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12. FINANCIAL INSTRUMENTS (Tables)
 12 Months Ended
Dec. 31, 2017
Financial Instruments Tables  
Financial instruments

                                            Consolidated
Consolidated           12/31/2017       12/31/2016
  Notes   Available for sale   Fair value through profit or loss   Loans and receivables   Others liabilities measured at amortized cost   Balances   Available for sale   Fair value through profit or loss   Loans and receivables   Other liabilities measured at amortized cost   Balances
                     
Assets                                            
Current                                            
Cash and cash equivalents          3                     3,411,572          3,411,572                     4,871,162              4,871,162
Short - term investments          4                        735,712             735,712                        760,391                 760,391
Trade receivables          5                     2,197,078          2,197,078                     1,904,630              1,904,630
Derivative financial instruments                                         2,298                         2,298
Trading securities          7                 2,952                     2,952                 2,966                         2,966
Loans - related parties          7           2,441                 2,441                    
Dividends receivable          5                          41,528           41,528                          37,679               37,679
Total                     2,952             6,346,803              41,528      6,391,283                 5,264             7,536,183              37,679          7,579,126
                                             
Non-current                                            
Other trade receivables          7                          20,024               20,024                          15,291                   15,291
Investments          8     2,222,433                  2,222,433     1,374,268                      1,374,268
Loans - related parties          7           554,694             554,694           479,960                 479,960
Total         2,222,433                    574,718          2,797,151     1,374,268                    495,251              1,869,519
                                             
Total Assets         2,222,433             2,952             6,921,521              41,528      9,188,434     1,374,268             5,264             8,031,434              37,679          9,448,645
                                             
Liabilities                                            
Current                                            
Borrowings and financing        11                     6,551,764      6,551,764                     2,150,951          2,150,951
Derivative financial instruments                                            121                            121
Trade payables                         2,460,774      2,460,774                     1,763,206          1,763,206
Dividends and interest on capital        13                        510,692         510,692                        484,570             484,570
Total                         9,523,230      9,523,230                    121             4,398,727          4,398,848
                                             
Non-current                                            
Borrowings and financing        11                   23,017,953    23,017,953                   28,382,802        28,382,802
Total                       23,017,953    23,017,953                   28,382,802        28,382,802
                                             
Total Liabilities                       32,541,183    32,541,183                    121           32,781,529        32,781,650

Financial instruments at fair value through profit or loss

The following table shows the financial instruments recognized at fair value through profit or loss using a valuation method:

 

 

Consolidated

           12/31/2017           12/31/2016
  Level 1   Level 2   Balances   Level 1   Level 2   Balances
Assets                        
Current assets                        

Financial assets at fair value through

profit or loss

                        
Derivative financial instruments                   2,298   2,298
Trading securities   2,952       2,952   2,966       2,966
Non-current assets                        
Available-for-sale financial assets                        
Investments   2,222,433       2,222,433   1,374,268       1,374,268
Total Assets   2,225,385   -      2,225,385   1,377,234   2,298   1,379,532
                         
Liabilities                        
Current liabilities                        

Financial liabilities at fair value

through profit or loss

                        
Derivative financial instruments                   121   121
Total liabilities       -      -          121   121
Investments in financial instruments classified as available-for-sale

The impairment recorded as of December 31, 2015 amounted R$555,298.

 

Class of shares     Quantity 12/31/2017   Quantity 12/31/2016   Variation in the year
    Share price   Closing Balance   Share price   Closing Balance   Share price   Variation in the carrying amount
Common     107,156,651 10.83   1,160,506   107,156,651 8.26   885,114   2.57   275,392
Preferred     114,280,556 9.10   1,039,953   114,280,556 4.10   468,550   5.00   571,403
      221,437,207     2,200,459   221,437,207     1,353,664       846,795
Foreign exchange exposure

   

 

 12/31/2017

Foreign Exchange Exposure   (Amounts in US$’000)   (Amounts in €’000)
Cash and cash equivalents overseas 777,310   2,857
Trade receivables   310,642   2,799
Other assets   3,283   3,636
Total assets   1,091,235   9,292
Borrowings and financing   (4,332,686)   (73,186)
Trade payables   (97,622)   (1,941)
Other liabilities   (3,984)   (3,368)
Total liabilities   (4,434,292)   (78,495)
Foreign exchange exposure   (3,343,057)   (69,203)
Cash flow hedge accounting   1,317,667    
Net Investment hedge accounting       72,000
Net foreign exchange exposure (2,025,390)   2,797
Perpetual Bonds   1,000,000    
Net foreign exchange exposure excluding perpetual bonds   (1,025,390)   2,797
           
