* while a portionTable of its net sales and costs are in Canadian Dollars.Contents

The Brazilian real appreciated 11.8% in 2005,against the U.S. dollar by 8.7% in 2006 and 17.2% in 2007 and depreciated against the U.S. dollar.dollar by 31.9% in 2008. On March 31^st, 2008,June 30, 2009, the U.S. dollar/Brazilian real exchange rate was $1.00 per R$1.749. 1.95, resulting in appreciation of 16.5% when compared to December 31, 2008.

Depreciation ofin the Brazilian real relativein relation to the U.S. dollar could also could result in additional inflationary pressures in Brazil, by generally increasing the price of imported products and services and requiring recessionary government policies to curb demand. In addition, a depreciation ofin the Brazilian real could weaken investor confidence in Brazil.

The Company had totalheld debt denominated in foreign currency-denominated debt obligationscurrency, mainly U.S. dollars, in an aggregate amount of $6,796.1R$ 19,717.7 million at December 31, 2007,2008, representing 75.5%84.9% of its indebtedness on a consolidated basis. On December 31, 2007,2008, the Company had $1,138.2held R$ 2,654.6 million in U.S. dollar-denominated cash equivalents and short-term investments. A significantinvestments denominated in currencies different from Brazilian real. Significant depreciation ofin the Brazilian real in relation to the U.S. dollar or other currencies could reduce the Company’s ability to meet debt service requirements ofits obligations denominated in foreign currency-denominated obligations,currencies, particularly assince a significant part of its net sales revenue is denominated in Brazilian realreais.

Export revenuesrevenue and margins are also affected by fluctuations in the real’s fluctuationsexchange rate of the U.S. dollar and other local currencies of the countries where the Company produces in relation to the U.S. dollar.Brazilian real. The Company’s production costs are denominated in local currency but its export sales are generally denominated in U.S. dollars. Financial revenuesRevenues generated by exports denominated in U.S. dollars are reduced when they are translated tointo Brazilian reaisreal in the periods induring which the Brazilian currency appreciates in relation to the U.S. currency.dollar.

Developments in Other Emerging Marketsother emerging markets or in the United States May Adversely Affect The Company’s Results of Operations.may adversely affect Brazil’s capital markets.

Political, economic, social and other developments in other countries, particularly those in Latin America, and other emerging-market countries or in the United States, may have an adverse effect on the market value of the Company. Although conditions in these countries may be quite different from those in Brazil, investors’ reactions to developments in these countries may affect the BrazilianBrazil’s securities markets and reduce investor interest in the securities of Brazilian issuers. Brazil has experienced periods with a significant outflowoutflows of U.SU.S. dollars, and Brazilian companies have faced higher costs for raising funds, both domestically and abroad, and have been impededprevented from accessing international capital markets. Particularly, in the second semester of 2008 Brazil experienced a high outflow of U.S. dollars combined with a lack of financing alternatives, thus increasing Brazilian companies’ capital cost. The Company cannot assure you that the international capital markets will remain openbe available to Brazilian companies in the same level of liquidity as in 2007 or that prevailing interest rates in these markets will be advantageous toat investment grade levels for the Company, which may limit the Company’s ability to refinance its indebtedness.debt.

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The Company Operations Are Energy-Intensive,Company’s operations are energy-intensive, and Energy Shortagesenergy shortages or Price Increases May Adversely Affect It.higher energy prices could have an adverse affect.

Steel production is an energy-intensive process, especially in melt shops with electric arc furnaces. Electricity represents a significant cost component at these units, as also does natural gas, although to a lesser extent. Electricity cannot be replaced inat the Company’s mills and power rationing or power shortages such as those that occurred in Brazil in 2001 could adversely affect production inat those units.

Natural gas is used in the reheating furnaces at the Company’s rolling mills. In the case of shortages in the supply of natural gas, the Company could in some instances change to fuel oil as an energy source. However, these measures could increase its production costs and consequently reduce its operating margins.

