GERDAU S.A. MANAGEMENT REPORT - DOC - 1 Dear Shareholders: The year 2003 ended on a more favorable domestic environment than when the year began. This perception is reflected in the economic stability, in Brazil s lower sovereign risk, and the gradual reduction in interest rates. Initiatives were made to implement to create conditions for a sustainable growth in the medium and long terms, resulting in advances insocial and economic which are still shy from what the structural reforms the country needs to undergo. In the international arena, expectations for a renewed economic growth in the United States should reflect positively on its neighbors in North America, as well as on other regions of the world. The panorama for the South American economies, especially Chile, the only country in the region to get an investment grade risk classification, is also positive. The recovery in the prices of commodities in the international markets generated important trade surpluses and a renewal of economic growth for the above mentioned countries. I - CONSOLIDATED INFORMATION For Gerdau, 2003 was marked by various events that allowed it to achieve significant advances in relation to its performance for the year as well as to create the fundamentals necessary for a long-term sustained development of the Group. In this respect, we point out the following items: The integration of all operating activities in Brazil under a single company called Gerdau Açominas S.A. As a consequence, the ten units producing steel in Brazil began to operate in an integrated manner with eleven steel service centers (cutting and bending of bars and rods), 6 processing units, and Comercial Gerdau, with its 73 branches and 5 service centers. The use of full capacity at its unit in Ouro Branco, Minas Gerais, over the year, reaching an output of 3.1 million metric tons of liquid steel in 2003. The consolidation of new units in North America, resulting in the integration of Gerdau s operations (Courtice Steel, MRM, and AmeriSteel) with those of Co-Steel Inc. in Canada, as of October 22 nd, 2002. The Increases in prices and demand for steel products in the international markets, leading Gerdau to establish a new record in exports in 2003. A total of 3.2 million tons were shipped from Brazil (+69.9%). This generated revenues of US$ 787.3 million (+125.0%) representing a 30.9% increase in the average price of exports. Gerdau surpassed the production mark of one million tons of crude steel in a single month in March,. Twenty-one years ago, the Group would consume one full year to produce the same volume of crude steel in its five Brazilian mills and one in Uruguay. Today, the Group has 23 steel plants distributed in Brazil, United States, Canada, Chile, Uruguay, and Argentina. The acquisition, on December 2 nd, of a pig iron plant with installed capacity of 200 thousand tons per year located 50 kilometers from São Luís in Bacabeira, Maranhão, and 48 kilometers from the regional port. The acquisition on December 10 th of mining rights for US$ 30 million, including 15 mining concessions covering a total land area of seven thousand hectares located in the state of Minas Gerais. The mines are located in a privileged region within the iron ore belt. They are close to the Ouro Branco Mill and will contribute to consolidation of the long-term competitive positionof this unit. The starting up of operations of the new wire rod rolling mill with an installed capacity of 550 thousand tons/year in Ouro Branco, MG, with an investment of US$ 66 million.
GERDAU S.A. FL. 2 MANAGEMENT REPORT - DOC - 1 The lengthening of the indebtednessprofile by means of the placement of Senior Notes and borrowing through a syndicated Senior Secured Credit Facility, by Gerdau Ameristeel Corporation. The average weighted maturity for this refinancing program, which totaled US$ 755 million, is 6.6 years and the average interest rate is 7.7% p.a. Gerdau Açominas S.A. completed a US$ 400 million Export Receivables Securitization for the same reasons as the previously mentioned operation. The first tranche of US$105 million was placed and is paying an annual interest of 7.37% and has a final maturity in July, 2010. A Euro Commercial Paper deal was finalized by GTL Trade Finance Inc. in the first half of October. The offering totaled US$ 100 million; final maturity is on October 15 th, 2004 and interest is 4.0% p.a. Production Annual crude steel production of Gerdau companies totaled 12.3 million tons, establishing a new historical record for Gerdau. This quantity was 30.7% higher than the volume produced in 2002. Brazil was responsible for 56.5% of total production in 2003. The North American units contributed 40.7% and the companies in other South American countries (except Brazil) produced the remaining 2.8%. Output of Rolled products reached 9.0 million tons in 2003, representing a growth of 30.5% compared to 2002. Production (1,000 metric tons) Year 2003 Year 2002 Variation 2003/2002 Crude Steel Brazil 6,975.9 5,998.9 16.3% North America 5,019.9 3,130.2 60.4% South America 346.8 312.0 11.2% Total 12,342.6 9,441.1 30.7% Rolled products Brazil 3,890.6 3,660.3 6.3% North America 4,775.7 2,931.6 62.9% South America 378.6 340.7 11.1% Total 9,044.9 6,932.6 30.5% Sales In consolidated terms, sales totaled 12.1 million tons in 2003, 32.7% greater than in 2002. International shipments highlighted the year for Gerdau Açominas S.A., the company in which operations in Brazil are consolidated. Exports totaled 3.2 million tons (US$ 787.3 million) or 48.8% of the company s sales. This volume was 69.9% higher than in 2002. Strong demand in the international market and attractive prices compensated the reduction in domestic sales, which fell 12.9% below the volume sold in the previous year. After the consolidation of all North American units under Gerdau Ameristeel Corporation, sales reached 5.1 million metric tons, revealing growth of 69.4% in relation to the previous year. Units in Chile, Uruguay, and Argentina sold 416.3 thousand tons during 2003, a volume 18.3% higher than in 2002.
