
10bps/5 |
% |
|
|
16,293 |
|
Sensitivity analysis of Swap of interest rate |
|
50bps |
|
487 |
|
497 |
|
Sensitivity analysis of NDFs (Non Deliverable Forwards) |
|
5 |
% |
11,336 |
|
|
|
Sensitivity analysis of Zero Cost Collar |
|
5 |
% |
|
|
781 |
|
Foreign currency sensitivity analysis: As of September 30, 2019, the Company is mainly exposed to variations between the Real and the Dollar. The sensitivity analysis carried out by the Company considers the effects of a 5% increase or
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
reduction between the Real and the Dollar in its non-hedged debt. In this analysis, if the Real appreciates against the Dollar, this would represent a gain of R$ 181,641 and R$ 139,697 after the effects arising from the changes in the net investment hedge described in note 14.f - (R$ 176,222 and R$ 106,579 as of September 30, 2018, respectively). If the Real depreciates against the Dollar this would represent an expense of the same value. Due to the investment hedge, the variations are minimized when the exchange variation accounts and income tax are analyzed.
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$ 60,666 as of September 30, 2019 (R$ 68,963 as of September 30, 2018) and would impact the Financial expenses account in the Consolidated Statements of Income. The specific interest rates to which the Company is exposed are related to the loans, financing, and debentures presented in notes 12 and 13, and are mainly comprised by 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 sales 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 a reduction of 1% on both prices. The impact measured considering this variation in the price of products sold, considering the revenues and costs for nine-month period ended on September 30, 2019, totals R$ 301,105 (R$ 352,598 as of September 30, 2018) and the variation in the price of raw materials and other inputs totals R$ 194,566 as of September 30, 2019 (R$ 225,719 as of September 30, 2018). 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 50 bps in the interest curve for Pre x DI operations. These variations represent an income or expense of R$ 487 (R$ 16,790 as of September 30, 2018, considering that in this position we had interest rate and currency swaps). These effects would be recognized in the Consolidated Statements of Income. The interest rate swaps to which the Company is exposed to are presented in note 14.e.
Sensitivity analysis of forward contracts in US Dollar: the Company has exposure to Dollar forward contracts for some of its assets and liabilities. The sensitivity analysis carried out by the Company considers the effects of a 5% increase or reduction of the US Dollar against the Real, and its effects on fair value of these derivatives. A 5% increase in the US Dollar against the Real represents an income of R$ 11,336 (R$ 781 as of September 30, 2018, considering that in this position we had operations of the US Dollar against Real), and a 5% reduction of the US Dollar against the Real represents an expense of the same amount. The US Dollar/Real forward contracts had the objective of hedging the asset and liability positions in US Dollar and the fair value effects of these contracts were recorded in the Consolidated Statements of Income. The forward contracts in US Dollars that the Company is exposed are presented in note 14.e.
d) Financial Instruments per Category
Summary of the financial instruments per category:
September 30, 2019 |
|
Financial asset at |
|
Financial asset at fair |
|
Financial asset at fair value |
|
Total |
|
Short-term investments |
|
|
|
1,140,196 |
|
|
|
1,140,196 |
|
Unrealized gains on financial instruments |
|
|
|
|
|
3,203 |
|
3,203 |
|
Related parties |
|
149,664 |
|
|
|
|
|
149,664 |
|
Other current assets |
|
714,340 |
|
|
|
|
|
714,340 |
|
Other non-current assets |
|
563,281 |
|
|
|
|
|
563,281 |
|
Total |
|
1,427,285 |
|
1,140,196 |
|
3,203 |
|
2,570,684 |
|
Financial result for the three-month period ended on September 30, 2019 |
|
(61,735 |
) |
18,833 |
|
|
|
(42,902 |
) |
Financial result for the nine-month period ended on September 30, 2019 |
|
7,103 |
|
61,910 |
|
|
|
69,013 |
|
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
Liabilities |
|
Financial liability at |
|
Financial liability at |
|
Total |
|
Loans and Financing |
|
|
|
12,532,379 |
|
12,532,379 |
|
Debentures |
|
|
|
2,961,226 |
|
2,961,226 |
|
Related parties |
|
|
|
3,862 |
|
3,862 |
|
Obligations with FIDC |
|
|
|
999,953 |
|
999,953 |
|
Other current liabilities |
|
|
|
706,689 |
|
706,689 |
|
Other non-current liabilities |
|
|
|
431,757 |
|
431,757 |
|
Unrealized losses on financial instruments |
|
9,975 |
|
|
|
9,975 |
|
Total |
|
9,975 |
|
17,635,866 |
|
17,645,841 |
|
Financial result for the three-month period ended on September 30, 2019 |
|
(9,031 |
) |
(510,464 |
) |
(519,495 |
) |
Financial result for the nine-month period ended on September 30, 2019 |
|
(21,762 |
) |
(1,284,647 |
) |
(1,306,409 |
) |
December 31, 2018 |
|
Financial asset at |
|
Financial asset at fair |
|
Financial asset at fair value |
|
Total |
|
Short-term investments |
|
|
|
459,470 |
|
|
|
459,470 |
|
Unrealized gains on financial instruments |
|
|
|
|
|
33,417 |
|
33,417 |
|
Related parties |
|
27,939 |
|
|
|
|
|
27,939 |
|
Other current assets |
|
780,423 |
|
|
|
|
|
780,423 |
|
Other non-current assets |
|
449,592 |
|
|
|
|
|
449,592 |
|
Total |
|
1,257,954 |
|
459,470 |
|
33,417 |
|
1,750,841 |
|
Financial result for the three-month period ended on September 30, 2018 |
|
145,306 |
|
32,936 |
|
|
|
178,242 |
|
Financial result for the nine-month period ended on September 30, 2018 |
|
499,890 |
|
96,312 |
|
|
|
596,202 |
|
Liabilities |
|
Financial liability at |
|
Financial liability at |
|
Total |
|
Loans and financings |
|
|
|
13,367,841 |
|
13,367,841 |
|
Debentures |
|
|
|
1,538,873 |
|
1,538,873 |
|
Related parties |
|
|
|
1,350 |
|
1,350 |
|
Obligations with FIDC |
|
|
|
938,526 |
|
938,526 |
|
Other current liabilities |
|
|
|
772,970 |
|
772,970 |
|
Other non-current liabilities |
|
|
|
499,092 |
|
499,092 |
|
Unrealized losses on financial instruments |
|
5,245 |
|
|
|
5,245 |
|
Total |
|
5,245 |
|
17,118,652 |
|
17,123,897 |
|
Financial result for the three-month period ended on September 30, 2018 |
|
171 |
|
(619,927 |
) |
(619,756 |
) |
Financial result for the nine-month period ended on September 30, 2018 |
|
(9,549 |
) |
(2,084,394 |
) |
(2,093,943 |
) |
As of September 30, 2019, the Company has derivative financial instruments such as interest rate and currency swaps and forward dollar contracts. These derivative financial instruments had their realized and unrealized losses and / or gains presented in the account Gains and losses on derivative financial instruments, 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 Financial Risk Management Committee, which validates the mark to market of these transactions. All derivative financial instruments are recognized at fair value in the Consolidated Financial Statements of the Company.
Policy for use of derivatives: The Company is exposed to various market risks, including changes in exchange rates, commodities prices and interest rates. The Company uses derivatives and other financial instruments to reduce the impact of such risks on the fair value of its assets and liabilities or in future cash flows and income. The Company has established policies to evaluate the market risks and to approve the use of derivative transactions related to these risks. The Company enters into derivative financial instruments solely to manage the market risks mentioned above and never for speculative purposes. Derivative financial instruments are used only when they have a related position (asset or liability exposure) resulting from business operations, investments and financing.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
Policy for determining fair value: the fair value of derivative financial instruments is determined using models and other valuation techniques, including future prices and market curves.
Derivative transactions may include: interest rate and/or currency swaps, currency futures contracts and currency options contracts.
