U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

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

SECURITIES EXCHANGE ACT OF 1934

 

Dated November 5, 2024

 

Commission File Number 1-14878

 

GERDAU S.A.

(Translation of Registrant’s Name into English)

 

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

São Paulo, São Paulo - Brazil CEP 05425-070

(Address of principal executive offices)

 

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

 

Form 20-F  x      Form 40-F  ¨

 

 

 

 

 

 

Exhibit Index

 

Exhibit Description of Exhibit
   
99.1 GERDAU S.A. Condensed consolidated interim financial statements as of September 30, 2024

 

 

 

 

SIGNATURES

 

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

 

Date: November 5, 2024

 

  GERDAU S.A.
     
  By: /s/ Rafael Dorneles Japur
  Name: Rafael Dorneles Japur
  Title: Executive Vice President Investor Relations Director

 

 

 

Exhibit 99.1

 

GERDAU S.A.

 

Condensed consolidated interim financial statements

 

as of September 30, 2024

 

 

 

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

(Unaudited)

 

   Note   September 30, 2024   December 31, 2023 
CURRENT ASSETS               
Cash and cash equivalents   4    8,074,104    3,005,645 
Short-term investments   4    757,578    2,338,097 
Trade accounts receivable   5    5,673,760    4,875,394 
Inventories   6    15,914,442    15,227,778 
Tax credits        780,384    1,009,824 
Income and social contribution taxes recoverable        852,715    986,068 
Dividends receivable        -    1,036 
Fair value of derivatives   14    38,823    766 
Assets held for sale        -    1,210,041 
Other current assets        726,160    543,288 
         32,817,966    29,197,937 
                
NON-CURRENT ASSETS               
Tax credits        1,933,084    1,916,100 
Deferred income taxes        2,252,763    2,219,461 
Judicial deposits   15    356,864    2,064,070 
Other non-current assets        329,183    355,390 
Prepaid pension cost        2,463    11,695 
Fair value of derivatives   14    16,864    - 
Investments in associates and joint ventures   8    4,197,194    3,858,449 
Goodwill   10    12,132,215    10,825,148 
Leasing        1,182,528    1,182,654 
Other Intangibles        389,765    373,710 
Property, plant and equipment, net        26,240,428    22,880,530 
         49,033,351    45,687,207 
                
TOTAL ASSETS        81,851,317    74,885,144 

 

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

 

 

 

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

(Unaudited)            

 

   Note   September 30, 2024   December 31, 2023 
CURRENT LIABILITIES               
Trade accounts payable - domestic market   11    4,043,996    4,120,701 
Trade accounts payable - debtor risk   11    454,421    584,320 
Trade accounts payable - imports   11    1,157,949    1,196,162 
Short-term debt   12    1,722,124    1,783,201 
Debentures   13    91,321    14,421 
Taxes payable        418,193    512,935 
Income and social contribution taxes payable        208,726    502,766 
Payroll and related liabilities        976,491    845,848 
Leasing payable        422,016    373,151 
Employee benefits        -    209 
Environmental liabilities        241,462    139,395 
Fair value of derivatives   14    9,601    19,042 
Other current liabilities        1,279,897    1,192,461 
         11,026,197    11,284,612 
                
NON-CURRENT LIABILITIES               
Long-term debt   12    8,424,710    8,296,474 
Debentures   13    2,294,744    799,212 
Related parties   16    -    24,992 
Deferred income taxes        30,449    204,151 
Provision for tax, civil and labor liabilities   15    2,307,058    2,185,825 
Environmental liabilities        311,860    378,274 
Employee benefits        516,435    706,767 
Fair value of derivatives   14    -    1,606 
Leasing payable        873,336    904,451 
Other non-current liabilities        550,591    859,917 
         15,309,183    14,361,669 
                
EQUITY   17           
Capital        24,273,225    20,215,343 
Capital reserves        11,597    11,597 
Treasury stocks        (437,998)   (150,182)
Retained earnings        25,089,943    25,914,830 
Transactions with non-controlling interests without change of control        (2,904,670)   (2,904,670)
Other reserves        9,262,902    5,972,041 
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT        55,294,999    49,058,959 
                
NON-CONTROLLING INTERESTS        220,938    179,904 
                
EQUITY        55,515,937    49,238,863 
                
TOTAL LIABILITIES AND EQUITY        81,851,317    74,885,144 

 

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

 

 

 

GERDAU S.A.

CONSOLIDATED STATEMENTS OF INCOME

In thousands of Brazilian reais (R$)                    

(Unaudited)

 

       For the three-month period ended   For the nine-month period ended 
   Note   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
NET SALES        17,378,032    17,063,258    50,204,112    54,200,931 
                          
Cost of sales   20    (14,801,417)   (14,270,585)   (43,020,882)   (44,501,242)
                          
GROSS PROFIT        2,576,615    2,792,673    7,183,230    9,699,689 
                          
Selling expenses   20    (194,076)   (184,064)   (563,275)   (532,434)
General and administrative expenses   20    (354,526)   (354,804)   (1,016,925)   (1,106,820)
Other operating income   20    55,828    37,602    255,730    951,425 
Other operating expenses   20    (156,280)   (85,253)   (431,260)   (214,928)
Recovery of Eletrobras Compulsory Loan   15    -    -    100,860    - 
Results in operations with joint ventures   3.4    -    -    808,367    - 
Impairment of financial assets   20    (5,016)   (4,084)   (29,374)   (5,065)
Impairment of assets   23    -    -    (199,627)   - 
Equity in earnings of unconsolidated companies   8    198,922    182,070    386,120    769,614 
                        
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES        2,121,467    2,384,140    6,493,846    9,561,481 
                        
Financial income   21    168,501    241,133    528,460    700,792 
Financial expenses   21    (359,478)   (362,962)   (1,074,408)   (1,042,617)
Exchange variations, net   21    (154,815)   (359,558)   (853,239)   (849,191)
Tax credits monetary update   21    -    -    -    253,002 
Gains (Losses) on financial instruments, net   21    22,999    3,633    3,369    (12,570)
                        
INCOME BEFORE TAXES        1,798,674    1,906,386    5,098,028    8,610,897 
                         
Current   7    (259,991)   (406,628)   (899,534)   (1,541,982)
Deferred   7    (182,438)   92,307    77,604    (118,728)
Income and social contribution taxes        (442,429)   (314,321)   (821,930)   (1,660,710)
                          
NET INCOME        1,356,245    1,592,065    4,276,098    6,950,187 
                          
ATTRIBUTABLE TO:                         
Owners of the parent        1,347,402    1,581,791    4,250,294    6,923,619 
Non-controlling interests        8,843    10,274    25,804    26,568 
         1,356,245    1,592,065    4,276,098    6,950,187 
                          
Basic earnings per share - preferred - (R$)   18    0.64    0.75    2.02    3.30 
Basic earnings per share - common - (R$)   18    0.64    0.75    2.02    3.30 
                          
Diluted earnings per share - preferred - (R$)   18    0.64    0.74    2.01    3.28 
Diluted earnings per share - common - (R$)   18    0.64    0.74    2.01    3.28 

 

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

 

 

 

GERDAU S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In thousands of Brazilian reais (R$)

(Unaudited)

 

   For the three-month period ended   For the nine-month period ended 
   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
Net income for the period   1,356,245    1,592,065    4,276,098    6,950,187 
Items that may be reclassified subsequently to profit or loss                    
Other comprehensive income from associates and joint ventures   (168,671)   110,837    (3,355)   211,800 
Cumulative translation adjustment   (486,827)   818,363    3,957,028    (964,466)
Recycling of cumulative translation adjustment to net income   -    -    (407,560)   - 
Unrealized (Losses) Gains on net investment hedge   45,955    (167,306)   (249,910)   194,352 
Unrealized (Losses) Gains on financial instruments, net of tax   2,090    (983)   (2,309)   783 
    (607,453)   760,911    3,293,894    (557,531)
                     
Total comprehensive income for the period, net of tax   748,792    2,352,976    7,569,992    6,392,656 
                     
Total comprehensive income attributable to:                    
Owners of the parent   738,022    2,342,265    7,524,385    6,371,827 
Non-controlling interests   10,770    10,711    45,607    20,829 
    748,792    2,352,976    7,569,992    6,392,656 

 

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

 

 

 

GERDAU S.A.        
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY        
in thousands of Brazilian reais (R$)        
(Unaudited)        

 

       Attributed to parent company’s interest             
               Retained earnings       Other Reserves             
   Capital   Treasury
stocks
   Capital
Reserve
   Legal
reserve
   Tax
Incentives
Reserve
   Investments
and
working
capital
reserve
   Retained
earnings
   Operations
with
non-controlling
interests
   Gains and
losses on
net
investment
hedge
   Gains and
losses on
financial
instruments
   Cumulative
translation
adjustment
   Pension
plan
  

Long
term
incentive
plan

  

Total
parent
company’s
interest

   Non-controlling
interests
   Total
Shareholder's
Equity
 
Balance as of January 1, 2023  19,249,181   (179,995)  11,597   2,210,531   1,775,498   18,186,532   -   (2,904,670)  (9,079,070)  (12,734)  16,725,542   80,117   53,665   46,116,194   181,999   46,298,193 
2023 Changes in Equity                                                                
Net income  -       -   -   -   -   6,923,619   -   -   -   -   -   -   6,923,619   26,568   6,950,187 
Other comprehensive income (loss) recognized in the period  -       -   -   -   -   -   -   194,352   783   (746,927)  -   -   (551,792)  (5,739)  (557,531)
Total comprehensive income (loss) recognized in the period  -   -   -   -   -   -   6,923,619   -   194,352   783   (746,927)  -   -   6,371,827   20,829   6,392,656 
Increase in Capital through capitalization of Retained earnings  966,162   -   -   -   -   (966,162)  -   -   -   -   -   -   -   -   -   - 
Long term incentive plan cost recognized in the period  -   -   -   -   -   -   -   -   -   -   -   -   55,430   55,430   26   55,456 
Long term incentive plan exercised during the period  -   28,345   -   -   -   6,520   -   -   -   -   -   -   -   34,865   17   34,882 
Effects of interest changes in subsidiaries  -   -   -   -   -   -   -   -   -   -   -   -   -   -   (9,951)  (9,951)
Dividend in excess of the minimum estatutory undistributed in 2022  -   -   -   -   -   (333,151)  -   -   -   -   -   -   -   (333,151)  -   (333,151)
Dividends/interest on equity  -   -   -   -   -   -   (1,644,228)  -   -   -   -   -   -   (1,644,228)  (6,357)  (1,650,585)
Balance as of September 30, 2023 (Note 17)  20,215,343   (151,650)  11,597   2,210,531   1,775,498   16,893,739   5,279,391   (2,904,670)  (8,884,718)  (11,951)  15,978,615   80,117   109,095   50,600,937   186,563   50,787,500 
                                                                 
Balance as of January 1, 2024  20,215,343   (150,182)  11,597   2,528,673   2,914,226   20,471,931   -   (2,904,670)  (8,831,146)  (11,951)  14,504,471   176,612   134,055   49,058,959   179,904   49,238,863 
2024 Changes in Equity                                                                
Net income  -   -   -   -   -   -   4,250,294   -   -   -   -   -   -   4,250,294   25,804   4,276,098 
Other comprehensive income (loss) recognized in the period  -   -   -   -   -   -   -   -   (249,910)  (2,309)  3,526,310   -   -   3,274,091   19,803   3,293,894 
Total comprehensive income (loss) recognized in the period  -   -   -   -   -   -   4,250,294   -   (249,910)  (2,309)  3,526,310   -   -   7,524,385   45,607   7,569,992 
Effects of the share buyback program  -   (349,791)  -   -   -   -   -   -   -       -   -   -   (349,791)  -   (349,791)
Increase in Capital through capitalization of Retained earnings  4,057,882   -   -   -   -   (4,057,882)  -   -   -       -   -   -   -   -   - 
Long term incentive plan cost recognized in the period  -   -   -   -   -   -   -   -   -       -   -   16,770   16,770   33   16,803 
Long term incentive plan exercised during the period  -   61,975   -   -   -   (555)  -   -   -       -   -   -   61,420   15   61,435 
Effects of interest changes in subsidiaries  -   -   -   -   -   -   -   -   -       -   -   -   -   (4,119)  (4,119)
Dividend in excess of the minimum estatutory undistributed in 2023  -   -   -   -   -   (175,233)  -   -   -       -   -   -   (175,233)  -   (175,233)
Dividends/interest on equity  -   -   -   -   -   -   (841,511)  -   -       -   -   -   (841,511)  (502)  (842,013)
Balance as of September 30, 2024 (Note 17)  24,273,225   (437,998)  11,597   2,528,673   2,914,226   16,238,261   3,408,783   (2,904,670)  (9,081,056)  (14,260)  18,030,781   176,612   150,825   55,294,999   220,938   55,515,937 

 

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

 

 

 

 

GERDAU S.A.          
CONSOLIDATED STATEMENTS OF CASH FLOWS          
In thousands of Brazilian reais (R$)          
(Unaudited)          

