Exhibit 99.1

GERDAU S.A.

Condensed consolidated interim financial statements

as of June 30, 2014

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

(Unaudited)

	Note	June 30, 2014	December 31, 2013
CURRENT ASSETS
Cash and cash equivalents	4	2,628,061	2,099,224
Short-term investments
Held for Trading	4	1,334,535	2,123,168
Trade accounts receivable - net	5	4,291,693	4,078,806
Inventories	6	9,006,486	8,499,691
Tax credits		731,676	716,806
Income and social contribution taxes recoverable		451,518	367,963
Unrealized gains on financial instruments	13	—	319
Other current assets		378,238	291,245
		18,822,207	18,177,222
NON-CURRENT ASSETS
Tax credits		98,089	103,469
Deferred income taxes		1,912,157	2,056,445
Unrealized gains on financial instruments	13	9,189	—
Related parties	15	77,028	87,159
Judicial deposits	14	1,257,308	1,155,407
Other non-current assets		209,849	220,085
Prepaid pension cost		774,071	555,184
Investments in associates and jointly-controlled entities	8	1,514,519	1,590,031
Goodwill	10	10,706,099	11,353,045
Other Intangibles		1,428,487	1,497,919
Property, plant and equipment, net	9	21,084,654	21,419,074
		39,071,450	40,037,818
TOTAL ASSETS		57,893,657	58,215,040

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

(Unaudited)

	Note	June 30, 2014		December 31, 2013
CURRENT LIABILITIES
Trade accounts payable		3,447,821		3,271,419
Short-term debt	11	1,298,542		1,810,783
Debentures	12	—		27,584
Taxes payable		433,897		473,773
Income and social contribution taxes payable		179,594		177,434
Payroll and related liabilities		669,264		655,962
Dividends payable		—		119,455
Employee benefits		47,122		50,036
Environmental liabilities		19,411		15,149
Unrealized losses on financial instruments	13	2,071		274
Other current liabilities		577,086		634,761
		6,674,808		7,236,630
NON-CURRENT LIABILITIES
Long-term debt	11	14,980,668		14,481,497
Debentures	12	434,519		386,911
Related parties	15	85		43
Deferred income taxes		1,053,753		1,187,252
Unrealized losses on financial instruments	13	—		3,009
Provision for tax, civil and labor liabilities	14	1,438,051		1,294,598
Environmental liabilities		88,448		90,514
Employee benefits		881,019		942,319
Other non-current liabilities		636,259		571,510
		19,512,802		18,957,653
EQUITY	16
Capital		19,249,181		19,249,181
Treasury stocks		(234,908	)	(238,971	)
Capital reserves		11,597		11,597
Retained earnings		11,248,053		10,472,752
Operations with non-controlling interests		(1,732,962	)	(1,732,962	)
Other reserves		1,454,777		2,577,482
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT		29,995,738		30,339,079
NON-CONTROLLING INTERESTS		1,710,309		1,681,678
EQUITY		31,706,047		32,020,757
TOTAL LIABILITIES AND EQUITY		57,893,657		58,215,040

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

GERDAU S.A.

CONSOLIDATED STATEMENTS OF INCOME

In thousands of Brazilian reais (R$)

(Unaudited)

		For the three-month period ended				For the six-month period ended
	Note	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
NET SALES		10,442,822		9,882,457		20,996,598		19,048,015
Cost of sales	20	(9,179,154	)	(8,540,141	)	(18,417,178	)	(16,797,480	)
GROSS PROFIT		1,263,668		1,342,316		2,579,420		2,250,535
Selling expenses	20	(179,548	)	(164,999	)	(353,131	)	(316,229	)
General and administrative expenses	20	(498,944	)	(470,997	)	(1,032,749	)	(954,308	)
Other operating income	20	41,606		37,541		88,472		99,323
Other operating expenses	20	(24,207	)	(24,022	)	(51,888	)	(35,116	)
Equity in earnings of unconsolidated companies		26,990		(370	)	53,623		16,301
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES		629,565		719,469		1,283,747		1,060,506
Financial income	21	88,659		63,669		150,707		107,259
Financial expenses	21	(370,585	)	(264,327	)	(659,311	)	(515,397	)
Exchange variations, net	21	76,315		(343,806	)	203,993		(322,392	)
Gain and losses on financial instruments, net	21	(5,231	)	(3,592	)	(7,701	)	(9,726	)
INCOME BEFORE TAXES		418,723		171,413		971,435		320,250
Current	7	(11,652	)	(63,235	)	(117,215	)	(136,829	)
Deferred	7	(13,733	)	292,773		(20,791	)	377,065
Income and social contribution taxes		(25,385	)	229,538		(138,006	)	240,236
NET INCOME		393,338		400,951		833,429		560,486
ATTRIBUTABLE TO:
Owners of the parent		356,455		390,385		753,679		538,577
Non-controlling interests		36,883		10,566		79,750		21,909
		393,338		400,951		833,429		560,486
Basic earnings per share - preferred and common - (R$)	17	0.21		0.23		0.44		0.32
Diluted earnings per share - preferred and common - (R$)	17	0.21		0.23		0.44		0.32

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

GERDAU S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In thousands of Brazilian reais (R$)

(Unaudited)

	For the three-month period ended				For the six-month period ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Net income for the period	393,338		400,951		833,429		560,486
Items that may be reclassified subsequently to profit or loss
Other comprehensive income from associates and jointly-controlled entities	(34,589	)	91,413		(84,727	)	95,411
Cumulative translation adjustment	(515,613	)	1,692,850		(1,481,721	)	1,229,863
Unrealized Gains (Losses) on net investment hedge	168,096		(588,997	)	370,948		(519,542	)
Cash flow hedges
Unrealized Gains	74,011		65		72,670		604
Reciclying to income	(59,988	)	3,312		(59,988	)	3,312
	(368,083	)	1,198,643		(1,182,818	)	809,648
Items that will not be reclassified to profit or loss
Net unrealized gains on defined benefit pension plan	147,838		—		148,458		—
	147,838		—		148,458		—
Other comprehensive income, net of tax	(220,245	)	1,198,643		(1,034,360	)	809,648
Total comprehensive income for the period, net of tax	173,093		1,599,594		(200,931	)	1,370,134
Total comprehensive income attributable to:
Owners of the parent	139,663		1,551,267		(248,079	)	1,325,078
Non-controlling interests	33,430		48,327		47,148		45,056
	173,093		1,599,594		(200,931	)	1,370,134

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

GERDAU S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

in thousands of Brazilian reais (R$)

(Unaudited)

	Attributed to parent company’s interest
															Other Reserves
															Gains and
					Retained earnings								Operations		losses on	Gains and
							Investments						with non-		available for	losses on net		Gains and		Cumulative
		Treasury		Capital		Tax Incentives	and working				Retained		controlling		sale	investment		losses on		translation			Total parent		Non-controlling		Total
	Capital	stocks		Reserve	Legal reserve	Reserve	capital reserve		Pension Plan		earnings		interests		securities	hedge		derivatives		adjustment		Stock Option	company’s interest		interests		Shareholder’s Equity
Balance as of January 1, 2013	19,249,181	(290,240	)	11,597	478,897	490,891	8,677,799		(467,377	)	—		(1,728,627	)	1,620	(681,793	)	(1,702	)	1,421,334		84,024	27,245,604		1,552,313		28,797,917
2013 Changes in Equity
Net income	—	—		—	—	—	—		—		538,577		—		—	—		—		—		—	538,577		21,909		560,486
Other comprehensive income (loss) recognized in the period	—	—		—	—	—	—		—		—		—		—	(516,144	)	3,611		1,299,034		—	786,501		23,147		809,648
Total comprehensive income (loss) recognized in the period	—	—		—	—	—	—		—		538,577		—		—	(516,144	)	3,611		1,299,034		—	1,325,078		45,056		1,370,134
Shareholders transactions:
Stock option expenses recognized in the period	—	—		—	—	—	—		—		—		—		—	—		—		—		13,835	13,835		97		13,932
Stock option exercised during the period	—	3,745		—	—	—	(2,770	)	—		—		—		—	—		—		—		—	975		32		1,007
Effects of interest changes in subsidiaries	—	—		—	—	—	—		—		—		(4,335	)	—	—		—		—		—	(4,335	)	326,954		322,619
Dividends/interest on capital	—	—		—	—	—	—		—		(34,013	)	—		—	—		—		—		—	(34,013	)	(7,110	)	(41,123	)
Balance as of June 30, 2013 (Note 16)	19,249,181	(286,495	)	11,597	478,897	490,891	8,675,029		(467,377	)	504,564		(1,732,962	)	1,620	(1,197,937	)	1,909		2,720,368		97,859	28,547,144		1,917,342		30,464,486
Balance as of January 1, 2014	19,249,181	(238,971	)	11,597	558,084	560,405	9,620,293		(266,030	)	—		(1,732,962	)	1,620	(1,525,652	)	3,281		3,994,567		103,666	30,339,079		1,681,678		32,020,757
2014 Changes in Equity
Net income	—	—		—	—	—	—		—		753,679		—		—	—		—		—		—	753,679		79,750		833,429
Other comprehensive income (loss) recognized in the period	—	—		—	—	—	—		141,381		—		—		—	370,064		12,256		(1,525,459	)	—	(1,001,758	)	(32,602	)	(1,034,360	)
Total comprehensive income (loss) recognized in the period	—	—		—	—	—	—		141,381		753,679		—		—	370,064		12,256		(1,525,459	)	—	(248,079	)	47,148		(200,931	)
Supplementary dividend	—	—		—	—	—	(12	)	—		—		—		—	—		—		—		—	(12	)	—		(12	)
Stock option expenses recognized in the period	—	—		—	—	—	—		—		—		—		—	—		—		—		20,434	20,434		(549	)	19,885
Stock option exercised during the period	—	4,063		—	—	—	(428	)	—		—		—		—	—		—		—		—	3,635		64		3,699
Effects of interest changes in subsidiaries	—	—		—	—	—	—		—		—		—		—	—		—		—		—	—		(2,262	)	(2,262	)
Dividends/interest on capital	—	—		—	—	—	—		—		(119,319	)	—		—	—		—		—		—	(119,319	)	(15,770	)	(135,089	)
Balance as of June 30, 2014 (Note 16)	19,249,181	(234,908	)	11,597	558,084	560,405	9,619,853		(124,649	)	634,360		(1,732,962	)	1,620	(1,155,588	)	15,537		2,469,108		124,100	29,995,738		1,710,309		31,706,047

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

GERDAU S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands of Brazilian reais (R$)

(Unaudited)

		For the six-month period ended
	Note	June 30, 2014		June 30, 2013
Cash flows from operating activities
Net income for the period		833,429		560,486
Adjustments to reconcile net income for the period to net cash provided by operating activities
Depreciation and amortization	20	1,081,899		940,315
Equity in earnings of unconsolidated companies	8	(53,623	)	(16,301	)
Exchange variation, net	21	(203,993	)	322,392
Losses on financial instruments, net	21	7,701		9,726
Post-employment benefits		80,893		54,195
Stock based remuneration		18,051		10,051
Income tax	7	138,006		(240,236	)
Gains on disposal of property, plant and equipment and investments, net		(28,779	)	(38,245	)
Allowance for doubtful accounts		25,349		29,855
Provision for tax, labor and civil claims		144,716		110,510
Interest income on investments	21	(71,747	)	(37,514	)
Interest expense on loans	21	579,202		424,564
Interest on loans with related parties	15	(1,995	)	(1,525	)
Provision for net realizable value adjustment in inventory	6	30,121		66,885
Release of allowance for inventory against cost upon sale of the inventory	6	(35,982	)	(39,823	)
		2,543,248		2,155,335
Changes in assets and liabilities
Increase in trade accounts receivable		(497,714	)	(247,917	)
(Increase) Decrease in inventories		(882,577	)	642,132
Increase in trade accounts payable		401,136		93,458
Increase in other receivables		(190,769	)	(84,055	)
(Decrease) Increase in other payables		(290,622	)	28,695
Dividends from jointly-controlled entities		44,408		21,549
Purchases of trading securities		(1,434,416	)	(1,703,493	)
Proceeds from maturities and sales of trading securities		2,272,092		1,086,556
Cash provided by operating activities		1,964,786		1,992,260
Interest paid on loans and financing		(470,978	)	(472,394	)
Income and social contribution taxes paid		(212,487	)	(147,025	)
Net cash provided by operating activities		1,281,321		1,372,841
Cash flows from investing activities
Additions to property, plant and equipment	9	(1,155,421	)	(1,191,586	)
Proceeds from sales of property, plant and equipment, investments and other intangibles		41,859		117,713
Additions to other intangibles		(31,028	)	(56,895	)
Advance for capital increase in jointly-controlled entity		—		(77,103	)
Payment for business acquisitions, net of cash of acquired entities		—		(26,361	)
Net cash used in investing activities		(1,144,590	)	(1,234,232	)
Cash flows from financing activities
Reduction of capital by non-controlling interests in subsidiaries		—		342,051
Proceeds from exercise of shares		3,635		975
Dividends and interest on capital paid		(236,588	)	(81,693	)
Proceeds from loans and financing		1,968,026		3,064,857
Repayment of loans and financing		(1,266,853	)	(3,114,695	)
Intercompany loans, net		12,167		49,511
Increase in controlling interest in subsidiaries		—		(33,090	)
Put-Options on non-controlling interest		—		(599,195	)
Net cash provided (used) in financing activities		480,387		(371,279	)
Exchange variation on cash and cash equivalents		(88,281	)	34,628
Increase (Decrease) in cash and cash equivalents		528,837		(198,042	)
Cash and cash equivalents at beginning of period		2,099,224		1,437,235
Cash and cash equivalents at end of period		2,628,061		1,239,193