Restrictive Measuresmeasures on Tradetrade in Steel Products May Affectsteel products may affect the Company’s Businessbusiness by Increasingincreasing the Priceprice of Its Productsits products or Reducing Its Abilityreducing its ability to Export.export.

The Company is a steel producer that supplies both the domestic market in Brazil and a number of international markets. The Company’s exports face competition from other steel producers, as well as restrictions imposed by importing countries in the form of quotas, ad valorem taxes, tariffs or increases in import duties, any of which could increase the costs of products and make them less competitive or prevent the Company from selling in these markets. There can beare no assuranceassurances that importing countries will not impose quotas, ad valorem taxes, tariffs or increase import duties.

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Less Expensive Importsexpensive imports from Other Countriesother countries to North America May Adversely Affectmay adversely affect the Company’s Business.business.

Steel imports to North America have caused downward pressure on steel prices in recent years, adversely affecting sales and profit margins. Competition from foreign steel producers is strong and may grow due to increasesan increase in foreign installed steel capacity, depreciation ofin the U.S. dollar and a reduction in domestic steel demand in other markets. Thesemarkets, with these factors leadleading to higher levels of steel imports to North America at lower prices. In the past, the U.S. government has taken temporary protective measures to regulate steel imports by means of quotas and tariffs. Protective measures may not be taken and, despite trade regulation efforts, unfairly priced imports could enter into the North American markets in the future, resulting in price pressure that could adversely affect the Company’s business.

Compliance Costs Relatedrelated to Environmental Regulation May Increasecomplying with environmental regulations may increase if Requirements Become More Stringent.  Such Increased Costs May Adversely Affectrequirements become more stringent, which may adversely affect the Company’s Results Of Operations.operating results.

The Company’s industrial plants are required to comply with a number of federal, state and municipal environmental laws and regulations with respect to the environment and the operation of mills in every country in which the Company operates. These regulations include environmental licensing procedures, those relating to the control of air emissions, waste water discharges and solid and hazardous waste handling and disposal. Non-complianceFailure to comply with these laws and regulations may result in civil and administrative penalties, criminal sanctions or closure orders, and in various circumstances may requires the cleanup of contamination associated with previous operations.the contamination. If existing laws or future laws, regulationslegislation become more demanding, wich is a worldwide trend, expendituresstringent, expenditure on fixed assets and the costs of compliance may rise, adversely affecting the Company’s financial condition. Furthermore, the Company may be subject to additional expenditures and costs associated with environmental compliance as a result of future acquisitions.

WeLayoffs in our labor force have generated severance costs, and such layoffs could reoccur.

A substantial number of our employees are represented by labor unions and are covered by collective bargaining or other labor agreements, which are subject to periodic negotiation. Strikes or work stoppages have occurred in the past and could reoccur in connection with negotiations of new labor agreements or during other periods for other reasons, including the risk of layoffs during a down cycle that could generate severance costs. Moreover, we could be adversely affected by labor disruptions involving unrelated parties that may provide us with goods or services. Strikes and other labor disruptions at any of our operations could adversely affect the operation of facilities and the timing of completion and the cost of our capital projects.

The Company may be unable to reduce ourits financial leverage, which could increase ourits cost of capital, which couldin turn adversely affect ouraffecting its financial condition or results of operations.operating results.

In 2007, the international rating agencies Fitch Ratings and Standard & Poor´sPoor’s classified ourthe Company’s credit risk as “investment grade,”grade”, which gave usto the Company access to financing at lower borrowing rates. Due to ourits acquisitions in 2007, our ratio ofrecent years, its total debt/EBITDA ratio reached the maximum normally accepted by the agencies for an “investment grade” company.rating. In 2009, Standard & Poor’s put Gerdau on a CreditWatch Negative listing reflecting its views of the Company’s weakening cash flow and credit metrics in the currently challenging market environment. Although market conditions have been improving since the low point of December 2008 and January 2009, Standard & Poor’s believes there is still uncertainty concerning the Company’s ability to strengthen its credit metrics. If we arethe Company is unable to reduce this index, by increasing our cash generation or by reducing our total debt, we could lose ourimprove its operating and financial results, it may loses its “investment grade” rating, which could increase ourits cost of capital and consequently adversely affect ourits financial condition and results of operations.operating results.

