As filed with the Securities and Exchange Commission on June 17, 2011April 27, 2012
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
1 | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| OR |
R | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
| For the fiscal year ended December 31, |
| OR |
1 | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
| OR |
1 | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-14732
COMPANHIA SIDERÚRGICA NACIONAL
(Exact Name of Registrant as Specified in its Charter)
NATIONAL STEEL COMPANY
(Translation of Registrant’s name into English)
THE FEDERATIVE REPUBLIC OF BRAZIL
(Jurisdiction of incorporation or organization)
Paulo Penido Pinto Marques, Chief Financial David Moise Salama, Investor Relations ExecutiveOfficer
Phone: +55 11 3049-7100 Fax: +55 11 3049-7212
invrel@csn.com.br
Av. Brigadeiro Faria Lima, 3,400 – 20th floor
04538-132, São Paulo-SP, Brazil
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Name of each exchange on which registered |
Common Shares without par value | New York Stock Exchange* |
American Depositary Shares, (as evidenced by American Depositary Receipts), each representing one share of Common Stock | New York Stock Exchange |
____________________
* Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report:
Common Shares, without par value. |
|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
R Yes 1 No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
1 Yes R No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
R Yes 1 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
R Yes 1 No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer R Accelerated Filer 1 Non-accelerated Filer 1
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP1 | International Financial Reporting Standards as issued by the International Accounting Standards BoardR | Other1 |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 1 Item 18 1
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
1 Yes R No
TABLE OF CONTENTS
Table of Contents
Introduction Unless otherwise specified, all references in this annual report to:
Table of Contents Forward-Looking Statements This annual report includes forward-looking statements, within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, principally under the captions “Item 3. Key Information,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk.” We have based these forward-looking statements largely on our current expectations and projections about future events, industry and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things: · general economic, political and business conditions in Brazil and abroad, especially in China; · the ongoing effects of the recent global financial markets and economic crisis; · changes in competitive conditions and in the general level of demand and supply for our products; · management’s expectations and estimates concerning our future financial performance and financing plans; · our level of debt; · availability and price of raw materials; · changes in international trade or international trade regulations; · protectionist measures imposed by Brazil and other countries; · our capital expenditure plans; · inflation, interest rate levels and fluctuations in foreign exchange rates; · our ability to develop and deliver our products on a timely basis; · lack of infrastructure in Brazil; · electricity and natural gas shortages and government responses to them; · existing and future governmental regulation; and · other risk factors as set forth under “Item 3D. Risk Factors.” The words “believe,” “may,” “will,” “aim,” “estimate,” “forecast,” “plan,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not an indication of future performance. As a result of various factors, such as those risks described in “Item 3D. Risk Factors,” undue reliance should not be placed on these forward-looking statements.
Table of Contents Presentation of Financial and Other Information Our consolidated financial statements as of December 31, For certain purposes, such as providing reports to our Brazilian shareholders, filing financial statements with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or CVM, and other distributions and tax liabilities in Brazil, we have prepared and will continue to be required to prepare financial statements in accordance with the accounting principles required by Brazilian laws No. 6,404, dated December 15, 1976, as amended, and No. 11,638 dated December 28, 2007, as amended, or the Brazilian Corporate Law, and the rules and regulations of the CVM, or Brazilian GAAP. Changes on Regulatory Requirements for Presentation of Financial Statements – Convergence to International Financial Reporting Standards (“IFRS”) Starting with the year ended December 31, 2010, Brazilian listed companies are required to publish their consolidated financial statements in accordance with IFRS. Those consolidated financial statements must be prepared based on IFRS as issued by the IASB.
Previously published consolidated financial statements in our annual report on Form 20-F for our financial year ended December 31, 2009, as well as all prior financial periods, were prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). IFRS differs in certain material respects from U.S. GAAP and, accordingly, the consolidated financial statements for our financial years ended December 31, 2011, 2010 and 2009 prepared in accordance with IFRS are not comparable to our consolidated financial statements prepared in accordance with U.S. GAAP for 2009 and prior years presented in our reports on Form 20-F. Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. PART I Item 1. Identity of Directors, Senior Management and Advisors Not applicable. Item 2. Offer Statistics and Expected Timetable Not applicable. Item 3. Key Information 3A. Selected Financial Data We present in this section the summary financial and operating data derived from our audited consolidated financial statements as of and for the year ended December 31, The consolidated financial statements included in this annual report have been prepared in accordance with IFRS, as issued by the IASB, inreais. However, we have translated some of thereal amounts contained in this annual report into U.S. dollars. The rate used to translate such amounts in respect of the year ended December 31,
Table of Contents IFRS Summary and Financial Data The following tables present summary historical consolidated financial and operating data for us for each of the periods indicated. Solely for the convenience of the reader,real amounts as of and for the year ended December 31,
Table of Contents
Exchange Rates The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer ofreais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures. The Brazilian Between 2000 and 2002, thereal depreciated significantly against the U.S. dollar, reaching Table of Contents The following tables present the selling rate, expressed inreais per U.S. dollar (R$/US$), for the periods indicated.
We will pay any cash dividends and make any other cash distributions with respect to our common shares in Brazilian currency. Accordingly, exchange rate fluctuations may affect the U.S. dollar amounts received by 3B. Capitalization and Indebtedness Not applicable. 3C. Reasons for the Offer and Use of Proceeds Not applicable. An investment in our ADSs or common shares involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. The trading price of our ADSs could decline due to any of these risks or other factors, and you may lose all or part of your investment. The risks described below are those that we currently believe may materially affect us. Risks Relating to Brazil The Brazilian government The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulation. See “—Government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm our business” and “Item 5A. Operating Results—Brazilian Macro-Economic Scenario, Effects of Exchange Rate Fluctuations.” The Brazilian government’s actions, policies and regulations Table of Contents · interest rates; · exchange controls; · currency fluctuations; · inflation; ·price volatility of raw materials and our final products; · lack of infrastructure in Brazil; · energy shortages and rationing programs; · liquidity of the domestic capital and lending markets; ·regulatory policy for the mining and steel industries; · environmental policies and regulations; · tax policies and regulations; and · other political, social and economic developments in or affecting Brazil. Uncertainty over whether the Brazilian government will make changes affecting these and other factors may create instability. This may also adversely affect our business, financial condition and results of operations.
Exchange rate instability may adversely affect The Brazilian currency has long experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. Depreciation of thereal against major foreign currencies could create inflationary pressures in Brazil and contribute to Central Bank increases in interest rates, which could negatively affect us and the growth of the Brazilian economy, On the other hand, appreciation of thereal relative to major foreign currencies could lead to a deterioration of In the event thereal depreciates in relation to the U.S. dollar, the cost inreais of our foreign currency-denominated borrowings and imports of raw materials, particularly coal and coke, will increase.
Table of Government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm Brazil has in the past experienced extremely high rates of inflation,
Developments and perception of risk in other countries, especially in the United States, China and other emerging market countries, may adversely affect the trading price of Brazilian securities, including our common shares and ADSs. The market value of securities of Brazilian companies is affected to varying degrees by economic and market conditions in other countries, including the United States, China, Risks Relating to Us and the Industries in Which We Operate We are exposed to substantial changes in the demand for steel and iron ore, which has a substantial impact in the prices The steel and mining industries are highly cyclical, both in Brazil and abroad. The availability and the price of raw materials that we need to produce steel, particularly of coal and coke, may adversely affect our results of operations. In
In addition, we require significant amounts of energy, Table of Contents Any prolonged interruption in the supply of raw materials, natural gas or
The global steel industry is highly competitive with respect to The steel industry
In 2010, steel companies in Brazil faced strong competition of imported products, mainly as a result of the reduction in steel products demand in mature markets, the exchange rate appreciation and The shift in iron ore pricing and increase in price volatility could adversely affect our iron ore business. The previous annual benchmark price system for iron ore adopted by the main iron ore producers, including us, was replaced in the last couple of years by different pricing systems, and is now more sensitive to spot price volatility. Fluctuations in supply and demand could increase price volatility, mainly in spot prices, which could adversely affect our mining business and, consequently, our cash flow. See “Item 5A—Operating Results—Overview—Macro-Economic Scenario—Mining.” Protectionist and other measures adopted by foreign government could adversely affect our export sales. In response to the increased production and export of steel by many countries, anti-dumping, countervailing duties and safeguard measures were imposed in the late 1990s and early 2000s by foreign governments representing the main markets for our Table of Contents Our activities depend on authorizations, concessions, permits and licenses. Changes of laws and Our activities depend on authorizations, permits and licenses from and concessions by governmental regulatory agencies of the countries in which we operate. If
Malfunctioning equipment or accidents on our premises, railways or ports may decrease or interrupt production, internal logistics or distribution of our products. The steel and iron ore production processes depend on certain critical equipment, such as blast furnaces, steel converters, continuous casting machines, drillers, crushing and screening Our insurance policies may not be sufficient to cover all our losses. We maintain several types of insurance policies, in line with the risk management of our
Our projects are subject to risks that may result in increased costs or delay or prevent their successful implementation. We are investing to further increase our steel, mining and cement production capacity, as well as our logistics capabilities. · we may encounter delays, availability problems or higher than expected costs in obtaining the necessary equipment, Table of Contents · our efforts to develop projects according to schedule may be hampered by a lack of infrastructure, including · we may fail to obtain, lose, or experience delays or higher than expected costs in obtaining or renewing the required permits, authorizations, licenses, concessions and/or regulatory approvals to build or continue a project; and · changes in market conditions, laws or regulations may make a project less profitable than expected Any one or a combination of factors described above may materially and adversely affect us. New or more stringent environmental, safety and health regulations imposed on us may result in increased liabilities and increased capital expenditures. Our steel making, mining, cement and logistics facilities are subject to a broad range of laws, regulations and permit requirements in Brazil relating mainly to the protection of health, safety and the environment. Brazilian pollution standards are expected to continue to change, including the introduction of new effluent and air emission standards, New or more stringent environmental, Our governance and compliance processes may fail to prevent regulatory penalties and reputational harm. We operate in a global environment, and our activities straddle multiple jurisdictions and complex regulatory frameworks with increased enforcement activities worldwide. Our governance and compliance processes may
Some of our operations depend on joint ventures, consortia and other forms of cooperation, and our business could be adversely affected if our partners fail to observe their commitments. We currently operate parts of our business through joint-ventures and consortia with other companies. We have established a joint-venture with an Asian consortium at our 60% consolidated investee Nacional Minérios S.A., or Namisa, to mine iron ore; a joint-venture with other Brazilian steel and mining companies at MRS Logística S.A., or MRS, to explore railway transportation in the Southeastern region of Brazil, Table of Contents Our forecasts and plans for these joint-ventures and consortia assume that our partners will observe their obligations to make capital contributions, purchase products and, in some cases, provide managerial personnel or financing. In addition, many of the projects contemplated by our joint-ventures or consortia rely on financing commitments, which contain certain preconditions for each disbursement. If any of our partners fails to observe their commitments or we fail to comply with all preconditions required under our financing commitments, the affected joint-venture, consortium or other project may not be able to operate in accordance with its business plans, or we may have to increase the level of our investment to implement these plans. Any of these events may have a material adverse effect on us. Our mineral reserve estimates may materially differ from mineral quantities that we may be able to actually recover; our estimates of mine life may prove inaccurate; and market price fluctuations and changes in operating and capital costs may render certain ore reserves uneconomical to mine. Our reported ore reserves are estimated quantities of ore and minerals that we have determined can be economically mined and processed under present and anticipated conditions to extract their mineral content. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including many factors beyond our control. Reserve engineering involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment. As a result, no assurance can be given that the indicated amount of ore will be recovered or that it will be recovered at the rates we anticipate. Estimates of different engineers may vary, and results of our mining and production subsequent to the date of an estimate may lead to revision of estimates. Reserve estimates and estimates of mine life may require revision based on actual production experience and other factors. For example, fluctuations in the market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a restatement of reserves. See “Item 4B—Business Overview—Our Mining Segment—Mineral Reserves.” We may not be able to adjust our mining production volume in a timely or cost-efficient manner in response to changes in demand. Revenues from our mining business represented in 2009, 2010 and Conversely, operating at significant idle capacity during periods of weak demand may expose us to higher unit production costs since a significant portion of our cost structure is fixed in the short-term due to the high capital intensity of mining operations. In addition, efforts to reduce costs during periods of weak demand could be limited by labor regulations or existing labor or government agreements.
Adverse economic developments in China could have a negative impact on our revenues, cash flow and profitability. China has been the main driver of global demand for minerals and metals over the last few years. In Drilling and production risks could adversely affect the mining process. Once mineral deposits are discovered, it can take a number of years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial time and expenditures are required to: Table of Contents · establish mineral reserves through drilling; · determine appropriate mining and metallurgical processes for optimizing the recovery of metal contained in ore; · obtain environmental and other licenses; · construct mining, processing facilities and infrastructure required for greenfield properties; and · obtain the ore or extract the minerals from the ore. If a mining project proves not to be economically feasible by the time we are able to Natural and other disasters could disrupt our operations. Our business and operating results could be negatively impacted by social, technical and/or physical risks such as flooding, fire, power loss, loss of water supply, leakages, telecommunications and information technology system failures, and political instability, including a global economic slowdown. For example, flooding in Australia at the end of 2010 affected global coal supply and consequently increased our raw material costs. In addition, heavy rainfall in the Southeast Region of Brazil could affect our iron ore and logistics operations and consequently our revenues. Such events could affect our ability to conduct our business operations and, as a result, reduce our operating results and materially and adversely affect us. We may not be able to consummate proposed acquisitions successfully or integrate acquired businesses successfully. From time to time, we may evaluate acquisition opportunities that would strategically fit our business objectives. If we are unable to complete acquisitions, or integrate successfully and develop these businesses to realize revenue growth and cost savings, our financial results could be adversely affected. Acquisitions also pose the risk that we may be exposed to successor liability involving an acquired company. Due diligence conducted in connection with an acquisition, and any contractual guarantees or indemnities that we receive, may not be sufficient to protect us from, or compensate us for, actual liabilities. A material liability associated with an acquisition, such as labor- or environmental-related, could adversely affect our reputation and financial performance and reduce the benefits of the acquisition. In addition, we may incur asset impairment charges related to acquisitions, which may reduce our profitability. Finally, our acquisition activities may present financial, managerial and operational risks, including diversion of management attention from existing core businesses, difficulties integrating or separating personnel and financial and other systems, adverse effects on existing business relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or key employees of acquired businesses, and indemnities and potential disputes with the buyers or sellers. Any of these activities could affect our product sales, financial condition and results of operations. We have a substantial amount of indebtedness, which could make it more difficult or expensive to refinance our maturing debt and /or incur new debt. As of December 31, 2011, our total debt outstanding amounted to R$28,067 million, consisting of R$2,735 million of short-term debt and R$25,332 million of long-term debt. See “Item 5B. Liquidity and Capital Resources” and “Item 18. Financial Statements.” Although we had R$15,417 million of cash and cash equivalents as of December 31, 2011, our planned investments in all of our business segments will require a significant amount of cash over the course of 2012 and following years. See “Item 4D. Property, Plant and Equipment – Capital Expenditures – Planned Investments.” Table of Contents The level of our indebtedness could affect our credit rating and ability to obtain any necessary financing in the future and increase our cost of borrowing. In these and other circumstances, servicing our indebtedness may use a substantial portion of our cash flow from operations, which could make it more difficult for usto make payments of dividends and other distributions to our shareholders, including the holders of our ADSs, and adversely affect our financial condition and results of operations. We have experienced labor disputes in the past that have disrupted our operations, and such disputes may recur. A substantial number of our employees and some of the employees of our subcontractors are represented by labor unions and are covered by collective bargaining or other labor agreements, which are subject to periodic renegotiation. Strikes and other labor disruptions at any of our facilities or labor disruptions involving third parties who may provide us with goods or services, have in the past and may in the future materially and adversely affect the operation of our facilities, or the timing of completion and the cost of our projects.
Risks Relating to our Common Shares and ADSs Our controlling shareholder has the ability to direct our business and affairs and its interests could conflict with yours. Our controlling shareholder has the power to, among other things, elect a majority of our directors and determine the outcome of any action requiring shareholder approval, including transactions with related parties, corporate reorganizations, acquisitions, dispositions, and the timing and payment of any future dividends, subject to minimum dividend payment requirements imposed under If you surrender your ADSs and withdraw common shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages. As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our common shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the common shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw common shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal. Thereafter, upon the disposition of, or distributions relating to, the common shares, you will not be able to remit abroad non-Brazilian currency unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration. If you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our common shares. For more information regarding exchange controls, see “Item 10.D. Exchange Controls.” If you seek to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our common shares or the return of your capital in a timely manner. The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes. Holders of ADSs may not be able to exercise their voting rights.
Table of Contents The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the common shares underlying the ADSs at the price and time you desire. Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature. The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States. Accordingly, although you are entitled to withdraw the common shares underlying the ADSs from the depositary at any time, your ability to sell the common shares underlying the ADSs at a price and time at which you wish to do so may be substantially limited. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the
Holders of ADSs may be unable to exercise preemptive rights with respect to our common shares. We may not be able to offer our common shares to U.S. holders of ADSs pursuant to preemptive rights granted to holders of our common shares in connection with any future issuance of our common shares unless a registration statement under the Securities Act is effective with respect to such common shares and preemptive rights, or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement relating to preemptive rights with respect to our common shares or to undertake steps that may be needed to find exemptions from registration available, and we cannot assure you that we will file any such registration
Item 4. Information on the Company 4A. History and Development of the Company History
Companhia Siderúrgica Nacional is a Brazilian corporation (sociedade por ações) incorporated in 1941 pursuant to a decree of the Brazilian President at the time, Getúlio Vargas. The Presidente Vargas Three major expansions were undertaken at the Presidente Vargas
Table of Contents Between 1993 General We are one of the largest fully integrated steel producers in Brazil and
Steel Our fully integrated manufacturing facilities produce a broad line of steel products, including slabs, hot- and cold-rolled, galvanized and tin mill products for the distribution, packaging, automotive, home appliance and construction industries. In 2010, we accounted for approximately 46% of the coated steel products market Our production process is based on the integrated steelworks concept. Below is a brief summary of the steel making process at our Presidente Vargas
We currently Mining
Table of Contents Logistics
A number of railroads and port terminals make up the logistics system integrating CSN's mining, steelmaking and CSN manages two port terminals at Itaguaí, in Rio de Janeiro, CSN also has interests in two
Cement
CSN plans to increase its market share Energy CSN is one of Brazil’s largest industrial electric power Other Information CSN’s legal and commercial name is Companhia Siderúrgica Nacional. CSN is organized for an unlimited period of time under the laws of the Federative Republic of Brazil. Our head offices are located at Av. Brigadeiro Faria Lima, 3400, Competitive Strengths We believe that we have the following competitive strengths: Fully integrated business model.We believe we are one of the most fully integrated steelmakers in the world.
Table of Contents Profitable mining
Thoroughly developed transport infrastructure.We have a thoroughly developed transport infrastructure, from our iron ore mine to our steel mill and to our ports. Self-sufficiency in energy generation.We are self-sufficient in energy, through our interests in the hydroelectric plants of Itá and Igarapava, and our own thermoelectric plant inside the Presidente Vargas Low cost structure.As a result of our fully integrated business model, our thoroughly developed transportation infrastructure and our self-sufficiency in energy generation, we have been consistently generating high margins. Other factors that lead to these margins are the strategic location of our steelworks facility, the use of state of the art technology and our well qualified work force. Diverse product portfolio and product mix.We have a diversified product mix that Strong presence in domestic market and strategic international
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Strategies Our goal is to increase value for our shareholders by further benefiting from our competitive cost advantages, maintaining our position as one of the world’s lowest-cost steel producers, becoming an important iron ore global player, Steel
üA focus on the domestic ü ü ü ü For information on Mining In order to strengthen our position We expect in the next years to reach an annual production level of approximately 89 mtpy of iron ore products, To sustain this growth, we will increase capacity in TECAR, our solid bulks terminal in Itaguai Port, from 30 mtpy to 84 mtpy and we are also analyzing the possibility of increasing capacity beyond 84 mtpy. We are also studying seaborne shipping opportunities, focused on increasing our competitiveness in the Asian market. In order to maximize the profitability of our product portfolio,
For information on Logistics We expect to take advantage of and expand our current logistics capabilities, including our integrated infrastructure operations of railways and ports.
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In addition to investments in TECAR, In terms of railways, we plan to We intend to continue to improve the delivery of our products in the domestic market (mainly steel and cement), with low cost and efficiency by integrating and increasing the use of rail transportation, and by providing more distribution centers. Cement Our Additional Investments In addition to the currently planned investments and capital expenditures, we continue to consider possible acquisitions, joint ventures and brownfield or greenfield projects to increase or complement our steel, cement and mining Our Steel Segment We produce carbon steel, which is the world’s most widely produced type of steel, representing the vast bulk of global Table of Contents
Our Presidente Vargas Slabs Slabs are semi-finished products used for processing hot-rolled, cold-rolled or coated coils and sheet products. We are able to produce continuously cast slabs with a standard thickness of 250 millimeters, widths ranging from 830 to 1,600 millimeters and lengths ranging from 5,250 to 10,500 millimeters. We produce high, medium and low carbon slabs, as well as micro-alloyed, ultra-low-carbon and interstitial free slabs. Hot-Rolled Products Hot-rolled products Cold-Rolled Products Cold-rolled products
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Galvanized Products Galvanized products · bodies for automobiles, trucks and buses; · manufactured products for the construction industry, such as panels for roofing and siding, dry wall and roofing support frames, doors, windows, fences and light structural components; · air ducts and parts for hot air, ventilation and cooling systems; · culverts, garbage containers and other receptacles; · storage tanks, grain bins and agricultural equipment; · panels and sign panels; and · pre-painted parts. Galvanized sheets, both painted and bare, are also frequently used for gutters and downspouts, outdoor and indoor cabinets, all kinds of home appliances and similar applications. We produce galvanized sheets and coils in continuous hot-dip processing lines, with thickness ranging from 0.30 millimeters to 3.00 millimeters. The continuous process results in products with highly adherent and uniform zinc coatings capable of being processed in nearly all kinds of bending and heavy machinery. In addition to standard galvanized products, we produceGalvanew®, galvanized steel that is subject to a special annealing process following the hot-dip coating process. This annealing process causes iron to diffuse from the base steel into the zinc coating. The resulting iron-zinc alloy coating allows better welding and paint performance. The combination of these qualities makes ourGalvanew® product particularly well suited for manufacturing automobile and home appliance parts including high gloss exposed parts. At CSN Paraná, one of our branches, we produce galvalume, a cold-rolled material coated with a zinc-aluminum alloy. The production process is similar to hot-dip galvanized coating, and galvalume has at least twice the corrosion resistance of standard galvanized steel. Galvalume is primarily used in outdoor construction applications that may be exposed to severe acid corrosion, The value added Through our branch CSN Paraná, we also produce pre-painted flat steel, which is manufactured in a continuous coating line. In this production line, a layer of resin-based paint in a choice of colors is deposited over either cold-rolled or galvanized base materials. Pre-painted material is a higher value-added product used primarily in the construction and home appliance markets. Tin Mill Products Tin mill products Table of Contents ·
· · · Tin mill products are primarily used to make cans and other containers. With six electrolytic coating lines, we are one of the biggest producers of tin mill products in the world and the sole producer of coated tin mill products in Brazil. Production Production Process The principal raw materials for steel production in an integrated steelworks are iron ore, coal, coke, and fluxes like limestone and dolomite. The iron ore consumed at the Presidente Vargas
At sintering plants, fine-sized iron ore and coke or other fine-sized solid fuels are mixed with fluxes (limestone and dolomite) to produce sinter. The sinter, lump iron ore, fluxing materials and coke are then loaded into our two operational blast furnaces for smelting. We operate a pulverized coal injection, or PCI, facility, which injects low-cost pulverized coal directly into the blast furnaces as a substitute for approximately one-third of the coke otherwise required. The iron ore is reduced to pig iron through successive chemical reactions with carbon monoxide (from the coke and PCI) in The molten pig iron is transported to the steelmaking shop by 350-ton capacity torpedo cars and charged in basic oxygen furnaces together with scrap and fluxes. In the basic oxygen furnaces, oxygen is blown onto the liquid burden to oxidize its remaining impurities and to lower its carbon content, thus producing liquid steel. The molten steel is conveyed from the basic oxygen furnaces to the secondary refining equipment (degasser, ladle furnace and Argon Stirring Station). After adjusting the chemical composition, the molten steel is transferred to the continuous casting machines from which crude steel (i.e., rectangular shaped slabs) is produced. A portion of the slab products is sold directly in the export market.
Table of Contents In the hot rolling process, reheated slabs from the continuous casting machines are fed into hot strip mills to reduce the thickness of the slabs from 250 millimeters to a range of between 1.2 and 12.7 millimeters. At the end of the hot strip mill, the long, thin steel strip from each slab is coiled and conveyed to a cooling yard. Some hot-rolled coils are dispatched directly to customers in the as-rolled condition. Others are further processed in the pickling line, in a hydrochloric bath, to remove surface oxides and improve surface quality. In 2011, one of the two pickling lines had a 40 day stoppage to allow for the changing of the entire set of pickling tanks. After pickling, the hot-rolled coils selected to produce thinner materials are sent to be rolled in cold strip mills. CSN has three cold strip mills, one of which was revamped in 2011, adding 150,000 tons per year to CSN’s cold rolling capacity. The better surface characteristics of cold-rolled products enhance their value to customers
Steel plant equipment regularly undergoes scheduled maintenance shutdowns. Typically the rolling mills and coating lines are maintained on a weekly or monthly basis whereas the blast furnaces and other special equipment are scheduled for routine maintenance on a semi-annual or annual basis. Our business encompasses operations and commercial activities. Our operations · · The production sector is also responsible for environment and quality consultancy, new Quality Management Program We practice Total Quality Management, a set of techniques that have been adopted by many leading companies in our industry. We also maintain a Quality Management System that has been certified to be in compliance with the ISO 9001 standards set forth by the International Standardization Organization, or ISO. In Production Output The following table sets forth, for the periods indicated, the annual production of crude steel within Brazil and by us and the percentage of Brazilian production attributable to us.
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The following table contains some of our operating statistics for the periods indicated.
Raw Materials and Suppliers The Raw Materials and Energy Requirements
In 2010, prices of our main raw materials increased due to In the first half of 2011, prices of the main raw materials used by CSN continuously increased due to unbalanced supply and demand. In the second half of 2011, prices decreased, mainly due to the worsening of the European crisis. These commodity segments are highly concentrated in the hands of a few global players and there can be no assurance that price increases will not be imposed on steel producers in the future. Iron Ore We are able to obtain all of our iron ore requirements from our Casa de Pedra mine located in the State of Minas Gerais. For a description of our iron ore segment see “– Our Mining Segment.” Coal In
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Coke In Limestone and Dolomite Our Bocaina mine is located in The annual production of limestone and dolomite The main products obtained from limestone and dolomite that are transferred to our steelworks in Volta Redonda are: · ·
Aluminum, Zinc and Tin Aluminum is mostly used for steelmaking. Zinc and tin are important raw materials used in the production of certain higher-value steel products, such as galvanized and tin plate, respectively. We typically purchase aluminum,zinc and tin
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Other Raw Materials In our production of steel, we We also consume significant amounts of oxygen, nitrogen, hydrogen, argon and other gases at the Presidente Vargas Water Large amounts of water are also required in the production of steel. Water serves as a solvent, a catalyst and a cleaning agent. It is also used to cool, to carry away waste, to help produce and distribute heat and power, and to dilute liquids. Our source of water is the Paraíba do Sul River, which runs through the city of Volta Redonda. Over Electricity Steelmaking also requires significant amounts of electricity to power rolling mills, production lines, hot metal processing, coking plants and auxiliary units. In Our main current source of electricity is our 238 MW thermoelectric co-generation power plant at the Presidente Vargas Natural Gas In addition to electricity, we consume natural gas, mainly in our hot strip mill. Companhia Estadual de Gás do Rio de Janeiro S.A., or CEG Rio, which was privatized in 1997, is currently our major source of natural gas. Variations in the supply of gas can affect the level of steel production. We have not experienced any significant stoppages of production due to a shortage of natural gas. We also purchase fuel oil from Petrobras. Diesel Oil In mid-October 2006 and July
We acquire the inputs necessary for the production of our products in Brazil and abroad, with aluminum, zinc, tin, spare parts, refractory bricks, lubricants, oxygen, nitrogen, hydrogen and argon being the main inputs acquired in Brazil. Coal and coke are the only inputs acquired abroad. Table of Contents Our main raw materials suppliers are set forth below:
Facilities Steel Mill The Presidente Vargas Our major operational units and corresponding effective capacities as of December 31, Effective Capacity
Downstream Facilities CSN Paraná Our branch CSN Paraná produces and supplies plain regular galvanized,Galvalume® and pre-painted steel products for the construction and home appliance industries. The plant has an annual capacity of 330,000 tons of galvanized products andGalvalume® products, 100,000 tons of pre-painted products, which can use cold-rolled or galvanized steel as substrate, and 220,000 tons of pickled hot-rolled coils in excess of the coils required for the coating process. Table of Contents Metalic We have a 99.99% ownership interest in Cia. Metalic Nordeste, or Metalic. Metalic is one of the few two-piece steel can Prada We have a 99.99% ownership interest in Cia. Prada Distribuição is also the leader in the Brazilian distribution market, with 460,000 tons per year of installed processing capacity. Prada Distribuição has two steel service centers and five distribution centers strategically located in Brazil. Its main service center is located in the city of Mogi das Cruzes between the cities of São Paulo and Rio de Janeiro. Its product mix also includes sheets, slit coils, sections, tubes, and roofing in standard or customized format, according to
Companhia Siderurgica Nacional, LLC CSN LLC holds the assets of former Heartland Steel, a flat-rolled steel processing facility in Terre Haute, Indiana. This facility has an annual production capacity of 180,000 tons of cold-rolled products and 315,000 tons of galvanized products. Currently, CSN LLC is obtaining hot coils by buying slabs from CSN and then having them converted into hot coils by local steel companies or buying hot rolled coils directly from mills in the United States. See “Item 4B. Government Regulation and Other Legal Matters—Anti-Dumping Proceedings—United States” for a discussion about anti-dumping issues on Brazilian hot coils exports to the United States.
Lusosider, Aços Planos, S.A. We own 99.94% of Lusosider, a producer of hot-dip galvanized products and cold-rolled located in Seixal, near Lisbon, Portugal. Lusosider produces approximately 240,000 tons of galvanized products and 50,000 tons of cold-rolled Inal Nordeste Inal Nordeste, or INOR, is a distributor of laminates located in the Northeastern Region. INOR has a service center located in the city of Camaçari, in the State of Bahia, to support sales in the Northeastern and North regions. On May 30, 2011, INOR was merged into us, allowing for the optimization of processes and operations as well as the reduction of costs. Our Mining Segment Our mining activities are one of the largest in Brazil and are mainly driven by the exploration of one of the richest Brazilian iron ore reserves, Casa de Pedra, in the State of Minas Gerais. We sell our iron ore products mainly in Asia, Europe and Brazil with sales and marketing taking place through our principal hubs of Minas Gerais, in Brazil, Austria, Madeira Islands, Table of Contents Our Mines Location, Access and Operation Casa de Pedra Casa de Pedra mine is an open pit mine located next to the city of Congonhas in the State of Minas Gerais, Brazil, approximately 80 km Casa de Pedra mine is a hematite-rich iron deposit of an early proterozoic banded iron formation in Brazil’s Iron Ore Quadrangle Our iron ore at Casa de Pedra is currently excavated by a fleet composed of Marion 191M electric shovels, P&H 1900AL electric shovels, Casa de Pedra mine is wholly-owned by us and The maps below illustrate the location of our Casa de Pedra mine:
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Namisa We own additional iron ore assets through Namisa, our 60% consolidated investee, which acquired CFM (Companhia de Fomento Mineral e Participações) in July 2007. CFM was The Engenho mine is located at the Southwestern region of the Iron Ore Quadrangle, 60 km South of the city of Belo Horizonte. The
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The Fernandinho mine, The
Limestone and Dolomite Mine Our extraction and preparation of limestone and dolomite is done at our Bocaína mining facility located in the city of Arcos, in the State of Minas Gerais. This mining facility has an installed annual production capacity of approximately 4.0 million tons. We believe this mining facility has sufficient limestone and dolomite reserves to adequately supply our steel production, at current levels, for more than Tin We own a tin mine Mineral Rights and Ownership The Mining Code and the Brazilian Federal Constitution impose requirements on mining companies relating to, among other things, the manner in which mineral deposits are exploited, the health and safety of workers, the protection and restoration of the environment, the prevention of pollution and the promotion of the health and safety of local communities where the mines are located. The Mining Code also imposes certain We hold concessions to mine iron ore, limestone and dolomite. We purchase manganese in the local market. Except for Namisa’s mines, in which we have a 60% ownership interest, we own 100% of each of our mines. In addition, each mine is an “open pit” mine. Iron ore extraction, crushing, screening and concentration are done
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Casa de Pedra Our mining rights for Casa de Pedra mine include the mine, a beneficiation plant, roads, a loading yard and a railway branch and are duly registered with the Brazilian Department of Mineral Production (Departamento Nacional de Produção Mineral), or DNPM. We believe we have obtained and are in compliance with all licenses and authorizations for our operations and projects at Casa de Pedra mine.
Mineral Reserves The following table sets forth the type of each of our mines, period of operation, projected exhaustion dates and percentage of our interest:
The following table sets forth our estimates of proven and probable reserves and other mineral deposits at our mines reflecting the results of reserve According to the report “Audit of Ore Reserves for CSN Casa de Pedra Iron Mine”, prepared by Golder Associates in May 2007, our reserve estimation process is subject to some smoothing, but does not reflect losses for mine dilution and mining recovery. We intend to perform studies regarding those losses during the preparation process for the new reserve audit. Likewise, Namisa’s estimation process for the Engenho and Fernandinho mines does not reflect losses for mine dilution and mining recovery.
Table of Contents __________________ (1) Reserves means
The metallurgical recovery factor is the proportion of iron in the ore delivered to the processing plant that is recovered by the metallurgical process. In 2011, the metallurgical recovery factor obtained by Casa de Pedra plant was 83.52%. That same factor was 56.34% for the Engenho plant and 58.64% for the Fernandinho plant. The cutoff grade is the minimum ore percentage that determines which material will be fed in the processing plant. We also plan to perform studies to determine the cutoff grade value during the preparation process for the new audit in Casa de Pedra. In the audit performed in 2006, the Benefit Function considered the lithologies to separate iron from waste. The cutoff grade value for Namisa is also yet to be determined. The prices used in the 2006 audit for the estimation of Casa de Pedra reserves are shown in the following table (Golder’s Final Report for the Audit of Ore Reserves for CSN Casa de Pedra Iron Mine, 2007). As shown, the product price we assumed to estimate our reserves is conservative in comparison to the actual three-year average prices.
Casa de Pedra In 2006, we concluded an extensive, multi-year study of our iron ore reserves at Casa de Pedra. The study consisted of three phases. Phase one, which was completed in 1999, covered the ore bodies that are currently being mined or are close to the current operating open pits. Phase two, which was completed in early 2003, covered Table of Contents We conducted extensive work throughout 2006 to document and classify all information related to both the current and future operations of the Casa de Pedra mine. In 2006, we hired Golder Associates S.A., or Golder, to undertake an independent analysis of the Casa de Pedra iron ore reserves. Golder carried out a full analysis of all available information and has independently validated our reported reserves. Golder accepts as appropriate the estimates regarding proven and probable reserves made by us, totaling 1,631 million tons of iron ore (as of December 31, 2006) at a grade of 47.79% Fe and 26.63% SiO2. This new estimate of our iron ore reserves at Casa de Pedra is significantly larger than our estimate of 444 million tons, Over the course of the Casa de Pedra Mine’s life we have executed different drilling campaigns and, in total, we have drilled 91,514.63 meters. The last campaign started in May 2010 and ended in April 2011. In
Namisa An initial study was conducted at Fernandinho and Engenho mines to define the geological Production Casa de Pedra The Casa de Pedra facilities are located in the city of Congonhas, in the State of Minas Gerais. The Casa de Pedra mine is located 350 km from the Presidente Vargas Namisa Namisa has two beneficiation plants: one is the Pires Plant, which receives material from our Engenho mine (located at the northern border of the Casa de Pedra
Itabirito). The beneficiation plant at Pires also
Namisa complements our strategy to be a world leading producer of high quality iron ore. Namisa remains fully integrated with our railway and port logistics corridor, through long-term contracts, which provide sufficient railway and port logistics capacity for Namisa’s current and future production. Namisa is a leading company in iron ore mining and trading, with mining and processing operations in the State of Minas Gerais. Trading iron ore is obtained from small mining companies in the neighborhood and other trading companies.
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(1)In addition to its own production, Namisa also purchases iron ore from third parties. Third party purchase volumes totaled 5.9 million tons,
(1) Consolidated sales consider our proportional 60% interest in Namisa. Table of Distribution Transportation costs are a significant component of our steel and iron ore production costs and are a factor in our price-competitiveness in the export market. Railway
Until recently, Brazil’s railway system (including railcars and tracks) was principally government-owned and in need of repair, but it has now been largely privatized. In an attempt to increase the reliability of our rail transportation, we We export Our Logistics Segment Our logistics segment is comprised of railway and port facilities. Railways Southeastern Railway System MRS has a 30-year concession to operate, through the year 2026 and renewable for an equal period of 30 years, Brazil’s Southeastern railway system. As of December 31, Table of Contents
Northeastern Railway System As of December 31, For more information on Port Facilities Solid Bulks Terminal We hold the concession to operate TECAR, a solid bulks terminal, one of four terminals that form the Itaguaí Port, located in the State of Rio de Janeiro, for a term expiring in 2022 and renewable for another 25 years. Itaguaí Port, in turn, is connected to the Presidente Vargas
Container Terminal We own 99.99% of Sepetiba Tecon S.A., or TECON, which has a concession to operate, for a 25-year term expiring in 2026 that is renewable for another 25 years, the container terminal at Itaguaí Port. As of December 31, Investments made from 2007 to
We plan to carry out new infrastructure and equipment investments in Sepetiba TECON, such as the Berth 301 Equalization, In 2010, the terminal Table of Contents Our Cement Segment Our cement segment is comprised of a cement plant in Volta Redonda, in the state of Rio de Janeiro, and a clinker plant in Arcos, in the state of Minas Gerais. Production The production process in CSN’s cement factory in Volta Redonda begins with the influx of raw materials: clinker, limestone, gypsum and slag. We currently import clinker, but, with the startup of our clinker plant in Arcos, in mid-2011, imports are gradually being reduced.Limestone comes from Arcos by rail. Clinker is stored in a silo (capacity: 45,000 tons) and limestone in a warehouse (capacity: 10,000 tons). Slag is a by-product of iron and steel, produced in the blast furnace, and is also stored in the warehouse (capacity: 20,000 tons), arriving at the plant by road. CSN uses natural gypsum, from Ouricuri, in the state of Pernambuco, which arrives at the plant by truck and is stored in the warehouse (capacity: 10,000 tons). All transportation of raw materials within the plant is carried out by conveyor belts, placing inputs in scales according to a predefined formula and delivering them to the mills. There are two grinding lines and each mill has a nominal capacity of 170 tons/h. Annual plant capacity is 2.4 million tons of cement. The mill has a hydropneumatic roller system, which uses pressure to grind the layer of material on the turntable. Hot gas, derived from the combustion of natural gas or petroleum coke, is pumped into the mills to maintain the proper temperature in the circuit. The type of cement we produce is CP III-40 RS (Sulfator resistant), which is then taken through a bucket elevator to be stored in silos. The plant has four silos, two of them with 10,000 tons of capacity and two with 5,000 tons of capacity. Cement can be shippedin bagged and bulk forms. We have two baggers with 12 filling nozzles (nominal capacity of 3600 bags/hour) and two palletizers for bagging cement. Our Energy Segment Our energy segment is comprised of generation plants and is aimed at enabling us to maintain our self-sufficiency in energy, reducing our production cost and our exposure to fluctuations or availability of certain energy sources. Our energy related assets include: Thermoelectric Co-Generation Power Plant We completed the construction of a 238 MW thermoelectric co-generation power plant at the Presidente Vargas Itá Hydroelectric Facility
The power facility was built Itá has an installed capacity of 1,450 MW, with a firm guaranteed output of 668 MW, and became fully operational in March 2001. Table of Contents We and the other shareholders of ITASA have the right to take our pro rata share (proportionally to our ownership interest in the project) of Itá’s output pursuant to 30-year power purchase agreements at a fixed price per megawatt hour, adjusted annually for inflation. Since October 2002, we have been using our entire Itá take internally. Igarapava Hydroelectric Facility We own 17.9% of a consortium that built and has the right to operate for 30 years the Igarapava hydroelectric facility. Other consortium members are Vale, Companhia Mineira de Metais, Votorantim Metais Zinco, AngloGold Ashanti Mineração Ltda., and Companhia Energética de Minas Gerais, or Marketing Organization and Strategy Steel Our steel products are sold both domestically and abroad as a main raw material for several different manufacturing industries, including the automotive, home appliance, packaging, construction and steel processing industries. Our sales approach is to establish brand loyalty and achieve a reputation for quality products by developing relationships with our clients and focusing on their specific Our commercial area is responsible for sales of all of our products. This area is divided into two major teams, one focused on international sales and the other on domestic sales. The domestic market oriented sales team is divided into The In Historically, our export sales were made primarily through international brokers. However, as part of our strategy to establish direct, longer-term relationships with end-users, we have decreased our reliance on such brokers. We have focused our international sales
All of our sales are on an order-by-order basis and have an average delivery time of 45 days. As a result, our production levels closely reflect our order log book status. We forecast sales trends in both the domestic and export markets based on the historical data available from the last two years and the general economic outlook for the near future. We have our own data systems to remain informed of worldwide and Brazilian market developments. Further, our management believes that one of the keys to our success is maintaining a presence in the export market. Such presence gives Table of Contents Unlike Sales by Geographic Region In The In North America, we take advantage of our subsidiary CSN LLC, which acts as a commercial channel for our products. In order to gain a cost advantage among our U.S. competitors, CSN is able to export
_______________ (1) Sales to Mexico are included in North America. (2) Total net operating revenues presented above differ from amounts in our IFRS consolidated financial statements because they do not include revenues from non-steel products (non-steel products include mainly by-products, iron ore, logistics services and cement), which in Sales by Product The following table sets forth our market shares for steel sales in Brazil of hot-rolled, cold-rolled, galvanized and tin mill products for 2010, 2009 and 2008. Market Share information for 2011 was not yet available as of the
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Sales by Industry We sell our steel products to manufacturers in several industries. Sales by Industrial Segment in Brazil
We believe we have a particularly strong domestic and export position in the sale of tin mill products used for packaging. Our customers for these products include some of the world’s most important food processing companies, as well as many small and medium-sized entities. We also maintain a strong position in the sale of galvanized products for use in the automobile manufacturing, construction and home appliance industries in Brazil and abroad, supplied by CSN Porto Real and CSN Paraná. No single customer accounts for more than 10% of our net operating revenues. For further information on steel sales, see “Item 5A. Operating Results - Steel Markets and Product Mix - Sales Volume and Net Operating Revenues by Steel Products and Markets” and “Item 5A. Operating Results - Results of Operations - Year Seasonality
Iron Ore Iron ore products are commercialized by our commercial team located in Brazil and overseas. In Europe We supply our iron ore to the steel industry and our main targets are the Brazilian, European, Middle Eastern and Asian markets. Prevailing and expected levels of demand for steel products directly affect demand for iron ore. Demand for steel products is correlated to many factors, such as GDP, global manufacturing production, urbanization, civil construction and infrastructure spending. We believe our competitiveness has been improved by our customer service and market intelligence. It is paramount for us to have a clear understanding of our customers’ businesses in order to address their needs, surpass their expectations and build long-term relationships. We have a customer-oriented marketing policy and specialized local personnel in direct contact with our clients to help determine the mix that best suits each particular customer.
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Iron Ore Sales
The first step to our entry into the international iron ore market was taken in February 2007, with the completion of the first phase of the expansion of our coal seaport terminal in Itaguaí, in the State of Rio de Janeiro, which enabled us to also handle and export iron ore and to load from our own facilities the first shipment of our iron ore products. In In
As global iron ore markets are highly competitive, we focus on our flexibility, reliability and efficient manner of supplying iron ore to the world market. Through our marketing offices, we have long term For further information on iron ore sales, see “Item 5A. Operating Results - Results of Operations - Year Cement We sell cement type CPIII 40 RS in bagged and bulk forms. We operate in the markets of Rio de Janeiro, Minas Gerais and São Paulo. With the purpose of expanding and increasing competitiveness, we own six distribution centers located in strategic points: three in São Paulo, two in Rio de Janeiro and one in Minas Gerais. Supply to these distribution centers is made through railways and road transport, using mainly the MRS railway. We have a diverse client base of over 8,000 clients, including construction material stores, home centers, concrete producers, construction companies, mortar industries and cement artifact producers. The focus of our sales strategy is on retail. In this segment, we have a strong presence in sales points, where we reinforce the quality of the product to final customers. The retail segment operates with a low level of inventory, and a significant percentage of repurchase in the month, which highlights the competitive advantage of CSN’s distribution centers. Table of Contents In 2011, we significantly increased our sales, reaching 1,755 thousand tons, representing a growth of 76.9% when compared to 2010.
Insurance We and our subsidiaries maintain several types of insurance policies. These insurances are contracted in line with the risk management of our business and attempt to follow the market practices for similar activities. Coverage in such policies encompasses domestic and international We also have an insurance policy Intellectual Property We possess patents and have
Both the worldwide and the Brazilian steel markets are intensely competitive. The primary competitive factors in these markets include quality, price, payment terms and customer service. Further, continuous advances in materials, sciences and resulting technologies have given rise to improvements in products such as plastics, aluminum, ceramics, glass and concrete, Competition in the Brazilian Steel Industry The primary competitive factors in the domestic market include quality, price, payment terms and customer service. The following table sets forth the production of crude steel by Brazilian companies for the years indicated (³):
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Competitive Position — Global During We compete on a global basis with the world’s leading steel manufacturers. We have positioned ourselves in the world market with a product mix characterized by high margin and strong demand, such as tin Competitive Advantages of the Brazilian Steel Industry Brazil’s principal competitive advantages are its abundant supply of low-cost, high-grade iron ore and energy resources. Brazil also benefits from a vast internal market with a large growth potential, a privatized industry making investments in plant and equipment, and deep water ports
Brazilian domestic steel prices have historically been higher than its export Government Regulation and Other Legal Matters Environmental Regulation We are subject to Brazilian federal, state and municipal environmental laws and regulations governing air emissions, waste water discharges, and solid and hazardous waste handling and disposal. We are committed to controlling the substantial environmental impact caused by our steelmaking, mining, cement and logistics operations, in accordance with international standards and in compliance with environmental laws and regulations in Brazil. We believe we are currently in substantial compliance with applicable environmental requirements.
Table of Contents In Environmental Expenditures and Claims Promoting responsible environmental and social management is part of our business. We prioritize processes and Since our privatization, we have invested heavily in environmental protection and remediation programs. We had environmental expenditures (capitalized and expensed) of R$310.6 million in 2011, R$336.0 million in 2010 and R$290.5 million in Our investments in environmental projects during In 2010, we signed with the Rio de Janeiro State government a Term of Undertaking, or TAC, that Our main environmental claims We record a provision for remediation costs and environmental lawsuits when a loss is probable and the amount can be reasonably estimated. This provision is included in our statements of income in “Other Operating (Expenses) Income”.We do not include in our reserves environmental liabilities related to ERSA, as these are contractually supported by its seller.
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(1) During 2010 and 2011 we concluded certain environmental investigations of landfills and, therefore, were able to have estimate calculations of remediation costs. We recorded the related provision for those landfills with probable remediation obligations for the respective years. (2) Refers to environmental compensation agreed in Brazil – mining regulation Under the Brazilian Constitution, all mineral resources in Brazil belong to the federal government. The Brazilian Constitution and Mineral Code impose various regulatory restrictions on mining companies relating to, among other things: · the manner in which mineral deposits must be exploited; · the health and safety of workers and the safety of residential areas located near mining operations; · the protection and restoration of the environment; · the prevention of pollution; and · the support of local communities where mines are located. Mining companies in Brazil can only prospect and mine pursuant to prospecting authorizations or mining concessions granted by the National Department of Mineral Production (Departamento Nacional de Produção Mineral), or DNPM, an agency of the Ministry of Mines and Energy of the Brazilian Government. DNPM grants prospecting authorizations to a requesting party for an initial period of one to three years. These authorizations are renewable at DNPM’s discretion for another period of one to three years, provided that the requesting party is able to show that the renewal is necessary for proper conclusion of prospecting activities. On-site prospecting activities must start within 60 days of official publication of the issuance of a prospecting authorization. Upon completion of prospecting activities and geological exploration at the site, the grantee must submit a final report to DNPM. If the geological exploration reveals the existence of a mineral deposit that is economically exploitable, the grantee has one year (which DNPM may extend) from approval of the report by DNPM to apply for a mining concession or to transfer its right to apply for a mining concession to an unrelated party. When a mining concession is granted, Table of Contents Mining Concessions Our iron ore mining activities at Casa de Pedra mine are performed based on
Mineral Rights and Ownership Our mineral rights for Casa de Pedra mine include the mining concession, a beneficiation plant, roads, a loading yard and railway branch, and are duly registered with the In addition, we have obtained and are in compliance with all licenses and authorizations for our operations and projects at Casa de Pedra mine. The exploitation in Casa de Pedra mine The Brazilian government charges us a royalty known as the Financial Compensation for Exploiting Mineral Resources (Compensação Financeira pela Exploração de Recursos Minerais), or CFEM, on the revenues from the sale of minerals we extract, net of taxes, insurance costs and costs of transportation. DNPM is responsible for enacting regulations on CFEM and auditing the mining companies to ensure the proper payment of CFEM The current annual rates are: ·3% on · 2% for iron ore, kaolin, copper, nickel, fertilizers and other
· 1% on gold. The Mineral Code and ancillary mining laws and regulations also impose other financial obligations. For example, mining companies must compensate landowners for the damages and loss of income caused by the use and occupation of the land (either for exploitation or exploration) and must also share with the landowners the results of the exploration (in a rate of 50% of the CFEM). Mining companies must also compensate the government for damages caused to public lands. A substantial majority of our mines and mining concessions are on lands owned by us or on public lands for which we hold mining concessions. Antitrust Regulation We are subject to various laws in Brazil which seek to maintain a competitive commercial Table of Contents SDE has broad authority to promote economic competition among companies in Brazil, including the ability to suspend price increases and investigate collusive behavior between companies. A new Antitrust Law was enacted in 2011 (Law No. 12,529/11), which provides for significant changes in both the current structure and proceedings. The main change is the introduction of a mandatory pre-merger notification system, as opposed to the post-merger review system currently in force. The new CADE will be formed by an Administrative Tribunal of Economic Defense(Tribunal Administrativo de Defesa Econômica), a General-Superintendence(Superintendência-Geral)and a Department of Economic Studies(Departamento de Estudos Econômicos). Law No. 12,529/11 is expectedto come into force on May 30, 2012. For further antitrust-related information, see “Item 8A. Consolidated Statements and Other Financial Information-Legal Proceedings”. Regulation of Other Activities In addition to mining, environmental and antitrust regulation, we are subject to comprehensive regulatory regimes for certain of our other activities, including railroad transport, electricity generation and ports. Our railroad business is subject to regulation and supervision by the Brazilian Ministry of Transportation and the transportation regulatory agencyAgência Nacional de Transportes Terrestres(ANTT), and operates pursuant to concession contracts granted by the federal government, which impose certain limitations and obligations. As of December 31, 2011, we owned the following railroad related assets: (i) a 33.27% direct and indirect participation in MRS Logística S.A., which holds a concession to operate Brazil’s Southeastern railway system until 2026, renewable for an additional 30 years, and (ii) a 70.91% participation in Transnordestina Logística S.A., which holds a concession to operate Brazil’s Northeastern railway system until 2027, renewable for an additional 30 years. Our electricity generation business is subject to regulation and supervision by the Brazilian Ministry of Mines and Energy, the electricity regulatory agencyAgência Nacional de Energia Elétrica (ANEEL), and theOperador Nacional do Sistema Elétrico (ONS). As of December 31, 2011, we owned the following energy related assets: (i) a 238 MW thermoelectric co-generation power plant at our Presidente Vargas Steelworks, (ii) a 48.75% participation in Itá Energética S.A. (“Itasa”), which owns and operates 60.5% of the Itá hydroelectric facility on the Uruguay river in Southern Brazil under a renewable 30-year concession until 2030, and (iii) a 17.9% participation in the consortium that built and has the right to operate the Igarapava hydroelectric facility in Southeast Brazil under a renewable 30-year concession until 2028. Our port business is subject to regulation and supervision by the Brazilian Ministry of Transportation and the ports and navigation agencyAgência Nacional de Transportes Aquaviários (ANTAQ). As of December 31, 2011, we owned the following port related assets: (i) a concession to operate the Terminal de Carvão (“TECAR”), the solid bulks terminal at Itaguaí Port, located in the State of Rio de Janeiro, which expires in 2022, renewable for an additional 25 years, and (ii) a 99.99% participation in Sepetiba Tecon S.A. (“TECON”), which has a concession to operate the container terminal at Itaguaí Port for a 25-year term until 2023, renewable for an additional 25 years. For further information on our logistics and energy segments, see “Item 4B. Business Overview”. Proceedings Related to Protectionist Measures Over the past several years, exports of steel products from various countries and companies, including Brazil and us, have been the subject of anti-dumping, countervailing duty and other trade related investigations from importing countries. These investigations resulted in duties that limit our access to certain markets. Despite the imposed limitations, our exports have not been significantly affected, as we were able to re-direct our sales from restricted markets to other markets, and also because the volume of exports or products available for
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United States Anti-dumping(AD)and Countervailing Duties (CVD). In the U.S., we are subject to regulation and supervision by the U.S. Department of Commerce (DOC), the International Trade Commission (ITC), the International Trade Administration (ITA) and the Import Administration (IA). In September 1998, U.S. authorities initiated anti-dumping and countervailing duties investigations on hot-rolled steel sheet and coil imported from Brazil and other countries. In February 1999, the In July 1999, Brazil and the United States signed a five-year suspension agreement, suspending the anti-dumping investigation and establishing a minimum price of US$327 per ton (delivery duty paid), subject to quarterly review by the DOC. In February 2002, the U.S. government terminated the anti-dumping suspension agreement and reinstated the anti-dumping margin of 41.27%. Simultaneously to the administrative review, we participated in an anti-dumping and countervailing duties expiry review which involved the exports of hot-rolled sheet and coils to the U.S. The expiry review was jointly developed by the In
Canada Anti-dumping. In Canada, we are subject to regulation and supervision by the Canadian International Trade Tribunal (CITT), the Canada Border Services Agency (CBSA) and the Anti-dumping In December 2005, the In October 2010, the
Table of Contents Argentina Anti-dumping – hot-rolled products. In Argentina, we are subject to regulation and supervision by the Ministry of Economy and Production, the Secretaria de Industria y Comercio, the Secretaria de la Pequeña y Mediana Empresa and the Subsecretaria de Política y Gestión Comercial. Argentina commenced an anti-dumping investigation of hot-rolled products from Brazil, Russia and the Ukraine in October 1998. In April 1999, the In December 1999, the Argentine government accepted a suspension agreement of the anti-dumping measures, providing for quotas of 36,000 tons for the first year, 38,000 tons for the second and 39,000 tons for the third, fourth and fifth years, and minimum prices from US$325 to US$365 per ton CFR FO (cost, insurance and freight, free out), subject to quarterly adjustments based on the publication of the Argentine National Institute of Statistics and Census, or INDEC. In In June 2006, Argentina published Overview of Steel Industry World Steel Industry The worldwide steel industry comprises hundreds of steelmaking facilities divided into two major categories, integrated steelworks and non-integrated steelworks, Steel continues to be the material of choice in the automotive, construction, machinery and other industries. Notwithstanding potential threats from substitute materials such as plastics, aluminum, glass and ceramics, especially for the automotive industry, steel continues to demonstrate its economic advantage. From 1990 through 2005, total global crude steel production ranged between approximately 770 million and 1.1 billion tons per year. China’s crude steel production in
Brazilian Steel Industry Since the 1940s, steel has been of vital importance to the Brazilian economy. During the 1970s, strong government investments were made to provide Brazil with a steel industry able to support the country’sindustrialization boom. After a decade of little to no investment in the sector in the 1980s, the government selected the steel sector as the first for privatization commencing in 1991, resulting in a more efficient group of companies operating today. Table of Contents A Privatized Industry During almost 50 years of state control, the Brazilian flat steel sector was coordinated on a national basis under the auspices ofSiderbrás, the national steel monopoly. The state had far less involvement in the non-flat steel sector, which has traditionally been made up of smaller private sector companies. The larger integrated flat steel producers operated as semi autonomous companies under the control of Siderbrás and were each individually privatized between 1991 and 1993. We believe that the privatization of the steel sector in Brazil has resulted in improved financial performance, as a result of increased efficiencies, higher levels of productivity, lower operating costs, a decline in the labor force and an increase in investment. Domestic Demand Historically, the Brazilian steel industry has been affected by substantial fluctuations in domestic demand for steel. Although national per capita consumption varies with GDP, fluctuations in steel consumption tend to be more pronounced than changes in economic activity. From 2005 to 2007, despite a good global The Brazilian flat steel sector is shifting production to the higher value-added consumer durable sector. This sector is highly dependent on domestic consumer confidence, which, in turn, is affected by economic policies and certain expectations of the current government administration. Over the past years, automobile manufacturers made significant investments in Brazil. In 2009 and 2010, Market Participants According to Capacity Utilization
Exports/Imports Brazil has been playing an important role in the export market, primarily as an exporter of semi-finished products. The Brazilian steel industry has taken several steps towards expanding its capacity to produce value-added products. Brazil’s exports of semi-finished steel products reached 5.7 million tons in 2008 and 4.6 million tons in 2009, which represented 62% and 54% of total steel exports for each period, respectively. In 2010, slabs and billets exports In
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In 2011, steel imports For information on the production by the largest Brazilian steel companies, see “Item 4B. Business Overview—Competition—Competition in the Brazilian Steel Industry.” 4C. Organizational Structure We conduct our business directly and through subsidiaries. For more information on our organizational structure, see Note 2(b) to our consolidated financial statements included in “Item 18. Financial Statements.” 4D. Property, Plant and Equipment Our principal executive offices are located in the city of São Paulo, the State of São Paulo at Avenida Brigadeiro Faria Lima, 3,400, The table below sets forth certain material information regarding our property as of December 31, 2011.
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Lusosider |
| Seixal, Portugal |
| 0.39 square km |
| hot-dip galvanized, cold-rolled and tin products |
| 240,000 tons of galvanized products and 50,000 tons of cold-rolled products per year |
| owned | None | |
| ||||||||||||
Prada |
| Mogi das Cruzes, State of São Paulo |
| 0.20 square km |
| distributor |
| 730,000 tons per year |
| owned | None | |
| ||||||||||||
Casa de Pedra mine |
| Congonhas, State of Minas Gerais |
| 44.57 square km |
| iron ore mine |
| 60.0 mtpy |
| owned | None | |
Engenho mine |
| Congonhas, State of Minas Gerais |
| 2.87 square km |
| iron ore mine |
| 5.0 mtpy |
| concession | None | |
| ||||||||||||
Fernandinho mine |
| Itabirito, State of Minas Gerais |
| 1.84 square km |
| iron ore mine |
| 2.0 mtpy |
| concession | None | |
| ||||||||||||
Bocaina mine |
| Arcos, State of Minas Gerais |
| 4.11 square km |
| limestone and dolomite mines |
| 4.0 mtpy |
| concession |
| None |
ERSA mine |
| Ariquemes, State of Rondônia |
| 0.015 square km |
| tin mine |
| 1,800 tons |
| concession | None | |
Thermoelectric |
| Volta Redonda, State of Rio de Janeiro |
| 0.04 square km |
| power plant |
| 238 MW |
| owned | None | |
| ||||||||||||
Itá |
| Uruguay River - Southern Brazil |
| 9.87 square km |
| power plant |
| 1,450 MW |
| concession | None | |
| ||||||||||||
Igarapava |
| State of Minas Gerais |
| 5.19 square km |
| power plant |
| 210 MW |
| concession | None | |
Southeastern |
| Southern and Southeastern regions of Brazil |
| 1,674 km of tracks |
| railway |
| -- |
| concession | None | |
Railway System(8) |
|
|
|
|
|
|
|
|
|
|
| |
Transnordestina |
| Northern and northeastern regions of Brazil |
| 4,238 km of tracks |
| railway |
| -- |
| concession | None | |
| ||||||||||||
TECAR at Itaguaí Port |
| Itaguaí, State of Rio de Janeiro |
| 0.69 square km |
| raw materials |
| 4 mtpy |
| concession | None | |
| ||||||||||||
Container terminal - TECON at Itaguaí port |
| Itaguaí, State of Rio de Janeiro |
| 0.44 square km |
| containers |
| 2 mtpy |
| concession | None | |
| ||||||||||||
Land |
| State of Rio de Janeiro |
| 31.02 square km |
| undeveloped |
| -- |
| owned | pledge | |
Land |
| State of Santa Catarina |
| 6.22 square km |
| undeveloped |
| -- |
| owned | pledge | |
Land |
| State of Minas Gerais |
|
|
| undeveloped |
| -- |
| owned | None | |
Land | State of Piaui | 506,95 square km | undeveloped | owned | None |
(1) Pursuant to a loan agreement entered into by the State of Rio de Janeiro and Galvasud as of May 4, 2000.
(2) Pursuant to a loan agreement entered into by Kreditanstatt Für Wiederafbau, Galvasud and Unibanco as of August 23, 1999.
(3) Pursuant to an industrial letter of credit issued by Banco do Nordeste do Brasil to Metalic, as of June 5, 2001, with maturity on February 5, 2011.(4) Information on equipment fleet installed annual ROM capacity. For information on installed annual production of products capacity, and information on mineral resourcesreserves at our Casa de Pedra mine, see “—Reserves at Casa de Pedra Mine” and table under “—Casa de Pedra Mine” below.(5)(4) Based on theManifesto de Mina.Mina. See, “Item 4. Information on the Company —A. History and Development of the Company—- B. Business Overview- Government Regulation and Other Legal Matters—Matters - Mining Concessions.”(6)(5) Property owned by our 60% consolidated investee Namisa.(7)(6) Property 29.5% owned by us.(8)(7) Property 17.9% owned by us.(9)(8) We indirectly hold the concession through MRS.(10)(9) Pledged pursuant to various legal proceedings, mainly related to tax claims.
For information on environmental issues with respect to some of the facilities described above, see “Item 4B. Business Overview—Government Regulation and Other Legal Matters—Environmental Expenditures and Claims.” In addition, for information on our plans to construct, expand and improve our facilities, see Planned Investments.”“Item 4. Information on the Company - D. Property, Plant and Equipment —Planned Investments” and Note 2212 to our financial statements included elsewhere in this Form 20-F.
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The map above shows the locations of the Presidente Vargas steelworks,Steelworks, the CSN Paraná, Prada, CSN Porto Real (former GalvaSud), Metalic, Lusosider, ERSA and CSN LLC facilities, our iron ore, limestone and dolomite mines, the power generating facilities in which we have an ownership interest, and the main port used by us to export steel products and import coal and coke, as well as the main railway connections.
Acquisitions and Dispositions
Riversdale
On November 24, 2009, we approved theconcluded an initial acquisition, through our subsidiary CSN Europe, Ltda,Lda, of a 16.3%14.9% minority interest onin Riversdale Mining Limited (“Riversdale”), a mining company listed on the Australian Stock Exchange (ASX).In January2010, we obtained the approval of the Australian Government to acquire further shares of Riversdale, and concluded the second tranche of the acquisition, reaching an equity participation of 16.3%. In addition, we participated on a capital increase carried out by Riversdale in July 2010, subscribing to new shares, but maintaining the same equity percentage. We also made several share purchases in February 2011 and reached a total equity participation of 19.9% by means. We were further diluted in 2010 and 2011, due to the exercise of several purchasesstock options issued in February 10, 2010.favor of the management of Riversdale and of third parties. On April 20, 2011, we adhered to the public offeringa publictakeover offer for the acquisition of Riversdale’s shares conducted by Rio Tinto and, as a consequence, we sold 100% of our equity interest held in Riversdale’s capital stock, corresponding to 47,291,891 (forty-seven million, two hundred, ninety-one thousand, eight hundred, ninety-one ) shares, at the price of A$16.50 (sixteen Australian dollars and fifty cents) per share, totaling A$780,316,201.50 (seven hundred, eighty million, three hundred, sixteen thousand, two hundred, one Australian dollars and fifty cents).780,316,201.50.
Segregation of Mining Assets
We are analyzing the possibility of segregating our iron ore business and correlated logistics activities into one of our subsidiaries. TheSuch segregation iswould be expected to occur upon the transfer, by means of a capital increase, of assets, liabilities, rights and obligations comprising our mining and correlatedrelated logistics businesses as well as of investments in related operating companies. The implementation of the segregation dependscompanies, and would also depend on several aspects, including certain regulatory approvals.
Alfonso Gallardo
On May 19, 2011,January 31, 2012, we entered into, through our Spanish subsidiary CSN Steel SL,S.L., a share purchase agreement with the Spanish group Alfonso Gallardo (“AG Group”) to establish the acquisition of all the shares held by the AG Group in (i) Cementos Balboa S.A., a cement and clinker producer located in the Extremadura region in Spain; (ii)Corrugados Azpeitia, S.L. and Corrugados Lasao, S.L.U., long steel manufacturers with plants in the Basque Country; (iii) Stahlwerk Thüringen GmbH (“SWT”), a long steel manufacturer located in Unterwellenborn, Germany, specialized in the production of steel profiles, and; (iv)sections; and (ii) Gallardo Sections S.L.U., a AG Group steel distributor.Subjectdistributor of SWT’s products. The total amount of the transaction was €482.5 million, without the assumption of any indebtedness.
The transaction involved assets located in Germany, which were contemplated to adjustments,be sold pursuant to thea share purchase agreement CSN Steel SL will pay €543 million forexecuted on May 19, 2011 with the acquisitionAG Group. The transaction brought to an end the discussions between the parties regarding different interpretations of the above mentionedearlier agreement, including termination of the related arbitral proceeding which was pending before theCámara Oficial de Comercio e Industria de Madrid.
Usiminas
On December 31, 2011, we owned, directly and indirectly, 20.14% of the preferred shares and will assume approximately €403 million in indebtedness and further adjustments. The transaction will be submitted to necessary regulatory and/or antitrust approvals, and its closing is still subject to other conditions which are inherent to transactions11.97% of this nature.
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Usiminas
On April 20, 2011, the Company announced to the market that it had increased its interest in the capital stockcommon shares of Usinas Siderúrgicas de Minas Gerais S.A. – Usiminas (“Usiminas”), throughresulting from various acquisitions in the acquisition of common and preferred shares, to total amount of 10.01% of the common shares and 5.25% of the preferred shares.
The Company is currentlymarket since mid-2010. We are assessing strategic alternatives in relation to itsour investment in Usiminas. For more information on the antitrust matters regarding our investment in Usiminas see “Item 8. Financial Information -A. Consolidated Statements and Other Financial Information Selected Financial Data - Legal Proceedings - Antitrust.”
Namisa
In 2008, as part of our sale of a 40% interest in Namisa to a consortium of Asian shareholders that currently include Itochu Corporation, JFE Steel Corporation, Kobe Steel, Ltd, Nisshin Steel Co. Ltd., Posco and China Steel Corporation, or the Asian consortium, we and the Asian consortium have entered into a shareholders’ agreement to govern our joint control of Namisa. In case of a dead-lock among the shareholders, a resolution process requires us to initiate mediation with our partners and, if no solution is reached, the matter is then submitted to be addressed directly by the senior executives of the companies in dispute. In the event the dead-lock remains, the shareholders’ agreement provides for put and call options, which entitles the Asian consortium to elect to sell all its ownership interest in Namisa to CSN and CSN to elect to buy all ownership interest of the Asian consortium in Namisa, in each case for the fair market value of the respective shares.
In addition, certain other agreements, including potential additional acquisitionsthe share purchase agreement between CSN and the Asian consortium and the long-term operational agreements between Namisa and CSN, provide for certain obligations that, in case breached or not cured within the relevant cure period, may give rise, in certain situations, to the right of sharesthe non-breaching party to exercise a call or a put option, as the case may be, with respect to the Asian consortium’s ownership interest in percentages higher than those mentioned above.Namisa.
For a more detailed description of Namisa’s current corporate structure, see Note 11 to the consolidated financial statements included in “Item 18. Financial Statements.”
Capital Expenditures
We invested R$4,401 million in 2011, R$2,382 million of which was allocated as follows: Transnordestina Logística: R$1,691 million; CSN Cimentos: R$61 million; MRS Logística: R$447 million, Namisa: R$100 million and others projects: R$83 million.
The remaining R$2,019 million was expended on: maintenance and repairs: R$549 million; expansion of the Casa de Pedra mine: R$251 million; expansion of the Port of Itaguaí: R$238 million; technological improvements: R$77 million, long steel mill: R$220 million and others projects: R$684 million. For further information, see “Item 5B. Liquidity and Capital Resources-Short-Term Debt and Short-Term Investments.”
We invested R$3,636 million in 2010, R$2,201 million of which was allocated as follows: Transnordestina Logística: R$1,371 million; CSN Aços Longos:Longos (merged into CSN in January 2011): R$275 million; CSN Cimentos: R$249 million; MRS Logística: R$199 million and other projects: R$107 million.
The remaining R$1,435 million werewas expended in:on: maintenance and repair:repairs: R$483 million; expansion of the Casa de Pedra mine: R$275 million; expansion of the Port of Itaguaí: R$139 million; and technological improvements: R$125 million and other projects: R$413 million. For further information, see “Item 5B. Liquidity and Capital Resources-Short-Term Debt and Short-Term Investments.”
In 2009, weWe invested R$1,860 million in capital expenditures.2009, R$696 million of which was allocated as follows: Transnordestina Logística: R$141 million; CSN Aços Longos: R$183 million; CSN Cimentos: R$163 million; MRS Logística: R$125 million and other projects: R$84 million.
The remaining R$1,164 million was expended on: maintenance and repairs: R$326 million; expansion of the Casa de Pedra mine: R$426 million; expansion of the Port of Itaguaí: R$47 million; and technological improvements: R$162 million and other projects: R$203 million.
In 2010,2011, we continued to implement our strategy of developing downstream opportunities, new products and market niches by creating or expanding capacity of galvanized products for the automotive sector and by investing in a galvanizing and pre-painting plant in order to supply the construction and home appliance industries, as described in “Item 4B. Business Overview—Facilities.”
We also intend to control production costs and secure reliable sources of raw materials, energy and transportation in support of our steelmaking operations through a program of strategic investments. The principal strategic investments already made are set forth in “Item 4B. Business Overview—Facilities.”
Planned Investments
Our operating activities require a regular schedule of investments focused onin equipment maintenance, technological improvements, tools, vehicles, buildings, and industrial plants, among others. In addition to currentThese investments theare classified as Sustaining (´Stay-in-Business´) Capex.
The Company also makes investmentsinvests to increase theirits operational efficiency and productivity, and expand its production capacity in its traditional businessesflat steel, mining and logistics businesses, as well as new businesses such as cement and long steel.
In light of an improvement in the worldwide economic scenario since the second half of 2009 and higher growth projection for Brazil, and also considering our comfortable debt level and cash position, our board of directors approved, on December 2010, an investment plan for the period between 2011 and 2015.
TotalOur total planned investments amount to R$29.120.9 billion, over the next five years, of which:
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· • R$13.012.0 billion in our mining segment, including capacity expansion of the Casa de Pedra mine to 50 Mtpamtpy and the expansion of the Nacional MinéMinérios SA (Namisa) capacitysales to 39 Mtpa,mtpy, in addition to the expansion of shipping capacity of the portour Solid Bulk terminal of Bulk Solids in Itaguaí (TECAR) to 84 Mtpa;mtpy. The planned investment reflects only the portion of our investment, which is proportional to our ownership percentage of 60% in Namisa;
·• R$4.00.8 billion in our steel segment, including installationthe completion of three plants ofour long products withtotal capacity of 1.5 million tones per year, besides completion / steel plant in Volta Redonda and completion/implementation of other flat steel projects, such as automotivea service center for the auto industry and the expansion of pre-painted capacity, expansion , and the implementation of projects for operational excellence with a focus on cost reduction (eg.reducing costs (e.g., energy efficiency);
·• R$770 million1.0 billion in our cement segment, considering investment balances for the completion of the unit ofin order to expand our grinding capacity from 2.4 million tons to 5.4 million tons and our clinker in Arcos, and the installation of a new integrated unit in Arcos (both grinding and clinker);production capacity from 0.8 million tons to 3.0 million tons;
·• R$4.73.1 billion in our logistics segment, including the Transnordestina railway and our container terminal (TECON); and
· R$6.7 billioninvestments in business continuity and programs to improve our performance.
The investments ofthe MRS railway are not included in this plan.
Certain• R$4.0 billion in projects that were previously announced, such as the greenfield slab mills in the cityto improve performance of Itaguaí, in the State of Rio de Janeiro, and the greenfield slab mill in the city of Congonhas, in the State of Minas Gerais are being reconsidered, due to market conditions during and after the worldwide crisis in 2008 and 2009.current productive assets (“stay-in-business”).
We expect to finance these investments through our own cash, public or private financing, and/or strategic partnerships.
Our planned investments in iron ore, steel, logistics and cement are described below.
Steel
We are currently implementingconstructing a unit of 500 Kt / year of long steel plant in Volta Redonda, in the State of Rio de Janeiro benefiting fromwith the capacity of 500 Kt per year, making use of the existent infrastructure and energy, available, to produce rod barbars (around 80%) and wire rodrods (around 20%). The production start is expected in 2013, and representing the entrance of CSN ininto this new market segment.
We plan In addition to install twothis plant, we are studying the feasibility of building other long steel plants, with similar scale and product mix. The equipments are already contracted. Detailed studies are currently being developed. Once these units are installed, we expect to have a capacity of 1.5 Mt / year of long steelplants.
We are also investinginvested in the expansion of service centers for the automotive market in our CSN Porto Real facility, in which CSNCSN’s market share has been successively expanded. Additionally we are implementing the expansion of our CSN Porto Real facility. The pre-painted plant operates at full capacity, and there are expansion projects in development to promote a significant expansion,underway, with the prospectintention of doubling the current capacity.capacity.
The project
Our investment portfolio also includes important projects of operational excellence projects in development and deployment and that will represent alead to significant benefit of cost reduction,reductions, such as: the coke battery revamp project, which we expect will make us self-sufficient in coke; an energy power substation, which will reduce our transmission electrical energy transmission costs; and the start-up of our blast furnace turbine project, adding 17 MW of electricity self-generation. In addition, there are several projects in orderdesigned to reduce theour consumption of raw materials and increase productivity and efficiency.
Besides the organic portfolio, we constantly evaluate various options in order to accelerate our growth in the Brazilian flat steel market and to strengthstrengthen our competitiveness, including the implementationdevelopment of new plants, expansion of the existing unitiesunits and M&A options, both in Brazil and abroad.
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Mining
We expect to achieve a capacityan annual sales level of approximately 89 Mtpy inmtpy of iron ore of whichproducts, including third party purchases, by increasing capacity to 50 Mtpymtpy in Casa de Pedra mine and 39 Mtpy33 mtpy in Namisa, in which the Company holds 60% share.where projects include both concentration and pelletizing plants.
We are also investing in the expansion of TECAR to allow anfor annual exportexports of 84 Mtpymtpy of iron ore. Theore, from a current capacity isof 30 Mtpy. The implementation is accelerated, and the main equipments and services are already contracted. In Namisa, the projects are both concentration and pelletizing plants.mtpy.
In addition to these projects, under implementation, we are evaluating further expansions, including increasing of the capacity of the Casa de Pedra mine and TECAR, and evaluating other options for growth, such as areas for mineral exploration, acquisition of advanced exploration projects and acquisition transactions, among others, especially in Brazil.
Logistics
In August 2006, in order to enable the implementation of a major infrastructure project led by the Brazilian federal government, our Board of Directors approved a transaction to mergethe merging of Transnordestina S.A., a company that was state-owned at the time, was state-owned, into and with Companhia Ferroviária do Nordeste – CFN, an affiliate of CSN that holds a 30-year concession, granted in 1998, to operate the Northeastern Railroad of the RFFSA, with 4,238 km of railway track. The surviving entity was later renamed Transnordestina Logística S.A., or Nova Transnordestina. The Nova Transnordestina Project includes an additional 1,728 km of large gauge, state-of-the-art railway track. We expect the investmentsthis extension will allow the company to increase the transportation of various products, such as iron ore, limestone, soy beans,including, oil, fuels, soybeans, cotton, sugar cane, fertilizers, oiliron ore and fuels.limestone. The investments for the railroad expansion will be financed through several agencies, such as FINOR – Northeastern Investment Fund, SUDENE - the Northeastern Development Federal Agency and BNDES. We have obtained certain of the required environmental permits required, purchased parts ofcertain equipment and services. Environmental, geological and land expropriation issues may result in cost overruns and delays in implementing the equipments and services and implementation is advancedproject, which, in certain regions.turn, may adversely affect the projected return on investment.
Until 2008, Transnordestina was jointly controlled by usCSN and Taquari Participações S.A., or Taquari, pursuant to a shareholders´shareholders’ agreement dated November 27, 1997, asand amended on May 6, 1999 and on November 7, 2003. During 2009, we increased the capital of Transnordestina uponby disbursing certain advances for future capital increases. Taquari decided not to participate in such capital increases, thus being diluted and relinquishing control overof Transnordestina.
Transnordestina is currently a subsidiary fully controlled by usCSN subsidiary, and has been consolidated in our financial statements since December 2009.
The current investment budget is R$ 5.4 billion and it is funded through various agencies, such as FINOR - Investment FundTo meet its own demand, Transnordestina Logística S.A built the largest factory of broad gauge concrete sleepers in the Northeast, SUDENE - Superintendencyworld, with a daily capacity of Northeast Development and BNDES, and the contribution of equity.
The implementation of the4,800 pieces per day. This project has been conducted by Odebrecht, through an Alliance Model formed with CSN. In January, 2011, there were more than 11,000 employees working in 25 sites, 1,550 heavy equipment, daily, R$ 1.7 billion already invested and around R$ 3.0 billion in contracts entered.
Cement
The cement plant in Volta Redonda is currently in theits final ramp-up phase and we project that in the next years we willorder to reach the full production at a pace of 2.4 million tons per year. The acceptanceuse of the productslag generated by our steel operation and the brand exceed the original estimates as a new entrant.
With the start-up of the project to produceour clinker and gradual increase in the self-use of slag the company can significantlyplant should gradually reduce costs, a critical element in the cement business. In 2010, we established four distribution centers and completed the structuring of the sales team.
Investments in these two projects and distribution centers will sum R$ 837 million.
54
We are evaluating other organic growth initiativesplan to expand our grinding capacity by an additionalfrom 2.4 million tons to 5.4 million tons and our clinker production capacity from 0.8 million tons to 3.0 million tons, per year, in order to capture the strong growth expected withfor the cement market in light of events such as the Soccer World Cup ofin 2014 and the Olympic Games in 2016, consideringas well as the strong pacerate of construction of new housing units, commercial and infrastructure projects.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion should be read in conjunction with our consolidated financial statements as of December 31, 2011, 2010 and 2009 and for each of the years ended December 31, 2011, 2010 and 2009 included in “Item 18. Financial Statements.”Statements”. Our consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and are presented in thousands ofreais (R$), as explained in Note 2(a) to our consolidated financial statements included in “Item 18. Financial Statements.”
Overview
Macro-Economic Scenario
Brazil
Brazil’s economic growth in 2010 was among the strongest in emerging countries according to IMF (International Monetary Fund), mainly due to the increased employment rate, higher individual income and the expansion of credit. According to the Brazilian Central Bank, GDP growth was 7.5% in 2010, the highest since the introduction of the Plano Real in 1994.
According to Ministry of Labour, in 2010 there were 2.52 million new jobs created in Brazil, 115% more than in 2009. In December 2010, the Brazilian Institute of Geography and Statistics or IBGE, recorded(IBGE), GDP increased by 2.7% in 2011, compared to an unemployment rateincrease of 5.3%7.5% reported in 2010. According to the Institute of Applied Economic Research (IPEA), the lowest since 2002. This decline, pluseconomic slowdown was due to the increaseworsening external scenario, which triggered changes in earnings, helped increase consumption. IBGE figures show thatmonetary policy, including reductions in the real salaries increased by 8.6% year-over-yearSelic base interest rate. In response, the government announced the withdrawal of the macroprudential measures introduced in December 2010, impactingsuch as increased capital reserves for midterm loans and credit restrictions on vehicle acquisitions. On the fiscal front, tax benefits and exemptions are being introduced that are intended to benefit several economic sectors, including industry, retail sales which increase by 10.9%and construction.
Despite the reduced growth rate, there were several positive developments in 2010, the greatest increaseBrazilian economy in nine years.
However, investments in production did not increase by the same rate, according to Bacen, resulting in increased inflationary pressure. The IPCA consumer price index increased by 5.91%, 1.41 p.p. above the midpoint of the Central Bank’s target band, mainly pressured by services and food.2011. According to the Brazilian Central Bank, the total volumeMinistry of financial system credit reached R$1.7 trillion in 2010,Trade, Industry and Development (MDIC), trade surplus totaled US$29.7 billion, corresponding to a 21%47.8% increase as compared to 2009,2010 and the highest in four years. while annual exports increased by 26.8% to a record of US$256 billion, the credit/GDP ratio increased to 47%, with default rate fallingmain destinations being China (US$44.3 billion) and the United States (US$25.9 billion).
The Brazilian job market remained steady throughout the year. According to the IBGE, industrial output grew by 10.5%the unemployment rate decreased from 5.2% in 2010,November 2011 to 4.7% in December 2011, the lowest since the creation of the Monthly Employment Survey (PME), reaching an annual average of 6.0%, another strong macroeconomic indicator. record and substantially lower than the 6.7% recorded in 2010. According to IPEA, another job market highlight was the 8.6% increase in average real earnings between 2002 and 2011, pushing up household consumption and fueling economic activity in the country.According to the Employment and Unemployment Registry (CAGED), 1.94 million formal job opportunities were created in 2011.
The sectors that contributed most to this performance were capital goods andIPCA consumer durables, especially vehicles and home appliance, as well as typically exporting sectors, led by commodities. Despite the government measures throughoutprice index (the main inflation rate) stood at 6.50% for the year, thereal appreciated strongly against highest level since 2004 and 0.59 percentage points greater than the dollar2010 figure, but still within the tolerance band established by the Brazilian National Monetary Council for 2011. The transport sector was chiefly responsible for the upturn, while food and beverages and household articles actually recorded deflation.
The Selic base interest rate, which is set by the Monetary Policy Committee (COPOM), began 2011 at 10.75% and rose successively, until reaching 12.5% in July. Since then, due to the deterioration of the global economic scenario, especially in Europe, the reduction in the inflation rate and the slowdown in the Brazilian economy, COPOM has been reducing the basic interest rate. As of April 2012 the current rate was 9.0%.
The banking system’s outstanding credit volume totaled R$2.03 trillion in December 2011, corresponding to a 19% increase as compared to December 2010, resulting in a total loans/GDP ratio of 49.1%, as compared to 45.2% in 2010.
According to the IBGE, industrial output increased slightly by 0.3% in 2011, with 15 of the 27 sectors recording an increase. Transport equipment and vehicles sectors had the best performance, with growth of 8.0% and 2.4% respectively.
In 2011, thereal depreciated 12.6% and on December 31, 2011, the exchange rate was R$1.88 per US$1.00.
USA
According to the U.S. Department of Commerce, the U.S. economy grew by 1.7% in 2011, less than the increase of 3.0% recorded in 2010. In the fourth quarter of 2011, U.S. GDP recorded the highest growth of the year, with an annualized increase of 2.8%, representing real growth of 0.7% over the pre-crisis GDP recorded in the fourth quarter of 2007. The main contributors to GDP growth in the fourth quarter of 2011 were exports, which increased by 4.7%, individual consumption, which increased by 2%, and non-residential fixed investments, which increased by 1.7%. Consumer confidence also improved, reaching 64.5 points in December 2011, as compared to 55.2 points in November 2011.
The GDP increase in the fourth quarter of 2011 also helped to create jobs, reducing the unemployment rate to 8.5% in December, the lowest level since February 2009 and equivalent to around 13.1 million people, according to the Bureau of Labor Statistics (BLS). In 2011, the unemployment rate averaged 8.9%, an improvement over the 9.6% recorded in 2010.
Europe
High indebtedness levels in certain Eurozone countries, such as Italy, Spain, Greece, Ireland and Portugal, continue to generate uncertainties regarding the payment of sovereign debt and the solvency of the banking sector in these countries. According to the IMF, public debt as a percentage of GDP was 166% in Greece, 121% in Italy, 109% in Ireland and 106% in Portugal. At the end of February, the European Central Bank approved the transfer of €530 billion to the banking sector in order to increase liquidity in the interbanking market and credit to companies and consumers. At the beginning of March 2012, Greece was able to restructure its sovereign debt with participation of over 95% of creditors, an important step towards the year,country’s economic stabilization.
According to the Brazilian Central Bank’s FOCUS report estimatedEuropean Commission, GDP in the Eurozone grew by 1.4% in 2011 when compared to a year-end exchange1.9% growth in the previous year. The Eurozone unemployment rate ofreached 10.4% in December, affecting around R$1.80; however,16.5 million people, and the actualinflation rate was R$1.67. In February 2011, foreign reserves reached the record level of US$300 billion.
USA
The U.S. economy recovered towardsstood at 2.7% at the end of 2011.
On the other hand, Germany recorded growth of 3% in 2011, reducing its public deficit to €26.7 billion, or 1% of GDP, with the aim of respecting the European budget discipline criteria, as reported by Destatis, the German institute of statistics. This was the first time since 2008 that Germany’s public deficit fell below the 3% imposed by the European treaties. In 2010, Europe’s leading economy posted record growth of 3.7% and a public deficit of4.3%. Other advances in 2011 included increases of 1.5% in consumption, 8.2% in exports and 8.3% in private investments in machinery and equipment, according to IMF the annual GDP growth in 2010 was 2.9%, the largest increase since 2005, mainly due to the government’s fiscal incentives, higher exports and returnpreliminary figures.
55
The growth rateAsia
Chinese GDP grew by 9.2% in Europe continues low and there is uncertainty regarding sovereign debt and the general health of the financial system, especially inGreece, Ireland, Spain, Portugal and Italy. According to CRU, these four nations hold 64% of all loans granted to financial institutions in the Eurozone. According to IMF, Eurozone unemployment is still approximately 10%, or nearly 15 million people, one of the highest levels in the last 12 years. However,2011, according to IMF, this is expectedthe country’s National Bureau of Statistics, as compared to improve10.4% in the coming months due2010. At a time when China’s trade surplus fell from US$181.5 billion, or 3.1% of GDP, in 2010, to a possible increase in exports, especially in Germany, and higher consumer spending. For the first time in more than two years, inflation exceeded theUS$160 billion, or approximately 2% target stipulated by the European Central Bank, reaching 2.2% in December, with the exceptionally cold weather pressuring food and energy prices. According to CRU,of GDP, in 2011, commodity and energy prices should continue to exert inflationary pressure, although the ECB maintained the inflationary target at 2%.
Asia
After fueling the recovery from the global financial crisis, China has gone through a cycle of strict monetary measures in an attempt to reduce inflation, which was 4.6% in 2010. Throughout 2010, the government adoptedis studying measures to contain growthboost domestic consumption. The resulting inflationary process has been kept under control by increasinga rigid monetary policy, with limits on the granting of credit, high interest rates and reserve requirements, limiting credit and introducing energy-saving targets. Despite their restrictive nature, however, all these measures are designed to ensure that the Chinese economy grows in a sustainable manner. According to IMF, China GDP grew by 10.3% in 2010, 2% above the Chinese government’s target, and the country overtook Japan as the world’s second largest economy, with GDP of US$5.9 trillion. According to Peoples´Bank of China, China has let the Yuan appreciate by approximately 6% against the U.S. dollar since June 2010, effectively ending its two-year-long rate-fixing between the two currencies.greater control over banking reserves.
Segments
SegmentsSteel
Steel
According to the World Steel Association, or WSA, global crude steel production totaled 1.41.5 billion tons in 2010,2011, a 15%6.8% increase as compared to 2009.2010 and a new record. The major steel-producing countries increased production in 2011, with the exception of Japan and Spain. Growth was especially strong in Turkey, South Korea and Italy. Nevertheless, according to WSA, many steel-producing nations have still not recovered to their pre-crisis levels, China and certain other Asian countries being the exception. According to the WSA, the global steel industry capacity utilization rate stood at 72% at the end of 2010 was approximately 74%, although2011, showing a continuing imbalance between production capacity and global steel product consumption still remains unbalanced. As stated by the WSA, surplus production capacity is currently approximately 500 million tons. This imbalance, together with the appreciation of the real and the existence of state government import incentives fueled Brazil's flat steel imports in 2010. Supported by higher raw material prices, especially of coal, scrap and iron ore, international steel prices began to show signs of recovery at the end of 2010, leading some steel plants to consider reactivating their blast furnaces to benefit from the upturn.consumption.
Brazil
According to the IABr, apparent consumption ofBrazilian Steel Institute (IABr), Brazilian crude steel products reached the record level of 26.1production totaled 35.2 million tons in 2010, 41% higher than the previous year, and the Institute expects the figure2011, a 6.8% increase as compared to increase by a further 6% in 2011, to 28 million tons. Annual consolidated production in 2010 totaled 32.92010. Domestic steel product sales reached 21.4 million tons, of crude steel and 15.2 million tons ofa 3.4% increase as compared to 2010, while domestic rolled flat steel an increase of 24% and 28% respectively, from the previous year. Consolidated domestic sales of rolled flat steel were 11.5 million tons in 2010, a 25% increase from 2009.
Annual flat steel exports totaled 2.3amounted to 11.3 million tons, in line with 2010 numbers.
Also according to the previous year’s figure.IABr, total steel exports increased to 10.8 million tons, a 20.7% growth as compared to 2010, while flat steel exports decreased by 7% to 2.1 million tons. Steel product imports totaled 3.8 million tons, a 35.9% reduction as compared to 2010, while flat steel imports declined 43.8% to 2.3 million tons. Apparent consumption of steel products in 2011 amounted to 25.0 million tons, a 4.2% decrease as compared to 2010.
Automotive
According to ANFAVEA (the Brazilian auto manufacturers’ association)Auto Manufacturers’ Association), vehicle production reached 3.6in 2011 totaled 3.4 million units, in 2010, a 14%0.7% increase as compared to 2009. Annual sales totaled 3.52010. Sales reached a new record of 3.6 million units, 12% more than in 2009, the seventh consecutive year of growth. In addition, Brazil closed 2010 as the world’s fourth largest vehicle manufacturer for the first time, behind China, the United States and Japan. Exported vehicles totaled 766,000 units in 2010,a 3.4% increase as compared to 475,000 in 2009. According to ANFAVEA, vehicle sales are expected to grow by 5% in 2011. Recently, the sector announced significant investments over the next years, for the expansion of product lines, increased output2010 and the construction of new plants.eighth consecutive annual increase. Vehicle exports increased by 7.7% as compared to 2010.
56Construction
Construction
According to a study by the Getulio Vargas Foundation (FGV), every year 1.5 million new Brazilian families intend to purchase a home. Demand for real estate has been fueled by the expansion of the emerging middle class, higher family income, more formal jobsCBIC (Brazilian Construction Industry Association) and the greater availability of credit. Housing loans from the Caixa Econômica Federal (Brazilian Saving Bank)Sinduscon-SP (the São Paulo Builders’ Association), the mortgage lending leader, totaled R$77.8 billionconstruction sector recorded annual growth of 4.8% in 2010, an increase of 57.2% from 2009. LCA, a consulting firm,2011.
ABRAMAT (the Brazilian Building Material Manufacturers’ Association) estimates that the sector grewconstruction materials sales increased by 13.9%2.9% in 2011 as compared to 2010.
Distribution
According to INDA (the(the Brazilian steel distributors’ association)Steel Distributors’ Association), flat steel sales by distributors totaled 3.84.3 million tons in 2011, showing an 11.7% increase as compared to 2010, an increase of 13% from 2009, withwhile purchases of 4.3by distributors declined by 4% to 4.1 million tons (+39%), resultingtons. This contributed to bring inventories to normalized levels: inventory levels fell by 16.8% in increased inventories, which were sufficient for 4.3relation to December 2010, closing the year at 3.1 months of sales.
Home Appliances
The reduction in federal value-added taxes (IPI) implemented by the Brazilian government at the beginning of December 2011 had higher-than-expected results, with refrigerator, stove and washing-machine sales inincreasing by 56% as compared to November 2011 figures and by approximately 30% as compared to December 2010 higher than the historical average.figures.