Swap Contracts
The company has contracted Pre x DI swap operation, through which it receives a fixed interest rate and pays a floating interest rate, both in local currency. The counterparties to these operations are always highly rated financial institutions with low credit risk.
Currency forward contracts
The Company has entered into forward currency operations, whereby it fixes the dollar rate for part of its export flow. The counterparties of these operations are financial institutions with low credit risk.
The derivatives instruments can be summarized and categorized as follows:
|
|
|
|
Notional value |
|
Amount receivable |
|
Amount payable |
| ||||||
Contracts |
|
|
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
Non Deliverable Forward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity in 2019 |
|
purchase in US$ |
|
|
|
US$19.2 million |
|
|
|
|
|
|
|
(4,069 |
) |
Maturity in 2019 |
|
sell in US$ |
|
US$60.0 million |
|
US$18.3 million |
|
|
|
462 |
|
(9,975 |
) |
(1,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity in 2019 |
|
CDI 111.50% |
|
|
|
R$230.5 million |
|
|
|
30,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap of interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity in 2020 |
|
CDI 111.50% |
|
R$50.0 million |
|
R$50.0 million |
|
3,203 |
|
2,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of financial instruments |
|
|
|
|
|
|
|
3,203 |
|
33,417 |
|
(9,975 |
) |
(5,245 |
) |
The effects of financial instruments are classified as follow:
|
|
September 30, 2019 |
|
December 31, 2018 |
|
Unrealized gains on financial instruments |
|
|
|
|
|
Current assets |
|
|
|
30,711 |
|
Non-current assets |
|
3,203 |
|
2,706 |
|
|
|
3,203 |
|
33,417 |
|
Unrealized losses on financial instruments |
|
|
|
|
|
Current liabilities |
|
(9,975 |
) |
(5,245 |
) |
|
|
(9,975 |
) |
(5,245 |
) |
|
|
September 30, 2019 |
|
September 30, 2018 |
|
Net Income |
|
|
|
|
|
Gains on financial instruments |
|
5,491 |
|
53,600 |
|
Losses on financial instruments |
|
(21,762 |
) |
(9,549 |
) |
|
|
(16,271 |
) |
44,051 |
|
Other comprehensive income |
|
|
|
|
|
Gains on financial instruments |
|
517 |
|
13,305 |
|
|
|
517 |
|
13,305 |
|
f) Net investment hedge
The Company designated as hedge of part of its net investments in subsidiaries abroad the operations of Ten/Thirty Years Bonds. As a consequence, the effect of exchange rate changes on these debts has been recognized in the Statement of Comprehensive Income.
The exchange variation generated on the operations of Ten/Thirty Years Bonds in the amount of US$ 1.5 billion (designated as hedges) is recognized in the Statement of Comprehensive Income, while the exchange rate on the portion of US$ 0.6 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.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
The Company demonstrated effectiveness of the hedge as of its designation dates and demonstrated the high effectiveness of the hedge from the contracting of each debt for the acquisition of these companies abroad, whose effects were measured and recognized directly in the Statement of Comprehensive Income as an unrealized loss, net of taxes, in the amount R$ 538,302 and R$ 478,370 for the three and nine-month periods ended on September 30, 2019, respectively (loss of R$ 373,480 and R$ 1,792,505 for the three and nine-month periods ended on September 30, 2018, respectively).
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 abroad mentioned above against positive and negative changes in the exchange rate. This objective is consistent with the Companys risk management strategy and 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 available, other than quoted prices included in Level 1, where (unadjusted) quoted prices are for similar assets and liabilities in non-active markets, or other data that is available or may be corroborated by market data for substantially the full term of the asset or liability.
Level 3 - Inputs for the asset or liability that are not based on observable market data, because market activity is insignificant or does not exist.
As of September 30, 2019, the Company had some assets, in which 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 September 30, 2019 and December 31, 2018, are as follows:
|
|
Fair Value Measurements at Reporting Date Using |
| ||||||||||
|
|
|
|
|
|
Quoted Prices Active Markets for Identical |
|
Quoted Prices in Non-Active Markets for |
| ||||
|
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
1,140,196 |
|
459,470 |
|
546,148 |
|
114,027 |
|
594,048 |
|
345,443 |
|
Unrealized gains on financial instruments |
|
|
|
30,711 |
|
|
|
|
|
|
|
30,711 |
|
Other current assets |
|
714,340 |
|
780,423 |
|
|
|
|
|
714,340 |
|
780,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties |
|
149,664 |
|
27,939 |
|
|
|
|
|
149,664 |
|
27,939 |
|
Unrealized gains on financial instruments |
|
3,203 |
|
2,706 |
|
|
|
|
|
3,203 |
|
2,706 |
|
Other non-current assets |
|
563,281 |
|
449,592 |
|
|
|
|
|
563,281 |
|
449,592 |
|
|
|
2,570,684 |
|
1,750,841 |
|
546,148 |
|
114,027 |
|
2,024,536 |
|
1,636,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
2,193,333 |
|
1,822,183 |
|
|
|
|
|
2,193,333 |
|
1,822,183 |
|
Debentures |
|
68,678 |
|
2,755 |
|
|
|
|
|
68,678 |
|
2,755 |
|
Unrealized losses on financial instruments |
|
9,975 |
|
5,245 |
|
|
|
|
|
9,975 |
|
5,245 |
|
Other current liabilities |
|
706,689 |
|
772,970 |
|
|
|
|
|
706,689 |
|
772,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
10,339,046 |
|
11,545,658 |
|
|
|
|
|
10,339,046 |
|
11,545,658 |
|
Debentures |
|
2,892,548 |
|
1,536,118 |
|
|
|
|
|
2,892,548 |
|
1,536,118 |
|
Related parties |
|
3,862 |
|
1,350 |
|
|
|
|
|
3,862 |
|
1,350 |
|
Obligations with FIDC |
|
999,953 |
|
938,526 |
|
|
|
|
|
999,953 |
|
938,526 |
|
Other non-current liabilities |
|
431,757 |
|
499,092 |
|
|
|
|
|
431,757 |
|
499,092 |
|
|
|
17,645,841 |
|
17,123,897 |
|
|
|
|
|
17,645,841 |
|
17,123,897 |
|
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
h) Changes in liabilities from Cash flow from financing activities:
As required by IAS 7, the Company has summarized below the changes in the liabilities of cash flow from financing activities, from its Statement of Cash Flows:
|
|
|
|
Cash effects |
|
Non-cash effects |
|
|
| ||||
|
|
December 31, |
|
Received/(Paid) |
|
Interest Payment |
|
Interest on loans, |
|
Exchange |
|
September 30, |
|
Related Parties, net |
|
(26,589 |
) |
(116,555 |
) |
|
|
(2,657 |
) |
(1 |
) |
(145,802 |
) |
Loans and Financing, Debentures and Unrealized Gains and Losses on financial instruments |
|
14,878,542 |
|
(398,054 |
) |
(683,099 |
) |
756,227 |
|
946,761 |
|
15,500,377 |
|
|
|
|
|
Cash effects |
|
Non-cash effects |
|
|
| ||||
|
|
January 01, |
|
Received/(Paid) |
|
Interest Payment |
|
Interest on loans, |
|
Exchange |
|
September 30, |
|
Related Parties, net |
|
(51,839 |
) |
11,961 |
|
|
|
(194 |
) |
(1 |
) |
(40,073 |
) |
Loans and Financing, Debentures and Unrealized Gains and Losses on financial instruments |
|
16,510,851 |
|
(742,015 |
) |
(798,922 |
) |
880,825 |
|
2,293,990 |
|
18,144,729 |
|
NOTE 15 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 advisors, Management believes that the provisions recorded for these judicial and administrative proceedings is sufficient to cover probable and reasonably estimable losses from unfavorable court decisions and that the final decisions will not have significant effects on the financial position, operational results and liquidity of the Company and its subsidiaries.