ITEM 4.  COMPANY INFORMATION

A.            HISTORY AND DEVELOPMENT OF THE COMPANY

Gerdau S.A. is a Brazilian corporation (Sociedade Anônima) that was incorporated on November 20, 1961 under the laws of Brazil. Its main registered office is located at Av. Farrapos, 1811, Porto Alegre, RS – Brazil. ItsRio Grande do Sul, Brazil, and the telephone number is + 55+55 (51) 3323 2000.

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History

The current Company is the resultproduct of a number of corporate acquisitions, mergers and other transactions dating back to 1901. The Company began operating in 1901 as the Pontas de Paris nail factory controlled by the Gerdau family based in Porto Alegre, who is still the Company’s indirect controlling shareholder. In 1969, Pontas de Paris was renamed Metalúrgica Gerdau S.A., which today is the holding company controlled by the Gerdau family through intermediate holding companies that itselfin turn controls what is today Gerdau S.A.  See - “Reorganization.”

BetweenFrom 1901 andto 1969, the Pontas de Paris nail factory grew and expanded its business into a variety of other steel and steel-related products and services. At the end of World War II, the Company acquired Siderúrgica Riograndense S.A., a steel producer also located in Porto Alegre, in an effort to broaden its activities and provide it with greater access to raw materials. In February 1948, the Company initiated its steel operations, which foreshadowed the successful mini-mill model of producing steel in electric arc furnaces using steel scrap as the main raw material. At suchthat time the Company adopted a regional sales strategy to ensure more competitive operating costs. In 1957, the Company installed a second Riograndense unit in the state of Rio Grande do Sul in the city of Sapucaia do Sul, (state of Rio Grande do Sul) and in 1962, steady growth in the production of nails led to the construction of a larger and more advanced factory in Passo Fundo, (state ofalso in Rio Grande do Sul).Sul.

In 1967, the Company expanded into the Brazilian state of São Paulo, purchasing Fábrica de Arames São Judas Tadeu, a producer of nails and wires, which was later renamed Comercial Gerdau and ultimately became the Company’s Brazilian distribution channel for steel products. In June 1969, the Company expanded into the Northeast of Brazil,

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producing long steel at Siderúrgica Açonorte in the state of Pernambuco. In December 1971, the Company acquired control of Siderúrgica Guaíra, a long steel producer in the state of Paraná in Southern Brazil.Brazil’s South Region. The Company also established a new company, Seiva S.A. Florestas e Indústrias, to produce lumber on a sustainable basis for the furniture, cellulosepulp and steel industries. In 1979, the Company acquired control of the Cosigua mill in Rio de Janeiro, which currently operates the largest mini-mill in Latin America. Since then, the Company has expanded throughout Brazil with a series of acquisitions and new operations, and the Company currentlytoday owns eleven15 steel millsunits in Brazil.

In 1980, the Company began to expand internationally with the acquisition of Gerdau Laisa S.A., or Gerdau Laisa, the only long steel producer in Uruguay, followed in 1989 by the purchase of the Canadian company Gerdau Ameristeel Cambridge, a producer of common long rolled steel products located in Cambridge, Ontario. In 1992, the Company acquired control of Gerdau AZA S.A., or Gerdau AZA, a producer of crude steel and long rolled products in Chile. Over time, the Company increased its international presence by acquiring a minority interest in a rolling mill in Argentina, control ofa controlling interest in Diaco S.A., the largest rebar manufacturer in Colombia, and, most notably, by acquiring additional interests in North America through the acquisition of Gerdau Ameristeel MRM Special Sections, a producer of special sections such as elevator guide rails and super light beams, and the former Ameristeel Corp., a producer of common long rolled products. In October 2002, through a series of transactions, the Company merged its North American steel production assets with those of the Canadian company Co-Steel, a producer of long steel, to create Gerdau Ameristeel, which is currently the second largest long steel producer in North America based on tonnes of steel produced.production volume. The Company currently holds 66.5%66.4% of the outstanding shares of Gerdau Ameristeel, whose remaining shares are publicly traded in Canada and in the United States. Gerdau Ameristeel itself has a number of operations throughout Canada and the United States, including its 50% joint venture interest in Gallatin Steel, a manufacturer of flat steel, in addition to operatingand also operates 18 steel units, as well as 4956 fabrication shops and 1114 downstream operations.