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

NOTE 1 - GENERAL INFORMATION

Gerdau S.A. is a publicly traded corporation (sociedade anônima) with its corporate domicile in the city of Rio de Janeiro, Brazil. Gerdau S.A and subsidiaries (collectively referred to as the “Company”) is a leading producer of long steel in the Americas and one of the largest suppliers of special steel in the world. Recently it began operating in two new markets in Brazil, with its entry into the production of flat steel and the expansion of its iron ore activities, initiatives which expanded the product mix and made its operations even more competitive. With over 45 thousand employees, Gerdau has industrial operations in 14 countries in the Americas, Europe and Asia, which together represent installed capacity of over 25 million tons of steel per year. It is the largest recycler in Latin America and around the world it transforms each year millions of tons of scrap into steel, reinforcing its commitment to sustainable development of the regions where it operates. With more than 120 thousand shareholders, Gerdau is listed on the São Paulo, New York and Madrid stock exchanges.

The Condensed Consolidated Interim Financial Statements of the Company were approved by the Disclosure Committee on July 29, 2014.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

2.1 - Basis of Presentation

The Company’s Condensed Consolidated Interim Financial Statements for the three-month and six-month period ended June 30, 2014 have been prepared in accordance with International Accounting Standard (IAS) Nº 34, which establishes the content of condensed interim financial statements. These Condensed Consolidated Interim Financial Statements should be read in conjunction with the Consolidated Financial Statements of Gerdau S.A., as of December 31, 2013, which were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board - IASB.

The preparation of the Condensed Consolidated Interim Financial Statements in accordance with IAS 34 requires Management to make accounting estimates. The Condensed Consolidated Interim Financial Statements have been prepared using the historical cost as its basis, except for the valuation of certain financial instruments, which are measured at fair value.

The same accounting policies and methods of calculation were used in these Condensed Consolidated Interim Financial Statements as they were applied in the Consolidated Financial Statements as of December 31, 2013, except, where applicable, for the impact of the adoption of standards and interpretations of rules described below:

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

Some new IASB accounting procedures and IFRIC interpretations were issued and/or reviewed and have their optional or mandatory adoption for the period beginning on January 1, 2014. The Company’s assessment on the impact of these new procedures and interpretations is as follows:

Standards and Interpretations in force

IAS 32 — Offsetting Financial Assets and Financial Liabilities — Amendments to IAS 32

In December 2011, the IASB revised IAS 32. The amendment of this standard addresses issues related to the offsetting of financial assets and liabilities. This standard is effective for annual periods beginning on or after January 1, 2014. The adoption of this standard did not impact the Company’s Financial Statements.

IFRS 10, IFRS 12 and IFRS 27 — Investment Entities

In October 2012, the IASB issued a revised IFRS 10, IFRS 12 and IAS 27, which define an investment entity and introduce an exception to consolidation of subsidiaries by an investment entity, establishing the accounting treatment in these cases. These revised standards are effective for years beginning on or after January 1, 2014. The adoption of this revised standards did not impact the Company’s Financial Statements.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

IFRIC 21 — Levies

In May 2013, the IASB issued the IFRIC 21. This interpretation addresses aspects related to the recognition of a liability to pay a levy that is accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. This interpretation is effective for years beginning on or after January 1, 2014. The adoption of this interpretation did not impact the Company’s Financial Statements.

IAS 36 — Recoverable Amount Disclosures for Non-Financial Assets - Amendments to IAS 36

In May 2013, the IASB revised IAS 36. The amendment of this standard requires the disclosure of the discount rates of the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposal. This standard is effective for annual periods beginning on or after January 1, 2014. The adoption of this revised standard did not impact the Company’s Financial Statements.

IAS 39 — Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39

In June 2013, the IASB revised IAS 39. The amendment of this standard has the objective to clarify when an entity is required to discontinue hedge accounting, in situations where the hedging instrument expires or is sold, terminated or exercised. This standard is effective for annual periods beginning on or after January 1, 2014. The adoption of this revised standard did not impact the Company’s Financial Statements.

Standards and Interpretations of standards not yet in force

IFRS 9 — Financial Instruments

In November 2009, the IASB issued IFRS 9, which has the objective of replacing the standard IAS 39 Financial Instruments: Recognition and Measurement, in three stages. This standard is the first part of stage 1 of the IAS 39 replacement and addresses the classification and measurement of financial assets. In October 2010, the IASB added to this standard the requirements for classification and measurement of financial liabilities. This standard and its subsequent change are effective for annual reporting periods beginning on or after January 1, 2015. The Company is assessing the potential impacts from the adoption of this standard on the Company’s Financial Statements.

IFRS 9 and IFRS 7 — Mandatory Effective Date and Transition Disclosures — Amendments to IFRS 9 and IFRS 7

In December 2011 the IASB revised IFRS 9 and 7. The amendment of IFRS 9 deals with the extension of the adoption date from January 1, 2013 to January 1, 2015. The amendment of IFRS 7 addresses issues relating to disclosure about the transition from IAS 39 to IFRS 9 and aspects related to the restatement of the comparative periods at the date of adoption of this statement. The Company does not expect any impact from adopting these revised standards on its Consolidated Financial Statements.

IFRS 14 — Regulatory Deferral Accounts

In January 2014, the IASB issued IFRS 14, which has the specific objective of determining the recognition of regulatory assets and liabilities at the first adoption of the IFRS. This standard is effective for annual periods beginning on or after January 1, 2016. The Company does not expect any impact from adopting this standard on its Consolidated Financial Statements.

IFRS 11 — Joint Arrangements

In May 2014, the IASB issued a revised IFRS 11. The amendment of IFRS 11 seek to provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business, as defined in IFRS 3. The revised standard is effective for years beginning on or after January 1, 2016. The Company does not expect any impact from adopting this revised standard on its Consolidated Financial Statements.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation  — Amendments to IAS 16 and IAS 38

In May 2014, the IASB issued a revised IAS 16 and IAS 38. The amendment of IAS 16 and IAS 38 seek to clarify the depreciation and amortization methods, aligned with the concept of expected future economic benefits from the use of the asset over its economic useful life. The revised standard is effective for years beginning on or after January 1, 2016. The Company is assessing the potential impacts from the adoption of these revised standards on its Consolidated Financial Statements.

IFRS 15 — Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15. The objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. This standard is effective for years beginning on or after January 1, 2017. The Company is assessing the potential impacts from the adoption of this standard on the Company’s Financial Statements.

IAS 16 and IAS 41 - Agriculture: Bearer Plants — Amendments to IAS 16 and IAS 41

In June 2014, the IASB issued a revised IAS 16 and IAS 41. The amendment of IAS 16 and IAS 41 has the objective to include in IAS 16 the concept of bearer plants and determine their recognition as fixed assets. The revised standard is effective for years beginning on or after January 1, 2016. The Company does not expect any impact from adopting this revised standard on its Consolidated Financial Statements.

IFRS 9 — Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9, which has the objective of replacing the standard IAS 39 Financial Instruments: Recognition and Measurement. The IASB made limited amendments to the requirements in IFRS 9 for the classification and measurement of financial assets. Those amendments addressed a narrow range of application questions and introduced a ‘fair value through other comprehensive income’ measurement category for particular simple debt instruments. Also, the IASB added to IFRS 9 the impairment requirements relating to the accounting for an entity’s expected credit losses on its financial assets and commitments to extend credit. This standard is effective for annual reporting periods beginning on or after January 1, 2018. The Company is assessing the potential impacts from the adoption of this standard on the Company’s Financial Statements.

NOTE 3 — CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

3.1 - Subsidiaries

The Company did not have material changes of participation in subsidiaries for the period ended on June 30, 2014, compared to those existing on December 31, 2013.

3.2 - Jointly-Controlled Entities

The Company did not have material changes of participation in jointly-controlled entities for the period ended on June 30, 2014, compared to those existing on December 31, 2013.

3.3 — Associate companies

The Company did not have material changes in investments in associated companies for the period ended on June 30, 2014, compared to those existing on December 31, 2013.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

3.4 — Total cash paid for business combinations and interest increases in already controlled subsidiaries

Companies / interest acquired	June 30, 2014	June 30, 2013
Acquisition of control
Cycle Systems Inc.	—	26,361
	—	26,361
Interest increase in subsidiaries
Gerdau Steel India Ltd.	—	18,151
Gerdau Hungria Holdings LLC	—	14,939
	—	33,090

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

Cash and cash equivalents

	June 30, 2014	December 31, 2013
Cash	9,235	7,385
Banks and immediately available investments	2,618,826	2,091,839
Cash and cash equivalents	2,628,061	2,099,224

Short term investments

	June 30, 2014	December 31, 2013
Held for trading	1,334,535	2,123,168
Short-term investments	1,334,535	2,123,168

Held for Trading

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

NOTE 5 — ACCOUNTS RECEIVABLE

	June 30, 2014		December 31, 2013
Trade accounts receivable - in Brazil	1,525,215		1,378,989
Trade accounts receivable - exports from Brazil	176,026		318,453
Trade accounts receivable - foreign subsidiaries	2,684,006		2,480,985
(-) Allowance for doubtful accounts	(93,554	)	(99,621	)
	4,291,693		4,078,806

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

NOTE 6 - INVENTORIES

	June 30, 2014		December 31, 2013
Finished products	3,880,076		3,493,293
Work in progress	1,971,748		1,784,136
Raw materials	1,969,985		1,951,425
Storeroom supplies	769,031		842,646
Advances to suppliers	305,839		176,412
Imports in transit	174,842		325,055
(-) Allowance for adjustments to net realizable value	(65,035	)	(73,276	)
	9,006,486		8,499,691

The allowance for adjustment to net realizable value is mainly related to the reduction in cost, or the adjustment to market, of certain raw materials acquired by the Company and that had a decrease in the sale price of finished products. Based on the estimated production costs to convert these raw materials to finished products, the resulting estimated finish product cost was in excess of the estimated sales price less estimated cost of sales, thus, the Company recognized adjustments to net realizable values, as follows:

Balance as of January 1, 2013	(71,869	)
Provision for adjustments to net realizable value	(56,752	)
Reversal of adjustments to net realizable value	61,453
Exchange rate variation	(6,108	)
Balance as of December 31, 2013	(73,276	)
Provision for adjustments to net realizable value	(30,121	)
Reversal of adjustments to net realizable value	35,982
Exchange rate variation	2,380
Balance as of June 30, 2014	(65,035	)

Inventories are insured against fire and flooding. The insurance coverage is based on the amounts and risks involved.

During the three-month period ended on June 30, 2014 the amounts of R$ 9,179,154 and R$ 549,892 (R$ 8,540,141 and R$ 494,875 as of June 30, 2013), respectively were recognized as cost of sales and freights in the condensed consolidated interim financial statements. During the six-month period ended on June 30, 2014 the amounts of R$ 18,417,178 and R$ 1,115,686 (R$ 16,797,480 and R$ 942,509 as of June 30, 2013), respectively were recognized as cost of sales and freights in the condensed consolidated interim financial statements.

For the six-month period ended on June 30, 2014, cost of sales includes the amounts of R$ 30,121 (R$ 66,885 as of June 30, 2013) related to the provision for adjustments to net realizable value of inventories and R$ 35,982 (R$ 39,823 as of June 30, 2013) related to the reversal of adjustments to net realizable value of inventories.