For claims whose expected loss is considered probable, the provisions have been recorded considering the judgment of the Management of the Company with the assistance of its legal advisors and the provisions are considered sufficient to cover expected probable losses. The balances of provisions are as follows:
I) Provisions
|
|
September 30, 2019 |
|
December 31, 2018 |
|
a) Tax provisions |
|
357,774 |
|
268,009 |
|
b) Labor provisions |
|
353,768 |
|
449,350 |
|
c) Civil provisions |
|
54,025 |
|
52,946 |
|
|
|
765,567 |
|
770,305 |
|
a) Tax Provisions
Tax provisions refer substantially to the discussions regarding the offsetting of PIS and COFINS credits and the incidence of PIS and COFINS on other revenues.
b) Labor Provisions
The Company is party to a group of individual and collective labor and/or administrative lawsuits involving various labor amounts and the provision arises from unfavorable decisions and/or the probability of loss in the ordinary course of proceedings with the expectation of outflow of financial resources by the Company.
c) Civil Provisions
The Company is party to a group of civil, arbitration and/or administrative lawsuits involving various claims and the provision arises from unfavorable decisions and/or probable losses in the ordinary course of proceedings with the expectation of outflow of financial resources for the Company.
II) Contingent liabilities for which provisions were not recorded
Considering the opinion of legal advisors and managements assessment, contingencies listed below have the probability of loss considered as possible (but not likely) and due to this classification, accruals have not been made in accordance with IFRS.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
a) Tax contingencies
a.1) The Company and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A. have lawsuits related to the ICMS (state VAT) which are mostly related to credit rights and rate differences, whose demands totaled R$ 625,825.
a.2) The Company and certain of its subsidiaries in Brazil are parties to claims related to: (i) Imposto sobre Produtos Industrializados - IPI, substantially related to IPI credit on inputs, whose demands total the updated amount of R$ 334,254; (ii) PIS and COFINS, substantially related to disallowance of credits on inputs totaling R$ 1,010,000, (iii) social security contributions in the total of R$ 94,837 and (iv) other taxes , whose updated total amount is currently R$ 586,658.
a.3) The Company and its subsidiary Gerdau Aços Longos SA are parties to three administrative proceedings related to Withholding Income Tax, levied on interest remitted abroad, linked to export financing formalized through Prepayment of Exports Agreements (PPE) or Prepayment of Exports (RAE), in the updated amount of R$ 749,955, of which: (i) R$ 127,796 corresponds to a lawsuit of the subsidiary Gerdau Aços Longos, which had its Voluntary Appeal judged at the first instance of the Administrative Tax Appeals Council (CARF), which was dismissed by the quality vote, and Special Appeal was filed on May 17, 2019, which is pending judgment by the Superior Chamber of Tax Appeals (CSRF); (ii) R$ 135,291 corresponds to a lawsuit filed by the subsidiary Gerdau Aços Longos that was dismissed by the Federal Revenue Judgment Office (DRJ) and filed a Voluntary Appeal at the first instance of CARF, on August 28, 2018, which is pending of judgment; and; (iii) R$ 137,487, corresponds to a lawsuit filed by the subsidiary Gerdau Aços Longos SA, which was dismissed by the Federal Revenue Judgment Office (DRJ) and filed a Voluntary Appeal on June 3, 2019, which is pending of judgment. In the first instance of CARF; (iv) R$ 155,917 corresponds to a lawsuit of the Company, which the impugnation was dismissed by the Federal Revenue Judgment Office (DRJ) and filed a Voluntary Appeal at first instance of CARF, on August 31, 2018, which is pending of judgment; and (v) R$ 193,465 corresponds to a lawsuit of the Company, whose impugnation was dismissed by the Federal Revenue Judgment Office (DRJ) and filed a Voluntary Appeal at first instance of CARF, on June 17, 2019, which is currently pending of judgment
a.4) The Company is party to administrative proceedings related to goodwill amortization pursuant to articles 7 and 8 of Law 9,532/97, from the basis of calculation of Corporate Income Tax (IRPJ) and Social Contribution on net income (CSLL), resulting from a corporate restructuring started in 2010. The updated total amount of the assessments is R$ 288,117, of which: (i) R$ 23,541 corresponds to a lawsuit in which the Company was challenged by the Federal Revenue resulting in a judgment that completely annulled the tax assessment, but, in a judgment made by the Administrative Council of Tax Appeals (CARF) on January 23, 2019, the legal appeal was granted in favor of the National Treasury, by judgment in which, on June 21, 2019, the Company filed a motion for clarification, which are pending of judgment. (ii) R$ 195,841 corresponds to a lawsuit in which the Company impugnation was rejected by the Federal Revenue Judgment Office (DRJ) and filed a Voluntary Appeal with the Administrative Tax Appeals Council (CARF), which is pending of judgment; and (iii) R$ 68,735 correspond to a lawsuit in which the Company impugnation was rejected and filed a Voluntary Appeal with the Administrative Council of Tax Appeals (CARF), which is pending of judgment.
a.5) The Company (as successor of Gerdau Aços Especiais S.A.) and its subsidiary Gerdau Internacional Empreendimentos Ltda. are parties to administrative and judicial proceedings relating to IRPJ Corporate Income Tax and CSLL Social Contribution Tax, in the current amount of R$ 1,226,925. Such proceedings relate to profits earned abroad, of which (i) R$ 1,045,838 correspond to two lawsuits of the subsidiary Gerdau Internacional Empreendimentos Ltda., of which (i.a) R$ 1,010,647 correspond to a lawsuit whose administrative discussion has already been closed and are currently in Tax Execution, in relation to which the Company filed motions to stay execution, whereas they were partially dismissed by judgment of July 15, 2019 and the Company filed a motion for clarification, which is pending of judgment; and (i.b) R$ 35,191 are reminiscent of an assessment originally from R$ 372,213 and correspond to a lawsuit of the Company partially provided by CARFs Superior Chamber of Tax Appeals (CSRF), in a decision published on May 25, 2017 and already been passed the case is currently pending of review of matters not previously analyzed by the first instance of the Administrative Council of Tax Appeals (CARF), as determined by the decision of the CSRF; and (ii) R$ 181,087 correspond to a lawsuit of the Company, which had its Voluntary Appeal judged at CARFs first instance, which was dismissed, which is why it was submitted to a Special Appeal to the Superior Chamber of Tax Appeals (CSRF), known in part and pending of judgment.
a.6) The Company (as successor of Gerdau Aços Especiais S.A.) and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A. are parties to administrative proceedings relating to the disallowance of goodwill amortization generated in accordance with Article 7 and 8 of Law 9,532/97 as a result of a corporate restructuring carried out in 2004/2005 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$ 7,717,639, of which (i) R$ 5,241,642 correspond to four proceedings involving the Company (as successor of Gerdau Aços Especiais S.A.) and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A., for which administrative discussions already ended and are currently in the judicial collection stage; and
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
the Companies obtained injunctive relief to permit it to offer a judicial collateral using an insurance bond, for judicial discussions on motions to stay execution in the respective proceedings, and in the motions to stay to Execution filed by the Company (as successor of Gerdau Aços Especiais S.A.), on May 17, 2018, a judgment was rendered dismissing the fiscal launch, in the face of which the National Treasury filed an appeal, which is pending of judgment in the Federal Regional Court of the 4th Region; and, in the Embargoes to Execution filed by the subsidiary Gerdau Aços Longos S.A. (as successor of Gerdau Comercial de Aços S.A.) on October 3, 2019, a judgment was rendered dismissing the tax assessment, and the deadline for filing appeals by the National Treasury is in progress; (ii) R$ 309,261 correspond to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., in which part of the debt whose administrative discussion has already been concluded is under judicial discussion, on motions to stay Execution filed on July 8, 2019, currently pending of judgment; (iii) R$ 286,808 corresponds to a lawsuit filed by subsidiary Gerdau Aços Longos S.A., in which part of the debt whose administrative discussion has already been concluded is under judicial discussion on motions to stay Execution filed on August 14, 2019, currently pending of judgment; (iv) R$ 4,187 corresponds to a lawsuit of the of subsidiary Gerdau Aços Longos S.A., which is awaiting judgment of its Special Appeal filed with the CSRF, which has been partially followed up; (v) R$ 66,041 corresponds to a lawsuit filed by subsidiary Gerdau Aços Longos S.A., awaiting judgment of its Special Appeal filed with the CSRF, which has been partially followed up; (vi) R$ 131,830 corresponds to a lawsuit of the Company (as successor of Gerdau Aços Especiais S.A.), that its Voluntary Appeal was rejected at CARFs first instance, which is why a Special Appeal was filed, which was partially known and is pending judgment; (vii) R$ 562,637 correspond to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., which had its Voluntary Appeal partially upheld, by decision issued by CARF on September 18, 2018 and notified to the company on April 15, 2019. This decision was subject of a Special Appeal by the National Treasury and a Special Appeal filed by the company on April 29, 2019, both currently pending judgment; (viii) R$ 103,887 correspond to a lawsuit of the Company (as successor of Gerdau Aços Especiais S.A.), whose objection was dismissed, by decision of which it became aware on September 17, 2018 and in which it filed a Voluntary Appeal at CARFs first instance, currently pending of judgment; (ix) R$ 540,056 corresponds to a lawsuit filed by the subsidiary Gerdau Aços Longos SA, which was dismissed, by decision of which it became aware on November 27, 2018 and in which it filed a Voluntary Appeal at CARFs first instance, currently pending of judgment; and (x) R$ 471,289 correspond to a lawsuit filed by subsidiary Gerdau Aços Longos S.A., whose tax assessment was received on September 11, 2019 and against which an appeal was filed on October 10, 2019, currently pending of judgment by the Federal Revenue Judgment Office (DRJ).