In September of 2005, Gerdau acquired 35.98% of sharesthe stock issued by Sipar Aceros S.A., a long steel rolling mill with a total installed capacity of 260,000 tonnes of rolled steel, located in the Province of Santa Fé, Argentina. This stakeinterest, added to the 38.46% already owned by Gerdau and represents 74.44% of the capital stock of Sipar Aceros S.A. At the end of the third quarter of 2005, Gerdau concluded the acquisition of a 57.1% stakeinterest in Diaco S.A., the largest rebar manufacturer in Colombia.Colombia with a total installed capacity of 510,000 tonnes of crude steel and 690,000 tonnes of rolled steel. In January 2008, wethe Company purchased an addictionaladditional interest of 40.3%, for $107.2 million (R$ 188.7 million on the acquisition date), increasing ourits ownership to 97.4%.

OnIn January 10, 2006, through its subsidiary Gerdau Hungria Holdings Limited Liability Company, the CompanyGerdau acquired 40% of the capital stock of Corporación Sidenor S.A. for $219.2 million  (R$ 493.2 million), the largest long specialty steel producer, forged parts manufacturer and foundry in Spain, and one of the major producers of forged parts using the stamping process in that country. In December 2008, Gerdau Hungria Holding Limited Liability Company acquired for $288.0 million (R$ 674.0 million) from LuxFin Participation S.L. and Bogey Holding Company Spain S.L., which holds a 20% interest in Corporación Sidenor. With this acquisition, Gerdau became the majority shareholder (60%) in Corporación Sidenor. In December 2006, Gerdau announced that its Spanish subsidiary Corporación Sidenor, S.A., had completed the acquisition of all outstanding shares issued by GSB Acero, S.A., a subsidiary of CIE Automotive for $143.0 million (R$ 313.8 million). GSB Acero produces specialty steel and is located in Guipúzcoa, Spain. Corporación Sidenor S.A. has a total installed capacity of 1.2 million tonnes of crude steel and 1.2 million tonnes of rolled steel.

In March of 2006, the assets of two industrial units were acquired in the United States. The first one was Callaway Building Products in Knoxville, Tennessee, a supplier of civilfabricated rebars to the construction cut and bent reinforcing concrete bars.industry. The second was Fargo Iron and Metal Company located in Fargo, North Dakota, a storage and scrap processing facility and service provider to industriesmanufacturers and civil construction companies.

In June of 2006, Gerdau acquired for $103.0 million (R$ 224.5 million) Sheffield Steel Corporation ofin Sand Springs, Oklahoma in the USA. Sheffield is a mini-mill producer of common long steel, namely concrete reinforcingreinforcement bars and merchant bars. It has one melt shop with a total installed capacity of 630,000 tonnes of crude steel and one rolling mill in Sand Springs with a total installed capacity of 520,000 tonnes of rolled steel, Oklahoma, one rolling mill in Joliet, Illinois with a total installed capacity of 70,000 tonnes of rolled steel, and three downstream units in Kansas City and Sand Springs.

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company in the market of commercial materials headquartered in Nashville, in the state of Tennessee. Enco Materials Inc. has eight units located in Arkansas, Tennessee and Georgia. The purchase price for this acquisition was $46 million (R$ 84.9 million) in cash, plus the assumption of certain liabilities of the acquired company.