 

       For the nine-month period ended 
   Note   September 30, 2024   September 30, 2023 
Cash flows from operating activities               
Net income for the period        4,276,098    6,950,187 
Adjustments to reconcile net income for the period to net cash provided by operating activities:               
Depreciation and amortization   20    2,293,381    2,256,376 
Impairment of assets   23    199,627    - 
Equity in earnings of unconsolidated companies   8    (386,120)   (769,614)
Exchange variation, net   21    853,239    849,191 
Gains and losses on derivative financial instruments, net   21    (3,369)   12,570 
Post-employment benefits        200,158    190,264 
Long-term incentive plans   19    114,544    122,801 
Income tax   7    821,930    1,660,710 
Losses on disposal of property, plant and equipment        37,890    26,210 
Results in operations with joint ventures   3.4    (808,367)   - 
Impairment of financial assets        29,374    5,065 
Provision of tax, civil, labor and environmental liabilities, net        121,092    140,549 
Tax credits recovery        (100,860)   (1,098,218)
Interest income on short-term investments        (205,553)   (426,093)
Interest expense on debt and debentures   21    577,111    630,927 
Interest expense on lease liabilities        103,006    78,632 
Reversal of net realizable value adjustment in inventory, net   6    (42,824)   (20,667)
         8,080,357    10,608,890 
Changes in assets and liabilities               
Increase in trade accounts receivable        (421,177)   (1,006,171)
Increase in inventories        208,075    1,158,473 
Decrease in trade accounts payable        (775,344)   (775,582)
Decrease (Increase) in other receivables        1,707,207    (100,429)
Decrease in other payables        (107,423)   (397,409)
Dividends from associates and joint ventures        68,501    77,661 
Purchases of short-term investments        (910,120)   (5,687,783)
Proceeds from maturities and sales of short-term investments        2,688,500    5,595,166 
Cash provided by operating activities        10,538,576    9,472,816 
                
Interest paid on loans and financing        (486,091)   (458,667)
Interest paid on lease liabilities        (103,006)   (78,632)
Income and social contribution taxes paid        (1,354,889)   (1,410,109)
Net cash provided by operating activities        8,594,590    7,525,408 
                
Cash flows from investing activities               
Purchases of property, plant and equipment   9    (3,911,266)   (3,668,775)
Proceeds from sales of property, plant and equipment, investments and other intangibles        1,525,745    10,336 
Additions in other intangibles        (123,634)   (91,008)
Repurchase of shares in joint ventures        -    47,006 
Capital increase in joint ventures   8    (101,069)   (96,653)
Net cash used in investing activities        (2,610,224)   (3,799,094)
                
Cash flows from financing activities               
Purchases of Treasury stocks        (349,791)   - 
Dividends and interest on capital paid        (1,013,050)   (1,855,072)
Proceeds from loans and financing        2,097,055    1,658,770 
Repayment of loans and financing        (1,650,139)   (2,692,611)
Leasing payment        (328,287)   (308,819)
Intercompany loans, net        (24,992)   398 
Net cash used in financing activities        (1,269,204)   (3,197,334)
                
Exchange variation on cash and cash equivalents        353,297    (90,314)
                
Increase in cash and cash equivalents        5,068,459    438,666 
Cash and cash equivalents at beginning of period        3,005,645    2,475,863 
Cash and cash equivalents at end of period        8,074,104    2,914,529 

 

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, 2024

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

(Unaudited)

 

 

NOTE 1 - GENERAL INFORMATION

 

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

 

The Condensed Consolidated Interim Financial Statements of the Company were approved by the Management on November 05, 2024.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

 

2.1 - Basis of Presentation

 

The Company's Condensed Consolidated Interim Financial Statements for the three-month and nine-month periods ended on September 30, 2024 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, 2023, which were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board - IASB.

 

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

 

The accounting policies applied in this Condensed Consolidated Interim Financial Statements are the same as those applied in the Consolidated Financial Statements for the year ended December 31, 2023.

 

2.2 – New accounting standards

 

The issued and/or reviewed IFRS standards made by the IASB that are effective for the year started in 2024 had no impact on the Company's Financial Statements. In addition, the IASB issued/reviewed some IFRS standards, which have mandatory adoption for the year 2025 and/or after, and the Company is assessing the adoption impact of these standards in its Consolidated Financial Statements.

 

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

 

- On March 6, 2024, the SEC approved new rules that will require climate-related disclosures by public companies, including evaluation and disclosure of certain climate-related financial metrics in their audited financial statements. These rules are effective for fiscal years beginning on/or after January 1, 2025. On April 4, 2024, the SEC stayed its climate disclosure rules to facilitate the orderly judicial resolution of pending legal challenges. The Company is currently evaluating the impact of the rule changes.

 

- Issuance of IFRS 18 – Presentation and Disclosure in Financial Statements. Establishes the requirements for the presentation and disclosure of information in general purpose financial statements to help ensure they provide relevant information that faithfully represents an entity’s assets, liabilities, equity, income and expenses. This standard is effective for years beginning on/or after January 1, 2027. The Company is evaluating the impacts on its Financial Statements of adopting this standard.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

- Issuance of IFRS 19 – Subsidiaries without Public Accountability: Disclosures. Establishes simplified disclosures requirements for consolidated or individual financial statements of entities eligible for the application of this standard. These rules are effective for fiscal years beginning on/or after January 1, 2027. The Company does not expect material impacts on its Financial Statements.

 

- Amendment to IFRS 9 and IFRS 7 – Amendments to the classification and measurement of financial instruments. It clarifies aspects related to the classification and measurement of financial instruments. This amendment to the standards is effective for years beginning on/or after January 1, 2026. The Company is evaluating the impacts on its Financial Statements of adopting these standards.

 

- Annual improvements to IFRS Accounting Standards. It applies amendments to IFRS 1, addressing first-adoption aspects related to hedge accounting; IFRS 7, covering aspects of gain and loss on the reversal of a financial instrument, credit risk disclosures, and the difference between fair value and transaction price; IFRS 9, addressing aspects related to the reversal of leasing liabilities and transaction price; IFRS 10, addressing the determination of the “de facto agent” and IAS 7, addressing aspects related to the cost method. These amendments are effective for years beginning on/or after January 1, 2026. The Company does not expect material impacts on its Financial Statements.

 

NOTE 3 – CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

3.1 - Subsidiaries

 

The Company did not have material changes of interest in subsidiaries for the period ended on September 30, 2024, when compared to those existing on December 31, 2023.

 

3.2 - Joint Ventures

 

Listed below are the interests in joint ventures:

 

      Equity Interests 
    Total capital(*) 
Joint ventures  Country  September 30, 2024   December 31, 2023 
Bradley Steel Processors  Canada   50.00    50.00 
MRM Guide Rail  Canada   50.00    50.00 
Gerdau Corsa S.A.P.I. de CV  Mexico   75.00    75.00 
Gerdau Summit Aços Fundidos e Forjados S.A.  Brazil   58.73    58.73 
Juntos Somos Mais Fidelização S.A.  Brazil   27.47    27.16 
Addiante S.A  Brazil   50.00    50.00 
Brasil ao Cubo S.A.  Brazil   44.66    44.66 
MRS Logística S.A.  Brazil   1.32    1.32 
Ubiratã Tecnologia S.A  Brazil   -    50.00 
Gerdau Metaldom Corp. (Note 3.4)  Dominican Rep.   -    50.00 
Diaco S.A. (Note 3.4)  Colombia   -    49.85 

 

 

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

 

Although the Company owns more than 50% of Gerdau Corsa S.A.P.I. de C.V. and Gerdau Summit Aços Fundidos e Forjados S.A., it does not consolidate the financial statements of these joint venture entities, due to joint control agreements with the other shareholders that prevent the Company from controlling the decisions in conducting the joint venture’s business. The Company owns 1.32% of MRS Logística S.A. and due to the existence of a shareholders' agreement, a joint venture business and the existence of significant influence provided for in the accounting standard for the application of the equity method is characterized.

 

In August 2024, the Company disposed its participation in Ubiratã Tecnologia S.A., where there were no material losses in relation to the equity value recorded in the financial statements.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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

 

   Joint ventures 
Joint ventures  September 30, 2024   December 31, 2023 
Cash and cash equivalents   2,986,050    4,946,614 
Total current assets   7,110,053    10,830,003 
Total non-current assets   19,882,887    19,799,735 
Short-term debt   971,314    1,387,985 
Total current liabilities   5,320,733    7,153,365 
Long-term debt   6,131,819    6,509,894 
Total non-current liabilities   8,872,240    9,547,371 

 

   Joint ventures 
   For the three-month period ended   For the nine-month period ended 
Joint ventures  September 30, 2024   September 30, 2023   September 30, 2024   September  30, 2023 
Net sales   3,741,778    5,025,651    10,742,229    15,031,598 
Cost of sales   (2,577,451)   (3,518,098)   (7,262,929)   (10,835,152)
Income before financial income (expenses) and taxes   888,522    1,248,007    2,680,872    3,499,623 
Financial income   273,144    161,308    855,907    329,379 
Financial expenses   (409,873)   (368,314)   (1,343,457)   (890,498)
Income and social contribution taxes   (200,334)   (255,547)   (677,342)   (719,235)
Net income   521,097    703,433    1,492,251    2,049,902 
Depreciation and amortization   332,398    312,503    961,634    918,276 
Total comprehensive income for the period, net of tax   521,097    703,433    1,492,251    2,049,902 

 

3.3 — Associate companies

 

Listed below is the interest in associate companies:

 

      Equity interests 
    Total capital (*) 
Associate companies  Country  September 30, 2024   December 31, 2023 
Dona Francisca Energética S.A.  Brazil   53.94    51.82 
Newave Energia S.A.  Brazil   33.33    33.33 

 

 

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

 

In July 2024, the Company acquired an additional interest of 2.12% in Dona Francisca Energética S.A. for R$7 million.

 

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

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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

 

Associate companies  September 30, 2024   December 31, 2023 
Cash and cash equivalents   70,946    138,389 
Total current assets   124,925    165,048 
Total non-current assets   910,924    424,053 
Total current liabilities   37,141    122,308 
Total non-current liabilities   48,695    7,965 

 

   For the three-month period ended   For the nine-month period ended 
Associate companies  September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
Net sales   61,899    16,677    92,593    49,488 
Cost of sales   (36,215)   (7,571)   (53,331)   (23,855)
Income before financial income (expenses) and taxes   13,747    8,693    10,286    23,020 
Financial income   1,425    422    7,097    819 
Financial expenses   (587)   (1,143)   (2,119)   (3,753)
Income and social contribution taxes   (5,789)   (707)   (5,828)   (1,888)
Net income   8,796    7,265    9,437    18,198 
Depreciation and amortization   2,963    2,176    8,404    7,387 
Total comprehensive income for the period, net of tax   8,796    7,265    9,437    18,198 

 

3.4 — Results in operations with joint ventures

 

On January 17, 2024, the Company signed an agreement for the sale of all its equity interests of 49.85% in the joint venture Diaco S.A. (and subsidiaries) and 50.00% in the joint venture Gerdau Metaldom Corp (and subsidiaries), whose acquirer is the INICIA Group, Gerdau’s partner in these companies, which were part of the Company’s South America Segment and were recorded by the equity method. The transaction took place at a base price corresponding to US$ 325 million (equivalent to R$ 1.5 billion on the date of the transaction) and it is in line with its capital allocation strategy, focusing on the growth and competitiveness of assets with greater potential for long-term value generation. Throughout the first quarter of 2024, after compliance with the corresponding conditions precedent, the transactions were concluded and, as a result of the sale of these interests, the Company recognized a gain of R$ 808.4 million in the line of Results in operations with joint ventures in the Statement of Income, which includes the amount of R$ 407.6 million reclassified from Cumulative translation adjustment, as presented in the Statement of Comprehensive Income, to the income.

 

3.5 — Events of the quarter

 

On September 17, 2024, Gerdau Ameristeel US Inc., subsidiary of Gerdau in North America, signed an agreement to acquire the entire ferrous and non-ferrous scrap processing and recycling business of Dales Recycling Partnership. The acquisition price of approximately US$ 60 million (equivalent to R$ 327 million on September 30, 2024) to be paid in cash, using available own resources, at the closing of the transaction, subject to customary price adjustments, including land, inventory, and fixed assets associated with Dales Recycling’s operations in Tennessee, Kentucky and Missouri, in the United States. Dales Recycling has an annual capacity to process approximately 160,000 tons of ferrous and non-ferrous scrap and reported an average annual EBITDA of approximately US$ 10 million over the past three years (equivalent to R$ 54 million on September 30, 2024). The acquisition aims to increase Gerdau’s captive ferrous scrap supply through proprietary channels, supplying raw material to its operations at a competitive cost. The Company also clarifies that this acquisition is aligned with its strategy of growth and competitiveness of operations through assets with greater potential for long-term value generation and expansion of its presence in more profitable markets for its business. The closing of the transaction occurred on November 1, 2024, the date from which Gerdau Ameristeel US Inc. will have control over the Dales Recycling business.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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

 

Cash and cash equivalents

 

   September 30, 2024   December 31, 2023 
Cash   21,371    10,468 
Banks and immediately available investments   8,052,733    2,995,177 
Cash and cash equivalents   8,074,104    3,005,645 

 

Immediate liquidity investments include investments that are readily redeemable, that is, those that have immediate liquidity and low risk of fair value variation.