International
Agricultural machinery
According to ANFAVEA, in 2010 production of agricultural machinery increased by 34% from the previous year to 89,000 units. Annual sales were 68,000 units, 24% higher than in 2009 and the sector’s best performance since 1976, while exports increased by 27% to 19,000 units.
International
According to the WSA,crude steel output in China totaled 695.5 million tons in 2011, a 8.9% increase as compared to 2010 and a new record, accounting for 45.5% of the global total, while Japan's crude steel production decreased slightly, to 107.6 million tons, a 1.8% decrease as compared to 2010. In the European Union, production reached 177.4 million tons in 2011, corresponding to a 2.8% increase as compared to 2010, and in theU.S., crude steel production totaled 80.686.2 million tons in 2010, 38.5% more than in 2009, while the2011, a 7.1% increase as compared to 2010. The U.S. Department of Commerce estimated steel imports of 21.7at 25.9 million tons, upan increase of 19% as compared to 2010.
Mining
The seaborne iron ore market posted record performance in 2011, directly reflecting the 6.8% upturn in global steel production, despite the economic slowdown in Europe and natural disasters that occurred in Japan. International iron ore sales are expanding every year, fueled by 47%. According to WSA, U.S. steel distributors’ inventories totaled 4.2the urbanization process in developing countries. China imported 687 million tons out of the 1,079million tons of ore sold in December 2010,2011, equivalent to 2.6 months of sales.
According to the WSA, Eurozone steel production reached 315 million tons in 2010, 19% up on 2009. As in the U.S., raw material cost increases have been forcing the industry to revisit pricing, resulting in increases throughout the continent. Although demand for steel has been showing signs of recovery in certain countries, there are serious doubts concerning the sustainability of these prices, principally due to weak growth prospects in most European nations.
According to the WSA, crude steel output in China totaled 626 million tons in 2010, 9% up from the previous year and a new record, accounting for 44%around 60% of the global total. Japan's crude steel production increased byseaborne market and an 11% increase as compared to Chinese imports in 2010.
Brazil continues to occupy a substantial 25% over 2009, reaching 109 million tons.
Mining
Atleading position in the beginning of 2010, a number of incentives focused on the intensive use of steel, to support the global economy were still in force. The commitment of the leading global economies to overcoming the crisis was crucial to the recovery of the market as a whole.seaborne iron ore market. According to CRU, as a result of the recovery, iron ore sales, mostly concentrated in the Chinese market in 2009, became more fragmented in 2010. Nevertheless, China remains an important market player. In 2010, the country imported 619SECEX (the Foreign Trade Secretariat), Brazil exported 331 million tons of iron ore accountingin 2011, a 6% increase as compared to 2010, and a rate of increase that has been maintained for 60% of the seaborne market, and this figure is expected to reach 895 million tons by 2015, according to CRU.past five years.
2010 was a year of major changes in the iron ore market. The traditional annual pricing system, used for over 40 years, was replaced in the first half of 2010 by a system that reflectsis subject to quarterly revisions, reflecting market oscillations and is subjectmore sensitive to periodic reviewsspot price volatility. Mining companies price iron ore based on a three-month average of iron ore index values (Platts IODEX 62% CFR China) for the period ending a month before the start of the new quarter.
In 2011, iron ore prices were exceptionally volatile, especially in the fourth quarter. After climbing to over time. Demand continues to outpace supplyUS$180/t at the beginning of September, prices decreased sharply, mainly because of the European economic crisis. This crisis reduced demand in the period and resulted in the shut-down of several blast furnaces on the seaborne market and certain factors in 2010 helped reduce supply even further, including government restrictions oncontinent, forcing European countries to postpone part of their iron ore exports in India, accompanied byimports. This volume was rerouted to China at the imposition of export taxes. According to Macquire, the vast majority of new projects (brownfield and greenfield) were delayed and the expected increase in available market volume did not materialize. In light of this scenario, Brazil’s iron ore exports reached the record level of 307same time as China’s imports from Australia increased substantially, reaching approximately 30 million tons in October. This increase coincided with a period of reduced crude steel production and credit restriction in China. As a result, Chinese supply peaked, leading to the collapse of international prices to approximately US$117/t at the end of October, before stabilizing between US$130/t and US$140/t, which resulted in an incompatibility between quarterly and spot prices. As a consequence, different pricing systems reflecting market oscillations and even more sensitive to spot price volatility emerged in the market. Spot price, monthly price and quarterly actual price were applied mainly in the Chinese market and major producers of iron ore are currently using different pricing methodologies.
Despite overall economic stagnation in 2011, iron ore prices reached record highs in February and presented an annual average of R$169/t, a record high annual increase of 15% compared with 2010 according to LBH Group, anPlatts Iodex.
Spot market freight costs on the Tubarão/Qingdao route remained almost flat untilthe first half of the third quarter of 2011, averagingUS$20/t.As of the middle of the quarter, however, demand peak began to have a direct impact on freights, raising the average price to around US$30/t by the end of December. In January 2012, however, freight costs once again fell back to around US$20/t, due to the winter season and Chinese New Year.
Logistics
Railway logistics
In 2011, the consolidation of rail transport as a viable and efficient means of cargo transport in Brazil continued. According to the CNT (National Transport Confederation), the total cargo transported by railis expected to reach 530 million tons in 2011, a 12.7% increase of 15% as compared to 2009.the 470 million tons recorded in 2010.
57
The Brazilian federal government recently launched a National Mining Program, which envisagesStill according to the CNT, investments of US$270in railways totaled R$3.0 billion over 20 years and is designed to triple the production of iron ore, copper ore and other minerals by 2030.
Prices increased in the first half in 2011, fueled by growing demand in China andline with the recovery of the European and North American markets.
LogisticsR$2.9 billion invested in 2010.
Railway logistics
2010 was a positive year for the Brazilian rail logistics sector. According to the ANTF (National Rail Transport Association), transported volume increased by 15% as compared to 2009, exceeding 455 million tons. The number of rail cars produced increased by 223% as compared to 2009 to 3,300, according to Abifer (Brazilian Railway Industry Association).
With investments by private enterprises and support from the government, the outlook is promising. The government believes the rail network will extend for 41,000 kilometers by 2020, 37% more than the current total.
Port logistics
According to AntaqANTAQ (National WaterwayWaterways Transport Agency), Brazil’s ports handled volume totaled 834883 million tonnestons of cargo in 2011, a 6% increase as compared to 2010, 14% up from 2009. Infueled by the same period,5% increase in outbound iron ore shipments and the 15% increase in container volume increased by 12% year-over-year to 6.87.9 million TEUs.
Cement
Cement
Preliminary studies from SNIC (the Cement Industry Association) preliminary figures indicate localdomestic cement sales of 5963.5 million tons in 2010,2011, a 15%7.3% increase as compared to 2009.2010 and a new record. The Southeast region consumed half of this total and the North was the best performer in terms of growth, growing 58%. Annual exports decreasedincreasing by 23%,9.9% in 2011. This is a reflection of the favorable real estate market, higher individual earnings and the government’s housing incentives, such as manufacturers prioritized the domestic market. According to SNIC, there are 70 plants operating in Brazil, belonging to 12 national and international groups, with a joint annual installed capacity of 67 million tons, sufficient to meet all of domestic demand.Minha Casa, Minha Vida (My Home, My Life) program.
Significant investments in capacity expansion were announced in 2010, the effects of which should become apparent in the second half of 2011.Energy
58Brazilian electricity
Energy
In 2010, the electric power market was favored by Brazil’s economic performance, led by the domestic market, driven by increased employment and income, as well as the greater availability of credit. Electricity consumption increasedby 3.6% in 2011, compared to a7.8% from 2009, increase in 2010,according to the Ministry of Mines and Energy’s Energy Research Company.
Industrial consumption made. Despite the biggest contribution, increasing by 10.9% and consolidating the post-crisis recovery that begunslowdown in the second halfpace of 2009. According to EPE (Empresa de Pesquisa Energética), residential and commercial consumption recorded consistent growth of 6.3% and 5.9%, respectively, in line with recent years.
Even with the growing demand for electric power Brazil has been adequately incrementing its generating capacity and safely meetingdemand growth, the demand. According to the AnnualEnergy Operations Plan (PEN 2010), 2011) published by the National System Operator (ONS), forecasts average annual consumption growth of 5% over the next four years.
As a result, Brazil has been expanding its generating capacity in order to guarantee the safety of the system. According to PEN 2011, the National Integrated System’s structural energy projectedbalance for the next four years must ensure is expected to easily meetadequate supply criteria, even in under adverse hydrological conditions.
This situation is largelyconditions, thanks to the resultstart-up period ofnew contracted plants andthegovernment energy auctions promoted by, which are expected to add 30 GW to the government, as well as the contracting and construction of new transmission lines, which has permitted greater energetic integration among Brazil’s various regions.system.
Steel Markets and Product Mix
Supply and Demand for Steel
Prices of steel are sensitive to changes in worldwide and local demand, which in turn are affected by worldwide and country-specific economic cycles, and to available production capacity. While the export price of steel (which is denominated in U.S. dollars or Euros, depending on the export destination) is the spot price, there is no exchange trading of steel or uniform pricing. Unlike other commodity products, steel is not completely fungible due to wide differences in terms of size, chemical composition, quality and specifications, all of which impact prices. Many companies (including us) discount their list prices for regular customers, making their actual transaction prices difficult for us to determine.
Historically, export prices and margins have been lower than domestic prices and margins, because of the logistics costs, taxes and tariffs. The portion of production that is exported is affected by domestic demand, exchange rate fluctuations and the prices that can be charged in the international markets.
The following table shows Brazilian steel production and apparent consumption (domestic sales plus imports) and global production and demand for the periods indicated:
indicated(1):
|
| 2010 |
| 2009 |
| 2008 |
| 2010 |
| 2009 |
| 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazilian Market(in thousands of tons) |
|
|
|
|
|
|
|
|
|
|
|
|
Total Flat and Long Steel |
|
|
|
|
|
|
|
|
|
|
|
|
Production |
| 25,401 |
| 20,223 |
| 24,726 |
| 25,401 |
| 20,223 |
| 24,726 |
Apparent Consumption |
| 26,104 |
| 18,576 |
| 24,048 |
| 26,104 |
| 18,576 |
| 24,048 |
Hot-Rolled Coils and Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
Production |
| 4,592 |
| 3,474 |
| 3,926 |
| 4,592 |
| 3,474 |
| 3,926 |
Apparent Consumption |
| 3,823 |
| 2,615 |
| 3,481 |
| 3,823 |
| 2,615 |
| 3,481 |
Cold-Rolled Coils and Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
Production |
| 3,159 |
| 2,692 |
| 3,038 |
| 3,159 |
| 2,692 |
| 3,038 |
Apparent Consumption |
| 3,419 |
| 2,497 |
| 2,849 |
| 3,419 |
| 2,497 |
| 2,849 |
Galvanized Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
Production |
| 2,449 |
| 2,004 |
| 2,343 |
| 2,449 |
| 2,004 |
| 2,343 |
Apparent Consumption |
| 3,243 |
| 2,262 |
| 2,478 |
| 3,243 |
| 2,262 |
| 2,478 |
TinPlates |
|
|
|
|
|
|
|
|
|
|
|
|
Production |
| 774 |
| 665 |
| 724 |
| 774 |
| 665 |
| 724 |
Apparent Consumption |
| 634 |
| 570 |
| 623 |
| 634 |
| 570 |
| 623 |
Global Market(in millions of tons) |
|
|
|
|
|
|
|
|
|
|
|
|
Crude Steel Production |
| 1,414 |
| 1,224 |
| 1,330 |
| 1,414 |
| 1,224 |
| 1,330 |
Demand |
| 1,284 |
| 1,134 |
| 1,309 |
| 1,284 |
| 1,134 |
| 1,309 |
___________ | ___________ | ___________ |
| |||||||||
Source: IABr and World Steel Association, or WSA. | ||||||||||||
Source: IABr and World Steel Association, or WSA. 1. Information for 2011 was not yet available as of the date of this annual report | Source: IABr and World Steel Association, or WSA. 1. Information for 2011 was not yet available as of the date of this annual report |
| ||||||||||
59
Product Mix and Prices
Sales trends in both the domestic and export markets are forecasted monthly based on historical data of the preceding months. CSN uses its own information system to remain current on market developments so that it can respond swiftly to fluctuations in demand.
CSN considers its flexibility in shifting between markets, and its ability to monitor and optimize inventory levels in light of changing demand, as key to its success.
We have a strategy of increasing the portion of our sales attributable to higher value-added coated products, particularly galvanized and tin plate products. Galvanized products are directed at the automotive, construction and home appliance industries. Tin plate products are used by the steel packaging market.
Supported byOverall, average steel prices increased in 2011 when compared to 2010, especially due to higher raw material prices especiallyincluding iron ore and coal. Towards the end of coal, scrap and iron ore,the year, however, international steel prices increased atdeclined (except in the closeUS market) as a consequence of 2010.expectations regarding the European crisis. Domestic prices in Brazil are aligned with the price of imported products (including aggregated import costs).
Sales Volume and Net Operating Revenues by Steel Products and Markets
The following table sets forth our steel product sales volume and net operating revenues by product and market.
Sales Volume | Sales Volume | Sales Volume | |||||||||||||||
| Tons | % of Sales Volume | |||||||||||||||
|
| In Market | Total | Tons |
| % of Sales Volume | |||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
|
|
| In Market |
| Total | |||||
| (in thousands of tons) | (in percentages) | 2011 | 2010 | 2009 |
| 2011 | 2010 | 2009 |
| 2011 | 2010 | 2009 | ||||
Domestic Sales |
|
|
|
|
|
|
|
|
| ||||||||
Slabs | 51 | 25 | 1% | 15 | 51 | 25 |
| 0% | 1% | 1% |
| 0% | 1% | 1% | |||
Hot-Rolled | 1,801 | 1,204 | 44% | 37% | 38% | 29% | 1,951 | 1,801 | 1,204 |
| 46% | 44% | 37% |
| 40% | 38% | 29% |
Cold-Rolled | 707 | 639 | 17% | 20% | 15% | 16% | 770 | 707 | 639 |
| 18% | 17% | 20% |
| 16% | 15% | 16% |
Galvanized | 1,065 | 875 | 26% | 27% | 22% | 21% | 991 | 1,065 | 875 |
| 23% | 26% | 27% |
| 20% | 22% | 21% |
Tin Mill | 512 | 500 | 12% | 15% | 11% | 12% | 489 | 512 | 500 |
| 12% | 15% |
| 10% | 11% | 12% | |
|
|
|
|
|
|
|
|
| |||||||||
Subtotal | 4,135 | 3,243 | 100% | 86% | 79% | 4,216 | 4,135 | 3.243 |
| 100% | 100% |
| 86% | 79% | |||
|
|
|
|
|
|
|
|
| |||||||||
Export Sales |
|
|
|
|
|
|
|
|
| ||||||||
Slabs | 0 | 162 | 0% | 19% | 0% | 4% | - | 162 |
| 0% | 19% |
| 0% | 4% | |||
Hot-Rolled | 1 | 191 | 0% | 22% | 0% | 5% | 13 | 1 | 191 |
| 2% | 0% | 22% |
| 0% | 5% | |
Cold-Rolled | 19 | 4 | 3% | 0% | 49 | 19 | 4 |
| 7% | 3% | 0% |
| 1% | 0% | 0% | ||
Galvanized | 488 | 397 | 74% | 46% | 10% | 457 | 488 | 397 |
| 67% | 74% | 46% |
| 9% | 10% | 10% | |
Tin Mill | 152 | 114 | 23% | 13% | 3% | 2% | 161 | 152 | 113 |
| 24% | 23% | 13% |
| 3% | 2% | |
|
|
|
|
|
|
|
|
| |||||||||
Subtotal | 661 | 868 | 100% | 14% | 21% | 680 | 661 | 867 |
| 100% | 100% |
| 14% | 21% | |||
|
|
|
|
|
|
|
|
| |||||||||
Total | 4,796 | 4,111 |
| 100% | 4,896 | 4,796 | 4,110 |
|
|
|
| 100% | 100% | ||||
|
|
|
|
|
|
|
|
| |||||||||
Total Sales |
|
|
|
|
|
|
|
|
| ||||||||
Slabs | 51 | 187 |
| 1% | 4% | 15 | 51 | 187 |
|
|
|
| 0% | 1% | 4% | ||
Hot-Rolled | 1,803 | 1,395 |
| 38% | 34% | 1,965 | 1,803 | 1,395 |
|
|
|
| 40% | 38% | 36% | ||
Cold-Rolled | 726 | 643 |
| 15% | 16% | 819 | 726 | 643 |
|
|
|
| 17% | 15% | 16% | ||
Galvanized | 1,553 | 1,273 |
| 32% | 31% | 1,447 | 1,553 | 1,273 |
|
|
|
| 30% | 32% | 31% | ||
Tin Mill | 664 | 614 |
| 14% | 15% | 649 | 664 | 613 |
|
|
|
| 13% | 14% | 15% | ||
|
|
|
|
|
|
|
|
| |||||||||
Total | 4,796 | 4,111 |
| 100% | 4,896 | 4,796 | 4,110 |
|
|
|
| 100% | 100% |
Net Operating Revenues | |||||||||||
| In millions of R$ |
| % of Net Operating Revenues | ||||||||
|
|
|
|
| In Market |
| Total | ||||
| 2011 | 2010 | 2009 |
| 2011 | 2010 | 2009 |
| 2011 | 2010 | 2009 |
Domestic Sales |
|
|
|
|
|
|
|
|
|
|
|
Slabs | 13 | 41 | 20 |
| 0% | 1% | 0% |
| 0% | 1% | 0% |
Hot-Rolled | 2,936 | 3,011 | 1,981 |
| 36% | 35% | 29% |
| 32% | 31% | 25% |
Cold-Rolled | 1,412 | 1,387 | 1,172 |
| 18% | 16% | 17% |
| 15% | 14% | 15% |
Galvanized | 2,178 | 2,559 | 2,085 |
| 27% | 30% | 31% |
| 24% | 27% | 27% |
Tin Plate | 1,495 | 1,576 | 1,511 |
| 19% | 18% | 23% |
| 16% | 16% | 19% |
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal | 8,033 | 8,575 | 6,770 |
| 100% | 100% | 100% |
| 87% | 89% | 86% |
|
|
|
|
|
|
|
|
|
|
|
|
Export Sales |
|
|
|
|
|
|
|
|
|
|
|
Slabs | - | - | 123 |
| 0% | 0% | 11% |
| 0% | 0% | 2% |
Hot-Rolled | 19 | 2 | 182 |
| 2% | 0% | 16% |
| 0% | 0% | 2% |
Cold-Rolled | 74 | 27 | 8 |
| 6% | 3% | 1% |
| 1% | 0% | 0% |
Galvanized | 786 | 778 | 553 |
| 64% | 70% | 49% |
| 8% | 8% | 7% |
Tin Plate | 340 | 300 | 259 |
| 28% | 27% | 23% |
| 4% | 3% | 3% |
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal | 1,219 | 1,107 | 1,124 |
| 100% | 100% | 100% |
| 13% | 11% | 14% |
|
|
|
|
|
|
|
|
|
|
|
|
Total | 9,252 | 9,682 | 7,894 |
|
|
|
|
| 100% | 100% | 100% |
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales |
|
|
|
|
|
|
|
|
|
|
|
Slabs | 13 | 41 | 143 |
|
|
|
|
|
|
|
|
Hot-Rolled | 2,955 | 3,013 | 2,163 |
|
|
|
|
|
|
|
|
Cold-Rolled | 1,486 | 1,414 | 1,180 |
|
|
|
|
|
|
|
|
Galvanized | 2,964 | 3,337 | 2,637 |
|
|
|
|
|
|
|
|
Tin Plate | 1,835 | 1,876 | 1,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal | 9,252 | 9,682 | 7,894 |
|
|
|
|
| 0% | 0% | 0% |
|
|
|
|
|
|
|
|
|
|
|
|
By-Product | 225 | 244 | 307 |
|
|
|
|
| 2% | 2% | 4% |
|
|
|
|
|
|
|
|
|
|
|
|
Total | 9,477 | 9,926 | 8,201 |
|
|
|
|
| 100% | 100% | 100% |
The following table sets forth our steel product net revenues by product and market.
Net Operating Revenues | ||||||
| R$ (Reais) | % of Net Operating Revenues | ||||
|
|
| In Market | Total | ||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
| (in millions of R$) | (in percentages) | ||||
Domestic Sales |
|
|
|
|
|
|
Slabs | 41 | 20 | 0% | 0% | 0% | 0% |
Hot-Rolled | 3,011 | 1,982 | 35% | 29% | 31% | 25% |
Cold-Rolled | 1,387 | 1,172 | 16% | 18% | 14% | 15% |
Galvanized | 2,559 | 2,099 | 30% | 31% | 26% | 27% |
Tin Mill | 1,576 | 1,511 | 18% | 22% | 16% | 19% |
Subtotal | 8,575 | 6,784 | 99% | 100% | 87% | 86% |
Export Sales |
|
|
|
|
|
|
Slabs | 0 | 123 | 0% | 11% | 0% | 2% |
Hot-Rolled | 2 | 182 | 0% | 16% | 0% | 2% |
Cold-Rolled | 27 | 8 | 2% | 1% | 0% | 0% |
Galvanized | 778 | 553 | 70% | 49% | 8% | 7% |
Tin Mill | 300 | 259 | 27% | 23% | 3% | 3% |
Subtotal | 1,107 | 1,125 | 99% | 100% | 11% | 14% |
Total | 9,682 | 7,909 |
|
| 98% | 100% |
Total Sales |
|
|
|
|
|
|
Slabs | 41 | 143 | 0% | 2% | 0% | 2% |
Hot-Rolled | 3,013 | 2,163 | 31% | 27% | 30% | 26% |
Cold-Rolled | 1,414 | 1,180 | 15% | 15% | 14% | 14% |
Galvanized | 3,337 | 2,637 | 34% | 33% | 34% | 32% |
Tin Mill | 1,876 | 1,770 | 19% | 22% | 19% | 22% |
Subtotal | 9,682 | 7,894 | 99% | 100% | 98% | 98% |
By-Product | 244 | 307 |
|
| 2% | 2% |
Total | 9,926 | 8,219 |
|
| 100% | 100% |
Brazilian Macro-Economic Scenario
As a company with the vast majority of its operations currently in Brazil, we are affected by the general economic conditions of Brazil. We believe the rate of growth in Brazil is important in determining our future growth capacity and ourthe results of our operations.
The following table shows certainsome Brazilian economic indicators for the periods indicated:
|
|
|
|
|
|
| ||||||||
|
| Year ended December 31, |
| Year ended December 31, | ||||||||||
|
|
|
|
| ||||||||||
|
| 2010 |
| 2009 |
| 2008 |
|
| 2011 |
| 2010 |
| 2009 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
GDP growth |
| 7.5% |
| (0.2% | ) | 5.1% | GDP growth |
| 2.7% |
| 7.5% |
| (0.2%) | |
Inflation (IPCA)(1) |
| 5.9% |
| 4.3% |
| 5.9% | Inflation (IPCA)(1) |
| 6.5% |
| 5.9% |
| 4.3% | |
Inflation (IGP-M)(2) |
| 11.3% |
| (1.7% | ) | 9.8% | Inflation (IGP-M)(2) |
| 5.1% |
| 11.3% |
| (1.7%) | |
CDI(3) |
| 9.8% |
| 9.8% |
| 12.4% | CDI(3) |
| 11.6% |
| 9.7% |
| 9.8% | |
Appreciation (depreciation) of therealagainst the U.S. dollar |
| 4.3% |
| 25.5% |
| (32.0%) | Appreciation (depreciation) of therealagainst the U.S. dollar |
| (12.6% | ) | 4.3% |
| 25.5% | |
Exchange rate at end of period (US$1.00) |
| R$1.666 |
| R$1.741 |
| R$2.337 | Exchange rate at end of period (US$1.00) |
| R$1.876 |
| R$1.666 |
| R$1.741 | |
Average exchange rate (US$1.00) |
| R$1.759 |
| R$1.994 |
| R$1.837 | Average exchange rate (US$1.00) |
| R$1.675 |
| R$1.759 |
| R$1.994 | |
Sources: IBGE, Fundação Getúlio Vargas, Central Bank and Bloomberg. | ||||||||||||||
Sources: IBGE, Fundação Getúlio Vargas, Central Bank and CETIP. | Sources: IBGE, Fundação Getúlio Vargas, Central Bank and CETIP. | |||||||||||||
(1)The IPCA is a consumer price index measured by the IBGE. | (1)The IPCA is a consumer price index measured by the IBGE. | (1)The IPCA is a consumer price index measured by the IBGE. | ||||||||||||
(2)The IGP-M is the general market price index measured by the Fundação Getúlio Vargas. | (2)The IGP-M is the general market price index measured by the Fundação Getúlio Vargas. | (2)The IGP-M is the general market price index measured by the Fundação Getúlio Vargas. | ||||||||||||
(3)The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized). | (3)The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized). | (3)The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized). | ||||||||||||
61
Effects of Exchange Rate Fluctuations
Our export revenues are substantially denominated in U.S. dollars. Our domestic revenues are denominated in Brazilianreais(although domestic sales prices reflect international prices with a time lag of some months).
A significant portion of our cost of products sold areis commoditized raw materials, the prices of which are denominated in U.S. dollars. The balance of our cost of products sold and our cash operating expenses (i.e., operating expenses other thanapart from depreciation and amortization) are denominated inreais.
The appreciation of the U.S. dollar against thereal has the following effects on ourthe results of our operations expressed in U.S. dollars:
· domesticDomestic revenues tend to be lower (in comparison with prior years) and this effect is magnified to the extent to which we sell more products than usual in the domestic as opposed to the export markets, this effect is magnified;market;
· theThe impact ofrealdenominated costs of products sold and operating costs tend to be lower; and
· financialFinancial expenses are increased to the extent to which the exposure to dollar-denominated debt is not protected.
The appreciation of thereal against the U.S. dollar has the following effects on ourthe results of our operations expressed in USU.S. dollars:
· domesticDomestic revenues tend to be higher (in comparison with prior years) and this effect is magnified to the extent thatto which we sell more products than usual in the domestic markets;market;
· theThe impact ofreal-denominateddenominated costs of products sold and operating costs tends to be higher; and
· financialFinancial income is higherincreased to the extent to which the exposure to dollar-denominated debt hasis not been protected.
The impact of fluctuations in thereal exchange rate of thereal against other currencies on ourthe results of our operations can be seen in the “foreign exchange and monetary gain (loss), net” line in our income statement, although that amount is partially offset by the net financial income (or expense) attributable to the profit (or loss) on ourthe derivative transaction of our foreign currency-denominated debt. In order to minimize the effects of the exchange rate fluctuations, we often engage in derivative transactions, including currency swap and foreign currency option agreements. For a discussion of the possible impact of fluctuations in the foreign currency exchange and interest rates on our principal financial instruments and positions, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”
Effects of Inflation and Interest Rates
Inflation rates in Brazil have been significantly volatile in the past. Inflation rates remained relatively stable from 2003 to 2004, decreased in 2005 and 2006 and increased in 2007 and 2008. In 2009, for the first time since its creation in 1989, the IGP-M inflation index recorded a deflation in a calendar year, equivalent to 1.71%. In 2010 and 2011 the index increased again11.3% and closed the year at 11.3%.5.1%, respectively.
Inflation affects our financial performance by increasing some of our costs and expenses denominated inreais that are not linked to the U.S. dollar. Our cash costs and operating expenses are substantially denominated inreais and have tended to follow the Brazilian inflation ratio because our suppliers and service providers generally increase or decrease prices to reflect Brazilian inflation. In addition, some of ourreal-denominated -denominated debt is indexed to take into account the effects of inflation. Under this debt, the principal amount is generally adjusted with reference to inflation indexes. In addition, a significant portion of ourreal-denominated -denominated debt bears interest based on the Interbank Deposit Certificate (Certificado de Depósito Interbancário), or CDI, rate which is partially adjusted for inflation.
The table below shows the Brazilian general price inflationindex and the CDI rates for the periods shown.
62
|
| |||||||||||
|
| Year ended December 31, | ||||||||||
|
|
|
| Year ended December 31, | ||||||||
|
| 2010 |
| 2009 |
| 2008 |
| 2011 |
| 2010 |
| 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation (IGP-M)(1) |
| 11.3% |
| -1.7% |
| 9.8% |
| 5.1% |
| 11.3% |
| (1.7%) |
CDI(2) |
| 9.8% |
| 9.8% |
| 12.4% |
| 11.6% |
| 9.7% |
| 9.8% |
_______________ | _______________ | _______________ | ||||||||||
Source: Fundação Getúlio Vargas, or FGV, and Bloomberg. | ||||||||||||
Source: Fundação Getúlio Vargas, or FGV, and CETIP. | Source: Fundação Getúlio Vargas, or FGV, and CETIP. | |||||||||||
(1) The IGP-M inflation is the general market price index measured by the FGV. | (1) The IGP-M inflation is the general market price index measured by the FGV. | (1) The IGP-M inflation is the general market price index measured by the FGV. | ||||||||||
(2) The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized). | (2) The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized). | (2) The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized). |
Accounting for mining production utilized by our steel production
We are currently self-sufficient inregarding the iron ore used in theour steel production. The iron ore required is extracted from our Casa de Pedra mine, which in 2010 supplied2011 amounted to approximately 6.96.8 million tons of its total iron oreironore production (approximately 21.6of approximately 20.1 million tons) to us.tons. The remainder orof the iron ore production is sold to third party clientsparties in Brazil and throughout the world.
The cost of iron ore sold is recorded on our income statement in the cost of goods sold line item at its extraction cost plus transport from the mine. In 2011, 2010 and 2009, these costs were R$283 million, R$239 million and R$221 million, respectively.
Critical Accounting Estimates
We prepared our consolidated financial statements as of and for the year ended December 31, 20102011 in accordance with IFRS, as issued by the IASB. In preparing our consolidated financial statements, we make estimates concerning a variety of matters. Some of these matters are highly uncertain, and our estimates involve judgments we make based on the information available to us. In the discussion below, we have identified several of these matters for which our financial presentation would be materially affected if either (1) we used different estimates that we could reasonably have used or (2) in the future we change our estimates in response to changes that are reasonably likely to occur.
This discussion addresses only those estimates that we consider most important based on the degree of uncertainty and the likelihood of a material impact if we used a different estimate. There are many other areas in which we use estimates about uncertain matters, but the reasonably likely effect of changed or different estimates is not material to our financial presentation.
Impairment of long-lived assets, intangible assets, goodwill and goodwillfinancial assets
In accordance with IAS 36 “ Impairment“Impairment of assets”, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.
A determination of the fair value of an asset requires management to make certain assumptions and estimates with respect to projected cash inflows and outflows related to future revenues and expenditures. These assumptions and estimates can be influenced by different external and internal factors, such as economic and industry trends, interest rates and changes in the marketplace. A change in the assumptions and estimates that we use could change our estimate of the expected future net cash flows and lead to the recognition of an impairment charge in results of operations relating to our property, plant and equipment.
Assets that have an indefinite useful life, such as goodwill, are not subject to amortization and are tested annually for impairment in accordance with IAS 36 “ Impairment of assets”. Assets that are subject to amortizationareamortization are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Goodwill is allocated to Cash-Generating Units (CGUs) for impairment testing purposes. The allocation is made to Cash-Generating Units or groups of a Cash-Generating Units that are expected to benefit from the business combination from which the goodwill arose, and the unit is not greater than the operating segment.
63Financial assets are reviewed for impairment at the end of each reporting period and we asses whether there is objective evidence that a financial asset or a group of financial assets is impaired.
On December 31, 2011, we owned, directly and indirectly, 20.14% of the preferred shares (USIM5) and 11.97% of the common shares (USIM3) of Usinas Siderúrgicas de Minas Gerais S.A. (“Usiminas”), resulting from various acquisitions on the stock exchange since mid-2010. The instruments are classified as financial instruments available for sale and measured at their fair value based on their quoted market price in the Brazilian stock exchange (BOVESPA) on December 31, 2011.
Considering the decline in market value of the shares of Usiminas during 2011, we evaluated whether, at the balance sheet date, there is objective evidence of impairment of our investments in Usiminas. The Company performed a detailed analysis of the percentage and period of decline, characteristics of the instruments, the segment in which Usiminas operates and volatility of the instruments. We consider that during the period under analysis there have not been significant changes with an adverse effect in the technological, market, economic and legal environment in which Usiminas operates.
Based on that, we concluded that the decline in market value relative to their price of acquisition of the common and preferred shares on December 31, 2011 is not significant or prolonged, and consequently have not reclassified losses thus far recognized in other comprehensive income. For a more detailed description of our policy regarding impairment of financial assets, see Note 15.II. to the consolidated financial statements included in “Item 18. Financial Statements.”
Depreciation and amortization
The basis for calculation of depreciation is the cost of the asset less the estimated residual value upon sale. While no specific depreciation method is recommended, the method chosen should be applied consistently for all significant components of assets and allocation of the depreciation should be on a systematic basis for each one of the accounting periods that best represents the realization of the economic benefits during the usable lives of assets.
A review of the estimated useful life was conducted, and the adjustments in the depreciation of assets recorded in property, plant and equipment were made on a prospective basis as from January 1, 2010. In light of the necessity to review useful lives at least every financial year, in 2011 management performed the review for all the Company’s units. See further details in Note 1412 to our consolidated financial statements.
Fair value of business combinations
We estimate the fair value of assets acquired and liabilities assumed of our business combinations as required by IFRS 3 “Business Combination”. Accordingly, when determining the purchase price allocations of our business acquisitions, we adjust to fair value certain items such as inventories, property, plant and equipment, mines, present value of long-term assets and liabilities, among others, which are determined by independent appraisals that perform the valuations for us.
Goodwill represents the excess of the cost of an acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired company. If there is any negative goodwill determined by the acquirer in the fair value of the assets, liabilities and contingent liabilities acquired in relation to the cost of acquisition, the Company should recognize it immediately in the statement of income.
The Company elected not to remeasure the business acquisitions that occurred prior to January 1, 2009, according to the business combination exemption permitted by IFRS 1. Acquisitions subsequent to January 1, 2009 have been recognized in accordance with IFRS 3, “Business Combinations”.
Derivatives
IAS 39, “ Financial Instruments: Recognition and Measurement”, requires that we recognize all derivative financial instruments as either assets or liabilities on our balance sheet and measure such instruments at fair value. Changes in the fair value of derivatives are recorded in each period in the statement of income or in other comprehensive income, in the latter case depending on whether a transaction is designated as an effective hedge. Our derivative instruments do not qualify for hedge accounting. Changes in the fair value of any of these derivative instruments are immediately recorded in the statements of income under “Other gains (losses), net". Although the Company uses derivative for hedging purposes, it does not apply hedge accounting. With respect to the fair value measurement, we must make assumptions such as to future foreign currency exchange and interest rates. For a discussion of the possible impact of fluctuations in the foreign currency exchange and interest rates on our principal financial instruments and positions, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”
Pension plans
We sponsor defined benefit pension plans covering some of our retirees. We account for these benefits in accordance with IAS 19, “Employee Benefits,”. The determination of the amount of our obligations for pension benefits depends on certain actuarial assumptions. These assumptions are described in Note 3028 to our consolidated financial statements and include, among others, the expected long-term rate of return on plan assets and increases in salaries. In accordance with IFRS, when the benefits of a plan are increased, the portion of the increased benefit related to past services of employees is recognized under the straight-line method over the average period until the benefits become vested. When the benefits become immediately vested, the expense is immediately recognized inprofitin profit or loss. The Company has chosen to recognize all the actuarial gains and losses resulting from defined benefit plans immediately in other comprehensive income.
64
Some of the Company’s entities offered a postretirement healthcare benefit to their employees. The right to these benefits is usually contingent upon an employee remaining in employment until the retirement age as well as the completion of the minimum length of service. The expected costs of these benefits were accumulated during the employment period, and are calculated using the same accounting method used for the defined benefit pension plans.
Deferred taxes
We compute and pay income taxes based on results of operations determined under Brazilian GAAP.Corporate Law. A deferred income tax liability is recognized for all temporary tax differences, while a deferred income tax asset is recognizedisrecognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilized. Deferred tax assets and liabilities are classified as long-term. Tax assets and liabilities are offset if the entity has a legally enforceable right to offset them and they are related to taxes levied by the same taxing authority. If the criterion for offset of current tax assets and liabilities is met, deferred tax assets and liabilities will also be offset. The income tax related to items recognized directly in equity in the current period or in a prior period is recognized directly in the same account. We regularly review the deferred income tax assets for recoverability and establish a valuation allowancewill only recognize these if under IFRS,we believe that it is not probable that the deferred income tax assets will be realized, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. A change in the assumptions and estimates with respect to our expected future taxable income could result in the recognition of a valuation allowance being charged to income. If we operate at a loss or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or discount rates, the time period over which the underlying temporary differences become taxable or deductible, or any change in its future projections, we could be required to establish a valuation allowance against all or a significant portionreduce the carrying amount of our deferred income tax assets resulting in a substantial increaseto the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of our effectivepart or all of that deferred income tax rate and a material adverse impact on operating results.asset to be realized.
Contingencies and disputed taxes
We record provisions for contingencies relating to legal proceedings with respect to which we deem the likelihood of an unfavorable outcome to be probable and the loss can be reasonably estimated. This determination is made based on the legal opinion of our internal and external legal counsel. We believe these contingencies are properly recognized in our financial statements in accordance with IAS 37 “ Provision,“Provision, Contingent Liabilities and Contingent Assets”. We are also involved in judicial and administrative proceedings that are aimed at obtaining or defending our legal rights with respect to taxes that we believe to be unconstitutional or otherwise not required to be paid by us. We believe that these proceedings will ultimately result in the realization of contingent tax credits or benefits that can be used to settle direct and indirect tax obligations owed to the Brazilian Federal or State Governments or to settle municipal tax obligations owed to the corresponding Municipality as per our laws. We do not recognize these contingent tax credits or benefits in our financial statements until realization of such gain contingencies has been resolved. This occurs when a final irrevocable decision is rendered by the courts in Brazil. When we use contingent tax credits or benefits based on favorable temporary court decisions that are still subject to appeal to offset current direct or indirect tax obligations, we maintain the legal obligation accrued in our financial statements until a final irrevocable judicial decision on those contingent tax credits or benefits is rendered. The accrual for the legal obligation related to the current direct or indirect tax obligations offset is not reversed until such time as the utilization of the contingent tax credits or benefits is ultimately realized. The accounting for the contingent tax credits is in accordance with accounting for contingent assets under IAS 37. Our accruals include interest on the tax obligations that we may offset with contingent tax credits or benefits at the interest rate defined in the relevant tax law. The recorded accruals for these disputed taxes and other contingencies may change in the future due to new developments in each matter, such as changes in legislation, irrevocable, final judicial decisions specific to us, or changes in approach, such as a change in settlement strategy in dealing with these matters. See “Item 8A. Consolidated Statements and Other Financial Information—Legal Proceedings” for further information on the judicial and administrative proceedings in which we are involved.
65
Allowance for doubtful accounts
We consider a provision for bad debts in our trade accounts receivable in order to reflect our expectation as to the net realizable value thereof. This provision is estimated based on an analysis of our receivables and is periodically reviewed to maintain real expectation of collectability of our accounts receivable.
Property, Plant and Equipment
In accordance with our accounting policy, the cost of maintenance in operating assets is capitalized when it does not occur annually and results in an increase in the useful life of the asset. Depreciation is recognized on an accrual basis until the next maintenance event of the relevant asset. Expenditures for maintenance and repairs in operating assets, that are necessary to maintain assets under normal conditions of use, are charged to operating costs and expenses, as incurred.
As of December 31, 2010 and 2011 the amount capitalized was R$495 million and R$655 million respectively and the amount expended was R$856 million and R$969 million, respectively.
Recently Issued Accounting Pronouncements Adopted and Not Adopted by Us
For a description on the recently issued accounting pronouncements, see Note 2 to our consolidated financial statements contained in “Item 18. Financial Statements”. We prepared our consolidated financial statements as of and for the year ended December 31, 20102011 in accordance with IFRS, as issued by the IASB. Our consolidated financial statements presented in our annual report on Form 20-F were previously prepared and presented in accordance with U.S. GAAP. Pursuant to IFRS 1 “First-time Adoption of International Reporting Standards”, we have used consistent accounting policies for both the current period, financial data as of and for the year ended December 31, 2010 and the comparative period, financial data as of and for the year ended December 31, 2009. These accounting policies comply with IFRS effective at December 31, 2010.
For the most significant differences and the reconciliation between our consolidated financial statements prepared in accordance with U.S. GAAP and IFRS, see, Note 4 to our consolidated financial statements included elsewhere in this Form 20-F.
Results of Operations
The following table presents certain financial information with respect to our operating results for each of the years ended December 31, 2011, 2010 and 2009 and the percentage change in each of these items comparing 2011 to 2010 and 2010 to 2009:
|
| Year Ended December 31, | ||||||
Income Statement Data: |
| 2011 |
| 2011 |
| 2010 |
| 2009 |
|
| (in million of US$, except per share data) |
| (in million of R$, except per share data) | ||||
Net operating revenues |
| 8,807 |
| 16,520 |
| 14,451 |
| 10,978 |
Cost of products sold |
| (5,225) |
| (9,801) |
| (7,883) |
| (7,211) |
Gross Profit |
| 3,582 |
| 6,719 |
| 6,568 |
| 3,768 |
Operating expenses |
|
|
|
|
|
|
|
|
Selling |
| (322) |
| (604) |
| (482) |
| (447) |
General and Administrative |
| (307) |
| (576) |
| (537) |
| (480) |
|
|
|
|
|
|
|
|
|
Other Expenses |
| (267) |
| (501) |
| (599) |
| (648) |
Other Income |
| 383 |
| 719 |
| 49 |
| 1,369 |
Total |
| (513) |
| (962) |
| (1.569) |
| (206) |
|
|
|
|
|
|
|
|
|
Operating income |
| 3,069 |
| 5,757 |
| 4,998 |
| 3,561 |
|
|
|
|
|
|
|
|
|
Financial Income (expenses), net |
| (1,069) |
| (2,006) |
| (1,911) |
| (246) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Taxes |
| 2,000 |
| 3,751 |
| 3,087 |
| 3,315 |
Income Tax |
|
|
|
|
|
|
|
|
Current |
| (73) |
| (136) |
| (363) |
| (577) |
Deferred |
| 28 |
| 52 |
| (207) |
| (123) |
|
|
|
|
|
|
|
|
|
Total |
| 1,955 |
| 3,667 |
| 2,516 |
| 2,615 |
|
|
|
|
|
|
|
|
|
Net income |
| 1,955 |
| 3,667 |
| 2,516 |
| 2,615 |
|
|
|
|
|
|
|
|
|
Loss attributable to noncontrolling interest |
| (21) |
| (39) |
| - |
| (4) |
|
|
|
|
|
|
|
|
|
Net income attributable to Companhia Siderúrgica Nacional |
| 1,976 |
| 3,706 |
| 2,516 |
| 2,619 |
Year 2011 Compared to Year 2010
In addition to the consolidated figures reported above, the Company reports its integrated operations in five business segments: steel, mining, cement, logistics (including Port and Railway) and energy. The operating resultsof each segment are disclosed separately. The information on CSN’s five business segments is derived from the accounting data, together with allocations and the apportionment of costs among the segments.
Our consolidated results for the years ended December 31, 2011 and 2010 by business segment are presented below:
|
|
Year Ended December 31, |
| Increase (Decrease) | ||
|
| 2010 |
| 2009 |
|
|
|
|
|
|
|
|
|
Net operating revenues |
| 14,451 |
| 10,978 |
| 32% |
Cost of products sold |
| (7,687) |
| (7,022) |
| 9% |
|
|
|
|
|
|
|
Gross profit |
| 6,764 |
| 3,956 |
| 71% |
Operating expenses |
|
|
|
|
|
|
Selling |
| (678) |
| (636) |
| 7% |
General and administrative |
| (537) |
| (480) |
| 12% |
Other income |
| 92 |
| 1,417 |
| (93%) |
Other expenses |
| (643) |
| (696) |
| (8%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
| 4,998 |
| 3,561 |
| 40% |
|
|
|
|
|
|
|
Finance income (expenses), net |
| (1,911) |
| (246) |
| 677% |
|
|
|
|
|
|
|
Income before income taxes |
| 3,087 |
| 3,315 |
| (7%) |
Income Tax |
| (571) |
| (700) |
| (18%) |
Current |
| (314) |
| (582) |
| (46%) |
Deferred |
| (257) |
| (118) |
| 118% |
|
|
|
|
|
|
|
Net income |
| 2,516 |
| 2,615 |
| (4%) |
|
|
|
|
|
|
|
Non-controlling interests |
| (0) |
| (4) |
| (95%) |
|
|
|
|
|
|
|
Owners of the Company |
| 2,516 |
| 2,619 |
| (4%) |
R$ million |
|
| Logistics |
|
|
| Year Ended December 31, 2011 | |
Consolidated Results | Steel | Mining | Port Logistics | Railway Logistics | Cement | Energy | Eliminations | Consolidated |
Net operating revenues | 9,478 | 5,942 | 143 | 1,023 | 333 | 183 | (582) | 16,520 |
Domestic Market | 8,190 | 834 | 143 | 1,023 | 333 | 183 | (565) | 10,142 |
Export Market | 1,287 | 5,108 |
|
|
|
| (17) | 6,378 |
Cost of goods sold | (7,038) | (2,185) | (85) | (667) | (268) | (105) | 549 | (9,801) |
Gross profit | 2,440 | 3,757 | 57 | 356 | 65 | 78 | (33) | 6,719 |
Adjusted EBITDA | 2,575 | 3,768 | 45 | 371 | 20 | 75 | (386) | 6,468 |
R$ million |
|
| Logistics |
|
|
| Year Ended December 31, 2010 | |
Consolidated Results | Steel | Mining | Port Logistics | Railway Logistics | Cement | Energy | Eliminations | Consolidated |
Net operating revenues | 9,926 | 3,615 | 119 | 838 | 202 | 114 | (364) | 14,451 |
Domestic Market | 8,763 | 574 | 119 | 838 | 202 | 114 | (364) | 10,247 |
Export Market | 1,163 | 3,041 |
|
|
|
|
| 4,204 |
Cost of goods sold | (6,226) | (1,252) | (70) | (522) | (164) | (42) | 393 | (7,883) |
Gross profit | 3,700 | 2,363 | 49 | 317 | 38 | 72 | 29 | 6,568 |
Adjusted EBITDA | 3,776 | 2,439 | 38 | 349 | 9 | 69 | (325) | 6,355 |
66Net Operating Revenues
Net operating revenues were R$16,520 million in 2011, an increase of R$2,069 million, or 14.3%, from R$14,451 million recorded in 2010, mainly due to the increase in our mining revenues, which represent 35% of our total revenues.
Total net revenues of exports and sales abroad increased 51.7%, from R$4,204 million in 2010 to R$6,378 million in 2011, while net domestic revenues decreased 1.0%, from R$10,247 million in 2010 to R$10,142 million in 2011.
Steel
Steel net operating revenues decreased R$448 million, or 4.5%, from R$9,926 million in 2010 to R$9,478 million in 2011, mainly due to a decrease in average steel prices, partially offset by the 2.1% increase in sales volume from 4,796 million tons in 2010 to 4,896 million tons in 2011.
Steel net domestic revenues decreased 6.5%, from R$8,763 million in 2010 to R$8,190 million in 2011, mainly due to a decrease in average steel prices in the domestic market, partially offset by the 1.9% increase in sales volume from 4,135 thousand tons in 2010 to 4,216 thousand tons in 2011.
Steel net revenues from exports and sales abroad increased 10.7%, from R$1,163 million in 2010 to R$1,287 million in 2011, with increases in average steel prices in the international market as well as an increase in sales volumes, from 661 thousand tons in 2010 to 680 thousand tons in 2011.
Mining
Mining net operating revenues increased R$2,327 million, or 64.4%, from R$3,615 million in 2010 to R$5,942 million in 2011, primarily due to higher international prices and the increase in sales volume.
Mining net domestic revenues increased R$260 million, or 45.3%, from R$574 million in 2010 to R$834 million in 2011, mainly due to the increase in average iron ore prices, partially offset by the decrease of 4.1%in sales volume from 1,520 thousand tons in 2010 to 1,457 thousand tons in 2011, a function of our strategy of increasing iron ore exports.
Mining net export revenues increased R$2,067 million, or 68.0%, from R$3,041 million in 2010 to R$5,108 million in 2011, primarily due to the increase in international iron ore prices driven by the strong demand, mainly from China, and the increase of 31.4% in sales volume, from 17,035 thousand tons in 2010 to 22,392 thousand tons in 2011.
Logistics
Logistics net operating revenues in 2011 were R$1,166 million, an increase of 21.8% as compared with the net logistics operating revenues of R$957 million reported in 2010. In 2011, net revenue from railway logistics totaled R$1,023 million and net revenue from port logistics amounted to R$143 million, while in 2010, net revenue from railway logistics totaled R$838 million and net revenue from port logistics amounted to R$119 million.
Cement
As we continue the ramp-up of our cement plant in Volta Redonda, we significantly increased sales in 2011, reaching 1,755 thousand tons, which represents a growth of 76.9% when compared to 2010.
As a consequence, in 2011, net revenues from the cement segment totaled R$333 million, an increase of 65.0% from 2010 net revenues of R$202 million.
Energy
In 2011 our net operating revenues from the energy segment totaled R$183 million, an increase of R$69 million as compared with net operating revenues of R$114 million reported in 2010 in this segment.
Cost of Products Sold
In 2011, consolidated cost of products sold amounted to R$9,801 million, representing a 24.3% increase as compared to R$7,883 million recorded in 2010.
Steel
Consolidated steel costs were R$7,038 million in 2011, representing a 13.0% increase as compared to the R$6,226 million recorded in 2010, mainly due to the increase in raw materials costs.
Other than the periodic sale of excess inventories and the purchase by our subsidiaries of semi-finished products from third parties for further processing, our cost of products sold is equivalent to our steel production cost.
The following table sets forth our steel production costs, the production costs per ton of steel and the portion of production costs attributable to the primary components of our costs of production. With the exception of coal and coke, which we import, and some metals (such as aluminum, zinc and tin) with domestic prices linked to international prices, our costs of production are mostly denominated inreais.
| 2011 | 2010 | ||||
Raw Materials | R$ million | R$ / ton | % | R$ million | R$ / ton | % |
Iron Ore | 283 | 56.6 | 4.7% | 239 | 47.0 | 4.3% |
Coal | 1,249 | 250.5 | 20.9% | 1,239 | 243.7 | 22.1% |
Coke | 575 | 115.3 | 9.6% | 382 | 75.1 | 6.8% |
Metals | 275 | 55.1 | 4.6% | 244 | 48.0 | 4.3% |
Outsourced Slabs and Hot Coils | 221 | 44.3 | 3.7% | 272 | 53.5 | 4.9% |
Pellets | 276 | 55.3 | 4.6% | 169 | 33.2 | 3.0% |
Scrap | 110 | 22.0 | 1.8% | 64 | 12.6 | 1.1% |
Other(1) | 237 | 47.5 | 4.0% | 274 | 53.9 | 4.9% |
(1)Includes limestone and dolomite |
|
|
|
|
|
|
Energy / Fuel | 565 | 113.3 | 9.5% | 561 | 110.3 | 10.1% |
Labor | 607 | 121.6 | 10.2% | 570 | 112.1 | 10.2% |
Services and Maintenance | 716 | 143.5 | 12.0% | 743 | 146.1 | 13.3% |
Tools and Supplies | 268 | 53.8 | 4.5% | 269 | 52.9 | 4.8% |
Depreciation | 562 | 112.7 | 9.4% | 489 | 96.2 | 8.7% |
Other | 27 | 5.5 | 0.5% | 59 | 16.5 | 1.5% |
|
|
|
|
|
|
|
Total Steel Cost Production | 5,970 | 1,197.1 | 100.0% | 5,574 | 1,101.3 | 100.0% |
In 2011, our steel production costs were R$5,970 million, a 7.1%, or R$396 million, increase from the R$5,574 million reported in 2010.
We are self-sufficient in almost all the raw materials used in the production of steel. The principal raw materials we use in our integrated steel mill include iron ore, coke, coal (from which we produce most of our coke necessities), limestone, dolomite, aluminum, tin and zinc. In addition, our production operations consume water, gases, electricity and ancillary materials.
We obtain all of our iron ore requirements from our Casa de Pedra mine located in the state of Minas Gerais, and the limestone and dolomite from our Bocaina mine in the city of Arcos, in the state of Minas Gerais.
The coal and coke we consume are acquired from different international producers “See Item 4B - Raw Materials and Suppliers”. In the first half of 2011, given the mismatch between supply and demand, there was an increase in the price of some raw materials used in steelmaking.
Our coke costs increased R$193 million or 50.5%, from R$382 million in 2010 to R$575 million in 2011, corresponding to 9.6% of our steel production cost, due to the increase in consumption and higher average prices.
The costs of pellets increased R$107 million or 63%, from R$169 million in 2010 to R$276 million in 2011, principally due to increase in consumption but also due to higher average prices.
Depreciation costs increased R$73 million from R$489 million in 2010 to R$562 million in 2011, mainly due to asset additions.
Mining
Our mining costs of products sold totaled R$2,185 million in 2011, an increase of R$933 million, or 74.5%, as compared to the R$1,252 million reported in 2010, mainly due to the increase in sales volume of iron ore.
Logistics
In 2011, cost of services attributable to our logistics segment totaled R$752 million, representing a 27.0% increase as compared to the R$592 million reported in 2010, mainly due to the increase in the cost of railway logistics, which totaled R$667 million in 2011, a 27.8% increase (equivalent to R$145 million) from the R$522 million reported in 2010. The railway logistics represented 89% of the total logistics costs in 2011 and 88% of the total logistics costs in 2010. In addition, cost of services from port logistics totaled R$85 million, a 21.4% increase from the R$70 million reported in 2010.
Cement
Cost of products sold attributable to our cement segment reached R$268 million in 2011, R$104 million, or 63.4% up from the R$164 million reported in 2010, mainly due to an increase in sales, as described above.
Energy
In 2011, cost of products sold attributable to our energy segment was R$105 million, an increase of R$63 million or 150.0% as compared with the R$42 million reported in 2010.
Gross Profit
Gross profit totaled R$6,719 million in 2011, an increase of 2.3% or R$151 million as compared to R$6,568 million on 2010, due to the increase of R$2,069 million in net operating revenues, partially offset by the increase of R$1,918 million in cost of products sold.
Steel
Gross profit in the steel segment totaled R$2,440 million in 2011, a decrease of R$1,260 million, or 34.1%, from R$3,700 million in 2010, due to the increase of R$812 million in the cost of steel products sold, in light of the increase in raw material costs, and the decrease of R$448 million in steel net revenues due to the decrease in average steel prices.
Mining
Our gross profit in the mining segment increased R$1,394 million, or 59.0% from R$2,363 million in 2010 to R$3,757 million in 2011, mainly due to the increase of R$2,327 million in mining net operating revenues, caused by higher international prices and increase in sales volume, partially offset by the increase of R$933 million in cost of products sold.
Logistics
Gross profit in the logistics segment increased 12.8% from R$366 million in 2010 to R$413 million in 2011, due to the increase of R$209 million in net revenues, partially offset by the increase of R$160 million in the cost of products sold.
Cement
Gross profit in the cement segment increased R$27 million or 68.4% from R$38 million in 2010 to R$65 million in 2011, due to the increase of R$131 million in net revenues, partially offset by the R$104 million increase in the cost of products sold.
Energy
The energy segment reported in 2011 a gross profit of R$78 million, an increase of 8.3% as compared with the R$72 million reported in 2010.
Selling, General and Administrative Expenses
In 2011, we recorded selling, general and administrative expenses of R$1,180 million, a 15.8% increase from 2010. Selling expenses increased 25.3%, from R$482 million in 2010 to R$604 million in 2011, mainly due to expenses relating to iron ore freight. General and administrative expenses increased 7.3%, from R$537 million in 2010 to R$576 million in 2011.
Other operating income (Expenses)
In 2011, we recorded a net income of R$218 million in the “Other Revenue and Expenses” line-item, as compared to a net expense of R$551 million in 2010. The R$769 million increase was mostly due to the R$698 million from the sale of CSN’s entire interest in Riversdale Mining Limited in April 2011.
Operating Income
Operating income increased by 15.2%, or R$759 million, from R$4,998 million in 2010 to R$5,757 million in 2011. This increase was mainlydue to the R$698 million from the sale of CSN’s entire interest in Riversdale Mining Limited in April 2011.
Financial expenses (income), net
In 2011, our net financial expenses increased by 5.0% or R$95 million, from R$1,911 million in 2010 to RS$2,006 million in 2011, mainly due to the following items:
·Interest income increased by 11.5%, or R$74 million, from R$643 million in 2010 to R$717 million in 2011 mainly due to the increase of R$145 million in returns on financial investments, due to the increases in cash and cash equivalents. This decrease was partially offset by the decrease of R$46 million in other financial income;
·Interest expense increased by 31.1%, or R$684 million, from R$2,200 million in 2010 to R$2,884 million in 2011 mainly due to the increase of R$828 million in interests on loans and financing, partially offset by an increase of R$138 million in capitalized interest;
·Foreign exchange and monetary variation net, including operations with derivatives, moved from a loss of R$354 million in 2010 to a gain of R$161 million in 2011, mainly resulting from the depreciation of thereal against the U.S. dollar. This depreciation affects:
oOur U.S. dollar-denominated gross debt;
oOur U.S. dollar-denominated cash and cash equivalents; and
oOur trade accounts receivable and payable account receivables.
Income Taxes
We recorded an expense for income tax and social contribution of R$84 million in 2011, as compared to R$571 million in 2010. Expressed as a percentage of pre-tax income, income tax expense decreased from 18.5% in 2010 to 2.2% in 2011. Income tax expense in Brazil refers to federal income tax and social contribution tax. The statutory rates for these taxes applicable to the periods presented herein were 25% for federal income tax and 9% for the social contribution. Therefore, the balances owed for these periods totaled R$1,275 million in 2011 and R$1,050 million in 2010 (34% of income before taxes and equity in affiliated companies). Adjustments are made to these rates in order to reach the actual tax expense for the years.
For the year ended December 31, 2011, adjustments totaled R$1,190 million and were comprised of:
·a R$1,279 million adjustment related to equity income of subsidiaries at different rates or which are not taxable, which decreased tax expenses;
·tax incentives that represented a net tax adjustment of R$73 million, which decreased tax expenses;
·tax incentives of R$44 million, which decreased tax expenses;
·a R$16 million adjustment related to non taxable income from the Federal Tax Repayment Program, or REFIS, which increased tax expenses; and
·An adjustment of R$190 million related to sale of non-deductible securities, which increased tax expenses.
For the year ended December 31, 2010, adjustments totaled R$478 million and were comprised of:
·a R$121 million benefit from interest on stockholders’ equity;
·a R$217 million adjustment related to equity income of subsidiaries at different rates or which are not taxable, which decreased tax expenses;
·tax incentives that represented a net tax adjustment of R$34 million, which decreased tax expenses; and
·a R$106 million benefit related to non taxable income from the Federal Tax Repayment Program, or REFIS, adjustments.
It is not possible to predict the future adjustments to the federal income tax and social contribution at statutory rates, as they depend on interest on stockholder’s equity, tax incentives, non-taxable factors including income from offshore operations, and tax losses from offshore operations, especially when expressed as a percentage of income.
Net Income
In 2011, we had a net income of R$3,667 million, a 45.7% increase as compared to 2010. The improved results were mainly due to the R$698 million from the sale of CSN’s entire interest in Riversdale Mining Limited in April 2011.
Year 2010 Compared to Year 2009
In addition to the consolidated figures reported above, the Company reports its integrated operations in five business segments: steel, mining, cement, logistics (including Port and Railway) and energy. The operating results of each segment are disclosed separately. The information on CSN’s five business segments is derived from the accounting data, together with allocations and the apportionment of costs among the segments.
Our consolidated results for the years ended December 31, 2010 and 2009 by business segment are presented below:
R$ million |
| Logistics |
| Year Ended December 31, 2010 |
| Logistics |
| Year Ended December 31, 2010 | ||||||||
Consolidated Results | Steel | Mining | Port Logistics | Railway Logistics | Cement | Energy | Eliminations | Consolidated | Steel | Mining | Port Logistics | Railway Logistics | Cement | Energy | Eliminations | Consolidated |
Net operating revenues | 9.926 | 3.615 | 119 | 838 | 202 | 114 | (364) | 14.451 | 9,926 | 3,615 | 119 | 838 | 202 | 114 | (364) | 14,451 |
Domestic Market | 8.763 | 574 | 119 | 838 | 202 | 114 | (364) | 10.247 | 8,763 | 574 | 119 | 838 | 202 | 114 | (364) | 10,247 |
Export Market | 1.163 | 3.041 |
| 4.204 | 1,163 | 3,041 |
| 4,204 | ||||||||
Cost of goods sold | (6.095) | (1.187) | (70) | (522) | (164) | (42) | 393 | (7.687) | (6,226) | (1,252) | (70) | (522) | (164) | (42) | 393 | (7,883) |
Gross profit | 3.831 | 2.428 | 49 | 317 | 38 | 72 | 29 | 6.764 | 3,700 | 2,363 | 49 | 317 | 38 | 72 | 29 | 6,568 |
R$ million |
| Logistics |
| Year Ended December 31, 2009 | ||||||||||||
Consolidated Results | Steel | Mining | Port Logistics | Railway Logistics | Cement | Energy | Eliminations | Consolidated | ||||||||
Net operating revenues | 8.201 | 1.964 | 144 | 823 | 60 | 117 | (330) | 10.978 | ||||||||
Domestic Market | 7.046 | 247 | 144 | 823 | 60 | 117 | (330) | 8.107 | ||||||||
Export Market | 1.156 | 1.716 |
| 2.872 | ||||||||||||
Cost of goods sold | (5.572) | (1.179) | (76) | (464) | (61) | (43) | 373 | (7.022) | ||||||||
Gross profit | 2.629 | 784 | 69 | 358 | (1) | 73 | 43 | 3.956 |
Adjusted EBITDA | 3,776 | 2,439 | 38 | 349 | 9 | 69 | (325) | 6,355 |
R$ million |
|
| Logistics |
|
|
| Year Ended December 31, 2009 | |
Consolidated Results | Steel | Mining | Port Logistics | Railway Logistics | Cement | Energy | Eliminations | Consolidated |
Net operating revenues | 8,201 | 1,964 | 144 | 823 | 60 | 117 | (330) | 10,978 |
Domestic Market | 7,046 | 247 | 144 | 823 | 60 | 117 | (330) | 8,107 |
Export Market | 1,156 | 1,716 |
|
|
|
|
| 2,872 |
Cost of goods sold | (5,692) | (1,248) | (76) | (464) | (61) | (43) | 373 | (7,211) |
Gross profit | 2,509 | 716 | 69 | 358 | (1) | 73 | 43 | 3,768 |
Adjusted EBITDA | 2,623 | 811 | 65 | 410 | (8) | 74 | (353) | 3,621 |
Net Operating Revenues
Net operating revenues were R$14,451 million in 2010, an increase of R$3,473 million, or 31.6%, from R$10,978 million recorded in 2009, mainly due to the increase in steel and mining revenues, segments that represent more than 90% of our total net revenues.
Net domestic revenues increased 26.4%, from R$8,107 million in 2009 to R$10,247 million in 2010, while total net export revenues increased 46.4%, from R$2,872 million in 2009 to R$4,204 million in 2010.
Steel
Steel net operating revenues increased R$1,725 million, or 21.0%, from R$8,201 million in 2009 to R$9,926 million in 2010, mainly due to the 16.7% increase in steel sales volume from 4,110 million tons in 2009 to 4,796 million tons in 2010 and to the increase of 5.0% in the steel average prices.
Steel net domestic revenues increased 24.4%, from R$7,046 million in 2009 to R$8,763 million in 2010, due to the increase of 27.5% in domestic sales volume from 3,243 million in 2009 to 4,135 million in 2010, given the increase in demand.
Steel net export revenues increased 0.6%, from R$1,156 million in 2009 to R$1,163 million in 2010.
Mining
Mining net operating revenues increased R$1,651 million, or 84.1%, from R$1,964 million in 2009 to R$3,615 million in 2010 primarily due to higher international prices and the increase in sales volume.
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Mining net domestic revenues increased R$327 million, or 132.4%, mainly due to the increase of 113.2% in domestic sales volume from 713 million tons in 2009 to 1,520 million in 2010, given the increase in demand.
Mining net export revenues increased R$1,325 million, or 77.2%, from R$1,716 million in 2009 to R$3,041 million in 2010, primarily due to the increase in international iron ore prices driven by the strong demand, mainly from China.
Logistics
Total logistics net operating revenues in 2010 achieved R$957 million, a reduction of 1.0% as compared with the net logistics operating revenues of R$967 million reported in 2009. In 2010, net revenue from railway logistics totaled R$838 million and net revenue from port logistics amounted to R$119 million, while in 2009, net revenue from railway logistics totaled R$823 million and net revenue from port logistics amounted to R$144 million.
Cement
In May 2009, we began producing cement in our new plant in Volta Redonda, adjacent to the Presidente Vargas Steelworks, adding value to the slag generated during steel production.
As we operated the plant during the whole year, in 2010 we increased significantly the sales of cement, reaching 992 thousand tons, a 193.5% increase over 2009. This increase in sales does not consider the full operation of our cement segment, which is in process of growth.
As a consequence, in 2010, net revenue from cement segment totaled R$202 million, an increase of 236.7% from 2009 net revenue of R$60 million.
Energy
In 2010 our net operating revenues from the energy segment totaled R$114 million, a decrease of R$3 million as compared with the net operating revenues of R$117 million reported in 2009 in this segment.
Cost of Products Sold
In 2010, consolidated cost of products sold amounted to R$7,6877,883 million, representing a 9.5%9.3% increase as compared to R$7,0227,211 million recorded in 2009.
Steel
Consolidated steel costs were R$6,0956,266 million in 2010, representing a 9.4% increase as compared to the R$5,5725,693 million recorded in 2009, mainly as a result of higher sales, partially offset by the greater dilution of fixed costs.
Other than the sale of excess inventories from time to time and the purchase by our subsidiaries of semi-finished products from third parties for further processing, our cost of products sold is equivalent to our steel production cost.
The following table sets forth our steel production costs, the production costs per ton of steel and the portion of production costs attributable to the primary components of our costs of production. With the exception of coal and coke, which we import, and some metals (such as aluminum, zinc and tin) with domestic prices linked to international prices, our costs of production are mostly denominated in reais.reais.
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R$ million | 2010 | 2009 | 2010 | 2009 | ||||||||
Raw Materials | R$ million | R$ / ton | % | R$ million | R$ / ton | % | R$ million | R$ / ton | % | R$ million | R$ / ton | % |
Iron Ore | 239 | 47.0 | 4.3% | 221 | 50.6 | 4.9% | 239 | 47.0 | 4.3% | 221 | 50.6 | 4.9% |
Coal | 1,239 | 243.7 | 22.1% | 1,042 | 238.7 | 22.9% | 1,239 | 243.7 | 22.1% | 1,042 | 238.7 | 22.9% |
Coke | 382 | 75.1 | 6.8% | 378 | 86.6 | 8.3% | 382 | 75.1 | 6.8% | 378 | 86.6 | 8.3% |
Metals | 244 | 48.0 | 4.3% | 174 | 39.9 | 3.8% | 244 | 48.0 | 4.3% | 174 | 39.9 | 3.8% |
Outsourced Slabs and Hot Coils | 272 | 53.5 | 4.9% | 62 | 14.2 | 1.4% | 272 | 53.5 | 4.9% | 62 | 14.2 | 1.4% |
Pellets | 169 | 33.2 | 3.0% | 59 | 13.5 | 1.3% | 169 | 33.2 | 3.0% | 59 | 13.5 | 1.3% |
Scrap | 64 | 12.6 | 1.1% | 100 | 22.9 | 2.2% | 64 | 12.6 | 1.1% | 100 | 22.9 | 2.2% |
Other (1) | 274 | 53.9 | 4.9% | 201 | 46.0 | 4.4% | 274 | 53.9 | 4.9% | 201 | 46.0 | 4.4% |
(1) Include limestone and dolomite | ||||||||||||
Energy / Fuel | 561 | 110.3 | 10.1% | 436 | 99.9 | 9.6% | 561 | 110.3 | 10.1% | 436 | 99.9 | 9.6% |
Labor | 570 | 112.1 | 10.2% | 468 | 107.2 | 10.3% | 570 | 112.1 | 10.2% | 468 | 107.2 | 10.3% |
Services and Maintenance | 743 | 146.1 | 13.3% | 657 | 150.5 | 14.4% | 743 | 146.1 | 13.3% | 657 | 150.5 | 14.4% |
Tools and Supplies | 269 | 52.9 | 4.8% | 221 | 50.6 | 4.9% | 269 | 52.9 | 4.8% | 221 | 50.6 | 4.9% |
Depreciation | 489 | 96.2 | 8.7% | 417 | 95.5 | 9.2% | 489 | 96.2 | 8.7% | 417 | 95.5 | 9.2% |
Other | 59 | 16.5 | 1.5% | 120 | 27.5 | 2.6% | 59 | 16.5 | 1.5% | 120 | 27.5 | 2.6% |
Total Steel Cost Production | 5,574 | 1,101.3 | 100.0% | 4,556 | 1,043.5 | 100.0% | 5,574 | 1,101.3 | 100.0% | 4,556 | 1,043.5 | 100.0% |
(*) adjustment according to adoption of the International Financial Reporting Standards (IFRS) |
In 2010, our steel production costs were R$5,574 million, a 22.3% or R$1,018 million increase from R$4,556 million reported in 2009.
We are self-sufficient in almost all the raw materials used in the steel production. The principal raw materials we use in our integrated steel mill include iron ore, coke, coal (from which we produce most of our coke necessities), limestone, dolomite, aluminum, tin and zinc. In addition, our production operations consume water, gases, electricity and ancillary materials.
We obtain all of our iron ore requirements from our Casa de Pedra mine located in the State of Minas Gerais, and the limestone and dolomite from our Bocaina mine in the city of Arcos, in the State of Minas Gerais.
The coal and coke we consume are acquired from different international producers “See Item Raw Materials and Suppliers”. During 2010, given the higher global demand for steel products, there was aan increase in the consumption and in the prices of some commodities used for steelmaking.
Our coal costs increased 18.9%, from R$1,042 million in 2009 to R$1,239 million in 2010, corresponding to 22.1% of our steel production cost, given the increase in consumption and higher average prices.
Production cost increased also due to the higerhigher consumption of hot-rolled coils acquired from third parties in 2010. Those costs increased 338.7%, from R$62 million in 2009 to R$272 million in 2010 due to the acquisition, by the company, of semi-finished products from third-parties, to face the strong steel demand after the global economic crisis. This increase in steel demand was mainly noticed in the 1st half of 2010, as compared to the same period of 2009, when the world was in the middle of the economic crisis.
The costs of metals such as aluminum, zinc and tin also increased from R$174 million in 2009 to R$244 million in 2010, given the increase in consumption and higher prices.
Other raw materials include pellets and scrap purchased in the market and also limestone and dolomite that we extract from our own mines in the state of Minas Gerais.
69
market.
Mining
Our mining costs totaled R$1,1871.252 million in 2010, in linean increase of 0.4% as compared with the R$1,1791.248 million reported in 2009, despitedue to the 6.2% increase in sales volume, which was offset by the greater dilution of fixed costs.volume.
Logistics
In 2010, cost of services attributable to our logistics segment totaled R$592 million, representing a 9.6% (or R$52 million) increase as compared to the R$540 million reported in 2009, mainly due to the increase in the cost of services of our railway logistics, which totaled R$522 million in 2010, a 12.5% increase (or R$58 million) from the R$464 million reported in 2009. The railway logistics represented 88% of the total logistics costs in 2010 and 86% of the total logistics costs in 2009.
On the other hand, cost of services from port logistics totaled R$70 million, a 7.9% decrease from the R$76 million reported in 2009.
Cement
Cost of products sold attributable to our cement segment achieved R$164 million in 2010, R$103 million, or 168.8%, more than the R$61 million reported in 2009, due to increase in sales, as described above.
Energy
In 2010, cost of products sold attributable to our energy segment was R$42 million, in line with the R$43 million reported in 2009.
Gross Profit
Gross profit increased R$2,8082,800 million, or 71.0%74.3%, from R$3,9563,768 million in 2009 to R$6,7646,568 million in 2010, due to the increase of R$3,473 million in net operating revenues and the increase of R$665672 million in cost of products sold.
Steel
Gross profit in the steel segment increased R$1,2021,191 million, or 45.7%47.5%, from R$2,6292,509 million in 2009 to R$3,8313,700 million in 2010, due to the increase of R$1,725 million in steel net revenues, driven by the increase in sales volume and in steel average prices, partially offset by the increase of R$523533 million in the cost of steel products sold.
Mining
Our gross profit in the mining segment increased R$1,6441,647 million, or 209.6%230.1% from R$784716 million in 2009 to R$2,4282,363 million in 2010, mainly due to the increase of R$1,651 million in mining net operating revenues due to higher international prices and the increase in sales volume.
Logistics
Gross profit in the logistics segment decreased 14.3% in 2010, from R$427 million in 2009 to R$366 million in 2010, due to the decrease of 1.0% in net revenues and the increase of 9.6% in the cost of products sold.
Cement
Gross profit in the cement segment increased R$39 million, from a negative result of R$1 million in 2009 to a positive result of R$38 million in 2010, due to the increase of 236.7% in net revenues, partially offset by a 168.8% increase in the cost of products sold.
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Energy
The energy segment reported in 2010 a gross profit of R$72 million, in line with the R$73 million reported in 2009.
Selling, General and Administrative Expenses
In 2010, we recorded selling, general and administrative expenses of R$1,2151,019 million, a 9%9.9% increase from 2009.
Selling expenses increased 7% 7.8%, from R$636447 million in 2009 to R$ 678482 million in 2010, reflecting the stronger sales efforts in 2010.
General and administrative expenses increased 12%, from R$480 million in 2009 to R$537 million in 2010.
Other operating income (Expenses)
In 2010, we recorded a net other expense of R$551 million in the “Other Revenue and Expenses” line-item, as compared to a net revenue of R$721 million in 2009. The R$1,272 million reduction was principally due to the positive non-recurring effects in 2009 of the reverse merger of Big Jump Energy ParticipacoesParticipações SA by our investee Namisa in the amount of R$835 million and our adherence of to the REFIS tax repayment program in the amount of R$505 million.
Operating Income
Operating income increased by 40.3%, or R$1,437 million, from R$3,561 million in 2009 to R$4,998 million in 2010. This increase was mainly due to the R$3,473 million increase in net revenues, offset by the reduction on cost of product sold in the amount of R$665 million and the R$1,272 million reduction in the “Other Revenue and Expenses” line, principally due to the positive non-recurring effects in 2009 of the reverse merger of Big Jump Energy ParticipacoesParticipações SA by our investee Namisa in the amount of R$835 million and our adherence of to the REFIS tax repayment program in the amount of R$505 million.
Financial expenses (income), net
In 2010, our net financial expenses increased by 676.8%, or R$1,665 million, from R$246 million in 2009 to RS$1,911 million in 2010, mainly due to the following items:
· Interest income increased by 10%, or R$57 million, from R$586 million in 2009 to US$RS$643 million in 2010 mainly due to the increase of R$118 million in returns on financial investments, due to the increases in cash and cash equivalents. This decrease was partially offset by the decrease of R$58 million in other financial income;
· Interest expense increased by 16.3%, or R$308 million, from R$1,892 million in 2009 to US$RS$2,200 million in 2010 mainly due to the increase of R$514 million in interests on loans and financing in local currency and the increase of R$12843 million in interests on loans and financing in foreign currency. This was partially offset by the increase of R$130 million in capitalized interests and the decrease of R$125 million in losses from derivatives instruments;
· Foreign exchange and monetary loss,variation net, including operations with derivatives decreased by 133.1%, or R$1,414 million,moved from a gain of R$1,060 million in 2009 to a loss of R$354 million in 2010 mainly affected by appreciation of thereal against theU.S. dollar.dollar. This appreciation affects:
o Our U.S. dollar-denominated gross debt;
o Our U.S. dollar-denominated cash and cash equivalents; and
o Our trade accounts receivable and payable.
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Income Taxes
We recorded an expense for income tax and social contribution of R$571 million in 2010, as compared to R$700 million in 2009. Expressed as a percentage of pre-tax income, income tax expense decreased from 21.1% in 2009 to 18.5% in 2010. Income tax expense in Brazil refers to the collection of federal income tax and social contribution tax. The statutory rates for these taxes applicable to the periods presented herein were 25% for federal income tax and 9% for the social contribution. Therefore, the balances owed for these periods totaled R$1,050 million in 2010 and R$1,127 million in 2009 (34% of income before taxes and equity in affiliated companies). Adjustments are made to these rates in order to reach the actual tax expense for the years.
For the year ended December 31, 2010, adjustments totaled R$479 million and were comprised of:
· a R$121 million benefit from interest on stockholders’ equity;
· a R$216 million adjustment related to equity income of subsidiaries at different rates or which are not taxable;
· tax incentives that represented a net tax adjustment of R$34 million;
· a R$106 million benefit related to non taxable income from the Federal Tax Repayment Program, or REFIS, adjustments;
For the year ended December 31, 2009, adjustments totaled R$427 million and were comprised of:
· a R$109 million benefit from interest on stockholders’ equity;
· a R$169 million benefit related to equity income of subsidiaries at different rates or which are not taxable;
· tax incentives that represented a net tax adjustment of R$12 million;
· a R$252 million benefit related to non taxable income from the Federal Tax Repayment Program, or REFIS, adjustments; and
· These increases were offset by other permanent exclusions in the amount of R$115 million, mainly by the constitution of deferred income tax on the tax loss carryfowards of the subsidiary Prada.
It is not possible to predict the future adjustments to the federal income tax and social contribution at statutory rates, as they depend on interest on stockholder’s equity, non-taxable factors including income from offshore operations, and tax losses from offshore operations, especially when expressed as a percentage of income.
Net Income
In 2010, we had net income of R$2,516 million, a 4% decrease from 2009. The improved results in steel and mining segments were offset by the increase in other operating expenses due to non-recurring gains recorded in 2009 and the increase in financial expenses in 2010.
Adjusted EBITDA
Adjusted EBITDA comprises net income before the financial result, income and social contribution taxes, depreciation and amortization and other operating revenue (expenses), the latter item being excluded due to its non-recurring nature.Our management uses adjusted EBITDA as a means of measuring the recurring generation capacity of operating cash, allowing for comparison criteria with other companies.
R$ Million |
| 2011 |
| 2010 |
| 2009 |
Adjusted EBITDA |
| 6,468 |
| 6,355 |
| 3,621 |
Depreciation |
| (929) |
| (806) |
| (780) |
Other operating income (expenses) |
| 218 |
| (551) |
| 721 |
Finance income (expenses) |
| (2,006) |
| (1,911) |
| (246) |
Pretax income |
| 3,751 |
| 3,087 |
| 3,315 |
Income tax and social contribution |
| (84) |
| (571) |
| (700) |
Profit for the year |
| 3,667 |
| 2,516 |
| 2,615 |
Adjusted EBITDA totaled R$6,468 million in 2011, an increase of 1.8% or R$113 million as compared to R$6,355 million in 2010, due to the increase in sales and average prices of iron ore, partially offset by higher costs of goods sold and lower steel prices.
Adjusted EBITDA totaled R$6,355 million in 2010, an increase of 75.5% or R$2,735 million as compared to R$3,621 million in 2009, due to the increase in steel and mining results.
5B. Liquidity and Capital Resources
Overview
Our main uses of funds are for capital expenditures, repayment of debt and dividend payments. We have historically met these requirements by using cash generated from operating activities and through the issuance of short- and long-term debt instruments. We expect to meet our cash needs for 20112012 primarily through a combination of operating cash flow, cash and cash equivalents on hand and newly issued long-term debt instruments.
In addition, from time to time, we review acquisition and investment opportunities and will, if a suitable opportunity arises, make selected acquisitions and investments to implement our business strategy. We generallymakegenerally make investments directly or through subsidiaries, joint ventures or affiliated companies, and fund these investments through internally generated funds, the issuance of debt, or a combination of such methods.
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Cash Flows
Cash andOur free cash equivalentsflow as of December 31, 2011 and 2010 totaled R$5,178 million and 2009 totaled R$2,268 million, and R$ 1,181 million, respectively.
Operating Activities
Cash provided from operations was R$ 2,4824,202 million and cash used in operations was R$ 7732,517 million, in 20102011 and 20092010 respectively. The R$ 3,2551,685 million increase in cash flow from operating activities in 20102011 as compared to 20092010 was mainly due to an increase of R$ 3,1061,171 million in adjustments to reconcile net income mainly duecash effect and a decrease of R$514 million in our working capital allocated to an increase of financial interests of R$ 359 million, accrual for derivatives in the amount of R$ 215 million and net foreign exchange gain of R$ 2,082 million and gain with equity investment variation in 2009 in the amount of R$ 835 million due to Namisa’s results of operations, that did not occur in 2010.our business.
Investing Activities
We used cash in our investing activities in the total amount of R$5,275 million in 2011 and R$4,636 million in 2010 and R$ 617 million in 2009 .2010. The increase of R$ 4,019639 million in 20102011 as compared to 20092010 was mainly due to acquisition of investment in Riversdale Mining Limited and acquisitionsan increase of fixed assets to supply the projects, mainly related to: (i) the Casa de Pedra expansion; (ii) the constructionexpansion of the cement plant in the cityPort of Volta Redonda (State of Rio de Janeiro) and of the clinker plant in the city of Arcos (State of Minas Gerais);Itaguai; (iii) the construction of the long steel mill in the city of Volta Redonda (State of Rio de Janeiro) and (iv) the extension of Transnordestina railroadrailroad.
Financing Activities
Cash provided by financing activities was R$ 4,6514,741 million in 20102011 and R$ 1,5104,616 million in 2009.2010. The R$ 3,141125 million increase in cash provided by financing activities in 2010,2011, as compared to 2009,2010, was mainly due to a increase in long-term debt during the period to finance the current projects. Also in 2009, we acquired our own shares to be held in treasury in the amountdecrease of R$ 1,3501,238 million in amortizations, almost offset by a transaction not repeateddecrease of R$931 million in 2010.issuances and an increase of R$296 millionin payments of dividends and interest on equity.
Trade Accounts Receivable Turnover Ratio
Our receivable turnover ratio (the ratio between trade accounts receivable and net operating revenues), expressed in days of sales decreasedincreased to 2629 days on December 31, 20102011 from 3126 days on December 31, 2009.2010.
Days Sales in Inventory Turnover Ratio
Our days sales in inventory turnover ratio (obtained by dividing inventories by annualized cost of goodsproducts sold), expressed in days of cost of goodsproducts sold increaseddecreased to 113103 days in 2010, as compared to 882011, from 118 days in 2009.2010.
Trade Accounts Payable Turnover Ratio
The accounts payable turnover ratio (obtained by dividing trade accounts payable by annualized cost of goodsproducts sold), expressed in days of cost of goodsproducts sold, decreasedincreased to 2546 days on December 31, 20102011 from 2630 days on December 31, 2009.2010.
Liquidity Management
Liquidity Management
Given the capital intensive and cyclical nature of our industry, and the generally volatile economic environment in certain emerging markets, we have retained a substantial amount of cash on hand to run our operations, to satisfy our financial obligations, and to be prepared for potential investment opportunities. As of December 31, 2010,2011, cash and cash equivalent totaled R$ 10,23915,417 million.
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We were also taking advantage of the current liquidity conditions to extend the maturity profile of our debt. These activities are unrelated to the management of any interest rate, inflation and/or foreign exchange risk exposure. Given the lack of a liquid secondary market for our short term debt instruments, we have accumulated cash instead of prepaying our debt prior to final maturity.maturity. As of December 31, 2010,2011, short-term and long-term indebtedness accounted for 6.51%9.69% and 93.49%90.31%, respectively, of our total debt, and the average life of our existing debt was equivalent to approximately nine8 years, considering a 40 years-termyear term for the perpetual bonds issued in September 2010.
Capital Expenditures and Investments
In 2010,2011, our capital expenditures were R$ 3,6364,401 million, of which R$1,691 million was used in acquisitionsthe expansion of equipment, of whichthe Transnordestina railroad, R$ 275549 million was usedin maintenance and repairs, R$251 million in the Casa de Pedra mine expansion, R$ 1.371 million relating to the expansion of the Transnordestina railroad, R$ 249 million in construction of the cement plant in Volta Rendonda (RJ), R$ 139238 million in projects relating to the Itaguaí Port expansion and R$ 483216 million in maintenance.the construction of our long steel plant in Volta Redonda.
We expect to meet our liquidity requirements from cash generated from operations, and, if needed, the issuance of debt securities. For details on our Planned Investments see “Item 4D. Property, Plant and Equipment – Capital Expenditures – Planned Investments”.
Company Debt and Derivative Instruments
At December 31, 20102011 and 2009,2010, total debt (composed of current portion of long-term debt, accrued finance charges, long-term debt and debentures) aggregatedsummed R$28,067 million and R$20,206 million, and R$ 14,356 million , respectively, equal to 258%333% and 218%258% of the stockholders’ equity at December 31, 20102011 and 2009,2010, respectively. At December 31, 2010,2011, our short-term debt (composed of current portion of long-term debt including accrued finance charges and debentures) totaled R$ 1,3452,735 million and our long-term debt (composed of long-term debt and debentures) totaled R$ 18,86225,332 million. The foregoing amounts do not include debt of others for which we are contingently liable. See “Item 5E. Off-Balance Sheet Arrangements.”
At December 31, 2010,2011, approximately 48%64% of our debt was denominated inreais and substantially all of the remaining balance was denominated in U.S. dollars.
Our current policy is to protect ourselves against foreign exchange losses and interest rate losses on our debt and currently our exposure is protected through foreign exchange derivative products, including futures swaps, and FRA-Forward Rate Agreements.swaps. For a description of our derivative instruments, see Note 17 to our consolidated financial statements contained in “Item 18. Financial Statements.” Also see “Item 5A. Operating Results—Results of Operations—Year 20102011 Compared to Year 2009”2010”.
The major components of R$ 1,3452,735 million of our consolidated current portion of long-termshort-term debt outstanding at December 31, 20102011 were:
Components | Average | Total (in million of R$) | |
Fixed rate notes | 6.5% - 10.5% |
| 119 |
BNDES/Finame | 1.5% - 3.2% |
| 456 |
Prepayment financing |
|
| |
Debentures | 9.4% + IGPM and 1% + TJLP and 103.6% - 110.8% CDI | 672 | |
CCB | 1.54% and 112.5% CDI | 278 | |
Others | 3.3% - |
| |
Total |
|
|
The major components of R$ 18,86225,332 million of our consolidated long-term debt outstanding at December 31, 20102011 were (amounts are reflected in long-term debt):
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The local debenture is a real-denominatedreal-denominated debt instrument, which includes:
(i)Debentures issued in February 2006, of R$600 million six-year debentures bearing interest at a rate of 103.6% of the CDI rate per annum. On February 1, 2012, the Company liquidated these debentures in the amount of R$635,285 thousand (R$600,000 thousand principal amount and R$35,285 thousand in interest).
(ii)Debentures issued by our controlled company Transnordestina Logística S.A., which obtained approval by FDNE (Fundo de Desenvolvimento do Nordeste) on March 2010 for its First Private Emission of Debentures, convertible into shares, composed of eight series in total, with the overall amount of R$2,672,400. Until December 31, 2011, Transnordestina Logística S.A. had already issued 4 series in the total amount of R$1,493 million.
(iii)Debentures issued in July 2011, of R$1,150 million eight-year debentures bearing interest at a rate of 110.8% of the CDI rate per annum.
Eurodollar and Euronotes issued in accordance with Rule 144A and Regulation S under the Securities Act reflect senior unsecured debt instruments issued by us and our offshore subsidiaries, including (i) the US$300 million bonds, 10% per annum coupon, and the US$300 million notes, 8.25% per annum coupon, issued in 1997 with final maturity in 2047; (ii) the issuance in December 2003 and January 2004 of US$550 million notes, 9.75% per annum coupon with final maturity in 2013; (iii) the US$400 million notes, 10% per annum coupon,issued in September 2004 and January 2005 with final maturity in 2015, and (iv) the US$750 million notes, 6.875% per annum coupon, issued in September 2009 with maturity in 2019.
In July 2010, we issued US$1 billion notes, 6.50% per annum coupon and maturity date in July 2020, and in September 2010 we issued a US$1 billion Perpetual Bond, 7% per annum coupon.
Pre-export agreements include the two series of the export receivables securitization program.
The series issued in June 2004, in the amount of US$59 million as of December 31, 2010, with maturity date on May 2012 and bearing interest at a rate of 7.437.43% per annum; and the series issued in June 2005, in the amount of US$160 million as of December 31, 2010, with maturity in May 2015 and bearing interest at 6.15% per annum. In December 2011, we liquidated in advance its export receivables securitization program, in the amount of R$313,842 (R$283,857 thousand principal amount, R$2,373 in interest and R$27,612 in premium paid to creditors for the payment in advance).
We issued export credit notes, or NCEs: (i) on April 11, 2008, in the amount of R$100 million in favor of Banco do Brasil S.A., due 2013; (ii) on September 30, 2009, in the amount of R$1.0 billion, in favor of Banco do Brasil S.A., due 2014; and (iii) on September 30, 2009, in the amount of R$300 million, in favor of Banco do Brasil S.A., due 2014.2014; (iv) on May 21, 2010 in the amount of R$2.0 billion, in favor of Banco do Brasil S.A., through our subsidiary Congonhas Minérios S.A., due 2018. In April 2011, we issued another NCE, in the amount of R$1.5 billion; in favor of Banco do Brasil S.A., due to 2019.
On August 18, 2009 weWe contracted a credit facilityfacilities from Caixa Econômica Federal or CEF,(CEF) under its special credit for large companies, in the form of a bank credit bill, or CCB,CCB: (i) on August 18, 2009, in the amount of R$2.0 billion and to be amortized in 36 months.
Onmonths; (ii) on February 9, 2010, we contracted an additional credit facility from CEF under its special credit for large companies, in the form of a CCB, in the amount of R$1.0 billion and to be amortized in 36 month.
On May 21, 2010, our subsidiary Congonhas Minérios S.A. issued an NCEmonths. In 2011, we contracted two more CCBs: (i) in February 2011, in the amount of R$2.0 billion in favor of Banco do Brasil S.A. The NCE willand to be amortized over eight yearsin 94 months; and is guaranteed by us.(ii) in August 2011, in the amount of R$2.2 billion and to be amortized in 108 months.
In January 2012, we priced, through our wholly-owned subsidiary CSN Resources S.A., an additional bond issuance in the amount of US$200 million, through the reopening of the US$1 billion bonds, at an interest rate of 6.5% p.a., due in July 2020. The offering price was 106.00% and yield was 5.6% p.a.
In March 2012, we issued promissory notes in the total amount of R$800 million.
Maturity Profile
The following table sets forth the maturity profile of our long-term debt at December 31, 2010:2011:
|
|
| ||
Maturity in |
| Principal Amount |
| Principal Amount |
|
| (In millions of R$) |
| (In millions of R$) |
2012 |
| 2,166 | ||
2013 |
| 2,088 |
| 2,264 |
2014 |
| 1,948 |
| 1,934 |
2015 |
| 2,188 |
| 2,346 |
2016 |
| 2,222 |
| 2,444 |
2017 and thereafter |
| 6,584 | ||
2017 |
| 3,166 | ||
2018 and thereafter |
| 11,302 | ||
Perpetual bonds |
| 1,666 |
| 1,876 |
|
|
| ||
Total |
| 18,862 |
| 25,332 |
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5C. Research & Development and Innovation
In the year of 2010,2011, CSN has invested R$ 5742 million in Research & Development to develop new products and maintain the company in the vanguard of value-added products. CSN is committed to pursuepursuing technological innovation, continuous improvement, and systemic production processes and the generation of attractive products to market.
To meet the new demands and expectations of the market, CSN has been continuously investing in creating innovative projects aiming to surprise its clients with creative solutions involving products and services. The attitude of innovation associated with the workshop to reengineer the supply chain with the main customers has been onebeenone of the main lines of action of thecarried out by CSN R&D&D’s team to maintain and consolidate its growing market share.
CSN, a leading company in Brazil in coated flat steel products with high added value, has been continuously investing in improvements to its processes, products and services. In its activities, the management believes there is the strong performance in developing new products and applications that meet current and future market needs.needs to sustain a strong performance.
A project that demonstrates the innovative and pioneering the nature of CSN is the development of pre-painted steel, tocoated with Organo-Metallic film for application in fuel tanks applied in automobiles, replacing the post-painted tin coated steel and plastic tanks, with demand reaching a level of 500,000 tanks a year. The project was designed withbased on a new steel base andsubstrate for GALVANEW® coating, application, continuous painting line at itscontinuously painted in CSN Paraná’s facilities, CSN / PR Araucaria, giving properties ofobtaining higher corrosion resistance, formability and weldability. Currently, CSN is working on improving the specification of the steel basesubstrate in order to achieve weight reduction ofreduce the components.tank’s weight.
