EX-99.1 2 e1011157.txt EXHIBIT 99.1 EXHIBIT 99.1 (A free translation of the original in Portuguese) GERDAU S.A. REPORT OF INDEPENDENT ACCOUNTANTS ON LIMITED REVIEWS OF QUARTERLY INFORMATION (ITR) SEPTEMBER 30, 2004 AND 2003 AND JUNE 30, 2004 (A free translation of the original in Portuguese) REPORT OF INDEPENDENT ACCOUNTANTS ON LIMITED REVIEWS To the Management and Shareholders Gerdau S.A. 1 We have carried out limited reviews of the accounting information included in the Quarterly Information (ITR) of Gerdau S.A. and its subsidiaries for the quarters and periods ended September 30 and June 30, 2004 and September 30, 2003. This information is the responsibility of the Company's management. 2 Our reviews were carried out in accordance with specific standards established by the Institute of Independent Auditors of Brazil (IBRACON), in conjunction with the Federal Accounting Council (CFC), and mainly comprised: (a) inquiries of and discussions with management responsible for the accounting, financial and operating areas of the Company and its subsidiaries with regard to the main criteria adopted for the preparation of the quarterly information and (b) a review of the significant information and of the subsequent events which have, or could have, significant effects on the Company's and its subsidiaries' financial position and operations. 3 Based on our limited reviews, we are not aware of any material modifications that should be made to the quarterly information referred to above in order that such information be stated in accordance with the accounting practices adopted in Brazil applicable to the preparation of quarterly information, consistent with the Brazilian Securities Commission (CVM) regulations. 2 Gerdau S.A. 4 Our reviews were conducted with the purpose of issuing a report on the Quarterly Information (ITR) referred to in paragraph 1, taken as a whole. The statement of cash flows, presented to provide additional information on the Company, is not required as an integral part of the Quarterly Information (ITR). The statement of cash flows was submitted to the review procedures mentioned in paragraph 2, and, based on our reviews, we are not aware of any material modifications that should be made for it to be fairly presented, in all material respects, in relation to the Quarterly Information (ITR), taken as a whole. Rio de Janeiro, November 3, 2004. PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 "F" RJ Carlos Alberto de Sousa Contador CRC 1RJ056561/O-0 3
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
4 - Register Inscription Number - NIRE 33300032266 01.02 - HEAD OFFICE 1 - FULL ADDRESS 2 - SUBURB OR DISTRICT Av. Joao XXIII, 6777 Sta. Cruz
3 - ZIP CODE 4 - MUNICIPALITY 5 - STATE 23560-900 Rio de Janeiro RJ 6 - AREA CODE 7 - TELEPHONE 8 - TELEPHONE 9 - TELEPHONE 10 - TELEX 051 3323-2000 - - 11- AREA CODE 12 - FAX 13 - FAX 14 - FAX 051 3323-2281 - - 15 - E-MAIL inform@gerdau.com.br 01.03 - INVESTOR RELATIONS OFFICER (Company Mail Address) 1 - NAME 2 - ADDRESS Osvaldo Burgos Schirmer Av. Farrapos, 1811 3 - SUBURB OR DISTRICT 4 - ZIP CODE 5 - MUNICIPALITY 6 - STATE Floresta 90220-005 Porto Alegre RS 6 - AREA CODE 7 - TELEPHONE 8 - TELEPHONE 9 - TELEPHONE 10 - TELEX 051 3323-2000 - - 11- AREA CODE 12 - FAX 13 - FAX 14 - FAX 051 3323-2281 - - 15 - E-MAIL inform@gerdau.com.br 01.04 - GENERAL INFORMATION / INDEPENDENT ACCOUNTANTS CURRENT YEAR CURRENT QUARTER PRIOR QUARTER 1-BEGINNING 2-END 3-NUMBER 4-BEGINNING 5-END 6-NUMBER 7-BEGINNING 8-END 1/1/2004 12/31/2004 3 7/1/2004 9/30/2004 2 4/1/2004 6/30/2004 9 - NAME OF INDEPENDENT ACCOUNTANTS 10 - CODE CVM PricewaterhouseCoopers Auditores Independentes 00287-9 11 - NAME OF RESPONSIBLE ACCOUNTANT 12 - TAXPAYER ID NO. OF RESP. ACCOUNTANT Amoreti Franco Gibbon 070.645.780-34
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
01.05 - CAPITAL COMPOSITION NUMBER 1 - CURRENT QUARTER 2 - PRIOR QUARTER 3 - SAME QUARTER (THOUSANDS) 9/30/2004 6/30/2004 PRIOR YEAR 9/30/2003 Subscribed Capital 1 - Common 102,936 102,936 51,468 2 - Preferred 193,772 193,772 96,886 3 - Total 296,708 296,708 148,354 Treasury Stock 4 - Common 0 0 0 5 - Preferred 1,573 1,573 0 6 - Total 1,573 1,573 0
01.06 - CHARACTERISTICS OF THE COMPANY 1 - TYPE OF COMPANY Commercial, Industrial and Other 2 - SITUATION Operating 3 - SHARE CONTROL NATURE Private National 4 - ACTIVITY CODE 134 - Administration and Investment Company 5 - MAIN ACTIVITY Investment and administration 6 - CONSOLIDATION TYPE Total 7 - TYPE OF REPORT OF INDEPENDENT ACCOUNTANTS Without exception 01.07 - COMPANIES EXCLUDED FROM THE CONSOLIDATED FINANCIAL STATEMENTS 1-ITEM 2- CNPJ 3-NAME
01.08 - DIVIDENDS APPROVED AND/OR PAID DURING AND AFTER THE QUARTER 1- ITEM 2 - EVENT 3 - DATE 4 - TYPE 5 - DATE OF 6 - TYPE OF 7 - AMOUNT APPROVED PAYMENT SHARE PER SHARE 01 RCA 6/30/2004 Dividends 8/17/2004 Common 0.2900000000 02 RCA 6/30/2004 Interest on capital 8/17/2004 Common 0.3600000000 03 RCA 6/30/2004 Dividends 8/17/2004 Preferred 0.2900000000 04 RCA 6/30/2004 Interest on capital 8/17/2004 Preferred 0.3600000000 05 RCA 7/31/2004 Interest on capital 11/17/2004 Common 0.4600000000 06 RCA 7/31/2004 Interest on capital 11/17/2004 Preferred 0.4600000000 07 RCA 11/3/2004 Dividends 11/17/2004 Common 0.5300000000 08 RCA 11/3/2004 Dividends 11/17/2004 Preferred 0.5300000000
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
01.09 - SUBSCRIBED CAPITAL AND ALTERATIONS DURING THE CURRENT YEAR 1- ITEM 2 - DATE OF 3 - Subscribed 4 - CHANGE 5 - NATURE 6 - NUMBER OF 7 - SHARE PRICE CHANGE Capital AMOUNT OF CHANGE SHARES ISSUED ON ISSUE DATE (Thousands of reais) (Thousands of reais) (Thousand) (Reais) Revenue 01 4/29/2004 3,471,312 1,735,656 reserve 148,354 11,6994219600
01.10 - INVESTOR RELATIONS OFFICER 1 - DATE 2 - SIGNATURE 11/3/2004 3
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
4 02.01 - BALANCE SHEET - ASSETS (R$ THOUSANDS)
1 - CODE 2 - DESCRIPTION 3 - 9/30/2004 4 - 6/30/2004 1 Total assets 6,690,101 5,692,395 1.01 Current assets 348,959 273,916 1.01.01 Cash and banks 1,040 1,870 1.01.02 Credits 232,200 90,507 1.01.02.01 Trade accounts receivable 0 0 1.01.02.03 Tax credits 7,772 3,977 1.01.02.05 Marketable securities 224,428 86,530 1.01.03 Inventories 0 0 1.01.03.01 Finished products 0 0 1.01.03.02 Work in process 0 0 1.01.03.03 Raw materials 0 0 1.01.03.04 Warehouse materials 0 0 1.01.03.05 Advances to suppliers 0 0 1.01.04 Other 115,719 181,539 1.01.04.01 Other accounts receivable 236 216 1.01.04.02 Deferred income tax and social contribution 0 0 1.01.04.03 Dividends receivable 115,483 181,323 1.02 Long-term receivables 95,240 94,371 1.02.01 Sundry credits 8,908 8,908 1.02.01.01 Eletrobras loans 8,908 8,908 1.02.02 Receivables from related parties 0 0 1.02.02.01 Associated companies 0 0 1.02.02.02 Subsidiaries 0 0 1.02.02.03 Other related parties 0 0 1.02.03 Other 86,332 85,463 1.02.03.01 Judicial deposits and other 25,470 25,485 1.02.03.02 Credits from swap transactions 0 0 1.02.03.03 Deferred income tax and social contribution 60,862 59,978 1.03 Permanent assets 6,245,902 5,324,108 1.03.01 Investments 6,245,902 5,324,108 1.03.01.01 In associated companies 0 0 1.03.01.02 In subsidiaries 6,245,859 5,324,065 1.03.01.03 Other 43 43 1.03.02 Fixed assets 0 0 1.03.02.01 Land, buildings and structures 0 0 1.03.02.02 Machinery, equipment and installations 0 0 1.03.02.03 Furniture and fixtures 0 0 1.03.02.04 Vehicles 0 0 1.03.02.05 Electronic data equipment 0 0 1.03.02.06 Construction in progress 0 0 1.03.02.07 Forestation/reforestation 0 0 1.03.02.08 Accumulated depreciation 0 0 1.03.03 Deferred charges 0 0
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
02.02 - BALANCE SHEET - LIABILITIES AND SHAREHOLDERS' EQUITY (R$ THOUSANDS)
1 - CODE 2 - DESCRIPTION 3 - 9/30/2004 4 - 6/30/2004 2 Total liabilities and shareholders' equity 6,690,101 5,692,395 2.01 Current liabilities 352,309 345,027 2.01.01 Loans and financing 0 0 2.01.02 Debentures 0 0 2.01.03 Suppliers 0 0 2.01.04 Taxes, charges and contributions 10,644 16,770 2.01.05 Dividends payable 118,850 178,509 2.01.06 Provisions 0 0 2.01.07 Payables to related parties 218,545 145,685 2.01.08 Other 4,270 4,063 2.01.08.01 Salaries payable 564 640 2.01.08.02 Other payables 3,706 3,423 2.01.08.03 Deferred income tax and social contribution 0 0 2.02 Long-term liabilities 462,914 407,527 2.02.01 Loans and financing 0 0 2.02.01.01 Local financing 0 0 2.02.01.02 Foreign financing 0 0 2.02.02 Debentures 298,980 245,702 2.02.03 Provisions 0 0 2.02.04 Payables to related parties 0 0 2.02.05 Other 163,934 161,825 2.02.05.01 Provision for contingencies 94,903 95,097 2.02.05.02 Deferred income tax and social contribution 69,031 66,728 2.02.05.03 Other payables 0 0 2.02.05.04 Benefits to employees 0 0 2.03 Deferred income 0 0 2.05 Shareholders' equity 5,874,878 4,939,841 2.05.01 Paid-up capital 3,471,312 3,471,312 2.05.02 Capital reserves 376,672 376,672 2.05.02.01 Capital restatement 0 0 2.05.02.02 Investment subsidies 342,909 342,909 2.05.02.03 Special reserve - Law 8200/91 21,488 21,488 2.05.02.04 Other 12,275 12,275 2.05.03 Revaluation reserves 0 0 2.05.03.01 Own assets 0 0 2.05.03.02 Associated/subsidiary companies' assets 0 0 2.05.04 Revenue reserves 253,375 253,375 2.05.04.01 Legal 184,429 184,429 2.05.04.02 Statutory 68,946 68,946 2.05.04.03 Contingencies 0 0 2.05.04.04 Unrealized profits 0 0 2.05.04.05 Retention of profits 0 0 2.05.04.06 Special for undistributed dividends 0 0 2.05.04.07 Other 0 0 2.05.05 Retained earnings 1,773,519 838,482
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
03.01 - STATEMENT OF INCOME (R$ THOUSANDS)
Code Description 3 - 7/1/2004 4 - 1/1/2004 5 - 7/1/2003 6 - 1/1/2003 to 9/30/2004 to 9/30/2004 to 9/30/2003 to 9/30/2003 3.01 Gross sales and/or services 0 0 1,771,618 4,879,330 3.02 Deductions 0 0 (345,772) (977,308) 3.02.01 Taxes on sales 0 0 (305,100) (858,381) 3.02.02 Freights and discounts 0 0 (40,672) (118,927) 3.03 Net sales and/or services 0 0 1,425,846 3,902,022 3.04 Cost of sales and/or services rendered 0 0 (898,760) (2,424,583) 3.05 Gross profit 0 0 527,086 1,447,439 3.06 Operating expenses/income 1,072,543 2,172,183 (239,038) (618,403) 3.06.01 Selling expenses 0 0 (92,815) (250,993) 3.06.02 General and administrative expenses (17,055) (38,172) (84,575) (250,107) 3.06.03 Financial 13,447 8,794 (144,689) (311,801) 3.06.03.01 Financial income 15,446 38,919 12,966 50,534 3.06.03.02 Financial expenses (1,999) (30,125) (157,655) (362,335) 3.06.04 Other operating income 1,151 2,198 2,552 9,417 3.06.05 Other operating expenses 0 0 0 0 3.06.06 Equity in the earnings of subsidiaries and associated companies 1,075,000 2,199,366 80,489 185,081 3.07 Operating profit 1,072,543 2,172,186 288,048 859,036 3.08 Non-operating results 0 0 (7,271) (12,540) 3.08.01 Income 0 0 0 0 3.08.02 Expenses 0 0 (7,271) (12,540) 3.09 Income before taxes and participations 1,072,543 2,172,186 280,777 846,496 3.10 Provision for income tax and social contribution 0 1 (41,180) (136,802) 3.11 Deferred income tax (1,419) 24,267 (762) (17,058) 3.12 Statutory participations and contributions (325) (893) (4,221) (13,447) 3.12.01 Participations (325) (893) (4,221) (13,447) 3.12.02 Contributions 0 0 0 0 3.13 Reversal of interest on own capital 0 0 0 0 3.15 Net income for the period 1,070,799 2,195,561 234,414 679,189 Number of shares (thousands), excluding treasury stock 295,135 295,135 148,354 148,354 Net income per share 3.62817 7.43918 1.58010 4.57816 Loss per share
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED NOTE 1 - OPERATIONS Gerdau S.A. is a company of the Gerdau Group dedicated mainly to the production of common and special steel rods and to the selling of general steel products (flat and rods), through plants located in Brazil, Uruguay, Chile, Canada, Argentina and the United States of America. The Gerdau Group has an installed capacity of 14.7 million metric tons of coarse steel per year, producing steel in electrical furnaces, from scrap and pig iron acquired, for the most part, in the region near each plant (mini-mill concept). Gerdau also operates plants which are capable of producing steel from iron ore (through blast furnaces and direct reduction) and has a unit used exclusively to produce special steel. It is the largest scrap recycling company in Latin America and it is among the largest recycling companies in the world. The industrial sector is the Company's most important market, where manufacturers of consumer goods such as vehicles and household and commercial appliances, basically use profiled steel in the various specifications available. The next most important market is the civil construction sector, which demands a high volume of rods and wires for concrete. There are also numerous customers for nails, staples and wires, commonly used in the agribusiness sector. NOTE 2 - PRESENTATION OF THE QUARTERLY INFORMATION The quarterly information has been prepared in accordance with accounting practices adopted in Brazil, together with the rules established by the Brazilian Securities Commission (CVM). NOTE 3 - SIGNIFICANT ACCOUNTING PRACTICES a) CASH AND BANKS AND MARKETABLE SECURITIES - financial investments are recorded in marketable securities, at cost plus income accrued up to the date of the Quarterly Information, using the interest rates agreed with the financial institutions, and do not exceed market value; 7
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED b) TRADE ACCOUNTS RECEIVABLE - are stated at realizable values, and trade accounts receivable from foreign customers are adjusted based on exchange rates effective at the date of the Quarterly Information. The provision for credit risks was calculated based on a credit risk analysis, which included the history of losses, the individual situation of customers and the economic group to which they belong, the collateral and guarantees and the legal advisors' opinion, and is considered sufficient to cover expected losses on amounts receivable; c) INVENTORIES - are stated at the lower of market value and average production or purchase cost; d) INVESTMENTS IN SUBSIDIARIES - are accounted for using the equity method. The result of the equity adjustment is recorded in an operating results account; e) FIXED ASSETS - are recorded at cost, net of depreciation. Depreciation is calculated on the straight-line basis, at rates which take into consideration the estimated useful lives of assets. Interest on financing used to finance construction in progress is added to the cost of construction; f) DEFERRED CHARGES - amortization is calculated on the straight-line basis, at rates determined based on the actual production of the implemented projects in relation to their installed capacities; g) LOANS AND FINANCING - are stated at the contract value plus the contracted charges, including interest and monetary or foreign exchange variations. Swap contracts that are linked to the loan agreements are classified together with the related loans; h) INCOME TAX AND SOCIAL CONTRIBUTION - current and deferred income tax and social contribution are calculated in accordance with the legislation in force; j) OTHER CURRENT AND LONG-TERM ASSETS AND LIABILITIES - are recorded at their realizable amounts (assets) and at their known or estimated amounts plus accrued charges and indexation readjustments (liabilities), when applicable; k) TRANSLATION OF FOREIGN CURRENCY BALANCES - the criterion used for asset and liability balances in foreign currency is the translation to local currency (R$) at the foreign exchange rate in effect at the date of the closing of the Quarterly Information (September 30, 2004 - US$ 1.00 = R$ 2.8586 and June 30, 2004 - US$ 1.00 = R$ 3.1075). 8
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED CONSOLIDATED QUARTERLY INFORMATION a) The consolidated Quarterly Information at September 30, 2004 includes the accounts of Gerdau S.A. and the directly or indirectly controlled subsidiaries listed below:
CONSOLIDATION SHAREHOLDERS' CONSOLIDATED COMPANY PERCENTAGE EQUITY -------------------------------------------------------------------------- ------------------ ------------------ Gerdau Acominas S.A. 100 4,573,266 Gerdau Ameristeel Corporation and subsidiaries* 100 2,632,445 Gerdau Internacional Empreendimentos Ltda. - Grupo Gerdau 100 2,217,261 Gerdau GTL Spain S.L. 100 2,195,593 Gerdau Steel Inc. 100 1,889,207 Axol S.A. 100 433,353 Gerdau Chile Inversiones Ltda. 100 433,317 Industria Del Aciero S.A.-Indac 100 433,274 Gerdau Aza S.A. 100 415,560 Seiva S.A. - Florestas e Industrias 100 203,412 Sipar Aceros S.A. 38 82,176 Margusa - Maranhao Gusa S.A. 100 65,987 Gerdau Laisa S.A. 100 51,279 Itaguai Com. Imp. e Exp. Ltda. 100 49,476 Aramac S.A. 100 45,630 GTL Equity Investments Corp. 100 45,555 Armafer Servicos de Construcao Ltda. 100 44,744 Acominas Com. Imp. Exp. S.A.- Acotrading 100 22,583 Florestal Rio Largo Ltda. 100 19,848 Gerdau Acominas Overseas Ltd. 100 8,011 Aceros Cox S.A. 100 7,913 Florestal Itacambira S.A. 100 7,633 Siderco S.A. 38 7,207 GTL Financial Corp. 100 5,311 Siderurgica Riograndense S.A. 100 1,060 GTL Trade Finance Inc. 100 29 Dona Francisca Energetica S.A. 52 (17,484)
* Subsidiaries: Gerdau Ameristeel MRM Special Sections Inc.(100%), Gerdau USA Inc.(100%), AmeriSteel Bright Bar Inc.(100%), Gerdau AmeriSteel US Inc.(100%), Gerdau Ameristeel Perth Amboy Inc.(100%), Gallatin Steel Company (50%), Gerdau Ameristeel Sayreville Inc.(100%). 9
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED b) The more significant accounting practices used in preparing the consolidated Quarterly Information are as follows: I) Gerdau S.A. and its subsidiaries adopt consistent practices to record their transactions and value their assets and liabilities. The financial statements of foreign companies were translated using the exchange rate in effect at the date of the Quarterly Information and were adjusted to be in accordance with accounting practices adopted in Brazil. II) Amounts arising from transactions between consolidated companies have been eliminated. III) Holdings of minority shareholders in subsidiaries are shown separately. c) Due to the operational integration with Acominas on November 28, 2003, presented below is the pro-forma statement of income, showing the results of the Company as if this integration had occurred on January 1, 2003: PRO FORMA STATEMENT OF INCOME - GERDAU S.A.