 

Short-term investments

 

   September 30, 2024   December 31, 2023 
Short-term investments   757,578    2,338,097 

 

Short-term investments include Bank Deposit Certificates and marketable securities, which are used in the Company's operations and cash management and stated at their fair value. Income generated by these investments is recorded as financial income.

 

NOTE 5 – ACCOUNTS RECEIVABLE

 

   September 30, 2024   December 31, 2023 
Trade accounts receivable - in Brazil   2,716,660    2,622,865 
Trade accounts receivable - exports from Brazil   544,049    617,577 
Trade accounts receivable - foreign subsidiaries   2,530,895    1,724,838 
(-) Impairment of financial assets   (117,844)   (89,886)
    5,673,760    4,875,394 

 

Accounts receivable by aging are as follows:

 

   September 30, 2024   December 31, 2023 
Current   5,084,151    4,294,446 
Past-due:          
Up to 30 days   531,270    513,384 
From 31 to 60 days   63,865    48,538 
From 61 to 90 days   11,705    24,027 
From 91 to 180 days   36,747    50,502 
From 181 to 360 days   34,148    13,251 
Above 360 days   29,718    21,132 
(-) Impairment on financial assets   (117,844)   (89,886)
    5,673,760    4,875,394 

 

NOTE 6 - INVENTORIES

 

   September 30, 2024   December 31, 2023 
Finished products   7,535,051    6,971,497 
Work in progress   3,544,093    3,336,780 
Raw materials   3,002,632    3,241,607 
Storeroom supplies   1,308,574    1,266,465 
Imports in transit   541,318    469,601 
(-) Allowance for adjustments to net realizable value   (17,226)   (58,172)
    15,914,442    15,227,778 

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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, 2023   (47,497)
Provision for the year   (59,783)
Reversal of adjustments to net realizable value   47,747 
Exchange rate variation   1,361 
Balance as of December 31, 2023   (58,172)
Provision for the period   (20,504)
Reversal of adjustments to net realizable value   63,328 
Exchange rate variation   (1,878)
Balance as of September 30, 2024   (17,226)

 

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, 2024 and 2023. The foreign subsidiaries of the Company are subject to taxation at rates ranging between 23% and 35%. The differences between the Brazilian tax rates and the rates of other countries are presented under “Difference in tax rates in foreign companies” in the reconciliation of income tax and social contribution below.

 

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

 

   For the three-month period ended 
   September 30, 2024   September 30, 2023 
Income before income taxes   1,798,674    1,906,386 
Statutory tax rates   34%   34%
Income and social contribution taxes at statutory rates   (611,550)   (648,171)
Tax adjustment with respect to:          
- Difference in tax rates in foreign companies   46,928    181,289 
- Equity in earnings of unconsolidated companies   67,634    61,904 
- Deferred tax assets not recognized   4,939    (4,548)
- Interests on tax lawsuits*   9,608    12,385 
- Interest on equity   (1,822)   (709)
- Tax credits and incentives   12,935    5,164 
- Other permanent differences, net   28,899    78,365 
Income and social contribution taxes   (442,429)   (314,321)
Current   (259,991)   (406,628)
Deferred   (182,438)   92,307 

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

   For the nine-month period ended 
   September 30, 2024   September 30, 2023 
Income before income taxes   5,098,028    8,610,897 
Statutory tax rates   34%   34%
Income and social contribution taxes at statutory rates   (1,733,330)   (2,927,705)
Tax adjustment with respect to:          
- Difference in tax rates in foreign companies   680,646    417,646 
- Equity in earnings of unconsolidated companies   131,281    261,669 
- Deferred tax assets not recognized   30,511    (15,548)
- Interests on tax lawsuits*   30,619    118,586 
- Interest on equity   (1,719)   302,450 
- Tax credits and incentives   12,991    14,215 
- Other permanent differences, net   27,071    167,977 
Income and social contribution taxes   (821,930)   (1,660,710)
Current   (899,534)   (1,541,982)
Deferred   77,604    (118,728)

 

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

 

b) Tax Assets not booked:

 

The Company did not recognize a portion of tax assets regarding tax losses and negative social contribution from some operations in Brazil in the amount of R$ 277,204 (R$ 282,387 on December 31, 2023), which do not have an expiration date. The subsidiaries abroad had R$ 630,340 (R$ 569,714 as of December 31, 2023) of tax credits on capital losses for which deferred tax assets have not been booked and which expire between 2029 and 2035 and also several tax losses of state credits in the amount of R$ 297,820 (R$ 277,348 as of December 31, 2023), which expire at various dates between 2025 and 2038.

 

NOTE 8 – INVESTMENTS

  

   Balance as of
January 01, 2023
   Equity in
earnings
   Cumulative
Translation
Adjustment
   Capital increase   Conversion of
intercompany loan
into equity
interest
   Negative
goodwill in
acquisition of
equity interest
   Presentation as
Assets held for sale
   Shares
repurchase
   Dividends/ Interest
on equity
   Balance as of
December 31, 2023
 
Investments in North America  2,428,237   591,354   142,830   -   -   -   -   -   (396,015)  2,766,406 
Investments in South America  1,060,770   230,176   17,060   -   -   -   (1,210,041)  (47,006)  (50,959)  - 
Investments in Special Steel  256,813   10,582   1,127   -   -   -   -   -   -   268,522 
Others  150,698   (4,506)  15,197   524,185   141,070   11,195   -   -   (14,318)  823,521 
   3,896,518   827,606   176,214   524,185   141,070   11,195   (1,210,041)  (47,006)  (461,292)  3,858,449 

 

   Balance as of
December 31, 2023
   Equity in
earnings
   Cumulative
Translation
Adjustment
   Capital increase   Dividends/Interest
on equity
   Other movements   Balance as of
September 30, 2024
 
Investments in North America   2,766,406    280,626    (73,120)   -    (59,146)   -    2,914,766 
Investments in Special Steel   268,522    23,845    (1,945)   -    (5,526)   -    284,896 
Others   823,521    81,649    3,961    101,069    (3,829)   (8,839)   997,532 
    3,858,449    386,120    (71,104)   101,069    (68,501)   (8,839)   4,197,194 

  

NOTE 9 – PROPERTY, PLANT AND EQUIPMENT

 

a) Summary of changes in property, plant and equipment – during the three-month period ended on September 30, 2024, acquisitions amounted to R$ 1,509,478 (R$ 1,485,714 as of September 30, 2023), and disposals amounted to R$ 20,383 (R$ 11,928 as of September 30, 2023). During the nine-month period ended on September 30, 2024, acquisitions amounted to R$ 3,787,574 (R$ 3,668,775 as of September 30, 2023), and disposals amounted to R$ 46,696 (R$ 36,546 as of September 30, 2023).

 

 

 

  

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

  

The additions to property, plant and equipment in the nine-month period ended on September 30, 2024 include a non-cash effect amounted to R$ (123,692).

 

b) Capitalized borrowing costs – borrowing costs capitalized during the three-month period ended on September 30, 2024 amounted to R$ 28,729 (R$ 15,406 as of September 30, 2023). Borrowing costs capitalized during the nine-month period ended on September 30, 2024 amounted to R$ 93,876 (R$ 40,200 as of September 30, 2023).

 

c) Impairment of assets – In the second quarter of 2024, due to the lack of expectation of future use of some assets of its industrial plants, tests carried out on other long-lived assets identified losses due to non-recoverability in the amount of R$ 199,627 in the Brazil segment. These losses were determined based on the difference between the carrying amount of the assets and its recoverable amount. These losses were recorded as an expense, in the “Impairment of assets” line in the Consolidated Statements of Income, as detailed in Note 23.

 

d) Guarantees – no property, plant and equipment were pledged as collateral for loans and financing on September 30, 2024 and December 31, 2023.

 

NOTE 10 – GOODWILL

 

The changes in goodwill are as follows:

 

   Goodwill   Accumulated
impairment losses
   Goodwill after
Impairment losses
 
Balance as of January 1, 2023   21,745,547    (10,111,083)   11,634,464 
(+/-) Foreign exchange effect   (1,377,739)   568,423    (809,316)
Balance as of December 31, 2023   20,367,808    (9,542,660)   10,825,148 
(+/-) Foreign exchange effect   2,409,451    (1,102,384)   1,307,067 
Balance as of September 30, 2024   22,777,259    (10,645,044)   12,132,215 

 

The amounts of goodwill by segment are as follows:

 

   September 30, 2024   December 31, 2023 
Brazil   373,135    373,135 
Special Steels   4,014,069    3,566,989 
North America   7,745,011    6,885,024 
    12,132,215    10,825,148 

 

The Company concluded that there are no indications that demand the performance of the impairment test of goodwill and other long-lived assets for the period ended on September 30, 2024, as detailed in Note 23.

 

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

 

   September 30, 2024   December 31, 2023 
Trade accounts payable - domestic market   4,043,996    4,120,701 
Trade accounts payable - debtor risk   454,421    584,320 
Trade accounts payable - imports   1,157,949    1,196,162 
    5,656,366    5,901,183 

 

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

 

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

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

The balances presented as “Trade Accounts Payable - Imports” substantially refer to the purchase of coal and other raw materials abroad, where in commercial transactions the supplier may require the issuance of a letter of credit or similar risk mitigation instrument to ship the products. On September 30, 2024, contracts negotiated via letter of credit had a payment term of up to 180 days and rates that also varied, depending on market conditions.

 

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

 

NOTE 12 – LOANS AND FINANCING

 

Loans and financing are as follows:

 

   September 30, 2024   December 31, 2023 
Ten/Thirty Years Bonds   7,962,192    7,051,637 
Other financing   2,184,642    3,028,038 
Total financing   10,146,834    10,079,675 
Current   1,722,124    1,783,201 
Non-current   8,424,710    8,296,474 
           
Principal amount of the financing   9,854,818    9,903,534 
Interest amount of the financing   292,016    176,141 
Total financing   10,146,834    10,079,675 

 

As of September 30, 2024, the nominal weighted average cost of debts denominated in US dollars is 5.44% p.a. (5.68% p.a. on December 31, 2023), for debts denominated in Real of 106.6% of the CDI p.a. (104.9% of the CDI p.a. on December 31, 2023) and for other currencies 5.33% p.a. (6.49% p.a. on December 31, 2023).

 

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

 

Summary of loans and financing by currency:

 

   September 30, 2024   December 31, 2023 
Brazilian Real (R$)   1,742,448    2,667,065 
U.S. Dollar (US$)   8,128,718    7,169,183 
Other currencies   275,668    243,427 
    10,146,834    10,079,675 

 

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

 

   September 30, 2024   December 31, 2023 
2025 (*)   404,497    1,156,718 
2026   166,818    168,374 
2027   2,227,993    2,001,442 
2028   10,739    14,742 
2029 on   5,614,663    4,955,198 
    8,424,710    8,296,474 

 

(*) For the period as of September 30,2024, the amounts represents dates from October 1, 2025 to December 31, 2025.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

a) Credit Lines

 

In September 2022, the Company completed the renewal of the Global Credit Line in the total amount of US$ 875 million (equivalent to R$ 4,767 million as of September 30, 2024) with maturity in September 2027. The transaction aims to provide liquidity to operations in North America and Latin America, including Brazil. The companies Gerdau S.A., Gerdau Açominas S.A. and Gerdau Aços Longos S.A. provide guarantee for this transaction. As of September 30, 2024, no amount of this credit line was used.

 

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

 

NOTE 13 – DEBENTURES

 

       Quantity as of September 30, 2024             
Issuance   General Meeting  Issued   Held in treasury   Maturity   September 30, 2024   December 31, 2023 
14th  August 26, 2014   20,000    20,000    August 30, 2034    -    - 
16th - B   April 25, 2019   800,000    -    May 6, 2026    835,349    813,633 
17th  May 29, 2024   1,500,000    -    May 29, 2029    1,550,716    - 
Total Consolidated                      2,386,065    813,633 
                              
Current                      91,321    14,421 
Non-current                      2,294,744    799,212 

 

Maturities of long-term amounts are as follows:

 

    September 30, 2024   December 31, 2023 
2026    799,456    799,212 
2029 on    1,495,288    - 
     2,294,744    799,212 

 

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

 

The average notional interest rate was 2.75% and 5.21% for the three and nine-month periods ended on September 30, 2024, respectively (3.41% and 10.20% for the three and nine-month periods ended on September 30, 2023, respectively).

 

In May 2024, the Company announced the 17th issuance of debentures where it issued 1,500,000 (one million and five hundred thousand) debentures with a nominal unit value of R$ 1, totaling R$ 1.5 billion.

