CONSOLIDATED BALANCE SHEETS
In thousands of Brazilian reais (R$)
(Unaudited)
Note September 30, 2021 December 31, 2020
CURRENT ASSETS
Cash and cash equivalents 4 3,976,077 4,617,204
Short-term investments 4 4,454,507 3,041,143
Trade accounts receivable - net 5 6,416,155 3,737,270
Inventories 6 15,653,770 9,169,417
Tax credits 2,236,373 1,201,312
Income and social contribution taxes recoverable 597,899 1,051,584
Eletrobras compulsory loan recovery 15 1,524,933 -
Other current assets 597,054 591,523
35,456,768 23,409,453
NON-CURRENT ASSETS
Tax credits 208,546 664,045
Deferred income taxes 2,298,605 3,393,354
Related parties 16 152,988 134,354
Judicial deposits 15 1,837,213 1,825,791
Other non-current assets 548,319 590,864
Prepaid pension cost - 39,196
Investments in associates and joint ventures 8 2,977,883 2,271,629
Goodwill 10 12,651,253 12,103,519
Leasing 850,797 815,311
Other Intangibles 507,558 622,578
Property, plant and equipment, net 17,872,237 17,252,915
39,905,399 39,713,556
TOTAL ASSETS 75,362,167 63,123,009

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, 2021 December 31, 2020
CURRENT LIABILITIES
Trade accounts payable 11 7,244,509 5,437,953
Short-term debt 12 694,949 1,424,043
Debentures 13 52,039 7,463
Taxes payable 894,099 600,089
Income and social contribution taxes payable 1,383,119 810,125
Payroll and related liabilities 971,238 591,653
Dividends payable 550,904 510,348
Leasing payable 264,617 231,703
Employee benefits - 208
Environmental liabilities 210,922 125,992
Fair value of derivatives 14 4,142 971
Obligations with FIDC 17 46,684 944,513
Other current liabilities 837,833 797,082
13,155,055 11,482,143
NON-CURRENT LIABILITIES
Long-term debt 12 13,477,670 13,188,891
Debentures 13 2,896,398 2,894,954
Related parties 16 52,217 22,855
Deferred income taxes 58,010 61,562
Provision for tax, civil and labor liabilities 15 1,265,196 1,172,511
Environmental liabilities 334,434 171,102
Employee benefits 1,836,941 1,861,231
Obligations with FIDC 17 - 42,893
Leasing payable 640,450 624,771
Other non-current liabilities 347,392 514,886
20,908,708 20,555,656
EQUITY 18
Capital 19,249,181 19,249,181
Treasury stocks (152,973 ) (229,309 )
Capital reserves 11,597 11,597
Retained earnings 17,052,600 7,292,332
Transactions with non-controlling interests without change of control (2,870,825 ) (2,870,825 )
Other reserves 7,793,445 7,407,295
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT 41,083,025 30,860,271
NON-CONTROLLING INTERESTS 215,379 224,939
EQUITY 41,298,404 31,085,210
TOTAL LIABILITIES AND EQUITY 75,362,167 63,123,009

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, 2021 September 30, 2020 September 30, 2021 September 30, 2020
NET SALES 21,317,057 12,222,108 56,790,157 30,194,482
Cost of sales 21 (14,897,908 ) (10,525,273 ) (41,159,912 ) (26,924,121 )
GROSS PROFIT 6,419,149 1,696,835 15,630,245 3,270,361
Selling expenses 21 (187,782 ) (130,900 ) (511,596 ) (347,856 )
General and administrative expenses 21 (339,687 ) (239,308 ) (961,738 ) (699,178 )
Other operating income 21 117,992 135,114 318,412 798,393
Other operating expenses 21 (282,268 ) (150,122 ) (401,456 ) (398,547 )
Tax credits recovery 15 - - 393,341 -
Eletrobras compulsory loan recovery 15 1,391,280 - 1,391,280 -
Impairment of financial assets 21 (1,038 ) (3,372 ) (6,199 ) (72,131 )
Equity in earnings of unconsolidated companies 8 271,119 71,495 657,057 77,895
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES 7,388,765 1,379,742 16,509,346 2,628,937
Financial income 22 56,424 42,270 162,120 139,338
Financial expenses 22 (354,103 ) (353,681 ) (1,011,606 ) (1,069,429 )
Exchange variations, net 22 33,197 8,587 (94,074 ) 65,351
Tax credits monetary update 15 326,090 - 788,741 -
Gains (Losses) on financial instruments, net 22 15,971 (512 ) 19,562 208
INCOME BEFORE TAXES 7,466,344 1,076,406 16,374,089 1,764,405
7
Current 7 (1,614,856 ) (205,172 ) (3,499,424 ) (364,247 )
Deferred 7 (257,547 ) (76,649 ) (875,711 ) (68,900 )
Income and social contribution taxes (1,872,403 ) (281,821 ) (4,375,135 ) (433,147 )
NET INCOME 5,593,941 794,585 11,998,954 1,331,258
ATTRIBUTABLE TO:
Owners of the parent 5,577,819 785,541 11,945,709 1,317,438
Non-controlling interests 16,122 9,044 53,245 13,820
5,593,941 794,585 11,998,954 1,331,258
Basic earnings per share - preferred and common - (R$) 19 3.27 0.46 7.01 0.77
Diluted earnings per share - preferred and common - (R$) 19 3.26 0.46 6.97 0.77

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, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Net income for the period 5,593,941 794,585 11,998,954 1,331,258
Items that may be reclassified subsequently to profit or loss
Other comprehensive income from associates and joint ventures 157,788 89,172 51,634 396,114
Cumulative translation adjustment 1,761,230 673,115 945,601 6,077,715
Unrealized Losses on net investment hedge (757,828 ) (339,782 ) (447,163 ) (3,428,513 )
Unrealized (Losses) Gains on financial instruments, net of tax (4,142 ) 4,464 (2,681 ) (10,607 )
1,157,048 426,969 547,391 3,034,709
Items that will not be reclassified subsequently to profit or loss
Remeasurement of defined benefit pension plan, net of tax (3,577 ) - (29,655 ) -
(3,577 ) - (29,655 ) -
Other comprehensive income for the period, net of tax 1,153,471 426,969 517,736 3,034,709
Total comprehensive income for the period, net of tax 6,747,412 1,221,554 12,516,690 4,365,967
Total comprehensive income attributable to:
Owners of the parent 6,727,888 1,209,641 12,478,245 4,299,253
Non-controlling interests 19,524 11,913 38,445 66,714
6,747,412 1,221,554 12,516,690 4,365,967

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

Stock Option Total parent
company's interest		 Non-controlling interests Total
Shareholder's Equity
Balance as of January 1, 2020 19,249,181 (242,542 ) 11,597 799,297 714,798 4,130,611 - (2,870,825 ) (6,367,200 ) (12,062 ) 11,762,809 (365,863 ) 145,900 26,955,701 217,426 27,173,127
2020 Changes in Equity
Net income - - - - - - 1,317,438 - - - - - - 1,317,438 13,820 1,331,258
Other comprehensive income (loss) recognized in the period - - - - - - - - (3,428,513 ) (10,607 ) 6,420,935 - - 2,981,815 52,894 3,034,709
Total comprehensive income (loss) recognized in the period - - - - - - 1,317,438 - (3,428,513 ) (10,607 ) 6,420,935 - - 4,299,253 66,714 4,365,967
Long term incentive plan cost recognized in the period - - - - - - - - - - - - 6,059 6,059 4 6,063
Long term incentive plan exercised during the period - 13,233 - - - (3,638 ) - - - - - - - 9,595 - 9,595
Effects of interest changes in subsidiaries - - - - - - - - - - - - - - 2,708 2,708
Complementary dividends - - - - - (13 ) - - - - - - - (13 ) - (13 )
Dividends/interest on equity - - - - - - - - - - - - - - (64,144 ) (64,144 )
Balance as of September 30, 2020 (Note 18) 19,249,181 (229,309 ) 11,597 799,297 714,798 4,126,960 1,317,438 (2,870,825 ) (9,795,713 ) (22,669 ) 18,183,744 (365,863 ) 151,959 31,270,595 222,708 31,493,303
Balance as of January 1, 2021 19,249,181 (229,309 ) 11,597 908,946 887,590 5,495,796 - (2,870,825 ) (8,872,114 ) (14,034 ) 16,550,072 (417,904 ) 161,275 30,860,271 224,939 31,085,210
2021 Changes in Equity
Net income - - - - - - 11,945,709 - - - - - - 11,945,709 53,245 11,998,954
Other comprehensive income (loss) recognized in the period - - - - - - - - (447,163 ) (2,674 ) 1,011,986 (29,613 ) - 532,536 (14,800 ) 517,736
Total comprehensive income (loss) recognized in the period - - - - - - 11,945,709 - (447,163 ) (2,674 ) 1,011,986 (29,613 ) - 12,478,245 38,445 12,516,690
Long term incentive plan cost recognized in the period - - - - - - - - - - - - (146,386 ) (146,386 ) (69 ) (146,455 )
Long term incentive plan exercised during the period - 76,336 - - - 66,418 - - - - - - - 142,754 51 142,805
Effects of interest changes in subsidiaries - - - - - - - - - - - - - - (6,691 ) (6,691 )
Complementary dividends - - - - - - (527 ) - - - - - - (527 ) - (527 )
Dividends/interest on equity/Capital reduction in subsidiary - - - - - - (2,251,332 ) - - - - - - (2,251,332 ) (41,296 ) (2,292,628 )
Balance as of September 30, 2021 (Note 18) 19,249,181 (152,973 ) 11,597 908,946 887,590 5,562,214 9,693,850 (2,870,825 ) (9,319,277 ) (16,708 ) 17,562,058 (447,517 ) 14,889 41,083,025 215,379 41,298,404

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, 2021 September 30, 2020
Cash flows from operating activities
Net income for the period 11,998,954 1,331,258
Adjustments to reconcile net income for the period to net cash provided by operating activities:
Depreciation and amortization 21 1,952,002 1,815,264
Equity in earnings of unconsolidated companies 8 (657,057 ) (77,895 )
Exchange variation, net 22 94,074 (65,351 )
(Gains) Losses on financial instruments, net 22 (19,562 ) (208 )
Post-employment benefits 195,923 151,673
Stock based compensation 45,003 31,310
Income tax 7 4,375,135 433,147
Gains on disposal of property, plant and equipment, net (3,747 ) (22,089 )
Impairment of financial assets 6,199 72,131
Provision (reversal) of tax, civil, labor and environmental liabilities, net 92,778 230,519
Credit recovery, net (2,573,362 ) (457,185 )
Interest income on short-term investments (111,639 ) (69,803 )
Interest expense on debt and debentures 22 705,992 770,906
Interest on loans with related parties 16 (4,942 ) (6,246 )
(Reversal) Provision for net realizable value adjustment in inventory, net 6 (6,198 ) (34,831 )
16,089,553 4,102,600
Changes in assets and liabilities
Increase in trade accounts receivable (2,553,085 ) (785,106 )
(Increase) Decrease in inventories (6,416,980 ) 199,597
Increase (Decrease) in trade accounts payable 1,637,568 (51,116 )
(Increase) Decrease in other receivables (11,421 ) 398,106
(Decrease) Increase in other payables (703,838 ) 133,642
Dividends from associates and joint ventures 20,600 19,614
Purchases of trading securities (2,360,270 ) (2,286,306 )
Proceeds from maturities and sales of trading securities 1,059,955 3,000,531
Cash provided by operating activities 6,762,082 4,731,562
Interest paid on loans and financing (599,055 ) (678,495 )
Interest paid on lease liabilities (47,735 ) (47,224 )
Income and social contribution taxes paid (1,420,110 ) (192,666 )
Net cash provided operating activities 4,695,182 3,813,177
Cash flows from investing activities
Purchases of property, plant and equipment 9 (1,811,078 ) (1,101,868 )
Proceeds from sales of property, plant and equipment, investments and other intangibles 22,492 54,612
Purchases of other intangibles (108,022 ) (83,065 )
Capital increase in joint ventures - (42,782 )
Net cash used in investing activities (1,896,608 ) (1,173,103 )
Cash flows from financing activities
Dividends and interest on capital paid (2,059,887 ) (70,737 )
Proceeds from loans and financing 604,640 1,943,975
Repayment of loans and financing (1,799,751 ) (3,265,210 )
Leasing payment (205,259 ) (183,372 )
Intercompany loans, net 15,669 (35,471 )
Net cash used in by financing activities (3,444,588 ) (1,610,815 )
Exchange variation on cash and cash equivalents 4,887 500,217
(Decrease) Increase in cash and cash equivalents (641,127 ) 1,529,476
Cash and cash equivalents at beginning of period 4,617,204 2,641,652
Cash and cash equivalents at end of period 3,976,077 4,171,128
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, 2021

(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, New York and Madrid stock exchanges.

