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2008 ANNUAL REPORT DYNAM IC108 YEARS ON THE MOVE

PROFILE

GERDAU

Gerdau is the leading producer

of long steel in the Americas and

one of the largest suppliers of

specialty long steel in the world.

It has operations in the Americas,

Europe, and Asia, which together

represent an installed capacity of over

20 million metric tons of steel per year.

It produces common long steel,

specialty steel, and flat steel for

the civil construction, industry

In 108 years of existence, Gerdau has learned to coexist with different cultures, languages, markets and realities. It has grown without losing sight of its principles and values. It has always managed to work in an agile, sustainable manner to attain its objectives, relying on the support of its thousands of employees throughout the world. The result of this dynamism is precisely what gives the Company its conviction to always overcome challenges.

ARGENTINAwww.sipargerdau.com

BRAZILwww.gerdau.com.br

CANADAwww.gerdauameristeel.com

CHILEwww.gerdauaza.cl

COLOMBIAwww.diaco.com.co

DOMINICAN REPUBLICwww.industriasnacionales.com

GUATEMALAwww.acerosdeguatemala.com

INDIAwww.kalyanigroup.com

MEXICOwww.sidertul.com.mx

PERUwww.sider.com.pe

SPAINwww.sidenor.com

UNITED STATESwww.gerdauameristeel.com

URUGUAYwww.gerdaulaisa.com.uy

VENEZUELAwww.sizuca.com.ve

www.gerdau.com

and farming sectors.

Its products are part of people’s

daily lives and are used in homes,

cars, freeways, bridges, agricultural

machinery, home appliances,

telephone towers and in the

energy industry, among others.

It is the largest recycler in Latin

America, and around the world, it

transforms around 16 million metric

tons of scrap into steel annually.

With over 140,000 shareholders,

Gerdau’s public companies are listed

on the stock exchanges of São

Paulo (Bovespa: GGBR4, GGBR3,

GOAU4, GOAU3, and AVIL3), New

York (Nyse: GNA, GGB), Toronto

(GNA.TO), Madrid (Latibex: XGGB),

and Lima (BVL: SIDERC1).

Cover photo

Low Income Mall in Brasília, opened

in April 2008. The project, by architect

Alencar Blanco Cinnanti and civil

engineer Dalmo Blanco Cinnanti, was

constructed using structural shapes

manufactured at Gerdau Açominas.

GERDAU AROUND THE WORLD

MISSIONGerdau is an organization focused on the

steel business, seeking to satisfy customers’

needs and add value for shareholders,

committed to the fulfillment of people and to

the sustainable development of society.

VISIONTo be a global steel company and one

of the most profitable in the sector.

VALUESSATISFIED customers

TOTAL SAFETY in the workplace

Engaded and fulfilled PEOPLE

QUALITY in everything we do

RESPONSIBLE ENTREPRENEURSHIP

INTEGRITY

GROWTH and PROFITABILITY

KEY INDICATORS

Financial margins 2007 2008

Gross margin 24.4% 26.0%

Net margin 14.1% 11.8%

EBITDA margin 20.4% 23.9%

Output and sales 2007 2008

Steel production (thousand metric tons)

17,907 19,599

Rolled steel production (thousand metric tons)

15,160 16,440

Physical sales (thousand metric tons)

17,159 19,118

Capital markets 2007 2008

Metalúrgica Gerdau S.A.

Dividends (R$ per share) 2.10 1.60

Dividend yield (%)* 3.0 6.4

Return on equity (%) ** 26.4 19.9

Market capitalization (R$ million) 13,148 8,016

Gerdau S.A.

Dividends (R$ per share) 1.26 0.99

Dividend yield (%)* 2.4 5.2

Return on equity (%) ** 25.7 19.8

Market capitalization (R$ million) 32,497 20,061

*Ratio between the dividend paid per share and the share price on

the last day of the year.

**Ratio between net profit and consolidated shareholders’ equity.

Share appreciationlast five years

Investment in social responsibility(R$ million)

Financial performance(R$ million)

-50 0 50 100 150 200 250 300

Environmental management 2007 2008

Reuse of by-products (% of total generated) 79.4 78.2

Annual investments* (R$ million) 345.7 201.0

*In 2007, investments were made in environmental equipment

for the expansion of Gerdau Açominas.

Exchange rate* R$ US$2007 1.7713 1.00

2008 2.3370 1.00

*Quotations on December 31.

2 2008 GERDAU ANNUAL REPORT

Gerdau expands its production of •

coke (an important raw material

for steelmaking) for internal use,

with the acquisition of a 50.9%

interest in Cleary Holdings. The

company controls a metallurgical

coke production plant and of

coking coal reserves in Colombia.

In Mexico, the Company completes •

the acquisition of 49% of the capital

stock of Corsa Controladora, which

holds 100% of the capital stock of

Aceros Corsa and its distributors.

Gerdau begins producing steel •

in Central America by way of a

strategic alliance with Corporación

Centroamericana Del Acero,

taking over 30% of the capital

stock of the company, owner of

industrial facilities in Guatemala and

Honduras and of distribution centers

in El Salvador, Nicaragua and Belize,

besides sales offices in the region.

In the United States, acquisition •

has been finalized of Macsteel,

the second largest producer of

specialty long steel in the country.

The company operates three mills

and six downstream operations.

HIGHLIGHTS

Gerdau acquires 28.9% of the •

capital stock of Aços Villares

(state of São Paulo), thereby

gaining direct and indirect

control of 63.9% of the

company, which produces

specialty long steel in Brazil.

Gerdau acquires an additional •

20% interest in the capital stock

of Corporación Sidenor, the largest

manufacturer of specialty long steel

and large forged and cast steel

products in Spain. Consequently,

Gerdau comes to own, directly

and indirectly, 60% of Sidenor.

CONTENTS

BUSINESS

18

27

Business performance

Finance

30 Capital markets

03

04

06

14

15

Message from the Chairman of the Board

Message from the CEO

Corporate governance

Risk management

Strategy and competitive differences

46

48

52

60

Timeline

Glossary

Summarized financial statements

Corporate information

RELATIONSHIPS

Customers

Shareholders

Employees

Society

32

36

37

38

41 Suppliers

ENVIRONMENT

42 Environmental management

32008 GERDAU ANNUAL REPORT

shareholders. We will also continue

to contribute increasingly to the

growth of our customers’ businesses

and the sustained development

of the communities in which we

operate. We give special thanks

to our employees for their daily

dedication and performance.

Jorge Gerdau Johannpeter

Chairman of the Board of Directors

MESSAGE FROM THE CHAIRMAN OF THE BOARD

A CENTURY OF EXPERIENCE AND CONSOLIDATION OF A LONG-TERM STRATEGY

Our sound management structure and ability to quickly adapt our operations to market fluctuations have helped us to remain competitive throughout the year

After experiencing successive years

of record financial and operational

performance, we began to face a new

economic situation, as of the fourth

quarter of 2008, with a decrease

in the global demand for steel.

Despite the effects of the crisis on

our operations, we closed the year

with business sales, cash generation

and net profits superior to the 2007

levels. Our century-old experience

and ability for rapid adaptation to

market fluctuations has helped us

to maintain the competitiveness of

our operations in an environment

marked by uncertainties concerning

the future of the global economy.

In addition, in our favor is the

consolidation of a long-term strategy

– based on the pursuit of leadership

positions in the markets in which we

operate, geographic diversification,

and operation in distinct sectors

of the steel industry – and a solid

management structure, which has

permitted us to attain increasing

levels of productivity. We also have

the conviction that the demand

for steel will continue strong in

the coming years, especially in

emerging countries, since economic

development is built with steel,

which is used in infrastructure and

housing projects, and to produce

capital and consumer goods.

Without steel, there is no progress.

We also believe that, despite

imposing difficult measures regarding

cost management, the current crisis

will stimulate us to reach beyond

our limits. At this moment, our

goal is to maximize the efficiency

of and return on the investments

already made, as well as to obtain

an increasingly competitive cost

equation, whether by producing our

own raw materials and inputs, or

pursuing synergies between the

operations, among other initiatives.

As a closing note, we would like

to reaffirm Gerdau’s historical

commitment to the long-term

generation of value for our


MESSAGE FROM THE CEO

EFFICIENCY AND FLEXIBILITY TO GENERATE RESULTS

Good performance in 2008 and confidence in the Organization’s ability to overcome challenges

Despite the effects of the global

economic crisis on our business, we

finished 2008 with good operational

and financial performance. Our sales

revenues reached R$ 46.7 billion,

a growth of 36.7% in comparison

to the previous year, and

the consolidated net profit

displayed a 14.9% increase,

reaching R$ 4.9 billion.

Throughout the first nine months,

we experienced a period of strong

growth in the global demand for

steel, yet as of October, besides the

typical year-end decrease in sales,

there was a significant drop in the

consumption of steel products.

Thanks to our solid management

system and to the flexibility of

the industrial process of most of

our steel plants, we have had the

conditions necessary to make

this adjustment to our production

volumes in a quick manner.

The effects of the crisis, however,

were felt at different levels,

depending upon the operating

segment and geographic region

of our operations. Consequently,

we had early maintenance works

and vacation shutdowns in some

countries. These measures also

aimed at reducing the need

for altering the plants’ head

count, which, unfortunately, was

necessary in some cases.

Throughout the year, we made

important investments in increasing

the competitiveness of our operations,

as well as in their expansion and

technological modernization. We

also made acquisitions in order

to occupy important positions in

the market. One of the highlights

is the acquisition of Macsteel,

North America’s second largest

producer of specialty long steel.

The acquisition of the Aços Villares

(Brazil) and Sidenor (Spain) also

stands out. Added to that is the

fact that an alliance was formed

with Corporación Centroamericana

del Acero, Central America’s main

steel producer, with headquarters in

Guatemala. In all, the investments

amounted to US$ 5.1 billion, with

US$ 1.4 billion in fixed assets and

US$ 3.7 billion in acquisitions.

People: teams trained

to face challenges

We have continually invested in

the training of our employees and


2008-2010 period was updated

based on the foreign exchange

rate variation observed during

the business year. With this, the

total came to US$ 5 billion, with

US$ 1.4 billion already having been

invested in 2008. The remaining

US$ 3.6 billion will be invested

in the next five years, subject

to the development of future

economic conditions.

Acknowledgements

We are grateful for the confidence

of our customers, shareholders

and communities, as well as for

the effort and dedication of our

employees, and we are counting on

each one of you so that 2009 can

be a year of victories as important

as those we achieved in 2008.

André B. Gerdau Johannpeter

Chief Executive Officer

(CEO) of Gerdau

in the training of world leaders,

fundamental to an agile and efficient

response to adverse situations and

increasing global competitiveness.

In 2008, R$ 47.6 million were

allocated to training, 6.9% greater

than in the previous year.

We also gave the utmost attention

to job health and safety. During

the business year, we invested

R$ 56.6 million (an amount that

is 18.1% greater than our 2007

investment), in new accident-

prevention equipment and technology

and funding safety-awareness

campaigns and audits to discover

improvement opportunities, with the

support of specialized consultancy.

Commitment to the communities

and the environment

We have always sought to

contribute to the development

of the communities in which our

facilities are located. In this sense,

the volunteer work of our employees

stands out, with a workforce of

around 10,000 individuals throughout

the world. In the environmental area,

besides our constant investments in

industrial environmental-protection

technologies, our main initiative

was the creation of the Serra

de Ouro Branco Private Natural

Reserve in the state of Minas

Gerais, with 1,247 hectares, an

area where rare species of the local

flora and fauna are preserved.

Outlook

In 2009, Gerdau will keep itself busy

with the pursuit of higher levels

of productivity and cost reduction.

We also will direct our efforts toward

the integration of the recently

acquired companies, in the areas in

which additional synergies can be

achieved. Based on our experience

in operating in moments of crisis, we

will continue monitoring the behavior

of the various markets, adjusting our

operations to the current economic

scenario. Our century-old experience

and flexibility in rapidly adapting

to market fluctuations make us

confident of the Organization’s ability

to overcome the difficulties imposed

by the global economic crisis.

Concerning the investments to be

made in the following years, we

reiterate that all projects already

announced will be maintained, with

a schedule adjusted to the new

reality of the steel market. In addition,

the amount of US$ 6.4 billion in

investments in fixed assets for the


CORPORATE GOVERNANCE

Transparency and adherence to the best market practices mark Gerdau’s corporate governance

Gerdau’s corporate governance

aims to guarantee security and

transparency for its investors.

The Company constantly pursues

the improvement of its practices,

upholding the highest international

standards and its own century-

old management experience.

In addition to its solid governance

structure, Gerdau has a disclosure

policy that values transparency and

respect to the rules of confidentiality.

Since 2007, Gerdau has operated in

compliance with the Sarbanes-Oxley

(SOX) Act, which defines the rules

to be followed by companies with

stocks traded on the North American

market. The same is true for Gerdau

Ameristeel, the company responsible

for our steel-manufacturing

operations in the U.S. and Canada.

As part of its strategy as a global

steel manufacturer, as of 2007

Gerdau began to report its results

according to the international

accounting norms defined by the

International Financial Reporting

Standards (IFRS), thus adapting

itself to the global best practices.

Governance structure

Comprised of nine members, the

Board of Directors of Gerdau S.A.

monitors the implementation of

established policies, the definition

of long-term strategies, the choice

of the Executive Officers and the

naming of Executive Committee

members, as well as making

decisions within the scope of

transactions and operations.

In 2008, André B. Gerdau

Johannpeter and Claudio Gerdau

Johannpeter – Gerdau’s CEO

and COO, respectively – became

members of the Board, which is

assisted by the following support

committees: the Corporate

Governance Committee, the Strategy

Committee, and the Compensation

and Succession Committee.

At Metalúrgica Gerdau S.A., the

Board of Directors consists of

10 members, of which nine are the

same individuals that make up the

Board of Gerdau S.A. The Board

of Directors of Villares S.A. consists

of five members; and that of Gerdau

Ameristeel consists of eleven

members. A majority of the members

of all of the boards is elected by

the controlling shareholders.

Board of Directors members are

elected annually at the Shareholders

General Meeting, which is also

responsible for appointing the

members of the Board of Auditors,

deliberating over the accounts

presented by the administrators,

and analyzing, discussing and voting

over financial statements, allocation

of the net profit for the fiscal year

and the dividend distribution policy,

among other responsibilities.

Metalúrgica Gerdau S.A., Gerdau

S.A. and Aços Villares S.A., which

are publicly-listed companies in

Brazil, have boards of auditors that

are responsible for monitoring and

auditing the administrators’ acts,

issuing opinions concerning the

Management Report and proposals

by members of the Board, besides

analyzing the financial statements,

among other assignments.