9/30/2003 Gross sales - Gross sales deductions - ------------------------- Net sales - Cost of sales - ------------------------- Gross profit - Selling expenses - General and administrative expenses (9,984) Financial income 17,039 Financial expenses (43,540) Equity in the results 706,066 Other operating income (expenses) - ------------------------- Operating profit 669,581 Non-operating result - Provision for income tax and social contribution 12,405 Management participation (851) ------------------------- Net income for the period 681,135 =========================
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED d) The financial statements of the direct jointly-controlled subsidiary Dona Francisca Energetica S.A. and the jointly-controlled indirect subsidiaries Gallatin Steel Company and Sipar Aceros S.A. were consolidated proportionally based on the direct or indirect interest of the parent company in the capital of these subsidiaries. The main groups of assets, liabilities, income and expenses of these companies are shown as follows:
DONA GALLATIN SIPAR FRANCISCA STEEL (CONSOLIDATED) ---------------- ------------------ ------------------- 9/30/2004 9/30/2004 9/30/2004 Assets Current assets 118,036 586,685 221,699 Long-term receivables 131,938 - 6 Permanent assets 183,612 677,133 20,056 ---------------- ------------------ ------------------- Total assets 433,586 1,263,818 241,761 ================ ================== =================== Liabilities and shareholders' equity Current liabilities 31,577 127,779 154,179 Long-term liabilities 419,493 58,490 5,406 Shareholders' equity (17,484) 1,077,549 82,176 ---------------- ------------------ ------------------- Total liabilities and shareholders' equity 433,586 1,263,818 241,761 ================ ================== ===================
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED
DONA GALLATIN SIPAR FRANCISCA STEEL (CONSOLIDATED) ---------------- ----------------- ------------------ STATEMENT OF INCOME 9/30/2004 9/30/2004 9/30/2004 Gross sales 33,681 1,821,832 338,870 Gross sales deductions (1,790) (9,591) (67,503) ---------------- ----------------- ------------------ Net sales 31,891 1,812,241 271,367 Cost of sales (14,722) (1,236,170) (214,784) ---------------- ----------------- ------------------ Gross profit 17,169 576,071 56,583 Selling expenses - (4,940) (3,499) General and administrative expenses (1,774) (28,880) (14,625) Other financial income (losses) (13,702) (11,129) (5,729) Other operating income (expenses) - - 6 ---------------- ----------------- ------------------ Operating profit 1,693 531,122 32,736 Non-operating results 342 (323) 609 Provision for income tax and social contribution (674) (915) (10,451) ---------------- ----------------- ------------------ Net income for the period 1,361 529,884 22,894 ================ ================= ==================
e) The Company and its direct and indirect subsidiaries have goodwill and negative goodwill balances, which are being amortized either as the assets that generated them are realized or based on projections of future results, limited to ten years, as follows: 12
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED
Company Consolidated -------------- ---------------- Goodwill in the investment account Balance at June 30, 2004 20,731 351,255 (+) Goodwill set up in the period - 8,843 (-) Foreign exchange adjustment - (23,359) (-) Amortized portion for the period (610) (280,806) -------------- ---------------- Balance at September 30, 2004 (through projections of future results) 20,121 55,933 The goodwill composition by subsidiary is explained in Note 7a Negative goodwill in the investment account Balance at June 30, 2004 (257,401) - (-) Amortized portion for the period 6,774 - -------------- ---------------- Balance at September 30, 2004 (through overvaluation of assets) (250,627) - The negative goodwill composition by subsidiary is explained in Note 7a Goodwill in the fixed asset account Balance at June 30, 2004 - 183,189 (-) Foreign exchange adjustment - (14,673) (-) Amortized portion for the period - (6,203) -------------- ---------------- Balance at September 30, 2004 (through undervaluation of assets) - 162,313 The goodwill mainly resulted from the assets of the subsidiary Gerdau Ameristeel US Inc. Negative goodwill in the fixed asset account Balance at June 30, 2004 - (258,589) (-) Amortized portion for the period - 6,774 -------------- ---------------- Balance at September 30, 2004 (through overvaluation of assets) - (251,815)
The negative goodwill mainly resulted from the assets of the subsidiary Gerdau Acominas S.A. Goodwill recorded in investments account on the subsidiary Gerdau Ameristeel US Inc. had their amortization terms and results projections reviewed. The remaining balance in the quarter was amortized, in accordance with accounting practices adopted in Brazil and, based on current scenario and the performance of the subsidiary Gerdau Ameristeel Corporation. 13
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED f) The amount of equity in the results in the consolidated statement of income refers, basically, to amortization of goodwill, tax incentives and to the effect of the foreign exchange rate changes on foreign investments, which were not eliminated. NOTE 5 - TRADE ACCOUNTS RECEIVABLE
Consolidated --------------------------------- 9/30/2004 6/30/2004 ---------------- --------------- Trade accounts receivable - Brazil 961,776 769,655 Trade accounts receivable from Brazilian exports 287,961 484,145 Trade accounts receivable from foreign companies 1,259,248 1,200,351 Provision for credit risks (87,151) (87,083) ---------------- --------------- 2,421,834 2,367,068 ================ ===============
14
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED NOTE 6 - INCOME TAX AND SOCIAL CONTRIBUTION a) Adjustments to income tax (IR) and social contribution (CS) in results:
Company -------------------------------------------------------------------------------- 9/30/2004 9/30/2003 --------------------------------------- --------------------------------------- IR CS Total IR CS Total ------------ ------------ ------------ ---------- ------------ ------------- Income before income tax and social 2,171,293 2,171,293 2,171,293 833,049 833,049 833,049 contribution, after statutory participations Nominal rates 25% 9% 34% 25% 9% 34% Income tax and social contribution expenses at nominal rates (542,823) (195,416) (738,239) (208,262) (74,974) (283,236) Tax effect on: - equity adjustment 549,842 197,943 747,785 46,270 16,657 62,927 - interest on own capital 15,669 5,641 21,310 50,070 18,025 68,095 - permanent differences (net) (4,923) (1,665) (6,588) (1,800) 154 (1,646) ------------ ------------ ------------ ---------- ------------ ------------- Income tax and social contribution in 17,765 6,503 24,268 (113,722) (40,138) (153,860) results ============ ============ ============ ========== ============ ============= Current 1 - 1 (103,628) (33,174) (136,802) Deferred 17,764 6,503 24,267 (10,094) (6,964) (17,058) Consolidated -------------------------------------------------------------------------------- 9/30/2004 9/30/2003 --------------------------------------- --------------------------------------- IR CS Total IR CS Total ------------ ------------ ------------ ---------- ------------ ------------- Income before income tax and social 3,245,296 3,245,296 3,245,296 770,490 770,490 770,490 contribution, after statutory participations Nominal rates 25% 9% 34% 25% 9% 34% Income tax and social contribution expenses at nominal rates (811,324) (292,077) (1,103,401) (192,623) (69,344) (261,967) Tax effect on: - tax rate differences for foreign companies (62,305) 72,290 9,985 48,564 5,736 54,300 - equity adjustment (70,729) (25,462) (96,191) (71,295) (25,666) (96,961) - interest on own capital 90,100 32,436 122,536 50,070 18,025 68,095 - foreign exchange effect 9,151 824 9,975 - - - - recovery of deferred tax assets 257,935 46,547 304,482 199,647 63,294 262,941 - permanent differences (net) (30,737) 23,850 (6,887) 1,501 (3,782) (2,281) ------------ ------------ ------------ ---------- ------------ ------------- Income tax and social contribution in (617,909) (141,592) (759,501) 35,864 (11,737) 24,127 results ============ ============ ============ ========== ============ ============= Current (521,330) (122,195) (643,525) (134,770) (58,119) (192,889) Deferred (96,579) (19,397) (115,976) 170,634 46,382 217,016
15
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED b) Composition of deferred income tax and social contribution assets and liabilities, at nominal rates:
ASSETS ----------------------------------------------------------------------------------------------- Company Consolidated --------------------------------------------- ------------------------------------------------ 9/30/2004 6/30/2004 9/30/2004 6/30/2004 --------------------- ---------------------- ---------------------- ------------------------ IR CS IR CS IR CS IR CS ---------- --------- --------- ---------- ---------- ---------- ---------- ------------ Income tax losses 22,503 - 21,915 - 421,544 - 447,835 - Social contribution losses - 8,683 - 8,387 - 83,560 - 83,547 Provision for contingencies 12,919 4,651 12,919 4,651 47,464 16,960 44,910 15,874 Benefits to employees - - - - 91,522 - 96,775 - Commissions/other - - - - 87,335 8,810 76,823 1,945 Amortized goodwill 1,067 384 1,067 384 1,980 713 1,209 435 Provision for losses 9,664 991 9,664 991 88,470 29,361 86,329 28,591 ---------- --------- --------- ---------- ---------- ---------- ---------- ------------ Total 46,153 14,709 45,565 14,413 738,315 139,404 753,881 130,392 ========== ========= ========= ========== ========== ========== ========== ============ Current - - - - 295,845 71,606 114,679 25,518 Long-term 46,153 14,709 45,565 14,413 442,470 67,798 639,202 104,874 LIABILITIES ----------------------------------------------------------------------------------------------- Company Consolidated --------------------------------------------- ------------------------------------------------ 9/30/2004 6/30/2004 9/30/2004 6/30/2004 --------------------- ---------------------- ---------------------- ------------------------ IR CS IR CS IR CS IR CS ---------- --------- --------- ---------- ---------- ---------- ---------- ------------ Accelerated depreciation - - - - 494,117 825 616,307 842 Amortized negative goodwill 50,758 18,273 49,065 17,663 60,901 18,430 59,208 17,820 Deferred foreign exchange gain - - - - 55,821 20,095 - - Inflationary effect - - - - 20,697 - 20,697 - ---------- --------- --------- ---------- ---------- ---------- ---------- ------------ Total 50,758 18,273 49,065 17,663 631,536 39,350 696,212 18,662 ========== ========= ========= ========== ========== ========== ========== ============ Current - - - - 108,006 20,095 55,193 - Long-term 50,758 18,273 49,065 17,663 523,530 19,255 641,019 18,662
The tax benefits recognized on tax losses, as well as on the provision for losses, both in the Company and consolidated, are supported by projections of future taxable income at present value, based on technical studies of feasibility, approved by management. These studies considered the history of the Company's and its subsidiaries' profitability and the perspective of maintaining profitability, and permitted the recording of supplementary tax credits of R$ 266,110 (consolidated) in the quarter, totaling R$ 304,482 in the year (consolidated), which estimated realization is showed in item "c" below. The other deferred taxes on temporary differences, mainly tax contingencies, were recorded based on the probability of their realization. 16
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED c) Estimated recovery of deferred income tax and social contribution assets:
COMPANY CONSOLIDATED ------------------------------ ------------------------------ 9/30/2004 6/30/2004 9/30/2004 6/30/2004 -------------- -------------- -------------- -------------- 2004 - - 166,558 95,778 2005 4,631 4,631 300,640 129,669 2006 9,298 8,856 50,960 130,895 2007 12,819 12,377 49,457 132,601 2008 13,130 13,130 74,195 135,721 2009 7,502 7,502 119,536 148,215 2010 to 2012 13,482 13,482 84,639 101,856 2013 - 31,734 9,538 -------------- -------------- -------------- -------------- 60,862 59,978 877,719 884,273
NOTE 7 - INVESTMENTS IN SUBSIDIARIES, ASSOCIATED AND RELATED PARTIES a) INVESTMENT BALANCES
COMPANY --------------------------------------------------------------------------------- 9/30/2004 6/30/2004 ------------------------------------------------------------------- ------------ DEPOSIT FOR FUTURE GOODWILL PROVISION CAPITAL (NEGATIVE INVESTMENT FOR LOSSES INCREASE GOODWILL) TOTAL TOTAL ------------ ------------ ------------- ------------ ---------- ------------ Subsidiaries: Gerdau Acominas S.A . 4,214,081 - - (250,627) 3,963,454 3,095,661 Gerdau Internacional Empreendimentos Ltda. (*) 2,085,829 - - - 2,085,829 2,037,695 Dona Francisca Energetica S.A. - (9,059) - 20,121 11,062 10,961 Seiva S.A. - Florestas e Industrias 91,733 - - - 91,733 85,180 Itaguai Com. Imp e Exp Ltda 49,476 - 43,316 - 92,792 93,723 Other 989 - - - 989 845 ------------ ------------ ------------- ------------ ---------- ------------ 6,442,108 (9,059) 43,316 (230,506) 6,245,859 5,324,065 Other investments 43 - - - 43 43 ------------ ------------ ------------- ------------ ---------- ------------ 6,442,151 (9,059) 43,316 (230,506) 6,245,902 5,324,108 ============ ============ ============= ============ ========== ============ (*) Holding company of the investments in foreign companies. CONSOLIDATED ------------------------------------------------------- 9/30/2004 6/30/2004 ----------------------------------------- ------------ INVESTMENT GOODWILL TOTAL TOTAL ------------ ------------ ------------- ------------ Gerdau AmeriSteel US Inc - - - 291,631 Dona Francisca Energetica S.A. - 20,121 20,121 20,731 Margusa - Maranhao Gusa S.A. - 26,976 26,976 36,391 Joint ventures 10,036 - 10,036 9,930 MRS Logistica S.A. 4,772 - 4,772 4,772 Armacero Industrial y Comercial Ltda. 8,662 1,442 10,104 10,447 Distribuidora Matco S.A. (*) 3,670 7,394 11,064 - Other 4,212 - 4,212 4,230 ------------ ------------ ------------- ------------ 31,352 55,933 87,285 378,132 ============ ============ ============= ============
(*) Company acquired in July 2004 by the indirect subsidiary Indac - Industria del Aciero S.A. 17
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED b) CHANGES IN INVESTMENTS
COMPANY ------------------------------------------------------------------------------ EQUITY DIVIDENDS/ IN THE INTEREST ON BALANCE BALANCE 6/30/2004 WRITE-OFFS RESULTS (*) CAPITAL 9/30/2004 ----------------- ------------ -------------- ------------- -------------- Gerdau Acominas S.A . 3,095,661 - 1,003,655 (135,862) 3,963,454 Gerdau Internacional Empreendimentos Ltda. 2,037,695 (9,022) 57,156 - 2,085,829 Dona Francisca Energetica S.A. 10,961 - 101 - 11,062 Seiva S.A. - Florestas e Industrias 85,180 - 6,553 - 91,733 Itaguai Com. Imp e Exp Ltda 93,723 - 7,389 (8,320) 92,792 Other investments 888 - 146 (2) 1,032 ----------------- ------------ -------------- ------------- -------------- 5,324,108 (9,022) 1,075,000 (144,184) 6,245,902 ================= ============ ============== ============= ==============
(*)Includes amortization of (goodwill) negative goodwill. c) INFORMATION ON INVESTMENTS
COMPANY - 9/30/2004 ------------------------------------------------------------------------------------ NET % HOLDING SHAREHOLDERS' INCOME IN QUOTAS SHARES CAPITAL EQUITY (LOSS) CAPITAL HELD HELD ------------ ------------- ------------ ----------- ------------- ------------- Subsidiaries: Gerdau Acominas S.A . 2,340,576 4,573,266 1,858,712 92.15% - 146,191,040 Gerdau Internacional Empreendimentos Ltda. 2,163,912 2,217,261 335,980 94.07% 2,035,641,621 - Seiva S.A. - Florestas e Industrias 74,280 203,412 38,263 45.10% - 4,298,717 Dona Francisca Energetica S.A . 66,600 (17,484) 1,361 51.82% - 345,109,212 Itaguai Com. Imp e Exp Ltda 3,596 49,476 18,744 99.99% 3,595,998 -
d) COMPOSITION OF LOAN BALANCES
COMPANY CONSOLIDATED ----------------------------------- ------------------------------------- 9/30/2004 6/30/2004 9/30/2004 6/30/2004 ----------------- ---------------- ----------------- ------------------ Fundacao Gerdau - (36) 4,212 16,381 Metalurgica Gerdau S.A. - - 20,685 17,624 Gerdau Acominas S.A . (97,603) (15,150) - - GTL Financial Corp. (121,384) (130,786) - - Other 442 287 (480) 2,141 ----------------- ---------------- ----------------- ------------------ Total (218,545) (145,685) 24,417 36,146 ----------------- ---------------- ----------------- ------------------ Financial (expenses) income (1,773) 7,759 (8,663) (18,698)
The loan contracts between the companies in Brazil are subject to the weighted average rate of funds obtained in the market. The loan contracts with foreign companies are subject to interest charges (LIBOR + 3% p.a.) plus exchange variation. 18
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED e) TRANSACTIONS WITH RELATED PARTIES
COMPANY - 9/30/2004 -------------------------------------------------------------- ACCOUNTS INCOME EXPENSES RECEIVABLE --------------------- ----------------- -------------------- Banco Gerdau S.A. 212 - 1,887 Indac - Ind. Adm. e Comercio S.A. (*) - 1,851 - Gerdau Ameristeel Corporation (**) 442 - - Grupo Gerdau Empreend. Ltda. (***) - 300 -
(*) Payments of guarantees for sureties in contracts. (**) Receipts of guarantees for sureties in contracts. (***) Payments for the use of Gerdau trademark. NOTE 8 - DEFERRED CHARGES Consolidated deferred charges comprise pre-operating expenses for hydroelectric power plant construction, as well as reforestation, research, development and restructuring projects. 19
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED NOTE 9 - LOCAL AND FOREIGN FINANCING Financing is as follows:
CONSOLIDATED ANNUAL ------------------------------ CHARGES (%) 9/30/2004 6/30/2004 -------------------- -------------- -------------- SHORT-TERM Working capital financing (R$) 8.00% to 10.02% 930 3,888 Fixed assets financing (R$) 12.00% - 279 Investment financing (R$) CDI 4,500 4,500 Investment financing (US$) US$ 1,495 4,524 Working capital financing (US$) 1.36% to 10.50% 954,462 1,334,377 Fixed assets and other financing (US$) US$ - 46,754 Working capital financing (Clp$) 0.18% to 0.22% 27,975 8,349 Working capital financing (PA$) 6.25% to 7.75% 10,783 3,818 Working capital financing (Cdn$) 2.00% to 3.25% - 3,826 Short-term portion of long-term financing 835,888 809,257 -------------- -------------- 1,836,033 2,219,572 LONG-TERM Working capital financing (R$) 10.02% 46,499 24,339 Fixed assets financing and other (R$) 4.00% to 9.80% 566,676 582,038 Investment financing (R$) IGPM + 8.5% 30,998 32,242 Fixed asset financing and other (US$) 2.56% to 9.97% 866,430 914,155 Working capital financing (US$) 3.03% to 10.75% 2,689,931 2,938,858 Fixed assets financing (Cdn$) 2.00% to 3.25% 2,866 3,372 Working capital financing (Clp$) 0.26% to 0.36% 17,976 18,870 Fixed assets financing (Clp$) 0.26% to 0.36% 39,483 42,659 Fixed assets financing (PA$) 9.20% to 10.00% 2,064 3,477 (-) Short-term portion (835,888) (809,257) -------------- -------------- 3,427,035 3,750,753 -------------- -------------- Total financing 5,263,068 5,970,325 ============== ==============
20
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED Summary by currency: CONSOLIDATED ------------------------------- 9/30/2004 6/30/2004 -------------- --------------- Real (R$) 649,603 647,286 U.S. dollar (US$) 4,512,318 5,238,668 Canadian dollar (Cdn$) 2,866 7,198 Argentine peso (PA$) 12,847 7,295 Chilean peso (Clp$) 85,434 69,878 -------------- --------------- 5,263,068 5,970,325 ============== =============== The schedule for payment of the long-term portion of financing is as follows: CONSOLIDATED ----------------- In 2005 136,463 In 2006 467,417 In 2007 463,351 In 2008 536,903 In 2009 284,135 After 2009 1,538,766 ----------------- 3,427,035 ================= a) GUARANTEES The loans contracted under the FINAME/BNDES program are backed by the financed assets of the subsidiary Gerdau Acominas S.A. The other loans are backed by sureties from controlling shareholders, on which the subsidiary pays remuneration of 1% p.a. on the guaranteed amount. b) COVENANTS In the place of the tangible collateral usually required, certain financial covenants must be observed, as follows: I) Consolidated Interest Coverage Ratio - measures the debt service payment capacity in relation to the Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA); 21
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED II) Consolidated Leverage Ratio - measures the debt coverage capacity in relation to the EBITDA. All covenants mentioned above are calculated on a consolidated basis and have been observed. The penalty for non-compliance is the immediate maturity of the contracts. c) CREDIT LINES The North American subsidiaries have a credit line in the amount of US$ 350 million, equivalent to R$ 1,000,510 at the date of the Quarterly Information, falling due in June 2008, which can be drawn in U.S. dollars (at the LIBOR rate plus interest between 2.25% and 2.75% p.a. or US Prime/FED Funds plus interest of 0.5% p.a.) or in Canadian dollars (at the Bankers Acceptance (BA) rate plus interest between 2.35% and 2.85% p.a. or Canadian Prime plus interest of 1.00% p.a.). The distribution of this credit line among the companies is made in proportion to the working capital of each North American subsidiary. The subsidiary Gerdau Aza S.A. has a credit line for working capital amounting to CLP$ 33 billion, equivalent to R$ 153,846 at the date of the Quarterly Information, bearing interest of 3.50% p.a., and a credit line for fixed assets in the amount of CLP$ 16 billion, equivalent to R$ 74,325 at the date of the Quarterly Information, bearing interest of 4.56% p.a. NOTE 10 - DEBENTURES
NUMBER GENERAL ------------------------ ISSUE MEETING ISSUED IN TREASURY MATURITY ANNUAL INTEREST 9/30/2004 6/30/2004 ------------------------------- ---------- ---------- ------------ ---------- ---------------- ---------- ---------- 3rd - A and B 5.27.82 144,000 92,327 6.1.2011 CDI 76,273 70,981 7th 7.14.82 68,400 55,422 7.1.2012 CDI 24,411 23,428 8th 11.11.82 179,964 45,684 5.2.2013 CDI 165,029 126,655 9th 6.10.83 125,640 123,684 9.1.2014 CDI 3,679 3,407 11th - A and B 6.29.90 150,000 133,407 6.1.2020 CDI 29,588 21,231 13th 11.23.01 30,000 30,000 11.1.2008 CDI less 2% - - ---------- ---------- Company 298,980 245,702 Gerdau Ameristeel Corporation 4.23.97 125,000 - 4.30.2007 6.50% 238,715 235,428 Debentures held by consolidated subsidiaries (5,831) (4,654) ---------- ---------- Consolidated 531,864 476,476 ========== ========== (-) Short-term portion 7,657 3,139 Long-term portion 524,207 473,337
22
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED The Extraordinary General Meeting of the Company held on April 29, 2004 approved the issue on July 1, 2004 of three new debentures for each existing debenture of the following issues: 3rd issue (classes A and B), 7th, 8th, 9th and 11th issues (classes A and B). Consequently, the nominal value of the debentures were changed. The debentures of Gerdau Ameristeel Corporation are convertible into common shares of that subsidiary, up to their maturity date. Of the outstanding debentures, the controlling shareholders hold, directly or indirectly, the amount of R$ 128,882 at September 30, 2004. NOTE 11 - FINANCIAL INSTRUMENTS a) General comments - Gerdau S.A. and its subsidiaries enter into transactions involving financial instruments, the risks of which are managed through financial position strategies and exposure limit controls. All instruments are fully recognized in the books and are restricted to the instruments listed below: - financial investments - are recognized at their redemption value as of the date of the Quarterly Information; - investments and loans among subsidiaries and related parties - are explained and presented in Note 7; - financing - is explained and presented in Note 9; - debentures - are explained and presented in Note 10; - financial derivatives - in order to minimize the effects of fluctuations in foreign exchange rates on their liabilities, the subsidiaries Gerdau Acominas S.A. and Dona Francisca Energetica S.A. entered into swap contracts that were converted into Brazilian reais on the contract date and linked to changes in the Interbank Deposit Rate (CDI) and the General Market Price Index (IGP-M) plus interest. The subsidiary Gerdau Ameristeel Corporation also entered into swap contracts, subject to the London Interbank Offered Rate (LIBOR) plus interest between 6.09% and 6.13% p.a. Swap contracts, grouped by object, are listed below: 23
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED
CONSOLIDATED -------------------------------------------------------------------------------------------------------------------------- AMOUNT - US$ CONTRACT DATE PURPOSE THOUSAND RATE MATURITY --------------------------- ------------------- --------------- ---------------------------- ------------------------- 3.30.2001 to 8.13.2003 Imports 3,220 100.00% of CDI 10.4.2004 to 10.6.2004 7.16.2001 to 5.7.2002 Prepayment 42,823 85.55% to 100.00% of CDI 12.27.2004 to 3.1.2006 2.20.2002 Resolution 2770 54,000 106.00% of CDI 6.20.2005 2.19.2003 Resolution 4131 3,300 85.70% of CDI 2.4.2005 4.17.2003 Fixed assets 8,421 IGPM + 12.95% 11.16.2004 to 11.16.2010 4.17.2003 Fixed assets 16,779 97.00% to 100.90% of CDI 11.16.2004 to 11.16.2013 10.30 to 11.3.2003 Bank notes 200,000 LIBOR + interest of 6.09% 7.15.2011 to 6.13% 6.26.2003 Investment 55,000 4.86% to 5.40% 9.2.2005 to 10.2.2006
b) Market value - the market values of financial instruments are as follows:
COMPANY --------------------------------------------------------------------- 9/30/2004 6/30/2004 ------------------------------ ------------------------------------- BOOK MARKET BOOK MARKET VALUE VALUE VALUE VALUE --------------- ------------- ----------------- ------------------ Financial investments 224,428 224,428 86,530 86,530 Debentures 298,980 298,980 245,702 245,702 Investments 6,245,902 6,245,902 5,324,108 5,324,108 Related parties (liabilities) (218,545) (218,545) (145,685) (145,685) Stock options (liabilities) - Note 16 - 8,096 - 8,096 CONSOLIDATED --------------------------------------------------------------------- 9/30/2004 6/30/2004 ------------------------------ ------------------------------------- BOOK MARKET BOOK MARKET VALUE VALUE VALUE VALUE --------------- ------------- ----------------- ------------------ Financial investments 1,769,200 1,769,200 1,286,458 1,286,458 Swap contracts - investment (liabilities) 6,829 6,829 7,913 7,913 Securitization financing 676,327 676,327 730,714 730,714 Import financing 654,598 654,620 677,586 677,511 Prepayment financing 887,929 881,373 925,804 920,779 Financing - Resolution 2770 234,591 224,069 222,965 211,968 ACC financing 14,225 14,225 338,640 338,640 Financing - Resolution 4131 19,306 18,864 14,695 14,059 Bank notes financing 1,131,149 1,408,372 1,226,235 1,411,261 Fixed assets financing 49,235 50,706 47,658 49,628 Other financing 1,595,708 1,595,708 1,786,028 1,783,747 Debentures 531,864 531,864 476,476 476,476 Investments 87,285 87,285 378,132 378,132 Related parties (assets) 24,417 24,417 36,146 36,146 Stock options (liabilities) - Note 16 - 11,283 - 11,561
24