The Condensed Consolidated Interim Financial Statements of the Company were approved by the Management on October 26, 2021.

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, 2021 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, 2020, 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, 2020.

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

The issued and/or reviewed IFRS standards made by the IASB that are effective for the year started in 2021 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 2022 and/or after, as presented below.

- Amendment to IAS 1 - Classification of liabilities as Current or Non-current. It clarifies aspects to be considered for the classification of liabilities as Current Liabilities or Non-current Liabilities. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2023. The Company does not expect material impacts on its Financial Statements.

- Annual improvements in IFRS 2018-2020 standards. It changes the IFRS 1, addressing aspects of first-time adoption in a subsidiary; IFRS 9, addressing the 10% test criterion for reversing financial liabilities; IFRS 16, covering illustrative examples of leasing and IAS 41, covering aspects of measurement at fair value. These changes are effective for fiscal years beginning on/or after January 1, 2022. The Company does not expect material impacts on its Financial Statements.

- Amendment to IAS 16 - Property, plant and equipment: Result generated before reaching the expected conditions of use. It clarifies aspects to be considered for the classification of items produced before the asset is in the projected conditions of use. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2022. The Company does not expect material impacts on its Financial Statements.

- Amendment to IAS 37 - Onerous contract: Cost of fulfilling a contract. It clarifies aspects to be considered for the classification of costs related to the fulfillment of an onerous contract. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2022. The Company does not expect material impacts on its Financial Statements.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

- Amendment to IFRS 3 - References to conceptual framework. It clarifies conceptual alignments of this standard with the IFRS conceptual framework. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2022. The Company does not expect material impacts on its Financial Statements.

- Amendment to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies. It clarifies aspects to be considered in the disclosure of accounting policies. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2023. The Company does not expect material impacts on its Financial Statements.

- Amendment to IAS 8 - Definition of Accounting Estimates. It clarifies aspects to be considered in the definition of accounting estimates. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2023. The Company does not expect material impacts on its Financial Statements.

- Amendment to IFRS 16 - Leases. It clarifies aspects to be considered in rent concessions that have a direct relation with Covid-19 pandemic. This amendment to the standard is effective for fiscal years beginning on/or after April 1, 2021. The Company does not expect material impacts on its Financial Statements.

- Amendment to IAS 12 - Deferred Tax related to Assets and Liabilities arising from a Single Transaction. It clarifies aspects to be considered when recognizing deferred tax assets and liabilities related to taxable temporary differences and deductible temporary differences. This amendment to the standard is effective for fiscal years beginning on/or after January 1, 2023. The Company does not expect material impacts on its Financial Statements.

2.3 - Risk of disease outbreaks and health epidemics: Covid-19

The Covid-19 pandemic continues to impact global economic activity and represents the risk that the Company, employees, service providers, suppliers, customers and other business partners may be prevented from carrying out certain business activities for an indefinite period, including due to stoppages that may be requested or mandated by government officials or elected by companies as a preventive measure.

The Company is following all the Covid-19 pandemic prevention guidelines issued by the competent health agencies in the countries in which it operates. In this regard, the Company adopted a series of measures to mitigate the risk of transmission in the workplace, such as the recommendation of the home office, the creation of crisis committees and the cancellation of national and international trips and participation in external events. The Company also reinforces that the health and safety of people are non-negotiable values. The Company has been daily monitoring the evolution of the pandemic scenario and the impacts that this situation has on the routines of employees, their families and, also, for the business.

The nature of our business is complex and, in order to continue operating, much of our work cannot be done remotely. Therefore, our focus is to reduce the risk of the virus spreading through our operations, as operational continuity is essential for jobs, for neighboring communities and for the economies of the countries and regions where we operate. Our plants and offices, therefore, have contingency plans to deal with the ongoing impact of the pandemic, which will continue to be reviewed as the situation evolves.

The risks arising from outbreaks of diseases and epidemics, notably those arising from the Covid-19 pandemic, can contribute significantly to the deterioration of economic conditions in Brazil and globally and could, among other consequences, (i) negatively impact even more the global demand for steel or even lower market prices for products, which can result in a continuous reduction in the Company's sales, operating income and cash flows; (ii) make it more difficult or costly to obtain financing for operations or refinance debt in the future; (iii) impair the financial condition of some of the customers and suppliers; and (iv) reduce investment programs. The Company constantly monitors the risks of commodity prices, interest rates and exchange rates, credit risk management and capital management (note 14.c).

The Company believes that it has no evidence of any risk of operational continuity. However, changes that deteriorate the economic and business environment, or significant changes in the economy or financial market that result in increased risk perception or reduced liquidity and refinancing capacity, if manifested in a greater intensity than anticipated in the scenarios. contemplated by Management, may lead the Company to review its projections and, eventually, may affect the Company's ability to meet its obligations and / or lead to the recognition of losses due to the non-recoverability of its assets.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

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, 2021, when compared to those existing on December 31, 2020.

3.2 - Joint Ventures

The Company did not have material changes of interest in joint ventures for the period ended on September 30, 2021, when compared to those existing on December 31, 2020.

3.3 - Associate companies

The Company did not have material changes in interest in associate companies for the period ended on September 30, 2021, when compared to those existing on December 31, 2020.

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

Cash and cash equivalents

September 30, 2021 December 31, 2020
Cash 11,400 9,060
Banks and immediately available investments 3,964,677 4,608,144
Cash and cash equivalents 3,976,077 4,617,204

Immediately available investments include investments with maturity up to 90 days, immediate liquidity and low risk of fair value variation.

Short-term investments

September 30, 2021 December 31, 2020
Short-term investments 4,454,507 3,041,143

Short-term investments include Bank Deposit Certificates and marketable securities, which are stated at their fair value. Income generated by these investments is recorded as financial income.

NOTE 5 - ACCOUNTS RECEIVABLE

September 30, 2021 December 31, 2020
Trade accounts receivable - in Brazil 3,343,786 2,081,740
Trade accounts receivable - exports from Brazil 155,791 26,121
Trade accounts receivable - foreign subsidiaries 3,052,971 1,766,555
(-) Impairment of financial assets (136,393 ) (137,146 )
6,416,155 3,737,270

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

Accounts receivable by aging are as follows:

September 30, 2021 December 31, 2020
Current 5,734,207 3,466,000
Past-due:
Up to 30 days 533,533 259,756
From 31 to 60 days 88,556 48,905
From 61 to 90 days 111,965 9,355
From 91 to 180 days 17,655 13,636
From 181 to 360 days 16,244 15,899
Above 360 days 50,388 60,865
(-) Impairment on financial assets (136,393 ) (137,146 )
6,416,155 3,737,270

NOTE 6 - INVENTORIES

September 30, 2021 December 31, 2020
Finished products 6,434,044 3,894,698
Work in progress 3,623,920 2,045,158
Raw materials 3,834,504 1,934,958
Storeroom supplies 942,297 786,401
Imports in transit 819,299 514,321
(-) Allowance for adjustments to net realizable value (294 ) (6,119 )
15,653,770 9,169,417

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 1, 2020 (39,308 )
Provision for the year (6,562 )
Reversal of adjustments to net realizable value 47,259
Exchange rate variation (7,508 )
Balance as of December 31, 2020 (6,119 )
Provision for the year (2,929 )
Reversal of adjustments to net realizable value 9,127
Exchange rate variation (373 )
Balance as of September 30, 2021 (294 )

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, 2021 and 2020. The foreign subsidiaries of the Company are subject to taxation at rates ranging between 23.0% and 35.0%. The differences between the Brazilian tax rates and the rates of other countries are presented under "Difference in tax rates in foreign companies" in the reconciliation of income tax and social contribution below.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

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, 2021 September 30, 2020
Income before income taxes 7,466,344 1,076,406
Statutory tax rates 34 % 34 %
Income and social contribution taxes at statutory rates (2,538,557 ) (365,978 )
Tax adjustment with respect to:
- Difference in tax rates in foreign companies 152,879 93,378
- Equity in earnings of unconsolidated companies 92,180 24,308
- Interest on equity * 222,362 100
- Deferred tax assets not recognized/Realization, net (179,962 ) (54,816 )
- Tax credits and incentives 33,760 3,782
- Other permanent differences, net 344,935 17,405
Income and social contribution taxes (1,872,403 ) (281,821 )
Current (1,614,856 ) (205,172 )
Deferred (257,547 ) (76,649 )
For the nine-month period ended
September 30, 2021 September 30, 2020
Income before income taxes 16,374,089 1,764,405
Statutory tax rates 34 % 34 %
Income and social contribution taxes at statutory rates (5,567,190 ) (599,897 )
Tax adjustment with respect to:
- Difference in tax rates in foreign companies 218,135 886,275
- Equity in earnings of unconsolidated companies 223,399 26,484
- Interest on equity * 296,055 100
- Deferred tax assets not recognized/Realization, net (57,511 ) (776,624 )
- Tax credits and incentives 92,134 6,408
- Other permanent differences, net 419,843 24,107
Income and social contribution taxes (4,375,135 ) (433,147 )
Current (3,499,424 ) (364,247 )
Deferred (875,711 ) (68,900 )

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

On September 24, 2021, the Federal Supreme Court finalized the judgment of Topic 962, deciding unanimously that the IR and CS levy was unconstitutional on the amounts related to the Selic rate received due to the repetition of tax overdue. Thus, the effects of such unconstitutionality were applied to the interest recorded in the period, related to the updating of the tax credit arising from the final and unappealable decision of the actions that discussed the inclusion of ICMS in the PIS/COFINS calculation basis and are being presented in the line of Other permanent differences, net for the three-month and nine-month periods ended on September 30, 2021, in the amount of R$ 297,835.

b) Tax Assets not booked:

Due to the lack of expectation to use tax losses, negative social contribution base and deferred exchange variation arising from some operations in Brazil, the Company did not recognize a portion of tax assets of R$ 896,842 (R$ 764,845 on December 31, 2020), which do not have an expiration date. The subsidiaries abroad had R$ 1,212,230 (R$ 1,180,067 as of December 31, 2020) 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$ 1,301,496 (R$ 1,623,459 as of December 31, 2020), which expire at various dates between 2021 and 2040.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

NOTE 8 - INVESTMENTS

Investments in North America Investments in South America Investments in Special Steel Investments in Brazil Others Total
Balance as of January 01, 2020 681,807 748,392 224,201 11,473 146,526 1,812,399
Equity in earnings 23,494 99,913 8,900 (1,288 ) 21,550 152,569
Cumulative Translation Adjustment 165,479 195,286 (1,949 ) - - 358,816
Capital increase 42,782 - - - - 42,782
Dividends/Interest on equity (5,223 ) (67,546 ) - - (22,168 ) (94,937 )
Balance as of December 31, 2020 908,339 976,045 231,152 10,185 145,908 2,271,629
Equity in earnings 275,085 351,999 27,173 (5,965 ) 8,765 657,057
Cumulative Translation Adjustment 20,088 31,278 1,708 (1,440 ) - 51,634
Capital increase - - - 27,500 - 27,500
Dividends/Interest on equity (2,460 ) - (5,710 ) - (21,767 ) (29,937 )
Balance as of September 30, 2021 1,201,052 1,359,322 254,323 30,280 132,906 2,977,883

NOTE 9 - PROPERTY, PLANT AND EQUIPMENT

a) Summary of changes in property, plant and equipment - during the three-month period ended on September 30, 2021, acquisitions amounted to R$ 810,355 (R$ 359,621 as of September 30, 2020), and disposals amounted to R$ 2,657 (R$ 26,602 as of September 30, 2020). During the nine-month period ended on September 30, 2021, acquisitions amounted to R$ 1,811,078 (R$ 1,101,868 as of September 30, 2020), and disposals amounted to R$ 18,702 (R$ 32,524 as of September 30, 2020).

b) Capitalized borrowing costs - borrowing costs capitalized during the three-month period ended on September 30, 2021 amounted to R$ 8,398 (R$ 6,171 as of September 30, 2020). During the nine-month period ended on September 30, 2021 amounted to R$ 24,007 (R$ 19,662 as of September 30, 2020).

c) Guarantees - no property, plant and equipment were pledged as collateral for loans and financing on September 30, 2021 and December 31, 2020.

NOTE 10 - GOODWILL

The changes in goodwill are as follows:

Goodwill Accumulated impairment losses Goodwill after Impairment losses
Balance as of January 1, 2020 17,445,205 (7,975,894 ) 9,469,311
(+/-) Foreign exchange effect 4,976,383 (2,342,175 ) 2,634,208
Balance as of December 31, 2020 22,421,588 (10,318,069 ) 12,103,519
(+/-) Foreign exchange effect 911,730 (363,996 ) 547,734
Balance as of September 30, 2021 23,333,318 (10,682,065 ) 12,651,253

The amounts of goodwill by segment are as follows:

September 30, 2021 December 31, 2020
Brazil 373,135 373,135
Special Steels 4,007,659 3,828,841
North America 8,270,459 7,901,543
12,651,253 12,103,519

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

NOTE 11 - TRADE ACCOUNTS PAYABLE

September 30, 2021 December 31, 2020
Trade accounts payable - domestic market 4,875,101 3,941,924
Trade accounts payable - debtor risk 792,812 726,045
Trade accounts payable - intercompany 25,470 8,958
Trade accounts payable - imports 1,551,126 761,026
7,244,509 5,437,953

The Company has contracts with financial institutions in order to allow its suppliers to receive in advance their receivables through an operation called "Trade accounts payable - debtor risk". In this operation, the suppliers transfer the right to receive their receivables to a financial institution, which in turn, becomes the holder of the rights to the suppliers' receivables. The Company constantly monitors the composition of the portfolio and the conditions established with its suppliers, which have not resulted in significant changes in relation to what had been practiced historically.

NOTE 12 - LOANS AND FINANCING

Loans and financing are as follows:

Annual interest rate (*) September 30, 2021 December 31, 2020
Working capital 12.33 % 1,589,744 1,178,557
Financing of property, plant and equipment and others 1.52 % 115,868 333,797
Ten/Thirty Years Bonds 5.37 % 12,467,007 13,100,580
Total financing 14,172,619 14,612,934
Current 694,949 1,424,043
Non-current 13,477,670 13,188,891
Principal amount of the financing 13,867,455 14,413,188
Interest amount of the financing 305,164 199,746
Total financing 14,172,619 14,612,934

(*) Weighted average effective interest costs on September 30, 2021, which in a consolidated basis represents 5.95%

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, 2021 December 31, 2020
Brazilian Real (R$) 1,258,657 1,245,988
U.S. Dollar (US$) 12,491,792 13,366,946
Other currencies 422,170 -
14,172,619 14,612,934

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

September 30, 2021 December 31, 2020
2022(*) 20,674 5,210
2023 2,068,675 2,108,324
2024 1,684,314 1,813,225
2025 688,185 682,422
2026 on 9,015,822 8,579,710
13,477,670 13,188,891

(*) For the period as of September 30, 2021, the amounts represents payments from October 1, 2022 to December 31, 2022.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

a) Credit Lines

In October 2019, the Company completed the renewal of the Global Credit Line in the total amount of US$ 800 million (equivalent to R$ 4,351 million as of Setember 30, 2021). The transaction aims to provide liquidity to subsidiaries in North America and Latin America, including Brazil. The companies Gerdau S.A., Gerdau Açominas S.A. and Gerdau Aços Longos S.A. provide guarantee for this transaction, which matures in October 2024. As of September 30, 2021, the outstanding balance of this credit facility was US$ 110 million (equivalent to R$ 598 million as of September 30, 2021).

NOTE 13 - DEBENTURES

Quantity as of September 30, 2020

Issuance General Meeting Issued Held in treasury Maturity September 30, 2021 December 31, 2020
15th November, 9, 2018 1,500,000 - 11/21/2022 1,524,407 1,500,985
16th - A April, 25, 2019 600,000 - 05/06/2023 610,434 600,759
16th - B April, 25, 2019 800,000 - 05/06/2026 813,596 800,673
Total Consolidated 2,948,437 2,902,417
Current 52,039 7,463
Non-current 2,896,398 2,894,954

Maturities of long-term amounts are as follows:

September 30,2021 December 31, 2020
2022* 1,498,636 1,497,760
2023 599,283 598,960
2026 798,479 798,234
2,896,398 2,894,954

(*) For the period as of September 30, 2021, the amounts represents payments from October 1, 2022 to December 31, 2022.

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 1.31% and 2.66% for the three-month and nine-month periods ended on September 30, 2021, respectively (0.54% and 2.43% for the three-month and nine-month periods ended on September 30, 2020, respectively).

NOTE 14 - FINANCIAL INSTRUMENTS

a) General considerations - Gerdau S.A. and its subsidiaries enter into transactions with financial instruments whose risks are managed by means of strategies and exposure limit controls. All financial instruments are recorded in the accounting books and presented as short-term investments, loans and financing, debentures, related-party transactions, eletrobras compulsory loan recovery, fair value of derivatives, obligations with FIDC, other current assets, other non-current assets, other current liabilities and other non-current liabilities.

The Company has derivatives and non-derivative instruments, such as the hedge for some operations under hedge accounting. These operations are intended to protect the Company against exchange rate fluctuations on foreign currency loans and against interest rate 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, 2021

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

(Unaudited)

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

September 30, 2021 December 31, 2020
Book Fair Book Fair
value value value value
Assets
Short-term investments 4,454,507 4,454,507 3,041,143 3,041,143
Related parties 152,988 152,988 134,354 134,354
Eletrobras compulsory loan recovery 1,524,933 1,524,933 - -
Other current assets 597,054 597,054 591,523 591,523
Other non-current assets 548,319 548,319 590,864 590,864
Liabilities
Loans and Financing 14,172,619 16,094,799 14,612,934 17,014,948
Debentures 2,948,437 2,885,267 2,902,417 2,775,619
Related parties 52,217 52,217 22,855 22,855
Fair value of derivatives 4,142 4,142 971 971
Obligations with FIDC (current liabilities) 46,684 46,684 944,513 944,513
Other current liabilities 837,833 837,833 797,082 797,082
Obligations with FIDC (non-current liabilities) - - 42,893 42,893
Other non-current liabilities 347,392 347,392 514,886 514,886

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 and may contract financial derivatives for protection.

Interest rate risk: this risk is related to the effect of interest rate fluctuations on the value of the Company's financial assets and liabilities or future cash flows and income. The Company evaluates its exposure to these risks: (i) comparing financial assets and liabilities denominated at fixed and floating interest rates and (ii) monitoring the variations of interest rates like Libor and CDI. Accordingly, the Company may enter into interest rate swaps in order to reduce this risk.

Exchange rate risk: this risk is related to the possibility of fluctuations in exchange rates affecting the amounts of financial assets or liabilities or 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 its accounts receivable originated from exports, its cash and cash equivalents denominated in foreign currencies and its investments abroad are more than equivalent to its liabilities denominated in foreign currency. Since the management of these exposures occurs at each operation level, if there is a mismatch between assets and liabilities denominated in foreign currency, the Company may employ derivative financial instruments in order to mitigate the effect of exchange rate fluctuations.

Credit risk: this risk arises from the possibility of the Company not receiving amounts arising from sales to customers or investments made with financial institutions. In order to minimize this risk, the Company adopt the procedure of analyzing in details of the financial position of their customers, establishing a credit limit and constantly monitoring their balances. Regarding short-term investments, the Company invests solely in financial institutions with low credit risk, as assessed by rating agencies. In addition, each financial institution has a maximum limit for investment, determined by the Company's Credit Committee.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

(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 (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 Equity (Note 18). 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 From 1.0 to 1.5 times
Gross debt limit R$ 12 billion
Average maturity more than 6 years

These key indicators are used to monitor objectives described above and may not necessarily be used as indicators for other purposes, such as impairment tests.

Liquidity risk: The 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, 2021 September 30, 2020
Foreign currency sensitivity analysis 5 % 14,571 33,547
Interest rate sensitivity analysis 10 bps 65,687 92,680
Sensitivity analysis of changes in prices of products sold 1 % 567,902 301,945
Sensitivity analysis of changes in raw material and commodity prices 1 % 312,723 191,911
Sensitivity analysis of Swap of interest rate 50bps - 1,016
Currency forward contracts 5 % (12,567 ) 1,858

Foreign currency sensitivity analysis: As of September 30, 2021, 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 reduction between the Real and the Dollar in its non-hedged debt. In this analysis, if the Real appreciates against the Dollar, this would represent a gain of R$ 14,571 after the effects arising from the net investment hedge described in note 14.f - (R$ 33,547 on September 30, 2020). If the Real depreciates against the Dollar this would represent an expense of the same value. Due to the net investment hedge, the variations are minimized when the exchange variation and income tax accounts are analyzed.

The net amounts of trade accounts receivable and trade accounts payable denominated in foreign currency do not represent any relevant risk in the case of any fluctuation of exchange rates.