At Gerdau Ameristeel, the job of

auditing and monitoring the actions

of management is carried out by an

Audit Committee, in compliance with


Read more about Gerdau’s governance structure at

www.gerdau.com/grupo-gerdau/governanca-corporativa.aspx

Shareholders Meeting

Board of Directors

Board of Auditors

Corporate Governance Committee, Strategy

Committee and Compensation and

Succession Committee

Gerdau Officers and Executive Committee

Functional Processes

Latin America IndiaNorth America AçominasSpecialty SteelLong Steel Brazil

Excellence Committees and

Support Committees

BUSINESS OPERATIONS MANAGEMENT

Business Operations


the Sarbanes-Oxley (SOX) Act.

The determinations of the Sarbanes-

Oxley act are also followed by

the Board of Auditors of Gerdau

S.A., whose stocks are traded on

the New York Stock Exchange.

Gerdau’s corporate management

is the responsibility of the Board

of Directors, whose Executive

Committee (GEC) coordinates and

supervises the Business Operations

and the Functional Processes.

The GEC consists of one CEO,

one COO and seven vice presidents.

The GEC receives assistance from

support committees, which are

created according to specialization

criteria. There also are excellence

committees, which have the

responsibility of identifying the

best management practices

and stimulating the exchange of

knowledge among the plants.

Independent audit

Aiming at complying with CVM

Instruction no. 381/2003, Gerdau

S.A. has a company that renders

external auditing services.

The Company’s policy for the

contracting of eventual services

not related to external auditing by the

independent auditor is based on the

principles that preserve the auditor’s

independence: the auditor must not

audit his/her own work, must not

perform the management work of

his/her client and must not promote

the interests of his/her client.

Code of ethics

The Gerdau Ethical Guidelines define

the Company’s relationships with its

employees, customers, shareholders,

suppliers, communities, competitors

and environment. They are public

records that can be found on the

Gerdau website (www.gerdau.com.

br/port/respsocial/diretrizes.asp).

The Organization provides open

channels that encourage the free

expression of opinions, attitudes

and preoccupations. On the

website, for example, there is the

Talk to Gerdau section; and on the

Intranet, the Ethics Channel – a

direct communication line with the

employees –, which guarantees

anonymity and confidentiality in the

handling of the information received.


CORPORATE GOVERNANCE STRUCTURE

Read more about Gerdau’s corporate structure at

www.gerdau.com/investidores/acoes-estrutura-societaria.aspx

45.7%

60,0%

66,4%Gerdau

Aços EspeciaisS.A.

GerdauAços Longos

S.A.

GerdauAçominas

S.A.

GerdauAmérica LatinaParticipações

S.A.

Corporación Sidenor, S.A.

Aços Villares S.A.

SJK Steel Plant Limited

Macsteel

GerdauLaisaS.A.

SiparAceros

S.A.

Corsa Controladora S.A. de CV

Gerdau AZAS.A.

SiderúrgicaTultitlán,

S.A. de CV

Corporación Centroamericana

del Acero, S.A.

SiderúrgicaZuliana, C. A.

Diaco S.A.

EmpresaSiderúrgica

del Perú S.A.A.

IndústriasNacionales

C. por A.

GerdauComercial de

Aços S.A.

Metalúrgica Gerdau S.A.

Gerdau S.A.

GerdauAmeristeel

Corp.

Gallatin

93.3%89.4% 93.3%

60.0%

58.4%

28.9%

45.2%70.0%30.0%

93.3%66.4%

50.0%

49.0% 92.8%

83.3% 100.0%

98.7% 100.0%

100.0% 100.0%

49.0% 30.0%

93.3%


GERDAU S.A. BOARD OF DIRECTORS - 2008

Jorge Gerdau Johannpeter

Chairman

Germano H. Gerdau Johannpeter

Vice chairman

Affonso Celso Pastore

Board member since 2002

Claudio Gerdau Johannpeter


André Pinheiro de Lara Resende


Oscar de Paula Bernardes Neto


Klaus Gerdau Johannpeter

Vice chairman

Frederico C. Gerdau Johannpeter

Vice chairman

André B. Gerdau Johannpeter


In 2008, André B. Gerdau Johannpeter, CEO, and Claudio Gerdau Johannpeter, COO, became members of the Board of Directors, advancing with the Gerdau corporate governance process.


GERDAU EXECUTIVE COMMITTEE (GEC)

1. André B. Gerdau Johannpeter

Chief executive officer (CEO)

2. Claudio Gerdau Johannpeter

Chief operating officer (COO)

3. Alfredo Huallem

Executive vice president of the Long

Steel Brazil Business Operation

4. Expedito Luz*

Executive vice president of

Legal Affairs and Compliance

5. Manoel Vitor

de Mendonça Filho

Executive vice president of the

Açominas Business Operation

6. Márcio Pinto Ramos


Latin America Business Operation

7. Mario Longhi Filho


North America Business Operation

and CEO of Gerdau Ameristeel

8. Osvaldo Burgos Schirmer

Executive vice president of

Finance and Investor Relations

9. Paulo Fernando

Bins de Vasconcellos


Specialty Steel Business Operation

*Member of the GEC since January 2009.

2 1895 3 6 4 7

BUSINESS OPERATIONS MANAGEMENT*


André Araujo HofmeisterDirector, Planning and Business Development

André Pires de Oliveira DiasDirector, Investments

Antonio José Bacelar TeixeiraDirector, Logistics

Antônio Marques de Almeida Director, Gerdau Shared Services

Cláudio Mattos Zambrano Director, Industry and Management Systems

Enio Viterbo JuniorDirector, Occupational Health and Safety

CORPORATE MANAGEMENT*

Érico Teodoro Sommer Director, Energy, Environment and Engineering

Expedito LuzExecutive vice president, Legal Affairs and Compliance

Francisco Deppermann Fortes Director, Human Resources and Organizational Development

Geraldo ToffanelloDirector, Accounting

Harley Lorentz ScardoelliDirector, Finance

Joaquim de Souza GomesDirector, Metallics

José Paulo Soares Martins Executive Director, Gerdau Institute

Mario Sant’Anna JuniorExecutive Director, Gerdau Florestal

Osvaldo Burgos SchirmerExecutive vice president of Finance and Investor Relations

Paulo Perlott RamosDirector, Marketing and Sales

Renato Gasparetto Jr.Director, Corporate Communications and Public Affairs

Tadeu PetterleDirector, Procurement

LONG STEEL BRAZILAlfredo Huallem Executive vice president

Carlos Hamilton de O. PimentaExecutive director, Gerdau Nordeste

Fernando José Dutra ParreiraExecutive director, Gerdau Sul

Fladimir Batista Lopes GautoExecutive director, Procurement and Logistics

Heitor L. Beninca BergaminiDirector, Metallics Procurement

José Falcão FilhoDirector, Direct Sales

José Walnei G. de AlmeidaDirector, Industrial Marketing

Julio Carlos Lhamby PratoExecutive director, Industrial Plants

Luciana DomagalaDirector, Human Resources

Nestor MundstockExecutive director, Gerdau Cosigua

Paulo Ricardo TomazelliDirector, Sales and Distribution

Renato Silva BernardesDirector, Civil Construction Marketing

Ricardo Giuzeppe MascheroniCommercial director


LATIN AMERICAMárcio Pinto Ramos Executive vice president

André Felipe Gueiros ReinauxDirector, Mexico Project

Dirceu Tarcisio TogniIndustrial director, Latin America

Eduardo Ermida Moretti Executive director, Diaco (Colombia)

Hermann Von Mühlenbrock Sotto General manager, Gerdau AZA (Chile)

João Carlos Salin Gonçalves Director, Raw Materials

José Padilla BelloExecutive director, Sizuca (Venezuela)

José Pedro Sintas Executive director, Gerdau Laisa (Uruguay)

Luís Daniel Pécora Nova Executive director, Sipar Gerdau (Argentina)

Luiz Augusto Polacchini Executive director, Siderperú (Peru)

Samuel Nanes Venguer Diretor-executivo da Sidertul (México)

NORTH AMERICAMario Longhi Filho Director, President andChief Executive Officer

Terry A. SutterVice president and Chief Operating Officer

Barbara R. Smith Vice president Finance, Chief Financial Officer and Assistant Secretary

Carl CzarnikVice president Human Resouces

Chia Yuan WangVice president Management Systems

Diane E. DrumVice president andChief Information Officer

Guilherme C. G. JohannpeterVice president SBQ/Wire Rod Operations

James R. KerkvlietVice president Sales and Marketing

J. Neal McCullohs Vice president Commercial and Downstream Operations

Matthew C. Yeatman Vice president Scrap Procurement and Operations

Michael P. MuellerVice president Safety, Environmental, Technology and Asset Reliability

Robert E. LewisVice president General Counsel and Corporate Secretary

Terry K. DanahyVice president Chief Human Resources Officer

INDIAAndre Beaudry Executive vice president

*Updated in May 2009.

SPECIALTY STEELPaulo Fernando Bins de VasconcellosExecutive vice president

Hermenio Pinto GonçalvesIndustrial director, Specialty Steel Brazil

Joaquim Guilherme BauerExecutive director, Specialty Steel Brazil

José Jainaga GomezGeneral manager, Sidenor (Spain)

José Joaquín Salazar Paternain Director, Factories (Spain)

Marcos Eduardo Faraco Wahrhaftig Director, Marketing

Rodrigo Belloc Soares Director, Technology

Murilo Antunes de O. FilhoExecutive director, Pindamonhangaba (Brazil)

AÇOMINASManoel Vitor de Mendonça Filho Executive vice president

Carmine Sarao Neto Director, Human Resources

Daniel Antonio M. de Mesquita Director, Industrial

José Carlos de Matos Silva Executive director, International Trade

Marcus Rocha Duarte Director, Mining and By-products


RISK MANAGEMENT

Gerdau adopts meticulous risk control standards for all variables having an impact on business

Gerdau constantly reviews and

reevaluates the vulnerabilities of

the steelmaking activity in the world,

which results in the continuous

upgrading of the mechanisms the

Company adopts to protect itself

and minimize the various risks.

Market risks

Gerdau constantly gauges market

risks, especially the economic/

financial conditions of the regions

in which the Company operates and

their impact on the real consumption

and potential of steel products.

In 2008, Gerdau displayed swiftness

and flexibility when faced with the

world economic crisis adapting its

production volumes and stressing

efficient cost management.

Financial risks

In order to protect itself from

financial risks, Gerdau has a

conservative financial management

policy, based on established

indebtedness limits, maintaining

the appropriate leverage ratio.

Investment risks

Investment-risk decisions are

evaluated periodically according to

the guidelines defined by corporate

governance. The decisions adhere

to a long-term corporate vision and

aim at ensuring the competitiveness

of operations in various market

situations. Concerning acquisitions,

Gerdau prefers profitable assets that

are in line with its operating strategy

for each location and market.

Legal risks

In order to minimize legal risks,

the Company constantly keeps

itself up-to-date on legislation and

fulfills its legal obligations in all

countries in which it operates.

Supply risks of raw

materials and inputs

Gerdau establishes long-term

relations and business alliances

with its suppliers that ensure the

creation of joint commitments.

Besides guaranteeing its supply

of raw materials and input, this

stance contributed to the Company

– faced with price and demand

fluctuations in 2008 – quickly

being able to adapt a significant

portion of its supply contracts to

the new world economic reality.

Environmental risks

The Company has a well-structured

Environmental Management

System, which involves a series

of environmental protection and

preservation practices that satisfy

ISO 14001 requirements.

Risks of accidents to people,

equipment, and plants

To Gerdau, safety in the work

environment is a top priority.

Aiming at minimizing accident risks,

Gerdau bases its initiatives on

the Total Safety System, which is

founded on audits, training programs,

safety-awareness campaigns

and investments in technological

upgrading and safety equipment.

Compliance

As of January 2009, Gerdau

established a vice presidency

of Compliance, which serves to

aid the governance bodies in

the observance of ethical and

legal and contractual rules and

in risk-mitigation evaluations and

procedures, among others.


STRATEGY AND COMPETITIVE DIFFERENTIALS

Continued integration in acquired companies and capture of synergies are priorities at Gerdau

Gerdau Strategic Aspirations

In 2008, Gerdau dedicated itself

to the continuity of the process of

integrating the companies acquired

in the last years, at the same time

seeking to value successful local

practices and reach increasing

performance levels. This is

because Gerdau believes that, in

order to construct an integrated

organization, one must know how

to perceive and understand each

region and culture’s differences

and take advantage of them.

Between 2006 and 2008,

32 companies were absorbed by

Gerdau in the Americas, Europe

and Asia. Standing out in this

new group of companies are

the North American companies

Chaparral Steel (manufactures

structural shapes) and Macsteel

(produces specialty steel), which

manufacture products of a greater

added value and have expanded

Gerdau’s geographic scope.

During the following business years,

Gerdau will continue pursuing new

synergies, increasingly expanding

the exchange of experience

between operations in order to attain

exceptional profit levels in relation

to the steel market by way of cost

reductions and increased productivity,

which are fundamental factors in

times of global economic uncertainty.

The Company also will continue

to pursue leading positions in

the markets in which it operates,

operations in important segments

of the market (especially long

steel and specialty long steel)

and geographic diversification.

Gerdau seeks to satisfy the needs of

its various stakeholders (community,

employees, shareholders, customers

and suppliers), an effort reflected by

the Company’s reputation. According

to the most important international

center of studies and research on

reputation, the Reputation Institute,

headquartered in New York, in 2008

Gerdau achieved second place

among Brazilian companies and the

24th place globally. The Company

climbed 22 positions in relation to the

2007 world ranking and 46 positions

since the study began in 2006.

Incentive of the best practices

Ever since the beginning of its

implementation in 2002, the Gerdau

Business System (GBS) has been

establishing itself as one of Gerdau’s

main competitive advantages.

The GBS, jointly defined with the

Business Operations, consolidates

and transfers the best practices

by way of standardized processes.

Besides promoting the progress of

all operations, Gerdau’s management

system enhances global results,

facilitates integration and accelerates

the adherence of new companies to

Gerdau’s management practices.

Because it is an open system

undergoing constant improvement,

the GBS identifies, assesses and

incorporates new practices that

have produced significant results

in the Business Operations. This

system includes policies, guidelines,

best practices, and global indicators

that allow Gerdau to achieve its

Vision and Strategic Aspirations.

Market leadership

Geographic diversification

Being a player in all segments

GROWTH and PROFITABILITY

Being an integrated organization


Gerdau Business System (GBS) organizational structure

Virtual communities,

real experiences

The Practice Communities were

created in 2008 for employees

to share knowledge, solutions,

practices, suggestions, and ideas.

Through them, it is possible to

request support anywhere in order

to discover the solution to a problem

faced by an employee assigned to

any Business Operation or country

in which Gerdau operates. Thus,

problems can be solved more

quickly at a much lower cost.

The Practice Communities are

open to the participation of any

employee having the interest and

need to exchange knowledge about

a specific process. They function in

a virtual environment, known as the

Knowledge Management Portal.