NOTE 7 — INCOME AND SOCIAL CONTRIBUTION TAXES

The Company’s subsidiaries in Brazil used R$ 9,469 and R$ 14,406 for the three and six-month periods ended on June 30, 2014, (R$ 5,799 and R$ 9,014 for the three and six-month period ended on June 30, 2013, respectively) of tax incentives in the form of income tax credits, related to technological innovation, funds for the rights of children and adolescents, senior citizens, sports, PAT (Workers’ Meal Program), and cultural and artistic activities. The units of the subsidiary Gerdau Aços Longos S.A., located in the northeast region of Brazil, will receive until 2023, a 75% reduction in income tax on operating profit, which represents R$ 1,017 and R$ 5,718 for the three and six-month periods ended on June 30, 2014, respectively (R$ 4,499 and R$ 5,053 for the three and six-month periods ended on June 30, 2013). The respective tax incentives were recorded directly in the income and social contribution tax account in the statement of income.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

As of June 30, 2014, the Company had tax loss carryforwards arising from its operations in Brazil of R$ 733,558 for income tax (R$ 618,628 as of December 31, 2013) and R$ 1,456,971 for social contribution tax (R$ 1,352,142 as of December 31, 2013), representing a deferred tax asset of R$ 314,517 (R$ 276,350 as of December 31, 2013). The Company believes that the amounts will be realized based on future taxable income. In addition to these deferred tax assets, the Company has not recorded a portion of the tax asset of R$ 243,789 (R$ 246,621 as of December 31, 2013), due to the Company’s inability to use the tax loss carryforwards in its subsidiaries. Notwithstanding, these tax loss carryforwards do not have an expiration date.

As of June 30, 2014 and December 31, 2013, the subsidiary Gerdau Ameristeel had a deferred tax asset of R$ 207,982 and R$ 220,781, respectively, for tax loss carry forwards in Canada. These tax loss carryforwards expire on various dates between 2025 and 2034. The subsidiary believes it is probable that these deferred tax benefits will be realized through the generation of future taxable income and, historically, the subsidiary has been able to generate sufficient taxable income to utilize tax benefits associated with previous tax loss carry forwards, however, the amounts of deferred tax assets can be adjusted if the estimates of taxable income are revised.

As of June 30, 2014, the subsidiary Gerdau Ameristeel had R$ 342,599 (R$ 294,142 on December 31, 2013) of tax losses over capital losses for which no deferred tax assets were recognized. The balance relates primarily to  long-term investment losses recognized by Gerdau Ameristeel and currently does not have an expiration date, except for the amounts of R$ 53,767 and R$ 1,797 included in the balance sheet as of June 30, 2014 that expire on 2015 and 2016, respectively (R$ 80,000 and R$ 1,912 as of December 31, 2013). The Company has also not recognized in its consolidated balance sheet R$ 9,610 thousand of federal loss carryforwards in the US that will no longer be utilized before their expiration. These losses are set to expire in 2029. The subsidiary had several state tax losses totaling R$ 189,558 (R$ 193,236 at December 31, 2013), which have not been recognized and expire at various dates between 2014 and 2034. The subsidiary also had R$ 124,155 as of June 30, 2014 (R$ 128,129 as of December 31, 2013) of state tax credits which have not been recognized in the Consolidated Balance Sheets. These credits expire at various dates between 2015 and 2018, except for an amount of R$ 6,867 (R$ 7,304 at December 31, 2013), which does not have an expiration date.

On June 30, 2014, the subsidiary Gerdau Holdings Europa S.A. had deferred tax assets due to tax losses, totaling R$ 401,738 (R$ 415,638 as of December 31, 2013) recognized in the Consolidated Financial Statements.

In Brazil, income taxes include the federal income tax (IRPJ) and social contribution (CSLL), which represent an additional federal income tax. The applicable tax rates for income tax and social contribution are 25% and 9%, respectively, for the three month period ended on June 30, 2014 and 2013. Beyond the domestic tax rates mentioned above, the Company is also subject to taxes on income in its subsidiaries abroad, which tax rates range between 20% and 38.5%. The difference between the tax rates in Brazil and the tax rates in other countries are presented in the reconciliation of income tax and social contribution adjustments on net income in the line “difference in tax rates in foreign companies”.

Reconciliation of income tax (IRPJ) and social contribution (CSLL) adjustments on the net income:

	For the three-month period ended
	June 30, 2014		June 30, 2013
Income before income taxes	418,724		171,413
Statutory tax rates	34	%	34	%
Income and social contribution taxes at statutory rates	(142,366	)	(58,280	)
Tax adjustment with respect to:
- Difference in tax rates in foreign companies	(38,694	)	147,562
- Equity in earnings of unconsolidated companies	9,177		(126	)
- Interest on equity	43,226		2,090
- Tax credits and incentives	10,486		10,271
- Tax deductible goodwill recorded in statutory books	89,710		89,710
- Other permanent differences, net	3,076		38,311
Income and social contribution taxes	(25,385	)	229,538
Current	(11,652	)	(63,235	)
Deferred	(13,733	)	292,773

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

	For the six-month period ended
	June 30, 2014		June 30, 2013
Income before income taxes	971,436		320,250
Statutory tax rates	34	%	34	%
Income and social contribution taxes at statutory rates	(330,288	)	(108,885	)
Tax adjustment with respect to:
- Difference in tax rates in foreign companies	(66,305	)	124,265
- Equity in earnings of unconsolidated companies	18,232		5,542
- Interest on equity	45,897		2,418
- Tax credits and incentives	20,124		14,032
- Tax deductible goodwill recorded in statutory books	179,417		179,417
- Other permanent differences, net	(5,083	)	23,447
Income and social contribution taxes	(138,006	)	240,236
Current	(117,215	)	(136,829	)
Deferred	(20,791	)	377,065

NOTE 8 — INVESTMENTS

I) Associates and jointly-controlled entities

	Joint Ventures				Associate companies
									Grupo				Corporación
									Multisteel		Corsa		Centro
	Joint Ventures		Gerdau Corsa		Dona Francisca		Armacero		Business		Controladora		Americana del		Maco Holdings
	North America (a)		S.A.P.I. de C.V.		Energética S.A.		Ind. Com. Ltda.		Holdings Corp.		S.A. de C.V.		Acero, S.A.		Ltda.		Others		Total
Balance as of January 1, 2013	278,211		52,007		138,852		23,326		223,390		267,041		341,711		99,777		1,290		1,425,605
Equity in earnings	46,800		(10,755	)	17,586		(2,181	)	(1,114	)	(8,180	)	10,582		1,263		—		54,001
Cumulative Translation Adjustment	38,804		11,036		—		4,975		35,905		37,342		40,786		—		—		168,848
Capital reduction	—		—		—		—		—		—		—		(26,663	)	—		(26,663	)
Acquisition/Disposal of investment	—		—		—		—		51,383		—		—		(74,377	)	—		(22,994	)
Fair value allocation on investment	—		—		—		—		(22,796	)	—		—		—		—		(22,796	)
Capital increase	—		77,103		—		—		—		—		—		—		—		77,103
Dividends/Interest on equity	(37,051	)	—		(23,521	)	—		—		—		(2,501	)	—		—		(63,073	)
Balance as of December 31, 2013	326,764		129,391		132,917		26,120		286,768		296,203		390,578		—		1,290		1,590,031
Equity in earnings	43,140		(4,962	)	11,605		(2,653	)	8,318		(2,606	)	781		—		—		53,623
Cumulative Translation Adjustment	(20,835	)	(6,505	)	—		(2,664	)	(18,950	)	(15,221	)	(20,502	)	—		(50	)	(84,727	)
Dividends/Interest on equity	(12,254	)	—		(30,055	)	—		—		—		(2,099	)	—		—		(44,408	)
Balance as of June 30, 2014	336,815		117,924		114,467		20,803		276,136		278,376		368,758		—		1,240		1,514,519

a) Joint Ventures North America

Companies: Gallatin Steel Company, Bradley Steel Processors and MRM Guide Rail.

b) Goodwill

	June 30, 2014	December 31, 2013
Dona Francisca Energética S.A.	17,071	17,071
Grupo Multisteel Business Holdings Corp.	29,131	30,396
Corsa Controladora S.A. de C.V.	180,483	186,419
Corporación Centroamericana del Acero, S.A.	222,672	230,504
	449,357	464,390

NOTE 9 — PROPERTY, PLANT AND EQUIPMENT

a) Summary of changes in property, plant and equipment — during the three-month period ended on June 30, 2014, acquisitions amounted to R$ 478,666 (R$ 620,095 as of June 30, 2013), and disposals amounted to R$ 3,164 (R$ 284 as of June 30, 2013). During the six-month period ended on June 30, 2014, acquisitions amounted to R$ 1,155,421 (R$ 1,191,586 as of June 30, 2013), and disposals amounted to R$ 6,997 (R$ 5,538 as of June 30, 2013).

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

b) Capitalized borrowing costs — borrowing costs capitalized during the three-month period ended June 30, 2014 amounted to R$ 25,428 (R$ 29,616 as of June 30, 2013). Borrowing costs capitalized during the six-month period ended June 30, 2014 amounted to R$ 56,092 (R$ 56,124 as of June 30, 2013).

c) Guarantees — property, plant and equipment have been pledged as collateral for loans and financing in the amount of R$ 638,076 as of June 30, 2014 (R$ 615,997 as of December 31, 2013).

NOTE 10 — GOODWILL

	Goodwill		Accumulated impairment losses		Goodwill after Impairment losses
Balance as of January 1, 2013	10,265,246		(231,850	)	10,033,396
(+/-) Foreign exchange effect	1,324,790		(32,435	)	1,292,355
(+) Additions	27,294		—		27,294
Balance as of December 31, 2013	11,617,330		(264,285	)	11,353,045
(+/-) Foreign exchange effect	(665,980	)	19,034		(646,946	)
Balance as of June 30, 2014	10,951,350		(245,251	)	10,706,099

	June 30, 2014	December 31, 2013
Brazil	524,063	533,186
Special Steels	2,426,466	2,580,989
Latin America	744,118	781,208
North America	7,011,452	7,457,662
	10,706,099	11,353,045

NOTE 11 — LOANS AND FINANCING

Loans and financing are as follows:

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

	Annual interest rate (*)		June 30, 2014		December 31, 2013
Short term financing in Brazilian reais
Working capital	1.77	%	44,121		421,564
Financing of investment	11.29	%	64,545		42,432
Short term financing in foreign currency
Working capital (US$)	3.24	%	349,637		514,417
Working capital (€)	2.35	%	116,411		76,577
Working capital (Clp$)	3.85	%	—		10,164
Working capital (Cop$)	6.76	%	85,797		91,435
Working capital (PA$)	14.58	%	6,045		7,799
Working capital (Mxn$)	4.71	%	5,980		26,743
Financing of property, plant and equipment and others (US$)	2.70	%	4,920		4,920
Financing of property, plant and equipment and others (INR)	10.90	%	46,638		125,209
Financing of property, plant and equipment and others (Mxn$)	4.71	%	123,170		46,154
			847,264		1,367,414
Plus current portion of long-term financing			451,278		443,369
Short term financing plus current portion of long-term financing			1,298,542		1,810,783
Long-term financing in Brazilian reais
Working capital	7.22	%	707,914		888,992
Financing of property, plant and equipment	7.31	%	1,098,751		1,023,419
Financing of investment	11.34	%	1,123,720		627,350
Long-term financing in foreign currency
Working capital (US$)	1.86	%	531,290		334,290
Working capital (€)	2.35	%	40,200		40,331
Working capital (Mxn$)	4.71	%	89		—
Working capital (COP$)	6.73	%	264,353		286,545
Working capital (PA$)	14.58	%	67,939		14,271
Working capital (INR)	10.90	%	10,501		10,924
Ten Year Bonds (US$)	6.54	%	10,784,685		10,844,032
Financing of investment (US$)	4.75	%	151,088		160,216
Financing of investment (INR)	10.90	%	95,640		98,897
Financing of property, plant and equipment and others (US$)	4.21	%	555,776		561,947
Financing of property, plant and equipment and others (Mxn$)	4.71	%	—		33,652
			15,431,946		14,924,866
Less: current portion			(451,278	)	(443,369	)
Long term financing minus current portion			14,980,668		14,481,497
Total financing			16,279,210		16,292,280
Principal amount of the financing			15,996,191		15,901,519
Interest amount of the financing			283,019		390,761
Total financing			16,279,210		16,292,280

(*) Weighted average effective interest costs on June 30, 2014.

Loans and financing denominated in Brazilian Reais are indexed at fixed rates or to the following indicators: the TJLP (long-term interest rate, which is established quarterly by the Federal Government for adjusting long-term loans granted by the BNDES - National Bank for Economic and Social Development), CDI (Interbank Deposit Certificate), the IGP-M (general market price index, a Brazilian inflation rate measured by Fundação Getúlio Vargas), IPCA (Extended National Consumer Price Index) and SELIC (Special System for Settlement and Custody).