 

NOTE 14 - FINANCIAL INSTRUMENTS

 

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

 

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

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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

 

   September 30, 2024   December 31, 2023 
   Book   Fair   Book   Fair 
   value   value   value   value 
Assets                    
Short-term investments   757,578    757,578    2,338,097    2,338,097 
Trade accounts receivable - net   5,673,760    5,673,760    4,875,394    4,875,394 
Fair value of derivatives   55,687    55,687    766    766 
Other current assets   726,160    726,160    543,288    543,288 
Other non-current assets   329,183    329,183    355,390    355,390 
                     
Liabilities                    
Trade accounts payable - domestic market   4,043,996    4,043,996    4,120,701    4,120,701 
Trade accounts payable - debtor risk   454,421    454,421    584,320    584,320 
Trade accounts payable - imports   1,157,949    1,157,949    1,196,162    1,196,162 
Loans and Financing   10,146,834    10,461,402    10,079,675    10,161,103 
Debentures   2,386,065    2,384,979    813,633    812,413 
Related parties   -    -    24,992    24,992 
Fair value of derivatives   9,601    9,601    20,648    20,648 
Other current liabilities   1,279,897    1,279,897    1,192,461    1,192,461 
Other non-current liabilities   550,591    550,591    859,917    859,917 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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

 

Net debt/EBITDA   Less or equal to 1.5 times
Gross debt limit   R$ 12 billion
Average maturity of debt   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 Company’s management policy of indebtedness and cash on hand is based on using the committed lines and the currently available credit lines with or without a guarantee in export receivables for maintaining adequate levels of short, medium, and long-term liquidity. The maturity of long-term loans and financing, and debentures are presented in Notes 12 and 13, respectively.

 

Sensitivity analysis:

 

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

 

Impacts on Statements of Income            
Assumptions  Percentage of change   September 30, 2024   September 30, 2023 
Foreign currency sensitivity analysis - Loans and financing   5%   5,110    1,558 
Foreign currency sensitivity analysis - Imports/Exports   5%   30,695    23,181 
Interest rate sensitivity analysis   10bps   35,749    29,601 
Sensitivity analysis of changes in prices of products sold   1%   173,780    170,633 
Sensitivity analysis of changes in raw material and commodity prices   1%   107,606    106,352 
Currency forward contracts   5%   77,541    14,583 
Commodity derivates   5%   1,555    1,067 
Swaps USD x DI   5%   8,583    104 
Swaps IPCA x DI   5%   -    1 

 

Foreign currency sensitivity analysis: As of September 30, 2024, the Company is mainly exposed to variations between the Real and the Dollar. The sensitivity analysis carried out by the Company considers the effects of a 5% increase or decrease between the Real and the Dollar in its non-hedged debts, trade accounts receivable - exports from Brazil and trade accounts payable – imports. Variations between the local currencies of other countries and the Dollar do not represent material exposures. In this analysis, if the Real appreciates against the Dollar, this would represent a gain of R$ 5.110 (gain of R$ 1,558 as of September 30, 2023). If the Real depreciates against the Dollar, this would represent an expense of the same amount. As for foreign currency variations in Imports/Exports, if the Real appreciates against the Dollar, this would represent an expense of R$ 30,695 (gain of R$ 23,181 as of September 30, 2023), if the Real depreciates against the Dollar, this would represent a gain of the same value.

 

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

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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$ 35,750 as of September 30, 2024 (R$ 29,601 as of September 30, 2023) and would impact the Financial expenses account in the Consolidated Statements of Income. The specific interest rates to which the Company is exposed are related to the loans, financing, and debentures presented in Notes 12 and 13, and are mainly comprised by SOFR and CDI — Interbank Deposit Certificate.

 

Sensitivity analysis of changes in sales price of products and price of raw materials and other inputs used in production: The Company is exposed to changes in the price of its products. This exposure is associated with the fluctuation of the sales price of the Company’s products and the price of raw materials and other inputs used in the production process, mainly for operating in a commodity market. The sensitivity analysis made by the Company considers the effects of an increase or of a reduction of 1% on both prices. The impact measured considering this variation in the price of products sold, considering the revenues and costs for the period ended on September 30, 2024, totals R$ 173,780 (R$ 170,633 as of September 30, 2023) and the variation in the price of raw materials and other inputs totals R$ 107,606 as of September 30, 2024 (R$ 106,352 as of September 30, 2023). The impact in the price of products sold and raw materials would be recorded in the accounts Net Sales and Cost of Sales, respectively, in the Consolidated Statements of Income. The Company does not expect to be more vulnerable to a change in one or more specific product or raw material.

 

Sensitivity analysis of currency forward contracts: the Company has exposure to dollar forward contracts for some of its assets and liabilities. The sensitivity analysis carried out by the Company considers the effects of a 5% increase or decrease in the Dollar against the Argentinian Peso, and its effects on the mark to market of these derivatives. A 5% increase in the Dollar against the Argentinian Peso represents an expense of R$ 77,541 as of September 30, 2024 (expense of R$ 14,583 as of September 30, 2023) and a 5% decrease in the Dollar against the Argentinian Peso represents a gain in the same amount in September 30, 2024 and an expense in the same amount in September 30, 2023. Forward contracts in Dollar/Argentinian Peso were intended to cover asset and liability positions in Dollars and the effects of the mark to market of these contracts were recorded in the Consolidated Statement of Income. Dollar forward contracts to which the Company is exposed are presented in note 14.e.

 

Sensitivity analysis of commodity forward contracts: the Company has exposure to Commodity forward contracts (coal, nickel and energy) for some of its liabilities. The sensitivity analysis carried out by the Company considers the effects of a 5% increase or decrease in the price of the commodity, and its effects on the mark to market of these derivatives. A 5% increase in the price of the commodity represents an expense of R$ 1,555 as of September 30, 2024 (gain of R$ 1,067 as of September 30, 2023), and a 5% decrease in the price of the commodity represents an income in September 30, 2024 and an expense in September 30, 2023 in the same amount. The mark to market effects of these contracts were recorded in the Consolidated Statement of Income. Commodity forward contracts to which the Company is exposed are presented in Note 14.e.

 

Sensitivity analysis of USD x DI swaps: the Company has USD x DI swaps to protect some of its Loans and financing. The sensitivity analysis carried out by the Company considers the impact on the MTM of a 5% increase in the Dollar against Real for all vertices of the respective operations. This variation would represent an income of R$ 8,583 (expense of R$ 104 as of September 30, 2023). These effects would be recognized in the Consolidated Income Statement. The USD x DI swaps that the Company is exposed to are presented in Note 14.e.

 

Sensitivity analysis of IPCA x DI swaps: The Company contracts IPCA x DI swaps to hedge some of its Loans and financing. When swaps are contracted, the sensitivity analysis performed by the Company considers the impact on the MTM of a 50 bps increase in the DI x Pre interest rate curve for all vertices of the respective transactions. On September 30, 2024, the Company does not have IPCA x DI swaps (R$ 1 on September 30, 2023). These effects would be recognized in the Consolidated Statement of Income.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

d) Financial Instruments per Category

 

Summary of the financial instruments per category:

 

September 30, 2024
Assets
  Financial asset at amortized
cost
   Financial asset at fair value
through proft or loss
   Total 
Short-term investments   -    757,578    757,578 
Trade accounts receivable   5,673,760    -    5,673,760 
Fair value of derivatives   -    55,687    55,687 
Other current assets   710,490    15,670    726,160 
Other non-current assets   326,918    2,265    329,183 
Total   6,711,168    831,200    7,542,368 
Financial income (expenses) for the three-month period ended on September 30, 2024   40,880    108,355    149,235 
Financial income (expenses) for the nine-month period ended on September 30, 2024   420,779    359,106    779,885 

 

Liabilities  Financial liability at fair
value through profit or loss
   Financial liability at
amortized cost
   Total 
Trade accounts payable - domestic market   -    4,043,996    4,043,996 
Trade accounts payable - debtor risk   -    454,421    454,421 
Trade accounts payable - imports   -    1,157,949    1,157,949 
Loans and financing   -    10,146,834    10,146,834 
Debentures   -    2,386,065    2,386,065 
Related parties   -    -    - 
Fair value of derivatives   9,601    -    9,601 
Other current liabilities   -    1,279,897    1,279,897 
Other non-current liabilities   -    550,591    550,591 
Total   9,601    20,019,753    20,029,354 
Financial income (expenses) for the three-month period ended on September 30, 2024   (6,523)   (465,505)   (472,028)
Financial income (expenses) for the nine-month period ended on September 30, 2024   (89,750)   (2,085,953)   (2,175,703)

 

December 31, 2023
Assets
  Financial asset at amortized
cost
   Financial asset at fair value
through proft or loss
   Total 
Short-term investments   -    2,338,097    2,338,097 
Trade accounts receivable   4,875,394    -    4,875,394 
Fair value of derivatives   -    766    766 
Other current assets   529,629    13,659    543,288 
Other non-current assets   353,370    2,020    355,390 
Total   5,758,393    2,354,542    8,112,935 
Financial income (expenses) for the three-month period ended on September 30, 2023   199,802    178,463    378,265 
Financial income (expenses) for the nine-month period ended on September 30, 2023   473,396    473,509    946,905 

 

Liabilities  Financial liability at fair
value through profit or loss
   Financial liability at
amortized cost
   Total 
Trade accounts payable - domestic market   -    4,120,701    4,120,701 
Trade accounts payable - debtor risk   -    584,320    584,320 
Trade accounts payable - imports   -    1,196,162    1,196,162 
Loans and financing   -    10,079,675    10,079,675 
Debentures   -    813,633    813,633 
Related parties   -    24,992    24,992 
Fair value of derivatives   20,648    -    20,648 
Other current liabilities   -    1,192,461    1,192,461 
Other non-current liabilities   -    859,917    859,917 
Total   20,648    18,871,861    18,892,509 
Financial income (expenses) for the three-month period ended on September 30, 2023   (12,570)   (843,449)   (856,019)
Financial income (expenses) for the nine-month period ended on September 30, 2023   (28,591)   (1,868,898)   (1,897,489)

 

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. All derivative instruments in force are monthly reviewed by the Financial Risk Committee, which validates the fair value of such instruments. All gains and losses on derivative instruments are recognized at their fair value in the Company’s consolidated financial statements in the line of Gains (Losses) on financial instruments, net.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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

 

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

 

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

 

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

 

Swap Contracts: The Company may contract a swap contract operation, through which it exchanges interest rate indices or local and/or foreign currency. Counterparties are always top - tier financial institutions with low credit risk.

 

The derivatives instruments can be summarized and categorized as follows:

 

       Notional value  Amount receivable   Amount payable  
Contracts  Position  September 30, 2024  December 31, 2023  September 30, 2024   December 31, 2023   September 30, 2024   December 31, 2023  
Currency forward contracts                               
Maturity in 2024  sold/buyed in US$  US$ 283,3 million   US$ 34.2 million   24,335    -    124   17,337  
                                
Commodity derivates                               
Maturity in 2024  buyed in US$   US$ 22,2 million   US$ 12.1 million   -    32    7,252   1,349  
Maturity in 2025  buyed in US$   US$ 3,6 million      -    -    2,225   -  
                                
Commodity contracts                               
Maturity in 2026  -  -  -   14,488    -    -   -  
                                
Swaps IPCA x DI                               
Maturity in 2025  -  -  R$ 450.0 million   -    734    -   356  
                                
Swaps USD x DI                               
Maturity in 2026  107,9% of CDI   US$ 30.6 milion  US$ 30.6 million   16,864    -    -   1,606  
                                
Total fair value of financial instruments             55,687    766    9,601   20,648  

 

   September 30, 2024   December 31, 2023 
Fair value of derivatives          
Current assets   38,823    766 
Other non-current assets   16,864    - 
    55,687    766 
Fair value of derivatives          
Current liabilities   9,601    19,042 
Non-current liabilities   -    1,606 
    9,601    20,648 

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

   For the nine-month period ended  
   September 30, 2024   September 30, 2023 
Net Income          
Gains on financial instruments   93,119    16,022 
Losses on financial instruments   (89,750)   (28,592)
    3,369    (12,570)
Other comprehensive income          
Gains on financial instruments   -    783 
Loss on financial instruments   (2,309)   - 
    (2,309)   783 

 

f) Net investment hedge

 

The Company designated as hedge of part of its net investments in subsidiaries abroad the operations of Ten Years Bonds. Consequently, the effect of exchange rate changes on these debts on the amount of US$ 0.4 billion (equivalent to R$ 2.4 billion on September 30, 2024) (designated as a hedge) has been recognized in the Statement of Comprehensive Income.

 

The Company demonstrated effectiveness of the hedge as of its designation dates and demonstrated the high effectiveness of the hedge from the contracting of each debt for the acquisition of these companies abroad, whose effects were measured and recognized directly in the Statement of Comprehensive Income as an unrealized gain, net of taxes, in the amount R$ 45,955 for the three-month period ended on September 30, 2024 (loss of R$ 167,306 for the three-month period ended on September 30, 2023) and as an unrealized loss, net of taxes, in the amount R$ 249,910 for the nine-month period ended on September 30, 2024 (gain of R$ 194,352 for nine-month period ended on September 30, 2023).