Executive Committee

Board of Directors

Operational Macroprocesses

Support Macroprocesses

Indi

a

Spe

cial

ty S

teel

Aço

min

as

Nor

th A

mer

ica

Latin

Am

eric

a

Long

Ste

el B

razi

lLeaders of Operations

Process Leaders

Process Owners

Sales & Operational Planning

Procurement

Raw Material

Logistics

Industrial Processes

Marketing and Sales

Occupational Health and Safety

Legal Affairs

Finance and Investor Relations

Energy

Auditing

Accounting

Information Technology

Social Responsibility

Corporate Communications and Public Affairs

Management Systems

Planning and Business Development

Human Resources and Organizational Development

Each business macroprocess — for example, Marketing and Sales, Industrial Processes, Management Systems — is coordinated by a Process

Owner who works together with the Process Leaders for the Business Operations in the various countries where Gerdau operates.


Gerdau produces its own raw materials and inputs

Throughout 2008, Gerdau made

important moves to guarantee

the supply, at competitive prices,

of raw materials and inputs that

are strategic to its operations. It

acquired a 50.9% stock interest

in the Colombia-based firm Cleary

Holdings – a controlling company

of metallurgical coke production

plants and owner of coking coal

reserves – for US$ 73 million.

Produced from mineral coal, coke is

one of the raw materials used in the

steelmaking process of integrated

mills that operate with blast furnaces.

Continuity was also given to the

production of Gerdau’s own iron ore

in Minas Gerais, whose reserves total

1.8 billion metric tons, according to

prospecting studies. This activity

is aimed at serving our integrated

steelmaking plants in Brazil.

Additionally, the Company has

continued investing in power

generation based on renewable

sources. Currently, Gerdau possesses

51.8% of the Dona Francisca

Energética power company in the

state of Rio Grande do Sul, which has

a 125-megawatt capacity. Its main

investment underway focuses on the

construction of two hydroelectric

plants in the state of Goiás, which

together will be responsible for the

generation of 155 megawatts of

installed power starting in 2010. In

the state of Paraná, a concession

was obtained in 2008 for the

generation of power. This enterprise

will have an installed capacity of 105

megawatts. Furthermore, Gerdau

Açominas has a capacity to generate

around 70% of its total power needs.

Iron ore processing plant in Miguel Burnier (state of Minas Gerais, Brazil)


BUSINESS

Flexibility and swiftness for adapting Operations to the current reality of global demand

OPERATION PERFORMANCE

Throughout 2008, our financial

performance reflected the market

fluctuations – heavy demand during

the first nine months and reduced

consumption as of October.

Due to the reduced demand for steel,

as of November the Company took

steps to adjust its production volumes

to the new market reality, such as

having scheduled downtimes ahead

of time, and vacation shutdowns,

as well as postponing previously

announced investments. In addition,

various union negotiations were

conducted to adjust the size of the

workforce to the demand according

to the local market situations.

In 2008, the consolidated

sales volume was 19.1 million

metric tons (+ 11.4%), and the

consolidated production volume

reached 19.6 million metric tons

of steel (+ 9.4%), especially due

to sales growth from January to

September, increased productivity,

increased installed capacity and the

consolidation of new companies.

In Brazil, physical sales to the

domestic market exhibited a growth

of 22.1% in 2008, reaching

Gerdau products used in the construction of the Eldorado Business Tower, one of the most modern office buildings in Brazil (state of São Paulo)


“Efficient resource management, rapid adaptation of production to the lower demand, and improved industrial plant productivity permitted Gerdau to face market fluctuations in the last quarter of 2008. Our performance in this fiscal year was marked by the integration of the recently acquired companies and by the capture of synergies among the various Business Operations.”

Claudio Gerdau Johannpeter

Gerdau Chief Operating Officer

4.8 million metric tons, mainly due to

the demands of civil construction and

industry. This led to the redirection

of part of the exports out of Brazil,

resulting in an 11.1% reduction in

the volumes shipped, which totaled

1.7 million metric tons. The revenues

from exports came to US$ 2.2 billion

during the fiscal year, including

shipments to subsidiaries and

associated companies. Industrial plant

production in Brazil accompanied

the demand, increasing 8.4%, to

7.5 million metric tons of steel.

In the United States and Canada

(excluding Macsteel), physical sales

reached 7.6 million metric tons in

2008, a 10.1% increase compared

to the previous year’s sales. This

increase was mainly due to the

consolidation of Chaparral Steel,

which occurred as of the third quarter

of 2007. Throughout the year, steel

production in the region grew to

7.6 million metric tons, a volume that

is 11.1% higher than that of 2007.

In Latin America (excluding Brazil),

physical sales remained practically

constant in relation to the previous

year, totaling 2.2 million metric tons.

However, reflecting the adaptation

of the industrial pace to the lower

demand during the last quarter of

2008, steel production displayed a

decrease, especially in Peru, Chile

and Colombia. Thus, steel production

for 2008 was 1.7 million metric tons,

which represents a 10.2% decline.

Since 2007, the Company also

operates in Asia, with a 45.2% share

of the Kalyani-Gerdau joint venture.

Kalyani-Gerdau is located in Tadipatri

in the state of Andhra Pradesh, India.

From January to December,

consolidated investments totaled

US$ 5.1 billion, of which

US$ 3.7 billion were allocated

to the payment of acquisitions

and US$ 1.4 billion went to the

expansion and technological

upgrading of the industrial plants.

Of the total of US$ 3.7 billion

allocated to acquisitions,

US$ 2.9 billion were invested in

expanding the Operation in the area

of specialty long steel – the purchase

of Macsteel (USA) and of stock

interests in Aços Villares (Brazil)

and Sidenor (Spain) –, US$ 477

million in the expansion of activities

in Latin America (except Brazil),

US$ 304 million in Canada

and the United States and

US$ 47 million in Brazil.

In 2008, US$ 1.4 billion in

investments in fixed assets

was distributed as follows:

US$ 798 million to the plants

in Brazil; US$ 168 million to


Canada and the United States;

US$ 200 million to Latin America

(except Brazil); and US$ 233 million

to the division of specialty long steel

(Brazil, Spain and the United States).

Outlook

In 2009, Gerdau will keep

itself busy with the pursuit of

greater profitability, focusing on

results and cost reductions.

The Company will continue

seeking new synergies among

Operations, which contribute

to increasing productivity, and

investing in the development of

new products, in order to satisfy

market demands and offer its

customers competitive solutions.

Our US$ 6.4 billion investment

plan for 2008–2010 was adjusted

according to the year’s foreign

Sales per business sector(19.1 million metric tons)

Investments (US$ million) 2007 2008

Brazil 992 845

Fixed assets 992 798

Acquisitions - 47

North America 4,473 472


Acquisitions 4,283 304

Latin America 631 677


Acquisitions 466 477

Specialty Steel 219 3,117


Acquisitions 25 2,884

Consolidated total 6,315 5,111

Fixed assets 1,541 1,399

Acquisitions 4,774 3,712

Note: acquisitions include transactions concluded during the year and the debts of the companies acquired

exchange rate variation. With this,

the total came to US$ 5 billion,

without project cancellations, yet

with revisions to their operating

schedules, which are subject to

future development in economic

conditions. Of the US$ 5 billion

total, US$ 1.4 billion was already

invested in 2008. The remaining

US$ 3.6 billion will be invested during

the next five years, with the possibility

of reductions, considering that the

cost of industrial equipment could

drop in comparison to 2008. These

amounts do not include acquisitions.

BRAZIL

Gerdau reports the performance of

the Long Steel Brazil and Açominas

Business Operations under “Brazil.”

Information relating to Specialty Steel

is reported separately. Long-steel

operations in Brazil concentrate

mainly on serving the domestic

market and involve

10 steel mills, 26 fabricated

reinforcing steel facilities

and various scrap collection

and processing facilities.

Among the markets served,

the supply of long steel for civil

construction stood out, followed by

the markets of farm machinery and

equipment, highway and railway

implements, and power transmission

towers. In 2008, the Long Steel Brazil

Business Operation aimed its efforts

at expanding and structuring the

supply of products having a higher

added value, mainly targeted at the

civil construction. This move was

mainly due to the growing demand

for ready-made products, especially

during the first nine months of 2008.

These extended products – ready-

Brazil: includes the Long Steel and Açominas Operations.

North America: includes all Operations in North America, except for the

plants in Mexico and specialty steel plants in the United States (Macsteel).

Latin America: includes all Operations in Latin America, except Brazil.

Specialty Steel: includes all Specialty Steel Operations in Brazil,

Spain and the United States.

The above information does not include data of companies with

shared control and joint ventures.


for-use – have earned increasingly

more space in the marketplace

because they permit cost reductions

and offer higher productivity levels.

Domestic market supply was

guaranteed by a well-structured

commercial strategy of product

distribution through Comercial

Gerdau, which has roughly

70 distribution centers and

4 flat steel service centers,

covering Brazil’s main

steel-consuming regions.

Gerdau Açominas, Gerdau’s largest

steel plant in Brazil, exhibited good

performance in 2008, despite the

drop in demand during the fourth

quarter. Nevertheless, in order to

adapt its production to the new

market reality, Gerdau Açominas

performed the maintenance of its

blast furnace 1 prematurely, as

of December 2008, temporarily

halting its activities.

During the year, around 60% of

its production was directed toward

the international market, with

the increase in shipments to the

Middle East standing out. Added

to this are the positive results of

the structural shapes sector, which

presented a sales growth of 31%.

Presently, the mill serves the civil

construction and the automotive,

railway, machinery and implements

industries with its diverse product

mix – slabs, blooms, billets, wire rod

and structural shapes. In 2009, the

plant will finish the installation of new

machinery for the continuous slab

casting, which is expected to begin

operating during the first semester.

In order to guarantee its supply of raw

materials, Gerdau Açominas has iron-

ore reserves in Minas Gerais, near

the mill. According to prospecting

studies, the reserves total 1.8 billion

metric tons of ore. Furthermore,

the plant is self-sufficient in the

production of coke, another important

input item in its production process.

During 2008, a new coke plant began

operating, with a production capacity

of 630,000 metric tons per year.

Outlook

The Long Steel Brazil Business

Operation will continue emphasizing

the efficient management of the

equation between costs and sales

price, besides adapting itself

to the new growth rate of the

Brazilian economy. The goals set

for 2009 include the following:

Cost improvements.•

Pursuit of synergy gains •

between the Operations.

Expansion of the information •

management process and

the sharing of experience

among the plants.

The flexibility of its product mix and

the geographic diversification of its

sales will be important competitive

advantages for Gerdau Açominas

to conquer new markets, even in

the face of the uncertain global

economic situation. Some of the

activities anticipated are as follows:

Focus on increasing sales •

to the markets of the Middle

East, Africa, and Europe.

Expand operations in the sector of •

high-quality structural shapes and

wire rod on the international market.

Take advantage of the flexibility of •

Gerdau Açominas’ equipment to

adapt its production to the demand.

Grow in the power and •

forging-plant sectors.

Begin sales of high-quality slabs •

to the automotive, naval, and civil

construction sectors, among others.

Structural shapes produced at Gerdau Açominas (state of Minas Gerais, Brazil). These shapes have various applications, especially in metal construction jobs, and provide speed and economy on the construction site


LATIN AMERICA(Argentina, Chile, Colombia, Dominican Republic, Guatemala, Mexico, Peru, Uruguay and Venezuela)

In 2008, Gerdau established itself

as one of the main steelmaking

companies in Central America by

way of its strategic alliance with

Corporación Centroamericana del

Acero, the largest steel producer

of the region, with one steel mill

(Guatemala), four rolling mill

plants (Guatemala and Honduras),

sales offices (Guatemala,

Honduras and El Salvador) and

distribution centers (Guatemala,

Belize, El Salvador, Honduras

and Nicaragua). In addition, this

company holds a minority interest

in Intrefica (Honduras), which

conducts wiredrawing activities.

With the establishment of

the alliance, Gerdau acquired a

30% stock interest in the company.

In Colombia, a market in which it

holds a leadership position among

steelmaking companies, Gerdau

increased its share of interest in

Diaco, coming to hold 98.7% of the

company’s capital stock. In Mexico,

Gerdau concluded its acquisition of

49% of the capital stock of Corsa

Controladora, the holding company

of Aceros Corsa and its distributors.

In Chile, Gerdau expanded the

geographic span of its distribution

network, with the purchase of

Distribuidora y Comercializadora

de Aceros Regionales (Barracas

Janssen), and invested in the area

of wire and nails, with the acquisition

of Trefilados Bonati. Added to this

is the purchase of Caños Córdoba

(Argentina), which is involved in

the distribution of steel products.

Gerdau also expanded its efforts to

guarantee the supply, at competitive

prices, of one of the main raw

materials of the steelmaking process:

coke. This occurred by way of the

acquisition of 50.9% of the Cleary

Holdings Corp., the controlling

company of a metallurgical coke

production plant and of coking

coal reserves in Colombia.

As of October, the markets in which

Gerdau operates in Latin America

were affected, to distinct degrees,

by the world economic crisis. The

plants in Peru, Chile and Colombia

were affected the most, partially

because they concentrated a

significant part of Gerdau’s sales and

production volume on this region.

The markets of Argentina, Mexico

and Uruguay were also affected.

This led Gerdau to revise its schedule

of previously announced investments,

in the face of the new reality of

demand, especially the expansion

of Siderperú and the construction

of new plants in Argentina and

Mexico. Despite these adjustments

to the investment plan, the installation

of a new electric furnace at Siderperú

(Peru) and a steel plant in Tocancipá

(Colombia) was maintained for 2009.

In order to adapt the Operation to

adverse conditions, adjustments

to the production volumes were

also necessary, so as to regularize

the inventory levels. In addition,

scheduled downtimes and employee

vacations were anticipated.

Outlook

In order to maintain its growth rate

in Latin America, Gerdau will seek

productivity increases and cost

reductions. Among its main efforts

for 2009, the following stand out:

Improve the safety system •

of the industrial plants in

Latin America, especially the

recently acquired plants.

Cusezar Tower, a modern commercial building in northern Bogotá, Colombia, constructed with Gerdau products


Adapt its production to the •

demand of each country.

Equate costs and inventory levels.•

Seek increased productivity, •

especially in recently acquired

companies, and adaptation

of the processes to the

best global practices.

NORTH AMERICA(Canada and the United States)

Gerdau Ameristeel took steps to

adapt itself to the new reality of

the North American market, which

strongly affected its performance

in the fourth quarter. This impact,

however, was attenuated by the

Company’s ability to prepare itself

for fluctuations in the economy.

The Company, which displayed record

performance during the first nine

months of the year, implemented

additional measures of cost control

and process improvement, as well

as quickly making adjustments

to its production volumes.

To this can be added the successful

integration of the new companies

acquired in 2007, mainly the

Chaparral steel company, which

generated twice the synergies

expected at the time of its acquisition

and expanded the Company’s

operations in the area of structural

steel (see “Integration of new

companies increases competitiveness

in the United States”). Furthermore,

Gerdau Ameristeel strengthened

its relationships with its customers,

improving the handling of the

specific needs of each.