The Companys tax advisors confirm that the procedures adopted by the Company regarding the tax treatment of profits earned abroad and the goodwill amortization, which led to the aforementioned lawsuits, have complied with the strict legality and, therefore, these lawsuits are classified as possible loss (but not likely).
In connection with the so-called Operation Zelotes and other matters, Brazilian federal authorities and the judiciary branch are investigating certain issues relating to CARF proceedings, as well as specific political contributions made by the Company, with the purpose of determining whether the Company engaged in any illegal conduct. The Company previously disclosed that, in addition to its interactions with Brazilian authorities, the Company was providing information requested by the U.S. Securities and Exchange Commission (SEC). The Company has since been informed by the SECs staff that it has closed its inquiry and therefore is not seeking any further information from the Company regarding these matters.
The Company believes it is not possible at this time to predict the term or outcome of the proceedings in Brazil, and that there currently is not enough information to determine whether a provision for losses is required or any additional disclosures.
b) Civil contingencies
b.1) A lawsuit arising from the request by two civil construction unions in the state of São Paulo alleging that Gerdau S.A. and other long steel producers in Brazil share customers, thus, violating the antitrust legislation. After investigations carried out by the Economic Law Department (SDE Secretaria de Direito Econômico), the final opinion was that a cartel exists. The lawsuit was therefore forwarded to the Administrative Council for Economic Defense (CADE) for judgment, which resulted in a fine to the Company and other long steel producers, on September 23, 2005, an amount equivalent to 7% of gross revenues in the year before the Administrative Proceeding was commenced, excluding taxes (fine of R$ 245,070, updated by the judicial accountant on August 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 inexistence of a cartel. The Court, upon offer of bank guarantee letter, granted the suspension of the effects of CADEs
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
decision. Both actions were dismissed and their respective appeals were also rejected by the Federal Regional Court of the 1st Region. Against both decisions, appeals were lodged with the Superior Court of Justice and the Federal Supreme Court, after admissibility judgment, the appeal to the Superior Court of Justice was admitted and well as substitution of the guarantee offered by insurance guarantee in a decision of October 8, 2019.
Regardless of the result of its resources, the Company will continue to seek all legal remedies to defend its rights.
The Company denies having been engaged in any type of anti-competitive conduct and believes based on information available, including the opinion of its legal counsel, that it is possible that the decision will be reverted.
b.2) The Company and its subsidiaries are parties to other demands of a civil nature that collectively have a discussion amount of approximately R$ 275,168. For these demands, no accounting provision was recorded, since they were considered as possible losses, based on the opinion of its legal counsel.
c) Labor Contingencies
The Company and its subsidiaries are parties to other labor claims that together have an amount of approximately R$ 158,818. For these claims, no accounting provision was made, since these were considered as possible losses, based on the opinion of its legal counsel.
d) Administrative proceeding Brazilian Securities Commission (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 counterparties 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 the clarification on the acquisition, disclosed that the decision to its acquisition had exclusively business purpose 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 for 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. Gerdau 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:
|
|
September 30, 2019 |
|
December 31, 2018 |
|
Tax |
|
1,822,420 |
|
1,963,859 |
|
Labor |
|
124,056 |
|
126,620 |
|
Civil |
|
39,766 |
|
44,935 |
|
|
|
1,986,242 |
|
2,135,414 |
|
The balance of judicial deposits as of September 30, 2019, in the amount of R$ 1,637,490, corresponds to judicial deposits made up to June 2017, referring to the same discussion on the inclusion of the ICMS in the tax base of PIS and COFINS, awaits termination of the relevant lawsuits before the Brazilian courts in order to be returned to the Company.
For these actions, the Company and its subsidiaries were making judicial deposits and accounting provisions of the amounts under discussion, updated by the SELIC rate, which refer to the unsettled amounts of PIS and COFINS since 2009, whose liability was fully suspended, due to the realization of said deposits.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
On March 15, 2017, the Brazilian Federal Supreme Court (STF Supremo Tribunal Federal) ruled on a claim related to this matter, and by 6 votes to 4, concluded: The ICMS does not comprise the tax base for PIS and COFINS assessment purposes. The STF decision, in principle, affects all of the judicial proceedings in progress, due to its general repercussion. However, after the publication of the decision on October 2, 2017, the Attorney of the National Treasury filed an appeal, claiming that the decision of the Supreme Court was silent on certain points, and requested a modulation of the decision effects, which may limit its effects to the taxpayers.
A provision is recognized only when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, among other requirements. On March 31, 2017 the Company, based on (i) the conclusion of this judgment by the STF in Extraordinary Appeal No. 574,706/RG with general repercussion, which ruled that the inclusion of the ICMS in the PIS and COFINS calculation tax base was unconstitutional, and (ii) the International Financial Reporting Standards (IFRS), reversed the aforementioned accounting provision, through the recognition of R$ 929,711 in the line Reversal of provision for tax liabilities, net (Operational result) and R$ 369,819 in the line Reversal of interest on provision for tax liabilities, net (Financial Result), in its consolidated statements of income. 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. 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.
Finally, the Company informs that, on July 19, 2019, the decision rendered in one of the mentioned lawsuits became final, assuring to the Company the following: i) the right to recovery of undue payments made prior to the filing of the lawsuit, subject to the statute of limitations of 5 years, in the amount of R$ 122 million (R$ 79 million, net of taxes), and ii) the right to withdraw the judicial deposits made during the course of this action, which was made on September 16, 2019, in the amount of R$ 179 Million.
IV) Contingent Asset - Eletrobrás Compulsory Loan Centrais Elétricas Brasileiras S.A. (Eletrobrás)
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 greater than 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 issuance. Prior to the conversion of the credits into shares, those credits were monetary corrected through an indexer and quantifier, called Standard Unit (SU). However, 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 the following year, resulting in a lack of monthly monetary correction during the years of collection, as well as 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 legally entities existing at the time and that later became part of Gerdau S.A.) filed lawsuits claiming credits resulting from differences on the monetary correction of principal, interest, default interest and other accessory amounts owed by Eletrobrás due to the compulsory loans, totaling approximately R$ 1,260 million. Recently, particularly in 2015, cases 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 finally be calculated.