 

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

 

g) Measurement of fair value:

 

IFRS Accounting Standards defines fair value as the price that would be received for the sale of an asset or that would be paid for the transfer of a liability in an arm’s length transaction between market participants on the measurement date. The standard also establishes the classification by price quoted in an active market for an identical asset or liability or when it is based on a valuation technique that uses only observable market data.

 

As detailed in Note 14.d, on September 30, 2024 and December 31, 2023, the Company maintained certain assets classified as Financial asset at fair value through profit or loss and liabilities classified as Financial Liability at fair value through profit or loss, whose fair value measurement is required on a recurring basis.

 

The Company’s financial assets and liabilities, measured at fair value on a recurring basis, are measured by a valuation technique that uses only observable market data.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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

 

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

 

       Cash effects   Non-cash effects     
   January 01, 2023   Received/(Paid)
from financing
activities
   Interest Payment   Interest on loans,
financing and loans
with related parties
   Exchange
Variance and
others
   September 30, 2023 
Related Parties, net   24,890    398    -    -    -    25,288 
Leasing payable   1,030,643    (308,819)   (78,632)   78,632    644,264    1,366,088 
Loans and Financing, Debentures and Fair value of derivatives   12,623,174    (1,033,841)   (458,667)   630,927    (285,360)   11,476,233 

 

 

       Cash effects   Non-cash effects     
   December 31, 2023   Received/(Paid)
from financing
activities
   Interest Payment   Interest on loans,
financing and loans
with related parties
   Exchange
Variance and
others
   September 30, 2024 
Related Parties, net   24,992    (24,992)   -    -    -    - 
Leasing payable   1,277,602    (328,287)   (103,006)   103,006    346,037    1,295,352 
Loans and Financing, Debentures and Fair value of derivatives   10,913,190    446,916    (486,091)   577,111    1,035,687    12,486,813 

 

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

 

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

 

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

 

I) Provisions

 

   September 30, 2024   December 31, 2023 
a) Tax provisions   1,880,312    1,737,984 
b) Labor provisions   392,703    413,179 
c) Civil provisions   34,043    34,662 
    2,307,058    2,185,825 

 

a) Tax Provisions

 

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

 

b) Labor Provisions

 

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

 

c) Civil Provisions

 

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

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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

 

   September 30, 2024   December 31, 2023 
Balance at the beginning of the year   2,185,825    2,026,003 
(+) Additions   168,223    208,219 
(+) Monetary correction   115,822    157,227 
(-) Reversal of accrued amounts   (162,953)   (205,202)
(+) Foreign exchange effect on provisions in foreign currency   141    (422)
Balance at the end of period   2,307,058    2,185,825 

 

II) Contingent liabilities for which provisions were not recorded as of September 30, 2024

 

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

 

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$ 719.840 (R$ 603,926 as of December 31, 2023).

 

a.2) The Company and certain of its subsidiaries in Brazil are parties to claims related to: (i) IPI – Tax on Industrialized Products, substantially related to IPI credit on inputs, whose demands total the updated amount of R$ 509,668 (R$ 465,843 as of December 31, 2023; (ii) PIS and COFINS, substantially related to disallowance of credits on inputs totaling R$ 2,006,859 (R$ 1,991,993 as of December 31, 2023), (iii) social security contributions in the total of R$ 153,468 (R$ 145,786 as of December 31, 2023) and (iv) other taxes, whose updated total amount is currently R$ 738,373 (R$ 641,405 as of December 31, 2023).

 

a.3) The Company and its subsidiary Gerdau Aços Longos S.A. are parties to administrative proceedings related to Withholding Income Tax, levied on interest remitted abroad, linked to export financing formalized through “Prepayment of Exports Agreements” (PPE) or “Advance Export Receipt” (RAE), in the updated amount of R$ 1,681,780 (R$ 1,533,806 as of December 31, 2023), of which: (i) R$ 866,713 (R$ 824,113 as of December 31, 2023) correspond to five lawsuits of the subsidiary Gerdau Aços Longos S.A. that are processed in the administrative sphere where, currently, one lawsuit is at the first instance of the Administrative Board of Tax Appeals (CARF) awaiting the judgment of the Voluntary Appeals filed by the Company, three lawsuits await the judgment of the declaratory appeals filed against the judgments that, by a casting vote, denied the Voluntary Appeals filed by the Company, and one lawsuit that is in the Superior Chamber of Tax Appeals (CSRF) of CARF, for judgment of the Special Appeal filed by the Company; and (ii) R$ 815,067 (R$ 709,693 as of December 31, 2023) correspond to three lawsuits involving Gerdau S.A., two of which had their discussion concluded in the administrative sphere, with the Company having started preparations for the discussion of the assessments before the Judiciary, and one lawsuit whose Voluntary Appeal filed by the Company was granted in the Administrative Board of Tax Appeals (CARF) to declare the partial nullity of the appealed decision and order the holding of a new trial within the scope of the for analysis of the subsidiary request not considered in the court of origin.

 

a.4) The Company is party to administrative proceedings related to goodwill amortization pursuant to articles 7 and 8 of Law 9,532/97, from the basis of calculation of Income Tax (IRPJ) and Social Contribution (CSLL), resulting from a corporate restructuring started in 2010. The updated total amount of the assessments is R$ 573,859 (R$ 546,859 as of December 31, 2023), of which: (i) R$ 31,315 (R$ 29,787 as of December 31, 2023) corresponds to a process in which the opposite Declaration Embargoes were rejected against the decision that granted the official appeal in favor of the National Treasury, and the Special Appeal filed by the Company is pending of judgment; (ii) R$ 265,672 (R$ 253,779 as of December 31, 2023) correspond to a process in which the Company had its Voluntary Appeal granted at the Administrative Board of Tax Appeals (CARF), which it recently judged and, by casting vote, partially granted the Special Appeal filed by the National Treasury Attorney's Office, ordering the return of the process to the court of origin for consideration of the ex officio appeal and other issues not considered in the voluntary appeal.; (iii) R$ 86,875 (R$ 82,913 as of December 31, 2023) correspond to a process in which, pending recent judgment, the Statement of Clarification filed by the company in view of the ruling of the Superior Chamber of Tax Appeals of the Administrative Council of Tax Appeals (CARF),) which, by a casting vote, partially granted the Special Appeal filed by the National Treasury Attorney's Office, ordering the return of the case to the court of origin for consideration of the ex officio appeal and other issues not considered in the voluntary appeal.; and (iv) R$ 189,997 (R$ 180,380 as of December 31, 2023) correspond to a process whose Objection, presented by the company, was deemed partially admissible by the Federal Revenue Judgment Office (DRJ), with the Voluntary Appeal filed pending judgment by the Administrative Council of Tax Appeals (CARF).

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

a.5) Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.) and its subsidiary Gerdau Internacional Empreendimentos Ltda. – Grupo Gerdau are parties to judicial proceedings relating to IRPJ — Income Tax and CSLL — Social Contribution, in the current amount of R$ 1,479,617 (R$ 1,430,407 as of December 31, 2023). Such lawsuits relate to profits generated abroad, of which: (i) R$ 1,218,433 (R$ 1,177,724 as of December 31, 2023) corresponds to two lawsuits of the subsidiary Gerdau Internacional Empreendimentos Ltda. – Grupo Gerdau. One of the lawsuits is being processed in the first instance, awaiting a ruling on the embargoes to the Tax Enforcement filed by the Company, and another in which special appeals were recently filed by the parties against the ruling handed down by the Regional Federal Court of the 4th Region, which, unanimously, granted the declarations of objection filed by the Company, to correct a material error and fill in omissions that appeared in the previous rulings, which had unanimously granted the appeal filed by Gerdau to extinguish the Tax Enforcement, and denied the appeal filed by the Union; and (ii) R$ 261,184 (R$ 252,683 on December 31, 2023) correspond to a lawsuit involving Gerdau S.A. (as successor to Gerdau Aços Especiais S.A.), in which the appeal filed by the Union against the judgment that ruled in favor of the Embargoes on Tax Enforcement filed by the Company is pending judgment.

 

a.6) Gerdau S.A. (by itself and as successor of Gerdau Aços Especiais S.A.) and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A. are parties to administrative and judicial proceedings relating to the disallowance of goodwill amortization generated in accordance with Article 7 and 8 of Law 9,532/97, as a result of a corporate restructuring carried out in 2004/2005, regarding tax base of the Income tax - IRPJ and Social Contribution - CSLL. The updated total amount of the assessments amounts to R$ 8,058,441 (R$ 7,882,203 as of December 31, 2023), of which: (i) R$ 4,672,790 (R$ 4,637,104 as of December 31, 2023) correspond to four lawsuits of Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.) and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A., in the phase of judicial collection, with the companies offering judicial guarantees, under precautionary measures, through Guarantee Insurance, and initiated the legal discussions of Embargoes to Execution, in the respective lawsuits, and in the Embargoes to Execution filed by Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.), on August 23, 2024, a single-judge decision was issued by the rapporteur, in the Superior Court of Justice - STJ, not acknowledging the special appeal filed by the National Treasury against a judgment of the Regional Federal Court of the 4th Region that had upheld a judgment handed down in favor of the company, with the internal appeal in the special appeal and the extraordinary appeal filed by the National Treasury pending judgment; in the Embargoes on Execution filed by the subsidiary Gerdau Aços Longos S.A. (as successor to Gerdau Comercial de Aços S.A.), after the trial began in the Regional Federal Court of the 2nd Region with two votes to deny the appeal filed by the National Treasury, the trial was interrupted by a request for review; in the lawsuit involving the subsidiary Gerdau Aços Longos S.A., in a trial held at the Regional Federal Court of the 2nd Region, the National Treasury's statement of clarification was granted to annul the judgment that had denied its appeal, and to determine a new inclusion on the lawsuit's agenda so that a new trial of the case can be held, with due prior notification of the parties, observing the legal deadlines. Also in this process, on November 30, 2023, the request for review of the registration as overdue debt was granted, causing the reduction of the amount of the debt required due to the exclusion of fines and, consequently, default interest and legal charge, pursuant to the provisions of § 9-A of article 25 of Decree No. 70,235/72 and article 15 of Law No. 14,689/2023; and also, the Embargoes of Tax Enforcement filed by the subsidiary Gerdau Açominas S.A. are awaiting judgment in the first instance; (ii) R$ 380,162 (R$ 366,382 as of December 31, 2023) corresponds to a lawsuit of the subsidiary Gerdau Aços Longos S.A., in which part of the debt whose administrative discussion has already ended and is under judicial discussion, and the appeal is pending of judgment by the Regional Federal Court of the 2nd Region filed by the National Treasury against the sentence that upheld the Embargoes to Execution and acknowledged the non-substantiation of the tax assessment; (iii) R$ 355,776 (R$ 342,072 as of December 31, 2023) corresponds to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., in which part of the debt whose administrative discussion has ended is under judicial discussion, in which is pending of judgment the appeal filed by the Company against the sentence that dismissed its Embargoes to Tax Enforcement; (iv) R$ 6,183 (R$ 5,958 as of December 31, 2023) corresponds to a lawsuit of the subsidiary Gerdau Aços Longos S.A., in which the administrative discussion has ended, which is in progress at the first instance awaiting a ruling on the Objections to Tax Enforcement filed by the Company; (v) R$ 100,372 (R$ 96,280 as of December 31, 2023) correspond to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., the administrative discussion of which has been concluded and is currently under judicial discussion, with the National Treasury recently requesting the termination of the Tax Enforcement in view of the granting of the request for review of the registration in active debt, made by the Company, and which resulted in the total extinction of the debts due to the exclusion of fines and, consequently, of the current interest and the legal charge, by force of the provisions of § 9º-A of art. 25 of Decree No. 70.235/72 combined with art. 15 of Law No. 14.689/2023; (vi) R$ 120,656 (R$ 190,058 as of December 31, 2023) corresponds to a lawsuit filed by Gerdau S.A. (as successor to Gerdau Aços Especiais S.A.), whose administrative discussion has ended, and which will be forwarded shortly for judicial collection and will be discussed in the context of Embargoes on Tax Execution to be opportunely opposed by the Company; (vii) R$ 262,329 (R$ 208,449 as of December 31, 2023) corresponds to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., which was recently judged by the Superior Chamber of Tax Appeals (CSRF) of CARF, and which is already being discussed in the context of Embargoes on Tax Enforcement filed by the Company; (viii) R$ 162,115 (R$ 129,050 as of December 31, 2023) corresponds to a lawsuit filed by Gerdau S.A. (as successor to Gerdau Aços Especiais S.A.), the administrative discussion of which has ended, and which will soon be forwarded for judicial collection and will be discussed in the context of Objections to the Tax Enforcement to be filed in due course by the Company; (ix) R$ 708,932 (R$ 676,217 as of December 31, 2023) correspond to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., in which the Voluntary Appeal was partially granted, pending notification of the judgment that accepted the declaration of opposition filed by the Company, without infringing effects, with a Special Appeal having been filed by the National Treasury; (x) R$ 627,312 (R$ 596,754 as of December 31, 2023) correspond to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., pending before the first instance of the Administrative Board of Tax Appeals (CARF), that, by casting vote, dismissed the Voluntary Appeal filed by the Company, having been admitted the special appeal filed by the National Treasury in relation to the matter in which the voluntary appeal was granted; (xi) R$ 175,284 (R$ 167,887 as of December 31, 2023) corresponds to a lawsuit of the subsidiary Gerdau Aços Longos S.A., separated from the process mentioned in item “vii” above, and which is currently in the judicial collection phase, being pending of judgment the appeal filed against the judgment that dismissed the Embargoes to Tax Enforcement filed by the Company, ; and (xii) R$ 486,530 (R$ 465,992 as of December 31, 2023) corresponds to a lawsuit of the subsidiary Gerdau Aços Longos S.A., separated from the lawsuit mentioned in item “vii” above, and which is under judicial discussion, having been interrupted by a request for review of the judgment of the appeal filed by the National Treasury, after the judgment began with two votes in favor of denying the appeal and maintaining the judgment that had ruled in favor of the Embargoes on Execution and recognized the non-existence of the credits subject to tax execution.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

b) Civil contingencies

 

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

 

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

 

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

 

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

 

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

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024 

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

(Unaudited)

 

 

The STJ’s decision is subject to appeal by the Brazilian government in the form of Declaration Embargoes in the Extraordinary Appeal filed by the Brazilian Government with the STF and Gerdau will continue to seek all applicable legal remedies to defend its rights.