GERDAU S.A. FL. 3 MANAGEMENT REPORT - DOC - 1 Sales (1,000 metric tons) Year 2003 Year 2002 Variation 2003/2002 Brazil Domestic market 3,376.1 3,874.3 (12.9%) Exports 3,211.4 1,890.7 69.9% Total 6,587.5 5,765.0 14.3% International North America 5,140.5 3,033.8 69.4% South America 416.3 351.8 18.3% Total 5,556.8 3,385.6 64.1% Total 12,144.3 9,150.6 32.7% Revenues Net sales revenue reached R$ 13.4 billion in 2003 (R$ 9.2 billion in 2002). The strong performance of exports, the merging of the nine North American units in October 2002, and the utilization of full production capacity at Gerdau Açominas S.A. were the main factors that contributed to this growth. Net Revenues (R$ millions) Year 2003 Year 2002 Variation 2003/2002 Brazil 7,307.0 5,248.0 39.2% North America 5,569.9 3,513.3 58.5% South America 490.1 400.4 22.4% Total 13,367.0 9,161.7 45.9% Gross margin for the year reached 24.61% compared to 28.63% in the previous year. The reduction occurred due to increases in costs, especially for scrap and pig iron in Brazil, and scrap, electricity, and natural gas in the United States. Gross revenues reached R$ 3.3 billion in 2003, 25.5% higher than the previous year. Operating expenses (sales, general and administrative expenses) rose 20.9% in 2003 to R$ 1.2 billion. However, even with this increase, the share of operating expenses in net sales revenues fell to 9.06% in 2003, compared to 10.94% in 2002. EBTDA (R$ millions) Year 2003 Year 2002 Change 2003/2002 Gross revenues 3.290.2 2.622.7 25.5% Selling expenses (448.1) (337.6) 32.7% General and administrative expenses (763.4) (664.8) 14.8% Depreciation and amortization 604.8 511.9 18.2% EBITDA 2.683.5 2.132.1 25.9% Net financial income (expense) net of FX (532.0) (375.8) 41.6% and monetaryvariations Monetary and FX variations (114.5) (707.8) (83.8%) EBTDA 2.037.0 1.048.5 94.3% EBITDA reached R$ 2.7 billion for the year, 25.9% higher than in 2002. Despite this growth, the EBITDA margin decreased to 20.08% compared to 23.27% for the previous year, a consequence of the increase in costs of sales in a proportion greater than growth in net sales revenues. EBITDA (R$ millions) Year 2003 Year 2002 variation 2003/2002 Brazil 2,297.3 1,674.8 37.2% North America 234.7 347.3 (32.4%) South America 151.5 110.0 37.7% Total 2,638.5 2,132.1 25.9%
GERDAU S.A. FL. 4 MANAGEMENT REPORT - DOC - 1 Net financial expenses totaled R$ 646.5 million in 2003, 40.3% less than in the previous year. This amount includes monetary adjustments of R$ 19.6 million and foreign exchange adjustments of R$ 94.9 million. Equity pick up was negative and amounted to R$ 299.4 million for the year, attributed to the effects of fluctuations in the exchange rate over foreign investments. The provision for Income and Social Contribution taxes totaled R$ 140.9 million for the year. This was due to the recognition of R$ 333.7 million in previous years tax carry forwards by our subsidiary Gerdau Açominas S.A. as a result of the integration of the operating activities of Gerdau S.A. Net income totaled R$ 1.3 billion in 2003, which showed growth of 53.4% in relation to the previous year and a net margin of 9.38%. Net Income (R$ millions) Year 2003 Year 2002 Variation 2003/2002 Brazil 1,224.8 679.3 79.5% North America (61.3) 105.0 - South America 93.4 33.6 178.0% Total 1,254.5 817.9 53.4% Added Value In consolidated terms, (Brazil and abroad), Gerdau companies generated added value equal to R$ 5.4 billion in 2003, 29.8% more than in 2002. This amount results from the sale of products and services totaling R$ 15.5 billion and total costs of R$ 10.1 billion related to raw materials and supplies, third-party services, depreciation and amortization and transfers, such as equity interests and financial income. Breakdown of Added Value Distributed (R$ 5.4 billion) Reinvestment of income 16.8% Dividends and interest on capital stock 6.6% Salaries, benefits, profit sharing and training 31.0% Interest on borrowing 15.5% Taxes, contributions, and social charges 30.1% Operations in Brazil generated an added value of R$ 4.3 billion in 2003, 42.1% more than in 2002. At companies aborad, this amount reached R$ 1.2 billion, a reduction of 1.7% in relation to the previous year. Distribution Brazil (R$ 4,276 thousand) International (R$ 1,152 thousand) Taxes, contributions, and social charges 36.9% 4.6% Salaries, benefits, profit sharing, and training 18.7% 76.3% Interest on borrowing 15.4% 16.3% Reinvestment of profits 20.7% 2.8% Dividends and interest on capital stock 8.3% -
GERDAU S.A. FL. 5 MANAGEMENT REPORT - DOC - 1 Restructuring of Brazilian Operations The shareholders of Gerdau S.A. and Aço Minas Gerais S.A. (Açominas) approved on November 28the integration of their operating activities into a single company. This process involved the transferring of all steel operations and respective assets of Gerdau S.A. in Brazil to Açominas, which changed its name to Gerdau Açominas S.A. The ten Brazilian steel producing units began to operate in an integrated manner with eleven steel service centers (cutting and bending for bars and rods), 6 processing units and Comercial Gerdau, with its 73 branches and 5 service centers. This new structure resulted in a better product mix and allowed operating and commercial synergies to be taken advantage of, as well as the optimization of administrative processes. Investment Investments in property, plant, and equipment totaled US$294.7 million in 2003. Our companies in Brazil invested a total of 77.5% or US$ 228.5 million of this amount during the year. Industrial plants in North America received investment of US$ 59.4 million (20.2% of the total) and South American units outside Brazil received the remaining US$ 6.8 million (2.3% of the total). The high point for the year was the installation of new rolling mill for wire rod at the mill in Ouro Branco, MG, which received investments equivalent to US$ 66 million. This equipment, which began operating test runs at the end of the year, represents a total installed capacity of 550 thousand metric tons/year. Investment in Fixed Assets (US$ millions) Year 2003 Year 2002 Brazil 228.5 161.9 Gerdau Açominas 221.3 157.2 Other 7.2 4.7 International 66.2 37.0 North America 59.4 29.2 South America 6.8 7.8 Total 294.7 198.9 In addition to the aforementioned investments, the following assets were also acquired during the year: Maranhão Gusa S.A. (Margusa) was acquired on December 2 nd. This company has an installed capacity of 200 thousand ton/year and is located in Bacabeira, state of Maranhão, distant 50 kilometers from São Luís and 48 kilometers from the regionsl port. This enterprise was acquired for about US$ 18 million. Real estate and mining rights were acquired from a company controlled by the Votorantim Group on December 10 th for about US$ 30 million. These assets include 15 mining concessions that cover an area of seven thousand hectares (1 hectare = 2.471 acres) in Varzea do Lopes and Gongo Soco, in the state of Minas Gerais. These mines are located close to the Mill in a privileged area for iron ore and they will contribute to consolidate the competitiveness of the Ouro Branco Millin the l ong run. Indebtedness Gross debt totaled R$ 6.3 billion as of December 31 st, which was 12.0% less than the figure as of December 31, 2002. The results of efforts to extend maturities are evident when compared to the previous year. Short-tem debt, which represented 51.7% of the total in December 2002, dropped to 38.6% (R$ 2.4 billion) of total debt at the end of 2003, while long-term debt rose from 48.3% to 61.4% of the total or R$ 3.8 billion.