Summary of loans and financing by currency:

	June 30, 2014	December 31, 2013
Brazilian Real (R$)	3,039,051	3,003,757
U.S. Dollar (US$)	12,377,396	12,419,822
Euro (€)	156,611	116,908
Colombian Peso (Cop$)	350,150	377,980
Argentine Peso (PA$)	73,984	22,070
Chilean Peso (Clp$)	—	10,164
Mexican Peso (Mxn$)	129,239	106,549
Indian Rupee (INR)	152,779	235,030
	16,279,210	16,292,280

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

Timeline of installment payments of long-term loans and financing is as follows:

	June 30, 2014	December 31, 2013
2015*	440,079	958,861
2016	1,008,994	592,501
2017	2,673,332	4,057,773
2018	630,975	502,723
2019	572,753	411,473
2020 on	9,654,535	7,958,166
	14,980,668	14,481,497

(*) For the period as of June 30, 2014, the amounts represents payments from July 01, 2015 to December 31, 2015.

a) Main funding in the period ended June 30, 2014

In March 2014, the subsidiaries Gerdau Açominas S.A. and Gerdau Aços Especiais S.A. issued Export Credit Notes (NCE) in the amount of R$ 430 million and R$ 70 million, respectively, with Banco do Brasil bank. Gerdau S.A. is the guarantor of this transaction.

In April and May 2014, the Company, through its subsidiary GTL Trade Finance Inc., issued a 30 year Bond in the amount of US$ 500 million, with coupon of 7.25% a year, in which part of this Bond in the amount of US$ 250 million were used to a Tender Offer of Bonds which matured in 2017. The Company also had an Exchange Offer of part of its 2017 and 2020 Bonds issued by GTL Trade Finance Inc. and Gerdau Holdings Inc., respectively, by the new Bonds issuance of  joint and several liability, which matures in 2024 with coupon of 5.893% a year in the total amount of US$ 1.2 billion. The Company designated these new Bonds  as Net Investment Hedge and as a consequence of that the exchange rate variance of these debts will be recognized in the Net Equity and in the Statement of Comprehensive Income, as described in Note 13.f.

b) Covenants

Certain debt agreements contain financial covenants as a tool used by creditors to monitor the Company’s financial position. The following is a brief description of the financial covenants required under the Company’s debt agreements.

I) Net Interest Coverage Ratio - measures the ability to pay net financial expenses in relation to EBITDA, as defined in the bank agreements (Earnings before Interest, Taxes, Depreciation, Amortization, Impairment and Restructuring Costs). The contractual ratio indicates that the EBITDA for the last 12 months should represent at least 3 times the net financial expense of the same period for Gerdau S.A.. On June 30, 2014, the current ratio was 6 times.

II) Net Leverage Ratio - measures the level of net debt (considers the outstanding principal of the debt, less cash, cash equivalents and short-term investments) to EBITDA, as defined in the bank agreements. The contractual ratio indicates that the net debt should not surpass 4 times the EBITDA for the last 12 months. As of June 30, 2014, the current ratio was 2.4 times.

III) Current Ratio — measures the company’s ability in fulfilling its short term obligations. The contractual terms indicate that the ratio of Current Assets divided by Current Liabilities must be greater than 0.8 times. As of June 30, 2014 the current ratio was 2.8 times.

Based on the Company’s internal forecasts, the Company does not expect to be in breach of any of the financial covenants over the next twelve months.  Nevertheless, this forecast can be affected positive or negatively by global economics and the steel market.

c) Guarantees

All loans contracted under the FINAME/BNDES program, totaling R$ 56.9 million on the balance sheet date, are guaranteed by the assets being financed. Certain other loans are guaranteed by the controlling shareholders, for which the Company pays a fee of 0.95% per year, of the amounts guaranteed.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

d) Credit Lines

In June 2009, certain subsidiaries of the Company (Gerdau Açominas S.A., Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A. and the former subsidiary Aços Villares S.A.) obtained a pre-approved credit line with BNDES in the total amount of R$ 1.5 billion to be used for the revamp and modernization of several areas, an increase in the production capacity of certain product lines, investment in logistics and energy generation, and also environmental and sustainability projects. The funds are made available at the time each subsidiary starts its specific investment and presents to BNDES the evidence of the investment made. The interest rate for this credit line is determined at the time of each disbursement, and is composed by indexes linked to of TJLP + 2.16% p.a. As of June 30, 2014, the outstanding balance of this credit facility was R$ 615.8 million.

In December, 2013, the Company concluded the renewal of the Senior Unsecured Global Working Capital Credit Agreement, which is a US$ 1.5 billion revolving credit line with the purpose of providing liquidity to its subsidiaries. The line is divided into two tranches, US$ 500 million destined for Gerdau’s North American subsidiaries borrowing needs and US$ 1 billion for Gerdau’s Latin American and Spanish subsidiaries’ borrowing needs. The following companies guarantee this agreement: Gerdau S.A., Gerdau Açominas S.A., Gerdau Aços Longos S.A. and Gerdau Aços Especiais S.A. This transaction has a 3 year term. As of June 30, 2014, the outstanding loans under the line totaled US$ 414.9 million (R$ 913.8 million as of June 30, 2014) and are classified as working capital (US$).

NOTE 12 — DEBENTURES

		Quantity as of June 30, 2014			June 30,	December 31,
Issuance	General Meeting	Issued	Held in treasury	Maturity	2014	2013
3rd- A and B	May 27,1982	144,000	122,765	06/01/2021	92,367	87,834
7th	July 14, 1982	68,400	51,260	07/01/2022	95,699	101,859
8th	November 11, 1982	179,964	145,394	05/02/2023	126,105	130,921
9th	June 10, 1983	125,640	51,988	09/01/2024	40,457	27,584
11th - A and B	June 29, 1990	150,000	134,906	06/01/2020	79,891	66,297
Total Consolidated					434,519	414,495
Current					—	27,584
Non-current					434,519	386,911

Maturities of long-term amounts are as follows:

	June 30, 2014	December 31, 2013
2020 on	434,519	386,911
	434,519	386,911

The debentures are denominated in Brazilian Reais, are nonconvertible, and pay variable interest as a percentage of the CDI — Interbank Deposit Certificate. The average notional annual interest rate was 9.68% and 8.06% for the period ended on June 30, 2014 and annual period ended on December 31, 2013, respectively.

NOTE 13 - FINANCIAL INSTRUMENTS

a) General considerations - Gerdau S.A. and its subsidiaries enter into transactions with financial instruments whose risks are managed by means of strategies and exposure limit controls. All financial instruments are recorded in the accounting books and presented as cash and cash equivalents, short-term investments, trade accounts receivable, trade accounts payable, Ten Year bonds, other financing, payroll and related liabilities, debentures, related-party transactions, unrealized gains on derivatives, unrealized losses on derivatives, other current assets, other non-current assets, other current liabilities and other non-current liabilities.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

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

b) Market value — the market value of the aforementioned financial instruments is as follows:

	June 30, 2014		December 31, 2013
	Book	Fair	Book	Fair
	value	value	value	value
Assets
Cash and cash equivalents	2,628,061	2,628,061	2,099,224	2,099,224
Short-term investments	1,334,535	1,334,535	2,123,168	2,123,168
Trade accounts receivable	4,291,693	4,291,693	4,078,806	4,078,806
Related parties	77,028	77,028	87,159	87,159
Unrealized gains on derivatives	9,189	9,189	319	319
Other current assets	378,238	378,238	291,245	291,245
Other non-current assets	209,849	209,849	220,085	220,085
Liabilities
Trade accounts payable	3,447,821	3,447,821	3,271,419	3,271,419
Ten/Thirty Years Bonds	10,784,685	11,720,594	10,844,032	11,569,859
Other financing	5,494,525	5,494,525	5,448,248	5,448,248
Payroll and related liabilities	669,264	669,264	655,962	655,962
Debentures	434,519	434,519	414,495	414,495
Related parties	85	85	43	43
Other current liabilities	577,086	577,086	634,761	634,761
Other non-current liabilities	636,259	636,259	571,510	571,510
Unrealized losses on derivatives	2,071	2,071	3,283	3,283

The fair value of the Ten/Thirty-Year bond Securities is based on quotations in the secondary market for these securities.

All other financial instruments, which are recognized in the Condensed Consolidated Interim Financial Statements at their carrying amount, are substantially similar to those that would be obtained if they were traded in the market. However, because there is no active market for these instruments, differences could exist if they were settled in advance.

c) Risk factors that could affect the Company’s and its subsidiaries’ businesses:

Price risk of commodities: this risk is related to the possibility of changes in prices of the products sold by the Company or in prices of raw materials and other inputs used in the productive process. Since the Company operates in a commodity market, net sales and cost of sales may be affected by changes in the international prices of their products or materials. In order to minimize this risk, the Company constantly monitors the price variations in the domestic and international markets.

Interest rate risk: this risk arises from the possibility of losses (or gains) due to fluctuations in interest rates applied to the Company’s financial liabilities or assets and future cash flows and income. The Company evaluates its exposure to these risks: (i) comparing financial assets and liabilities denominated at fixed and floating interest rates and (ii) monitoring the variations of interest rates like Libor and CDI. Accordingly, the Company may enter into interest rate swaps in order to reduce this risk.

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

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

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

Capital management risk: this risk comes from the Company’s choice in adopting a financing structure for its operations. The Company manages its capital structure, which consists of a ratio between the financial debts and its own capital (Equity) based on internal policies and benchmarks. The KPIs (Key Performance Indicators) related to the objective “Capital Structure Management” are: WACC (Weighted Average Cost of Capital), Net Debt/ EBITDA, Net Financial Expenses Coverage Ratio, and Indebtedness/Equity Ratio. The Net Debt is composed of the outstanding principal of the debt, less cash, cash equivalents and short-term investments (notes 4, 11 and 12). The total capitalization is formed by Total Debt (composed by the outstanding principal of the debt) and equity (note 16). The Company may change its capital structure, as economic and financial conditions to optimize its financial leverage and its debt management. At the same time, the Company seeks to improve its ROCE (Return on Capital Employed) by implementing a working capital management and an efficient program of capital expenditures. In the long-term, the Company seeks to remain between the parameters below, admitting specific short-term variations:

WACC	between 10% to 13% a year
Net debt/EBITDA	less than or equal to 2.5 times
Net Financial Expenses Coverage Ratio	greater than 5.5 times
Debt/Equity Ratio	less than or equal to 60%

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

Liquidity risk: the Company’s management policy of indebtedness and cash on hand is based on using the committed lines and the currently available credit lines with or without a guarantee in export receivables for maintaining adequate levels of short, medium, and long-term liquidity. The maturity of long-term loans, financing, and debentures are presented in Notes 11 and 12, respectively.

Sensitivity analysis:

The Company performed a sensitivity analysis, which can be summarized as follows:

Impacts on Statements of Income

Assumptions	Percentage of change		June 30, 2014	June 30, 2013
Foreign currency sensitivity analysis	5	%	170,898	164,591
Interest rate sensitivity analysis	10	bps	62,138	83,978
Sensitivity analysis of changes in prices of products sold	1	%	209,966	190,480
Sensitivity analysis of changes in raw material and commodity prices	1	%	129,994	119,956
Sensitivity analysis of interest rate swaps	10	bps	8,862	13
Sensitivity analysis of NDF’s (Non Deliverable Forwards)	5	%	3,241	2,034

Foreign currency sensitivity analysis:  As of June 30, 2014, the Company is mainly exposed to variations between the Brazilian real and US Dollar. The sensitivity analysis made by the Company considers the effects of an increase or a reduction of 5% between the Brazilian real and the US Dollar on debts that do not have hedge operations. The impact calculated considering such variation in the foreign exchange rate totals R$ 170,898 and R$ 107,715 after the effects of changes in the net investment hedge described in note 13.f, as of June 30, 2014 (R$ 164,591 and R$ 71,033 of June 30, 2013, respectively) and represents income if appreciation of the Brazilian real against the US Dollar occurs or an expense in the case of a depreciation of the Brazilian real against the US Dollar, however due to the investment hedge these effects would be mitigated when considered the income tax and exchange variance accounts.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

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

Interest rate sensitivity analysis: The interest rate sensitivity analysis made by the Company considers the effects of an increase or reduction of 10 basis point (bps) on the average interest rate applicable to the floating part of its debt. The impact calculated, considering this variation in the interest rate totals R$ 78,424 as of June 30, 2014 (R$ 83,978 as of June 30, 2013) and would impact the Financial expenses account in the Consolidated Statements of Income. The specific interest rates to which the Company is exposed are related to the loans, financing, and debentures presented in Notes 11 and 12, and are mainly comprised by Libor and CDI — Interbank Deposit Certificate.