Another project was developed andwhich is finding increasing acceptance in the market is CSN Extra Thin ®”Fino ® cold rolled steel “for new applications in white goods and steel furniture, respondingdeveloped in response to a worldwide trend.
In the packaging segment, CSN has invested in consolidating a modern Center of Innovation that enables greater proximity to customers and bottlers presenting new concepts and design, in packages of 3 pieces cans expanded with innovative formats.
In the automotive segment, the concept of innovation, product development and new applications has been the subject of priority and asa priority. As an example, we can citehighlight the Dual Phase Steel, which has as a main featureinnovative and pioneering project of the reengineering of autobodies, with the aim of reducing weight reduction of automobiles that enablingand cost. Concerning the industryR&D for automotive applications, CSN continuously works on new products to make vehicles more Lightweight, safefully meet the customers’ current and future demands, with reduced CO2 emissions. Besides the Dual Phase Steel CSN has developed new high-strength steels such as Bake Hardening, Microalloyedand Rephosphorizedsteel as well as new high-formability steels for exposed parts such as SuperAdvanced High Strength Steels (AHSS), Ultra Low Carbon Steel to Titanium stabilized.Steels (extra deep drawing quality), Bake-Hardening Steels, High Resistance Interstitial Free Steels (HSS-IF), High Strength and Low Alloy (HSLA), and Rephosphorized High Strength Steels.
In the Constructionconstruction segment there was a significant consolidation and support of our customers for the application of CSN Pre-painted Steelpre-painted steel in the manufacture of new construction systems for rapid assembly used extensively in the UPP'sUPP’s - Police Units Pacifier and PSUs - Emergency Care Units in the city of Rio de Janeiro. Another example of R&D in the construction segment is the new CSN GALVALUME FRAMING (CSN GLFRAMING®) which is a high strength steel coated with 55% Al-ZN alloy with high application potential on light steel framing systems. Another highlight is the development of high strength steels to be used in the manufacture of silos for grain storage.
The recoverypredictions for the level of global economic activity continue pointing towards a reduction in growth for the global economy is being led by the emerging countries. Accordingmajor economies in 2012, according to the Central Bank.
In Europe, the economic slowdown and the modest upturn in wages should keep inflation down, with the European Commission forecasting a decline to 2.1% in 2012. Furthermore, the World Bank believes GDP in the Eurozone will decline by 0.3% in 2012, pulled down by political uncertainties and the fiscal crisis in Eurozone countries.Economic activity in the United States has been pointing to a slow and moderate recovery.
For China, the IMF China andexpects GDP growth of 9.0% in 2012. At a time when China’s trade surplus decreased from US$181.5 billion, or 3.1% of GDP, in 2010, to US$160 billion, or approximately 2% of GDP, in 2011, the government is studying measures to boost domestic consumption.
With regards to Brazil, GDP growth is expected to reach 3.30% in 2012, while the IPCA is expected to fall to 5.27%, according to the Central Bank’s FOCUS report. COPOM indicates that there is a high possibility that the Selic will maintain growth expectationsfall to a single digit in their economies until 20162012, thanks to the reduction in inflation due to the sizehigher-than-expected slowdown in Brazil’s economy in the second half of Chinese economy and to Brazilian protectionist policy and strong domestic demand. The combination of gradual global economic recovery2011 and the uncertainties surrounding Europe’s financial crisis. Nevertheless, positive outlookindications come from the expected decline in the rate of domestic consumptiondefault in Brazil provide a favorable scenario for our business.
We expect that investments will benefit from this favorable economic scenario. In addition2012, fueled by the 14%increase in the minimum wage, reduced inflation, low unemployment, lower basic interest rates and reduced debt growth, according to organic growth projects, we routinely review potential acquisition opportunities and strategic alliances in all segments in which we operate in Brazil and abroad, in order to accelerate our expansion and value generation.
We have consistently presented sound financial results, and reasonable indebtedness levels. Our comfortable current cash situation provides support for organic growth, financing possible acquisitions and at the same time maintaining a special policy of dividends distribution for our shareholders, resulting in a competitive and favorable position in relation to other groups of the sector.Serasa Experian.
76
Steel
Steel
In accordance withAccording to the World Steel Association (WSA), the global steel industry capacity utilization rate closed the year at around 74%reached 72% in 2010,December 2011, although production capacity and global steel product consumption still remain highly unbalanced. As stated by WSA, surplus production capacity is currently running around 500 million tonnes.
This imbalance, together with the appreciation of the real and the existence of state government import incentives fueled Brazil's flat steel imports in 2010.
The WSA forecasts that apparent steel use will increase by 5.9% to 1,359 mmt in 2011, following the 13.2% growth in 2010. In 2012, it forecasts world steel demand will increase by 5.4% in 2012, following the 14.0% growth by 6.0%, reaching a new recordin apparent use of 1,441 mmt. The impact of the earthquake and tsunamicrude steel in Japan may indicate a significant downward adjustment in steel use for 2011 and upward adjustment for 2012.2011.
In view of Brazil’s expected economic growth in the coming years, the Brazilian Development Bank (BNDES) believesBrazil Steel Institute (IABr) forecasts crude steel outputproduction and apparent consumption will increase by 26.5%reach 37.5 and 43.5%,26.7 million tons, respectively, through 2014.in 2012.
In this context, we are assessing alternatives and increasing arrangements for new projects to optimize results per produced ton.
We increased our interest in higher added value products in 2010. In the next years, we will diversify our supply of greater added value products.
Continuing with the goal of diversifying and investing in the expected growth expectation of the civil construction industry in the domestic market, our 500 Kta capacity plant forwe are constructing a long steel plant with a capacity of 500 kta, including iron barrebars and wire rods in our portfolio, is under construction. Additionally,portfolio. In addition to this plant, we are consideringstudying the implementationfeasibility of two newbuilding other long steel plants in Brazil, of 500 kta capacity each, in addition to a cold rolled unit in order to offer a more complete product portfolio to the market.
Mining.
The forecast by Macquire forMining
CRU forecasts the seaborne iron ore markettrade will reach 1.43 billion tons by 2015, around 355 million tons higher than the level reached in 2011.
China published its 12th five-year plan, which defined a new series of measures to promote the country’s development, including government subsidies for home construction and the creation and development of small and midsized enterprises. China’s urbanization push is that between 2013expected to continue driving iron ore consumption and 2014 worldwide supply may exceed demand as a result ofimports in the coming years, especially given the delays in new expansion projects inand the industry.
The projected price in China for 2013reduced Indian export base, which is U$ 141.50 per dry tonnage, accordingexpected to PLATTS and FIS.shrink further. In 2012, Chinese iron ore imports should increase by 7%, reaching the record volume of 733 million tons.
According to information released by the CRU, exports in Brazil show a tendency to increase until at least 2015, due to the current investments in the sector. By this time, exports should total approximately 440 million tons, an increase of 36% over current levels. For 2012, the forecast is for Brazil to export 348 million tons.
Considering this scenario, in the next years, we expect to achieve an important landmark in our mining segment, with the expansion in mining and will gainof the Casa de Pedra mine to reach a pace of production capacity of 50 million tons per year at our Casa de Pedra unit.
year. In addition, Namisa continues with itsis also undergoing expansion leadingprojects, and is expected to an expectedachieve a sales level of 39 million tons per year, relying on projects of concentration and pelletizing.
pelletizing plants. To ensure the production outflow, we expect the Itaguaí Port willto reach an 84 mtpy shipment capacity,capacity.
Cement
Prospects for the sector remain positive. The construction industry is expected to grow between 5% and 5.2% in the next years.
This combined increase of production and shipment benefits from a favorable window of opportunity2012, according to the overseas iron ore market.
We are analyzing further expansions, such as production volume of 70 mtpy in Casa de Pedra and shipment volumes of 130 mtpy in TECAR.
Cement
SNIC (the Brazilian Cement Industry Association) indicates local cementGetúlio Vargas Foundation (FGV), with construction material domestic sales in Brazil of 59 million tonnes in 2010, 15% up from the previous year. The Southeast region consumed half of this total and the North was the bestperformer in terms of growth, moving up by 58%. Estimates indicatebetween 4% and 5%, according to ABRAMAT. With regards to cement sales for 2012, an increase of between 7% and 8% is forecasted.
With the start-up of our clinker plant and the use of slag generated by our steel operation, we can gradually reduce costs, a new recordcritical element in 2011, with sales increasing between 8% and 9%the cement business.
Our goal is to 65 million tonnes.
77
Annual exports decreased 23%, as manufacturers prioritized the domestic market.
Currently, there are 70 plants operating in Brazil, belonging to 12 national and international groups, withachieve a joint annual installedproduction capacity of 67approximately 5.4 million tonnes, sufficient to meet all of domestic demand.
Strong investmentstons in capacity expansion were also announced in 2010, the effects of which should become apparent in the second half of 2011.
In the coming years, we expectto capture the sector’sstrong growth will continue to beexpected for the construction sector, fueled by increased income and employment, incentives for homebuyers, the expansion of Brazil's infrastructure and the intensification of the works related to the World Cup and the Olympic Games.
Our product and brand have had excellent acceptance. With the conclusion of the clinker production project and the gradual increase in the use of own slag we expect to be able to significantly reduce our costs.
We are considering alternatives for organic growth in order to take advantage of our crushing capacity (2.8 million tons per year) through the increase of clinker production. Our goal is to produce approximately 5.4 million tons per year in Brazil in the next years, to capture the strong growth expected in the market due to the World Cup and the Olympic Games, in addition to the strong pace of construction of new housing and commercial units, as well as infrastructure projects. For details on our PlanPlanned Investments see “Item 4D. Property, Plant and Equipment – Capital Expenditures – PlanPlanned Investments”.
5E. Off-Balance Sheet Arrangements
In addition to the debt that is reflected on our balance sheet, we are contingently liable for the off-balance concession payments related to the activities of TECON. The following table summarizes all of the off-balance sheet obligations for which we are contingently liable and which are not reflected under liabilities in our consolidated financial statements:
Contingent Liability with Respect to Consolidated and Non-Consolidated Entities as of December 31, 20102011
|
| Aggregate Amount |
| Maturity |
|
| (In million of R$) | ||
Guarantees of Debt: |
|
|
|
|
Transnordestina |
| 1,152 |
| 2011-2028 |
| ||||
Contingent Liability for Concession Payments(1): |
|
|
|
|
Sepetiba Tecon |
| 318 |
| 2026 |
Transnordestina |
| 99 |
| 2027 |
Solid Bulks Terminal - TECAR |
| 1,514 |
| 2022 |
MRS Logística S.A |
| 3,502 |
| 2026 |
Total |
| 5,433 |
|
|
”Take-or-Pay” Contractual Obligations |
|
|
|
|
MRS Logística S.A. |
| 986 |
| 2016 |
White Martins Gases Industriais Ltda. |
| 532 |
| 2016 |
Companhia Estadual de Gás do Rio de Janeiro – CEG Rio |
| 529 |
| 2012 |
Ferrovia Centro Atlântica – FCA |
| 438 |
| 2013 |
Vale S/A |
| 519 |
| 2014 |
Companhia Paranaense de Gás - COMPAGÁS |
| 165 |
| 2024 |
Companhia Paranaense de Energia - COPEL |
| 98 |
| 2024 |
ALL |
| 18 |
| 2012 |
K&K Tecnologia |
| 79 |
| 2023 |
Harsco Metals Ltda |
| 99 |
| 2014 |
Total |
| 3,463 |
|
|
| ||||
Total Contingent Liability with Respect to Consolidated and Non-consolidated Entities: |
| 10,048 |
|
|
|
| Aggregate Amount |
| Maturity |
|
| (In million of R$) | ||
Guarantees of Debt: |
|
|
|
|
Transnordestina |
| 1,368 |
| 2012-2028 |
| ||||
Contingent Liability for Concession Payments(1): |
|
|
|
|
Sepetiba Tecon |
| 310 |
| 2026 |
Transnordestina |
| 100 |
| 2027 |
Solid Bulks Terminal - TECAR |
| 1,362 |
| 2022 |
MRS Logística S.A |
| 1,145 |
| 2026 |
Total |
| 2,917 |
|
|
”Take-or-Pay” Contractual Obligations |
|
|
|
|
MRS Logística S.A. |
| 1,152 |
| 2016 |
White Martins Gases Industriais Ltda. |
| 468 |
| 2016 |
Companhia Estadual de Gás do Rio de Janeiro – CEG Rio |
| 280 |
| 2012 |
Ferrovia Centro Atlântica – FCA |
| 351 |
| 2013 |
Vale S/A |
| 470 |
| 2014 |
Companhia Paranaense de Gás - COMPAGÁS |
| 173 |
| 2024 |
Companhia Paranaense de Energia - COPEL |
| 70 |
| 2024 |
ALL |
| 4 |
| 2012 |
K&K Tecnologia |
| 79 |
| 2023 |
Harsco Metals Ltda |
| 75 |
| 2014 |
Siemens |
| 51 |
| 2013 |
Total |
| 3,173 |
|
|
|
| |||
Total Contingent Liability with Respect to Consolidated and Non-consolidated Entities: | 7,458 |
(1) Other consortia members are also jointly and severally liable for these payments.
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Guarantees
We guarantee the loans BNDES has granted to Transnordestina in May and December 2005, and in January 2006, all of which mature by May 2028, adjusted based on the TJLP plus 1.5% per annum. The total outstanding amount of the debt as of December 31, 20102011 was R$1,1521,368 million.
Concessions
Sepetiba Tecon
We own 99.99% of Sepetiba Tecon S.A., or TECON, which holds a concession to operate, for a 25-year term (renewable for additional 25 years), the container terminal at the Itaguaí Port. As of December 31, 2010,2011, R$ 318310 million of the cost of the concession was outstanding and payable over the next 18 years of the lease. For more information see “Item 4D. Property, Plant and Equipment – Capital Expenditures – Planned Investments”.
Transnordestina
As of December 31, 2010,2011, we held 76.45%70.91% of the capital stock of Transnordestina S.A., which has a 30-year concession granted in 1998 to operate Brazil’s Northeastern railway system. The Northeastern railway system coverssystemcovers 4,238 km of track and operates in the states of Maranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and Rio Grande do Norte. It also connects with the region’s leading ports, thereby offering an important competitive advantage through opportunities for intermodal transportation solutions and made-to-measure logistics projects. As of December 31, 2010,2011, R$ 99100 million was outstanding over the remaining 16-year term of the concession.
Solid Bulks Terminal
We hold the concession to operate TECAR, a solid bulks terminal, one of four terminals that form the Itaguaí Port, located in the State of Rio de Janeiro, for a term expiring in 2022 and renewable for another 25 years. Itaguaí Port, in turn, is connected to the Presidente Vargas steelworks,Steelworks, Casa de Pedra and CFMNamisa by the southeastern railway system. Our imports of coal and coke are made through this terminal. Under the terms of the concession, we undertook to load and unload at least 3.0 million tons of bulk cargo annually. Among the approved investments that we announced is the development and expansion of the solid bulks terminal at the Itaguaí Port to also handle up to 84 million tons of iron ore per year.
MRS Logística S.A
Concession for a period of 30 years, renewable for another 30 years, for transporting iron ore from the mines of Casa de Pedra in MGMinas Gerais and coke and coal from the Port of Itaguaí (RJ) to Volta Redonda and transportation of exports back to the Ports of Itaguaí and Rio de Janeiro. As of December 31, 2010,2011, R$ 3,5021,145 million was outstanding.
Contractual Obligations
Namisa
Namisa
Port Operating Services Agreement.
On December 30,October 21, 2008, we received approximately R$5.3 billion as prepayment underCSN entered into an agreement with Namisa with a termfor the provision of 34 years. Under this agreement, we are required to render port services to Namisa which consistsfor a 35-year period, consisting of transportingreceiving, handling, storing and shipping Namisa’s iron ore in annual volumes that range from 18.0 million tons to 39.0 million tonstonnes. On December 30, 2008, CSN has received the amount of iron ore annually.approximately R$5.3 billion as an advance for part of the payments due for the services to be provided under this agreement. The price ofamounts charged for these port services isare reviewed on a quarterly reviewedbasis and prospectively adjusted considering the changes in the market price of iron ore.
79
High Silica ROM
On December 30,October 21, 2008, we received approximately R$ 1.6 billion as prepayment forCSN entered into an agreement with Namisa with a termfor the supply of 30 years. Under this agreement, we are required to provide high silica crude iron ore ROM to Namisa for a period of 35 years in a volumevolumes that rangesrange from 42.027.5 million tons to 54.046.5 million tons per year. Depending on the market price for high silica crude iron ore ROM, we may receive additional or lower amounts under this agreement.
Low Silica ROM
On December 30, 2008, weCSN received approximately R$ 424 million1.6 billion as prepaymentan advance for part of the payments due for the supplies to be made under this agreement. The supply price is reviewed on a quarterly basis and adjusted considering the changes in the market price of iron ore.
Low Silica ROM
On October 21, 2008, CSN entered into an agreement with Namisa with a termfor the supply of 35 years. Under this agreement, we are required to provide low silica crude iron ore ROM to Namisa for an effective period of 9 years in a volumevolumes that rangesrange from 2.88 million tons to 5.0430.6 million tons per year. DependingOn December 30, 2008, CSN received approximately R$424 million as an advance for part of the payments due for the supplies to be made under this agreement. The supply price is reviewed on a quarterly basis and adjusted considering the changes in the market price for low silica crudeof iron ore ROM, we may receive additional or lower amounts under this agreement.ore.
“Take-or-Pay” Contractual Obligations
MRS Logística S.A.
Transportation of Iron Ore, Coal and Coke to Volta Redonda
The volume set for iron ore and pellets is 8,280,000 tons per year and for coal, coke and other reduction products is 3,600,000 tons per year. It is accepted variationVariation of up to 10%, is accepted, with a guarantee of payment of at least 90%least90%, but the compromiseobligation is for each item individually. MRS, on the other hand, is required to transport at least 80% of the volume established by the agreement. The agreement expires on September 12, 2012.
Transportation of Iron Ore for Export from Itaguaí
The volume set is 8,000,00040,000,000 tons per year. It is accepted variation of up to approximately 5% ofyear for the volume set,first three years, with gradual increases for the following years, with a guarantee of payment of at least 80%. We may increase or decrease the volume set in the agreement every year by up to 10% and 15%, respectively, taking into consideration the volume actually transportedinformed in the previous year. TheThis agreement expires on May 31, 2016.November 30, 2026.
The amounts to be paid under both contracts are calculated by a tariff model that assures competitive prices.
For both contracts we have flexibility to renegotiate the Take or Pay“take-or-pay,” if the volume is not reached. As we are a shareholder of MRS, the minimum amounts to be paid under the contract terms are calculated by a tariff model that assureassures competitive prices.
Transportation of Steel Products
The volume set is 2,750,000 tons per year. The agreement covers the transportation of steel products from the Presidente Vargas Steelworks to third party terminals, and expires on May 31, 2016.
Cement Transportation - CSN CIMENTOS
We and MRS are negotiating new values for this contract.
White Martins Gases Industriais Ltda.
To secure gas supply (oxygen, nitrogen and argon), in 1994 we signed a 22-year “take-or-pay” agreement with White Martins Gases Industriais, by which we are committed to acquire at least 90% of the gas volume guaranteed in the agreement with White Martins’ plant. Under the terms of the agreement, we are not required to advance funds raised against future processing charges if White Martins is unable to meet its financial obligations.
Companhia Estadual de Gás do Rio de Janeiro
To secure natural gas supply, in 2007 we have signed a five-year “take-or-pay” agreement with CEG Rio, by which we are committed to acquire at least 70% of the gas volume guaranteed in the agreement with CEG Rio. Under the terms of the agreement, we are not required to advance funds raised against future processing charges if CEG Rio is unable to meet its financial obligations. In addition, if we do not acquire the minimum volume agreed, the amount paid which relates to that difference may be compensated in future years, including one year after the contractcontract’s expiration.
80
Transportation of Reduction Products
This agreement covers transportation of reduction products from the city of Arcos to the city of Volta Redonda. Volume set for reduction products is 1,900,000 tons per year, which may vary higher or lower by up or down byto 5%. TheThis agreement will expire on August 31, 2013.
Transportation of Clinker
This agreement covers transportation of clinker products from the city of Arcos to the city of Volta Redonda. As of 2012, volume set for clinker is 738.000 tons per year This agreement will expire on April 19, 2020.
Vale S.A.
To secure pellets supply, in 2009 we signed a 5-year “take-or-pay” agreement with Vale, by which we are committed to acquire at least 90% of the pellets volume guaranteed in an agreement with Vale. Under the terms of theofthe agreement, we are not required to advance funds raised against future processing charges if Vale is unable to meet its financial obligations.
Companhia Paranaense de Gás - COMPAGÁS
We and Companhia Paranaense de Gás entered into a 20-year contract to secure natural gas supply. According to the “take or pay” clause, we are committed to acquire at least 80% of the annual natural gas volume contracted from Companhia Paranaense de Gás.
Companhia Paranaense de Energia – COPEL
To secure energy supply, we entered into a 20-year agreement with Companhia Paranaense de Energia. According to the “take or pay” clause, we are committed to acquire at least 80% of the annual energy volume contracted from Companhia Paranaense de Energia.
América Latina Logística - ALL
This agreement covers transportation of steel products from Volta Redonda to CSN Paraná. Volume set for steel products is 20,000 tons per month, which may vary higher or lower by up or down byto 10%. TheThis agreement will expire onwas initially valid until March 30, 2012, but CSN renegotiated and it is now valid until June 30, 2012.
K&K Tecnologia
CSN undertakes to acquire at least 3,000 metric tons of blast furnace mud for processing at CSN's mud concentration plant.
Harsco Metals Ltda
The Harsco Metals Ltda. undertakes to perform the Scrap recovery Services resulting from the process of production of pig iron and steel from CSN / UPV, receiving by this process the equivalent in value the result of multiplying the unit price (U.S.$/ t) by the total Liquid Steel CSN’s Mill production, with a guarantee of a minimum production of liquid steel corresponding to 400,000 tons.
5F. Tabular Disclosure of Contractual Obligations
The following table represents our long-term contractual obligations as of December 31, 2010:2011:
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|
|
| ||||||||||
|
| Payment due by period |
| Payment due by period | ||||||||||||||||
|
| (In millions of R$) |
| (In millions of R$) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| More |
|
|
|
|
|
|
|
|
| More |
Contractual obligations |
|
|
| Less than |
|
|
|
|
| than 5 |
|
|
| Less than |
|
|
|
|
| than 5 |
|
| Total |
| 1 year |
| 1-3 years |
| 3-5 years |
| years | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Total |
| 1 year |
| 1-3 years |
| 3-5 years |
| years |
Long-term accrued finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charges(1) |
| 12,372 |
| 1,514 |
| 2,869 |
| 2,182 |
| 5,807 |
| 19,540 |
| 2,181 |
| 4,146 |
| 3,360 |
| 9,853 |
Taxes payable in installments |
| 1,444 |
| 652 |
| 134 |
| 166 |
| 492 |
| 2,095 |
| 277 |
| 471 |
| 458 |
| 889 |
Long-term debt |
| 18,781 |
| 2,133 |
| 4,013 |
| 4,385 |
| 8,250 |
| 25,187 |
| 2,232 |
| 4,231 |
| 5,574 |
| 13,150 |
“Take-or-Pay” contracts |
| 3,463 |
| 920 |
| 1,773 |
| 535 |
| 235 |
| 3,173 |
| 1,069 |
| 1,570 |
| 371 |
| 163 |
Concession agreements(5) |
| 5,433 |
| 339 |
| 745 |
| 1,153 |
| 3,196 | ||||||||||
Derivatives swap agreements(2) |
| 8 |
| 5 |
| 3 |
| 0 |
| 0 | ||||||||||
Concession agreements(3) |
| 2,917 |
| 220 |
| 697 |
| 705 |
| 1,295 | ||||||||||
|
|
| ||||||||||||||||||
Purchase obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials(2) |
| 1,228 |
| 811 |
| 359 |
| 36 |
| 22 | ||||||||||
Maintenance(3) |
| 106 |
| 62 |
| 45 |
| 0 |
| 0 | ||||||||||
Utilities/Fuel(4) |
| 1,553 |
| 445 |
| 616 |
| 244 |
| 247 | ||||||||||
Raw materials(4) |
| 1,816 |
| 1,072 |
| 699 |
| 11 |
| 35 | ||||||||||
Maintenance(5) |
| 33 |
| 212 |
| 121 |
| 0 |
| 0 | ||||||||||
Utilities/Fuel(6) |
| 1,756 |
| 685 |
| 456 |
| 334 |
| 282 | ||||||||||
Total |
| 2,887 |
| 1,317 |
| 1,020 |
| 280 |
| 269 |
| 3,905 |
| 1,969 |
| 1,275 |
| 345 |
| 316 |
(1) | These accrued finance charges refer to the cash outflow related to the contractual interest expense of our long-term debt and were calculated using the contractual interest rates taken forward to the maturity dates of each contract. |
(2) |
|
(3) | Refers to TECON, TECAR, MRS and Transnordestina’s concessions agreements |
(4) | Refers mainly to purchases of coal, tin, aluminum and zinc, which comprise part of the raw materials for steel manufacturing and take-or-pay contracts. |
| We have outstanding contracts with several contractors in order to maintain our plants in good operation conditions; due to the strong demand for specialized maintenance service, the term of some of these contracts is for more than one year. |
|
|
|
|
81
Item 6. Directors, Senior Management and Employees
6A. Directors and Senior Management
General
We are managed by our Board of Directors (Conselho de Administração), which consists of sevenofseven to eleven members,elevenmembers, and our Board of Executive Officers (Diretoria Executiva), which consists of two to nine Executive Officers with no specific designation (one of whichwhom is the Chief Executive Officer). In accordance with our bylaws (Estatuto Social), each Director is elected for a term of one year by our shareholders at an annual shareholders’ meeting. Our bylaws require our employees to be represented by one Director on the Board of Directors. The members of the Board of Executive Officers are appointed by the Board of Directors for a two-year term.
Our Board of Directors is responsible for the formulation of business planssetting general guidelines and policies for our business and our Board of Executive Officers is responsible for the implementation of specific operating decisions.such guidelines and policies and for our day-to-day operations. As of the date of this annual report, our Board of Directors was comprised of one Chairman, one Vice Chairman and fivefour members, and our Board of Executive Officers was comprised of our Chief Executive Officer our Chief Financial Officer and threefive Executive Officers.
Our Directors and Executive Officers as of the date of this annual report are:
Name |
| Position |
| First Elected on |
| Last Elected on |
|
|
|
| |||
Board of Directors |
|
|
|
|
|
|
Benjamin Steinbruch |
| Chairman |
| April 23, 1993 |
| April |
Jacks Rabinovich |
| Vice Chairman |
| April 23, 1993 |
| April |
27, 2012 | ||||||
Fernando Perrone |
| Member |
| September 26, 2002 |
| April |
Antonio Francisco dos Santos |
| Member |
| December 23, 1997 |
| April |
Yoshiaki Nakano |
| Member |
| April 29, 2004 |
| April |
Gilberto Sayão da Silva |
| Member |
| April 30, 2009 |
| April |
Rubens dos Santos | Member |
April 27, 2012 | April | |||
| ||||||
Board of Executive Officers |
|
|
|
|
|
|
Benjamin Steinbruch |
| Chief Executive Officer |
| April 30, 2002 |
| August |
|
|
|
| |||
Enéas Garcia Diniz |
| Executive Officer |
| June 21, 2005 |
| August |
|
|
|
| |||
José Taragano |
| Executive Officer |
| December 15, 2009 |
|
|
David Moise Salama | Executive Officer | August 2, 2011 | August 2, 2011 | |||
Luis Fernando Barbosa Martinez | Executive Officer | August 2, 2011 | August 2, 2011 | |||
Juarez Saliba de Avelar | Executive Officer | October 26, 2011 | October 26, 2011 |
82
The next election for our Board of Directors is expected to take place in April 2012, and we2013. We are unable to anticipate when the next election for our Board of Executive Officers is expected to take place.
Board of Directors
Benjamin Steinbruch. MemberMr. Steinbruch has been a member of theour Board of Directors since April 23, 1993, holding alsoand has simultaneously held the positionpositions of President of the BoardChairman since April 28, 1995 and CEO since April 30, 2002. He is also CEO of Vicunha SteelSiderurgia S.A., member of the Administrative Board of the Portuguese Chamber, 1st Vice-President of the Federation of Industries of the State of São Paulo - FIESP since September 2004, member of FIESPFIESP’s Superior Strategic Board, advisor to the Robert Simonsen Institute, directorand advisor of IEDI -the Institute for Industrial Development Studies.Studies - IEDI. Over the past five years, he served as Director Chairman of the Board of Directorsand CEO of Vicunha Siderurgia S.A.S.A.,Director and Officer Vice Chairman of Vicunha Steelthe Board of Directors of Textília S.A., Director and CEO of Vicunha Aços S.A., Vicunha Steel S.A. Vicunha S.A., Elizabeth S.A. – Indústria Têxtil, Vicunha Participações S.A., Vicunha Participações S.A., Officer of Rio Purus Participações S.A., and Officer of Rio Iaco (all these companies belong to the controlling group of CSN), Director of Prada Metallurgical Company Inal Nordeste S.A. and Nacional Minérios S.A. (all(both controlled by CSN) and, member of the Deliberative Council of the CSN Foundation. GraduatedFoundation and Administrator of Fazenda Alvorada de Bragança Agro-Pastoril Ltda., Ibis Agrária Ltda., Ibis II Empreendimentos Ltda., Ibis Participações e Serviços Ltda., Haras Phillipson Ltda.. Mr. Steinbruch graduated from the Business School of the Fundação Getúlio Vargas – FGV/SP and specialized in Marketing and Finance also from the Fundação GetulioGetúlio Vargas - FGV/SP.
Jacks Rabinovich. Mr. Rabinovich was born on September 20, 1929, and has been a member of our Board of Directors since April 23, 1993 and Vice Chairman since April 24, 2001, currently holding the position of Vice President. Graduated2001. Mr. Rabinovich graduated in Civil Engineering from Universidade Mackenzie University, with- SP, and has a specialization in Textile Engineering from the Lowell Institute, Massachusetts - USA.
Fernando Perrone. Mr. Perrone has been a member of our Board of Directors since September 26, 2002, and a member of our Audit Committee since June 24, 2005, where he currently holds the position of President. He was our Infrastructure and Energy Executive Officer from July 10, 2002, to October 2, 2002.2002 . Over the past five years, he served as member of the Board of Directors of Profarma - Pharmaceuticals Distributor S.A., member of the Board of Directors of João Fortes Engenharia S.A., and member of the Management Board of Energia Sustentável S.A..GraduatedS.A. Mr. Perrone graduated in Business from a program sponsored by "Chimica" Bayer S.A., also holds a Law degree from the Universidade Federal Fluminense – UFF/RJ, and has a specializationgraduate degree in Economics in the area of Capital Markets from the Fundação Getulio Vargas.Vargas – FGV/SP.
Antonio Francisco dos Santos. Mr. Santos was born on December 6, 1950, and has been a member of our Board of Directors since NovemberDecember 23, 1997. Mr. Santos wasHe is currently Chairman and Chief Executive Officer of CSN’s Employee Investment Club (Clube de Investimento CSN). Over the past five years he served as Planning and Support Officer of CSN, and Coordinator and Chief of Industrial Engineering, Chief of Production Planning and member of the Board of Directors of the Caixa Beneficente dos Empregados of CSN, or CBS, our pension plan, until 2008. He is currently Chairman and Chief Executive Officer of the Board of the CSN Employee Investment Club (Clube de Investimento CSN). Over the past five years he served as Planning and Support Officer of CSN and President of CSN Invest. Graduatedplan. Mr. Santos graduated in Business withand holds a specializationgraduate degree in Organization and Finance, both byfrom the CoordinatorCoordination of Graduate Studies and Research - CECOP, and an MBA in Industrial Strategy and Business Management from Universidade Federal Fluminense - UFF.– UFF/RJ.
Yoshiaki Nakano. Mr. Nakano has been a member of our Board of Directors since April 29, 2004, and a member of our Audit Committee since June 24, 2005. Over the past five years, Mr. Nakano has been a professor at the School of Economics of Fundação Getulio Vargas and– FGV/SP a board member of the Fundação de Amparo à Pesquisa do Estado de São Paulo – FAPESP; boardFAPESP, a member of the Conselho Superior de Economia (COSEC), of FIESP/IRS;Instituto Roberto Simonsen, and a member of the Consulting Board of the Grupo Pão de Açúcar. Previously, Mr. Nakano served as Special Secretary for EconomicAffairsEconomic Affairs in the Ministry of Finance. GraduatedFinance and as Finance Secretary of the State of São Paulo. Mr. Nakano graduated in Business Administration from Fundação Getulio Vargas and has an MBA and a Ph.D. from Cornell University, USA.
83
Gilberto Sayão da Silva. Mr. Sayão has been a member of our Board of Directors since April 30, 2009. He is currently a partner at Vinci Partners Investimentos Ltda., and a member of its Executive Committee. Between 2003 and 2009, Mr. Sayão served as the Chief Executive Officer of UBS Pactual Alternative Investments, a subsidiary of UBS Pactual Asset Management. He is currently on the Board of Directors of several companies, such as PDG Realty SA and Equatorial Energia S.A. (none of these being part of CSN´s economic group). He graduated from the Engineering School of the Pontificia Universidade Catolica doof Rio de Janeiro - PUC / RJ.
Alexandre Gonçalves SilvaRubens dos Santos. Mr. Gonçalves SilvaSantos has been a member of our Board of Directors since April 27, 2012. He currently serves as Administrator for Vicunha Petroquímica Ltda and Audit Committee since November 9, 2010. OverFibracel Têxtil Ltda. He is also Executive Officer for Pajuçara Confecções S.A., Vicpetro S.A., VRS S.A. and Finobrasa Agro-Industrial S.A.. Additionally, Mr. Santos is the last five years he was CEO of General Eletric do Brasil Ltda. and memberChairman of the Board of Directors of TAMVTA Andina S.A.., and a board member of National Steel S.A., PDG Realty S.A. Empreendimentos eVicunha Participações Equatorial Energia S.A., Fundições TupyVicunha Siderurgia S.A., Fibra Empreendimentos Imobiliários S.A., Transnordestina Logística S.A., Vicunha Aços S.A., Vicunha Steel S.A., Vicunha S.A., Elizabeth S.A. Indústria Têxtil and Fibria Celulose S.A.La Internacional S.A.. Mr. Gonçalves Silva also was Advisor of the Global Infrastructure Partners (New York). HeSantos is graduated from the Mechanical Engenireeng School of Pontificia Universidade Católica do Rio de Janeiro – PUC/RJ.in Accounting.
Board of Executive Officers
In addition to Mr. Steinbruch, the following personspeople were members of our Board of Executive Officers as of the date of this annual report:
Paulo Penido Pinto Marques. Mr. Marques was elected our Chief Financial Officer on May 12, 2009 and is also responsible for the Controlling, Enterprise Risk Management and Insurance departments, holding the position of Executive Officer for Investors Relations. Prior to joining CSN, Mr. Marques was Finance, Investor Relations and Information Technology Vice-President of Usinas Siderúrgicas de Minas Gerais S.A. - USIMINAS, Financial Officer of Usiminas Mecânicas S.A., board member ofAssociação Brasileira das Companhias Abertas, Financial Officer of the Companhia Siderúrgica Paulista - COSIPA, Officer of Mineração J. Mendes, Controlling Officer of Fasal S.A. and Officer of Consórcio Siderurgia Amazonia Ltd. (controller of Sidor - Venezuela). Mr. Marques has also participated in the Board of Executive Officers or the Board of Directors of the following companies: Usiparts - automotive systems, Unigal, Rio Negro - steel trade and industrialization. He was also Vice-President at Financing Area, Credit and Risk of JP Morgan (Morgan Guaranty Trust Co. of New York), Officer of Relationship with companies and Financial Institutions Area of BankBoston, Officer of Investments of Corporate Banking of Citibank. Graduated from the Electrical Engineering School of the Federal University of Minas Gerais.
Enéas Garcia Diniz. Mr. Diniz holds the position of Executive Officer in charge of in charge of Production areasincethe production area since June 21, 2005. He has been serving CSN since 1985, previously acting as General Manager of Hot Rolling, General Manager of Maintenance, Metallurgy Director and General Director of the Presidente Vargas steelworks. GraduatedSteelworks. Mr. Diniz graduated in Mechanical Engineering from the Pontificia Universidade Católica do Rio de Janeiro - PUC / RJ, further specializedfurtherspecialized in Business Management in thefrom Universidade Federal Fluminense in Rio de Janeiro- UFF/RJ and has aan MBA from the Fundação Dom Cabral Business School of Belo Horizonte.
Alberto Monteiro de Queiroz Netto was elected Executive Officer of the Treasury on September 01, 2009. He is also President of CBS Previdência. He was Chief Financial Officer of Bank of Brazil conglomerate, President of BB DTVM - Asset Management, President of BESC DTVM - Administradora de Recursos, Vice President of the National Association Investment Bank’s (ANBID) and Chairman of Best Practices for Marketing Industry Investment Funds. He was Director of the Board of BB Securities in London, and the Bank of Brazil Broker Dealer in New York and Officer of BB Fund in Cayman. He was also President of the Board of Directors of Petróleo Petrobahia, member of the Board of Directors of Eletricidade da Bahia – Coelba, Neoenergia e BESC TV, member of the Audit Committe of Gerdau, Cielo (formerVisanet), Coelba e Cosern e member Deliberative Committee of Fundo de Pensão do Banco do Brasil (PREVI). Graduated from the Business School of the Fundação Getulio Vargas (RJ), where he further specialized in Business Administration and obtained MBA in Corporate Finance. He also holds a Banking Specialist degree from the University of São Paulo Business School (FEA-USP).
84
José Taragano.Mr. Taragano was elected Executive Officer on December 15, 2009, being in charge of the Chairman for Projects at CSN.projects area. He waspreviously served as COO - Executive VP of Operations of Brenco - Companhia Brasileira de Energia Renovável, Executive and Business Officer of Klabin SA. He wasS.A., Worldwide Environment, Health & Safety Officer of Alcoa Inc. in New York / Pittsburgh, Officer of Primary Products /Aluminum,Products/Aluminum, Alumina & Chemical Products and Director of Quality and Human Resources and Superintendent foof Production of Alcoa Latin America in São Paulo. He was alsoPaulo, Chairman of CEMPRE – Compromisso Empresarial para a Reciclagem, served atmember of the Healthy People 2010 Business Advisory ComiteeCommitteein Washington and acted as independent counselIndependent Director at the Board of ECOSORB. HeMr. Taragano graduated in Metallurgical Engineering from Pontifícia Universidade Católica of Rio de Janeiro - PUC-RJ, has aan MBA in Marketing from the Administration Institute Foundation of Universidade de São Paulo / FIA-USP and further education at MIT / Sloan Executive Program and Harvard Business School / Finance for Senior Executives.
David Moise Salama. Mr. Salama was elected Executive Officer on August 2, 2011, being in charge of the investor relations area. He has been serving CSN since 2006, having previously acted as Investor Relations Manager. Prior to joining CSN, Mr. Salama acted as Financial Controller Officer at Tecnisa Engenharia e Comércio, Birmann Comércio e Empreendimentos and Goldfarb Comércio e Construções, was the head of consolidated financial information of Unilever Brasil and acted as senior auditor at PricewaterhouseCoopers. He is a member of the National Investor Relations Institute and of the Brazilian Institute of Investor Relations. Mr. Salama graduated in Accounting and has an MBA in Finance, both from the School of Economics, Business and Accounting of the Universidade de São Paulo / FEA-USP.
Luis Fernando Barbosa Martinez. Mr. Martinez was elected Executive Officer on August 2, 2011, being in charge of the steel products commercial area. He has been serving CSN since 2002, having previously acted as Sales Officer. Mr. Martinez is also President of the Brazilian Association of Steel Packaging - ABEAÇO. Prior to joining CSN, Mr. Martinez was a Sales Officer at Alcan Alumínio do Brasil S.A., having worked in such company for 14 years in different departments (processing, quality, product/market development and sales).He also acted as Executive Officer of the Brazilian Center of Steel Construction - CBCA and of the Brazilian Association of Metallic Construction - ABCEM. Mr. Martinez graduated in Metallurgical Engineering from Instituto Mauá de Tecnologia – IMT, has a graduate degree in Industrial Management from the School of Production Engineering of the Universidade de São Paulo, and also graduated from the Corporate Management Development Program at Alcan Aluminum Limited, Montreal, Canadá.
Juarez Saliba de Avelar. Mr. Avelar was elected Executive Officer on October 26, 2011 and is in charge of the new businesses area. Mr. Avelar previously worked at CSN from 2003 to 2010, having acted as Ports and Railroads Officer, Mining Officer, Mineral Resources Officer and New Businesses Officer. Prior to 2003, Mr. Avelar was the President of Ferteco Mineração, Officer of the Southern and Northern Systems of Vale S.A. and, from January 2010 to August 2011, acted as Chief Executive Officer of Steel do Brasil Participações S.A. Mr. Avelar is also a Director of Transnordestina Logística S.A. Mr. Avelar graduated in Mining Engineering from Universidade Federal de Minas Gerais - UFMG.
There are no family relationships between any of the persons named above. The address for all of our directors and executive officers is Av. Brigadeiro Faria Lima, 3400, 20th20th floor, Itaim Bibi, city of São Paulo, State of São Paulo, Brazil (telephone number 55-11-3049-7100).
Indemnification of Officers and Directors
There is no provision for or prohibition against the indemnification of officers and directors in Brazilian law or in our bylaws. Officers are generally not individually liable for acts performed within the course of their duties. We either indemnify or maintain directors and officers liability insurance insuring our Directors,our Chief Executive Officer, our Chief Financial Officer and our other Executive Officers and certain key employees against liabilities incurred in connection with their respective positions with us.
6B. Compensation
For the year ended December 31, 2010,2011, the aggregate compensation paid by us to all members of our Board of Directors and the members of our Board of Executive Officers for services in all capacities was R$17.923.7 million, which includes salaries, bonuses, profit sharing arrangements and benefits, such as medical assistance, pension plan and life insurance, among others. See “—Item 6D. Employees” for a brief description of our profit sharing arrangements.
We are the principal sponsor of CBS, our employee pension plan. CBS had an excess of plan assets over pension benefit obligations of R$ 333230 million in 2010.2011. The fair value of the resources of CBS, totaled R$ 2,3162,384 million as of December 31, 2010,2011, and projected benefit obligations were R$ 1,9832,154 million. See Note 3029 to our consolidated financial statements contained in “Item 18. Financial Statements.”
6C. Board Practices
Fiscal Committee and Audit Committee
Under Brazilian Corporate Law, shareholders may request the appointment of a Fiscal Committee (Conselho Fiscal), which is a corporate body independent of management and our external auditors. The primary responsibility of the Fiscal Committee is to reviewmonitor management’s activities, andreview the financial statements, and report its findings to the shareholders. Our shareholders did not request the installation of a Fiscal Committee at the Annual Shareholders’ Meeting held on April 29, 2011.27, 2012.
In June 2005, an Audit Committee (Comitê(Comitê de Auditoria)Auditoria) was appointed in compliance with SEC’s rules, which is composed of three independent members of our Board of Directors.
The Audit Committee is responsible for recommending to the Board of Directors the appointment of the independent auditors, reporting on our auditing policies and our annual auditingaudit plan prepared by our internal auditing team, as well as monitoring and evaluating the activities of the external auditors. Our Audit Committee has also been tasked with identifying, prioritizing and submitting actions to be implemented by our Executive Officers, and analyzing theour annual report and our financial statements, and making recommendations to our Board of Directors.
The Audit Committee is currently composed of Mr. Fernando Perrone, Mr. Yoshiaki Nakano and Mr. Alexandre SilvaAntonio Francisco dos Santos and is constantly assisted by an outside consultant.
85
For information on the date of election and term of office of the members of our Board of Directors and Board of Executive Officers, see “Item 6A. Directors and Senior Management.”
Service Contracts
We permit our directors to continue to participate in our employee pension plan after ceasing to be a director of our Company.
6D. Employees
As of December 31, 2008, 2009, 2010 and 2010,2011, we had 16,549, 16,903, 19,217 and 19,21720,791 employees, respectively. As of December 31, 2010,2011, approximately 3.2133,307 of our employees were members of the steelworkers’ union of Volta Redonda and region, which is affiliated with the Central Única dos Trabalhadores, or CUT, a national union. We believe we have a good relationship with CUT. We have collective bargaining agreements, renewable annually on May 1st of every May 1.year. Moreover, we have members affiliated towith other unions, such as the EngineerEngineers’ Union with 4841 members, the AccountantAccountants Union with 610 members and the WorkersWorkers’ Unions from Arcos, Casa de Pedra, Camaçari, Recife and Araucária, with a total of 312344 members. On the others company’sAt all other companies controlled by CSN, such as Prada, Ersa, Namisa and Metalic,Transnordestina, we have a total of 9451,435 members.
In March 1997, we established an employee profit sharing plan. All employees participate in the plan, and earn bonuses based on our reaching certain goals for each year, including a minimum EBITDA margin, as well as other measures such as sales, cost control, productivity and inventory levels, as appropriate for each sector based on its nature.
6E. Share Ownership
The Steinbruch family, which includes Mr. Benjamin Steinbruch, our Chairman and Chief Executive Officer holds an indirect majority ownership interest in Vicunha Siderurgia and Rio Iaco Participações, our controlling shareholder.
All our Executive Officers and members of our Board of Directors held an aggregate of 1,5591,558 shares of our outstanding common shares as of April 30,December 31, 2011.
Item 7. Major Shareholders and Related Party Transactions
7A. Major Shareholders
On MarchDecember 31, 2011, our capital stock was composed of 1,483,033,6851,457,970,108 common shares. Our capital stock is entirely composed of common shares including 25,063,577and each common shares held in treasury. share entitles the holder to one vote at our shareholders’ meetings.
The following table sets forth, as of MarchDecember 31, 2011, the number of our common shares owned by all persons known to us that own more than 5% of our outstanding common shares as of such date:
|
| Common Shares |
| Common Shares | ||||
|
|
|
|
| ||||
|
|
|
| Percent of |
|
|
| Percent of |
|
| Shares Owned |
| Outstanding |
| Shares Owned |
| Outstanding |
Name of Person or Group |
|
|
| Shares(2) |
|
|
| Shares |
|
|
| ||||||
Vicunha Siderurgia S.A.(1) |
| 697,719,990 |
| 47.86% |
| 697,719,990 |
| 47.86% |
Rio Iaco Participações |
| 58,193,503 |
| 3.99% | ||||
Rio Iaco Participações S.A.(1) |
| 58,193,503 |
| 3.99% | ||||
|
|
|
(1) | Owned indirectly by the Steinbruch family, which includes |
|
|
86
From time to time we conduct transactions with companies directly or indirectly owned by our principal shareholders or members of our Board of Directors. See “Item 4. Information on the Company —A.– A. History and Development of the Company,” “Item 4B. Business Overview,” “Item 4D. Property, Plant and Equipment – Acquisitions and Dispositions”, “Item 6A. Directors and Senior Management” and, “Item 7A. Major Shareholders” and Note 54 to the consolidated financial statements included in “Item 18. Financial Statements.”
Item 8. Financial Information
8A. Consolidated Statements and Other Financial Information
See “Item 3. Key Information—Selected Financial Data” and “Item 18. Financial Statements” for our consolidated financial statements.
Legal Proceedings
In the ordinary course of our business, we are party to several proceedings, both administrative and judicial, which we believe are incidental and arise out of our regular course of business. We believe that the outcome of the proceedings to which we are currently a party will not have a material adverse effect on our financial position, results of operations and cash flows. We have established provisions for all amounts in dispute that represent a probable loss based on the legal opinion of our internal and external legal counsel.counsels.
Labor Contingencies
As of December 31, 2010,2011, the Company is defendantand its subsidiaries are defendants in11,238 12,993 labor claims, for which a provision has been recorded in the amount of R$ 188.2223 million. Most of the claims are related to alleged joint liability betweenliabilitybetween us and our independent contractors, wage equalization, differences of 40% fine on the FGTS deposits regarding pre-retirement periods and due to inflation purge, additional payments for unhealthy and hazardous activities, overtime and profit sharing differences from 1997 to 1999 and from 2001 to 2003.
Civil Contingencies
Civil Contingencies
These are mainly claims for indemnities within the civil judicial processes in which we are involved. Such proceedings, in general, result of occupational accidents, diseases and contractual disputes related to our industrial activities. As of December 31,2010,31, 2011, the amount relating to probable losses for these contingencies was R$ 80.394 million.
We also classify as civil contingencies the administrativeadministrative and judicial proceedings filed against us for alleged violation of environmental statutes, mainly as a result of our industrial activities, claims for regularization, indeminificationindemnification or imposition of fines. As of December 31, 2010,2011, the amount relating to probable losses for civil contingencies relating to environmental issues was R$ 500 thousand.6.9 million.
Tax Contingencies
Among our tax contingencies there are charges for alleged non-payment of income tax and social contribution taxes in Brazil, for which a provision of R$ 1,911253 million has been recorded in 2010.2011.
Refis
In November 2009, we adhered to the Tax Recovery Program (REFIS) established by the Federal Government in order to settle our tax and social security liabilities through a special settlement and installment payment system. Management’s decision took into consideration the economic benefits provided by the REFIS, such as discounts and fines exemptions, as well as the high costs of maintaining pending lawsuits. Joining the REFIS allows us to pay a reduced amount of the fines, interest and legal charges that were previously due. On December 31, 2011, the position of the debt under the REFIS, recorded under taxes payable in installments, was R$2,095 million (R$1,444 million in 2010).
Refis - IPI premium credit over exports
The IPI premium tax credits relate to export sales made during 1992 to 2002. Tax laws allowed Brazilian companies to recognize IPI premium tax credits until 1983, when an act of the executive branch of the Brazilian government cancelled such benefits and prohibited companies from recognizing thesesuch credits. We challenged the constitutionality of the executive branch’s action by obtaining,and obtained, in August 2003, a favorable decision from a Brazilian trial court that authorized the use of IPI premium tax credits. However, in August 2009, the Brazilian Federal Supreme Court, or STF, issued a decision with effects of general repercussion establishing that the IPI premium credit wastax credits were only effectiverecognizable until October 1990. Accordingly, the credits accrued after 1990such date should not behave been recognized and, in viewas a result, our board of this STF decision,directors approved the Company’s Boardinclusion of Directors approved including this matter in the taxrecovery program for tax debts introducedREFIS. In June 2011, the inclusion of the discussed amounts in the REFIS was ratified by Provisional Measure 470/09 and Law 11941/09, which entails benefits in terms of reduction of fines, interest and legal charges.
87
Refis - Social Contribution on Net Income from Export Revenues
We filed a lawsuit challenging the assessment of Social Contribution on Net Income charged on income from export revenues based on Constitutional Amendment No. 33/01 and01. Despite an initial decision in March 2004 we obtained an initial decision authorizing the exclusion of these export revenues from referred calculationthe taxable basis - as well as the offsetting of amounts paid as from 2001. The lower court decision was favorable2001 - in August 2010 the Brazilian Federal Supreme Court, or STF, ruled unfavorably in another proceeding unrelated to us but that discussed the same subject matter (RE 564413). Accordingly, and following the proceeding is waiting for trialrecommendation of our external counsel, the appeal filed by the Federal Government in the Regional Federal Court. Atremaining amount of R$402 million (as of December 31, 2010, the amount of suspended liability and the offset credits based on the referred proceedings2010) was R$ 402 million, as compared to R$ 1,240 million at December 31, 2009, already adjusted by the SELIC 2010. Such reduction arose out of the inclusionincluded in REFIS of debts related to the offset of amounts paid as of 2001 and debts related to the exclusion of export revenues from taxable basis. The validin June 2011. This inclusion of such debts in REFIS is subject to ratificationwas already ratified by the proper authorities, which we expect will take place asauthorities.
Refis
In November 2009, we adhered to the Tax Recovery Program(REFIS)established by Federal Government in order to settle its tax and social security liabilities through a special settlement and installment payment system. Management’s decision took into consideration the economic benefits provided by the REFIS, such as discounts and fines exemptions, as well as the high costs of maintaining pending lawsuits. Joining the special tax programs reduced the amount of fines, interest and legal charges previously due. On December 31, 2010, the position of the debts under the Federal REFIS, recorded under taxes payable in installments, was R$ 1,444.2 million (R$ 826.8 million in 2009).
Antitrust
In October 1999, CADE fined us, R$22 million claiming that certain practices adopted by us and other Brazilian steel companies untilup to 1997 allegedly comprised a cartel. We challenged the cartel allegation and the imposition of the fine judicially and, inon June 2003, obtained a partially favorable judgment by a federal trial court. CADE appealed the trial court decision and, on June 14, 2010, a federal appellate court in Brasília held a judgment reversing the trial court’s decision and confirming the cartel allegation as well as the fine imposed by CADE.CADE in the amount of R$65 million. We have asked the appellate court to clarify its decision and we will only know the exact content of the judgment, including the rate for adjustment of the fine amount, when the appellate court clarifies its decision. Accordingly, we have not yet recorded any provision in connection with this fine. We believe we have grounds for reversal of the judgment and intend to appealappealed the decision of the appellate court to the Brazilian Superior Court of Justice. We have not yet recorded any provision in connection with this fine.
In September 2011, CSN received a request from Secretaria de Direito Econômico (SDE) to provide information related to the acquisition of shares of Usinas Siderúrgicas de Minas Gerais S.A. – Usiminas in order to evaluate a possible concentration act. In October 2011, SDE involved Conselho Administrativo de Defesa Econômica (CADE) and Secretaria de Acompanhamento Econômico (SEAE) on the subject. CSN has been providing the requested information to such antitrust bodies.
On April 11, 2012 CADE issued an injunctive order barring us from, among others, acquiring more Usiminas shares or exercising our voting rights on the shares we already own. We are analyzing alternatives to preserve our rights.
Other Legal Proceedings
The companyCompany and its subsidiaries are defendants in other proceedings at administrative and judicial levels, in the approximate amount of R$ 4.2 billion,6,881 million, of which R$ 2.9 billion related5,196 million relate to tax contingencies, R$ 303570 million to civil contingencies, and R$ 9581,115 million to labor and social security contingencies. The assessments made by legal counsel define these contingencies as entailing a risk of possible loss and, therefore, no provision was recorded in conformity with Management’s judgement.judgment.
The Company is also a defendant in an arbitration proceeding at the International Court of Arbitration - ICC that discusses potential damages suffered by the plaintiff due to a breach of contract in the estimated amount of R$84 million. The proceeding is in the discovery phase. This case is classified as entailing a risk of possible loss and, therefore, no provision was recorded in conformity with Management’s judgment.
For further information on our legal proceedings and contingencies, see Note 2119 to our consolidated financial statements.
Dividend Policy
General
Subject to certain exceptions set forth in Brazilian Corporate Law, our bylaws require that we pay a yearly minimum dividend equal to 25% of our adjusted net profits, calculated in accordance with Brazilian Corporate Law.
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Proposals to declare and pay dividends in excess of the statutory minimum dividend requirement are generally made at the recommendation of our Board of Directors and approvalapproved by the vote of our shareholders. Any such proposal will be dependent upon our results of operations, financial condition, cash requirements for our business, future prospects and other factors deemed relevant by our Board of Directors. Until December 2000, it had been our policy to pay dividends on our outstanding common shares not less than the amount of our required distributions for any particular fiscal year, subject to anya determination by our Board of Directors that such distributions would be inadvisable in view of our financial condition. In December 2000, our Board of Directors decided to adopt a policy of paying dividends equal to all legally available net profits, after taking into consideration the following priorities: (i) our business strategy; (ii) the performance of our obligations; (iii) the accomplishment of our required investments; and (iv) the maintenance of our good financial status.
Pursuant to a change in Brazilian tax law effective January 1, 1996, Brazilian companies are also permitted to pay limited amounts of interest on stockholders’ equity to holders of equity securities and to treat these payments as an expense for Brazilian income tax purposes. These payments may be counted in determining if the statutory minimum dividend requirement has been met, subject to shareholder approval.
For dividends declared during the past twothree years, see “Item 3A. Selected Financial Data.”
At our Annual Shareholders’ Meeting of April 29, 2011,27, 2012, our shareholders approved the payment of dividends and interest on shareholders’ equity relating to 2010,2011, in the total amount of R$1,856.8 million (R$1,5001,200 million as dividends and R$356.8 million as interest on shareholders’ equity).dividends.
Amounts Available for Distribution
At each Annual Shareholders’ Meeting, our Board of Directors is required to recommend how our earnings for the preceding fiscal year are to be allocated. For purposes of Brazilian Corporate Law, a company’s income net income afterof income tax and social contribution for any one fiscal year, net of any accumulated losses from prior fiscal years and amounts allocated to employees’ and management’s participation in earnings, represents its “net profits” for that fiscal year.
In accordance with Brazilian Corporate Law, an amount equal to 50% of our net profits as further (i) reduced by amounts allocated to the legal reserve; (ii) reduced by amounts allocated to the contingency reserve;reserve and the tax incentive reserve, if any; and (iii) increased by the eventual reversion of theany contingency reserves constituted in prior years, will be available for distribution to shareholders or the Distributable Amount, in any particular year.year (“Distributable Amount”).
Legal Reserve. Under Brazilian Corporate Law, we are required to maintain a “legal reserve” to which webwe must allocate 5% of our “net profits” for each fiscal year until the amount of the reserve equals 20% of our paid-in capital. However, we are not required to make any allocations to our legal reserve in a year in which the legal reserve, when added to our other established capital reserves, exceeds 30% of our capital stock. Any net losses may be offset with the amounts allocated to the legal reserve. The amounts allocated to such reserve must be approved by our shareholders in the Annual Shareholders’ Meeting, and may be used to increase our capital stock or to offset losses and, therefore, they are not available for the payment of dividends.
Discretionary (or Statutory) Reserves. Under Brazilian Corporate Law, any corporation may provide in its by-laws for the creation of additional reserves, provided that the maximum amount that may be allocated to such reserves, the purpose of such reserves and the allocation criteria of the reservesuch reserves are specified. These reserves mayThere can not be allocated forany allocation to such reserves if such reserveit affects the payment of the Mandatory Dividend (as defined bellow)below). Our by-laws currently provide that our Board of Directors may propose to our shareholders the deduction of at least 1% from our net profits to be allocated to a Working Capital and Investments Reserve. Constitution of such reserve will not affect payment of the Mandatory Dividend. Our by-laws do not provide for thisany other discretionary reserve.
Contingency Reserve. Under Brazilian Corporate Law, a percentage of our “net profits” may be allocated to a contingency reserve for estimable losses that are considered probable in future years. Any amount so allocated in a prior year must either be reserved in the fiscal year in which the loss had been anticipated if the loss does not occur as projected or be written off in the event that the anticipated loss occurs.
Tax Incentive Reserve. Our shareholders in a shareholders’ meeting may, as proposed by management,following a management’s proposal, allocate to thea tax incentive reserve partthe portion of our “net profits” resulting from donations or governmental grants for investments, which may be excluded from the taxable basis of athe Mandatory Dividend (as defined bellow)below). Our by-laws currently do not provide for such reserve.
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Unrealized IncomeProfits Reserve. Under Brazilian Corporate Law, the amount by which the distributable amountMandatory Dividend exceeds our realized net incomeprofits in a given fiscal year may be allocated to an unrealized profits reserves.reserve. Brazilian Corporate Law defines realized “net“realized net profits” for the period as the amount by which our “net profits” exceeds the sum of (i) positive equity net results and (ii) the net profits, gains or returns that will be received by usrealized after the end of the subsequent fiscal year. “Net profits” allocated to the unrealized profits reservesreserve must be added to the next mandatory dividendMandatory Dividend (as defined below) distribution after those profits have been realized, if they have not been used to absorb losses in subsequent periods.
Retained Earnings Reserve. Under Brazilian Corporate Law, our shareholders may decide at a general shareholders’ meeting to retain a portion of our net incomeprofits that is provided for in a previously approved capital expenditure budget. No allocation of net incomeprofits may be made to the retained earnings reserve in case such allocation affects the payment of a mandatory dividend.Mandatory Dividend (as defined below).
The balance of our profit reserves, except those for contingencies, tax incentives and unrealized profits, shall not be greater than our capital stock. If such reserves reach this limit, the manner in which such surplus is used will be decided at a shareholders’ meeting.
For purposes of determining reserve amounts, the calculation of “net profits” and allocations to reserves for any fiscal year are determined on the basis of financial statements prepared in accordance with Brazilian Corporate Law. The consolidated financial statements included herein have been prepared in accordance with U.S. GAAPIFRS and, although our allocations to reserves and dividends will be reflected in the financial statements, investors will not be able to calculate the allocations or required dividend amounts from the consolidated financial statements.
Capital Reserve.Under Brazilian Corporate Law, the capital reserve consists of premiumpremiums from the issuance of shares, goodwill reserves from mergers, sales of founders' shares, and sales of warrants, premium from the issuance of debentures, tax and fiscal incentives and gifts.. Amounts allocated to our capital reserve are not taken into consideration for purposes of determining Mandatory Dividends (as defined bellow)below). Our capital stock is not currently represented by founders' shares. In addition, the remaining balance inour case, any amounts allocated to the capital reserve may only be used to increase our capital stock, to absorb losses that surpass accumulated profits and the profit reserves, or to redeem, reimburse or purchase shares.
Mandatory Dividend
Under our bylaws, we are required to distribute to shareholders as dividends in respect of each fiscal year ending on December 31, to the extent profits are available for distribution, an amount equal to at least 25% of the Distributable Amount (the “Mandatory Dividend”) in any particular year, (thewhich amount of which shall include any interest paid on capital during that year).year. See “Additional Payments on Shareholders’ Equity” below. In addition to the Mandatory Dividend, our Board of Directors may recommend that shareholders receive an additional payment of dividends from other funds legally available therefore.available. Any payment of interim dividends willmay be netted against the amount of the Mandatory Dividend for that fiscal year. Under Brazilian Corporate Law, if the Board of Directors determines prior to the Annual Shareholders’ Meeting that payment of the Mandatory Dividend for the preceding fiscal year would be inadvisable in view of our financial condition, the Mandatory Dividend does not need notto be paid. That type of determination must be reviewed by the Fiscal Council,Committee, if one exists, and reported, together with the appropriate explanations, to the shareholders and to the CVM. Mandatory dividends not distributed as described above shall be registered as a special reserve and, if not absorbed by losses in subsequent fiscal years, shall be paid as a dividend as soon as our financial condition allows for it.
Payment of Dividends
We are required to hold Annual Shareholders’ Meetings within the first four months after the end of our fiscal year at which an annual dividend may be declared. Additionally, our Board of Directors may declare interim dividends. Under Brazilian Corporate Law, dividends are generally required to be paid to the holder of record on a dividend declaration date within 60 days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of payment, which, in either case, must occur prior to the end of the fiscal year in which the dividend was declared. A shareholder has a three-year period from the dividend payment date to claim dividends (or interest on shareholders’ equity as described under “Additional Payments on Shareholders’ Equity” below) in respect of its shares, after which we will no longer be liable for the dividend payments.
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Our payments of cash distributions on common shares underlying the ADSs will be made in Brazilian currency to our ADR custodian on behalf of our ADR depositary, which will then convert the proceeds into U.S. dollars and will cause the U.S. dollars to be delivered to our ADR depositary for distribution to holders of ADSs.
Additional Payments on Shareholders’ Equity
Since January 1, 1996, Brazilian companies have been permitted to pay interest on shareholders’ equity to holders of equity securities and to treat those payments as a deductible expense for Brazilian income tax purposes. The amount of interest payable on capital is calculated based on the TJLP – Long Term Interest Rate, as determined by the Central Bank, and applied to each shareholder’s portion of net equity. Brazilian Corporate Law establishes that current earnings are not included as part of the net equity.
The TJLP is determined by the Central Bank on a quarterly basis. The TJLP is based on the annual profitability average of Brazilian public internal and external debt. The TJLP rate for the fourth quarter of 20092011 was 6%.
Interest on shareholders’ equity is deductible up to the extent it does not exceed 50% of eithergreater of the following amounts: (i) 50% of the net income,profits, as determined for accounting purposes, for the current period of interest payment after the deduction of the social contribution on net profits and before the provision for income tax and the deduction of the amount of such interest; orand (ii) 50% of the balance of accumulated earnings and profits reserves from prior years.
None
Our capital stock is comprised of common shares without par value (ações ordinárias). On January 22, 2008, our shareholders approved a one-for-three split of our common shares. As a result of this stock split, each common share of our capital stock as of January 22, 2008 became represented by three common shares after the split. The same ratio of one common share for each ADS was maintained.
On March 25, 2010, our shareholders approved a two-for-one split of our common shares. As a result of this stock split, each common share of our capital stock as of March 25, 2010 became represented by two common shares after the split. The same ratio of one common share for each ADS was maintained. See “Item 10.B. Memorandum and Articles of Association.”
The following table sets forth information concerning the high and low closing sale prices and the average daily trading volume of our common shares on the BM&FBOVESPA (per common share) and the ADSs on the NYSE for the periods indicated.
| Common Shares(1) |
| American Depositary Shares(1) | |||||||||
| US$ per Share(2) |
| Volume |
| US$ per ADS |
| Volume | |||||
| High |
| Low |
| (Inthousands) |
| High |
| Low |
| (Inthousands) | |
2006: |
|
|
|
|
|
|
|
|
|
|
| |
Year end |
| 6.19 |
| 3.49 |
| 4,216 | 6.23 |
| 3.57 |
| 5,596 | |
2007: |
|
|
|
|
|
|
|
|
|
|
| |
Year end |
| 14.90 |
| 4.67 |
| 5,330 | 15.28 |
| 4.71 |
| 6,977 | |
2008: |
|
|
|
|
|
|
|
|
|
|
| |
Year end |
| 25.63 |
| 4.12 |
| 5,761 | 25.51 |
| 3.94 |
| 9,222 | |
2009: |
|
|
|
|
|
|
|
|
|
|
| |
Year end |
| 18.45 |
| 6.03 |
| 4,936 | 18.61 |
| 6.00 |
| 7,218 | |
2010: |
|
|
|
|
|
|
|
|
|
|
| |
First quarter |
| 20.03 |
| 14.25 |
| 4,739 | 20.00 |
| 14.01 |
| 6,577 | |
Second quarter |
| 20.81 |
| 13.37 |
| 4,035 | 20.76 |
| 13.16 |
| 6,386 | |
Third quarter |
| 17.37 |
| 14.53 |
| 3,143 | 17.67 |
| 14.34 |
| 4,353 | |
Fourth quarter |
| 17.78 |
| 15.21 |
| 2,666 | 18.21 |
| 15.54 |
| 4,202 | |
Year end |
| 20.81 |
| 13.37 |
| 3,637 | 20.76 |
| 13.16 |
| 5,360 | |
2011 |
|
|
|
|
|
|
|
|
|
|
| |
First quarter |
| 17.98 |
| 15.24 |
| 3,036 | 18.33 |
| 15.41 |
| 4,377 | |
Second quarter |
| 16.81 |
| 11.60 |
| 3,169 | 17.22 |
| 11.81 |
| 4,453 | |
Third quarter |
| 12.55 |
| 7.89 |
| 3,780 | 12.62 |
| 7.94 |
| 5,932 | |
Fourth quarter |
| 9.66 |
| 7.23 |
| 3,683 | 9.89 |
| 7.31 |
| 4,573 | |
Year End |
| 17.98 |
| 7.23 |
| 3,422 | 18.33 |
| 7.31 |
| 4,840 | |
2012 |
|
|
|
|
|
|
|
|
|
|
| |
First quarter |
| 10.83 |
| 8.09 |
| 3,958 | 10.88 |
| 8.53 |
| 5,486 | |
Month Ended:
October 31, 2011 |
| 9.66 |
| 7.23 |
| 4,623 | 9.89 | 7.46 | 5,858 |
November 30, 2011 |
| 9.51 |
| 7.54 |
| 3,650 | 9.70 | 7.55 | 4,319 |
December 31, 2011 |
| 8.84 |
| 7.35 |
| 2,819 | 8.76 | 7.31 | 3,542 |
January 31, 2012 |
| 10.54 |
| 8.09 |
| 3,626 | 10.54 | 8.53 | 5,393 |
February 29, 2012 |
| 10.83 |
| 10.05 |
| 4,290 | 10.88 | 10.10 | 5,595 |
March 31, 2012 |
| 10.78 |
| 9.45 |
| 3.989 | 10.73 | 9.46 | 5,470 |
|
| Common Shares(1) |
| American Depositary Shares(1) | ||||||||
|
|
|
|
| ||||||||
|
| US$ per Share(2) |
| Volume |
| US$ per ADS |
| Volume | ||||
|
|
|
|
|
|
|
|
| ||||
|
| High |
| Low |
| (In thousands) |
| High |
| Low |
| (In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
Year end |
| 4.49 |
| 2.45 |
| 5,771 |
| 4.47 |
| 2.47 |
| 5,095 |
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Year end |
| 6.27 |
| 3.46 |
| 4,216 |
| 6.29 |
| 3.49 |
| 5,605 |
2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Year end |
| 15.00 |
| 4.58 |
| 5,330 |
| 15.35 |
| 4.58 |
| 6,980 |
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
| 20.93 |
| 11.88 |
| 5,171 |
| 20.99 |
| 12.16 |
| 8,521 |
Second quarter |
| 26.21 |
| 17.76 |
| 4,617 |
| 26.23 |
| 17.75 |
| 6,895 |
Third quarter |
| 21.87 |
| 8.24 |
| 6,323 |
| 21.78 |
| 9.21 |
| 11,038 |
Fourth quarter |
| 10.51 |
| 4.07 |
| 6,887 |
| 10.41 |
| 3.93 |
| 10,390 |
Year end |
| 26.21 |
| 4.07 |
| 5,761 |
| 26.23 |
| 3.93 |
| 9,219 |
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
| 9.27 |
| 6.03 |
| 5,967 |
| 9.30 |
| 5.92 |
| 9,217 |
Second quarter |
| 13.29 |
| 7.31 |
| 5,039 |
| 13.25 |
| 7.27 |
| 7,088 |
Third quarter |
| 15.45 |
| 9.83 |
| 4,573 |
| 15.53 |
| 9.73 |
| 6,226 |
Fourth quarter |
| 19.20 |
| 14.57 |
| 4,145 |
| 19.07 |
| 14.47 |
| 6,417 |
Year end |
| 19.20 |
| 6.03 |
| 4,930 |
| 19.07 |
| 5.92 |
| 7,214 |
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
| 18.38 |
| 13.08 |
| 4,800 |
| 19.17 |
| 13.86 |
| 6,742 |
Second quarter |
| 19.09 |
| 12.67 |
| 4,114 |
| 19.90 |
| 13.24 |
| 6,524 |
Third quarter |
| 16.46 |
| 13.77 |
| 3,253 |
| 17.49 |
| 14.44 |
| 4,555 |
Fourth quarter |
| 16.85 |
| 14.42 |
| 2,687 |
| 18.02 |
| 15.49 |
| 4,533 |
Year end |
| 19.09 |
| 12.67 |
| 3,713 |
| 19.90 |
| 13.24 |
| 5,589 |
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
January 31 |
| 17.03 |
| 15.66 |
| 1,119 |
| 18.14 |
| 16.45 |
| 1,729 |
February 28 |
| 15.20 |
| 16.15 |
| 919 |
| 17.11 |
| 16.08 |
| 1,396 |
March 31 |
| 15.52 |
| 14.44 |
| 1,018 |
| 16.55 |
| 15.25 |
| 1,432 |
First quarter |
| 17.03 |
| 14.44 |
| 3,055 |
| 18.14 |
| 15.25 |
| 4,556 |
April 30 |
| 15.93 |
| 14.35 |
| 995 |
| 17.04 |
| 15.21 |
| 1,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Economática. | |
(1) | Prices and volumes of our common shares and ADSs have been adjusted to reflect the two-for-one stock split occurred in March 2010 whereby each common share of our capital stock on March 25, 2010 became represented by two common shares. See “Item 10.B. Memorandum and Articles of Association.” |
(2) | U.S. dollar amounts have been translated fromreaisat the exchange rates in effect on the respective dates of the quotations for the common shares set forth above. These U.S. dollar amounts may reflect exchange rate fluctuations and may not correspond to changes in nominalreaisprices over time. |
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As of June 14, 2011,April 18, 2012, the closing sale price (i) per common share on the BM&FBOVESPA wasR$19.58 of R$17.27 and (ii) per ADS on the NYSE was of US$12.59.9.22. The ADSs are issued under a deposit agreement and JP Morgan Bankserves as depositary under that agreement.
As of MarchDecember 31, 2011, approximately 364374 million, or approximately 24.6%25.6%, of our outstanding common shares were held through ADSs. Substantially all of these ADSs were held of record by The Depository Trust Company. In addition, our records indicate that on that date there were approximately 402154 record holders (other than our ADR depositary) with addresses in the U.S., holding an aggregate of approximately 47653 million common shares, representing 32.1%3.6% of our outstanding common shares.
Not applicable.
The principal trading market for our common shares is the BM&FBOVESPA. Our ADSs trade on the NYSE under the symbol “SID.”
Trading on the BM&FBOVESPA and NYSE
CSN shares traded in the market are comprised of ordinary shares without nominal value. Ordinary shares are traded on the Brazilian Stock Exchange, BM&FBOVESPA, under the code CSNA3. Our ADSs, each one representing an ordinary share, are traded on the New York Stock Exchange, NYSE, under the code SID.
In 2000, the BM&FBOVESPA was reorganized through the execution of a memoranda of understanding by the Brazilian stock exchanges. Under the memoranda, all securities in Brazil are now traded only on the BM&FBOVESPA, with the exception of electronically traded public debt securities and privatization auctions, which are traded on the Rio de Janeiro Stock Exchange.
&FBOVESPA. When shareholders trade in common and preferred shares on the BM&FBOVESPA, the trade is settled in three business days after the trade date without adjustment of the purchase price for inflation. The seller is ordinarily required to deliver the shares to the exchange on the third business day following the trade date. Delivery of and payment for shares are made through the facilities of the clearinghouse,Companhia Brasileira de Liquidação e Custódia,or CBLC, a subsidiary of the BM&FBOVESPA.
The BM&FBOVESPA was a nonprofit entity owned by its member brokerage firms until August 2007. Since then, Bovespa Holding S.A. became a public company with shares negotiated on the BM&FBOVESPA. Trading on the BM&FBOVESPA is conducted through an electronic trading system called Megabolsa from 10:00 a.m. to 5:00p.m., or from 11:00 a.m. to 6:00 p.m., São Paulo time, during daylight savings time in Brazil, for all securities traded on all markets. This system is a computerized system that links electronically with the seven smaller regional exchanges. The BM&FBOVESPA also permits trading from 5:45 p.m. to 7:00 p.m., or from 6:45 p.m. to 7:30 p.m., São Paulo time, during daylight savings time in Brazil, on an online system connected to traditional and internet brokers called the “after market.” Trading on the after market is subject to regulatory limits on price volatility and on the volume of shares transacted through internet brokers. There are no specialists or officially recognized market makers for our shares in Brazil.
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In order to better control volatility, the BM&FBOVESPA adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes, one hour or for a period to be determined by BM&FBOVESPA whenever the BM&FBOVESPA’s index, or Ibovespa index, falls below the limits of 10%, 15% or 20%, respectively, in relation to the index registered in the previous trading session.clearinghouse.
The BM&FBOVESPA is significantly less liquid than the NYSE or other major exchanges in the world. As of December 2010,2011, the aggregate market capitalization of the BM&FBOVESPA was equivalent to R$2.62.3 trillion (or US$1.51.2 trillion). In contrast, as of April 2010,December 2011, the aggregate market capitalization of the NYSE was US$25.4411.8 trillion. The average daily trading volume of the BM&FBOVESPA and NYSE for April 2010December 2011 was of approximately R$5.66.0 billion (or US$3.2 billion) and US$80.153.7 billion, respectively. Although any of the outstanding shares of a listed company may trade on the BM&FBOVESPA, in most cases fewer than half of the listed shares are actually available for trading by the public, since the remaining shares are generally being held by small groups of controlling persons, by government entities or by one principal shareholder. See “Item 3. Risk Factors—Risks Relating to the ADSs and Our Common Shares—The relative volatility and illiquidity of the Brazilian securities markets may substantially limit the ability of holders of our common shares or ADSs to sell the common shares underlying the ADSs at the time and price they desire.”
As of December 31, 2010,2011, we accounted for approximately 1.88%0.95% of the market capitalization of all listed companies on the BM&FBOVESPA.
The following table reflects the fluctuations in the Ibovespa index during the periods indicated:
Ibovespa Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| High |
| Low |
| Close |
| High |
| Low |
| Close |
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
| 33,629 |
| 23,610 |
| 33,456 | ||||||
2006 |
| 44,674 |
| 32,057 |
| 44,473 |
| 44,526 |
| 32,847 |
| 44,473 |
2007 |
| 65,790 |
| 41,179 |
| 63,886 |
| 65,790 |
| 41,179 |
| 63,886 |
2008 |
| 73,516 |
| 29,435 |
| 37,550 |
| 73,516 |
| 29,435 |
| 37,550 |
2009 |
| 69,349 |
| 36,234 |
| 68,588 |
| 69,349 |
| 36,234 |
| 68,588 |
2010 |
| 72,995 |
| 58,192 |
| 69,304 |
| 72,995 |
| 58,192 |
| 69,304 |
2011 (through March 31) |
| 71,632 |
| 64,217 |
| 68,586 | ||||||
2011 |
| 71,632 |
| 48,668 |
| 56,754 |
2012 (through March 31) | 68,394 | 57,829 | 64,510 |
The IBOVESPA index closed at 68,58664,510 on March 31, 2011.2012. Trading on the BM&FBOVESPA by nonresidents of Brazil is subject to certain limitations under Brazilian foreign investment legislation. See “Item 10D. Exchange Controls.”
Regulation of the Brazilian Securities Markets
The Brazilian securities markets are regulated by the CVM, which has authority over stock exchanges and the securities markets generally,in general, and by the Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions. The Brazilian securities market is governed by Law No. 6,385 dated December 7, 1976, as amended, or the Brazilian Securities Law, and Brazilian Corporate Law and regulations issued by the CVM.
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Under Brazilian Corporate Law, a company is either public, acompanhia aberta, such as us,CSN, or private, acompanhia fechada. All public companies are registered with the CVM and are subject to reporting and regulatory requirements.
Trading in securities on the BM&FBOVESPA may be suspended at the request of a company in anticipation of a material announcement. The company should also suspend its trading on international stock exchanges where its securities are traded. Trading may also be suspended on the initiative of the BM&FBOVESPA or the CVM, among other reasons, based on or due to a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to the inquires by the CVM or the BM&FBOVESPA.
The Brazilian Securities Law and the regulations issued by the CVM provide for, among other things, disclosure requirements, restrictions on insider trading and price manipulation, as well as protection of minority shareholders. However, the Brazilian securities markets are not as highly regulated and supervised as the United States securities markets or markets in certain other jurisdictions.
Disclosure Requirements
According to Law No 6,385, a publicly held company must submit to the CVM and BM&FBOVESPA certain periodic information, including annual and quarterly reports prepared by management and independent auditors. This legislation also requires uscompanies to file with the CVM our shareholders’shareholder agreements, notices of shareholders’ meetings and copies of the related minutes.
Pursuant to the CVM Resolution No. 358, of January 3, 2002, the CVM revised and consolidated the requirements regarding the disclosure and use of information related to material facts and acts of publicly held companies, including the disclosure of information in the trading and acquisition of securities issued by publicly held companies.
Such requirements include provisions that:
· establishEstablish the concept of a material fact that gives rise to reporting requirements. Material facts include decisions made by the controlling shareholders, resolutions of the shareholders at a shareholders’ meeting andmeetingand of management of the company, or any other facts related to oura company’s business (whether occurring within the company or otherwise somehow related thereto) that may influence the price of its publicly traded securities, or the decision of investors to trade such securities or to exercise any of such securities’ underlying rights;
· specifySpecify examples of facts that are considered to be material, which include, among others, the execution of agreements providing for the transfer of control of the company, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the company, and any corporate restructuring undertaken among related companies;
· obligeOblige the officer of investor relations officer, controlling shareholders, other officers, directors, members of the audit committee and other advisory boards to disclose material facts;
· requireRequire simultaneous disclosure of material facts to all markets in which the corporation’s securities are admitted for trading;
· requireRequire the acquirer of a controlling stake in a corporation to publishdisclose material facts, including its intentions as to whether or not to de-list the corporation’s shares within one year;year from the acquisition of such controlling stake;
· establishEstablish rules regarding disclosure requirements in the acquisition and disposal of a material ownership interest; and
· forbidForbid trading on the basis of material non-public information.
Pursuant to the CVM Rule No. 480480. of December 7, 2009, the CVM expandexpands the quantity and improveimproves the quality of information reported by issuers in Brazil. This Rule represents a significant step forward in providing the marketwithmarket with greater transparency over securities issuers. For that purpose, the Annual Information Report (IAN) was replaced by a more comprehensive and opinative reference form (Formulário de Referência), which comprisedcomprises the information requested byIAN and added several other data required under CVM Rule No. 400400. of December 29, 2003, thatwhich were onlypreviously subject to disclosure only upon a public offering.
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The reference form (Formulário de Referência) is in line with the Shelf Registration System recommended by the International Organization Securities Commission (IOSCO) and adopted in other countries (England and the United States, among others), by means of which the information regarding an specific issuer is consolidated into one document and is subject to periodic update (the “Shelf Document”). This mechanism offers the investor the possibility to analyze one single document for relevant information about the issuer.
CVM Rule No. 480480. also created two groups of issuers per type of securities traded. Group A issuers are authorized to trade in any securities, whereas Group B issuers must not trade in stocks, depositary receipts (BDRs, Units) and securities convertible or exchangeable into stocks or depositary receipts. The greater extend of Group A authorization is followed by more stringent disclosure and reporting requirements. We, as issuers of stocks, are part of Group A.A and, as such, are subject to more stringent disclosure and reporting requirements.
CVM has also enacted Rule No. 481481. of December 17, 2009 to regulate two key issues involving general meetings of shareholders in publicly held companies: (i) the extent of information and documents to be provided in support of call notices (subject to prior disclosure to shareholders); and (ii) proxy solicitation for exercise of voting rights.
CVM Rule No. 481481. is intended to (i) improve the quality of information disclosuredisclosed by publicly held companies to shareholders and to the market in general, favoring the use of Internet as a vehicle to that end; (ii) make the exercise of voting rights less costly and foster the participation of shareholders in general meetings, specially for companies with widely dispersed capital; and, consequently (iii) facilitate the oversight of corporate businesses.
Not applicable.
10B. Memorandum and Articles of Association
Registration and Corporate Purpose
We are registered with the Department of Trade Registration under number 15,910. Our corporate purpose, as set forth in Article 2 of our bylaws, is to manufacture, transform, market, import and export steel products and steel derived by-products, from the manufacturing plant, as well as to explore other activities that are directly or indirectly related to our corporate purpose, including: mining, cement and carbochemical business activities, the manufacture and assembly of metallic structures, construction, transportation, navigation and port activities.
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Directors’ Powers
Pursuant to our bylaws, a director may not vote on a proposal, arrangement or contract in which the director’s interests conflict with our interests. In addition, our shareholders must approve the total compensation of our management and, in case a global amount is fixed, our Board of Directors is responsible for allocating individual amounts of management compensation. There is no mandatory retirement age for our directors. Brazilian Corporate Law requires that a director must be a shareholder of the company, but there is no minimum amount of shares required. A detailed description of the general duties and powers of our Board of Directors may be found in “Item 6A. Directors and Senior Management.”
Description of Capital Stock
Set forth below is certain information concerning our capital stock and a brief summary of certain significant provisions of our bylaws and Brazilian Corporate Law applicable to our capital stock. This description does not purport to be complete and is qualified by reference to our bylaws and to Brazilian law. For further information, see our bylaws, which have been filed as an exhibit to this annual report.
Capital Stock
On August 2, 2011 we cancelled 25,063,577 of our shares which were held in treasury at that time. On December 31, 2010,2011 our capital stock was composed of 1,483,033,6851,457,970,108 common shares, including 25,063,577 common shares held in treasury.
On November 1, 2010 we cancelled 27.325.535 of our shares which were held on treasury at that time. On April 30, 2011 our capital stock was composed by 1,483,033,685 common shares including 25.063.577common shares held in treasury.shares. Our bylaws authorize the Board of Directors to increase the capital stock up to 2,400,000,000 common shares without an amendment to our bylaws by means of a vote at our shareholders’ meeting.bylaws. There are currently no classes or series of preferred shares issued or outstanding. We may purchase our own shares for purposes of cancellation or to hold them in treasury subject to certain limits and conditions established by the CVM and Brazilian Corporate Law. See “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”
Liability for Further Capital Calls
Pursuant to Brazilian Corporate Law, a shareholder’s liability is generally limited to the issue price of the subscribed or purchased shares. There is no obligation of a shareholder to participate in additional capital calls.
Voting Rights
Each common share entitles the holder to one vote at our shareholders’ meetings. According to a CVM ruling, shareholders that represent at least 5% of our common shares may request cumulative voting in an election of our Board of Directors. Pursuant to Brazilian Corporate Law, shareholders holding at least 15% of our common shares have the right to appoint a member of our Board of Directors.
Shareholders’ Meetings
Pursuant to Brazilian Corporate Law, the shareholders present at an annual or extraordinary shareholders’ meeting, convened and held in accordance with Brazilian Corporate Law and our bylaws are empowered to decide all matters relating to our corporate purpose and to pass any resolutions they deem necessary for our protection and well-being.
In order to participate in a shareholders’ meeting, a shareholder must be a record owner of the share on the day the meeting is held, and may be represented by a proxy.
Shareholders’ meetings are called, convened and presided over by the Chairman or Vice-Chairman of our Board of Directors. Brazilian Corporate Law requires that our shareholders’ meeting be convened by publication of a notice in theDiário Oficial do Estado do Rio de JaneiroSão Paulo, the official government publication of the State of Rio de Janeiro,São Paulo, and in a newspaper of general circulation in Brazil and in the city in which our principal place of business is located, currently the Jornal Valor Econômico, at least 15 days prior to the scheduled meeting date and no fewer than three times. We have changed to the Jornal Valor EconômicoDiário Oficial do Estado de São Paulo as a result of the transfer of our main means of disclosing legal notices afterheadquarters to São Paulo and as approved by our shareholders approved by unanimous vote such change at our shareholders’ meeting held on April 29,2010.May 30, 2011. Both notices must contain the agenda for the meeting and, in the case of an amendment to our bylaws, an indication of the subject matter.
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In order for a shareholders’ meeting to be held, shareholders representing a quorum of at least one-fourth of the voting capital must be present, except for meetings convened to amend our bylaws, where shareholders representing at least two-thirds of the voting capital must be present. A shareholder may be represented at a shareholders’ meeting by means of a proxy, appointed not more than one year before the meeting, who must be a either a shareholder, a company officer or a lawyer. For public companies, such as we are, the proxy may also be a financial institution. If no quorum is present, notice must be given in the manner described above, no fewer than eight days prior to the scheduled meeting date. On second notice, the meeting may be convened without a specific quorum requirement, subject to the minimum quorum and voting requirements for certain matters, as described below. A holder of shares with no voting rights may attend a shareholders’ meeting and take part in the discussion of matters submitted for consideration.
Except as otherwise provided by law, resolutions passed at a shareholders’ meeting require a simple majority vote, abstentions not considered. Pursuant to Brazilian Corporate Law, the approval of shareholders representing at least one-half of the issued and outstanding voting shares is required for the following actions: (i) to create a new class of preferred shares or disproportionately increase an existing class of preferred shares relative to the other classes of preferred shares, to change a priority, preference, right, privilege or condition of redemption or amortization of any class of preferred shares or creation ofto create any class of non-voting preferred shares that has a priority, preference, right, condition or redemption or amortization superior to an existing class of shares (in this case,these cases, a majority of the issued and outstanding shares of the affected class is also required); (ii) to reduce the mandatory dividend;Mandatory Dividend; (iii) to change our corporate purpose; (iv) to merge into or consolidate with another company or to spin-off our assets; (v) to dissolve or liquidate our Company; (vi) to cancel any liquidation procedure; (vii) to createauthorize the issuance of founders’ shares; and (viii) to participate in a centralized group of companies as defined under Brazilian Corporate Law.
Pursuant to Brazilian Corporate Law, shareholders voting at a shareholders’ meeting have the power to: (i) amend our bylaws; (ii) elect or dismiss members of our Board of Directors (and members of the Fiscal Council)Committee) at any time; (iii) receive and approve the annual management accounts, including the allocation of net profits and the distributable amounts for payment of the mandatory dividends and allocation to the various reserve accounts; (iv) authorize the issuance of debentures in general; (v) suspend the rights of a shareholder who has violated Brazilian Corporate Law or our bylaws; (vi) accept or reject the valuation of assets contributed by a shareholderashareholder in consideration of the subscription of shares in our capital stock; (vii) authorize the issuance of founders’ shares; (viii) pass resolutions to reorganize theauthorizing reorganization of our legal form, of, merge, consolidatea merger, consolidation or split of the company, to dissolvedissolution and liquidateliquidation of the company, to electelection and dismiss itsdismissal of our liquidators and to examine their accounts; and (ix) authorize management to declare the company insolvent and to request arecuperação judicial orrecuperação extrajudicial (a procedure involving protection from creditors similar in nature to a reorganization under the U.S. Bankruptcy Code), among others.
Redemption Rights
Our common shares are not redeemable, except that a dissenting and adversely affected shareholder is entitled, under Brazilian Corporate Law, to obtain redemption upon a decision made at a shareholders’ meeting by shareholders representing at least one half of the issued and outstanding voting shares to: (i) create a new class of preferred shares or to disproportionately increase an existing class of preferred shares relative to the other classes of preferred shares (unless these actions are provided for or authorized by our bylaws); (ii) modify a preference, privilege or condition of redemption or amortization conferred on one or more classes of preferred shares, or to create a new class with greater privileges than an existing class of preferred shares; (iii) reduce the mandatory distribution of dividends; (iv) change our corporate purpose; (v) merge us with another company or consolidate us; (vi) transfer all of our shares to another company in order to make us a wholly-owned subsidiary of that company (incorporação); (vii) approve the acquisition of control of another company at a price that exceeds certain limits set forth under Brazilian Corporate Law; (viii) approve our participation in a centralized group of companies as defined under Brazilian Corporate Law; (ix) conduct a spin-off that results in (a) a change of corporate purpose, (b) a reduction of the mandatory dividendMandatory Dividend or (c) any participation in a group of companies as defined under Brazilian Corporate Law; or (x) in the event that the entity resulting from (a) a merger or consolidation, (b) anincorporação as described above or (c) a spin-off of a listed company fails to become a listed company within 120 days of the shareholders’ meeting at which the decision was taken. The right ofo f redemption lapses 30 days after publication of the minutes of the relevant shareholders’ meeting. We would be entitled to reconsider any action giving rise to redemption rights within 10 days following the expiration of those rights, if the redemption of shares of dissentingshareholdersdissenting shareholders would jeopardize our financial stability. Law No. 9,457 dated May 5, 1997, which amended Brazilian Corporate Law, contains provisions which, among others, restrict redemption rights in certain cases and allow companies to redeem their shares at their market value, subject to certain requirements. According to our bylaws,Brazilian Corporate Law, the reimbursement value of the common shares must equal the marketbook value, which is determined by a valuation report in accordance with Brazilian Corporate Law, ofdividing our capital stock dividednet assets by the total number of shares issued by us, excluding treasury shares.shares (if any).
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Preemptive Rights
Except as provided for in Brazilian Corporate Law (such as in the case of mergers and public offerings), our bylaws allow each of our shareholders a general preemptive right to subscribe to shares in any capital increase, in proportion to his or her ownership interest. A minimum period of 30 days following the publication of notice of a capital increase is allowed for the exercise of the right and the right is negotiable.transferable. In the event of a capital increase that would maintain or increase the proportion of capital represented by common shares, holders of ADSs will have preemptive rights to subscribe only to newly issued common shares. In the event of a capital increase that would reduce the proportion of capital represented by common shares, holders of ADSs will have preemptive rights to subscribe for common shares, in proportion to their ownership interest, only to the extent necessary to prevent dilution of their interest in us.
Form and Transfer
As our common shares are in registered form, the transfer of shares is governed by the rules of Article 31, paragraph 3, of Brazilian Corporate Law, which provides that a transfer of shares is effected by a transfer recorded in a company’s share transfer records upon presentation of valid share transfer instructions to the company by a transferor or its representative. When common shares are acquired or sold on a Brazilian stock exchange, the transfer is effected on our records by a representative of a brokerage firm or the stock exchange’s clearing system. Transfers of shares by a non-Brazilian shareholder are made in the same way and are executed by thatsuch shareholders’ local agent.
The BM&FBOVESPA operates a central clearing system. A holder of our common shares may choose, at its discretion, to participate in this system and, in that case, all shares elected to be put into this system will be deposited in the custody of the BM&FBOVESPA (through a Brazilian institution duly authorized to operate by the Central Bank and having a clearing account with the BM&FBOVESPA). The fact that those common shares are held in the custody of the BM&FBOVESPA will be reflected in our register of shareholders. Each participating shareholder will, in turn, be registered in our register of beneficial shareholders maintained by the BM&FBOVESPA and will be treated in the same way as registered shareholders.