Despite its solid balance sheet

and capital structure, Gerdau

Ameristeel recorded negative

financial performance for the

period – according to the

US GAAP accounting standard –

mainly because of the anticipated

recovery of investment premiums,

conducted due to the new economic

reality (more details in “Finance”).

During the fiscal year, moves to

consolidate Gerdau Ameristeel

focused mainly on steel-processing

companies and suppliers of scrap,

its main raw material. The Company

acquired Metro Recycling in

Canada and Sand Springs Metal

Processors in the United States, two

companies that operate in the area

of recycling and scrap processing.

Additionally, the stock interest in

Pacific Coast Steel was increased to

84%, which acquired Century Steel

during the year. Hearon Steel was

also acquired. The three companies

are engaged in fabricated reinforcing

steel activities, although Pacific Coast

Steel and Century Steel also perform

the assembly of their respective

structures in construction sites.

Outlook

Gerdau Ameristeel relies on high-

quality management, processes and

services as competitive advantages

for dealing with the uncertainties of

the current world economic situation.

For 2009, its plans include:

Invest in the competitiveness •

of the operation with the

adjustment of costs.

Adjust production volumes •

according to the steel

market’s demand.

Reinforce the Operation’s strong •

points through the sharing of

experience among the industrial

plants and adherence to the

best international practices.

Gerdau Ameristeel mill in Cambridge, Canada


Besides expanding Gerdau

Ameristeel’s geographic reach and

its line of value-added products, the

consolidation of Chaparral Steel,

as of the third quarter of 2007,

produced important synergies

between the two companies. The

job of integrating Chaparral, the

second largest producer of structural

shapes in North America, made it

possible to achieve more efficient

operations and significant gains

in productivity, which resulted in a

savings of over US$ 100 million.

Integration of new companies increases competitiveness in the United States

These synergies represented

twice that expected by Gerdau

Ameristeel at the time of the

acquisition of Chaparral. This

successful integration job was

made possible through the sharing

of administrative and management

resources in the most diverse areas.

A similar process occurred with

Gerdau’s assimilation of steel

company Macsteel, the second

largest manufacturer of specialty long

steel in North America. Over 12 task

forces, involving 60 professionals

in Brazil and the United States,

conducted the work of identifying

and gauging the possibilities of

integration between the two plants.

In all, 55 priority projects were

defined and US$ 90 million worth of

synergies between the Operations

were identified. The objective of

the projects developed was to

promote the transfer of management

knowledge, the unification of

power contracts and of purchase

agreements for raw materials and

inputs, and the specialization process

of the industrial plants, allowing

them to focus their production

on specific market niches and

promote productivity gains.

Manufacture of structural shapes at Gerdau Ameristeel Petersburg, Virginia (USA)


SPECIALTY STEEL(Brazil, Spain, United States)

The year 2008 heralded Gerdau’s

establishment as one of the largest

specialty long steel suppliers in

the world. In the United States,

we concluded the acquisition

of Macsteel, the second largest

manufacturer of specialty long

steel in North America, with plants

in Jackson (Michigan), Monroe

(Michigan) and Fort Smith (Arkansas),

accomplishing an important

step in the process of Gerdau’s

internationalization (see “Integration

of new companies increases

competitiveness in the United States”).

In Spain, Gerdau purchased an

additional 20% interest in Sidenor,

the largest manufacturer of specialty

long steel and large forged and cast

products in the country and one of

the main ones in Europe. With this,

Gerdau increased its holdings in the

company to 60%. True to our strategy

of expanding our line of products

and services offered in the region,

we acquired the companies Vicente

Gabilondo e Hijos and Rectificadora

Del Vallés, leaders in the production

and commercialization of cold-

finished products in the country.

In Brazil, Gerdau acquired an

additional 28.9% interest in Aços

Villares, thus intensifying the capture

of synergies and the integration of

its production plants of specialty

long steel in this country.

With plants in Brazil, Spain and

the United States, Gerdau’s strong

international presence made it

possible for Gerdau to establish

closer relations with its main

customers and form global supply

agreements of steel products.

These agreements were responsible

for a significant part of its sales

throughout the business year.

Nonetheless, as of the fourth quarter

of 2008, the change in global steel-

consumption levels led Gerdau to

adjust its production levels in the

countries in which it operates, mainly

by way of conducting scheduled

downtimes ahead of time and

granting early employee vacations.

Despite the heavy drop in demand

of the automotive industry observed

during the fourth quarter of 2008,

Gerdau maintained its position

as a world leader in the supply

of specialty long steel to this

industry. Additionally, it continued

supplying its products to the naval,

oil, machinery and equipment,

wind-power and construction

equipment sectors, among others.

To increase the competitiveness

of its enterprises, Gerdau currently

possesses three modern integrated

centers for product research and

development, in the United States,

Brazil and Spain. Over 100 engineers

work toward the improvement of

products and processes – developed

together with its customers –,

seeking high-quality, innovative

solutions that are more economical.

26 2008 ANNUAL REPORT

Outlook

The improvement of operating

efficiency, the continued achievement

of synergies between the industrial

plants and the optimization of the

production capacity provide Gerdau

with the elements necessary

to minimize the effects of the

world crisis on its production

INTERNATIONAL PRESENCE OF THE SPECIALTY STEEL OPERATION

plants of specialty long steel.

In order to do so, the Company

will seek the following in 2009:

Adapt production and inventory •

levels to the market demand

and increase the productivity

of the industrial plants.

Increase the supply of •

specialty steel by way of

international agreements.

Continue the market diversification •

of specialty steel Operations,

developing products for

new applications and for

the automotive industry.

272008 ANNUAL REPORT

Source of revenues(R$ 46.7 billion)

Growth of steel demand and consolidation of new companies guarantee positive performance

FINANCE

Gross revenues

Despite the severe global economic

crisis and the drop in sales observed

during the fourth quarter of 2008,

Gerdau closed the year with record

financial performance due to the

increased demand for steel during

the first nine months of the year and

the consolidation of new companies,

mainly in the United States. The

gross revenues for the business

year reached R$ 46.7 billion, a

36.7% increase in comparison to

the same period in 2007, according

to the International Financial

Reporting Standards (IFRS).

Net sales revenues and EBITDA

Net sales revenues reached

R$ 41.9 billion in 2008, 36.9%

higher than in the previous year.

The generation of operating cash,

represented by the EBITDA

(earnings before interest, taxes,

depreciation and amortization),

EBITDA(R$ 10.0 billion)

EBITDA breakdown (R$ million)

2007 2008 Variation 2008/2007

Net profit 4,303 4,945 14.9%

Income tax provision and social contrib. 952 948 -0.4%

Net financial income (332) 2,235 -

Depreciation and amortizations 1,317 1,896 44.0%

EBITDA 6,240 10,024 60.6%

Brazil: includes the Long Steel and Açominas operations.

North America: includes all operations in North America, except for the


Latin America: includes all operations in Latin America, except Brazil.

Specialty Steel: includes all Specialty Steel operations in Brazil,








The above information does not include data of companies with

shared control and joint ventures.


Net profit(R$ million)

2007 2008 Variation 2007/2008

Brazil1 1,814 3,499 92.9%

North America 985 1,057 7.3%

Latin America 345 454 31.6%

Specialty Steel 682 618 -9.4%

Subtotal 3,826 5,628 47.1%

Foreign currency conversion2 477 (683) -

Total 4,303 4,945 14.9%

1 - Excludes the effect of the conversion of balances in foreign currency.

2 - Effect of the conversion of balances in foreign currency held by the companies in Brazil on debts and accounts receivable from exports, after income tax.

totaled R$ 10.0 billion, a

60.6% increase in relation to

the previous year. The EBITDA

growth occurred due to the good

operating performance and the

reduced growth of the operating

costs in relation to the net sales

revenues. Consequently, the EBITDA

margin for the period reached

23.9%, against 20.4% in 2007.

Net Profit

In 2008, the consolidated net profit

reached R$ 4.9 billion, a growth

of 14.9% in comparison to 2007.

The North American operations

presented a net profit of

R$ 1.1 billion, 7.3% greater

than that of 2007, according

to the International Financial

Reporting Standards (IFRS),

a methodology applied to Gerdau’s

consolidated balance sheet.

Nevertheless, according to the

United States Generally Accepted

Accounting Principles (US GAAP),

which are used by Gerdau Ameristeel

in its balance sheet, there was

a revaluation of the investment

premium rebound, which

resulted in an accounting loss of

US$ 1.2 billion. As a consequence,

Gerdau Ameristeel recorded a loss

of US$ 542 million for the year.

This loss does not represent

present or future cash disbursements

by the Company, and the loss

recorded in North America did

not affect the consolidated

balance sheet of Gerdau S.A.

Operational expenses

The cost of sales in 2008 was

R$ 31 billion, 34.1% above the

amount recorded in 2007. Costs

were affected by the consolidated

acquisitions during the year, the

greater sales volume and the

higher input prices for the period.

In 2008, sales costs, added

to general and administrative

expenditures, presented an

18.8% increase in relation

to 2007. During the fiscal

year, they represented 7.1% of

the net sales revenues, against

8.2% in 2007, reflecting the greater

dilution of fixed costs due to the

2008 sales volume growth.

Financial income and expense

During the business year, due to

the devaluation of the Brazilian real

in relation to the American dollar,

a negative financial result of

R$ 2.2 billion occurred (financial

income less financial expenses).

Included in this amount is the loss


Indebtedness (R$ million) 2008 2007

Short-term

Domestic currency (Brazil) 892 1,163

Foreign currency (Brazil) 1,103 521

Foreign companies 1,938 855

Total 3,933 2,539

Long-term

Domestic currency (Brazil) 2,625 2,555

Foreign currency (Brazil) 6,886 4,342

Foreign companies 9,790 6,467

Total 19,301 13,364

Gross debt 23,234 15,903

Cash on hand and financial investments 5,491 5,139

Net debt 17,743 10,764

Value added breakdown(R$ 16.0 billion)

due to the exchange rate variation

of R$ 1 billion. In 2007, the net

financial income was positive,

amounting to R$ 332 million,

accounting for R$ 723.3 million

in foreign exchange gains.

Financial liabilities

Gerdau does not perform leveraged

operations with any type of

derivative. The practice of derivatives

is limited to the management of

the foreign exchange exposure

associated with the operations’ cash

flows and interest rate swaps.

On December 31, 2008, the net

debt (loans and financing, plus

debentures, less available funds

and bonds and securities) totaled

R$ 17.7 billion, compared to the

R$ 10.8 billion recorded at the

end of the previous year. This debt

increase is due to the effect of

the exchange rate variation on the

debts incurred in foreign currency

in Brazil and to the acquisitions

conducted during the period.

Nonetheless, the ratio between

the net debt and the generation

of cash was 1:1.8, below the 1:2.5

ratio limit established according to

Gerdau’s policy of indebtedness.

The gross debt (loans and financing,

plus debentures) at the end of the

business year was R$23.2 billion,

with 83.1% in long-term debts

(R$ 19.3 billion) and 16.9% in

short-term debts (R$ 3.9 billion).

The average debt-payment term

was seven years and six months.

Of the total gross debt as

of December 31, 2008,

15.1% was in Brazilian reais;

34.4% in foreign currency,

incurred by the companies

in Brazil; and 50.5% in

various currencies, incurred

by the subsidiaries in the

remaining countries.

Gerdau closed the year with available

cash and financial investments of

R$5.5 billion, 48.3% (R$ 2.7 billion)

of which was indexed to foreign

currencies, mainly the US dollar.

Value added breakdown

The consolidated value added of

the Gerdau companies in 2008

reached R$ 16.0 billion, a

52.8% increase in relation to 2007.

The value added breakdown derives

from revenues from goods and

services after discounts, totaling

R$ 46.2 billion, less R$ 30.2 billion in

costs. Making up these costs are the

amounts relative to raw materials and

consumer goods, third-party services,

depreciation and amortizations, equity

adjustments and financial income.


CAPITAL MARKETS

With over 60 years in the capital

markets, Gerdau’s operations

have always been guided by a

conservative financial management

and a solid capital structure,

factors that have contributed to the

historical generation of profits for

its over 140,000 shareholders.

Gerdau has five publicly-listed

companies – Metalúrgica Gerdau

S.A., Gerdau S.A., Aços Villares

S.A., Empresa Siderúrgica del

Perú S.A.A. (Siderperú) and Gerdau

Ameristeel Corp. –, whose 2008

performance was influenced by

the global economic crisis.

During the period, however,

the shares of Gerdau companies

underwent significant trading, totaling

US$ 55.4 billion in 2008 on the

stock exchanges of São Paulo,

New York, Toronto, Madrid and Lima.

For the third consecutive year,

Metalúrgica Gerdau S.A. and Gerdau

S.A. kept themselves listed on the

Business Sustainability Index (ISE)

of the São Paulo Stock Exchange

(Bovespa), which is reserved

for a select group of companies

committed to sustainability and social

responsibility. Additionally, Gerdau

S.A. has been listed under Bovespa’s

Level 1 Corporate Governance

since 2001. Metalúrgica Gerdau

S.A. was also listed in 2003.

The Gerdau companies are

listed on the Index of Stocks with

Distinguished Corporate Governance

(IGC), the Index of Stocks with

Distinguished Tag Along (ITAG),

the Bovespa Index (Ibovespa), Index

Brazil 50 (IBrX50), the Industrial

Sector Index (INDX) and the Toronto

Stock Exchange – Standard & Poor’s

(S&P/TSX Composite Index).

A solid capital structure and conservative financial management mark Gerdau’s activity in the capital markets

Appreciation of shares over the last five years

-50 0 50 100 150 200 250 300


Public offer of shares

and dividends

In 2008, initial public offers of

common and preferred shares

issued by Metalúrgica Gerdau

S.A. and Gerdau S.A. were made.

Entirely successful, these operations

generated R$ 2.9 billion in new

funds, allocated to reestablish the

liquidity of the Gerdau companies

due to the various acquisitions

undertaken during the last two years.

Subsequently, Metalúrgica Gerdau

S.A. and Gerdau S.A. paid dividends

of 100% to their shareholders,

through the capitalization of reserves,

which resulted in the issuance of

new shares. In that Operation, the

shareholders received one new share

for each share held. With this, the

total reserves capitalized amounted

to R$ 1.7 billion for Metalúrgica

Gerdau S.A. and R$ 3.5 billion

for Gerdau S.A., thus raising the

amount of the companies’ capital

stock to R$ 6.9 billion and

R$ 14.2 billion, respectively.

This initiative made greater

liquidity possible, thus facilitating

small investors’ access to

securities on the bond market.

Compensation to shareholders

Metalúrgica Gerdau S.A. and Gerdau

S.A. adhere to the traditional policy

of paying quarterly dividends and/

or interest on shareholders’ equity,

equivalent to at least 30% of the

adjusted net income for the business

year, assessed according to Brazilian

accounting practices. This percentage

is greater than the minimum

established under prevailing Brazilian

legislation, which stipulates 25%.