Sensitivity analysis of changes in sales price of products and price of raw materials and other inputs used in production: the Company is exposed to changes in the price of its products. This exposure is associated with the fluctuation of the sale price of the Company’s products and the price of raw materials and other inputs used in the production process, mainly for operating in a commodity market. The sensitivity analysis made by the Company considers the effects of an increase or of a reduction of 1% on both prices. The impact measured considering this variation in the price of products sold, considering the net income and costs of the three-month period ended on June 30, 2014, totals R$ 209,966 (R$190,480 as of June 30, 2013) and the variation in the price of raw materials and other inputs totals R$ 129,994 as of June 30, 2014 (R$ 119,956 as of June 30, 2013). The impact in the price of products sold and raw materials would be recorded in the accounts Net Sales and Cost of Sales, respectively, in the Consolidated Statements of Income. The Company does not expect to be more vulnerable to a change in one or more specific product or raw material.

Sensitivity analysis of interest rate swaps: the Company has exposure to interest rate swaps for some of its loans and financing. The sensitivity analysis calculated by the Company considers the effects of either an increase or a decrease of 10 bps in the interest curve (Libor), and its impacts in the swaps mark to market. An increase of 10 bps in the interest curve represents an income of R$ 8,862 (income of R$ 13 as of June 30, 2013) and a decrease of 10 bps in the interest curve represents an expense of R$ 8,862 (expense of R$ 13 as of June 30, 2013). On June 30, 2014, these effects would be recognized in the statement of comprehensive income in the amount of R$ 8,862 (R$ 13 in the statement of comprehensive income on June 30, 2013). The interest rate swaps to which the Company is exposed to are presented in note 13.e.

Sensitivity analysis of forward contracts in US Dollar: the Company has exposure in forward contracts in US Dollar to some of its assets and liabilities. The sensitivity analysis calculated by the Company considers an effect of a 5% US Dollar depreciation or appreciation against the Colombian Peso and Brazilian real and corresponds to the effects on the mark to market of such transactions. An increase of 5% on the US Dollar against the Colombian Peso and Brazilian real represents a gain of R$ 3,241 as of June 30, 2014 (R$ 2,034 as of June, 30 2013) and a decrease of 5% on the US Dollar against the Colombian Peso and Brazilian real represents a loss of R$ 3,241 as of June 30, 2014 (R$ 2,034 as of June 30, 2013). The Dollar/Colombian Peso and Dollar/Brazilian real forward contracts were entered into to hedge liabilities (debt) and these effects in the mark to market would be recognized in the Consolidated Statement of Income. The forward contracts in US Dollar, in which the Company is exposed, are presented in note 13.e.

d) Financial Instruments per Category

Summary of the financial instruments per category:

June 30, 2014 Assets	Loans and receivables	Assets at fair value with gains and losses recognized in income	Assets at fair value with gains and losses recognized in shareholder’s equity	Total
Cash and cash equivalents	2,628,061	—	—	2,628,061
Short-term investments	—	1,334,535	—	1,334,535
Unrealized gains on financial instruments	—	—	9,189	9,189
Trade accounts receivable	4,291,693	—	—	4,291,693
Related parties	77,028	—	—	77,028
Other current assets	378,238	—	—	378,238
Other non-current assets	209,849	—	—	209,849
Total	7,584,869	1,334,535	9,189	8,928,593
Financial result for the six-month period ended on June 30, 2014	36,107	80,065	—	116,172
Financial result for the three-month period ended on June 30, 2014	11,064	36,697		47,761

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

Liabilities	Liabilities at market  value with gains and  losses recognized in  income		Other financial liabilities at  amortized cost		Total
Trade accounts payable	—		3,447,821		3,447,821
Ten Year Bonds	—		10,784,685		10,784,685
Other financing	—		5,494,525		5,494,525
Payroll and related liabilities	—		669,264		669,264
Debentures	—		434,519		434,519
Related parties	—		85		85
Other current liabilities	—		577,086		577,086
Other non-current liabilities	—		636,259		636,259
Unrealized losses on financial instruments	2,071		—		2,071
Total	2,071		22,044,244		22,046,315
Financial result for the six-month period ended on June 30, 2014	(7,878	)	(420,606	)	(428,484	)
Financial result for the three-month period ended on June 30, 2014	(4,643	)	(253,960	)	(258,603	)

December 31, 2013 Assets	Loans and receivables	Assets at fair value  with gains and losses  recognized in income	Total
Cash and cash equivalents	2,099,224	—	2,099,224
Short-term investments	—	2,123,168	2,123,168
Unrealized gains on financial instruments	—	319	319
Trade accounts receivable	4,078,806	—	4,078,806
Related parties	87,159	—	87,159
Other current assets	291,245	—	291,245
Other non-current assets	220,085	—	220,085
Total	6,776,519	2,123,487	8,900,006
Financial result for the six-month period ended on June 30, 2013	149,755	43,652	193,407
Financial result for the three-month period ended on June 30, 2013	122,368	26,402	148,770

Liabilities	Liabilities at market  value with gains and  losses recognized in  income		Liabilities at fair value  with gains and losses  recognized in  shareholder’s equity	Other financial liabilities at  amortized cost		Total
Trade accounts payable	—		—	3,271,419		3,271,419
Ten Year Bonds	—		—	10,844,032		10,844,032
Other financing	—		—	5,448,248		5,448,248
Payroll and related liabilities	—		—	655,962		655,962
Debentures	—		—	414,495		414,495
Related parties	—		—	43		43
Other current liabilities	—		—	634,761		634,761
Other non-current liabilities	—		—	571,510		571,510
Unrealized losses on financial instruments	—		3,283	—		3,283
Total	—		3,283	21,840,470		21,843,753
Financial result for the six-month period ended on June 30, 2013	(15,864	)	—	(917,799	)	(933,663	)
Financial result for the three-month period ended on June 30, 2013	(5,875	)	—	(690,951	)	(696,826	)

As of June 30, 2014, the Company has derivative financial instruments such as interest rate swaps and forward contracts in US Dollar. Part of these instruments is classified as cash flow hedges and their effectiveness can be measured, having their unrealized losses and /or gains classified directly in Other Comprehensive Income. The other derivative financial instruments have their realized and unrealized losses and/or gains presented in the account “Gains and losses on derivatives, net” in the Consolidated Statement of Income.

e) Operations with derivative financial instruments

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

The objective of derivative transactions is always related to mitigating market risks as stated in our policies and guidelines. The monitoring of the effects of these transactions is performed monthly by the Cash Management and Debt Committee,

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

which validates the mark to market of these transactions. All derivative financial instruments are recognized at fair value in the Condensed Consolidated Interim Financial Statements of the Company.

Policy for use of derivatives: The Company is exposed to various market risks, including changes in exchange rates, commodities and interest rates. The Company uses derivatives and other financial instruments to reduce the impact of such risks on the fair value of its assets and liabilities or in future cash flows and results. The Company has established policies to evaluate the market risks and to approve the use of derivative transactions related to these risks. The Company enters into derivative financial instruments solely to manage market risks as mentioned above and never for speculative purposes. Derivative financial instruments are used only when they have a related position (asset or liability exposure) resulting from business operations, investments and financing.

Policy for determining fair value: the fair value of derivative financial instruments is determined using models and other valuation techniques, including future prices and market curves.

The derivative transactions may include: interest rate swaps, (both in the Libor dollar, as in other currencies), currency swaps and currency forward contracts.

Forward Contracts in US Dollar

The Company has entered into NDFs (Non Deliverable Forward) in order to mitigate the exchange variance risk on liabilities denominated in foreign currencies, mainly US dollar. The counterparties of these transactions are financial institutions with a low credit risk.

As of June 30, 2014, the parent Company Gerdau S.A. has settled Non Deliverable Forward with nominal value of US$ 17.5 million (R$ 38.5 million). The fair value of these contracts represented a loss of R$ 2,807, the counterpart of this operation were HSBC and Citibank.

Swap Contracts

The Company has settled an interest rate swap, designated as a cash flow hedge, contract whereby it receives a variable interest rate based on LIBOR and pays a fixed interest rate in US dollars. The objective of this transaction was to manage the risk of changes in interest rates (Libor) and risk of changes in the exchange rate on US Dollar debts at floating rates.

The Company has a cross currency swap, designated as a cash flow hedge, contract whereby it receives a variable interest rate based on LIBOR in US dollars and pays a fixed interest rate based in the local currency. The counterparties to these transactions are financial institutions with low credit risk.

The derivatives instruments can be summarized and categorized as follows:

			Notional value		Amount receivable		Amount payable
Contracts	Position		June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013	June 30, 2014		December 31, 2013
Forward
Maturity at 2014			US$00.0 million	US$20.0 million	—	319	(2,071	)	—
Interest rate swap
Maturity at 2014	receivable under the swap	Libor 6M + 0.90%	—	US$14.3 million	—	—	—		(274	)
	payable under the swap	5.50%
Cross currency swap
Maturity between 2017 and 2018	receivable under the swap	Libor 6M +2%-2.25%	US$25.0 million	US$25.0 million	9,189	—	—		(3,009	)
	payable under the swap	10.17%-11.02%	US$40.0 million	US$40.0 million
Total fair value of financial instruments					9,189	319	(2,071	)	(3,283	)

Prospective and retrospective tests demonstrated the effectiveness of these instruments.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

The efects of financial instruments are classified as follow:

	June 30, 2014		December 31, 2013
Unrealized gains on financial instruments
Current assets	—		319
Non-current assets	9,189
	9,189		319
Unrealized losses on financial instruments
Current liabilities	(2,071	)	(274	)
Non-current liabilities	—		(3,009	)
	(2,071	)	(3,283	)

	June 30, 2014		June 30, 2013
Net Income
Gains on financial instruments	(77	)	6,108
Losses on financial instruments	7,778		(15,834	)
	7,701		(9,726	)
Other comprehensive income
Gains on financial instruments	12,682		3,916
	12,682		3,916

f) Net investment hedge

Based on IFRIC Interpretation 16 issued in July 2008, and substantiated by IAS 39, the Company designated as hedge of part of its net investments in subsidiaries abroad the operations of Ten/Thirty Year Bonds. As a consequence, the effect of exchange rate changes on these debts has been recognized in equity and in the statement of comprehensive income.

The exchange variance on the Ten/Thirty Years Bonds in the amount of US$ 2.7 billion (designated as hedge) is registered in equity and in the statement of comprehensive income, while the exchange rate variance on the portion of US$ 1.0 billion is recognized in income

Additionally, the Company chose to designate as hedge part of the net investments in financing operations held by the subsidiary Gerdau Açominas SA, in the amount of US$ 0.2 billion, which were made in order to provide part of the resources for these investments acquisitions abroad.

Based on the standard and interpretation mentioned above, the Company demonstrated high effectiveness of the hedge as from the debt hiring for acquisition of these companies abroad, whose effects were measured and recognized directly in the statement of Comprehensive Income as an unrealized gain, net of taxes, in the amount R$ 168,096 and R$ 370,948 for the three and six-month period ended on June 30, 2014, respectively (loss of R$ 588,997 and R$ 519,542 for the three and six-month period ended on June 30, 2013).

The objective of the hedge is to protect, during the existence of the debt, the amount of part of the Company’s investment in the subsidiaries mentioned above against positive and negative oscillations in the exchange rate. This objective is consistent with the Company’s risk management strategy. Prospective and retrospective tests demonstrated the effectiveness of these instruments.

g) Measurement of fair value:

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

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

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

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

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

As of June 30, 2014, the Company had some assets which the fair value measurement is required on a recurring basis. These assets include investments in private securities and derivative instruments.

Financial assets and liabilities of the Company, measured at fair value on a recurring basis and subject to disclosure requirements of IFRS 7 as of June 30, 2014, are as follows:

	Fair Value Measurements at Reporting Date Using
			Quoted Prices Active Markets for  Identical Assets (Level 1)		Quoted Prices in Non-Active Markets  for Similar Assets  (Level 2)
	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013
Current assets
Short-term investments Trading	1,334,535	2,123,168	1,130,447	1,866,890	204,088	256,278
Financial instruments	—	319	—	—	—	319
	1,334,535	2,123,487	1,130,447	1,866,890	204,088	256,597
Current liabilities
Financial instruments	2,071	274	—	—	2,071	274
Non-current liabilities
Financial instruments	—	3,009	—	—	—	3,009
	2,071	3,283	—	—	2,071	3,283

NOTE 14 — PROVISIONS FOR TAX, CIVIL AND LABOR CLAIMS

The Company and its subsidiaries are party in judicial and administrative proceedings involving labor, civil and tax matters. Based on the opinion of its legal counsel, Management believes that the provisions recorded for these judicial and administrative proceedings is sufficient to cover probable and reasonably estimable losses from unfavorable court decisions, and that the final decisions will not have significant effects on the financial position and operational results of the Company and its subsidiaries.