Derivative financial instruments

                                        Consolidated
                    12/31/2017               12/31/2016   12/31/2017
            Appreciation (R$)   Fair value
(market)		       Appreciation (R$)   Fair value
(market)		   Impact on finance income (cost) in 2017
Counterparties   Functional Currency   Notional amount   Asset
position		   Liability
position		   Amounts receivable / (payable)   Notional amount   Asset
position		   Liability
position		   Amounts receivable / (payable)  
BNPP   Dollar                            10,250          33,435          (31,137)            2,298                       (229)
Total dollar-to-euro swap                                10,250          33,435          (31,137)            2,298                       (229)
                                         
BM&FBovespa   Real                       1,641,378                  -                     -                (121)                    28,503
Total DI future                         1,641,378                  -                     -                (121)                    28,503
                                         
                               33,435          (31,137)            2,177                    28,274

Dollar x Euro swap
·Classification of the derivatives in the balance sheet and statement of income

 

                    12/31/2017
Instruments   Assets   Liabilities   Net Financial Income (Note 24)
  Current   Total   Current   Total  
Dollar - to - euro swap                   (229)
Future DI                   28,503
                    28,274
                     
                    12/31/2016
Instruments   Assets   Liabilities   Net Financial Income (Note 24)
  Current   Total   Current   Total  
Future Dollar BM&F                   (805,760)
Dollar - to - euro swap   2,298   2,298           (6,467)
Fixed rate - to - CDI swap (*)                   (299)
CDI - to - fixed rate swap (*)                   (63)
Future DI           (121)   (121)   5,829
    2,298   2,298   (121)   (121)   (806,760)

 

(*) Swap positions were settled in October 2017.
Hedging instruments

                                    12/31/2017
Designation Date Hedging Instrument   Hedged item   Type of hedged risk   Hedged period   Exchange rate on designation   Designated amounts (US$’000)   Amortizated part (USD'000)   Effect on Result (*) (R$'000)   Impact on Shareholders' equity (R$'000))
3/11/2014   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    October 2016 - September 2019   2.4442   500,000   (133,334)   53,203   (316,726)
1/12/2014   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate   October 2015 - February 2019   2.5601   175,000   (114,999)   38,937   (44,880)
12/18/2014   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    May 2020    2.6781   100,000           (62,990)
07/21/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    July 2019 - March 2021   3.1813   60,000           (7,602)
07/23/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    July 2019 - March 2021   3.2850   100,000           (2,300)
07/23/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    October 2018 - October 2022   3.2850   30,000           (690)
07/24/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    October 2018 - October 2022   3.3254   100,000           1,740
07/27/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    October 2018 - October 2022   3.3557   25,000           1,193
07/27/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    October 2018 - October 2022   3.3557   70,000           3,339
07/27/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    October 2018 - October 2022   3.3557   30,000           1,431
07/28/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    October 2018 - October 2022   3.3815   30,000           2,205
1/8/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    (1)   3.3940   (9,000)           (774)
3/8/2015   Export prepayments in US$ to third parties Part of the highly probable future monthly iron ore exports Foreign exchange - R$ vs. US$ spot rate    October 2018 - October 2022   3.3940   355,000           30,530
Total                       1,566,000   (248,333)   92,140   (395,524)
Changes in hedge accounting

The movements in the hedge accounting amounts recognized in shareholders’ equity as of December 31, 2017 are as follows:

 

  12/31/2015   Movement   Realization   12/31/2016   Movement   Realization   12/31/2017
Cash flow hedge accounting 1,520,089   (1,005,968)   (77,444)   436,677   50,987   (92,140)   395,524
Fair value of cash flow hedge, net of taxes 1,520,089   (1,005,968)   (77,444)   436,677   50,987   (92,140)   395,524
Non-derivative financial liabilities

Non-derivative financial liabilities have been designated represented by loan agreements with financial institutions in the amount of € 120 million. The carrying amounts on December 31, 2017 are:

 