 

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

 

b.2) The Company and its subsidiaries are parties to other demands of a civil nature that collectively have a discussion amount of R$ 534,039 (R$ 595,649 as of December 31, 2023). 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 R$ 1,304,499 (R$ 1,028,176 as of December 31, 2023). For these claims, no accounting provision was made, since these were considered as possible losses, based on the opinion of its legal counsel.

 

III) Judicial deposits

 

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

 

   September 30, 2024   December 31, 2023 
Tax   165,673    1,828,611 
Labor   49,427    56,640 
Civil   141,764    178,819 
    356,864    2,064,070 

 

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

 

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

 

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

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

The amounts recognized in the Company’s results related to the recovery of credits arising from the ICMS in the tax base of PIS and COFINS lawsuits (net of related expenses) was R$ 1.2 billion in 2021, of which, R$ 393.3 million in the Other Operating Income line and R$ 788.7 million in the Tax Credits Monetary Update line.

 

In view of the final and unappealable decision with favorable merits decision confirmed on December 26, 2023, rendered in the main proceedings (0012235- 15.2009.4.02.5101) and the revocation of the suspensive effect previously granted to the National Treasury in case No. 5003743-37.2020.4.02.0000, the subsidiary Gerdau Aços Longos S.A. filed a request for provisional compliance with the judgment (assessed under No. 5100372-91.2023.4.02.5101/RJ), in which the request for withdrawal of the amounts deposited over the years dealing with the Inclusion of ICMS in the PIS and COFINS Calculation Base was granted, in the amount of R$ 1.7 billion, pending the final and unappealable decision for the withdrawal permits to be issued. On June 5, 2024, the 4th Specialized Court of the Federal Regional Court of the 2nd Region decided, unanimously, to deny the aggravation of instrument nº 5003345-51.2024.4.02.0000/RJ, filed by the National Treasury against the decision that deferred or request for the lifting of two judicial deposits, with said decision having become final and judged. On August 28, 2024, the withdrawal of the amount of judicial deposits made by the company throughout the process was completed, totaling R$ 1,770,198.

 

IV)  Eletrobras Compulsory Loan — Centrais Elétricas Brasileiras S.A. (Eletrobras)

 

On June 26, 2024, Gerdau S.A. and its subsidiary Seiva S.A. – Florestas e Indústrias celebrated an agreement with Eletrobras in order to finalize the lawsuits for credits arising from differences in monetary correction of principal, interest, default and other additional amounts owed by Eletrobras due to compulsory loans, in which it was agreed that the amounts previously raised by the companies became final, as well as the payment in favor of the creditors of the amount of R$ 133.7 million (R$101 million, net of attorney's fees and related expenses), raised through court orders on September 30, 2024 and October 1, 2024, after certification of the final judgment of the decision approving the agreement, with only the release of the surety bond presented in the lawsuit pending.

 

V) Other contingent assets

 

On February 2, 2023, Gerdau S.A. and its subsidiaries Gerdau Açominas S.A. and Gerdau Aços Longos S.A. were successful in a lawsuit of tax nature, regarding the right to PIS and COFINS credits on scrap purchases. Due to the final and unappealable decision of the court, which occurred on this date, Gerdau S.A. and its subsidiaries recognized in 2023 a credit of R$ 828 million (principal plus monetary update minus legal fees and taxes). This amount, until then disclosed as Other contingent assets, reached the level of virtually certain, resulting in the recognition of the asset in Tax credits, with a counterpart in Other operating income and Tax credits monetary update, which is expected to be monetized within a period of up to 5 years.

 

NOTE 16 - RELATED-PARTY TRANSACTIONS

 

a) Intercompany loans

 

   Maturity   September 30, 2024   December 31, 2023 
Liabilities                         
Joint venture              
Bradley Steel Processors Inc.  -    -    (24,992)
        -    (24,992)

 

b) Operations with related parties

 

During the three-month period ended on September 30, 2024, the Company, through its subsidiaries, performed commercial operations with some of its associate companies, joint ventures and other related parties in sales of R$ 104,345 (R$ 316,464 as of September 30, 2023) and purchases in the amount of R$ 48,143 as of September 30, 2024 (R$ 56,483 as of September 30, 2023). The net balance totals R$ 56,202 as of September 30, 2024 (R$ 259,981 as of September 30, 2023). During the nine-month period ended on September 30, 2024, the Company, through its subsidiaries, performed commercial operations with some of its associate companies and joint ventures in sales of R$ 299,726 (R$ 1,132,221 as of September 30, 2023) and purchase in the amount of R$ 149,613 as of September 30, 2024 (R$ 131,190 as of September 30, 2023). The net balance totals R$ 150,113 as of September 30, 2024 (R$ 1,001,031 as of September 30, 2023).

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

The Company and its subsidiaries have receivables from controlling shareholders, referring to the sale of property, in the amount of R$ 7,466 (R$ 22,764 as of September 2023). Additionally , the Company and its subsidiaries recorded revenues of R$ 218 and R$ 640 in the three-month and nine-month periods ended on September 30, 2024, respectively (R$ 220 and R$ 655 for the three-month and nine-month periods ended on September 30, 2023, respectively), derived from rental agreement.

 

Guarantees granted

 

Related Party  Relationship  Object  Original
Amount
   Maturity  Balance as of
September 30, 2024
   Balance as of
December 31, 2023
 
Gerdau Aços Longos S.A.  Subsidiary  Financing Agreements   150,000   apr/24   -    150,000 
Gerdau Açominas S.A.  Subsidiary  Financing Agreements   400,000   nov/24   400,000    400,000 
Gerdau Aços Longos S.A.  Subsidiary  Financing Agreements   400,000   nov/24   400,000    400,000 
Gerdau Aços Longos S.A.  Subsidiary  Financing Agreements   836   jan/25   760    - 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   10,949   jan/25   10,701    - 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   1,868   jan/25   1,825    - 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   3,096   jan/25   3,025    - 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   4,043   jan/25   3,951    - 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   624   jan/25   610    - 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   3,229   jan/25   3,156    - 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   4,873   jan/25   4,762    - 
Gerdau Aços Longos S.A.  Subsidiary  Commercial Contract   14,483   feb/25   2,608      
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   2,467   feb/25   2,396    - 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   4,992   feb/25   917      
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   59,644   mar/25   44,519    63,024 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   35,451   mar/25   25,042    35,451 
Gerdau Açominas S.A.  Subsidiary  Financing Agreements   375,000   may/25   -    375,000 
Gerdau Aços Longos S.A.  Subsidiary  Financing Agreements   375,000   may/25   375,000    375,000 
Gerdau Aços Longos S.A.  Subsidiary  Financing Agreements   400,000   nov/25   400,000    400,000 
Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Commercial Contract   11,951   jan/27   11,680    - 
Gerdau S.A., Gerdau Aços Longos S.A and Gerdau Açominas S.A  Subsidiary  Financing Agreements   4,730,775   sep/27   -    - 
Gerdau Trade Inc.  Subsidiary  Financing Agreements   2,056,535   oct/27   2,323,685    2,064,877 
Gerdau Corsa S.A.P.I. de C.V.  Joint Venture  Financing Agreements   601,588   sep/26   454,486    648,322 
GUSAP III LP.  Subsidiary  Financing Agreements   2,100,600   jan/30   2,713,154    2,410,967 
Gerdau Ameristeel US Inc.  Subsidiary  Financing Agreements   103,505   oct/37   277,853    246,906 
Gerdau Aços Longos S.A.  Subsidiary  Financing Agreements   12,834   jun/38   12,216    12,216 
GUSAP III LP.  Subsidiary  Financing Agreements   1,117,100   apr/44   2,620,770    2,328,873 

 

c) Price conditions and charges

 

Loan agreements between related parties are updated by fixed and/or market rates, such as SOFR, plus exchange rate variation, where applicable. Sales of products and purchases of inputs are made under terms and conditions agreed between the parties.

 

d) Management compensation

 

   For the three-month periods ended   For the nine-month periods ended 
   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
Cost of salaries, benefits and variable compensation   11,836    8,100    31,631    28,527 
Cost of contributions for the defined contribution plan   491    488    1,461    1,516 
Cost of long-term incentive plans   8,404    6,427    23,512    19,150 
    20,731    15,015    56,604    49,193 
                     
Cost of social charges   4,095    3,539    12,463    13,499 

 

e) Other information from related parties

 

Contributions to the assistance entities Fundação Gerdau, Instituto Gerdau and Fundação Ouro Branco, classified as related parties, amounted R$ 45,737 on September 30, 2024 (R$ 41,763 on December 31, 2023). The defined benefit pension plans and the post-employment health care benefit plan are related parties of the Company and the details of the balances and contributions have been presented in the Employee Benefit Note in the Company's annual Financial Statements.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

NOTE 17 – EQUITY

 

a) Capital

 

The Board of Directors may, without need to change the bylaws, issue new shares (authorized capital), including the capitalization of profits and reserves up to the authorized limit of 1,500,000,000 common shares and 3,000,000,000 preferred shares, all without nominal value. In the case of capital increase through subscription of new shares, the right of preference shall be exercised in up to 30 days, except in the case of a public offering, when the limit is not less than 10 days.

 

Reconciliations of common and preferred outstanding shares are presented below:

 

   September 30, 2024   December 31, 2023 
   Common shares   Preferred shares   Common shares   Preferred shares 
Balance at the beginning of the period   600,526,442    1,148,995,967    571,929,945    1,091,630,395 
Purchases of Treasury stocks   (581,200)   (18,588,200)   -    - 
Share bonus   120,105,288    229,648,779    28,596,497    54,691,436 
Exercise of long-term incentive plan   -    4,933,311    -    2,674,136 
Balance at the end of the period   720,050,530    1,364,989,857    600,526,442    1,148,995,967 

 

As of September 30, 2024, 720,631,730 common shares and 1,387,848,730 preferred shares are subscribed and paid up, with a total capital of R$ 24,273,225 (net of share issuance costs). Ownership of the shares is presented below:

 

   Shareholders 
   September 30, 2024   December 31, 2023 
Shareholders   Common    %    Pref.    %    Total    %    Common    %    Pref.    %    Total    % 
Metalúrgica Gerdau S.A.*   702,952,615    97.5    -    -    702,952,615    33.3    585,793,846    97.5    -    -    585,793,846    33.3 
Brazilian institutional investors   735,699    0.1    190,613,740    13.7    191,349,439    9.1    2,442,108    0.4    117,790,196    10.2    120,232,304    6.8 
Foreign institutional investors   1,217,352    0.2    581,776,187    41.9    582,993,539    27.6    1,425,937    0.2    546,220,396    47.2    547,646,333    31.2 
Other shareholders   15,144,864    2.1    592,599,930    42.8    607,744,794    28.9    10,864,551    1.9    484,985,375    41.9    495,849,926    28.3 
Treasury stock   581,200    0.1    22,858,873    1.6    23,440,073    1.1    -    -    7,544,641    0.7    7,544,641    0.4 
    720,631,730    100.0    1,387,848,730    100.0    2,108,480,460    100.0    600,526,442    100.0    1,156,540,608    100.0    1,757,067,050    100.0 

 

* Metalurgica Gerdau S.A. is the controlling shareholder and Indac - Ind. e Com. S.A. (holding of Gerdau's family) is the utltimate 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 priority in the capital distribution in case of liquidation of the Company.