The dividends and interest on

shareholders’ equity distributed

to Metalúrgica Gerdau S.A.

shareholders totaled R$ 520.2 million

in 2008, while the compensation

paid to holders of Gerdau S.A.

shares was R$ 1.1 billion.

Gerdau Ameristeel Corp. customarily

distributes dividends every quarter

and, for the fourth consecutive

year, it paid special supplementary

dividends during the first quarter,

due to the superb results achieved

and the good market prospects at

the time. In 2008, special dividends

were US$ 0.25 per share, totaling

US$ 108.2 million, and quarterly

shares were US$ 0.02 per share,

adding up to US$ 34.4 million. In all,

US$ 142.6 million were distributed.

Aços Villares S.A. distributed

quarterly dividends and/or interest

on shareholders’ equity, at the rate

of 30% of the adjusted net income.

In 2008, Aços Villares S.A.

distributed R$ 116.8 million

in dividends and interest on

shareholders’ equity.

Empresa Siderúrgica del Perú

S.A.A. “follows a dividend policy of

distributing up to 33% of the net

profit. In 2008, by way of a decision

by the Board of Directors, the net

income, after statutory allowances,

was reinvested in the Company.

2008 Ownership

Region Metalúrgica Gerdau S.A. Gerdau S.A. Gerdau Ameristeel

Brazil 83.1% 76.5% 66.4%

North America 10.5% 19.4% 33.6%

Europe 4.5% 2.7% -

Other 1.9% 1.4% -

Total 100% 100% 100%


RELATIONSHIPS

EMPLOYEES

The Organization invests in the education of professionals to face global challenges

In all countries, Gerdau employees

share the same conviction: century-

old values guide the Company’s

decisions and growth. These

same values are the basis of

Gerdau’s relationship with its over

40,000 employees, characterized

by integrity, respect, the pursuit

of mutual gains and coherence

between words and actions.

In order to face market challenges,

Gerdau has traditionally invested in

the training of its employees and

the preparation of global leaders,

which is fundamental to an agile and

efficient response to the external

scenario of global competitiveness.

All of this work is carried out based

on standardized human resource

practices in line with the Gerdau

culture, which aims at disseminating

the best management examples in

the area, in all Operations, based on

internal and market benchmarks.

Health and safety

Gerdau believes that no emergency,

production situation or desired

result can justify the lack of safety

of its employees and service

Engineers’ Intensive Training Program prepares professionals to work in Gerdau’s various Operations around the world


providers. Therefore, people’s

safety in the work environment

is a top priority in all Operations,

and its objective is to reduce the

number of accidents to zero.

All of its plants adhere to the Total

Safety System, a rigorous set

of safety practices. Additionally,

constant investments in new accident

prevention equipment and technology

are made. In 2008, R$ 56.6 million

were invested in the area of safety,

18.1% more than in the previous year.

In order to improve safety

management in the work

environment, a project was

implemented in 2008 to chart, in

detail, the activities with the highest

probability of causing accidents

and to establish strict control

parameters, aiming at remedying the

critical factors that were identified.

Additionally, Practice Communities

– an internal social network relating

to health and safety – were created

to encourage the exchange of

information and experiences among

employees from different countries.

During the year, the rate of lost-time

accidents per million man-hours

worked (an international indicator

that gauges the occurrence of

workplace accidents) was 3.2, below

the world steelmaking average,

yet higher than the 2007 figure

because the indicator included nine

new companies located in Brazil,

Colombia, Dominican Republic,

Mexico, Peru, Spain, and Venezuela.

Internal climate

Gerdau’s excellent relationship with

its employees was reflected by the

increase in the favorability index

of the 2008 Opinion Poll – which

concerns all positive responses

given by employees –, which

rose from 71%, in 2007, to 72%,

mainly due to the upsurge of the

indicator in the United States and

Canada. Also observed was a rise

in the general satisfaction index,

which went from 78% in 2007 to

81% in 2008. During the same

period, employee participation in

the Opinion Poll reached 93%.

Moreover, Gerdau was recognized

as one of the Best Companies to

Work for in Brazil and Chile. In Brazil,

the survey was conducted by the

magazine Guia Você S/A Exame,

in association with the Institute

of Administration Foundation

(FIA) of the University of São

Paulo; in Chile, by the consulting

firm Great Place to Work.

Workforce indicators* 2007 2008

Schooling of employees

% who completed elementary school 19.5 18.0

% who completed high school 58.7 57.3

% who completed college education 21.8 24.7

Number of women working at Gerdau 3,192 3,936

% of leadership positions occupied by women 12.6 12.9

Average age of employees 38 37.6

% of employees over 45 years old 30.9 28.0

% employed for 20 or more years 21.0 18.4

Average time working for the Company 10 years 10 years

Turnover rate (%) 8.2 9.1

*Data relating to associated companies with shared control and joint ventures were not included.


Training

In 2008, R$ 47.6 million were

invested in the training of people,

an amount 6.9% greater than that

of 2007. In all, 3 million hours were

devoted to training, which amounts

to an average of 67.4 hours

of instruction per employee.

One of the year’s highlights was

the conclusion of the first edition

of the Gerdau Business Program, a

two-year MBA program customized

according to the Company’s

needs. The executives – who were

prepared to meet global challenges

– participated in various modules

in internationally recognized

institutions in France, the United

States, China and Brazil. The

second edition of the program is

underway, involving 34 executives.

Investments in health and safety in the workplace(R$ million)

The Engineers’ Intensive

Training Program, which prepares

professionals to work at any Gerdau

plant in the world, graduated its

first class in 2008. As of 2009, the

68 engineers trained via this initiative

will work in various countries,

focusing on the improvement

of the industrial process.

Trainees

One of the main initiatives to

instruct and attract talents is the

trainees program. In 2008, over

20,000 candidates participated in the

selection process. In all, 390 trainees

began to work for the Company in five

countries – Argentina, Brazil, Canada,

Colombia, and the United States.

For two years, the trainees participate

in a structured preparatory program,

including various types of instruction,

on-the-job training, and specific

projects. Based on systematic

supervision, this program aims at

preparing trainees to work in the

day-to-day routine of our Operations

and add value to our business.

The program has been restructured

and, in 2009, trainee education

will be intensified in the areas of

technical knowledge, management

and safety in the workplace.

Successors

Gerdau is continuously preparing

new executives to hold significant

positions in the Organization,

maintaining the Organization’s

values and management practices.

Throughout the year, the 58 People

Development Committees in the

Accident frequency rate*

*Rate of lost-time accidents per million man-hours worked.


Business Operations evaluated

942 executive positions. Discussions

concerning careers and succession

at Gerdau are held at the meetings of

the People Development Committees,

ensuring a broad debate on the

development of people and teams.

Technical career

The education of technicians with

great mastery of all of Gerdau’s

processes is fundamental for the

Company to establish itself as a global

player exhibiting performance that

is a benchmark to other companies.

This being the case, in 2008

Gerdau expanded the possibilities

of professional development

and growth with the Technical

Career Project, which was initially

implemented in Brazil. The project will

be expanded to the other countries.

Its objectives are to attract,

retain, develop and value qualified

professionals displaying outstanding

performance in the technical area,

thus increasing the number of

employees possessing full knowledge

of the Company’s specific processes.

Labor union agreements

Gerdau maintains a union relations

policy that is based on respect

for free expression and for open,

clear discussion, always seeking

a path of common interest that

generates mutual benefits.

In 2008, the Company signed

28 collective bargaining agreements

with union entities in Brazil, Chile,

Spain, the United States, Mexico,

Uruguay, Peru and Venezuela.

Compensation and benefits

Gerdau’s compensation policy is

structured into two parts: employees

receive a fixed salary that is in

line with the best practices of the

market; and variable compensation

that is based on individual, team,

plant, and Business Operation

performance and goal achievement.

The Company offers its employees

and their families a benefit plan

that involves educational and

residential loans, private pension

plans, life insurance, and medical

and dental care. The benefits

vary according to the needs in the

various regions of the world.

*Amount distributed by the Company to employees in variable compensation.

Profit sharing*

Benefits (R$ million) 2007 2008

Meals 55.7 62.0

Transport 50.9 59.3

Health 175.6 230.7

Private pensions 96.3 94.4

Training and development 2007 2008

Investment (R$ million) 44.6 47.6

Training hours (million) 1.8 3.0

Training hours per employee 49.0 67.4


CUSTOMERS

Gerdau’s quality products and innovative solutions are a differential in servicing its customers

Alert to the needs and rapid

changes of the market, Gerdau

seeks to identify trends and prepare

itself for future demands, so as

to offer its customers intelligent

and innovative solutions.

This is the case of the Zbar, a

rebar that was launched mainly on

the North American market, with

innovative and exclusive Gerdau

technology. It stands out for being

rust-resistant via dual coatings,

offering much greater durability than

conventional coatings. The product

was developed for application

in structures and floors located

in regions with adverse weather

conditions, such as humidity and

exposure to salt, which can provoke

a high degree of corrosion. In

2008, the Zbar received the ASTM

A1055 certification of the Standard

Specification for Zinc and Epoxy Dual

Coated Steel Reinforcing Bars, a

certification that is widely recognized

in the United States, conferring

credibility to the product’s quality.

The improvement of Gerdau’s

services and products was also

recognized in Canada. During the

fiscal year, the Manitoba plant was

chosen by Caterpillar to receive

the MQ 11005 certification, an

accomplishment that only one steel

company among its 9,000 suppliers

worldwide had previously achieved.

In the long steel sector, Gerdau

intensified the transfer of technology

among its plants in Brazil, in Spain,

and in the United States, improving

the quality of its product line and

increasing the efficiency of its

processes. Moreover, the Company

has continued to develop new steel

for applications in the power, oil,

machinery, and naval sectors.

In the long steel sector in Brazil,

numerous actions were developed

aiming at addressing and overcoming

the expectations of customers.

Among the actions developed, forging

a closer relationship with clients can

be highlighted by means of direct

contacts with over 18,000 end-users

and the intensification of the work

of the sales and technical

team, with training of more than

23,000 professionals on product

application methodology for Gerdau

products and on new technological

trends in the Construction, industrial

and agricultural sectors.

Additionally, there was also the

launching of new products, such

as wire mesh for concrete walls

and bent mesh for precast shapes

that provide cost reduction and

greater productivity to worksites.

Gerdau also offers technical

alternatives for projects of 1,200

customers by creating appropriate

and cost effective solutions to the

specific needs of each of them.

Customer satisfaction is a priority

within the Organization. Therefore,

Gerdau constantly monitors its

strong points and its opportunities

for improvement by way of opinion

polls conducted by an independent

firm. In 2008, over 27,000 customers

were surveyed throughout the

world. The results of the study

demonstrated a high degree of

satisfaction of the customers, who

positively assessed the following

items: product quality, logistics,

technical support and sales service.


Transparency and straightforward policies are the basis of Gerdau’s relationship with its over 140,000 shareholders

SHAREHOLDERS

Gerdau’s publicly-listed companies

are managed via a solid corporate

governance structure that adheres

to the best global models. Its

performance is based on the

transparency, clarity and swiftness of

its communication with shareholders.

The stockholder compensation

policies of the public companies –

Metalúrgica Gerdau S.A., Gerdau

S.A., Aços Villares S.A., Empresa

Siderúrgica del Perú S.A.A.

(Siderperú) and Gerdau Ameristeel

Corp. – are clear and are in line with

the parameters of the market. At

Metalúrgica Gerdau S.A., Gerdau S.A.

and Aços Villares S.A., dividends and/

or interest on shareholders’ equity are

distributed quarterly at the rate of at

least 30% of the adjusted net profit.

Gerdau Ameristeel Corp.’s practices

are in line with the highest North

American standards, which require

the payment of quarterly dividends

and, eventually, the distribution of

complementary annual dividends,

depending on the profits obtained

for the period and on the business

prospects. The dividend policy

of Siderúrgica del Perú S.A.A.

requires the distribution of up

to 33% of the net profit.

Furthermore, the minority

shareholders of Metalúrgica Gerdau

S.A. and Gerdau S.A. have tag along

rights; this permits the holders of

common and preferred shares to

receive 100% of the amount paid to

controllers upon the eventual sale

of the control of the companies.

A permanent, accessible

communication system, comprised

of various channels, always keeps

shareholders and investors up-to-

date on the most recent information

about Gerdau. In addition to the

Company website (www.gerdau.

com/investidores), visits are

made, conferences are held and

presentations are given in various

markets around the world.

Investors will find up-to-date information about the Company’s business on the website www.gerdau.com/investidores


Gerdau’s social investments are channelled to the areas of education and emergency assistance

SOCIETY

Gerdau believes that the continuous

development of communities is made

possible by entrepreneurial actions.

Therefore, in the social programs

in which it participates, it seeks to

involve companies, the government

and civil organizations, so as to

increase investment potential, offer

sustainability to long-term initiatives

and encourage volunteer work,

promoting solidarity and the transfer

of knowledge among people.

Guided by the Gerdau Institute, the

Company’s activities focus on the

following areas: formal education;

education for quality, productivity

and competitiveness; environmental

education; education through

culture and sports; and emergency

assistance. In 2008, R$ 103.3 million

were invested in social programs, a

45.6% increase in relation to 2007.

During the 2008 fiscal year, the

Gerdau Institute also began the

internationalization of its social

management practices, seeking

synergies in the performance of

Operations in various countries.

Throughout 2009, this initiative will

focus on the plants in Argentina,

Canada, Chile, Colombia, the

United States, Peru, and Uruguay.

Formal education

In 2008, Gerdau invested

R$ 20.7 million to improve the

quality of formal education by

way of programs to improve the

administration of public institutions

and the training of preschool and

grade school teachers. One of the

highlights is the work developed by

the Gerdau Institute in its support

of the All for Education Movement.

The movement established five

goals for improving the quality of

Brazil’s elementary school education

system by 2022. In 2008, besides

monitoring the main indicators of

Brazilian elementary education,

the movement conducted a large

campaign, during city elections,

to make citizens aware of the

importance of choosing government

leaders that are committed to

quality formal education.

Education for quality, productivity,

and competitiveness

In order to encourage the

entrepreneurial spirit, develop

talents capable of producing wealth

for communities, and improve

management methods in public and

private organizations, Gerdau invested

R$ 23.9 million in projects in this area

in 2008. One example is the work

Public school students participated in the conscientious consumption workshops conducted during the Gerdau Volunteer Olympics, which joined together over 6,000 volunteers throughout Brazil in 2008


developed jointly with the Competitive

Brazil Movement to improve public

administration. In Brazil, between

2004 and 2008, the governments

and associates of ten Brazilian

states and of the cities of São Paulo

and Porto Alegre invested

R$ 44 million in the improvement

of public administration

practices, generating savings of

R$ 8.8 billion, 163.0% higher

than the goal established in the

projects, which translated into the

improvement of services rendered

to the taxpayers and to society.