For claims whose expected loss is considered probable, the provisions have been recorded considering the judgment of the Company’s legal advisors and of Management and the provisions are considered sufficient to cover expected probable losses. The balances of the provisions are as follows:

I) Provisions

	June 30, 2014	December 31, 2013
a) Tax provisions	1,194,817	1,057,697
b) Labor provisions	224,003	214,501
c) Civil provisions	19,231	22,400
	1,438,051	1,294,598

a) Provision for tax issues

The increase in tax provisions relates, substantially, to the discussions concerning the compensation of PIS credits, the incidence of PIS and COFINS on other income and excluding the ICMS from the calculation basis for PIS and COFINS. In relation to the demands of dealing with the exclusion of ICMS from the calculation basis for PIS and COFINS, the Company and its subsidiaries have been deposited in court the amounts involved.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

II) Judicial deposits

The Company has judicial deposits related to tax, labor and civil lawsuits as listed below:

	June 30, 2014	December 31, 2013
Tax	1,190,978	1,093,517
Labor	61,159	57,456
Civil	5,171	4,434
	1,257,308	1,155,407

NOTE 15 - RELATED-PARTY TRANSACTIONS

a)Intercompany loans

	June 30, 2014		December 31, 2013
Assets
Associate companies
Armacero Ind. Com. Ltda.	10,374		31,109
Jointly-controlled entities
Gerdau Corsa SAPI de C.V.	6,792		60
Aceros Corsa, S.A. de C.V.	5,748		—
Others
Fundação Gerdau	53,951		55,657
Others	163		333
	77,028		87,159
Liabilities
Others
Others	(85	)	(43	)
	(85	)	(43	)
Non-current liabilities	(85	)	(43	)

	For the six-month period ended
	June 30, 2014	June 30, 2013
Net financial income	1,995	1,525

Commercial operations

During the six-month period ended on June 30, 2014 and 2013, the Company, through its subsidiaries, performed commercial operations with some of its associated companies and jointly controlled entities in sales of R$ 234,180 as of June 30, 2014 (R$ 329,805 as of June 30, 2013) and purchases in the amount of R$ 266,868 as of June 30, 2014 (R$ 207,786 as of June 30, 2013). The net balance of accounts receivable totals R$ 32,688 as of June 30, 2014 (R$ 89,452 as of December 31, 2013).

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

b)Financial operations

	(Expenses)/Income
	For the six-month period ended
	June 30, 2014		June 30, 2013
Shareholders
Indac - Ind. Adm. e Comércio S.A. (*)	(3,495	)	(6,678	)
Grupo Gerdau Empreendimentos Ltda. (**)	444		302

(*) Guarantees of certain financing in the amount of R$ 712,921 at June 30, 2014, for which the Company pays a fee of 0.95% of the amount guranteed .

(**) Rental agreement

c)Guarantees granted

Related Party	Relationship	Type	Object	Original Amount	Maturity	Balance
Dona Francisca Energética S.A	Associate	Guarantee	Financing Agreements	152,020	Dec/14	5,089
Gerdau Açominas S.A.	Subsidiary	Guarantee	Financing Agreements	437,387	Jul/15 - Feb/21	474,160
Empresa Siderúrgica Del Peru S.A.A.	Subsidiary	Guarantee	Financing Agreements	517,792	Apr/14 - Sept/16	431,690
GTL Trade Finance Inc.	Subsidiary	Guarantee	10-year Bond	1,744,000	Oct/17	1,917,400
GTL Trade Finance Inc.	Subsidiary	Guarantee	30-year Bond	1,118,000	Apr/44	1,101,250
Diaco S.A.	Subsidiary	Guarantee	Financing Agreements	415,305	May/14 - Jun/17	417,498
Gerdau Aços Especiais S.A.	Subsidiary	Guarantee	Electricity Purchase/Sale Agreement	1,664	Sept/16	8,354
Gerdau Holding Inc.	Subsidiary	Guarantee	10-year Bond	2,188,125	Jan/20	1,384,498
Industrias Nacionales C. por A.	Associate	Guarantee	Financing Agreements	125,304	Jun/15 - Dic/17	104,547
Industrias Nacionales C. por A.	Associate	Guarantee	Financing Agreements	112,852	Mar/15	45,936
Gerdau Trade Inc.	Subsidiary	Guarantee	10-year Bond	2,117,750	Jan/21	2,613,266
Gerdau Corsa S.A.P.I. de C.V.	Associate	Guarantee	Financing Agreements	676,423	Aug/14 - Mar/19	712,222
GTL Trade Finance Inc., Gerdau Holdings Inc.	Subsidiary	Guarantee	Bond 10 years	2,606,346	Apr/24	2,567,298
Sipar Gerdau Inversiones	Subsidiary	Guarantee	Financing Agreements	1,665	Jun/17	13,541
Coquecol S.A.C.I.	Subsidiary	Guarantee	Financing Agreements	113,210	Mar/14 - Apr/19	110,127
Steelchem Trading Corporation	Associate	Guarantee	Financing Agreements	80,964	Jun/14 - Mar/15	88,100
Gerdau Trade Inc.	Subsidiary	Guarantee	10-year Bond	1,501,275	Apr/23	1,439,334
Gerdau Steel India Ltd.	Subsidiary	Guarantee	Financing Agreements	300,355	Dic/15 - Sept/18	269,268
Aceros Corsa S.A. de C.V.	Associate	Guarantee	Financing Agreements	44,050	Jun-15	43,506
Gerdau Corsa S.A.P.I. de C.V.	Associate	Guarantee	Financing Agreements	333,013	Unespecific	178,298
Gerdau Açominas S.A.	Subsidiary	Guarantee	Financing Agreements	1,576,206	Dec/15 - Aug/20	1,526,340
Gerdau Ameristeel Us. Inc.	Subsidiary	Guarantee	25-year Bond	103,596	Oct/37	112,328
Gerdau Aços Longos S.A.	Subsidiary	Guarantee	Financing Agreements	426,098	Oct/24 - Dic/30	409,766
Siderúrgica Zuliana, C.A.	Subsidiary	Guarantee	Financing Agreements	33,038	Jun/15	33,038
Gerdau Aços Especiais S.A.	Subsidiary	Guarantee	Financing Agreements	70,000	Feb/20	70,000
Gerdau Açominas S.A., Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A.	Subsidiary	Guarantee	Financing Agreements	78,571	Jul/16	51,785

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

d)Debentures

Debentures are held by parent companies, directly or indirectly, in the amount of R$ 370,769 as of June 30, 2014 (R$ 224,319 as of December 31, 2013), which corresponds to 66,406 debentures (42,173 as of December 31, 2013). Debentures are held by controlling shareholders, directly or indirectly, in the amount of R$ 184,836 as of June 30, 2014 (R$ 162,615 as of December 31, 2013), which corresponds to 37,468 debentures (35,066 as of December 31, 2013).

e)Price conditions and charges

Loan agreements between Brazilian companies are adjusted by the monthly variation of the CDI (Interbank Deposit Certificate), which was 2.47 and 4.93% for the three-month and six-month periods ended on June 30, 2014, respectively (1.82% and 3.43% for the three-month and six-month periods ended on June 30, 2013, respectively). The agreements with foreign companies are adjusted by contracted charges plus foreign exchange variation, when applicable. The sales and purchases of inputs and products are made under terms and conditions agreed between the parties under normal market conditions.

f)Management compensation

The Company paid to its management salaries and variable compensation totaling R$ 5,639 and R$ 30,866 for the three-month and six-month periods ended on June 30, 2014 (R$ 4,924 and R$ 19,287 for the three-month and six-month periods ended on June 30, 2013).

NOTE 16 — EQUITY

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

Reconciliation of common and preferred outstanding shares is presented below:

	June 30, 2014		December 31, 2013
	Common shares	Preferred shares	Common shares	Preferred shares
Balance at the beginning of the period	571,929,945	1,132,285,402	571,929,945	1,128,534,345
Exercise of stock option	—	238,923	—	3,751,057
Balance at the end of the period	571,929,945	1,132,524,325	571,929,945	1,132,285,402

On June 30, 2014, 573,627,483 common shares and 1,146,031,245 preferred shares are subscribed and paid up, with a total capital of R$ 19,249,181 (net of share issuance costs). Ownership of the shares is presented below:

	Shareholders
	June 30, 2014						December 31, 2013
Shareholders	Common	%	Pref.	%	Total	%	Common	%	Pref.	%	Total	%
Metalúrgica Gerdau S.A. and subsidiary*	449,712,654	78.4	252,841,484	22.1	702,554,138	40.9	449,712,654	78.4	252,841,484	22.1	702,554,138	40.9
Brazilian institutional investors	30,809,177	5.4	166,090,766	14.5	196,899,943	11.4	29,436,374	5.1	171,866,798	15.0	201,303,172	11.7
Foreign institutional investors	20,674,905	3.6	564,856,305	49.3	585,531,210	34.0	21,919,936	3.8	562,964,554	49.1	584,884,490	34.0
Other shareholders	70,733,209	12.3	148,735,770	13.0	219,468,979	12.8	70,860,981	12.4	144,612,566	12.6	215,473,547	12.5
Treasury stock	1,697,538	0.3	13,506,920	1.1	15,204,458	0.9	1,697,538	0.3	13,745,843	1.2	15,443,381	0.9
	573,627,483	100.0	1,146,031,245	100.0	1,719,658,728	100.0	573,627,483	100.0	1,146,031,245	100.0	1,719,658,728	100.0

*Metalurgica Gerdau S.A. is the controlling shareholder and Stichting Gerdau Johannpeter is the ultimate controlling shareholder of the Company.

Preferred shares do not have voting rights and cannot be redeemed but have the same rights as common shares in the distribution of dividends and also priority in the capital distribution in case of liquidation of the Company.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

b) Treasury stocks

Changes in treasury shares are as follows:

	June 30, 2014						December 31, 2013
	Common	R$	Preferred shares		R$		Common	R$	Preferred shares		R$
Balance at the beginning of the period	1,697,538	557	13,745,843		238,414		1,697,538	557	17,496,900		289,683
Exercise of stock option	—	—	(238,923	)	(4,063	)	—	—	(3,751,057	)	(51,269	)
Balance at the end of the period	1,697,538	557	13,506,920		234,351		1,697,538	557	13,745,843		238,414

As of June 30, 2014, the Company had 13,506,920 preferred shares in treasury, totaling R$ 234,351. These shares will be held in treasury for subsequent cancelling or will service the long-term incentive plan of the Company. During the six-months period ended on June 30, 2014, 238,923 shares were used upon exercise of stock options (208,092 during the six-month period ended on June 30, 2013), with losses of R$ 4,063 (R$ 3,745 during the six-month period ended on June 30, 2013) which were recorded under Investment and Working Capital reserve. The average acquisition cost of these shares was R$ 17.35.

c) Capital reserves - consists of premium on issuance of shares.

d) Retained earnings

I)  Legal reserves - under Brazilian Corporate Law, the Company must transfer 5% of the annual net income determined on its statutory books in accordance with Brazilian accounting practices to the legal reserve until this reserve equals 20% of the paid-in capital. The legal reserve can be utilized to increase capital or to absorb losses, but cannot be used for dividend purposes.

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

III) Investments and working capital reserve - consists of earnings not distributed to shareholders and includes the reserves required by the Company’s by-laws. The Board of Directors may propose to the shareholders the transfer of at least 5% of the profit for each year determined in its statutory books in accordance with accounting practices adopted in Brazil to this reserve. Amount can be allocated to the reserve only after the minimum dividend requirements have been met and its balance cannot exceed the amount of paid-in capital. The reserve can be used to absorb losses, if necessary, for capitalization, for payment of dividends or for the repurchase of shares.

IV) Pension Plan - actuarial gains and losses on postretirement benefits.