Obtaining favorable decisions represented by the final judgment mentioned above, suggests that an inflow of economic benefits may occur in the future. However, there are still substantial uncertainties on the timing, the way and the amount to be realized so that it is not yet practicable to reasonably determine that the realization of the gain arising from these decisions has reached a level of virtually certain and that the Company has control over such assets, which implies that such gains are not recorded until such conditions are demonstrably present.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
NOTE 16 - RELATED-PARTY TRANSACTIONS
a) Intercompany loans
|
|
September 30, 2019 |
|
December 31, 2018 |
|
Assets |
|
|
|
|
|
Associate companies |
|
|
|
|
|
Aceros Corsa, S.A. de C.V. |
|
114,069 |
|
|
|
|
|
|
|
|
|
Joint Venture |
|
|
|
|
|
Gerdau Corsa SAPI de C.V. |
|
12,461 |
|
72 |
|
|
|
|
|
|
|
Others |
|
|
|
|
|
Fundação Gerdau |
|
23,134 |
|
27,867 |
|
|
|
149,664 |
|
27,939 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Joint Venture |
|
|
|
|
|
Diaco S.A. |
|
(3,862 |
) |
(1,350 |
) |
|
|
(3,862 |
) |
(1,350 |
) |
|
|
For the nine-month periods ended |
| ||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
Net financial loss |
|
2,657 |
|
194 |
|
b) Operations with related parties
During the three and nine-month periods ended on September 30, 2019, the Company, through its subsidiaries, performed commercial operations with some of its associate companies and joint ventures in sales of R$ 429,060 and R$ 1,190,308, respectively (R$ 448,925 and R$ 1,106,325 on September 30, 2018) and purchases in the amount of R$ 46,631 and R$ 154,291 on September 30, 2019 (R$ 43,800 and R$ 92,559 on September 30, 2018). The net balance totals R$ 1,036,017 on September 30, 2019 (R$ 1,013,765 on September 30, 2018).
During the three and nine-month periods ended on September 30, 2019, the Company and 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$ 9 and R$ 68 for the three and nine-month periods ended on September 30, 2019, respectively (R$ 45 and R$ 151 on September 30, 2018). Additionally, the Company recorded revenues of R$ 138 and R$ 416 for the three and nine-month periods ended on September 30, 2019, respectively (R$ 111 and R$ 334 on September 30, 2018), derived from rental agreement.
Guarantees granted
Related Party |
|
Relationship |
|
Object |
|
Original |
|
Maturity |
|
Balance as of |
|
Balance as of |
|
Gerdau Corsa S.A.P.I. de C.V. |
|
Joint-venture |
|
Financing Agreements |
|
2,262,609 |
|
Nov/19 - Sep/24 |
|
2,000,629 |
|
1,933,929 |
|
Gerdau Summit Aços Fundidos e Forjados S.A. |
|
Joint-venture |
|
Financing Agreements |
|
130,164 |
|
Aug/25 |
|
38,706 |
|
41,571 |
|
Gerdau Metaldom S.A.; Aceros Corsa S.A. de C.V.; Gerdau Corsa S.A.P.I de C.V.; |
|
Associate company and |
|
Financing Agreements |
|
|
|
Jul/19 |
|
|
|
198,619 |
|
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
c) Debentures
Debentures are held by subsidiaries in the amount of R$ 0 as of September 30, 2019 (R$ 42,755 as of December 31, 2018), which corresponds to 0 debentures (546 as of December 31, 2018).
d) 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.
e) Management compensation
The Company paid to its management salaries, benefits and variable compensation totaling R$ 9,069 for the three-month period ended on September 30, 2019 (R$ 14,737 for the three-month period ended on September 30, 2018). The Company paid to its management salaries, benefits and variable compensation totaling R$ 26,933 for the nine-month period ended on September 30, 2019 (R$ 32,404 for the nine-month period ended on September 30, 2018). The contributions for the defined contribution plan, related to the management of the Company, totaled R$ 441 for the three-month period ended on September 30, 2019 (R$ 406 on September 30, 2018). The contributions for the defined contribution plan, related to the management of the Company, totaled R$ 1,246 for the nine-month period ended on September 30, 2019 (R$ 1,216 on September 30, 018).
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$ 6,075 during the three-month period ended on September 30, 2019 (R$ 6,315 for the three-month period ended on September 30, 2018). 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$ 17,926 during the nine-month period ended on September 30, 2019 (R$ 17,835 for the nine-month period ended on September 30, 2018).
NOTE 17 - 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$ 999,953 recognized in the account Obligations with FIDC as of September 30, 2019 (R$ 938,526 as of December 31, 2018).
NOTE 18 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:
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
|
|
September 30, 2019 |
|
December 31, 2018 |
| ||||
|
|
Common shares |
|
Preferred shares |
|
Common shares |
|
Preferred shares |
|
Balance at the beginning of the year |
|
571,929,945 |
|
1,124,233,755 |
|
571,929,945 |
|
1,137,327,184 |
|
Acquisition of Treasury shares |
|
|
|
|
|
|
|
(16,000,000 |
) |
Exercise of stock option |
|
|
|
1,328,309 |
|
|
|
1,597,235 |
|
Assignment of preferred shares |
|
|
|
|
|
|
|
1,309,336 |
|
Balance at the end of the period/year |
|
571,929,945 |
|
1,125,562,064 |
|
571,929,945 |
|
1,124,233,755 |
|
On September 30, 2019, 573,627,483 common shares and 1,146,031,245 preferred shares are subscribed and paid up, with a total capital of R$ 19,249,181 (net of share issuance costs). Ownership of the shares is presented below:
|
|
Shareholders |
| ||||||||||||||||||||||
|
|
September 30, 2019 |
|
December 31, 2018 |
| ||||||||||||||||||||
Shareholders |
|
Common |
|
% |
|
Pref. |
|
% |
|
Total |
|
% |
|
Common |
|
% |
|
Pref. |
|
% |
|
Total |
|
% |
|
Metalúrgica Gerdau S.A.* |
|
557,898,901 |
|
97.3 |
|
69,852,184 |
|
6.1 |
|
627,751,085 |
|
36.5 |
|
557,898,901 |
|
97.3 |
|
95,469,922 |
|
8.3 |
|
653,368,823 |
|
38.0 |
|
Brazilian institutional investors |
|
2,135,124 |
|
0.4 |
|
214,508,762 |
|
18.7 |
|
216,643,886 |
|
12.6 |
|
2,383,207 |
|
0.4 |
|
224,073,547 |
|
19.6 |
|
226,456,754 |
|
13.2 |
|
Foreign institutional investors |
|
4,122,839 |
|
0.7 |
|
383,110,508 |
|
33.4 |
|
387,233,347 |
|
22.5 |
|
4,836,488 |
|
0.8 |
|
410,387,290 |
|
35.8 |
|
415,223,778 |
|
24.1 |
|
Other shareholders |
|
7,773,081 |
|
1.3 |
|
458,090,610 |
|
40.0 |
|
465,863,691 |
|
27.1 |
|
6,811,349 |
|
1.2 |
|
394,302,996 |
|
34.4 |
|
401,114,345 |
|
23.3 |
|
Treasury stock |
|
1,697,538 |
|
0.3 |
|
20,469,181 |
|
1.8 |
|
22,166,719 |
|
1.3 |
|
1,697,538 |
|
0.3 |
|
21,797,490 |
|
1.9 |
|
23,495,028 |
|
1.4 |
|
|
|
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.
b) Treasury stocks
Changes in treasury shares are as follows:
|
|
September 30, 2019 |
|
December 31, 2018 |
| ||||||||||||
|
|
Common |
|
R$ |
|
Preferred shares |
|
R$ |
|
Common |
|
R$ |
|
Preferred shares |
|
R$ |
|
Balance at the beginning of the period |
|
1,697,538 |
|
557 |
|
21,797,490 |
|
279,869 |
|
1,697,538 |
|
557 |
|
8,704,061 |
|
75,528 |
|
Repurchase of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
16,000,000 |
|
243,396 |
|
Exercise of stock option |
|
|
|
|
|
(1,328,309 |
) |
(25,570 |
) |
|
|
|
|
(1,597,235 |
) |
(27,433 |
) |
Assignment of preferred shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,309,336 |
) |
(11,622 |
) |
Balance at the end of the period |
|
1,697,538 |
|
557 |
|
20,469,181 |
|
254,299 |
|
1,697,538 |
|
557 |
|
21,797,490 |
|
279,869 |
|
These shares will be held in treasury for subsequent cancelling or will serve 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$ 12.42.