Among the projects endorsed by

Gerdau aimed at developing the

entrepreneurial spirit of low-income

youths is the Technical School,

which is located in Peru. The school

has already trained over 400 young

people between 16 and 21 years

of age since its founding in 1998.

Education through culture and sports

Committed to promoting education

and social inclusion through culture

and sports, Gerdau invested

R$ 37.9 million in this area in 2008.

Part of the funds came from tax

incentives. A highlight in 2008 was

the aid given to the construction

of the new headquarters of the

Iberê Camargo Foundation in Porto

Alegre, Rio Grande do Sul, Brazil

(see “New headquarters for the

Iberê Camargo Foundation”).

Environmental education

Gerdau develops initiatives for

expanding society’s environmental

awareness. In 2008, it invested

R$ 2.5 million in recycling programs

and in projects aimed at promoting

the conscientious consumption of

natural resources. Conscientious

consumption was the theme of the

Gerdau Volunteer Olympics, which

mobilized 6,750 employees in Brazil,

offering tips and performing tasks

concerning water, energy and waste,

thus contributing to the environment.

Emergency Assistance

Gerdau also takes care of the

emergency needs of communities,

mobilizing resources, employees,

Investment (R$ million) Number of volunteers

and members of society, and

supports social organizations that

are recognized for their exemplary

performance concerning social

responsibility. In 2008, investments

in this area totaled R$ 18.3 million.

Standing out among the emergency

assistance initiatives is the Gerdau

Professionals Pro-Childhood Fund,

through which the Company and

its employees in Brazil raise and

distribute tax waiver funds to social

institutions that care for children

and teenagers in situations of social

risk. In 2008, the Fund raised a

sum of R$ 6 million, which was

distributed to 151 social institutions.

Another highlight is the Gerdau

Volunteer Program, which obtained

the adherence of 9,200 employees

in 2008, 45.8% more than in 2007.

Volunteer work is very popular in

Brazil and the United States; in the

latter, around 40% of our employees

participate in volunteer initiatives.


New headquarters for the Iberê Camargo Foundation

In May 2008, a new landmark in

world architecture was inaugurated:

the Iberê Camargo Foundation

building, located in Porto Alegre

(state of Rio Grande do Sul, Brazil).

Investments in the project totaled

R$ 40 million, with a significant

part of this amount (around 60%)

coming from tax incentives for

culture. Gerdau was one of the

main financial supporters of the

initiative. Along his life as an

artist, Iberê Camargo became one

of the most influential Brazilian

painters of the twentieth century.

The new building was conceived

by Portuguese architect

Álvaro Siza Vieira, one of the five

most important contemporary

architects in the world, winner of

the Hyatt Foundation’s Pritzker

Award (Chicago, USA), which is

considered the Nobel Prize of the

arts. In Brazil, Siza was awarded the

Medal of Honor for Cultural Merit in

2007, and was the recipient of the

Riba Gold Medal, one of the most

prestigious awards in architecture.

The Iberê Camargo Foundation

project received the Gold Lion at

the Venice Architecture Biennial in

2002 and special merit at the

Milan Design Triennial. The building

houses a collection of over

4,000 works by Iberê Camargo.

In seven months of activities in 2008,

over 90,000 people foundation.

A highlight was the Educational

Program, which trained 600 teachers

and assisted over 23,000 students.

Iberê Camargo Foundation headquarters in Porto Alegre (state of Rio Grande do Sul, Brazil) – an architectural classic showcasing contemporary art


Wide chain of suppliers and long-term alliances give Gerdau the flexibility needed for rapid adaptation to market movements

SUPPLIERS

For decades, Gerdau has developed

a wide chain of suppliers, which has

been essential for increasing its

levels of competitiveness and quickly

adapting itself to the developments

of the steel markets. This has also

been possible due to its ability to

establish long-term alliances, which

are based on direct relationships

and the pursuit of mutual gains.

Gerdau also prefers contracting

suppliers that share its policy

of respect to people and the

environment, for it understands

that the sustainability of its

business also goes through the

production chain into which it is

inserted. Besides requiring rigorous

compliance with the prevailing

legislation of each country, Gerdau

conducts periodic audits, aiming

at ensuring the observance of

its standards of excellence.

To encourage the development of

its suppliers in Brazil, the Company,

in association with the Brazilian

Micro and Small Business Support

Service (Sebrae), conducts the

Supplier Development Program.

Created in 2006, this initiative

promotes the improvement of

management skills, focusing on

job safety, service quality and cost

reduction, among other things.

Because it uses steel scrap as one

of its main raw materials, Gerdau is

dedicated to the improvement and

training of its scrap supply chain

in various countries. In Chile, it has

worked for two years to transform

direct suppliers of scrap into formal

businesses, also promoting the

learning of modern management

practices. To do this, training is

conducted in different areas –

such as management, tax and

fiscal aspects of the business,

and precautions concerning the

natural environment –, so that the

businesses of these small suppliers

achieve sustainability. In all,

150 people have already been

trained in this program. In Brazil,

Gerdau supports the formation of

scrap recycling cooperatives, which

has resulted in social inclusion

and income generation for needy

families. By 2008, 13 cooperatives

had been created in various Brazilian

states, involving 580 cooperating

participants. This initiative was

expanded to Colombia in 2008, with

the goal of forming 15 cooperatives

in the country by the end of 2009.

Besides contributing to the

improvement of its chain of suppliers,

Gerdau seeks greater agility in its

daily purchasing procedures, cost

reduction and better conditions

for choosing the best service

suppliers. To achieve these goals, the

Company implemented the Gerdau

Global Procurement program in

2008, a system that standardizes

and aligns the Organization’s

purchasing procedures. The system’s

implementation began with the plants

in Brazil, the United States and

Canada; it should be expanded to

all Operations in the coming years.


ENVIRONMENT

Eco-efficiency practices and the constant upgrading of environmental protection technology characterize Gerdau’s performance

ENVIRONMENTAL MANAGEMENT

Gerdau constantly invests in the

improvement of its eco-efficiency

practices and in technologies for the

protection of the air, water and soil. In

2008, R$ 201.0 million were invested.

By way of a well-structured

Environmental Management System, the

environmental aspects of its production

chain are supervised, from the purchase

of raw materials to the final product

and the destination of by-products.

The number of ISO 14001 certified

Gerdau plants has increased

significantly. Seven plants obtained

certification in 2008, raising the

number of certified industrial plants

to 40, which represents a growth of

21.0% during 2008 alone. Current

plans are to certify all plants by 2011.

Scrap

During the year, Gerdau,

Latin America’s largest recycler,

transformed approximately

16 million metric tons of scrap into

steel, 25.0% more than in 2007.

The production of steel from scrap is a

fully sustainable process, insomuch as

it helps reduce the amount of materials

discarded in landfills or inappropriate

places, power and water consumption

and the generation of waste.

The Planting Future Project carried out at Gerdau Cosigua (state of Rio de Janeiro, Brazil) has already produced over 5 thousand seedlings for reforesting in the state with the support of the community and volunteers


Environmental investments(R$ 201 million)

Energy

Gerdau’s investments are based on

power generated through the use of

renewable resources and alternative

energy sources. An example is the

construction of two hydroelectric

plants in Goiás (Brazil), which together

should generate 155 megawatts.

Standing out in the area of energy

efficiency is the utilization of the

residual gases produced in Gerdau

Açominas’ blast furnaces, steel

plant and coke plant, a resource that

enables the plant itself to generate

around 70% of its power needs. In

2008, of the total volume of gases

produced, 97.6% were reused for

power generation or for reheating.

The Company seeks to optimize energy

use by way of periodically upgrading

its industrial equipment and processes,

which contributes to eliminating waste

and reducing the corresponding

environmental consequences.

Air

Gerdau has modern dust removal

systems to control the atmospheric

emissions of its steel mills. These dust

removal systems aim at treating the

gases produced by the steelmaking

process, transforming the retained

materials into by-products, which

are recycled by other segments

of the industry. In our recently

acquired companies, protection of

the atmosphere is one of our main

investment priorities when opportunities

for improvement are detected.

The increase in the energy efficiency of

Gerdau’s plants contributed to reducing

carbon dioxide emissions in the

atmosphere. In 2008, its CO2 emission

index was 557 kg per ton of steel

produced, consistently below the world

steel industry of 1,900 kg, according

to World Steel Association data.

Water

Gerdau’s water-recycling levels are

a benchmark for the steel industry.

In 2008, our recirculation index

reached 97.5%. In other words,

only 2.5% of our water resources

were obtained externally, which was

mainly due to evaporation losses.

This recycling ratio is equivalent

reusing to 2,883 cubic meters.

In 2008, twelve of the Company’s

industrial plants achieved high

recirculation levels, reaching the zero-

industrial-effluent mark in its technology.

Reuse of by-products






Spain, and the United States.


By-products

Secondary products in Gerdau’s

steelmaking process, the by-products

are usually reused by the steel

company itself and by other segments

of the industry. In 2008, the index of

by-product reuse was 78.2% of the

total generated, which represented

R$ 68.4 million in earnings in Brazil.

The entire process of transport,

storage and sales of by-products

complies with the requirements

of the Gerdau Environmental

Management System.

Biodiversity

The expansion and maintenance of

green belts with native species and

the maintenance of statutory reserves

and of permanent preservation

areas around our industrial

plants contribute to the conservation

of biodiversity. Of the entire

18,900 hectares of land owned

by the Company, 2,400 hectares

are areas of statutory reserves

or permanent preservation;

and 8,700 hectares, are native

forests (see “Private reserve

preserves fauna and flora”).

The Company invests in various

programs dedicated to planting

trees. In 2008, over 230,000

seedlings of different species were

planted around Gerdau’s industrial

plants in the various countries

in which Gerdau operates.

Environmental education

Mobilizing employees, their families

and neighboring communities by

way of awareness-raising campaigns,

lectures and training is also part of

Gerdau’s environmental management

program. 2008 boasted

46,700 participants and

93,000 hours of training aimed

at encouraging a pro-active

environmental attitude among

employees, numbers much

higher than those of 2007,

with 19,300 participants and

50,400 hours of training.


Our main initiative to preserve

fauna and flora was the creation

of a private natural reserve in

the mountains of Serra de Ouro

Branco in the state of Minas Gerais,

Brazil. With 1,247 hectares, the

reserve is the home of threatened

species of wild animals, such

as the maned wolf (Chrysocyon

brachyurus) and the Brazilian

porcupine (Coendou prehensilis).

In the region, there also are

important species of Brazilian flora,

among them the Vriesea minarum,

a bromeliad that is on the country’s

Private reserve preserves fauna and flora

list of threatened species, and the

Aspilia caudata, a rare type of daisy.

Perpetual and irrevocable, the

reserve resulted from the alliance

between Gerdau and the Minas

Gerais State Institute of Forests

- State Forest System (Sisema).

Private natural reserve in Serra de Ouro Branco (state of Minas Gerais, Brazil)


TIMELINE

In 1869, João Gerdau arrives from Germany in the Santo Ângelo colony, Brazil, current city of Agudo (state of Rio Grande do Sul)

Pontas de Paris nail factory (Rio Grande do Sul, Brazil)

Construction of Gerdau Cosigua (state of Rio de Janeiro, Brazil)

1901João Gerdau and his son Hugo launch

the basis of Gerdau with the Pontas

de Paris Nail Factory in Porto Alegre

(state of Rio Grande do Sul), Brazil.

1907The businesses of João Gerdau are

divided into two independent branches:

Hugo manages the nail factory and his

brother Walter is responsible for the

Gerdau Furniture Factory, both in Porto

Alegre, state of Rio Grande do Sul, Brazil.

Later, in 1930, the two will take part

in the creation of the State Center

for the Manufacturing Industry, future

Federation of Industries of the State.

1914Hugo Gerdau becomes one of the charter

founders of Cia. Geral de Indústrias

(state of Rio Grande do Sul, Brazil), that

then gave rise to Fogões Geral. Later,

he assumes control of the company

and in 1947, leaves the business.

1933The Nail Factory expands its production

level with the construction of a new plant

in Passo Fundo (state of Rio Grande

do Sul, Brazil), in business until 1964.

1946Curt Johannpeter, son-in-law of Hugo,

assumes management of the company

and oversees a decisive phase in

the expansion of the business.

1947The Nail Factory — now Metalúrgica

Gerdau S.A. — begins trading on the

stock exchange of Porto Alegre and starts

paying dividends to its shareholders.

1948Gerdau enters the steel industry, with

the Riograndense — known as Usina

Farrapos (UFA) — in Porto Alegre (state

of Rio Grande do Sul, Brazil), anticipating

the concept of a mini-mill, a model based

on the use of scrap and on regional

marketing that makes it possible to have

more competitive operating costs.

1957The second plant of the Riograndense

goes into operation, also known as

Plant II, in Sapucaia do Sul (state

of Rio Grande do Sul, Brazil).

1963The creation of the Gerdau Foundation,

with programs in the areas of health,

education, housing and social assistance,

reinforces the culture of social

responsibility of the Organization.

1967The São Judas Tadeu Wire factory,

in Sao Paulo (state of São Paulo),

marks the expansion into the

southeast region of Brazil.

1969Gerdau arrives in the northeast of

Brazil with Siderúrgica Açonorte

(state of Pernambuco).

1971Start of the construction of Gerdau

Cosigua, in Rio de Janeiro (Brazil), and

entry into the sector of steel distribution,

with the first Comercial Gerdau, in São

Paulo (Brazil). Gerdau assumes control

of Siderúrgica Guaíra, pioneer in the

production of steel in the state of Paraná

(Brazil). In 1982 its second plant goes

into operation in the state, in Araucária.

1980Beginning of internationalization, with

the steel mill of Laisa, in Uruguay.

1982Start of the operation of

Siderúrgica Cearense, in Maracanaú

(state of Ceará, Brazil).

1989Entry into North America with Courtice

Steel, now Gerdau Ameristeel Cambridge,

in the province of Ontario (Canada). The

presence in the country is reinforced

in 1995, year when Gerdau took over

MRM, in Manitoba. The Organization

also arrives in Bahia, Brazil, by

means of the purchase of Usiba.


Gerdau Laisa (Uruguay) marks the start of Gerdau’s globalization program

Debut of Gerdau S.A. on the New York Stock Exchange (Nyse)

Iron ore processing plant in Miguel Burnier (state of Minas Gerais, Brazil)

1992Acquisition of the AZA steel mill, in

Chile, and Aços Finos Piratini (state

of Rio Grande do Sul, Brazil). The

GG 50 rebar is launched, one of the

main products of Gerdau in Brazil.

1998Gerdau buys part of the capital stock of

the Sipar steel rolling mill, in Argentina,

and in 2005, takes a controlling stake.

1999Entry into the United States with the

acquisition of control of Ameristeel.

Gerdau S.A., a publicly traded

company in Brazil, is listed on the

New York Stock Exchange (Nyse).

2001The Organization celebrates 100 years

of business with installed capacity of

8.4 million metric tons of steel per year.

It assumes control of Açominas (state of

Minas Gerais, Brazil), its largest plant, of

which it was a shareholder since 1997.