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

f) Other reserves - Includes gains and losses on available for sale securities, gains and losses on net investment hedge, gains and losses on derivatives accounted as cash flow hedge, cumulative translation adjustments and expenses recorded for stock option plans.

g) Dividends and interest on capital - The Company paid dividends to shareholders in the amounts presented below:

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

NOTE 17 – EARNINGS PER SHARE (EPS)

Basic

	For the three-month period ended on
	June 30, 2014			June 30, 2013
	Common	Preferred	Total	Common	Preferred	Total
	(in thousands, except share and per share data)			(in thousands, except share and per share data)
Basic numerator
Allocated net income available to Common and Preferred shareholders	119,6 10	236,845	356,445	131,286	259,099	390,385
Basic denominator
Weighted-average outstanding shares, after deducting the average of treasury shares	571,929,945	1,132,509,577		571,929,945	1,128,734,010
Earnings per share (in R$) – Basic	0.21	0.21		0.23	0.23

	For the six-month period ended on
	June 30, 2014			June 30, 2013
	Common	Preferred	Total	Common	Preferred	Total
	(in thousands, except share and per share data)			(in thousands, except share and per share data)
Basic numerator
Allocated net income available to Common and Preferred shareholders	252,912	500,767	753,679	181,130	357,447	538,577
Basic denominator
Weighted-average outstanding shares, after deducting the average of treasury shares	571,929,945	1,132,421,238		571,929,945	1,128,661,210
Earnings per share (in R$) – Basic	0.44	0.44		0.32	0.32

Diluted

	For the three-month period ended on
	June 30, 2014		June 30, 2013
Diluted numerator
Allocated net income available to Common and Preferred shareholders
Net income allocated to preferred shareholders	236,845		259,099
Add:
Adjustment to net income allocated to preferred shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of options granted to acquire stock of Gerdau.	348		75
	237,193		259,174
Net income allocated to common shareholders	119,610		131,286
Less:
Adjustment to net income allocated to common shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of options granted to acquire stock of Gerdau.	(348	)	(75	)
	119,262		131,211
Diluted denominator
Weighted - average number of shares outstanding
Common Shares	571,929,945		571,929,945
Preferred Shares
Weighted-average number of preferred shares outstanding	1,132,509,577		1,128,734,010
Potential increase in number of preferred shares outstanding in respect of stock option plan	4,970,567		967,545
Total	1,137,480,144		1,129,701,555
Earnings per share – Diluted (Common and Preferred Shares) - in R$	0.21		0.23

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

	For the six-month period ended on
	June 30, 2014		June 30, 2013
Diluted numerator
Allocated net income available to Common and Preferred shareholders
Net income allocated to preferred shareholders	500,767		357,447
Add:
Adjustment to net income allocated to preferred shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of options granted to acquire stock of Gerdau.	738		35
	501,505		357,482
Net income allocated to common shareholders	252,912		181,130
Less:
Adjustment to net income allocated to common shareholders in respect to the potential increase in number of preferred shares outstanding, as a result of options granted to acquire stock of Gerdau.	(738	)	(35	)
	252,174		181,095
Diluted denominator
Weighted - average number of shares outstanding
Common Shares	571,929,945		571,929,945
Preferred Shares
Weighted-average number of preferred shares outstanding	1,132,421,238		1,128,661,210
Potential increase in number of preferred shares outstanding in respect of stock option plan	4,989,845		327,496
Total	1,137,411,083		1,128,988,706
Earnings per share – Diluted (Common and Preferred Shares) - in R$	0.44		0.32

NOTE 18 – PROFIT SHARING

a) The profit sharing of the management of the Company is limited to 10% of net income, after deducting the income tax and compensation paid, in accordance with the Company’s by-laws; and

b) The profit sharing of the employees is based on achievement of operational targets and is allocated as cost of sales, sales expenses and as general and administrative expenses.

NOTE 19 – LONG-TERM INCENTIVE PLANS

The Extraordinary Shareholders’ Meeting held on April 30, 2003 decided, based on a previously approved plan and within the limit of the authorized capital, to grant preferred stock options to management, employees, or people who render services to the Company or its subsidiaries, and approved the development of the “Long-Term Incentive Program” that represents a new method of compensation of the strategic officers of the Company. The options shall be exercised in a maximum of five years after the grace period. The Stock Options Plan establishes that 75% of the options granted to management are exercisable only if they met the performance goals established by the Executive Committee.

The Extraordinary Shareholders’ Meeting held on September 19, 2013 approved changes to the Long-Term Incentive Plan with the objective to support a model of achieving challenging long-term goals, allowing participants to become shareholders of the Company and achieve future gains with the valuation of the shares. Moreover, the modifications seek alignment between the interests of the participants, the Company, its shareholders and the market trends. These changes consist in the replacement of Stock Options by Restricted Shares and Performance Shares based on results of the Company, and allow the employees to convert, until November 17, 2013, their Stock Options and Share Appreciation Rights to Restricted Shares through a method of calculation that ensures the equivalence between the fair value of Stock Options and Restricted Shares.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

The conversion was performed through the equivalence between the fair value of stock options and SARs and Restricted Shares delivered in the migration process. The fair value was determined by external experts using the trinomial valuation model. The Restricted Shares originated by the migration will vest in five equal installments on the following dates: December 9, 2013, March 20, 2015, March 20, 2016, March 20, 2017 and March 20, 2018.

a)Stock Options Plan:

	June 30, 2014			December 31, 2013
	Number of shares		Average exercise price in the year	Number of shares		Average exercise price in the year
			R$			R$
Available at beginning of the year	2,793,495		19.44	13,481,041		17.34
Options Granted	—		—	1,947,564		18.58
Options Exercised	(13,012	)	16.50	(2,388,004	)	9.60
Options Forfeited	(97,245	)	18.58	(279,004	)	20.22
Converted to Restricted Shares	—		—	(9,968,102	)	18.96
Available at the end of the year	2,683,238		19.44	2,793,495		19.44

The average market price of the share on the six-month period ended June 30, 2014 was R$ 14.84 (R$ 16.01 in December 31, 2013).

As of June 30, 2014 the Company has a total of 13,506,920 preferred shares in treasury. These shares may be used for serving this plan. The exercise of the options before the grace period end was due to retirement or death.

Exercise price	Quantity	Average period of grace (in years)	Average exercise price	Number exercisable at June 30, 2014*
			R$
R$ 9.58	80,742	4.7	9.99	80,742
R$ 30.04	12,581	2.7	31.34	12,581
R$ 43.70	8,953	3.7	45.58	8,953
R$ 10,58 a R$ 29,12	2,580,962	5.0	19.60	138,211
	2,683,238			240,487

*The total of options vested that are exercisable on June 30, 2014 is 240,487 (252,372 on December 31, 2013).

During the three-month and six-month periods ended on June 30, 2014, the long-term incentive plans costs recognized in income for all equity settled awards were R$ 7,835 and R$ R$ 17,153, respectively (R$ 8,244 and R$ 15,540 on June 30, 2013, for the three-month and six-months periods, respectively).

The Company recognizes costs of employee compensation based on the fair value of the options granted, considering their fair value on the date of granting. The Company uses the Black-Scholes model for determining the fair value of the options. To determine fair value, the Company used the following economic premises:

	Grant 2013
Dividend Yield	1.36	%
Volatility in the price of share	57.22	%
Risk free interest rate	9.23	%
Expected period until exercise	5 years

There were no new grants for this plan in 2014.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

b) Restricted Shares and Performance Shares Summary:

Quantity on January 01, 2013	1,024,876
Granted	597,472
Addition due to the Convertion from SARs	2,898,828
Addition due to the Convertion from Stock Options	5,234,336
Forfeited	(652,956	)
Exercised	(1,731,341	)
Quantity on December 31, 2013	7,371,215
Granted	3,705,103
Forfeited/Canceled	(383,625	)
Exercised	(249,749	)
Quantity on June 30, 2014	10,442,944

c) Other Plans – North America

In February 2010, the Board of Directors approved the adoption of the Equity Incentive Plan (the “EIP”). Awards under the EIP may take the form of stock options, SARs, deferred share units (“DSUs”), restricted share units (“RSUs”), performance share units (“PSUs”), restricted stock, and/or other share-based awards. Except for stock options, which must be settled in common shares, awards may be settled in cash or common shares as determined by the Company at the time of grant.

For the portion of any award which is payable in options or SARs, the exercise price of the options or SARs will be no less than the fair market value of a common share on the date of the award. The vesting period for all awards (including RSUs, DSUs and PSUs) is determined by the Company at the time of grant. Options and SARs have a maximum term of 10 years.

In 2014, an award of approximately US$ 11.7 million (R$ 25.8 million) was granted to participants under the EIP. The Company issued 1,922,892 equity-settled SARs, 768,586 RSUs, and 1,154,306 PSUs under this plan. This award is being accrued over the vesting period of 5 years.

In 2013, an award of approximately US$ 11.9 million (R$ 27.9 million) was granted to participants under the EIP. The Company issued 2,423,379 equity-settled SARs, 198,552 RSUs, and 398,920 PSUs under this plan. This award is being accrued over the vesting period of 5 years.

In connection with the adoption of the EIP, the Company terminated the existing long-term incentive plan (“LTIP”), and no further awards will be granted under the LTIP. All outstanding awards under the LTIP will remain outstanding until either exercised, forfeited or they expire. On June 30, 2014, there were 815,897 SARs and 102,276 stock options outstanding under the LTIP. These awards are being accrued over the vesting period of 4 years.

During the three-month and six-month periods ended on June 30, 2014, the effects recognized in income for all cash-settled awards were a gain of US$ 103 thousand (R$ 230) and US$ 542 thousand (R$ 1,245), respectively and during the three-month and six-month periods ended on June 30, 2013 were a gain of US$ 2,434 thousand (R$ 5,031) and US$ 4,613 thousand (R$ 9,379), respectively.

As of June 30, 2014 and December 31, 2013, the outstanding liability for share-based payment transactions included in other non-current liabilities of the subsidiaries in North America was US$ 503 thousand (R$ 1,508) and US$ 1,200 thousand (R$ 2,800), respectively. The total intrinsic value of share-based liabilities for which the participant’s right to cash had vested was US$ 1,165 thousand (R$ 2,566) and US$ 1,300 thousand (R$ 3,000) as of June 30, 2014 and December 31, 2013, respectively.

Share Appreciation Rights (SARs)

SARs provide the holder with the opportunity to receive either ADRs or a cash payment equal to the fair market value of the ADRs less the grant price. The grant price is set at the closing price of the Company’s common shares on the grant date. SARs have a vesting period of four to five years and expire ten years after the grant date. Expenses with this plan are recognized based on the fair value of the awards that are still in the vesting period and remain outstanding at the end of the reporting period. The Black-Scholes option pricing model is used to calculate an estimate of fair value.  The Company has

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

SARs that may be settled in shares or in cash. For equity-settled SARs, the fair value is estimated only on the grant date. For cash-settled SARs, the fair value is remeasured at each reporting date.

There were no SARs granted in 2014.

The grant date fair value of equity-settled SARs granted in 2013 was US$ 3.16 (R$ 6.83), respectively and the principal assumptions used in applying the Black-Scholes option pricing model were as follows:

	Grant 2013
Dividend Yield	1.81	%
Volatility in the price of share	51.08	%
Risk free interest rate	1.12	%
Expected period until exercise	6.50 years

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions. The model requires the use of subjective assumptions. Expected volatility was based on historical volatility of the Company’s stock as well as other companies operating similar businesses. The expected life (in years) was determined using historical data to estimate SARs exercise patterns. The expected dividend yield was based on the historical annualized dividend rates. The risk free interest rate was based on the rate for US Treasury bonds commensurate with the expected term of the granted SARs.

SARs Summary:

Quantity on Quantity 01, 2013	6,078,726
Granted	2,423,379
Forfeited	(885,644	)
Exercised	(843,965	)
Converted to RSUs	(5,914,523	)
Quantity on December 31, 2013	857,973
Exercised	(450	)
Forfeited/Canceled	(41,626	)
Quantity on June 30, 2014	815,897

Performance Share Units (PSUs)

PSUs give the holder the right to receive one common share for each unit that vests on the vesting date as determined by the Company. The holders of PSUs accumulate additional units based upon notional dividends paid by the Company on its ADRs on each dividend payment date, which are reinvested as additional PSUs. The percentage of PSUs initially granted depends upon the Company’s performance over the performance period against pre-established performance goals. Expenses related to each PSU grant are recognized over the performance period based upon the fair value of the Company’s PSUs on the grant date and the number of units expected to be exercised. The fair value is calculated based on the closing price of the Company’s common shares on the date of grant. The weighted average fair value of PSUs granted was US$ 6.10 and US$ 7.51 (R$ 14.01 and R$ 15.27) for the six-month periods ended on June 30, 2014 and June 30, 2013, respectively.

