federal public service brazilian securities …federal public service brazilian securities...

FEDERAL PUBLIC SERVICE BRAZILIAN SECURITIES COMMISSION (CVM) INTERIM FINANCIAL STATEMENTS (ITR) 6/30/2007 Corporate Law COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES

Page 1

REGISTRATION IN THE CVM DOES NOT IMPLY ANY EVALUATION OF THE COMPANY, AND ITS MANAGERS ARE RESPONSIBLE FOR ENSURING THE AUTHENTICITY OF THE INFORMATION PROVIDED. 01.01 - IDENTIFICATION 1 - CVM CODE 00398-0

2 - COMPANY NAME GERDAU S.A.

3 - Federal Corporate Registration Number (CNPJ) 33.611.500/0001-19

4 - Register Inscription Number - NIRE 33300032266

01.02 - HEAD OFFICE 1 - ADDRESS Av. João XXIII, 6777

2 - SUBURB OR DISTRICT STA. CRUZ

3 - ZIP CODE 23560-900

4 - MUNICIPALITY RIO DE JANEIRO

5 - STATE RJ

6 - AREA CODE 051

7 - PHONE 3323-2000

8 - PHONE -

9 - PHONE -

10 - TELEX

11 - AREA CODE 051

12 - FAX 3323-2281

13 - FAX -

14 - FAX -

15 - E-MAIL [email protected] 01.03 - INVESTOR RELATIONS OFFICER (Company Mail Ad dress) 1 - NAME OSVALDO BURGOS SCHIRMER 2 - ADDRESS Av. FARRAPOS, 1811

3 - SUBURB OR DISTRICT FLORESTA

4 - ZIP CODE 90220-005

5 - MUNICIPALITY PORTO ALEGRE

6 - STATE RS

7 - AREA CODE 051

8 - PHONE 3323-2000

9 - PHONE -

10 - PHONE -

11 - TELEX

12 - AREA CODE 051

13 - FAX 3323-2281

14 - FAX -

15 - FAX -

16 - E-MAIL [email protected] 01.04 - REFERENCE / AUDITOR

CURRENT YEAR CURRENT QUARTER PRIOR QUARTER

1 - BEGINNING 2 - END 3 - NUMBER 4 - BEGINNING 5 - END 6 - NUMBER 7 - BEGINNING 8 - END

1/1/2007 12/31/2007 2 4/1/2007 6/30/2007 1 1/1/2007 3/31/2007 9 - NAME OF INDEPENDENT ACCOUNTANTS DELOITTE TOUCHE TOHMATSU AUDITORES INDEPENDENTES

10 - CVM CODE 00385-9

11 - NAME OF RESPONSIBLE ACCOUNTANT FERNANDO CARRASCO

12 - TAXPAYER ID NO. OF RESP. ACCOUNTANT . 041.702.178-02


Page 2

01.01 - IDENTIFICATION 1 - CVM CODE 00398-0



01.05 - CAPITAL

Number (thousand)

1 - CURRENT QUARTER 6/30/2007

2 - PRIOR QUARTER 3/21/2007

3 - SAME QUARTER PRIOR YEAR 6/30/2006

Subscribed Capital 1 - Common 231,607 231,607 231,607 2 - Preferred 435,986 435,986 435,986 3 - Total 667,593 667,593 667,593 Treasury Stock 4 - Common 0 0 0 5 - Preferred 5,031 5,070 4,201 6 - Total 5,031 5,070 4,201 01.06 - CHARACTERISTICS OF THE COMPANY 1 - TYPE OF COMPANY Commercial, Industrial and Other 2 - SITUATION Operational 3 - SHARE CONTROL NATURE Private National 4 - ACTIVITY CODE 3060 - Metal and Steel Manufacturer 5 - MAIN ACTIVITY INVESTMENT AND MANAGEMENT 6 - CONSOLIDATION TYPE Total 7 - TYPE OF REPORT OF INDEPENDENT ACCOUNTANTS Unqualified 01.07 - COMPANIES EXCLUDED FROM THE CONSOLIDATED FI NANCIAL STATEMENTS 1 - ITEM 2 - Federal Corporate Registration Number (CNPJ) 3 - COMPANY NAME 01.08 - DIVIDENDS APPROVED AND/OR PAID DURING AND A FTER THE QUARTER 1 - ITEM 2 - EVENT 3 - DATE