GERDAU S.A. FL. 6 MANAGEMENT REPORT - DOC - 1 Approximately 15.2% of total debt is denominated in Brazilian reais (R$ 950.5 million) and represents debt primarily with the BNDES. A total of 38.6% is linked to the US dollar (R$ 2.4 billion) and has been contracted by companies in Brazil and 46.2% has been borrowed by companies abroad (R$ 2.9 billion). Various swap contracts were acquired to exchange debt indexed in U.S. dollars for Brazilian reais at 97% of the Brazilian Interbank Deposit Rate (CDI) entered into since 2001 to protect the indebtedness exposure against fluctuations in the U.S. dollar/brazilian real exchange rate. Of the R$ 2.4 billion in indebtedness of the Brazilian companies denominated in foreign currency, R$ 1.2 billion was hedged against currency fluctuations as of December 31, 2003 (amount translated into reais at borrowing date). The average weighted cost of this debt as of December 31 was 19.9% for Brazilian reais denominated debt, compared to an average market benchmark rate (SELIC) of 23% for 2003, 5.9% plus foreign exchange variations for the total dollar-denominated debt contracted in Brazil, and 6.4% for the portion borrowed abroad by foreign subsidiaries. At year end, available fund balances and financial investments totaled R$ 1.0 billion, 57.8% of which (R$ 587.1 million) was linked to the U.S. dollar. Debt (R$ millions) 12.31.2003 12.31.2002 Short term Domestic currency 233.3 480.8 Foreign currency 1 1,390.3 1,639.4 Foreign companies 793.8 1,587.8 Total 2,417.4 3,708.0 Long Term Domestic currency 717.2 1,096.1 Foreign currency 1 1,030.7 897.8 Foreign companies 2,097.3 1,465.9 Total 3,845.1 3,359.8 Gross debt 6,262.5 7,167.8 Available funds and financial investments 1,017.0 1,430.6 Net debt 5,245.5 5,737.2 1-50% of the debt denominated in a foreign currency was hedged. Various financial transactions were structured during the year to modify the maturity profile of indebtedness, allowing short-term debt to be reduced by 34.2% year over year. The main transactions were: Gerdau AmeriSteel Corporation concluded negotiations for a US$ 350 million syndicated Senior Secured Credit Facility on June 27 th, 2003. The facility has a cost of 4.5% p.a. and matures in five years, and a US$ 405 million offering of Senior Unsecured Notes maturing in eight years and paying interest of 10.375% p.a. These notes were placed at 98.001% of their face value. The average weighted maturity for these loans totaling US$755 million is 6.6 years and the average interest rate is 7.7% p.a. All of the company s debt became long term after these transactions. On January 23, 2004, Gerdau Ameristeel completed the exchange of US$ 405 million in principal related to Senior Unsecured Notes placed through a private offering in June 2003. The notes were exchanged for other notes similar in form and in terms to those originally issued, except for the fact that they were issued and registered in accordance with the US Securities Act of 1933 and they are not subject to transfer restrictions. Gerdau Açominas S.A. placed the first tranche (US$ 105 million) of its US$ 400 million Securitization of Export Receivables on September fifth. The first tranche pays interest of 7.37% p.a. and matures in July 2010. It also has a two-year grace period and amortization will be made on a quarterly basis beginning October 2005.
GERDAU S.A. FL. 7 MANAGEMENT REPORT - DOC - 1 A US$ 100 million Euro Commercial Paper transaction was completed by GTL Trade Finance Inc. in the first half of October. This debt pays interest of 4.0% p.a. and matures on October 15, 2004. The thirteenth series of debentures issued by Gerdau S.A. (R$ 300 million), which was issued at a cost of CDI plus 1% p.a., was repurchased at the beginning of November. The main debt ratios were as follows at year end: Ratios 12.31. 2003 12.31. 2002 Net debt / Total net capitalization 51.9% 56.5% EBITDA / Net financial expenses (excluding FX and monetary variations) 5.0x 5.7x Gross debt / EBITDA 2.3x 3.4x Net debt / EBITDA 2.0x 2.7x Risk Management Gerdau initiated a project to consolidate the Group s risk management process in January 2004. This project counts on the support of specialized consultants and the involvement of company executives and is intended to fulfill the following objectives: Improve Corporate Governance by utilizing international best practices. Formally establish planning objectives and responsibilities for areas of Risk Management, Process Management, Internal Auditing, and other related areas. Analyze the risk environment and controls in each business process. Implement an Integrated Risk Management system interconnected with the systems that process transactions, allowing for the constant monitoring of risks and self-evaluation of controls. This project is being implemented by means of the use of advanced risk management methodologies recognized worldwide and which comply with requirements of the Sarbanes- Oxley Act. These requirements are mandatory for companies with shares traded on U.S. based stock exchanges. In addition to complying with this law, Gerdau s strategy is to assure the ongoing development of risk management processes in order to stimulate security and transparency when executing operations. II. UNCONSOLIDATED INFORMATION As already mentioned, Gerdau S.A. transferred all its steel operations and related assets in Brazil to Aço Minas Gerais S.A. (Açominas) (now Gerdau Açominas S.A.) on November 28 th. As a consequence, operating results include eleven months under the previous structure and one month as a pure holding company. It is important to consider this modification when comparing 2002 and 2003. A pro-forma statement that shows the the company s standingas if the operational restructuring had occurred on January 1, 2003 is presented in the explanatory notes on the balance sheet. This pro forma statement allows shareholders to compare Gerdau S.A. as a holding and provides a basis for comparison of future quarterly results as of March 2004. Production and Sales Gerdau S.A. produced 4.0 million tons of crude steel in 2003 (3.7 million in 11 months), which represents growth of 11.8% compared to the volume produced in 2002. Production of rolled products reached 3.5 million tons (3.2 million in 11 months), an increase of 4.7%.