Interest rate sensitivity analysis: The interest rate sensitivity analysis made by the Company considers the effects of an increase or reduction of 10 basis point (bps) on the average interest rate applicable to the floating part of its debt. The calculated impact, considering this variation in the interest rate totals R$ 65,687 on September 30, 2021 (R$ 92,680 on September 30, 2020) and would impact the Financial expenses account in the Consolidated Statements of Income. The specific interest rates to which the Company is exposed are related to the loans, financing, and debentures presented in Notes 12 and 13, and are mainly comprised by Libor and CDI - Interbank Deposit Certificate.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

Sensitivity analysis of changes in sales price of products and price of raw materials and other inputs used in production: The Company is exposed to changes in the price of its products. This exposure is associated with the fluctuation of the sale price of the 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 nine-month period ended on September 30, 2021, totals R$ 567,902 (R$ 301,945 on September 30, 2020) and the variation in the price of raw materials and other inputs totals R$ 312,723 on September 30, 2021 (R$ 191,911 on September 30, 2020). The impact in the price of products sold and raw materials would be recorded in the accounts Net Sales and Cost of Sales, respectively, in the Consolidated Statements of Income. The Company does not expect to be more vulnerable to a change in one or more specific product or raw material.

Sensitivity analysis of interest rate swaps: The Company has exposure to interest rate swaps for some of its loans and financing. The sensitivity analysis calculated by the Company considers the effects of either an increase or a decrease of 50 bps in the interest curve for Pre x DI operations. These variations represent an income or expense of R$ 0 (R$ 1,016 on September 30, 2020). These effects would be recognized in the Consolidated Income Statement.

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 Brazilian Real (Real), and its effects on the mark-to-market of these derivatives. A 5% increase in the Dollar against the Real represents an income of R$ 12,567 (R$ 1,858 on September 30, 2020) and a 5% decrease in the Dollar against the Real represents an expense of the same amount. Forward contracts in Dollar/Real 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.

d) Financial Instruments per Category

Summary of the financial instruments per category:

September 30, 2021
Assets 		Financial asset at amortized cost Financial asset at fair value through proft or loss Total
Short-term investments - 4,454,507 4,454,507
Related parties 152,988 - 152,988
Eletrobras compulsory loan recovery 1,524,933 - 1,524,933
Other current assets 597,054 - 597,054
Other non-current assets 488,319 60,000 548,319
Total 2,763,294 4,514,507 7,277,801
Financial result for the three-month period ended on September 30, 2021 566,386 63,736 630,122
Financial result for the nine-month period ended on September 30, 2021 1,149,785 141,646 1,291,431
Financial liability at fair
value through profit or Financial liability at
Liabilities loss amortized cost Total
Loans and financing - 14,172,619 14,172,619
Debentures - 2,948,437 2,948,437
Related parties - 52,217 52,217
Obligations with FIDC (current liabilities) - 46,684 46,684
Other current liabilities - 837,833 837,833
Other non-current liabilities - 347,392 347,392
Fair value of derivatives 4,142 - 4,142
Total 4,142 18,405,182 18,409,324
Financial result for the three-month period ended on September 30, 2021 1,198 (553,987 ) (552,789 )
Financial result for the nine-month period ended on September 30, 2021 (3,911 ) (1,422,777 ) (1,426,688 )

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

December 31, 2020
Assets 		Financial asset at amortized cost Financial asset at fair value through proft or loss Total
Short-term investments - 3,041,143 3,041,143
Related parties 134,354 - 134,354
Other current assets 591,523 - 591,523
Other non-current assets 530,864 60,000 590,864
Total 1,256,741 3,101,143 4,357,884
Financial result for the three-month period ended on September 30, 2020 79,817 23,141 102,958
Financial result for the nine-month period ended on September 30, 2020 633,022 78,482 711,504
Financial liability at fair
value through profit or Financial liability at
Liabilities loss amortized cost Total
Loans and financing - 14,612,934 14,612,934
Debentures - 2,902,417 2,902,417
Related parties - 22,855 22,855
Obligations with FIDC (current liabilities) - 944,513 944,513
Other current liabilities - 797,082 797,082
Obligations with FIDC (non-current liabilities) - 42,893 42,893
Other non-current liabilities - 514,886 514,886
Fair value of derivatives 971 - 971
Total 971 19,837,580 19,838,551
Financial result for the three-month period ended on September 30, 2020 (541 ) (405,753 ) (406,294 )
Financial result for the nine-month period ended on September 30, 2020 (643 ) (1,575,392 ) (1,576,035 )

On September 30, 2021, the Company has currency swaps derivative financial instruments, like Dollar forward contracts. These derivative financial instruments had their losses and/or realized and unrealized gains presented in the account gains (losses) with financial instruments, net in the Consolidated Statement of Income.

e) Operations with derivative financial instruments

Risk management objectives and strategies: In order to execute its strategy of sustainable growth, the Company implements risk management strategies in order to mitigate market risks.

The objective of the Company with derivative transactions is always related to mitigating market risks as stated in our policies and guidelines. The monitoring of the effects of these transactions is performed monthly by the Financial Risk Management Committee, which validates the mark to market of these transactions. All derivative financial instruments are recognized at fair value in the Consolidated Financial Statements of the Company.

Policy for use of derivatives: The Company is exposed to various market risks, including changes in exchange rates, interest rates and commodities prices. 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 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.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

The derivatives instruments can be summarized and categorized as follows:

Notional value Amount payable
Contracts Position September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Currency forward contracts
Maturity in 2021 buyed in US$ US$ 31.0 milion US$ 9.9 milion (4,142 ) (971)
Total fair value of financial instruments (4,142 ) (971)
September 30, 2021 December 31, 2020
Fair value of derivatives
Current liabilities (4,142 ) (971 )
(4,142 ) (971 )
September 30, 2021 September 30, 2020
Net Income
Gains on financial instruments 20,589 851
Losses on financial instruments (1,027 ) (643 )
19,562 208
Other comprehensive income
Losses on financial instruments (2,674 ) (10,607 )
(2,674 ) (10,607 )

f) Net investment hedge

The Company designated as hedge of part of its net investments in subsidiaries abroad the operations of Ten/Thirty Years Bonds. As a consequence, the effect of exchange rate changes on these debts has been recognized in the Statement of Comprehensive Income.

The exchange variation generated on the operations of Ten/Thirty Years Bonds in the amount of US$ 1.8 billion (designated as hedge) is 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 loss, net of taxes, in the amount R$ 757,828 and R$ 447,163 for the three-month and nine-month periods ended on September 30, 2021, respectively (loss of R$ 339,782 and R$ 3,428,513 for the three-month and nine-month periods ended on September 30, 2020).

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:

The IFRS defines fair value as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. The standard also establishes a three-level hierarchy for the fair value, which prioritizes information when measuring the fair value by the Company, to maximize the use of observable information and minimize the use of non-observable information. This IFRS describes the three levels of information to be used to measure fair value:

Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities.

Level 2 - Inputs other than quoted prices included in Level 1 available, where (unadjusted) quoted prices are for similar assets and liabilities in non-active markets, or other data that is available or may be corroborated by market data for substantially the full term of the asset or liability.

Level 3 - Inputs for the asset or liability that are not based on observable market data, because market activity is insignificant or does not exist.

As of September 30, 2021, the Company had some assets which the fair value measurement is required on a recurring basis. These assets include investments in private securities and derivative instruments.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

The accounting balances of financial assets and liabilities of the Company, measured at fair value on a recurring basis and subject to disclosure requirements of IFRS 7 as of September 30, 2021 and December 31, 2020, are as follows:

Fair Value Measurements at Reporting Date Using
Balance per financial statements

Quoted Prices in Non-Active Markets for

Similar Assets

(Level 2)

September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Current assets
Short-term investments 4,454,507 3,041,143 4,454,507 3,041,143
Eletrobras compulsory loan recovery 1,524,933 - 1,524,933 -
Other current assets 597,054 591,523 597,054 591,523
Non-current assets
Related parties 152,988 134,354 152,988 134,354
Other non-current assets 548,319 590,864 548,319 590,864
7,277,801 4,357,884 7,277,801 4,357,884
Current liabilities
Short-term debt 694,949 1,424,043 694,949 1,424,043
Debentures 52,039 7,463 52,039 7,463
Fair value of derivatives 4,142 971 4,142 971
Obligations with FIDC 46,684 944,513 46,684 944,513
Other current liabilities 837,833 797,082 837,833 797,082
Non-current liabilities
Long-term debt 13,477,670 13,188,891 13,477,670 13,188,891
Debentures 2,896,398 2,894,954 2,896,398 2,894,954
Related parties 52,217 22,855 52,217 22,855
Obligations with FIDC - 42,893 - 42,893
Other non-current liabilities 347,392 514,886 347,392 514,886
18,409,324 19,838,551 18,409,324 19,838,551

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

As required by IAS 7, the Company has summarized below the changes in the liabilities of cash flow from financing activities, from its Statement of Cash Flows:

Cash effects Non-cash effects
December 31,
2020 		Received/(Paid)
from financing
activities 		Interest Payment Interest on loans,
financing and loans
with related parties 		Exchange
Variance and
others 		September 30,
2021
Related Parties, net (111,499 ) 15,669 - (4,942 ) 1 (100,771 )
Leasing payable 856,474 (205,259 ) (47,735 ) 47,735 253,852 905,067
Loans and Financing, Debentures and Fair value of derivatives 17,516,322 (1,195,111 ) (599,055 ) 705,992 697,050 17,125,198
Cash effects Non-cash effects
January 01,
2020 		Received/(Paid)
from financing
activities 		Interest Payment Interest on loans,
financing and loans
with related parties 		Exchange
Variance and
others 		September, 30,
2020
Related Parties, net (95,445 ) (35,471) - (6,246 ) - (137,162 )
Leasing payable 804,269 (183,372) (47,224 ) 47,224 222,782 843,679
Loans and Financing, Debentures and Fair value of derivatives 16,047,021 (1,321,235) (678,495 ) 770,906 4,721,952 19,540,149

NOTE 15 - PROVISIONS FOR TAX, CIVIL AND LABOR CLAIMS

The Company and its subsidiaries are party in judicial and administrative proceedings involving labor, civil and tax matters. Based on the opinion of its legal advisors, Management believes that the provisions recorded for these judicial and administrative proceedings are 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.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

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 balances of provisions are as follows:

I) Provisions

September 30, 2021 December 31, 2020
a) Tax provisions 808,615 706,104
b) Labor provisions 422,885 428,821
c) Civil provisions 33,696 37,586
1,265,196 1,172,511

a) Tax Provisions

Tax provisions refer mainly to discussions related to ICMS, IPI, 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.

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

September 30, 2021 December 31, 2020
Balance at the beginning of the year 1,172,511 809,299
(+) Additions 267,642 559,513
(+) Monetary correction 35,619 104,473
(-) Reversal of accrued amounts (210,431 ) (304,678 )
(+) Foreign exchange effect on provisions in foreign currency (145 ) 3,904
Balance at the end of period 1,265,196 1,172,511

II) Contingent liabilities for which provisions were not recorded

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.