APPROVED 4 - TYPE 5 - DATE OF

PAYMENT 6 - TYPE OF SHARE

7 - AMOUNT PER SHARE

01 Board of directors’ meeting

5/3/2007 Interest on capital

5/24/2007 registered common

0.3400000000


5/3/2007 Interest on capital

5/24/2007 registered preferred

0.3400000000


8/8/2007 Dividends 8/29/2007 registered common

0.2900000000


8/8/2007 Dividends 8/29/2007 registered preferred

0.2900000000


Page 3




01.09 - SUBSCRIBED CAPITAL AND ALTERATIONS DURING T HE CURRENT YEAR 1 - ITEM 2 - DATE OF

CHANGE 3 - SUBSCRIBED CAPITAL

(Thousands of reals) 4 - CHANGE AMOUNT

(Thousands of reals) 5 - NATURE OF CHANGE

6 - NUMBER OF SHARES ISSUED

(Thousand)

7 - SHARE PRICE ON ISSUE DATE

(Reals)

01.10 - INVESTOR RELATIONS OFFICER 1 - DATE 8/8/2007

2 - SIGNATURE


Page 4




02.01 - Balance Sheets - Assets (R$ thousand) 1 - CVM CODE 2 - DESCRIPTION 3 - 6/30/2007 4 - 3/31/2007 1 Total assets 13,204,985 12,807,788 1.01 Current assets 299,919 517,919 1.01.01 Cash 1,332 2,692 1.01.02 Receivables 276,143 491,369 1.01.02.01 Trade accounts receivable 0 0 1.01.02.02 Sundry receivables 276,143 491,369 1.01.02.02.01 Dividends receivable 0 0 1.01.02.02.02 Tax credits 81,084 74,005 1.01.02.02.03 Marketable securities 195,059 417,364 1.01.02.02.04 Employees 0 0 1.01.03 Inventories 0 0 1.01.04 Other 22,444 23,858 1.01.04.01 Other accounts receivable 331 181 1.01.04.02 Deferred income and social contribution taxes 0 0 1.01.04.03 Prepaid expenses 22,113 23,677 1.02 Noncurrent assets 12,905,066 12,289,869 1.02.01 Long-term receivables 905,258 730,402 1.02.01.01 Sundry credits 0 0 1.02.01.02 Intercompany receivables 134,407 146,595 1.02.01.02.01 Affiliates 0 0 1.02.01.02.02 Subsidiaries 134,407 146,595 1.02.01.02.03 Other related parties 0 0 1.02.01.03 Other 770,851 583,807 1.02.01.03.01 Tax credits 13,249 31,367 1.02.01.03.02 Escrow deposits 13,968 13,944 1.02.01.03.03 Deferred income and social contribution taxes 30,487 25,020 1.02.01.03.04 Other receivables 11,128 11,128 1.02.01.03.05 Deposit For Future Investments in Companies 702,019 502,348 1.02.01.03.06 Prepaid expenses 0 0 1.02.02 Permanent assets 11,999,808 11,559,467 1.02.02.01 Investments 11,999,411 11,559,073 1.02.02.01.01 In affiliates 0 0 1.02.02.01.02 In affiliates - Goodwill 0 0 1.02.02.01.03 In subsidiaries 12,026,870 11,587,501 1.02.02.01.04 In subsidiaries - Goodwill (44,751) (45,720) 1.02.02.01.05 Other 17,292 17,292 1.02.02.02 Property, plant and equipment 397 394 1.02.02.03 Intangible assets 0 0 1.02.02.04 Deferred charges 0 0