 

On February 28, 2023, the Company’s Board of Directors approved a capital increase of R$ 966,162 through the capitalization of part of the balance of the Retained earnings account - Investments and Working Capital reserve, with issuance, within the limit of the capital authorized by Art. 4, paragraph 1, of the Company’s Bylaws, of 83,669,860 new shares, of which 28,596,497 are common shares and 55,073,363 are preferred shares, all book-entry, with no par value, distributed to shareholders as a bonus, in the proportion of one new share for every twenty shares of the same type held on March 21, 2023; increasing the Company’s capital to R$ 20,215,343, divided into 1,757,067,050 shares, of which 600,526,442 are common shares and 1,156,540,608 are preferred shares, all book-entry and without par value.

 

On April 16, 2024, the Extraordinary Shareholder’s Meeting approved a capital increase of R$ 4,057,882 through the capitalization of part of the balance of the Retained earnings account – Investments and Working Capital reserve, with the issuance of 351,413,410 new shares, of which 120,105,288 are common shares and 231,308,122 are preferred shares, all book-entry, with no par value, distributed to shareholders as a bonus, in the proportion of one new share for every five shares of the same type held on April 17, 2024; increasing the Company’s capital to R$ 24,273,225, divided into 2,108,480,460 shares, of which 720,631,730 are common shares and 1,387,848,730 are preferred shares, all book-entry and without par value.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

b) Treasury stocks

 

Changes in treasury stocks are as follows:

 

   September 30, 2024   December 31, 2023 
   Common       Preferred       Common       Preferred     
   shares   R$   shares   R$   shares   R$   shares   R$ 
Balance at the beginning of the period  -   -   7,544,641   150,182   -   -   9,836,850   179,995 
Repurchase of shares  581,200   9,661   18,588,200   340,130   -   -   -   - 
Long term incentive plan exercvised during the period  -   -   (4,933,311)  (61,975)  -   -   (2,674,136)  (29,813)
Capital increase with share bonus  -   -   1,659,343   -   -   -   381,927   - 
Balance at the end of the period  581,200   9,661   22,858,873   428,337   -   -   7,544,641   150,182 

 

These shares are held in treasury for subsequent cancellation, selling in the market or to be granted under the long-term incentive plan of the Company. The average acquisition cost of these shares was R$ 18.69 as of September 30, 2024.

 

On July 31, 2024, the Board of Directors of Gerdau S.A., in accordance with the statutory provisions and under the terms of CVM Resolution No. 77, dated March 29, 2022, approved a Share Buyback Program for shares issued by the Company, which has the following objectives: (i) to maximize long-term value generation for shareholders through efficient management of the capital structure and to meet the long-term incentive programs of the Company and its subsidiaries; (ii) to remain in treasury; (iii) to cancel; (iv) to subsequently sell on the market. The number of shares to be acquired will be up to 68,000,000 preferred shares, representing approximately 5% of the outstanding preferred shares (GGBR4) and/or ADRs backed by preferred shares (GGB) and up to 1,767,911 common shares, representing 10% of the outstanding common shares (GGBR3). The acquisition period began on August 1, 2024, with a maximum duration of 12 months, that is, until August 1, 2025, inclusive. As of September 30, 2024, the Company had already acquired 581,200 common shares and 18,588,200 preferred shares, representing the amount of R$349,791. Additionally, between October 1, 2024 and the date of approval of this Interim Information by Management, the Company acquired 93,700 common shares and 20,369,655 preferred shares, representing the amount of R$ 379.567.

 

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 incentives 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 Company’s 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. Amount 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. 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 — Corresponds to amounts recognized in equity from changes in non-controlling interests.

 

f) Other reserves - Include: gains and losses on net investment hedge, gains and losses on derivatives accounted as cash flow hedge, pension plan, cumulative translation adjustments and expenses of long-term incentive plans.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

g) Dividends – In 2024, the Company credited dividends to shareholders in the amount presented below:

 

Period  Nature   R$/share   Outstanding
shares (thousands)
   Credit   Payment   September 30, 2024 
1st Quarter   Dividends    0.28    2,103,652    05/15/24    05/27/24    589,013 
2nd Quarter   Dividends    0.12    2,085,040    08/09/24    08/20/24    252,498 
Proposed dividends                            841,511 
                               
Credit per share (R$)        0.40                     

 

Dividends credited during the period constitute an advance on the statutory dividend.

 

NOTE 18 – EARNINGS PER SHARE (EPS)

 

Basic

 

   For the three-month period ended on 
   September 30, 2024*   September 30, 2023** 
   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   462,634    884,768    1,347,402    543,040    1,038,751    1,581,791 
                               
Basic denominator                              
Weighted-average outstanding shares, after deducting the average of treasury shares   720,631,730    1,378,179,044         720,631,731    1,392,483,933      
                               
Earnings per share (in R$) – Basic   0.64    0.64         0.75    0.75      

 

 

* Retrospectively adjusted to take into account the effect of the capital increase with the issuance of common and preferred shares as a bonus, in the proportion of one new share for every five shares of the same type, as detailed in Note 17.a.

** Retrospectively adjusted to take into account the effect of the capital increase with the issuance of common and preferred shares as a bonus, in the proportion of one new share for every five shares and one new share for every twenty shares of the same type, as detailed in Note 17.a.

 

   For the nine-month period ended on 
   September 30, 2024*   September 30, 2023** 
   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   1,458,002    2,792,292    4,250,294    2,377,827    4,545,792    6,923,619 
                               
Basic denominator                              
Weighted-average outstanding shares, after deducting the average of treasury shares   720,631,730    1,380,117,663         720,631,731    1,377,661,754      
                               
Earnings per share (in R$) – Basic   2.02    2.02         3.30    3.30      

 

* Retrospectively adjusted to take into account the effect of the capital increase with the issuance of common and preferred shares as a bonus, in the proportion of one new share for every five shares of the same type, as detailed in Note 17.a.

** Retrospectively adjusted to take into account the effect of the capital increase with the issuance of common and preferred shares as a bonus, in the proportion of one new share for every five shares and one new share for every twenty shares of the same type, as detailed in Note 17.a.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

Diluted

 

   For the three-month period ended on 
   September 30, 2024*   September 30, 2023** 
Diluted numerator          
Allocated net income available to Common  and Preferred shareholders          
Net income allocated to preferred shareholders   884,768    1,038,751 
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   1,865    6,381 
    886,633    1,045,132 
           
Net income allocated to common shareholders   462,634    543,040 
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   (1,865)   (6,381)
           
    460,769    536,659 
           
Diluted denominator          
Weighted - average number of shares outstanding          
Common Shares   720,631,730    720,631,731 
Preferred Shares          
Weighted-average number of preferred shares outstanding   1,378,179,044    1,392,483,933 
Potential increase in number of preferred shares outstanding due to the long term incentive plan   8,494,153    10,930,982 
Total   1,386,673,197    1,403,414,915 
           
Earnings per share – Diluted (Common and Preferred Shares) - in R$   0.64    0.74 

 

* Retrospectively adjusted to take into account the effect of the capital increase with the issuance of common and preferred shares as a bonus, in the proportion of one new share for every five shares of the same type, as detailed in Note 17.a.

** Retrospectively adjusted to take into account the effect of the capital increase with the issuance of common and preferred shares as a bonus, in the proportion of one new share for every five shares and one new share for every twenty shares of the same type, as detailed in Note 17.a.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

   For the nine-month period ended on 
   September 30, 2024*   September 30, 2023** 
Diluted numerator          
Allocated net income available to Common  and Preferred shareholders          
Net income allocated to preferred shareholders   2,792,292    4,545,792 
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   6,763    12,698 
    2,799,055    4,558,490 
           
Net income allocated to common shareholders   1,458,002    2,377,827 
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   (6,763)   (12,698)
           
    1,451,239    2,365,129 
           
Diluted denominator          
Weighted - average number of shares outstanding          
Common Shares   720,631,730    720,631,731 
Preferred Shares          
Weighted-average number of preferred shares outstanding   1,380,117,663    1,377,661,754 
Potential increase in number of preferred shares outstanding due to the long term incentive plan   9,789,463    11,265,827 
Total   1,389,907,126    1,388,927,581 
           
Earnings per share – Diluted (Common and Preferred Shares) - in R$   2.01    3.28 

 

* Retrospectively adjusted to take into account the effect of the capital increase with the issuance of common and preferred shares as a bonus, in the proportion of one new share for every five shares of the same type, as detailed in Note 17.a.

** Retrospectively adjusted to take into account the effect of the capital increase with the issuance of common and preferred shares as a bonus, in the proportion of one new share for every five shares and one new share for every twenty shares of the same type, as detailed in Note 17.a.

 

NOTE 19 – LONG-TERM INCENTIVE PLANS

 

Restricted Shares and Performance Shares Summary:

 

Balance as of January 01, 2023   10,812,887 
Granted   7,697,990 
Share Bonus   664,433 
Cancelled   (2,192,635)
Exercised   (2,674,136)
Balance on December 31, 2023   14,308,539 
Granted   5,696,118 
Share Bonus   2,910,064 
Forfeited   (2,514,912)
Exercised   (4,091,293)
Quantity on September 30, 2024   16,308,516 

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

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 over the grace period for exercising each grant. The fair value of the options granted is equivalent to the fair value of the services rendered to the Company, being R$ 23.40 for the 2024 grant (R$ 25.16 for the 2023 grant). The vesting period for the year is 3 years for grants made from 2017 onwards. The cost of the long-term incentive plan recognized in income, in the three-month period ended on September 30, 2024, was R$ 38,956 (R$ 42,479 for the three-month period ended on September 30, 2023) and the costs with long term-incentive plans recognized in the income statement in the nine-month period ended on September 30, 2024 was R$ 114,544 (R$ 122,801 for the nine-month period ended on September 30, 2023).

 

As of September 30, 2024, the Company has a total of 22,858,873 preferred shares in treasury and, according to note 17, these shares may be used for serving this plan.

 

NOTE 20 – EXPENSES BY NATURE

 

The Company opted to present its Consolidated Statement of Income by function. As required by IAS 1, the Consolidated Statement of Income by nature is as follows:

 

   For the three-month periods ended   For the nine-month periods ended 
   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
Depreciation and amortization   (796,276)   (789,150)   (2,293,381)   (2,256,376)
Labor expenses   (2,151,918)   (1,892,175)   (6,186,965)   (5,750,694)
Raw material and consumption material   (10,752,185)   (10,543,814)   (31,276,214)   (33,164,624)
Freight   (1,101,038)   (1,045,445)   (3,264,322)   (3,329,547)
Recovery of Eletrobras Compulsory Loan   -    -    100,860    - 
Tax credits recovery / provision   -    -    -    845,216 
Other expenses/income   (649,054)   (590,604)   (1,755,730)   (1,753,039)
Impairment of financial assets   (5,016)   -    (29,374)   - 
Impairment of assets   -    -    (199,627)   - 
Results in operations with joint ventures   -    -    808,367    - 
    (15,455,487)   (14,861,188)   (44,096,386)   (45,409,064)
                     
Classified as:                    
Cost of sales   (14,801,417)   (14,270,585)   (43,020,882)   (44,501,242)
Selling expenses   (194,076)   (184,064)   (563,275)   (532,434)
General and administrative expenses   (354,526)   (354,804)   (1,016,925)   (1,106,820)
Other operating income   55,828    37,602    255,730    951,425 
Other operating expenses   (156,280)   (85,253)   (431,260)   (214,928)
Recovery of Eletrobras Compulsory Loan   -    -    100,860    - 
Results in operations with joint ventures   -    -    808,367    - 
Impairment of financial assets   (5,016)   (4,084)   (29,374)   (5,065)
Impairment of assets   -    -    (199,627)   - 
    (15,455,487)   (14,861,188)   (44,096,386)   (45,409,064)

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

NOTE 21 – FINANCIAL INCOME

 

   For the three-month periods ended   For the nine-month periods ended 
   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
Income from short-term investments   78,835    161,407    265,988    456,634 
Interest income and other financial incomes   89,666    79,726    262,472    244,158 
Financial income total   168,501    241,133    528,460    700,792 
                     
Interest on debts   (211,610)   (208,920)   (577,111)   (630,927)
Monetary variation and other financial expenses   (147,868)   (154,042)   (497,297)   (411,690)
Financial expenses total   (359,478)   (362,962)   (1,074,408)   (1,042,617)
                     
Hyperinflation adjustments in Argentina   (132,950)   (254,879)   (647,507)   (680,630)
Other exchange variations   (21,865)   (104,679)   (205,732)   (168,561)
Exchange variation, net   (154,815)   (359,558)   (853,239)   (849,191)
                     
Tax credits monetary update   -    -    -    253,002 
Gains and Losses on derivatives, net   22,999    3,633    3,369    (12,570)
Financial result, net   (322,793)   (477,754)   (1,395,818)   (950,584)

 