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED The market value of swap contracts of subsidiaries in Brazil was obtained based on projections of future results for each contract, calculated based on the forward U.S. dollar + coupon (assets) and forward CDI/IGP-M (liabilities) and discounted to present value at the date of the Quarterly Information using the future CDI/IGP-M rate projected for each maturity. The same methodology is applied for the calculation of the market values of the swap contracts of the subsidiary Gerdau Ameristeel Corporation, using the LIBOR rate. Swap contracts related to financing contracts are classified together with the related financing, as a contra entry to the "Financial expenses" account, and are stated at cost plus accrued charges up to the date of the Quarterly Information. Contracts not linked to such financing have been recorded at their market value under the heading "Other accounts payable", in long-term liabilities. The Company believes that the balances of the other financial instruments, which are recognized in the books at net contracted values, are substantially similar to those that would be obtained if they were negotiated in the market. However, because the markets for these instruments are not active, differences could exist if they were settled in advance. c) RISK FACTORS THAT COULD AFFECT THE COMPANY'S AND ITS SUBSIDIARIES' BUSINESS Price risk: this risk is related to the possibility of price variations of the products that the subsidiaries sell or in the prices of raw materials and other inputs used in the production process. Since the subsidiaries operate in a commodities market, their sales revenue and cost of sales may be affected by the changes in the international prices of their products or materials. In order to minimize this risk, the subsidiaries constantly monitor the price variations in the local and international markets. Interest rate risk: this risk arises as a result of the possibility of losses (or gains) due to fluctuations in interest rates relating to assets (investments) and liabilities. In order to minimize possible impacts resulting from interest rate fluctuations, the Company and its subsidiaries have adopted a policy of diversification, alternating between fixed rates and variable rates (such as LIBOR and CDI), and periodically renegotiating contracts to adjust them to the market. Exchange rate risk: this risk is related to the possibility of fluctuations in foreign exchange rates affecting financial expenses (or income) and the liability (or asset) balance of contracts denominated in a foreign currency. In order to manage the effects of these fluctuations, the Company and its subsidiaries use "hedge" instruments, usually swap contracts, as described in item "a" above. 25
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED Credit risk: this risk arises from the possibility of the subsidiaries not receiving amounts arising from sales or investments at financial institutions. In order to minimize this risk, the subsidiaries adopt the procedure of analyzing in detail the financial and equity position of their customers, establishing a credit limit and constantly monitoring balances. In relation to financial investments, the Company and its subsidiaries invest solely in institutions with low credit risk, as assessed by rating agencies. In addition, each institution has a maximum limit for investment, determined by the credit committee. NOTE 12 - FINANCIAL INCOME (EXPENSES)
COMPANY CONSOLIDATED -------------------------------- ---------------------------------- 9/30/2004 9/30/2003 9/30/2004 9/30/2003 -------------- ---------------- ----------------- --------------- FINANCIAL INCOME Financial investments 16,450 16,759 89,542 86,688 Interest received 301 20,795 21,333 24,617 Monetary variations on assets 62 1,298 2,678 3,948 Exchange variations on assets 1 (18) (13,383) (77,469) Exchange swap on assets - 1,815 4,216 1,815 Other financial income 22,105 9,885 63,354 13,115 -------------- ---------------- ----------------- --------------- TOTAL FINANCIAL INCOME 38,919 50,534 167,740 52,714 ============== ================ ================= =============== FINANCIAL EXPENSES Interest on debt (30,355) (244,263) (326,102) (440,190) Monetary variation on liabilities (409) (17,471) (18,824) (13,792) Exchange variations on liabilities 3,993 402,898 4,489 669,435 Exchange swap on liabilities - (482,705) (9,015) (728,564) Other financial expenses (3,354) (20,794) (76,827) (29,822) -------------- ---------------- ----------------- --------------- TOTAL FINANCIAL EXPENSES (30,125) (362,335) (426,279) (542,933) ============== ================ ================= ===============
26
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED NOTE 13 - TAX RECOVERY PROGRAM (REFIS) AND SPECIAL INSTALLMENT PAYMENT PROGRAM (PAES) a) REFIS On December 6, 2000, the Company enrolled in the REFIS program to pay overdue Social Integration Program (PIS) and Social Contribution on Revenues (COFINS) in installments. The balances of these tax debts are recorded under Taxes and contributions in current liabilities. The balances of the renegotiated taxes were divided into 60 installments, of which 8 are not yet due, are restated by the Long-Term Interest Rate (TJLP) rate, and are as follows at September 30, 2004:
COMPANY AND CONSOLIDATED ------------------------------------------------------------------------------------------- 9/30/2004 6/30/2004 ---------------------------------------------- ------------------------------------------- PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL ---------------- ------------- ------------- ------------- ------------- ------------- PIS 4,304 3,816 8,120 6,087 4,893 10,980 COFINS 1,023 905 1,928 1,447 1,160 2,607 ---------------- ------------- ------------- ------------- ------------- ------------- Total 5,327 4,721 10,048 7,534 6,053 13,587 ================ ============= ============= ============= ============= =============
Taxes, contributions and other liabilities are paid by the Company on their due dates, which is a basic requirement to remain eligible for the REFIS program. As collateral for this installment payment program, the Company pledged the land and buildings of the subsidiary Gerdau Acominas S.A., located in the municipality of Charqueadas, in the state of Rio Grande do Sul, where the Piratini plant is located, amounting to R$ 78,494. The total income tax and social contribution credits of third parties used to offset fines and interest on the consolidation of the REFIS debts on December 6, 2000, totaled R$ 57,040, and they were acquired for R$ 4,351. The Company's own tax credits were not used. 27
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED b) PAES The proportionally consolidated (52%) subsidiary Dona Francisca Energetica S.A. enrolled, on June 30, 2003, in the PAES program, established by Law 10684/03, to settle Corporate Income Tax (IRPJ), Social Contribution on Net Income (CSLL), Social Integration Program (PIS) and Social Contribution on Revenues (COFINS) debts. The balances of these tax debts are recorded in Taxes and contributions in current liabilities, and in Other accounts payable in long-term liabilities. The balances of the renegotiated taxes were divided into 180 installments, of which 164 are not yet due, are restated based on the TJLP rate and are as follows at September 30, 2004:
CONSOLIDATED ------------------------------------------------------------------------------------------- 9/30/2004 6/30/2004 ---------------------------------------------- ------------------------------------------- PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL ---------------- ------------- ------------- ------------- ------------- ------------- IRPJ 20,681 2,714 23,395 21,059 2,251 23,310 CSLL 7,497 984 8,481 7,634 816 8,450 PIS 733 96 829 747 80 827 COFINS 3,388 445 3,833 3,450 369 3,819 ---------------- ------------- ------------- ------------- ------------- ------------- Total 32,299 4,239 36,538 32,890 3,516 36,406 ================ ============= ============= ============= ============= ============= Short-term 2,363 311 2,674 2,363 253 2,616 Long-term 29,936 3,928 33,864 30,527 3,263 33,790 ---------------- ------------- ------------- ------------- ------------- ------------- Total 32,299 4,239 36,538 32,890 3,516 36,406 ================ ============= ============= ============= ============= =============
Dona Francisca Energetica S.A. pays its taxes, contributions and other liabilities on their due dates, which is a basic requirement to remain eligible for the PAES program. NOTE 14 - PROVISION FOR CONTINGENCIES The Company and its subsidiaries are parties to tax, civil, and civil processes. Based on the opinion of their legal advisors, management believes that the provision for contingencies is sufficient to cover probable and reasonably estimable losses from unfavorable court decisions, and the final decisions will not have a significant effect on the financial position at September 30, 2004. 28
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED The balances of contingencies, net of the related judicial deposits, are as follows:
COMPANY CONSOLIDATED ------------------------------- -------------------------------- 9/30/2004 6/30/2004 9/30/2004 6/30/2004 -------------- --------------- --------------- --------------- Tax contingencies 87,112 87,112 103,994 109,274 Labor contingencies 7,791 7,985 38,884 34,073 Civil contingencies - - 98,787 98,878 -------------- --------------- --------------- --------------- Total 94,903 95,097 241,665 242,225 ============== =============== =============== ===============
I) Tax contingencies a) Contingent liabilities provided a.1) Of the total provision, R$ 50,456 (Company and consolidated) refers to the contingency of compulsory loans instituted in favor of Eletrobras, the constitutionality of which is being questioned by the Company. In March 1995, the Federal Supreme Court judged the proceedings against taxpayers. As regards the Company's proceedings, some are still pending decision in the High Courts, but the outcomes are already foreseeable, taking into consideration prior decisions. The Company recorded a provision because although the payments to Eletrobras were made as loans: (i) reimbursement to the Company would probably be in the form of the shares of Eletrobras; (ii) conversion will be made based on the equity value of shares; and (iii) based on current available information the market value of the shares of Eletrobras is substantially lower than the equity value. a.2) R$ 6,891 (Company) and R$ 6,898 (consolidated) relates to the unconstitutionality of the Social Investment Fund (FINSOCIAL). Although the Supreme Court has confirmed the constitutionality of the tax at the rate of 0.5%, some proceedings are still pending judgment, most of them in the High Courts. a.3) R$ 1,099 (Company) and R$ 17,640 (consolidated) relates to Value Added Tax on Sales and Services (ICMS) credits and being discussed mainly with the Finance Secretariat and the State Courts of the First Instance in the state of Minas Gerais. a.4) R$ 8,978 (Company) and R$ 9,095 (consolidated) relates to social contribution on net income. The amounts refer to challenges of the constitutionality of the contribution in 1989, 1990 and 1992. Some proceedings are pending decision, most of them in the High Courts. 29
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED a.5) R$ 19,993 (Company and consolidated) relates to Corporate Income Tax (IRPJ) under discussion at the administrative level. Considering the repeated unfavorable legal precedents concerning the unconstitutionality of the limit of 30% of taxable income to the full offset of tax losses, subsidiary Gerdau Acominas S.A. decided to stop depositing amounts in court and requested, in the court injunction records in which the Company is the petitioner, the conversion of the amounts deposited (R$ 338,992) into revenues of the Federal Government, and started to observe the limit. The judicial discussion was maintained; however, if the Supreme Court reviews the current procedures and the Company obtains a favorable outcome, it will plead the offset of the amounts overpaid. a.6) R$ 12,963 (Company) and R$ 24,671 (consolidated) relates to social security contributions and the legal discussions of the company correspond to suits for annulment with judicial deposits of practically the whole amount involved, in progress in the Federal Court of the First Instance in the state of Rio de Janeiro. In the consolidated statements, the amount which exceeds the provision refers to lawsuits questioning the understanding of the National Institute of Social Security (INSS) in charging contributions on payments of profit sharing made by subsidiary Gerdau Acominas S.A. and various INSS assessments in connection with services contracted from third parties, in which the Institute calculated debts for the last ten years and assessed the Company as jointly responsible. The assessments were sustained administratively, reason for which Gerdau Acominas filed suits for annulment with judicial deposit of the credits under discussion, since the right to demand payment has partially expired and also that the subsidiary does not have the responsibility. a.7) R$ 1,831 (Company) and R$ 2,021 (consolidated) relates to contributions to the Social Integration Program (PIS), and R$ 6,387 (Company) and R$ 6,935 (consolidated) to the Social Contribution on Revenues (COFINS), in connection with lawsuits questioning the constitutionality of Law 9718, which introduced changes in the calculation basis of these contributions. These lawsuits are in progress in the Federal Regional Court of the 2nd Region and the Federal Supreme Court. a.8) R$ 1,175 (consolidated) relates to a lawsuit brought by subsidiary Gerdau Acominas S.A. regarding the increases in the Government Severance Indemnity Fund for Employees (FGTS) arising from changes introduced by Complementary Law 110/01. Currently, the court injunction is awaiting judgment of the extraordinary appeal filed by the Company. The amount provided is fully deposited in court. 30
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED a.9) R$ 9,307 (Company) and R$ 21,853 (consolidated) relates to the Emergency Capacity Charge (ECE), and R$ 5,283 (Company) and R$ 11,102 (consolidated) to the Extraordinary Tariff Recomposition (RTE) included in the electric energy bills of the Company's plants. It is the Company's understanding that these charges are of a tax nature and, as such, are incompatible with the National Tax System prescribed in the Federal Constitution. For this reason, the constitutionality of this charge is being challenged in court. The lawsuits are in progress in the Federal Justice of the First Instance of the states of Pernambuco, Ceara, Minas Gerais, Rio de Janeiro, Sao Paulo, Parana, and Rio Grande do Sul, as well the Federal Regional Courts of the 1st and 2nd Regions. The Company has been depositing in court the full amount of the disputed charges. a.10) R$ 305 (Company) and R$ 1,097 (consolidated) related to other processes of a tax nature, most of which is deposited in court. a.11) The judicial deposits, representing restricted assets of the Company, are the amounts deposited and maintained in court until the resolution of the corresponding legal matters. These deposits, which at September 30, 2004 amounted to R$ 36,382 (Company) and R$ 68,942 (consolidated), are classified as a reduction of the provision for tax contingencies recorded in the books. b) REMOTE OR POSSIBLE CONTINGENT LOSSES INVOLVING SUBSTANTIAL UNCERTAINTIES AS TO THEIR OCCURRENCE AND WHICH THEREFORE HAVE NOT BEEN PROVIDED FOR: b.1) The Company is the defendant in debt foreclosures filed by the state of Minas Gerais which demand ICMS arising mainly from sales of products to commercial exporters. The restated amount of the lawsuits totals R$ 31,907. The Company did not set up a provision since it considers the tax demands are unfounded, because shipments of products for export are exempt from ICMS. b.2) The Company and its subsidiary Gerdau Acominas S.A. are defendants in debt foreclosures filed by the state of Minas Gerais which demand ICMS on exports of semi-finished manufactured products. The total amount demanded is R$ 246,125. The companies did not set up a provision since they consider the tax demands are unfounded and also that their products do not fit the definition of semi-finished manufactured products as defined in federal complementary law and, therefore, are not subject to ICMS. 31
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED b.3) Also, R$ 54,763 is being demanded due to the understanding of the Federal Revenue Secretariat that the operations carried out by subsidiary Gerdau Acominas S.A. under the drawback concession granted by DECEX were not in accordance with the legislation. Gerdau Acominas filed a preliminary administrative defense sustaining the legality of the operation, which is pending judgment. Since the tax credit has not been definitively set up, considering that the operation that originated the demand conforms with the hypothesis prescribed for drawback concession, and also that the concession was granted after analysis by the competent administrative authority, Gerdau Acominas S.A. understands that the chances of an unfavorable outcome are remote and, for this reason, did not set up a provision for the contingency. c) CONTINGENT TAX ASSETS: c.1) The Company understands that the realization of certain contingent assets is possible. Among them is a court-ordered debt security issued in 1999 in favor of the Company by the state of Rio de Janeiro in the amount of R$ 26,580, arising from an ordinary lawsuit regarding non-compliance with the Loan Agreement for Periodic Execution in Cash within the ambit of the Special Industrial Development Program (PRODI). Due to default by the state of Rio de Janeiro and the non-regulamentation by the State of Constitutional Amendment 30/00 which granted the Public Power a ten-year moratorium for the payment of securities issued to cover court-ordered debts not related to food, the realization of this credit is not expected in 2004 and following years, reason for which it is not recorded in the financial statements. c.2) Gerdau S.A. and its subsidiaries have filed several ordinary proceedings which dispute the correction of the PIS calculation basis, which is treated in Complementary Law 7/70, in view of the declarations of the unconstitutionality of Decree Laws 2445/88 and 2449/88. The companies expect to recover the overpaid taxes and understand that the amounts still under discussion total R$ 110,462. A favorable outcome in the subsidiary Gerdau Acominas lawsuit became final and unappeallable, in which credits amounting to R$ 102,449 (R$ 63,700 - net of tax effects) were recovered through offset against Income Tax, PIS and COFINS debts during the quarter. 32
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED c.3) Also, the Company and its subsidiaries Gerdau Acominas S.A. and Margusa - Maranhao Gusa S.A. expect to recover IPI premium credits. Gerdau S.A. and its subsidiary Margusa Maranhao Gusa S.A. filed administrative requests for reimbursement, which are pending judgment. As regards subsidiary Gerdau Acominas S.A., the proceeding was taken directly to the judiciary power which handed down a sentence unfavorable to the taxpayer. Currently, the process is awaiting judgement of the appeal filed by the subsidiary. The Company estimates that the credit amounts to approximately R$ 394,002 (consolidated). Due to the uncertainty about realization, the Company does not record the credit. II) LABOR CONTINGENCIES The Company is also defending labor proceedings for which there is a provision of R$ 16,257 (Company) and R$ 49,281 (consolidated) at September 30, 2004. None of these lawsuits are of individually significant amounts, and the discussions mainly involve claims for overtime, health hazards and risk premium, among others. The deposits in court at September 30, 2004 totaled R$ 8,465 (Company) and R$ 10,397 (consolidated), and are classified as a reduction of the provision for labor contingencies. III) CIVIL CONTINGENCIES a) CONTINGENT LIABILITIES PROVIDED FOR The Company is also a party in consolidated to court civil proceedings arising from the normal course of its operations and of its subsidiaries, including lawsuits arising from workplace accidents, and at September 30, 2004 there is a provision of R$ 100,038 (consolidated). The provision refers mainly to the issue involving jointly-controlled (52%) subsidiary Dona Francisca Energetica S.A. According to a notification of the Brazilian Electricity Regulatory Agency (ANEEL), the operations of the subsidiary are restricted to the South submarket. Since some transactions were carried out in other submarkets, Dona Francisca Energetica S.A. may have to acquire from third parties the energy sold. The subsidiary is challenging in court the validity of the ANEEL notification and has obtained a favorable preliminary injunction. 33
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED At September 30, 2004, the deposits in court totaled R$ 1,251 (consolidated) and are classified as a reduction of the provision for civil contingencies. b) REMOTE OR POSSIBLE CONTINGENT LOSSES INVOLVING SUBSTANTIAL UNCERTAINTIES AS TO THEIR OCCURRENCE AND WHICH THEREFORE HAVE NOT BEEN PROVIDED FOR: b.1) An antitrust process involving Gerdau S.A., related to the representation of two civil construction unions in the state of Sao Paulo alleging that Gerdau S.A. and other long steel producers in Brazil divide customers among them, violating antitrust legislation. After investigations by the National Secretariat of Economic Law (SDE) and based on public hearings, the SDE is of the opinion that a cartel exists. This conclusion was also supported by an earlier opinion of the Secretariat for Economic Monitoring (SEAE). The process is now pending evaluation by the Administrative Council for Economic Defense (CADE), which will decide the case. Gerdau S.A. denies having engaged in any type of anti-competitive behavior and understands, based on information available, including the opinion of its legal advisors, that the administrative process includes many irregularities, some of which are impossible to resolve. As example: the investigations carried out by SDE did not follow the due legal process and representatives of this Secretariat advised some witnesses who testified. In addition, the SDE opinion was issued before Gerdau S.A. had the chance to reply to the final allegations, which indicates that there was bias in the judgment of SDE. The same applies to the SEAE opinion, which does not analyze economic issues and is based exclusively on the witnesses' testimony. The irregularities, which also characterize disrespect of pertinent constitutional dispositions, will affect, in a way that cannot be overcome, a decision at the administrative level based on the conclusions up to now presented by the antitrust authorities. Gerdau S.A. has pointed out and tried to combat all these irregularities and will continue doing so in relation to the allegations about the irregularities practiced in the administrative process and understands that in this manner there will be a favorable outcome to this process, if not at the administrative level, possibly at the judicial level. Because of the above matters, no provision was set up for this case. According to Brazilian legislation, fines of up to 30% of gross revenue in prior fiscal years may be applied against the Company and, if the personal responsibility of an executive is proven, such executive may be penalized by 10% to 50% of the fine applied to the Company. There are no precedents in the country for fines exceeding 4%. In a similar case involving flat steel companies, the fine was 1%. 34
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED b.2) A civil lawsuit filed against Gerdau Acominas S.A. for rescission of a contract for the supply of slag and indemnity for losses and damages. At September 30, 2004, the lawsuit amounts to approximately R$ 37,014. Gerdau Acominas S.A. contested all the fundamentals and demands and filed a counterclaim for rescission of the contract and indemnity for breach of contract. The judge declared the contract to be rescinded, since such demand was common to both parties. With regards to the remaining discussion, the judge understood that both parties were at fault and judged unfounded the requests for indemnity. This decision was maintained by the Court of Civil Appeals of the State of Minas Gerais (TAMG) and is based on expert evidence and interpretation of the contract. The process was in progress at the High Court of Justice, and returned to TAMG for judgment of the appeal. Gerdau Acominas S.A. expects that a loss is remote, since it understands that a change in the judgment is unlikely. b.3) There is a civil lawsuit filed by Sul America Cia. Nacional de Seguros against Gerdau Acominas S.A. and Banco Westdeustsche Landesbank Girozentrale, New York Branch (WestLB) to consign in payment the amount of R$ 34,383 to settle an insurance claim, which was deposited in court. The insurance company alleges doubt as to whom payment should be made and that the Company is resisting in receiving and settling it. The lawsuit was contested both by the Bank (which alleged to have no right over the amount deposited, which removes the doubt raised by Sul America) and by the Company (which alleged inexistence of doubt and justification of the motive to refuse payment, since the amount due by Sul America is higher than that stated). After the contestation, Sul America argued fault in the Bank's representation, a matter that is already overcome. The lawsuit will enter the expert evidence phase but there is a prospect of raising the amount deposited. Based on the opinion of the legal advisors, the Company expects the risk of loss to be remote and that the sentence will declare an amount due within the amount stated in the contestation. Also, Gerdau Acominas S.A. filed, prior to this lawsuit, a lawsuit for collection of the amount recognized by the insurance company. The lawsuits are pending. The Company expects a favorable outcome. 35
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED The civil lawsuits arise from the accident on March 23, 2002 with the blast furnace regenerators at the Presidente Arthur Bernardes Plant, which resulted in the stoppage of several activities, material damages to the steel mill equipment and loss of profits. The equipment, as well as loss of profits arising from the accident, were covered by an insurance policy. The report on the event, as well as the loss claim, was filed with IRB - Brasil Resseguros S.A., and an advance of R$ 62,000 was received in 2002. In 2002, a preliminary and conservative estimate of indemnities to cover loss of profits and material damages, in the total amount of approximately R$ 110,000, was recorded, based on the amount of fixed costs incurred during the period of partial stoppage of the steel mill activities and the immediate costs to be incurred to recover the equipment temporarily. This estimate approximates the advance amount received plus the amount proposed by the insurance company as a complement to settle the indemnity. Subsequently, new amounts were added to the discussion, as stated in the Company's plea, although not yet recorded. Based on the opinion of its legal advisors, the Company considers that losses from other contingencies that may affect the results of operations or the consolidated financial position are remote. NOTE 15 - POST-EMPLOYMENT BENEFITS a) PENSION PLAN - DEFINED BENEFIT The Company and other Group subsidiaries in Brazil are the co-sponsors of defined benefit pension plans that cover substantially all employees in Brazil ("Gerdau Plan" and "Acominas Plan"). The Gerdau Plan is managed by Gerdau - Sociedade de Previdencia Privada, a private supplementary pension entity, to complement the social security benefits of employees and retired employees of the Company, of the other units of Gerdau Acominas S.A and other subsidiaries in Brazil. The assets of the Gerdau Plan comprise investments in bank deposit certificates, federal public notes and marketable securities. The Acominas Plan is managed by Fundacao Acominas de Seguridade Social - Acos, a private supplementary pension entity, to complement the social security benefits of employees and retired employees of the Ouro Branco unit of subsidiary Gerdau Acominas S.A. The assets of the Acominas Plan mainly comprise investments in bank deposit certificates, federal public notes, marketable securities and properties. 36
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED Also, the Canadian and American subsidiaries sponsor defined benefit plans (Canadian Plan and American Plan) that cover substantially all their employees. The Canadian and American plans are managed by CIBC Mellon and Wells Fargo, respectively, to complement the social security benefits of employees of Gerdau Ameristeel Corporation and its subsidiaries. The assets of the Plans mainly comprise marketable securities. Current costs of the defined pension plan are as follows:
COMPANY CONSOLIDATED -------------------------------- ----------------------------------- 9/30/2004 9/30/2003 9/30/2004 9/30/2003 --------------- --------------- --------------- ------------------ Cost of current service 83 4,209 36,535 30,511 Interest cost 259 10,802 97,208 81,836 Expected return of plan assets (427) (11,473) (124,337) (90,417) Amortization of cost of past service - - 617 999 Amortization of unrecognized transition liability - - 369 350 Amortization of (gain) loss (37) - 2,525 2,073 Expected contributions of employees - - (3,287) (2,682) --------------- --------------- --------------- ------------------ Pension plan cost (benefit), net (122) 3,538 9,630 22,670 =============== =============== =============== ==================
b) PENSION PLAN - DEFINED CONTRIBUTION The Company and its subsidiaries in Brazil are also the co-sponsors of a defined contribution pension plan administered by Gerdau - Sociedade de Previdencia Privada. Contributions are based on a percentage of the compensation of employees. The foreign subsidiary Gerdau Ameristeel Us Inc has a defined contribution plan, the contributions to which are 50% of the amount paid by the participants, limited to 4% of the salary. In MRM, the counter entry is 100% over a contribution limit of 6% of the salary. The other companies do not have this type of pension plan. 37
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED c) OTHER POST-EMPLOYMENT BENEFITS The Company estimates that the balance payable, due to employees' retirement or termination, amounts to R$ 8,926 (consolidated) at September 30, 2004. The American Plan includes, in addition to pension benefits, specific health benefits for employees who retire after a certain age and with a certain number of years of service. The American subsidiary has the right to change or eliminate these benefits, and the contributions are based on amounts actuarially calculated. The composition of the net periodic cost for the post-employment health benefits is as follows:
CONSOLIDATED ------------------------------------- 9/30/2004 9/30/2003 ----------------- ------------------ Cost of service 1,990 1,907 Interest cost 4,682 4,869 Amortization of cost of past service (455) - Amortization of (gain) loss 60 - ----------------- ------------------ Expenses for post-retirement health benefit, net 6,277 6,776 ================= ================== Considering all types of benefits to employees granted by the Company, the assets and liabilities position at September 30, 2004 is as follows: CONSOLIDATED -------------------------------------- 9/30/2004 6/30/2004 ------------------ ------------------ Actuarial pension plan liabilities - defined benefit 140,117 150,941 Actuarial post-retirement health benefit liabilities 113,955 117,749 Retirement and termination benefits liabilities 8,926 9,034 ------------------ ------------------ Total liabilities 262,998 277,724 ================== ==================
38
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED NOTE 16 - LONG-TERM INCENTIVE PLANS At the Extraordinary General Meeting (AGE) of the Company held on April 30, 2003, the shareholders decided, based on a previously agreed plan and within the limit of the authorized capital, to grant options to purchase preferred shares to management, employees or persons who render services to the Company or the companies under its control, and approved the creation of the Long-Term Incentive Program that represents a new form of compensation of the strategic executives of the Company. Options must be exercised over a maximum period of five years after the grace period. a) Summary of the plan activity:
GRANT (NUMBER OF SHARES) ---------------------------------------------------------------- ------------- 2003 (*) 2003 (**) 2004 (*) 2004 (**) Total ------------------------------- ------------------------------- ------------- Balance at 12/31/2003 403,228 280,840 - - 684,068 Grants in 2004 - - 2,430 171,125 173,555 Stock dividend at 4/29/2004 403,229 280,840 2,429 171,125 857,623 Options exercised - - - - - Options cancelled - - - - - ---------------- ------------- -------------- --------------- ------------- Closing balance at 9/30/2004 806,457 561,680 4,859 342,250 1,715,246 ================ ============= ============== =============== ============= Exercise price in R$ 11.94 11.94 30.50 30.50 Grace period (*) 3 years - 3 years - Grace period (**) - 5 years - 5 years
As mentioned in Note 17b, at September 30, 2004, the Company has a total of 1,573,200 preferred shares in treasury. These shares can be used for the purposes of this plan. 39
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED b) AT SEPTEMBER 30, 2004, THE PLAN STATUS IS AS FOLLOWS:
GRANT --------------------------------------------------- 2003 2004 AVERAGE ---------------------------------- --------------- Total stock options granted 1,368,137 347,109 1,715,246 Exercise price - R$ 11.94 30.50 15.70 Fair value of options at the grant date - R$ per option (*) 3.72 8.65 4.72 Average exercise term of option at the grant date (years) 3.5 4.9 3.8
(*) calculated based on Black-Scholes model The percentage of dilution in interest that the current shareholders may experience if all options are exercised is approximately 0.6%. Subsidiary Gerdau Ameristeel Corporation and its subsidiaries also have stock compensation plans for their employees. The effect on net income for the year and shareholders' equity would have been as follows, had the effects of the stock option plans of Gerdau S.A. and Gerdau Ameristeel Corporation been recorded as expenses:
COMPANY CONSOLIDATED --------------------------------- ---------------------------------- NET SHAREHOLDERS' NET SHAREHOLDERS' INCOME EQUITY INCOME EQUITY -------------- ----------------- -------------- ------------------ Balances per financial statements 2,195,561 5,874,878 2,485,795 5,874,878 Expense for the period* (1,551) (2,977) (2,126) (5,734) -------------- ----------------- -------------- ------------------ Pro-forma balances 2,194,010 5,871,901 2,483,669 5,869,144 ============== ================= ============== ==================
* using the fair value method (Black-Scholes model) NOTE 17 - SHAREHOLDERS' EQUITY a) Capital - Authorized capital at September 30, 2004 comprises 240,000,000 common shares and 480,000,000 preferred shares, with no par value. At September 30, 2004, 102,936,448 common shares and 193,771,574 preferred shares are subscribed and paid-up, totaling R$ 3,471,312. Preferred shares do not have voting rights and cannot be redeemed, but have the same rights as common shares in profit distributions. 40
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED b) Treasury stock - At September 30, 2004, there are 1,573,200 preferred shares held in treasury in the amount of R$ 44,139. c) Interest on capital and dividends - On July 31, 2004, the shareholders received interest on capital (R$ 135,762) as prepayment of the minimum statutory dividend for the current year. The Company calculated interest on capital within the limits established by Law 9249/95. The corresponding amount was recorded as financial expense for tax purposes. For financial statement presentation purposes this amount was treated as a dividend, not affecting the results. In the first nine months of 2004, interest on capital and dividends paid in advance on account of the minimum statutory dividend amount to R$ 422,042. NOTE 18 - OTHER OPERATING INCOME Other operating income mainly refers to the recognition of R$ 102,449 (consolidated) by reason of the favorable outcome obtained in a lawsuit regarding overpaid PIS amounts, as mentioned in Note 14.I item c.2. NOTE 19 - STATUTORY PROFIT SHARING Management profit sharing is limited to 10% of net income for the year, after income tax and management compensation. 41
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED NOTE 20 - GUARANTEES GRANTED The Company is the guarantor of loan agreements of the jointly-controlled subsidiary Dona Francisca Energetica S.A., in the total amount of R$ 101,894, corresponding to 51.82% of the joint guarantee. Furthermore, the Company is the guarantor of the Euro Commercial Paper program of the subsidiary GTL Trade Finance Inc., in the amount of US$ 100 million, equivalent to R$ 285,860 at the date of the Quarterly Information, and loans of the subsidiary Gerdau Ameristeel Corporation, in the amount of US$ 25 million, equivalent to R$ 71,465 at the date of the Quarterly Information. The Company is also guarantor of the subsidiary GTL Financial Corp in financing contracts in the amount of US$ 5 million, equivalent to R$ 14,293 and of the subsidiary Gerdau Acominas Overseas Ltda. in securitization transactions amounting to US$ 233 million, equivalent to R$ 676,327 at the date of the Quarterly Information. The subsidiary Gerdau Acominas S.A. is the guarantor of the vendor financing of associated company Banco Gerdau S.A. amounting to R$ 67,565 at September 30, 2004. NOTE 21 - INFORMATION BY GEOGRAPHIC AREA AND BUSINESS SEGMENT Information by geographical area:
GEOGRAPHIC AREAS ---------------------------------------------------------------------------- BRAZIL SOUTH AMERICA (*) NORTH AMERICA CONSOLIDATED -------------------------- ---------------------- ------------------------ ------------------------ 9/30/2004 9/30/2003 9/30/2004 9/30/2003 9/30/2004 9/30/2003 9/30/2004 9/30/2003 ------------ ------------ ---------- ---------- ---------- ------------ ---------- ------------ Gross sales revenue 9,503,713 6,699,836 737,627 445,257 7,323,076 4,468,730 17,564,416 11,613,823 Net sales revenue 7,320,231 5,418,546 540,621 335,867 6,841,996 4,096,473 14,702,848 9,850,886 Cost of sales (4,127,765) (3,273,978) (332,544) (224,064) (5,481,243) (3,931,116) (9,941,552) (7,429,158) Gross profit 3,192,466 2,144,568 208,077 111,803 1,360,753 165,357 4,761,296 2,421,728 Selling expenses (286,263) (285,337) (4,454) (2,850) (37,019) (34,177) (327,736) (322,364) General and administrative expenses (532,685) (364,294) (29,958) (21,525) (182,707) (139,250) (745,350) (525,069) Net financial result (98,109) (374,227) (4,725) (4,189) (155,705) (111,803) (258,539) (490,219) Operating profit 2,128,129 838,994 169,649 81,209 993,707 (122,511) 3,291,485 797,692 Net income (loss) for the year 1,574,937 790,972 135,443 60,663 775,415 (57,018) 2,485,795 794,617 EBITDA (**) 2,743,660 1,757,535 194,361 104,550 1,325,707 160,645 4,263,728 2,022,730
( *) Does not include Brazilian operations. (**) Earnings before financial expenses, income tax and social contribution, and depreciation and amortization. The segments stated below correspond to the business units through which Gerdau Executive Committee manages its operations: Long Steel Brazil, Acominas (corresponding to the operations of the plant located in Ouro Branco, Minas Gerais), South America (excluding the operations in Brazil) and North America (Gerdau Ameristeel). 42
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED Information by business segment:
BUSINESS SEGMENT -------------------------------------------------------------------------------------------------------------- LONG STEEL BRAZIL ACOMINAS OURO BRANCO SOUTH AMERICA (*) NORTH AMERICA CONSOLIDATED ---------------------- ------------------- -------------------- --------------------- -------------------- 9/30/2004 9/30/2003 9/30/2004 9/30/2003 9/30/2004 9/30/2003 9/30/2004 9/30/2003 9/30/2004 9/30/2003 ---------- ---------- -------- --------- ---------- -------- ---------- --------- --------- --------- Net sales revenue 5,407,396 3,754,798 1,912,835 1,663,748 540,621 335,867 6,841,996 4,096,473 14,702,848 9,850,886 Identifiable 7 assets (**) 3,827,577 3,108,212 3,422,174 3,555,142 694,951 537,070 5,260,230 4,303,663 13,204,932 11,504,08 Capital expenditures 271,700 231,600 223,371 261,112 19,704 14,830 188,082 118,371 702,857 625,913 Depreciation / amortization 175,825 165,106 194,317 97,492 20,696 17,122 184,680 168,715 575,518 448,435
( *) Does not include Brazilian operations. (**) Identifiable assets: Accounts receivable, inventories and fixed assets NOTE 22 - SUPPLEMENTARY INFORMATION - STATEMENT OF CASH FLOWS In order to permit additional analysis, the statement of cash flows prepared using the indirect method is being presented as supplementary information.
COMPANY CONSOLIDATED ------------------------------ ------------------------------- 9/30/2004 9/30/2003 9/30/2004 9/30/2003 -------------- -------------- --------------- -------------- NET INCOME FOR THE YEAR 2,195,561 679,189 2,485,795 794,617 Equity in the results of investees (2,199,366) (185,081) 282,916 285,179 Provision for credit risks - 11,594 8,448 16,289 Gain and/or loss on sale of fixed assets - 12,505 6,218 15,204 Gain and/or loss on sale of investment - 35 4,371 1,599 Monetary and exchange variations (3,548) 46,810 39,422 87,959 Depreciation and amortization - 149,136 575,518 448,435 Income tax and social contribution (38,511) 18,770 528,477 (249,159) Interest on debt 29,970 243,558 321,270 431,633 Contingencies/judicial deposits (64) 4,772 14,175 10,089 Changes in trade accounts receivable - (148,606) (951,517) (305,705) Changes in inventories - (130,601) (949,199) (143,213) Changes in suppliers - 3,152 506,344 121,965 Other operating activity accounts (14,354) 125,234 116,768 40,804 Net cash provided by (used in) operating activities (30,312) 830,467 2,989,006 1,555,696 Purchase/sale of fixed assets - (223,954) (702,857) (625,913) Increase in deferred charges - (1,917) (10,404) (5,259) Purchase/sale of investments (280,239) (32,107) (10,333) (17,982) Interest on own capital/profit distribution received 560,880 29,960 - - Net cash provided by (used in) investing activities 280,641 (228,018) (723,594) (649,154) Suppliers of fixed assets - (42) (1,576) (7,913) Working capital financing - 77,884 (203,144) 69,949 Debentures 43,033 (57,332) 29,829 (23,684) Permanent asset financing - 96,428 271,128 274,048
43
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED
COMPANY CONSOLIDATED ------------------------------ ------------------------------- 9/30/2004 9/30/2003 9/30/2004 9/30/2003 -------------- -------------- --------------- -------------- Amortization of permanent asset financing - (179,080) (548,856) (351,455) Payment of interest on financing - (125,572) (325,750) (300,518) Loans with related parties 242,519 (11,094) 7,868 (15,330) Capital increase/treasury shares (27,036) - (25,673) - Payment of dividends/interest on own capital and participations (461,061) (322,457) (543,366) (326,728) Net cash used in financing activities (202,545) (521,265) (1,339,540) (681,631) Changes in cash balance 47,784 81,184 925,872 224,911 Cash balance At the beginning of the period 177,684 365,680 1,017,006 1,430,656 Effect of exchange rate changes on cash - - 4,740 (170,775) Opening balance of companies consolidated in the period - - - 12,789 At the end of the period 225,468 446,864 1,947,618 1,497,581 Composition of final cash Marketable securities 224,428 381,633 1,769,200 1,341,196 Cash and banks 1,040 65,231 178,418 156,385
NOTE 23 - SUBSEQUENT EVENTS On October 13, 2004, through the indirect subsidiary GTL Trade Finance Inc., a Euro Commercial Paper Notes transaction in the amount of US$ 110 million was concluded, equivalent to R$ 312,114 on the date of the transaction, with final maturity on October 12, 2005 and interest of 3.0% p.a. On October 15, 2004, Gerdau S.A. announced that the indirect subsidiary Gerdau Ameristeel Corporation obtained the confirmation to its registration request with the Canadian securities regulatory authorities for the public offering of 70 million common shares. The parent company Gerdau S.A. should subscribe 35 million common shares and the remaining 35 million shares should be distributed by a banking syndicate in the United States of America and Canada. The capitalization amount will be of approximately US$ 329 million (R$ 940,479 on the date of the information quarter), and this amount could reach US$ 378 million (R$ 1,080,551 on the date of the information quarter), if the totality of the option to purchase an additional lot of 5.25 million common shares, anticipated in the prospectus approved by the regulatory authorities, were exercised. 44
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
04.01 - NOTES TO THE QUARTERLY INFORMATION ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE INDICATED On October 28, 2004, Gerdau S.A., through its indirect subsidiary Gerdau Ameristeel Corporation, announced the signature of a purchase and sale contract for the acquisition of assets of Gate City Steel Inc. and RJ Rebar Inc. (rods cutting and folding, with and without epoxy covering), headquartered in Indianapolis, Indiana, in the United States of America. The transaction should be completed up to the beginning of December 2004, after approval of the competent authorities, therefore it does not have any impact on the financial statements at the information quarter. On October 29, 2004, the indirect subsidiary Armafer Servicos de Construcao Ltda. was merged, and its net assets were appropriated in the subsidiary Gerdau Acominas S.A. as an exchange of ownership interest, without capital increase. This transaction is justified by a reduction of administrative expenses and better synergy of operations. On November 1, 2004, Gerdau S.A., through its indirect subsidiary Gerdau Ameristeel Corporation, concluded the acquisition of fixed assets and working capital of four long steel plants, three wire rods processing units and one steel grinding ball producing unit for the mining industry of North Star Steel, announced on September 9. The price of these assets was US$ 266 million (R$ 760,388 on the date of the information quarter) on demand and the assumption of liabilities was approximately US$ 12 million (R$ 34,303 on the date of the information quarter). On November 3, 2004, the Board of Directors approved the Executive Board's proposal of October 22, 2004, for prepayment of dividends on account of the third quarter of 2004. Dividends will be calculated and credited to the shareholders of record on November 3, 2004 (R$ 0.53 per common and preferred share), to be paid on November 17, 2004 and will be considered as prepayment of the minimum statutory dividend. In the first nine months of 2004, in addition to the amount informed in Note 17, interest on own capital and dividends credited as prepayment of the minimum statutory dividend amounts to R$ 578,463. 45
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
05.01 - COMMENTS ON THE QUARTERLY PERFORMANCE With the transfer of its operating assets to the subsidiary Gerdau Acominas S.A. on November 28, 2003, the revenues of Gerdau S.A., as from that date, were provided by the investments in subsidiaries and associated companies. These investments at the end of September totaled R$ 6.2 billion. In the third quarter of 2004, these investments generated an equity in the results of R$ 1.1 billion, totaling R$ 2.2 billion up to September of this year. From July to September, net income of Gerdau S.A. reached R$ 1.1 billion (R$ 3.63 per share), 44.2% higher than the R$ 742.8 million in the second quarter. In the accumulated for the year, net income amounted to R$ 2.2 billion (R$ 7.44 per share), 223.3% higher than the pro forma for the nine-month period of 2003. On September 30, shareholders' equity amounted to R$ 5.9 billion, equivalent to R$ 19.91 per share. At the end of the quarter, the Company presented the following financial and economic data: 3RD QUARTER/04 ACCUM. 9 MONTHS/04 Income from investments - R$ thousand 1,075 2,199 Net income - R$ thousand 1,071 2,196 Net income per share - R$ 3.63 7.44 9/30/04 Capital - R$ thousand 3,471 Shareholders' equity - R$ thousand 5,875 Book value per share - R$ 19.91 Interest on capital and dividends relating to the third quarter of 2004 will be paid by Gerdau S.A. on November 17, in the amount of R$ 292.2 million. Interest on capital will be paid on the number of shares held on August 13 and corresponds to R$ 0.46 per share. Dividends of R$ 0.53 per share will be paid on the number of shares held on November 3. 46
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
05.01 - COMMENTS ON THE QUARTERLY PERFORMANCE At the Sao Paulo Stock Exchange (BOVESPA), activity with Gerdau S.A. (GGBR) shares during the first nine months of 2004 amounted to R$ 4.3 billion, 167.1% higher compared to the same period of 2003. 141,064 trades were carried out, which exceeded by 101.4% the numbers for January to September of the prior year. The number of shares traded also increased significantly in the period. 90.9 million securities were traded, 96.1% more than the numbers for the first nine months of 2003. In the period, preferred shares appreciated by 61.2% and the daily average of negotiations reached R$ 21.8 million. Transactions in ADRs of Gerdau S.A. (GGB) on the New York Stock Exchange totaled US$ 801.1 million from January to September of this year, exceeding by 368.6% the amounts for the same period of 2003. In the period, 49.7 million securities were traded, 235.9% more than the numbers for the first nine months of 2003. The daily average of negotiations reached US$ 4.3 million in the nine-month period of 2004. Up to September 2004, 280.1 thousand preferred shares of Gerdau S.A. (XGGB) were traded in the Madrid Stock Exchange (Latibex), resulting in activity of about (euro) 3.7 million. In order to comply with CVM Instruction 381/2003, Gerdau S.A. informs that PricewaterhouseCoopers Auditores Independentes, the provider of external audit services to the Company, did not render services that were not related to external audit during 2004. 47
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
06.01 - CONSOLIDATED BALANCE SHEET - ASSETS (R$ THOUSANDS)
1 - CODE 2 - DESCRIPTION 3 - 9/30/2004 4 - 6/30/2004 1 Total assets 16,832,946 16,270,322 1.01 Current assets 8,444,162 7,253,852 1.01.01 Cash and banks 178,418 203,670 1.01.02 Credits 4,348,175 3,811,023 1.01.02.01 Trade accounts receivable 2,421,834 2,367,068 1.01.02.02 Tax credits 157,141 157,497 1.01.02.03 Marketable securities 1,769,200 1,286,458 1.01.03 Inventories 3,288,287 2,873,969 1.01.03.01 Finished products 1,273,309 1,146,606 1.01.03.02 Work in process 470,319 421,852 1.01.03.03 Raw materials 866,970 641,288 1.01.03.04 Warehouse materials 617,803 614,807 1.01.03.05 Advances to suppliers 59,886 49,416 1.01.04 Other 629,282 365,190 1.01.04.01 Other receivables 261,831 224,993 1.01.04.02 Deferred income tax and social contribution 367,451 140,197 1.02 Long-term receivables 779,273 1,035,496 1.02.01 Sundry credits 10,212 10,212 1.02.01.01 Eletrobras loans 10,212 10,212 1.02.02 Receivables from related parties 24,417 36,146 1.02.02.01 Associated companies 0 0 1.02.02.02 Subsidiaries 24,417 36,146 1.02.02.03 Other related parties 0 0 1.02.03 Other 744,644 989,138 1.02.03.01 Judicial deposits and other 234,376 245,062 1.02.03.02 Deferred income tax and social contribution 510,268 744,076 1.03 Permanent assets 7,609,511 7,980,974 1.03.01 Investments 87,285 378,132 1.03.01.01 In associated companies 0 0 1.03.01.02 In subsidiaries 0 0 1.03.01.03 Other 0 0 1.03.02 Fixed assets 7,494,811 7,578,360 1.03.02.01 Land, buildings and structures 3,248,336 3,316,048 1.03.02.02 Machinery, equipment and installations 7,550,750 7,610,786 1.03.02.03 Furniture and fixtures 139,424 157,514 1.03.02.04 Vehicles 40,553 44,544 1.03.02.05 Electronic data equipment 250,266 239,988 1.03.02.06 Construction in progress 753,269 599,464 1.03.02.07 Forestation/reforestation 198,396 189,478 1.03.02.08 Accumulated depreciation (4,686,183) (4,579,462) 1.03.03 Deferred charges 27,415 24,482
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
06.02 - CONSOLIDATED BALANCE SHEET - LIABILITIES AND SHAREHOLDERS' EQUITY (R$ THOUSANDS) 1 - CODE 2 - DESCRIPTION 3 - 9/30/2004 4 - 6/30/2004 2 Total liabilities and shareholders' equity 16,832,946 16,270,322 2.01 Current liabilities 4,728,151 4,774,495 2.01.01 Loans and financing 1,836,033 2,219,572 2.01.02 Debentures 7,657 3,139 2.01.03 Suppliers 1,628,784 1,525,311 2.01.04 Taxes, charges and contributions 600,473 363,725 2.01.05 Dividends payable 129,944 195,551 2.01.06 Provisions 0 0 2.01.07 Payables to related parties 0 0 2.01.08 Other 525,260 467,197 2.01.08.01 Salaries payable 204,409 195,575 2.01.08.02 Deferred income tax and social contribution 128,101 55,193 2.01.08.03 Other payables 192,750 216,429 2.02 Long-term liabilities 5,223,575 5,612,314 2.02.01 Loans and financing 3,427,035 3,750,753 2.02.02 Debentures 524,207 473,337 2.02.03 Provisions 0 0 2.02.04 Payables to related parties 0 0 2.02.05 Other 1,272,333 1,388,224 2.02.05.01 Provision for contingencies 241,665 242,225 2.02.05.02 Deferred income tax and social contribution 542,785 659,681 2.02.05.03 Other payables 224,885 208,594 2.02.05.04 Benefits to employees 262,998 277,724 2.03 Deferred income 0 0 2.04 Minority interest 1,006,342 943,672 2.05 Shareholders' equity 5,874,878 4,939,841 2.05.01 Paid-up capital 3,471,312 3,471,312 2.05.02 Capital reserves 376,672 376,672 2.05.02.01 Investments 342,909 342,909 2.05.02.02 Special - Law 8200/91 21,488 21,488 2.05.02.03 Other 12,275 12,275 2.05.03 Revaluation reserves 0 0 2.05.03.01 Own assets 0 0 2.05.03.02 Subsidiary/associated companies 0 0 2.05.04 Revenue reserves 253,375 253,375 2.05.04.01 Legal 184,429 184,429 2.05.04.02 Statutory 68,946 68,946 2.05.04.03 Contingencies 0 0 2.05.04.04 Unrealized profits 0 0 2.05.04.05 Retention of profits 0 0 2.05.04.06 Special for undistributed dividends 0 0 2.05.04.07 Other 0 0 2.05.05 Retained earnings 1,773,519 838,482
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
07.01 - CONSOLIDATED STATEMENT OF INCOME (R$ THOUSANDS)
Code Description 3 - 7/1/2004 to 4 - 1/1/2004 5 - 7/1/2003 6 - 1/1/2003 7/1/2004 to to 9/30/2004 to 9/30/2003 to 9/30/2003 3.01 Gross sales and/or services 6,284,715 17,564,416 4,131,602 11,613,823 3.02 Deductions (1,053,889) (2,861,568) (637,844) (1,762,937) 3.02.01 Taxes on sales (742,360) (1,819,216) (378,670) (1,058,176) 3.02.02 Freights and discounts (311,529) (1,042,352) (259,174) (704,761) 3.03 Net sales and/or services 5,230,826 14,702,848 3,493,758 9,850,886 3.04 Cost of sales and/or services rendered (3,353,074) (9,941,552) (2,687,894) (7,429,158) 3.05 Gross profit 1,877,752 4,761,296 805,864 2,421,728 3.06 Operating expenses/income (400,719) (1,469,811) (502,394) (1,624,036) 3.06.01 Selling (113,066) (327,736) (114,757) (322,364) 3.06.02 General and administrative (263,061) (745,350) (176,216) (525,069) 3.06.03 Financial 124,446 (258,539) (240,046) (490,219) 3.06.03.01 Financial income 57,542 167,740 41,291 52,714 3.06.03.02 Financial expenses 66,904 (426,279) (281,337) (542,933) 3.06.04 Other operating income 130,709 144,730 0 0 3.06.05 Other operating expenses 0 0 2,495 (1,205) 3.06.06 Equity in the results of subsidiary and associated companies (279,747) (282,916) 26,130 (285,179) 3.07 Operating profit 1,477,033 3,291,485 303,470 797,692 3.08 Non-operating results (19,805) (22,547) (4,131) (13,755) 3.08.01 Income 0 0 0 0 3.08.02 Expenses (19,805) (22,547) (4,131) (13,755) 3.09 Income before taxes and participations 1,457,228 3,268,938 299,339 783,937 3.10 Provision for income tax and social contribution (310,467) (643,525) (58,606) (192,889) 3.11 Deferred income tax 47,032 (115,976) 9,004 217,016 3.12 Statutory participations and contributions (8,623) (23,642) (4,421) (13,447) 3.12.01 Participations (8,623) (23,642) (4,421) (13,447) 3.12.02 Contributions 0 0 0 0 3.13 Reversal of interest on capital 0 0 0 0 3.14 Minority interest (114,371) (290,234) (10,902) (115,428) 3.15 Net income for the period 1,070,799 2,195,561 234,414 679,189 Number of shares (thousands), excluding treasury stock 295,135 295,135 148,354 148,354 Net income per share 3.62817 7.43918 1.58010 4.57816 Loss per share
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
08.01 - Comments on the Consolidated Performance PRODUCTION AND SALES o During the third quarter of 2004, Gerdau companies produced 3.3 million metric tons of plates, blocks and billets (PBT), 2.0% lower than the volume of the second quarter. Of this amount, operations in Brazil contributed with 1.9 million metric tons, a volume the same as the previous quarter and 55.5% of total volume. In North America, due to programmed stoppages for maintenance in some units, production was 5.1% lower, reaching 1.4 million metric tons. The companies in Chile and Uruguay produced 114.2 thousand metric tons, an increase of 7.4%.