Limitations on Ownership and Voting Rights by non-Brazilians Shareholders
There are no restrictions on ownership or voting of our common shares by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of common shares into foreign currency and to remit those amounts outside Brazil is subject to exchange control restrictions and foreign investment legislation which generally require, among other things, obtaining a Certificate of Registration under the Brazilian National Monetary Council’s Resolution No. 2,689 or its direct foreign investment regulations. See “Item 10D. Exchange Controls.”
Share Ownership Disclosure
There are no provisions in our bylaws governing the ownership threshold above which shareholder ownership must be disclosed. CVM regulations require the disclosure of (i) the acquisition of (i) 5% of the votingany class of capital stock of a listed company and any subsequent acquisition or disposition of at least 5% of any such class of capital stock, (ii) additional acquisitions byacquisition of control of a controlling shareholderlisted company and (iii) the ownership of shares of capital stock of a listed company by members of thesuch company’s Board of Executive Officers, membersBoard of theDirectors, Audit Committee, Fiscal CouncilCommittee (if any) and any other consulting or technical body (if any) and certain relatives of those persons.
10C. Material Contracts
None
None.
10D. Exchange Controls
There are no restrictions on ownership or voting of our common shares by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of common shares into foreign currency and to remit those amounts outside Brazil is subject to exchange control restrictions and foreign investment legislation which generally require, among other things, obtaining a Certificate of Registration under the Brazilian National Monetary Council’s Resolution No. 2,689 or its direct foreign investment regulations.
Resolution No. 2,689 dated March 31, 2000, introduced new rules to facilitate foreign investment in Brazil. The principal changes for foreign investors entering the Brazilian market include:
· the removal of restrictions on investments by portfolio composition (e.g., equities, fixed income and derivatives); and
· permission for foreign individuals and corporations to invest in the Brazilian market, in addition to foreign institutional investors.
Prior to Resolution No. 2,689, foreign investors had to leave and reenter the country in order to switch their investments from equity to fixed income. Now foreign investors can freely switch their investments without leaving the local market. Foreign investors registered with the CVM and acting through authorized custody accounts and a legal representative may buy and sell any local financial product traded on the local exchanges and registered on the local clearing systems, including shares on the BM&FBOVESPA, without obtaining separate Certificates of Registration for each transaction. Pursuant to Resolution No. 2,689, as amended, investors are also generally entitled to favorable tax treatment. See “Item 10E. Taxation—Brazilian Tax Considerations.”
A Certificate of Registration has been issued in the name of JP Morgan Chase Bank N.A., as our ADR depositary, and is maintained by theItaú Corretora de Valores S.A., our ADR custodian, on behalf of our ADR depositary. Pursuant to the Certificate, our ADR custodian and our ADR depositary are able to convert dividends and other distributions with respect to the common shares represented by ADSs into foreign currency and remit the proceedstheproceeds outside Brazil. In the event that a holder of ADSs surrenders its ADSs for common shares, that holder will be entitled to continue to rely on our ADR depositary’s Certificate of Registration for only five business days after the surrender, following which the holder must obtain its own Certificate of Registration. Thereafter, unless the common shares are held pursuant to Resolution No. 2,689 or direct foreign investment regulations, the holder may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, those common shares, and the holder generally will be subject to less favorable Brazilian tax treatment than a holder of ADSs. See “Item 10E. Taxation—Brazilian Tax Considerations.”
A non-Brazilian holder of common shares may experience delays in obtaining a Certificate of Registration, which may delay remittances abroad. This kind of delay may adversely affect the amount, in U.S. dollars, received by the non-Brazilian holder.
Under current Brazilian legislation, the Brazilian government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately nine months in 1989 and early 1990, the Brazilian government froze all dividend and capital repatriations held by the Central Bank that were owed to foreign equity investors in order to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Brazilian government directives. See “Item 3D. Risk Factors—Risks Relating to our Common Shares and ADSs—If holders of ADSs exchange the ADSs for common shares, they risk losing the ability to remit foreign currency abroad and Brazilian tax advantages.”
For a description of the foreign exchange markets in Brazil, see “Item 3A. Selected Financial Data– Exchange Rates.”
The following is a summary of certain U.S. federal income and Brazilian tax consequences of the acquisition, ownership and disposition of our common shares or ADSs by an investor that holds thesuch common shares or ADSs. This summary does not purport to address all material tax consequences of the acquisition, ownership anddispositionand disposition of our common shares or ADSs, does not take into account the specific circumstances of any particular investorsinvestor and does not address certain investors that may be subject to special tax rules.
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This summary is based on the tax laws of the United States (including the Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing and proposed Treasury regulations thereunder, published rulings and court decisions) and Brazil as in effect on the date hereof, which are subject to change (or changes in interpretation), possibly with retroactive effect. In addition, this summary is based in part upon the representations of our ADRADSs depositary and the assumption that each obligation in our deposit agreement and any related agreement will be performed in accordance with its terms.
Although there is, at present, no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may result in such a treaty. Both countries have been accepting the offset of income taxes paid in one country against the income tax due in the other based on reciprocity. No assurance can be given, however, as to whether or when an income tax treaty will enter into force or how it will affect the U.S. Holders, as defined below, of our common shares or ADSs.
TheThis discussion does not address any aspects of U.S. taxation (such as estate tax, gift tax and Medicare tax on net investment income) other than federal income taxation or any aspects of Brazilian taxation other than income, gift, inheritance and capital taxation. Prospective investors are urged to consult their own tax advisors regarding the Brazilian and U.S. federal, state and local and regarding Brazilian and other tax consequences of the acquisition, ownership and disposition of our common shares and ADSs.
Brazilian Tax Considerations
The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of common shares or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation (a “Non-Resident Holder”). It is based on Brazilian law as currently in effect. Any change in such law may change the consequences described below, possibly with retroactive effect. This discussion does not specifically addressspecificallyaddress all of the Brazilian tax considerations applicable to any particular Non-Resident Holder. Each Non-Resident Holder of common shares or ADSs should consult their own tax advisor concerning the Brazilian tax consequences of an investment in our common shares or ADSs.
A Non-Resident Holder of ADSs may withdraw them in exchange for common shares in Brazil. Pursuant to Brazilian law, the Non-Resident Holder may invest in common shares under Resolution 2,689, of January 26, 2000, of the National Monetary Council or a 2,689 Holder.(a “2,689 Holder”).
Taxation of Dividends and Interest on Shareholders’ Equity
Dividends, including stock dividends and other dividends, paid by us (i) to our ADRADSs depositary in respect of the common shares underlying the ADSs or (ii) to a Non-Resident Holder in respect of common shares, are currently not subject to Brazilian withholding income tax, as far as such amounts are related to profits generated on or after January 1, 1996. Dividends relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding income tax at varying rates, depending on the year thesuch profits have been generated.
Since 1996, Brazilian companies have been permitted to pay limited amounts of interest on shareholders' equity to holders of equity securities and to treat those payments as a deductible expense for purposes of its Brazilian income tax and social contribution on net profits tax basis. For tax purposes, this interest is limited to the daily pro rata variation of the Brazilian Federal Government's Long-Term Interest Rate (“TJLP”), as determined by the Central Bank from time to time, multiplied by the net equity value of the Brazilian company, and the amount of the deduction may not exceed the greater of (i) 50% of the net income (before taking into account the amounts attributable to shareholders as interest on shareholders' equity and the provision of corporate income tax but after the deduction of the provision of the social contribution on net profits) related to the period in respect of which the payment is made; or (ii) 50% of the sum of retained profits and profits reserves as of the date of the beginning of the fiscal year in respect of which the payment is made. Payments of interest on shareholders' equity are decided by the shareholders on the basis of the recommendations of our Board of Directors.
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Payment of interest on shareholders' equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% if the Non-Resident Holder is domiciled in a tax haven.
For this purpose, a “tax haven” or ‘low-tax regime” is a country or location (1) that does not impose income tax, (2) where the income tax rate is lower than 20% or (3) where the local legislation imposes restrictions on disclosing the shareholding composition or ownership of the investment (“Tax Haven Jurisdiction”). These payments of interest on shareholders' equity may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on shareholders' equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable Brazilian withholding income tax, plus the amount of declared dividends is at least equal to the mandatory dividend.
In addition, Law No. 11,727, of June 23, 2008, or Law No. 11,727, introduced a broader concept of tax haven jurisdiction applicable to transactions subject to Brazilian transfer pricing rules, with the creation of the privileged tax regime concept (which came into effect on January 1, 2009).
Due to the recent enactment of this Law and the lack of relevant regulation issued by the Brazilian tax authorities, we are not able to ascertain if this privileged tax regime concept will also be applied to non-resident investors such as a Non-Resident Holder. We recommend prospective investors to consult their own tax advisors from time to time about the changes implemented by Law 11,727 and by any Brazilian tax law or regulation with respect to the concept of tax haven jurisdiction. If the tax authorities determine that payments of interest on shareholders' equity made to a Non-Resident Holder will benefit from a privileged tax regime, the withholding income tax rate applicable to such payments could be of 25%.
No assurance can be given that our board of directors will not recommend that future distributions of income should be made by means of interest on shareholders' equity instead of dividends.
Taxation of Gains
According to Law No. 10,833/03, the gains recognized on a disposition of assets located in Brazil, such as our common shares, by a Non-Resident Holder, are subject to withholding income tax in Brazil. This rule is applicable regardless of whether the disposition is conducted in Brazil or abroad and/or if the disposition is or is not made to an individual or entity resident or domiciled in Brazil.
As a general rule, capital gains realized as a result of a disposition transaction are the positive difference between the amount realized on the disposition of the common shares and the respective acquisition cost.
Capital gains realized by Non-Resident Holders on the disposition of common shares sold on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market):
· are exempt, when realized by a Non-Resident Holder that (i) is a 2,689 Holder and (ii) is not resident or domiciled in a Tax Haven Jurisdiction;
· are subject to income tax at a rate of 15% in case of gains realized by (A) a Non-Resident Holder that (i) is not a 2,689 Holder and (ii) is not resident or domiciled in a Tax Haven Jurisdiction; or (B) a Non-Resident Holder that (i) is a 2,689 Holder and (ii) is resident or domiciled in a Tax Haven Jurisdiction; and
· are subject to income tax at a rate of up to 25% in case of gains realized by a Non-Resident Holder that (i) is not a 2,689 Holder and (ii) is resident or domiciled in a Tax Haven Jurisdiction.
A withholding income tax of 0.005% will apply and can be offset against any income tax due on the capital gain. Such withholding does not apply to a 2,689 Holder that is not resident or domiciled in a Tax Haven Jurisdiction.
Any other gains realized on the disposition of common shares that are not carried out on the Brazilian stock exchange:
· are subject to income tax at a rate of 15% when realized by any Non-Resident Holder that is not resident or domiciled in a Tax Haven Jurisdiction, whether or not such holder is a 2,689 Holder; and
101
· are subject to income tax at a rate of up to 25% when realized by a Non-Resident Holder that is resident or domiciled in a Tax Haven Jurisdiction, whether or not such holder is a 2,689 Holder.
In the cases described above, if the gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% will also apply and can be offset against any income tax due on the capital gain.
Any exercise of preemptive rights relating to common shares will not be subject to Brazilian withholding income tax. Gains realized by a Non-Resident Holder on the disposition of preemptive rights will be subject to Brazilian income tax according to the same rules applicable to disposition of common shares.
In the case of a redemption of common shares or a capital reduction, the positive difference between the amount received by the Non-Resident Holder and the acquisition cost of the common shares redeemed inreais is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market and is therefore subject to income tax at the rate of 15%, or 25%, as the case may be.
Sale of ADSs by U.S. Holders to Other Non-Residents in Brazil
As discussed above, pursuant to Law No. 10,833, the sale of assets located in Brazil involving Non-Resident Holders is subject to Brazilian withholding income tax. We believe that the ADSs do not fall within the definition of assets located in Brazil for the purposes of Law No. 10,833, and, thus, should not be subject to the Brazilian withholding tax. However, due to the lack of any administrative or judicial guidance, there is no assurance that such position would prevail.
Gains on the Exchange of ADSs for Common Shares
The withdrawal of ADSs in exchange for common shares is not subject to Brazilian income tax, assuming compliance with applicable regulation regarding the registration of the investment with Brazilian Central Bank.
Gains on the Exchange of Common Shares for ADSs
The deposit of common shares in exchange for the ADSs may be subject to Brazilian withholding income tax on capital gains if the amount previously registered with the Central Bank as a foreign investment in common shares or, in the case of other market investors under Resolution No. 2,689, the acquisition cost of the common shares, as the case may be, is lower than:
· the average price per common share on the Brazilian stock exchange on which the greatest number of such common shares were sold on the day of deposit; or
· if no common shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of common shares were sold during the 15 preceding trading sessions.
The difference between the amount previously registered, or the acquisition cost, as the case may be, and the average price of the common shares, calculated as set forth above, is considered a capital gain subject to income tax at a rate of 15%, or 25% if the Non-Resident Holder is resident or domiciled in a Tax Haven Jurisdiction.
Tax on Financial Transactions
The Tax on Financial Transactions(Imposto sobre Operações de Crédito, Câmbio e Seguro ou relativas a Títulos ou Valores Mobiliários), or “IOF”, is imposed on foreign exchange, securities, credit and insurance transactions.
IOF on Foreign Exchange Transactions
Tax on foreign exchange transactions, or “IOF/Exchange”, may be levied on foreign exchange transactions (conversion of foreign currency inreais and conversion ofreais into foreign currency), affecting either or both the inflow or outflow of investments. Currently, the general IOF/Exchange rate applicable to most foreign currency exchange transactions is 0.38%.
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However, foreign exchange transactions entered into as of December 30, 2010 by foreign investors in connection with inflows of proceeds to Brazil related to investments carried out in the Brazilian financial and capital marketsor under the regulations issued by the Monetary Council of Brazil are subject to the IOF/Exchange at rates ranging from 2% to 6% (outflow related to the return of such investment is subject to a zero percent rate). The 2% rate is levied on the trading in a Brazilian stock exchange (including over-the-counter trasactions) except for fixed income transactions with derivatives. The acquisition or subscription of shares through public offerings registered for trading on a Brazilian stock exchange is also subject to such rate. A zero rate applies to payments of dividends and interest on shareholders' equity received by foreign investors with respect to investments in the Brazilian financial and capital markets, such as investments made by 2,689 Holders.
The Brazilian Government may increase the rate of the IOF/Exchange to a maximum rate of 25% of the amount of the foreign exchange transactions at any time, but such an increase will only apply in respect to future foreign exchange transactions.
Currently, for most foreign exchange transactions related to this type of investment, the IOF/Exchange rate is zero.
IOF on Bonds and Securities Transactions
IOF may also be levied on transactions involving bonds and securities, or “IOF/Securities”, including those carried out on a Brazilian stock, futures or commodities exchanges. The rate of the IOF/Securities applicable to most transactions involving common shares is currently zero percent. Since November 19, 2009, the IOF/Securities levies at a rate of 1.5% on transfer of shares traded on the Brazilian stock exchange with the specific purpose of enabling the issuance of depositary receipts to be traded outside Brazil starting November 19, 2009.
The rate of the IOF/Securities applicable to most transactions involving common shares is currently zero percent. In particular, the IOF/Securities levies at a rate of 1.5% on the transfer of shares traded in the Brazilian stock exchange with the purpose of the issuance of depositary receipts to be traded outside Brazil. The Brazilian Government may increase the rate of the IOF/Exchange up to 1.5% per day at any time, but such an increase will only apply in respect of future transactions.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares or ADSs by a non-Brazilian holder, except for gift and inheritance taxes which are levied by some states of Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled in Brazil to individuals or entities resident or domiciled within that state in Brazil. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of common shares or ADSs.
U.S. Federal Income Tax Considerations
The summary discussion below is applicable to you only if you are a “U.S. Holder” (as defined below) that is not domiciled in Brazil (or domiciled or resident in a tax haven jurisdiction) for purposes of Brazilian taxation and, in the case of a holder of common shares, that has registered its investment in common shares with the Central Bank as a U.S. dollar investment.
For purposes of this discussion, a U.S. Holder is any beneficial owner of common shares or ADSs that is (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source, or (iv) a trust if a U.S. court is able to exercise primary supervision over administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or if the trust validly elects under applicable Treasury regulations to be taxed as a U.S. person. A “Non-U.S. Holder” is any beneficial owner of common shares or ADSs that is an individual, corporation, estate or trust who is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes.
If a partnership holds our common shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. A prospective investor who is a partner of a partnership holding our shares should consult its own tax advisor.
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In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, holders of ADRs evidencing ADSs will be treated as the owners of the common shares represented by those ADSs, and exchanges of common shares for ADSs, and ADSs for common shares, will not be subject to U.S. federal income tax.
Taxation of Dividends
U.S. Holders
Under the U.S. federal income tax laws, and subject to the passive foreign investment company (“PFIC”) rules discussed below, U.S. Holders will include in gross income, as dividend income, the gross amount of any distribution paid by us (including payments considered “interest” in respect of stockholders’ equity under Brazilian law) (before reduction for Brazilian withholding taxes) out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) when the distribution is actually or constructively received by the U.S. Holder, in the case of common shares, or by our ADR Depositary,ADSs depositary, in the case of ADSs. Distributions in excess of current and accumulated earnings and profits, as determined under U.S. federal income tax principles, will be treated as a return of capital to the extent of the U.S. Holder’s adjusted tax basis in the common shares or ADSs and thereafter as capital gain, which will be either long-term or short-term capital gain depending on whether the U.S. holder held the common shares or ADSs for more than one year. We do not intend to maintain calculations of our earnings and profits under U.S. federal income tax principles and, unless and until such calculations are made, U.S. Holders should assume all distributions are made out of earnings and profits and constitute dividend income.
The dividend income will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. Subject to certain exceptions for short-term and hedged positions certain non-corporate U.S. Holders (including individuals) may qualify for a maximum 15% rate of tax in respect of “qualified dividend income” received before January 1, 2013. Dividend income with respect to the ADSs will be qualified dividend income, provided that, in the year that a non-corporate U.S. Holder receives the dividend, the ADSs are readily tradable on an established securities market in the United States, and we were not in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a PFIC. Based on existing Internal Revenue Service (“IRS”) guidance, it is not entirely clear whether dividends received with respect to the common shares not held through ADSs will be treated as qualified dividend income, because the common shares are not themselves listed on a U.S. exchange.
The amount of the dividend distribution includible in gross income of a U.S. Holder will be the U.S. dollar value of thereal payments made, determined at the spotreal/U.S. dollar rate on the date such dividend distribution is includible in the gross income of the U.S. Holder, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in gross income to the date such payment is converted into U.S. dollars will be treated as ordinary income or loss from sources within the United States and will not be eligible for the special tax rate applicable to qualified dividend income.
Dividends received by most U.S. holders will constitute foreign source “passive income” for foreign tax credit purposes. Subject to limitations under U.S. federal income tax law concerning credits or deductions for foreign income taxes and certain exceptions for short-term and hedged positions, any Brazilian income tax withheld from dividends paid by us would be treated as a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or at a U.S. Holder’s election, may be deducted in computing taxable income if the U.S. Holder has elected to deduct all foreign income taxes paid or accrued for the relevant taxable year). The rules with respect to foreign tax credits are complex and U.S. Holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
The U.S. Treasury Department has expressed concern that intermediaries in connection with depositary arrangements may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. persons who are holders of depositary shares. Accordingly, investors should be aware that the discussion above regarding theregardingthe availability of foreign tax credits for Brazilian income tax withheld from dividends paid with respect to common shares represented by ADSs could be affected by future action taken by the U.S. Treasury Department.
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Distributions of additional common shares to U.S. Holders with respect to their common shares or ADSs that are made as part of a pro rata distribution to all our stockholders generally will not be subject to U.S. federal income tax.
Non-U.S. Holders
Dividends paid to a Non-U.S. Holder in respect of common shares or ADSs will not be subject to U.S. federal income tax unless those dividends are effectively connected with the conduct of a trade or business within the United States by the Non-U.S. Holder (and are attributable to a permanent establishment maintained in the United States by the Non-U.S. Holder, if an applicable income tax treaty so requires as a condition for the Non-U.S. Holder to be subject to U.S. taxation on a net income basis in respect of income from common shares or ADSs), in which case the Non-U.S. Holder generally will be subject to U.S. federal income tax in respect of the dividends in the same manner as a U.S. Holder. Any such effectively connected dividends received by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional “branch profits tax” (at a 30% rate or at a reduced rate as may be specified by an applicable income tax treaty).
Taxation of Capital Gains
U.S. Holders
Subject to the PFIC rules discussed below, upon a sale, redemption or other taxable disposition of common shares or ADSs, a U.S. Holder will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized (before deduction of any Brazilian tax) and the U.S. Holder’s adjusted tax basis (determined in U.S. dollars) in the common shares or ADSs. Generally, the U.S. Holder’s gain or loss will be capital gain or loss. Capital gain of a non-corporate U.S. Holder that is recognized before January 1, 2011 is generally taxed at a maximum rate of 15% where the property is held for more than one year. The deductibility of capital losses is subject to limitations under the Code.
If a Brazilian income tax is withheld on the sale, exchange or other taxable disposition of common shares or ADSs, the amount realized by a U.S. Holder will include the gross amount of the proceeds of that sale, exchange or other taxable disposition before deduction of the Brazilian tax. Capital gain or loss, if any realized by a U.S. Holder on the sale, exchange or other taxable disposition of common shares or ADSs generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. Consequently, in the case of a gain from the disposition of a share or ADS that is subject to Brazilian income tax (see “Taxation – Brazilian Tax Considerations – Taxation of Gains”), the U.S. Holder may not be able to benefit from the foreign tax credit for that Brazilian income tax (i.e., because the gain from the disposition would be U.S. source income), unless the U.S. Holder can apply the credit against U.S. federal income tax payable on other income from foreign sources. Alternatively, the U.S. Holder may take a deduction for the Brazilian income tax if it does not elect to claim a foreign income tax credit for any foreign taxes paid or accrued during the taxable year.
Non-U.S. Holders. A Non-U.S. Holder will not be subject to U.S. federal income tax in respect of gain recognized on a sale, exchange or other taxable disposition of common shares or ADSs unless:
· the gain is effectively connected with a trade or business of the Non-U.S. Holder in the United States (and is attributable to a permanent establishment maintained in the United States by that Non-U.S. Holder, if an applicable income tax treaty so requires as a condition for that Non-U.S. Holder to be subject to U.S. taxation on a net income basis in respect of gain from the sale or other disposition of the common shares or ADSs); or
· in the case of a Non-U.S. Holder who is an individual, that Non-U.S. Holder is present in the United States for 183 or more days in the taxable year of the sale and certain other conditions apply.
Effectively connected gains realized by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional branch profits tax (at a 30% rate or at a reduced rate as may be specified by an applicable income tax treaty).
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Passive Foreign Investment Companies
Based on current estimates of our gross income, gross assets and the nature of our business, we believe that our common shares and ADSs should not be treated as stock of a PFIC for U.S. federal income tax purposes. There can be no assurances in this regard, however, because the application of the relevant rules is complex and involves some uncertainty. The PFIC determination is made annually and is based on the portion of our assets and income that is characterized as passive under the PFIC rules. Moreover, our business plans may change, which may affect the PFIC determination in future years.
In general, we will be a PFIC with respect to a U.S. Holder if, for any taxable year in which the U.S. Holder held our ADSs or common shares, either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value (determined on the basis of a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes, among other things, dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.
If we are treated as a PFIC, a U.S. Holder that did not make a “mark-to-market election” or “QEF election,” each as described below, would be subject to special rules with respect to (a) any gain realized on the sale or other disposition of common shares or ADSs and (b) any “excess distribution” by CSN to the U.S. Holder (generally, any distributions to the U.S. Holder in respect of the common shares or ADSs during a single taxable year that are greater than 125% of the average annual distributions received by the U.S. Holder with respect to the common shares or ADSs during the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the common shares or ADSs). Under these rules, (i) the gain or excess distribution would be allocated ratably over the U.S. Holder’s holding period for the common shares or ADSs, (ii) the amount allocated to the taxable year in which the gain or excess distribution was realized would be taxable as ordinary income, (iii) the amount allocated to each prior year, with certain exceptions, would be subject to tax at the highest tax rate in effect for that year and (iv) the interest charge generally applicable to underpayments of tax would be imposed in respect of the tax attributable to each such prior year.
If we are treated as a PFIC and, at any time, we invest in non-U.S. corporations that are classified as PFICs (each, a “Subsidiary PFIC”), U.S. Holders generally will be deemed to own, and also would be subject to the PFIC rules with respect to, their indirect ownership interest in that Subsidiary PFIC. If we are treated as a PFIC, a U.S. Holder could incur liability for the deferred tax and interest charge described above if either (1) we receive a distribution from, or dispose of all or part of our interest in, the Subsidiary PFIC or (2) the U.S. Holder disposes of all or part of its common shares or ADSs.
The special PFIC tax rules described above will not apply to a U.S. Holder if the U.S. Holder makes an election (i) to “mark-to-market” with respect to the common shares or ADSs (a “mark-to-market election”) or (ii) to have us treated as a “qualified electing fund” (a “QEF election”). The QEF election is not available to holders unless we agree to comply with certain reporting requirements and provide the required annual information statements. The QEF and mark-to-market elections only apply to taxable years in which the U.S. Holder’s common shares or ADSs are treated as stock of a PFIC. Our ADR Depositary has agreed to distribute the necessary information to registered holders of ADSs.
A U.S. Holder may make a mark-to-market election, if the common shares or ADSs are regularly traded on a “qualified exchange.” Under applicable U.S. Treasury regulations, a “qualified exchange” includes a national securities exchange, such as the New York Stock Exchange, that is registered with the SEC or the national market system established under the Exchange Act. Also, under applicable Treasury Regulations, PFIC securities traded on a qualified exchange are regularly traded on such exchange for any calendar year during which such stock is traded,other than inde minimisquantities, on at least 15 days during each calendar quarter. We cannot assure you that the common shares or ADSs will be eligible for a mark-to-market election.
A U.S. Holder that makes a mark-to-market election must include for each taxable year in which the U.S. Holder’s common shares or ADSs are treated as shares of a PFIC, as ordinary income, an amount equal to the excess of the fair market value of the common shares or ADSs at the close of the taxable year over the U.S. Holder’s adjusted tax basis in the common shares or ADSs, and is allowed an ordinary loss for the excess, if any, of theadjustedthe adjusted tax basis over the fair market value of the common shares or ADSs at the close of the taxable year, but only to the extent of the amount of previously included mark-to-market inclusions (not offset by prior mark-to-market losses). These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. A U.S. Holder’s tax basis in the common shares or ADSs will be adjusted to reflect any such income or loss amounts. Although a U.S. Holder may be eligible to make a mark-to-market election with respect to its common shares or ADSs, no such election may be made with respect to the stock of any Subsidiary PFIC that such U.S. Holder is treated as owning, because such Subsidiary PFIC stock is not marketable. Thus, the mark-to-market election will not be effective to avoid all of the adverse tax consequences described above with respect to any Subsidiary PFICs. U.S. Holders should consult their own tax advisors regarding the availability and advisability of making a mark-to-market election with respect to their common shares of ADSs based on their particular circumstances.
106
A U.S. Holder that makes a QEF election will be currently taxable on its pro rata share of our ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each of our taxable years, regardless of whether we distributed the income and gain. The U.S. Holder’s basis in the common shares or ADSs will be increased to reflect taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of tax basis in the common shares or ADSs and will not be taxed again as a distribution to the U.S. Holder.
In addition, notwithstanding any election that a U.S. Holder makes with regard to the common shares or ADSs, dividends that a non-corporate U.S. Holder receives from us will not constitute qualified dividend income if we are a PFIC either in the taxable year of the distribution or the preceding taxable year.
Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or, in certain cases, QEF inclusions.
A U.S. Holder who owns common shares or ADSs during any year that we are a PFIC must file IRS Form 8621.
Backup Withholding and Information Reporting
U.S. Holders
Dividends paid on, and proceeds from the sale, redemption or other taxable disposition of common shares or ADSs to a U.S. Holder generally will be subject to information reporting and backup withholding, unless, in the case of backup withholding, the U.S. Holder provides an accurate taxpayer identification number or in either case otherwise establishes andan exemption. The amount of any backup withholding collected from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that certain required information is timely furnished to the IRS.
Recently enacted legislation requires certain U.S. Holders to report information with respect to their investment in certain “foreign financial assets,” which would include an investment in our common shares, not held through a custodial account with a U.S. financial institution to the IRS. Investors who fail to report required information could become subject to substantial penalties. Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of this new legislation on their investment in our common shares.
Non-U.S. Holders
Non-U.S. Holders
If common shares are held by a Non-U.S. Holder through the non-U.S. office of a non-U.S. related broker or financial institution, backup withholding and information reporting generally would not be required. Information reporting,reporting, and possibly backup withholding, may apply if the common shares are held by a Non-U.S. Holder through a U.S., or U.S.-related, broker or financial institution, or the U.S. office of a non-U.S. broker or financial institution and the Non-U.S. Holder fails to provide appropriate information. Information reporting and backup withholding generally will apply with respect to ADSs if the Non-U.S. Holder fails to timely provide appropriate information. Non-U.S. Holders should consult their tax advisors regarding the application of these rules.
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Not applicable.
Not applicable.
We are subject to the information requirements of the Exchange Act and accordingly file reports and other information with the SEC. Reports and other information filed by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can obtain further information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public from the SEC’s website at http://www.sec.gov. You may also inspect our reports and other information at the offices of the NYSE, 11 Wall Street , New York, New York 10005, on which our ADSs are listed. For further information on obtaining copies of our public filings at the NYSE, you should call (212) 656-5060. We also file financial statements and other periodic reports with the CVM.
Not required.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a number of different market risks arising from our normal business activities. Market risk is the possibility that changes in interest rates, currency exchange rates, commodities prices will adversely affect the value of financial assets, liabilities, expected future cash flows or earnings. We developed policies aimed at managing the volatility inherent to certain of these natural businessexposures. We use financial instruments, such as derivatives, in order to achieve the main goals established by our Board of Directors to minimize the cost of capital and maximize the returns on financial assets, while observing, as determined by our Board of Directors, parameters of credit and risk. Derivatives are contracts whose value is derived from one or more underlying financial instruments, indices or prices defined in the contract. Only well-understood, conventional derivative instruments are used for these purposes. These include futures and options traded on regulated exchanges and “over-the-counter” swaps, options and forward contracts.
Market Risk Exposures and Market Risk Management
Our treasury department is responsible for managing our market risk exposures. We use some internal controls in order to:
· help us understand market risks;
· reduce the likelihood of financial losses; and
· diminish the volatility of financial results.
The principal tools used by our treasury department are:
· “Sensitivity Analysis,” which measures the impact that movements in the price of different market variables such as interest rates and exchange rates will have in our earnings and cash flows; and
· “Stress Testing,” which measures the worst possible loss from a set of consistent scenarios to which probabilities are not assigned. The scenarios are deliberately chosen to include extreme changes in interest and currency exchange rates.
Following is a discussion of the primary market risk exposures that we face together with an analysis of the exposure to each one of them.
Interest Rate Risk
We are exposed to interest rate risk on short- and long-term instruments and as a result of refinancing of fixed-rate instruments included in our consolidated debt. Consequently, as well as managing the currency and maturity of debt, we manage interest costs through a balance between lower-cost floating rate debt, which has inherently higher risk, and more expensive, but lower risk, fixed-rate debt. We can use swaps, options and other derivatives to achieve the desired ratio between floating-rate debt and fixed-rate debt. The desired ratio varies according to market conditions: if interest rates are relatively low, we will shift towards fixed rate debt.
We are basically exposed to the following floating interest rates:
· U.S. dollar LIBOR, due to our floating rate U.S. dollar-denominated debt (usually trade-finance related), to our cash position held offshore in U.S. dollars, which is invested in short-term instruments,
· TJLP (Long Term Interest Rate), due toreal-denominated debt indexed to this interest rate, and
· CDI (benchmark Brazilian real overnight rate), due to our cash held in Brazil (onshore cash) and to our CDI indexed debt.
Exposure as of December 2011* (amortization) |
| Notional |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollar LIBOR |
| 2,444 |
| 547 |
| 178 |
| 308 |
| 400 |
| 547 |
| 464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollar fixed rate |
| 7,362 |
| 298 |
| 1,071 |
| 14 |
| 756 |
| 52 |
| 5,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDI |
| 14,008 |
| 1,045 |
| 546 |
| 1,446 |
| 1,041 |
| 1,707 |
| 8,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TJLP |
| 3,231 |
| 382 |
| 335 |
| 101 |
| 90 |
| 95 |
| 2,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
| 495 |
| 26 |
| 43 |
| 65 |
| 60 |
| 43 |
| 258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exposure as of December 2010* (amortization) |
| Notional |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollar LIBOR |
| 2,694 |
| 522 |
| 611 |
| 158 |
| 274 |
| 342 |
| 787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollar fixed rate |
| 6,374 |
| 72 |
| 33 |
| 951 |
| 12 |
| 671 |
| 4,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDI |
| 7,102 |
| 1 |
| 1,045 |
| 546 |
| 1,446 |
| 1,012 |
| 3,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TJLP |
| 2,939 |
| 306 |
| 338 |
| 338 |
| 115 |
| 95 |
| 1,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
| 809 |
| 191 |
| 118 |
| 101 |
| 112 |
| 83 |
| 204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*All figures in R$ million.
Exposure as of December 2010* (amortization) |
| Notional |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| Thereafter |
US dollar LIBOR |
| 2,229 |
| 488 |
| 460 |
| 130 |
| 271 |
| 279 |
| 601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollar fixed rate |
| 6,734 |
| 134 |
| 113 |
| 1.011 |
| 77 |
| 702 |
| 4,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDI |
| 7,000 |
| 0 |
| 1.033 |
| 533 |
| 1.433 |
| 1.000 |
| 3.000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TJLP |
| 1,268 |
| 210 |
| 244 |
| 251 |
| 42 |
| 29 |
| 492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exposure as of December 2009* (amortization) |
| Notional |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| Thereafter |
US dollar LIBOR |
| 2,679 |
| 183 |
| 897 |
| 958 |
| 326 |
| 315 |
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollar fixed rate |
| 5,224 |
| 364 |
| 143 |
| 117 |
| 1,055 |
| 80 |
| 3,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDI |
| 3,999 |
| 0 |
| 667 |
| 2,366 |
| 532 |
| 434 |
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TJLP |
| 1,377 |
| 200 |
| 200 |
| 235 |
| 242 |
| 40 |
| 460 |
* All figures in Reais (R$) . Because we primarily use Brazilian GAAP controls, the numbers shown in the table do not add up to 100%
Our cash and cash equivalent were as follows:
|
|
|
|
|
|
|
|
| December 31, 2010 |
| December 31, 2009 |
| Exposure |
|
|
|
| |||
Cash inreais: |
| 2,635 |
| 2,131 |
| CDI |
Cash in U.S. dollars: |
| 4,556 |
| 1,850 |
| LIBOR |
|
| December 31, 2011 |
| December 31, 2010 |
| Exposure |
Cash inreais: |
| 2,690 |
| 2,635 |
| CDI |
Cash in U.S. dollars: |
| 6,784 |
| 4,556 |
| LIBOR |
The table below shows the average interest rate and the average life of our debt.
|
| December 2010 |
| December 2009 | ||||
|
| Average rate % |
| Average life |
| Average rate % |
| Average life |
|
|
|
|
|
|
|
|
|
U.S. dollar LIBOR* |
| 2.23 |
| 3.15 |
| 2.52 |
| 2.36 |
U.S. dollar fixed rate |
| 7.41 |
| 14.91 (with perpetual bond) |
| 8.27 |
| 15.81 (with perpetual bond) |
Euro fixed rate |
| N/A |
| N/A |
| N/A |
| N/A |
UMBNDES* |
| N/A |
| N/A |
| N/A |
| N/A |
CDI |
| 110.58 of CDI |
| 4.61 |
| 112.53 of CDI |
| 2.46 |
IGPM* |
| N/A |
| N/A |
| N/A |
| N/A |
TJLP* |
| 2.21 |
| 5.58 |
| 3.00 |
| 5.57 |
|
| December 2011 |
| December 2010 | ||||
|
| Average rate % |
| Average life |
| Average rate % |
| Average life |
U.S. dollar LIBOR |
| 3.14 |
| 3.20 |
| 2.23 |
| 3.15 |
U.S. dollar fixed rate |
| 6.37 |
| 14.37 (with perpetual bond) |
| 7.41 |
| 14.91 (with perpetual bond) |
Euro fixed rate |
| N/A |
| N/A |
| N/A |
| N/A |
UMBNDES |
| N/A |
| N/A |
| N/A |
| N/A |
CDI |
| 111.21 of CDI |
| 5.19 |
| 110.58 of CDI |
| 4.61 |
TJLP |
| 1.70 |
| 5.58 |
| 2.21 |
| 5.58 |
109
The Company We entered into cross-currency swap agreements to hedge liabilities indexed to US Dollarthe U.S. dollar from Brazilian Real real fluctuations, which are mostly affected by market, economic, political, regulatory and geopolitical conditions, among others. The gains and losses from these contracts are directly related to exchange (dollar) and CDI fluctuations. TheFor the duration of our U.S. dollar fixed-rate derivatives, increased from 40 days as of December 31, 2009 to 54 days as of December 31, 2010 (seesee tables below).below.
|
|
|
|
|
|
|
|
| Notional |
| Average interest rate |
| Average maturity |
As of December 31, 2010 |
| (in U.S. dollar million, |
| (U.S. dollar) |
| (days) |
|
| unless otherwise indicated) |
|
|
|
|
|
| |||||
Swaps (U.S. dollar fixed - rate versus CDI) |
| 1,178 |
| 2.29% |
| 54 |
|
|
|
|
|
|
|
|
|
|
| |||
|
| Notional |
| Average interest rate |
| Average maturity |
As of December 31, 2009 |
| (in U.S. dollar million, |
| (U.S. dollar) |
| (days) |
|
| unless otherwise indicated) |
|
|
|
|
|
|
|
| |||
Swaps (U.S. dollar fixed - rate versus CDI ) |
| 1,520 |
| 0.8823% |
| 40 |
|
|
|
|
|
|
|
|
| |||||
* daily reset |
|
| Notional |
| Average interest rate |
| Average maturity |
As of December 31, 2011 |
| (in U.S. dollar million, |
| (U.S. dollar) |
| (days) |
|
| unless otherwise indicated) |
|
|
|
|
Swaps (U.S. dollar fixed - rate versus CDI) |
| 293 |
| 3.45% |
| 782 |
Swaps (U.S. dollar fixed - rate versus CDI) |
| 75 |
| 3.23% |
| 691 |
Swaps (U.S. dollar fixed - rate versus CDI) |
| (100) |
| 2.39% |
| 32 |
|
|
|
| |||
|
| Notional |
| Average interest rate |
| Average maturity |
As of December 31, 2010 |
| (in U.S. dollar million, |
| (U.S. dollar) |
| (days) |
|
| unless otherwise indicated) |
|
|
|
|
Swaps (U.S. dollar fixed - rate versus CDI ) |
| 1,178 |
| 2.29% |
| 54 |
Foreign Currency Exchange Rate Risk
Fluctuations in exchange rates can have significant effects on our operating results. Therefore, exchange rate fluctuations affect the values of ourreal-denominated assets, the carrying and repayment costs of ourreal-denominated financial liabilities, ourreal-denominated production costs, the cost ofreal-denominated capital items and the prices we receive in the Brazilian market for our finished steel products. We attempt to manage our net foreign exchange rate exposures, trying to balance our non-real denominated assets with our non-real denominated liabilities. We use derivative instruments to match our non-real denominated assets to our non-real denominated liabilities, but at any given time we may still have significant foreign currency exchange rate risk exposure.
Our exposure to the U.S. dollar is due to the following contract categories:
· U.S. dollar-denominated debt;
· offshore cash;
· currency derivatives (in the case of options, we use the delta as a measure of exposure);
· U.S. dollar indexed accounts payable and receivable (usually related to international trade, i.e., imports and exports); and
· offshore investments: assets that we bought offshore and that are denominated in U.S. dollars on our balance sheet.
|
|
|
|
|
|
| December 31, 2010 |
| December 31, 2009 |
|
|
|
|
|
U.S. dollar Liabilities |
| 5,803 |
| 4,660 |
loans and financing |
| 5,735 |
| 4,597 |
trade accounts payable |
| 8 |
| 32 |
other |
| 60 |
| 31 |
| ||||
U.S. dollar Assets |
| 5,903 |
| 4,530 |
offshore cash and cash equivalents |
| 4,240 |
| 1,908 |
derivatives (swaps and NDFs) |
| 1,402 |
| 2,170 |
trade accounts receivable |
| 33 |
| 107 |
offshore investments (net of cash) |
| 97 |
| 184 |
other |
| 131 |
| 161 |
Total U.S. dollar Exposure |
| 100 |
| 131 |
|
| December 31, 2011 |
| December 31, 2010 |
U.S. dollar Liabilities |
| 5,367 |
| 5,803 |
loans and financing |
| 5,300 |
| 5,735 |
trade accounts payable |
| 11 |
| 8 |
other |
| 56 |
| 60 |
| ||||
U.S. dollar Assets |
| 6,525 |
| 5,903 |
offshore cash and cash equivalents |
| 5,613 |
| 4,240 |
derivatives (swaps and NDFs) |
| 485 |
| 1,402 |
trade accounts receivable |
| - |
| 33 |
offshore investments (net of cash) |
| 288 |
| 97 |
other |
| 139 |
| 131 |
Total U.S. dollar Exposure |
| 1,158 |
| 100 |
110
Our exposure to the Euro is due to the following contract categories:
·offshore cash;
·U.S. dollar indexed accounts payable and receivable (usually related to international trade, i.e., imports and exports); and
·offshore investments: assets that we bought offshore and that are denominated in Euros on our balance sheet
December 31, 2011 | December 31, 2010 | |||
Euro Liabilities | 1 | - | ||
trade accounts payable | 1 | - | ||
Euro Assets | 98 | - | ||
derivatives (swaps and NDFs) | (90) | - | ||
offshore investments (net of cash) | 8 | - | ||
Total Euro Exposure | (82) | - |
Our exposure to the Australian Dollar is due to the following contract categories:
·offshore cash;
December 31, 2011 | December 31, 2010 | |||
AUD Liabilities | - | - | ||
AUD Assets | 303 | - | ||
offshore cash and cash equivalents | 303 | - | ||
Total AUD Exposure | 303 | - | ||
Offshore investments
We have capitalized our offshore subsidiaries domiciled in U.S. dollar-based countries with equity investments, and those investments are accounted as U.S. dollar investments. The result is that they work as assets indexed to the U.S. dollar from an earnings perspective.
Commodity Price Risk
Fluctuations in the price of steel and some of the commodities used in producing steel, such as zinc, aluminum, tin, coal, coke and energy, can have an impact on our earnings. Currently, we are not hedging our exposure to commodity prices. Our biggest commodity price exposure is the price of steel and coal, but there are no liquid instruments that provide an effective hedge against their price fluctuations.
Sensitivity analysis
The economic environment in which we operate determines the main factors taken into consideration to establish risk scenarios. In the Brazilian economic environment, exchange rate variation is the most notable market risk.
Thereal exchange rate has significant volatility.is significantly volatile. Between 19992001 and 20082011 thereal exchange rate had an average annual volatility of 22%19.7%.
·Sensitivity analysis of the US dollar-to-real exchange swap
For the consolidated foreign exchange operations with US Dollar Fluctuation risk, the sensitivity analysis is based on the assumption of maintaining, as a probable scenario, the fair values as of 31 December, 2011 recorded as assets in the amount of R$37 million and liabilities in four years during this period volatility wasthe amount of approximately 50%, including 2008.R$847 thousand.
To develop our sensitivity analysis we analyze fivefour different scenarios of exchange rate variation. Based on the foreign exchange rate of December 31, 20102011 of R$1.66621.8758 per US$1.00, adjustments were estimated for fivefour scenarios: scenario 1: Probable scenario, rate of R$1.6736 per US$1.00; scenario 2: (25% of Real appreciation) rate of R$1.24971.4069 per US$1.00; scenario 3:2: (50% of Real appreciation) rate of R$0.83310.9379 per US$1.00; scenario 4:3: (25% of Real devaluation) rate of R$ 2.0828;2.3448; scenario 5:4: (50% of Real devaluation) rate of R$ 2.4993.2.8137.
December 31, 2010 | Risk | Scenario | Reference | Exchange | Additional |
| Value | Rates | Results | ||
| (In million of US$) |
| (In million of R$) | ||
|
|
|
| ||
|
|
| 1,178 | 1.6662 |
|
Foreign Exchange swaps | Fluctuation of US$ | 1 |
| 1.6736 | 9 |
|
| 2 |
| 1.2497 | (491) |
|
| 3 |
| 0.8331 | (981) |
|
| 4 |
| 2.0828 | 491 |
|
| 5 |
| 2.4993 | 981 |
|
|
|
|
|
|
|
|
| (1,151) | 1.6662 |
|
Exchange position - BRL | Fluctuation of US$ | 1 |
| 1.6736 | (9) |
(not including exchange derivatives above) |
| 2 |
| 1.2497 | 479 |
|
| 3 |
| 0.8331 | 958 |
|
| 4 |
| 2.0828 | (479) |
|
| 5 |
| 2.4993 | (958) |
|
|
|
|
|
|
|
|
| 99 | 1.6662 |
|
Consolidated exchange position | Fluctuation of US$ | 1 |
| 1.6736 | - |
(including exchange derivatives above) |
| 2 |
| 1.2497 | (41) |
|
| 3 |
| 0.8331 | (83) |
|
| 4 |
| 2.0828 | 41 |
|
| 5 |
| 2.4993 | 83 |
111
December 31, 2011 | Reference | Exchange | Additional | ||
(In millions of US$, | Value | Rates | Results | ||
except for exchange rates) | Risk | Scenario | |||
Net current swap | US Dollar fluctuation | 267 | 1.8758 | ||
1 | 1.4069 | (126) | |||
2 | 0.9379 | (251) | |||
3 | 2.3448 | 126 | |||
4 | 2.8137 | 251 | |||
Exchange position functional | |||||
currency BRL | US Dollar fluctuation | 890 | 1.8758 | ||
1 | 1.4069 | (417) | |||
2 | 0.9379 | (835) | |||
3 | 2.3448 | 417 | |||
4 | 2.8137 | 835 | |||
Consolidated exchange position | US Dollar fluctuation | 1,158 | 1.8758 | ||
1 | 1.4069 | (543) | |||
2 | 0.9379 | (1.086) | |||
3 | 2.3448 | 543 | |||
4 | 2.8137 | 1.086 |
·Sensitivity analysis of the euro-to-dollar exchange swap
For the consolidated foreign exchange operations with Euro fluctuation risk, the sensitivity analysis is based on the assumption of maintaining, as a probable scenario, the fair valuesas of December 31, 2011 recorded as assets in the amount of R$13 million.
For consolidated exchange transactions with Euro fluctuation risk, based on the foreign exchange rate on December 31, 2010,2011, of R$ 2.22802.4342 per €$ 1.00, adjustments were estimated for fivefour scenarios: scenario 1: Probable scenario, rate of R$2.2188 per €$ 1.00; scenario 2: (25% of Real appreciation) rate of R$1.67101.8257 per €$ 1.00; scenario 3:2: (50% of Real appreciation) rate of R$1.11401.2171 per €$1.00; scenario 4:3: (25% of Real devaluation) rate of R$ 2.7850;3.0428; scenario 5:4: (50% of Real devaluation) rate of R$ 3.3420.3.6513.
|
|
|
|
|
|
December 31, 2010 | Risk | Scenario | Reference | Exchange | Additional |
| Value | Rates | Results | ||
| (in million of EUR) |
| (in million of R$) | ||
|
|
|
| ||
|
|
| 90 | 2.2280 |
|
Foreign Exchange swaps | Fluctuation of EURO | 1 |
| 2.2188 | (1) |
|
| 2 |
| 1.6710 | (50) |
|
| 3 |
| 1.1140 | (100) |
|
| 4 |
| 2.7850 | 50 |
|
| 5 |
| 3.3420 | 100 |
|
|
|
|
|
|
|
|
| 6 | 2.2280 |
|
Exchange position - BRL | Fluctuation of EURO | 1 |
| 2.2188 | (0) |
(not including exchange derivatives above) |
| 2 |
| 1.6710 | (3) |
|
| 3 |
| 1.1140 | (6) |
|
| 4 |
| 2.7850 | 3 |
|
| 5 |
| 3.3420 | 6 |
|
|
|
|
|
|
|
|
| 96 | 2.2280 |
|
Consolidated exchange position | Fluctuation of EURO | 1 |
| 2.2188 | (1) |
(including exchange derivatives above) |
| 2 |
| 1.6710 | (53) |
|
| 3 |
| 1.1140 | (106) |
|
| 4 |
| 2.7850 | 53 |
|
| 5 |
| 3.3420 | 106 |
112
December 31, 2011 | Reference | Exchange | Additional | ||
(In millions of EUR, | Value | Rates | Results | ||
except for exchange rates) | Risk | Scenario | |||
Net current swap | EURO fluctuation | (90) | 2.4342 | ||
1 | 1.8257 | 55 | |||
2 | 1.2171 | 110 | |||
3 | 3.0428 | (55) | |||
4 | 3.6513 | (110) | |||
Exchange position functional | |||||
currency BRL | EURO fluctuation | 6 | 2.4342 | ||
1 | 1.8257 | (4) | |||
2 | 1.2171 | (8) | |||
3 | 3.0428 | 4 | |||
4 | 3.6513 | 8 | |||
Consolidated exchange position | EURO fluctuation | (84) | 2.4342 | ||
1 | 1.8257 | 51 | |||
2 | 1.2171 | 102 | |||
3 | 3.0428 | (51) | |||
4 | 3.6513 | (102) |
·Sensitivity analysis of exchange exposure to Australian dollar
For the consolidated foreign exchange operations with Australian dollar fluctuation risk, the sensitivity analysis is based on the assumption of maintaining, as a probable scenario, the fair valuesas of 31 December, 2011.
For consolidated exchange transactions with Australian dollar fluctuation risk, based on the foreign exchange rate on December 31, 2011, of R$ 1.9116 per €$ 1.00, adjustments were estimated for four scenarios: scenario 1: (25% of Real appreciation) rate of R$1.4337 per €$ 1.00; scenario 2: (50% of Real appreciation) rate of R$0.9558 per €$ 1.00; scenario 3: (25% of Real devaluation) rate of R$ 2.3895; scenario 4: (50% of Real devaluation) rate of R$ 2.8674.
December 31, 2011 | Reference | Exchange | Additional | ||
(In millions of A$, | Value | Rates | Results | ||
except for exchange rates) | Risk | Scenario | |||
Exchange position functional | |||||
currency BRL | Australian dollar fluctuation | 303 | 1.9116 | ||
1 | 1.4337 | (145) | |||
2 | 0.9558 | (289) | |||
3 | 2.3895 | 145 | |||
4 | 2.8674 | 289 |
·Sensitivity analysis of exchange dollar-to-euro swap
The sensitivity analysis is based on the assumption of maintaining, as a probable scenario, the fair values as of December 31, 2011 recognized in assets, amounting to R$6 million.
To develop our sensitivity analysis we analyze four different scenarios for the real-euro parity volatility. Based on the foreign exchange rate of December 31, 2011 of R$1.3141 per US$1.00, adjustments were estimated for four scenarios: scenario 1: (25% of Real appreciation) rate of R$0.9856 per US$1.00; scenario 2: (50% of Real appreciation) rate of R$0.6571 per US$1.00; scenario 3: (25% of Real devaluation) rate of R$ 1.6426; scenario 4: (50% of Real devaluation) rate of R$ 1.9712.
December 31, 2011 | Refe rence | Exchange | Additional | ||
(In millions of US$, | Value | Rate s | Results | ||
except for exchange rates) | Risk | Scenario | |||
Net current swap | US Dollar fluctuation | 35 | 1.3141 | ||
1 | 0.9856 | (12) | |||
2 | 0.6571 | (23) | |||
3 | 1.6426 | 12 | |||
4 | 1.9712 | 23 | |||
Exchange position functional | |||||
currency EURO | US Dollar fluctuation | (35) | 1.3141 | ||
1 | 0.9856 | 12 | |||
2 | 0.6571 | 23 | |||
3 | 1.6426 | (12) | |||
4 | 1.9712 | (23) | |||
Consolidated exchange position | US Dollar fluctuation | - | 1.3141 | ||
1 | 0.9856 | - | |||
2 | 0.6571 | - | |||
3 | 1.6426 | - | |||
4 | 1.9712 | - |
Sensitivity analysis of interest rate swaps
In millions of R$, except for nocionalnotional amount
Nocional | |||||||||
2010 | |||||||||
US$ million | Risk | Probable | 25% | 50% | |||||
Swapsof interest rate libor vs CDI | 150 | (Libor) US$ | (2) | (27) | (32) |
Nocional | 31.12.2011 | |||||
Million US$ | Risk | 25% | 50% | 25% | 50% | |
Swap of interest rate libor vs CDI | 108 | (Libor) US$ | (26) | (31) | 26 | 30 |
·Sensitivity analysis of changes in interest rate
The Company considers the effects of ana 5% increase or decrease of 5% in interest rates on its outstanding loans,borrowings, financing and debentures as atof December 31, 20102011 in the consolidated financial statements.
In millions of R$
Impact on Profit or Loss | ||||
2010 | 2009 | |||
Variation on interest rates | ||||
TJLP | 6 | 6 | ||
Libor | 7 | 7 | ||
CDI | 42 | 17 |
Impact on profit or loss | |||
% p.a | 2011 | 2010 | |
Changes in interest rates | |||
TJLP | 6.00 | 1,372 | 6,465 |
Libor | 0.81 | 7,941 | 7,102 |
CDI | 10.87 | 72,607 | 42,103 |
Share market price risk
·The Company is exposed to the risk of changes in the price of sharesequity prices due to the investments made and classified as available-for-sale.
The sensitivityCompany considers as probable scenario the amounts recognized at market prices as of December 31, 2011. Sensitivity analysis is based on the assumption of maintaining as probable scenario the market values as of 31/12/2010 as probable scenario.December 31, 2011. Therefore, not impactingthere is no impact on the above-mentioned financial instruments classified as available for sale.sale already presented above. The Company considered the following scenarios presented below for volatility of the shares.
- Scenario 1: (25% appreciation of shares appreciation)shares);
- Scenario 2: (50% appreciation of of shares appreciation)shares);
- Scenario 3: (25% devaluation of shares devaluation)shares);
- Scenario 4: (50% devaluation of shares devaluation).shares);
113
Impacty on profit and equity | |||||
Companies | Probable | 25% | 50% | 25% | 50% |
Usiminas | (768) | 509 | 1,019 | (509) | (1,019) |
Panatlântica | 1 | 3 | 5 | (3) | (5) |
(767) | 512 | 1,024 | (512) | (1,024) |
In millions of R$
Impact on Equity | ||||||||
Companies | 25% | 50% | 25% | 50% | ||||
Usiminas | 205 | 410 | (205) | (410) | ||||
Riversdale Mining Limited | 103 | 206 | (103) | (206) | ||||
Planatlântica | 3 | 5 | (3) | (5) | ||||
311 | 621 | (311) | (621) |
Item 12. Description of Securities Other Than Equity Securities
American Depositary Shares
TheJP Morgan Chase Bank, N.A. serves as the depositary for our ADSs. ADR holders are required to pay various fees to the depositary, and the depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.
ADR holders are required to pay the depositary amounts in respect of expenses incurred by the depositary or its agents on behalf of ADR holders, including expenses arising from compliance with applicable law, taxes or other governmental charges, facsimile transmission or conversion of foreign currency into U.S. dollars. In this case, the depositary may decide inat its sole discretion to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions.
ADR holders are also required to pay additional fees for certain services provided by the depositary, as set forth in the table below.
Depositary service |
| Fee payable by ADR holders |
Issuance and delivery of ADRs, including in connection with share distributions, stock splits |
|
|
Distribution of dividends |
|
|
Deposit of securities, including in respect of share, rights and other distributions |
|
|
Withdrawal of deposited securities |
|
|
Direct and indirect payments by the depositary
The depositary reimburses us for certain expenses we incur in connection with the ADR program, subject to a ceiling agreed between us and the depositary from time to time. These reimbursable expenses currently include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holders. For the year ended December 31, 2010,2011, such reimbursements totaled US$520 thousand.1.1 million.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
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PART II
Item 15. Controls and Procedures
Disclosure Controls and Procedures
We have carried out an evaluation under the supervision of our management, including our Chief Executive Officer and ChiefPrincipal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and our ChiefPrincipal Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) collected and communicated to management, including the Chief Executive Officer and the ChiefPrincipal Financial Officer, to allow timely decisions regarding required disclosure as of the end of our most recent fiscal year.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.
Our internal control over financial reporting is a process designed by, or under the supervision of, our Audit Committee, principal executive and principal financial officers, and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 20102011 based on the criteria established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations – COSO – of the Treadway Commission. Based on the assessment, management has concluded that, as of December 31, 2010,2011, our internal control over financial reporting is effective.
Attestation Report of the Independent Registered Public Accounting Firm
For the report of KPMG Auditores Independentes, our independent registered public accounting firm, dated June 17, 2011,April 27, 2012, on the effectiveness of our internal control over financial reporting as of December 31, 2010,2011, see “Item 18. Financial Statements”.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
16A. Audit Committee Financial Expert
After reviewing the qualifications of the members of our Audit Committee, our BoardourBoard of Directors has determined that all three members of our Audit Committee qualify as an “audit committee financial expert,” as defined by the SEC. In addition, all of the members of outour Audit Committee meet the applicable independence requirements both under Brazilian Corporate Law and under the NYSE rules.
Our Audit Committee is permanently assisted by a consultant, who renders financial and consulting services, among others, to the members of our Audit Committee.
16B. Code of Ethics
We have adopted a Code of Ethics in 1998, reinforcing our ethical standards and values that apply to all of our employees, including executive officers and directors.
Given its importance, the Code of Ethics was updated during year 2011 and copies of the Code of Ethics were distributed to each employee of the organization, to our Board of Directors and our Audit Committee members, who have signed a Commitment Letter, which reinforces the compromise with the established values.
There was no amendment to or waiver from any provision of our Code of Ethics in 2010.2011. Our Code of Ethics is in compliance with the SEC requirements for codes of ethics for senior financial officers. A copy of our Code of Ethics is available on our websites www.csn.com.br or www.csn.com.br/ir.
16C. Principal Accountant Fees and Services
Our interaction with our independent auditors with respect to the contracting of services unrelated to the external audit is based on principles that preserve the independence of the auditors and are otherwise permissible under applicable rules and regulations. For the fiscal years ended December 31, 20102011 and 2009,2010, KPMG Auditores Independentes acted as our independent auditors.
The following table describes the services rendered and the related fees.
|
|
|
|
| ||||
|
| Year ending December 31, |
| Year Ended December 31, | ||||
|
| 2010 |
| 2009 |
| 2011 |
| 2010 |
|
| (In thousands of R$) |
| (In thousands of R$) | ||||
Audit fees |
| 2,649 |
| 4,496 |
| 2,654 |
| 2,649 |
Audit – related fees |
| 774 |
| 195 |
| 285 |
| 774 |
Tax fees |
| 89 |
| 145 |
| 142 |
| 89 |
| ||||||||
Total |
| 3,512 |
| 4,836 |
| 3,081 |
| 3,512 |
Audit fees
Audit fees in 20092011 and 2010 consisted of the aggregate fees billed and billable by our independent auditors in connection with the audit of our consolidated financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
Audit-related fees
Audit-related fees in the above table are fees billed by our independent auditors for services that are reasonably related to the performance of the audit or review of our financial statements. In 2009, audit-related2011 and 2010 these fees refer mainly to due diligence services and in 2010 refer mainly to comfort letters for offering of bonds.
Tax Fees
Fees billed in 20102011 and 20092010 for professional services rendered by our independent auditors are for tax compliance services.
116
Pre-approval Policies and Procedures
Our Board of Directors and Audit Committee must approve before we engage independent auditors to provide any audit or permitted non-audit services to us or our subsidiaries.
16D. Exemptions from the Listing Standards for Audit Committees
We are in full compliance with the listing standards for audit committee pursuant to Exchange Act Rule 10A- 3. For a discussion on our audit committee, see “Item 6. Directors, Senior Management and Employees—Board Practices—Fiscal Committee and Audit Committee.”
16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Since the beginning of 2004, in accordance with the limits and provisions of CVM’sCVM Instruction No. 10/80, our Board of Directors approved a number of share buyback programs.
On May 6, 2010, our BoardIn 2011, we did not carry out any form of Directors approved a new share buyback, program, authorizing us to acquire up to 28,874,810 of our shares. As of the date of this annual report no shares were acquiredeither through this buyback program.publicly announced plans or programs or otherwise.
16F. Change in Registrant’s Certifying Accountant
None.As previously disclosed in our current report on Form 6-K furnished on March 27, 2012, our board of directors, pursuant to applicable CVM regulation regarding auditor rotation, approved the rotation of KPMG as independent registered public accounting firm and the engagement of Deloitte Touche Tohmatsu Auditores Independentes, or Deloitte, to serve as our new independent registered public accounting firm as from the first quarter of 2012 for the fiscal year ending December 31, 2012 and future fiscal years until new auditor rotation is required.
KPMG’s audit report dated April 27, 2012 on our consolidated financial statements for the fiscal year ended December 31, 2011 does not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. KPMG’s audit report dated June 17, 2011 on our consolidated financial statements for the fiscal year ended December 31, 2010 also did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles.
KPMG’s audit report dated April 27, 2012 on the effectiveness of our internal control over financial reporting as of December 31, 2011 does not contain a disclaimer of opinion nor was it modified as to audit scope or otherwise. KPMG’s audit report dated June 17, 2011 on the effectiveness of our internal control over financial reporting as of December 31, 2010 also did not contain a disclaimer of opinion nor was it modified as to audit scope or otherwise.
During the two fiscal years preceding the rotation of KPMG, there were no disagreements between us and KPMG on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference to the subject matter of the disagreement in its report on our consolidated financial statements. During the two fiscal years preceding the rotation of KPMG, there were no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
We have provided KPMG with a copy of this Item 16F and have requested and received from KPMG a letter addressed to the Securities and Exchange Commission stating whether or not KPMG agrees with the above statements. A copy of the letter from KPMG is attached as Exhibit 16.1 to this annual report.
During the two fiscal years preceding the rotation of KPMG, neither us nor anyone acting on our behalf, consulted Deloitte regarding any of the matters or events set forth in Item 3.04(a)(2) of Regulation S-K.
16G. Corporate Governance
Significant Differences between our Corporate Governance Practice and NYSE Corporate Governance Standards
We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE rules, we are required only to: (i) have an audit committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (ii) provide prompt certification by our Chief Executive Officer of any material non-compliance with any corporate governance rules, and (iii) provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies. The discussion of the significant differences between our corporate governance practices and those required of U.S. listed companies follows below.
Majority of Independent Directors
The NYSE rules require that a majority of the board of directors must consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Brazilian law does not have a similar requirement. Under Brazilian law, neither our board of directors nor our management is required to test the independence of directors before their election to the board. However, both Brazilian Corporate Law and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While our directors meet the qualification requirements of Brazilian Corporate Law and the CVM, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence. Brazilian Corporate Law requires that our directors be elected by our shareholders at an annual shareholders’ meeting.
Executive Sessions
NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. Brazilian Corporate Law does not have a similar provision. According to Brazilian Corporate Law, up to one-third of the members of the board of directors can be elected from management. Mr.BenjaminMr. Benjamin Steinbruch, our Chief Executive Officer, is also the Chairman of our Board of Directors. There is no requirementnorequirement that non-management directors meet regularly without management. As a result, the non-management directors on our Board of Directors do not typically meet in executive session.sessions without management present.
117
Nominating and Corporate Governance Committee
NYSE rules require that listed companies have a nominating and corporate governance committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. We are not required under Brazilian Corporate Law to have, and currently we do not have, a nominating and a corporate governance committee.
Compensation Committee
NYSE rules require that listed companies have a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive-compensation and equity-based plans. We are not required under applicable Brazilian law to have, and currently do not have, a compensation committee. Under Brazilian Corporate Law, the total amount available for compensation of our directors and executive officers and for profit-sharing payments to our executive officers is established by our shareholders at the annual shareholders’ meeting. The board of directors is then responsible for determining the individual compensation and profit-sharing of each executive officer, as well as the compensation of our board and committee members.
Audit Committee
NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, we need only to comply with the requirement that the audit committee meet the SEC rules regarding audit committees for listed companies to the extent compatible with Brazilian corporate law. We have established an Audit Committee, which is equivalent to a U.S. audit committee, and provides assistance to our Board of Directors in matters involving our accounting, internal controls, financial reporting and compliance. Our Audit Committee recommends the appointment of our independent auditors to our Board of Directors and reviews the compensation of, and coordinates with, our independent auditors. They also reportsreport on our auditing policies and our annual auditingaudit plan prepared by our internal auditing team,team. Our Audit Committee also evaluates the effectiveness of our internal financial and legal compliance controls, and is comprised of up to three membersindependent directors elected by our Board of Directors for a one-year term of office. The current members of our Audit Committee are Fernando Perrone, Yoshiaki Nakano and Alexandre Gonçalves Silva.Antonio Francisco dos Santos. All members of our Audit Committee satisfy the audit committee membership independence requirements set forth by the SEC and the NYSE. All members of our Audit Committee have been determined by our Board of Directors to qualify as an “audit committee financial expert” within the meaning of the rules adopted by the SEC relating to the disclosure of financial experts on audit committees in periodic filings pursuant to the Exchange Act. For further information on our Audit Committee, see “Item 6. Directors, Senior Management and Employees—Board Practices—Fiscal Committee and Audit Committee.”
Code of Business Conduct and Ethics
NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Applicable Brazilian law does not have a similar requirement. We have adopted a Code of Ethics applicable to all our employees, including our executive officers and directors. We believe this code addresses the matters requiredtorequired to be addressed pursuant to the NYSE rules. For a further discussion of our Code of Ethics, see “Item 16B. Code of Ethics.”
118
Shareholder Approval of Equity Compensation Plans
NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions. We currently do not have any such plan and, pursuant to our bylaws, we would require shareholder approval to adopt an equity compensation plan.
Corporate Governance Guidelines
NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We have adopted the following corporate governance guidelines, either based on Brazilian law, our Code of Ethics or institutional handbook:
· insider trading policy for securities issued by us;
· disclosure of material facts;
· disclosure of annual financial reports;
· confidential policies and procedures; and
·Sarbanes-Oxley Disclosure Committee’s duties and activities.
Item 16H. Mine Safety Disclosure
Not applicable as none of our mines are located in the United States and as such are not subject to the Federal Mine Safety and Health Act of 1977 or the Mine Safety and Health Administration.
Item 17. Financial Statements
We have responded to Item 18 in lieu of responding to this item. See “Item 18. Financial Statements.”
PART III
Item 18. Financial Statements
The following consolidated financial statements of the Registrant, together with the report of KPMG Auditores Independentes thereon, are filed as part of this annual report.
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| Page |
|
| FS-R1 |
Consolidated financial statements: |
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|
Balance sheets as of December 31, |
| FS- 1 |
Statements of income for the years ended December 31, 2011, 2010 and 2009 |
| |
Statements of cash flows for the years ended December 31, 2011, 2010 and 2009 |
| |
Statements of changes in shareholders’ equity for the years ended December 31, 2011, 2010 and 2009 |
| |
Statements of comprehensive income for the years ended December 31, 2011, 2010 and 2009. |
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Item 19. Exhibits
|
|
|
Exhibit |
| Description |
Number |
|
|
| ||
2.1 |
| Form of Amended and Restated Deposit Agreement dated as of November 1, 1997 as amended and restated as of November 13, 1997, among Companhia Siderúrgica Nacional, JP Morgan Chase Bank, N.A. (as successor to Morgan Guaranty Trust Company of New York), as successor depositary, and all holders from time to time of American Depositary Receipts issued thereunder |
2.2 | Form of Amendment No. 1 to the Deposit Agreement | |
2.3 | Form of Amendment No. 2 to Deposit Agreement, including the form of American Depositary Receipt | |
| ||
10.1* |
| |
|
| Share Purchase Agreement, dated October 21, 2008, among CSN, Big Jump Energy Participações S.A., Itochu Corporation, JFE Steel Corporation, Nippon Steel Corporation, Sumitomo Metal Industries, Ltd., Kobe Steel, Ltd., Nishin Steel Co., Ltd., and Posco. (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010) |
10.2*+ | Amendment to the Share Purchase Agreement, dated June 30, 2011. | |
10.3* |
| Shareholders Agreement of Nacional Minérios S.A., dated October 21, 2008, between CSN and Big Jump Energy Participações S.A. (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010) |
10.4*+ | Amendment to the Shareholders’ Agreement of Nacional Minérios S.A., dated June 30, 2011. | |
10.5* |
| High Silica ROM Iron Ore Supply Contract, dated October 21, 2008, between CSN and Nacional Minérios S.A. (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010) |
|
| Low Silica ROM Iron Ore Supply Contract, dated October 21, 2008, between CSN and Nacional Minérios S.A. (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010) |
|
| Iron Ore Supply Contract, dated October 21, 2008, between CSN and Nacional Minérios S.A. (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010) |
|
| Port Operating Services Agreement, dated October 21, 2008, between CSN and Nacional Minérios S.A. (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010) |
| ||
| Section 302 Certification of | |
| ||
| Section 906 Certification of | |
| Management’s report dated | |
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|
* Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to the Securities Exchange Act of 1934, as amended.
+ Filed herewith. | ||
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119
SIGNATURE
The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
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| Companhia Siderúrgica Nacional | |||
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| Benjamin Steinbruch | ||
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| Name: | Benjamin Steinbruch | |
Title: | Chief Executive Officer | |||
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| Name: |
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| Title: |
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120
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Companhia Siderúrgica Nacional
We have audited the accompanying consolidated balance sheets of Companhia Siderúrgica Nacional and subsidiaries (“the Company”) as of December 31, 20102011 and 2009 and January 1, 2009,2010, and the related consolidated statements of income, changes in shareholders’ equity, comprehensive income and cash flows for each of the years in the two-yearthree-year period ended December 31, 2010.2011. We also have audited the Company’s internal control over financial reporting as of December 31, 2010,2011, based on the criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”. The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Companhia Siderúrgica Nacional and subsidiaries as of December 31, 20102011 and 2009 and January 1, 2009,2010, and the results of their operations and their cash flows for each of the years in the two-yearthree-year period ended December 31, 2010,2011, in conformity with International Financial ReportingReport Standards, as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,2011, based on the criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (COSO)”.
KPMG Auditores Independentes
São Paulo, SP - Brazil
April 27June 17, 2011, 2012
FS-R1
Companhia Siderúrgica Nacional and Subsidiaries | ||||||
Consolidated Balance Sheet | ||||||
Thousands of Brazilian reais | ||||||
Assets | ||||||
Note | 2011 | 2010 | ||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | 5 | 15,417,393 | 10,239,278 | |||
Trade receivables | 6 | 1,616,206 | 1,367,759 | |||
Inventories | 7 | 3,734,984 | 3,355,786 | |||
Recoverable taxes | 584,273 | 473,787 | ||||
Other current assets | 8 | 591,450 | 357,078 | |||
Total current assets | 21,944,306 | 15,793,688 | ||||
NON-CURRENT ASSETS | ||||||
Long-term receivables | ||||||
Short-term investments measured at fair value | 139,679 | 112,484 | ||||
Trade receivables | 10,043 | 58,485 | ||||
Deferred income taxes | 9 | 1,840,773 | 1,592,941 | |||
Receivables from related parties | 0 | 479,120 | ||||
Other non-current assets | 10 | 2,866,226 | 3,676,080 | |||
4,856,721 | 5,919,110 | |||||
Investments | 11 | 2,088,225 | 2,103,624 | |||
Property, plant and equipment | 12 | 17,377,076 | 13,776,567 | |||
Intangible assets | 13 | 603,374 | 462,456 | |||
Total non-current assets | 24,925,396 | 22,261,757 | ||||
TOTAL ASSETS | 46,869,702 | 38,055,445 |
The accompanying notes are an integral part of these consolidated financial statements.
Assets
FS-1
Note | 2010 | 2009 | 01/01/09 | |||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | 6 | 10,239,278 | 7,970,791 | 9,151,409 | ||||
Trade accounts receivable | 7 | 1,367,759 | 1,327,941 | 1,788,712 | ||||
Inventories | 8 | 3,355,786 | 2,605,373 | 3,621,249 | ||||
Recoverable taxes | 473,787 | 744,774 | 462,141 | |||||
Prepaid expenses | 12,997 | 15,814 | 27,945 | |||||
Other current assets | 9 | 344,081 | 170,780 | 2,893,049 | ||||
Total current assets | 15,793,688 | 12,835,473 | 17,944,505 | |||||
NON-CURRENT ASSETS | ||||||||
Long-term receivables | ||||||||
Investment Securities | 112,484 | |||||||
Trade accounts receivable | 58,485 | 212,486 | 375,772 | |||||
Deferred income taxes | 10 | 1,592,941 | 1,957,058 | 1,596,905 | ||||
Prepaid pension cost | 115,755 | 105,921 | 125,011 | |||||
Receivables from related parties | 5 | 479,120 | 479,120 | 11,828 | ||||
Other non-current assets | 11 | 3,306,094 | 3,222,637 | 2,598,233 | ||||
5,664,879 | 5,977,222 | 4,707,749 | ||||||
Investments | 12 | 2,103,624 | 321,902 | 1,512 | ||||
Property, plant and equipment | 14 | 13,776,567 | 11,133,347 | 10,071,834 | ||||
Intangible assets | 15 | 462,456 | 457,559 | 526,796 | ||||
Total non-current assets | 22,007,526 | 17,890,030 | 15,307,891 | |||||
TOTAL ASSETS | 37,801,214 | 30,725,503 | 33,252,396 |
Companhia Siderúrgica Nacional and Subsidiaries | ||||||
Consolidated Balance Sheet | ||||||
Thousands of Brazilian reais | ||||||
Liabilities and shareholders´ equity | ||||||
Note | 2011 | 2010 | ||||
SHAREHOLDERS' EQUITY AND LIABILITIES | ||||||
CURRENT LIABILITIES | ||||||
Payroll and related taxes | 202,469 | 164,799 | ||||
Trade payables | 1,232,075 | 623,233 | ||||
Taxes payable | 325,132 | 275,991 | ||||
Borrowings and financing | 14 | 2,702,083 | 1,308,632 | |||
Other payables | 16 | 1,728,445 | 1,854,952 | |||
Provisions for tax, social security, labor and civil risks | 19 | 292,178 | 222,461 | |||
Other provisions | 14,565 | 5,887 | ||||
Total current liabilities | 6,496,947 | 4,455,955 | ||||
NON-CURRENT LIABILITIES | ||||||
Borrowings and financing | 14 | 25,186,505 | 18,780,815 | |||
Other payables | 16 | 5,593,520 | 4,321,666 | |||
Deferred income taxes | 9 | 37,851 | ||||
Provisions for tax, social security, labor and civil risks | 19 | 346,285 | 2,016,842 | |||
Employee Benefits | 29 | 469,050 | 367,839 | |||
Other provisions | 322,374 | 289,640 | ||||
Total non-current liabilities | 31,955,585 | 25,776,802 | ||||
Equity | 21 | |||||
Issued capital | 1,680,947 | 1,680,947 | ||||
Capital reserves | 30 | 30 | ||||
Earnings reserves | 7,671,620 | 6,119,798 | ||||
Other comprehensive income/(loss) | -1,366,776 | -168,015 | ||||
Total equity attributable to owners of the Company | 7,985,821 | 7,632,760 | ||||
Non-controlling interests | 431,349 | 189,928 | ||||
Total equity | 8,417,170 | 7,822,688 | ||||
TOTAL EQUITY AND LIABILITIES | 46,869,702 | 38,055,445 | ||||
The accompanying notes are an integral part of these consolidated financial statements. |
FS-2
Companhia Siderúrgica Nacional and Subsidiaries | ||||||||
Consolidated Statements of Income | ||||||||
Thousands of Brazilian reais | ||||||||
Note | 2011 | 2010 | 2009 | |||||
Net Revenue from sales and/or services | 23 | 16.519.584 | 14.450.510 | 10.978.364 | ||||
Cost of sales and/or services | 24 | -9.800.844 | -7.882.726 | -7.210.774 | ||||
Gross profit | 6.718.740 | 6.567.784 | 3.767.590 | |||||
Operating expenses | -961.818 | -1.569.438 | -206.358 | |||||
Selling expenses | 24 | -604.108 | -481.978 | -447.129 | ||||
General and administrative expenses | 24 | -575.585 | -536.857 | -480.072 | ||||
Other operating income | 25 | 719.177 | 48.821 | 1.368.594 | ||||
Other operating expenses | 25 | -501.302 | -599.424 | -647.764 | ||||
Share of profits of subsidiaries | 13 | |||||||
Profit before finance income (costs) and taxes | 5.756.922 | 4.998.346 | 3.561.232 | |||||
Finance income | 26 | 717.450 | 643.140 | 586.025 | ||||
Finance costs | 26 | -2.723.253 | -2.554.598 | -832.460 | ||||
Profit before income taxes | 3.751.119 | 3.086.888 | 3.314.797 | |||||
Income tax and social contribution | 9 | -83.885 | -570.697 | -699.616 | ||||
Profit from continuing operations | 3.667.234 | 2.516.191 | 2.615.181 | |||||
Profit for the year attributed to: | ||||||||
Companhia Siderúrgica Nacional | 3.706.033 | 2.516.376 | 2.618.934 | |||||
Non-controlling interests | -38.799 | -185 | -3.753 | |||||
Earnings per common share - (reais/share) | ||||||||
Basic | 28 | 2.54191 | 1.72594 | 1.75478 | ||||
Diluted | 28 | 2.54191 | 1.72594 | 1.75478 | ||||
The accompanying notes are an integral part of these consolidated financial statements. |
FS-3
Companhia Siderúrgica Nacional and Subsidiaries | ||||||||
Consolidated Statement of Cash Flow | ||||||||
Thousands of Brazilian reais | ||||||||
Note | 2011 | 2010 | 2009 | |||||
Profit for the year | 3,667,234 | 2,516,191 | 2,615,181 | |||||
Accrued charges on borrowings and financing | 2,650,622 | 1,489,191 | 1,130,089 | |||||
Depreciation/ depletion / amortization | 12.b) | 948,251 | 814,034 | 797,341 | ||||
Proceeds from write-off and disposal of assets | 54,727 | 5,827 | 70,494 | |||||
Realization of available-for-sale investments | -698,164 | |||||||
Deferred income tax and social contribution | 9 | -52,542 | 207,268 | 122,152 | ||||
Provision of swaps/forwards transactions | 110,009 | 126,492 | -88,986 | |||||
Gain/(loss) on change in percentage equity interest | -835,115 | |||||||
Provision for actuarial liabilities | -11,412 | 2,393 | -47,622 | |||||
Provision for tax, social security, labor and civil risks | 62,746 | 199,558 | 99,157 | |||||
Inflation adjustment and exchange differences | -250,083 | 57,119 | -2,024,573 | |||||
Allowance for doubtful debts | 189 | -46,675 | 1,527 | |||||
Other provisions | -19,651 | -80,570 | 399,076 | |||||
Cash generated from operations | 6,461,926 | 5,290,828 | 2,238,721 | |||||
Trade receivables | -339,427 | 143,250 | -51,082 | |||||
Inventories | -410,264 | -794,331 | 926,260 | |||||
Receivables from related parties | 471,666 | |||||||
Recoverable taxes | 16,700 | 297,424 | -317,968 | |||||
Trade payables | 544,300 | 11,964 | -1,137,203 | |||||
Payroll and related taxes | -47,072 | -36,757 | 15,257 | |||||
Taxes payable | 135,765 | -101,723 | 263,734 | |||||
Taxes in installments - REFIS | -296,304 | -414,473 | -103,775 | |||||
Judicial deposits | -20,253 | -33,822 | -737,041 | |||||
Contingent liabilities | 120,951 | 16,868 | -422,375 | |||||
Interest paid | -2,145,400 | -1,190,423 | -992,280 | |||||
Interest paid on swap transactions | -360,976 | -676,163 | -742,700 | |||||
Other | 70,168 | 4,662 | 376,306 | |||||
Increase (decrease) in assets and liabilities | -2,260,146 | -2,773,524 | -2,922,867 | |||||
Net cash generated by (used in) operating activities | 4,201,780 | 2,517,304 | -684,146 | |||||
Receipt/payment in derivative transactions | -57,157 | 395,346 | 248,966 | |||||
Disposal of investments | 1,310,171 | |||||||
Net effects of equity swap | 1,420,322 | |||||||
Investments | -2,126,493 | -1,370,016 | -284,232 | |||||
Property, plant and equipment | 12 | -4,400,825 | -3,635,911 | -1,996,759 | ||||
Intangible assets | 13 | -707 | -25,216 | -5,628 | ||||
Net cash used in investing activities | -5,275,011 | -4,635,797 | -617,331 | |||||
Borrowings and financing | 14 | 7,824,012 | 8,754,779 | 7,582,823 | ||||
Repayments to financial institutions - principal | 14 | -1,469,206 | -2,706,982 | -2,783,313 | ||||
Dividends and interest on capital | -1,856,381 | -1,560,795 | -2,027,600 | |||||
Treasury shares | -1,350,307 | |||||||
Capital contribution by non-controlling shareholders | 242,290 | 128,811 | ||||||
Net cash generated by financing activities | 4,740,715 | 4,615,813 | 1,421,603 | |||||
Exchange rate changes on cash and cash equivalents | 1,510,631 | -228,833 | -1,300,744 | |||||
Increase (decrease) in cash and cash equivalents | 5,178,115 | 2,268,487 | -1,180,618 | |||||
Cash and cash equivalents at the beginning of the year | 10,239,278 | 7,970,791 | 9,151,409 | |||||
Cash and cash equivalents at the end of the year | 15,417,393 | 10,239,278 | 7,970,791 |
The accompanying notes are an integral part of these consolidated financial statements.
FS-4
Companhia Siderúrgica Nacional and Subsidiaries | ||||||||||||||||
Consolidated Statement of Changes in Shareholders' Equity | ||||||||||||||||
Thousands of Brazilian reais | ||||||||||||||||
Paid-in Capital | CapitalReserve | EarningsReserve | Retained earnings | Other comprehensive income | Equity | Non-Controling interests | Consolidated Equity | |||||||||
At December 31, 2008 as reported | 1,680,947 | 30 | 3,768,756 | 1,012,732 | 200,124 | 6,662,589 | 6,662,589 | |||||||||
Impact of restated of prior years | (176,185) | (176,185) | (176,185) | |||||||||||||
At December 31, 2008 | 1,680,947 | 30 | 3,768,756 | 836,547 | 200,124 | 6,486,404 | 6,486,404 | |||||||||
Unrealized Gain/Loss - Investiments | (602) | (602) | (602) | |||||||||||||
IFRS adjustments | 485,816 | 175,257 | (200,124) | 460,949 | 460,949 | |||||||||||
Opening balance at January 1, 2009 | 1,680,947 | 30 | 4,254,572 | 1,011,804 | (602) | 6,946,751 | 6,946,751 | |||||||||
Approval of prior year’s proposed dividends | (485,816) | (485,816) | (485,816) | |||||||||||||
Profit for the year | 2,618,934 | 2,618,934 | (3,753) | 2,615,181 | ||||||||||||
Alocation of profit for the year | ||||||||||||||||
Declared dividends (R$1,028.82 per thousand shares) | (1,500,000) | (1,500,000) | (1,500,000) | |||||||||||||
Interest on capital (R$219.46 per thousand shares) | (319,965) | (319,965) | (319,965) | |||||||||||||
Reserves | 1,847,522 | (1,847,522) | ||||||||||||||
Proposal to the General Meeting | 1,178,635 | 1,178,635 | 1,178,635 | |||||||||||||
Comprehensive income | (585,113) | (585,113) | (585,113) | |||||||||||||
Repurchase of treasury shares as per EGM 8/13/2009 | (1,350,308) | (1,350,308) | (1,350,308) | |||||||||||||
Cancelation of treasury shares as per EGM 8/21 and 9/14/2009 | ||||||||||||||||
Non-controlling interests | 86,813 | 86,813 | ||||||||||||||
Other | 3,332 | 3,332 | 3,332 | |||||||||||||
Balances at December 31, 2009 | 1,680,947 | 30 | 5,444,605 | (33,417) | (585,715) | 6,506,450 | 83,060 | 6,589,510 | ||||||||
Approval of prior year’s proposed dividends | (1,178,635) | (1,178,635) | (1,178,635) | |||||||||||||
Profit for the year | 2,516,376 | 2,516,376 | (185) | 2,516,191 | ||||||||||||
Allocation of profit for the year | (272,297) | (272,297) | (272,297) | |||||||||||||
Declared dividends (R$186.76 per thousand shares) | (356,800) | (356,800) | (356,800) | |||||||||||||
Interest on capital (R$244.72 per thousand shares) | (1,227,703) | (1,227,703) | (1,227,703) | |||||||||||||
Additional dividends proposed (R$842.06 per thousand shares) | 1,227,703 | 1,227,703 | 1,227,703 | |||||||||||||
Investment reserve | 626,159 | (626,159) | ||||||||||||||
Cancelation of treasury shares | (34) | (34) | (34) | |||||||||||||
Comprehensive income | 417,700 | 417,700 | 417,700 | |||||||||||||
Non-controlling interests | 107,053 | 107,053 | ||||||||||||||
Balances at December 31, 2010 | 1,680,947 | 30 | 6,119,798 | (168,015) | 7,632,760 | 189,928 | 7,822,688 | |||||||||
Approval of prior year’s proposed dividends | (1,227,703) | (1,227,703) | (1,227,703) | |||||||||||||
Profit for the year | 3,706,033 | 3,706,033 | (38,799) | 3,667,234 | ||||||||||||
Allocation of profit for the year | ||||||||||||||||
Declared dividends (R$635.48 per thousand shared) | (926,508) | (926,508) | (926,508) | |||||||||||||
Additional dividends proposed (R$599.12 per thousand shares) | 273,492 | (273,492) | ||||||||||||||
Other comprehensive income | (1,198,761) | (1,198,761) | (1,198,761) | |||||||||||||
Recognition of reserves | 2,506,033 | (2,506,033) | ||||||||||||||
Non-controlling interests | 280,220 | 280,220 | ||||||||||||||
Balances at December 31, 2011 | 1,680,947 | 30 | 7,671,620 | (1,366,776) | 7,985,821 | 431,349 | 8,417,170 |
The accompanying notes are an integral part of these consolidated financial statements.
FS-5
FS-1
Liabilities and shareholders’ equity
Note | 2010 | 2009 | 01/01/09 | |||||
SHAREHOLDERS’ EQUITY AND LIABILITIES | ||||||||
CURRENT LIABILITIES | ||||||||
Payroll and related charges | 164,799 | 134,190 | 117,994 | |||||
Trade accounts payable | 521,156 | 504,223 | 1,939,205 | |||||
Taxes payable | 275,991 | 336,804 | 333,811 | |||||
Current portion of long-term debt | 16 | 1,308,632 | 1,113,920 | 3,302,055 | ||||
Other accounts payables | 18 | 1,854,952 | 1,618,574 | 3,563,466 | ||||
Provisions for tax, social security, labor and | 21 | 222,461 | 189,517 | 161,144 | ||||
civil risks | ||||||||
Other | 107,964 | 100,838 | 76,688 | |||||
Total current liabilities | 4,455,955 | 3,998,066 | 9,494,363 | |||||
NON-CURRENT LIABILITIES | ||||||||
Long-term debt and debentures | 16 | 18,780,815 | 13,153,681 | 8,681,098 | ||||
Other accounts payables | 18 | 4,067,435 | 3,666,323 | 3,930,613 | ||||
Deferred income taxes | 10 | 30,040 | 2,181 | |||||
Provisions for tax, social security, labor and | 21 | 2,016,842 | 2,838,670 | 3,747,601 | ||||
civil risks | ||||||||
Employee benefits | 30 | 367,839 | 317,145 | 364,140 | ||||
Other | 22 | 289,640 | 132,068 | 85,649 | ||||
Total non-current liabilities | 25,522,571 | 20,137,927 | 16,811,282 | |||||
Shareholders’ Equity | 23 | |||||||
Common stock | 1,680,947 | 1,680,947 | 1,680,947 | |||||
Capital surplus | 30 | 30 | 30 | |||||
Earnings reserves | 6,119,798 | 5,444,605 | 4,254,572 | |||||
Retained earnings | (33,417) | 1,011,804 | ||||||
Other comprehensive income | (168,015) | (585,715) | (602) | |||||
Total shareholders’ equity attributable to | ||||||||
owners of the Company | 7,632,760 | 6,506,450 | 6,946,751 | |||||
Noncontrolling interests | 189,928 | 83,060 | ||||||
Total shareholders’ equity | 7,822,688 | 6,589,510 | 6,946,751 | |||||
TOTAL SHAREHOLDERS’ EQUITY AND | ||||||||
LIABILITIES | 37,801,214 | 30,725,503 | 33,252,396 |
Companhia Siderúrgica Nacional and Subsidiaries | ||||||
Consolidated Statements of Comprehensive Income | ||||||
Thousands of Brazilian reais | ||||||
2011 | 2010 | 2009 | ||||
Profit for the year | 3,667,234 | 2,516,191 | 2,615,181 | |||
Other comprehensive income | -1,198,761 | 417,700 | -585,113 | |||
Exchange differences arising on translation of foreign operations, net of taxes | 195,046 | -69,270 | -618,723 | |||
Actuarial gains/(losses) on defined benefit plan, net of taxes | -74,331 | -28,603 | -3,275 | |||
Net change in fair value of available-for-sale financial assets, net of taxes | -621,312 | 515,573 | 36,885 | |||
Net change in fair value of available-for-sale financial assets transferred to profit or loss | -698,164 | 0 | 0 | |||
Comprehensive income for the year | 2,468,473 | 2,933,891 | 2,030,068 | |||
Attributable to: | ||||||
Companhia Siderúrgica Nacional | 2,507,272 | 2,934,076 | 2,033,821 | |||
Non-controlling interests | -38,799 | -185 | -3,753 |
The accompanying notes are an integral part of these consolidated financial statements.
FS-2
Note | 2010 | 2009 | ||||
NET OPERATING REVENUES | 25 | 14,450,510 | 10,978,364 | |||
Cost of products sold | (7,686,742) | (7,022,119) | ||||
GROSS PROFIT | 6,763,768 | 3,956,245 | ||||
OPERATING EXPENSES | (1,765,422) | (395,013) | ||||
Selling | (677,962) | (635,784) | ||||
General and administrative | (536,857) | (480,072) | ||||
Equity in results of affiliated companies | 13 | |||||
Other expenses | 26 | (643,081) | (695,905) | |||
Other income | 26 | 92,478 | 1,416,735 | |||
Operating income | 4,998,346 | 3,561,232 | ||||
Finance income (expenses), net | 27 | (1,911,458) | (246,435) | |||
Income before income taxes | 3,086,888 | 3,314,797 | ||||
Income tax benefit (expense) | ||||||
Current | 10 | (313,371) | (581,735) | |||
Deferred | 10 | (257,326) | (117,881) | |||
Net income | 2,516,191 | 2,615,181 | ||||
Net income attributable to: | ||||||
Compania Siderúrgica Nacional | 2,516,376 | 2,618,934 | ||||
Noncontrolling interests | (185) | (3,753) | ||||
Basic and diluted earnings per common share | ||||||
Basic | 29 | 1.72594 | 1.75478 | |||
Diluted | 29 | 1.72594 | 1.75478 |
The accompanying notes are an integral part of these consolidated financial statements.