                        12/31/2017
Designation Date   Hedging Instrument   Hedged Item   Type of Hedged Risk   Exchange Rate on designation   Designated amounts (EUR'000)   Amortized part (USD’000) Impact on shareholders' equity
09/01/2015   Non-derivative financial
liabilities in EUR – Debt contract		   Investments in subsidiaries which
EUR is the functional currency		   Foreign exchange -
R$ vs. EUR spot rate		   4.0825   120,000   (48,000) (17,911)
Total                   120,000   (48,000) (17,911)
Changes in net investment hedge

The changes in the amounts related to net investment hedge as of December 31, 2017 are presented below:

 

  12/31/2015 Movement   Realization 12/31/2016   Movement   Realization   12/31/2017
Net investment hedge accounting 20,148 (77,952)     (57,804)   39,893       (17,911)
Fair value of net investment hedge in foreign operations 20,148 (77,952)     (57,804)   39,893       (17,911)
Currencies used in sensitivity analysis

 

 

                12/31/2017
Currency   Exchange rate   Probable scenario   Scenario 1   Scenario 2
USD   3.3080   3.2381   4.1350   4.9620
EUR   3.9693   4.0295   4.9616   5.9540

 

 

            12/31/2017
Interest   Interest rate   Scenario 1   Scenario 2
CDI   6.89%   8.61%   10.34%
TJLP   7.00%   8.75%   10.50%
LIBOR   1.84%   2.30%   2.76%
Interests used in sensitivity analysis

The effects on income statement, considering the scenarios 1 and 2 are shown below:

 

                    12/31/2017
Instruments   Notional   Risk   Probable scenario (*)   Scenario 1   Scenario 2
                     
Hedge accounting of exports   1,317,667   Dollar   (92,105)   1,089,711   2,179,422
                     
Currency position   (3,343,057)   Dollar   233,680   (2,764,708)   (5,529,416)
(not including exchange derivatives above)                    
                     
Consolidated exchange position   (2,025,390)   Dollar   141,575   (1,674,997)   (3,349,994)
(including exchange derivatives above)                    
                     
Net Investment hedge accounting   72,000   Euro   4,334   71,447   142,894
                     
Currency position   (69,203)   Euro   (4,166)   (68,672)   (137,344)
                     
Consolidated exchange position   2,797   Euro   168   2,775   5,550
(including exchange derivatives above)                    

 

(*) The probable sceneries were calculated considering the following variations to the specified risks: Real x Dollar – appreciation of Real in 2.11% / Real x Euro – appreciation of Real in 1.52%. Source: Quotation from Central Bank of Brazil and Central Bank of Europe on 02/16/2018.
Sensitivity analysis effects on income statement

The Company considered the scenarios 1 and 2 as 25% and 50% of evolution for volatility of the interest as of December 31, 2017.

                Consolidated
                    Impact on profit or loss
Changes in interest rates   % Yearly   Assets   Liabilities   Probable scenario (*)   Scenario 1   Scenario 2
TJLP   7.00       (1,003,712)   (3,202)   (17,565)   (35,130)
Libor   1.84       (4,844,015)   (44,657)   (22,247)   (44,494)
CDI   6.89   644,525   (13,550,383)   (206,061)   (222,303)   (444,606)

 

(*) The sensitivity analysis is based on the assumption of maintaining as probable scenario the market rates at December 31, 2017 recorded in the Company´s assets and liabilities.
Sensitivity analysis of interest rate swaps

The following table shows the contractual maturities of financial liabilities, including accrued interest.

 

At December 31, 2016   Less than one
year		   From one to
two years		   From two to five
years		   Over five years   Total
Borrowings, financing and debentures   6,551,764   14,812,478   4,249,106   3,956,369   29,569,717
Trade payables   2.460,774               2,460,774
Dividends and interest on capital   510,692               510,692
Sensitivity analysis of changes in interest rates

The estimated fair values for certain 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 below:

 

        12/31/2017       12/31/2016
    Carrying amount   Fair value   Carrying amount   Fair value
Perpetual bonds   3,312,503   2,602,090   3,263,536   1,702,134
Fixed rate notes   5,751,526   6,207,946   5,666,506   4,907,339
Contractual maturities of financial liabilities

The table below shows the evolution of the capital structure of the Company in the last three years, with financing by equity and third-party capital.

 

Thousands of reais 2017 2016
Shareholder's equity (equity) 8,288,229 7,384,521
Borrowings and Financing  (Third-party capital) 29,510,844 30,441,018
Gross Debit/Shareholder's equity 3.56 4.12