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
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
assignment of preferred shares. The reserve can be used to absorb losses, if necessary, for capitalization, for payment of dividends or for the repurchase of shares.
e) Operations with non-controlling interests - correspond to amounts recognized in equity for changes in non-controlling interests.
f) Other reserves - Includes gains and losses on net investment hedge, gains and losses on financial instruments accounted as cash flow hedge, cumulative translation adjustments, expenses recorded for stock option plans and actuarial gains and losses on postretirement benefits.
g) Dividends - The Company credited dividends to its shareholders in the amounts presented below:
Period |
|
Nature |
|
R$/share |
|
Outstandings shares (thousands) |
|
Credit |
|
Payment |
|
Amount |
|
1st quarter |
|
Dividends |
|
0.07 |
|
1,697,180 |
|
05/17/2019 |
|
05/29/2019 |
|
118,803 |
|
2nd quarter |
|
Dividends |
|
0.07 |
|
1,697,390 |
|
08/16/2019 |
|
08/28/2019 |
|
118,817 |
|
The dividends credited during the period is composed of anticipation of minimum statutory dividend.
NOTE 19 EARNINGS PER SHARE (EPS)
Basic
|
|
For the three-month period ended on |
| ||||||||||
|
|
September 30, 2019 |
|
September 30, 2018 |
| ||||||||
|
|
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 |
|
96,243 |
|
189,386 |
|
285,629 |
|
263,755 |
|
521,155 |
|
784,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average outstanding shares, after deducting the average of treasury shares |
|
571,929,945 |
|
1,125,439,182 |
|
|
|
571,931,352 |
|
1,130,081,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (in R$) Basic |
|
0.17 |
|
0.17 |
|
|
|
0.46 |
|
0.46 |
|
|
|
|
|
For the nine-month period ended on |
| ||||||||||
|
|
September 30, 2019 |
|
September 30, 2018 |
| ||||||||
|
|
Common |
|
Preferred |
|
Total |
|
Common |
|
Preferred |
|
Total |
|
|
|
(in thousands, except share and per share data) |
|
(in thousands, except share and per share data) |
| ||||||||
Basic numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated net income available to Common and Preferred shareholders |
|
372,155 |
|
732,012 |
|
1,104,167 |
|
645,261 |
|
1,275,266 |
|
1,920,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average outstanding shares, after deducting the average of treasury shares |
|
571,929,945 |
|
1,124,958,547 |
|
|
|
571,932,795 |
|
1,130,342,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (in R$) Basic |
|
0.65 |
|
0.65 |
|
|
|
1.13 |
|
1.13 |
|
|
|
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
Diluted
|
|
For the three-month period ended on |
| ||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
Diluted numerator |
|
|
|
|
|
Allocated net income available to Common and Preferred shareholders |
|
|
|
|
|
Net income allocated to preferred shareholders |
|
189,386 |
|
521,155 |
|
Add: |
|
|
|
|
|
Adjustment to net income allocated to preferred shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of the long term incentive plan |
|
655 |
|
2,086 |
|
|
|
190,041 |
|
523,241 |
|
|
|
|
|
|
|
Net income allocated to common shareholders |
|
96,243 |
|
263,755 |
|
Less: |
|
|
|
|
|
Adjustment to net income allocated to common shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of the long term incentive plan |
|
(655 |
) |
(2,086 |
) |
|
|
|
|
|
|
|
|
95,588 |
|
261,669 |
|
|
|
|
|
|
|
Diluted denominator |
|
|
|
|
|
Weighted - average number of shares outstanding |
|
|
|
|
|
Common Shares |
|
571,929,945 |
|
571,931,352 |
|
Preferred Shares |
|
|
|
|
|
Weighted-average number of preferred shares outstanding |
|
1,125,439,182 |
|
1,130,081,616 |
|
Potential increase in number of preferred shares outstanding due to the long term incentive plan |
|
11,633,151 |
|
13,570,954 |
|
Total |
|
1,137,072,333 |
|
1,143,652,570 |
|
|
|
|
|
|
|
Earnings per share Diluted (Common and Preferred Shares) - in R$ |
|
0.17 |
|
0.46 |
|
|
|
For the nine-month period ended on |
| ||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
Diluted numerator |
|
|
|
|
|
Allocated net income available to Common and Preferred shareholders |
|
|
|
|
|
Net income allocated to preferred shareholders |
|
732,012 |
|
1,275,266 |
|
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 |
|
2,782 |
|
5,555 |
|
|
|
734,794 |
|
1,280,821 |
|
|
|
|
|
|
|
Net income allocated to common shareholders |
|
372,155 |
|
645,261 |
|
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 |
|
(2,782 |
) |
(5,555 |
) |
|
|
|
|
|
|
|
|
369,373 |
|
639,706 |
|
|
|
|
|
|
|
Diluted denominator |
|
|
|
|
|
Weighted - average number of shares outstanding |
|
|
|
|
|
Common Shares |
|
571,929,945 |
|
571,932,795 |
|
Preferred Shares |
|
|
|
|
|
Weighted-average number of preferred shares outstanding |
|
1,124,958,547 |
|
1,130,342,166 |
|
Potential increase in number of preferred shares outstanding due to the long term incentive plan |
|
12,781,249 |
|
14,781,941 |
|
Total |
|
1,137,739,796 |
|
1,145,124,107 |
|
|
|
|
|
|
|
Earnings per share Diluted (Common and Preferred Shares) - in R$ |
|
0.65 |
|
1.12 |
|
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
NOTE 20 LONG-TERM INCENTIVE PLANS
a) Restricted Shares and Performance Shares Summary:
Balance as of January 01, 2018 |
|
18,975,084 |
|
Granted |
|
2,411,345 |
|
Forfeited |
|
(3,150,635 |
) |
Exercised |
|
(3,974,293 |
) |
Balance on December 31, 2018 |
|
14,261,501 |
|
Granted |
|
2,639,143 |
|
Forfeited/Canceled |
|
(918,531 |
) |
Exercised |
|
(1,694,394 |
) |
Quantity on September 30, 2019 |
|
14,287,719 |
|
The Company recognizes the cost of the long-term incentive plan through Restricted Shares and Performance Shares based on the fair value of the options granted on the grant date during the vesting period of each grant. The grace period for the year is 3 years for grants made as from 2017 and 5 years for grants made up to 2016. The costs with long-term incentive plans recognized in the income statement in the three-month period ended on September 30, 2019 was R$ 14,712 (R$ 13,416 on September 30, 2018) and the costs with long-term incentive plans recognized in the income statement in the nine-month period ended on September 30, 2019 was R$ 34,426 (R$ 34,452 on September 30, 2018).
