GGB Gerdau SA

 

 

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 17^th 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			10	bps			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 prep