FS-3
2010 | 2009 | |||
- Net income for the year | 2,516,191 | 2,615,181 | ||
- Provision for charges on loans and financing | 1,489,191 | 1,130,089 | ||
- Depreciation and amortization | 806,169 | 780,152 | ||
- Gain (loss) on disposal of assets | 5,827 | 70,494 | ||
- Deferred income tax expense (benefit) | 257,326 | 117,881 | ||
- Provision for swap/forward transactions | 126,492 | (88,986) | ||
- Gain/loss on change in percentage equity interest | - | (835,115) | ||
- Allowance for doubtful accounts | (46,675) | 1,527 | ||
- Provision for actuarial liabilities | 2,393 | (47,622) | ||
- Accrual for contingencies | 199,558 | 99,157 | ||
- Inflation adjustment and foreign exchange gains (losses), net | 57,119 | (2,024,573) | ||
- Other | (72,705) | 416,265 | ||
Cash flows from operating activities | 5,340,886 | 2,234,450 | ||
- Trade accounts receivables | 143,250 | (51,082) | ||
- Inventories | (794,331) | 926,260 | ||
- Taxes for offset | 247,366 | (313,697) | ||
- Trade accounts payables | 11,964 | (1,137,203) | ||
- Payroll and related charges | (36,757) | 15,257 | ||
- Taxes payable | (101,723) | 263,734 | ||
- Taxes payable in installments - Refis | (414,473) | (103,775) | ||
- Judicial deposits | (33,822) | (737,041) | ||
- Contingent liabilities | 16,868 | (422,375) | ||
- Interest paid | (1,190,423) | (992,280) | ||
- Interest paid on swap transactions | (676,163) | (742,700) | ||
- Other | (30,107) | 287,433 | ||
Changes in assets and liabilities | (2,858,351) | (3,007,469) | ||
Net cash provided by (used in) operating activities | 2,482,535 | (773,019) | ||
- Receipts/payments on derivative transactions | 395,346 | 248,966 | ||
- Net effects of equity swap | - | 1,420,322 | ||
- Investments | (1,370,016) | (284,232) | ||
- Property, plant and equipment | (3,635,911) | (1,996,759) | ||
- Intangible assets | (25,216) | (5,628) | ||
Net cash used in investing activities | (4,635,797) | (617,331) | ||
- Loans and financing | 8,789,548 | 7,671,696 | ||
- Financial institutions - principal | (2,706,982) | (2,783,313) | ||
- Dividends and interest on shareholders' equity | (1,560,795) | (2,027,600) | ||
- Capital contribution in subsidiaries by non-controlling shareholders | 128,811 | - | ||
- Treasury shares | - | (1,350,307) | ||
Net cash provided by financing activities | 4,650,582 | 1,510,476 | ||
Effects of changes in exchange rates on cash and cash equivalents | (228,833) | (1,300,744) | ||
Increase (decrease) in cash and cash equivalents | 2,268,487 | (1,180,618) | ||
Cash and cash equivalents, beginning of year | 7,970,791 | 9,151,409 | ||
Cash and cash equivalents, end of year | 10,239,278 | 7,970,791 |
The accompanying notes are an integral part of these consolidated financial statements.
FS-4
Profit reserves | Comprehensive Income | |||||||||||||||||||||||||||||||
Unrealized gain | ||||||||||||||||||||||||||||||||
Cumulative | Gain (loss) on | (loss) on | Companhia | |||||||||||||||||||||||||||||
Common | Capital | Legal | Retained | Treasury | Retained | translation | defined benefit | available-for-sale | Siderúrgica | Non-controlling | ||||||||||||||||||||||
Stock | reserve | reserve | earnings | Dividends | Reserve | Total | stock | earnings | adjustment | pension plan | securities | Total | Nacional | interests | Total equity | |||||||||||||||||
At December 31, 2008 - as reported | 1.680.947 | 30 | 336.190 | 2.493.493 | - | 1.658.115 | 4.487.798 | (719.042) | 1.012.732 | 200.124 | 200.124 | 6.662.589 | 6.662.589 | |||||||||||||||||||
Impact of restatement of prior years | (176.185) | (176.185) | (176.185) | |||||||||||||||||||||||||||||
Balances at December 31, 2008 | 1.680.947 | 30 | 336.190 | 2.493.493 | - | 1.658.115 | 4.487.798 | (719.042) | 836.547 | 200.124 | - | - | 200.124 | 6.486.404 | - | 6.486.404 | ||||||||||||||||
Unrealized gain/loss- Investment | (602) | (602) | (602) | (602) | ||||||||||||||||||||||||||||
IFRS adjustments | 485.816 | 485.816 | 175.257 | (200.124) | (200.124) | 460.949 | 460.949 | |||||||||||||||||||||||||
Opening balance at January 1, 2009 | 1.680.947 | 30 | 336.190 | 2.493.493 | 485.816 | 1.658.115 | 4.973.614 | (719.042) | 1.011.804 | (602) | - | - | (602) | 6.946.751 | - | 6.946.751 | ||||||||||||||||
- | ||||||||||||||||||||||||||||||||
Approval of proposed dividends | (485.816) | (485.816) | - | (485.816) | (485.816) | |||||||||||||||||||||||||||
Profit for the year | 2.618.934 | - | 2.618.934 | (3.753) | 2.615.181 | |||||||||||||||||||||||||||
Allocation of profit for the year | - | - | - | |||||||||||||||||||||||||||||
- Declared dividends (R$1,028.82 per thousand shares) | (321.365) | - | (321.365) | (321.365) | ||||||||||||||||||||||||||||
- Interest on capital (R$219.46 per thousand shares) | (319.965) | - | (319.965) | (319.965) | ||||||||||||||||||||||||||||
- Reserves | 1.285.864 | 561.658 | 1.847.522 | (1.847.522) | - | - | - | |||||||||||||||||||||||||
- Proposal to the General Meeting | 1.178.635 | 1.178.635 | (1.178.635) | - | - | - | ||||||||||||||||||||||||||
Comprehensive income | (618.723) | (3.275) | 36.885 | (585.113) | (585.113) | (585.113) | ||||||||||||||||||||||||||
Repurchase of treasury shares as per EGM 8/13/2009 | (1.350.308) | - | (1.350.308) | (1.350.308) | ||||||||||||||||||||||||||||
Cancelation of treasury shares as per EGM 8/21 and 9/14/2009 | (877.791) | (877.791) | 877.791 | - | - | - | ||||||||||||||||||||||||||
Non-controlling interests | - | - | 86.813 | 86.813 | ||||||||||||||||||||||||||||
Other | 3.332 | - | 3.332 | 3.332 | ||||||||||||||||||||||||||||
Balances at December 31, 2009 | 1.680.947 | 30 | 336.190 | 3.779.357 | 1.178.635 | 1.341.982 | 6.636.164 | (1.191.559) | (33.417) | (619.325) | (3.275) | 36.885 | (585.715) | 6.506.450 | 83.060 | 6.589.510 | ||||||||||||||||
- | - | |||||||||||||||||||||||||||||||
Approval of proposed dividends | (1.178.635) | (1.178.635) | - | (1.178.635) | (1.178.635) | |||||||||||||||||||||||||||
Profit for the year | 2.516.376 | - | 2.516.376 | (185) | 2.516.191 | |||||||||||||||||||||||||||
Allocation of profit for the year | - | - | - | |||||||||||||||||||||||||||||
- Declared dividends (R$186.76 per thousand shares) | (272.297) | - | (272.297) | (272.297) | ||||||||||||||||||||||||||||
- Interest on capital (R$244.72 per thousand shares) | (356.800) | - | (356.800) | (356.800) | ||||||||||||||||||||||||||||
- Dividends proposed to the General Meeting (R$842.06 per thousand shares) | 1.227.703 | 1.227.703 | (1.227.703) | - | - | - | ||||||||||||||||||||||||||
Investment reserve | 626.159 | 626.159 | (626.159) | - | - | - | ||||||||||||||||||||||||||
Cancelation of treasury shares | (621.417) | (621.417) | 621.383 | - | (34) | (34) | ||||||||||||||||||||||||||
Comprehensive income | (69.270) | (28.603) | 515.573 | 417.700 | 417.700 | 417.700 | ||||||||||||||||||||||||||
Non-controlling interests | - | - | - | 107.053 | 107.053 | |||||||||||||||||||||||||||
Balances at December 31, 2010 | 1.680.947 | 30 | 336.190 | 3.779.357 | 1.227.703 | 1.346.724 | 6.689.974 | (570.176) | - | (688.595) | (31.878) | 552.458 | (168.015) | 7.632.760 | 189.928 | 7.822.688 |
The accompanying notes are an integral part of these consolidated financial statements.
FS-5
|
|
|
|
| 2010 |
| 2009 |
|
|
|
|
Profit for the year | 2,516,191 |
| 2,615,181 |
|
|
|
|
Other comprehensive income | 417,700 |
| (585,113) |
Cumulative foreign currency translation adjustments and |
|
|
|
exchange gain on investments in foreign operations, net of taxes | (69,270) |
| (618,723) |
Pension plan, net of taxes | (28,603) |
| (3,275) |
Available-for-sale financial assets, net of taxes | 515,573 |
| 36,885 |
|
|
|
|
Comprehensive income for the year | 2,933,891 |
| 2,030,068 |
|
|
|
|
Attributable to: |
|
|
|
Company Siderúrgica Nacional | 2,933,891 |
| 2,030,068 |
Non-controlling interests | - |
| - |
The accompanying notes are an integral part of these consolidated financial statements.
FS-6
(expressed In thousands of reais – R$, exceptunless otherwise stated)
1.DESCRIPTION OF BUSINESS
Companhia Siderúrgica Nacional is a publicly-held company incorporated on April 9, 1941, under the laws of the Federative Republic of Brazil (Companhia Siderúrgica Nacional, its subsidiaries and jointly-controlled subsidiariesjointly controlled entities collectively referred to herein as "CSN" or the “Company”)..The Company’s registered office social is located at Avenida Brigadeiro Faria Lima, 3400 – São Paulo, SP.
CSN is a Company with shares listed on the São Paulo Stock Exchange (IBOVESPA)(BOVESPA) and the New York Stock Exchange (NYSE). Accordingly, it reports its information to the Brazilian Securities Commission (CVM) and the U.S. Securities and Exchange Commission (SEC).
The main operating activities of CSN are divided into 5 (five) segments as follows:
•·Steel:
The Company’s main industrial facility is the Presidente Vargas Steel Mill (“UPV”), located in the city of Volta Redonda, State of Rio de Janeiro. This segment consolidates the operations related to the production, distribution and sale of flat steel, metallic packaging and galvanized steel, withsteel. In addition to the facilities in Brazil, CSN has operations in Brazil, the United States and Portugal aimed at gaining markets and performing excellent services for final consumers. Its steels are used in the home appliance,appliances, civil construction and automobile industries.
•·Mining:
The production of iron ore is developed in the city of Congonhas, in the State of Minas Gerais. It further mines limestone and dolomite in branches in the State of Minas Gerais and tin in the State of Rondônia to supply the needs of UPV, with the excess of these raw materials being sold to subsidiaries and third parties. CSNparties.CSN holds a concession to operate TECAR, a solid bulk maritime terminal, of the 4 (four) terminals that form the Itaguaí Port, of Itaguaí, located in Rio de Janeiro. Importations of coal and coke are carried out through this terminal.
•·Cement:
The Company entered the cement market boosted by the synergy between this new activity and its already existing businesses. Next to the Presidente Vargas Steel Mill in Volta Redonda (RJ), it installed a new business unit: CSN Cimentos, which is already producingproduces CP-III type cement by using slag produced by the UPV blast furnaces in Volta Redonda. At presentExplores also limestone and dolomito Arches drive in the clinkerState of Minas Gerais, to feed the needs of UPV and CSN Cement, and the surplus of such raw materials is sold to subsidiaries and third parties.
During 2011, the Clinker used in manufacturing the manufacture of cement iswas purchased from third parties, though it will begin to be producedhowever, by CSN Cimentos inthe end of 2011, with the conclusioncompletion of the first stage of the Clinker plant in Arcos (MG), wherethis has already filled the needs of grinding of CSN further has a limestone quarry.Cimentos located in Volta Redonda.
•·LogisticsLogistics:
Railroads:
CSN has equity interests in two railroad companies: MRS Logística, which manages the former Southeast Network of Rede Ferroviária Federal S.A. (RFFSA), and Transnordestina Logística, which operates the former Northeast Network of the RFFSA in the states of Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas.
Ports:
FS-7
In the State of Rio de Janeiro, the Company operates the Container Terminal known as Sepetiba Tecon at the Port of Itaguaí. Port. Located in the Bay of Sepetiba, this port has privileged highway, railroad and maritime access.
FS-7
Tecon handles the shipments of CSN steel products, movement of containers, as well as storage, consolidation and deconsolidation of cargo.
•·Energy:
As energy is fundamental in its production process, the Company has invested in assets for generation of electric power to guarantee its self-sufficiency.
For further details on strategic investments in the Company’s segments, see Notes 12, 13 and 28Note 27 – Business Segment Reporting.Information.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a)Basis of presentationpreparation
The consolidated financial statements have been prepared and are being presented in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
These are the first financial statements presented by the Company in accordance with IFRS. The main differences between the accounting practices previously disclosed including the reconciliations of equity and profit for the year, are described in Note 4.2, 4.3 and 4.4.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in the notes to this report and refer to the allowance for doubtful accounts,debts, provision for inventory losses, provision for labor, civil, tax, environmental and social security risks, depreciation, amortization, depletion, provision for impairment, deferred taxes, financial instruments and employee benefits. Actual results may differ from these estimates.
The financial statements are presented in thousands of reais (R$). Depending on the applicable IFRS standard, the measurement criterion used in preparing the financial statements considers the historical cost, net realizable value, fair value or recoverable amount.
Some balances for the financial years 2009 and 2010 were reclassified to permit a better comparability with 2011.
The consolidated financial statements were approved by the Board of Directors and authorized for issue on June 16, 2011.April 26, 2012.
(b)Consolidated financial statements
The accounting policies have been consistently applied to all consolidated companies.
The consolidated financial statements for the years ended December 31, 20092011 and 2010 include the following direct and indirect subsidiaries and jointly-controlled subsidiaries, as well as the exclusive funds Diplic and Mugen:
·Companies
FS-8
Equity interest (%) | ||||||
Companies | 12/31/2011 | 12/31/2010 | Main activities | |||
Direct interest: full consolidation | ||||||
CSN Islands VII Corp. | 100.00 | 100.00 | Financial transactions | |||
CSN Islands VIII Corp. | 100.00 | 100.00 | Financial transactions | |||
CSN Islands IX Corp. | 100.00 | 100.00 | Financial transactions | |||
CSN Islands X Corp. | 100.00 | 100.00 | Financial transactions | |||
CSN Islands XI Corp. | 100.00 | 100.00 | Financial transactions | |||
CSN Islands XII Corp. | 100.00 | 100.00 | Financial transactions | |||
Tangua Inc. | 100.00 | 100.00 | Financial transactions | |||
International Investment Fund | 100.00 | 100.00 | Equity interests and financial transactions | |||
CSN Minerals S. L.(1) | 100.00 | 100.00 | Equity interests | |||
CSN Export Europe, S.L. (2) | 100.00 | 100.00 | Financial transactions, product sales and equity interests | |||
CSN Metals S.L. (3) | 100.00 | 100.00 | Equity interests and financial transactions | |||
CSN Americas S.L. (4) | 100.00 | 100.00 | Equity interests and financial transactions | |||
CSN Steel S.L. (5) | 100.00 | 100.00 | Equity interests and financial transactions | |||
TdBB S.A | 100.00 | 100.00 | Dormant company | |||
Sepetiba Tecon S.A. | 99.99 | 99.99 | Port services | |||
Mineração Nacional S.A. | 99.99 | 99.99 | Mining and equity interests | |||
CSN Aços Longos S.A.- merged by Parent Company on 1/28/2011 | 99.99 | Manufacture and sale of steel and/or metallurgical products | ||||
Florestal Nacional S.A.(6) | 99.99 | 99.99 | Reforestation | |||
Estanho de Rondônia S.A. | 99.99 | 99.99 | Tin mining | |||
Cia Metalic Nordeste | 99.99 | 99.99 | Manufacture of packaging and distribution of steel products | |||
Companhia Metalúrgica Prada | 99.99 | 99.99 | Manufacture of packaging and distribution of steel products | |||
CSN Cimentos S.A. | 99.99 | 99.99 | Cement manufacturing | |||
Inal Nordeste S.A.- merged by Parent Company on 5/30/2011 | 99.99 | Service center for steel products | ||||
CSN Gestão de Recursos Financeiros Ltda. | 99.99 | 99.99 | Dormant company | |||
Congonhas Minérios S.A. | 99.99 | 99.99 | Mining and equity interests | |||
CSN Energia S.A. | 99.99 | 99.99 | Sale of electric power | |||
Transnordestina Logística S.A. | 70.91 | 76.45 | Railroad logistics | |||
Indirect interest: full consolidation | ||||||
CSN Aceros S.A. | 100.00 | 100.00 | Equity interests | |||
Companhia Siderurgica Nacional LLC | 100.00 | 100.00 | Steel | |||
CSN Europe Lda.(7) | 100.00 | 100.00 | Financial transactions, product sales and equity interests | |||
CSN Ibéria Lda. | 100.00 | 100.00 | Financial transactions and equity interests | |||
CSN Portugal, Unipessoal Lda. (8) | 100.00 | 100.00 | Financial transactions and product sales | |||
Lusosider Projectos Siderúrgicos S.A. | 100.00 | 100.00 | Equity interests | |||
Lusosider Aços Planos, S. A. | 99.94 | 99.94 | Steel and equity interests | |||
CSN Acquisitions, Ltd. | 100.00 | 100.00 | Financial transactions and equity interests | |||
CSN Resources S.A.(9) | 100.00 | 100.00 | Financial transactions and equity interests | |||
CSN Finance UK Ltd | 100.00 | 100.00 | Financial transactions and equity interests | |||
CSN Holdings UK Ltd | 100.00 | 100.00 | Financial transactions and equity interests | |||
CSN Handel GmbH(10) | 100.00 | Financial transactions, product sales and equity interests | ||||
Itamambuca Participações S. A. - merged by CSN Cimentos em 5/30/2011 | 99.99 | Mining and equity interests | ||||
Companhia Brasileira de Latas (11) | 59.17 | Sale of cans and containers in general and equity interests | ||||
Rimet Empreendimentos Industriais e Comerciais S. A.(11) | 58.08 | Production and sale of steel containers and forestry | ||||
Companhia de Embalagens Metálicas MMSA (11) | 58.98 | Production and sale of cans and related activities | ||||
Empresa de Embalagens Metálicas - LBM Ltda. (11) | 58.98 | Sales of containers and holding interests in other entities | ||||
Empresa de Embalagens Metálicas - MUD Ltda. (11) | 58.98 | Production and sale of household appliances and related products | ||||
Empresa de Embalagens Metálicas - MTM do Nordeste (11) | 58.98 | Production and sale of cans and related activities | ||||
Companhia de Embalagens Metálicas - MTM (11) | 58.98 | Production and sale of cans and related activities | ||||
Direct interest: proportionate consolidation | ||||||
Nacional Minérios S.A. | 60.00 | 60.00 | Mining and equity interests | |||
Itá Energética S.A. | 48.75 | 48.75 | Generation of electric power | |||
MRS Logística S.A. | 27.27 | 22.93 | Railroad transportation | |||
Consórcio da Usina Hidrelétrica de Igarapava | 17.92 | 17.92 | Electric power consortium | |||
Aceros Del Orinoco S.A. | 22.73 | 22.73 | Dormant company | |||
CBSI - Companhia Brasileira de Serviços de Infraestrutura (12) | 50.00 | Provision of services | ||||
Indirect interest: proportionate consolidation | ||||||
Namisa International Minerios SLU | 60.00 | 60.00 | Equity interests and sales of products and minerals | |||
Namisa Europe, Unipessoal Lda. | 60.00 | 60.00 | Equity interests and sales of products and minerals | |||
MRS Logística S.A. | 6.00 | 10.34 | Railroad transportation | |||
Aceros Del Orinoco S.A. | 9.08 | 9.08 | Dormant company | |||
Aloadus Handel GmbH (10) | 60.00 | Financial transactions, product sales and equity interests |
|
| Equity interest (%) | ||||
Companies |
| 2010 |
| 2009 |
| Main activities |
|
|
|
|
|
|
|
Direct interest: full consolidation |
|
|
|
|
|
|
CSN Islands VII |
| 100.00 |
| 100.00 |
| Financial transactions |
CSN Islands VIII |
| 100.00 |
| 100.00 |
| Financial transactions |
CSN Islands IX |
| 100.00 |
| 100.00 |
| Financial transactions |
CSN Islands X |
| 100.00 |
| 100.00 |
| Financial transactions |
CSN Islands XI |
| 100.00 |
| 100.00 |
| Financial transactions |
CSN Islands XII |
| 100.00 |
| 100.00 |
| Financial transactions |
Tangua |
| 100.00 |
| 100.00 |
| Financial transactions |
International Investment Fund |
| 100.00 |
| 100.00 |
| Equity interests and financial transactions |
CSN Minerals (1) |
| 100.00 |
| 100.00 |
| Equity interests |
CSN Export |
| 100.00 |
| 100.00 |
| Financial transactions, sale of products and equity interests |
CSN Metals (2) |
| 100.00 |
| 100.00 |
| Equity interests and financial transactions |
CSN Americas (3) |
| 100.00 |
| 100.00 |
| Equity interests and financial transactions |
CSN Steel |
| 100.00 |
| 100.00 |
| Equity interests and financial transactions |
TdBB S.A |
| 100.00 |
| 100.00 |
| Dormant company |
Galvasud - Merged on 1/29/2010 |
|
|
| 99.99 |
| Steel-making |
Sepetiba Tecon |
| 99.99 |
| 99.99 |
| Port services |
Mineração Nacional |
| 99.99 |
| 99.99 |
| Mining and equity interests |
CSN Aços Longos - Merged on 1/28/2011 |
| 99.99 |
| 99.99 |
| Manufacture and sale of steel and/or metallurgical products |
Florestal Nacional (4) |
| 99.99 |
| 99.99 |
| Reforestation |
Estanho de Rondônia - ERSA |
| 99.99 |
| 99.99 |
| Tin mining |
Cia Metalic Nordeste |
| 99.99 |
| 99.99 |
| Manufacture of packaging and distribution of steel products |
Companhia Metalúrgica Prada |
| 99.99 |
| 99.99 |
| Manufacture of packaging and distribution of steel products |
CSN Cimentos |
| 99.99 |
| 99.99 |
| Manufacture of cement |
Inal Nordeste - Merged on 05/30/2011 |
| 99.99 |
| 99.99 |
| Service center for steel products |
CSN Gestão de Recursos Financeiros |
| 99.99 |
| 99.99 |
| Dormant company |
Congonhas Minérios |
| 99.99 |
| 99.99 |
| Mining and equity interests |
CSN Energia |
| 99.99 |
| 99.90 |
| Sale of electric power |
Transnordestina Logística |
| 76.45 |
| 84.34 |
| Railroad logistics |
Special partnership - Extinguished on 11/30/2010 |
|
|
| 39.47 |
| Equity interests |
|
|
|
|
|
|
|
Indirect interest: full consolidation |
|
|
|
|
|
|
CSN Aceros |
| 100.00 |
| 100.00 |
| Equity interests |
CSN Cayman - Liquidated on 8/31/2010 |
|
|
| 100.00 |
| Financial transactions, sale of products and equity interests |
CSN IRON - Extinguished on 1/31/2010 |
|
|
| 100.00 |
| Financial transactions and equity interests |
Companhia Siderurgica Nacional LLC |
| 100.00 |
| 100.00 |
| Steel-making |
CSN Europe (5) |
| 100.00 |
| 100.00 |
| Financial transactions, sale of products and equity interests |
CSN Ibéria |
| 100.00 |
| 100.00 |
| Financial transactions and equity interests |
CSN Portugal (6) |
| 100.00 |
| 100.00 |
| Financial transactions and sale of products |
Lusosider Projectos Siderúrgicos |
| 100.00 |
| 100.00 |
| Equity interests |
Lusosider Aços Planos |
| 99.94 |
| 99.94 |
| Steel-making and equity interests |
CSN Acquisitions |
| 100.00 |
| 100.00 |
| Financial transactions and equity interests |
CSN Resources (7) |
| 100.00 |
| 100.00 |
| Financial transactions and equity interests |
CSN Finance UK Ltd |
| 100.00 |
| 100.00 |
| Financial transactions and equity interests |
CSN Holdings UK Ltd |
| 100.00 |
| 100.00 |
| Financial transactions and equity interests |
Energy I - Liquidated on 8/31/2010 |
|
|
| 99.99 |
| Equity interests |
Itamambuca Participações - Merged on 05/30/2011 |
| 99.99 |
| 99.99 |
| Mining and equity interests |
Special partnership - extinguished on 11/30/2010 |
|
|
| 60.53 |
| Equity interests |
|
|
|
|
|
|
|
Direct interest: proportional consolidation |
|
|
|
|
|
|
Nacional Minérios (NAMISA) |
| 59.99 |
| 59.99 |
| Mining and equity interests |
Itá Energética |
| 48.75 |
| 48.75 |
| Genaration of electric power |
MRS Logística |
| 22.93 |
| 22.93 |
| Railroad transportation |
Consórcio da Usina Hidrelétrica de Igarapava |
| 17.92 |
| 17.92 |
| Electric power consortium |
Aceros Del Orinoco |
| 22.73 |
| 22.73 |
| Dormant company |
|
|
|
|
|
|
|
Indirect interest: proportional consolidation |
|
|
|
|
|
|
Namisa International Minerios SLU |
| 60.00 |
| 60.00 |
| Equity interests and sale of products and ores |
Namisa Europe |
| 60.00 |
| 60.00 |
| Equity interests and sale of products and ores |
Pelotização Nacional - Merged on 12/30/2010 |
|
|
| 59.99 |
| Mining and equity interests |
MG Minérios - Merged on 12/30/2010 |
|
|
| 59.99 |
| Mining and equity interests |
MRS Logística |
| 10.34 |
| 10.34 |
| Railroad transportation |
Aceros Del Orinoco |
| 9.08 |
| 9.08 |
| Dormant company |
(1) New corporate name of CSN Energy, changed on December 15, 2010.(2) New corporate name of CSN Overseas, changed on December 15, 2010.(3) New corporate name of CSN Panamá, changed on December 15, 2010.(4) New corporate name of Itaguaí Logística, changed on December 27, 2010.(5) New corporate name of CSN Madeira, changed on January 8, 2010.(6) New corporate name of Hickory, changed on January 8, 2010.(1) New corporate name of CSN Energy S.à.r.l., changed on December 15, 2010. (2) New corporate name of CSN Export S.à.r.l., changed on August 9, 2011. (3) New corporate name of CSN Overseas S.à.r.l., changed on December 15, 2010. (4) New corporate name of CSN Panamá S.à.r.l., changed on December 15, 2010. (5) New corporate name of CSN Steel S.à.r.l., changed on December 17, 2010. (6) New corporate name of Itaguaí Logística S.A., changed on December 27, 2010. (7) New corporate name of CSN Madeira Lda., changed on January 8, 2010. (8) New corporate name of Hickory-Comércio Internacional e Serviços Lda., changed on January 8, 2010. (9) New corporate name of CSN Cement S.à.r.l., changed on June 18, 2010. (10) Companies that became subsidiaries on November 3, 2011.
FS-9
(11)Companies that became subsidiaries on July 12, 2011.
(12)Equity interest acquired on December 5, 2011.
FS-9
•·Exclusive funds
|
| Equity interest in capital social (%) | ||||
Special purpose entities |
| 2010 |
| 2009 |
| Principal activities |
Direct equity interest: full consolidation |
|
|
|
| ||
DIPLIC - Fundo de investimento multimercado | 100.00 |
| 100.00 |
| Multimarket Investment fund | |
Mugen - Fundo de investimento multimercado | 100.00 |
| 100.00 |
| Multimarket investment fund |
Interest held | ||||||
Exclusive funds | 12/31/2011 | 12/31/2010 | Main activities | |||
Direct interest: full consolidation | ||||||
DIPLIC - Fundo de investimento multimercado | 100.00 | 100.00 | Investment fund | |||
Mugen - Fundo de investimento multimercado | 100.00 | 100.00 | Investment fund |
In preparing the consolidated financial statements the following consolidation procedures have been applied:
Unrealized gains on transactions with subsidiaries jointly-controlled subsidiaries and affiliated companiesjointly controlled entities are eliminated to the extent of CSN’s equity interests in the related entity in the consolidation process. Unrealized losses are eliminated in the same manner as unrealized gains, although only to the extent that there are indications of impairment. The base date of the financial statements of the subsidiaries, jointly-controlled subsidiariesjointly controlled entities and affiliatedaffiliated companiesis the same as that of the Company, and their accounting policies are in line with the policies adopted by the Company.
•·Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Company has the power to determine the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are actually exercisable or convertible are taken into consideration when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date when control is transferred to the Company and are deconsolidated from the date when such control ceases.
•Affiliated companies
Affiliated companies are all entities over which the Company has significant influence, but not control, generally accompanying a shareholding of 20% to 50% of the voting rights. Investments in its affiliated companies are accounted for under the equity method of accounting and are initially recognized at cost. The Company’s investment in affiliated companies includes goodwill identified on acquisition, plus the investor’s share of the profit or loss of the investee after the acquisition and other changes in the value of the net assets, less any accumulated impairment loss.
•·Jointly-controlled subsidiariesJoint controlled entities
The financial statements of jointly-controlled subsidiariesjointly controlled entities are included in the consolidated financial statements from the date when shared control starts through the date when shared control ceases to exist. Jointly-controlled subsidiariesJointly controlled entities are proportionallyproportionately consolidated.
·Transactions and non-controlling interests
The Company treats transactions with non-controlling interests as transactions with owners of Company equity. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains and losses on disposals to non-controlling interests are also recognized directly in equity, in line item “Valuation adjustments to equity”.
When the Company no longer holds control, any retained interest in the entity is remeasured to its fair value, with the change in the carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Company had directly disposed of the related assets or liabilities. This mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.
(c)Foreign currencies
i.Functional currency and reportingpresentation currency
FS-10
Items included in the financial statements of each one of CSN’sthe Company’s subsidiaries are measured using the currency of the primary economic environment in which eachthe subsidiary operates ("the (“functional currency"currency”). The consolidated financial statements are presented in Brazilian reais (R$), which is the Company’s functional currency and also the Group’s reportingpresentation currency.
ii. TransactionsBalances and balancestransactions
Transactions in foreign currencies are translated into the functional currency using the exchange rates in effect at the dates of the transactions or valuation on which items are remeasured. Foreign exchange gains and losses resulting from the
FS-10
settlement of these transactions and from the translation at exchange rates in effect as atas of December 31, 20102011 of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, of income, except when they are recognized in shareholders’ equity as qualifying cash flow hedges and qualifying net investment hedges.
The asset and liability balances of balance sheet accounts are translated at the exchange rate in effect at the end of the reporting period, withperiod. As of December 31, 2011, US$ 1.00 being1 is equivalent to R$1.8758 (R$1.6662 as atof December 31, 2010 (R$ 1.7412 as at December 31, 2009)2010), Euro 1.00 beingEUR 1 is equivalent to R$2.4342 (R$2.2280 as of December 31, 2010), A$1 is equivalent to R$1.9116 (R$ 2.5073 in 2009),1.6959 as of December 31, 2010) and JPY 1.00 being1 is equivalent to R$0.02431 (R$0.0205 (R$ 0.0188 in 2009)as of December 31, 2010).
All other foreign exchange gains and losses, including foreign exchange gains and losses related to loans and cash and cash equivalents, are presented in the income statement as finance income or costs.
Changes in the fair value of monetary securities denominated in foreign currency, classified as available-for-sale, are segregated into translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. TranslationExchange differences related to changes in amortized cost are recognized in profit or loss, and other changes in the carrying amount are recognized in equity.
Translation
Exchange differences on non-monetary financial assets and liabilities such as investments in shares classified as measured at fair value through profit or loss are recognized in profit or loss as part of the gain or loss on the fair value. TranslationExchange differences on non-monetary financial assets, such as investments in shares classified as available- for-sale,available-for-sale, are included in comprehensive income in equity.
iii.Group companies
The results and financial position of all the Group’s entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the reporting currency are translated into the reporting currency as follows:
•·Assets and liabilities ofin each balance sheet presented arehave been translated at the closingexchange rate at the balance sheet date.end of the reporting period.
•·Income and expenses of each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates in effect at the transaction dates, in which case income and expenses are translated at the rate in effect at the transaction dates); and
•·All resulting exchange differences are recognized as a separate component in other comprehensive income.
On consolidation, exchange differences resulting from the translation of monetary items with characteristics of net investment in foreign operations are recognized in equity. When a foreign operation is partly disposed of or sold, exchange differences previously recorded in other comprehensive income are recognized in the income statement as part of the gain or loss on sale.
(d)Cash and cash equivalents
FS-11
Cash and cash equivalents include cash on hand and in banks and other short-term highly liquid investments redeemable within 90 (ninety) days from the end of the reporting period, readily convertible into a known amount of cash and subject to an insignificant risk of change in value. Certificates of deposit that can be redeemed at any time without penalties are considered as cash equivalents.
(e)Trade accounts receivablereceivables
Trade accounts receivablereceivables are initially recognized at the amounts billed,fair value, including the related taxes and ancillary expenses, andexpenses. Foreign currency-denominated trade accounts receivable in foreign currencyreceivables are inflation adjusted at the exchange rate in effect at the end of the reporting period. The allowance for doubtful accountsdebts was recordedrecognized in an amount considered sufficient to cover any losses. Management’s assessment takes into consideration the customer’s history and financial situation,position, as well as the opinion of our legal counsel regarding the collection of these receivables for recordingrecognizing the allowance.
FS-11(f)Inventories
(f) Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost method on the acquisition of raw materials. The costs of finished products and work in process comprise raw materials, labor and other direct costs (based on the normal production capacity). Net realizable value represents the estimated selling price in the normal course of business, less estimatedcosts of completion and costs necessary to make the sale. Losses for slow-moving or obsolete inventories are recordedrecognized when considered appropriate.
Stockpiled inventories are accounted for as processed when removed from the mine. The Company holds spare parts that will be used within its operating cycle which are classified as other current assets rather than inventories.cost of finished products comprises all direct costs necessary to transform stockpiled inventories into finished products.
(g)Investments in affiliated companies and other investments
In the case of foreign
Foreign exchange gains or lossesdifferences arising on translating foreign investments that involvehave a functional currency different from the Company’s, as well as adjustments to pension plans and available-for-sale investments that impact the changessubsidiaries’ equity, are recognized in other comprehensive income, in the value of the investment that result exclusively from foreign exchange gains or losses are recognized under “Cumulative foreign currency translation adjustments” in the Company’s shareholders’ equity, and are only recognized in profit or loss when the investment is solddisposed of or written off as adue to impairment loss. Other investments are statedrecognized and maintained at cost or fair value.
When necessary, the accounting policies of the subsidiaries and jointly-controlled subsidiariesjointly controlled entities are changed to ensure consistency and uniformity of criteria with the policies adopted by the Company.
(h)Business combination
The acquisition method is used to account for each business combination conducted by the Company. The consideration transferred for acquiring a subsidiary is the fair value of the assets transferred, liabilities incurred and equity instruments issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement, where applicable. Acquisition-related costs are recognized in profit or loss, as incurred. Identifiable assets acquired and liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Company recognizes non-controlling interests in the acquiree according to the proportional non-controlling interest held in the fair value of the acquiree’s new assets (see note 3).
(i)Property, plant and equipment
Property, plant and equipment are statedcarried at cost of acquisition, formation or construction, less accumulated depreciation or depletion and any impairment.impairment loss. Depreciation is calculated under the straight-line method based on the remaining economic useful economic lives of assets, as mentioned in note 14, and12. The depletion of mines is calculated based on the quantity of ore mined. Land is not depreciated since theirits useful life is considered indefinite. However, if the tangible assets are mine-specific, they are depreciated over the economic useful lives for such assets. The Company recognizes in the carrying amountcarryingamount of property, plant and equipment the cost of replacement, reducing the carrying amount of the part that it is replacing if it is probable that future economic benefits embodied therein will revert to the Company, and if the cost of the asset can be reliably measured. All other disbursements are expensed as incurred. Borrowing costs related to funds obtained for construction in progress are capitalized until these projects are completed.
FS-12
If some components of the property, plant and equipment have different useful lives, these components are separately recognized separately as property, plant and equipment items.
Gains and losses on disposal are determined by comparing the sale value less the residual value and are recognized in “Other‘Other operating income/expenses”income (expenses)’.
Costs for the development of new ore deposits or for the expansion of the capacity of mines already
Mineral rights acquired are classified as other assets in operation are capitalizedproperty, plant and amortized using the units produced (mined) method, based on the probable and proven quantities of ore. equipment.
Exploration expenditures are recognized as expenses until the viability of mining activities is established; after this period subsequent development costs are capitalized. Exploration and valuation expenditures include:
(i) ·Research and analysis of exploration area historical data;
·Topographic, geological, geochemical and geophysical studies;
·Determine the mineral asset’s volume and quality/ grade of deposits;
·Examine and test the extraction processes and methods;
·Topographic surveys of transportation and infrastructure needs;
·Market studies and financial studies.
The costs for the development of new mineral deposits or capacity expansion in mines in operations are capitalized and amortized using the produced (extracted) units method based on the probable and proven ore quantities.
The development stage includes:
·Drillings to define the ore body;
·Access and draining plans;
·Advance removal of overburden (top soil and waste material removed prior to initial mining of the ore body) and waste material (non-economic material that is intermingled with the ore body). This is often referred to as stripping.
Stripping costs (the costs associated with the removal of overburdened and other waste materials) incurred during the development of a mine, before production commences, are capitalized as part of the depreciable cost of developing the property. Such costs are subsequently amortized over the useful life of the mine based on proven and probable reserves.
Post-production stripping costs are included in the cost of the inventory produced (that is extracted), at each mine individually during the period that stripping costs are incurred.
The Company holds spare parts that will be used to replace parts of property, plant and equipment and that will increase the asset’s useful life and the useful life of which exceeds 12 months. These parts are classified in property, plant and equipment and not in inventories.
(j)Intangible assets
Intangible assets comprise assets acquired from third parties, including through business combinations and/or those internally generated.
These assets are recognized at cost of acquisition or formation, less amortization calculated under theon a straight-line methodbasis based on the exploration or recovery periods.
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Intangible assets with indefinite useful lives and goodwill based on expected future profitability are not amortized.
•·Goodwill
Goodwill represents the excesspositive difference between the amount paid and/or payable for the acquisition of the cost of an acquisition overa business and the net fair valuevalues of the assets and liabilities of the acquired subsidiary.acquiree. Goodwill on acquisitions of subsidiaries is included in “Intangible assets”recognized as ‘Intangible assets’ in the consolidated financial statements.
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Negative goodwill is recognized as a gain in profit for the period at the acquisition date. Goodwill is annually tested annually for impairment. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of a Cash-Generating Unit (CGU) include the carrying amount of goodwill related to the CGU sold.
Goodwill is allocated to Cash-Generating Units (CGUs)CGUs for impairment testing purposes. The allocation is made to Cash-Generating Units or groups of Cash-Generating Units that are expected to benefit from the business combination from which the goodwill arose, and the unit is not greater than the operating segment.
•·Computer softwareSoftware
Software licenses acquiredpurchased are capitalized based on the costs incurred to buypurchase the software and bring them tomake it ready for use. These costs are amortized under theon a straight-line methodbasis over the estimated economic useful lives.
(j) (k)Impairment of non-financial assets
Assets that have an indefinitewith infinite useful life,lives, such as goodwill, are not subject to amortization and are annually tested annually for impairment. Assets that are subject to amortization are reviewedtested for impairment when whenever events or changes in circumstances indicate that their carrying amountamounts may not be recoverable. An impairment loss is recognized inat the amount by which the carrying amount of thean asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value of an asset less costs to sell and its value in use. For impairment assessmenttesting purposes, assets are grouped at thetheir lowest levels for which there are separately identifiedidentifiable cash flows (CGUs)(Cash Generating Units - CGUs). Non-financial assets, except goodwill, that are considered impaired are subsequently reviewed for possible reversal of the impairment at the reporting date.
(k) (l)Employee benefits
i.(i). Employee Benefits benefits
Defined contribution plans
A defined contribution plan is as a post-employment benefit plan whereby an entity pays fixed contributions to a separate entity (pension fund) and will not have any legal or constructive obligation to pay additional amounts. Obligations for contributions to defined contribution pension plans are recognized as employee benefit expenses in the income statement for the periods during which services are provided by employees. Contributions paid in advance are recognized as an asset on condition that either cash reimbursement or reduction in future payments is available. Contributions to a defined contribution plan that is expected to mature 12 (twelve)twelve (12) months after the end of the period in which the employee provides services are discounted to their present values.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation regarding defined pension benefit plans is calculated individually for each plan by estimating the value of the future benefit that the employees accrue as return for services provided in the current period and in prior periods; such benefit is discounted to its present value. Any unrecognized costs of past services and the fair values of any plan assets are deducted. The discount rate is the yield presented at the end of the reporting period for top line debt securities whose maturity dates approximate the terms and conditions of the Company’s obligations and which are denominated in the same currency as the onetheone in which it is expected that the benefits will be paid. The calculation is made annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit for the Company, the asset to be recognized is limited to the total amount of any unrecognized costs of past services and the present value of the economic benefits available in the form of future plan reimbursements or reduction in future contributions to the plan. In calculating the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any Company plan. An economic benefit is available to the Company if it is realizable during the life of the plan or upon liquidationsettlement of the plan’s liabilities.
FS-14
FS-13
Some of the Company’s entities offered a postretirement healthcare benefit to its employees. The right to these benefits is usually contingent to their remaining in employment until the retirement age and the completion of the minimum length of service. The expected costs of these benefits are accumulated during the employment period, and were calculated using the same accounting method used for defined benefit pension plans. These obligations are annually evaluated by qualified independent actuaries.
When the benefits of a plan are increased, the portion of the increased benefit related to past services of employees is recognized under theon a straight-line methodbasis over the average period until the benefits become vested. When the benefits become immediately vested, the expense is immediately recognized in profit or loss.
The Company has chosen to recognize all the actuarial gains and losses resulting from defined benefit plans immediately in other comprehensive income.income and only registered in income statement if the plan is extinguished.
ii.Profit sharing and bonusesbonus
Employee profit sharing isand executives’ variable compensation are linked to the achievement of operating and financial targets,targets. The Company, when such goals are met, recognizes a liability and an expense substantially allocated to the production cost whenand, where applicable, and to general and administrative expenses.
(l) (m)Provisions
Provisions are recognized when: (i) the Company has a present legal or constructive obligation as a result of past events, (ii) it is probable that an outflow of resources will be required to settle a present obligation, and (iii) the amount can be reliably measured. Provisions are determined discounting the expected future cash flows based on a pre-tax discount rate that reflects current market assessments of the time value of money and, whenwhere appropriate, the specific risks of the liability. The increase in the provision due to passage of time is recognized as finance costs.
(m) (n)Concessions
The Company has government concessions and their payments are classified as operating leases.
(n) (o)Share capital
Common shares are classified asin equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of taxes.
When the Company or any Group companyof its subsidiaries buys Company shares (treasury shares), the amount paid, including any directly attributable additional costs (net of income tax), is deducted from equity attributable to owners of the Company until the shares are canceled or reissued. When these shares are subsequently reissued, any amount received, net of any directly attributable additional transaction costs and the related income tax and social contribution effects, is included in equity attributable to owners of the Company.
(o) Operating revenue
The operating(p)Revenue recognition
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Operating revenue from the sale of goods in the normal course of the Company’s business activities is measured at the fair value of the consideration received or receivable. Revenue is recognized when there is convincing evidence that the most significant risks and rewards of ownership of goods have been transferred to the buyer, it is probable that future economic benefits will flow to the entity, the associated costs and possible return of goods can be reliably estimated, there is no continued involvement with the goods sold, and the amount of the operating revenue can be reliably measured. If it is probable that discounts will be granted and the value thereof can be reliably measured, then the discount is recognized as a reduction of the operating revenue as sales are recognized. Revenue from services provided is recognized as it is realized.
The appropriate timing for transfer of risks and rewards varies depending on the individual terms and conditions of the sales contract. For international sales, this timing depends on the type of incotermterm of the contract.
(p) (q)Finance income and expensesfinance costs
Finance income includes interest income from funds invested (including available-for-sale financial assets), dividend income (except for dividends received from investees accounted for under the equity method in the Company), gains on disposal of
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available-for-sale financial assets, changes in the fair value of financial assets measured at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized in profit or loss under the effective interest method. Dividend income is recognized in profit or loss when the Company’s right to receive payment has been established. Distributions received from investees accounted for underby the equity method reduce the investment value.
Finance costs comprise interest expenses on loans,borrowings, net of the discount to present value of the provisions, dividends on preferred shares classified as liabilities, losses in the fair value of financial instruments measured at fair value through profit or loss, impairment losses recognized in financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are measured through profit or loss under the effective interest method.
Foreign exchange gains and losses are reported on a net basis.
(q) (r)Income tax and social contribution
The current
Current and deferred Income Tax and Social Contribution are calculated at the rates of 15% (plus a 10% surtax on taxable profit exceeding R$ 240 for income tax and 9% on taxable profit for social contribution on net profit, and consider the offset of income tax and social contribution are calculated based on the tax loss carry forwards, limited to 30%law enacted or substantially enacted by the end of the reporting period, including in the countries where the Group entities operate and generate taxable profit. Management periodically assesses the positions assumed in the tax calculations with respect to situations where applicable tax regulations are open to interpretations. The Company recognizes provisions, when appropriate, based on the estimated payments to tax authorities.
The income tax and social contribution expense comprises current and deferred taxes. The current tax and the deferred taxtaxes are recognized in profit or loss unless they are related to business combinations or items directly recognized in equity.
Current tax is the expected tax payable or receivable on taxable profit or loss for the year at tax rates that have been enacted or substantially enacted by the end of the reporting period and any adjustment to taxes payable in relation to prior years.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax is not recognized for the following temporary differences: initial recognition of assets and liabilities in a transaction that is not a business combination and does not affect either the accounting or taxable profit or loss, and differences associated with investments in subsidiaries and controlled entities when it is probable that they will not reverse in the foreseeable future. Moreover, a deferred tax liability is not recognized for taxable temporary differences resulting in the initial recognition of goodwill. The deferred tax is measured at the rates that are expected to be applied on temporary differences when they reverse, based on the laws that havethathave been enacted or substantially enacted by the end of the reporting period.
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Current income tax and social contribution are carried at their net amounts by the taxpayer, in liabilities when there amounts payable or in assets when prepaid amounts exceed the total amount due at the end of the reporting period.
Deferred tax assets and liabilities are offset ifwhen there is a legallegally enforceable right to offsetset off current tax assets against current tax liabilities and assets andwhen they relate to income taxes assessedlevied by the same taxingtaxation authority on the same entity subject to the taxation.
A deferred income tax and social contribution asset is recognized for all tax losses, tax credits, and temporary differences to the extent that it is probable that taxable profits will be available against which those tax losses, tax credits, and deductible temporary differences that have not been utilized when it is probable that future profits subject to taxation willcan be available against which they will be utilized.
Deferred income tax and social contribution assets are reviewed at the end of each reporting period and reduced to the extent that their realization thereof is no longer probable.
(r) (s)Earnings per share
Basic earnings per share are calculated by means of the profit for the year attributable to owners of the Company and the weighted average number of common shares outstanding in the related period. Diluted earnings per share are calculated by means of the average number of shares outstanding, adjusted by instruments potentially convertible into shares, with diluting effect, in the reported periods. The Company does not have any instruments potentially convertible into shares and, accordingly, diluted earnings per share are equal to basic earnings per share.
FS-15
(s) Environmental and restoration costs
The Company recognizes a provision for the costs of recovery of areas and fines when a loss is probable and the amounts of the related costs can be reliably measured. Generally, the period for providing for the amount to be used in recovery coincides with the end of a feasibility study or the commitment to adopt a formal action plan.
Expenses related to compliance with environmental regulations are charged to profit or loss or capitalized, as appropriate. Capitalization is considered appropriate when the expenses refer to items that will continue to benefit the Company and that are basically related to the acquisition and installation of equipment to control and/or prevent pollution.
(t) (u)Research and development
All these costs are recognized in the income statement when incurred, except when they meet the criteria for capitalization. Expenditures on research and development of new products for the year ended December 31, 20102011 amounted to R$6,532 (R$4,314 (R$ 2,515 in 2009)for the year ended December 31, 2010).
(u) (v)Financial instruments
i) ClassificationFinancial assets
Financial assets are classified under theinto following categories: measured at fair value through profit or loss, loans and receivables, held-to-maturity, and available-for-sale.available-for- sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at the time of initial recognition.
·Financial assets at fair value through profit or loss
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Financial assets at fair value through profit or loss are financial assets held for active and frequent trading. Derivatives are also categorized as held for trading and, accordingly, are classified in this category unless they have been designed as cash flow hedging instruments. Assets in this category are classified in current assets.
·Loans and receivables
This category includesinclude loans and receivables that are non-derivative financial assets with fixed or determinable payments not quoted in an active market. They are included in current assets, except those with maturity of more than 12 months after the end of the reporting period (which are classified as non-current assets). Loans and receivables compriseinclude loans to affiliated companies,associates, trade accounts receivable, other receivables and cash and cash equivalents, except short-term investments. Cash and cash equivalents are recognized at fair value. Loans and receivables are carried at amortized cost using the effective interest rate method.
·Held-to-maturity financial assets
These are basically financial assets acquired with the positive intent and ability to hold to maturity. Held-to-maturity investments are initially recognized at their value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method, less any impairment loss.
·Available-for-sale financial assets
These are non-derivative financial assets, designated as available-for-sale, that are not classified in any other category. They are included in non-current assets when they are strategic investments of the Company, unless Management intends to dispose of the investment within up to 12 months from the end of the reporting period. Available-for-sale financial assets are recognized at fair value.
ii) ·Recognition and measurement
FS-16
Regular purchases and sales of financial assets are recognized at the trading date - the date on which the Company undertakes to buy or sell the asset. Investments are initially recognized at their fair value, plus transaction costs for all financial assets not classified as at fair value through profit or loss. Financial assets at fair value through profit or loss are initially recognized at their fair value and the transaction costs are charged to the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred, in the latter case, provided that the Company has transferred significantly all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method.
Gains or losses resulting from changes in the fair value of financial assets at fair value through profit or loss are presented in the income statement under “finance income” in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the income statement as part of other finance income when the Company’s right to receive the dividends has been established.
Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are segregated into translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. TranslationExchange differences on monetary securities are recognized in profit or loss, while translationexchange differences on non-monetary securities are recognized in equity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized in other comprehensive income.income and are only recognized in profit or loss when the investment is sold or written off as a loss.
Interest on available-for-sale securities, calculated under the effective interest method, is recognized in the income statement as part of other income. Dividends from available-for-sale equity instruments, such as shares, are recognized in the income statement as part of other finance income when the Company’s right to receive payments has been established.
FS-18
The fair values of publicly quoted investments are based on the actualcurrent purchase prices. If the market for a financial asset (and for instruments not listed on a stock exchange) is not active, the Company establishes the fair value by using valuation techniques. These techniques include the use of recent transactions contracted with third parties, referencesreference to other instruments that are substantially similar, analysis of discounted cash flows, and models for pricing optionsmodels that make the greatest possiblemaximum use of information generated by the market inputs and contain the minimumrelies as little as possible amount of information generated by the management of the entity itself.on entity-specific inputs.
At the end of the reporting period the Company assesses whether there is objective evidence of impairment of a financial asset or group of financial assets. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security to a level below its cost is considered as an indication that the securities are impaired. If there is such evidence for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on the financial asset previously recognized in profit or loss – is removed from equity and recognized in the income statement. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement.
•ii)Offset of financial instruments
Financial assets and liabilities are set off and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the recognized amount and the intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
•Impairment of financial assets
Assets measured at amortized cost
The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. impaired.
·Assets measured at amortized cost
A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial
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recognition of the asset (a "loss event"“loss event”) and such loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria used by CSN to determine whether there is objective evidence of an impairment loss include the following:include:
·significant financial difficulty of the issuer or counterparty;
·a breach of contract, such as a default or delinquency in interest or principal payments;
• ·the Issuer,issue, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower a concession that the lender would not otherwise consider;
• ·it becoming probable that the borrower will enter bankruptcy or other financial reorganization;
• ·the disappearance of an active market for that financial asset due because of the financial difficulties; or
• ·observable data indicating that there is a measurable decrease in the estimated future cash flows based onfrom a portfolio of financial assets since the initial recognition of such assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:
- adverse changes in the payment status of the borrowers in the portfolio;
- national or local economic conditions that correlate with defaults on the assets in the portfolio.
The amount of the loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the original effective interest rate of the financial asset. The carrying amount of the asset is reduced and the amount of the loss is recognized in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate to measure an impairment loss is the current effective interest rate determined pursuant to the contract. As a practical expedient, the Company canmay measure the impairment based on the fair valuebasis of an instrumentinstrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively related to an event that occurredoccurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of thepreviously recognized impairment loss is reversed and recognized in the consolidated income statement.
·Assets classified as available-for-sale
CSN assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Company uses the criteria mentioned above.
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In the case of equity instruments (shares)securities classified as available-for-sale, a significant or prolonged decline in the fair value of the securityan investment in an equity instrument below its cost is also objective evidence thatof impairment.Determining what is considered a “significant” or “prolonged” decline requires judgment. For this judgment we assess, among other factors, the assets are impaired. historical changes in the equity prices, the duration and proportion in which the fair value of the investment is lower than its cost, and the financial health and short-term prospects of the business for the investee, including factors such as: industry and segment performance, changes in technology, and operating and financial cash flows.If there is any of this evidence of this type forimpairment of available-for-sale financial assets, the cumulative loss – loss—measured as the difference between the acquisition cost and the current fair value, less any impairment loss on the financial asset previously recognizedrecorded in profit or loss – loss—is removedreclassified from equity and recognized in the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event that occurredoccurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement.
CSN tested for impairment its available-for-sale investment in Usiminas shares (see note 15).
iii)Financial liabilities
Financial liabilities are classified into the following categories: measured at fair value through profit or loss and other financial liabilities. Management determines the classification of its financial liabilities at the time of initial recognition.
iii) ·Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are financial liabilities held for trading or designated as at fair value through profit or loss.
Derivatives are also classified as trading securities, unless they have been designated as effective hedging instruments.
·Other financial liabilities
Other financial liabilities are measured at amortized cost using the effective interest method.
The Company holds the following non-derivative financial liabilities: borrowings, financing and debentures, and trade payables.
·Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set off recognized amounts and the intention to either settle them on a net basis or to realize the asset and settle the liability simultaneously.
iv)Derivative financial instruments and hedging activities
•Foreign exchange gain on foreign operations
Any gain or loss on the instrument related to the effective portion is recognized in capital. The gain or loss related to the ineffective portion is immediately recognized in the income statement under "Other gains (losses), net".
Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposedof or sold.
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• Derivatives measured at fair value through profit or loss
Our
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any of these derivative instruments are immediately recognized in the income statement under "Other“Other gains (losses), net"net”. AlthoughEven though the Company uses derivatives for hedging purposes, it does not apply hedge accounting.
(v) ·Foreign exchange gains or losses on foreign operations
Any gain or loss on the instrument related to the effective portion is recognized in equity. The gain or loss related to the ineffective portion is immediately recognized in the income statement under “Other gains (losses), net”.
Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold.
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(w)Segment information
An operating segment is a component of the Group committed to the business activities from which it can obtain revenues and incur expenses, including revenues and expenses related to transactions with any other components of the Group. All the operating results of operating segments are reviewed regularly by the Executive Officers of CSN to make decisions regarding funds to be allocated to the segment and assessment of its performance, and for which there is distinct financial information available (see Note 28)27).
(w) (x)Government grants
Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received, when they will be recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended.intended to compensate.
The Company has state tax incentives in the North and Northeast regions that are recognized in profit or loss as a reduction of the corresponding costs, expenses and expenses.taxes.
(x) (y)New standards and interpretations that haveissued and not yet been adopted
Several IFRS standards, amendments to standards and IFRS interpretations issued by the IASB arehave not yet become effective for the year ended December 31, 2010,2011, as follows:
Standard | Description | Effective date |
Amendments to IFRS 7 | Disclosures | July 1, 2011 |
IFRS 9 | Financial Instruments | January 1, 2013 |
IFRS 10 | Consolidated Financial Statements | January 1, 2013 |
IFRS 11 | Joint Arrangements | January 1, 2013 |
IFRS 12 | Disclosure of Interests in Other Entities | January 1, 2013 |
IFRS 13 | Fair Value Measurement | January 1, 2013 |
Amendments to IAS |
The Company has not yet estimated the extent of the impact of these new standards on its financial statements.
3. RESTATEMENT OF THE 2008 AND 2009 FINANCIAL STATEMENTS
• Restatement – Health Care Plan
Up to December 31, 2009, costs on the health care plan provided by the Company to former employees retired up to 1997 were recorded monthly as incurred, without any recognition of the constructive obligation resulting from probable future payments to be made.
Upon adoption of the IFRS and the detailed review of the policies and contracts that link some post-retirement payment to employees, a need to recognize the constructive obligation was identified. Therefore, the Company decided to make retrospective adjustments to the financial statements for 2008 and 2009 issued in accordance with USGAAP.
The balances of the accounts affected by the restatement as at January 1 2009 are as follows:
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|
|
|
|
|
|
|
|
|
|
| |
| Published (US$ thousand) |
| Exchange |
| Published (R$ thousand) |
| Adjustments (R$ thousand) |
| Adjusted (R$ thousand) |
| Adjusted (US$ thousand) |
Non-Current Assets |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax and social contribution | 335,919 |
| 2.3370 |
| 785,043 |
| 100,847 |
| 885,889 |
| 379,071 |
Non-Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Provision for pension fund - Post-employment benefits | 60,343 |
| 2.3370 |
| 141,022 |
| 296,608 |
| 437,630 |
| 187,261 |
Equity | 3,315,687 |
| 2.3370 |
| 7,748,761 |
| (195,762) |
| 7,552,999 |
| 3,231,921 |
|
|
|
|
|
|
|
|
|
|
|
|
The balances of the accounts affected by the restatement as at December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
| |
| Published (US$ thousand) |
| Exchange |
| Published (R$ thousand) |
| Adjustments (R$ thousand) |
| Adjusted (R$ thousand) |
| Adjusted (US$ thousand) |
Non-Current Assets |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax and social contribution | 152,189 |
| 1.7412 |
| 264,991 |
| 107,829 |
| 372,820 |
| 214,117 |
Non-Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Provision for pension fund - Post-employment benefits | - |
| 1.7412 |
| - |
| 317,145 |
| 317,145 |
| 182,142 |
Equity | 4,263,762 |
| 1.7412 |
| 7,424,062 |
| (209,316) |
| 7,214,746 |
| 4,143,548 |
Income statement |
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) | (46,854) |
| 1.9935 |
| (93,403) |
| (14,800) |
| (108,203) |
| (54,278) |
Deferred income tax and social contribution | 51,820 |
| 1.9935 |
| 103,303 |
| 5,032 |
| 108,335 |
| 54,344 |
Profit for the year | 1,280,778 |
| 1.9935 |
| 2,553,231 |
| (9,768) |
| 2,543,463 |
| 1,275,878 |
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the statements of comprehensive income, changes in equity, cash flows and value added, as well as Note 30 (Employee Benefits), Note 10 (Deferred Income Tax and Social Contribution) and Note 4.4 (Equity) have been adjusted to show the book balances and disclosures after the corrections mentioned in the paragraph and tables above.
4. TRANSITION TO IFRS
4.1. Application of the first-time adoption of IFRS
As disclosed in Note 2(a), the consolidated financial statements for the year ended December 31, 2010 are the first annual consolidated financial statements in conformity with IFRS. The Company has applied IFRS 1 in preparing these consolidated financial statements.
The transition date is January 1, 2009. Management has prepared the opening balance sheets in accordance with IFRS at that date, pursuant to the accounting policies defined in Note 2.
In preparing these financial statements, the Company applied the relevant mandatory exceptions and certain optional exemptions in relation to full retrospective application.
In preparing its opening balance sheet under IFRS, as mentioned in Note 3, the Company adjusted the amounts previously presented in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which are the accounting practices for the previously published consolidated financial statements in our annual report on Form 20-F.
4.2. Exemptions from some requirements of other IFRS
FS-20
The Company elected to apply the following exemptions in relation to retrospective application of other IFRS, in accordance to IFRS 1:
(a) Exemption from requirements for employee benefits – Defined benefit plan
The Company elected to recognize all the past actuarial gains and losses up to the transition date against the retained earnings account. The application of this exemption is detailed in Note 30.
(b) Exemption from requirements for business combination in accordance with IFRS 3
The Company applied the exemption relating to the standard for business combinations described in IFRS 1 and, accordingly, elected not to remeasure and restate the business combinations that occurred prior to January 1, 2009, the transition date.
(c) Exemption from requirements for fair value as deemed cost of property, plant and equipment:
The Company elected not to measure its property, plant and equipment and intangible assets at fair value at the transition date, maintaining them at their historical costs of acquisition, adjusted by inflation indices through December 31, 1997, in conformity with standards IAS 21 and IAS 29. The application of this exemption is detailed in Note 14.
4.3. Explanation of the transition to IFRS
(a) Business combinations
Goodwill represents the excess of the cost of an acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired company. If there is any negative goodwill determined by the acquirer in the fair value of the assets, liabilities and contingent liabilities acquired in relation to the cost of acquisition, the Company should recognize it immediately in the income statement.
As previously mentioned, the Company elected not to remeasure the business acquisitions that occurred prior to January 1, 2009, according to the business combination exemption permitted by IFRS 1. Acquisitions subsequent to January 1, 2009 have been recognized in accordance with IFRS 3, “Business Combinations”.
(b) Deferred charges
With respect to the pre-operating expenses recorded prior to the transition date, the Company elected to recognize the net balance in retained earnings at the transition date.
Up to December 31, 2008, the Company adopted as accounting practice the capitalization of pre-operating expenditures in the group of deferred charges. Pre-operating expenditures that were not attributed to the cost of property, plant and equipment items or the formation of intangible assets were immediately expensed.
Part of the expenditures previously recorded as deferred charges related to pre-operating expenditures attributable to the cost of certain assets has been allocated to property, plant and equipment.
(c) Deferred taxes
The deferred income tax is recognized based on the estimated future effect of temporary differences and income tax and social contribution tax loss carryforwards. A deferred income tax liability is recognized for all temporary tax differences, while a deferred income tax asset is recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilized. Deferred tax assets and liabilities are classified as long-term. Tax assets and liabilities are offset if the entity has a legally enforceable right to offset them and they are related to taxes levied by the same taxing authority. If the criterion for offset of current tax assets and liabilities is met, deferred tax
FS-21
assets and liabilities will also be offset. The income tax related to items recognized directly in equity in the current period or in a prior period is recognized directly in the same account.
(d) Property, plant and equipment
i. Cost
• Option for adoption of historical cost
The Company did not elect to use the deemed cost for measuring its property, plant and equipment, due to the fact that its property, plant and equipment as presented in accordance with previous accounting practices already met in a material manner the main requirements for recognition, measurement and presentation under IAS 16, based principally on the fact that: (i) the internal controls in the area of property, plant and equipment already included at the transition date (January 1, 2009) periodic reviews as to the best estimate of useful life and residual value of the main classes of its property, plant and equipment; (ii) the procedures in place for measurement of property, plant and equipment under previous accounting practices were reviewed and confirmed as to the compliance with the measurement requirements of IAS 16, including, but not limited to, regarding non-recording of foreign exchange gains (losses), non-indexation in periods in which Brazil’s economy was considered hyper-inflationary, etc; and (iii) the segmentation and classification of the main items of the property, plant and equipment subject to depreciation already took into consideration the impacts of differentiated depreciation of the main components of the property, plant and equipment.
Moreover, the Company’s Management believes that the accounting practice of measuring property, plant and equipment at historical cost less the best estimate of depreciation and the provision for impairment, when required, is an accounting practice that best reflects its property, plant and equipment.
• Hyper-inflation during 1996 and 1997
The accounting for hyper-inflation, in accordance with previous BR GAAP, was applied in line with IAS 29 during the period in which Brazil was classified as a hyper-inflationary economy, for local purposes, through 1995. However, in accordance with IFRS, the Brazilian economy still met the definition of hyper-inflationary in 1996 and 1997. The effect of the recognition of these two additional years has been reflected in the transition adjustments.
• Loans costs
Property, plant and equipment are stated at cost, including capitalized interest incurred during the construction of new facilities. Foreign exchange gains (losses) on loans denominated in foreign currency are capitalized to property, plant and equipment when they reflect an adjustment in the interest rate.
ii. Depreciation
The basis for calculation of depreciation is the cost of the asset less the estimated residual value upon sale. While no specific depreciation method is recommended, the method chosen should be applied consistently for all significant components of assets and allocation of the depreciation should be on a systematic basis for each one of the accounting periods that best represents the realization of the economic benefits during the usable lives of assets.
A review of the estimated useful life was conducted, and the adjustments in the depreciation of assets recorded in property, plant and equipment were made on a prospective basis as from January 1, 2010. See further details in Note 14.
(e) Earnings per share
The calculation of basic and diluted earnings per share (EPS) is required for entities with shares, or potential shares, traded on a stock exchange.
FS-22
Basic EPS are the amounts for profit or loss attributable to equity holders of the Parent Company in the period, divided by the weighted average number of shares outstanding.
Diluted EPS are calculated by adjusting the numerator used in calculating basic EPS and the average number of shares outstanding (denominator) for the effects all potential dilutive shares outstanding. CSN does not have any instruments that are potentially convertible into shares with a diluting effect in the reported periods and, therefore, diluted earnings per share are equal to basic earnings per share.
The data for the current period and prior periods for basic and diluted EPS are adjusted for those transactions that do not involve the conversion of potential shares that change the number of shares without a corresponding change in equity. Basic and diluted EPS also are adjusted for bonus issues and share splits or reverse share splits that occur after the end of the reporting period, but prior to the authorization for issue of the financial statements. The number of shares is adjusted as if the event had occurred at the beginning of the first reported period.
(f) Dividends and interest on shareholders’ equity
Dividends proposed or declared after the end of the reporting period, but prior to the authorization for issue of the financial statements, should not be recognized as liabilities, unless they meet the definition of liabilities at the end of the reporting period.
(g) Reclassifications
Under IFRS, the following reclassifications to the consolidated financial statements have also been made:
i. Reclassifications in the balance sheet between BR GAAP and IFRS:
•Judicial deposits are presented as an item of non-current assets and not net of the provisions for contingencies;•Restricted accounts are classified as judicial deposits;•Taxes recoverable and payable are presented at their net amounts;•Deferred taxes are reclassified as non-current;•Deferred tax assets and liabilities will be offset only when the entity has a legally enforceable right to do so and if they are related to taxes levied by the same taxing authority.
ii. Reclassifications in the income statement between BR GAAP and IFRS:
•Finance income (expenses) is presented after operating profit in finance income (expenses), net.
FS-23
4.4. Reconciliation of the consolidated financial statements adjusted to IFRS with those previously disclosed
i. Balance Sheet as at January 1, 2009
|
|
|
|
|
|
|
|
| 1/1/2009 |
| BRGAAP Published | BRGAAP Republished | IFRS |
| IFRS | ||||
|
|
|
|
| Reclassifications | Adjustments |
| ||
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets | 18,352,070 |
| 18,352,070 |
| (432,746) |
| 25,181 |
| 17,944,505 |
Cash and cash equivalents | 9,151,409 |
| 9,151,409 |
|
|
|
|
| 9,151,409 |
Trade accounts receivable | 1,086,557 |
| 1,086,557 |
|
|
|
|
| 1,086,557 |
Inventories | 3,622,775 |
| 3,622,775 |
|
|
| (1,526) |
| 3,621,249 |
Income tax and social contribution for offset | 128,055 |
| 128,055 |
|
|
|
|
| 128,055 |
Deferred income tax and social contribution | 739,227 |
| 739,227 |
| (739,227) |
|
|
|
|
Proposed dividends receivable | 42,890 |
| 42,890 |
|
|
| 26,707 |
| 69,597 |
Guarantee margin for financial instruments | 2,570,050 |
| 2,570,050 |
|
|
|
|
| 2,570,050 |
Other current assets | 1,011,107 |
| 1,011,107 |
| 306,481 |
|
|
| 1,317,588 |
Non-current Assets | 13,145,369 |
| 13,236,131 |
| 2,113,702 |
| (41,942) |
| 15,307,891 |
Long-term receivables | 2,490,802 |
| 2,581,564 |
| 2,113,702 |
| 12,483 |
| 4,707,749 |
Deferred income tax and social contribution | 753,831 |
| 844,593 |
| 739,227 |
| 13,085 |
| 1,596,905 |
Recoverable taxes | 302,831 |
| 302,831 |
|
|
|
|
| 302,831 |
Judicial deposits | 740,341 |
| 740,341 |
| 1,366,910 |
|
|
| 2,107,251 |
Trade accounts receivable | 376,374 |
| 376,374 |
|
|
| (602) |
| 375,772 |
Prepaid expenses | 125,011 |
| 125,011 |
|
|
|
|
| 125,011 |
Other | 192,414 |
| 192,414 |
| 7,565 |
|
|
| 199,979 |
Investments in affiliated companies and other investments | 1,512 |
| 1,512 |
|
|
|
|
| 1,512 |
Property, plant and equipment | 10,083,777 |
| 10,083,777 |
| 21,708 |
| (33,651) |
| 10,071,834 |
Intangible assets | 526,796 |
| 526,796 |
|
|
|
|
| 526,796 |
Deferred charges | 42,482 |
| 42,482 |
| (21,708) |
| (20,774) |
|
|
TOTAL ASSETS | 31,497,439 |
| 31,588,201 |
| 1,680,956 |
| (16,761) |
| 3,252,396 |
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
|
Current Liabilities | 9,633,228 |
| 9,633,228 |
| 320,243 |
| (459,108) |
| 9,494,363 |
Trade accounts payable | 1,939,205 |
| 1,939,205 |
|
|
|
|
| 1,939,205 |
Loans and financing | 2,916,759 |
| 2,916,759 |
| 340,868 |
|
|
| 3,257,627 |
Debentures | 44,428 |
| 44,428 |
|
|
|
|
| 44,428 |
Payroll and related charges | 117,994 |
| 117,994 |
|
|
|
|
| 117,994 |
Taxes payable | 333,811 |
| 333,811 |
|
|
|
|
| 333,811 |
Taxes payable in installments | 249,930 |
| 249,930 |
|
|
|
|
| 249,930 |
Provision for pension fund | 54,818 |
| 54,818 |
| (54,818) |
|
|
|
|
Dividends payable | 1,790,642 |
| 1,790,642 |
|
|
| (459,108) |
| 1,331,534 |
Provisions for tax, social security, labor and civil risks | 91,710 |
| 91,710 |
| 69,434 |
|
|
| 161,144 |
Equity swap financial instruments | 1,596,394 |
| 1,596,394 |
|
|
|
|
| 1,596,394 |
Other | 497,537 |
| 497,537 |
| (35,241) |
|
|
| 462,296 |
Non-current Liabilities | 15,201,622 |
| 15,468,569 |
| 1,360,713 |
| (18,000) |
| 16,811,282 |
Loans and financing | 8,040,773 |
| 8,040,773 |
| 7,565 |
|
|
| 8,048,338 |
Debentures | 632,760 |
| 632,760 |
|
|
|
|
| 632,760 |
Provisions for tax, social security, labor and civil risks | 2,450,126 |
| 2,450,126 |
| 1,297,475 |
|
|
| 3,747,601 |
Provision for environmental risks | 71,425 |
| 71,425 |
| 14,224 |
|
|
| 85,649 |
Deferred income tax and social contribution |
|
|
|
| 855 |
| 1,326 |
| 2,181 |
Taxes payable in installments | 795,052 |
| 795,052 |
|
|
|
|
| 795,052 |
Amounts due to related parties | 2,878,200 |
| 2,878,200 |
|
|
|
|
| 2,878,200 |
Employee benefits | 62,750 |
| 329,697 |
| 54,818 |
| (20,375) |
| 364,140 |
Other | 270,536 |
| 270,536 |
| (14,224) |
| 1,049 |
| 257,361 |
Shareholders Equity | 6,662,589 |
| 6,486,404 |
|
|
| 460,347 |
| 6,946,751 |
Common stock | 1,680,947 |
| 1,680,947 |
|
|
|
|
| 1,680,947 |
Capital reserve | 30 |
| 30 |
|
|
|
|
| 30 |
Earnings reserve | 3,682,865 |
| 3,682,865 |
| 85,891 |
| 485,816 |
| 4,254,572 |
Additional dividends proposed |
|
|
|
|
|
| 485,816 |
| 485,816 |
Other | 3,682,865 |
| 3,682,865 |
| 85,891 |
|
|
| 3,197,049 |
Retained earnings |
|
| (176,185) |
| 1,212,855 |
| (24,866) |
| 1,011,804 |
Carrying value adjustment | 1,298,747 |
| 1,298,747 |
| (1,298,746) |
| (603) |
| (602) |
TOTAL SHAREHOLDERS EQUITY AND LIABILITIES | 31,497,439 |
| 31,588,201 |
| 1,680,956 |
| (16,761) |
| 33,252,396 |
FS-24
ii. Reconciliation of shareholders equity BRGAAP x IFRS as at January 1, 2009
Presentation of Items of Other Comprehensive Income |
|
| ||
| Deferred Taxes - Recovery of Underlying Assets |
| ||
| Employee Benefits | January 1, 2013 | ||
| Separate Financial Statements |
|
| |
| Investments in Associates and Joint Ventures |
|
| |
| Stripping Costs in the Production Phase of a Surface Mine |
|
| |
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
| |||
|
|
iii. Balance Sheet as at December 31, 2009
|
|
|
|
|
|
|
|
| 12/31/2009 |
| BRGAAP Published | BRGAAP Republished | IFRS |
| IFRS | ||||
|
|
|
|
| Reclassifications |
| Adjustments |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets | 13,568,594 |
| 13,568,594 |
| (749,273) |
| 16,152 |
| 12,835,473 |
Cash and cash equivalents | 7,970,791 |
| 7,970,791 |
|
|
|
|
| 7,970,791 |
Trade accounts receivable | 1,186,315 |
| 1,186,315 |
|
|
|
|
| 1,186,315 |
Inventories | 2,588,946 |
| 2,588,946 |
| (35) |
| 16,462 |
| 2,605,373 |
Income tax and social contribution for offset | 398,172 |
| 398,172 |
|
|
|
|
| 398,172 |
Deferred income tax and social contribution | 749,272 |
| 749,272 |
| (749,272) |
|
|
|
|
Other current assets | 675,098 |
| 675,098 |
| 34 |
| (310) |
| 674,822 |
Non-current Assets | 15,598,630 |
| 15,695,676 |
| 2,241,576 |
| (47,222) |
| 17,890,030 |
Long-term receivables | 3,640,162 |
| 3,737,208 |
| 2,241,573 |
| (1,559) |
| 5,977,222 |
Deferred income tax and social contribution | 1,112,299 |
| 1,209,345 |
| 749,272 |
| (1,559) |
| 1,957,058 |
Recoverable taxes | 236,852 |
| 236,852 |
|
|
|
|
| 236,852 |
Judicial deposits | 1,214,670 |
| 1,214,670 |
| 1,492,301 |
|
|
| 2,706,971 |
Trade accounts receivable | 212,486 |
| 212,486 |
|
|
|
|
| 212,486 |
Receivables from subsidiaries | 479,120 |
| 479,120 |
|
|
|
|
| 479,120 |
Prepaid expenses | 105,921 |
| 105,921 |
|
|
|
|
| 105,921 |
Other | 278,814 |
| 278,814 |
|
|
|
|
| 278,814 |
Investments in affiliated companies and other investments | 321,889 |
| 321,889 |
|
|
| 13 |
| 321,902 |
Property, plant and equipment | 11,145,530 |
| 11,145,530 |
| 17,846 |
| (30,029) |
| 11,133,347 |
Intangible assets | 457,580 |
| 457,580 |
|
|
| (21) |
| 457,559 |
Deferred charges | 33,469 |
| 33,469 |
| (17,843) |
| (15,626) |
|
|
TOTAL ASSETS | 29,167,224 |
| 29,264,270 |
| 1,492,303 |
| (31,070) |
| 30,725,503 |
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
|
Current Liabilities | 5,128,196 |
| 5,128,196 |
| 48,897 |
| (1,179,027) |
| 3,998,066 |
Trade accounts payable | 504,223 |
| 504,223 |
|
|
|
|
| 504,223 |
Loans and financing | 1,160,407 |
| 1,160,407 |
| (77,146) |
|
|
| 1,083,261 |
Debentures | 30,659 |
| 30,659 |
|
|
|
|
| 30,659 |
Amounts due to related parties | 80,062 |
| 80,062 |
|
|
|
|
| 80,062 |
Payroll and related charges | 134,190 |
| 134,190 |
|
|
|
|
| 134,190 |
Taxes payable | 336,804 |
| 336,804 |
|
|
|
|
| 336,804 |
Taxes payable in installments | 582,190 |
| 582,190 |
|
|
|
|
| 582,190 |
Provision for pension fund | 57,158 |
| 57,158 |
| (57,158) |
|
|
|
|
Dividends payable | 1,562,085 |
| 1,562,085 |
|
|
| (1,179,006) |
| 383,079 |
Provisions for tax, social security, labor and civil risks | 83,462 |
| 83,462 |
| 106,055 |
|
|
| 189,517 |
Other | 596,956 |
| 596,956 |
| 77,146 |
| (21) |
| 674,081 |
Non-current Liabilities | 18,445,535 |
| 18,730,965 |
| 1,443,406 |
| (36,444) |
| 20,137,927 |
Loans and financing | 12,547,840 |
| 12,547,840 |
| (18,729) |
|
|
| 12,529,111 |
Debentures | 624,570 |
| 624,570 |
|
|
|
|
| 624,570 |
Provisions for tax, social security, labor and civil risks | 1,452,422 |
| 1,452,422 |
| 1,386,248 |
|
|
| 2,838,670 |
Provision for environmental risks | 116,544 |
| 116,544 |
| 15,524 |
|
|
| 132,068 |
Deferred income tax and social contribution | 28,325 |
| 28,325 |
|
|
| 1,715 |
| 30,040 |
Taxes payable in installments | 437,231 |
| 437,231 |
|
|
|
|
| 437,231 |
Amounts due to related parties | 2,980,772 |
| 2,980,772 |
|
|
|
|
| 2,980,772 |
Employee benfits | 12,788 |
| 298,218 |
| 57,158 |
| (38,231) |
| 317,145 |
Other | 245,043 |
| 245,043 |
| 3,205 |
| 72 |
| 248,320 |
Shareholders Equity attributed to CSN | 5,510,433 |
| 5,322,049 |
|
|
| 1,184,401 |
| 6,506,450 |
Share capital | 1,680,947 |
| 1,680,947 |
|
|
|
|
| 1,680,947 |
Capital reserve | 30 |
| 30 |
|
|
|
|
| 30 |
Earnings reserve | 4,211,770 |
| 4,211,770 |
| 54,200 |
| 1,178,635 |
| 5,444,605 |
Additional dividends proposed | - |
| - |
|
|
| 1,178,635 |
| 1,178,635 |
Other | 4,211,770 |
| 4,211,770 |
| 54,200 |
|
|
| 4,265,970 |
Retained earnings |
|
| (188,384) |
| 150,604 |
| 4,363 |
| (33,417) |
Carrying value adjustment | (382,314) |
| (382,314) |
| (204,804) |
| 1,403 |
| (585,715) |
Non-controlling interests | 83,060 |
| 83,060 |
|
|
|
|
| 83,060 |
Shareholders equity | 5,593,493 |
| 5,405,109 |
|
|
| 1,184,401 |
| 6,589,510 |
|
|
|
|
|
|
|
|
|
|
TOTALSHAREHOLDERS EQUITY AND LIABILITIES | 29,167,224 |
| 29,264,270 |
| 1,492,303 |
| (31,070) |
| 30,725,503 |
iv. Reconciliation of equity BRGAAP x IFRS as at December 31, 2009
|
| |||
|
| |||
| ||||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
| |||
|
| |||
|
|
| ||
|
| |||
|
|
v. Income statement for the year ended December 31, 2009
|
|
|
|
|
|
| 12/31/2009 |
|
|
|
|
|
|
|
|
| BRGAAP Published | BRGAAP Republished | IFRS adjustments | IFRS | |||
Net operating revenues | 10,978,364 |
| 10,978,364 |
|
|
| 10,978,364 |
Cost of Products sold | (7,045,504) |
| (7,045,504) |
| 23,385 |
| (7,022,119) |
Depreciation, depletion and amortization | (751,266) |
| (751,266) |
| 4,102 |
| (747,164) |
Other | (6,294,238) |
| (6,294,238) |
| 19,283 |
| (6,274,955) |
GROSS PROFIT | 3,932,860 |
| 3,932,860 |
| 23,385 |
| 3,956,245 |
Operating Expenses/Income | (400,455) |
| (412,480) |
| 17,467 |
| (395,013) |
Selling | (635,784) |
| (635,784) |
|
|
| (635,784) |
Depreciation and amortization | (6,250) |
| (6,250) |
|
|
| (6,250) |
Other | (629,534) |
| (629,534) |
|
|
| (629,534) |
General and administrative | (483,067) |
| (483,067) |
| 2,995 |
| (480,072) |
Depreciation and amortization | (29,733) |
| (29,733) |
| 2,995 |
| (26,738) |
Other | (453,334) |
| (453,334) |
|
|
| (453,334) |
Other operating income | 1,416,756 |
| 1,416,756 |
| (21) |
| 1,416,735 |
Other operating expenses | (698,360) |
| (710,385) |
| 14,480 |
| (695,905) |
Equity in results of affiliated companies | - |
| - |
| 13 |
| 13 |
OPERATING INCOME | 3,532,405 |
| 3,520,380 |
| 40,852 |
| 3,561,232 |
Finance income (expenses) | (246,435) |
| (246,435) |
|
|
| (246,435) |
Finance income | 586,025 |
| 586,025 |
|
|
| 586,025 |
Finance expenses | (832,460) |
| (832,460) |
|
|
| (832,460) |
Inflation adjustment and foreign exchange gains (losses), net | 1,060,055 |
| 1,060,055 |
|
|
| 1,060,055 |
Finance costs | (1,892,515) |
| (1,892,515) |
|
|
| (1,892,515) |
INCOME BEFORE INCOME TAXES | 3,285,970 |
| 3,273,945 |
| 40,852 |
| 3,314,797 |
Current income tax and social contribution | (581,735) |
| (581,735) |
|
|
| (581,735) |
Deferred income tax and social contribution | (109,323) |
| (103,993) |
| (13,888) |
| (117,881) |
Deferred income tax | (83,497) |
| (79,578) |
| (10,211) |
| (89,789) |
Deferred social contribution | (25,826) |
| (24,415) |
| (3,677) |
| (28,092) |
Net incomeattributable to: | 2,594,912 |
| 2,588,217 |
| 26,964 |
| 2,615,181 |
|
|
|
|
|
|
|
|
Companhia Siderúrgica Nacional | 2,598,665 |
| 2,591,970 |
|
|
| 2,618,934 |
Noncontrolling interests | (3,753) |
| (3,753) |
|
|
| (3,753) |
vi. Reconciliation of profit BRGAAP x IFRS for the year ended December 31, 2009
|
| |||
|
| |||
| ||||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
| |||
|
|
vii. Reconciliation of cash flows BRGAAP x IFRS for the year ended December 31, 2009
|
|
|
|
|
|
| 2009 |
| BRGAAP Published | BRGAAP Republished | IFRS adjustments | IFRS | |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Profit for the year | 2,594,912 |
| 2,588,217 |
| 26,964 |
| 2,615,181 |
Adjustments to profit for the year |
|
|
|
|
|
|
|
to cash provided by operating activities: |
|
|
|
|
|
|
|
- Inflation adjustment and exhcange gains (losses), net | (2,024,573) |
| (2,024,573) |
|
|
| (2,024,573) |
- Provision for charges on borrowings and financing | 1,130,089 |
| 1,130,089 |
|
|
| 1,130,089 |
- Depreciation/depletion/amortization | 787,249 |
| 787,249 |
| (7,097) |
| 780,152 |
- Gain (loss) on disposal of assets | 70,494 |
| 70,494 |
|
|
| 70,494 |
- Gains (losses) on change in percentage equity interest | (835,115) |
| (835,115) |
|
|
| (835,115) |
- Deferred income tax and social contribution | 109,324 |
| 103,994 |
| 13,887 |
| 117,881 |
- Provision for losses on trade receivables | 1,527 |
| 1,527 |
|
|
| 1,527 |
- Provision for actuarial liabilities - CBS | (47,622) |
| (47,622) |
|
|
| (47,622) |
- Provision for swap transactions | (88,986) |
| (88,986) |
|
|
| (88,986) |
- Provision for contingencies | 99,157 |
| 99,157 |
|
|
| 99,157 |
- Other provisions | 437,994 |
| 450,019 |
| (33,754) |
| 416,265 |
| 2,234,450 |
| 2,234,450 |
|
|
| 2,234,450 |
- Trade accounts receivable | (51,082) |
| (51,082) |
|
|
| (51,082) |
- Inventories | 926,260 |
| 926,260 |
|
|
| 926,260 |
- Taxes for offset | (313,697) |
| (313,697) |
|
|
| (313,697) |
- Taxes payable | 263,734 |
| 263,734 |
|
|
| 263,734 |
- Taxes payable in installments - Refis program | (103,775) |
| (103,775) |
|
|
| (103,775) |
- Trade accounts payable | (1,137,203) |
| (1,137,203) |
|
|
| (1,137,203) |
- Payroll and payroll taxes | 15,257 |
| 15,257 |
|
|
| 15,257 |
- Contingent liabilities | (422,375) |
| (422,375) |
|
|
| (422,375) |
- Judicial deposits | (737,041) |
| (737,041) |
|
|
| (737,041) |
- Interest paid | (992,280) |
| (992,280) |
|
|
| (992,280) |
- Interest paid on swap transactions | (742,700) |
| (742,700) |
|
|
| (742,700) |
- Other | 287,433 |
| 287,433 |
|
|
| 287,433 |
Changes in assets and liabilities | (3,007,469) |
| (3,007,469) |
|
|
| (3,007,469) |
Net cash provided by operating activities | (773,019) |
| (773,019) |
|
|
| (773,019) |
|
|
|
|
|
|
|
|
- Net effects of equity swap | 1,420,322 |
| 1,420,322 |
|
|
| 1,420,322 |
- Swap transactions carried out | 248,966 |
| 248,966 |
|
|
| 248,966 |
- Investments | (284,232) |
| (284,232) |
|
|
| (284,232) |
- Property, plant and equipment | (1,996,759) |
| (1,996,759) |
|
|
| (1,996,759) |
- Intangible assets | (5,628) |
| (5,628) |
|
|
| (5,628) |
Net cash used in investing activities | (617,331) |
| (617,331) |
|
|
| (617,331) |
|
|
|
|
|
|
|
|
- Loans and financing | 7,671,696 |
| 7,671,696 |
|
|
| 7,671,696 |
- Interest on shareholders’ equity | (2,027,600) |
| (2,027,600) |
|
|
| (2,027,600) |
- Treasury shares | (1,350,307) |
| (1,350,307) |
|
|
| (1,350,307) |
- Financial institutions - principal | (2,783,313) |
| (2,783,313) |
|
|
| (2,783,313) |
Net cash used in financing activities | 1,510,476 |
| 1,510,476 |
|
|
| 1,510,476 |
|
|
|
|
|
|
|
|
Exchange gains (losses) on cash and cash equivalents | (1,300,744) |
| (1,300,744) |
|
|
| (1,300,744) |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents | (1,180,618) |
| (1,180,618) |
|
|
| (1,180,618) |
Cash and cash equivalents at beginning of year | 9,151,409 |
| 9,151,409 |
|
|
| 9,151,409 |
Cash and cash equivalents at end of year | 7,970,791 |
| 7,970,791 |
|
|
| 7,970,791 |
|
|
|
|
|
|
|
|
FS-28
4.5. Additional reconciliation between US GAAP and IFRS
Reconciliations between the U.S. GAAP and IFRS figures presented in the consolidated financial statements as of December 31, 2009 and as of January 1, 2009.
I. Summary of main differences between U.S. GAAP and IFRS.
a) Exchange variation on foreign operations
Under U.S. GAAP and IFRS, part of the net investment in a foreign operation must be long-term in nature. The parties to the transaction can include not only the parent and / or any subsidiaries of the group, but also equity-method investees (affiliated companies). Loan payable to a subsidiary that the parent does not intend to repay is similar to a capital distribution, which reduces the parent’s net investment in the subsidiary. Therefore, we have compared the amount payable to subsidiaries with the net equity of these entities. Unlike IFRS, under US GAAP, the excess of such balances did not meet the definition of net investment and, consequently, the corresponding foreign exchange effect of this piece of the payable has to be recognized in the statement of income.
b) Pension plan
US GAAP, in accordance with “SFAS 158”, included in ASC Subtopic 715-20,Compensation - Retirement Benefits - Defined Benefit Plans -General, requires an entity to recognize in its statement of financial position the overfunded or underfunded status of its defined benefit employee pension and postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation. “SFAS 158” (ASC Subtopic 715-20) also requires an entity to recognize changes in the funded status of a defined benefit employee pension or postretirement plan within accumulated other comprehensive income, net of tax, to the extent such changes are not recognized in earnings as components of periodic net benefit cost.
According to IFRS the asset resulting from the actuarial valuation was not recorded by the Company since there is no clear evidence of its realization, in accordance with IAS 19 – Employee benefits.
c) Business combination (Goodwill)
According to US GAAP, goodwill represents the difference between the amount paid and the carrying amount attributed to the net assets acquired; however, goodwill is the difference calculated between the net fair value of the assets acquired and liabilities assumed, including intangible assets.
The Company applied the exemption relating to the standard for business combinations described in IFRS 1 and, accordingly, elected not to remeasure and restate the business combinations that occurred prior to January 1, 2009, the transition date. Accordingly, the goodwill for IFRS purposes corresponds to the amount recorded in BR GAAP and amortized until December 31, 2008.
d) US GAAP differences in equity method investees
According to U.S. GAAP, the Company used the equity method of accounting for all long-term investments for which it owns at least 20% of the investee’s outstanding voting stock or has the ability to exercise significant influence over operating and financial policies of the investee. Investments in which the Company has a majority interest, but, through shareholders’ agreements, does not have effective management control are also accounted for under the equity method. Under IFRS, the Company uses proportionate consolidation for jointly controlled entities, thereby resulting in non-controlling results, using thegross method. The difference between previous accounting practice and IFRS in investees refers mainly to business combination adjustments.
FS-29
e)Minimum dividends liability
According to US GAAP and IFRS, dividends proposed or declared after the end of the reporting period, but prior to the authorization for issue of the financial statements, should not be recognized as liabilities, unless they meet the definition of liabilities at the end of the reporting period.
The Brazilian Securities and Exchange Commission (CVM) Resolution 624, issued in January 2010, determined that the exchange rate variations of monetary items characterized as net investment in a foreign operation should be recognized within equity in the parent company financial statements, with application on December 31, 2009 and retrospectively to the year 2008. Previously, those effects were required to be recognized only in the consolidated financial statements resulting in a difference between net income at the consolidated financial statements and the net income for statutory purposes (the latter is the basis for the determination of minimum dividends). Therefore, due to the change in Company’s statutory net income of 2008, in the IFRS financial statements there was a reclassification of the additional minimum dividends which were recognized as a liability in the opening balance, without changing the total dividends distributed for that year.
f) Deferred taxes
The tax effect of the adjustments included in the reconciliation of net income and shareholders’ equity from IFRS to US GAAP is calculated by applying the applicable tax rate to the pretax adjustments where such adjustments have a tax effect. The applicable tax rate is the tax rate expected to apply at the time the temporary difference will reverse based on the specific tax jurisdiction in which the reversal will occur.
II. Reconciliation of net income under IFRS x U.S. GAAP for the year ended December 31, 2009.
| ||
|
| |
|
|
|
These standards, amendments and interpretations are effective for annual reporting periods beginning on or after 2012 and 2013 and were not used in preparing these financial statements. No material impact of these new Standards on the Group’s financial statements are expected, except for IFRS 9Financial Instruments, which can change the classification and measurement of the financial assets held by the Group, IFRIC 20Shipping Costs in the Production Phase of a Surface Mine, which can impact the accounting of waste stripping in non-current assets, and IFRS 10, IFRS 11 and IFRS 12, which can impact the entities currently consolidated and/or proportionately consolidated by the Group. The Company does not expect to early adopt this standard and its impact has not yet been measured.
3.BUSINESS COMBINATION
FS-21
On July 12, 2011, CSN conducted, through its wholly-owned subsidiary “Prada”, a capital increase in Companhia Brasileira de Latas (“CBL”) through the capitalization of receivables. As a result, the Company became the holder of CBL’s control, with an equity interest equivalent to 59.17% of its voting capital, represented by 784,055,451 common shares (“Acquisition”).
The acquisition of CBL’s control will generate operating and administrative synergies that will result in a decrease in production costs, logistics costs, and administrative costs.
As mentioned in Note 2(i), the acquisition method was used to account for identifiable assets acquired, liabilities assumed, and non-controlling interests. Non-controlling interests in CBL equivalent to 40.83% were proportionately determined, based on the fair value of identifiable assets acquired and liabilities assumed. Some of the non-controlling shareholders are in the corporate structure of CSN’s parent group.
The purchase price of R$43,316 was allocated between identified assets acquired and liabilities assumed, measured at fair value. In the asset and liability identification process were considered the intangible assets that were not recognized in the acquirees’ books. The transaction costs are represented by consulting services and lawyers’ fees totaling R$485, which have been allocated to profit or loss as incurred.
The tables below show the allocation of identifiable assets acquired and liabilities assumed recognized at the acquisition date, the purchase price considered on the acquisition of CBL’s control, and the calculation of the resulting goodwill.