Production 3rd Q. 2nd Q. Variation 9 months of 9 months of Variation (1,000 metric tons) 2004 2004 2004 2003 Crude steel (plates, blocks and billets) Brazil 1,854.4 1,857.0 (0.1%) 5,431.1 5,157.6 5.3% North America 1,372.7 1,447.0 (5.1%) 4,243.3 3,766.4 12.7% South America 114.2 106.4 7.4% 306.6 253.2 21.1% TOTAL 3,341.3 3,410.4 (2.0%) 9,981.0 9,177.2 8.8% Rolled steel Brazil 1,191.5 1,099.5 8.4% 3,312.3 2,873.0 15.3% North America 1,321.5 1,371.5 (3.6%) 4,007.3 3,534.6 13.4% South America 127.7 115.3 10.7% 349.4 271.3 28.8% Total 2,640.7 2,586.3 2.1% 7,669.0 6,678.9 14.8%
o The rolled steel production reached 2.6 million metric tons, 2.1% higher than the second quarter of 2004. In Brazil, production reached 1.2 million metric tons, an increase of 8.4%, due to the higher demand in the civil construction and siderurgical products sector. The programmed stoppages in North America also caused a decrease in the rolled steel production, which totaled 1.3 million metric tons, a decrease of 3.6% in the quarter. The companies in Chile, Uruguay and Argentina produced 127.7 thousand metric tons in the quarter, 10.7% higher than the second quarter. o Consolidated sales reached 3.2 million metric tons in the third quarter of 2004, 1.1% higher than the second quarter. Of these sales, operations in Brazil contributed with 1.7 million metric tons (53.0% of the total), North America with 1.4 million metric tons (42.7% of the total) and the companies in Chile, Uruguay and Argentina with 136.7 thousand metric tons (4.3% of the total). 51
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
08.01 - COMMENTS ON THE CONSOLIDATED PERFORMANCE
Sales 3rd Q. 2nd Q. Variation 9 months of 9 months of Variation (1,000 metric tons) 2004 2004 2004 2003 Brazil Domestic market 1,109.1 1,049.4 5.7% 3,073.0 2,526.5 21.6% Exports 571.5 632.2 (9.6%) 1,927.2 2,342.2 (17.7%) Total 1,680.6 1,681.6 (0.1%) 5,000.2 4,868.7 2.7% Foreign North America 1,353.3 1,334.1 1.4% 4,076.5 3,845.6 6.0% South America 136.7 119.1 14.8% 376.6 307.3 22.5% TOTAL 1,490.0 1,453.2 2.5% 4,453.1 4,152.9 7.2% Total Consolidated 3,170.6 3,134.8 1.1% 9,453.3 9,021.6 4.8%
o Gerdau Acominas sales for the domestic market increased 5.7% in the third quarter due to the recovery of the civil construction sector and higher demand of industry. Exports totaled 571.5 thousand metric tons in the quarter, 9.6% lower than the second quarter, due to the redirectioning of sales to the domestic market. In the third quarter, exports represented 34.0% of total sales in Brazil and generated revenues of US$ 243.2 million. o Foreign market sales, together with exports from Brazil, represented 65.0% of the consolidated volume in the third quarter. Results o Net consolidated sales reached R$ 5.2 billion in the third quarter of 2004, 1.3% lower than the second quarter, due to the lower revenue obtained with foreign operations caused by the appreciation of the real against the U.S. dollar. Net sales from Brazilian operations totaled R$ 2.8 billion, 9.7% higher than the second quarter. At the same time, North American operations generated revenues of R$ 2.2 billion (-12,4%) and South American operations R$ 193.4 million (+1,9%). o Foreign companies and Brazilian exports, together, contributed with 62.5% of consolidated net sales in the third quarter. 52
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
08.01 - COMMENTS ON THE CONSOLIDATED PERFORMANCE
Net sales 3rd Q. 2nd Q. Variation 9 months of 9 months of Variation (R$ million) 2004 2004 2004 2003 Brazil 2,789.5 2,542.7 9.7% 7,320.2 5,418.8 35.1% North America 2,247.9 2,566.5 (12.4%) 6,842.0 4,096.3 67.0% South America 193.4 189.8 1.9% 540.6 335.8 61.0% Total 5,230.8 5,299.0 (1.3%)% 14,702.8 9,850.9 49.3%
o The better operating margins of Brazilian operations due to higher sales volume in the domestic market where the mix has a higher aggregate value, as well as the adjustments to prices due to increases in the cost of some raw materials, were responsible for the increase in gross margin from 35.2% in the second quarter to 35.9% in the third quarter. Gross profit reached R$ 1.9 billion in the months from July to September, 0.6% higher than April to June of this year. o Selling, general and administrative expenses (R$ 376.1 million) were 3.9% lower in the third quarter of 2004 in relation to the second quarter, reducing their participation in net sales from 7.4% to 7.2%. This reduction is due to the lower expenses of foreign operations caused by the appreciation of the real against the U.S. dollar.
EBITDA 3rd Q. 2nd Q. Variation 9 months of 9 months of Variation (R$ million) 2004 2004 2004 2003 Gross profit 1,877.8 1,866.3 0.6% 4,761.3 2,421.7 96.6% Selling expenses (113.1) (117.6) (3.9%) (327.7) (322.4) 1.7% General and administrative expenses (263.1) (273.8) (3.9%) (745.4) (525.1) 42.0% Depreciation and amortization 163.3 240.6 (32.1%) 575.5 448.4 28.3% EBITDA 1,664.9 1,715.5 (3.0%) 4,263.7 2,022.7 110.8% Financial expenses, net (excluding exchange and monetary variations) (34.5) (89.1) (61.4%) (225.1) (413.4) (45.5%) Exchange and monetary variations 159.0 (140.3) - (33.4) (76.8) (56.5%) EBITDA 1,789.4 1,486.1 20.4% 4,005.2 1,532.5 161.4%
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
08.01 - COMMENTS ON THE CONSOLIDATED PERFORMANCE o With the lower sales revenue from foreign operations caused by the appreciation of the real against the U.S. dollar, EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) were R$ 1.7 billion in the quarter, 3.0% lower than the previous quarter. The margin, even so, was at a level similar to the previous quarter, at 31.8% (32.4% in the second quarter).
EBITDA 3rd Q. 2nd Q. Variation 9 months of 9 months of Variation (R$ million) 2004 2004 2004 2003 Brazil 1,095.4 1,028.5 6.5% 2,743.6 1,749.5 56.8% North America 508.2 613.5 (17.2%) 1,325.7 168.7 685.8% South America 61.3 73.5 (16.6%) 194.4 104.5 86.0% Total 1,664.9 1,715.5 (3.0%) 4,263.7 2,022.7 110.8%
o Net financial expenses for the quarter, excluding monetary and foreign exchange variations, totaled R$ 34.5 million against R$ 89.1 million in the previous quarter. This decrease was due to the reduction in indebtedness and the increase in financial investments, which resulted from the higher generation of cash in the period. Considering foreign exchange (R$ 157.7 million) and monetary variations (R$ 1.2 million), both positive, Gerdau had a net consolidated financial income (financial income less financial expense) of R$ 124.4 million. At September 30, gross debt was R$ 5.8 billion, 10.1% lower than at June 30. Cash and banks and financial investments totaled R$ 1.9 billion at the end of September, 30.7% higher than at the end of June. o Equity accounting was negative by R$ 279.7 million in the quarter, reflecting the variations of the different currencies in the countries where Gerdau has operations and also the tax incentives and the amortizations of goodwill made in the period. o In the third quarter, R$ 63.7 million, net of tax effects, were recorded in Other operating income, due to the favorable outcome obtained by the subsidiary Gerdau Acominas in a lawsuit regarding the overpaid PIS amounts, based on Decree Laws 2445/88 and 2449/88. o The provision for income tax and social contribution, in the third quarter, reflects the new calculations for the use of tax credits arising from tax losses in Gerdau Acominas and Gerdau Ameristeel, realized as a consequence of the current profitability. In Gerdau Acominas, the amount was R$ 137.5 million and, in Gerdau Ameristeel, was R$ 128.6 million. 54
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
08.01 - COMMENTS ON THE CONSOLIDATED PERFORMANCE o Netincome reached R$ 1.2 billion in the third quarter, 35.7% higher than the R$ 873.3 million in the second quarter. Of this result, foreign operations contributed with 35.9% and Brazilian operations with the remaining 64.1%. Net margin increased from 16.5%, in the months from April to June, to 22.7%, in the period from July to September 2004.
Net income 3rd Q. 2nd Q. Variation 9 months of 9 months of Variation (R$ million) 2004 2004 2004 2003 Brazil 759.7 491.7 54.5% 1,575.0 791.0 99.1% North America 380.8 332.0 14.7% 775.4 (57.0) - South America 44.7 49.6 (9.9%) 135.4 60.6 123.4% Total 1,185.2 873.3 35.7% 2,485.8 794.6 212.8%
Investments o In the third quarter, investments in fixed assets totaled US$ 92.6 million. Of this amount, US$ 62.1 million were invested in the Brazilian companies (67.1%) and US$ 30.5 million in foreign companies (32.9%).
Investments 3rd Q. 2nd Q. 9 months of 2004 (US$ million) 2004 2004 Brazil 62.1 84.8 198.4 Gerdau Acominas 55.5 83.3 188.9 Other 6.6 1.5 9.5 Foreign 30.5 16.8 72.6 North America 27.5 15.0 65.8 South America 3.0 1.8 6.8 Total 92.6 101.6 271.0
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
08.01 - COMMENTS ON THE CONSOLIDATED PERFORMANCE o On November 1, Gerdau Ameristeel concluded the fixed assets and working capital acquisition of four long steel plants, three wire rods processing units and one steel grinding ball producing unit of North Star Steel, announced on September 9. The price was US$ 266 million on demand and the assumption of liabilities was approximately US$ 12 million. The Company must pay an additional amount of approximately US$ 30.0 million in the next 60 days as an adjustment to the acquisition price due to working capital fluctuations on the date of the transaction. The four North Star plants (located in St. Paul, Minnesota; Wilton, Iowa; Calvert City, Kentucky; and Beaumont, Texas) have an installed capacity of approximately 2.0 million metric tons of long steel per year, mainly bars and light structural shapes, special quality bars and shapes, rods and wire rods. The four transformation units (located in Beaumont, Texas; Carrollton, Texas; Memphis, Tennessee; and Duluth, Minnesota) have a production capacity of approximately 300 thousand metric tons per year of concrete reinforcing wire netting, wire fences, industrial wire and steel grinding balls. o On October 28, Gerdau Ameristeel signed a purchase and sale contract for the acquisition of all the assets of Gate City Steel, Inc. and RJ Rebar, Inc., in the United States of America, which are suppliers of cut and folded rods, with and without epoxy covering, in the American Middle West and South regions. Its units are located in Indianapolis and Muncie, Indiana; Sterling and Lemont, Illinois; Birmingham, Alabama; and Hamilton, Ohio. These units, together, have an installed capacity of 160 thousand metric tons, including 30 thousand metric tons of cut and folded rods with epoxy covering. o On October 18, the resumption of Gerdau's new steel plant installation project in the state of Sao Paulo was announced. With estimated investments of R$ 750 million, separated in two phases, the unit, to be constructed in the municipality of Aracariguama, will have an installed production capacity of 1.3 million metric tons of steel and 1.2 million metric tons of rods for the civil construction sector. In the first phase, with investments of R$ 500 million, the steel mill area capacity will be 900 thousand metric tons of steel and the rolling area capacity will be 600 thousand metric tons. The steel mill area should start to operate in May 2005 and the rolling area in April 2006. The plant production is focused on the domestic market, mainly the states of Sao Paulo and Mato Grosso do Sul, which are currently supplied by Gerdau Cosigua (RJ) and Gerdau Divinopolis (MG). The plant follows the compact market mill concept and will be a worldwide referential siderurgical company. A significant part of the investments (approximately R$ 90 million) will be used for environmental protection, with the installation of a latest generation dust removal system, which eliminates the emission of solid steel mill particles, and with a completely closed water recirculation system, where the industrial waters will be treated within the unit and used again. Also, a Mega Shredder will be installed, which has a processing capacity of about two thousand metric tons of scrap per day, corresponding to three thousand vehicles. Also, the green areas cover 36% of the plant space, which totals 47 hectares. 56
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
08.01 - COMMENTS ON THE CONSOLIDATED PERFORMANCE o Besides the new Sao Paulo unit, other investments, which were already announced in the previous quarter, should be highlighted. In the Ouro Branco (MG) plant, the liquid steel production capacity will increase from three million metric tons per year to seven million metric tons up to 2008/09, with an intermediate phase of 1.5 million metric tons for 2006/07. In Gerdau Acos Finos Piratini (RS), the rolled steel capacity production will increase from 350 thousand metric tons to 500 thousand metric tons in the next year. In Gerdau Cosigua (RJ), the expansion of the installed capacity of Rolling Mill 3 of profiles to 420 thousand metric tons per year is planned by the end of 2005, an increase of 150 thousand metric tons over the current capacity. In Gerdau Riograndense (RS), improvements in the steel mill processes will permit an additional production of 60 thousand metric tons of steel per year up to 2006. In Gerdau Cearense (CE), the installation of a new reheating furnace and the elimination of bottlenecks, scheduled for 2006, will expand annual production from 100 thousand metric tons to 150 thousand metric tons. Financial Debt o At September 30, net debt was R$ 3.8 billion, 22.4% less than that at the end of June and 29.4% less compared to September 30, 2003. o Of the gross debt (R$ 5.8 billion), 31.8% was short-term (R$ 1.8 billion) and 68.2% long-term (R$ 4.0 billion). o At September 30, cash and short-term investment balances totaled R$ 1.9 billion, of which, 60.5% (R$ 1.2 billion) indexed to the U.S. dollar. 57
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
08.01 - COMMENTS ON THE CONSOLIDATED PERFORMANCE
Debt 9.30.2004 6.30.2004 9.30.2003 (R$ million) Short-term Local currency 199.1 190.6 735.7 Foreign currency 738.3 1,127.6 1,576.0 Foreign companies 906.2 904.5 841.5 Total 1,843.7 2,222.7 3,153.2 Long-term Local currency 749.4 702.4 762.9 Foreign currency 1,722.0 1,887.2 1,047.2 Foreign companies 1,479.8 1,634.5 1,980.4 TOTAL 3,951.2 4,224.1 3,790.5 Gross debt 5,794.9 6,446.8 6,943.7 Cash and banks and short-term investments 1,947.6 1,490.1 1,497.6 Net debt 3,847.3 4,956.7 5,446.1
o On October 13, an Euro commercial paper transaction in the amount of US$ 110 million was concluded, with final maturity on October 12, 2005 and coupon of 3.0% per annum. o On October 20, Gerdau Ameristeel concluded the public offering process for the placement of 70 million common shares priced at US$ 4.70, or Cdn$ 5.90, per share, totaling US$ 329 million, or Cdn$ 413 million. Half of this lot was subscribed by Gerdau S.A. and the other half was distributed by a syndicate of banks in the Canadian and American capital markets. It should also be noted that Gerdau Ameristeel shares, which were already traded in the Toronto Stock Exchange (Canada), started to be traded in the New York Stock Exchange (NYSE). 58
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
08.01 - COMMENTS ON THE CONSOLIDATED PERFORMANCE o At September 30, the payment schedule of long-term debt, including debentures, was as follows:
Year R$ million 2005 136.4 2006 467.4 2007 688.6 2008 536.9 2009 and after 2,121.9 Total 3,951.2
o At the end of September, the main indices related to the debt were the following:
Indices 9.30.2004 6.30.2004 9.30.2003 Net debt / Total net capitalization 35.9% 45.7% 52.4% EBITDA(1) / Net financial expenses(1) 14.3x 8.4x 5.6x (excluding monetary and exchange variations) Gross debt / EBITDA(1) 1.2x 1.6x 2.6x Net debt / EBITDA(1) 0.8x 1.3x 2.1x
----------------- 1 - Accumulated in the last 12 months 59
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
09.01 - INVESTMENTS IN SUBSIDIARY AND/OR ASSOCIATED COMPANIES
1 - 2 - COMPANY NAME 3 - CNPJ 4 - CLASSIFICATION 5 - % OF INVESTEES 6 - % OF SHARE ITEM CAPITAL HOLDERS' EQUITY OF INVESTOR 7 - TYPE OF COMPANY 8 - NUMBER OF SHARES FOR THE QUARTER 9 - NUMBER OF SHARES IN THE PRIOR QUARTER (THOUSANDS) (THOUSANDS) 01 Gerdau Intern. Empreend. Ltda. 87.040.598/0001-Non-public Subsidiary 94.07 35.50 Commercial, industrial and other 2,035,642 2,044,695 02 Gerdau Acominas S.A. 17.227.422/0001-Non-public Subsidiary 92.15 67.77 Commercial, industrial and other 146,191 146,191
60
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
10.01 - Characteristics of Public or Private Issue of Debentures 1 - ITEM 01 2 - ORDER NUMBER 03 3 - CVM REGISTRATION NUMBER DCA-82/018 4 - CVM REGISTRATION DATE 7/29/1982 5 - ISSUED SERIES A 6 - TYPE OF ISSUANCE SIMPLE 7 - NATURE OF ISSUANCE PUBLIC 8 - DATE OF ISSUANCE 6/1/1982 9 - MATURITY DATE 6/1/2011 10 - TYPE OF DEBENTURE WITHOUT PREFERENCE 11 - CONDITION OF REMUNERATION IN EFFECT CDI 12 - PREMIUM/DISCOUNT 13 - NOMINAL VALUE (reais) 177.05 14 - ISSUED AMOUNT (thousands of reais) 12,748 15 - NUMBER OF ISSUED DEBENTURES (UNIT) 72,000 16 - OUTSTANDING DEBENTURES (UNIT) 39,339 17 - TREASURY DEBENTURES (UNIT) 32,661 18 - REDEEMED DEBENTURES (UNIT) 0 19 - CONVERTED DEBENTURES (UNIT) 0 20 - DEBENTURES TO BE PLACED (UNIT) 0 21 - DATE OF THE LAST RENEGOTIATION 9/19/2002 62
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
22 - DATE OF THE NEXT EVENT 6/1/2011 62
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
10.01 - Characteristics of Public or Private Issue of Debentures 1 - ITEM 02 2 - ORDER NUMBER 03 3 - CVM REGISTRATION NUMBER DCA-82/019 4 - CVM REGISTRATION DATE 8/11/1982 5 - ISSUED SERIES B 6 - TYPE OF ISSUANCE SIMPLE 7 - NATURE OF ISSUANCE PUBLIC 8 - DATE OF ISSUANCE 6/1/1982 9 - MATURITY DATE 6/1/2011 10 - TYPE OF DEBENTURE WITHOUT PREFERENCE 11 - CONDITION OF REMUNERATION IN EFFECT CDI 12 - PREMIUM/DISCOUNT 13 - NOMINAL VALUE (reais) 177.05 14 - ISSUED AMOUNT (thousands of reais) 12,748 15 - NUMBER OF ISSUED DEBENTURES (UNIT) 72,000 16 - OUTSTANDING DEBENTURES (UNIT) 12,334 17 - TREASURY DEBENTURES (UNIT) 59,666 18 - REDEEMED DEBENTURES (UNIT) 0 19 - CONVERTED DEBENTURES (UNIT) 0 20 - DEBENTURES TO BE PLACED (UNIT) 0 21 - DATE OF THE LAST RENEGOTIATION 9/19/2002 63
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
22 - DATE OF THE NEXT EVENT 6/1/2011 64
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
10.01 - Characteristics of Public or Private Issue of Debentures 1 - ITEM 03 2 - ORDER NUMBER 07 3 - CVM REGISTRATION NUMBER DCA-82/024 4 - CVM REGISTRATION DATE 2/28/1982 5 - ISSUED SERIES 1 6 - TYPE OF ISSUANCE SIMPLE 7 - NATURE OF ISSUANCE PUBLIC 8 - DATE OF ISSUANCE 7/1/1982 9 - MATURITY DATE 7/1/2012 10 - TYPE OF DEBENTURE WITHOUT PREFERENCE 11 - CONDITION OF REMUNERATION IN EFFECT CDI 12 - PREMIUM/DISCOUNT 13 - NOMINAL VALUE (reais) 177.05 14 - ISSUED AMOUNT (thousands of reais) 12,110 15 - NUMBER OF ISSUED DEBENTURES (UNIT) 68,400 16 - OUTSTANDING DEBENTURES (UNIT) 12,978 17 - TREASURY DEBENTURES (UNIT) 55,422 18 - REDEEMED DEBENTURES (UNIT) 0 19 - CONVERTED DEBENTURES (UNIT) 0 20 - DEBENTURES TO BE PLACED (UNIT) 0 21 - DATE OF THE LAST RENEGOTIATION 9/19/2002 65
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
22 - DATE OF THE NEXT EVENT 7/1/2012 10.01 - Characteristics of Public or Private Issue of Debentures 1 - ITEM 04 2 - ORDER NUMBER 08 3 - CVM REGISTRATION NUMBER DCA-82/004 4 - CVM REGISTRATION DATE 12/23/1982 5 - ISSUED SERIES 1 6 - TYPE OF ISSUANCE SIMPLE 7 - NATURE OF ISSUANCE PUBLIC 8 - DATE OF ISSUANCE 11/1/1982 9 - MATURITY DATE 5/2/2013 10 - TYPE OF DEBENTURE WITHOUT PREFERENCE 11 - CONDITION OF REMUNERATION IN EFFECT CDI 12 - PREMIUM/DISCOUNT 13 - NOMINAL VALUE (reais) 177.05 14 - ISSUED AMOUNT (thousands of reais) 31,863 15 - NUMBER OF ISSUED DEBENTURES (UNIT) 179,964 16 - OUTSTANDING DEBENTURES (UNIT) 134,280 17 - TREASURY DEBENTURES (UNIT) 45,684 18 - REDEEMED DEBENTURES (UNIT) 0 19 - CONVERTED DEBENTURES (UNIT) 0 20 - DEBENTURES TO BE PLACED (UNIT) 0 66
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
21 - DATE OF THE LAST RENEGOTIATION 9/19/2002 22 - DATE OF THE NEXT EVENT 5/2/2013 67
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
10.01 - Characteristics of Public or Private Issue of Debentures 1 - ITEM 05 2 - ORDER NUMBER 09 3 - CVM REGISTRATION NUMBER DCA-83/044 4 - CVM REGISTRATION DATE 8/8/1983 5 - ISSUED SERIES 1 6 - TYPE OF ISSUANCE SIMPLE 7 - NATURE OF ISSUANCE PUBLIC 8 - DATE OF ISSUANCE 5/1/1983 9 - MATURITY DATE 9/1/2014 10 - TYPE OF DEBENTURE WITHOUT PREFERENCE 11 - CONDITION OF REMUNERATION IN EFFECT CDI 12 - PREMIUM/DISCOUNT 13 - NOMINAL VALUE (reais) 177.05 14 - ISSUED AMOUNT (thousands of reais) 22,245 15 - NUMBER OF ISSUED DEBENTURES (UNIT) 125,640 16 - OUTSTANDING DEBENTURES (UNIT) 1,956 17 - TREASURY DEBENTURES (UNIT) 123,684 18 - REDEEMED DEBENTURES (UNIT) 0 19 - CONVERTED DEBENTURES (UNIT) 0 20 - DEBENTURES TO BE PLACED (UNIT) 0 21 - DATE OF THE LAST RENEGOTIATION 9/19/2002 68
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
22 - DATE OF THE NEXT EVENT 9/1/2014 69
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
10.01 - Characteristics of Public or Private Issue of Debentures 1 - ITEM 06 2 - ORDER NUMBER 11 3 - CVM REGISTRATION NUMBER DEB-90/041 4 - CVM REGISTRATION DATE 9/3/1990 5 - ISSUED SERIES A 6 - TYPE OF ISSUANCE SIMPLE 7 - NATURE OF ISSUANCE PUBLIC 8 - DATE OF ISSUANCE 6/1/1990 9 - MATURITY DATE 6/1/2020 10 - TYPE OF DEBENTURE WITHOUT PREFERENCE 11 - CONDITION OF REMUNERATION IN EFFECT CDI 12 - PREMIUM/DISCOUNT 13 - NOMINAL VALUE (reais) 668.11 14 - ISSUED AMOUNT (thousands of reais) 50,108 15 - NUMBER OF ISSUED DEBENTURES (UNIT) 75,000 16 - OUTSTANDING DEBENTURES (UNIT) 12,269 17 - TREASURY DEBENTURES (UNIT) 62,731 18 - REDEEMED DEBENTURES (UNIT) 0 19 - CONVERTED DEBENTURES (UNIT) 0 20 - DEBENTURES TO BE PLACED (UNIT) 0 21 - DATE OF THE LAST RENEGOTIATION 9/19/2002 22 - DATE OF THE NEXT EVENT 6/1/2020 70
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
10.01 - Characteristics of Public or Private Issue of Debentures 1 - ITEM 07 2 - ORDER NUMBER 11 3 - CVM REGISTRATION NUMBER DEB-91/004 4 - CVM REGISTRATION DATE 1/8/1991 5 - ISSUED SERIES B 6 - TYPE OF ISSUANCE SIMPLE 7 - NATURE OF ISSUANCE PUBLIC 8 - DATE OF ISSUANCE 6/1/1990 9 - MATURITY DATE 6/1/2020 10 - TYPE OF DEBENTURE WITHOUT PREFERENCE 11 - CONDITION OF REMUNERATION IN EFFECT CDI 12 - PREMIUM/DISCOUNT 13 - NOMINAL VALUE (reais) 668.11 14 - ISSUED AMOUNT (thousands of reais) 50,108 15 - NUMBER OF ISSUED DEBENTURES (UNIT) 75,000 16 - OUTSTANDING DEBENTURES (UNIT) 4,324 17 - TREASURY DEBENTURES (UNIT) 70,676 18 - REDEEMED DEBENTURES (UNIT) 0 19 - CONVERTED DEBENTURES (UNIT) 0 20 - DEBENTURES TO BE PLACED (UNIT) 0 21 - DATE OF THE LAST RENEGOTIATION 9/19/2002 22 - DATE OF THE NEXT EVENT 6/1/2020 71
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
10.01 - Characteristics of Public or Private Issue of Debentures 1 - ITEM 08 2 - ORDER NUMBER 13 3 - CVM REGISTRATION NUMBER DEB/2002/016 4 - CVM REGISTRATION DATE 5/27/2002 5 - ISSUED SERIES 1 6 - TYPE OF ISSUANCE SIMPLE 7 - NATURE OF ISSUANCE PUBLIC 8 - DATE OF ISSUANCE 11/1/2001 9 - MATURITY DATE 11/1/2008 10 - TYPE OF DEBENTURE SUBORDINATED 11 - CONDITION OF REMUNERATION IN EFFECT 12 - PREMIUM/DISCOUNT 13 - NOMINAL VALUE (reais) 10,000.00 14 - ISSUED AMOUNT (thousands of reais) 300,000 15 - NUMBER OF ISSUED DEBENTURES (UNIT) 30,000 16 - OUTSTANDING DEBENTURES (UNIT) 0 17 - TREASURY DEBENTURES (UNIT) 30,000 18 - REDEEMED DEBENTURES (UNIT) 0 19 - CONVERTED DEBENTURES (UNIT) 0 20 - DEBENTURES TO BE PLACED (UNIT) 0 21 - DATE OF THE LAST RENEGOTIATION 11/1/2003 22 - DATE OF THE NEXT EVENT 11/1/2008 72
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT Corporate Governance - Level 1 In compliance with for Regulation for Differentiated Practices for Corporate Governance (Level 1), we present below tables showing the shareholdings of all those who hold more than 5% of voting capital directly or indirectly, down to the level of individual holdings.