NOTE 20 – EXPENSES BY NATURE

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

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

	For the three-month periods ended				For the six-month periods ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Depreciation and amortization	(540,239	)	(476,195	)	(1,081,899	)	(940,315	)
Labor expenses	(1,593,754	)	(1,481,553	)	(3,220,162	)	(2,919,040	)
Raw material and consumption material	(6,495,269	)	(6,087,519	)	(12,999,431	)	(11,995,617	)
Freight	(549,892	)	(494,875	)	(1,115,686	)	(942,509	)
Other expenses/income, net	(661,093	)	(622,476	)	(1,349,296	)	(1,206,329	)
	(9,840,247	)	(9,162,618	)	(19,766,474	)	(18,003,810	)
Classified as:
Cost of sales	(9,179,154	)	(8,540,141	)	(18,417,178	)	(16,797,480	)
Selling expenses	(179,548	)	(164,999	)	(353,131	)	(316,229	)
General and administrative expenses	(498,944	)	(470,997	)	(1,032,749	)	(954,308	)
Other operating income	41,606		37,541		88,472		99,323
Other operating expenses	(24,207	)	(24,022	)	(51,888	)	(35,116	)
	(9,840,247	)	(9,162,618	)	(19,766,474	)	(18,003,810	)

NOTE 21 – FINANCIAL INCOME

	For the three-month periods ended				For the six-month periods ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Income from short-term investments	31,669		24,120		71,747		37,514
Interest income and other financial incomes	56,990		39,549		78,960		69,745
Financial income total	88,659		63,669		150,707		107,259
Interest on debts	(329,129	)	(222,533	)	(579,202	)	(424,564	)
Monetary variation and other financial expenses	(41,456	)	(41,794	)	(80,109	)	(90,833	)
Financial expenses total	(370,585	)	(264,327	)	(659,311	)	(515,397	)
Exchange variations, net	76,315		(343,806	)	203,993		(322,392	)
Gains and Losses on derivatives, net	(5,231	)	(3,592	)	(7,701	)	(9,726	)
Financial result, net	(210,842	)	(548,056	)	(312,312	)	(740,256	)

NOTE 22 – SEGMENT REPORTING

From 2014 on, the iron ore operation, which was previously presented into the Brazil segment, started to be presented separately as a new segment called “Iron Ore”. This change is due to the evolution of the iron ore project throughout 2013, which led to the Company’s decision to segregate this operation due to its significance.

For presentation purposes, the comparative information has been modified, regarding the information originally disclosed, to reflect the changes approved by the Gerdau Executive Committee, according to the criteria established by IFRS 8.

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

	For the three-month periods ended
	Brazil Operation				Iron Ore				North America Operation				Latin America Operation				Special Steels Operation				Eliminations and Adjustments				Consolidated
Information by business segment:	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Net sales	3,445,830		3,665,878		216,438		123,726		3,581,118		3,092,381		1,301,821		1,332,199		2,181,594		2,121,671		(283,979	)	(453,398	)	10,442,822		9,882,457
Cost of sales	(2,852,062	)	(2,940,659	)	(164,930	)	(73,255	)	(3,304,063	)	(2,905,474	)	(1,155,516	)	(1,193,413	)	(1,988,359	)	(1,880,376	)	285,776		453,036		(9,179,154	)	(8,540,141	)
Gross profit	593,768		725,219		51,508		50,471		277,055		186,907		146,305		138,786		193,235		241,295		1,797		(362	)	1,263,668		1,342,316
Selling, general and administrative expenses	(220,885	)	(221,021	)	(9,918	)	(9,320	)	(177,825	)	(144,523	)	(85,515	)	(72,065	)	(98,360	)	(92,138	)	(85,989	)	(96,929	)	(678,492	)	(635,996	)
Other operating income (expenses)	15,420		11,879		—		—		22,313		750		(156	)	(2,658	)	1,377		6,795		(21,555	)	(3,247	)	17,399		13,519
Equity in earnings of unconsolidated companies	—		—		—		—		23,992		(3,517	)	(2,616	)	(1,188	)	—		—		5,614		4,335		26,990		(370	)
Operational income (Loss) before financial income (expenses) and taxes	388,303		516,077		41,590		41,151		145,535		39,617		58,018		62,875		96,252		155,952		(100,133	)	(96,203	)	629,565		719,469
Finacial result, net	(64,174	)	(30,636	)	(6,779	)	(196	)	(39,669	)	(42,705	)	(18,705	)	(37,555	)	(39,768	)	(32,673	)	(41,747	)	(404,291	)	(210,842	)	(548,056	)
Income (Loss) before taxes	324,129		485,441		34,811		40,955		105,866		(3,088	)	39,313		25,320		56,484		123,279		(141,880	)	(500,494	)	418,723		171,413
Income and social contribution taxes	(84,961	)	(123,069	)	(9,051	)	(10,239	)	6,016		43,264		(20,937	)	(14,402	)	(6,259	)	(37,423	)	89,807		371,407		(25,385	)	229,538
Net income (Loss)	239,168		362,372		25,760		30,716		111,882		40,176		18,376		10,918		50,225		85,856		(52,073	)	(129,087	)	393,338		400,951
Supplemental information:
Net sales between segments	101,570		255,050		126,668		110,652		23,288		44,089		—		85		32,453		43,522		—		—		283,979		453,398
Operational (Loss) income before financial income (expenses) and taxes	388,303		516,077		41,590		41,151		145,535		39,617		58,018		62,875		96,252		155,952		(100,133	)	(96,203	)	629,565		719,469
Depreciation/amortization	209,342		185,816		11,417		4,951		135,579		118,790		50,264		46,338		133,637		120,300		—		—		540,239		476,195
Earnings before interest, taxes, depreciation and amortization (EBITDA)	597,645		701,893		53,007		46,102		281,114		158,407		108,282		109,213		229,889		276,252		(100,133	)	(96,203	)	1,169,804		1,195,664
	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Investments in associates and jointly-controlled entities	—		—		—		—		336,817		326,765		1,061,758		1,129,060		1,477		1,288		114,467		132,918		1,514,519		1,590,031
Total assets	19,537,386		19,276,428		1,061,971		1,068,799		15,963,024		16,909,618		7,622,804		7,927,174		14,136,037		14,830,092		(427,565	)	(1,797,071	)	57,893,657		58,215,040
Total liabilities	9,205,953		9,396,996		141,488		126,651		4,199,107		4,547,307		2,133,731		2,123,608		6,575,801		6,912,854		3,931,531		3,086,867		26,187,610		26,194,283

	For the six-month periods ended
	Brazil Operation				Iron Ore				North America Operation				Latin America Operation				Special Steels Operation				Eliminations and Adjustments				Consolidated
Information by business segment:	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Net sales	7,101,181		7,122,632		532,699		202,862		6,838,856		6,016,957		2,701,191		2,476,507		4,444,354		3,934,841		(621,683	)	(705,784	)	20,996,598		19,048,015
Cost of sales	(5,758,013	)	(5,883,834	)	(361,830	)	(136,272	)	(6,462,589	)	(5,659,245	)	(2,369,678	)	(2,242,589	)	(4,089,753	)	(3,575,268	)	624,685		699,728		(18,417,178	)	(16,797,480	)
Gross profit	1,343,168		1,238,798		170,869		66,590		376,267		357,712		331,513		233,918		354,601		359,573		3,002		(6,056	)	2,579,420		2,250,535
Selling, general and administrative expenses	(449,820	)	(443,659	)	(19,385	)	(16,566	)	(363,794	)	(299,303	)	(175,383	)	(149,353	)	(201,427	)	(175,168	)	(176,071	)	(186,488	)	(1,385,880	)	(1,270,537	)
Other operating income (expenses)	25,894		28,343		—		—		24,490		2,201		(5,223	)	(4,328	)	3,657		11,409		(12,234	)	26,582		36,584		64,207
Equity in earnings of unconsolidated companies	—		—		—		—		43,152		12,078		(1,134	)	(5,881	)	—		—		11,605		10,104		53,623		16,301
Operational income (Loss) before financial income (expenses) and taxes	919,242		823,482		151,484		50,024		80,115		72,688		149,773		74,356		156,831		195,814		(173,698	)	(155,858	)	1,283,747		1,060,506
Finacial result, net	(161,911	)	(61,157	)	(13,564	)	(330	)	(79,486	)	(88,807	)	(10,772	)	(69,915	)	(74,253	)	(72,709	)	27,674		(447,338	)	(312,312	)	(740,256	)
Income (Loss) before taxes	757,331		762,325		137,920		49,694		629		(16,119	)	139,001		4,441		82,578		123,105		(146,024	)	(603,196	)	971,435		320,250
Income and social contribution taxes	(194,607	)	(191,454	)	(34,828	)	(12,425	)	71,925		70,619		(65,062	)	(18,474	)	(16,738	)	(59,008	)	101,304		450,978		(138,006	)	240,236
Net income (Loss)	562,724		570,871		103,092		37,269		72,554		54,500		73,939		(14,033	)	65,840		64,097		(44,720	)	(152,218	)	833,429		560,486
Supplemental information:
Net sales between segments	266,586		393,508		232,067		188,535		47,632		50,555		—		837		75,398		72,349		—		—		621,683		705,784
Operational (Loss) income before financial income (expenses) and taxes	919,242		823,482		151,484		50,024		80,115		72,688		149,773		74,356		156,831		195,814		(173,698	)	(155,858	)	1,283,747		1,060,506
Depreciation/amortization	409,644		373,962		22,969		9,858		271,349		233,415		101,914		87,690		276,023		235,390		—		—		1,081,899		940,315
Earnings before interest, taxes, depreciation and amortization (EBITDA)	1,328,886		1,197,444		174,453		59,882		351,464		306,103		251,687		162,046		432,854		431,204		(173,698	)	(155,858	)	2,365,646		2,000,821
	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Investments in associates and jointly-controlled entities	—		—		—		—		336,817		326,765		1,061,758		1,129,060		1,477		1,288		114,467		132,918		1,514,519		1,590,031
Total assets	19,537,386		19,276,428		1,061,971		1,068,799		15,963,024		16,909,618		7,622,804		7,927,174		14,136,037		14,830,092		(427,565	)	(1,797,071	)	57,893,657		58,215,040
Total liabilities	9,205,953		9,396,996		141,488		126,651		4,199,107		4,547,307		2,133,731		2,123,608		6,575,801		6,912,854		3,931,531		3,086,867		26,187,610		26,194,283

The main products by business segment are:

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

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

Latin America Operation: rebar, bars and drawn products.

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

Iron Ore Operation: Iron Ore

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

The Company’s geographic information with net sales classified according to the geographical region where the products were shipped is as follows:

	For the three-month periods ended
	Brazil		Latin America (1)		North America (2)		Europe/Asia		Consolidated
Information by geographic area:	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Net sales	3,985,391	3,921,155	1,380,219	1,547,557	4,334,564	3,783,085	742,648	630,660	10,442,822	9,882,457
	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013
Total assets	23,499,112	22,036,970	8,267,501	8,478,180	22,507,891	23,843,862	3,619,153	3,856,028	57,893,657	58,215,040

(1) Does not include operations of Brazil

(2) Does not include operations of Mexico

	For the six-month periods ended
	Brazil		Latin America (1)		North America (2)		Europe/Asia		Consolidated
Information by geographic area:	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Net sales	8,185,749	7,686,997	2,869,529	2,813,099	8,429,917	7,369,980	1,511,403	1,177,939	20,996,598	19,048,015
	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013	June 30, 2014	December 31, 2013
Total assets	23,499,112	22,036,970	8,267,501	8,478,180	22,507,891	23,843,862	3,619,153	3,856,028	57,893,657	58,215,040

(1) Does not include operations of Brazil

(2) Does not include operations of Mexico

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

NOTE 23 – IMPAIRMENT OF ASSETS

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

GERDAU S.A.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

as of June 30, 2014

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

(Unaudited)

determination, investment plans, and long-term economic-financial forecasts.  The goodwill impairment test allocated to business segments is performed annually in December, also being performed at interim reporting dates if events or circumstances indicate possible impairment.

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

The Company concluded that there are no indications that an impairment test of goodwill and other long-lived assets for the period ended on June 30, 2014 is required.

NOTE 24 - SUBSEQUENT EVENTS

I) On July 25, 2014, the Company proposed to anticipate the payment of dividends on income for the quarter ended on June 30, 2014, in the form of dividends, which will be calculated and credited on the shareholding interest owned on August 11, 2014, in the amount of R$ 102.3 million (R$ 0.06 per common and preferred share), with payment on August 21, 2014. These amounts will be considered as payment in advance of the minimum dividends established by the Company’s by-laws, and will be submitted to the approval of the Board of Directors on July 30, 2014.

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