Assets acquired and liabilities assumed | Carrying amounts | Adjustments to fair value | Total fair value | |||
Current assets | 62,182 | (7,465) | 54,717 | |||
Non-current assets (*) | 44,718 | 89,449 | 134,167 | |||
Current liabilities | (144,225) | 10,522 | (133,703) | |||
Non-current liabilities (**) | (567,469) | 351,035 | (216,434) | |||
Total assets acquired and liabilities assumed | (604,794) | 443,541 | (161,253) |
(*) Comprising mainly the fair value adjustment to property, plant and equipment amounting to R$90,572. Total fair value of property, plant and equipment was measured at R$123,518.
(**) Comprising mainly the fair value adjustment to receivables from CSN amountingto R$388,640.
The fair value adjustments made based on the corporate balance sheet to prepare the opening balance sheet were adjusted after the completion of the valuation report in December 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
|
| (604,794) | |
(+) Fair value adjustments to assets acquired and liabilities assumed | 443,541 | |
(=) Total fair value of assets acquired and liabilities assumed | (161,253) | |
43,316 | ||
(=) Goodwill arising on acquisition | 204,569 |
III. Reconciliation
Goodwill arising on the acquisition comprises mainly the expected synergies generated by the business combination of shareholders’ equityPrada Embalagens with CBL, as described in note 13.
The business combination with Companhia Brasileira de Latas, which took place on July 12, 2011, is under IFRS x U.S. GAAP asreview of January 1, 2009 and December 31, 2009.Conselho Administrativo de Defesa Econômica, or CADE, (Brazilian antitrust agency).
12/31/2009 |
| 01/01/2009 | ||
Shareholders’ equityin accordance withIFRS | 6,589,510 |
| 6,946,751 | |
|
|
|
| |
Dividends | 4.5 e | - |
| 324,233 |
Pension plan | 4.5 b | 516,746 |
| (128,306) |
Business combination (Goodwill) | 4.5 c | 179,645 |
| 156,508 |
US GAAP differences in equity method investees | 4.5 d | 158,269 |
| 230,359 |
Deferred taxes | 4.5 f | (229,505) |
| 46,923 |
Other | 81 |
| (23,469) | |
Shareholders’ equityin accordance with U.S. GAAP (Restated - note 3) | 7,214,746 |
| 7,552,999 | |
Post-employment health benefits adjustments | Note 3 | 209,316 |
| 195,762 |
Shareholders’ equityin accordance with U.S. GAAP | 7,424,062 |
| 7,748,761 | |
|
|
|
|
FS-30
FS-22
4.RELATED-PARTY BALANCES AND TRANSACTIONS
5. TRANSACTIONS WITH RELATED PARTIES
a)Transactions with Holding Company
Vicunha Siderurgia S.A. is a holding company set up for the purpose of holding equity interests in other companies. Itcompanies and is the Company’s principalmain shareholder, holdingwith 47.86% of the voting shares.
On December 27, 2010, Rio IACO acquired 58,193,503 shares of Caixa Beneficente dos Empregados da CSN distributed dividends(“CBS”) and paid interest on shareholders’ equity to Vicunha Siderurgia in the amount indicated in the following table, according to the percentage equity interest held by Vicunha Siderurgia in CSN, at the endcurrently holds 3.99% of CSN’s issued capital, and became part of the reporting period.control group.
Company |
| Mandatory minimum dividend | Proposed interest on shareholders’ equity | Dividends paid | Interest on shareholders’ equity paid | Additional dividends proposed | ||||
|
|
|
|
|
|
|
|
|
|
|
Total in 2010 |
| 130,701 |
| 170,813 |
| 717,834 |
| 33,499 |
| 587,524 |
Total in 2009 |
| 153,805 |
| 153,121 |
| 689,747 |
| 243,060 |
| 564,095 |
The ownership structure of
·Liabilities
Paid | ||||||||||||
Companies | Mandatory minimum dividend | Proposed additional dividend | Proposed interest on capital | Total | Dividends | Interest on capital | ||||||
Vicunha Siderurgia | 443,386 | 130,881 | 574,267 | 717,835 | 170,746 | |||||||
Rio Iaco | 36,981 | 10,916 | 47,897 | 59,871 | 14,241 | |||||||
Total at 12/31/2011 | 480,367 | 141,797 | 622,164 | 777,706 | 184,987 | |||||||
Total at 12/31/2010 | 141,174 | 636,509 | 184,985 | 962,668 | 717,834 | 33,499 |
Vicunha SiderurgiaSiderurgia’s corporate structure is as follows (unaudited information):
Vicunha Aços S.A. – holds 99.99% of Vicunha Siderurgia S.A.
Vicunha Steel S.A. – holds 66.96% of Vicunha Aços S.A.
National Steel S.A. – holds 33.04% of Vicunha Aços S.A.
CFL Participações S.A. – holds 40% of National Steel S.A. and 39.99% of Vicunha Steel S.A.
Rio Purus Participações S.A. – holds 60% of National Steel andS.A., 59.99% of Vicunha Steel S.A.
CFL and 99.99% of Rio Iaco Participações S.A. – holds 40% of National Steel and 39.99% of Vicunha Steel S.A.
National Steel – holds 33.04% of Vicunha Aços
Vicunha Steel – holds 66.96% of Vicunha Aços
Vicunha Aços – holds 99.99% of Vicunha Siderurgia
b)Transactions with jointly-controlled subsidiariesjointly controlled entities
The Company’s strategic areas of mining, logistics and energy maintain equity interests in companies under joint control. The characteristics, objectives and transactions with these companies are as follows:follows. The consolidated information is presented according to the criteria set out in note 2.
•·Assets
Companies |
| Trade receivables |
| Intercompany loans (*) |
| Total |
Nacional Minérios |
| 18,597 |
| 496,438 |
| 515,035 |
MRS Logística |
| 518 |
|
|
| 518 |
Total in 2010 |
| 19,115 |
| 496,438 |
| 515,553 |
Total in 2009 |
| 10,989 |
| 492,689 |
| 503,678 |
|
|
|
|
|
|
|
Companies | Trade receivables | Intercompany loan (*) | Total | |||
Nacional Minérios S.A. | 31,338 | 31,338 | ||||
MRS Logística S.A. | 403 | 403 | ||||
Total at 12/31/2011 | 31,741 | 31,741 | ||||
Total at 12/31/2010 | 19,115 | 496,438 | 515,552 |
(*) Intercompany loan in the amountIn 2011 total payments of Nacional Minérios S.A. to CSN amounted to R$ 1,197,8001,278,457 (loan non-consolidated corresponds to R$479,120), beginning 511,382) of which R$53,800 was paid in January 28, 2009related to interest and bearing interestR$1,224,657 in April related to early settlement as provided for in the amount of R$ 43,295 as at December 31, 2010. Interest is levied on the nominal amount of this agreement, corresponding to 101% of the CDI Cetip rate, with due date on January 31, 2012.related agreement.
·Liabilities
FS-23
•Liabilities
|
| Liabilities |
|
|
|
|
|
|
Companies |
| Advances from customers | Intercompany loans / Current accounts | Other |
| Total | ||
Nacional Minérios | 3,169,817 |
| 7,369 |
|
|
| 3,177,186 | |
MRS Logística |
|
|
|
|
| 36,846 |
| 36.846 |
Itá Energética |
|
|
|
|
| 6,726 |
| 6,726 |
Total in 2010 |
| 3,169,817 |
| 7,369 |
| 43,572 |
| 3,220,758 |
Total in 2009 |
| 3,055,463 |
| 5,364 |
| 55,766 |
| 3,116,593 |
|
|
|
|
|
|
|
|
|
Companies | Advances from customers | Trade payables | Other payables | Total | ||||
Nacional Minérios S.A. | 3,270,663 | 2,404 | 3,273,067 | |||||
MRS Logística S.A. | 7,085 | 6,562 | 13,647 | |||||
Total at 12/31/2011 | 3,270,663 | 7,085 | 8,966 | 3,286,714 | ||||
Total at 12/31/2010 | 3,169,817 | 7,369 | 6,725 | 3,183,911 |
Nacional Minérios: The customer advance from customers received from the jointly-controlled subsidiaryjointly controlled entity Nacional Minérios S.A. refers to the contractual obligation for supply of iron ore and port services. The agreement is subject to interest rate of 12.5% p.a. and expires in JuneSeptember 2042. The amount falling due in 2011 corresponds to R$ 325,099.
MRS Logística: InWe have recorded in other payables we have recorded the amount accrued to cover contractual expenses for take or pay and block rates relating to the railroad transportation agreement.
Itá Energética: These liabilities refer to the supply of electric power, which is billed under normal terms applicable to the Brazilian energy market, regulated by the Electric Power Trading Chamber.
•·ResultsProfit or loss
Companies |
| Income |
|
|
|
|
| Expenses |
|
|
|
|
|
| Sales |
| Interest, inflation adjustment and exchange gains (losses) | Total |
| Purchases |
| Interest, inflation adjustment and exchange gains (losses) | Total | ||
Nacional Minérios |
| 277,751 |
| 45,997 |
| 323,728 |
| 9,515 |
| 373,606 |
| 383,121 |
MRS Logística |
|
|
|
|
|
|
| 248,039 |
|
|
| 248,039 |
Itá Energética |
|
|
|
|
|
|
| 79,067 |
|
|
| 79,067 |
Total in 2010 |
| 277,751 |
| 45,977 |
| 323,728 |
| 336,621 |
| 373,606 |
| 710,227 |
Total in 2009 |
| 203,553 |
| 42,163 |
| 245,716 |
| 600,851 |
| 359,340 |
| 960,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Companies | Revenues | Expenses | ||||||||||
Sales | Interest | Total | Purchases | Interest | Total | |||||||
Nacional Minérios S.A. | 378,020 | 16,965 | 394,985 | 6,296 | 385,622 | 391,918 | ||||||
MRS Logística S.A. | 279,545 | 279,545 | ||||||||||
Itá Energética S.A. | 28,267 | 28,267 | ||||||||||
Total at 12/31/2011 | 378,020 | 16,965 | 394,985 | 314,108 | 385,622 | 699,730 | ||||||
Total at 12/31/2010 | 277,751 | 45,977 | 323,729 | 336,623 | 373,606 | 710,229 |
The main transactions carried out by the Company with its jointly-controlled subsidiariesjointly controlled entities are sales and purchases of products and services, which include the supply of iron ore, the provision of port services and railroad transportation, as well as the supply of electric power for CSN’s operations.
c) Other related parties
•·CBS Previdência
The Company is the principalmain sponsor of this not-for-profitnon-profit entity established in July 1960. Its principal objective is paying1960, primarily engaged in the payment of benefits that supplement the official government Social Security benefits to participants. In its capacity as sponsor, CSN carries out transactions involving the payment of contributions and recognition of actuarial liabilities calculated in defined benefit plans, as detailed in Note 30.29.
•·Fundação CSN
The Company develops socially responsible policies concentrated today in Fundação CSN, of which it is the sponsor. The transactions between the parties relate to the operating and financial support for Fundação CSN to carry out the social projects undertaken mainly in the locations where the Company operates.
FS-32
•·Banco Fibra
Banco Fibra is under the same ownershipcontrol structure of Vicunha Siderurgia and the financial transactions carried out with this bank are limited to current account operations and investments in fixed-income securities.
•CBL – Companhia Brasileira de Latas
CBL – Companhia Brasileira de Latas·Ibis Participações e Serviços
Ibis Participações e Serviços is under the control of a company engaged inBoard member of the manufacture of steel metallic packaging for the food and chemical industries, supplying to the main companies in the market. CSN has shares in this company because it is a holder of CBL debentures, representing an equity interest of 0.0053%.Company.
As at December 31, 2010 the Company has long-term receivables of R$ 239,039 (R$ 239,039 in 2009) and debentures of R$ 212,870 (R$ 212,870 in 2009), which are duly covered by a provision for losses.FS-24
The balances of theand transactions between the Company and these entities are as follows:
·Companhia de Gás do Ceará
A natural gas distributor under the control structure of Vicunha Siderurgia.
i) Assets and Liabilitiesliabilities
|
| Assets |
|
|
|
|
|
|
| Liabilities |
|
|
|
|
Companies |
| Banks/Marketable securities | Receivables |
| Current account | Total |
| Actuarial liabilities | Payables |
| Total | |||
CBS Previdência |
|
|
|
|
|
|
|
|
| 367,839 |
|
|
| 367,839 |
Fundação CSN |
|
|
|
|
| 1,199 |
| 1,199 |
|
|
| 37 |
| 37 |
Banco Fibra |
| 94 |
|
|
|
|
| 94 |
|
|
|
|
|
|
Usiminas |
|
|
| 12,455 |
|
|
| 12,455 |
|
|
| 16,096 |
| 16,096 |
Panatlântica |
|
|
| 12,227 |
|
|
| 12,227 |
|
|
|
|
|
|
Total in 2010 |
| 94 |
| 24,682 |
| 1,199 |
| 25,975 |
| 367,839 |
| 16,133 |
| 383,972 |
Total in 2009 |
| 37 |
|
|
| 906 |
| 943 |
| 317,145 |
| 90 |
| 317,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companies | Assets | Liabilities | ||||||||||
Banks/Short-term investments | Trade receivables | Total | Actuarial liabilities | Trade payables | Total | |||||||
CBS Previdência (Note 29) | 11,673 | 11,673 | ||||||||||
Fundação CSN | 1,504 | 1,504 | 321 | 321 | ||||||||
Banco Fibra | 72 | 72 | ||||||||||
Usiminas (Note 11) | 28,509 | 28,509 | 170 | 170 | ||||||||
Panatlântica (Note 11) | 24,858 | 24,858 | ||||||||||
Companhia de Gás do Ceará | 40 | 40 | ||||||||||
Total at 12/31/2011 | 72 | 54,871 | 54,943 | 11,673 | 531 | 12,204 | ||||||
Total at 12/31/2010 | 86 | 25,881 | 25,967 | 16,133 | 16,133 |
Resultsii) Profit or loss
|
| Income |
| Expenses / Cost | ||||||||
Companies |
| Sales / Interest income | Other income | Total |
| Pension fund expenses | Purchases / Other expenses | Total | ||||
CBS Previdência |
|
|
| 90 |
| 90 |
| 86,199 |
|
|
| 86,199 |
Fundação CSN |
|
|
|
|
|
|
|
|
| 2,385 |
| 2,385 |
Banco Fibra |
| 680 |
|
|
| 680 |
|
|
|
|
|
|
CBL |
| 84,350 |
|
|
| 84,350 |
|
|
| 37,672 |
| 37,672 |
Usiminas |
| 103,486 |
|
|
| 103,486 |
|
|
| 18,594 |
| 18,594 |
Panatlântica |
| 224,795 |
|
|
| 224,795 |
|
|
|
|
|
|
Total in 2010 |
| 413,311 |
| 90 |
| 413,401 |
| 86,199 |
| 58,651 |
| 144,850 |
Total in 2009 |
| 97,487 |
| 190 |
| 97,677 |
| 77,515 |
| 1,305 |
| 78,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Companies | Revenues | Expenses | ||||||||
Sales / Interest income | Total | Pension fund expenses | Purchases/ Other expenses | Total | ||||||
CBS Previdência (Note 29) | 51,595 | 51,595 | ||||||||
Fundação CSN | 2,650 | 2,650 | ||||||||
Banco Fibra | 35 | 35 | ||||||||
Usiminas (Note 11) | 310,479 | 310,479 | 7,971 | 7,971 | ||||||
Panatlântica (Note 11) | 264,653 | 264,653 | ||||||||
Ibis Participações e Serviços | 8,961 | 8,961 | ||||||||
Companhia de Gás do Ceará | 2,570 | 2,570 | ||||||||
Total at 12/31/2011 | 575,167 | 575,167 | 51,595 | 22,152 | 73,747 | |||||
Total at 12/31/2010 | 413,401 | 413,401 | 82,041 | 58,651 | 140,692 |
e)d) Key management personnel
The key management personnel, who have authority and responsibility for planning, directing and controlling the Company’s activities, include the members of the Board of Directors and the statutory Executive Officers.executive officers. The following is information on the compensation of such personnel and the related balances as atof December 31, 2010.2011.
|
| 2010 |
| 2009 | 12/31/2011 | 12/31/2010 | ||
|
| Results |
| Results | P&L | P&L | ||
Short-term benefits for employees and officers |
| 17,881 |
| 21,926 | 23,728 | 17,881 | ||
Post-employment benefits |
| 81 |
| 75 | 91 | 81 | ||
Other long-term benefits |
| n/a |
| n/a | n/a | n/a | ||
Severance benefits |
| n/a |
| n/a | n/a | n/a | ||
Share-based compensation |
| n/a |
| n/a | n/a | n/a | ||
|
| 17,962 |
| 22,001 | 23,819 | 17,962 | ||
|
|
|
|
| ||||
n/a – not applicable |
FS-33FS-25
f)e) Policy ofon investments and payment of dividends and interest on shareholders’ equity and distribution of dividendscapital
At a meeting held on December 11, 2000, the Board of Directors decided to adopt a profit distribution policy of distributing earnings which, after compliance with the provisions contained in 6404/76, as amended by Law 9457/97) are complied with,97, will entail the distribution of all the profit to the Company’s shareholders, provided that the following priorities are preserved, irrespective of their order: (i) carrying out the business strategy; (ii) fulfilling its obligations; (iii) making the required investments; and (iv) maintaining a healthy financial situation of the Company.
6. 5.CASH AND CASH EQUIVALENTS
|
|
|
| ||||
| 2010 |
| 2009 | 12/31/2011 | 12/31/2010 | ||
Current Assets |
|
|
| ||||
Current | |||||||
Cash and cash equivalents |
|
|
| ||||
Cash and banks | 156,580 |
| 142,045 | 101,360 | 156,580 | ||
|
|
|
| ||||
Marketable securities |
|
|
| ||||
Short-term investments | |||||||
In Brazil: |
|
|
| ||||
Government bonds | 477,529 |
| 3,339,972 | 646,594 | 477,529 | ||
Fixed-income investments and debentures | 2,134,364 |
| 1,304,713 | ||||
Private securities and debentures (*) | 2,017,019 | 2,134,364 | |||||
| 2,611,893 |
| 4,644,685 | 2,663,613 | 2,611,893 | ||
Abroad: |
|
|
| ||||
Time deposits | 7,470,805 |
| 3,184,061 | 12,652,420 | 7,470,805 | ||
Total marketable securities | 10,082,698 |
| 7,828,746 | ||||
|
|
|
| ||||
Total short-term investments | 15,316,033 | 10,082,698 | |||||
Cash and cash equivalents | 10,239,278 |
| 7,970,791 | 15,417,393 | 10,239,278 | ||
|
|
|
|
The funds available in the Company and subsidiaries set up in Brazil are basically invested in exclusive investment funds, with repurchase agreements backed by Brazilian government bonds with immediate liquidity. In addition, a significant part of the funds of the Company and its foreign subsidiaries is invested in time deposits with leading banks.
Fixed Income:Investments
The exclusive funds managed by BTG Pactual Serviços Financeiros S.A. DTVM and their assets collateralize possible losses on investments and transactions carried out. The funds’ unit holders also guarantee the funds’ equity in the event of losses arising from changes in interest and exchange rates, or other financial assets.
(*) Private securities: short–term investments amounting to R$1,952,274 as of December 31, 2011 (R$2,079,549 as of December 31, 2010) backed by Bank Certificates of Bank Deposit, (CDBs)which yield pegged to the Interbank Certificates of Deposit rate (CDI).
Debentures: investments amounting to R$64,745 as of December 31, 2011 (R$54,815 as of December 31, 2010), withof jointly controlled entity MRS, which yield based onpegged to the variation in the CertificateInterbank Certificates of Interbank Deposit rate (CDI) rate.
Debentures:Investments in debentures made by the jointly-controlled subsidiary MRS in the amount of R$ 54,815, with yield based on the variation in the CDI rate,, in securities issued by the following banks: Santander, Votorantim, Safra, Itaú BBA and Bradesco.
7. 6.TRADE ACCOUNTS RECEIVABLERECEIVABLES
|
|
|
|
| 2010 |
| 2009 |
Trade accounts receivable |
|
|
|
Third parties |
|
|
|
Domestic market | 846,507 |
| 977,239 |
Foreign market | 530,356 |
| 359,355 |
Doubtful debt allowance | (117,402) |
| (164,077) |
| 1,259,461 |
| 1,172,517 |
Related parties (Note 5) |
|
| 13,798 |
| 1,259,461 |
| 1,186,315 |
|
|
|
|
Other receivables |
|
|
|
Loans to jointly-controlled subsidiaries | 17,318 |
| 13,569 |
Other receivables | 90,980 |
| 128,057 |
| 108,298 |
| 141,626 |
| 1,367,759 |
| 1,327,941 |
|
|
|
|
FS-26
12/31/2011 | 12/31/2010 | |||
Trade receivables | ||||
Third parties | ||||
Domestic market | 982,129 | 846,507 | ||
Foreign market | 701,807 | 530,356 | ||
Allowance for doubtful debts | (124,939) | (117,402) | ||
1,558,997 | 1,259,461 | |||
Related parties (Note 4 - b) | ||||
1,558,997 | 1,259,461 | |||
Other receivables | ||||
Receivables from subsidiaries and jointly controlled entities | 1,557 | 17,318 | ||
Other receivables | 55,652 | 90,980 | ||
57,209 | 108,298 | |||
1,616,206 | 1,367,759 |
In order to meet the needs of some customers in the domestic market, related to the extension of the payment term for billing of steel, in common agreement with theCSN’s internal commercial policy of the CSN Group and maintenance of its very short-term receipts (up to 14 days), at the request of the customer, transactions are carried out for assignment of receivables without co-obligation negotiated between the customer and banks with common relationship, where the CSN Group assigns the trade notes/bills that it issues to the banks with common relationship.
Due to the characteristics of the transactions for assignment of receivables without co-obligation, after assignment of the customer’s trade notes/bills and receipt of the funds from the closing of each transaction, the CSN Group settles the trade accounts receivablereceivables and becomes entirely free of the credit risk on the transactions.transaction.
These transactions total
This transaction totals R$262,367 as of December 31, 2011 (R$247,680 as atof December 31, 2010 (R$ 235,204 in 2009)2010), less the trade accounts receivable.receivables.
The changes in the provisionCompany’s allowance for losses on the Company’s trade accounts receivabledoubtful debts are as follows:
|
|
|
|
|
|
| 2010 |
| 2009 |
Opening balance |
| (164,077) |
| (162,550) |
Allowance for losses on trade accounts receivable |
| (7,439) |
| (68,524) |
Receivables recovered |
| 54,114 |
| 66,997 |
|
| (117,402) |
| (164,077) |
|
|
|
|
|
12/31/2011 | 12/31/2010 | |||
Opening balance | (117,402) | (164,077) | ||
Allowance for losses on trade receivables | (20,005) | (7,439) | ||
Recovery (reversal) of receivables | 12,468 | 54,114 | ||
Closing balance | (124,939) | (117,402) |
8. 7.INVENTORIES
12/31/2011 | 12/31/2010 | |||
Finished products | 997,128 | 1,015,534 | ||
Work in process | 776,918 | 588,668 | ||
Raw materials | 847,598 | 638,857 | ||
Storeroom supplies | 897,940 | 800,090 | ||
Iron ore | 215,400 | 312,637 | ||
3,734,984 | 3,355,786 |
Changes in the allowance for inventory losses are as follows:
|
|
|
|
| 2010 |
| 2009 |
Finished products | 1,016,594 |
| 600,955 |
Work in process | 588,723 |
| 510,006 |
Raw materials | 656,286 |
| 581,393 |
Supplies | 864,205 |
| 711,855 |
Iron ore | 313,716 |
| 249,978 |
Provision for losses | (83,738) |
| (48,814) |
| 3,355,786 |
| 2,605,373 |
|
|
|
|
FS-27
12/31/2011 | 12/31/2010 | |||
Opening balance | (64,115) | (50,306) | ||
Allowance for obsolete or slow-moving inventories | (19,030) | (13,809) | ||
Closing balance | (83,145) | (64,115) |
Provisions have been recognized
Allowances for certain items considered as obsolete or slow-moving inventories.were recognized.
As at of December 31, 2010,2011, the Company has long-term iron ore inventories in the amount ofamounting to R$ 130,341,144,483, classified in other non-current assets.assets (R$130,341 as of December 31, 2010).
FS-35
9. 8.OTHER CURRENT ASSETS
The group of other current assets areis comprised as follows:
|
|
|
| ||||
| 2010 |
| 2009 | 12/31/2011 | 12/31/2010 | ||
Prepaid taxes | 89,596 |
| 54,831 | 104,733 | 89,596 | ||
Guarantee margin on financial instruments (Note 17) | 254,485 |
| 115,949 | ||||
Guarantee margin on financial instruments (Note 15 V) | 407,467 | 254,485 | |||||
Unrealized gains on derivatives (Note 15) | 55,115 | ||||||
Prepaid expenses | 24,135 | 12,997 | |||||
| 344,081 |
| 170,780 | 591,450 | 357,078 | ||
|
|
|
|
10. 9.INCOME TAXESTAX AND SOCIAL CONTRIBUTION
(a)Income tax and social contribution recognized in profit or loss:
The income tax and social contribution recognized in profit or loss for the year are as follows:
|
|
|
|
| 2010 |
| 2009 |
Income tax and social contribution expense (income) |
|
| |
Current | 313,371 |
| 581,735 |
Deferred | 257,326 |
| 117,881 |
| 570,697 |
| 699,616 |
|
|
|
|
12/31/2011 | 12/31/2010 | |||
Income tax and social contribution income (expenses) | ||||
Current | (136,427) | (363,429) | ||
Deferred | 52,542 | (207,268) | ||
(83,885) | (570,697) |
The reconciliation of Consolidated income tax and social contribution expenses and income and the result from applying the effective rate on profit before income tax (IRPJ) and social contribution (CSLL) are as follows:
12/31/2011 | 12/31/2010 | |||
Profit before income tax and social contribution | 3,751,119 | 3,086,888 | ||
Tax rate | 34% | 34% | ||
Income tax and social contribution at combined statutory rate | (1,275,380) | (1,049,542) | ||
Adjustment to reflect effective rate: | ||||
Interest on capital benefit | 121,312 | |||
Income subject to special tax rates or untaxed | 1,279,431 | 216,529 | ||
Tax incentives | 73,134 | 33,824 | ||
Adjustments arising from Law 11941 and MP 470 installment plans | (16,060) | 106,216 | ||
Sale of nondeductible securities | (189,946) | |||
Income tax and social contribution credits | 44,434 | |||
Other permanent deductions (additions) | 502 | 964 | ||
Income tax and social contribution in profit (loss) for the period | (83,885) | (570,697) | ||
Effective rate | 2% | 18% |
FS-28
|
|
|
|
| 2010 |
| 2009 |
Profit before income tax and social contribution | 3,086,888 |
| 3,314,797 |
Tax rate | 34% |
| 34% |
Income tax and social contribution at combined tax rate | (1,049,542) |
| (1,127,031) |
Adjustments to reflect effective rate: |
|
|
|
Benefit of interest on shareholders’ equity | 121,312 |
| 108,788 |
Equity in results of affiliated companies/ Profits (losses) of subsidiaries with different rates or not subject to taxation | 216,529 |
| 169,314 |
Tax incentives | 33,824 |
| 11,732 |
Adjustments resulting from installment payments under Law 11941 and MP 470 (Note 20) | 106,216 |
| 252,838 |
Other permanent exclusions (additions) (*) | 964 |
| (115,257) |
Income tax and social contribution on profit (loss) for the year | (570,697) |
| (699,616) |
Effective rate | 18% |
| 21% |
(*) In 2009 this refers mainly to income tax on tax loss of subsidiary Prada.
(b)Deferred income tax and social contribution:
Deferred taxes
The deferred income tax and social contribution are recorded to reflectcalculated on tax losses of income tax, the future tax effects attributable tonegative social contribution basis and related temporary differences between the tax basebases of assets and liabilities and their carrying amounts.
|
|
|
| ||
| 2010 |
| 2009 |
| 01/01/09 |
Deferred income tax and social contribution |
|
|
|
|
|
Income tax loss carry forwards | 4,944 |
| 162,123 |
| 307,545 |
Social contribution tax loss carryforwards | 1,871 |
| 56,661 |
| 110,763 |
Temporary differences | 1,586,126 |
| 1,708,234 |
| 1,176,416 |
- Provision for contingencies | 298,708 |
| 279,184 |
| 556,725 |
- Provision for impairment of assets | 40,345 |
| 46,984 |
| 39,519 |
- Provision for inventory losses | 26,011 |
| 17,969 |
| 6,899 |
- Provision for gains/losses on financial instruments | 183,169 |
| 160,239 |
| 78,821 |
- Provision for interest on shareholders’ equity | 121,351 |
| 20,706 |
| 91,276 |
- Provision for long-term sales | 1,221 |
| 6,806 |
| 2,383 |
- Provision for consumption and services | 43,828 |
| 33,929 |
| 26,074 |
- Allowance for losses on trade accounts receivable | 146,865 |
| 102,482 |
| 59,950 |
- Provision for payments of private pension plans | 7,012 |
| 4,358 |
| 21,336 |
- IFRS adjustments | 57,813 |
| 103,532 |
| 102,757 |
- Goodwill on merger | 599,730 |
| 791,184 |
| 61,563 |
- Other temporary diffeences | 60,073 |
| 140,861 |
| 129,113 |
| 1,592,941 |
| 1,927,018 |
| 1,594,724 |
Non-Current Assets | 1,592,941 |
| 1,957,058 |
| 1,596,905 |
Non-Current Liabilities |
|
| (30,040) |
| (2,181) |
|
|
|
|
|
|
FS-36
Some companiesthe accounting balances of the Groupfinancial statements.
12/31/2011 | 12/31/2010 | |||
Deferred tax assets | ||||
Income tax loss carryforwards | 425,406 | 4,944 | ||
Social contribution loss carryforwards | 157,858 | 1,871 | ||
Temporary differences | 1,257,509 | 1,586,126 | ||
- Provision for contingencies | 211,835 | 240,753 | ||
- Allowance for asset impairment losses | 60,930 | 27,915 | ||
- Allowance for inventory losses | 30,814 | 26,012 | ||
- Allowance for gains/losses on financial instruments | 253,985 | 183,169 | ||
- Accrued pension plan payments | 144,066 | 103,033 | ||
- Accrued interest on capital | 74 | 121,351 | ||
- Allowance for long-term sales | 1,221 | 1,221 | ||
- Accrued supplies and services | 67,445 | 43,828 | ||
- Allowance for doubtful debts | 45,342 | 145,390 | ||
- Goodwill on acquisition | 371,153 | 599,730 | ||
- Other | 70,644 | 93,726 | ||
Non-current assets | 1,840,773 | 1,592,941 | ||
Deferred tax liabilities | ||||
- Adjustment to PP&E useful lives (Law 11638/07) | 37,776 | |||
- Other (*) | 75 | |||
Non-current liabilities | 37,851 |
(*) Related to a sole jurisdiction, thus presented at net amounts.
Some subsidiaries of CSN recognized tax credits on income tax and social contribution tax loss carryforwards not subject to statute of limitations and based on the history of profitability and expected future taxable profits determined in technical studies approved by Management.
In July 2010, the Company joined the REFIS (tax debt refinancing program) and elected to offset part of the balance ofincome tax and social contribution loss carryforwardsas of December 31, 2009 recognized in part B of the LALUR (taxable income computation book), amounting to R$110,192 and R$39,669, respectively, against the four last installments of the tax refinancing plan, consisting of debts enrolled under Provisional Measure 470/09 and payable in 12 installments, as prescribed by relevantlegislation.
Since they are subject to significant factors that may change the projections for realization, the carrying amounts of deferred tax assets are reviewed monthlyquarterly and projections are reviewed annually. These studies indicate the realization of these tax assets within the term stipulated by the mentioned instruction and the limit of 30% of the taxable profit.
Certain CSN subsidiaries of CSN have tax assets in the amounts of R$ 265,532amounting to R$536.886 and R$ 69,910,167.504, related to income tax and social contribution tax loss carryforwards, for which no deferred taxes were set up. Out of these totals,up, off which R$ 14,800 expire in 2011, R$ 5054 expires in 2012, R$ 8,9029,726 in 2013, R$ 623696 in 2014, R$ 25,59427,976 in 2015, R$15 in 2016, R$46 in 2017 and R$ 42,26544.138 in 2025. The remaining tax assets refer to Braziliandomestic companies and, therefore, they can be carried forward indefinitely.are not subject to statute of limitations.
The tax benefit of goodwill of Nacional Minérios S.A., which arose on the merger of Big Jump in July 2009, amounted to R$1,391,858. Up1,391,858.Up to December 20102011 a total amount of R$672,732 (R$394,360 up to 2010) had been realized, (R$ 115,988 in 2009), leaving a remainingaremaining amount of R$ 997,498,719,126, which will be realized through 2014. From 2011 toIn 2012 and 2013, the amount realized each yearthis realization will be R$278,372 per year and in the finallast year, of 2014, the benefit will be R$162,382.
FS-29
The undistributed profits of the Company’s foreign subsidiaries have been invested and will continue to be indefinetlyindefinitely invested in tin their operations. These undistributed profits of the Company’s foreign subsidiaries amounted to R$8,033,902as ofDecember 31, 2011 (R$2,434,537 as of December 31, 2010. If circumstances change and the tax authorities position on the application of tax treaties prevails in Courts, these undistributed earnings may generate a tax liability in lieu in the amount of R$ 1,083,367.2010).
(c)Income tax and social contribution recognized in equity:equity
The income tax and social contribution recognized directly in equity are shown below:as follows:
|
|
|
|
| 2010 |
| 2009 |
Income tax and social contribution (losses)/gains |
|
| |
Actuarial gains and losses | 125,065 |
| 76,069 |
Financial instruments (available-for-sale) | 75,522 |
| - |
Exchange variation onforeign operations | 433,297 |
| 425,510 |
12/31/2011 | 12/31/2010 | |||
Income tax and social contribution (losses)/gains | ||||
Gain/(loss) on defined benefit pension plan | 163,931 | 125,065 | ||
Changes in the fair value on available-for-sale financial assets | 241,484 | 75,522 | ||
Exchange variation on foreign operations | 425,510 | 433,297 |
(d)Tax incentives
The companyCompany enjoys Income Tax incentives based on the legislation in effect, such as: Worker Food Program, the Rouanet Law (tax incentives related to cultural activities), Tax Incentives for Audiovisual Activities, and Funds for the Rights of Childrenand Adolescents,Children and Incentives for Sporting and Para-sporting Activities.Adolescents. As atof December 31, 2010,2011, these tax incentives involved a total amountR$1,914 (R$8,160 as of R$ 8,160 (R$ 11,732 in 2009)December 31, 2010).
(e) Transition Tax System
The Transition Tax System (RTT), which was regulated by Law 11941/09, will remain in effect until a law takes effect to govern the tax effects of the new accounting standards, with a view to tax neutrality.
The system was optional in calendar years 2008 and 2009, respecting: (i) the application for the two-year period of 2008-2009, not one single calendar year; and (ii) the option in the Corporate Income Tax Return (DIPJ), and is now mandatory as from calendar year 2010.
CSN elected to adopt the RTT in 2008. Accordingly, for purposes of calculating income tax and social contribution for the years ended 2009 and 2008, the prerogatives defined in the RTT were used.
11. 10.OTHER NON-CURRENT ASSETS
The group of other non-current assets classified in long-term receivables is comprised as follows:
|
|
|
|
| 2010 |
| 2009 |
Judicial deposits (Note 21) | 2,774,706 |
| 2,706,971 |
Recoverable taxes (*) | 247,910 |
| 236,852 |
Other | 283,478 |
| 278,814 |
| 3,306,094 |
| 3,222,637 |
|
|
|
|
12/31/2011 | 12/31/2010 | |||
Judicial deposits (Note 19) | 1,760,814 | 2,774,706 | ||
Recoverable taxes (*) | 257,977 | 247,910 | ||
Prepaid expenses | 115,853 | 115,755 | ||
Unrealized gains on derivatives (Note 15) | 376,344 | 254,231 | ||
Iron ore inventories | 144,483 | 130,341 | ||
Northeast Investment Fund - FINOR | 47,754 | |||
Others | 163,001 | 153,137 | ||
2,866,226 | 3,676,080 |
(*) ReferRefers mainly to PIS/COFINS (taxestaxes on revenue)revenue (PIS/COFINS) and ICMS (state VAT)State VAT (ICMS) on purchasesthe acquisition of property, plant and equipment items thatfixed assets which will be recovered inover a period of 48 months.48-month period.
11.INVESTMENTS
a)Other Investments
12/31/2011 | 12/31/2010 | |||
Riversdale Mining | - | 1.061.961 | ||
Panatlântica | 12.030 | 19.800 | ||
Usiminas | 2.077.277 | 1.020.350 | ||
Other | (1.082) | 1.513 | ||
Total Investments | 2.088.225 | 2.103.624 |
12. INVESTMENTSFS-30
| 2010 |
| 2009 |
Riversdale Mining | 1,061,961 |
| 319,727 |
Panatlântica | 19,800 |
| - |
Usiminas | 1,020,350 |
| - |
Other | 1,513 |
| 2,175 |
Total Investments | 2,103,624 |
| 321,902 |
|
|
|
|
•·RIVERSDALE MINING LIMITED - Riversdale
Founded in 1986,
On April 20, 2011, the Company adhered to the tender offer of Riversdale Mining Limited (“Riversdale”) is a mining company listed onshares conducted by Rio Tinto. Therefore, the Australian Stock Exchange. Riversdale intends to develop as a diversified mining company, with focus on growth through investments in mining opportunities. The company has anthracite coal mines in South Africa and coking coal mines in Mozambique.
In November 2009, the Company’s BoardCompany sold 100% of Directors approved the acquisition by the indirect subsidiary CSN Madeira Ltda. (currently named CSN Europe Ltd.) of a non-controlling interest in the capital of Riversdale Mining Limited. This acquisition at first involved 28,750,598 shares, which at the time represented 14.99% of the capital of Riversdale. Subsequently, on January 8, 2010 CSN Europe obtained approval from the appropriate Australian governmental authorities, which allowed it to
FS-38
conclude the second stage of the operation, involving the acquisition of 2,482,729 shares. The price involved was A$ 6.10 (six Australian Dollars and ten cents) per share.
In January 2010, with the conclusion of the two stages of the operation, CSN began indirectly holding 16.20% of Riversdale’s capital. Subsequently, due to the exercise of call options for shares issued by Riversdale, the Company’s indirect interest was diluted to 15.6%.
Between the months of July and August 2010 Riversdale carried out an operation involving the issue of new shares and new fund-raising in which CSN Europe participated by acquiring 5,602,478 new common shares and thus raising its total stake to 36,835,805 shares, keeping its equity interest of 15.6%held in Riversdale’s capital.share capital, corresponding to 47,291,891 shares at the price of A$16.50 per share, totalingA$780,316.
• ·PANATLÂNTICA
On January 5, 2010, the Company’s Board of Directors approved the acquisition of common shares representing 9.39% of the capital stock of Panatlântica S.A. (“Panatlântica”), a publicly-traded corporation with head officespublicly-held company, headquartered in the city of Gravataí, State of Rio Grande do Sul. The purpose of this company is to manufacture, sell,Sul, engaged in the manufacturing, trade, import, export and processprocessing of steel and ferrous andor non-ferrous metals, both coated and uncoated varieties. At present thisor not. This investment is carried at fair value.value.
• ·USIMINAS
Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS, with head officesheadquartered in city of Belo Horizonte, State of Minas Gerais, is engaged in steel and correlated industries. The Companyrelated operations. USIMINAS produces flat rolled productssteel in the steel mills known as Intendente Câmara and José Bonifácio de Andrada e Silva plants, located in Ipatiga –Ipatinga, Minas Gerais, and Cubatão, – São Paulo, respectively, aimed at bothto be sold in the domestic market and exportation. USIMINAS ownsalso for exports, and operatesit also exploits iron ore mines located in the city of Itaúna, – Minas Gerais, aimed at achieving the strategies ofto meet its verticalization and production cost optimization of production costs. The Company maintainsstrategies. USIMINAS also has service and distribution centers located in several regions of Brazil, as well asand the ports of Cubatão, in São Paulo, and Praia Mole, in Espírito Santo, ports, as well as in locations strategic points for shipping outthe shipment of its production.
As of December 31, 2011, the Company reached holdings of 11.97% in common shares and 20.14% in preferred shares of Usiminas’ share capital.
USIMINAS is listed on the São Paulo Stock Exchange (“Bovespa”: USIM3 and USIM5). As at December 31, 2010 CSN directly and indirectly holds 4.97% of the capital of Usiminas.
13. INVESTMENTS IN JOINTLY CONTROLLED ENTITIESb)Investments in jointly controlled entities
The balances of the balance sheets and income statements of the companies under shared control are stated below and have been consolidated into the Company’s financial statements according to the percentage equity interests described in item (b) of Note 2.
|
|
|
|
|
| 2010 |
|
|
|
|
| 2009 |
|
| NAMISA |
| MRS |
| ITASA | NAMISA |
| MRS |
| ITASA | |
Current assets |
| 3,937,574 |
| 1,034,466 |
| 82,817 |
| 2,266,333 |
| 1,271,294 |
| 78,005 |
Non-current assets |
| 9,519,584 |
| 3,769,878 |
| 769,422 |
| 9,651,083 |
| 3,652,432 |
| 883,329 |
Long-term receivables |
| 8,570,421 |
| 476,758 |
| 48,850 |
| 8,773,789 |
| 763,116 |
| 5,385 |
Investments, PP&E and intangible assets |
| 949,163 |
| 3,293,120 |
| 720,572 |
| 877,294 |
| 2,889,316 |
| 877,944 |
Total Assets |
| 13,457,158 |
| 4,804,344 |
| 852,239 |
| 11,917,416 |
| 4,923,726 |
| 961,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
| 1,273,436 |
| 1,015,234 |
| 115,454 |
| 624,682 |
| 1,469,225 |
| 118,072 |
Non-current liabilities |
| 1,455,604 |
| 1,769,262 |
| 139,870 |
| 1,473,765 |
| 1,737,801 |
| 207,694 |
Equity |
| 10,728,118 |
| 2,019,848 |
| 596,915 |
| 9,818,969 |
| 1,716,700 |
| 635,568 |
Total Equity and Liabilities |
| 13,457,158 |
| 4,804,344 |
| 852,239 |
| 11,917,416 |
| 4,923,726 |
| 961,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
FS-39
12/31/2011 | 12/31/2010 | |||||||||||
Nacional | MRS | Itá | Nacional | MRS | Itá | |||||||
Minérios (*) | Logística | Energética | Minérios (*) | Logística | Energética | |||||||
Current assets | 4,155,543 | 917,291 | 81,729 | 3,937,574 | 1,034,466 | 82,817 | ||||||
Non-current assets | 9,526,804 | 4,625,495 | 719,606 | 9,519,584 | 3,769,877 | 769,422 | ||||||
Long-term receivables | 8,422,434 | 336,439 | 44,239 | 8,570,421 | 476,757 | 48,850 | ||||||
Investments, PP&E and intangible assets | 1,104,370 | 4,289,056 | 675,367 | 949,163 | 3,293,120 | 720,572 | ||||||
Total assets | 13,682,347 | 5,542,786 | 801,335 | 13,457,158 | 4,804,343 | 852,239 | ||||||
Current liabilities | 1,260,068 | 1,108,938 | 100,175 | 1,273,436 | 1,015,234 | 115,454 | ||||||
Non-current liabilities | 307,352 | 2,134,906 | 62,637 | 1,455,604 | 1,769,261 | 139,870 | ||||||
Total equity | 12,114,927 | 2,298,942 | 638,523 | 10,728,118 | 2,019,848 | 596,915 | ||||||
Total liabilities and equity | 13,682,347 | 5,542,786 | 801,335 | 13,457,158 | 4,804,343 | 852,239 |
12/31/2011 | 12/31/2010 | |||||||||||
Nacional | Itá | Nacional | Itá | |||||||||
Minérios (*) | MRS Logística | Energética | Minérios (*) | MRS Logística | Energética | |||||||
Net operating revenue | 3,766,712 | 2,862,337 | 242,913 | 2,937,169 | 2,247,101 | 222,594 | ||||||
Cost of sales and services | (1,646,011) | (1,732,552) | (81,692) | (1,109,067) | (1,326,655) | (76,600) | ||||||
Gross profit | 2,120,701 | 1,129,785 | 161,221 | 1,828,102 | 920,446 | 145,994 | ||||||
Operating (expenses) income | (634,475) | (199,754) | (66,223) | (476,621) | (306,668) | (52,422) | ||||||
Finance income (costs), net | 1,016,743 | (134,272) | (12,327) | 1,016,778 | 38,243 | (23,890) | ||||||
Profit before income tax and social contribution | 2,502,969 | 795,759 | 82,671 | 2,368,259 | 652,021 | 69,682 | ||||||
Current and deferred income tax and social contribution | (429,226) | (272,714) | (28,103) | (412,989) | (216,451) | (23,724) | ||||||
Profit for the period | 2,073,743 | 523,045 | 54,568 | 1,955,270 | 435,570 | 45,958 |
FS-31
(*) Refer to the consolidated balances and profit or loss of Nacional Minérios S. A.
|
|
|
|
|
| 2010 |
|
|
|
|
| 2009 |
|
| NAMISA |
| MRS | ITASA |
| NAMISA |
| MRS |
| ITASA | |
Net Operating Revenue |
| 2,937,169 |
| 2,247,101 |
| 222,594 |
| 1,465,327 |
| 2,275,950 |
| 226,453 |
Cost of Products sold |
| (1,109,067) |
| (1,326,655) |
| (76,600) |
| (889,681) |
| (1,217,982) |
| (73,583) |
Gross Profit (Loss) |
| 1,828,102 |
| 920,446 |
| 145,994 |
| 575,646 |
| 1,057,968 |
| 152,870 |
Operating (expenses) income |
| (476,621) |
| (306,668) |
| (52,422) |
| (339,882) |
| (118,866) |
| (51,677) |
Finance income (expenses), net |
| 1,016,778 |
| 38,243 |
| (23,890) |
| 1,073,547 |
| (51,995) |
| (25,508) |
Profit (Loss) before income tax and social contribution | 2,368,259 |
| 652,021 |
| 69,682 |
| 1,309,311 |
| 887,107 |
| 75,685 | |
Current and deferred income tax and social contribution | (412,989) |
| (216,451) |
| (23,724) |
| (402,475) |
| (281,385) |
| (25,674) | |
Net income |
| 1,955,270 |
| 435,570 |
| 45,958 |
| 906,836 |
| 605,722 |
| 50,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
•·NACIONAL MINÉRIOS – NAMISA
Headquartered in Congonhas, State of Minas Gerais, this company is primarily engaged in the production, purchase and sale of iron ore and is mainly focused on foreign markets for sale of its products. Its major operations are carried out in the cities of Congonhas, Ouro Preto, Itabirito and Rio Acima, in the State of Minas Gerais, and in Itaguaí, in the State of Rio de Janeiro.
In December 2008 CSN sold 2,271,825 shares of the voting capital of Nacional Minérios S.A. to the company Big Jump Energy Participações S.A. (Big(Big Jump), the shareholders of which are the companies Posco and Brazil Japan Iron Ore Corp (Itochu Corporation, JFE Steel Corporation, Sumitomo Metal Industries, Ltd., Kobe Steel Ltd., Nisshin Steel Co. Ltd., Nippon Steel). Subsequent to this sale, Big Jump subscribed to new shares, paying up in cash the total amount of US$3,041,473 thousand, corresponding to R$7,286,154, of which R$6,707,886 was recognized as goodwill on the share subscription.
Due to the new corporate structure of the jointly-controlled subsidiary,jointly controlled entity, where Big Jump holds 40% and CSN 60%, and in view of the shareholders’ agreement signed by the parties, CSN consolidates it proportionally.proportionately.
Such shareholders’ agreement statesprescribes that certain situations of severe impasse between the shareholders that are not resolved after mediation and negotiation procedures between the executive officers of the parties may give CSN the right to exercise its call option and Big Jump the right to exercise its put option regarding the equity interest held by Big Jump in Namisa.
Other agreements signed, in order to make such association feasible, among them the agreement for purchase of shares and the long-term operating agreements between Namisa and CSN, (see Note 31), provide for certain obligations to do that, if not complied with or remedied within the stipulated deadlines in certain extreme situations may give rise to the right on the part of the aggrieved party to exercise its put or call option, as the case may be, with respect to the equity interest held by Big Jump in Namisa.
Further to the process of restructuring Namisa, on July 30, 2009 this jointly-controlled subsidiaryjointly controlled entity merged its parent Big Jump Energy Participações S.A., such that Posco and Brazil Japan Iron Corp. began holding a direct interest of 39.99% in Namisa. There was no change in the equity interest held by CSN as a result of this merger operation.transaction.
In July and November 2011, respectively, Nippon Steel and Sumitomo Metal Industries, until then members of the BJIOC consortium, sold their interests to the other members and, with the entry of the new shareholder China Steel Corp. (CSC), the new corporate structure of Namisa started to be as follows: CSN 60%, BJIOC 32.52%, Posco 6.48% and CSC 1%.
• ·MRS LOGÍSTICA
This subsidiary is engaged in providing public railroad freight transportation services, on the basis of an onerous concession agreement, on the tracks of the Southeast Network, located between the cities of Rio de Janeiro, São Paulo and Belo Horizonte, previously belonging to Rede Ferroviária Federal S.A. -S.A.- RFFSA, which was privatized on September 20, 1996. In 2008 CSN transferred to Namisa in the form of a capital contribution a 10% equity interest of MRS,
Besides this decreasing its direct interest the Company furtherfrom 32.93% to 22.93%. Thus, CSN still holds indirect interests of 6%, through its subsidiary Nacional Minérios S.A.– Namisa, a proportionately consolidated entity.
In 2010 CSN held an indirect interest of 6% through Nacional Minérios S.A. – Namisa, a proportionally consolidated subsidiary, and 4.34% through theits subsidiary International Investment Fund.Fund (IIF). On December 23, 2011 IIF distributed dividends to CSN, paid with the transfer of MRS shares to CSN.
As of December 31, 2011, the Company held a direct interest of 27.27%.
FS-32
MRS may furthercan also engage in modal transportation services related to railroad transportation and also participate in projects aimed at expanding the railroad services granted on a concession basis.
FS-40
For provision of the services covered by the concession agreement obtained for a period of 30 years starting on December 1, 1996, extendable for an equal period by exclusive decision of the concession-granting authority,concession grantor, MRS leased from RFFSA for the same concession period the assets required for operation and maintenance of the railroad freight transportation activities. Upon extinction of the concession, all leased assets will be transferred to the ownership of the railroad transportation operator designated in that same act.
•·ITÁ ENERGÉTICA S.A. - ITASA
CSN holds 48.75% of the subscribed capital and all the common shares issued by Itasa, a special purpose company originally created to carry out the construction of the Itá hydroelectric power plant: contracting for the supply of goods and services necessary to carry out the project and raising funds, including posting the corresponding guarantees.
Itasa has a 60.5% stake in Consórcio Itá, which was created to operate the Itá hydroelectric power plant, pursuant to the concession agreement of December 28, 1995 and its 1st amendment, dated July 31, 2000, signed between the members of the consortium (Itasa and Centrais Geradoras do Sul do Brasil - Gerasul, formerly named Tractebel Energia S.A.), granted by the federal government through the NationalAgência Nacional de Energia Elétrica, or ANEEL (National Electric Power Regulatory Agency – ANEEL,Agency), which expires in October 2030.
Under the terms of the concession agreement, ITASA has the right to 60.5% of an average of 668 MW, the quantity corresponding to the project energy prorated among the consortium members, with the other consortium member Tractebel Energia S.A. (“(‘Tractebel”) being entitled to the remaining 39.5 %. Of39.5%.Of the average of 404.14 MW to which this subsidiary is entitled, an average of 342.95 MW is sold to its shareholders in proportion to their equity interest in the company, and an average of 61.19 MW is sold to consortium member Tractebel.
•·CONSÓRCIO DA USINA ELÉHIDRELÉTRICA DE IGARAPAVA
Igarapava Hydroelectric Power Plant is located in Rio Grande, which is located 400 kilometers from Belo Horizonte and 450 kilometers from São Paulo, with installed capacity of 210 MW. It consists of 5 bulb type generating units and is considered a major mark for power generation in Brazil.
Igarapava stands out for being the first hydroelectric power plant built through a consortium involving five major companies.
CSN holds 17.92% of the subscribed capital of the consortium, whose specific purpose is the distribution of electric power, which is made according to the percentage equity interest of each company.
The balance of property, plant and equipment less depreciation in 2010as of December 31, 2011 is R$31,751 (R$32,919 (R$ 38,150 in 2009)as of December 31, 2010) and the amount of the expense attributable to CSN is R$6,366 (R$7,333 in 2010 (R$ 6,422 in 2009)as of December 31, 2010).
14. ·COMPANHIA BRASILEIRA DE SERVIÇOS DE INFRAESTRUTURA
In December 2011, CSN subscribed to 1,876,146 common shares, corresponding to 50% of the capital of CBSI - Companhia Brasileira de Serviços de Infraestrutura (“CBSI”). The investment is the result of a joint venture between CSN and CKLS Serviços Ltda. based in the city of Araucária, PR. CBSI is primarily engaged in providing services to subsidiaries, associates, controlling companies and third-party entities, and can operate activities related to the assembly and installation of industrial machinery, construction, road recovery and paving, construction of plants, electric stations and substations, special engineering services to design structural projects, and other related activities.
12.PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
| ||||||
| Land |
| Buildings |
| Machinery, equipment and facilitie | Furniture and fixtures | Construction in progress | Other (**) |
| Total | |||
Cost of property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009 | 131,918 |
| 1,109,598 |
| 6,270,174 |
| 103,935 |
| 2,367,352 |
| 1,743,074 |
| 11,726,051 |
Effect of foreign exchange gain (loss) | (4,366) |
| (20,246) |
| (125,167) |
| (3,576) |
| (950) |
| (10,568) |
| (164,873) |
Acquisitions |
|
|
|
|
|
|
|
| 1,996,759 |
|
|
| 1,996,759 |
Disposals |
|
| (181) |
| (24,615) |
| (10,568) |
| (26,364) |
| (28,407) |
| (90,135) |
Transfers to other categories of assets | (1,493) |
| 391,101 |
| 1,603,859 |
| 2,179 |
| (2,242,232) |
| 246,586 |
|
|
Other |
|
| (2,507) |
| 589 |
| 5,334 |
| (4,830) |
| 27,811 |
| 26,397 |
Balances at December 31, 2009 | 126,059 |
| 1,477,765 |
| 7,724,840 |
| 97,304 |
| 2,089,735 |
| 1,978,496 |
| 13,494,199 |
Effect of foreign exchange gain (loss) | (1,659) |
| (2,914) |
| (31,235) |
| (1,230) |
| (746) |
| (11,919) |
| (49,703) |
Acquisitions |
|
|
|
|
|
|
|
| 3,635,911 |
|
|
| 3,635,911 |
Disposals |
|
|
|
| (12,754) |
| (302) |
| (15,501) |
| (5,129) |
| (33,686) |
Transfers to other categories of assets | 10,785 |
| 131,138 |
| 1,633,738 |
| 10,645 |
| (1,195,423) |
| (590,883) |
|
|
Write-off of supplies for internal consumption |
|
|
|
|
|
|
|
|
|
| (154,662) |
| (154,662) |
Other (*) | 40,607 |
| (194,344) |
| 101,028 |
| 23,017 |
| 1,830 |
| 21,909 |
| (5,953) |
Balance at December 31, 2010 | 175,792 |
| 1,411,645 |
| 9,415,617 |
| 129,434 |
| 4,515,806 |
| 1,237,812 |
| 16,886,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009 |
|
| (147,187) |
| (961,984) |
| (79,135) |
|
|
| (465,911) |
| (1,654,217) |
Effect of foreign exchange gain (loss) |
|
| 8,111 |
| 77,922 |
| 2,955 |
|
|
| 6,644 |
| 95,632 |
Depreciation |
|
| (51,619) |
| (602,726) |
| (3,912) |
|
|
| (133,088) |
| (791,345) |
Impairment losses |
|
|
|
|
|
|
|
|
|
| (11,472) |
| (11,472) |
Disposals |
|
|
|
| 1,669 |
| 10,544 |
|
|
| 7,428 |
| 19,641 |
Other |
|
| 2,441 |
| 3,773 |
| (5,341) |
|
|
| (19,964) |
| (19,091) |
Balance at December 31, 2009 |
|
| (188,254) |
| (1,481,346) |
| (74,889) |
|
|
| (616,363) |
| (2,360,852) |
Effect of foreign exchange gain (loss) |
|
| 2,739 |
| 28,473 |
| 1,180 |
|
|
| 1,546 |
| 33,938 |
Depreciation |
|
| (74,344) |
| (677,266) |
| (4,469) |
|
|
| (36,877) |
| (792,956) |
Disposals |
|
|
|
| 7,689 |
| 280 |
|
|
| 19,889 |
| 27,858 |
Transfers to other categories of assets |
|
| 28,849 |
| (290,017) |
| (54) |
|
|
| 261,222 |
|
|
Other |
|
| 32,973 |
| (29,126) |
| (23,055) |
|
|
| 1,681 |
| (17,527) |
Balance at December 31, 2010 |
|
| (198,037) |
| (2,441,593) |
| (101,007) |
|
|
| (368,902) |
| (3,109,539) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2009 | 131,918 |
| 962,411 |
| 5,308,190 |
| 24,800 |
| 2,367,352 |
| 1,277,163 |
| 10,071,834 |
At December 31, 2009 | 126,059 |
| 1,289,511 |
| 6,243,494 |
| 22,415 |
| 2,89,735 |
| 1,362,133 |
| 11,133,347 |
At December 31, 2010 | 175,792 |
| 1,213,608 |
| 6,974,024 |
| 28,427 |
| 4,515,806 |
| 868,910 |
| 13,776,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FS-33
Land | Buildings | Machinery, equipment and facilities | Furniture and fixtures | Construction in progress | Other (*) | Total | ||||||||
Balance at December 31,2009 | 126,059 | 1,289,511 | 6,243,494 | 22,415 | 2,089,735 | 1,362,133 | 11,133,347 | |||||||
Effect of foreign exchange differences | (1,659) | (175) | (2,762) | (50) | (746) | (10,373) | (15,765) | |||||||
Acquisitions | 3,481,249 | 3,481,249 | ||||||||||||
Derecognized projects | (15,501) | (15,501) | ||||||||||||
Disposals | (5,065) | (22) | 14,760 | 9,673 | ||||||||||
Transfers to other categories of assets | 10,785 | 159,987 | 1,343,721 | 10,591 | (1,040,761) | (484,323) | ||||||||
Depreciation | (74,344) | (677,266) | (4,469) | (36,877) | (792,956) | |||||||||
Other | 40,607 | (161,371) | 71,902 | (38) | 1,830 | 23,590 | (23,480) | |||||||
Balance at December 31,2010 | 175,792 | 1,213,608 | 6,974,024 | 28,427 | 4,515,806 | 868,910 | 13,776,567 | |||||||
Effect of foreign exchange differences | 1,234 | 3,640 | 16,377 | 135 | (157) | 2,162 | 23,391 | |||||||
Acquistion through business combination | 3,325 | 10,805 | 14,050 | 562 | 4,204 | 90,572 | 123,518 | |||||||
Acquisitions | 4,400,828 | 4,400,828 | ||||||||||||
Derecognized projects | (3,778) | (3,778) | ||||||||||||
Disposals | (6,719) | (30,059) | (17) | (13,294) | (50,089) | |||||||||
Depreciation | (39,364) | (821,672) | (4,931) | (65,441) | (931,408) | |||||||||
Reversal of allowance for loss on asset disposal | 4,774 | 4,774 | ||||||||||||
Transfers to other categories of assets | 14,233 | 273,320 | 1,477,118 | 9,172 | (1,848,785) | 74,942 | ||||||||
Transfers to intangible assets | (11,104) | (383) | (11,487) | |||||||||||
Other | (170) | (4,883) | 54 | (695) | 50,454 | 44,760 | ||||||||
Balance at December 31,2011 | 194,584 | 1,455,120 | 7,624,955 | 33,402 | 7,056,319 | 1,012,696 | 17,377,076 |
(*) Refer mainly to the adjustment at ITASA, which elected adoption of deemed cost.(**) These refer basically to railway assets, for railroad use, such as shunting yards, tracks and railway sleepers.
The breakdown of the projects comprising construction in progress is as follows:
Project objective | Start date | Scheduled completion | 12/31/2010 | 12/31/2011 | |||||
Construction in Progress - Main projects | |||||||||
Logistics | 1,889,411 | 3,795,760 | |||||||
Expansion of Transnordestina railroad around 1,728 km to boost the transportation of varied products as iron ore, limestone, soybeans, cotton, sugarcane, fertilizers, oil and fuels. | 2009 | 2014 | 1,774,875 | 3,489,871 | |||||
Expansion of MRS's capacity and current investments for maintenance of current operations | 111,763 | 290,410 | |||||||
Current investments for maintenance of current operations | 2,773 | 15,479 | |||||||
Mining | 1,364,733 | 1,931,047 | |||||||
Expansion of Casa de Pedra Mine capacity production to 42 Mtpa | 2007 | 2012/13(1) | 1,101,234 | 1,322,433 | |||||
Expansion of TECAR to permit an annual exportation of 60 Mtpa | 2009 | 2013 | 167,163 | 425,134 | |||||
Expansion of Namisa capacity production to 39 Mtpa | 2008 | 2015/16 | 81,172 | 137,059 | |||||
Current investments for maintenance of current operations | 15,164 | 46,421 | |||||||
Steel | 803,798 | 1,164,239 | |||||||
Implementation of the long steel mill in the states of Rio de Janeiro, Minas Gerais and São Paulo forproduction of rebar and wire rod. | 2008 | 2013(2) | 618,832 | 907,521 | |||||
Current investments for maintenance of current operations | |||||||||
Expansion of TECAR to allow annual exports of 45 mtpy | 184,966 | 256,718 | |||||||
Expansion of Namisa production capacity to 39 mpty | |||||||||
Cement | 457,864 | 165,273 | |||||||
Construcion of Cement plant in the Northeast and Southern region of Brazil and in the city of Arcos, MinasGerais | 2011 | 2013(3) | 98,258 | 132,986 | |||||
Construcion of clinquer plant in the city of Arcos, Minas Gerais | 2007 | 2011(4) | 357,981 | 27,536 | |||||
Current investments for maintenance of current operations | 1,625 | 4,751 | |||||||
Total construction in progress | 4,515,806 | 7,056,319 |
(1) Expected date for completion of the 40 Mtpa and 42 Mtpa Stages
FS-41(2) Expected date for completion of the Rio de Janeiro unity
(3) Expected date for completion of new grinding on Arcos - MG
(4) Manufacturing plant in operation, in “ramp-up”
The costs classified in construction in progress comprise basically the acquisition of services, purchase of parts to be used as investments for improvement of performance, upgrading of technology, enlargement, expansion and acquisition of assets that will be transferred to the relevant line items and depreciated as from the time they are available for use.
Current investments for maintenance are capitalized and depreciated on an accrual basis until the next maintenance event of the relevant asset, totaling R$654,741 as of December 31, 2011 (R$495,430 as of December 31, 2010).
Others repairs and maintenance expenses are charged to operating costs and expenses when incurred.
FS-34
The following isIn view of the weighted average depreciation (years):need to review the useful lives at least every financial year, in 2011 management performed the review for all the Company’s units. As a result, the estimated useful lives for the current year are as follows:
Buildings |
| 46 |
Machinery, equipment and facilities |
| 13 |
Furniture and fixtures | 10 | |
Other |
| 34 |
a)The Company electedcapitalized borrowing costs amounting to adopt the historical cost, carrying out a reviewR$353,156 (R$215,624 as of the remaining economic useful life of the property, plant and equipment estimated by external specialists. The effects resulting from this review, recorded as from January 1, 2010, are as follows:
Consolidated:
Decrease in depreciation expense - R$ 69,744
a)Loan costs in the amount of R$ 215,624 (R$ 85,260 in 2009) were capitalized. TheseDecember 31, 2010) (see note 26).These costs are basically calculated for the mining, cement, long steel and Transnordestina projects, which refer mainly relating to: (i) expansion of Casa de Pedra;Pedra Mine expansion; (ii) construction of the cement plant in Volta Redonda, (RJ)RJ, and the clinker plant in the city of Arcos, (MG);MG; (iii) construction of the long steel plantmill in the city of Volta Redonda, (RJ)RJ; and (iv) expansionextension of Transnordestina railroad, which will connect the countryside of the Transnordestina railroad that will link the interior of the Northeastnortheast region to the ports of Suape, in the State of Pernambuco, and Pecém, in the State of Ceará), ports.
The rates used to capitalize loanborrowing costs are as follows:
FS-42
| |||
|
| ||
Specific | Non-specific | ||
projects | projects | ||
TJLP + 1.3% to 3.2% |
| 10.56% | |
UM006 + 2.7% |
b)Additions to depreciation, amortization and depletion for the period were distributed as follows:
12/31/2011 | 12/31/2010 | |||
Production cost | 892,297 | 770,542 | ||
Selling expenses | 7,130 | 6,471 | ||
General and administrative expenses | 29,941 | 29,156 | ||
Other operating expenses | 18,883 | 7,865 | ||
948,251 | 814,034 |
|
|
|
|
| 2010 |
| 2009 |
Production cost | 770,542 |
| 747,164 |
Selling expenses | 6,471 |
| 6,250 |
General and administrative expenses | 29,156 |
| 26,738 |
| 806,169 |
| 780,152 |
|
|
|
|
c)CSN leases information technology equipment under a series of agreements and contracts, in the form of operating leases. Total lease expenses in 2010 were R$ 4,446 (R$ 3,731 in 2009).
d)CSN’s subsidiary Itasa elected to adopt the deemed cost, adjusting the opening balance at the transition date of January 1, 2009 according to their fair values, as estimated by external specialists. The need for application of the deemed cost option was mainly due to the economic environment in which it operates and other particular aspects of the subsidiary’s business.
The Casa de Pedra mine is an asset that belongs to CSN, which has the exclusive right to explore such mine.Our mining activities of Casa de Pedra are based on the “Manifesto Mina”‘Mine Manifest’, which confers togrants CSN full ownership over the mineral deposits existing within our property limits.
As of December 31, 2009 and 2010,2011 the net fixed assetsproperty, plant and equipment of Casa de Pedra werewas R$2,020 and R$2,167, respectively, mainly represented by R$965 and R$911 of construction in progress. As2,485,077 (R$2,167,378 as of December 31, 20092010), represented mainly by construction in progress amounting to R$1,123,821 (R$911,077 as of December 31, 2010). Up to December 31, 2011, interest capitalized in property, plant and 2010, capitalized interest inequipment of Casa de Pedra assets amountedtotaled R$82,607 (R$48,590 as of December 31, 2010).
13.INTANGIBLE ASSETS
FS-35
Goodwill | Intangible assets with finite useful lives | Software | Other | Total | ||||||
Balance at December 31,2009 | 423,698 | 9,982 | 23,879 | 457,559 | ||||||
Acquisitions and expenditures | 25,239 | 1,002 | 26,241 | |||||||
Amortization | (4,991) | (16,353) | (21,344) | |||||||
Balance at December 31,2010 | 423,698 | 4,991 | 32,765 | 1,002 | 462,456 | |||||
Effect of foreign exchange differences | 6 | 72 | 78 | |||||||
Acquisitions through business combination (*) | 204,569 | 204,569 | ||||||||
Acquisitions and expenditures | 350 | 353 | 703 | |||||||
Disposals | (784) | (489) | (1,273) | |||||||
Impairment losses | (60,861) | (60,861) | ||||||||
Transfer of property, plant and equipment | 11,487 | 11,487 | ||||||||
Transfer of long-term receivables | 2,977 | 2,977 | ||||||||
Amortization | (4,991) | (9,622) | (2,230) | (16,843) | ||||||
Other movements | (2,113) | 2,194 | 81 | |||||||
Balance at December 31,2011 | 567,406 | 32,089 | 3,879 | 603,374 |
(*) Goodwill based on expected future earnings, arising on the Prada Embalagens and CBL business combination on July 12, 2011.
Recoverable amount of the Packaging cash-generating unit (“CGU”), determined based on the business valuation report prepared by independent appraisers. As a result of this valuation, the company recognized an impairment adjustment amounting to R$55 and R$48, respectively.60,861
15. INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Goodwill |
| Intangible assets with definite useful life | Software |
| Other |
| Total | |
Acquisition cost |
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009 | 743,469 |
| 49,909 |
| 43,089 |
|
|
| 836,467 |
Acquisitions and expenditures |
|
|
|
| 5,628 |
|
|
| 5,628 |
Deferred income tax and social contribution on goodwill on downstream merger in subsidiary (*) | (39,462) |
|
|
|
|
|
|
| (39,462) |
Balance at December 31, 2009 | 704,007 |
| 49,909 |
| 48,717 |
|
|
| 802,633 |
Acquisitions and expenditures |
|
|
|
| 25,239 |
| 1,002 |
| 26,241 |
Disposals |
|
|
|
| (23) |
|
|
| (23) |
Balance at December 31, 2010 | 704,007 |
| 49,909 |
| 73,933 |
| 1,002 |
| 828,851 |
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009 | (257,172) |
| (34,936) |
| (17,563) |
|
|
| (309,671) |
Amortization |
|
| (4,991) |
| (7,275) |
|
|
| (12,266) |
Impairment | (23,137) |
|
|
|
|
|
|
| (23,137) |
Balance at December 31, 2009 | (280,309) |
| (39,927) |
| (24,838) |
|
|
| (345,074) |
Amortization |
|
| (4,991) |
| (16,353) |
|
|
| (21,344) |
Disposals |
|
|
|
| 23 |
|
|
| 23 |
Balance at December 31, 2010 | (280,309) |
| (44,918) |
| (41,168) |
|
|
| (366,395) |
|
|
|
|
|
|
|
|
|
|
Net Intangible Assets |
|
|
|
|
|
|
|
|
|
At January 1, 2009 | 486,297 |
| 14,973 |
| 25,526 |
|
|
| 526,796 |
At December 31, 2009 | 423,698 |
| 9,982 |
| 23,879 |
|
|
| 457,559 |
At December 31, 2010 | 423,698 |
| 4,991 |
| 32,765 |
| 1,002 |
| 462,456 |
|
|
|
|
|
|
|
|
|
|
(*) Transfer related to deferred income tax and social contribution.
The useful life of the computer software is 5one to five years. The annual depreciation rate is 20%.
Goodwill:TheseThe economic basis of goodwill is the expected future earnings and, in accordance with the new pronouncements, these amounts haveare not been amortized since January 1, 2009, when they became subject only to impairment testing, without any need being identified to recognize the impairment of these assets.testing.
Goodwill on Investments |
| Investor | ||
Flat steel | 13,091 | CSN | ||
| 13,091 |
| ||
|
|
| ||
| 207,217 | CSN | ||
| 567,406 |
·Impairment testing for goodwill
339,615
Namisa
Cayman do Brasil
7,483
Namisa
Total
423,698
•Impairment test of goodwill
In order to conduct impairment testing, goodwill is allocated to CSN’s operating divisions whichthat represent the lowest level within the Company at which goodwill is monitored for internal management purpose, never above Operating Segments.
Cash-generating unit | Segment | 12/31/2011 | 12/31/2010 | |||
Mining (Namisa) | Mining | 347,098 | 347,098 | |||
Packaging (*) | Steel | 207,217 | 63,509 | |||
Flat steel | Steel | 13,091 | 13,091 | |||
567,406 | 423,698 |
(*) Amount presented net of the impairment adjustment amounting to R$60,861.
FS-36
Cash-Generating Unit (CGU) |
| Segment |
| 2010 |
| 2009 |
| 01/01/09 |
Mining (Namisa) |
| Mining |
| 347,098 |
| 347,098 |
| 347,098 |
Ersa |
| Mining |
|
|
|
|
| 23,137 |
Packaging |
| Steel |
| 63,509 |
| 63,509 |
| 96,227 |
Flat steel |
| Steel |
| 13,091 |
| 13,091 |
| 19,835 |
|
|
|
| 423,698 |
| 423,698 |
| 486,297 |
|
|
|
|
|
|
|
|
|
The recoverable amount of the Packaging Cash-Generating Unit (“CGU”) was based on its value in use with the aid of independent appraisers and this was the basis for the impairment testing, since the following criteria were met:
•There were no significant changes in assets and liabilities;
•The calculation resulted in a recoverable amount that substantially exceeded the CGU’s carrying amount;
•There are no evidences or facts and circumstances that indicate any impairment of the assets in use since the last valuation conducted by independent experts.
FS-44
The recoverable amount of the Namisa Mining Cash-Generating Unit (“CGU”) is above its carrying amount and was determined based on a discountedvalue-in-use calculations.
These calculations use cash flow using a discount rateprojections, before income tax and social contribution, of 9.72% p.a. in US$, considering the long-term contracts signed for purchase of iron ore falling due in 2042. The revenue from the sale of ore supplied under these long-term contracts was limited to the contractual volume.
The recoverable amount of the Cash-Generating Units ("CGUs") mentioned above (except Packaging and Mining) was determined based on a discounted cash flow and is above the carrying amount. The projections used are based onfinancial budgets approved by CSN Board of Directors and considermanagement for a three-year period. The amounts related to cash flows subsequent to the following items:
•Average Gross Margin of each Cash-Generating Unitthree-year period were extrapolated based on the history and on projections approved byestimated growth rates shown below. The growth rate does not exceed the Board for the next 3 years;•Updating of costs based onaverage long-term inflation projections;•Discount rate before income tax and social contribution of 11.92% p.a.;•Average growth rate of the industry in which the Cash-Generating Unit (“CGU”) operates.
The main assumptions used in calculating the values in use as of December 31, 2011 are as follows:
Mining | Packaging | Flat steel | |
Gross margin (i) | For gross margin were used the expansion plans alreadyapproved in the Company’s business plan, iron ore prices onthe international market, based on projections prepared byofficial institutions of the mining industry and the projectedUS dollar (US$) versus Brazilian reais (R$) rate curve until2020, made available by the Central Bank of Brazil(BACEN). After 2020, no variance was considered. | Average gross margin of eachcash-generating unit based on itshistory and projections approvedby the Board for the next threeyears; | Averagegross margin of eachcash-generating unit based on itshistory and projections approvedby the Board for the next threeyears; |
Cost adjustment | Cost adjustment based on long-term inflation projections; | Cost adjustment based on long-term inflation projections; | Cost adjustment based on long-term inflation projections; |
Growth rate (ii) | Cash flows were made considering a projection period up to2041, the maturity term of the main contracts and to whichthe Company's Business Plan is tied. Therefore it was notused a grow rate, given that the projection period exceeds 30years. | Average growth rateof 2.1% p.a.used to extrapolate the cash flowsafter the budgeted period; | Average growth rate of 0.5% p.a.used to extrapolate the cash flowsafter the budgeted period; |
Discount rate (iii) | Pretax US dollar 11% p.a. discount rate. | Pretax 16.75% p.a. discount rate. | Pretax 11% p.a. discount rate. |
(*) Assumptions used by independent experts.
(i) Budgeted gross margin.
(ii) Weighted average growth rate, used to extrapolate the cash flows after the budgedbudget period.
Management determined the budgeted gross margin based on past performance and expectations for market growth. The amounts relating(iii) Pretax discount rate, applied to the cash flows after 3 years hence have been extrapolated based on the estimated growth rates and are based on projections included in specific industry reports.flow projections.
During 2009, due to the reduction in production for strategic reasons, the Ersa Cash-Generating Unit had an impairment loss of R$ 23,137, which was fully allocated to goodwill and recorded under other operating expenses.
Based on these assumptions, no impairment has been identified in the cash-generating units described above.
16. LOANS,14.BORROWINGS, FINANCING AND DEBENTURES
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current Liabilities |
|
|
| Non-Current Liabilities | |
| Rates (%) |
| 2010 |
| 2009 |
| 2010 |
| 2009 |
FOREIGN CURRENCY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange contract advances - ACC | 4.35% and 4.98% |
|
|
| 233,837 |
|
|
|
|
Prepayment | 1.24% to 3.50% |
| 473,255 |
| 309,437 |
| 1,840,269 |
| 2,872,698 |
Prepayment | 3.51% to 7.50% |
| 138,210 |
|
|
| 522,116 |
|
|
Prepayment |
|
|
|
|
|
|
|
|
|
Guaranteed perpetual bonds | 7.00% and 9.50% |
| 2,268 |
| 26,191 |
| 1,666,200 |
| 1,305,900 |
Fixed rate notes | 6.50% to 9.75% |
| 76,006 |
| 29,339 |
| 3,832,260 |
| 2,263,560 |
Fixed rate notes | 10.50% |
| 32,074 |
| 33,518 |
| 666,480 |
| 696,480 |
Financed imports | 3.52% to 6.00% |
| 57,293 |
| 42,107 |
| 59,322 |
| 80,481 |
Financed imports | 6.01% to 8.00% |
| 16,849 |
| 38,041 |
| 24,396 |
| 41,679 |
BNDES/Finame | Res. 635/87 int. + 1.70% and 2.70% | 20,085 |
| 19,796 |
| 55,256 |
| 75,241 | |
Other | 3.30% and 4.19% and 5.37% and CDI + 1.20% | 85,790 |
| 27,826 |
| 103,587 |
| 126,870 | |
|
|
| 901,830 |
| 760,092 |
| 8,769,886 |
| 7,462,909 |
|
|
|
|
|
|
|
|
|
|
LOCAL CURRENCY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BNDES/Finame | TJLP + 1.50% to 3.20% |
| 308,968 |
| 280,802 |
| 1,907,596 |
| 1,634,920 |
Debentures | 103.60 % CDI and 9.40% + IGPM and 1.00% + TJLP | 41,750 |
| 30,659 |
| 1,760,846 |
| 624,570 | |
Prepayment | 104.80% and 109.50 % CDI | 64,216 |
| 31,217 |
| 3,400,000 |
| 1,400,000 | |
CCB | 112.50% CDI |
| 1,354 |
| 19,782 |
| 3,000,000 |
| 2,000,000 |
Intercompany |
|
|
|
|
|
|
|
|
|
Other | 100% IGPDI and 106% CDI and CDI + 0.29% and 5% and 14% | 26,443 |
| 18,489 |
| 23,303 |
| 93,444 | |
|
|
| 442,731 |
| 380,949 |
| 10,091,745 |
| 5,752,934 |
Total loans and financing |
|
| 1,344,561 |
| 1,141,041 |
| 18,861,631 |
| 13,215,843 |
Transaction costs |
|
| (35,929) |
| (27,121) |
| (80,816) |
| (62,162) |
Total loans and financing + transaction costs |
| 1,308,632 |
| 1,113,920 |
| 18,780,815 |
| 13,153,681 | |
|
|
|
|
|
|
|
|
|
|
FS-45FS-37
Current liabilities | Non-current liabilities | |||||||||
Rates in (%) | 12/31/2011 | 12/31/2010 | 12/31/2011 | 12/31/2010 | ||||||
FOREIGN CURRENCY | ||||||||||
Prepayment | 1% to 3.50% | 381,333 | 473,255 | 573,388 | 1,840,269 | |||||
Prepayment | 3.51% to 7.50% | 148,597 | 138,210 | 1,281,171 | 522,116 | |||||
Guaranteed perpetual bonds | 7.00% | 2,553 | 2,268 | 1,875,800 | 1,666,200 | |||||
Fixed rate notes | 9.75% | 4,191 | 4,546 | 1,031,690 | 916,410 | |||||
Fixed rate notes | 6.50% | 53,851 | 47,834 | 1,875,800 | 1,666,200 | |||||
Fixed rate notes | 6.875% | 26,598 | 23,626 | 1,406,850 | 1,249,650 | |||||
Fixed rate notes | 10.5% | 34,390 | 32,074 | 750,320 | 666,480 | |||||
Financed imports | 3.52% to 6.00% | 261 | 57,293 | 59,322 | ||||||
Financed imports | 6.01% to 8.00% | 25,248 | 16,849 | 27,310 | 24,396 | |||||
CCB | 1.54% | 176,440 | ||||||||
BNDES/FINAME | Interest R. Res. 635/87+1.7% and 2.7% | 25,903 | 20,085 | 36,750 | 55,256 | |||||
Other | 3.3% to 5.37% and CDI +1.2% | 105,181 | 85,790 | 145,438 | 103,587 | |||||
984,546 | 901,830 | 9,004,517 | 8,769,886 | |||||||
LOCAL CURRENCY | ||||||||||
BNDES/FINAME | TJLP + 1.5% to 3.2% | 430,432 | 308,968 | 1,744,727 | 1,907,596 | |||||
Debentures | 103.6 % and 110.8% CDI and9.4% + IGPM and 1% + TJLP | 672,073 | 41,750 | 2,822,424 | 1,760,846 | |||||
Prepayment | 104.8% and 109.5 % CDI | 537,128 | 64,216 | 4,523,224 | 3,400,000 | |||||
CCB | 112.5% CDI | 101,280 | 1,354 | 7,200,000 | 3,000,000 | |||||
Other | 9,509 | 26,443 | 37,058 | 23,303 | ||||||
1,750,422 | 442,731 | 16,327,433 | 10,091,745 | |||||||
Total borrowings and financing | 2,734,968 | 1,344,561 | 25,331,950 | 18,861,631 | ||||||
Transaction costs | (32,885) | (35,929) | (145,445) | (80,816) | ||||||
Total borrowings and financing +transaction costs | 2,702,083 | 1,308,632 | 25,186,505 | 18,780,815 |
AtThe balances of prepaid intragroup borrowings related to the Company total R$2,244,927 as of December 31, 20102011 (R$2,080,721 as of December 31, 2010), see note 4.
·Funding transaction costs for the
As of December 31, 2011 funding weretransaction costs are as follows:
Short term | Long term | |||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | After 2017 | Total | TJ(1) | TIR(2) | ||||||||||||
Fixed rate notes | 4,067 | 4,779 | 3,478 | 3,100 | 2,203 | 2,203 | 4,852 | 20,615 | 6.5% to 10% | 6.75% to 10.7% | ||||||||||
BNDES | 553 | 491 | 423 | 389 | 389 | 389 | 3,491 | 5,572 | 1.3% to 1.7% | 1.44% to 7.39% | ||||||||||
BNDES | 1,578 | 1,578 | 284 | 1,862 | 2.2% to 3.2% | 7.59% to 9.75% | ||||||||||||||
Prepayment | 8,059 | 8,020 | 6,397 | 2,219 | 2,219 | 2,219 | 1,354 | 22,428 | 109.50% and 110.79% CDI | 10.08% to 12.44% | ||||||||||
Prepayment | 509 | 509 | 509 | 509 | 509 | 346 | 2,382 | 2.37% and 3.24% | 2.68% to 4.04% | |||||||||||
CCB | 17,472 | 16,220 | 17,651 | 13,902 | 13,902 | 10,056 | 18,046 | 89,777 | 112.5% CDI | 11.33% to 14.82% | ||||||||||
Other | 647 | 427 | 427 | 427 | 427 | 427 | 674 | 2,809 | 110.8% and 103.6% CDI | 12.59% and 13.27% | ||||||||||
32,885 | 32,024 | 29,169 | 20,546 | 19,649 | 15,640 | 28,417 | 145,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term |
|
|
|
|
|
|
|
|
|
|
| Long-term |
|
|
|
|
|
|
|
| Total |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| After 2015 |
| TJ(1) |
| TIR(2) |
Fixed rate notes |
| 3,900 |
| 23,155 |
| 2,786 |
| 2,920 |
| 2,219 |
| 2,068 |
| 13,162 |
| 6,5% to 10% |
| 6,75% to 10,7% |
BNDES |
| 637 |
| 5,602 |
| 2,763 |
| 403 |
| 334 |
| 300 |
| 1,802 |
| 1,3% to 1,7% |
| 1,44% to 7,39% |
BNDES |
| 1,578 |
| 3,440 |
| 1,578 |
| 1,578 |
| 284 |
|
|
|
|
| 2,2% to 3,2% |
| 7,59% to 9,75% |
Prepayment |
| 7,590 |
| 27,089 |
| 7,591 |
| 7,591 |
| 5,928 |
| 1,750 |
| 4,229 |
| 109,50% and 110,79% CDI | 10,08% to 12,44% | |
Prepayment |
| 676 |
| 3,461 |
| 676 |
| 676 |
| 676 |
| 578 |
| 855 |
| 2,37% and 3,24% |
| 2,68% to 4,04% |
CCB |
| 20,765 |
| 17,881 |
| 16,727 |
| 1,154 |
|
|
|
|
|
|
| 113,5% to 117,5% CDI |
| 11,33% to 12,82% |
Other |
| 783 |
| 188 |
| 188 |
|
|
|
|
|
|
|
|
| 103,6% CDI |
| 12.59% |
|
| 35,929 |
| 80,816 |
| 32,309 |
| 14,322 |
| 9,441 |
| 4,696 |
| 20,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)TJ – Annual interest rate contracted
(2)TIR – Annual internal rate of return
At
·Maturities of borrowings, financing and debentures presented in non-current liabilities
As of December 31, 2010,2011, the principal of the long-term loans,borrowings, financing and debentures by maturity year is as follows by year of maturity:follows:
FS-38
|
|
|
|
| ||||
2012 |
| 2,165,803 |
| 11.5% | ||||
2013 |
| 2,088,254 |
| 11.1% | 2,263,889 | 9% | ||
2014 |
| 1,947,418 |
| 10.3% | 1,933,763 | 8% | ||
2015 |
| 2,187,899 |
| 11.6% | 2,346,461 | 9% | ||
2016 |
| 2,221,853 |
| 11.8% | 2,444,259 | 10% | ||
After 2016 |
| 6,584,204 |
| 34.9% | ||||
Guaranteed Perpetual Bonds |
| 1,666,200 |
| 8.8% | ||||
2017 | 3,166,273 | 12% | ||||||
After 2017 | 11,301,505 | 45% | ||||||
Perpetual bonds | 1,875,800 | 7% | ||||||
|
| 18,861,631 |
| 100.0% | 25,331,950 | 100% | ||
|
|
|
|
|
In September 2009, through its subsidiary CSN Islands XI Corp, the Company issued bonds in the amount of US$ 750 million. These bonds, which fall due in September 2019, have interest rate of 6.875% p.a. payable semi-annually as from March 2010,·Amortizations and the issuer may redeem them in advance through payment of premium to the creditors.
In July 2010, through its subsidiary CSN Resources, the Company issued bonds in the amount of US$ 1 billion. These bonds, which fall due in July 2020, have interest rate of 6.5% p.a. payable semi-annually as from January 2011,new borrowings, financing and the issuer may redeem them in advance through payment of premium to the creditors.debentures
In September 2010, through its subsidiary CSN Islands XII Corp., the Company issued guaranteed perpetual bonds in the amount of US$ 1 billion. These bonds without defined maturity dates have interest rate of 7% p.a. payable quarterly as from December 2010, and the issuer has the option of redeeming them at face value on any interest date as from September 23, 2015 (inclusive).
FS-46
On October 14, 2010, the Company fully redeemed the guaranteed perpetual bonds issued in 2005 through its wholly-owned subsidiary CSN Islands X Corp., collateralized by CSN, at an interest rate 9.50% p.a. and principal amount of US$ 750 million, plus accrued and unpaid interest through the redemption date, as well as any additional amounts payable in relation to the guaranteed perpetual bonds.
The collateral granted for the loans are property, plant and equipment, collateral signatures, sureties and bank guarantees, as shown in the following table, and do not comprise guarantees granted by subsidiaries and jointly-controlled subsidiaries.
|
| 2010 | 2009 |
Property, plant and equipment |
| 47,985 | 47,985 |
Guarantor collateral |
| 74,488 | 74,612 |
Imports |
| 21,820 | 41,964 |
Bank guarantees |
| 288,338 | 206,125 |
|
| 432,631 | 370,686 |
|
|
|
|
The following table showbelow shows the amortizations and new funding duringin the current period:
12/31/2011 | 12/31/2010 | |||
Opening balance | 20,089,447 | 14,267,601 | ||
Funding | 7,824,012 | 8,754,779 | ||
Amortization | (3,614,606) | (3,897,405) | ||
Other (*) | 3,589,735 | 964,472 | ||
Closing balance | 27,888,588 | 20,089,447 |
|
|
| |
| 2010 | 2009 | |
Opening balance | 14,356,884 |
| 11,983,153 |
Funding | 8,789,548 |
| 7,671,696 |
Amortization | (3,897,405) |
| (3,775,593) |
Other (*) | 957,165 |
| (1,522,372) |
Closing balance | 20,206,192 |
| 14,356,884 |
|
|
|
|
(*) Includes inflation adjustment and foreign exchange gains (losses).differences and inflation adjustments.
a)
Loans and financing contracts with certain financial institutions contain some covenants that are usual in financial agreements in general and the Company is compliant with them at December 31, 2010.2011.
In February 2011, the Company entered into with Caixa Econômica Federal a Corporate Loan Transaction - Large Corporations, by issuing a bank credit certificate of R$2 billion, with final amortization maturity of 94 months. This CCB (bank credit note) bears interest equivalent to 112.5% of the CDI (interbank deposit rate), as released by CETIP (OTC Clearing House), per year, and interest is paid on a quarterly basis, in March, June, September and December.
In April 2011, the Company contracted an Export Credit Note amounting to R$1.5 billion from Banco do Brasil, which will mature in April 2019.
This NCE (export credit note) bears interest equivalent to 110.8% of the CDI (interbank deposit rate), as released by CETIP, per year, and interest is paid on a semiannual basis, in April and October.
In August 2011, the Company entered into with Caixa Econômica Federal a Corporate Loan Transaction - Large Corporations, by issuing a bank credit certificate of R$2.2 billion, with final amortization maturity of 108 months. This CCB (bank credit note) bears interest equivalent to 112.5% of the CDI (interbank deposit rate), as released by CETIP, per year, and interest is paid on a quarterly basis, in February, May, August and November.
In December 2011 the Company settled in advance its export receivables securitization program with the payment of R$313,842 (R$283,857 in principal, R$2,373 in interest and R$27,612 in premium paid to creditors for early settlement).
•·DEBENTURESDebentures
i. Companhia SiderurgicaSiderúrgica Nacional
As approved at a meeting of the Board of DirectorsDirectors’ meeting held on December 20, 2005 and ratified on April 24, 2006, the Company issued on February 1, 2006, a total of 60,000 non-convertible andnonconvertible, unsecured debentures, in a single series, at thewith a unit face value of R$ 10. These10.These debentures were issued in the total amount of R$600,000 and the proceeds from their trading with financial institutions were received on May 3, 2006.
FS-39
The face value of these debentures earns interest correspondingequivalent to 103.6% of the CDI rate, as released by Cetip, rate,per year, and maturity of the face value is scheduled for February 1, 2012, with an early redemption option.
As approved at the Board of Directors’ meeting held on July 12, 2011, the Company issued on July 20, 2011, 115 nonconvertible, unsecured debentures, in single series, with a unit face value of R$10 million. These debentures were issued in the total amount of R$1,150,000 and the proceeds from their trading with financial institutions were received on August 23, 2011.
The face value of these debentures earns interest equivalent to 110.8% of CDI, as released by Cetip, per year, and maturity of the face value is scheduled for February 1, 2012, with an early redemption option.
ii. Transnordestina Logística
On March 10, 2010 Transnordestina Logística S.A obtained approval from the Northeast Development Fund –- FDNE for issue of the 1st1st Series of its 1st1st Private Issue of share-convertibleconvertible debentures, comprising in all 10consisting of eight series in the total amount of R$ 2,672,400. The2,672,400.The first, third, fourth, seventh and ninthfourth series refer to funds to be appliedinvested in the Missão Velha – Salgueiro
– Trindade e Salgueiro – Porto de Suape module, which also includes the investments in the Suape Port, of Suape, and the reconstruction of the section of railroad track from Cabo to Porto Real de Colégio.gio railroad section. The second, fifth and fifthsixth series refer to funds to be invested in the Eliseu Martins – Trindade module. The sixth,seventh and eighth and tenth series refer to funds to be invested in the Missão Velha – Pecém module, which also includes the investments in the Port of Pecém. The 2ndm Port.
General | Number | Unit | Balance (R$) | |||||||||||||
Issue | Series | meeting | issued | face value | Issue | Maturity | Charges | 12/31/2011 | ||||||||
1st | 1st | 2/8/2010 | 336,647,184 | R$ 1,00 | 03/09/10 | 10/3/2027 | TJLP + 0.85% p.a. | 336,647 | ||||||||
1st | 2ª | 2/8/2010 | 350,270,386 | R$ 1,00 | 11/25/2010 | 10/3/2027 | TJLP + 0.85% p.a. | 350,270 | ||||||||
1st | 3ª | 2/8/2010 | 338,035,512 | R$ 1,00 | 1/12/2010 | 10/3/2027 | TJLP + 0.85% p.a. | 338,036 | ||||||||
1st | 4ª | 2/8/2010 | 468,293,037 | R$ 1,00 | 10/04/11 | 10/3/2027 | TJLP + 0.85% p.a. | 468,293 |
·Guarantees provided
Guarantees provided for the borrowings comprise property, plant and 3rd Series have been fully subscribedequipment items and paid up on the following dates andsureties, as shown in the following amounts:table below, and do not include guarantees provided for subsidiaries and jointly controlled entities.