GERDAU S.A. FL. 8 MANAGEMENT REPORT - DOC - 1 Production (In thousands of metric tons) 4.029 3.603 3.492 3.335 12 mos. Of 2002 12 mos. Of 2003 Crude Steel Rolled Products Gerdau S.A. shipped 4.3 million metric tons of steel products in 2003 (3.9 million in 11 months), 7.2% more than in 2002. Demand in the civil construction sector and the weak growth in Brazilian manufacturing activities during 2003 caused domestic sales to decrease 15.8%. This drop was counterbalanced the by growth in exports, which were favored by strong demand in the international market and higher prices. A total of 1.4 million tons were shipped during the year (1.2 million in 11 months), which resulted in sales of US$ 335.2 million (US$297.3 million in 11 months). Income Total sales reached R$ 6.1 billion in 2003 and net income amounted to R$ 4.9 billion, representing a growth of 19.5% and 21.8%, respectively. It is worth noting that these amounts relate to the eleven months prior to the operational restructuring that resulted in Gerdau Açominas S.A. Gross margin reached 37.55%, which represented a reduction down from the 40.52% of the end of the previous year. This decrease was the result of higher production costs incurred over the past year. Gross revenue reached R$ 1.8 billion for the year compared to R$ 1.6 billion in 2002. Operating expenses fell in relation to net sales revenues from 13.46% in 2002 to 13.02% in 2003, due to tight control over general and administrative expenses in the period. Operating cash flow - EBITDA reached R$ 1.4 billion in 2003, 8.8% more than the R$ 1.3 billion generated in 2002. The EBITDA margin weighed in at 28.30% for the year, a decrease from the previous year s 31.67%. Net financial expenses totaled R$ 393.6 million for the year, 30.0% less than in 2002. As a result of this reduction, their share in net revenue fell from 14.06% in 2002 to 8.08% in 2003. Income from equity pick up totaled R$ 503.1 million for the year, 28.0% higher than in 2002. This was mainly due to growth in the income of Gerdau Açominas S.A. Net income of the reached R$ 1.1 billion for the year, 42.4% more than the R$ 798.7 million obtained in 2002 and represents an income per share of R$ 7.68. Shareholders equity at Gerdau S.A. totaled R$ 4.1 billion as of December 31, a net book value per share of R$ 27.89.
GERDAU S.A. FL. 9 MANAGEMENT REPORT - DOC - 1 Investments The company invested R$ 302 million in maintenance and modernization of its industrial plants during the year. Debt After the aforementioned restructuring of operations, the debt of Gerdau S.A. was limited to the issuing of debenturesfor a total of R$ 227.9 million which remained in circulation as of December 31. The company showed financial investments of R$ 177.7 million as of year-end. Capital Markets The Board of Directors approved a change in the dividend payment policy or interest on capital stock on March 31, 2003. Beginning in 2003, shareholders of Gerdau S.A. received dividends or interest on capital stock on a quarterly rather than a six months basis, as had been the practice until then. A stock split that provided a 30% bonus was approved at the Shareholders Meeting of April 30 for shares held as of this date. A reverse stock split whichexchanged each lot of thousand shares into one new share was also approved on this same date. As a consequence, trades began to be processed by unit rather than by thousand share lots, as had occurred previously. The company s board of directors met on November 17 th and authorized company shares buy back program to be held in the treasury and subsequently resold in the market or cancelled. During the ninety day period stipulated for the purchase of shares, 786,000 shares were acquired, that is, 57% of the maximum authorized limit, which was set at 1,380,000 preferred shares or 2% of the shares issued as of October 31, 2003. The s stock showed a significant increase in liquidity in 2003. A total of 103,599 trades were processed on the São Paulo Stock Exchange, 89.3% more than in the previous year. Trading volume reached R$ 2.5 billion, growing 81.9% in relation to 2002. Preferred shares (GGBR4) rose in value by 151.7% in 2003 and average daily trading volume reached R$ 9.8 million, compared to R$ 5.5 million in 2002. ADRs traded on the New York Stock Exchange, backed by preferred shares (GGB), showed a 67.4% increase in trading volume in relation to 2002, rising to 23.5 million securities traded in 2003. The U.S. dollar volume of these transactions was US$ 315.3 million in the period, which equaled an average daily volume of US$ 1.2 million. During 2003, preferred shares of Gerdau S.A. (XGGB) marked a daily presence on the Madrid Stock Exchange (Latibex). A total of 297.7 thousand shares valued at 3.1 million euros were traded. In 2003, performance of quoted prices for preferred shares traded on the São Paulo and New York stock exchanges was as follows:
GERDAU S.A. FL. 10 MANAGEMENT REPORT - DOC - 1 Base 100 BOVESPA Base 100 NYSE 300 300 250 250 200 200 150 150 100 100 Jan-03 Jan-03 Abr-03 Jul-03 Jul-03 Out-03 Out-03 Dez-03 Dez-03 Ibovespa Gerdau S.A Dow Jones ADRs Gerdau S.A Moving ahead with its policy of transparency and capital markets relationship, the made various presentations to analysts and investors in Brazil and abroad. In Brazil, meetings were held in São Paulo, Rio de Janeiro and in Brasilia, as well as a national meeting with APIMEC members held in Belo Horizonte, in November. Participants at this meeting also had the opportunity to visit the Gerdau Açominas S.A. mill, in Ouro Branco. Presentations were also made in the U.S. and in Europe. In order to strengthen relationships, over 200 individual meetings were held with analysts and investors in 2003, including visits to mills. Moreover, interested parties can also obtain information and clarification by telephone and e-mail. Conference call on the s performance in each period were broadcast in Portuguese and English at the end of each quarter. Over 500 individuals participated in these events. A total of R$ 351.2 million in interest on capital stock was paid to shareholders in the year. If the price of R$ 61.00 as of December 30, 2003 is considered, this represented a dividend yield of 3.9% and an increase in value of 151.7% for shares traded on the Bovespa exchange. Quarter Interest on capital stock (R$ millions) Per share (R$) No. of shares (Millions) Date of payment First quarter 74.2 0.65 1 114.1 1 05/15/2003 Second quarter 50.4 0.34 148.4 08/14/2003 Third quarter 75.7 0.512 148.4 11/18/2003 Fourth quarter 151.0 1.02 148.0 02/17/2004 1 per thousand shares. Brazilian institutional investors held 10.1% of the capital of Gerdau S.A. as of December 31, 2003. Foreign investors held 21.8% (ADRs and Annex IV). The majority of shareholders held the remaining 68.1%.