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$ 474,685.

a.2) The Company and certain of its subsidiaries in Brazil are parties to claims related to: (i) Imposto sobre Produtos Industrializados - IPI, substantially related to IPI credit on inputs, whose demands total the updated amount of R$ 423,213; (ii) PIS and COFINS, substantially related to disallowance of credits on inputs totaling R$ 1,339,534, (iii) social security contributions in the total of R$ 133,587 and (iv) other taxes, whose updated total amount is currently R$ 645,533.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

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$ 1,347,555, of which: (i) R$ 973,657 correspond to seven lawsuits of the subsidiary Gerdau Aços Longos S.A. where, currently, four lawsuits are at the first instance of the Administrative Council for Tax Appeals (CARF) awaiting the judgment of the Voluntary Appeals filed by the Company, and, finally, another 3 lawsuits that are in the Superior Chamber of Tax Appeals (CSRF) of the CARF, for judgment of Special Appeals filed by the Company; and (ii) R$ 373,898 correspond to two lawsuits of Gerdau S.A., which are in the Superior Chamber of Tax Appeals (CSRF) of CARF, for judgment of Special Resources and Appeal filed by the Company.

a.4) The Company is party to administrative proceedings related to goodwill amortization pursuant to articles 7 and 8 of Law 9,532/97, from the basis of calculation of Corporate Income Tax (IRPJ) and Social Contribution on net income (CSLL), resulting from a corporate restructuring started in 2010. The updated total amount of the assessments is R$ 466,445, of which: (i) R$ 24,792 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$ 214,793 corresponds to a lawsuit in which the Company impugnation was rejected by the Federal Revenue Judgment Office (DRJ) and filed a Voluntary Appeal with the Administrative Tax Appeals Council (CARF), which is pending of judgment; (iii) R$ 78,743 correspond to a lawsuit in which the Company had its challenge partially provided and filed a Voluntary Appeal with the Administrative Council for Tax Appeals (CARF), which is pending of judgment; and (iv) R$ 148,117 correspond to a Notice of Infraction received by the Company on December 2, 2019, against which it presented an Objection on December 27, 2019, deemed partially valid by the Federal Revenue Judgment Office (DRJ), pending judgment by the Council Administrative Tax Appeals (CARF) the Voluntary Appeal filed.

a.5)Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.) and its subsidiary Gerdau Internacional Empreendimentos Ltda. are parties to administrative and judicial proceedings relating to IRPJ - Corporate Income Tax and CSLL - Social Contribution Tax, in the current amount of R$ 1,265,482. Such lawsuits relate to profits generated abroad, of which: (i) R$ 1,040,595 correspond to two lawsuits of the subsidiary Gerdau Internacional Empreendimentos Ltda. One of the lawsuits is pending in the lower court, awaiting judgment in the Tax Enforcement Embargoes opposed by the Company and another is pending in the Federal Regional Court of the 4th Region, where the appeals filed by the Company and the National Treasury will be judged in view of the partial judgment rendered in the Tax Execution Embargoes opposed by the Company; and (ii) R$ 224,887 correspond to a lawsuit involving Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.), pending in the first instance awaiting judgment in the Tax Enforcement Embargoes opposed by the Company.

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 - from the tax base of the Corporate Income tax - IRPJ and Social Contribution on Net Income - CSLL. The updated total amount of the assessments amounts to R$ 8,153,052, of which: (i) R$ 5,416,787 correspond to four lawsuits of Gerdau SA (as successor of Gerdau Aços Especiais S.A.) and its subsidiaries Gerdau Aços Longos S.A. and Gerdau Açominas S.A., whose administrative discussion has already ended and are currently in the process of judicial collection, with the companies offering judicial guarantees, under precautionary measures, through Guarantee Insurance, and initiated the legal discussions in 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 April 8, 2021, in a judgment made at the Federal Regional Court of the 4th Region, the appeal filed by the National Treasury was dismissed, maintaining the sentence that dismissed the tax assessment; and also, in the Embargoes to Execution filed by the subsidiary Gerdau Aços Longos S.A. (as successor of Gerdau Comercial de Aços S.A.), the appeal filed by the National Treasury against the sentence that is pending of judgment by the Regional Federal Court of the 2nd Region that dismissed the tax assessment; (ii) R$ 321,322 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 insubstantiation of the tax assessment; (iii) R$ 297,259 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 analysis the embargoes of opposition filed by the Company against the sentence that dismissed its Embargoes to Tax Enforcement; (iv) R$ 4,354 corresponds to a lawsuit filed by subsidiary Gerdau Aços Longos S.A., which is at the Superior Chamber of Tax Appeals (CSRF) of CARF to judge the Special Appeal filed by the Company; (v) R$ 82,899 correspond to a lawsuit of the subsidiary Gerdau Aços Longos S.A., whose administrative discussion ended, and which is pending at the lower court awaiting a decision in the Embargoes to Tax Enforcement filed by the Company; (vi) R$ 137,304 corresponds to a lawsuit filed by Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.), which is in the Superior Chamber of Tax Appeals (CSRF) of CARF for judgment of the Special Appeal filed by the Company; (vii) R$ 175,233 corresponds to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., which is at the Superior Chamber of Tax Appeals (CSRF) of CARF to judge the Special Appeals filed by the Company and the National Treasury; (viii) R$ 109,281 corresponds to a lawsuit filed by Gerdau S.A. (as successor of Gerdau Aços Especiais S.A.), which is at the Superior Chamber of Tax Appeals (CSRF) of CARF for judgment of the Special Appeal filed by the Company; (ix) R$ 569,239 corresponds to a lawsuit filed by the subsidiary Gerdau Aços Longos S.A., which is pending in the first instance of the Administrative Council for Tax Appeals (CARF) awaiting judgment of the Voluntary Appeal filed by the Company; (x) R$ 496,834 pending before the first instance of the Administrative Council for Tax Appeals (CARF), which awaits judgment of the Voluntary Appeal filed by the Company; (xi) R$ 143,695 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, and pending of sentence the embargoes against the Tax Enforcement that were opposed by Company; and (xii) R$ 398,845 corresponds to a lawsuit of the subsidiary Gerdau Aços Longos S.A., separated from the lawsuit mentioned in item "vii" above, and that it is currently in the judicial collection stage, and the Embargoes to Tax Enforcement filed by the Company are pending of judgment.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

The Company's tax advisors confirm that the procedures adopted by the Company regarding the tax treatment of profits earned abroad and the goodwill amortization, which led to the aforementioned lawsuits, have complied with the strict legality and, therefore, these lawsuits are classified as possible loss (but not likely).

Brazilian federal authorities and the judiciary branch are investigating certain issues relating to CARF proceedings, as well as specific political contributions made by the Company, with the purpose of determining whether the Company engaged in any illegal conduct. The Company previously disclosed that, in addition to its interactions with Brazilian authorities, the Company was providing information requested by the U.S. Securities and Exchange Commission ("SEC"). The Company has since been informed by the SEC's staff that it has closed its inquiry and therefore is not seeking any further information from the Company regarding these matters. The Company believes it is not possible at this time to predict the term or outcome of the proceedings in Brazil, and that there currently is not enough information to determine whether a provision for losses is required or any additional disclosures.

b) Civil contingencies

b.1) A lawsuit arising from the request by two civil construction unions in the state of São Paulo alleging that Gerdau S.A. and other long steel producers in Brazil share customers, thus, violating the antitrust legislation. After investigations carried out by the Economic Law Department (SDE - Secretaria de Direito Econômico), the final opinion was that a cartel exists. The lawsuit was therefore forwarded to the Administrative Council for Economic Defense (CADE) for judgment, which resulted in a fine to the Company and other long steel producers, on September 23, 2005, an amount equivalent to 7% of gross revenues in the year before the Administrative Proceeding was commenced, excluding taxes (fine of R$ 245,070, updated by the judicial accountant on August 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 and the Federal Supreme Court, after admissibility judgment, the appeal to the Superior Court of Justice was admitted and well as substitution of the guarantee offered by insurance guarantee in a decision of October 8, 2019.

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.

Currently, the judgment of the Special Appeal by the STJ is awaited.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

Regardless of the result of its resources, the Company will continue to seek all legal remedies to defend its rights.

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

b.2) The Company and its subsidiaries are parties to other demands of a civil nature that collectively have a discussion amount of approximately R$ 391,045. For these demands, no accounting provision was recorded, since they were considered as possible losses, based on the opinion of its legal counsel.

c) Labor Contingencies

The Company and its subsidiaries are parties to other labor claims that together have an amount of approximately R$ 256,099. 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, 2021 December 31, 2020
Tax 1,624,670 1,597,995
Labor 79,027 95,234
Civil 133,516 132,562
1,837,213 1,825,791


The balance of judicial deposits as of September 30, 2021, in the amount of R$ 1,529,746, corresponds to judicial deposits made up to June 2017, referring to the same discussion on the inclusion of the ICMS in the tax base of PIS and COFINS, that awaits termination of the lawsuits before the Brazilian courts in order to be returned to the Company.

The Company and its subsidiaries made judicial deposits and accounting provisions, 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 judicial proceedings in progress, due to its general repercussion. Some of these lawsuits already have a favorable final and unappealable decision.

The first of these became final on July 19, 2019, assuring to the Company: i) the right to recover undue payments before the proposed action, in the amount of R$ 122 million (R$ 79 million net of related expenses), and ii) the right to withdraw the judicial deposits made during the course of this action, which was made on September 16, 2019, in the amount of R$ 179 million. The Company recognized the gain when the decision was final and unappealable, considering for the purposes of calculation the exclusion of the ICMS informed in the invoices, and enabled its credit before the Federal Revenue Service of Brazil, which was granted, having started the offsetting procedures.

The second became final on December 18, 2019, assuring to the Company: i) the right to recover undue payments made before the filing of the lawsuit, as well as during its processing, in the amount of R$ 280 million (R$ 185 million net of related expenses), and ii) the right to withdraw judicial deposits made during the course of this action, which was made on May 27, 2020, in the amount of R$ 189 million. The Company recognized the gain when the decision was final and unappealable, considering for the purposes of calculation the exclusion of the ICMS informed in the invoices, as expressly recognized in the final and unappealable decision, and enabled its credit before the Federal Revenue Service of Brazil, which was granted, having started the compensation procedures.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

The third became final on June 29, 2020, assuring to the Company: i) the right to recover undue payments made before the filing of the lawsuit, as well as during its processing, in the amount of R$ 147 million (R$ 135 million net of related expenses), and ii) the right to withdraw judicial deposits made during the course of this action in the amount of R$ 193 million. The Company recognized the gain when the decision was final and unappealable, considering for the purposes of calculation the exclusion of the ICMS informed in the invoices and awaits the withdrawal of judicial deposits and the qualification of its credit before the Federal Revenue Service of Brazil in order to start the offsetting procedures.

The fourth became final on November 18, 2020, assuring to the Company: i) the right to recover undue payments made before the filing of the lawsuit, as well as during its processing, in the amount of R$ 940 million (R$ 902 million, net of related expenses), and ii) the right to withdraw judicial deposits made during the course of this action in the amount of R$ 3 million. The Company recognized the gain when the decision was final and unappealable, considering for the purposes of calculation the exclusion of the ICMS informed in the invoices and authorized its credit with the Federal Revenue Service of Brazil, which was granted, having started the offsetting procedures.

The fifth became final on February 24, 2021, assuring to the Company the right to recover undue payments made before the filing of the lawsuit (undue in respect of period of January/2009 to April/2009), in the amount of R$ 73.5 million (R$ 45.8 million, net of related expenses). The Company recognized the gain when the decision was final and unappealable, considering for the purposes of calculation the exclusion of the ICMS informed in the invoices and authorized its credit with the Federal Revenue Service of Brazil, which was granted, having started the offsetting procedures.