POSITION AS OF 9/30/2004 GERDAU S.A. - CNPJ 33.611.500/0001-19 - CAPITAL: R$ 3,471,312,349.01 OWNERSHIP NUMBER OF SHARES SHAREHOLDER'S NAME COMMON PREFERRED TOTAL NUMBER OF SHARES % NUMBER OF SHARES % NUMBER OF SHARES % METALURGICA GERDAU S/A 85,839,208 83.39 45,011,704 23.23 130,850,912 44.10 STA.FELICIDADE COM. EXP.DE PRODs. SID. LTDA 2,436,196 2.37 9,827,236 5.07 12,263,432 4.13 OTHER CONTROLLING SHAREHOLDERS 3,389,194 3.29 265,155 0.14 3,654,349 1.23 --------- ---- ------- ---- --------- ---- SUBTOTAL 91,664,598 89.05 55,104,095 28.44 146,768,693 49.47 OTHER 11,271,850 10.95 137,094,279 70.75 148,366,129 50.00 TREASURY SHARES - - 1,573,200 0.81 1,573,200 0.53 --------- ---- ------- ---- --------- ---- TOTAL 102,936,448 100.00 193,771,574 100.00 296,708,022 100.00 METALURGICA GERDAU S/A - CNPJ n(degree) 92.690.783/0001-09 - CAPITAL: R$ 1.664.000.000,00 OWNERSHIP NUMBER OF SHARES NUMBER OF SHARES SHAREHOLDER'S NAME COMMON COMMON TOTAL NUMBER OF SHARES % NUMBER OF SHARES % NUMBER OF SHARES % INDAC - IND.ADM.E COM.S/A 8,131,102 29.33 - - 8,131,102 9.78 GRUPO GERDAU EMPREEND.LTDA 7,089,334 25.57 3,340 0.01 7,092,674 8.53 GERSUL EMPREEND.IMOBS.LTDA 3,860,486 13.93 - - 3,860,486 4.64 OTHER CONTROLLING SHAREHOLDERS 20,972 0.08 227,658 0.41 248,630 0.30 SUBTOTAL 19,101,894 68.90 230,998 0.42 19,332,892 23.25 OTHER 8,621,036 31.10 54,532,862 98.35 63,153,898 75.93 TREASURY SHARES - - 682,000 1.23 682,000 0.82 --------- ---- ------- ---- --------- ---- TOTAL 27,722,930 100.00 55,445,860 100.00 83,168,790 100.00 SANTA FELICIDADE COM., IMP. E EXP. DE PRODUTOS SIDERURGICOS LTDA - CNPJ 78.566.288/0001-53 - CAPITAL: R$ 108,000,000.00 OWNERSHIP TOTAL QUOTAHOLDER'S NAME NUMBER OF QUOTAS % METALURGICA GERDAU S/A 107,999,850 100.00 GRUPO GERDAU EMPREENDIMENTOS LTDA 150 0,00 --- ---- SUBTOTAL 108,000,000 100.00 OTHER - 0,00 TOTAL 108,000,000 100.00
73
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT INDAC - INDUSTRIA, ADMINISTRACAO E COMERCIO S/A - CNPJ 92.690.817/0001-57 - CAPITAL: R$ 225,411,900.81 OWNERSHIP
NUMBER OF SHARES SHAREHOLDER'S NAME COMMON PREFERRED TOTAL NUMBER OF SHARES % NUMBER OF SHARES % NUMBER OF SHARES % CINDAC - EMPREEND.E PART.S/A 468,383,161 100.00 936,766,147 100.00 1,405,149,308 100.00 OTHER - - 175 0.00 175 0.00 TOTAL 468,383,161 100.00 936,766,322 100.00 1,405,149,483 100.00 GRUPO GERDAU EMPREENDIMENTOS LTDA - CNPJ 87.153.730/0001-00 - CAPITAL: R$ 115,143,000.00 OWNERSHIP TOTAL QUOTAHOLDER'S NAME NUMBER OF QUOTAS % GERSUL EMPREENDIMENTOS IMOBILIARIOS LTDA 101,125,328 87.83 OTHER 14,017,672 12.17 TOTAL 115,143,000 100.00 GERSUL EMPREENDIMENTOS IMOBILIARIOS LTDA - CNPJ 89.558.555/0001-67 - CAPITAL: R$ 220,827,384.00 OWNERSHIP TOTAL QUOTAHOLDER'S NAME NUMBER OF QUOTAS % INDAC-ADMINISTRACAO, INDUSTRIA E COMERCIO S/A 163,068,976 73.84 ACOTER PARTICIPACOES LTDA 35,853,183 16.25 SUBTOTAL 198,922,159 90.08 OTHER 21,905,225 9.92 TOTAL 220,827,384 100.00 ACOTER PARTICIPACOES LTDA - CNPJ 02.290.525/0001-34 - CAPITAL: R$ 32,529,000.00 OWNERSHIP TOTAL QUOTAHOLDER'S NAME NUMBER OF QUOTAS % INDAC - INDUSTRIA, ADMINISTRACAO E COMERCIO S/A 32,528,996 100.00 OTHER 4 0.00 TOTAL 32,529,000 100.00
74
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT CINDAC - EMPREENDIMENTOS E PARTICIPACOES S/A - CNPJ 89.550.883/0001-17 - CAPITAL: R$ 202,153,942.56 OWNERHSIP
NUMBER OF SHARES SHAREHOLDER'S NAME COMMON PREFERRED TOTAL NUMBER OF SHARES % NUMBER OF SHARES % NUMBER OF SHARES % STICHTING GERDAU JOHANNPETER 202,154,204 100.00 - 202,154,204 100.00 TOTAL 202,154,204 100.00 - 202,154,204 100.00 STICHTING GERDAU JOHANNPETER Nationality - Dutch NAME OF MANAGERS AND BENEFICIARIES PARTICIPATION % GERMANO HUGO GERDAU JOHANNPETER Manager and Beneficiary 25.00 KLAUS GERDAU JOHANNPETER Manager and Beneficiary 25.00 JORGE GERDAU JOHANNPETER Manager and Beneficiary 25.00 FREDERICO CARLOS GERDAU JOHANNPETER Manager and Beneficiary 25.00 100.00
In compliance with the Regulation for Differentiated Practices for Corporate Governance (Level 1), we present below tables showing the number and characteristics of shares issued by the Company and which are held, directly or indirectly, by the Controlling Shareholder, Management, Fiscal Council Members, and the Board of Directors. 75
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT
POSTION AS OF 9/30/2004 GERDAU S.A. - CNPJ 33.611.500/0001-19 - Capital: R$ 3,471,312,349.01 ONWNERSHIP Shareholder Common % Preferred % Total % Controlling shareholder 91,664,598 89.05 55,104,095 28.44 146,768,693 49.47 Administrators Board of Directors - - 3,624 0.00 3,624 0.00 Executive Directors 888 0.00 64,102 0.03 64,990 0.02 Fiscal Council - - 22,792 0.01 22,792 0.01 Treasury shares - - 1,573,200 0.81 1,573,200 0.53 Other shareholders 11,270,962 10.95 137,003,761 70.70 148,274,723 49.97 Total 102,936,448 100.00 193,771,574 100.00 296,708,022 100.00 Outstanding shares in the market 11,271,850 10.95 137,094,279 70.75 148,366,129 50.00 POSITION AS OF 9/30/2003 GERDAU S.A. - CNPJ 33.611.500/0001-19 - Capital: R$ 1,735,656,174.86 OWNERSHIP Shareholder Common % Preferred % Total % Controlling shareholder 46,124,470 89.62 27,574,537 28.46 73,699,007 49.68 Administrators Board of Directors - - 1,812 0.00 1,812 0.00 Executive Directors 545 0.00 24,644 0.03 25,189 0.02 Fiscal Council - - 11,396 0.01 11,396 0.01 Treasury shares - - - - - - Other shareholders 5,343,209 10.38 69,273,398 71.50 74,616,607 50.30 Total 51,468,224 100.00 96,885,787 100.00 148,354,011 100.00 Outstanding shares in the market 5,343,754 10.38 69,311,250 71.54 74,655,004 50.32
In compliance with the Regulation for Differentiated Practices for Corporate Governance (Level 1), we present below tables showing the number of outstanding shares in the market and their percentage in relation to total shares issued. 76
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT
POSITION AS OF 9/30/2004 GERDAU S.A. - CNPJ 33.611.500/0001-19 - Capital: R$ 3,471,312,349.01 OWNERSHIP NUMBER OF SHARES SHAREHOLDER'S NAME COMMON PREFERRED TOTAL NUMBER OF NUMBER OF NUMBER OF SHARES % SHARES % SHARES % METALURGICA GERDAU S/A 85,839,208 83.39 45,011,704 23.23 130,850,912 44.10 STA.FELICIDADE COM. EXP.DE PRODs. SID. LTDA 2,436,196 2.37 9,827,236 5.07 12,263,432 4.13 OTHER CONTROLLING SHAREHOLDERS 3,389,194 3.29 265,155 0.14 3,654,349 1.23 SUBTOTAL 91,664,598 89.05 55,104,095 28.44 146,768,693 49.47 OTHER 11,271,850 10.95 137,094,279 70.75 148,366,129 50.00 TREASURY SHARES - - 1,573,200 0.81 1,573,200 0.53 TOTAL 102,936,448 100.00 193,771,574 100.00 296,708,022 100.00
77
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
Gerdau Acominas S.A. In the third quarter, sales of Gerdau Acominas reached R$ 3.6 billion, 8.6% higher than the second quarter. Net sales reached R$ 2.8 billion, an increase of 7.1%. From January to September, sales reached R$ 9.5 billion and net revenue R$ 7.3 billion, 42.2% and 36.4%, respectively, more than the pro forma for the first nine months of 2003. Gross margin was 45.3% in the third quarter, compared to 43.5% in the second quarter. The margin was better due to higher sales volume in the domestic market, where the mix is better. In the first nine months of 2004, gross margin reached 42.5% compared to 38.5% in the same period of 2003, considering the pro forma statements. EBITDA (generation of operating cash) reached R$ 1.1 billion in the third quarter, 5.7% higher than April to June of 2004. EBITDA margin was 39.1% in the third quarter compared to 39.6% in the second quarter. In the accumulated up to September, EBITDA amounted to R$ 2.7 billion, with a margin of 37.0%. In the quarter, R$ 102.4 million were recorded in Other operating income, due to the favorable outcome obtained in a lawsuit regarding overpaid PIS amounts, based on Decree Laws 2445/88 and 2449/88. The provision for income tax and social contribution in the third quarter was affected by the recognition of tax credits arising from tax losses amounting to R$ 68.7 million, based on expectation of the maintenance of future profitability. From July to September, net income was R$ 1.0 billion (R$ 6.42 per share), 93.3% more than in the second quarter. During the first nine months of this year, net income reached R$ 1.9 billion, 79.0% more than the pro forma for the same period of 2003. Based on the results for the quarter, on November 17 interest on capital and dividends for third quarter amounting to R$ 319.8 million will be paid. Interest on capital will be paid on the number of shares held on August 13 and the amount corresponds to R$ 0.936 per share. Dividends of R$ 1.08 per share will be paid on the number of shares held on November 3. On September 30 the net equity was R$ 4.6 billion, equivalent to a book value of R$ 28.83 per share. 78
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT
GERDAU ACOMINAS S.A. - Unconsolidated BALANCE SHEET Corporate Legislation - R$ thousand Sep. 2004 Jun. 2004 CURRENT ASSETS 9,089,089 8,550,934 Current assets 3,988,812 3,416,137 Cash and banks 44,255 64,996 Trade accounts receivable 1,370,008 1,224,753 Tax credits 107,056 118,659 Marketable securities 458,533 391,238 Inventories 1,520,186 1,358,034 Finished products 461,403 384,378 Work in process 285,660 260,070 Raw materials 375,243 335,902 Warehouse materials 344,141 333,454 Advances to suppliers 53,739 44,230 Other 488,774 258,457 Deferred income tax and social contribution 327,182 96,406 Other accounts receivable 161,592 162,051 Long-term receivables 356,168 444,855 Receivables from related parties 102,911 35,026 Other 253,257 409,829 Deferred income tax and social contribution 170,744 335,689 Judicial deposits and other 82,513 74,140 Permanent assets 4,744,109 4,689,942 Investments 197,310 194,348 In subsidiaries 183,470 180,719 Other 13,840 13,629 Fixed assets 4,528,749 4,480,304 Land, buildings and structures 2,369,484 2,363,564 Machinery, equipment and installations 4,459,972 4,426,714 Furniture and fixtures 88,932 90,073 Vehicles 21,954 22,611 Electronic data equipment 226,827 215,924 Construction in progress 527,237 426,889 Forestation/reforestation 115,629 108,211 Accumulated depreciation (3,281,286) (3,173,682) Deferred charges 18,050 15,290 =================================================================================================== Corporate legislation - R$ thousand Sep. 2004 Jun. 2004 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 9,089,089 8,550,934 Current liabilities 2,348,315 2,574,743
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE C0MPANY CONSIDERS RELEVANT
Loans and financing 917,464 1,293,343 Suppliers 685,910 646,306 Taxes, charges and contributions 387,269 256,165 Dividends/interest on capital payable 126,577 198,366 Payables to related parties - - Other 231,095 180,563 Salaries payable 70,591 76,549 Deferred income tax and social contribution 96,613 20,697 Other payables 63,891 83,317 Long-term liabilities 2,167,508 2,337,333 Loans and financing 2,071,427 2,241,561 Local financing 391,973 395,766 Foreign financing 1,679,454 1,845,795 Other 96,081 95,772 Provision for contingencies 52,464 52,822 Benefits to employees 6,418 6,418 Other payables 37,199 36,532 Shareholders' equity 4,573,266 3,638,858 Paid-up capital 2,340,576 2,340,576 Capital reserves 244,117 180,014 Investments subsidies 217,920 153,817 Other 26,197 26,197 Revenue reserves 590,982 590,982 Legal 60,222 60,222 Statutory 530,760 530,760 Retained earnings 1,397,591 527,286 ===================================================================================================
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT GERDAU ACOMINAS S.A. - Unconsolidated STATEMENT OF INCOME
Corporate legislation - R$ thousand 3Q2004 2Q2004 3Q2003 9M2004 9M2003 Pro forma Pro forma GROSS SALES 3,618,795 3,332,413 2,391,562 9,525,228 6,696,676 Deductions (845,393) (741,847) (465,980) (2,176,051) (1,307,889) Taxes on sales (700,823) (579,635) (350,082) (1,706,953) (988,782) Freight and discounts (144,570) (162,212) (115,898) (469,098) (319,107) Net sales 2,773,402 2,590,566 1,925,582 7,349,177 5,388,787 Cost of sales (1,517,545) (1,463,269) (1,213,759) (4,223,585) (3,313,954) Gross profit 1,255,857 1,127,297 711,823 3,125,592 2,074,833 Net operating income (expenses) 6,861 (417,384) (361,351) (718,229) (964,330) Selling expenses (100,385) (96,580) (88,209) (283,997) (239,509) General and administrative expenses (172,245) (165,184) (118,681) (476,832) (341,618) Financial income 10,945 40,989 28,591 69,492 (8,587) Financial expenses 154,287 (202,893) (187,613) (159,421) (374,574) Other operating income (expenses), net 114,800 5,689 4,791 132,851 1,153 Equity in the results (541) 595 (230) (322) (1,195) Operating profit 1,262,718 709,913 350,472 2,407,363 1,110,503 Non-operating income (expenses), net (427) (7,998) (7,278) (13,651) (13,456) Income before taxes and participations 1,262,291 701,915 343,194 2,393,712 1,097,047 Provision for income tax and social contribution (225,104) (142,820) (77,575) (449,519) (253,136) Deferred income tax (10,084) (25,133) (12,375) (62,732) 206,913 Statutory participations and contributions (8,298) (6,909) (4,138) (22,749) (12,596) Net income for the period 1,018,805 527,053 249,106 1,858,712 1,038,228 --------------------------------------------------------------------------------------------------------------------------- Net income per share - R$ 6.42 3.32 1.57 11.72 6.54 Book value per share - R$ 28.83 22.94 - 28.83 - Number of outstanding shares (thousands) 158,652 158,652 158,652 158,652 158,652 ===========================================================================================================================
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT GERDAU ACOMINAS S.A. - Consolidated BALANCE SHEET
Corporate legislation - R$ thousand Sep. 2004 Jun. 2004 TOTAL ASSETS 9,113,184 8,580,783 Current assets 4,028,078 3,457,647 Cash and banks 44,348 65,608 Trade accounts receivable 1,200,101 1,191,171 Tax credits 112,776 123,217 Marketable securities 640,989 442,837 Inventories 1,536,033 1,371,731 Finished products 469,038 390,582 Work in process 285,660 260,070 Raw materials 379,058 339,356 Warehouse materials 348,098 337,019 Advances to suppliers 54,179 44,704 Other 493,831 263,083 Deferred income tax and social contribution 327,182 96,405 Other accounts receivable 166,649 166,678 Long-term receivables 380,773 461,499 Receivables from related parties 114,382 37,132 Other 266,391 424,367 Deferred income tax and social contribution 173,238 339,607 Judicial deposits and other 93,153 84,760 Permanent assets 4,704,333 4,661,637 Investments 45,917 55,140 Fixed assets 4,636,170 4,588,160 Land, buildings and structures 2,395,215 2,387,829 Machinery, equipment and installations 4,534,031 4,496,265 Furniture and fixtures 90,510 91,279 Vehicles 22,583 23,208 Electronic data equipment 230,774 219,146 Construction in progress 529,430 434,651 Forestation/reforestation 148,869 141,451 Accumulated depreciation (3,315,242) (3,205,669) Deferred charges 22,246 18,337 =============================================================================================== Corporate legislation - R$ thousand Sep. 2004 Jun. 2004 TOTAL LIABILITIES 9,113,184 8,580,783 Current liabilities 2,363,753 2,594,952 Loans and financing 924,832 1,305,994 Suppliers 688,215 649,229
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT
Taxes, charges and contributions 390,579 258,085 Dividends/interest on capital payable 126,577 198,366 Payables to related parties - - Other 233,550 183,278 Salaries payable 72,511 78,513 Deferred income tax and social contribution 96,613 20,697 Other payables 64,426 84,068 Long-term liabilities 2,176,165 2,346,973 Loans and financing 2,079,986 2,251,099 Other 96,179 95,874 Provision for contingencies 52,568 52,930 Benefits to employees 6,418 6,418 Other payables 37,193 36,526 Minority interest - - Shareholders' equity 4,573,266 3,638,858 Paid-up capital 2,340,576 2,340,576 Capital reserves 244,117 180,014 Investments subsidies 217,920 153,817 Other 26,197 26,197 Revenue reserves 590,982 590,982 Legal 60,222 60,222 Statutory 530,760 530,760 Retained earnings 1,397,591 527,286 ===============================================================================================
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORAMTION THE COMPANY CONSIDERS RELEVANT GERDAU ACOMINAS S.A. - Consolidated STATEMENT OF INCOME
Corporate legislation - R$ thousand 3Q2004 2Q2004 3Q2003 9M2004 9M2003 Pro forma Pro forma GROSS SALES 3,661,083 3,353,949 2,399,247 9,611,734 6,719,172 Gross sales deductions (847,795) (743,421) (466,527) (2,180,865) (1,309,432) Taxes on sales (702,777) (581,008) (350,439) (1,710,913) (989,828) Freight and discounts (145,018) (162,413) (116,088) (469,952) (319,604) Net sales 2,813,288 2,610,528 1,932,720 7,430,869 5,409,740 Cost of sales (1,544,621) (1,480,408) (1,221,175) (4,287,183) (3,335,688) Gross profit 1,268,667 1,130,120 711,545 3,143,686 2,074,052 Net operating expenses (1,806) (420,213) (361,340) (732,241) (964,184) Selling expenses (101,448) (96,994) (88,236) (286,262) (239,675) General and administrative (173,163) (169,282) (118,881) (483,020) (343,110) Financial income 12,444 40,098 30,189 69,959 524 Financial expenses 153,301 (199,938) (189,321) (157,682) (381,851) Other operating income (expenses) 115,419 6,166 4,802 133,990 1,179 Equity in the results (8,359) (263) 107 (9,226) (1,251) Operating profit 1,266,861 709,907 350,205 2,411,445 1,109,868 Non-operating income (expenses) (465) (7,992) (7,278) (13,753) (13,466) Income before taxes and participations 1,266,396 701,915 342,927 2,397,692 1,096,402 Provision for income tax and social contribution (227,785) (143,252) (77,575) (453,044) (253,136) Deferred income tax (11,509) (24,701) (12,108) (63,188) 207,558 Statutory participations and contributions (8,298) (6,909) (4,138) (22,749) (12,596) Net income for the period 1,018,804 527,053 249,106 1,858,711 1,038,228 -------------------------------------------------------------------------------------------------------------------------------- Majority interest 1,018,804 527,053 249,106 1,858,711 1,038,228 Minority interest - - - - - ================================================================================================================================
NOTES TO THE QUARTERLY INFORMATION NOTE 1 - OPERATIONS Gerdau Acominas S.A. is a company of the Gerdau Group dedicated mainly to the production of common and special steel rods and the selling of steel products in general (flat and rods), through plants located in Brazil, Uruguay, Chile, Canada, Argentina and the United States of America. 84
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT The Gerdau Group has an installed capacity of 14.7 million metric tons of coarse steel per year, producing steel in electrical furnaces from scrap and pig iron acquired for the most part in the region near each plant (mini-mill concept), as well as produces steel from iron ore (through blast furnaces and direct reduction), and there is a unit used exclusively to produce special steel. It is the largest scrap recycling company in Latin America and is among the largest recycling companies in the world. The industrial sector is the Company's most important market, where manufacturers of consumer goods, such as vehicles and household and commercial appliances, basically use profiled steel in the various specifications available. The next most important market is civil construction, which demands a high volume of rods and grids for concrete. There are also numerous customers for nails, staples and wires, much used in agribusiness. NOTE 2 - PRESENTATION OF THE QUARTERLY INFORMATION The quarterly information has been prepared in accordance with accounting practices adopted in Brazil, together with the rules established by the Brazilian Securities Commission (CVM). NOTE 3 - SIGNIFICANT ACCOUNTING PRACTICES a) Cash and banks and marketable securities - financial investments are recorded in marketable securities at cost plus income accrued up to the date of the Quarterly Information, using the interest rates agreed with financial institutions, and do not exceed market value; b) Trade accounts receivable - are stated at realizable values, and trade accounts receivable from foreign customers are adjusted based on exchange rates effective at the date of the Quarterly Information. The provision for credit risks was calculated based on a credit risk analysis, which included the history of losses, the individual situation of customers and the economic group to which they belong, the collateral and guarantees and the legal advisors' opinion, and is considered sufficient to cover expected losses on amounts receivable; c) Inventories - are stated at the lower of market value and average production or purchase cost; d) Investments in subsidiaries - are accounted for using the equity method. The result of the equity adjustment is recorded in an operating results account; 85
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT e) Fixed assets - are recorded at cost, net of depreciation. Depreciation is calculated on the straight-line basis, at rates which take into consideration the estimated useful lives of assets. Interest on financing used to finance construction in progress is added to the cost of construction; f) Deferred charges - amortization is calculated on the straight-line basis, at rates determined based on the actual production of the implemented projects in relation to their installed capacities; g) Loans and financing - are stated at the contract value plus the contracted charges, including interest and monetary or foreign exchange variations. Swap contracts that are linked to the loan agreements are classified together with the related loans; h) Income tax and social contribution - current and deferred income tax and social contribution are calculated in accordance with the legislation in force; i) Other current and long-term assets and liabilities - are recorded at their realizable amounts (assets) and at their known or estimated amounts plus accrued charges and indexation readjustments (liabilities), when applicable; j) Translation of foreign currency balances - the criterion used for asset and liability balances in foreign currency is the translation to local currency (R$) at the foreign exchange rate in effect at the date of the closing of the Quarterly Information (September 30, 2004 - US$ 1.00 = R$ 2.8586 and June 30, 2004 - US$ 1.00 = R$ 3.1075). NOTE 4 - CONSOLIDATED QUARTERLY INFORMATION a) The quarterly information at September 30, 2004 include the accounts of Gerdau Acominas S.A. and its directly controlled subsidiaries listed below:
Shareholders' Consolidated Company Percentage equity -------------------------------------------------- ------------------ ------------------ Margusa - Maranhao Gusa S.A. 100 65,987 Armafer Servicos de Construcao Ltda. 100 44,744 Acominas Com. Imp. Exp. S.A.- Acotrading 100 22,583 Gerdau Acominas Overseas Ltd. 100 8,011 Florestal Itacambira S.A. 100 7,633