GERDAU S.A. FL. 11 MANAGEMENT REPORT - DOC - 1 Gerdau companies 52% Brazilian institutional investors 10% Foreign institutional investors 22% Other investors 16% Independent Auditors In order to comply with CVM Instruction 381/2003, Gerdau S.A. informs that PricewaterhouseCoopers Auditores Independentes, the company s independent auditors, did not render services other than those related to their independent audit during 2003. It is the s policy when engaging services unrelated to the independent auditor that the following principles which preserve the independence of our auditors be followed, that is: (a) the auditor should not audit his own work, (b) the auditor should not exercise management functions, and (c) the auditor should have no role in promoting interests. III. HUMAN RESOURCES In 2003, Gerdau continued its program for training and preparing executives to foster its aspirations as a world-class international steel company. Human resources management applies this vision to play a strategic role in the development of Gerdau s 20,160 employees. The workforce is encouraged to act in an entrepreneurial manner, continuously improve professional qualifications, be motivated by challenges and the quest for realization and to identify with Gerdau s values and social responsibility. Training and Development Professional and personal development are important factors in the formation of new leadership, allowing those selected to function as coaches for their teams, training and stimulating the potential of each individual while allowing for personal differences. In 2003, Gerdau companies invested R$ 20.5 million in employee training and development. This represented a total of 63 hours per individual. In order to develop professionals with international experience, an increasing number of Gerdau employees participate in exchange programs that involves various units in Brazil and abroad. In 2003, the number of professionals who worked outside their country of origin reached thirty-four. These individuals are an important element for spreading best operating practices and Gerdau s culture. In addition, the also stimulates the development of global talents through full scholarships to attend MBA programs at top universities in the world.
GERDAU S.A. FL. 12 MANAGEMENT REPORT - DOC - 1 Attracting talents Sustainable development and perpetuation of Gerdau s business require a structure that constantly seeks out and retains individuals with differentiated potential to add value and fill strategic management positions at the. Our Trainee and Internship Program, which includes both recent graduates and students, has become an important source for future leaders in development. There are currently 908 trainees and interns who work in partnership with experienced teams to capitalize on knowledge and practical experience. Compensation Our system for compensation of employees is founded on the binomial: monthly salary and variable compensation aligned with the achievement of specific goals. Salaries are constantly monitored using market benchmarks to ensure that they are consistent with the best practices utilized by other companies. Variable compensation recognizes the achievement of short and long-term results obtained by fulfilling clearly defined goals that stimulate the surpassing of limits by an individual or a team. Human resource policies also encompass the recognition and the apprecaition of employees as strategic partners of the business. The Participative Programs are an example; in 2003, they resulted in the implementation of 1,369 improvement projects in which 3,996 employees and 1,001 work groups participated. These projects resulted in important savings that also served to compensate participants in these programs. Evaluations and analyses that utilize various methodologies, including 360-degree evaluations, are carried out in order to monitor management skills of executives. Evaluations allow the company to establish the degree of alignment of professionals with the s strategies and management practices, as well as their degree of individual development. The shareholders of Gerdau S.A. approved a new form of compensation for Gerdau strategic executives Long-Term Incentive Program on April 30, 2003. This new compensation program, which is based on the granting of a share purchase option for preferred shares issued by Gerdau companies in an amount equivalent to 20% of the annual base salary of each of these executives, is intended to attract and retain executives, provide a system for compensation over the long-term, allow business growth and success to be shared, and reinforce the sentiment of employees as partners in the business. On this same date, the shareholders of Gerdau S.A. authorized its management to grant purchase options for 683,936 of the company s shares at a price of R$ 23.88 per share, including 280,785 shares that were part of the regular five-year program (can be exercised after five years) and an additional 403,151, exceptionally in 2003, for exercise in three years. Option rights must be exercised within five years after the first exercise date. On November 17, the board of directors authorized the purchase of shares to be held in treasury and subsequently disposed of or cancelled as part of this new philosophy for compensation. A total of 786,600 shares (345,000 up to December 2003) were acquired at an average price of R$ 55.93 per share to be used to meet the needs of this long-term incentive program. Health and Safety Throughout 2003, safety practices and social well-being concepts were reinforced and disseminated in all areas of the Gerdau companies. Development of a total safety system that involved leaders and employees in continuous actions to raise awareness and qualify them to implement the most modern concepts in the area of safety management stimulated proactive attitudes in relation to continuous improvement of conditions in the work environment. A total of R$ 20.1 million was invested in this area in 2003 and 113,410 improvements suggested by employees were implemented.