The sixth became final on March 25, 2021, assuring to the Company the right to recover undue payments made before the filing of the lawsuit (undue in respect of period of January/2009 to April/2009), in the amount of R$ 5.7 million (R$ 3.6 million, net of related expenses). The Company recognized the gain when the decision was final and unappealable, considering for the purposes of calculation the exclusion of the ICMS informed in the invoices and it is preparing the documents to qualify its credit with the Federal Revenue Service of Brazil.

The seventh became final on July 14, 2021, assuring to the Company the right to recover undue payments made before the filing of the lawsuit (undue in respect of period of December/2006 to December/2010), in the amount of R$ 237 million (R$ 230 million, net of related expenses). The Company recognized the gain in the 2nd quarter of 2021 (before the final and unappealable decision), as explained below, considering for the purposes of calculation the exclusion of the ICMS informed in the invoices and awaits the analysis and approval, by the Federal Revenue Service of Brazil, of the filed requests for credit authorization.

It is important to note that the Company also has two lawsuits for repetition of undue payment that are awaiting the respective final and unappealable decision. In such actions, the Company is seeking recognition of R$ 683 million (R$ 643 million, net of related expenses) referring to credits prior to the filing of lawsuits.

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 will take 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 the lawsuits pending judgment on June 30, 2021 have not yet become final and unappealable, the Company recognized in the 2nd quarter of 2021, with sufficient reliability, the amounts of tax credits to which it is entitled, net of related expenses, in the amount of R$ 856 million, of which R$ 393 million was recognized in the Tax Credits Recovery line and R$ 463 million recognized in the Tax Credits Monetary Update line. Such credits are related to (i) 2 unappealable repetition actions that still await the respective final and unappealable decision on June 30, 2021 and (ii) a writ of mandamus with final and unappealable occurred on July 23, 2021, assuring to the Company the right to recover undue payments made during the period from December/2006 to December/2010. The Company recognized in the 3rd quarter of 2021, amounts of tax credit differences to which it is entitled, net of related expenses, in the amount of R$ 326 million in the Tax Credits Monetary Update line.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

Due to the economic moment strongly impacted by the pandemic caused by Covid-19, as well as the fact that the procedural legislation expressly provides the equivalence of cash and guarantee insurance, the subsidiary Gerdau Aços Longos S.A. requested the replacement of the amounts deposited by it over the years regarding the Inclusion of ICMS in the tax base of PIS and COFINS for a guarantee insurance presented by the Company, in the amount of R$ 1.7 billion, which complies with all the requirements established by the PGFN (Attorney General of the National Treasury) and can be converted into income at any time, ensuring that the Public Treasury receives all the amounts that may eventually be due at the end of the process.

In the lower court decision, therefore, there was a decision to release the funds deposited by the Company. The Public Treasury appealed to the Court and obtained a decision reversing the release of the amounts. The Company, then, filed a complaint to settle divergence between the decision handed down by Federal Judge Ferreira Neves, member of the 4th Specialized Panel of the Federal Regional Court of the 2nd Region, in the case files of process nº 50003743-37.2020.4.02.0000, and the jurisprudence of the Supreme Court (Theme nº 69). With an initially favorable injunction, the decision was later suspended to await the statement by the National Treasury regarding the fine for bad faith litigation applied to the Company. After the manifestation, which did not bring any additional element in relation to the fine for bad faith litigation applied, the Minister understood that the Complaint was not applicable due to the lack of exhaustion of ordinary channels.

Regarding the fine for bad faith litigation, applied due to the allegation of alleged attempt to mislead the Judiciary, the Company informs that it has always manifested itself in the file with procedural good faith and is confident that this will be clarified during the process.

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

The Compulsory Loan, instituted by the Brazilian government in order to expand and improve the energy sector of the country was charged and collected from industrial consumers with monthly consumption equal or greater than to 2000kwh through the "electricity bills" issued by the electric power distribution companies, was converted into credits to the taxpayers based on the annual value of these contributions made between 1977 and 1993. The legislation sets a maximum 20 years period to return the compulsory loan to the taxpayers, providing Eletrobras the possibility of anticipating this return through the conversion of those loans in shares of its own issuance.

Prior to the conversion of the credits into shares, those credits were monetary corrected through an indexer and quantifier, called Standard Unit (SU). However, the compulsory loan was charged to the companies in their monthly electricity bills, consolidated during the year, and only indexed by the SU in January of the following year, resulting in a lack of monthly monetary correction during the years of collection, as well as interest. This procedure imputed to taxpayers' considerable financial losses, particularly during the periods when the monthly inflation rates stood at high levels. In order to claim the appropriate interest and monetary correction subtracted by the methodology applied by Eletrobras, the Company (understood to be legally entities existing at the time and that later became part of Gerdau S.A.) filed lawsuits claiming credits resulting from differences on the monetary correction of principal, interest, default interest and other accessory amounts owed by Eletrobras due to the compulsory loans.

In 2015, cases involving representative amounts were definitively judged by the Superior Court of Justice - STJ favorable to the Company so that no further appeals against such decisions apply ("final judgment"). For claims with a final judgment, it yet remains the enforcement of ruling (or execution phase) where the actual amounts to be settled will finally be calculated. Obtaining favorable decisions represented by the final judgment mentioned above, suggests that an inflow of economic benefits may occur in the future.

The Company recognized in the 2nd quarter/2020 result, the amount of R$ 436 million (net of expenses incurred for its realization), corresponding to four processes that evolved into its closing and liquidation phase.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

The Company still has other lawsuits pending before the Judiciary, dealing with the subject, with final and unappealable decisions on the merits, favorable to the Company. Regarding one of these processes, involving Gerdau S.A. and its subsidiary Seiva SA - Florestas e Indústrias, on November 25, 2020 a decision was issued that ratified the expert report prepared by the court expert appointed by the Court, establishing the amount to be received in favor of the companies. This decision was maintained by the Court of Justice of the State of Rio de Janeiro in judgment on August 10, 2021, and on September 10, 2021 Eletrobras made the judicial deposit/payment of the amount of the sentence determined by the Judiciary Branch of the State of Rio January, duly increased by interests and loss charges. Thus, considering the current procedural stage, the Company concludes that said asset, until then treated as contingent, due to uncertainties as to the term, form and amount that would be effectively paid and currently defined, fulfilled the accounting characteristics related to the entry of economic benefits, pursuant to paragraph 35 of IAS 37, which implied the recognition by the Company, in the 3rd quarter of 2021, of assets in the amount of R$ 1,524,933 and gain in the statement of income in the amount of R$ 1,391,280, net of fees and related expenses. The Company clarifies that it is taking the necessary measures to raise the amounts deposited in court in said action, and on October 18, 2021 the Court of Justice of the State of Rio de Janeiro granted the withdrawal of part of the credit to which the Company is entitled, in the amount of R$ 421,692, with the analysis of the request for withdrawal of the remaining amount having been postponed.

The other lawsuits pending before the Judiciary, dealing with the subject, with final and unappealable decisions on the merits, favorable to the Company, total approximately R$ 73 million.

NOTE 16 - RELATED-PARTY TRANSACTIONS

a) Intercompany loans
Maturity September 30, 2021 December 31, 2020
Assets
Joint Venture
Gerdau Corsa SAPI de C.V. January 1, 2022 152,988 117,092
Others
Fundação Gerdau - 17,262
152,988 134,354
Liabilities
Joint venture
Aceros Corsa, S.A. de C.V. January 1, 2022 (199 ) -
Bradley Steel Processors Inc. August 1, 2022 (23,906 ) (22,855 )
Others
Fundação Gerdau December 31, 2022 (28,112 ) -
(52,217 ) (22,855 )
For the nine-month period ended
September 30, 2021 September 30, 2020
Net financial income 4,942 6,246
b) Operations with related parties

During the three-month period ended on September 30, 2021, the Company, through its subsidiaries, performed commercial operations with some of its associate companies and joint ventures in sales of R$ 165,963 (R$ 254,670 as of September 30, 2020) and purchases in the amount of R$ 85,577 as of September 30, 2021 (R$ 57,244 as of September 30, 2020). The net balance totals R$ 80,386 as of September 30, 2021 (R$ 197,425 as of September 30, 2020). During the nine-month period ended on September 30, 2021, the Company, through its subsidiaries, performed commercial operations with some of its associate companies and joint ventures in sales of R$ 552,128 (R$ 582,493 as of September 30, 2020) and purchases in the amount of R$ 231,804 as of September 30, 2021 (R$ 133,876 as of September 30, 2020). The net balance totals R$ 320,325 as of September 30, 2021 (R$ 448,617 as of September 30, 2020).

Additionally , the Company recorded revenues of R$ 174 and R$ 470 in the three-month and nine-month periods ended on September 30, 2021, respectively (R$ 129 and R$ 387 on September 30, 2020, respectively), derived from rental agreement.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

Guarantees granted

Related Party Relationship Object Original
Amount 		Maturity Balance as of
September 30,
2021 		Balance as of
December 31,
2020
Gerdau Corsa S.A.P.I. de C.V. Joint-venture Financing Agreements 1,617,543 Oct/24 1,663,828 2,242,865
c) Price conditions and charges

Loan agreements between Brazilian companies carry interest based on the CDI (Interbank Deposit Certificate) and Libor rate plus exchange variance, when applicable. Sales of products and purchases of inputs are made under terms and conditions agreed between the parties.

d) Management compensation

The Company paid to its management salaries, benefits and variable compensation totaling R$ 17,210 for the three-month period ended on September 30, 2021 (R$ 9,032 for the three-month period ended on September 30, 2020) and R$ 39,168 for the nine-month period ended on September 30, 2021 (R$ 18,254 for the nine-month period ended on September 30, 2020).

The contributions for the defined contribution plan, related to the management of the Company, totaled R$ 484 for the three-month period ended on September 30, 2021 (R$ 281 on September 30, 2020) and R$ 1,448 for the nine-month period ended on September 30, 2021 (R$ 1,098 on September 30, 2020).

The cost of social charges , related to the management of the Company, totaled R$ 6,889 for the three-month period ended on September 30, 2021 (R$ 3,043 on September 30, 2020) and R$ 16,131 for the nine-month period ended on September 30, 2021 (R$ 9,703 on September 30, 2020).

The cost of long-term incentive plans recognized in income and attributable to key management (members of Board of Directors and executive officers) totaled R$ 4,468 during the three-month period ended on September 30, 2021 (R$ 4,897 for the three-month period ended on September 30, 2020) and R$ 13,660 during the nine-month period ended on September 30, 2021 (R$ 14,285 for the nine-month period ended on September 30, 2020).

e) Other information from related parties

The Company has contracted a convertible loan into equity interest with the company Brasil ao Cubo Construção modular Ltda., which is presented in the line of Other non-current assets, in the amount of R$ 60,000 on September 30, 2021. Contributions to the assistance entities Fundação Gerdau, Instituto Gerdau and Fundação Ouro Branco, classified as related parties, amounted R$ 32,372 (R$ 20,040 on September 30, 2020). 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.

NOTE 17 - OBLIGATIONS WITH FIDC - INVESTMENT FUND IN CREDIT RIGHTS

Part of the assets resulting from the favorable judgments of credits with Eletrobras mentioned in Note 15 iv, were used to set up a Non Standardized Credit Right Investment Fund, constituted and duly authorized to operate by the Securities and Exchange Commission of Brazil ("FIDC NP Barzel"). On July 14, 2015, the single quota of that FIDC was sold in the acquisition of minority interests' transaction in subsidiaries of Gerdau S.A.