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT b) The more significant accounting practices used in preparing the consolidated Quarterly Information are as follows: I) Gerdau Acominas S.A. and its subsidiaries adopt consistent practices to record their transactions and value their assets and liabilities. The financial statements of subsidiary Gerdau Acominas Overseas Ltd. were converted using the exchange rate in effect at the date of the Quarterly Information and were adjusted to be in accordance with accounting practices adopted in Brazil; II) Amounts arising from transactions between consolidated companies have been eliminated; c) Due to the operational integration with Gerdau S.A. on November 28, 2003, presented below is the pro forma statement of income, showing the results of the Company as if this integration had occurred on January 1, 2003: PRO FORMA STATEMENT OF INCOME - GERDAU ACOMINAS S.A. 9/30/2003 Gross sales 6,696,676 Gross sales deductions (1,307,889) --------------- Net sales 5,388,787 Cost of sales (3,313,954) --------------- Gross profit 2,074,833 Selling expenses (239,509) General and administrative expenses (341,618) Financial income (8,587) Financial expenses (374,574) Equity in the results (1,195) Other operating income (expenses) 1,153 --------------- Operating profit 1,110,503 Non-operating result (13,456) Provision for income tax and social contribution (46,223) Management participation (12,596) --------------- Net income for the period 1,038,228 =============== 87
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT d) The Company has goodwill, which is amortized upon the realization of projected future results, limited to three years, as follows:
Company Consolidated -------------- ----------------- Goodwill in the investment account Balance at 6/30/2004 36,391 36,391 (-)Portion amortized in the period (9,415) (9,415) -------------- ----------------- Balance at 9/30/2004 (based on expectation of future profitability) 26,976 26,976 The goodwill composition by subsidiary is shown in Note 7a NOTE 5 - TRADE ACCOUNTS RECEIVABLE Company Consolidated ------------------------------- -------------------------------- 9/30/2004 6/30/2004 9/30/2004 6/30/2004 --------------- -------------- ---------------- -------------- Trade accounts receivable in Brazil 944,689 756,620 949,051 761,248 Trade accounts receivable from Brazilian exports 496,404 538,220 322,135 500,010 Provision for credit risks (71,085) (70,087) (71,085) (70,087) --------------- -------------- ---------------- -------------- 1,370,008 1,224,753 1,200,101 1,191,171 =============== ============== ================ ==============
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT NOTE 6 - INCOME TAX AND SOCIAL CONTRIBUTION a) Adjustments to income tax (IR) and social contribution (CS) in results:
Company Consolidated ---------------------------------------- ------------------------------------ 9/30/2004 9/30/2004 ---------------------------------------- ------------------------------------ IR CS Total IR CS Total ------------ ------------ ------------ ---------- ---------- ------------ Income before income tax and social 2,370,963 2,370,963 2,370,963 2,374,943 2,374,943 2,374,943 contribution, after statutory participations Nominal rates 25% 9% 34% 25% 9% 34% Income tax and social contribution expenses at nominal rates (592,741) (213,387) (806,128) (593,736) (213,745) (807,481) Tax effect on: - equity adjustment (81) (29) (110) (2,307) (830) (3,137) - interest on capital 74,824 26,937 101,761 74,824 26,937 101,761 - recovery of deferred tax assets 129,298 46,547 175,845 129,298 46,547 175,845 - permanent differences (net) 22,229 (5,848) 16,381 22,545 (5,765) 16,780 ------------ ------------ ------------ ---------- ---------- ------------ Income tax and social contribution in results (366,471) (145,780) (512,251) (369,376) (146,856) (516,232) ============ ============ ============ ========== ========== ============ Current (329,319) (120,200) (449,519) (331,895) (121,149) (453,044) Deferred (37,152) (25,580) (62,732) (37,481) (25,707) (63,188) b) Composition of deferred income tax and social contribution assets and liabilities, at nominal rates: ASSETS ---------------------------------------------------------------- Company - 9/30/2004 Consolidated - 9/30/2004 ------------------------------ -------------------------------- IR CS IR CS -------------- -------------- ---------------- -------------- Income tax losses 271,221 - 272,665 - Social contribution losses - 70,438 - 71,102 Provision for contingencies 10,710 3,855 11,082 3,869 Commissions/other 25,387 9,139 25,387 9,139 Provision for losses 78,806 28,370 78,806 28,370 -------------- -------------- ---------------- -------------- Total 386,124 111,802 387,940 112,480 ============== ============== ================ ============== Current 255,576 71,606 255,576 71,606 Long-term 130,548 40,196 132,364 40,874 LIABILITIES ---------------------------------------------------------------- Company - 9/30/2004 Consolidated - 9/30/2004 ------------------------------ -------------------------------- IR CS IR CS -------------- -------------- ---------------- -------------- Inflationary effect (current) 76,518 20,095 76,518 20,095
89
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT The tax credits recognized on tax losses and social contribution losses, as well as on the provision for losses, both in the Company and consolidated, are supported by projections of future taxable income at present value, based on technical studies of feasibility, approved by management. These studies considered the history of the Company's and its subsidiaries' profitability and the perspective of maintaining future profitability, permitting the recording of supplementary tax credits of 137,473 (Company and consolidated) in the quarter, totaling 175,845 in the year (Company and consolidated), which estimated realization is showed in item "c" below. The other credits, based on temporary differences, mainly tax contingencies, were maintained according to their probability of realization. c) Estimated recovery of deferred income tax and social contribution assets:
Company - 9/30/2004 Consolidated - 9/30/2004 2004 126,289 126,289 2005 274,097 274,097 2006 16,959 19,326 2007 14,274 14,288 2008 23,203 23,316 2009 10,452 10,452 2010 to 2012 22,435 22,435 2013 10,217 10,217 --------------------------- --------------------------------- 497,926 500,420
90
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT NOTE 7 - INVESTMENTS IN SUBSIDIARIES, ASSOCIATED AND RELATED PARTIES
a) Investment balances Company ----------------------------------------------------------------------------------- 9/30/2004 6/30/2004 ---------------------------------------------------------------- ----------------- Deposit for future capital Investment increase Goodwill Total Total --------------- ------------------- ------------ ------------ ----------------- Subsidiaries: Acominas Com. Imp. e Export. S.A. - Acotrading 22,583 - - 22,583 22,586 Gerdau Acominas Overseas Ltd. 8,011 - - 8,011 8,387 Florestal Itacambira S.A. 7,633 - - 7,633 7,485 Armafer Servicos de Construcao Ltda. 44,744 3,626 - 48,370 45,807 Margusa - Maranhao Gusa S.A. 65,987 - 26,976 92,963 92,546 Other 2,223 1,687 - 3,910 3,908 --------------- ------------------- ------------ ------------ ----------------- 151,181 5,313 26,976 183,470 180,719 Other investments 13,840 - - 13,840 13,629 --------------- ------------ ------------ ------------------- ----------------- 165,021 5,313 26,976 197,310 194,348 =============== =================== ============ ============ ================= Consolidated ---------------------------------------------------------------- 9/30/2004 6/30/2004 -------------------------------------------------- ------------ Investment Goodwill Total Total --------------- ------------------- ------------ ------------ Margusa - Maranhao Gusa S.A. - 26,976 26,976 36,391 MRS Logistica S.A. 4,772 - 4,772 4,772 Joint ventures 10,036 - 10,036 9,930 Other investments 4,133 - 4,133 4,047 --------------- ------------------- ------------ ------------ 18,941 26,976 45,917 55,140 =============== =================== ============ ============ b) Changes in investments Company ------------------------------------------------------------------------------------------ Deposit for Balance Equity in future capital Balance 6/30/2004 the results (*) Acquisition increase Dividends 9/30/2004 --------------- ---------------- ----------- ---------------- ------------ ---------- Acominas Com. Imp. E Export. S.A. - Acotrading 22,586 (3) - - - 22,583 Gerdau Acominas Overseas Ltda. 8,387 (376) - - - 8,011 Florestal Itacambira S.A. 7,485 148 - - - 7,633 Armafer Servicos de Construcao Ltda. 45,807 (1,063) - 3,626 - 48,370 Margusa - Maranhao Gusa S.A. 92,546 417 - - - 92,963 Other 17,537 336 78 2 (203) 17,750 --------------- ---------------- ---------- ---------------- ------------ ---------- 194,348 (541) 78 3,628 (203) 197,310 =============== ================ =========== ================ ============ ========== (*) Includes amortization of goodwill.
91
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT
c) Information on investments Company - 9/30/2004 -------------------------------------------------------------------------------------- % holding Shareholders' Net income in Quotas Shares Capital equity (loss) capital held held ------------ ------------- ------------ --------------- ---------- -------------- Subsidiaries: Acominas Com. Imp. E Export. S.A. - Acotrading 17,689 22,583 (8) 100% - 400,000 Gerdau Acominas Overseas Ltda. 143 8,011 586 100% 50,000 - Florestal Itacambira S.A. 5,790 7,633 421 100% - 158,985 Armafer Servicos de Construcao Ltda. 41,035 44,744 (3,030) 100% 41,034,861 - Margusa - Maranhao Gusa S.A. 10,702 65,987 10,934 100% - 10,701,559 d) Composition of loan balances Company Consolidated ----------------------------- ------------------------------- 9/30/2004 6/30/2004 9/30/2004 6/30/2004 ------------- -------------- -------------- --------------- Gerdau S.A. 97,603 15,150 97,603 15,150 Fundacao Gerdau 4,212 16,609 4,212 16,437 Armafer Servicos de Construcao Ltda. 6 233 - - Seiva S.A. - Florestas e Industrias 986 (2,017) 986 (2,017) Florestal Rio Largo Ltda. (9,114) (9,969) (9,114) (9,969) Metalurgica Gerdau S.A. 20,685 17,624 20,685 17,624 Acominas Com. Imp. e Export. S.A. - Acotrading (13,912) (13,915) - - Margusa - Maranhao Gusa S.A. 3,567 12,096 - - Other (1,122) (785) 10 (93) ------------- -------------- -------------- --------------- TOTAL 102,911 35,026 114,382 37,132 ------------- -------------- -------------- --------------- Financial income (expenses) (47) (41) (1,023) (1,019) The loan contracts between the companies in Brazil are subject to the weighted average rate of funds in the market. e) Transactions with related parties Company - 9/30/2004 ----------------------------------------------------------------------- Purchases/ Accounts Accounts Sales Expenses receivable payable ----------------- ----------------- --------------- ---------------- Gerdau Acominas Overseas Ltd. (*) 2,559,946 - 493,927 - Armafer Servicos de Construcao Ltda. 390 62 18 9 Gerdau Laisa S.A. 62 - 1 - Gerdau AZA S.A. 565 - 113 - Margusa - Maranhao Gusa S.A. - 3,288 - 93 Florestal Itacambira S.A. - 2,688 - 17 Indac - Ind. Adm. e Comercio S.A. (**) - 6,031 - -
Sales and purchase of inputs and products are carried out on the same conditions and terms as transactions with unrelated third parties. (*) Transactions carried out due to securitization arrangements. (**) Payment of guarantees for sureties in financing contracts. 92
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT NOTE 8 - DEFERRED CHARGES Deferred charges (Company and consolidated) comprise pre-operating expenses for reforestation, research, development and restructuring projects. NOTE 9 - LOCAL AND FOREIGN FINANCING
Financing is as follows: Company Consolidated Annual ------------------------------ ------------------------------- charges (%) 9/30/2004 6/30/2004 9/30/2004 6/30/2004 ------------------- -------------- -------------- -------------- --------------- SHORT-TERM Working capital financing (R$) 8.00% to 10.02% 739 3,888 739 3,888 Fixed assets financing (R$) 12.00% - 279 - 279 Investment financing (R$) CDI 4,500 4,500 4,500 4,500 Investment financing (US$) US$ 1,495 4,524 1,495 4,524 Working capital financing (US$) 1.36% to 10.50% 212,456 569,761 215,472 576,300 Fixed assets financing and other (US$) US$ - 46,754 - 46,754 Short-term portion of long-term financing 698,274 663,637 702,626 669,749 -------------- -------------- -------------- --------------- 917,464 1,293,343 924,832 1,305,994 LONG-TERM Working capital financing (R$) 10.02% 42,237 24,339 46,499 24,339 Fixed assets financing and other (R$) 4.00% to 9.80% 502,407 511,024 510,967 524,673 Investment financing (R$) IGPM +8.5% 30,998 32,242 30,998 32,242 Fixed assets financing and other (US$) 3.39% 653,121 681,076 653,210 683,077 Working capital financing (US$) 3.03% to 7.34% 1,540,938 1,656,517 1,540,938 1,656,517 (-) Short-term portion (698,274) (663,637) (702,626) (669,749) -------------- -------------- -------------- --------------- 2,071,427 2,241,561 2,079,986 2,251,099 -------------- -------------- -------------- --------------- Total financing 2,988,891 3,534,904 3,004,818 3,557,093 ============== ============== ============== =============== Summary by currency: Company Consolidated ------------------------------ ------------------------------- 9/30/2004 6/30/2004 9/30/2004 6/30/2004 -------------- -------------- -------------- --------------- Real (R$) 580,881 576,272 593,703 589,921 U.S. dollar (US$) 2,408,010 2,958,632 2,411,115 2,967,172 -------------- -------------- -------------- --------------- 2,988,891 3,534,904 3,004,818 3,557,093 ============== ============== ============== ===============
93
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT The schedule for payment of the long-term portion of financing is as follows:
Company Consolidated --------------- ----------------- In 2005 113,158 114,218 In 2006 431,195 434,366 In 2007 438,921 440,626 In 2008 523,037 524,072 In 2009 271,306 271,951 After 2009 293,810 294,753 --------------- ----------------- 2,071,427 2,079,986 =============== =================
a) Guarantees The loans contracted under the FINAME/BNDES program are backed by the financed assets of the Company. The other loans are backed by sureties from controlling shareholders, on which the Company pays remuneration of 1% p.a. on the guaranteed amount. b) Covenants In the place of the tangible collateral usually required, certain financial covenants must be observed, as follows: I) Consolidated Interest Coverage Ratio - measures the debt service payment capacity in relation to the Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA); II) Consolidated Leverage Ratio - measures the debt coverage capacity in relation to the EBITDA. All covenants mentioned above are calculated on a consolidated basis at the Gerdau S.A. level and have been observed. The penalty for non-compliance is the accelerated maturity of the contracts. NOTE 10 - FINANCIAL INSTRUMENTS a) General comments - Gerdau Acominas S.A. and its subsidiaries enter into transactions involving financial instruments, the risks of which are managed through financial position strategies and exposure limit controls. All instruments are fully recognized in the books and are restricted to the instruments listed below: - financial investments - are recognized at their redemption value as of the date of the Quarterly Information; 94
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT - investments and loans among subsidiaries and related parties - are explained and presented in Note 7; - financing - is explained and presented in Note 9; - financial derivatives -in order to minimize the effects of fluctuations in foreign exchange rates on its liabilities, Gerdau Acominas S.A. entered into swap contracts that were converted into Brazilian reais on the contract date and linked to changes in the Interbank Deposit Rate(CDI). Swap contracts are listed below:
Company and consolidated ----------------------------------------------------------------------------------------------------------------------------- Contract date Purpose Amount US$ Rate Maturity thousand ------------------------------- -------------------- ---------------- -------------------------- ------------------------ 3.30.2001 to 8.13.2003 Import 3,220 100.00% of CDI 10.4.2004 to 10.6.2004 7.16.2001 to 5.07.2002 Prepayment 42,823 85.55% to 100.00% of CDI 12.27.2004 to 3.1.2006 2.20.2002 Resolution 2770 54,000 106.00% of CDI 6.20.2005 2.19.2003 Resolution 4131 3,300 85.70% of CDI 2.04.2005
95
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT b) Market value - the market values of financial instruments are as follows:
Company ------------------------------------------------------------------------------------ 9/30/2004 6/30/2004 ----------------------------------------- ----------------------------------------- Book Market Book Market value value value value --------------------- ------------------ -------------------- ------------------- Financial investments 458,533 458,533 391,238 391,238 Securitization financing 676,327 676,327 730,714 730,714 Import financing 654,510 654,532 675,584 675,509 Prepayment financing 887,929 881,373 925,804 920,779 Financing resolution 2770 234,591 224,069 222,965 211,968 ACC financing 11,209 11,209 332,101 332,101 Financing resolution 4131 19,306 18,864 14,695 14,059 Other financing 505,019 505,019 633,041 630,759 Investments 197,310 197,310 194,348 194,348 Related parties (assets) 102,911 102,911 35,026 35,026 Consolidated ------------------------------------------------------------------------------------ 9/30/2004 6/30/2004 ----------------------------------------- ----------------------------------------- Book Market Book Market value value value value --------------------- ------------------ -------------------- ------------------- Financial investments 640,989 640,989 442,837 442,837 Securitization financing 676,327 676,327 730,714 730,714 Import financing 654,598 654,620 677,586 677,511 Prepayment financing 887,929 881,373 925,804 920,779 Financing resolution 2770 234,591 224,069 222,965 211,968 ACC financing 14,225 14,225 338,640 338,640 Financing resolution 4131 19,306 18,864 14,695 14,059 Other financing 517,842 517,842 646,689 644,407 Investments 45,917 45,917 55,140 55,140 Related parties (assets) 114,382 114,382 37,132 37,132
The market value of swap contracts was obtained based on projections of future results for each contract, calculated based on the forward U.S. dollar + coupon (assets) and forward CDI (liabilities) and discounted to present value at the date of the Quarterly Information using the future CDI rate projected for each maturity. Swap contracts related to financing contracts are classified together with the related financing, as a contra entry to the "Financial expenses/income, net" account, and are stated at cost plus accrued charges up to the date of the Quarterly Information. 96
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT The Company believes that the balances of other financial instruments, which are recognized in the books at net contracted values, are substantially similar to those that would be obtained if they were negotiated in the market. However, because the markets for these instruments are not active, differences could exist if they were settled in advance. c) Risk factors that could affect the Company's business Price risk: this risk is related to the possibility of price variations of the products that the Company sells or in the prices of raw materials and other inputs used in the production process. Since the Company operates in a commodities market, its sales revenue and cost of sales may be affected by the changes in the international prices of its products or materials. In order to minimize this risk, the Company constantly monitors the price variations in the local and international markets. Interest rate risk: this risk arises as a result of the possibility of losses (or gains) due to fluctuations in interest rates relating to assets (investments) and liabilities. In order to minimize possible impacts resulting from interest rate fluctuations, the Company has adopted a policy of diversification, alternating between fixed rates and variable rates (such as LIBOR and CDI), and periodically renegotiating contracts to adjust them to the market. Exchange rate risk: this risk is related to the possibility of fluctuations in foreign exchange rates affecting financial expenses (or income) and the liability (or asset) balance of contracts denominated in a foreign currency. In order to manage the effects of these fluctuations, the Company uses "hedge" instruments, usually swap contracts, as described in item "a" above. Credit risk: this risk arises from the possibility of the Company not receiving amounts arising from sales or credit instruments at financial institutions. In order to minimize this risk, the Company adopts the procedure of analyzing in detail the financial and equity position of its customers, establishing a credit limit and constantly monitoring balances. In relation to financial investments, the Company invests solely in institutions with low credit risk, as assessed by rating agencies. In addition, each institution has a maximum limit for investment, determined by the Company's credit committee. 97 NOTE 11 - FINANCIAL INCOME (EXPENSES)
Company Consolidated ----------------- ----------------- 9/30/2004 9/30/2004 ----------------- ----------------- Financial income Financial investments 21,758 22,415 Interest received 22,765 20,453 Monetary variations on assets 2,151 2,507 Exchange variations on assets (14,088) (13,443) Other financial income 36,906 38,027 ----------------- ----------------- Total financial income 69,492 69,959 ================= ================= Financial expenses Interest on debt (144,717) (144,318) Monetary variations on liabilities (17,646) (17,995) Exchange variations on liabilities 39,178 38,642 Exchange swap on liabilities (5,979) (5,979) Other financial expenses (30,257) (28,032) ----------------- ----------------- Total financial expenses (159,421) (157,682) ================= =================
NOTE 12 - PROVISION FOR CONTINGENCIES The Company and its subsidiaries are parties to tax, labor and civil processes. Based on the opinion of its legal advisors, management believes that the provision for contingencies is sufficient to cover probable and reasonably estimable losses from unfavorable court decisions, and the final decisions will not have significant effects on the financial position at September 30, 2004. The balances of contingencies, net of the related judicial deposits, are as follows:
Company Consolidated -------------------------------- ----------------------------- 9/30/2004 6/30/2004 9/30/2004 6/30/2004 --------------- --------------- -------------- ------------- Tax contingencies 15,374 20,645 15,478 20,753 Labor contingencies 31,092 26,088 31,092 26,088 Civil contingencies 5,998 6,089 5,998 6,089 --------------- --------------- -------------- ------------- Total 52,464 52,822 52,568 52,930 =============== =============== ============== =============
98