GERDAU S.A. FL. 13 MANAGEMENT REPORT - DOC - 1 Constant attention to health, education, and the welfare of employees and their families is also a practice that has received special attention from the over many years. In addition to preventive and emergency care provided by the Gerdau Foundation, the also offers medical, hospital, and dental health insurance to those enrolled in plans. In 2003, the Gerdau Foundation invested R$ 59.8 million in the health of over 40 thousand beneficiaries. Another R$ 38.8 million was invested to feed and transport employees. Retirement Benefits In order to provide retirement benefits that supplement those provided by social security to all employees in Brazil and abroad, the Gerdau companies sponsor pension plans which had net assets of R$ 1.9 billion as of December 31, 2003. As of year-end, benefits totaling R$ 63.1 million had been provided to 2,509 individuals. IV. FINAL COMMENTS Economic stability and the advances obtained in Brazil during 2003 with respect to reforms proposed by the current Administration to contribute to the sustainable growth in the mediumand long-term created a more favorable outlook for the Brazilian economy which allows us to project new realizations and achievements for 2004. Ddomestic demand is expected to be stronger in this environment and interest rates should settle at levels more adequate for investment and growth in employment. It is also expected that a more stable currency and a trade surplus that will generate reserves adequate for the country s needs. In North America where Gerdau does a significant portion of its business, expectations point to a renewal of economic growth, which is important not only for this region but for the world economy as a whole. A weaker U.S. dollar has allowed imports to return to a more normal level, permitting an upswing in domestic manufacturing activity in the United States. Parallel to this, Gerdau will continue its efforts to identify synergies between the various units that operate in the United States and Canada in order to reduce costs and improve operating margins. Perspectives for Chile, Argentina, and Uruguay, three other countries where Gerdau has plants, are also favorable for 2004. The recovery of domestic demand together with higher commodity prices provide a basis for expectations that growth in the GDP s of these countries will be significant. Finally, we wish to register our thanks to our customers, suppliers, sales representatives, shareholders, financial institutions, and government agencies for the support received, as well as our team for their efforts and dedication. Rio de Janeiro, March 10 th, 2004. MANAGEMENT
(A free translation of the original in Portuguese) GERDAU S.A. BALANCE SHEET AT DECEMBER 31 (In thousands of reais) ASSETS 2003 2002 2003 2002 CURRENT ASSETS Cash and banks and financial investments (Note 5) 177.684 365.680 1.017.006 1.430.656 Customers (Note 6) - 476.157 1.526.176 1.376.029 Inventories (Note 7) - 619.693 2.336.598 2.219.981 Tax recoverable (Note 8) 1.844 26.451 120.815 60.573 Deferred income tax and social contribution (Note 9) - 20.849 116.868 116.979 Dividends receivable 235.459 - - - Other accounts receivable 102 65.037 217.417 166.871 Total current assets 415.089 1.573.867 5.334.880 5.371.089 LONG-TERM RECEIVABLES Related companies (Attachment to Note 3d) - 8.825 26.979 7.585 Eletrobrás loans 8.908 8.908 10.212 10.938 Deferred income tax and social contribution (Note 9) 29.686 28.711 789.346 278.652 Compulsory deposits and other (Note 10) 25.503 95.304 224.720 255.923 Total long-term receivables 64.097 141.748 1.051.257 553.098 PERMANENT ASSETS Investments (Attachment to Note 3d) 4.248.312 4.410.913 461.412 916.234 Fixed assets (Note 11) - 1.672.543 7.378.725 7.597.318 Deferred charges (Note 12) - 7.668 20.467 24.269 Total permanent assets 4.248.312 6.091.124 7.860.604 8.537.821 Total assets 4.727.498 7.806.739 14.246.741 14.462.008 The accompanying notes are an integral part of these financial statements. 4
GERDAU S.A. BALANCE SHEET AT DECEMBER 31 (In thousands of reais) LIABILITIES AND SHAREHOLDERS' EQUITY (continued) 2003 2002 2003 2002 CURRENT LIABILITIES Suppliers - 148.328 1.192.428 925.541 Financing (Note 13) - 1.237.464 2.414.376 3.707.916 Debentures (Note 14) - - 3.027 - Taxes and contributions payable (Note 17) 42.455 110.111 171.776 167.189 Deferred income tax and social contribution (Note 9) - - 35.721 28.118 Salaries payable 4.089 41.231 148.626 194.510 Proposed dividends/interest on capital 131.916 163.135 154.220 167.656 Other payables 11.801 28.252 222.725 197.967 Total current liabilities 190.261 1.728.521 4.342.899 5.388.897 LONG-TERM LIABILITIES Financing (Note 13) - 1.032.164 3.396.085 2.750.492 Debentures (Note 14) 227.878 539.922 449.039 709.367 Related companies (Attachment to Note 3d) 20.961 1.048.425 - - Provision for contingencies (Note 19) 95.000 95.530 221.212 173.443 Deferred income tax and social contribution (Note 9) 57.530 35.835 484.096 487.018 Benefits to employees (Note 23) - 9.689 278.870 355.233 Other payables 7.472 23.427 219.393 176.915 Total long-term liabilities 408.841 2.784.992 5.048.695 4.652.468 MINORITY INTEREST - - 726.751 1.127.417 SHAREHOLDERS' EQUITY Capital (Note 20) 1.735.656 1.335.120 1.735.656 1.335.120 Capital reserves 376.672 310.368 376.672 310.368 Revenue reserves 2.016.068 1.647.738 2.016.068 1.647.738 Total shareholders' equity 4.128.396 3.293.226 4.128.396 3.293.226 SHAREHOLDERS' EQUITY INCLUDING MINORITY INTEREST - - 4.855.147 4.420.643 Total liabilities and shareholders' equity 4.727.498 7.806.739 14.246.741 14.462.008 The accompanying notes are an integral part of these financial statements. 5