The Company assures the FIDC, through the transfer agreement price adjustments clause, minimum return on the transferred amount of the credit's rights on the lawsuits. However, where the amounts received in the lawsuits exceed the transferred amount, monetarily adjusted, the Company will be entitled to a percentage of that gain. Additionally, the Company has the right of first offer to repurchase those receivables in the event of sale by the Fund, in accordance with the contract subscribed. On April 5, 2021, the Fund decided to sell part of the credit rights and the Company exercised its right of first offer, acquiring such rights at their respective book values, upon payment of R$ 954,916. On September 30, 2021, the Company has the amount of R$ 46,684 recognized in the account "Obligations with FIDC" in the Current liabilities (R$ 944,513 and R$ 42,893 on December 31, 2020, as Current Liabilities and Non-current liabilities, respectively).

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

NOTE 18 - EQUITY

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

Reconciliation of common and preferred outstanding shares is presented below:

September 30, 2021 December 31, 2020
Common shares Preferred shares Common shares Preferred shares
Balance at the beginning of the period 571,929,945 1,129,231,487 571,929,945 1,127,010,827
Exercise of stock option - 4,420,934 - 2,220,660
Balance at the end of the period 571,929,945 1,133,652,421 571,929,945 1,129,231,487

On September 30, 2021, 573,627,483 common shares and 1,146,031,245 preferred shares are subscribed and paid up, with a total capital of R$ 19,249,181 (net of share issuance costs). Ownership of the shares is presented below:

Shareholders
September 30, 2021 December 31, 2020
Shareholders Common % Pref. % Total % Common % Pref. % Total %
Metalúrgica Gerdau S.A.* 557,898,901 97.3 - 0.0 557,898,901 32.4 557,898,901 97.3 2,147,800 0.2 560,046,701 32.6
Brazilian institutional investors 3,662,169 0.6 254,695,719 22.2 258,357,888 15.0 3,397,955 0.6 227,262,531 19.8 230,660,486 13.4
Foreign institutional investors 2,795,220 0.5 459,455,035 40.1 462,250,255 26.9 3,142,148 0.5 492,076,396 42.9 495,218,544 28.8
Other shareholders 7,573,655 1.3 419,501,667 36.6 427,075,322 24.8 7,490,941 1.3 407,744,760 35.6 415,235,701 24.1
Treasury stock 1,697,538 0.3 12,378,824 1.1 14,076,362 0.9 1,697,538 0.3 16,799,758 1.5 18,497,296 1.1
573,627,483 100.0 1,146,031,245 100.0 1,719,658,728 100.0 573,627,483 100.0 1,146,031,245 100.0 1,719,658,728 100.0
* Metalurgica Gerdau S.A. is the controlling shareholder of the Company and Frepar Participações S.A., Gepar Participações S.A., Jopar Participações S.A. and Klapar Participações S.A. are the ultimate controlling shareholders 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.

b) Treasury stocks

Changes in treasury shares are as follows:

September 30, 2021 December 31, 2020
Common R$ Preferred shares R$ Common R$ Preferred shares R$
Balance at the beginning of the period 1,697,538 557 16,799,758 228,752 1,697,538 557 19,020,418 241,985
Exercise of long-term incentive plan - - (4,420,934 ) (76,336 ) - - (2,220,660 ) (13,233 )
Balance at the end of the period 1,697,538 557 12,378,824 152,416 1,697,538 557 16,799,758 228,752

These shares will be held in treasury for subsequent cancelling or will service the long-term incentive plan of the Company and its subsidiaries or subsequently sold on the market. The average acquisition cost of the treasury preferred shares was R$ 12.31.

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.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

II) Tax incentive reserve - under Brazilian Corporate Law, the Company may transfer to this account part of net income resulting from government benefits which can be excluded from the basis for dividend calculation.

III) Investments and working capital reserve - consists of earnings not distributed to shareholders and includes the reserves required by the 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. Amounts can be allocated to the reserve only after the minimum dividend requirements have been met and its balance cannot exceed the amount of paid-in capital. It is also recognized in this account the difference between the average amount of the treasury stocks and transactional value of the share in the case of stock option exercised and assignment of preferred shares. The reserve can be used to absorb losses, if necessary, for capitalization, for payment of dividends or for the repurchase of shares.

e) Operations with non-controlling interests - correspond to amounts recognized in equity for changes in non-controlling interests.

f) Other reserves - Includes gains and losses on net investment hedge, gains and losses on financial instruments accounted as cash flow hedge, cumulative translation adjustments, expenses recorded for stock option plans and actuarial gains and losses on postretirement benefits.

g) Dividends and interest on equity - The Company credited dividends and interest on equity to its shareholders in the amounts presented below:

Period Nature R$/share Outstandings shares (thousands) Credit Payment Amount
1st quarter Dividends 0.40 1,705,338 05/14/2021 05/26/2021 682,199
2nd quarter Dividends 0.54 1,705,576 08/16/2021 08/26/2021 921,011
3rd quarter Interest on income 0.38 1,705,582 09/27/2021 11/16/2021 648,122

Proposed dividends and interest on equity

2,251,332

The dividends and interest on equity credited during the period is composed of anticipation of statutory dividend.

NOTE 19 - EARNINGS PER SHARE (EPS)

Basic

For the three-month period ended on
September 30, 2021 September 30, 2020
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 1,870,404 3,707,415 5,577,819 264,100 521,441 785,541
Basic denominator
Weighted-average outstanding shares, after deducting the average of treasury shares 571,929,945 1,133,649,392 571,929,945 1,129,224,888
Earnings per share (in R$) - Basic 3.27 3.27 0.46 0.46

For the nine-month period ended on

September 30, 2021

 September 30, 2020
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 4,008,207 7,937,502 11,945,709 443,102 874,336 1,317,438
Basic denominator
Weighted-average outstanding shares, after deducting the average of treasury shares 571,929,945 1,132,600,133 571,929,945 1,128,541,176
Earnings per share (in R$) - Basic 7.01 7.01 0.77 0.77

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

Diluted

For the three-month period ended on
September 30, 2021 September 30, 2020
Diluted numerator
Allocated net income available to Common and Preferred shareholders
Net income allocated to preferred shareholders 3,707,415 521,441
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 8,241 1,622
3,715,656 523,063
Net income allocated to common shareholders 1,870,404 264,100
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 (8,241 ) (1,622 )
1,862,163 262,478
Diluted denominator
Weighted - average number of shares outstanding
Common Shares 571,929,945 571,929,945
Preferred Shares
Weighted-average number of preferred shares outstanding 1,133,649,392 1,129,224,888
Potential increase in number of preferred shares outstanding due to the long-term incentive plan 7,547,902 10,513,327
Total 1,141,197,294 1,139,738,215
Earnings per share - Diluted (Common and Preferred Shares) - in R$ 3.26 0.46

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

For the nine-month period ended on

September 30, 2021 September 30, 2020
Diluted numerator
Allocated net income available to Common and Preferred shareholders
Net income allocated to preferred shareholders 7,937,502 874,336
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 20,597 2,731
7,958,099 877,067
Net income allocated to common shareholders 4,008,207 443,102
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 (20,597 ) (2,731 )
3,987,610 440,371
Diluted denominator
Weighted - average number of shares outstanding
Common Shares 571,929,945 571,929,945
Preferred Shares
Weighted-average number of preferred shares outstanding 1,132,600,133 1,128,541,176
Potential increase in number of preferred shares outstanding due to the long-term incentive plan 8,804,110 10,545,954
Total 1,141,404,243 1,139,087,130
Earnings per share - Diluted (Common and Preferred Shares) - in R$ 6.97 0.77

NOTE 20 - LONG-TERM INCENTIVE PLANS

Restricted Shares and Performance Shares Summary:

Balance as of January 1, 2020 13,018,407
Granted 3,146,696
Canceled (1,777,100 )
Exercised (1,918,669 )
Balance as of December 31, 2020 12,469,334
Granted 2,070,261
Canceled (1,613,030 )
Exercised (4,330,854 )
Balance as of September 30, 2021 8,595,711

The Company recognizes the cost of the long-term incentive plan through Restricted Shares and Performance Shares based on the fair value of the options granted on the grant date during the vesting period of each grant. The grace period for the year is 3 years for grants made as from 2017 and 5 years for grants made up to 2016. The costs with long-term incentive plans recognized in the income statement in the three-month period ended on September 30, 2021 was R$ 16,393 (R$ 11,654 on September 30, 2020). The costs with long-term incentive plans recognized in the income statement in the nine-month period ended on September 30, 2021 was R$ 45,003 (R$ 31,310 on September 30, 2020).

As of September 30, 2021 the Company has a total of 12,378,824 preferred shares in treasury and, according to note 18, these shares may be used for serving this plan.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

NOTE 21 - EXPENSES BY NATURE

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

For the three-month periods ended For the nine-month periods ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Depreciation and amortization (672,673 ) (647,106 ) (1,952,002 ) (1,815,264 )
Labor expenses (1,805,583 ) (1,488,324 ) (5,216,114 ) (4,159,301 )
Raw material and consumption material (11,385,117 ) (7,736,088 ) (31,272,348 ) (19,191,106 )
Freight (1,034,533 ) (653,755 ) (2,719,447 ) (1,758,450 )
Other expenses/income (692,785 ) (388,588 ) (1,562,578 ) (719,319 )
Tax credits recovery - - 393,341 -
Eletrobras compulsory loan recovery 1,391,280 - 1,391,280 -
(14,199,411 ) (10,913,861 ) (40,937,868 ) (27,643,440 )
Classified as:
Cost of sales (14,897,908 ) (10,525,273 ) (41,159,912 ) (26,924,121 )
Selling expenses (187,782 ) (130,900 ) (511,596 ) (347,856 )
General and administrative expenses (339,687 ) (239,308 ) (961,738 ) (699,178 )
Other operating income 117,992 135,114 318,412 798,393
Other operating expenses (282,268 ) (150,122 ) (401,456 ) (398,547 )
Impairment of financial assets (1,038 ) (3,372 ) (6,199 ) (72,131 )
Tax credits recovery - - 393,341 -
Eletrobras compulsory loan recovery 1,391,280 - 1,391,280 -
(14,199,411 ) (10,913,861 ) (40,937,868 ) (27,643,440 )

NOTE 22 - FINANCIAL INCOME

For the three-month periods ended For the nine-month periods ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Income from short-term investments 48,963 23,112 118,173 77,151
Interest income and other financial incomes 7,461 19,158 43,947 62,187
Financial income total 56,424 42,270 162,120 139,338
Interest on debts (272,458 ) (260,557 ) (705,992 ) (770,906 )
Monetary variation and other financial expenses (81,645 ) (93,124 ) (305,614 ) (298,523 )
Financial expenses total (354,103 ) (353,681 ) (1,011,606 ) (1,069,429 )
Exchange variations, net 33,197 8,587 (94,074 ) 65,351
Tax credits monetary update 326,090 - 788,741 -
Gains (Losses) on financial instruments, net 15,971 (512 ) 19,562 208
Financial result, net 77,579 (303,336 ) (135,257 ) (864,532 )

NOTE 23 - SEGMENT REPORTING

Information by business segment:
For the three-month periods ended
Brazil Operation North America Operation South America Operation Special Steels Operation Eliminations and Adjustments Consolidated