2002Gerdau and Co-Steel merge their

steel operations in North America,

creating Gerdau Ameristeel, which

at the time had 11 steel plants and

29 downstream operations.

2004Expansion of Gerdau in the Americas. In

Colombia, an agreement is announced

for acquisition of the control of Diaco

and Sidelpa. In North America, assets

of North Star Steel are purchased, and

Gerdau Ameristeel is listed on the Nyse.

2005Gerdau expands its presence on

the global market by announcing at

the end of the year, the acquisition

of 40.0% from the Spanish Sidenor,

in a transaction concluded in 2006.

The Gerdau Institute is created to

coordinate the policies and guidelines

of social responsibility of Gerdau.

2006Gerdau acquires Siderperú, in Peru, and

in the United States, Sheffield Steel and

Callaway Building Products, in addition

to signing the Pacific Coast Steel joint

venture. In Spain, Sidenor assumes control

of the Spanish steel mill GSB Acero. In

Brazil, the Gerdau São Paulo plant (state

of São Paulo) goes into operation.

2007André Gerdau Johannpeter assumes

the position of CEO and Claudio Gerdau

Johannpeter becomes chief operating

officer (COO). Gerdau enters Mexico

(Siderúrgica Tultitlán), the Dominican

Republic (Industrias Nacionales — Inca),

and Venezuela (Siderúrgica Zuliana). The

acquisition of Chaparral Steel (USA) for

US$ 4.2 billion and of an interest stake in

Aceros Corsa (Mexico) also takes place.

An agreement is signed for the purchase

of Macsteel (USA), and the Kalyani

Gerdau joint venture is started in India. In

Brazil, Gerdau Açominas (MG) increases

its production capacity by 50.0%.

2008Gerdau enters Central America, acquiring

30.0% of Corporación Centroamericana

del Acero, which is headquartered in

Guatemala. A 50.9% stock interest is

acquired in Cleary Holdings, producer of

metallurgical coke and the owner of coking

coal reserves in Colombia. Prospecting

studies reveal the existence of 1.8 billion

metric tons of iron ore reserves belonging

to Gerdau in the state of Minas Gerais,

Brazil. Additional stock holdings in Aços

Villares (state of São Paulo, Brazil) and

Sidenor (Spain) are also acquired.


AAdjusted net income

Net profit after deduction of 5.0%

of the net profit to a legal reserve,

until this reserve is equivalent to

20.0% of the paid-in capital. It is

the basis for calculating dividends.

ADRs

Acronym for American Depositary

Receipts. Security that represents

shares of non-US companies

issued and traded on the capital

market of the United States.

BBillet

Steel product with a square or

rectangular cross-section produced

by the continuous casting process

or by means of rolling of larger

cross-sections. It is the raw material

for the rolling of long products.

Blast furnace

Large furnace, clad with refractory

tiles, used in integrated mills to

make pig iron from iron ore.

Bovespa Level 1

Corporate Governance

Set of conduct standards for

companies, directors and controlling

entities considered important for

good appreciation of the shares

and other assets issued by the

company. Level 1 companies

commit themselves mainly to

improvements in the provision

of information to the market and

to a broad ownership base.

By-product

Secondary product of an

industrial process, which may

or may not be desirable.

CCash generation

See definition of EBITDA.

Cogeneration

Transformation of one form of

energy into another or others that

are fit for human consumption.

Coke

Basic raw material for the

production of steel. Coke is

produced from charcoal.

Coke plant

Area of the mill where

coke is produced.

Common share

Security that represents the

smallest part in which the capital

stock of a corporation is divided,

giving its holder the right to vote

at shareholders’ meetings.

Compliance

Observance of laws and adherence to

norms that regulate a specific sector.

Continuous casting

Process that continually produces

billets or slabs from liquid

steel poured into a mold.

Corporate governance

System whereby companies are

managed and monitored, involves

relations between shareholders,

Board of Directors, Executive Board,

independent auditor and Board

of Auditors. The purpose of good

corporate governance practices is to

increase the value of the company,

facilitate its access to capital and

contribute to its sustainability

(definition of the Brazilian Institute

of Corporate Governance).

GLOSSARY


DDebenture

Security issued by a corporation

to obtain resources, for use

in investments or financing

of working capital.

Dividend

Amount distributed to shareholders

in cash, based on the number of

shares owned. It comes from profits

obtained by a company in the current

fiscal year or in past fiscal years.

Drawn bars

Steel products with dimensionally

precise finish specifications, which

are produced by way of a cold

forming process and are employed

in the manufacture of parts for

the automotive and agricultural

machinery industries, among others.

EEBITDA

Earnings before interest, taxes,

depreciation and amortization. Also

known as generation of operating

cash. It is gross profit minus sales,

general and administrative expenses,

plus depreciation and amortization.

EBITDA margin

Equal to EBITDA divided by net

revenue, expressed in percentage.

The percentage represents the

amount of each monetary unit of net

revenue that resulted in EBITDA.

Eco-efficiency

Capacity to produce more and

better products while consuming

less non-renewable resources

and producing fewer residues.

Electric arc furnace

Equipment for the production of

steel in which the metallic charge

(scrap + solid pig iron) is melted

using energy resulting from an

electrode-generated electric arc.

FFlat steel

Classification of steel products

that includes sheets and

strips. Flat steel is used in

outside parts of automobiles,

household appliances, etc.

Forging plant

Location at which metal-forging

processes are performed,

i.e., the processes of heating

and shaping the metal.

GGalvanization

Coating steel with a thin layer of zinc

with the purpose of increasing its

resistance to surface corrosion and

improving the product’s appearance.

Gross debt — Bank loans plus

debentures issued by the company.

Gross sales revenue

See definition of Revenue.

HHedge

Used as an instrument of protection

against the risk of price variations

in the various markets of real

or financial assets. Hedge may

be defined as an instrument of

strategy or protection to minimize

the level of risk of a certain

position in investment assets.

IInterest on shareholders’ equity

Amount distributed to shareholders,

in cash, based on the number of

shares owned. It is a substitute

for the payment of dividends.

Investment grade

Risk rating from specialized

agencies, granted to companies

or countries evaluated as capable

of honoring their commitments.

Iron ore

Raw material for the production

of pig iron and sponge iron. It is

the form iron is found in nature.

ISO 14001

Standard developed by the

International Organization for

Standardization (ISO) that specifies

the requirements related to an

environmental management

system of an organization.

JJoint venture

The joint investment of two

companies in a third company.

LLadle

Equipment in which liquid steel is

stored for adjustment of chemical

composition (addition of alloys to

correct manganese, silicon, and

carbon levels), temperature and

composition homogenization, and

to improve the cleanliness of steel.

Ladle furnace

Furnace that receives liquid steel

from the electric arc furnace for

the making of chemical refining.


Leverage

Mechanism employed to obtain funds

for investments and for conducting

operations, using third-party capital.

Liquidity

Greater or lesser ease in trading

a security, converting it to cash.

Long specialty steel

Its production process assures

specific physical and metallurgical

characteristics adequate for the

requirements of special applications,

such as the automotive, oil, tool, and

machinery and equipment industries.

Long steel

Classification of steel products in

which one of the dimensions (length)

predominates over the others. It

includes bars, shapes, wire rod, rebar,

structural shapes and wire. This is

the main line of Gerdau products.

Lost-time accident

An accident that prevents the

employee from returning to work,

to his normal duties, on the day

immediately following the accident,

in the normal working hours, or

that results in a loss of life, partial

permanent disability, total permanent

disability or total temporary disability.

MMBA

Master of Business Administration.

Graduate course geared to

education of executives.

Melt shop

Area of a steelmaking plant

where steel is produced.

Mini-mill

Plant built to meet the demand of

a certain region, with the use of

local raw materials and resources.

Minority shareholder

Holder of a number of shares

insufficient to exercise shareholder

control of a company.

NNet debt

Gross debt minus cash on hand

and financial investments.

Net margin

Equal to net profit divided by

net revenue. It is expressed as

a percentage. The percentage

represents the amount of each

monetary unit of net revenue

that resulted in net profit.

Net profit

Final result achieved in a certain

period, after the recording of

all income and expenses.

Net sales revenue

Gross sales minus taxes on

sales, freight and discounts.

OOn-the-job training

Preparatory instruction

conducted in the workplace.

PPreferred share

Security that represents the smallest

part into which the capital stock

of a corporation is divided, giving

its holder priority in the receipt of

dividends and/or, in the case of

dissolution of the company, in the

return of the capital. In general,

it does not give the right to vote

at shareholders’ meetings.

RRebar

Long ribbed steel bar, used

as structural reinforcement

in civil construction, roads,

bridges, buildings, etc.

Revenue

The financial result from a company’s

sales of goods or services.

Rolling

Cold or hot mechanical shaping

process to make changes in the

shape and dimensions of the cross-

section of the initial material that

usually comes from the melt shop.

SSarbanes-Oxley

Law approved by the US Congress

to protect investors against

the possibility of accounting

fraud at corporations. The rules

and applications amend and

supplement the laws in effect

for public companies that trade

shares on US stock exchanges.


Sintering

Process that consists of

agglomerating iron ore in a mix

with approximately 5.0% of a finely

divided carbon. This mix is heated,

which causes the alloying of ore

particles and results in a uniform

and porous product, called sinter.

Slab

Steel product of the flat steel

sector. It is the basis for the

production of sheets and strips.

Steel

Iron and carbon alloy (up to

1.5%) that also can contain other

chemical elements aimed at the

improvement of its properties.

Structural shapes — Group of

steel products that includes

I and H shapes, wide flange

beams and sheet piling. They

are used in the construction of

buildings, industrial centers, and

reinforcement of bridges, etc.

TTag along

Right that guarantees minority

shareholders the same

conditions offered to controlling

shareholders in case of sale of

the control of the company.

Trainee

Recent graduate from college

who is consistently and quickly

prepared to assume future

positions in the company.

Truss

Triangular frame produced with

grooved CA-60 steel, used in

prefabricated slabs of buildings,

bridges and viaducts, and in

spacer for slabs and floors,

among other applications.

WWire drawing

The wire drawing process by which

metal bars are converted into wire.

Wire drawing machine

Equipment that performs

the cold forming process,

transforming wire rod into wire.

Wire rod

Product of steel with a circular

cross-section obtained in the

rolling process. Wire rod is normally

drawn and used in the production

of wire, screws and nails.

YYield

Indicator that measures the annual

financial return of a share in the

form of dividends or interest on

shareholders’ equity. It is the ratio

of dividends and/or interest on

shareholders’ equity per share

to the price of the stock at the

end of a specific period.


SUMMARIZED FINANCIAL STATEMENTS* GERDAU S.A. AND METALÚRGICA GERDAU S.A.ON DECEMBER 31, 2008 AND 2007

*Complete financial statements are available on the Gerdau website www.gerdau.com

Note 2008 2007(a)

CURRENT ASSETS

Cash and cash equivalents 4 2,026,609 2.026.096

Short-term investments

Held for Trading 5 2,759,486 2.836.903

Available for sale 5 627,151 276.374

Trade accounts receivable 6 3,683,933 3.172.316

Inventories 7 10,398,263 6.056.661

Tax credits 8 857,923 598.317

Prepaid expenses 89,262 108.690

Unrealized gains on derivatives 16 10,035 14

Other current assets 322,878 237.602

20,775,540 15.312.973

NON CURRENT ASSETS

Long-term investments 5 77,563 -

Tax credits 8 521,441 501,595

Deferred income taxes 9 1,766,355 1,014,129

Unrealized gains on derivatives 16 68,145 1,553

Prepaid expenses 129,368 110,207

Judicial deposits 18 258,620 223,735

Other non-current assets 323,415 290,783

Prepaid pension cost 20 271,447 507,017

Equity Investments 11 1,775,073 628,242

Other investments 11 21,768 18,623

Goodwill 12 11,294,102 6,043,396

Intangible assets 13 1,712,930 1,073,715

Property, plant and equipment, net 10 20,054,747 15,827,944

38,274,974 26,240,939

TOTAL ASSETS 59,050,514 41,553,912

(a)2007 comparative amounts have been changed due to the adoption of paragraph 93A of IAS 19, as stated at Note 2.19b.

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

GERDAU S.A. and subsidiaries CONSOLIDATED BALANCE SHEET(In thousands of Brazilian reais [R$])


GERDAU S.A. and subsidiaries CONSOLIDATED BALANCE SHEET(In thousands of Brazilian reais [R$])

Note 2008 2007(a)

CURRENT LIABILITIES

Trade accounts payable 2,855,419 2,586,634

Short-term debt 14 3,788,085 2,500,985

Debentures 15 145,034 38,125

Taxes payable 17 517,272 462,311

Payroll and related liabilities 551,941 518,098

Dividends payable 7,820 392

Unrealized losses on derivatives 16 69,435 1,964

Other current liabilities 540,431 478,639

8,475,437 6,587,148

NON CURRENT LIABILITIES

Long-term debt 14 18,595,002 12,461,128

Debentures 15 705,715 903,151



Provision for contingencies 18 467,076 489,103

Employees benefits 20 1,275,985 758,899

Put options on minority interest 16-f 698,321 889,440

Other non-current liabilities 414,865 379,589

25,531,499 18,243,556

SHAREHOLDERS’ EQUITY 22

Capital 14,184,805 7,810,453

Treasury stocks (122,820) (106,667)

Legal reserve 144,062 278,713

Other reserves (1,028,355) 90,326

Retained earnings 5,110,818 5,756,529

Cumulative translation adjustment 1,877,992 (1,049,333)

PARENT COMPANY’S INTEREST 20,166,502 12,780,021

MINORITY INTEREST 4,877,076 3,943,187

SHAREHOLDERS’ EQUITY 25,043,578 16,723,208

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY 59,050,514 41,553,912




Note 2008 2007(a)

NET SALES 24 41,907,845 30,613,528

Cost of sales 28 (31,018,946) (23,133,902)

GROSS PROFIT 10,888,899 7,479,626

Selling expenses 28 (688,640) (618,938)

General and administrative expenses 28 (2,284,857) (1,884,405)

Other operating income 205,676 110,721

Other operating expenses (116,064) (282,679)

INCOME FROM OPERATIONS 8,005,014 4,804,325

Equity in earnings of unconsolidated companies 122,808 118,399

INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES 8,127,822 4,922,724

Finacial revenues 29 484,046 810,137

Financial expenses 29 (1,620,782) (1,202,027)

Exchange variations, net 29 (1,035,576) 723,289

Gain and losses on derivatives, net 29 (62,396) 1,170

INCOME BEFORE TAXES 5,893,114 5,255,293

Provision for income and social contribution taxes

Current 9 (1,423,660) (872,315)

Deferred 9 475,444 (80,012)

(948,216) (952,327)

NET INCOME 4,944,898 4,302,966

ATTRIBUTED TO:

Parent company's interest 3,940,505 3,549,881

Minority interests 1,004,393 753,085

4,944,898 4,302,966

Basic earnings per share - preferred and common 23 2.83 2.68

Diluted earnings per share - preferred and common 23 2.83 2.66

GERDAU S.A. and subsidiaries CONSOLIDATED STATEMENT OF INCOME(In thousands of Brazilian reais [R$])




GERDAU S.A. and subsidiaries CONSOLIDATED STATEMENT OF CASH FLOW(In thousands of Brazilian reais [R$])

Note 2008 2007(a)

Cash flows from operating activities

Net income 4,944,898 4,302,966

Adjustments to reconcile net income to the cash flow provided by operating activities:

Depreciation and amortization 1,896,076 1,317,156

Equity in earnings of unconsolidated companies (122,808) (118,399)

Exchange variation 1,035,576 (723,289)

Loss (Gains) on derivatives, net 62,396 (1,170)

Post-employment benefits 130,976 (145,929)

Stock based remuneration 7,545 5,707

Income tax 948,216 952,327

Loss on disposal of property, plant and equipment and investments 72,782 87,069

Provision for losses on avaible-for-sale securities 140,166 15,727

Allowance for doubtful accounts 25,613 15,116

Reserve for contingencies (13,120) 178,381

Distributions from joint ventures 68,095 109,959

Interest income (244,501) (662,944)

Interest expense 1,151,253 750,033

Provision for obsolescense and net realisable value adjustment 256,457 (584)

10,359,620 6,082,126

Changes in assets and liabilities:

Reduction (Increase) in trade accounts receivable 1,065,076 (482,616)

Increase in inventories (2,489,882) (777,140)

Decrease (Increase) in trade accounts payable (2,215,810) 455,987

Increase in other receivables (427,162) (456,834)

Increase in other payables 197,636 278,541

Investments in Trading securities and available for sale securities (7,224,221) (4,191,788)

Redemption of trading securities and available for sale securities 7,178,198 6,864,285

Cash provided by operating activities 6,443,455 7,772,561

Interest paid on loans and financing (970,986) (711,518)

Income and social contribution taxes paid (1,895,419) (696,728)

Net cash provided by operating activities 3,577,050 6,364,315

Cash flows from investing activities

Additions to property, plant and equipment and intangibles (2,741,048) (2,757,093)

Payments for business acquisitions 3.6 (4,076,171) (8,525,731)

Interest received on cash investments 314,868 191,561

Net cash used in investing activities (6,502,351) (11,091,263)

Cash flows from financing activities

Capital increase/Treasury stock 2,834,799 907,324

Dividends and interest on capital paid (1,649,936) (1,199,424)

Borrowings 5,117,617 11,693,389

Repayment of loans and financing (4,967,812) (5,622,460)

Intercompany loans, net 1,265,290 291,440

Net cash provided by financing activities 2,599,958 6,070,269

Exchange variation on cash and cash equivalents 325,856 (387,749)

Increase in cash and cash equivalents 513 955,572

Cash and cash equivalents at beginning of period 2,026,096 1,070,524

Cash and cash equivalents at end of period 2,026,609 2,026,096




METALÚRGICA GERDAU S.A. and subsidiaries CONSOLIDATED BALANCE SHEET(In thousands of Brazilian reais [R$])

Note 2008 2007(a)

CURRENT ASSETS

Cash and cash equivalents 4 1,884,912 2,046,665

Short-term investments

Held for Trading 5 2,795,797 2,744,936

Available for sale 5 627,151 276,374

Trade accounts receivable 6 3,713,885 3,226,310

Inventories 7 10,398,263 6,056,661

Tax credits 8 867,568 627,026


Unrealized gains on derivatives 16 10,035 14

Other current assets 441,300 407,128

20,828,173 15,493,804

NON CURRENT ASSETS

Long-term investments 5 77,563 -

Tax credits 8 521,441 512,847


Unrealized gains on derivatives 16 68,145 1,553


Judicial deposits 18 259,196 224,275

Other non-current assets 365,910 338,134

Prepaid pension cost 20 280,174 515,726

Equity Investments 11 1,775,060 628,829

Other investments 11 22,344 18,995

Goodwill 12 12,235,808 6,043,396

Intangible assets 13 1,712,930 1,073,715

Property, plant and equipment, net 10 20,053,348 15,829,091

39,328,746 26,341,934

TOTAL ASSETS 60,156,919 41,835,738




METALÚRGICA GERDAU S.A. and subsidiaries CONSOLIDATED BALANCE SHEETS(In thousands of Brazilian reais [R$])

Note 2008 2007(a)

CURRENT LIABILITIES

Trade accounts payable 2,855,562 2,586,761

Short-term debt 14 3,809,679 2,575,934

Debentures 15 145,034 38,125

Taxes payable 17 522,948 469,058

Payroll and related liabilities 552,651 519,733

Dividends payable 7,585 1,097


Other current liabilities 550,713 497,940

8,513,607 6,690,612

NON-CURRENT LIABILITIES

Long-term debt 14 18,605,974 12,481,760

Debentures 15 1,764,968 791,433

Deferred income tax 9 3,119,606 2,442,203


Provision for contingencies 18 467,433 490,319

Employee benefits 20 1,275,985 758,899

Put options on minority interest 16-f 1,307,608 1,441,185

Other non-current liabilities 409,551 379,588

27,265,392 18,801,493

SHAREHOLDERS’ EQUITY 22

Capital 6,881,998 3,744,000

Treasury stock (69,861) (69,861)

Legal reserve 62,082 131,295

Other reserves (473,866) 50,803

Retained earnings 2,424,360 2,752,244

Cumulative translation adjustment 947,342 (539,471)

PARENT COMPANY’S INTEREST 9,772,055 6,069,010

MINORITY INTEREST 14,605,865 10,274,623

SHAREHOLDERS’ EQUITY 24,377,920 16,343,633

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 60,156,919 41,835,738




Note 2008 2007(a)

NET SALES 24 41,907,845 30,613,528

Cost of sales 28 (31,018,946) (23,133,902)

GROSS PROFIT 10,888,899 7,479,626

Selling expenses 28 (691,193) (620,267)

General and administrative expenses 28 (2,322,932) (1,914,102)

Other operating income 212,171 141,006

Other operating expenses (145,485) (298,828)

INCOME FROM OPERATIONS 7,941,460 4,787,435

Equity in earnings of unconsolidated companies 122,808 118,399

INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES 8,064,268 4,905,834

Finacial revenues 29 548,761 866,220

Financial expenses 29 (1,754,497) (1,210,090)

Exchange variations, net 29 (1,035,560) 723,289

Gain and losses on derivatives, net 29 (62,396) 1,170

INCOME BEFORE TAXES 5,760,576 5,286,423

Provision for income and social contribution taxes

Current 9 (1,451,877) (881,050)

Deferred 9 534,072 (86,868)

(917,805) (967,918)

NET INCOME 4,842,771 4,318,505

ATTRIBUTED TO:

Parent company's interest 1,814,337 1,819,764

Minority interests 3,028,434 2,498,741

4,842,771 4,318,505

Basic earnings per share - preferred and common 23 4.60 4.94

Diluted earnings per share - preferred and common 23 4.60 4.94

METALÚRGICA GERDAU S.A. and subsidiaries CONSOLIDATED STATEMENT OF INCOME(In thousands of Brazilian reais [R$])




METALÚRGICA GERDAU S.A. and subsidiaries CONSOLIDATED STATEMENT OF CASH FLOW(In thousands of Brazilian reais [R$])

Note 2008 2007(a)

Cash flows from operating activities

Net income 4,842,771 4,318,505

Adjustments to reconcile net income to the cash flow provided by operating activities:

Depreciation and amortization 1,896,215 1,317,298

Equity in earnings of unconsolidated companies (122,808) (118,399)

Exchange variation 1,035,560 (723,289)

Loss (Gains) on derivatives, net 62,396 (1,170)

Post-employment benefits 130,467 (151,195)

Stock based remuneration 7,545 5,707

Income tax 917,805 967,918

Loss on disposal of property, plant and equipment and investments 73,248 62,444

Provision for losses on avaible-for-sale securities 140,166 15,727

Allowance for doubtful accounts 28,166 16,445

Reserve for contingencies (13,978) 179,402

Distributions from joint ventures 68,095 109,959

Interest income (303,595) (714,222)

Interest expense 1,214,090 735,162

Provision for obsolescense and net realisable value adjustment 256,457 (584)

10,232,600 6,019,708

Changes in assets and liabilities:

Reduction (Increase) in trade accounts receivable 1,086,564 (508,382)

Increase in inventories (2,489,882) (777,140)

Decrease (Increase) in trade accounts payable (2,215,795) 455,903

Increase in other receivables (395,503) (398,870)

Increase in other payables 236,644 284,627

Investments in Trading securities and available for sale securities (7,237,719) (4,195,504)

Redemption of trading securities and available for sale securities 7,124,198 6,876,111

Cash provided by operating activities 6,341,107 7,756,453

Interest paid on loans and financin (970,986) (711,518)

Income and social contribution taxes paid (1,899,696) (702,391)

Net cash provided by operating activities 3,470,425 6,342,544

Cash flows from investing activities

Additions to property, plant and equipment and intangibles (2,738,620) (2,758,234)

Payments for business acquisitions 3.6 (4,271,778) (8,513,602)

Interest received on cash investments 313,182 191,923

Net cash used in investing activities (6,697,216) (11,079,913)

Cash flows from financing activities

Capital increase/Treasury stock 3,008,988 907,324

Dividends and interest on capital paid (1,677,393) (1,233,036)

Borrowings 5,117,617 11,867,692

Repayment of loans and financing (4,975,872) (5,740,550)

Intercompany loans, net 1,266,157 293,986

Net cash provided by financing activities 2,739,497 6,095,416

Exchange variation on cash and cash equivalents 325,541 (387,748)

Increase in cash and cash equivalents (161,753) 970,299

Cash and cash equivalents at beginning of period 2,046,665 1,076,366

Cash and cash equivalents at end of period 1,884,912 2,046,665

Transactions not affecting cash

Acquisition of 28.88% of Aços Villares S.A., via debentures 3.5 1,302,803 -




INFORMATION AND CONTACTS

Gerdau

Av. Farrapos, 1811

Porto Alegre — RS — Brazil

Phone: +55 (51) 3323.2000

www.gerdau.com

Shareholder Relations

Av. Farrapos, 1811


CEP 90.220-005

[email protected]

+55 (51) 3323.2211

Fax: +55 (51) 3323.2281

Depositary Bank in Brazil

Banco Itaú S.A.

[email protected]

Phone: +55 (11) 5029.7780

Custodian Bank Overseas

The Bank of New York

[email protected]

Phone: +1 (610) 382.7836

Services to Analysts and Investors

Av. Farrapos, 1811


CEP 90.220-005

[email protected]

Phone: +55 (51) 3323.2703

Fax: +55 (51) 3323.2281

Gerdau Ameristeel Corp.

4221 W. Boy Scout Blvd. — Suite 600

Tampa — FL 33607 — USA

Phone: +1 (813) 286.8383

[email protected]

www.gerdauameristeel.com

Independent Auditor

Deloitte Touche Tohmatsu

CREDITS

Coordination

Gerdau Corporate Communications and Public Affairs

Writing and Production Supervision

Gerdau Corporate Communications and

Public Affairs and Imagem Corporativa

Concept

SLM Ogilvy

Graphic design

Néktar Design

Translation/Proofing

Eriksen Translations/Scientific Linguagem

Printing

Gráfica e Editora Comunicação Impressa

Paper and ink

Duo Design 300 g (cover) and Couché Matte 150g

(inside pages) produced by Cia. Suzano from

cultivated trees certified by the Forest Stewardship

Council (FSC). Printed with soy-based ink.

Print Run

3,500 copies in Portuguese,

1,500 in English and 1,500 in Spanish

Photo and illustration credits

Gerdau archive (pg. 22, 38, 45, 46, 47), Agência Nitro/

Leo Drumond (cover, pg. 17, 47), Agência Nitro/Bruno

Magalhães (pg. 03, 04, 10, 11, 19, 42), Emmanuelle

Bernard (pg. 10, 32), Flavio Luiz Russo (pg. 18), Iberê

Camargo Foundation (pg. 40), Mathias Cramer (Perfil), MP

Fotos/Eduardo Simões (p. 24), Leonid Streliaev (pg. 23).

Gerdau believes in the importance of evaluating

and continuously improving all of its processes,

products and services. Fill out the opinion survey at

www.gerdau.com/relatorioanual2008 or send an

e-mail to [email protected], with suggestions

concerning aspects that may be improved.

2008 ANNUAL REPORT DYNAM IC108 YEARS ON THE MOVE

PROFILE

GERDAU

Gerdau is the leading producer

of long steel in the Americas and

one of the largest suppliers of

specialty long steel in the world.

It has operations in the Americas,

Europe, and Asia, which together

represent an installed capacity of over

20 million metric tons of steel per year.

It produces common long steel,

specialty steel, and flat steel for

the civil construction, industry

In 108 years of existence, Gerdau has learned to coexist with different cultures, languages, markets and realities. It has grown without losing sight of its principles and values. It has always managed to work in an agile, sustainable manner to attain its objectives, relying on the support of its thousands of employees throughout the world. The result of this dynamism is precisely what gives the Company its conviction to always overcome challenges.

ARGENTINAwww.sipargerdau.com

BRAZILwww.gerdau.com.br

CANADAwww.gerdauameristeel.com

CHILEwww.gerdauaza.cl

COLOMBIAwww.diaco.com.co

DOMINICAN REPUBLICwww.industriasnacionales.com

GUATEMALAwww.acerosdeguatemala.com

INDIAwww.kalyanigroup.com

MEXICOwww.sidertul.com.mx

PERUwww.sider.com.pe

SPAINwww.sidenor.com

UNITED STATESwww.gerdauameristeel.com

URUGUAYwww.gerdaulaisa.com.uy

VENEZUELAwww.sizuca.com.ve

www.gerdau.com

and farming sectors.

Its products are part of people’s

daily lives and are used in homes,

cars, freeways, bridges, agricultural

machinery, home appliances,

telephone towers and in the

energy industry, among others.

It is the largest recycler in Latin

America, and around the world, it

transforms around 16 million metric

tons of scrap into steel annually.

With over 140,000 shareholders,

Gerdau’s public companies are listed

on the stock exchanges of São

Paulo (Bovespa: GGBR4, GGBR3,

GOAU4, GOAU3, and AVIL3), New

York (Nyse: GNA, GGB), Toronto

(GNA.TO), Madrid (Latibex: XGGB),

and Lima (BVL: SIDERC1).

Cover photo

Low Income Mall in Brasília, opened

in April 2008. The project, by architect

Alencar Blanco Cinnanti and civil

engineer Dalmo Blanco Cinnanti, was

constructed using structural shapes

manufactured at Gerdau Açominas.

108 years on the move dynamic - gerdau | …ri.gerdau.com/enu/4536/2008annualreportgerdauing.pdf ·...

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