On October 19, 2007,In the same month, Gerdau executed a letter of intent for the acquisition of a shareholdingan interest of 49% in the capital stock of the holding company Corsa Controladora, S.A. de C.V., headquartered in the Mexico City, Mexico. The holding company is the holder ofowns 100% of the capital stock of Aceros Corsa, S.A. de C.V. and its distributors. Aceros Corsa, located in the city of Tlalnepantla metropolitan region of thein Mexico City metropolitan area, is a mini-mill responsible for the production of long steel (light commercial profiles) with installed capacity of 150,000 tonnes of crude steel and 300,000 tonnes of rolled products per year. The purchaseacquisition price iswas $110.7 million depending on a number of conditions precedent. On(R$ 186.3 million). In February, 27, 2008, the Company announced the conclusion of the acquisition of the business.this acquisition.

On October 19, 2007, the subsidiary Sidenor Industrial acquired Trefilados de Urbina, S.A. – Trefusa for a purchase price of $25.8 million. Trefusa is a producer of special drawn steel products located in Vitória, Spain.

OnIn November 19, 2007, Gerdau entered into a definitivebinding agreement for the acquisition of Quanex Corporation, which, through MacSteel, is the second largest producer of Special Bar Quality – SBQ(SBQ) in the U.S.United States and operates three mini-mills located in Jackson, Michigan; Monroe, Michigan; and Fort Smith, Arkansas. The companyCompany also operates six downstream operations in the states of Michigan (two), Ohio, Indiana (two) and Wisconsin. MacSteel has anannual installed capacity of 1.2 million tonnes of crude steel and 1.1 million tonnes of rolled products per year.products. The agreement doesdid not include the business of Building Products business of Quanex, which is an operation not related to the steel market. The purchase price for this acquisition is $1.458was $1.5 billion  plus $215 million(R$ 2.4 billion) in assumedaddition to the assumption of their debts subject to adjustment related to certain conditions.and some liabilities. Gerdau concluded the acquisition in April, 2008.

OnIn December 31, 2007, the Company entered into a definitivebinding agreement for the exchange of its shareholding interest in the capital of Margusa –— Maranhão Gusa S.A., through which the Company became the holdersholder of Aplema. The exchange was carried out based on an equivalent amount basis in terms of the quotas ofmembership interests in Aplema and the sharesstock in Margusa.

In April 2008, Gerdau entered into a strategic partnership with Corporación Centroamericana del Acero S.A., assuming a 30.0% interest in the capital of Margusa.this company, which has total installed capacity of 450,000 tonnes of crude steel and 630,000 tonnes of rolled steel. The Company owns assets in Guatemala and Honduras as well as distribution centers in El Salvador, Nicaragua and Belize. The price of the acquisition was $180 million (R$ 303.7 million).

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Also in 2008, Gerdau invested in the verticalization of its businesses. In July, it acquired a 50.9% stake in the capital of Cleary Holdings Corp, which controls a metallurgical coke producer and coking coal reserves in Colombia for $ 73.0 million (R$ 119.3 million). The Company has annual coke production capacity of 1.0 million tonnes and coking coal reserves estimated at 20 million tonnes.

In February 2008, Brazil’s National Electric Power Agency (ANEEL) transferred to Gerdau the concession to operate the São João — Cachoeirinha Hydroelectric Power Plant complex, which comprises two power plants to be built on the Chopim River, located in the cities of Honório Serpa and Clevelândia in Paraná state. The plant complex will have 105 MW of installed capacity (São João - 60 MW and Cachoeira - 45 MW), with construction to be concluded in 2012.

B.            BUSINESS OVERVIEW

OverviewSteel Industry

The world steel industry is composed of hundreds of steel producing installations and is divided into two major categories based on the production method utilized: integrated steel mills and non-integrated steel mills, sometimes referred to as “mini-mills”. Integrated steel mills normally produce steel from iron oxide, which is extracted from iron ore melted in blast furnaces, and refine the iron into steel, mainly through the use of basic oxygen furnaces or, more rarely, electric arc furnaces. Semi-integrated steel mills produce steel by melting in electric arc furnaces scrap steel, which occasionally is complemented by other metals such as direct-reduced iron or hot-compressed iron. According to Worldsteel, in 2008, 31% of the total crude steel production in the world was through mini-mill process and the last 69% was through integrated process.