NOTE 22 – 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, 2024
    September
30, 2023
    September
30, 2024
    September
30, 2023
    September
30, 2024
    September
30, 2023
    September
30, 2024
    September
30, 2023
    September
30, 2024
    September
30, 2023
    September
30, 2024
    September
30, 2023
 
Net sales     6,738,434       6,635,269       6,656,950       6,331,922       1,452,256       1,566,366       2,919,489       2,771,176       (389,097 )     (241,475 )     17,378,032       17,063,258  
Cost of sales     (5,757,258 )     (5,984,891 )     (5,697,770 )     (5,018,536 )     (1,250,436 )     (1,182,512 )     (2,476,102 )     (2,346,705 )     380,149       262,059       (14,801,417 )     (14,270,585 )
Gross profit     981,176       650,378       959,180       1,313,386       201,820       383,854       443,387       424,471       (8,948 )     20,584     2,576,615       2,792,673  
Selling, general and administrative expenses     (206,378 )     (218,609 )     (173,102 )     (135,792 )     (43,836 )     (38,095 )     (69,900 )     (76,090 )     (55,386 )     (70,282 )     (548,602 )     (538,868 )
Other operating income (expenses)     (26,875 )     (26,055 )     8,451       (5,768 )     1,156       (1,169     7,699       6,416       (90,883 )     (21,075 )      (100,452 )     (47,651 ) 
Reversal (Impairment) of financial assets     (3,974 )      (2,551)       22       (742 )     (777 )     (296 )      (713 )      (263 )      426       (232 )      (5,016 )      (4,084 ) 
Equity in earnings of unconsolidated companies     -       -     84,395       128,275     -       40,288     11,137     4,023       103,390       9,484     198,922     182,070
Operational income (Loss) before financial income (expenses) and taxes     743,949       403,163       878,946       1,299,359       158,363       384,582       391,610       358,557     (51,401 )     (61,521 )     2,121,467       2,384,140  
Finacial result, net     (145,899     (156,582 )      56,245       6,982       (208,368 )     (284,222 )      (66,691 )      (80,324 )      41,920       36,392       (322,793     (477,754 ) 
Income (Loss) before taxes     598,050     246,581     935,191     1,306,341       (50,005 )     100,360     324,919     278,233     (9,481 )      (25,129 )     1,798,674     1,906,386
Income and social contribution taxes     (146,139     (51,647 )     (202,258     (279,842     12,658     (78,595 )     (80,420 )     (65,613 )     (26,270 )     161,376       (442,429     (314,321 )
Net income (Loss)     451,911     194,934     732,933     1,026,499     (37,347)     21,765     244,499     212,620     (35,751 )      136,247     1,356,245     1,592,065
                                                                                                 
Supplemental information:                                                
Net sales between segments   (143,484)   53,266    20,584    31,394    -    45    23,962    20,938    488,036    135,833    389,097    241,475 
                                                             
Depreciation/amortization   392,181    465,433    195,405    152,152    71,005    60,070    134,394    113,465    3,291    (1,970)   796,276    789,150 
Operational income (Loss) before financial income (expenses) and taxes proportional to Joint Ventures   -    -    123,937    195,869    -    84,427    17,970    8,191    19,823    7,947    161,730    296,434 
Depreciation/amortization proportional to Joint Ventures   -    -    41,946    33,804    -    13,003    4,934    4,812    7,955    2,482    54,835    54,101 
Tax credits/provisions recovery   -    -    -    -    -    -    -    -    (75,561)   -    (75,561)   - 

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

   For the nine-month periods ended 
   Brazil
Operation
   North
America
Operation
   South
America
Operation
   Special
Steels
Operation
   Eliminations and Adjustments   Consolidated 
   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
Net sales   19,315,483    20,796,386    19,659,640    20,930,904    4,047,756    4,792,018    8,381,041    8,805,150    (1,199,808)   (1,123,527)   50,204,112    54,200,931 
Cost of sales   (17,489,358)   (18,446,171)   (16,173,183)   (16,143,315)   (3,402,313)   (3,710,756)   (7,125,933)   (7,354,639)   1,169,905    1,153,639    (43,020,882)   (44,501,242)
Gross profit   1,826,125    2,350,215    3,486,457    4,787,589    645,443    1,081,262    1,255,108    1,450,511    (29,903)   30,112    7,183,230    9,699,689 
Selling, general and administrative expenses   (620,873)   (634,189)   (470,418)   (430,622)   (120,716)   (112,567)   (200,457)   (215,486)   (167,736)   (246,390)   (1,580,200)   (1,639,254)
Other operating income (expenses)   (99,025)   (56,724)   9,844    (4,853)   11,715    2,995    32,328    (47,075)   (130,392)   842,154    (175,530)   736,497 
Recovery of Eletrobras Compulsory Loan   -    -    -    -    -    -    -    -    100,860    -    100,860    - 
Results in operations with joint ventures   -    -    -    -    -    -    -    -    808,367    -    808,367    - 
Reversal (Impairment) of financial assets   (23,528)   (2,418)   1,296    (1,471)   93    (542)   (7,185)   124    (50)   (758)   (29,374)   (5,065)
Impairment of assets   (199,627)   -    -    -    -    -    -    -    -    -    (199,627)   - 
Equity in earnings of unconsolidated companies   -    -    280,626    550,986    -    200,270    23,533    3,972    81,961    14,386    386,120    769,614 
Operational income (Loss) before financial income (expenses) and taxes   883,072    1,656,884    3,307,805    4,901,629    536,535    1,171,418    1,103,327    1,192,046    663,107    639,504    6,493,846    9,561,481 
Finacial result, net   (398,254)   (399,151)   (1,540)   86,207    (743,820)   (731,153)   (199,191)   (226,935)   (53,013)   320,448    (1,395,818)   (950,584)
Income (Loss) before taxes   484,818    1,257,733    3,306,265    4,987,836    (207,285)   440,265    904,136    965,111    610,094    959,952    5,098,028    8,610,897 
Income and social contribution taxes   (118,406)   (312,308)   (716,655)   (1,053,458)   69,722    (171,615)   (219,771)   (233,844)   163,180    110,515    (821,930)   (1,660,710)
Net income (Loss)   366,412    945,425    2,589,610    3,934,378    (137,563)   268,650    684,365    731,267    773,274    1,070,467    4,276,098    6,950,187 
                                                             
Supplemental information:                                                            
Net sales between segments   234,601    210,815    106,984    105,065    41,970    45    76,173    96,211    740,080    711,392    1,199,808    1,123,527 
                                                             
Depreciation/amortization   1,160,533    1,264,741    537,817    445,438    204,878    177,103    381,639    361,229    8,514    7,865    2,293,381    2,256,376 
Operational income (Loss) before financial income (expenses) and taxes proportional to Joint Ventures   -    -    441,957    786,318    -    284,994    33,722    12,598    15,861    10,755    491,540    1,094,665 
Depreciation/amortization proportional to Joint Ventures   -    -    119,093    101,994    -    38,346    14,907    14,037    19,122    6,470    153,122    160,847 
Tax credits/provisions recovery   -    -    -    -    -    -    -    -    (89,023)   845,215    (89,023)   845,215 

 

   September 30, 2024   December 31, 2023   September 30, 2024   December 31, 2023   September 30, 2024   December 31, 2023   September 30, 2024   December 31, 2023   September 30, 2024   December 31, 2023   September 30, 2024   December 31, 2023 
Investiments in associates and joint ventures   -    -    2,914,766    2,766,406    -    -    284,896    268,522    997,532    823,521    4,197,194    3,858,449 
Total assets   26,193,265    23,788,261    28,317,842    22,589,796    5,448,000    4,428,996    13,672,695    11,885,419    8,219,515    12,192,672    81,851,317    74,885,144 
Total liabilities   8,263,815    8,849,071    2,718,471    3,064,061    1,186,241    1,373,802    2,704,761    2,881,499    11,462,092    9,477,848    26,335,380    25,646,281 

 

The main products by business segment are:

 

- Brazil Operation: rebar, bars, wide flange beams, wires, plates, hot rolled plates, billets, blooms, slabs, wire rod and structural shapes.

- North America Operation: rebar, bars, wire rod, structural shapes, wide flange beams and billets.

- South America Operation: rebar, bars, wires, wide flange beams and billets.

- Special Steel Operation: bars, wire rod, billets and blooms.

 

The column of eliminations and adjustments includes the elimination of sales and intercompany loans between segments in the context of the Consolidated Financial Statements. This column also includes amounts that are not part of operational results of a specific segment, such as Tax credits recovery, Tax credits monetary update, Selling, general and administrative expenses of corporate employees and the related income tax effects of these amounts, among others.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

The Company's geographic information with net sales classified according to the geographical region where the products were shipped is as follows:

 

Information by geographic area:

 

   For the three-month periods ended 
   Brazil   Latin America (1)   North America (2)   Consolidated 
   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
Net sales   7,562,022    7,131,700    1,555,841    2,018,131    8,260,169    7,913,427    17,378,032    17,063,258 

 

(1) Does not include operations of Brazil

(2) Does not include operations of Mexico

 

Information by geographic area:

 

   For the nine-month periods ended 
   Brazil   Latin America (1)   North America (2)   Consolidated 
   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
Net sales   21,628,526    22,648,095    4,179,797    5,658,187    24,395,789    25,894,649    50,204,112    54,200,931 

 

    September 30, 2024   December 31, 2023   September 30, 2024   December 31, 2023   September 30, 2024   December 31, 2023   September 30, 2024    December 31, 2023  
Total assets     32,871,452    32,811,578    8,663,755    7,386,237    40,316,110    34,687,329    81,851,317      74,885,144  

 

(1) Does not include operations of Brazil

(2) Does not include operations of Mexico

 

IFRS requires the Company to disclose revenues from external customers for each product and service, or each group of similar products and services, unless the necessary information is not available and the cost to develop it would be excessive. Management does not consider this information useful for its decision-making process, because it would aggregate sales in different markets and in different currencies, subject to the effects of changes in exchange rates. Furthermore, the trends of steel consumption and the price dynamics of each product or group of products in different countries and different markets within these countries are poorly correlated and, as a result, the information would not be useful and would not serve to reach any conclusions about historical trends. Considering this scenario and considering that the information of revenue from external customers by product and service is not maintained by the Company on a consolidated basis and the cost to obtain this information would be excessive compared to the benefits of the information, the Company does not present revenue by product and service.

 

NOTE 23 – IMPAIRMENT OF ASSETS

 

As presented in Note 9, in the third quarter of 2024, due to the lack of expectation of future use of some assets of its industrial plants, tests carried out on other long-lived assets identified losses due to non-recoverability in the amount of R$ 199,627 in the Brazil segment. These losses were determined based on the difference between the carrying amount of the assets and its recoverable amount. These losses were recorded as an expense, in the “Impairment of assets” line in the Consolidated Statements of Income

 

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.

 

 

 

 

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2024

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

(Unaudited)

 

 

The impairment test of goodwill allocated to the business segments is carried out annually in December and it is anticipated if events or circumstances indicate that it is necessary. In the test carried out in the year 2023, the Company carried out a sensitivity analysis of the discount rate and perpetuity growth rate as well as a combination of both, given their potential impacts on cash flows, where an increase of 0.5 percentage points in the discount rate of each segment’s cash flow would result in a recoverable amount that exceeded book value as shown below: a) North America: R$ 5,075 million; b) Special Steel: R$ 2,067 million; c) South America: R$ 657 million; and d) Brazil: R$ 343 million. On the other hand, a decrease of 0.5 percentage points in the perpetuity growth rate of the cash flow of each business segment would result in a recoverable amount that exceeded book value as shown below: a) North America: R$ 5,431 million; b) Special Steel: R$ 2,271 million; c) South America: R$ 702 million; and d) Brazil: R$ 719 million. A combination of the above-mentioned sensitivities in the cash flow of each segment would result in an impairment value in the Brazil segment of R$ 501 million due to the recoverable amount lower than the book value and the recoverable amount exceeding the book value in the other segments, as follows: North America: R$ 4,213 million; b) Special Steel: R$ 1,578 million and c) South America: R$ 614 million.

 

The Company concluded that there are no indications that demand the performance of the impairment test of goodwill and other long-lived assets for the period ended on September 30, 2024.

 

The Company will maintain over 2024 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 24 - SUBSEQUENT EVENTS

 

I) On November 1, 2024, the Board of Directors made a proposal regarding the advance payment of the mandatory minimum dividend stipulated in the Bylaws, referring to the current fiscal year, to be paid in the form of Dividends, which will be calculated and credited on the positions held by shareholders on November 18, 2024, in the amount of R$ 619.4 million (R$0.30 per common and preferred share), with payment scheduled for December, 16, 2024, and was submitted and approved by the Board of Directors on November 5, 2024.

 

II) On November 5, 2024, the Board of Directors of Gerdau S.A. approved the cancellation of 674,900 common shares and 29,000,000 preferred shares issued by the Company, without reducing the value of the share capital. Due to the cancellation of shares resolved, the share capital of the Company will be divided into 2,078,805,560 shares with no par value.

 

********************************

 

 

 


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