(A free translation of the original in Portuguese) GERDAU S.A. STATEMENT OF INCOME YEARS ENDED DECEMBER 31 (In thousands of reais) 2003 2002 2003 2002 GROSS SALES AND/OR SERVICES (Note 25) 6.087.658 5.093.107 15.782.967 11.143.960 Taxes on sales (1.068.692) (946.759) (1.427.585) (1.133.490) Freight and discounts (148.765) (146.227) (988.421) (848.758) NET SALES AND/OR SERVICES 4.870.201 4.000.121 13.366.961 9.161.712 COST OF SALES AND/OR SERVICES RENDERED (3.041.635) (2.379.077) (10.076.740) (6.538.993) GROSS PROFIT 1.828.566 1.621.044 3.290.221 2.622.719 SELLING EXPENSES (312.873) (249.901) (448.131) (337.589) FINANCIAL EXPENSES/INCOME, NET (Note 16) (393.602) (562.231) (646.570) (1.083.645) GENERAL AND ADMINISTRATIVE EXPENSES Management fees (16.323) (12.633) (27.089) (15.193) General expenses (305.054) (275.959) (736.351) (649.592) EQUITY IN THE EARNINGS OF SUBSIDIARIES AND ASSOCIATED COMPANIES (Attachment to Note 3d) 503.064 393.147 (299.357) 408.730 OTHER OPERATING INCOME (EXPENSES), NET 11.123 8.695 14.489 16.048 OPERATING PROFIT 1.314.901 922.162 1.147.212 961.478 NON-OPERATING INCOME (EXPENSES), NET (26.664) (41.304) (7.608) (49.903) INCOME BEFORE TAXES AND PARTICIPATIONS 1.288.237 880.858 1.139.604 911.575 PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION (Note 9) Current (93.129) (88.211) (308.681) (89.561) Deferred (41.569) 18.674 449.605 9.670 MANAGEMENT PROFIT SHARING (Note 21) (16.323) (12.633) (26.043) (13.746) INCOME BEFORE MINORITY INTEREST 1.137.216 798.688 1.254.485 817.938 MINORITY INTERESTS (117.269) (19.250) NET INCOME FOR THE YEAR 1.137.216 798.688 Net income per share - R$ 7,68 Net income per thousand shares - R$ 7,00 Net equity per share - R$ 27,89 Net equity per thousand shares - R$ 28,86 The accompanying notes are an integral part of these financial statements. 6
(A free translation of the original in Portuguese) GERDAU S.A. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands of reais) Capital reserves Revenue reserves Special Investments Total Investment Law and working Retained shareholders' Capital incentives 8200/91 Other Total Legal capital Total earnings equity At December 31, 2001 1.320.133 227.539 21.487 6.187 255.213 87.408 1.023.005 1.110.413-2.685.759 Net income for the year - - - - - - - - 798.688 798.688 Capital increase 14.987 - - - - - - - - 14.987 Investment incentives - 49.067-6.088 55.155 - - - - 55.155 Prior-year adjustments - income tax on benefits to employees - - - - - - - - 4.533 4.533 Distribution proposed for General Meeting Legal reserve (Note 20) - - - - - 40.161-40.161 (40.161) - Reserve for investments and working capital - - - - - - 497.164 497.164 (497.164) - Interest on capital (Note 20) - - - - - - - - (265.896) (265.896) At December 31, 2002 1.335.120 276.606 21.487 12.275 310.368 127.569 1.520.169 1.647.738-3.293.226 Net income for the year - - - - - - - - 1.137.216 1.137.216 Capital increase (Note 20) 400.536 - - - - - (400.536) (400.536) - - Investment incentives - 66.304-66.304 - - - - 66.304 Treasury shares (Note 20) - - - - - - (17.103) (17.103) - (17.103) Distribution proposed for General Meeting Legal reserve (Note 20) - - - - - 56.860-56.860 (56.860) - Reserve for investments and working capital - - - - - - 729.109 729.109 (729.109) - Interest on capital (Note 20) - - - - - - - - (351.247) (351.247) At December 31, 2003 1.735.656 342.910 21.487 12.275 376.672 184.429 1.831.639 2.016.068-4.128.396 The accompanying notes are an integral part of these financial statements. 7
(A free translation of the original in Portuguese) GERDAU S.A. STATEMENT OF CHANGES IN FINANCIAL POSITION YEARS ENDED DECEMBER 31 (In thousands of reais) 2003 2002 2003 2002 FINANCIAL RESOURCES WERE PROVIDED BY Operations Net income for the year 1.137.216 798.688 1.254.485 817.938 Expenses (income) not affecting working capital Depreciation and amortization 183.832 184.123 604.887 511.771 Prior-year adjustments - benefits to employees - 4.533-4.533 Cost of disposed permanent assets 147.999 50.438 33.434 78.035 Equity in the earnings of subsidiaries and associated companies (Attachment to Note 3d) (503.064) (393.147) 299.357 (408.730) Monetary variations on long-term debt 1.621 316.763 (15.737) 434.551 Monetary variations on long-term receivables (1.493) (43.969) (5.107) (42.620) Arising from operations 966.111 917.429 2.171.319 1.395.478 Third parties Capital increase/treasury shares (Note 20) (17.103) 14.987 (17.103) 14.987 Contributions to capital reserves 66.304 55.155 66.304 56.378 Increase (decrease) in long-term liabilities (422.659) 1.159.500 639.723 (408.716) Net working capital of consolidated companies - - 53.198 295.970 Foreign exchange effect on working capital of foreign companies - - (120.202) 62.638 Loss effect of interest on working capital of associated companies - - - (22.658) Net working capital - operational integration (Note 4c) 256.530 - - - Dividends not included in income for the year 273.781 30.632 459 4 Total funds provided 1.122.964 2.177.703 2.793.698 1.394.081 FINANCIAL RESOURCES WERE USED FOR Investments 156.913 2.319.910 75.280 611.827 Fixed assets 263.483 258.618 843.461 648.427 Deferred charges 2.304 1.055 7.246 6.135 Increase (decrease) in long-term receivables (30.465) (33.595) 506.376 82.455 Dividends/interest on capital (Note 20) 351.247 265.896 351.546 269.032 Total funds used 743.482 2.811.884 1.783.909 1.617.876 CHANGES IN NET WORKING CAPITAL 379.482 (634.181) 1.009.789 (223.795) Working capital At the beginning of the year (154.654) 479.527 (17.808) 205.987 At the end of the year 224.828 (154.654) 991.981 (17.808) CHANGES IN NET WORKING CAPITAL 379.482 (634.181) 1.009.789 (223.795) The accompanying notes are an integral part of these financial statements. 8
(A free translation of the original in Portuguese) SUPPLEMENTARY INFORMATION GERDAU S.A. STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31 (In thousands of reais) 2003 2002 2003 2002 Net income for the year 1.137.216 798.688 1.254.485 817.938 Equity in the earnings of subsidiaries (Attachment to Note 3d) (503.064) (393.147) 299.357 (408.730) Provision for credit risks 11.594 4.911 20.705 5.432 Loss on disposal of fixed assets 15.928 5.625 10.056 8.190 Gain / loss on investment disposal (1.645) 4.087 (111) 7.420 Debt indexation 82.483 428.566 130.790 748.573 Depreciation and amortization 183.832 184.123 604.887 511.771 Income tax and social contribution (12.204) 4.769 (438.731) 7.755 Interest on debt 291.462 227.040 587.143 454.651 Contingencies/judicial deposits 4.997 (4.067) 624 6.334 Trade accounts receivable variation (160.073) (84.816) (180.879) (147.543) Inventory variation (106.405) (119.793) (207.267) (222.708) Suppliers variation 11.157 33.309 187.378 (46.005) Other operating activity accounts 135.319 59.280 84.468 (115.673) Net cash provided by operating activities 1.090.597 1.148.575 2.352.905 1.627.405 Acquisition/disposal of fixed assets (262.887) (244.867) (873.039) (565.828) Increase