Over the past 16 years, , according to Worldsteel figures, total annual crude steel production has grown from 728 million tonnes in 1993 to 1,327 million tonnes in 2008, for an average annual increase of 4.2%, with a large part of this growth occurring after 2000.

The main factor responsible for the increase in the demand for steel products has been China. In less than three years, China has become the world’s largest steel market, consuming as much as the United States and Europe combined.

Over the past year, total annual crude steel production decreased by 1.8% from 1,351 million tonnes in 2007 to 1,327 million tonnes in 2008, triggered mainly by the reduction in output in C.I.S. (Commonwealth of Independent States – former Soviet Republics) countries and the United States due to the contraction in market demand.

Crude Steel Production (in million tonnes)

Source: Word Steel Association/World Steel Figures 2008

China is still undergoing a period of strong industrialization, launching numerous infrastructure projects and developing an important manufacturing base, which has contributed to increased Chinese output. China is currently the world’s largest steel producer, producing 500.5 million tonnes of crude steel in 2008.

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Crude Steel Production by Country (million tonnes)

Source: Word Steel Association /World Steel Figures 2008

China became the first country ever to produce more than 500.0 million tonnes in a single year. China’s crude steel production in 2008 reached 500.5 million tonnes, an increase of 1.1% over 2007. Production volume in China more than doubled within five years, from 222 million tonnes in 2003. China’s share of world steel production continued to grow in 2008, when it accounted for 38% of total world crude steel production.

Asia produced 769 million tonnes of crude steel in 2008, accounting for 58% of total world steel production, for an increase of 0.9% in relation to 2007. South Korea and India recorded increases of 3.8% and 3.7%, respectively, in 2008, while Japan produced 119 million tonnes, down 1.2% in relation to 2007.

The EU-27 produced 198 million tonnes of crude steel in 2008, down 5.5% compared to 2007, with major steel producing countries, including Germany, Italy and France, recording reductions.

In 2008, steel production in North America also contracted in relation to the previous year, by 5.9%. The United States produced 91 million tonnes of crude steel, decreasing by 7.0% against 2007.

The CIS registered a drop in steel output of 8.1% in 2008. Russia produced 69 million tonnes of crude steel, a 5.4% reduction over 2007, while the Ukraine recorded a decrease of 13.4% to 37 million tonnes.

The Brazilian Steel Industry

Since 1940, steel has been of vital importance to Brazil’s economy. For approximately 50 years, the Brazilian government held a monopoly in the production of flat steel products via the state-owned company Siderurgia Brasileira S.A. (SIDEBRÁS). But the Brazilian government did not hold a monopoly in the non-flat steel industry, traditionally composed mainly of small private companies. The principal integrated producers of flat steel products operated as semi-independent companies under the control of SIDEBRÁS. During the 1970s, the government invested heavily to give Brazil a steel industry capable of fueling the country’s industrialization process. After a decade of practically no investments in this industry, the government selected steel as the first industry to be sold in the privatization process that began in 1991.

Brazil, with its high installed capacity and tradition as a world steel exporter, has consistently exported a substantial portion of its production. Sales of Brazilian steel products totaled 31.0 million tonnes in 2008, 31.0 million tonnes in 2007, 30.1 million tonnes in 2006, and 28.6 million tonnes in 2005, exceeding domestic demand of 21.8 million tonnes in 2008, 20.6 million tonnes in 2007, 17.5 million tonnes in 2006 and 16.1 million tonnes in 2005 by 9.2 million tonnes, 10.4 million tonnes, 12.6 million tonnes and 12.5 million tonnes, respectively.

Brazil has performed an important role in the export market, principally as an exporter of crude steel (slabs, blooms and billets) for industrial use or for re-rolling into finished products. Brazilian exports of crude steel totaled 5.7 million tonnes in 2008, 5.1 million tonnes in 2007, 5.7 million tonnes in 2006 and 6.0 million tonnes in 2005, representing 61.7%, 48.9%, 45.2% and 47.6% of Brazil’s total exports of steel products, respectively.

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