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

Net sales 10,060,017 4,990,300 7,444,878 4,483,225 1,860,173 1,252,155 2,870,991 1,705,482 (919,002 ) (209,054 ) 21,317,057 12,222,108
Cost of sales (6,220,819 ) (3,903,716 ) (5,786,470 ) (4,195,673 ) (1,437,582 ) (976,751 ) (2,405,212 ) (1,639,926 ) 952,175 190,793 (14,897,908 ) (10,525,273 )
Gross profit 3,839,198 1,086,584 1,658,408 287,552 422,591 275,404 465,779 65,556 33,173 (18,261 ) 6,419,149 1,696,835
Selling, general and administrative expenses (207,555 ) (140,057 ) (150,920 ) (122,006 ) (37,671 ) (26,209 ) (54,719 ) (43,148 ) (76,604 ) (38,788 ) (527,469 ) (370,208 )
Other operating income (expenses) 17,891 9,480 2,403 33,378 5,515 625 1,957 10,711 (192,042 ) (69,202 ) (164,276 ) (15,008 )
Eletrobras compulsory loan recovery - - - - - - - - 1,391,280 - 1,391,280 -
Impairment of financial assets 1,978 3,439 (1,619 ) (4,680 ) (186 ) (447 ) (230 ) (1,684 ) (981 ) - (1,038 ) (3,372 )
Equity in earnings of unconsolidated companies (2,257 ) (413 ) 155,317 14,616 107,106 46,885 8,923 4,889 2,030 5,518 271,119 71,495
Operational income (Loss) before financial income (expenses) and taxes 3,649,255 959,033 1,663,589 208,860 497,355 296,258 421,710 36,324 1,156,856 (120,733 ) 7,388,765 1,379,742
Finacial result, net (144,362 ) (102,678 ) (33,980 ) (58,979 ) (93,365 ) (25,359 ) (58,088 ) (56,453 ) 407,374 (59,867 ) 77,579 (303,336 )
Income (Loss) before taxes 3,504,893 856,355 1,629,609 149,881 403,990 270,899 363,622 (20,129 ) 1,564,230 (180,600 ) 7,466,344 1,076,406
Income and social contribution taxes (877,295 ) (219,641 ) (318,353 ) (30,241 ) (96,921 ) (65,838 ) (88,335 ) 7,683 (491,499 ) 26,216 (1,872,403 ) (281,821 )
Net income (Loss) 2,627,598 636,714 1,311,256 119,640 307,069 205,061 275,287 (12,446 ) 1,072,731 (154,384 ) 5,593,941 794,585
Supplemental information:
Net sales between segments 458,190 165,604 32,702 7,874 - - 428,110 35,576 - - 919,002 209,054
Depreciation/amortization 355,255 297,306 150,030 198,609 54,239 34,899 113,149 116,292 - - 672,673 647,106

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

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

(Unaudited)

Information by business segment:
For the nine-month periods ended
Brazil Operation North America Operation South America Operation Special Steels Operation Eliminations and Adjustments Consolidated

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

Net sales 25,883,446 11,965,795 19,944,509 12,427,931 4,616,707 2,505,515 7,950,931 4,035,700 (1,605,436 ) (740,459 ) 56,790,157 30,194,482
Cost of sales (16,149,407 ) (10,060,575 ) (16,358,094 ) (11,573,802 ) (3,501,902 ) (2,041,245 ) (6,793,095 ) (3,955,553 ) 1,642,586 707,054 (41,159,912 ) (26,924,121 )
Gross profit 9,734,039 1,905,220 3,586,415 854,129 1,114,805 464,270 1,157,836 80,147 37,150 (33,405 ) 15,630,245 3,270,361
Selling, general and administrative expenses (564,012 ) (377,576 ) (441,968 ) (336,033 ) (106,203 ) (79,661 ) (164,107 ) (127,629 ) (197,044 ) (126,135 ) (1,473,334 ) (1,047,034 )
Other operating income (expenses) 23,039 27,495 13,747 69,342 14,084 10,440 49,309 44,418 (183,223 ) 248,151 (83,044 ) 399,846
Tax credits recovery - - - - - - - - 393,341 - 393,341 -
Eletrobras compulsory loan recovery - - - - - - - - 1,391,280 - 1,391,280 -
Impairment of financial assets (1,338 ) (29,890 ) (5,195 ) (34,956 ) (803 ) (1,353 ) 1,138 (5,932 ) (1 ) - (6,199 ) (72,131 )
Equity in earnings of unconsolidated companies (5,965 ) (684 ) 274,983 (10,822 ) 352,318 65,684 27,173 7,442 8,548 16,275 657,057 77,895
Operational income (Loss) before financial income (expenses) and taxes 9,185,763 1,524,565 3,427,982 541,660 1,374,201 459,380 1,071,349 (1,554 ) 1,450,051 104,886 16,509,346 2,628,937
Finacial result, net (375,846 ) (310,501 ) (129,194 ) (138,628 ) (216,975 ) (37,253 ) (172,781 ) (156,443 ) 759,539 (221,707 ) (135,257 ) (864,532 )
Income (Loss) before taxes 8,809,917 1,214,064 3,298,788 403,032 1,157,226 422,127 898,568 (157,997 ) 2,209,590 (116,821 ) 16,374,089 1,764,405
Income and social contribution taxes (2,216,406 ) (313,741 ) (724,436 ) (111,238 ) (282,074 ) (101,979 ) (216,782 ) 43,757 (935,437 ) 50,054 (4,375,135 ) (433,147 )
Net income (Loss) 6,593,511 900,323 2,574,352 291,794 875,152 320,148 681,786 (114,240 ) 1,274,153 (66,767 ) 11,998,954 1,331,258
Supplemental information:
Net sales between segments 1,061,928 636,311 49,217 33,319 16,297 - 477,994 70,829 - - 1,605,436 740,459
Depreciation/amortization 983,574 832,699 461,693 548,769 156,709 104,124 350,026 329,672 - - 1,952,002 1,815,264

September 30,

2021

December 31,

2020

September 30,

2021

December 31,

2020

September 30,

2021

December 31,

2020

September 30,

2021

December 31,

2020

September 30,

2021

December 31,

2020

September 30,

2021

December 31,

2020

Investments in associates and joint ventures 30,281 10,186 1,201,052 908,338 1,359,322 976,046 254,323 231,152 132,905 145,907 2,977,883 2,271,629
Total assets 25,646,774 21,099,735 22,498,492 18,583,439 7,480,338 5,448,922 12,123,913 11,233,676 7,612,650 6,757,237 75,362,167 63,123,009
Total liabilities 8,608,206 7,469,541 5,919,495 5,261,820 2,580,646 1,360,098 2,657,165 1,994,575 14,298,251 15,951,765 34,063,763 32,037,799

The main products by business segment are:

Brazil Operation: rebar, bars, shapes, drawn products, billets, blooms, slabs, wire rod, structural shapes and iron ore.

North America Operation: rebar, bars, wire rod, light and heavy structural shapes.

South America Operation: rebar, bars and drawn products.

Special Steel Operation: stainless steel, round, square and flat bars, wire rod.

The column of eliminations and adjustments includes the elimination of sales between segments and corporate expenses in the context of the Condensed Consolidated Interim Financial Statements.

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,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

Net sales 10,632,118 5,431,263 2,222,060 1,525,548 8,462,879 5,265,297 21,317,057 12,222,108
(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,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

Net sales 27,865,730 12,815,613 5,993,819 3,132,617 22,930,608 14,246,252 56,790,157 30,194,482

September 30,

2021

December 31,

2020

September 30,

2021

December 31,

2020

September 30,

2021

December 31,

2020

September 30,

2021

December 31,

2020

Total assets 34,352,787 28,752,629 9,403,934 7,042,462 31,605,446 27,327,918 75,362,167 63,123,009
(1)Does not include operations of Brazil
(2)Does not include operations of Mexico

IFRS require that the Company disclose the net sales per product and country unless the information is not available and the cost to obtain it would be excessive. Accordingly, management does not consider this information useful for its decision-making process, because it would entail aggregating sales for different markets with different currencies, subject to the effects of exchange differences. Steel consumption patterns and the pricing dynamics of each product or group of products in different countries and different markets within these countries are poorly correlated, and thus the information would not be useful and would not serve to conclude on historical trends and progresses. In light of this scenario and considering that the information on net sales by product and country is not maintained on a consolidated basis and the cost to obtain net sales per product and country would be excessive compared to the benefits that would be derived from this information, the Company is not presenting the breakdown of net sales by product and country.

NOTE 24 - IMPAIRMENT OF ASSETS

The impairment test of goodwill and other long-lived assets is tested based on the analysis and identification of facts or circumstances that may involve the need to perform the impairment test. The Company performs impairment tests of goodwill and other long-lived assets, based on projections of discounted cash flows, which take into account assumptions such as: cost of capital, growth rate and adjustments applied to flows in perpetuity, methodology for working capital determination, investment plans, and long-term economic-financial forecasts.

To determine the recoverable amount of each business segment, the Company uses the discounted cash flow method, taking as basis, financial and economic projections for each segment. The projections are updated to take into consideration any observed changes in the economic environment of the market in which the Company operates, as well as premises of expected results and historical profitability of each segment.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of September 30, 2021

(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 2020, the Company carried out a sensitivity analysis of the discount rate and perpetuity growth rate using the analysis of the scenario described above, given its potential impacts on cash flows, where an increase of 0.5% in the cash flow discount rate for each segment would result in an recoverable amount exceeding the carrying amount as shown below: a) North America: exceeding the carrying amount by R$ 4,589 million; b) Special Steels: exceeded the book value by R$ 1,568 million; c) South America: exceeded the book value by R$ 3,757 million; and d) Brazil: exceeded the book value by R$ 11,348 million. On the other hand, a decrease of 0.5 % in the perpetuity growth rate of the cash flow of each business segment would result in a recoverable amount exceeding the book value as shown below: a) North America: exceeded the book value by R$ 4,914 million; b) Special Steels: exceeded the book value by R$ 1,754 million; c) South America: exceeded the book value by R$ 3,867 million; and d) Brazil: exceeded the book value by R$ 11,809 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, 2021.

The Company will maintain over 2021 its constant monitoring of the steel market in order to identify any deterioration, significant drop in demand from steel consuming sectors (notably automotive and construction), stoppage of industrial plants or activities relevant changes in the economy or financial market that result in increased perception of risk or reduction of liquidity and refinancing capacity. Although the projections made by the Company provide a challenging scenario, events that impact economic environment and business, if manifested in a greater intensity than that anticipated in the assumptions made by management, may lead the Company to revise its projections of value in use and eventually result in impairment losses.

NOTE 25 - SUBSEQUENT EVENTS

I) On October 25, 2021, the Company proposed the anticipation of the mandatory minimum dividend on income of the current fiscal year, stipulated in its Bylaws, to be paid in the form of interest on equity and dividends, which will be calculated and credited on the shareholding interest owned on November 5, 2021, in the amount of R$ 341.1 million (R$ 0.20 per common and preferred share) in the form of interest on equity and R$ 2.421,9 million (R$ 1.42 per common and preferred share) in the form of dividends, with payment on November 16, 2021, which was submitted and approved by the Board of Directors on October 26, 2021.

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Gerdau SA published this content on 27 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 October 2021 20:19:07 UTC.