in deferred assets (2.304) (1.444) (7.246) (6.135) Acquisition/disposal of investments (25.488) (2.307.556) (71.603) (906.213) Receipt of dividends/interest on capital 38.251 30.628 - - Net cash used by investing activities (252.428) (2.523.239) (951.888) (1.478.176) Suppliers of fixed assets 2.436 2.747 2.196 (13.449) Working capital financing 112.645 598.163 (336.901) 618.679 Debentures (426.154) 250.959 (394.340) 238.414 Permanent asset financing 111.684 654.749 454.989 1.476.379 Amortization of permanent asset financing (272.111) (472.577) (541.308) (1.872.003) Payment of financing interest (142.343) (124.597) (402.611) (343.614) Loan with related companies 7.574 854.990 (11.316) 3.771 Capital increase/treasury shares (Note 20) (17.103) - (17.103) - Payment of dividends/interest on capital and participations (402.793) (201.490) (407.910) (210.675) Net cash provided (used in) financing activities (1.026.165) 1.562.944 (1.654.304) (102.498) Changes in cash balance (187.996) 188.280 (253.287) 46.731 Cash balance At the beginning of the year (Note 5) 365.680 177.400 1.430.656 1.012.822 Restatement of opening cash - - (173.735) 318.717 Opening balance of consolidated companies for the year - - 13.372 52.386 At the end of the year (Note 5) 177.684 365.680 1.017.006 1.430.656 The accompanying notes are an integral part of these financial statements
(A free translation of the original in Portuguese) GERDAU S.A. Attachment to Note 3d INVESTMENTS IN SUBSIDIARY, ASSOCIATED AND RELATED COMPANIES (In thousands of reais) a) INVESTMENT BALANCES 2003 2002 Deposit for Provision future capital Goodwill Investment for losses increase (negative goodwill) Total Total Subsidiary companies Gerdau Açominas S.A. 2.512.502 - - (270.949) 2.241.553 - Gerdau Internacional Empreendimentos Ltda. (*) 1.820.606 - - - 1.820.606 3.198.412 Gerdau Participações Ltda. (**) - - - - - 971.232 Armafer Serviços de Construção Ltda. - - - - - 189.751 Dona Francisca Energética S.A. - (9.765) - 21.951 12.186 23.235 Seiva S.A. - Florestas e Indústrias 74.478 - - - 74.478 6.826 Itaguaí Com. Imp e Exp Ltda. 55.461-43.316-98.777 - Other 498-171 - 669 4.177 4.463.545 (9.765) 43.487 (248.998) 4.248.269 4.393.633 Other investments 43 - - - 43 17.280 4.463.588 (9.765) 43.487 (248.998) 4.248.312 4.410.913 (*) holding investments in foreign companies and in GTL Brasil Ltda. (**) Merged into the on November 28, 2003 due to the operational integration with Açominas. 2003 2002 Goodwill Investment (negative goodwill) Total Total Gerdau AmeriSteel US Inc. - 281.870 281.870 365.520 Gerdau AmeriSteel Corporation - 80.470 80.470 105.826 Gallatin Steel (*) - - - 385.568 Dona Francisca Energética S.A. - 21.951 21.951 24.390 MARGUSA - Maranhão Gusa S.A. - 43.564 43.564 - Joint ventures 9.984-9.984 10.152 Other investments 19.351 4.222 23.573 24.778 29.335 432.077 461.412 916.234 (*) The investment started to be proportionally consolidated as from 2003. b) INFORMATION ON INVESTMENTS - 2003 Shareholders' Net income Equity in the Percentage of Quotas Shares Capital equity (loss) earnings (*) ownership held held Subsidiary companies Gerdau Açominas S.A. 2.340.576 3.030.320 849.843 699.232 82,91% - 131.541.277 Gerdau Internacional Empreendimentos Ltda. (**) 2.207.189 1.924.557 (525.402) (500.443) 94,60% 2.087.971.416 - Seiva S.A. - Florestas e Indústrias 74.280 165.149 30.564 (6.117) 45,10% - 4.298.717 Dona Francisca Energética S.A. 66.600 (18.845) (3.616) (4.313) 51,82% - 345.109.212 Itaguaí Com. Imp e Exp Ltda. 3.596 55.461 14.454 (9.970) 99,99% 3.595.998 - Gerdau Participações Ltda. - - - 291.572 - - - Armafer Serviços de Construção Ltda. - - - 32.900 - - - Other - - - 203 - - - 503.064 (*) Includes amortization of (goodwill) negative goodwill. (**) Includes equity in the results of Gerdau Açominas S.A., through the indirect subsdiary GTL Brasil, which held 9.24% of that company on December 31, 2003.
GERDAU S.A. Attachment to Note 3d INVESTMENTS IN SUBSIDIARY, ASSOCIATED AND RELATED COMPANIES (In thousands of reais) (continued) c) COMPOSITION OF LOAN BALANCES 2003 2002 2003 2002 Assets Gerdau Foundation - 7.925 16.762 7.867 Sipar Aceros S.A. and others - 12.366 13.607 7.636 Gerdau Empreendimentos Ltda. Group and others - (4.894) - (7.918) Seiva S.A. - Florestas e Indústrias - (264) - - Armafer Serviços de Construção Ltda. - (2.786) - - Florestal Rio Largo Ltda. - (3.522) - - Metalúrgica Gerdau S.A. - - (3.390) Total assets - 8.825 26.979 7.585 Liabilities Gerdau Foundation (32) - - - Gerdau Açominas S.A. (22.606) - - - Sipar Aceros S.A. 1.677 - - - GTL Equity Investments Corp. - (88.064) - - GTL Financial Corp. - (960.361) - - Total liabilities (20.961) (1.048.425) - - Financial income (expenses) 62.497 (203.403) 70.071 (394) The loan contracts between the Brazilian companies are subject to the weighted average rate of funds obtained in the market. The contracts with foreign companies are subject to finances charges (LIBOR + 3% per annum p.a.) plus foreign exchange variations. During the year, the settled the loans assumed during the combination of the operations of Co-Steel Inc. and the North American Gerdau companies. The transaction was made through the reduction of the investment by the parent company in the foreign companies. d) COMMERCIAL TRANSACTIONS - 2003-2002 Income Accounts Accounts Income Accounts Accounts Sales Purchases (expenses) receivable payable Sales Purchases (expenses) receivable payable Armafer Serviços de Construção Ltda. 207 - - - - 71 - - 12 - Aço Minas Gerais S.A. - Açominas 5.112 193.020 - - - 5.246 146.031-689 7.312 Açominas Overseas Ltd. (*) 272.616 - - - - - - - - - Gerdau Laisa S.A. 585 - - - - 1.579 - - 194 - Gerdau Aza S.A. 6.027 - - - - 3.247 - - 49 - Sipar Aceros S.A. 58.617 - - - - 12.903 - - 9.254 - Banco Gerdau S.A. - - 399 2.113 - - - 249 1.714 - Grupo Gerdau Empreendimentos Ltda. (**) - - (600) - - - - (600) - - Indac - Ind. Adm. e Comércio S.A. (***) - - (7.098) - - - - (7.096) - - The purchases and sales of inputs and products are made under conditions and terms similar to transactions with unrelated parties. (*) Transactions made due to securitization arrangements. (**) Payments for the use of the Gerdau trademark. (***) Payments for financing guarantees.