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT I) Tax contingencies a) Contingent liabilities provided a.1) Considering the repeated unfavorable legal precedents concerning the unconstitutionality of the limit of 30% of taxable income to the full offset of tax losses, the Company decided to stop depositing amounts in court and requested, in the court injunction records in which the Company is the petitioner, the conversion of the amounts deposited (R$ 338,992) into revenues of the Federal Government and started to observe the limit. The judicial discussion was maintained; however, if the Supreme Court reviews the current procedures and the Company obtains a favorable outcome, it will plead the offset of the amounts overpaid. a.2) R$ 12,498 (Company) and R$ 12,546 (consolidated), related to the Emergency Capacity Charge (ECE), and R$ 5,743 (Company) and R$ 5,819 (consolidated) to the Extraordinary Tariff Recomposition (RTE), included in the electric energy bills of the Company's plants. It is the Company's understanding that these charges are of a tax nature and, as such, are incompatible with the National Tax System prescribed in the Federal Constitution. For this reason, the constitutionality of this charge is being challenged in court. The lawsuits are in progress in the Federal Justice of the First Instance of the states of Pernambuco, Ceara, Minas Gerais, Rio de Janeiro, Sao Paulo, Parana, and Rio Grande do Sul, and in the Federal Regional Courts of the 1st and 2nd Regions. The Company has been depositing in court the full amount of the disputed charge. a.3) R$ 16,541 (Company and consolidated) related to Value Added Tax on Sales and Services (ICMS) credits, being discussed mainly with the Finance Secretariat and the State Courts of the First Instance in the state of Minas Gerais. a.4) R$ 1,175 (Company and consolidated) related to a lawsuit regarding the increases in the Government Severance Indemnity Fund for Employees (FGTS) arising from changes introduced by Complementary Law 110/01. Currently, the court injunction is awaiting judgment of the extraordinary appeal filed by the Company. The amount provided is fully deposited in court. a.5) R$ 11,708 (Company and consolidated) related to lawsuits questioning the understanding of the National Institute of Social Security (INSS) in charging INSS contributions on payments of profit sharing made by the Company and various INSS assessments in connection with services contracted from third parties, in which the Institute calculated debts for the last ten years and assessed the Company as jointly responsible. The assessments were sustained administratively, reason for which Gerdau Acominas filed suits for annulment with judicial deposit of the credits under discussion, since the right to demand payment has partially expired, and also that the Company does not have the responsibility. 99
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT a.6) R$ 118 (consolidated) related to contributions to the Social Integration Program (PIS) in connection with lawsuits questioning the constitutionality of Law 9718, which introduced changes in the calculation basis of this contribution. These lawsuits are in progress in the Federal Regional Court of the 2nd Region. a.7) R$ 22 (Company and consolidated) related to other processes of a tax nature, most of which is deposited in courts. a.8) The judicial deposits, representing restricted assets of the Company, are the amounts deposited and maintained in court until the resolution of the corresponding legal matters. These deposits, which at September 30, 2004 amounted to R$ 32,313 (Company) and R$ 32,451 (consolidated), are classified as a reduction of the provision for tax contingencies recorded in the books. b) Remote or possible contingent losses involving substantial uncertainties as to their occurrence and which therefore have not been provided for: b.1) Gerdau Acominas S.A. is the defendant in debt foreclosures filed by the state of Minas Gerais which demand ICMS on the export of semi-finished manufactured products. The total amount demanded is R$ 222,252. The Company did not set up a provision since it considers the tax demands are unfounded, and also that its products do not fit the definition of semi-finished manufactured products as defined in federal complementary law and, therefore, are not subject to ICMS. b.2) Also, R$ 54,763 is being demanded due to the understanding of the Federal Revenue Secretariat that the operations carried out by the Company under the drawback concession granted by DECEX were not in accordance with the legislation. The Company filed a preliminary administrative defense sustaining the legality of the operation, which is pending judgment. Since the tax credit has not been definitely set up, considering that the operation that originated the demand conforms with the hypothesis prescribed for drawback concession, and also that the concession was granted after analysis by the competent administrative authority, the Company understands that the chances of an unfavorable outcome are remote and, for this reason, did not set up a provision for the contingency. 100
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT c) Contingent tax assets: c.1) The Company and its subsidiary Margusa - Maranhao Gusa S.A. expect to recover IPI premium credits. The subsidiary filed an administrative request for reimbursement which is pending judgment. Gerdau Acominas S.A. filed an injunction requesting the return of credits and there was a ruling unfavorable to the understanding of the taxpayer. Currently, the process is awaiting judgment of the appeal filed by the company. The Company estimates that the credit amounts to approximately R$ 145,786 (Company) and R$ 160,365 (consolidated). Due to the uncertainty about realization, the credit was not recorded. c.2) The decision issued on the records of the lawsuit for refund of overpayments which declared the unconstitutionality of Decree Laws 2445/88 and 2449/88 and recognized the company's right to pay PIS contribution under the terms of Complementary Law 7/70 became final and unappealable. Due to this decision, the tax credits amounting to R$ 102,449 (R$ 63,700 - net of tax effects),were recovered during the quarter, through the offset against Income Tax, PIS and COFINS debts. II) Labor contingencies The Company is also defending labor proceedings for which there is a provision of R$ 33,024 (Company and consolidated) at September 30, 2004. None of these lawsuits are of individually significant amounts, and the discussions mainly involve claims for overtime, health hazards and risk premium, among others. The deposits in court at September 30, 2004, totaled R$ 1,932 (Company and consolidated), and are classified as a reduction of the provision for labor contingencies. III) Civil contingencies a) Contingent liabilities provided for The Company is also defending in court various civil proceedings arising from the normal course of its operations, including lawsuits arising from workplace accidents, and at September 30, 2004 there is a provision of R$ 7,249 (Company and consolidated). At September 30, 2004, the deposits in court totaled R$ 1,251 (Company and consolidated) and are classified as a reduction of the provision for contingencies. 101
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT b) Remote or possible contingent losses involving substantial uncertainties as to their occurrence and which therefore have not been provided for: b.1) A civil lawsuit filed against Gerdau Acominas S.A. for recission of a contract for the supply of slag and indemnity for losses and damages. At September 30, 2004, the lawsuit amounts to R$ 37,014. Gerdau Acominas S.A. contested all the fundamentals and demands and filed a counterclaim for recission of the contract and indemnity for breach of contract. The judge declared the contract to be rescinded, since such demand was common to both parties. With regards to the remaining discussion, the judge understood that both parties were at fault and judged unfounded the requests for indemnity. This decision was maintained by the Court of Civil Appeals of the state of Minas Gerais (TAMG) based on expert evidence and interpretation of the contract. The process was in progress at the High Court of Justice, and was returned to TAMG for judgment of the appeal. The Company expects that a loss is remote, since it understands that a change in the judgment is very unlikely. b.2) There is a civil lawsuit filed by Sul America Cia. Nacional de Seguros against Gerdau Acominas S.A. and Banco Westdeustsche Landesbank Girozentrale, New York Branch (WestLB) to consign in payment the amount of R$ 34,383, to settle an insurance claim, which was deposited in court. The insurance company alleges doubt as to whom payment should be made and that the Company is resisting in receiving and settling it. The lawsuit was contested both by the Bank (which alleged to have no right over the amount deposited, which removes the doubt raised by Sul America) and by the Company (which alleged inexistence of doubt and justification of the motive to refuse payment, since the amount due by Sul America is higher than that stated). After the contestation, Sul America argued fault in the Bank's representation, a matter that is already overcome. The lawsuit will enter the expert evidence phase but there is a prospect of raising the amount deposited. Based on the opinion of the legal advisors, the Company expect the risk of to be remote and that the sentence will declare an amount due within the amount stated in the contestation. Also, the Company filed, prior to this lawsuit, a lawsuit for collection of the amount recognized by the insurance company. The lawsuits are pending. The Company expects a favorable outcome. 102
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT The civil lawsuits arise from the accident on March 23, 2002 with the blast furnace regenerators at the Presidente Arthur Bernardes unit, which resulted in the stoppage of several activities, material damages to the steel mill equipment and loss of profits. The equipment, as well as loss of profits arising from the accident, were covered by an insurance policy. The report on the event, as well as the loss claim, was filed with IRB - Brasil Resseguros S.A., and an advance of R$ 62,000 was received in 2002. In 2002, a preliminary and conservative estimate of indemnities to cover loss of profits and material damages, in the total amount of approximately R$ 110,000, was recorded, based on the amount of fixed costs incurred during the period of partial stoppage of the steel mill activities and the immediate costs to be incurred to recover the equipment temporarily. This estimate approximates the advance amount received plus the amount proposed by the insurance company as a complement to settle the indemnity. Subsequently, new amounts were added to the discussion, as stated in the Company's plea, although not yet recorded. Based on the opinion of the legal advisors, the Company considers that losses from other contingencies that may affect the results of operations or the consolidated financial position are remote. NOTE 13 - Post-Employment Benefits a) Pension Plan - Defined Benefit The Company and its subsidiaries in Brazil are the co-sponsors of defined benefit plans that cover substantially all employees ("Acominas Plan" and "Gerdau Plan"). The Acominas Plan is managed by Fundacao Acominas de Seguridade Social - Acos, a private supplementary pension entity to complement the social security benefits of employees and retired employees of the Ouro Branco unit. The assets of the Acominas Plan mainly comprise investments in bank deposit certificates, federal public notes, marketable securities and properties. The Gerdau Plan is managed by Gerdau - Sociedade de Previdencia Privada, a private supplementary pension entity to complement the social security benefits of employees and retired employees of the other units of Company and its subsidiaries in Brazil. The assets of the Gerdau Plan comprise investments in bank deposit certificates, federal public notes and marketable securities. 103
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT Current costs of the defined pension plan are as follows:
Company Consolidated ----------------- ----------------- 9/30/2004 9/30/2004 ----------------- ----------------- Cost of current service 15,273 15,383 Interest cost 48,562 48,910 Expected return of plan assets (78,287) (78,859) Amortization of gain (loss) (2,368) (2,418) Expected contributions of employees (3,287) (3,287) ----------------- ----------------- Pension plan cost (benefit), net (20,107) (20,271) ================= =================
b) Pension plan - defined contribution The Company and its subsidiaries in Brazil are also the co-sponsors of a defined contribution pension plan administered by Gerdau - Sociedade de Previdencia Privada. Contributions are based on a percentage of the compensation of employees. c) Other post-employment benefits The Company estimates that the balance payable, due to employees' retirement or termination, amounts to R$ 6,418 at September 30, 2004 (Company and consolidated). NOTE 14 - SHAREHOLDERS' EQUITY a) Capital - Authorized capital at September 30, 2004 comprises 200,000,000 common shares and 200,000,000 preferred shares, with no par value. At September 30, 2004, 158,633,709 common shares and 17,798 preferred shares are subscribed and paid-up, totaling R$ 2,340,576. Preferred shares do not have voting rights and cannot be redeemed, but have the same rights as common shares in profit distributions. b) Interest on capital and dividends - On July 31, 2004, the shareholders received interest on capital (R$ 148,500) as prepayment of the minimum statutory dividend for the current year. The Company calculated interest on capital within the limits established by Law 9249/95. The corresponding amount was recorded as financial expense for tax purposes. For financial statement presentation purposes this amount was treated as a dividend, not affecting the results. In the first nine months of 2004, interest on capital and dividends paid in advance on account of the minimum statutory dividend amount to R$ 461,123. 104
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT NOTE 15 - OTHER OPERATING INCOME (EXPENSES) Other operating income (expenses) mainly refers to the recognition of R$ 102,449 (Company and consolidated) by reason of the favorable outcome obtained in a lawsuit regarding overpaid PIS amounts, as mentioned in Note 12.I item c.2. NOTE 16 - Statutory Profit Sharing Management profit sharing is limited to 10% of net income for the year, after income tax and management compensation. NOTE 17 - Guarantees Granted The Company is the guarantor of the vendor financing of associated company Banco Gerdau S.A., amounting to R$ 67,565 at September 30, 2004. NOTE 18 - SUPPLEMENTARY INFORMATION - STATEMENT OF CASH FLOWS In order to permit additional analysis, the statement of cash flows prepared using the indirect method is being presented as supplementary information. 105
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT
Company Consolidated --------------------- -------------------- 9/30/2004 9/30/2004 --------------------- -------------------- NET INCOME FOR THE YEAR 1,858,712 1,858,712 Equity in results of investees 322 9,226 Provision for credit risks 6,659 6,659 Gain and/or loss on sale of fixed assets 10,158 10,218 Gain and/or loss on sale of investments 3,561 3,574 Monetary and exchange variations (2,673) (1,724) Depreciation and amortization 357,539 363,509 Income tax and social contribution 240,696 240,688 Interest on debt 141,910 143,917 Contingencies / judicial deposits 14,920 14,621 Changes in trade accounts receivable (563,297) (460,258) Changes in inventories (345,828) (355,087) Changes in suppliers 226,653 227,053 Other operating activity accounts 219,876 219,365 Net cash provided by operating activities 2,169,208 2,280,473 Purchase/sale of fixed assets (495,847) (501,962) Increase in deferred charges (8,062) (10,404) Purchase/sale of investments (7,984) 650 Interest on own capital/profit distribution received 900 - Cash used in investing activities (510,993) (511,716) Suppliers of fixed assets 5,515 5,107 Working capital financing 211,255 209,880 Permanent asset financing 270,781 271,128 Amortization of permanent asset financing (802,171) (807,262) Payment of interest on financing (136,374) (137,304) Loans with related parties (241,265) (240,725) Payment of dividends/interest on own capital and participations (642,434) (641,744) Net cash used in financing activities (1,334,693) (1,340,920) Change in cash balance 323,522 427,837 Cash balance At the beginning of the period 179,266 258,327 Effect of exchange rate changes on cash - (827) At the end of the period 502,788 685,337 Composition of final cash Marketable securities 458,533 640,989 Cash and banks 44,255 44,348
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
16.01 OTHER INFORMATION THE COMPANY CONSIDERS RELEVANT NOTE 19 - SUBSEQUENT EVENT On October 29, 2004, the indirect subsidiary Armafer Servicos de Construcao Ltda. was merged, and its net assets were appropriated to Gerdau Acominas S.A. as an exchange of ownership interest, without capital increase. The transaction is justified by a reduction of administrative expenses and better synergy of operations. On November 3, 2004, the Board of Directors approved the prepayment of dividends on account of the third quarter of 2004. Dividends will be calculated and credited to the shareholders of record on November 3, 2004 (R$ 1.08 per common and preferred share), to be paid on November 17, 2004 and will be considered as prepayment of the minimum statutory dividend. In the first nine months of 2004, in addition to the amount informed in Note 14, interest on own capital and dividends credited as prepayment of the minimum statutory dividend amounts to R$ 632,465. 107
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
17.01 - REPORT OF INDEPENDENT ACCOUNTANTS ON LIMITED REVIEWS - WITHOUT EXCEPTION REPORT OF INDEPENDENT ACCOUNTANTS ON LIMITED REVIEWS To the Management and Shareholders Gerdau S.A. 1 We have carried out limited reviews of the accounting information included in the Quarterly Information (ITR) of Gerdau S.A. and its subsidiaries for the quarters and periods ended September 30 and June 30, 2004 and September 30, 2003. This information is the responsibility of the Company's management. 2 Our reviews were carried out in accordance with specific standards established by the Institute of Independent Auditors of Brazil (IBRACON), in conjunction with the Federal Accounting Council (CFC), and mainly comprised: (a) inquiries of and discussions with management responsible for the accounting, financial and operating areas of the Company and its subsidiaries with regard to the main criteria adopted for the preparation of the quarterly information and (b) a review of the significant information and of the subsequent events which have, or could have, significant effects on the Company's and its subsidiaries' financial position and operations. 3 Based on our limited reviews, we are not aware of any material modifications that should be made to the quarterly information referred to above in order that such information be stated in accordance with the accounting practices adopted in Brazil applicable to the preparation of quarterly information, consistent with the Brazilian Securities Commission (CVM) regulations. 108
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
17.01 - REPORT OF INDEPENDENT ACCOUNTANTS ON LIMITED REVIEWS - WITHOUT EXCEPTION 4 Our reviews were conducted with the purpose of issuing a report on the Quarterly Information (ITR) referred to in paragraph 1, taken as a whole. The statement of cash flows, presented to provide additional information on the Company, is not required as an integral part of the Quarterly Information (ITR). The statement of cash flows was submitted to the review procedures mentioned in paragraph 2, and, based on our reviews, we are not aware of any material modifications that should be made for it to be fairly presented, in all material respects, in relation to the Quarterly Information (ITR), taken as a whole. Rio de Janeiro, November 3, 2004. PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 "F" RJ Amoreti Franco Gibbon Contador CRC 1SC011841/O-2 "S" RJ 109
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
19.01 - DETAILS OF CHANGED INFORMATION Table 01.04 - Reference/accountant: Change of responsible accountant 110
(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
CONTENTS GROUP EXHIBIT DESCRIPTION PAGE 01 01 Identification 1 01 02 Head office 1 01 03 Investor relations officer (Company mail address) 1 01 04 General information/Independent accountants 1 01 05 Capital composition 2 01 06 Characteristics of the company 2 01 07 Companies excluded from the consolidated financial statements 2 01 08 Dividends APPROVED AND/OR PAID DURING AND after THE QUARTER 2 01 09 Subscribed capital and alterations DURING the current YEAR 3 01 10 Investor relations officer 3 02 01 Balance sheet - assets 4 02 02 Balance sheet - liabilities and shareholders' equity 5 03 01 Statement of Income 6 04 01 Notes to the Quarterly Information 7 05 01 Comments on the Quarterly Performance 46 06 01 Consolidated balance sheet - assets 48 06 02 Consolidated balance sheet - liabilities and shareholders' equity 49 07 01 Consolidated statement of income 50 08 01 Comments on the CONSOLIDATED Performance 51 09 01 Investments in subsidiary and/or associated companies 60 10 01 Characteristics of public or private issue of debenture 61 16 01 Other information the company CONSIDERS relevant 69 17 01 Report on LIMITED reviewS 104 19 01 Details of Changed Information 106
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(A free translation of the original in Portuguese) UNAUDITED FEDERAL GOVERNMENT SERVICE Corporate Legislation BRAZILIAN SECURITIES COMMISSION (CVM) 9/30/2004 QUARTERLY INFORMATION (ITR) COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES 01.01 - IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - Federal Corporate Registration Number (CNPJ) 00398-0 Gerdau S.A. 33.611.500/0001-19
* NAO DESTAQUE * NAO DESTAQUE * NAO DESTAQUE * NAO DESTAQUE * DEPARTAMENTO DE TRADUCOES - REGISTRO DE TRABALHO Arquivo em MS-Word DADOS DO TRABALHO Cliente - GERDAU S.A. Tipo de trabalho - TRADUCAO Idioma - PORT-ING Nome do arquivo - GerdauSA_ITR0904Ing.doc Codigo para debito - 01012973 / 0001 Gerente - LRP Socio - CAS Encaminhar para - LRP ****************************************************************************** ANDAMENTO Entrada - Montagem - Dari 9/10.11.2004 Traducao - PSY 10, 11, 12 e 16/11/2004 Correcoes - Dari 16/17.11.2004 Revisao da traducao - JWR 22.11.2004 Correcoes - Dari 22.11.2004 2(a) Revisao da traducao - JWR 23.11.2004 Correcoes/cheque - GCS 23.11.2004 3(a) Revisao da traducao - JWR 25.11.2004 Correcoes - Dari 25.11.2004 4(a) Revisao da traducao - JWR 25.11.2004 Correcoes - Dari 25.11.2004 Arquivo rcebido de SP/Traducoes via LN de LRP em 03.12.04 Cold review - CAS - 02.12.04 Cor. - Marcelo - 03.12.04 112