As of September 30, 2019 the Company has a total of 20,469,181 preferred shares in treasury and, according to note 17, these shares may be used for serving this plan.
a) Stock Options Plan:
|
|
September 30, 2019 |
|
December 31, 2018 |
| ||||
|
|
Number of |
|
Average exercise |
|
Number of |
|
Average exercise |
|
|
|
|
|
R$ |
|
|
|
R$ |
|
Available at beginning of the year |
|
15,480 |
|
16.72 |
|
292,391 |
|
17.91 |
|
Options Exercised |
|
|
|
|
|
(33,499 |
) |
14.86 |
|
Options Forfeited |
|
(15,480 |
) |
16.72 |
|
(243,412 |
) |
18.62 |
|
Available at the end of the period |
|
|
|
|
|
15,480 |
|
16.72 |
|
NOTE 21 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:
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
|
|
For the three-month periods ended |
|
For the nine-month periods ended |
| ||||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
Depreciation and amortization |
|
(501,986 |
) |
(477,827 |
) |
(1,534,623 |
) |
(1,387,888 |
) |
Labor expenses |
|
(1,294,337 |
) |
(1,517,311 |
) |
(3,870,923 |
) |
(4,330,146 |
) |
Raw material and consumption material |
|
(6,561,826 |
) |
(8,201,881 |
) |
(19,456,611 |
) |
(22,571,910 |
) |
Freight |
|
(587,507 |
) |
(776,580 |
) |
(1,721,645 |
) |
(2,124,011 |
) |
Other expenses/income |
|
(293,394 |
) |
(410,352 |
) |
(895,463 |
) |
(1,240,663 |
) |
Gains and losses on assets held for sale and sales of interest in subsidiaries |
|
|
|
(177,627 |
) |
|
|
(228,948 |
) |
|
|
(9,239,050 |
) |
(11,561,578 |
) |
(27,479,265 |
) |
(31,883,566 |
) |
|
|
|
|
|
|
|
|
|
|
Classified as: |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
(8,945,657 |
) |
(10,973,599 |
) |
(26,583,803 |
) |
(30,413,955 |
) |
Selling expenses |
|
(115,783 |
) |
(144,173 |
) |
(358,551 |
) |
(431,938 |
) |
Impairment loss on trade receivables |
|
(7,717 |
) |
2,919 |
|
(15,695 |
) |
(17,316 |
) |
General and administrative expenses |
|
(248,810 |
) |
(277,071 |
) |
(719,311 |
) |
(820,449 |
) |
Other operating income |
|
159,720 |
|
63,674 |
|
307,561 |
|
153,380 |
|
Other operating expenses |
|
(80,803 |
) |
(55,701 |
) |
(109,466 |
) |
(124,340 |
) |
Gains and losses on assets held for sale and sales of interest in subsidiaries |
|
|
|
(177,627 |
) |
|
|
(228,948 |
) |
|
|
(9,239,050 |
) |
(11,561,578 |
) |
(27,479,265 |
) |
(31,883,566 |
) |
NOTE 22 FINANCIAL INCOME
|
|
For the three-month periods ended |
|
For the nine-month periods ended |
| ||||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
Income from short-term investments |
|
18,979 |
|
17,521 |
|
56,419 |
|
44,123 |
|
Interest income and other financial incomes |
|
29,895 |
|
39,613 |
|
81,228 |
|
78,297 |
|
Financial income total |
|
48,874 |
|
57,134 |
|
137,647 |
|
122,420 |
|
|
|
|
|
|
|
|
|
|
|
Interest on debts |
|
(249,668 |
) |
(310,581 |
) |
(756,227 |
) |
(880,825 |
) |
Monetary variation and other financial expenses |
|
(117,976 |
) |
(90,663 |
) |
(309,691 |
) |
(273,714 |
) |
Financial expenses total |
|
(367,644 |
) |
(401,244 |
) |
(1,065,918 |
) |
(1,154,539 |
) |
|
|
|
|
|
|
|
|
|
|
Exchange variations, net |
|
(234,450 |
) |
(114,400 |
) |
(292,854 |
) |
(509,673 |
) |
Gains and Losses on derivatives, net |
|
(9,177 |
) |
16,996 |
|
(16,271 |
) |
44,051 |
|
Financial result, net |
|
(562,397 |
) |
(441,514 |
) |
(1,237,396 |
) |
(1,497,741 |
) |
NOTE 23 SEGMENT REPORTING
Information by business segment:
|
|
For the three-month periods ended |
| ||||||||||||||||||||||
|
|
Brazil Operation |
|
North America Operation |
|
South America Operation |
|
Special Steels Operation |
|
Eliminations and Adjustments |
|
Consolidated |
| ||||||||||||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
Net sales |
|
4,198,173 |
|
4,390,425 |
|
3,626,817 |
|
5,753,188 |
|
771,375 |
|
907,610 |
|
1,620,559 |
|
2,305,050 |
|
(286,095 |
) |
(520,652 |
) |
9,930,829 |
|
12,835,621 |
|
Cost of sales |
|
(3,834,856 |
) |
(3,602,181 |
) |
(3,309,678 |
) |
(5,155,108 |
) |
(643,373 |
) |
(762,480 |
) |
(1,475,703 |
) |
(1,976,681 |
) |
317,953 |
|
522,851 |
|
(8,945,657 |
) |
(10,973,599 |
) |
Gross profit |
|
363,317 |
|
788,244 |
|
317,139 |
|
598,080 |
|
128,002 |
|
145,130 |
|
144,856 |
|
328,369 |
|
31,858 |
|
2,199 |
|
985,172 |
|
1,862,022 |
|
Selling, general and administrative expenses |
|
(135,485 |
) |
(137,001 |
) |
(121,259 |
) |
(158,101 |
) |
(25,249 |
) |
(23,041 |
) |
(42,168 |
) |
(55,738 |
) |
(48,149 |
) |
(44,444 |
) |
(372,310 |
) |
(418,325 |
) |
Other operating income (expenses) |
|
60,486 |
|
9,024 |
|
16,626 |
|
(886 |
) |
(7,187 |
) |
1,205 |
|
640 |
|
2,927 |
|
8,352 |
|
(4,297 |
) |
78,917 |
|
7,973 |
|
Gains and losses on assets held for sale and sales of interest in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177,627 |
) |
|
|
(177,627 |
) |
Equity method investees |
|
(231 |
) |
|
|
(13,874 |
) |
(20,045 |
) |
13,789 |
|
4,680 |
|
4,300 |
|
7,296 |
|
5,701 |
|
5,480 |
|
9,685 |
|
(2,589 |
) |
Operational income (Loss) before financial income (expenses) and taxes |
|
288,087 |
|
660,267 |
|
198,632 |
|
419,048 |
|
109,355 |
|
127,974 |
|
107,628 |
|
282,854 |
|
(2,238 |
) |
(218,689 |
) |
701,464 |
|
1,271,454 |
|
Financial result, net |
|
(147,553 |
) |
(101,552 |
) |
(23,876 |
) |
(10,976 |
) |
(29,075 |
) |
(42,127 |
) |
(26,857 |
) |
(36,401 |
) |
(335,036 |
) |
(250,458 |
) |
(562,397 |
) |
(441,514 |
) |
Income (Loss) before taxes |
|
140,534 |
|
558,715 |
|
174,756 |
|
408,072 |
|
80,280 |
|
85,847 |
|
80,771 |
|
246,453 |
|
(337,274 |
) |
(469,147 |
) |
139,067 |
|
829,940 |
|
Income and social contribution taxes |
|
(43,740 |
) |
(138,806 |
) |
(38,960 |
) |
(79,362 |
) |
(27,719 |
) |
(21,890 |
) |
(17,442 |
) |
(59,315 |
) |
278,099 |
|
259,950 |
|
150,238 |
|
(39,423 |
) |
Net income (Loss) |
|
96,794 |
|
419,909 |
|
135,796 |
|
328,710 |
|
52,561 |
|
63,957 |
|
63,329 |
|
187,138 |
|
(59,175 |
) |
(209,197 |
) |
289,305 |
|
790,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales between segments |
|
242,144 |
|
464,748 |
|
8,668 |
|
24,002 |
|
|
|
1,413 |
|
35,283 |
|
30,489 |
|
|
|
|
|
286,095 |
|
520,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation/amortization |
|
236,422 |
|
231,166 |
|
144,231 |
|
136,279 |
|
28,912 |
|
23,063 |
|
92,421 |
|
87,319 |
|
|
|
|
|
501,986 |
|
477,827 |
|
|
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
Investments in associates and joint-ventures |
|
11,189 |
|
3,250 |
|
599,334 |
|
301,271 |
|
767,775 |
|
701,233 |
|
220,145 |
|
213,899 |
|
148,192 |
|
148,149 |
|
1,746,635 |
|
1,367,802 |
|
Total assets |
|
16,696,514 |
|
17,473,039 |
|
15,831,727 |
|
14,659,926 |
|
4,594,066 |
|
4,421,487 |
|
8,936,185 |
|
8,825,830 |
|
6,987,599 |
|
5,900,747 |
|
53,046,091 |
|
51,281,029 |
|
Total liabilities |
|
6,112,815 |
|
8,072,380 |
|
4,851,421 |
|
4,935,210 |
|
1,041,510 |
|
1,053,007 |
|
1,690,662 |
|
1,736,085 |
|
11,851,364 |
|
9,545,776 |
|
25,547,772 |