FS-47
12/31/2011 | 12/31/2010 | |||
Property, plant and equipment | 19,383 | 30,288 | ||
Collateral | 87,550 | 74,488 | ||
Securitizations (exports) (*) | 113,936 | |||
106,933 | 218,712 |
|
|
|
| General |
| Number |
| Unit face |
| Issue |
|
|
|
|
| Balance |
Issue |
| Series |
| Meeting |
| issued |
| value |
| date |
| Maturity |
| Charges |
| in 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st |
| 1st |
| 02/08/10 |
| 336,647,184 |
| R$ 1.00 |
| 03/10/10 |
| 10/03/27 |
| TJLP + 0,85% p.a |
| 336,647 |
1st |
| 2nd |
| 02/08/10 |
| 350,270,386 |
| R$ 1.00 |
| 11/25/10 |
| 10/03/27 |
| TJLP + 0,85% p.a |
| 350,270 |
1st |
| 3rd |
| 02/08/10 |
| 338,035,512 |
| R$ 1.00 |
| 12/01/10 |
| 10/03/27 |
| TJLP + 0,85% a.a |
| 338,036 |
(*) Because of the early settlement of export receivables, the securitization reserve fund amounts were redeemed.
17. 15.FINANCIAL INSTRUMENTS
I –- Identification and measurement of financial instruments
The Company enters into transactions involving various financial instruments, mainly cash and cash equivalents, including financialshort-term investments, marketable securities, trade accounts receivable,receivables, trade payables, and loansborrowings and financing. In addition,Additionally, it also carries out transactions involving derivative financial instruments, especially exchange and interest rate swaps.
FS-40
Considering the nature of thethese instruments, thetheir fair value is basically determined by the use of quotations in the BrazilianBrazil’s money market and foreign capital marketsmercantile and Commodities and Futures Exchange.futures exchange quotations. The amounts recorded in current assets and current liabilities have immediate liquidity or short-term maturity, mostly less than three months. Considering the termsmaturities and characteristicsfeatures of thesesuch instruments, thetheir carrying amounts approximate their fair values.
·Classification of financial instruments
2010 | 2009 | |||||||||||||||||||
Consolidated - R$ thousand | Available- for-sale | Fair value |
| Loans and receivables-Effective interest | Other liabilities - Amortized cost method | Balances | Available for-sale | Fair value through profit or loss | Loans and receivables-Effective interest | Other liabilities - Amortized cost |
| Balances | ||||||||
Assets | ||||||||||||||||||||
Current Assets | ||||||||||||||||||||
Cash and cash equivalents | 10,239,278 | 10,239,278 | 7,970,791 | 7,970,791 | ||||||||||||||||
Trade accounts receivable, net | 1,259,461 | 1,259,461 | 1,186,315 | 1,186,315 | ||||||||||||||||
Guarantee margin on financial instruments | 254,485 | 254,485 | 115,949 | 115,949 | ||||||||||||||||
Securitization reserve fund | 22,644 | 22,644 | 91,703 | 91,703 | ||||||||||||||||
Non-current Assets | ||||||||||||||||||||
Other receivables | 73,731 | 73,731 | 59,952 | 59,952 | ||||||||||||||||
Investments | 2,102,112 | 2,102,112 | 319,727 | 319,727 | ||||||||||||||||
Securitization reserve fund | 32,031 | 32,031 | 34,389 | 34,389 | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Loans and financing | 1,302,811 | 1,302,811 | 1,110,382 | 1,110,382 | ||||||||||||||||
Debentures | 41,750 | 41,750 | 30,659 | 30,659 | ||||||||||||||||
Derivatives | 116,407 | 116,407 | 77,147 | 77,147 | ||||||||||||||||
Trade accounts payable | 521,156 | 521,156 | 504,223 | 504,223 | ||||||||||||||||
Non-current Liabilities | ||||||||||||||||||||
Loans and financing | 17,100,785 | 17,100,785 | 12,591,273 | 12,591,273 | ||||||||||||||||
Debentures | 1,760,844 | 1,760,844 | 624,570 | 624,570 | ||||||||||||||||
Derivatives | 263 | 263 | 18,730 | 18,730 |
12/31/2011 | 12/31/2010 | |||||||||||||||||||||
Consolidated | Notes | Available for sale | Fair value through profit or loss | Loans and receivables -effective interest | Other Liabilities - amortized cost method | Balances | Available for sale | Fair value through profit or loss | Loans and receivables - effective interest | Other Liabilities - amortized cost method | Balances | |||||||||||
Assets | ||||||||||||||||||||||
Current | ||||||||||||||||||||||
Cash and cash equivalents | 5 | 15,417,393 | 15,417,393 | 10,239,278 | 10,239,278 | |||||||||||||||||
Trade receivables, net | 6 | 1,558,997 | 1,558,997 | 1,259,461 | 1,259,461 | |||||||||||||||||
Guarantee margin on financial instruments | 8 and 15 | 407,467 | 407,467 | 254,485 | 254,485 | |||||||||||||||||
Derivative financial instruments | 8 and 15 | 55,115 | 55,115 | |||||||||||||||||||
Securitization reserve fund | 22,644 | 22,644 | ||||||||||||||||||||
Non-current | ||||||||||||||||||||||
Other trade receivables | 57,797 | 57,797 | 58,485 | 58,485 | ||||||||||||||||||
Investments | 2,089,309 | 2,089,309 | 2,102,112 | 2,102,112 | ||||||||||||||||||
Derivative financial instruments | 10 | 376,344 | 376,344 | 254,231 | 254,231 | |||||||||||||||||
Securitization reserve fund | 32,031 | 32,031 | ||||||||||||||||||||
Short-term investments | 139,679 | 139,679 | 112,484 | 112,484 | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||
Current | ||||||||||||||||||||||
Borrowings, financing and debentures | 14 | 2,734,968 | 2,734,968 | 1,344,561 | 1,344,561 | |||||||||||||||||
Derivative financial instruments | 15 and 16 | 2,971 | 2,971 | 116,407 | 116,407 | |||||||||||||||||
Trade payables | 1,232,075 | 1,232,075 | 623,233 | 623,233 | ||||||||||||||||||
Non-current | ||||||||||||||||||||||
Borrowings, financing and debentures | 14 | 25,331,950 | 25,331,950 | 18,861,631 | 18,861,631 | |||||||||||||||||
Derivative financial instruments | 15 and 16 | 373,430 | 373,430 | 254,494 | 254,494 |
•·Fair value measurement
The financial instruments recognized at fair value require the disclosure of the fair value measurements at three hierarchy levels:
•·Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;or liabilities.
•·Level 2: Otherother available information,inputs, except those atof Level 1 that are observable for the asset or liability, whether directly (as(i.e., prices) or indirectly (derived(i.e., derived from prices);
•·Level 3: Informationinputs unavailable due to slight or no market activity and which is significant for the definition of the fair value of assets.
The following table shows the financial instruments recognized at fair value using a valuation method:
FS-48
The following table shows the financial instruments recognized at fair value using a valuation method:
|
|
|
|
|
|
|
| 2010 |
|
|
|
|
|
|
| 2009 |
|
| Level 1 |
| Level 2 |
| Level 3 |
| Balances |
| Level 1 |
| Level 2 |
| Level 3 |
| Balances |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
| 2,102,112 |
|
|
|
|
| 2,102,112 |
| 319,727 |
|
|
|
|
| 319,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liablities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
| 116,407 |
|
|
| 116,407 |
|
|
| 77,147 |
|
|
| 77,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
| 263 |
|
|
| 263 |
|
|
| 18,729 |
|
|
| 18,729 |
FS-41
12/31/2011 | 12/31/2010 | |||||||||||||||
Consolidated | Level 1 | Level 2 | Level 3 | Balances | Level 1 | Level 2 | Level 3 | Balances | ||||||||
Assets | ||||||||||||||||
Current | ||||||||||||||||
Financial assets at fair value through profit or loss | ||||||||||||||||
Derivative financial instruments | 55,115 | 55,115 | ||||||||||||||
Non-current | ||||||||||||||||
Available-for-sale financial assets | ||||||||||||||||
Investments | 2,089,309 | 2,089,309 | 2,102,112 | 2,102,112 | ||||||||||||
Financial assets at fair value through profit or loss | ||||||||||||||||
Derivative financial instruments | 376,344 | 376,344 | 254,231 | 254,231 | ||||||||||||
Liabilities | ||||||||||||||||
Current | ||||||||||||||||
Financial liabilities at fair value through profit or loss | ||||||||||||||||
Derivative financial instruments | 2,971 | 2,971 | 116,407 | 116,407 | ||||||||||||
Non-current | ||||||||||||||||
Financial liabilities at fair value through profit or loss | ||||||||||||||||
Derivative financial instruments | 373,430 | 373,430 | 254,494 | 254,494 |
II - Cash and cash equivalents,– investments in financial investments, trade accounts receivable, other current assets, trade payables, and other current liabilities
These amounts are recorded in the financial statements at their carrying amounts, which are substantially similar to those that would be obtained if they were traded in the market. The fair values of other long-term assets and liabilities do not differ significantly from their carrying amounts, exceptinstruments classified as available for the amounts shown in the next table.
The estimated fair value for the consolidated long-term loans and financing have been calculated at current market rates, considering the nature, term and risks similar to those of the recorded contracts, as compared below:
|
|
| 2010 |
|
|
| 2009 |
| Carrying amount |
| Fair value |
| Carrying amount |
| Fair value |
Guaranteed perpetual bonds | 1,668,468 |
| 1,663,701 |
| 1,332,091 |
| 1,317,327 |
Fixed rate notes | 4,605,997 |
| 4,966,629 |
| 3,022,138 |
| 3,283,359 |
III – Investments in available-for-sale securitiessale and measured at fair value through profit or lossOCI
These consist mainly of investments in shares acquired in Brazil and abroad involving top ranked companies classified by international rating agencies as investment grade, which are recognized in non-current assets, and any gains or losses are recognized in equity, where they will remain until actual realization of the securities or when any loss is considered unrecoverable.
The
Potential impairment of financial assets classified available for sale
During 2010 and 2011 CSN invested in ordinary (USIM3) and preferred (USIM5) shares of Usiminas, classified as financial instruments available for sale as they do not attend the criteria to be classified within any of the other categories of financial instruments (measured at fair value through profit and loss, held to maturity or loans and receivables). The instruments are classified under non-current financial instruments and measured at their fair value based on their quoted price at 31 December 2011 (BOVESPA). The company is evaluating strategic alternatives with respect to its investment in Usiminas.
Considering the decline in market value of the shares Usiminas during the year, the Company has evaluated whether, at the balance sheet date, there is objective evidence of impairment of its investments in Usiminas. Management evaluated if the decline in market value of the shares Usiminas should be considered either significant or prolonged. Determining whether a decline is significant or prolonged requires judgment and according to CSN’s accounting policy, which is based on national and international application, an instrument by instrument analysis is made based on quantitative and qualitative information from the moment on onwards that the decline either above 20% or more than 12 months.
Despite the Company’s investment strategy and despite the fact that both the ordinary and preferred shares are equity instruments, management separately evaluated the ordinary and preferred shares for impairment considering the different rights attached to them. The policy of the Company requires a detailed analysis of the percentage and period of decline, characteristics of the instrument, the segment in which the entity operates and volatility of the instrument. Additionally, macro-economic factors, qualitative analyses and other relevant factors after the balance sheet date until the date of approval of the financial statements are taken into consideration to the extent that is possible within the context of the standards, their interpretations and application in practice.
To determine the period of decline of the market value of the instruments below their cost, the Company compared their respective weighted average cost of acquisition at balance sheet date with the last trading date on which the quoted maximum price was above this weighted average cost of acquisition. In case of the ordinary shares the period of decline was calculated at 1 month, while in the case of the preferred shares the period of decline was calculated at 7 months. Management is of the opinion that, considering its accounting policy, the decline is not prolonged.
Volatility measures the dispersions between returns of a share or index. Volatility is a measure of risk of a share, but also serves to evaluate to what extent price variations historically are within expectations. Historical volatility of the shares is calculated and considered in order to identify the expected fluctuation of the respective instruments, evaluate the expected future volatility and conclude if a decline in market value of an instrument below its cost should be considered significant.
FS-42
The following table shows these indicators for a period of 12 years,long period sufficient to eliminate volatility spikes caused by economic crises:
Period | Volatility | |||
USIM3 | USIM5 | |||
1/3/2000 to 12/31/2011 | 50.42% | 48.57% |
In light of this information, Management concluded that the decline in market value relative to their price of acquisition of the shares of USIM3 and USIM5 at 31 December 2011 of 30.8% and 34.5%, respectively, is not significant.At 25 April 2012 the decline of the shares had significantly reduced to26.1% and 27.3% respectively, further supporting the volatility of the securities.
Management considers that during the period under analysis there have not been significant changes with an adverse effect in the technological, market, economic and legal environment in which Usiminas operates. Further, while the market value of Usiminas at 31 December 2011 was below the value of its net assets at that date (R$ 13.5 billion and R$ 19 billion respectively) and the company therefore was required to evaluate impairment of its assets in accordance with IAS38.12(d), the company did not register any such impairment.
Considering the quantitative and qualitative analyses above, Management is of the opinion that there is no objective evidence of impairment of the ordinary and preferred shares of Usiminas and consequently has not reclassified losses thus far recognized in other comprehensive income (R$ 767,924, net of tax).
III – Fair values of assets and liabilities as compared to their carrying amounts
Financial assets and liabilities at fair value through profit or loss are recognized in current and non-current assets and liabilities, and any gains orand possible losses are recognized as finance income and loss,or finance costs, respectively.
The amounts are recognized in the financial statements at their carrying amounts, which are substantially similar to those that would be obtained if they were traded in the market. The fair values of other long-term assets and liabilities do not differ significantly from their carrying amounts, except the amounts below.
The estimated fair values of consolidated long-term borrowings and financing were calculated at prevailing market rates, taking into consideration the nature, terms and risks similar to those of the recorded contracts, as compared below:
12/31/2011 | 12/31/2010 | |||||||
Carrying amount | Fair value | Carrying amount | Fair value | |||||
Guaranteed perpetual bonds | 1,878,353 | 1,819,903 | 1,668,468 | 1,663,701 | ||||
Fixed rate notes | 5,183,690 | 5,832,364 | 4,606,820 | 4,966,629 |
IV - Policy for– Financial risk management of financial riskspolicy
The Company has and follows a policy of managing its risks, with guidelines regarding the risks incurred by the company. Under the terms of thePursuant to this policy, the nature and general position of the financial risks isare regularly monitored and managed in order to evaluateassess the results and the financial impact on cash flows.flow. The credit limits and the quality of counterparties’ hedge of counterpartiesinstruments are also periodically reviewed.
The risk management policy was established by the Board of Directors. Under this policy, market risks are hedged when it is considered necessary to support the corporate strategy or when it is necessary to maintain a level of financial flexibility.
Under the terms of the risk management policy, the Company manages some risks by using derivative financial instruments.
The Company’s risk policy prohibits any speculative deals or short sales.
FS-49
•·Liquidity risk
FS-43
ThisIt is the risk arises ifthat the Company doesmay not have sufficient liquidnet funds to coverhonor its financial commitments as a result of mismatching of terms or volumes between scheduled receipts and payments.
In order to
To manage cash liquidity in localdomestic and foreign currency, premises are established forassumptions of future disbursements and receipts are established and these aredaily monitored on a daily basis by the Treasurytreasury area. The payment schedules for the long-term portions of loans,borrowings, financing and debentures are shown in Note 16.14.
The following table shows the contractual maturities of financial liabilities, including estimated interest payments.
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At December 31, 2010 | Less than one year |
| From one to two years | From two to five years | Over five years | ||
Loans, financing and debentures | 1,344,561 |
| 4,254,057 |
| 6,357,168 |
| 8,250,406 |
Derivative financial instruments | 116,407 |
| 263 |
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Trade accounts payable | 521,156 |
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At December 31, 2009 |
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Loans, financing and debentures | 1,141,041 |
| 5,864,415 |
| 4,150,017 |
| 3,201,411 |
Derivative financial instruments | 77,147 |
| 18,729 |
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Trade accounts payable | 504,223 |
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At December 31, 2011 | Less than one year | From one to two years | From two to five years | Over five years | Total | |||||
Borrowings, financing and debentures | 2,734,968 | 2,263,889 | 6,724,483 | 16,343,578 | 28,066,918 | |||||
Derivative financial instruments | 2,971 | 373,430 | 376,401 | |||||||
Trade payables | 1,232,075 | 1,232,075 | ||||||||
At December 31, 2010 | ||||||||||
Borrowings, financing and debentures | 1,344,561 | 4,254,057 | 6,357,169 | 8,250,405 | 20,206,192 | |||||
Derivative financial instruments | 116,407 | 254,494 | 370,901 | |||||||
Trade payables | 623,232 | 623,232 |
•·ExchangeForeign exchange rate risk
The Company assesses its exchange exposure by subtracting its liabilities from its assets denominated in Dollar, Eurodollar, euro and Yen,australian dollar, thus arriving at its net exchange exposure, which is the foreign currency risk exposure.exposure risk. Therefore, besides the trade accounts receivablereceivables arising from exports and investments overseas that in economic terms constitute natural hedges, the Company further considers and uses various financial instruments, such as derivative instruments (US$ xto Real and euro to dollar swaps, and forward exchange contracts, etc.) to manage its risks of variationsfluctuations in currencies other than the value of the local currency (Brazilian real) versus the U.S. Dollar.Brazilian real.
•·Policies foron the use of hedging derivatives
The Company’s financial policy reflects the parameters of liquidity, credit and market risks approved by the Audit Committee and Board of Directors. The use of derivative instruments in order to prevent fluctuations in interest and exchange rates from having a negative impact on the company’s balance sheet and income statementsstatement should consider the same parameters. As provided for in internal rules, this financial investment policy has been approved and is being managed by the finance officers.
At the meetings of the Executive Officers and Board of Directors, the officers and directors routinely present and discuss the Company’s financial positions. Under the bylaws, transactions involving material amounts require the prior approval of management bodies. The use of other derivative instruments is contingent upon the express prior approval of the Board of Directors.
To finance its activities, the Company resorts to the capital markets, both locally and internationally, and based on the indebtedness profile it is seeking, part of the debt is pegged to foreign currency, basically to the US$,US dollar, which causes Management to seek hedging for debt through derivative financial instruments.
To contract derivative financial instruments for hedging within the internal control structure, the following policies are adopted:
FS-50
•·ongoing calculation of exchange exposure that occurs by analyzing assets and liabilities exposed to foreign currency, under the following terms:(i) trade accounts receivablereceivables and payables in foreign currency; (ii) cash and cash equivalents and debts in foreign currency considering the maturity of the assets and liabilities exposed to exchange fluctuations;
FS-44
•·presentation of the financial position and exchange exposure on a routine basis at meetings of the Executive Officers and Board of Directors that approve the hedging strategy;
•·carrying out derivative hedging transactions only with leading banks, diluting the credit risk through diversification among these banks;
The consolidated net exposure as atof December 31, 20102011 is as follows:
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Foreign Exchange Rate Exposure | Amounts US$ | Amounts EUR | Amounts A$ | |||
thousand) | thousand) | thousand) | ||||
Cash and cash equivalents overseas | 5,613,908 | 302,553 | ||||
Derivative guarantee margin | 217,223 | |||||
Trade receivables - foreign market | 287,616 | 7,844 | ||||
Other assets | 139,219 | 118 | ||||
Total assets | 6,257,966 | 7,962 | 302,553 | |||
Borrowings and financing | (5,299,622) | |||||
Trade payables | (10,779) | (1,450) | ||||
Other liabilities | (56,479) | (16) | ||||
Total liabilities | (5,366,880) | (1,466) | ||||
Gross exposure | 891,086 | 6,496 | 302,553 | |||
Notional amount of derivatives contracted | 267,856 | (90,000) | ||||
Net exposure | 1,158,942 | (83,504) | 302,553 |
The results obtained
Gains and losses on these transactions are consistent with the policies and strategies defined by Management.
•Forward Contract – Real Exchange Rate for Commercial Dollar Exchange Ratemanagement.
The purpose of this contract is to hedge obligations denominated in foreign currency against the fluctuation in the Brazilian Real. The Company can buy or sell forward contracts for commercial dollar rates on the Commodities and Futures Exchange (BM&F) to mitigate the exchange exposure for its US$ denominated liabilities. The specifications of the Real x Dollar forward exchange rate contract, including detailed explanations on the characteristics of the contracts and calculation of the daily adjustments, are published by the BM&F. In 2010, the Company paid R$ 179,564 and received R$ 259,490 in adjustments, thus obtaining a gain of R$ 79,926. The gains and losses on these contracts are directly related to exchange fluctuations. At December 31, 2010 the Company did not have any outstanding transactions.
•·Exchange swap transactions
The Company carries out exchange swap transactions in order to hedge its assets and liabilities against any fluctuations in the US$/R$US dollar-real parity.
This hedge through exchange swaps provides the Company, through the asset endlong position of the contract, with a forward rate agreement (FRA) gain on the exchange coupon, which at the same time improves our investment rates and reduces the cost of our funding in the international market.
At
As of December 31, 2010,2011, the Company had a long position in exchange swap of US$ 1,178,000367,856 thousand (US$ 1,519,5001,249,529 thousand in 2009)as of December 31, 2010) where we received, in the long position, exchange rate change plus 3.4541% per year on the asset end,average (in 2010, exchange rate change plus 2.29% per year on average (in 2009 exchange rate change plus 0.88% p.a.)year), and paid 100% of CDI, in the CDI rate on the asset endshort position of the exchange swap contract.
FS-51
AtAs of December 31, 2010,2011 the Company held a short position in a foreign exchange swap of US$100,000 thousand, where we paid foreign exchange change plus interest of 2.39% per year on average in the short position and received 100% of CDI in the long position of the foreign exchange swap.
As of December 31, 2011, the consolidated position of these contracts is as follows:
i) Opena) Outstanding transactions
·US dollar-to-real exchange swap
FS-45
| Reference value (US$ thousand) | 2010 appreciation (R$ thousand) | Fair value (market) (R$ thousand) | Amount payable in the year (R$ thousand) | |||||||||||||||||
Conterparties | 2010 |
| Maturity of transaction | Asset position | Liability position | 2010 |
| Amount payable | |||||||||||||
12/31/2011 | |||||||||||||||||||||
Appreciation (R$) | Fair value | ||||||||||||||||||||
Counterparties | Transaction maturity | Notional (US$ thousand) | Asset position | Liability position | Amount receivable / (payable) | ||||||||||||||||
JP Morgan | 2/1/2012 to 3/1/2012 | 9,981 | 19,127 | (18,556) | 571 | ||||||||||||||||
HSBC | 223,000 |
| jan/3/11 |
| 372,794 |
| (385,900) |
| (13,106) |
| (13,106) | 4/22/2012 to 6/15/2012 | 101,317 | 192,919 | (176,554) | 16,365 | |||||
Deutsche Bank | 265,000 |
| jan/3/11 to feb/1/11 |
| 443,143 |
| (468,544) |
| (25,401) |
| (25,401) | ||||||||||
Itau BBA | 450,000 |
| jan/3/11 |
| 751,835 |
| (778,892) |
| (27,057) |
| (27,057) | ||||||||||
Société Générale | 02/1/2012 to 8/2/2012 | 16,635 | 30,554 | (29,362) | 1,192 | ||||||||||||||||
Bradesco | 8/1/2012 | 3,327 | 6,279 | (5,743) | 536 | ||||||||||||||||
Banco do Brasil | 7/2/2012 to 9/3/2012 | 6,654 | 12,605 | (12,413) | 192 | ||||||||||||||||
Santander | 110,000 |
| jan/3/11 to jan/2/15 |
| 183,787 |
| (190,395) |
| (6,608) |
| (6,608) | 2/1/2012 to 1/2/2015 | 14,990 | 28,900 | (28,416) | 484 | |||||
Goldman Sachs | 130,000 |
| jan/3/11 to feb/1/15 |
| 215,302 |
| (224,658) |
| (9,356) |
| (9,356) | 1/2/2015 | 190,000 | 371,174 | (352,514) | 18,660 | |||||
Banco de Tokyo | 12/15/2016 | 24,952 | 46,980 | (47,960) | (980) | ||||||||||||||||
| 1,178,000 |
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| 1,966,861 |
| (2,048,389) |
| (81,528) |
| (81,528) | 367,856 | 708,538 | (671,518) | 37,020 | ||||||
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12/31/2010 | |||||||||||||||||||||
Appreciation (R$) | Fair value | ||||||||||||||||||||
(market) | |||||||||||||||||||||
Counterparties | Transaction maturity | Notional (US$ thousand) | Asset position | Liability position | Amount (payable) | ||||||||||||||||
JP Morgan | 11/1/2011 to '3/1/2012 | 6,654 | 11,078 | (11,170) | (92) | ||||||||||||||||
HSBC | 1/3/2011 | 223,000 | 372,794 | (385,900) | (13,106) | ||||||||||||||||
Société Générale | 2/1/2011 to '12/1/2011 | 23,289 | 39,687 | (50,254) | (10,567) | ||||||||||||||||
Pactual | 7/1/2011 | 3,327 | 5,847 | (8,573) | (2,726) | ||||||||||||||||
Deutsche Bank | 1/3/2011 to 2/1/2011 | 265,000 | 443,143 | (468,544) | (25,401) | ||||||||||||||||
Santander | 1/3/2011 to 1/2/2015 | 131,625 | 220,951 | (239,169) | (18,218) | ||||||||||||||||
Goldman Sachs | 1/3/2011 to 1/2/2015 | 130,000 | 215,302 | (224,658) | (9,356) | ||||||||||||||||
Itau BBA | 1/3/2011 to 12/1/2011 | 466,634 | 779,802 | (809,381) | (29,579) | ||||||||||||||||
1,249,529 | 2,088,604 | (2,197,649) | (109,045) |
·Real-to-US dollar exchange swap
12/31/2011 | ||||||||||
Appreciation (R$) | Fair value | |||||||||
(market) | ||||||||||
Transaction | Notional (US$ | Asset | Liability | Amount | ||||||
Counterparties | maturity | thousand) | position | position | (payable) | |||||
Santander | 2/1/2012 | (70,000) | 130,266 | (130,787) | (521) | |||||
Goldman Sachs | 2/1/2012 | (30,000) | 55,704 | (56,030) | (326) | |||||
(100,000) | 185,970 | (186,817) | (847) |
·Iene-to-US dollar exchange swap
FS-46
12/31/2011 | ||||||||||
Appreciation (R$) | Fair value | |||||||||
(market) | ||||||||||
Transaction | Asset | Liability | Amount | |||||||
Counterparties | maturity | Notional (iene) | position | position | receivable | |||||
Deutsche Bank | 12/12/2013 | 59,090,000 | 374,455 | (373,430) | 1,025 | |||||
59,090,000 | 374,455 | (373,430) | 1,025 | |||||||
12/31/2010 | ||||||||||
Appreciation (R$) | Fair value | |||||||||
(market) | ||||||||||
Counterparties | Transaction maturity | Notional (iene) | Asset position | Liability position | Amount receivable/ (payable) | |||||
Deutsche Bank | 12/12/2013 | 59,090,000 | 254,231 | (254,231) | ||||||
59,090,000 | 254,231 | (254,231) |
b) Settled US dollar-real transactions
Appreciation 2011 | Appreciation 2010 | |||||||||||||||||
Counterparties | Notional(US$thousand) | Asset position (R$) | Liability position(R$) | Amount received / (paid) in 2011 | Notional(US$thousand) | Asset position (R$) | Liability position(R$) | Fair value in2010 | Impact onP&L in 2011 | |||||||||
Deutsche Bank | 2,352,000 | 3,809,284 | (3,927,022) | (117,738) | 265,000 | 443,143 | (468,544) | (25,401) | (92,337) | |||||||||
Goldman Sachs | 100,000 | 2,978,316 | (2,975,695) | 2,621 | 100,000 | 167,243 | (173,031) | (5,788) | 8,409 | |||||||||
HSBC | 1,843,000 | 3,022,397 | (3,092,542) | (70,145) | 223,000 | 372,794 | (385,900) | (13,106) | (57,039) | |||||||||
Itau BBA | 809,635 | 1,345,353 | (1,380,319) | (34,966) | 466,635 | 779,802 | (809,378) | (29,576) | (5,390) | |||||||||
Santander | 246,625 | 412,585 | (434,164) | (21,579) | 121,625 | 204,241 | (221,856) | (17,615) | (3,964) | |||||||||
BTG Pactual | 3,327 | 5,542 | (9,050) | (3,508) | 3,327 | 5,847 | (8,573) | (2,726) | (782) | |||||||||
Société Générale | 23,289 | 41,093 | (52,363) | (11,270) | 23,289 | 39,687 | (50,255) | (10,568) | (702) | |||||||||
JP Morgan | 3,327 | 5,737 | (6,075) | (338) | 6,654 | 11,078 | (11,170) | (92) | (246) | |||||||||
Bradesco | 1,663 | 3,143 | (2,755) | 388 | 388 | |||||||||||||
5,382,866 | 11,623,450 | (11,879,985) | (256,535) | 1,209,530 | 2,023,835 | (2,128,707) | (104,872) | (151,663) |
ii) Settled transactions
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| Referencia value (Notional amount) US$ thousand | 2010 appreciation (R$ thousand) | 2009 appreciation (R$ thousand) | Fair value (market) (R$ thousand) | Amount paid/received in the year (R$ thousand) | ||||||||||||||
Maturity | Counterparties | 2010 |
| 2009 |
| Asset position | Liability position | Asset position | Liability position | 2010 |
| 2009 |
| Amount received | Amount paid | |||||||
01/04/2010 a 02/01/2010 | Deutsche Bank | 983,000 |
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| 1,740,799 |
| (1,748,563) |
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| (7,764) |
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| 6,170 |
| (13,934) | ||
01/04/2010 a 03/05/2010 | Goldman Sachs | 2,132,000 |
| 300,000 |
| 3,857,227 |
| (3,845,925) |
| 523,270 |
| (527,928) |
| 11,302 |
| (4,658) |
| 54,579 |
| (38,619) | ||
01/04/2010 a 02/08/2010 | HSBC |
| 3,680,500 |
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| 6,442,985 |
| (6,587,554) |
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| (144,569) |
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| 17,266 |
| (161,835) | |
01/04/2010 a 03/01/2010 | Itau BBA |
| 2,890,000 |
| 130,000 |
| 5,081,102 |
| (5,111,321) |
| 226,753 |
| (228,968) |
| (30,219) |
| (2,215) |
| 64,845 |
| (92,849) | |
02/08/2010 |
| Santander |
| 4,601,220 |
| 1,024,500 |
| 8,285,964 |
| (8,292,883) |
| 1,788,212 |
| (1,824,172) |
| (6,919) |
| (35,960) |
| 131,592 |
| (102,551) |
|
| Westlb |
| 265,000 |
| 65,000 |
| 475,789 |
| (491,788) |
| 113,379 |
| (114,569) |
| (15,999) |
| (1,190) |
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| (14,809) |
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| 14,551,720 |
| 1,519,500 |
| 25,883,866 |
| (26,078,034) |
| 2,651,614 |
| (2,695,637) |
| (194,168) |
| (44,023) |
| 274,452 |
| (424,597) |
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The net position of the above contracts isoutstanding transactions was recorded in a specific account for derivativesthe Company’s assets and liabilities and totals R$37,020 in assets and R$847 in liabilities as a lossof December 31, 2011 (R$109,045 in the amountliabilities as of R$ 81,528 in 2010 (loss of R$ 44,023 in 2009)December 31, 2010) and its effects are recognized in the Company’s finance income (expenses)(costs) as a loss in the amounttotaling R$115,490 as of December 31, 2011 (loss of R$ 231,673.231,673 as of December 31, 2010) (see Note 26).
Subsidiaries Tecon and Lusosider carry out transactions with derivatives to hedge their exposure
·Euro-to-US dollar exchange swap
In addition to the Yen and the Dollar. The notional amounts of these transactions are JPY 2,390,398 and US$ 3,065, respectively, and the results of these transactions are consolidated in the Company’s financial results in the amount of R$ 11,387. As at December 31, 2010, the net open liability position was R$ 8,042.
The jointly-controlled subsidiary MRS Logística carries out operations with derivatives (swaps) with a notional amount of US$ 71,529 that generated losses proportional to the Company’s equity interest in the amount of R$ 19,775 recognized in consolidated finance income (expenses). At December 31, 2010, the net open liability position was R$ 27,517.
Besides the swaps mentioned above, the Company also engaged in non-deliverable forward (NDF) forcontracted NDFs (non-deliverable forwards) to hedge its assets denominated in Euros.euro-denominated assets. Basically the Company carried out operations withcontracted financial derivatives offor its euro-denominated assets, in Euros, on whichwhere it will receive the difference between the US dollar exchange rate change observed in Dollars infor the period, multiplied by the referencenotional amount (asset end)(long position) and pay the difference between the exchange rate change in Euros observed ineuro for the period overon the referencenotional euro amount in Euros as ofon the contractingcontract date (liability end). In(short position).In general, these involveare transactions onconducted in the Brazilian over-the-counter market and thethat have as counterparties are leadingprime financial institutions, contracted withinunder the exclusive funds.
FS-52
As atof December 31, 20102011, the consolidateconsolidated position of these contracts was the following:as follows:
i) Opena) Outstanding transactions
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| Reference value (EUR thousand) | Appreciation - 2010 (R$ thousand) | Fair value (market) (R$ thousand) | Amount receivable in the year (R$ thousand) | |||||||
Counterparties | 2010 |
| Maturity of transaction | Asset position | Liability position | 2010 |
| Amount receivable | ||||
Deutsche Bank | 25,000 |
| jan/20/11 |
| 56,648 |
| (55,707) |
| 941 |
| 941 | |
Goldman Sachs | 50,000 |
| jan/20/11 |
| 113,295 |
| (111,415) |
| 1,880 |
| 1,880 | |
HSBC |
| 15,000 |
| jan/20/11 |
| 34,029 |
| (33,424) |
| 605 |
| 605 |
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| 90,000 |
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| 203,972 |
| (200,546) |
| 3,426 |
| 3,426 |
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FS-47
12/31/2011 | ||||||||||
Appreciation (R$) | Fair value (market) | |||||||||
Notional (EUR | Asset | Liability | Amount | |||||||
Counterparties | Transaction maturity | thousand) | position | position | receivable | |||||
HSBC | 1/12/2012 | 25,000 | 51,469 | (48,556) | 2,913 | |||||
Deutsche Bank | 1/12/2012 | 25,000 | 51,521 | (48,556) | 2,965 | |||||
Goldman Sachs | 1/12/2012 | 40,000 | 128,761 | (121,389) | 7,372 | |||||
90,000 | 231,751 | (218,501) | 13,250 | |||||||
12/31/2010 | ||||||||||
Appreciation (R$) | Fair value (market) | |||||||||
Notional (EUR | Asset | Liability | Amount | |||||||
Counterparties | Transaction maturity | thousand) | position | position | receivable | |||||
HSBC | 1/20/2011 | 15,000 | 34,029 | (33,424) | 605 | |||||
Deutsche Bank | 1/20/2011 | 25,000 | 56,648 | (55,707) | 941 | |||||
Goldman Sachs | 1/20/2011 | 50,000 | 113,295 | (111,415) | 1,880 | |||||
90,000 | 203,972 | (200,546) | 3,426 |
ii)b) Settled transactions
Appreciation 2011 | Appreciation 2010 | |||||||||||||||||
Counterparties | Notional (EUR thousand) | Asset position (R$) | Liability position (R$) | Received / (paid) in 2011 | Notional (EUR thousand) | Asset position (R$) | Liability position (R$) | Fair value in 2010 | Impact on P&L in 2011 | |||||||||
Deutsche Bank | 210,000 | 475,582 | (481,504) | (5,922) | 25,000 | 56,648 | (55,707) | 941 | (6,863) | |||||||||
Goldman Sachs | 140,000 | 321,800 | (319,448) | 2,352 | 50,000 | 113,295 | (111,415) | 1,880 | 472 | |||||||||
HSBC | 15,000 | 34,029 | (33,413) | 616 | 15,000 | 34,029 | (33,424) | 605 | 11 | |||||||||
Itau BBA | 85,000 | 199,820 | (197,116) | 2,704 | 2,704 | |||||||||||||
450,000 | 1,031,231 | (1,031,481) | (250) | 90,000 | 203,972 | (200,546) | 3,426 | (3,676) |
The position of outstanding transactions was recognized in the Company’s assets and totals R$13,250 as of December 31, 2011 (R$3,426 in assets as of December 31, 2010) and its effects are recognized in the Company’s finance income (costs) as a gain totaling R$9,574 as of December 31, 2011 (loss of R$6,763 as of December 31, 2010) (see Note 26).
·Real-Commercial U.S. Dollar Exchange Rate Futures
It seeks to hedge foreign-denominated liabilities against the real fluctuation. The Company may buy or sell commercial U.S. dollar futures on the Commodities and Futures Exchange (BM&F) to mitigate the foreign exchange exposure of its US dollar-denominated liabilities. The specifications of the Real-U.S. dollar exchange rate futures contract, including detailed explanation on the contract’s features and the calculation of daily adjustments, are published by the BM&F and disclosed on its website (www.bmf.com.br).In 2011, the Company did not contract U.S. dollar futures transactions.Throughout 2010, the Company paid R$179,564 and received R$259,490 in adjustments, thus with a gain of R$79,926.Gains and losses from these contracts are directly related to the foreign exchange fluctuations.
·Other derivatives
The subsidiary Lusosider carries out transactions with derivatives to hedge its exposure against the euro-dollar fluctuation. As of December 31, 2011, the gross position was US$35,352 thousand and the net position was US$144 thousand (including the derivatives below).
FS-48
|
| Reference value (EUR thousand) | Appreciation - 2010 (R$ thousand) | Amount payable in the year (R$ thousand) | ||||||||
Conterparties | 2010 |
| Maturity of transaction | Asset position | Liability position | Amount receivable/received | Amount payable/paid | |||||
Itau BBA |
| 25,000 |
| jul/12/10 |
| 56,833 |
| (57,010) |
|
|
| (177) |
Deutsche Bank |
| 30,000 |
| jul/12/10 to sep/15/10 | 68,061 |
| (68,266) |
|
|
| (205) | |
HSBC |
| 75,000 |
| jul/12/10 to nov/18/10 | 70,998 |
| (175,322) |
|
|
| (4,324) | |
Goldman Sachs |
| 25,000 |
| sep/15/10 to nov/18/10 | 283,127 |
| (288,610) |
|
|
| (5,483) | |
|
| 255,000 |
|
|
| 579,019 |
| (589,208) |
|
|
| (10,189) |
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2011 | ||||||||||
Counterparties | Transaction maturity | Notional (US$ thousand) | Appreciation (R$) | Fair value (market) | ||||||
Asset position | Liability position | Amount receivable | ||||||||
BES | 4/30/2012 | 20,208 | 38,017 | (34,049) | 3,968 | |||||
BNP | 1/31/2012 | 15,000 | 28,219 | (25,453) | 2,766 | |||||
35,208 | 66,236 | (59,502) | 6,734 |
The position of outstanding transactions was recognized in the Company’s assets and totals R$6,734 as of December 31, 2011.
On September 26, 2011, the subsidiary Tecon settled its derivative transactions used to hedge its exposure to Real-Yen fluctuation, the notional amount of which was JPY 2,390,398 (outstanding short position of R$8,042 as of December 31, 2010).
Gains or losses on these transactions as of December 31, 2011 are consolidated into the Company’s finance income (costs) as a gain totaling R$16,501 (loss of R$8,388 in 2010) (see Note 26).
•·Sensitivity analysis
For consolidated of the US dollar-to-real exchange transactions with dollar fluctuation risk,swap
The sensitivity analysis is based onin the exchange rate atassumption of maintaining, as a probable scenario, the fair values as of December 31, 2010 -R$ 1.6662 = US$ 1.00 – adjustments have been estimated2011 recognized in assets, amounting to R$37,020 and in liabilities, amounting to R$847.The Company considered the scenarios below for five different scenarios, as follows:the real-dollar parity volatility.
- Scenario 1: Probable Scenario, rate(25% real appreciation) R$-US$ parity of 1.6736 for future dollar quotation on the BM&F falling due on February 1, 2010 –gathered at December 31, 2010;
1.4069;
- Scenario 2: (25% appreciation of the real)(50% real appreciation) R$/US$-US$ parity of 1.2497;
0.9379;
- Scenario 3: (50% appreciation of the real)(25% real depreciation) R$/US$-US$ parity of 0.8331;
2.3448;
- Scenario 4: (25% devaluation(50% real depreciation) R$-US$ parity of 2.8137.
12/31/2011 | ||||||||||||
Reference | ||||||||||||
value (US$ | ||||||||||||
Risk | thousand) | Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | |||||||
1.8758 | 1.4069 | 0.9379 | 2.3448 | 2.8137 | ||||||||
Net currency swap | US dollar fluctuation | 267,856 | (125,611) | (251,222) | 125,611 | 251,222 | ||||||
Exchange position functional currency BRL | US dollar fluctuation | 891,086 | (417,875) | (835,749) | 417,875 | 835,749 | ||||||
(not incluing exchange derivatives above) | ||||||||||||
Consolidated exchange position | US dollar fluctuation | 1,158,942 | (543,486) | (1,086,971) | 543,486 | 1,086,971 | ||||||
(including exchange derivatives above) |
·Sensitivity analysis of the real) R$/US$ parity of 2.0828;- Scenario 5: (50% devaluation of the real) R$/US$ parity of 2.4993.euro-to-dollar exchange swap
|
|
|
|
|
|
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|
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|
|
|
|
| 2010 |
|
| Risk |
| Reference value US$ | Scenario 1 |
| Scenario 2 |
| Scenario 3 |
| Scenario 4 |
| Scenario 5 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.6662 |
| 1.6736 |
| 1.2497 |
| 0.8331 |
| 2.0828 |
| 2.4993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange swap |
| Fluctuation of US$ |
| 1,178,000 |
| 8,720 |
| (490,696) |
| (981,392) |
| 490,696 |
| 981,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange position - BRL functional cur. |
| Fluctuation of US$ |
| (1,150,294) |
| (8,514) |
| 479,155 |
| 958,310 |
| (479,155) |
| (958,310) |
(not including exchange derivatives above) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated exchange position |
| Fluctuation of US$ |
| 99,235 |
| 735 |
| (41,336) |
| (82,673) |
| 41,336 |
| 82,673 |
(including exchange derivatives above) |
|
|
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|
|
|
|
|
|
|
|
|
|
|
FS-53
For consolidated exchange transactions with Euro fluctuation risk,The sensitivity analysis is based on the exchange rate atassumption of maintaining, as a probable scenario, the fair values as of December 31, 2010 -R$ 2.2280 = Euro 1.00 – adjustments have been estimated2011 recognized in assets, amounting to R $13,250.The Company considered the scenarios below for five different scenarios, as follows:the real-euro parity volatility.
- Scenario 1: Probable Scenario, rate(25% real appreciation) R$-euro parity of R$ 2.2188 for future Euro quotation on the BM&F falling due on February 1, 2010 –gathered at December 31, 2010;
1.8257;
- Scenario 2: (25% appreciation of the real)(50% real appreciation) R$/Euro-euro parity of 1.6710;
1.2171;
- Scenario 3: (50% appreciation of the real)(25% real depreciation) R$/Euro-euro parity of 1.1140;
3.0428;
FS-49
- Scenario 4: (25% devaluation of the real)(50% real depreciation) R$/Euro-euro parity of 2.7850;
3.6513.
12/31/2011 | ||||||||||||
Reference | ||||||||||||
Risk | value (EUR | Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | |||||||
thousand) | ||||||||||||
2.4342 | 1.8257 | 1.2171 | 3.0428 | 3.6513 | ||||||||
Net currency swap | euro fluctuation | (90,000) | 54,770 | 109,539 | (54,770) | (109,539) | ||||||
Exchange position functional currency BRL | euro fluctuation | 6,496 | (3,954) | (7,907) | 3,954 | 7,907 | ||||||
(not incluing exchange derivatives above) | ||||||||||||
Consolidated exchange position | euro fluctuation | (83,504) | 50,816 | 101,632 | (50,816) | (101,632) | ||||||
(including exchange derivatives above) |
·Sensitivity analysis of exchange exposure to australian dollar
The sensitivity analysis is based on the assumption of maintaining, as a probable scenario, the fair values as of December 31, 2011.The Company considered the scenarios below for the real-australian dollar parity volatility.
- Scenario 5:1: (25% real appreciation) R$-A$ of 1.4337;
- Scenario 2: (50% devaluationreal appreciation) R$-A$ of the real)0.9558;
- Scenario 3: (25% real depreciation) R$/Euro-A$ parity of 3.3420.2.3895;
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
|
| Risk |
| Reference value EUR | Scenario 1 |
| Scenario 2 |
| Scenario 3 |
| Scenario 4 |
| Scenario 5 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2.2280 |
| 2.2188 |
| 1.6710 |
| 1.1140 |
| 2.7850 |
| 3.3420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange swap |
| Fluctuation of EURO |
| 90,000 |
| (831) |
| (50,130) |
| (100,260) |
| 50,130 |
| 100,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange position - BRL functional cur. |
| Fluctuation of EURO |
| 5,588 |
| (52) |
| (3,113) |
| (6,225) |
| 3,113 |
| 6,225 |
(not including exchange derivatives above) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated exchange position |
| Fluctuation of EURO |
| 95,588 |
| (883) |
| (53,243) |
| (106,485) |
| 53,243 |
| 106,485 |
(including exchange derivatives above) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Scenario 4: (50% real depreciation) R$-A$ parity of 2.8674.
12/31/2011 | ||||||||||||
Reference | ||||||||||||
Risk | value (A$ | Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | |||||||
thousand) | ||||||||||||
1.9116 | 1.4337 | 0.9558 | 2.3895 | 2.8674 | ||||||||
Exchange position functional currency BRL | Australian dollar fluctuation | 302,553 | (144,590) | (289,180) | 144,590 | 289,180 |
·Sensitivity analysis of exchange dollar-to-euro swap
The sensitivity analysis is based on the assumption of maintaining, as a probable scenario, the fair values as of December 31, 2011 recognized in assets, amounting to R $6,734.The Company considered the following scenarios for the real-euro parity volatility.
- Scenario 1: (25% real appreciation) euro-dollar parity of 0.9856;
- Scenario 2: (50% real appreciation) euro-dollar parity of 0.6571;
- Scenario 3: (25% real depreciation) euro-dollar parity of 1.6426;
- Scenario 4: (50% real depreciation) euro-dollar parity of 1.9712.
FS-50
12/31/2011 | ||||||||||||
Reference | ||||||||||||
Risk | value (US$ | Scenario 1 | Scenario 2�� | Scenario 3 | Scenario 4 | |||||||
thousand) | ||||||||||||
1.3141 | 0.9856 | 0.6571 | 1.6426 | 1.9712 | ||||||||
Net currency swap | US dollar fluctuation | 35,208 | (11,567) | (23,133) | 11,567 | 23,133 | ||||||
Exchange position functional currency EURO | US dollar fluctuation | (35,352) | 11,614 | 23,228 | (11,614) | (23,228) | ||||||
(not incluing exchange derivatives above) | ||||||||||||
Consolidated exchange position | US dollar fluctuation | (144) | 47 | 95 | (47) | (95) | ||||||
(including exchange derivatives above) |
•·Interest rate risk
Short- and long-term liabilities to indexed to floatinginterest rate and inflation indices.indices. Due to this exposure, the Company undertakes derivative transactions to better manage these risks.
•·LIBOR x CDIInterest rate swap transactions (LIBOR to CDI)
The objective of these transactions is to hedge transactions indexed to US dollar LIBOR in US$ against fluctuations in Brazilian interest rates. Basically, the Company carried out swaps of its obligations indexed to the LIBOR, onin which it receives interest of 1.25% p.a. overon the notional value of the dollar (asset end)(long position) and pays 96% of the CDI rate on the reference valuenotional amount in R$reais at the contractingcontract date (liability end). The reference value(short position).The notional amount of these swapsthis swap as atof December 31, 20102011 is US$ 150,000107,500 thousand, hedging an export pre-paymentprepayment transaction in the same amount. The gains and losses on these contracts are directly related to fluctuations in exchange rates (US$) and interest rates (LIBOR and CDI). Generally they involve.In general, these are transactions carried out onconducted in the Brazilian OTCover-the-counter market with the counterparties being leadingthat have as a counterparty a prime financial institutions.institution.
As atof December 31, 2010,2011, the position of these contracts is as follows:
a) OpenOutstanding transactions
|
|
|
| Reference value (Notional amount) US$ thousand | Appreciation - 2010 (R$ thousand) | Fair value (market) (R$ thousand) | Amount payable in the year (R$ thousand) | |||||
Maturity date | Counterparties | 2010 |
| Asset position | Liability position | 2010 |
| Amount payable | ||||
feb/12/11 |
| CSFB |
| 150,000 |
| 254,575 |
| (257,584) |
| (3,009) |
| (3,009) |
12/31/2011 | ||||||||||
Notional | ||||||||||
(US$ | Appreciation (R$) | Fair value | ||||||||
thousand) | (market) (R$) | |||||||||
Counterparties | Transaction maturity | 2011 | Long position | Short position | Amount payable | |||||
CSFB | 2/13/2012 | 107,500 | 182,432 | (184,556) | (2,124) | |||||
12/31/2010 | ||||||||||
Notional | ||||||||||
(US$ | Appreciation (R$) | Fair value | ||||||||
thousand) | (market) (R$) | |||||||||
Counterparties | Transaction maturity | 2010 | Long position | Short position | Amount payable | |||||
CSFB | 2/12/2011 | 150,000 | 254,575 | (257,584) | (3,009) |
b)Settled transactions
FS-51
b) Settled transactions
|
|
| Reference value (Notional amount) US$ thousand | Appreciation - 2010 (R$ thousand) | Appreciation - 2009 (R$ thousand) | Fair value (market) (R$ thousand) |
|
| |||||||||||
Maturity | Counterparties | 2010 |
| 2009 |
| Asset position | Liability position | Asset position | Liability position | 2010 |
| 2009 |
| Amount paid | |||||
feb/12/10 | CSFB |
| 150,000 |
| 150,000 |
| 255,316 |
| (259,411) |
| 254,787 |
| (256,971) |
| (4,095) |
| (2,184) |
| (1,911) |
may/12/10 | CSFB |
| 150,000 |
|
|
| 255,228 |
| (259,066) |
|
|
|
|
| (3,838) |
|
|
| (3,838) |
aug/12/10 | CSFB |
| 150,000 |
|
|
| 255,367 |
| (260,316) |
|
|
|
|
| (4,949) |
|
|
| (4,949) |
nov/12/10 | CSFB |
| 150,000 |
|
|
| 255,320 |
| (260,475) |
|
|
|
|
| (5,155) |
|
|
| (5,155) |
|
|
|
|
|
|
| 1,021,231 |
| (1,039,268) |
| 254,787 |
| (256,971) |
| (18,037) |
| (2,184) |
| (15,853) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation 2011 | Appreciation 2010 | |||||||||||||||||||
Counterparties | Maturity | Notional (US$thousand) | Long position(R$) | Short position(R$) | Paid in 2011 | Notional(US$ thousand) | Long position(R$) | Short position(R$) | Fair value in2010 | Impact onP&L in 2011 | ||||||||||
CSFB | 14/2/2011 | 150,000 | 255,238 | (260,757) | (5,519) | 150,000 | 254,575 | (257,584) | (3,009) | (2,510) | ||||||||||
CSFB | 12/5/2011 | 150,000 | 255,151 | (260,582) | (5,431) | (5,431) | ||||||||||||||
CSFB | 12/8/2011 | 129,000 | 219,172 | (224,641) | (5,469) | (5,469) | ||||||||||||||
CSFB | 14/11/2011 | 129,000 | 219,547 | (224,607) | (5,060) | (5,060) | ||||||||||||||
558,000 | 949,108 | (970,587) | (21,479) | 150,000 | 254,575 | (257,584) | (3,009) | (18,470) |
The net position of the above contracts is recorded in a specific derivatives account as a lossoutstanding transactions was recognized in the amountCompany’s liabilities and totals R$2,124 in 2011 (R$3,009 in liabilities as of R$ 3,009 as at December 31, 20102010) and its effects arewere recognized in the Company’s finance income (expenses)(costs) as a loss in the amounttotaling R$20,594 (loss of R$ 18,862.18,864 in 2010).
•·Sensitivity analysis of interest rate swaps (LIBOR to CDI)
|
|
|
|
|
|
|
|
| 2010 |
| Notional US$ |
| Risk |
| Probable |
| 25% |
| 50% |
LIBOR interest rate vs CDI swaps | 150,000 |
| (LIBOR) US$ | (1,795) |
| (26,823) |
| (31,904) |
The sensitivity analysis is based on the assumption of maintaining, as a probable scenario, the fair values as of December 31, 2011 recognized in liabilities, amounting to R$2,124.The Company considered the following scenarios for the LIBOR (US$) and CDI interest rates volatility.
12/31/2011 | ||||||||||||
Notional (US$ thousand) | Risk | 25% | 50% | 25% | 50% | |||||||
LIBOR-to-CDI interest rate swap | 107,500 | (Libor) US$ | (25,586) | (30,176) | 25,586 | 30,176 |
•·Sensitivity analysis of changes in interest rates
The Company considers the effects of ana 5% increase or decrease of 5% in interest rates on its outstanding loans,borrowings, financing and debentures as atof December 31, 20102011 in the consolidated financial statements.
|
| Impact on Profit or Loss | ||||||||
|
| 2010 |
| 2009 | Impact on profit or loss | |||||
Changes in interest rates | Changes in interest rates |
|
| % p.a. | 12/31/2011 | 12/31/2010 | ||||
TJLP |
| 6,465 |
| 5,603 | 6.00 | 1,372 | 6,465 | |||
LIBOR |
| 7,102 |
| 7,466 | ||||||
Libor | 0.81 | 7,941 | 7,102 | |||||||
CDI |
| 42,103 |
| 17,209 | 10.87 | 72,607 | 42,103 |
•·Share’sShare market price risks
The Company is exposed to the risk of changes in the price of sharesequity prices due to the investments made and classified as available-for-sale. Equity investments refer to blue chips traded on BOVESPA.
The following table summarizes the impact of the changes in the prices of sharesfinancial instruments classified as available-for-sale on profit or loss for the year and equity, in equity, under other comprehensive income.income:
|
|
|
|
Other Comprehensive Income | 2010 |
| 2009 |
Net change in fair value of financial instruments classified as available-for-sale | 515,572 |
| 36,885 |
Profit (loss) for the year | Other comprehensive income | |||||||
12/31/2011 | 12/31/2010 | 12/31/2011 | 12/31/2010 | |||||
Net change in the fair value of financial instruments classified as available for sale | (621,312) | 515,573 | (767,015) | 552,461 |
In 2010
On April 20, 2011, the Company receivedsold 100% of its equity interest held in Riversdale’s share capital, corresponding to 47,291,891 shares at the price of A$16.50 per share, totaling a gain of R$11,754 related to interest on shareholders’ equity.698,164.
Investments in acquired shares
The Company considers as probable scenario the amounts recognized at market prices as of leading companies are traded on the BOVESPA and ASX (Australian Securities Exchange).
The following sensitivityDecember 31, 2011. Sensitivity analysis is based on the premiseassumption of maintaining as probable scenario the market values as atof December 31, 2010. Accordingly,2011.Therefore, there is no impact on the financial instruments classified as available-for-sale asavailable for sale already presented above. The Company considered the following scenarios for volatility of the shares.
FS-55shares:
FS-52
- Scenario 1: (25% appreciation of shares);
- Scenario 2: (50% appreciation of shares);
- Scenario 3: (25% devaluation of shares);
- Scenario 4: (50% devaluation of shares);
| Impact on Equity | Impact on profit and equity | |||||||||||||||
Companies | 25% |
| 50% |
| 25% |
| 50% | Probable | 25% | 50% | 25% | 50% | |||||
Usiminas | 204,934 |
| 409,867 |
| (204,934) |
| (409,867) | (767,924) | 509,296 | 1,018,593 | (509,296) | (1,018,593) | |||||
Riversdale Mining Limited | 103,103 |
| 206,205 |
| (103,103) |
| (206,205) | ||||||||||
Planatlântica | 2,551 |
| 5,101 |
| (2,551) |
| (5,101) | ||||||||||
Panatlântica | 909 | 2,663 | 5,326 | (2,663) | (5,326) | ||||||||||||
| 310,587 |
| 621,174 |
| (310,587) |
| (621,174) | (767,015) | 511,959 | 1,023,919 | (511,959) | (1,023,919) | |||||
|
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|
|
|
|
|
|
•·Credit risks
The exposure to credit risks of financial institutions is in line with the parameters established in the financial policy. The Company’spolicy.The Company adopts the practice is to analyzeof analyzing in detail the financial position of its customers and suppliers, establishing a credit limit and conducting ongoing monitoring of the outstanding balance.
In relation to financial
As regards short-term investments, the Company only makes investments in institutions with low credit risk according toas rated by credit rating agencies. As part of the funds is invested in repo (repurchase agreements) backed by Brazilian government bonds, there is also exposure to the credit risk of Brazil.Brazil’s sovereign risk.
•·Capital management
The Company manages its capital structure in order to ensure the continuitythat it will be capable of its operations, so asproviding return to offer return toits shareholders and benefits to other interested parties, as well as maintainingstakeholders, and maintain an optimumoptimal capital structure to reduce this cost.
Instruments associated with other risks of fluctuations in the prices of financial assets
Total return equity swap contractsV – Margin deposits
On August 13, 2009, the Company settled in advance the total return equity transaction contracted on September 5, 2008 as approved by the Board of Directors on July 8, 2009.
|
|
|
|
|
|
|
|
|
| 2009 |
Issue date |
| Settlement date |
| Reference value (US$ thousand) |
| Assets |
| Liabilities | Fair value | |
sep/05/08 |
| aug/13/09 |
| 1,050,763 |
| 1,364,812 |
| (1,934,741) |
| (569,929) |
The Company also engaged in a cashless swap that involvedholds margin deposits totaling R$407,467 (R$254,485 as its counterparty the bank Goldman Sachs International and was pegged to 29,684,400 American Depositary Receipts (“ADRs”) issued by Companhia Siderúrgica Nacional (asset end) and the 3-month LIBOR plus a spread of 0.75% p.a. (liability end).
The gains and losses on this contract were directly related to the fluctuations in the exchange rate and the quotations of the Company’s ADRs and the LIBOR interest rate. This instrument was recognized in other payables in the balance sheet and the gains and losses were recorded on the accrual basis in the Company’s finance income (expenses).
This transaction featured a deposit relating to the guarantee margin with the counterparty in the amount of US$ 593,410 remunerated daily according to the FedFund rate and this deposit was released on the date the transaction was settled. The guarantee margin was recognized in other receivables, in current assets.
FS-56
V – Guarantee margin
The Company has deposits in guarantee in the amount of R$ 254,485 (R$ 115,964 in 2009)December 31, 2010); this amount is invested with Deutschebank toat Deutsche Bank as guarantee of the derivative financial instrument contracts, specifically the swapswaps between CSN Islands VIII and CSN. In addition, the Company has a securitization reserve fund in the amount of R$ 54,675 (R$ 126,092 in 2009) set forth in the contracts for the securitization program (see Note 16).
18. 16.OTHER PAYABLES
The group of other payables classified in current and non-current liabilities is comprised as follows:
Current | Non-current | |||||||
Consolidated | Consolidated | |||||||
12/31/2011 | 12/31/2010 | 12/31/2011 | 12/31/2010 | |||||
Amounts due to related parties (*) | 178,635 | 148,364 | 3,094,453 | 3,028,924 | ||||
Unrealized losses on derivatives (Note 15 I) | 2,971 | 116,407 | 373,430 | 254,494 | ||||
Dividends and interest on capital payable | 928,924 | 631,344 | ||||||
Advances from customers | 23,868 | 35,361 | ||||||
Taxes in installments | 313,201 | 656,678 | 1,910,576 | 859,898 | ||||
Profit sharing - employees | 131,755 | 90,243 | ||||||
Other payables | 149,091 | 176,555 | 215,061 | 178,350 | ||||
1,728,445 | 1,854,952 | 5,593,520 | 4,321,666 |
FS-53
|
|
| Current |
|
|
| Non-Current |
| 2010 |
| 2009 |
| 2010 |
| 2009 |
Amounts due to related parties (Note 5) | 148,364 |
| 80,062 |
| 3,028,924 |
| 2,980,772 |
Unrealized losses on derivatives (Note 17) | 116,407 |
| 77,146 |
| 263 |
| 18,729 |
Dividends and interest on shareholders’ equity payable (Note 24) | 631,344 |
| 383,079 |
|
|
|
|
Advances from customers | 35,361 |
| 85,464 |
|
|
|
|
Taxes payable in installments | 656,678 |
| 582,190 |
| 859,898 |
| 437,231 |
Other payables | 266,798 |
| 410,633 |
| 178,350 |
| 229,591 |
| 1,854,952 |
| 1,618,574 |
| 4,067,435 |
| 3,666,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) The nature of transactions with related parties are described in note 4.
19. 17.GUARANTEES
The Company is liable for guarantees in the amount of R$ 7,484,271 (R$ 4,863,348 in 2009) for its subsidiaries and jointly-controlled subsidiaries,jointly controlled entities, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Millions |
| Currency | Maturities |
| Borrowings |
| Tax collection lawsuits | Other |
|
|
| Total |
|
| ||||||
|
|
|
|
| 2010 |
| 2009 |
| 2010 |
| 2009 |
| 2010 |
| 2009 |
| 2010 |
| 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transnordestina | R$ |
| jun/01/10 to may//08/28 | 1,145,397 |
| 298,000 |
|
|
|
|
| 5,186 |
| 2,800 |
| 1,150,583 |
| 300,800 | |
CSN Cimentos | R$ |
| Indeterminate |
|
|
|
|
| 32,745 |
| 26,100 |
| 26,987 |
| 26,987 |
| 59,732 |
| 53,087 |
Prada | R$ |
| Indeterminate |
|
|
|
|
| 9,958 |
| 9,900 |
| 740 |
| 1,900 |
| 10,699 |
| 11,800 |
Sepetiba Tecon | R$ |
| Indeterminate |
| 1,465 |
| 1,900 |
| 15,000 |
| 15,000 |
| 61,519 |
| 66,500 |
| 77,983 |
| 83,400 |
Itá Energética | R$ |
| sep/15/13 |
| 9,587 |
| 93,700 |
|
|
|
|
|
|
|
|
| 9,587 |
| 93,700 |
CSN Energia | R$ |
| Indeterminate |
|
|
|
|
| 1,029 |
| 1,000 |
| 2,336 |
| 3,300 |
| 3,365 |
| 4,300 |
Total em R$ |
|
|
|
| 1,156,449 |
| 393,600 |
| 58,732 |
| 52,000 |
| 96,767 |
| 101,487 |
| 1,311,948 |
| 547,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSN Islands VIII | US$ |
| dec/16/13 |
| 550,000 |
| 550,000 |
|
|
|
|
|
|
|
|
| 550,000 |
| 550,000 |
CSN Islands IX | US$ |
| 1/15/2015 |
| 400,000 |
| 400,000 |
|
|
|
|
|
|
|
|
| 400,000 |
| 400,000 |
CSN Islands X | US$ |
| Perpetual |
|
|
| 750,000 |
|
|
|
|
|
|
|
|
|
|
| 750,000 |
CSN Islands XI | US$ |
| sep/21/19 |
| 750,000 |
| 750,000 |
|
|
|
|
|
|
|
|
| 750,000 |
| 750,000 |
CSN Islands XII | US$ |
| Perpetual |
| 1,000,000 |
|
|
|
|
|
|
|
|
|
|
| 1,000,000 |
|
|
Aços Longos | US$ |
| dec/31/11 |
| 4,431 |
| 8,700 |
|
|
|
|
|
|
|
|
| 4,431 |
| 8,700 |
CSN Resources | US$ |
| 7/21/2020 |
| 1,000,000 |
|
|
|
|
|
|
|
|
|
|
| 1,000,000 |
|
|
CSN Cimentos | US$ |
| 7/15/2010 |
|
|
| 200 |
|
|
|
|
|
|
|
|
|
|
| 200 |
Namisa | US$ |
| dec/31/09 |
|
|
| 20,000 |
|
|
|
|
|
|
|
|
|
|
| 20,000 |
Total in US$ |
|
|
|
| 3,704,431 |
| 2,478,900 |
|
|
|
|
|
|
|
|
| 3,704,431 |
| 2,478,900 |
Total in R$ |
|
|
|
| 6,172,323 |
| 4,316,261 |
|
|
|
|
|
|
|
|
| 6,172,323 |
| 4,316,261 |
|
|
|
|
| 7,328,772 |
| 4,709,861 |
| 58,732 |
| 52,000 |
| 96,767 |
| 101,487 |
| 7,484,271 |
| 4,863,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FS-57
Currency | Maturities | Borrowings | Tax collections | Other | Total | |||||||||||||||
12/31/2011 | 12/31/2010 | 12/31/2011 | 12/31/2010 | 12/31/2011 | 12/31/2010 | 12/31/2011 | 12/31/2010 | |||||||||||||
Transnordestina | R$ | Up to 5/8/2028and undefined | 1,358,657 | 1,145,397 | 1,800 | 7,686 | 5,186 | 1,368,143 | 1,150,583 | |||||||||||
CSN Cimentos | R$ | Up to 11/18/2014and undefined | 30,213 | 32,745 | 30,097 | 26,987 | 60,310 | 59,732 | ||||||||||||
Prada | R$ | Up to 12/10/2013and undefined | 9,958 | 9,958 | 2,440 | 740 | 12,398 | 10,698 | ||||||||||||
Sepetiba Tecon | R$ | 1/31/2012 | 700 | 1,465 | 15,000 | 61,519 | 700 | 77,984 | ||||||||||||
Itá Energética | R$ | 9/15/2013 | 7,326 | 9,587 | 7,326 | 9,587 | ||||||||||||||
CSN Energia | R$ | Up to 12/30/2012and undefined | 2,392 | 1,029 | 2,336 | 2,336 | 4,728 | 3,365 | ||||||||||||
Congonhas Minérios | R$ | 5/21/2018 | 2,000,000 | 2,000,000 | - | |||||||||||||||
Total in R$ | 3,366,683 | 1,156,449 | 44,363 | 58,732 | 42,559 | 96,768 | 3,453,605 | 1,311,949 | ||||||||||||
CSN Islands VIII | US$ | 12/16/2013 | 550,000 | 550,000 | 550,000 | 550,000 | ||||||||||||||
CSN Islands IX | US$ | 1/15/2015 | 400,000 | 400,000 | 400,000 | 400,000 | ||||||||||||||
CSN Islands XI | US$ | 9/21/2019 | 750,000 | 750,000 | 750,000 | 750,000 | ||||||||||||||
CSN Islands XII | US$ | Perpetual | 1,000,000 | 1,000,000 | 1,000,000 | 1,000,000 | ||||||||||||||
Aços Longos | US$ | 12/31/2011 | 4,431 | 4,431 | ||||||||||||||||
CSN Resources | US$ | 7/21/2020 | 1,000,000 | 1,000,000 | 1,000,000 | 1,000,000 | ||||||||||||||
Total in US$ | 3,700,000 | 3,704,431 | 3,700,000 | 3,704,431 | ||||||||||||||||
Total in R$ | 6,940,460 | 6,172,323 | 6,940,460 | 6,172,323 | ||||||||||||||||
10,307,143 | 7,328,772 | 44,363 | 58,732 | 42,559 | 96,768 | 10,394,065 | 7,484,272 |
20. 18.TAXES PAYABLE IN INSTALLMENTS
a)Tax recovery program (Refis)Recovery Program (REFIS)
•·Federal RefisREFIS
On November 26, 2009, the Company, and its subsidiaries and jointly controlled entities joined the Tax Recovery Programs established by Federal Law 11941/09 and Provisional Measure 470/09,2009, aimed at settling tax liabilities through a special payment system and installment paymentplan for the settlement of their tax and social security obligations. Joining the special tax programs reduced the amount of fines, interest and legal charges previously due.
Management’s decision took into consideration matters already judged by higher courts, as well as the assessment of externaloutside legal counsel regarding the possibility of favorable outcomes in the contingencies in progress.
The tax debts enrolled under Provisional Measure 470/09 were payable in 12 installments, starting November 2009.In July 2010, the Company elected to offset income tax and social contribution carryforwards against the last four installments of the installment plan, as allowed by relevant legislation.
In November 2009 and February 2010, the companies recognized the adjustments requireddebts payable enrolled in the installment plan under Law 11,941/09, already recognized through provisions, as well aswere reviewed based on the reductions in the debtsdebits set forth in special programs, according to the dates for waiver date of administrative appeals or lawsuits.legal proceedings. In 2009, a positive effect before income tax and social contribution was recorded in the amount of R$ 507,633, and in the 1stfirst quarter of 2010, athe negative effect before income tax and social contribution was recorded in the amount of R$ 42,364. These amounts were recorded42,365 was accounted for in other operating income and expenses and in finance income (expenses)(costs) (see notes 26Notes 25 and 27)26).
The new amount
In June, 2011, the Group companies consolidated the debts enrolled in the tax program set forth by Law 11941/09, payable in 180 SELIC-adjusted installments. As a result of debtsthe consolidation, the provision increased R$19,734 in the second quarter of 2011, recognized in line item Finance income (costs) and other expenses, before income tax and social contribution.
FS-54
With respect to judicial deposits linked to REFIS proceedings, the Company obtained a favorable opinion from the National Treasury Attorney General’s Office (PGFN) and the Federal Revenue Service (RFB) on the treatment given to the excess deposit generated after application of the reductions related toobtained for tax payment in cash.
Accordingly, the tax program under Law 11941/09 wasCompany filed a request for offset against deposits in court related to these contingencies and is still subject to validation by the appropriate authorities. The remaining balance will be paid in 180 monthly installments based on the consolidation of the debts by the authorities.
The debts under the terms of Provisional Measure 470/09 were divided into 12 installments as from November 2009. In July 2010, the Company elected to offset the four lastdeposit surplus against taxes in installments under the tax recoveryLaw 11941 REFIS program against its income tax and social contribution tax loss carry forwards, as permitted by applicable legislation.with the PGFN. We are awaiting a reply from the PGFN of the intended offset.
The appropriate authorities are still examining the data submittedposition of REFIS debts recorded in order to consolidate the debts includedtaxes in the installment payment programs established by Provisional Measure 470/09installments in current and Law 11941/09.
Atnon-current liabilities as of December 31, 2010, the position2011 was R$2,094,741 (R$1,444,207 as of the debts under the Refis, recorded under taxes payable in installments, was R$ 1,444,207 (R$ 826,844 in 2009) in the Consolidated.December 31, 2010).
•State Refis
On January 18, 2010 the State of Rio de Janeiro published Law 5647/10, which introduced the Tax Recovery Program. Based on these new regulations, amounts due were reduced in terms of fines and interest and could be settled with “precatórios” (bonds issued to pay court-ordered debts) through May 31, 2010. The Company and its subsidiaries CSN Cimentos and MRS elected to include some of their state tax debts, totaling R$ 52,387, in the Tax Recovery Program (REFIS), without significant impacts on profit or loss.
21. 19.PROVISIONS FOR TAX, SOCIAL SECURITY, LABOR AND CIVIL RISKS AND JUDICIAL DEPOSITS
Contingencies and claims
Claims of different nature are being challenged at the appropriate courts. Details of the accrued amounts and related judicial deposits are as follows:
|
|
| 2010 |
|
|
| 2009 |
|
|
| 1/1/2009 |
| Judicial deposits | Provision |
| Judicial deposits | Provision |
| Judicial deposits | Provision | |||
Social security and labor | 107,237 |
| 247,214 |
| 86,541 |
| 217,777 |
| 63,448 |
| 159,257 |
Civil | 47,216 |
| 80,330 |
| 37,251 |
| 61,428 |
| 24,863 |
| 63,542 |
Tax | 878,309 |
| 86,841 |
| 869,399 |
| 40,162 |
| 9,552 |
| 46,424 |
Judicial deposits | 46,023 |
|
|
| 44,493 |
|
|
| 41,667 |
|
|
| 1,078,785 |
| 414,385 |
| 1,037,684 |
| 319,367 |
| 139,530 |
| 269,223 |
Legal obligations challenged in court: |
|
|
|
|
|
|
|
|
|
| |
Tax |
|
|
|
|
|
|
|
|
|
|
|
IPI premium credit | 1,227,892 |
| 1,227,892 |
| 1,227,892 |
| 1,227,892 |
| 1,196,822 |
| 2,227,203 |
CSLL credit on exports |
|
| 401,916 |
|
|
| 1,240,158 |
|
|
| 1,156,830 |
SAT |
|
|
|
|
|
| 50,880 |
|
|
| 66,650 |
Salary premium for education | 36,189 |
| 33,121 |
| 36,189 |
| 33,121 |
| 36,189 |
| 33,121 |
CIDE | 54,211 |
| 27,545 |
| 29,913 |
| 27,674 |
| 27,616 |
| 27,390 |
Income tax on ”Plano Verão” | 341,551 |
| 20,892 |
| 339,215 |
| 20,892 |
| 336,826 |
| 20,892 |
Other provisions | 36,078 |
| 113,552 |
| 36,078 |
| 108,203 |
| 370,268 |
| 107,436 |
| 1,695,921 |
| 1,824,918 |
| 1,669,287 |
| 2,708,820 |
| 1,967,721 |
| 3,639,522 |
| 2,774,706 |
| 2,239,303 |
| 2,706,971 |
| 3,028,187 |
| 2,107,251 |
| 3,908,745 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 222,461 |
|
|
| 189,517 |
|
|
| 161,144 |
Total non-current liabilities | 2,774,706 |
| 2,016,842 |
| 2,706,971 |
| 2,838,670 |
| 2,107,251 |
| 3,747,601 |
|
|
|
|
|
|
|
|
|
|
|
|
FS-58
12/31/2011 | 12/31/2010 | |||||||
Judicial deposits | Accrued liabilities | Judicial deposits | Accrued liabilities | |||||
Social security and labor | 131,443 | 284,556 | 107,100 | 247,212 | ||||
Civil | 50,909 | 94,183 | 47,216 | 80,331 | ||||
Ambiental | 6,906 | 500 | ||||||
Tax | 1,159,881 | 94,317 | 878,309 | 86,342 | ||||
Judicial deposits | 26,928 | 46,160 | ||||||
1,369,161 | 479,962 | 1,078,785 | 414,385 | |||||
Legal obligations challenged in court: | ||||||||
Tax | ||||||||
IPI premium credit | 1,227,892 | 1,227,892 | ||||||
CSLL credit on exports | 9,016 | 401,916 | ||||||
Salary premium for education | 36,189 | 33,121 | 36,189 | 33,121 | ||||
CIDE | 2,895 | 3,246 | 54,211 | 27,545 | ||||
Income tax on ”Plano Verão” | 345,676 | 20,892 | 341,551 | 20,892 | ||||
Other provisions | 6,893 | 92,226 | 36,078 | 113,552 | ||||
391,653 | 158,501 | 1,695,921 | 1,824,918 | |||||
1,760,814 | 638,463 | 2,774,706 | 2,239,303 | |||||
Total current | 292,178 | 222,461 | ||||||
Total non-current | 1,760,814 | 346,285 | 2,774,706 | 2,016,842 |
Changes
The changes in the provisions for contingencies in the yearsyear ended December 31, 20102011 were as follows:
Current + Non-current | Current | |||||||||||||||
Nature | 12/31/2010 | Additions | Inflationadjustment | Transfer (*) | Utilization | 12/31/2011 | 12/31/2011 | 12/31/2010 | ||||||||
Civil | 80,831 | 17,188 | 24,639 | (21,569) | 101,089 | 87,343 | 57,622 | |||||||||
Labor | 188,188 | 50,383 | 48,019 | (63,570) | 223,020 | 204,615 | 164,839 | |||||||||
Tax | 1,911,260 | 68,915 | 24,906 | (1,597,659) | (154,604) | 252,818 | 220 | |||||||||
Social security | 59,024 | 28 | 2,726 | (242) | 61,536 | |||||||||||
2,239,303 | 136,514 | 100,290 | (1,597,659) | (239,985) | 638,463 | 292,178 | 222,461 |
(*) The transfers to taxes in installments were made due to the compliance with Law 11,941/09 and 2009 are as follows:refer to the social contribution on exports (CSLL Exportação),COFINS Law 10833/03, CIDE and State VAT (IPI) on exports premium credit.
FS-55
|
|
|
|
|
|
|
|
|
|
|
| Non-Current |
|
|
| Current | ||||||||||||||||
Nature |
| 2009 |
| Additions |
| Adjustment |
| Utilization |
| Transfer to taxes payable in instal. | 2010 |
| 2010 |
| 2009 | |||||||||||||||||
Civil |
| 17,717 |
| 5,500 |
| 5,38 |
| (5,393) |
|
|
| 23,208 |
| 57,622 |
| 43,711 | ||||||||||||||||
Labor |
| 18,778 |
|
|
| 7,511 |
| (2,940) |
|
|
| 23,349 |
| 164,839 |
| 145,806 | ||||||||||||||||
Tax |
| 2,696,181 |
| 60,707 |
| 519,074 |
| (957,809) |
| (406,893) |
| 1,911,260 |
|
|
|
| ||||||||||||||||
Social security |
| 105,994 |
| 36,966 |
| 16,550 |
| (100,485) |
|
|
| 59,025 |
|
|
|
| ||||||||||||||||
|
| 2,838,670 |
| 103,173 |
| 548,519 |
| (1,066,627) |
| (406,893) |
| 2,016,842 |
| 222,461 |
| 189,517 |
The provisions for civil, labor, tax, environmental and social security liabilities have beenwere estimated by Managementmanagement and are mainly based on the assessment made by legal counsel, and only casescounsel’s assessment. Only proceedings for which the risk is classified as probable lossesloss are recorded.accrued. Moreover, these provisions include tax liabilities resulting from contingencies filed by the Company, subject to SELIC (Special Settlement and Custody System) rate.(Central Bank’s policy rate).
The Company and its subsidiaries are defendants in other contingenciesadministrative and judicial proceedings (labor, civil, tax and tax) at administrative or judicial levels,environmental), in the approximate amount of R$ 4,200,104,6,880,921, of which R$ 2,939,678525,139 related to tax contingencies,civil lawsuits, R$ 302,84745,078 related to civil contingencies,environmental and R$ 957,5791,114,509 to labor and social security contingencies.lawsuits. The assessments made by legal counsel define these contingencies at administrative orand judicial levelsproceedings as entailing risk of possible loss and, therefore, no provision was recorded in conformity with Management’s judgment and accounting practices adoptedpractices.
As for the tax lawsuits these represent R$5,196,195, and R$1,687,349 from this total refers to the assessment notice issued against the Company for an alleged nonpayment of income tax (IRPJ) and social contribution on net income (CSLL) on profits recognized in Brazil.the balance sheets of its subsidiaries in Luxembourg. In view of the recent changes in administrative and judicial decisions, our outside legal counsel believes that this decision will not reach the profits recognized and not yet made available by our foreign subsidiaries, subject matter of the assessment notice, in light of the protection granted by the Brazil-Luxembourg treaty. However, because of the current undefined position of administrative and judicial courts, the possibility of an unfavorable outcome was classified as possible.
a) Labor contingencieslawsuits
As atof December 31, 2010,2011, the Company and its subsidiaries is a defendant in1112,993,238 labor claims,lawsuits, for which a provision has been recorded in the amount of R$ 188223,020,188 (R$ 164,584 in 2009)(R$188,188 asof December 31,2010). Most of the claims relate to subsidiary and/or joint liability, salary equalization, health hazard premiums and hazardous duty premiums, overtime pay, difference in the 40% fine for the severance pay fund (FGTS) as a result of federal government economic plans, health care plan, indemnity contingencies resulting from alleged occupational diseases or on-the-job accidents, and differences in profit sharing from 1997 to 1999 and from 2001 to 2003.
b) Civil contingencieslawsuits
Among the civil contingencieslawsuits in which the Company is a defendant are claims for indemnity, generally resultingcompensation. Generally these lawsuits result from on-the-job accidents, occupational diseases and contractual litigation related to the Company’s industrial activities.activities and its subsidiaries. For contingencieslawsuits involving civil matters, a provision has been recognized in the amount of R$80,33094,183 as atof December 31, 20102011 (R$ 61,428 in 2009).
FS-59
Among the environmental contingencies at administrative or judicial levels in which the Company is a defendant, most involve contingencies at administrative level aimed at determining possible occurrences80,331 as of environmental irregularities and straightening out environmental licenses. At judicial level there are collection contingencies related to fines imposed as a result of these irregularities and class action contingencies with claims for indemnities, consisting of environmental repairs in most cases. Generally, these contingencies result from discussions regarding alleged damages to the environment related to the Company’s industrial activities. For contingencies involving environmental matters, a provision was recognized in the amount of R$ 500 as at December 31, 2010.2010).
c) Tax contingencieslawsuits
§Income tax and social contribution
(i) ”Plano“Plano Verão”- The Company is claiming the recognition of financial and tax effects on the calculation of income tax and social contribution, related to removal by the government of inflation measured according to the Consumer Price Index (IPC) in January and February 1989, involving a total percentage figure of 51.87% (“Summer Plan”).
In 2004 the lawsuit was terminated with a final and unappealable decision that granted the right to apply the index of 42.72% (January 1989), with the 12.15% already applied to be deducted from this index. The final decision also granted application of the index of 10.14% (February 1989). The.The proceeding is currently under accounting investigation.at expert discovery stage.
As atof December 31, 20102011, there is an amount of R$345,676 (R$341,551 (R$ 339,215 in 2009)as of December 31, 2010) deposited in court, classified in a specific account of judicial deposits in long-term receivables, and a provision of R$20,892 (R$20,892 in 2009)as of December 31, 2010), which represents the portion not recognized by the courts.
FS-56
(ii) CSLL Export (Social Contribution on Income from Export Revenues)– In February 2004 the Company filed a lawsuit claiming that it should not be subject to payment of CSLL (social contribution) on its export revenues/profits, as well as to obtain court authorization to offset all the amounts of CSLL incorrectly paid on such export revenues/profits since the publication of Constitutional Amendment 33/2001, which provided new wording to article 149, paragraph 2 of the 1988 Federal Constitution (CF/88), by determining that “social contributions shall not be levied on export revenues”.
In March 2004 an injunction was granted, and subsequently confirmed in a court decision, authorizing the exclusion (from the CSLL tax base) of just the export profits.
Such court decision was overturned by the 4th Panel of the Federal Regional Court (TRF) for the 2nd Region, which denied the injunction requested by the Company. An extraordinary appeal (RE) challenging the constitutionality of the regional court decision was filed, but it was put on hold until such time as the Federal Supreme Federal (STF) decides the matter in the case records of RE 564.413 (leading case), which recognized the existence of general repercussion of this same constitutional issue.
In December 2008Since then the Company received a Collection Notice forwas maintaining the amounts relating to exclusion of such revenues from the CSLL tax base. Therefore, the Company’s Board of Directors approved a motion to attach the Collection Notice to the installment payment program introduced by Law 11941/2009 (REFIS), and also to continue discussing the main matter in court relating to non-levy of CSLL on export revenues/profits which was recently judged byin a provision; however, after the STF in the case records of RE 564.413ruling on Extraordinary Appeal (RE) 564,413 (leading case) in a vote contrary (6X5) to taxpayers. This decision hason the non-levy of CSLL on taxpayers’ exports, still not yet been published, and will probably be subjectthe Company decided to appeal.
Up to December 31, 2010include this lawsuit in the installment plan established by Law 11941/09 (REFIS).The adjusted amount of the suspended requirement andlawsuit included in the credits offset on the basis of such lawsuitinstallment plan was R$ 401,916 (R$ 1,240,158 in 2009), plus the SELIC rate.365,466.
§Economic Intervention Contribution for intervention in the economic domain - CIDE(CIDE)
The Company questionedwas challenging the legal validity of Law 10168/00, which introduced the collection of CIDE on amounts paid, credited or remitted to non-resident beneficiaries by way of royalties or compensation for agreements involving supply, technical assistance, assignment and licenses for use of trademarks and patents.
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The ruling at the lower court was unfavorable and this was upheld by the 2nd Region TRF for the 2ndRegion. The(Federal regional Court).The Company filed an AppealAppeals for Declaratory Judgment, which was likewise turned down. Anwere dismissed, and an extraordinary appeal was filed with the STF, admissibility of which is presently awaiting the higher court’s decision.
In view of the unfavorable decisions and the benefits involving reduction in fines and interest, the Company’s Board of Directors approved including the amounts covered by the court litigation in the tax recovery program introduced by Law 11941/2009.
After application of the benefits of this program, the Company maintains judicial deposits in the amount of R$ 6,141,6,200, of which R$2,895 involves excess deposits after application of the REFIS reductions that may be offset against other debts being challenged in court by the taxpayer or converted into income. As atof December 31, 20102011 there is a provision recognized in the amount of R$3,246 (R$ 3,376 in 2009)3,246 as of December 31, 2010), including legal charges.
§Salary premium for education – “Salário Educação”
The Company has filed a lawsuit challenging the constitutionality of the salary premium for education and for discussing the possibility of recovering the amounts paid in the period from January 5, 1989 to October 16, 1996. The lawsuit was unsuccessful, and the TRF upheld the decision unfavorable to CSN, a decision that is final and unappealable.unappealable.
In view of the final and unappealable decision, CSN tried to make payment of the amount due, though the FNDE and INSS did not reach an agreement as to which agency should receive it. They also required that the amount should be paid along with a fine, with which the Company did not agree.
Lawsuits were then filed challenging the above events, with judicial deposit of the amounts involved in the lawsuits. In the first lawsuit, the lower court partly accepted the Company’s request, with the judge deducting the fine, but upholding the SELIC rate, with counterarguments against the defendant’s appeal against the SELIC rate.
The accrued amount and judicial deposit as atof December 31, 20102011 totals R$33,121 (R$33,121 in 2009)as of December 31, 2010).
§On-the-job accident insurance - SAT
The Company is challenging in court the increase in the SAT rate from 1% to 3% (first lawsuit), and is also challenging the increase in SAT for purposes of the Special Retirement Contribution, which was set at 6%, according to legislation applicable to employees exposed to toxic material (second lawsuit).
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As regards the first lawsuit mentioned above, the lower court decision was unfavorable and the lawsuit is now being judged by the TRF for the 2ndRegion. Region TRF. With respect to the second lawsuit, its decision was unfavorable to the Company and the amount due in this lawsuit, R$33,077, was deposited in court, in favor of the INSS (National Institute of Social Security).
The accrued amount as atof December 31, 20102011 totals R$ 36,96661,536 (R$ 50,880 in 2009)59,024 as of December 31, 2010), which includes legal charges and refers exclusively to the lawsuit related to the increase from 1% to 3% for all the Company’s locations and its subsidiary Cia Metalúrgica Prada’s locations.
In view of the likelihood of loss in this court challenge, the CSN Board of Directors approved including the amount relating to this matter in the installment payment program under Law 11941/2009. Due2009.Due to joining the REFIS and waiver of the lawsuit challenging the rate increase from 1% to 3%, CSN included the unassessed period in the Ordinary Installment Payment Program, which is presently awaiting ratification.in 60 stallments.
§IPI export premium credit over export
The tax legislation allowed Brazilian companies to recognize an excise taxa federal VAT (IPI) premium credit until 1983, when by executive order from the government these benefits were cancelled and it was no longer permitted to utilize these credits.
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The Company challenged the constitutionality of this act and filed a lawsuit claiming the right to utilize the IPI premium credit on exports from 1992 to 2002, since only laws passed by the legislature can cancel or revoke benefits granted by past legislation.
In August 2003 the Company obtained a favorable decision at the lower court, authorizing the utilization of such credits. The National Treasury appealed and obtained a favorable decision. The Company then filed a special and extraordinary appeal against the decision to the Superior Court of Justice - STJ and STF, respectively.
Between September 2006 and May 2007, the National Treasury filed 5 tax collection lawsuits and 3 administrative proceedings against the Company relating to collection of the taxes that were offset against the IPI premium credit. The total amount involved approximates R$ 4.5 billion, inflation adjusted through December 31, 2010.
On August 29, 2007 CSN pledged assets backed by treasury shares in the amount of R$ 536 million, with the equivalent of 25% of this amount being replaced by judicial deposits through monthly installments made through December 31, 2007, and as such replacements occur, a request was filed to release the pledges of the equivalent amounts in shares at the closing quotation for the share on the date prior to the deposit, and this request was about to be granted.
On August 13, 2009, the STF rendered a decision, with general repercussion, determining that the IPI premium credit was only in effect through October 1990. Accordingly,1990.Accordingly, the credits accrued after 1990 were not recognized and, in view of this STF decision, the Company’s Board of Directors approved including this matter in the tax recovery program for tax debts introduced by Provisional Measure 470/09 and Law 11941/09, which entails benefits in terms of reduction of fines, interest and legal charges.
The Company maintenedmaintained a provision for the amount of the credits already offset, plus late payment charges through September 30, 2009. The2009.The new amount of debt after application of the reductions prescribed in the program under Law 11941/09 was offset against the escrowjudicial deposits related to these lawsuits, resulting in excess deposits in the amount of R$516 million after applicationofapplication of the REFIS reductions, wichwhich can either be offset against other debits included in the installment payment program or refunded. These debits are still subject to validation by the appropriate authorities, wich will take place during 2011.
The debts under Provisional Measure (MP) 470/09 were paid in 12 installments as from November 2009, with the last four installments being replaced by the use of the income tax and social contribution tax loss carryforwards, in the manner provided by applicablerelevant legislation. The appropriate authorities are still examining the data submitted in order to consolidate the debts included in such installment payment program. So far 5 administrative cases, in the amount of R$ 1.8 billion, are being challenged by the authorities, with the first 2 being included as executable tax debts. The Company promptly challenged the challenges at the administrative level (by means of filing the appropriate appeals), since there are strong arguments in the sense of allowing inclusion of such debts in the installment payment under MP 470/09, and obtained a court order suspending the appeals filed by the government, which suspended the requirement to pay the debt until a final decision is reached at the administrative level. The administrative cases aimed at re-inclusion of the debts under MP 470/09 are still being analyzed.
§Other
The Company has also recognized provisions for lawsuits relating to INSS, FGTS Complementary Law 110, COFINS Law 10833/03, PIS Law 10637/02 and PIS/COFINS -– Manaus Free Trade Zone, totaling R$90,703 as of December 31, 2011 (R$84,367 as atof December 31, 2010, (R$ 72,124 in 2009)2010), wichwhich includes legal chargescharges.
In relation
With respect to the COFINS Law 10833/03 debt, the Board of Directors approved inclusion of the related amounts in the tax recovery program under Law 11941/09. The09.The Company maintained a provision for the amount of these credits already offset, plus late payment charges through September 30, 2009.
The new amount of debts after application of the reductions allowed under the program of Law 11941/09 was offset against judicial deposits related to these lawsuits, resulting in excess deposits in the amount of R$9,141 after application of the REFIS reductions, which may be offset against other debts included in the installment plan or challenge in court or refunded. These debts are still subject to validation by the appropriate authorities, which is set to occur in 2011.
d) Other
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§Competition
On June 14, 2010, the TRF forRegional Federal Court of Brasília turned down a lawsuit forrejected the annulment action filed by CSN against theCADE (The Anti-Trust Board (CADE)Board), which sought to annulaimed at annulling its fine for the assessment imposed for allegedly committing the violations prescribed by articlesalleged infringements laid down in Articles 20 and 21, item I, of Law 8884/1984. The1984.The Company filed appropriate appeals were filed against this decision, butwhich were turned down, giving rise to an Appealdismissed, resulting in the filing of a Motion for Declaratory Judgment,Clarification, which is awaitingpending judgment. The collection of fine in the amount of R$65,292 fine is suspended by courta Court decision, which granted suspension based onstays the collection as from the date CSN issued a guarantee for the debt provided by CSN.letter. This lawsuitaction is classified as risk of possible loss.
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§Environmental
The environmental administrative/judicial proceedings filed against the Company include mainly administrative proceedings for alleged environmental irregularities and the regularization of environmental permits; at the judicial level, the Company is a party to actions collecting the fines imposed for such alleged environmental irregularities, and public civil actions claim regularization coupled with compensation, in most cases claiming environmental recovery. In general these proceedings arise from alleged damages to the environment related to the Company’s industrial activities. The environmental proceedings total R$6,906 (R$500 as of December 31, 2010).
22. §Arbitration
Refers to an arbitration proceeding filed with the ICC for the purpose of determining possible damages due to breach of contract, in the estimated amount of R$84,323 (US$53.0 million).The proceeding is at initial arguments presentation and documentary evidence stage. This proceeding is classified as risk of possible loss.
20.PROVISIONS FOR ENVIRONMENTAL LIABILITIES ANDDECOMMISSIONING LIABILITIESOF ASSETS
a) Environmental Liabilitiesliabilities
As at ofDecember 31, 2010, 2011,a provision is recognized in the amount of R$312,612 (R$278,106 (R$ 116,544 in 2009)as of December 31, 2010) for expenditures relating to environmental investigation and recovery services for potentially contaminated areas surrounding establishments in the States of Rio de Janeiro, Minas Gerais and Santa Catarina. Estimated expenditures will be reviewed periodically and the amounts already recognized will be adjusted whenever needed. These are Management’smanagement’s best estimates considering recovery studies in areas that have been degraded and are in the process of being used for activities. These provisions are recognized in operating expenses.