|
25,342,458 |
|
Information by business segment:
|
|
For the nine-month periods ended |
| ||||||||||||||||||||||
|
|
Brazil Operation |
|
North America Operation |
|
South America Operation |
|
Special Steels Operation |
|
Eliminations and Adjustments |
|
Consolidated |
| ||||||||||||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
Net sales |
|
12,064,897 |
|
11,799,313 |
|
11,281,167 |
|
15,592,648 |
|
2,350,976 |
|
2,982,412 |
|
5,304,956 |
|
6,169,999 |
|
(891,453 |
) |
(1,284,596 |
) |
30,110,543 |
|
35,259,776 |
|
Cost of sales |
|
(10,581,361 |
) |
(9,669,955 |
) |
(10,150,659 |
) |
(14,250,069 |
) |
(1,991,994 |
) |
(2,529,936 |
) |
(4,794,437 |
) |
(5,250,645 |
) |
934,648 |
|
1,286,650 |
|
(26,583,803 |
) |
(30,413,955 |
) |
Gross profit |
|
1,483,536 |
|
2,129,358 |
|
1,130,508 |
|
1,342,579 |
|
358,982 |
|
452,476 |
|
510,519 |
|
919,354 |
|
43,195 |
|
2,054 |
|
3,526,740 |
|
4,845,821 |
|
Selling, general and administrative expenses |
|
(417,420 |
) |
(417,096 |
) |
(345,786 |
) |
(475,908 |
) |
(82,995 |
) |
(105,348 |
) |
(133,078 |
) |
(141,569 |
) |
(114,278 |
) |
(129,782 |
) |
(1,093,557 |
) |
(1,269,703 |
) |
Other operating income (expenses) |
|
99,067 |
|
9,548 |
|
38,534 |
|
15,546 |
|
3,713 |
|
(6,449 |
) |
9,314 |
|
6,922 |
|
47,467 |
|
3,473 |
|
198,095 |
|
29,040 |
|
Gains and losses on assets held for sale and sales of interest in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(228,948 |
) |
|
|
(228,948 |
) |
Equity method investees |
|
(1,110 |
) |
|
|
(88,475 |
) |
(50,435 |
) |
52,287 |
|
56,963 |
|
5,719 |
|
15,706 |
|
16,905 |
|
16,703 |
|
(14,674 |
) |
38,937 |
|
Operational income (Loss) before financial income (expenses) and taxes |
|
1,164,073 |
|
1,721,810 |
|
734,781 |
|
831,782 |
|
331,987 |
|
397,642 |
|
392,474 |
|
800,413 |
|
(6,711 |
) |
(336,500 |
) |
2,616,604 |
|
3,415,147 |
|
Financial result, net |
|
(393,032 |
) |
(314,460 |
) |
(73,149 |
) |
(32,906 |
) |
(100,639 |
) |
(156,358 |
) |
(73,422 |
) |
(92,456 |
) |
(597,154 |
) |
(901,561 |
) |
(1,237,396 |
) |
(1,497,741 |
) |
Income (Loss) before taxes |
|
771,041 |
|
1,407,350 |
|
661,632 |
|
798,876 |
|
231,348 |
|
241,284 |
|
319,052 |
|
707,957 |
|
(603,865 |
) |
(1,238,061 |
) |
1,379,208 |
|
1,917,406 |
|
Income and social contribution taxes |
|
(205,028 |
) |
(351,614 |
) |
(184,326 |
) |
(167,605 |
) |
(68,140 |
) |
(68,033 |
) |
(75,407 |
) |
(164,465 |
) |
268,375 |
|
771,528 |
|
(264,526 |
) |
19,811 |
|
Net income (Loss) |
|
566,013 |
|
1,055,736 |
|
477,306 |
|
631,271 |
|
163,208 |
|
173,251 |
|
243,645 |
|
543,492 |
|
(335,490 |
) |
(466,533 |
) |
1,114,682 |
|
1,937,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales between segments |
|
754,961 |
|
1,154,466 |
|
41,790 |
|
65,207 |
|
|
|
4,967 |
|
94,702 |
|
59,956 |
|
|
|
|
|
891,453 |
|
1,284,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation/amortization |
|
749,595 |
|
663,105 |
|
418,518 |
|
383,032 |
|
88,117 |
|
75,673 |
|
278,393 |
|
266,078 |
|
|
|
|
|
1,534,623 |
|
1,387,888 |
|
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.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
The column of eliminations and adjustments includes the elimination of sales between segments, corporate expenses, gains and losses on assets held for sale and sales of interest in subsidiaries, 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 nine-month periods ended |
| ||||||||||||||||||
|
|
Brazil |
|
Latin America (1) |
|
North America (2) |
|
Asia |
|
Consolidated |
| ||||||||||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
Net sales |
|
4,458,475 |
|
4,841,973 |
|
1,105,873 |
|
1,072,264 |
|
4,366,481 |
|
6,733,398 |
|
|
|
187,986 |
|
9,930,829 |
|
12,835,621 |
|
|
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
Total assets |
|
26,186,283 |
|
26,283,287 |
|
5,762,385 |
|
5,251,637 |
|
21,097,424 |
|
19,746,105 |
|
|
|
|
|
53,046,092 |
|
51,281,029 |
|
(1) Does not include operations of Brazil
(2) Does not include operations of Mexico
|
|
For the nine-month periods ended |
| ||||||||||||||||||
|
|
Brazil |
|
Latin America (1) |
|
North America (2) |
|
Asia |
|
Consolidated |
| ||||||||||
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
Net sales |
|
13,158,039 |
|
12,828,357 |
|
3,039,387 |
|
3,616,511 |
|
13,913,117 |
|
18,249,565 |
|
|
|
565,343 |
|
30,110,543 |
|
35,259,776 |
|
|
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
September 30, 2019 |
|
December 31, 2018 |
|
Total assets |
|
26,186,283 |
|
26,283,287 |
|
5,762,385 |
|
5,251,637 |
|
21,097,424 |
|
19,746,105 |
|
|
|
|
|
53,046,092 |
|
51,281,029 |
|
(1) Does not include operations of Brazil
(2) Does not include operations of Mexico
IFRS 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.
NOTE 24 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 2018, 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: exceeded book value by R$ 1,474 million; b) Special Steel: exceeded book value by R$ 2,483 million; c) South America: exceeded book value by R$ 593 million; and d) Brazil: exceeded the book value by R$ 3,048 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: exceeded the book value by R$ 1,672 million; b) Special Steel: exceeded the book value by R$ 2,645 million; c) South America: exceeded the book value by R$ 640 million; and d) Brazil: exceeded the book value by R$ 3,318 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 September 30, 2019 is required.
GERDAU S.A.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of September 30, 2019
(In thousands of Brazilian Reais R$, unless otherwise stated)
The Company will maintain over 2019 its constant monitoring of the steel market in order to identify any deterioration, significant drop in demand from steel consuming sectors (notably automotive and construction), stoppage of industrial plants or activities relevant changes in the economy or financial market that result in increased perception of risk or reduction of liquidity and refinancing capacity. Although the projections made by the Company provide a challenging scenario, events that impact economic environment and business, if manifested in a greater intensity than that anticipated in the assumptions made by management, may lead the Company to revise its projections of value in use and eventually result in impairment losses.
NOTE 25 - SUBSEQUENT EVENTS
I) On October 28, 2019, the Company proposed the anticipation of the mandatory minimum dividend on income of the current fiscal year, stipulated in its Bylaws, to be paid in the form of dividends, which will be calculated and credited on the shareholding interest owned on November 11, 2019, in the amount of R$ 67.9 million (R$ 0.04 per common and preferred share), with payment on November 25, 2019, which was submitted and approved by the Board of Directors on October 29, 2019.
********************************