The provisions are measured at the present value of the expenditures required to settle the obligation, using a pre-taxpretax rate that reflects current market assessments of the time value of money and the specific risks of the obligation. The increase in the obligation due to passage of time is recognized as finance cost.other operating expenses.
The long-term interest rate used to discount to present value and update the provision through December 31, 20102011 is 11.00%. The.The liability recognized is periodically updated based on these discount rates plus the general market price index (IGPM) for the period.
b) Decommissioning of Assets
Obligations on decommissioning of assets consist of estimated costs for decommissioning, retirement or restoration of areas upon the termination of activities related to mining resources. The initial measurement is recognized as a liability discounted to present value and subsequently through increase in expenses over time. The cost ofasset decommissioning of assetscost equivalent to the initial liability is capitalized as part of the carrying amount of the asset, being depreciated over the useful life of the asset. The liability recognized atas of December 31, 20102011 is R$24,327 (R$17,421 (R$ 15,524 in 2009)as of December 31, 2010).
23. 21.SHAREHOLDERS´ EQUITY
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i. Paid-upIssued capital
The Company’s fully
Fully subscribed and paid-uppaid-in capital as atof December 31, 20102011 is R$1,680,947 (R$1,680,947 as atof December 31, 2009), divided into 1,483,033,685 (755,179,610 in 2009)2010) represented by 1,457,970,108 (1,483,033,685 as of December 31, 2010) book-entry common shares without par value. Each common share entitles its holder to one vote in resolutions of the General Meeting of Shareholders. At theShareholders’ Meetings. The Extraordinary GeneralShareholders´ Meeting held on March 25, 2010 approval was granted to aapproved the stock split, in shares representingat the capital, a transaction wherebyratio of one (1) common share for each share began to be represented by 2 (two) newtwo (2) shares. At the Extraordinary General Meeting held on November 1, 2010 approval was granted to cancel 27,325,535 shares that were held in treasury.
ii. Authorizedii.Authorized capital
The Company’s bylaws in effect as atof December 31, 20102011 determine that the capital can be raised to up to 2,400,000,000 shares by decision of the Board of Directors.
iii. Legaliii.Legal reserve
This reserve is recognized at the rate of 5% of the profit for each period, in the manneras provided for by articleArticle 193 of Law 6404/76). The limit for this76.This reserve ceiling, as prescribed by prevailing legislation, has already been reached, as required by applicable legislation.reached.
iv. Treasuryiv.Treasury shares
The
As of December 31, 2011, the Company holds indid not have any treasury shares. On August 2, 2011, the Company approved the cancelation of 25,063,577 shares that it issued, acquired in the market for R$ 570,176 (R$ 1,191,559 in 2009) for future disposal or cancelation. The market value of theseexisting treasury shares as at December 31, 2010 corresponds to R$ 668,446 (R$ 1,466,895 in 2009).
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without decreasing capital.
v. Ownership structure
As at ofDecember 31, 2010,2011, the Company’s ownership structure was as follows:follows:
|
|
|
| 2010 | 12/31/2011 | 31/12/2010 | |||||||||||
| Number of common shares | % of total shares | % w/o treasury shares | Quantity ofordinary shares | % total ofshares | % withouttreasury shares | Quantity of ordinary shares | % total ofshares | % without treasuryshares | ||||||||
Vicunha Siderurgia S.A. | 697,719,990 |
| 47.05% |
| 47.86% | 697,719,990 | 47.86% | 47.86% | 697,719,990 | 47.05% | 47.86% | ||||||
Rio Iaco Participações S.A. | 58,193,503 |
| 3.92% |
| 3.99% | ||||||||||||
Rio Iaco Participações S.A. (*) | 58,193,503 | 3.99% | 3.99% | 58,193,503 | 3.92% | 3.99% | |||||||||||
Caixa Beneficente dos Empregados da CSN - CBS | 12,788,231 |
| 0.86% |
| 0.88% | 12,788,231 | 0.88% | 0.88% | 12,788,231 | 0.86% | 0.88% | ||||||
BNDESPAR | 31,773,516 |
| 2.14% |
| 2.18% | 31,773,516 | 2.18% | 2.18% | 31,773,516 | 2.14% | 2.18% | ||||||
Diversos (ADR - NYSE) | 358,913,048 |
| 24.20% |
| 24.62% | ||||||||||||
Other shareholders (approximately 10 thousand) | 298,581,820 |
| 20.13% |
| 20.47% | ||||||||||||
NYSE - ADRs | 373,772,695 | 25.64% | 25.64% | 358,913,048 | 24.20% | 24.62% | |||||||||||
BOVESPA | 283,722,173 | 19.45% | 19.45% | 298,581,820 | 21.83% | 20.47% | |||||||||||
| 1,457,970,108 |
| 98.31% |
| 100.00% | 1,457,970,108 | 100.00% | 100.00% | 1,457,970,108 | 98.31% | 100.00% | ||||||
Treasury shares | 25,063,577 |
| 1.69% |
|
| ||||||||||||
Treasury stock | 25,063,577 | 1.69% | |||||||||||||||
Total shares | 1,483,033,685 |
| 100.00% |
|
| 1,457,970,108 | 100.00% | 1,483,033,685 | 100.00% | ||||||||
(*) Rio Iaco Participação S. A. is a company part of the control group.
vi. Changes in outstanding shares
Number of shares | Treasury shares | |||
Balance at December 31,2009 | 1,457,970,108 | 52,389,112 | ||
Cancelation of shares | (27,325,535) | |||
Balance at December 31,2010 | 1,457,970,108 | 25,063,577 | ||
Cancellation of shares | (25,063,577) | |||
Balance at December 31,2011 | 1,457,970,108 |
Changes in common shares outstanding |
| Number of shares | Balance held in treasury | |
Opening balance in 2009 |
| 1,517,338,908 |
| 69,468,768 |
Acquisition of treasury shares |
| (59,368,800) |
| 59,368,800 |
Cancelation of shares |
|
|
| (76,448,456) |
Balance at December 31, 2009 |
| 1,457,970,108 |
| 52,389,112 |
Cancelation of shares |
|
|
| (27,325,535) |
Balance at December 31, 2010 |
| 1,457,970,108 |
| 25,063,577 |
vii. Appropriated retained earnings22.PAYMENT TO SHAREHOLDERS
Brazilian laws and CSN’s By-laws require that certain appropriations be made from retained earnings to reserve accounts on an annual basis. The purpose and basis of appropriation to such reserve accounts are described below:FS-60
•Investment reserve - this is a general reserve for future expansion of CSN’s activities.
•Legal reserve - this reserve is a requirement for all Brazilian corporations and represents the annual appropriation of 5% of net income up to a limit of 20% of capital stock, as determined in the Brazilian Corporate Law. This reserve may be used to increase capital or to absorb losses, but may not be distributed as cash dividends.
24. DIVIDENDS AND INTEREST ON SHAREHOLDERS’ EQUITY
| ||||
12/31/2011 | ||||
| ||||
|
| |||
Basic profit used to determine dividends | 7,485,390 | |||
Proposed allocation: | ||||
|
| |||
| (5,717,390) | |||
Investment reserve |
| |||
Total allocation to reserves |
| |||
|
| |||
Proposed dividends |
| |||
Total proposed dividends | (1,200,000) | |||
Weighted average number of shares | 1,457,970 | |||
Dividends and interest on |
| |||
Additional | ||||
Mandatory minimum dividends for the year (**) |
| |||
|
| |||
Dividends payable |
|
(*) The Annual General Meeting shall decide on the allocation of excess of the Reserve.
(**) CSN’s bylaws establishrequire the distribution of mandatory minimum dividends of 25% of the net income after exclusionsthe deduction of the legal reserves.
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a) Interest on shareholders’ equity23.NET SALES REVENUE
The Company’s management will propose to the Annual General Meeting the payment of interest on shareholders’ equity in the amount of R$ 356,800, corresponding to R$ 0.244724 per share outstanding at that date.
The calculation of interest on shareholders’ equity is based on the variation in the Long-Term Interest Rate (TJLP) on equity, limited to 50% of the profit for the period before income tax or 50% of the retained earnings and earnings reserves, and the higher of the two limits may be used, as provided for by prevailing legislation.
Pursuant to CVM Resolution 207 of December 31, 1996 and applicable tax rules, the Company elected to record interest on shareholders’ equity proposed against the finance costs account and to reverse it in the same account and, therefore, it is not presented in the income statement and has no effect on profit, except regarding the tax effects recognized in the income tax and social contribution lines. Management will propose that the amount of interest on shareholders’ equity be attributable to the mandatory minimum dividend.
25. OPERATING REVENUES
Net operating revenues issales revenue are comprised as follows:
|
|
|
|
| ||||||
|
| 2010 |
| 2009 | 12/31/2011 | 12/31/2010 | 12/31/2009 | |||
Operating revenues |
|
|
|
| ||||||
Gross revenue | ||||||||||
Domestic market |
| 13,201,074 |
| 10,488,409 | 13,366,345 | 13,201,074 | 10,488,409 | |||
Foreign market |
| 4,270,333 |
| 3,197,187 | 6,417,397 | 4,270,333 | 3,197,187 | |||
|
| 17,471,407 |
| 13,685,595 | 19,783,742 | 17,471,407 | 13,685,596 | |||
Deductions |
|
|
|
| ||||||
Cancelled sales and discounts granted | Cancelled sales and discounts granted | (416,706) |
| (462,954) | (257,888) | (416,706) | (462,954) | |||
Taxes levied on sales |
| (2,604,191) |
| (2,244,278) | (3,006,270) | (2,604,191) | (2,244,278) | |||
|
| (3,020,897) |
| (2,707,232) | (3,264,158) | (3,020,897) | (2,707,232) | |||
Net operating revenues |
| 14,450,510 |
| 10,978,364 | ||||||
|
|
|
|
| ||||||
Net revenue | 16,519,584 | 14,450,510 | 10,978,364 |
24.EXPENSES BY NATURE
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12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Raw Material | (3,927,105) | (3,245,396) | (1,907,607) | |||
Labor cost | (1,647,545) | (1,226,087) | (1,086,005) | |||
Consumable materials | (1,084,440) | (1,061,012) | (907,844) | |||
Maintenance cost | (969,376) | (856,297) | (691,905) | |||
Outsourcing services | (1,981,025) | (1,542,638) | (1,577,641) | |||
Depreciation, Amortization and Depletion | (925,790) | (808,215) | (770,068) | |||
Others (*) | (445,256) | (161,916) | (1,196,905) | |||
(10,980,537) | (8,901,561) | (8,137,975) | ||||
Rated: | ||||||
Cost of sales and/or services | (9,800,844) | (7,882,726) | (7,210,774) | |||
Selling expenses | (604,108) | (481,978) | (447,129) | |||
General and administrative expenses | (575,585) | (536,857) | (480,072)�� | |||
(10,980,537) | (8,901,561) | (8,137,975) |
(*) Include increase/reduction in finished goods and in work in process.
26. 25.OTHER OPERATING EXPENSES AND INCOME (EXPENSES)
12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Other operating expenses | ||||||
Taxes and fees | (37,499) | (81,394) | (109,753) | |||
Effect of REFIS - Law 11941/09 and MP 470/09 | (16,119) | (8,444) | ||||
Provision for contingencies and net losses on reversals | (75,823) | (182,761) | (297,695) | |||
Contractual and nondeductible fines | (45,537) | (155,445) | (46,882) | |||
Fixed cost of equipment stoppages | (33,674) | (21,213) | (34,198) | |||
Write-off of obsolete assets | (85,120) | (32,098) | (99,457) | |||
Expenses on studies and project engineering | (42,050) | (21,142) | (6,385) | |||
Pension plan (Note 29 c) | (67,276) | (63,110) | ||||
Impairment loss adjustment | (60,861) | (23,137) | ||||
Healthcare plan (Note 29 d) | (37,343) | (33,817) | (30,257) | |||
(501,302) | (599,424) | (647,764) | ||||
Other operating income | ||||||
Sale of Riversdale shares (Note 11) | 698,198 | |||||
Gain on acquisition of "precatórios" | 15,595 | |||||
PIS/COFINS/ICMS untimely credits | 32,739 | |||||
Dividends received from third parties | 14,199 | |||||
Other income | 6,780 | 487 | 863,297 | |||
719,177 | 48,821 | 1,368,594 | ||||
Other operating (expenses) income | 217,875 | (550,603) | 720,830 |
26.FINANCE INCOME (COSTS)
|
|
|
|
|
|
| 2010 |
| 2009 |
Other operating expenses |
| (643,081) |
| (695,905) |
Taxes and fees |
| (81,394) |
| (109,753) |
Effect of REFIS - Law 11941/09 and MP 470/09 (Note 20) |
| (8,444) |
|
|
Provision for contingencies and net losses on reversals |
| (260,235) |
| (297,695) |
Contractual and non-deductible fines |
| (155,445) |
| (46,882) |
Fixed cost of equipment stoppages |
| (21,213) |
| (34,198) |
Write-off of obsolete assets |
| (32,098) |
| (112,483) |
Expenses on studies and project engineering |
| (21,142) |
| (6,385) |
Impairment of goodwill ERSA |
|
|
| (23,137) |
Other expenses |
| (63,110) |
| (65,372) |
Other operating income |
| 92,478 |
| 1,416,735 |
PIS / COFINS / ICMS credits recovered during the year |
| 32,739 |
|
|
Gains on investments |
| 2,534 |
| 835,115 |
Effect of REFIS - Law 11941/09 and MP 470/09 (Note 20) |
|
|
| 505,297 |
Gain on acquisition of "precatórios" from the city of Piraí |
| 15,595 |
|
|
Other income |
| 41,610 |
| 76,323 |
Other operating (expenses) income |
| (550,603) |
| 720,830 |
|
|
|
|
|
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12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Finance costs: | ||||||
Borrowings and financing - foreign currency | (639,197) | (641,632) | (598,849) | |||
Borrowings and financing - local currency | (1,622,365) | (791,926) | (277,699) | |||
Related parties | (389,059) | (374,929) | (365,150) | |||
Capitalized interest | 353,156 | 215,624 | 85,260 | |||
PIS/COFINS on other revenues | (1,230) | (1,079) | (1,072) | |||
Losses on derivatives (*) | (20,594) | (27,252) | (152,102) | |||
Net effect of REFIS - Law 11941/09 and MP 470/09 | (77,335) | (33,921) | 2,336 | |||
Interest, fines and late payment charges | (264,359) | (283,768) | (281,190) | |||
Other finance costs | (222,938) | (261,570) | (304,049) | |||
(2,883,921) | (2,200,453) | (1,892,515) | ||||
Finance income: | ||||||
Related parties | 29,300 | 53,491 | 55,750 | |||
Income from short-term investments | 538,882 | 394,183 | 276,177 | |||
Other income | 149,268 | 195,466 | 254,098 | |||
717,450 | 643,140 | 586,025 | ||||
Inflation adjustments: | ||||||
- Assets | 6,330 | 271 | 8,465 | |||
- Liabilites | (43,781) | (8,714) | 69,266 | |||
(37,451) | (8,443) | 77,731 | ||||
Exchange gains (losses): | ||||||
- On assets | 1,041,200 | (585,719) | (295,526) | |||
- On liabilities | (753,666) | 398,527 | 995,064 | |||
- Exchange gains (losses) on derivatives (*) | (89,415) | (158,510) | 282,786 | |||
198,119 | (345,702) | 982,324 | ||||
Inflation adjustment and exchange gains (losses), net | 160,668 | (354,145) | 1,060,055 | |||
Finance costs, net | (2,005,803) | (1,911,458) | (246,435) | |||
(*) Statement of gains and losses on derivative transactions | ||||||
CDI to USD swap | (115,490) | (231,673) | (581,523) | |||
EUR to USD swap | 9,574 | (6,763) | ||||
Future US dollar | 79,926 | (231,563) | ||||
Total return equity swap | 1,026,463 | |||||
Other | 16,501 | (8,388) | (65,248) | |||
(89,415) | (166,898) | 148,129 | ||||
Libor to CDI swap | (20,594) | (18,864) | (17,445) | |||
(20,594) | (18,864) | (17,445) | ||||
(110,009) | (185,762) | 130,684 |
27. FINANCE EXPENSES AND INCOME
|
|
|
|
|
|
| 2010 |
| 2009 |
Finance expenses: |
|
|
|
|
Loans and financing - foreign currency |
| (641,632) |
| (598,849) |
Loans and financing - local currency |
| (791,926) |
| (277,699) |
Related parties |
| (374,929) |
| (365,150) |
Capitalized interest |
| 215,624 |
| 85,260 |
PIS/COFINS on other revenues |
| (1,079) |
| (1,072) |
Losses on derivatives (*) |
| (27,252) |
| (152,102) |
Net effect of REFIS - Law 11941/09 and MP 470/09 |
| (33,921) |
| 2,336 |
Interest, fines and late payment charges |
| (283,768) |
| (281,190) |
Other finance costs |
| (261,570) |
| (304,049) |
|
| (2,200,453) |
| (1,892,515) |
Finance income: |
|
|
|
|
Related parties |
| 53,491 |
| 55,750 |
Yields from marketable securities |
| 394,183 |
| 276,177 |
Other yields |
| 195,466 |
| 254,098 |
|
| 643,140 |
| 586,025 |
Inflation adjustment: |
|
|
|
|
- Assets |
| 271 |
| 8,465 |
- Liabilities |
| (8,714) |
| 69,266 |
|
| (8,443) |
| 77,731 |
Exchange gains (losses): |
|
|
|
|
- On assets |
| (585,719) |
| (295,526) |
- On liabilities |
| 398,527 |
| 995,064 |
- Exchange gains (losses) on derivatives (*) |
| (158,510) |
| 282,786 |
|
| (345,702) |
| 982,324 |
Inflation adjustment and exchange gains (losses), net | (354,145) |
| 1,060,055 | |
|
|
|
|
|
Finance costs, net |
| (1,911,458) |
| (246,435) |
|
|
|
|
|
(*) Statement of results of derivative transactions |
|
|
|
|
CDI x US$ swap |
| (231,673) |
| (581,523) |
EUR x US$ swap |
| (6,763) |
|
|
LIBOR x CDI swap |
| (18,864) |
| (17,445) |
Future US$ |
| 79,926 |
| (231,563) |
Total return on equity swap |
|
|
| 1,026,463 |
Other |
| (8,388) |
| (65,248) |
|
| (185,762) |
| 130,684 |
|
|
|
|
|
FS-66
SEGMENT INFORMATION
28. SEGMENT AND GEOGRAPHICAL INFORMATION
According to the Company’s structure, its businesses are distributed into 5 (five) operating segments. Thus,Accordingly, we analyzed our information by segment as follows:
•·Steel
The Steel Segment consolidates all the operations related to the production, distribution and sale of packaging, metallic packagingflat steel, metal containers and galvanized steel, with operations in Brazil, the United States and Portugal. This segment servessupplies the following markets: civil construction, steel packaging for the Brazilian chemical and food industries, white line (home appliances),home appliances, automobile and OEM (motors and compressors). The.The Company’s steel units produce hot and cold rolled steel, galvanized and pre-painted steel withof great durability. They also produce tinplate, a raw material used to produce packaging.metal containers.
FS-63
Overseas, Lusosider, which is based in Portugal, also produces metallicmetal sheets, as well as galvanized steel. CSN LLC in the U.S.U.S.A. meets local market needs by supplying cold rolled and galvanized steel. For 2012,2013, it is slated to begin production of long steel products. The initial production slated, to the tune of 500 thousand500,000 metric tons per year, (mtpy), will consolidate the company as a source of complete construction solutions, for civil construction, complementing its portfolio of products with high added value in the steel chain.
•·Mining
This segment encompasses the activities of iron ore and tin mining. The high-quality iron ore operations are located in the Iron Quadrilateral in MG, the Casa de Pedra mine in Congonhas, – MG, that produces high quality iron ore, as well as the Company’s subsidiary Nacional Minérios S.A. (Namisa), which has its own mines, which are also of excellent quality, and furtheralso sells third party iron ore. Furthermore, CSN also owns Estanho de Rondônia S.A. (ERSA), a company that has both tin mining and casting units.
CSN holds the concession to operate theTECAR, a solid bulk terminal, TECAR, one of the four terminals that comprise the Itaguaí Port, of Itaguaí (RJ). Importations of coalin Rio de Janeiro. Coal and coke imports are carried out through this terminal.
•Logística
·Logistics
i. Railroad
CSN has equity interests in two railroad companies: MRS Logística S. A.S.A., which manages the former Southeast Network of Rede Ferroviária Federal S.A. (RFFSA), and Transnordestina Logística S. A.S.A., which operates the oldformer Northeast Network of RFFSA in the States of Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas.
a) MRS
The railroad transportation services provided by MRS are based on the supply of raw materials and the shipment of final products. The total amount of iron ore, coal and coke consumed by the Presidente Vargas Mill is carried by MRS, as is part of the steel produced by CSN for the domestic market and for export.
The Southeast Brazilian railroad system, encompassing 1,674 kilometers of tracks, serves the tri-state industrial area of São Paulo - RioPaulo-Rio de Janeiro - MinasJaneiro-Minas Gerais, linking the mines located in Minas Gerais to the ports located in São Paulo and Rio de Janeiro, and the steel mills of CSN, Companhia Siderúrgica Paulista (or Cosipa) and Gerdau Açominas. Besides serving other customers, the railroad system carries iron ore from the Company’s mines in Casa de Pedra, Minas Gerais, and coke and coal from the Itaguaí Port, of Itaguaí, in Rio de Janeiro, to Volta Redonda, and carries CSN’s exports to the ports of Itaguaí and Rio de Janeiro. Its volumes of cargo carried account for approximately 28% of the total volume carried by the Southeast railroad system.
FS-67
b) Transnordestina Logística
Together, CSN and the federal government will be making investments for implementation of the Transnordestina Project for construction of around 1,728 km of new lines. The work on this project, slated for conclusion in 2013, further includes complementing and renewing part of the infrastructure (or lines) of the concession held by Transnordestina Logística, which will be expanded from the nearly 2,600 kilometers of track presently operating to around 4,300 kilometers.
Transnordestina Logística S.A. has a 30-year concession granted in 1998 to operate the Northeastern Brazil railroad system. This railway system which covers 4,238 kilometers of railroads in the states of Maranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and Rio Grande do Norte. Moreover, it links up the main ports in the region, thus providing an important competitive advantage by means of opportunities for combined transportation solutions and logistics projects tailored to customer needs.
The project underway will increase the transportation capacity of Transnordestina Logística 20-fold, bringing it up the level of the most modern railroads in the entire world.
FS-64
With its new configuration, Transnordestina will become the best logistics option for export of grains through the ports of Pecém and Suape ports, as well as other solid bulk cargos such as iron ore from the Northeast Region, playing an important role in the region’s development.
ii. PortPorts
The Port logistics segment consolidates the operation of the terminal built during the post-privatization period of the ports, Sepetiba Tecon. The Sepetiba terminal features complete infrastructure to meet all the needs of exporters, importers and ship-owners. Its installed capacity exceeds that of most other Brazilian terminals. It has excellent depths of 14.5 meters in the mooring berths and a huge storage area, as well as the most modern and appropriate equipment, systems and inter-modalintermodal connections.
The Company’s constant investment in projects in the terminals consolidates the Itaguaí Port Complex as one of the most modern in the country. AtBrazil, at present it haswith capacity for annually handling 480 thousand containers and 30 million metric tons per year of bulk cargo.
•·Energy
CSN is one of the largest industrial consumers of electric power in Brazil. As energy is fundamental to its production process, the Company invests in assets for generation of electric power to guarantee its self-sufficiency. These assets are as follows: Itá hydroelectric power plant, in the State of Santa Catarina, with rated capacity of 1,450 MW, where CSN has a share of 29.5%; Igarapava hydroelectric power plant, Minas Gerais, with rated capacity of 210 MW, in which CSN holds of 17.9% of the capital; and a thermoelectric co-generation Central Unit with rated capacity of 238 MW, which has been operating at the UPV since 1999. For1999.For fuel the Central Unit uses the residual gases produced by the steel mill itself. Through these three power generation assets, CSN obtains total rated capacity of 430 MW.
•·Cement
The cement division consolidates the Company’s cement production, distribution and sales operations, which use the slag produced by the Volta Redonda plant’s blast furnaces. Currently,In 2011, the clinker used in cement production is leased from third partiesparties; however, it will be produced by CSN itself inat the end of 2011, whenwith the completion of the first stage of the Arcos factoryClinker plant, MG, this plant already supplied the milling needs of CSN Cimentos in Minas Gerais will be completed. CSN also has a limestone mine on that site, which is already part of its cement division.Volta Redonda.
The information presented to Management regarding the performance of each business segment is generally derived directly from the accounting records, combined with some intercompany allocations.
·Sales by geographic area
Sales by geographic area are determined based on the location of customers. On a consolidated basis, domesticcustomers’ location. Domestic sales are represented by revenues from customers located in Brazil whileand export revenues representsales are represented by revenues from customers located abroad.
FS-68
FS-65
12/31/2011 | ||||||||||||||||
Steel | Mining | Logistics | Energy | Cement | Corporate expenses/elimination | Consolidated | ||||||||||
Ports | Railroad | |||||||||||||||
Revenues and expenses | ||||||||||||||||
Metric tons (thou.) - (unaudited) (*) | 4,895,581 | 23,849,514 | 1,754,596 | |||||||||||||
Revenues | ||||||||||||||||
Domestic market | 8,190,463 | 834,144 | 142,778 | 1,022,885 | 183,492 | 332,950 | (564,796) | 10,141,916 | ||||||||
Foreign market | 1,287,274 | 5,107,707 | (17,313) | 6,377,668 | ||||||||||||
Cost of sales and services | (7,038,168) | (2,185,149) | (85,474) | (667,186) | (105,497) | (268,432) | 549,062 | (9,800,844) | ||||||||
Gross profit | 2,439,569 | 3,756,702 | 57,304 | 355,699 | 77,995 | 64,518 | (33,047) | 6,718,740 | ||||||||
Selling and administrative expenses | (471,003) | (149,862) | (18,303) | (90,020) | (25,408) | (67,712) | (357,385) | (1,179,693) | ||||||||
Depreciation | 606,810 | 161,655 | 5,674 | 105,454 | 22,495 | 23,222 | 4,058 | 929,368 | ||||||||
Adjusted EBITDA | 2,575,376 | 3,768,495 | 44,675 | 371,133 | 75,082 | 20,028 | (386,374) | 6,468,415 | ||||||||
12/31/2011 | ||||||||||||||||
Steel | Mining | Logistics | Energy | Cement | Corporate expenses/elimination | Consolidated | ||||||||||
Ports | Railroad | |||||||||||||||
Sales by geographical area | ||||||||||||||||
Asia | 31,255 | 4,250,002 | 4,281,257 | |||||||||||||
North America | 502,486 | 502,486 | ||||||||||||||
Latin America | 147,363 | 147,363 | ||||||||||||||
Europe | 560,880 | 857,705 | 1,418,585 | |||||||||||||
Other | 45,290 | (17,313) | 27,977 | |||||||||||||
Foreign market | 1,287,274 | 5,107,707 | (17,313) | 6,377,668 | ||||||||||||
Domestic market | 8,190,463 | 834,144 | 142,778 | 1,022,885 | 183,492 | 332,950 | (564,796) | 10,141,916 | ||||||||
TOTAL | 9,477,737 | 5,941,851 | 142,778 | 1,022,885 | 183,492 | 332,950 | (582,109) | 16,519,584 |
|
|
|
|
|
|
| 2010 | ||||||||
| Steel |
| Mining |
| Logistics |
| Energy |
| Cement |
| Corporate Expenses / Elimination | Consolidated | |||
|
|
|
|
| Port |
| Railroad |
|
|
|
|
|
|
|
|
Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric tons (Th.) - (unaudited) (*) | 4,795,851 |
| 18,554,984 |
|
|
|
|
|
|
| 991,789 |
|
|
| 24,342,624 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic market | 8,763,470 |
| 573,976 |
| 119,315 |
| 838,436 |
| 113,517 |
| 201,841 |
| (363,750) |
| 10,246,805 |
Foreign market | 1,162,539 |
| 3,041,166 |
|
|
|
|
|
|
|
|
|
|
| 4,203,705 |
Cost of sales and services | (6,095,348) |
| (1,186,962) |
| (70,046) |
| (521,747) |
| (41,579) |
| (163,631) |
| 392,571 |
| (7,686,742) |
Gross Profit | 3,830,661 |
| 2,428,180 |
| 49,269 |
| 316,689 |
| 71,938 |
| 38,210 |
| 28,821 |
| 6,763,768 |
Selling and administrative expenses | (573,572) |
| (134,580) |
| (16,590) |
| (70,644) |
| (25,555) |
| (43,119) |
| (350,759) |
| (1,214,819) |
Depreciation | 519,411 |
| 145,817 |
| 5,577 |
| 102,629 |
| 22,501 |
| 13,648 |
| (3,414) |
| 806,169 |
Adjusted EBITDA | 3,776,500 |
| 2,439,417 |
| 38,256 |
| 348,674 |
| 68,884 |
| 8,739 |
| (325,352) |
| 6,355,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
|
| Steel |
| Mining |
| Logistics |
| Energy |
| Cement |
| Corporate Expenses / Elimination | Consolidated | |||
|
|
|
|
|
| Port |
| Railroad |
|
|
|
|
|
|
|
|
Sales by geographic area |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia |
| 40,752 |
| 2,513,499 |
|
|
|
|
|
|
|
|
|
|
| 2,554,251 |
North America |
| 432,229 |
|
|
|
|
|
|
|
|
|
|
|
|
| 432,229 |
Latin America |
| 193,692 |
|
|
|
|
|
|
|
|
|
|
|
|
| 193,692 |
Europe |
| 454,997 |
| 527,667 |
|
|
|
|
|
|
|
|
|
|
| 982,664 |
Other |
| 40,869 |
|
|
|
|
|
|
|
|
|
|
|
|
| 40,869 |
Foreign market |
| 1,162,539 |
| 3,041,166 |
|
|
|
|
|
|
|
|
|
|
| 4,203,705 |
Domestic market |
| 8,763,470 |
| 573,976 |
| 119,315 |
| 838,436 |
| 113,517 |
| 201,841 |
| (363,750) |
| 10,246,805 |
TOTAL |
| 9,926,009 |
| 3,615,142 |
| 119,315 |
| 838,436 |
| 113,517 |
| 201,841 |
| (363,750) |
| 14,450,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) The volumes of ore sales volumes presented in this note consider the Company’stake into consideration Company sales and investmentsthe interest in its subsidiaries and jointly controlled entities (Namisa 60%).
12/31/2010 | ||||||||||||||||
Steel | Mining | Logistics | Energy | Cement | Corporate expenses/elimination | Consolidated | ||||||||||
Ports | Railroad | |||||||||||||||
Revenues and expenses | ||||||||||||||||
Metric tons (thou.) - (unaudited) (*) | 4,795,851 | 18,554,984 | 991,789 | |||||||||||||
Revenues | ||||||||||||||||
Domestic market | 8,763,470 | 573,976 | 119,315 | 838,436 | 113,517 | 201,841 | (363,750) | 10,246,805 | ||||||||
Foreign market | 1,162,539 | 3,041,166 | 4,203,705 | |||||||||||||
Cost of sales and services | (6,225,820) | (1,252,474) | (70,046) | (521,747) | (41,579) | (163,631) | 392,571 | (7,882,726) | ||||||||
Gross profit | 3,700,189 | 2,362,668 | 49,269 | 316,689 | 71,938 | 38,210 | 28,821 | 6,567,784 | ||||||||
Selling and administrative expenses | (443,100) | (69,068) | (16,590) | (70,644) | (25,555) | (43,119) | (350,759) | (1,018,835) | ||||||||
Depreciation | 519,411 | 145,817 | 5,577 | 102,629 | 22,501 | 13,648 | (3,414) | 806,169 | ||||||||
Adjusted EBITDA | 3,776,500 | 2,439,417 | 38,256 | 348,674 | 68,884 | 8,739 | (325,352) | 6,355,118 | ||||||||
12/31/2010 | ||||||||||||||||
Steel | Mining | Logistics | Energy | Cement | Corporate expenses/elimination | Consolidated | ||||||||||
Ports | Railroad | |||||||||||||||
Sales by geographical area | ||||||||||||||||
Asia | 40,752 | 2,513,499 | 2,554,251 | |||||||||||||
North America | 432,229 | 432,229 | ||||||||||||||
Latin America | 193,692 | 193,692 | ||||||||||||||
Europe | 454,997 | 527,667 | 982,664 | |||||||||||||
Other | 40,869 | 40,869 | ||||||||||||||
Foreign market | 1,162,539 | 3,041,166 | 4,203,705 | |||||||||||||
Domestic market | 8,763,470 | 573,976 | 119,315 | 838,436 | 113,517 | 201,841 | (363,750) | 10,246,805 | ||||||||
TOTAL | 9,926,009 | 3,615,142 | 119,315 | 838,436 | 113,517 | 201,841 | (363,750) | 14,450,510 |
(*) The ore sales volumes presented in this note take into consideration Company´s sales and the interest in its subsidiaries and jointly controlled entities (Namisa 60%).
FS-66
12/31/2009 | ||||||||||||||||
Steel | Mining | Logistical | Energy | Cement | Corporate expenses/elimination | Consolidated | ||||||||||
Ports | Railroad | |||||||||||||||
Revenue and expenses | ||||||||||||||||
Tonnes (thou.) - (unaudited) (*) | 4,110,266 | 17,478,837 | 338,272 | |||||||||||||
Revenue | ||||||||||||||||
Domestic market | 7,045,510 | 247,490 | 144,363 | 822,503 | 116,641 | 60,380 | (330,353) | 8,106,534 | ||||||||
Foreign market | 1,155,780 | 1,716,050 | 2,871,830 | |||||||||||||
Cost of sales and services | (5,692,531) | (1,247,696) | (75,563) | (464,104) | (43,363) | (60,893) | 373,376 | (7,210,774) | ||||||||
Gross profit | 2,508,759 | 715,844 | 68,800 | 358,399 | 73,278 | (513) | 43,023 | 3,767,590 | ||||||||
Selling and administrative expenses | (370,445) | (39,745) | (14,290) | (58,283) | (24,978) | (16,135) | (403,325) | (927,201) | ||||||||
Depreciation | 484,351 | 134,665 | 10,776 | 109,514 | 25,234 | 8,714 | 6,898 | 780,152 | ||||||||
Adjusted EBITDA | 2,622,665 | 810,764 | 65,286 | 409,630 | 73,534 | (7,934) | (353,404) | 3,620,541 | ||||||||
12/31/2009 | ||||||||||||||||
Steel | Mining | Logistical | Energy | Cement | Corporate expenses/elimination | Consolidated | ||||||||||
Ports | Railroad | |||||||||||||||
Sales by geography | ||||||||||||||||
Asia | 248,663 | 1,368,608 | 1,617,271 | |||||||||||||
North America | 322,798 | 79,426 | 402,224 | |||||||||||||
Latin America | 117,982 | 117,982 | ||||||||||||||
Europe | 424,314 | 268,016 | 692,330 | |||||||||||||
Other | 42,023 | 42,023 | ||||||||||||||
Foreign market | 1,155,780 | 1,716,050 | 2,871,830 | |||||||||||||
Domestic market | 7,045,510 | 247,490 | 144,363 | 822,503 | 116,641 | 60,380 | (330,353) | 8,106,534 | ||||||||
TOTAL | 8,201,290 | 1,963,540 | 144,363 | 822,503 | 116,641 | 60,380 | (330,353) | 10,978,364 |
(*) The ore sales volumes presented in this note take into consideration Company´s sales and the interest in its subsidiaries and jointly controlled entities (Namisa 60%).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
|
| Steel |
| Mining |
| Logistics |
| Energy |
| Cement |
| Corporate Expenses / Elimination | Consolidated | |||
|
|
|
|
|
| Port |
| Railroad |
|
|
|
|
|
|
|
|
Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric tons (Th.) - (unaudited) (*) |
| 4,110,266 |
| 17,478,837 |
|
|
|
|
|
|
| 338,272 |
|
|
| 21,927,375 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic market |
| 7,045,510 |
| 247,490 |
| 144,363 |
| 822,503 |
| 116,641 |
| 60,380 |
| (330,353) |
| 8,106,534 |
Foreign market |
| 1,155,780 |
| 1,716,050 |
|
|
|
|
|
|
|
|
|
|
| 2,871,830 |
Cost of sales and services |
| (5,572,268) |
| (1,179,304) |
| (75,563) |
| (464,104) |
| (43,363) |
| (60,893) |
| 373,376 |
| (7,022,119) |
Gross Profit |
| 2,629,022 |
| 784,236 |
| 68,800 |
| 358,399 |
| 73,278 |
| (513) |
| 43,023 |
| 3,956,245 |
Selling and administrative expenses |
| (490,708) |
| (108,137) |
| (14,290) |
| (58,283) |
| (24,978) |
| (16,135) |
| (403,325) |
| (1,115,856) |
Depreciation |
| 484,351 |
| 134,665 |
| 10,776 |
| 109,514 |
| 25,234 |
| 8,714 |
| 6,898 |
| 780,152 |
Adjusted EBITDA |
| 2,622,665 |
| 810,764 |
| 65,286 |
| 409,630 |
| 73,534 |
| (7,934) |
| (353,404) |
| 3,620,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
|
| Steel |
| Mining |
| Logistics |
| Energy |
| Cement |
| Corporate Expenses / Elimination | Consolidated | |||
|
|
|
|
|
| Port |
| Railroad |
|
|
|
|
|
|
|
|
Sales by geographic area |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia |
| 248,663 |
| 1,368,608 |
|
|
|
|
|
|
|
|
|
|
| 1,617,271 |
North America |
| 322,798 |
| 79,426 |
|
|
|
|
|
|
|
|
|
|
| 402,224 |
Latin America |
| 117,982 |
|
|
|
|
|
|
|
|
|
|
|
|
| 117,982 |
Europe |
| 424,314 |
| 268,016 |
|
|
|
|
|
|
|
|
|
|
| 692,330 |
Other |
| 42,023 |
|
|
|
|
|
|
|
|
|
|
|
|
| 42,023 |
Foreign market |
| 1,155,780 |
| 1,716,050 |
|
|
|
|
|
|
|
|
|
|
| 2,871,830 |
Domestic market |
| 7,045,510 |
| 247,490 |
| 144,363 |
| 822,503 |
| 116,641 |
| 60,380 |
| (330,353) |
| 8,106,534 |
TOTAL |
| 8,201,290 |
| 1,963,540 |
| 144,363 |
| 822,503 |
| 116,641 |
| 60,380 |
| (330,353) |
| 10,978,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Adjustedadjusted EBITDA consists of profit for the year plus net finance income (expenses)(costs), income tax and social contribution, depreciation and amortization, and other operating income (expenses), which are excluded asdeducted because they mainly refer mainly to non-recurring items of the operation.
The Company’s Executive Officersexecutive officers use the Adjusted EBITDA as a tool to measure the recurring operating cash generation capacity, as well as a means for allowing it to make comparisons with other companies.
2010 | 2009 | |||
Adjusted EBITDA | 6,355,118 | 3,620,541 | ||
Depreciation | (806,169) | (780,152) | ||
Other operating (Note 26) | (550,603) | 720,843 | ||
Finance income (expenses) (Note 27) | (1,911,458) | (246,435) | ||
Profit before taxes | 3,086,888 | 3,314,797 | ||
Income tax and social contribution (Note 10) | (570,697) | (699,616) | ||
Net income | 2,516,191 | 2,615,181 |
12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Adjusted EBITDA | 6,468,415 | 6,355,118 | 3,620,541 | |||
Depreciation | (929,368) | (806,169) | (780,152) | |||
Other operating income (expenses) (Note 25) | 217,875 | (550,603) | 720,843 | |||
Finance income (expenses) (Note 26) | (2,005,803) | (1,911,458) | (246,435) | |||
Pretax income | 3,751,119 | 3,086,888 | 3,314,797 | |||
Income tax and social contribution (Note 9) | (83,885) | (570,697) | (699,616) | |||
Profit for the year | 3,667,234 | 2,516,191 | 2,615,181 |
29. 28.EARNINGS PER SHARE (EPS)
Basic earnings per share:
Basic earnings per share have been calculated based on the profit attributable to the owners of CSN and non-controlling interests, which amounted to R$ 2,516,376 (R$ 2,618,934 in 2009), divided by the weighted average number of common shares outstanding during the year (after the sharestock split), excluding the common shares purchased and held as treasury shares, as follows:
|
|
|
|
| 2010 |
| 2009 |
| Common shares | ||
Profit attributable to owners of CSN | 2,516,376 |
| 2,618,934 |
Weighted average number of shares | 1,457,970 |
| 1,492,453 |
Basic and Diluted EPS | 1.72594 |
| 1.75478 |
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12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Common shares | ||||||
Profit for the year | ||||||
Attributed to Company owners | 3,706,033 | 2,516,376 | 2,618,934 | |||
Attributed to non-controlling interests | (38,799) | (185) | (3,753) | |||
Weighted average number of shares | 1,457,970 | 1,457,970 | 1,492,453 | |||
Basic and diluted EPS | 2,54191 | 1,72594 | 1,75478 |
30. 29.EMPLOYEE BENEFITS
The pension plans granted by the Company cover substantially all employees. The plans are administered by Caixa Beneficente dos Empregados da CSN (“(‘CBS”), which is a private non-profit pension fund established in July 1960. The members of CBS are employees employees—and former employees employees—of the Company and some subsidiaries that joinjoined the fund through an agreement, and the employees of CBS itself. The Executive Officers of CBS is comprised of a CEO and two other executive officers, all appointed by CSN, which is the main sponsor of CBS. The Decision-Making CouncilBoard is the higher decision-making and guideline-setting body of CBS, presided over by the president of the pension fund and made up of 10 members, six chosen by CSN in its capacity as main sponsor of CBS and four elected by the fund’s participants.
FS-70
Until December 1995, CBS Previdência administered two defined benefit plans based on years of service, salary and Social Security benefits. On December 27, 1995 the then Private Pension Secretariat (“SPC”) approved the implementation of a new benefit plan. This new plan, took effect as fromeffective beginning that date, and was called Mixed Supplementary Benefit Plan (“(‘Mixed Plan”), structured in the form of a variable contribution plan. Employees hired after that date were only entitled to join the new Mixed Plan. In addition, all active employees who were participants of the old defined benefits plans had the opportunity to switch to the new Mixed Plan.
As atof December 31, 20102011 CBS had 30,54031,482 participants (28,419 in 2009)(30,540 as of December 31, 2010), of whom 15,43316,603 were active contributors (12,884 in 2009)(15,433 as of December 31, 2010), 9,8889,705 were retired employees (10,117 in 2009)(9,888 as of December 31, 2010), and 5,2195,174 were related beneficiaries (5,418 in 2009). Out(5,219 as of December 31, 2010).Out of the total participants as at December 31, 2010, 14,1082011, 13,726 belonged to the defined benefit plan and 16,43217,756 to the mixed plan.
The plan assets of CBS are primarilyinvested invested in repurchase agreements (backed by federal government bonds), federal securities indexed to inflation, shares, loans and real estate. As atof December 31, 20102011 CBS held 12,788,231 common shares of CSN (70,981,734(12,788,231 common shares as atof December 31, 2009)2010). In 2010 CBS received R$ 73 million in dividends on the equity interest represented by such shares. The total plan assets of the entity amounted to R$ 3.43.8 billion and R$3.6 billion as at December 31, 20092011 and 2010, respectively. The administrators of the CBS funds seek to match plan assets with benefit obligations payable on a long-term basis. Pension funds in Brazil are subject to certain restrictions regarding their capacity for investment in foreign assets and, therefore, these funds invest mainly in Brazilian securities.
Plan Assets are all available assets and the benefit plans’ investments, not including the amounts of debts to sponsors.
a.Description of the pension plans
Plan covering 35% of average salary
This plan began on February 1, 1966 and is a defined benefit plan aimed at paying pensions (for length of service, special situations, disability or old-age)old age) on a lifetime basis, equivalent to 35% of the adjusted average of the participant’s salary for the last 12 months. The plan also guarantees sick pay to participants on Official Social Security leaves of absence and further ensures payments of savings fund, funeral allowance and pecuniary aid. This plan was discontinued on October 31, 1977 when the new supplementary plan based on average salary took effect.
Supplementary average salary plan
This plan began on November 1, 1977 and is a defined benefit plan, aimed at complementing the difference between the adjusted average of the participant’s salary for the last 12 months and the Official Social Security benefit for retirement, alsoon a lifetime basis. As in the 35% plan, there is coverage for the benefits of sick pay, death and pension. This plan was discontinued on December 26, 1995 with the creation of the mixed supplementary benefit plan.
FS-68
Mixed supplementary benefit plan
This plan began on December 27, 1995 and is a variable contribution plan. Besides the scheduled retirement benefit, it also covers the payment of risk benefits (pension paid while the participant is still working, disability compensation and sick/accident pay). Under.Under this plan, the retirement benefit is calculated based on the amount accumulated by the monthly contributions of the participants and sponsors, as well as on each participant’s option for the manner in which they receive them, which can be lifetime (with or without continuity of pension for death) or through a percentage applied to the balance of the fund generating the benefit (loss for indefinite period). After.After retirement is granted, the plan takes on the characteristics of a defined benefit plan.
b.Investment policy
The investment policies establishpolicy establishes the principles and guidelines that will govern the investments of funds entrusted to the entity, in order to foster the security, liquidity and profitability required to ensure equilibrium between the plan’s assets and liabilities, based on an ALM (Asset Liability Management) study that takes into consideration the benefits of participants and beneficiaries for each plan.
FS-71
The investment plan is reviewed annually and approved by the Decision-Making CouncilBoard considering a 5-year horizon, as established by resolution CGPC 7 of December 4, 2003. The investment limits and criteria established in the policy are based on Resolution 3792/09 published by the National Monetary Council (“CMN”).
c.Employee benefits
| 2010 |
| 2009 |
| 1/1/2009 |
Obligations recorded in the Balance Sheet |
|
|
|
|
|
Pension plan benefits |
|
|
|
| 67,532 |
Post-employment health benefits | 367,839 |
| 317,145 |
| 296,608 |
| 367,839 |
| 317,145 |
| 364,140 |
|
|
|
|
|
|
The actuarial calculations are updated at the end of each annual reporting period by outside actuaries and presented in the financial statements pursuant to IAS 19Employee Benefits.
12/31/2011 | 12/31/2010 | |||
Obligations recognized in the balance sheet | ||||
Pension plan benefits | 11,673 | |||
Post-employment healthcare benefits | 457,377 | 367,839 | ||
469,050 | 367,839 |
The reconciliation of employee benefits’ assets and liabilities is as follows:
12/31/2011 | 12/31/2010 | |||
Present value of defined benefit obligations | (2,153,649) | (1,982,556) | ||
Fair value of plan assets | 2,384,450 | 2,316,018 | ||
(Deficit)/surplus | 230,801 | 333,462 | ||
Restriction to actuarial assets due to recovery limitation | (174,926) | (280,582) | ||
(Liabilities)/assets, net | 55,875 | 52,880 | ||
Liabilities | (11,673) | |||
Assets (*) | 67,548 | 52,880 | ||
Net (liabilities)/assets recognized in the balance sheet | (11,673) |
Changes in the present value of employee benefits isdefined benefit obligation during the year are as follows:
| 2010 |
| 2009 |
| 1/1/2009 |
Present value of defined benefit obligations | 1,982,556 |
| 1,731,767 |
| 1,415,029 |
Fair value of plan assets | (2,316,018) |
| (2,160,158) |
| (1,396,350) |
Deficit/(surplus) | (333,462) |
| (428,391) |
| 18,679 |
Restriction due to limitation of recovery | 280,582 |
| 380,092 |
| 18,737 |
Net Liabilities/(Assets) | (52,879) |
| (48,299) |
| 37,416 |
Liabillities |
|
|
|
| 67,534 |
Assets (*) | (52,879) |
| (48,299) |
| (30,118) |
Net Liabilities(Assets) | (52,879) |
| (48,299) |
| 37,416 |
|
|
|
|
|
|
FS-69
12/31/2011 | 12/31/2010 | 31/12/2009 | ||||
Present value of obligations at the beginning of the year | 1,982,556 | 1,731,767 | 1,415,029 | |||
Cost of services | 5,579 | 1,313 | 1,249 | |||
Interest cost | 202,242 | 185,285 | 174,122 | |||
Benefits paid | (178,403) | (166,147) | (148,561) | |||
Actuarial loss/(gain) | 141,675 | 225,341 | 287,146 | |||
Other | 4,997 | 2,782 | ||||
Present value of obligations at the end of the year | 2,153,649 | 1,982,556 | 1,731,767 |
Changes in the fair values of plan assets in the current year are as follows:
12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Fair value of assets at the beginning of the year | 2,316,018 | 2,160,158 | 1,396,350 | |||
Expected return on plan assets | 260,163 | 218,229 | 176,356 | |||
Sponsors' contributions | 67,709 | 63,109 | 68,890 | |||
Participants' contributions | 2,782 | |||||
Benefits paid | (178,402) | (166,147) | (148,561) | |||
Actuarial (gains) losses | (81,038) | 40,669 | 664,341 | |||
Fair value of plan assets at the end of the year | 2,384,450 | 2,316,018 | 2,160,158 |
The amounts recognized in the income statement are comprised as follows:
12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Cost of current services | (5,579) | (1,313) | (1,249) | |||
Interest cost | (202,242) | (185,285) | (174,122) | |||
Expected return on plan assets | 260,163 | 218,229 | 176,356 | |||
Sponsors' contributions transferred in prior year | 67,710 | 63,109 | 68,890 | |||
120,052 | 94,740 | 69,875 | ||||
Total unrecognized revenue (*) | 103,678 | 94,740 | 73,357 | |||
Total (costs)/revenue recognized in the income statement | 16,374 | (3,482) | ||||
Total (costs)/revenue, net | 120,052 | 94,740 | 69,875 |
(*) The AssetCompany did not recognize in its balance sheet the asset and the balancing items thereto resulting from the actuarial valuation was not recorded by the Company sinceof surplus plans because there is no clear evidence of its realization, in accordance with IAS 19 – Employee benefits.
Changes in the present value of the defined benefit obligation during the year are as follows:
| 2010 |
| 2009 |
Present value of obligations at beginning of year | 1,731,767 |
| 1,415,029 |
Cost of service | 1,313 |
| 1,249 |
Cost of interest | 185,285 |
| 174,122 |
Benefits paid | (166,147) |
| (148,561) |
Actuarial loss/(gain) | 225,341 |
| 287,146 |
Other | 4,999 |
| 2,782 |
Present value of obligations at end of year | 1,982,556 |
| �� 1,731,767 |
|
|
|
|
| 2010 |
| 2009 |
Fair value of assets at beginning of year | (2,160,158) |
| (1,396,350) |
Expected return on plan assets | (218,229) |
| (176,356) |
Contributions of sponsors | (63,109) |
| (68,890) |
Contributions of participants |
|
| (2,782) |
Benefits paid | 166,147 |
| 148,561 |
Actuarial gains/(losses) | (40,669) |
| (664,341) |
Fair value of plan assets at December 31 | (2,316,018) |
| (2,160,158) |
|
|
|
|
The amounts to be recognized in the (cost)/income statement are presented below:
| 2010 |
| 2009 |
Cost of current service | 1,313 |
| 1,249 |
Cost of interest | 185,285 |
| 174,122 |
Expected return on plan assets | (218,229) |
| (176,356) |
Total unrecognized revenue (*) | (31,631) |
| (4,467) |
Total costs recognized in the income statement |
|
| 3,482 |
Total costs (revenues), net (*) | (31,631) |
| (985) |
|
|
|
|
The cost is recognized in the income statement in other operating expenses.
Changes in actuarial gains and losses are as follows:
| 2010 |
| 2009 |
Actuarial (gains) and losses | 184,671 |
| (377,195) |
Restriction due to limitation of recovery | (99,509) |
| 361,355 |
Total cost of actuarial (gains) and losses | 85,162 |
| (15,840) |
|
|
|
|
12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Actuarial gains and (losses) | (222,712) | (184,671) | 377,195 | |||
Restriction due to recovery limitation | 105,655 | 99,509 | (361,355) | |||
(117,057) | (85,162) | 15,840 | ||||
Actuarial gains and (losses) recognized in other comprehensive income | (28,048) | |||||
Unrecognized actuarial gains/(losses) (*) | (89,009) | (85,162) | 15,840 | |||
Total cost of actuarial (gains) and losses | (117,057) | (85,162) | 15,840 |
There were no changes in actuarial liabilities (assets) from 2009 to 2010, with the(*) The actuarial loss beingresults from the result of the fluctuationsfluctuation in the investments comprising the portfolio of assets held by CBS.that form CBS’s asset portfolio.
The history of actuarial gains and losses is as follows:
FS-70
| 2010 |
| 2009 |
| 1/1/2009 | 12/31/2011 | 12/31/2010 | 12/31/2009 | 01/01/2009 (**) | ||||
Present value of defined benefit obligations | 1,982,556 |
| 1,731,767 |
| 1,415,029 | (2,153,649) | (1,982,556) | (1,731,767) | (1,415,029) | ||||
Fair value of plan assets | (2,316,018) |
| (2,160,158) |
| (1,396,350) | 2,384,450 | 2,316,018 | 2,160,158 | 1,396,350 | ||||
Surplus | 333,462 |
| 428,391 |
| (18,679) | 230,801 | 333,462 | 428,391 | (18,679) | ||||
Experience adjustments in plan obligations | 225,341 |
| 287,146 |
|
| ||||||||
Experience adjustments in plan assets | 40,669 |
| 664,341 |
|
| ||||||||
Experience adjustments to plan obligations | 141,675 | 225,341 | 287,146 | ||||||||||
Experience adjustments to plan assets | (81,038) | 40,669 | 664,341 |
The main actuarial assumptions used were:were as follows:
12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Actuarial funding method | Projected unit credit | Projected unit credit | Projected unit credit | |||
Functional currency | Real (R$) | Real (R$) | Real (R$) | |||
Recognition of plan assets | Fair value | Fair value | Fair value | |||
Amount used as estimate of equity at the end of the year | Best estimate for equity at the end of the fiscal year, obtained based on a projection of October amountsrecorded | Best estimate for equity at the end of the fiscal year, obtained based on a projection of October amountsrecorded | Best estimate for equity at the end of the fiscal year, obtained based on a projection of October amountsrecorded | |||
Discount rate | 10.46% | 10.66% | 11.18% | |||
Inflation rate | 4.6% | 4.4% | 4.20% | |||
Nominal salary increase rate | 5.65% | 5.44% | 5.24% | |||
Nominal benefit increase rate | 4.6% | 4.4% | 4.20% | |||
Rate of return from investments | 11,52% - 12,24% | 11,31% - 12,21% | 10,21% - 10,78% | |||
General mortality table | AT 2000 segregated by gender | AT 2000 segregated by gender | AT 2000 segregated by gender | |||
Disability table | Mercer Disability with probabilities multiplied by 2 | Mercer Disability with probabilities multiplied by 2 | Mercer Disability with probabilities multiplied by 2 | |||
Disability mortality table | Winklevoss - 1% | Winklevoss - 1% | Winklevoss - 1% | |||
Turnover table | 2% p.a. millennium plan, nil for defined benefit plans | 2% p.a. millennium plan, nil for defined benefit plans | 2% p.a. millennium plan, nil for defined benefit plans | |||
Retirement age | 100% on first date he/shed becomes eligible for programmed retirement benefit under plan | 100% on first date he/shed becomes eligible for programmed retirement benefit under plan | 100% on first date he/shed becomes eligible for programmed retirement benefit under plan | |||
Household of active participants | 95% will be married at the time of retirement, with the wife being 4 years younger than the husband | 95% will be married at the time of retirement, with the wife being 4 years younger than the husband | 95% will be married at the time of retirement, with the wife being 4 years younger than the husband |
| 2010 |
| 2009 |
| 1/1/2009 |
Actuarial method for Financing | Projected Unit Credit |
| Projected Unit Credit |
| Projected Unit Credit |
Functional currency | Real (R$) |
| Real (R$) |
| Real (R$) |
Recording of plan assets | Marke value |
| Market value |
| Market value |
Amount used as estimate of equity at year end | Best estimate of CBS for position at 12/31/2010 | Best estimate of CBS for position at 12/31/2009 | Best estimate of CBS for position at 1/1/2009 | ||
Discount rate | 10.66% |
| 11.18% |
| 12.76% - 13.07% |
Inflation rate | 4.40% |
| 4.20% |
| 4.50% |
Nominal salary increase rate | 5.44% |
| 5.24% |
| 5.55% |
Nominal benefit increase rate | 4.40% |
| 4.20% |
| 4.50% |
Rate of return from investments | 11.31% - 12.21% |
| 10.21% - 10.78% |
| 12.93% - 13.21% |
General mortality chart | AT 2000 segregated by gender |
| AT 2000 segregated by gender |
| AT 83 segregated by gender |
Disability table | Mercer Disability with probabilities multiplied by 2 | Mercer Disability with probabilities multiplied by 2 | Mercer Disability with probabilities multiplied by 2 | ||
Mortality table for disabled persons | Winklevoss - 1% |
| Winklevoss - 1% |
| Winklevoss |
Turnover table | Millennium plan at 2% p.a., nil for DB plans |
| Millennium plan at 2% p.a., nil for DB plans | Milennium plan at 2% p.a., nil for DB plans | |
Retirement age | 100% on first date for becoming eligible for programmed retirement beneft under plan | 100% on first date for becoming eligible for programmed retirement benefit under plan | 100% on first date for becoming eligible for programmed retirement benefit under plan | ||
Family composition of active participants | 95% will be married at the time of retirement, with the wife being 4 years younger than the husband | 95% will be married at the time of retirement, with the wife being 4 years younger than the husband | 95% will be married at the time of retirement, with the wife being 4 years younger than the husband |
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The assumptions related to the mortality table are based on published statistics and mortality tables. These tables represent an average life expectancy in years of employees retiring at the age of 65, as shown below:
| 2010 |
| 2009 |
| 1/1/2009 | 12/31/2011 | 12/31/2010 | 12/31/2009 | |||
Longevity at age of 65 for current participants |
|
|
|
|
| ||||||
Male | 19.55 |
| 19.55 |
| 18.63 | 19.55 | 19.55 | 19.55 | |||
Female | 22.17 |
| 22.17 |
| 21.98 | 22.17 | 22.17 | 22.17 |
Allocation of plan assets:
12/31/2011 | 12/31/2010 | |||||||
Variable income | 360,958 | 15.14% | 234,303 | 10.12% | ||||
Fixed income | 1,756,831 | 73.68% | 1,961,306 | 84.68% | ||||
Real estate | 190,756 | 8.00% | 52,352 | 2.26% | ||||
Other | 75,905 | 3.18% | 68,057 | 2.94% | ||||
Total | 2,384,450 | 100.00% | 2,316,018 | 100.00% |
Expected long-term return on plan assets:
12/31/2011 | 12/31/2010 | |||||||
Variable income | 18.05% | 15.58% | ||||||
Fixed income | 10.53% | 10.44% | ||||||
Real estate | 10.34% | 9.62% | ||||||
Other | 10.34% | 9.62% | ||||||
Total | 11.78% | 11.62% |
The actual return on the plan assets was R$179,126 (R$258,898 (R$ 840,697 as atof December 31, 2009)2010).
Allocation of plan assets:FS-71
|
|
| 2010 |
|
|
| 2009 |
Variable income | 234,303 |
| 10.12% |
| 1,308,232 |
| 60.56% |
Fixed income | 1,961,306 |
| 84.68% |
| 756,424 |
| 35.01% |
Real estate | 52,352 |
| 2.26% |
| 41,190 |
| 1.92% |
Other | 68,057 |
| 2.94% |
| 54,312 |
| 2.51% |
Total | 2,316,018 |
| 100.00% |
| 2,160,158 |
| 100.00% |
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
Variable income | 15.58% |
| 12.30% |
Fixed income | 10.44% |
| 9.48% |
Real estate | 9.62% |
| 9.71% |
Other | 9.62% |
| 16.05% |
Total | 10.31% |
| 11.50% |
|
|
|
|
Variable-income assets comprise mainly CSN shares.
Fixed-income assets comprise mostly debentures, Certificates of Interbank Deposit ("CDI"(“CDI”) and National Treasury Notes (“NTN-B”).
Real estate refers to buildings appraised by a specialized asset appraisal firm. There are no assets in use by CSN and its subsidiaries.
Expenses for
For the year 2010 ondefined benefit plans, the expense as of December 31, 2011 was R$67,276 (R$63,110 as of December 31, 2010).
For the mixed plan, which includeshas defined contribution components, amounted tothe expense in 2011 was R$29,487 (R$22,514 (R$ 19,560 for 2009)as of December 31, 2010).
d.Expected contributions
Expected contributions of R$ 64,74769,244 will be paid to defined benefits plans in 2011.2012.
For the mixed supplementary benefit plan, which includes defined contribution components, expected contributions of R$ 25,00027,500 will be paid in 2011.2012.
FS-74
e. Post-employment health care planPOST-EMPLOYMENT HEALTH CARE PLAN
This is
Refer to a health carehealthcare plan created on December 1, 1996 exclusively for retired former employees, pensioners, those who received an amnesty, war veterans, widows of employees who died as a result of on-the-job accidents and former employees who retired on or before March 20, 1997 and their related dependents. Since then, the health care plan has not permitted the inclusion of new beneficiaries. The plan is sponsored by CSN and administered by Caixa Beneficente dos EmpradosEmpregados da Cia. Siderúrgica Nacional - CBS.
The amounts recognized in the balance sheet were determined as follows:
| 2010 |
| 2009 | 12/31/2011 | 12/31/2010 | ||
Present value of obligations | 367,839 |
| 317,145 | 457,377 | 367,839 | ||
Liabilities | 367,839 |
| 317,145 | 457,377 | 367,839 | ||
|
|
|
|
The interest on the actuarial obligation amounted to R$ 35,457 in 2010 (R$ 38,440 in 2009).
The reconciliation of liabilities for healthhealthcare benefits is as follows:
| 2010 |
| 2009 |
Actuarial liabilities at beginning of year | 317,145 |
| 296,608 |
Cost of current service | 35,457 |
| 38,440 |
Contributions of sponsor transferred in prior year | (33,064) |
| (35,136) |
Recognition of (gain)/loss for the year | 48,301 |
| 17,232 |
Actuarial liabilities at end of year | 367,839 |
| 317,145 |
|
|
|
|
12/31/2011 | 12/31/2010 | |||
Actuarial liabilities at the beginning of the year | 367,839 | 317,145 | ||
Interest on actuarial obligation | 39,616 | 35,457 | ||
Sponsor's contributions transferred in prior year | (34,653) | (33,064) | ||
Recognition of (gain)/loss for the year | 84,575 | 48,301 | ||
Actuarial liabilities at the end of the year | 457,377 | 367,839 |
For the post-employment healthcare benefit plan, the expense in 2011 was R$37,343 (R$33,817 as of December 31, 2010).
The actuarial gains and losses recognized in equity are as follows:
| 2010 |
| 2009 |
Actuarial loss on obligation | 48,301 |
| 17,232 |
Loss recognized in equity | 48,301 |
| 17,232 |
12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Actuarial loss on obligation | 84,575 | 48,301 | 17,232 | |||
Loss recognized in equity | 84,575 | 48,301 | 17,232 |
The history of actuarial gains and losses is as follows:
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| 2010 |
| 2009 |
| 01/01/2009 (*) |
Present value of defined benefit obligation | 367,839 |
| 317,145 |
| 296,608 |
Deficit/(surplus) | 367,839 |
| 317,145 |
| 296,608 |
Experience adjustments in plan obligations | 48,301 |
| 17,232 |
| 9,023 |
12/31/2011 | 12/31/2010 | 31/12/2009 | 01/01/2009 (**) | |||||
Present value of defined benefit obligation | (457,377) | (367,839) | (317,145) | (296,608) | ||||
(Deficit)/surplus | (457,377) | (367,839) | (317,145) | (296,608) | ||||
Experience adjustments to plan obligations | 84,575 | 48,301 | 17,232 | 9,023 |
(**) IAS 19 requires disclosure of the history for 5 (five) years, although this does not have to be retrospectively applied for a first-time adopter of IFRS.
The effect ofimpact on a 1% (one per cent)one-percent change in the presumed tendencyassumed trend rate for health costsof the healthcare cost is as follows:
| 2010 |
|
|
| 2009 |
|
|
|
|
|
|
|
|
|
|
Total effect of cost of current service and finance cost | 3,603 |
| (3,128) |
| 3,274 |
| (2,847) |
Effect on defined benefit obligation | 34,122 |
| (29,617) |
| 29,287 |
| (25,461) |
12/31/2011 | 12/31/2010 | 12/31/2009 | ||||||||||
Increase | Reduction | Increase | Reduction | Increase | Reduction | |||||||
Effect on total cost of current service and finance cost | 3,603 | (3,128) | 3,274 | (2,847) | ||||||||
Effect on defined benefit obligation | 42,032 | (35,916) | 34,122 | (29,617) | 29,287 | (25,461) |
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The actuarial assumptions used for calculating post-employment healthhealthcare benefits were:
| 2010 |
| 2009 |
Biometric assumptions |
|
|
|
General mortality table | AT 2000 segregated by gender |
| AT 2000 segregated by gender |
Turnover | N/A |
| N/A |
Family composition | Actual composition |
| Actual composition |
|
|
|
|
|
|
|
|
Financial assumptions | 2010 |
| 2009 |
Nominal actuarial discount rate | 10.77% |
| 11.18% |
Inflation | 4.40% |
| 4.20% |
Increase in medical cost based on age | 1.50% |
| 1.50% |
Nominal growth rate in Medical Service Costs | 2.31% |
| 2.31% |
Average Medical Cost | 316.22 |
| 274.16 |
12/31/2011 | 12/31/2010 | 12/31/2009 | ||||
Biometric | ||||||
General mortality table | AT 2000 segregated by gender | AT 2000 segregated by gender | AT 2000 segregated by gender | |||
Turnover | N.A. | N.A. | N.A. | |||
Household | Actual household | Actual household | Actual household | |||
Financial | 12/31/2011 | 12/31/2010 | 12/31/2009 | |||
Actuarial nominal discount rate | 10.46% | 10.77% | 11.18% | |||
Inflation | 4.6% | 4.4% | 4.2% | |||
Increase in medical cost based on age | 4.6% | 1.5% | 1.5% | |||
Nominal medical costs growth rate | 2.31% | 2.31% | 2.31% | |||
Average medical costs | 299.69 | 316.22 | 274.16 |
31. 30.COMMITMENTS
a.Take-or-pay contracts
As atof December 31, 20102011 and 2009,2010, the Company was a party to take-or-pay contracts as shown in the following table:
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Payments | Minimum future commitments | |||||||||||||||||||||
Company | ||||||||||||||||||||||
contracted | Nature of service | Contract terms | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | After 2016 | Total | |||||||||||
MRS Logística | Transportation of iron ore | Transportation of at least 80% of the metric tons agreed to be carried by MRS. | 157,685 | 92,504 | 136,607 | 136,607 | 136,607 | 136,607 | 136,607 | 68,303 | 751,338 | |||||||||||
MRS Logística | Transportation of iron ore, coal and coke | Transportation of 8,280,000 mtpy for coal, coke and other reduction products - 3,600,000 Mpta. | 259,979 | 7,151 | 133,412 | 100,060 | 233,472 | |||||||||||||||
FCA | Transportation of mining products | Transportation of at least 1,900,000 Mpta. | 58,473 | 419 | 63,085 | 63,085 | 63,085 | 189,255 | ||||||||||||||
FCA | Railroad transportation of clinker by FCA for CSN Cimentos | Transportation of at least 675,000 Mpta of clinker in 2011 and 738,000 Mpta of clinker as from 2012. | 24,638 | 26,937 | 26,937 | 26,937 | 26,937 | 116,727 | 249,113 | |||||||||||||
ALL | Railroad transportation of steel products | Railroad transportation of at least 20,000 metric tons of stell products per month from the Água Branca Terminal in São Paulo to CSN PR in Araucária - PR. | 10,214 | 14,760 | 3,690 | 18,450 | ||||||||||||||||
White Martins | Supply of gas (oxygen, nitrogen and argon) | CSN undertakes to acquire at least 90% of the annual volume of gas contracted w ith White Martins. | 103,008 | 103,098 | 88,698 | 88,698 | 88,698 | 88,698 | 88,698 | 88,698 | 532,188 | |||||||||||
CEG Rio | Supply of natural gas | CSN undertakes to acquire at least 70% of natural gas. | 359,780 | 431,093 | 264,646 | 264,646 | 529,292 | |||||||||||||||
Vale S.A | Supply of ore pellets | CSN undertakes to acquire at least 90% of the volume of lead pellets guaranteed in the contract. | 22,268 | 195,221 | 141,765 | 141,765 | 141,765 | 94,510 | 519,805 | |||||||||||||
Compagás | Supply of natural gas | CSN undertakes to acquire at least 80% of the annual volume of natural gas contracted w ith Compagás. | 11,984 | 15,318 | 11,754 | 11,754 | 11,754 | 11,754 | 11,754 | 105,786 | 164,556 | |||||||||||
COPEL | Supply of energy | CSN undertakes to acquire at least 80% of the annual volume of electric pow er contracted w ith COPEL. | 9,583 | 13,178 | 8,809 | 8,809 | 8,809 | 8,809 | 8,809 | 52,852 | 96,897 | |||||||||||
K&K Tecnologia | Supply of blast furnace mud generated in the pig iron production process | CSN undertakes to acquire at least 3,000 metric tons of blast furnace mud for porcessing in the mud concentration plant of CSN. | 6,480 | 6,480 | 6,480 | 6,480 | 6,480 | 46,980 | 79,380 | |||||||||||||
Harsco Metals | Supply of slag resulting from the pig iron and steel production process | The Harsco Metals Ltda. undertakes to perform the Scrap recovery Services resulting from the process of production of pig iron and steel from CSN / UPV, receiving by this process the equivalent in value the result of multiplying the unit price (U.S. $ / t) by the total Liquid Steel CSN’s Mill production, w ith a guarantee of a minimum production of liquid steel corresponding to 400,000 tons. | 32,819 | 37,279 | 28,416 | 28,416 | 28,416 | 14,208 | 99,456 | |||||||||||||
1,015,579 | 905,475 | 923,070 | 880,947 | 512,551 | 388,003 | 279,285 | 479,346 | 3,463,202 |
Payments | Minimum future payments | |||||||||||||||||||
Concessionaire | Type of service | Agreement terms and conditions | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | After 2015 | Total | ||||||||||
MRS Logística | Iron ore transportation. | Contractual clause providing for guaranteed revenue on railway freight. In the case ofCSN, this means a minimum payment of 80% of freight estimate. | 92,504 | 153,870 | 176,058 | 176,058 | 176,058 | 176,058 | 88,029 | 792,261 | ||||||||||
MRS Logística | Steel products transportation | Transportation of at least 80% of annual volume agreed with MRS. | 17,606 | 58,762 | 58,762 | 58,762 | 58,762 | 24,484 | 259,532 | |||||||||||
MRS Logística | Iron ore, coke and coal transportation. | Transportation of 8,280,000 metric tons per year of iron ore and 3,600,000 metric tonsper year of coal, coke and other reducing agents. | 7,151 | 41,463 | 100,060 | 100,060 | ||||||||||||||
FCA | Mining products transportation. | Transportation of at least 1,900,000 metric tons per year. | 419 | 1,324 | 63,085 | 63,085 | 126,170 | |||||||||||||
FCA | FCA railway transportation ofclinker to CSN Cimentos. | Transportation of at least 675,000 metric tons per year of clinker in 2011 and 738,000metric tons per year of clinker starting 2012. | 1,648 | 26,937 | 26,937 | 26,937 | 26,937 | 116,727 | 224,475 | |||||||||||
ALL | Railway transportation of steelproducts. | Rail transportation of at least, 20,000 metric tons of steel products monthly, which can vary 10% up or down, originated at the Água Branca Terminal in São Paulo for CSN PR in Araucária, State of Paraná. | 10,214 | 14,774 | 3,540 | 3,540 | ||||||||||||||
White Martins | Supply of gas (oxygen, nitrogenand argon). | CSN undertakers to buy at least 90% of the annual volume of gas contracted withWhite Martins. | 103,098 | 102,274 | 93,606 | 93,606 | 93,606 | 93,606 | 93,606 | 468,030 | ||||||||||
CEG Rio | Supply of natural gas. | CSN undertakes to buy at least 70% of the monthly natural gas volume | 431,093 | 432,449 | 280,322 | 280,322 | ||||||||||||||
Vale S.A | Supply of iron ore pellets. | CSN undertakes to buy at least 90% of the volume of iron ore pellets secured bycontract. The take-or-pay volume is determined every 18 months. | 195,221 | 349,797 | 176,305 | 176,305 | 117,537 | 470,147 | ||||||||||||
Compagás | Supply of natural gas. | CSN undertakes to buy at least 80% of the monthly natural gas volume contracted withCompagás. | 15,318 | 16,884 | 13,281 | 13,281 | 13,281 | 13,281 | 119,531 | 172,655 | ||||||||||
COPEL | Power supply. | CSN undertakers to buy at least 80% of the annual energy volume contracted withCOPEL. | 13,178 | 13,378 | 7,487 | 7,487 | 7,487 | 7,487 | 39,934 | 69,882 | ||||||||||
K&K Tecnologia | Processing of blast furnace sludge generated during pig ironproduction. | CSN undertakes to supply at least 3,000 metric tons per month of blast furnace sludge for processing at K&K sludge concentration plant. | 1,082 | 6,186 | 7,074 | 7,074 | 7,074 | 7,074 | 51,283 | 79,579 | ||||||||||
Harsco Metals | Processing of slag generated during pig iron and steel production. | Harsco Metals undertakes to process metal products and slag crushing byproducts resulting from CSN’s pig iron and steel manufacturing process, receiving for this processing the amount corresponding to the product of the multiplication of unit price (R$/t) by total production of liquid steel from CSN steel mill, ensuring a minimumproduction of liquid steel of 400,000 metric tons. | 37,279 | 39,739 | 30,000 | 30,000 | 15,000 | 75,000 | ||||||||||||
Siemens | Manufacturing, repair, recoveryand production of ingot castingmachine units. | Siemens undertakes to manufacture, repair, recover and produce, in whole or in part, ingot casting machine units to provide the necessary off-line and on-line maintenance of continuous ingot casting machine assemblies of the Presidente Vargas plant (UPV). Payment is set at R$/t of produce steel plates. | 38,569 | 38,817 | 32,324 | 18,856 | 51,180 | |||||||||||||
945,126 | 1,230,209 | 1,068,841 | 671,451 | 515,742 | 383,205 | 533,594 | 3,172,833 |
b.Concession agreements
Minimum future payments related to government concessions as atof December 31, 20102011 fall due according to the schedule set out in the following table:
|
|
| Minimum future commitments |
|
|
|
|
|
|
|
| ||||
Concession |
| Nature of service | 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| After 2016 |
| Total |
MRS |
| Concession for a period of 30 years, renewable for another 30 years, for transporting iron ore from the mines of Casa de Pedra in MG and coke and coal from the Port of Itaguaí (RJ) to Volta Redonda and transportation of exports back to the Ports of Itaguaí and Rio de Janeiro. | 225,944 |
| 225,958 |
| 225,958 |
| 225,958 |
| 225,958 |
| 2,372,42 |
| 3,502,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transnordestina |
| Concession for a period of 30 years granted on December 31, 1997, renewable for another 30 years, for development of public railroad transportation services in the Northeast of Brazil. The Northeast System covers 4,238 km of railroad track and operates in the states of Maranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and Rio Grande do Norte. | 5,809 |
| 5,809 |
| 5,809 |
| 5,809 |
| 5,809 |
| 69,705 |
| 98,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tecar |
| Concession to operate the solid bulk terminal TECAR, one of the four terminals that comprise the Port Itaguaí, in Rio de Janeiro, for a period expiring in 2022 and renewable for another 25 years. | 86,530 |
| 108,895 |
| 131,856 |
| 131,856 |
| 131,856 |
| 922,992 |
| 1,513,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tecon |
| Concession for a period of 25 years granted on September 3, 1998 , renewable for another 25 years, to operate the container terminal at the Port de Itaguaí (RJ). | 20,490 |
| 20,490 |
| 20,490 |
| 20,490 |
| 20,490 |
| 215,142 |
| 317,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 338,773 |
| 361,152 |
| 384,113 |
| 384,113 |
| 384,113 |
| 3,580,265 |
| 5,432,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum future payments | ||||||||||||||
Company Concession | Type of service | 2012 | 2013 | 2014 | 2015 | After 2015 | Total | |||||||
MRS | 30-year concession, renewable for another 30 years, to provide iron ore railway transportation services from the Casa de Pedra mines, in Minas Gerais, coke and coal from the Itaguaí Port, in Rio de Janeiro, to Volta Redonda, transportation of export goods to the Itaguaí and Rio de Janeiro Ports, and shipping of finishedgoods to the domestic market. | 80,315 | 80,315 | 80,315 | 80,315 | 823,230 | 1,144,490 | |||||||
Transnordestina | 30-year concession granted on December 31, 1997, renewable for another 30years for the development of public utility to operate the Northeastern railwaysystem. The railway system covers 4,238 kilometers of railroads in the states ofMaranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and Rio Grande do Norte. | 6,494 | 6,494 | 6,494 | 6,494 | 74,135 | 100,111 | |||||||
Tecar | Concession to operate TECAR, a solid bulk terminal, one of the four terminals that comprise the Itaguaí Port, in Rio de Janeiro, for a period ending 2022 and renewable for another 25 years. | 111,225 | 117,913 | 125,922 | 125,922 | 881,455 | 1,362,437 | |||||||
Tecon | 25-year concession granted in July 2001, renewable for another 25 years, tooperate the container terminal at the Itaguaí Port. | 22,129 | 22,129 | 22,129 | 22,129 | 221,293 | 309,809 | |||||||
220,163 | 226,851 | 234,860 | 234,860 | 2,000,113 | 2,916,847 |
FS-76
c.Projects and other commitments
•·Steel – Flat and long steel
The Company is implementing a long-steel unit in Volta Redonda, in Rio de Janeiro, within its main facility. In this new unit,
CSN intends to produce 500,000 metric tons per year (mtpy) of loglong steel products, with an estimate of which 400,000 mtpyt/year of beamsrebar and 100,000 mtpyt/year of machine wire. Total investment in production of long-steel products will amount to approximately R$ 974 million.wirerod. The new facilities will use scrap and pig iron as thetheir main raw materials. BesidesIn addition to this mill,plant, CSN is also developing two entirely new long-steelassessing the option of implementing in Brazil other similar projects, each also with 500,000 t/year capacity of 500,000 mtpy. The Company’s forecast is that these two new units will start up production by the end of 2013. CSN is also developing a long steel project, with slated installed capacity of 1.5 million mtpy, in a site to be confirmed.each.
•·Iron ore project
FS-74
The iron ore business linesCSN projects producing 89 mtpy of CSN encompass expansion of its mining activities and its maritime port facilities. The Company is forecasting that by 2014 it will be producing iron ore products, to the tune of 89 million mtpy,including 50 million mtpy at Casa de Pedra and 39 million mtpy at Namisa. We expect to finance these investments through the Brazilian Development Bank (BNDES), export credit agencies, placement of securities and free cash flows from our current operations.
Moreover,In addition, a CSN is investinginventing in expanding the expansion of the Itaguaí seaport, or TECAR, for a capacity of its maritime port in Itaguaí, or TECAR, up to the point where it can handle 84 million mtpy. The presentcurrent annual export capacity is equivalent to 30 million mtpy.metric tons.
In addition to these projects, the Company is evaluating other opportunities for greenfield and brownfield projects, as well as some acquisition options.
CSN holds the concession to operate the solid bulk terminal TECAR, one of the four terminals that comprise the Port of Itaguaí, in Rio de Janeiro, through which coalCoal and coke imports are carried out. The term ofmade using the TECAR terminal, whose concession agreement is 25 years, renewableextendable for another 25 years.
Upon extinction of this concession termination, all the rights and privileges transferred to CSN,Tecon will be handed back to CDRJ (Companhia Docas do Rio de Janeiro), together with the assets owned by CSN and those resulting from investments it made by CSN in leased assets, declared reversibleas returnable assets by CDRJ as they are necessary to the governmentcontinuity of the related services. Any assets declared as returnable assets will be returned to CDRJ (Companhia Docas do Rio de Janeiro) since they are need for the continued provision of services granted under the concession. The assets declared to be reversible will be indemnifiedcompensated by CDRJ for theat their residual value, of their cost, after deduction ofless related depreciation/amortization.
FS-77
•·Cement project
The
Up to December 2011 the Company hashad invested R$ 814770 million in the construction of an entirely new grinding unit in Volta Redonda which is already in operation, and a new clinker blast furnace in Arcos/Arcos, MG, with production capacity of 2.4 million mtpy and 830,000 mtpy,t/year, respectively. This project represents CSN’s entry into the cement market, taking advantage of the slag generated by its blast furnaces and its limestone reserves in Arcos.
In the 4thfourth quarter of 2010,2011, CSN cement sales reached 342,799totaled 484,346 metric tons (338,000 in 2009),(342,799 as of December 31, 2010) and is expected to reachwe expect reaching full production capacity by 2012. These2012.These investments are partlypartially financed by BNDES. In addition to this plant, the Company is undertaking other projects as well, such as the installation of an integrated cement plant in Arcos, with capacity of up to 1 million mtpy, and is further considering setting up three additional integrated plants (cement and clinker) in Brazil by 2014, also with capacity of 1 million mtpy. Combined, these cement operations and projects will involve total capacity of 6.4 million mtpy by 2014.BNDES.
•·Nova Transnordestina projectProject
In August 2006, in order to permit implementation of a major infrastructure project led by the Brazilian federal government, CSN Executive Officers approved a transaction for the merger of Transnordestina Logística S.A., a company that was linked to the
The Nova Transnordestinaproject by Companhia Ferroviária do Nordeste - CFN, a CSN subsidiary currently named Transnordestina Logística S. A. that holds a 30-year concession granted in 1998 to operate the Northeast Railroad of RFFSA, with 4,238 kilometers of railroad tracks. TheNova Transnordestinaproject includes building 1,728 additional kilometers of the latest generationkm in new, next-generation, wide-gauge track.tracks. The Company expects that the investments will permit Transnordestina Logística S.A. to boost the transportation of variedseveral products, such as iron ore, limestone, soybeans,soy, cotton, sugarcane, fertilizers, oil, and fuels.fuel. The investments will be financed by means of several agencies, such as the Northeast Investment Fund (FINOR), the Northeast Development SuperintendencyAuthority (SUDENE) and the BNDES. The companyCompany has already obtained the required environmental authorizations,permits, purchased part of the equipment, contracted some of the services, and implementation ofin certain regions the project is alreadyat an advanced in certain regions.implementation stage.
The Company guaranteesis the guarantor of BNDES loans for theTransnordestinaproject, from BNDES, in the total amountwhich as of R$ 373.5 million as at December 31, 2010.2011 total R$392,874 (R$373,484 as of December 31, 2010). These loans are for the purpose of financingbeing used to finance the investments in infrastructure to be made in theTransnordestinaproject.Transnordestina’s infrastructure. The maximum amount of future payments that can be required offrom the guarantor under the guarantee for the project is R$ 373.5 million.392,874.
•·CSN’s Logistic Platform Project in Itaguaí
Under the terms of the concession agreement, CSN is responsible for unloading at least 3.43.0 million per year of coal and coke from the Company’sCSN’s suppliers through the terminal, as well as third partyhandling ore shipments. Among the approved investments announced by CSN, we highlight the development and expansion of the solid bulk terminal at Itaguaí so that it can also handle up to 13084 million mtpymetric tons per year of iron ore.
•·Long-term agreements with Namisa
The Company has signed long-term agreements with Namisa for the provision of port operation services and supplies of rawrun-of-mine (ROM) iron ore (ROM) from the Casa de Pedra mine, as described below:
i. Port operation serviceoperating services agreement
FS-75
On December 30,October 21, 2008, CSN signedentered into an agreement for the provision of port services forto Namisa for a 35-year period, of 34 years, consisting of receiving, handling, storing and shipping Namisa’s iron ore from Namisa in annual volumes that varyrange from 18.0 million to 39.0 million .tonnes. On December 30, 2008, CSN has received the amount of approximately R$5.3 billion as an advance for part of the payments due for the services to be provided under this agreement. The amounts charged for these port services are reviewed on a quarterly basis and adjusted considering the changes in the market price forof iron ore.
FS-78
ii. High siliconSilica ROM
On December 30,October 21, 2008, CSN signedalso entered into an agreement for the supply of high siliconsilica crude iron ore ROM ore to Namisa for a period of 3035 years in volumes varyingthat range from 42.025.7 million tons to 54.0 million.46.5 million tons per year. On December 30, 2008, CSN has already received approximately R$1.6 billion as an advance for part of the payments due for the supplies to be made under this agreement. The amounts supplied aresupply price is reviewed every quarteron a quarterly basis and adjusted considering the changes in the market price forof iron ore.
iii. Low siliconSilica ROM
On December 30,October 21, 2008, CSN also signedentered into an agreement for the supply of low siliconsilica crude iron ore ROM ore to Namisa for a period of 359 years in volumes that varyrange from 2.88 million tons to 5.04 million.30.6 million tons per year. On December 30 2008, CSN has already received aboutapproximately R$424 millionbillion as an advance for part of the payments due for the supplies to be made under this agreement. The amounts supplied aresupply price is reviewed every quarteron a quarterly basis and adjusted considering the changes in the market price forof iron ore.
32. 31.INSURANCE COVERAGE
Aiming to properly mitigate risk and in view of the nature of its operations, the Company and its subsidiaries have taken out several different types of insurance policies. Such policies are contracted in line with the CSN Risk Management policy and are similar to the insurance taken out by other companies operating in the same lines of business as CSN and its subsidiaries. The risks covered under such policies include the following: Domestic Transportation, International Transportation, Carrier’s Civil Liability, Importation, Exportation, Life and Casualty, Health Coverage, Fleet Vehicles, D&O (Civil Liability Insurance for Administrators)Directors and Officers), General Civil Liability, Engineering Risks, Sundry Risks, Export Credit, Performance Bond and Port Operator’s Civil Liability.
As mentioned
In 2011, after negotiation with insurers and reinsurers in note 33, on May 4, 2011 the Company contracted an insuranceBrazil and abroad, was issued Insurance Issued Certificate to hiring policy of Operational Risk of Property Damage and Business InterruptionLoss of Profits, with effect from March 23, 2011 to March 22, 2012, which had its term extended by the period of March 23, 2012 to June 30, 2012. Under the insurance policy, the LMI – Maximum(Maximum Limit of Indemnity ofIndemnity) is R$850 million to its entities,850,000 and covers the following units and subsidiaries of the Company: Usina Presidente Vargas, Mining Casa de Pedra Mine, CSN Paraná, Arcos Mining, CSN Parana, CSN Porto Real, TECON Terminal, TECAR Coal Terminal, Terminal TECON, NAMISA and CSN Cement, which was negotiated with the insurers and reinsurers in Brazil and abroad for placement of insurance.Cement. The companyCompany decided to take responsibility for a range of retention of R$170 million excess of the deductibles for property damage and business interruptionloss of profits and co-participate with 64%53.55% of the risks. The Company plans to reduce the co-participation.
Due to
In view of their nature, the risk assumptions adopted are not part of the scope of an audit of the financial statements and, accordingly, were not examined by our independent auditors.
33. 32.SUBSEQUENT EVENTS
•·Bond issuance
On January 26, 201130, 2012, the Company disclosed to the market,priced, through a Significant Event Notice, that it has increased its equity interest in Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS, through purchases of common and preferred shares. The Company now holds 5.03% of the common shares and 4.99% of the preferred shares, as already disclosed to the market on January 13, 2011. Between January 26 and March 21, 2011, the Company purchased new common shares of Usiminas, so that it became the owner of 8.62% of the common shares. Further, on April 20, 2011, the Company increased its participation in Usiminas’ capital through acquisitions of common shares and preferred shares, such that the Company holds 10.01% of common shares and 5.25% of preferred shares. The Company is assessing strategic alternatives in relation to its investment in Usiminas, including potential additional acquisitions of shares in percentage amounts higher than those mentioned above. Any additional acquisitions might lead to changes in the ownership structure or administrative structure of Usiminas.
•On January 28, 2011 CSN merged its subsidiary CSN Aços LongosResources S.A., which resultedan additional bond issuance amounting to US$200 million, by reopening the US$1 billion bonds, bearing interest of 6.5% per year and maturing in optimizationJuly 2020.
·Merger of processesthe clinker plant
FS-76
On January 31, 2012, the Company and reductionits subsidiary CSN Cimentos entered into a purchase and simplificationsale agreement to acquire CSN Cimentos’ unit in Arcos, MG. As a result,the clinker plant is now a branch of administrative costs, notably with respectCSN.
·Purchase of Alfonso Gallardo Group assets
On January 31, 2012, Companhia Siderúrgica Nacional, through its wholly-owned subsidiary CSN Steel, completed the acquisition of all shares held by the Alfonso Gallardo Group in the Companies Stahlwerk Thüringen (SWT) and Gallardo Sections. Total transaction price was €482.5 million.
The Company shall make allocations of the purchase price to mattersassets acquired and liabilities assumed and the determination of a managerial nature, dueany goodwill resulting from that transaction. At this moment, the Company does not have enough information to meet the disclosures related to the concentrationacquisition, required by IFRS 3 – Business Combination.
·Settlement of debentures
On February 1, 2012, the Company settled the fourth issue debentures amounting to R$635,285 (R$600,000 in a single organizational structure of all commercial, operationalprincipal and administrative activitiesR$35,285 in interest), which had been issued on February 1, 2006 and paid interest equivalent to 103.6% of the two companies.CDI Cetip.
FS-79
•·TheIssuance of promissory notes (“Promissory Notes”)
In March 2012, the Company took out a R$ 2 billion loan from Caixa Econômica Federal on February 3, 2011. This transaction was carried out through a Special Credit Line for Major Corporations, with issuehas approved the first (1st) issuance of a bank credit note in the total amountpromissory notes (“Promissory Notes”) of the loan, which falls due in 94 months.Company for public distribution with restricted placement efforts, pursuant to CVM Rules (“Issuance”).
•Between February 1
The Issuance comprised 40 Promissory Notes with unit value of R$20 million, totaling R$800 million, fully subscribed and 10, 2011paid up on this date. The net amount raised by the Company purchased 10,456,086through this Issuance will be fully allocated to extend the Company’s debt profile, after the deduction of applicable commissions and expenses.
·CADE
On April 11, 2012, Conselho Administrativo de Defesa Econômica (CADE) issued an injunctive order barring us from, among others, acquiring more Usiminas shares or exercising our voting rights on the shares we already own. We are analyzing alternatives to preserve our rights.
·Annual General Meeting
At the Annual Shareholders’ Meeting held on April 27, 2012, the shareholders approved the Company’s distribution of the capitalprofit for the year ended December 31, 2011 and allocation of the mining company Riversdale Mining Limited,unrealized earnings reserve, as follows:
-Declaration of dividends in the amount of R$ 281,438, thus achieving total indirect interest of 19.98% of the1,200,000, corresponding to R$0.82306 per share;
-Paid in capital of this company.
•On April 20, 2011 the Company adhered to a takeover bid for shares of Riversdale Mining Limited (“Riversdale”) promoted by Rio Tinto. The Company will sell the total participation currently held in the share capital of Riversdale, equivalent to 47,291,891 shares at A$ 16.50 per share, total A$ of 780,316.
•On April 20, 2011 the Company entered into a new financing contract through a export credit noteincrease in the amount of R$ 1.5 billion issued by Banco do Brasil S.A.2,859,053.
•-On May 4, 2011Allocation to the Company contracted insurance policy of Operational Risk of Property Damage and Business Interruption to its entities, units and subsidiaries Usina Presidente Vargas, Mining Casa de Pedra, Arcos Mining, CSNParana, CSN Porto Real, TECAR Coal Terminal, Terminal TECON, NAMISA and CSN Cement.
•On May 19, 2011, the Company entered into, through our Spanish subsidiary CSN Steel SL, a share purchase agreement with the Spanish group Alfonso Gallardo (“AG Group”) to establish the acquisition of all the shares held by the AG Group in (i) Cementos Balboa S.A., a cement and clinker producer locatedstatutory reserves in the Extremadura region in Spain; (ii) Corrugados Azpeitia, S.L. and Corrugados Lasao, S.L.U., long steel manufacturers with plants in the Basque Country; (iii) Stahlwerk Thüringen GmbH, a long steel manufacturer located in Unterwellenborn, Germany, specialized in the productionamount of steel profiles, and; (iv) Gallardo Sections S.L.U., a AG Group steel distributor.R$ 3,426,336.
Subject to adjustments, pursuant to the share purchase agreement, CSN Steel SL will pay €543 million for the acquisition of the abovementioned shares, and will assume approximately €403 million in indebtedness and further adjustments. The transaction will be submitted to necessary regulatory and/or antitrust approvals, and its closing is still subject to other conditions which are inherent to transactions of this nature.
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