Page 5




02.02 - Balance Sheets - Liabilities and Shareholde rs' Equity (R$ thousand) 1 - CVM CODE 2 - DESCRIPTION 3 - 6/30/2007 4 - 3/31/2007 2 Total liabilities and shareholders' equity 13,204,985 12,807,788 2.01 Current liabilities 19,851 19,235 2.01.01 Loans and financing 6,779 6,926 2.01.02 Debentures 0 0 2.01.03 Trade accounts payable 78 43 2.01.04 Taxes payable 842 2,058 2.01.05 Dividends payable 0 0 2.01.06 Provisions 0 0 2.01.07 Intercompany payables 0 0 2.01.08 Other 12,152 10,208 2.01.08.01 Other accounts payable 10,359 9,425 2.01.08.02 Deferred income and social contribution taxes 0 0 2.01.08.03 Profit sharing 0 0 2.01.08.04 Salaries payable 1,793 783 2.02 Noncurrent liabilities 2,099,032 2,133,790 2.02.01 Long-term liabilities 2,099,032 2,133,790 2.02.01.01 Loans and financing 1,155,720 1,230,240 2.02.01.02 Debentures 864,293 820,706 2.02.01.03 Provisions 0 0 2.02.01.04 Intercompany payables 0 0 2.02.01.05 Advances for future capital increase 0 0 2.02.01.06 Other 79,019 82,844 2.02.01.06.01 Reserve for contingencies 22,667 27,027 2.02.01.06.02 Deferred income and social contribution taxes 56,352 55,817 2.02.01.06.03 Other accounts payable 0 0 2.02.01.06.04 Employee benefits 0 0 2.02.02 Deferred income 0 0 2.04 Shareholders’ equity 11,086,102 10,654,763 2.04.01 Paid-up capital 7,810,453 7,810,453 2.04.02 Capital reserves 376,936 376,873 2.04.02.01 Monetary adjustment of capital 314 314 2.04.02.02 Investment grants 342,910 342,910 2.04.02.03 Special reserve - Law No. 8200/91 0 0 2.04.02.04 Other 33,246 33,183 2.04.02.05 Share premium 466 466 2.04.03 Revaluation reserves 0 0 2.04.03.01 Own assets 0 0 2.04.03.02 Subsidiaries/Affiliates 0 0 2.04.04 Profit reserves 1,778,241 1,777,707 2.04.04.01 Legal 159,109 159,109 2.04.04.02 Statutory 1,619,132 1,618,598


Page 6




02.02 - Balance Sheets - Liabilities and Shareholde rs' Equity (R$ thousand) 1 - CVM CODE 2 - DESCRIPTION 3 - 6/30/2007 4 - 3/31/2007 2.04.04.03 For contingencies 0 0 2.04.04.04 Unrealized profits 0 0 2.04.04.05 Retention of profits 0 0 2.04.04.06 Special reserve for undistributed dividends 0 0 2.04.04.07 Other 0 0 2.04.05 Retained earnings/accumulated deficit 1,120,472 689,730 2.04.06 Advances for future capital increase 0 0


Page 7




03.01 - Statements of Income (R$ thousand) 1 - CVM CODE 2 - DESCRIPTION 3 - 4/1/2007 to 6/30/2007 4 - 1/1/2007 to 6/30/2007 5 - 4/1/2006 to 6/30/2006 6 - 1/01/2006 to 6/30/2006 3.01 Gross sales and/or service revenues 0 0 0 0 3.02 Deductions 0 0 0 0 3.03 Net sales and/or service revenues 0 0 0 0 3.04 Cost of sales and/or services 0 0 0 0 3.05 Gross profit 0 0 0 0 3.06 Operating expenses/income 790,567 642,781 1,343,610 1,501,273 3.06.01 Selling expenses 0 0 0 0 3.06.02 General and administrative expenses (23,233) (29,366) (41,816) (30,984) 3.06.03 Financial (10,265) 6,942 49,759 85,783 3.06.03.01 Financial income 48,902 (14,647) 16,652 102,676 3.06.03.02 Financial expenses (59,167) 21,589 33,107 (16,893) 3.06.04 Other operating income 17,688 4,693 5,664 19,988 3.06.05 Other operating expenses 0 0 (3) 0 3.06.06 Equity in subsidiaries and affiliates 806,377 660,512 1,330,006 1,426,486 3.07 Income from operations 790,567 642,781 1,343,610 1,501,273 3.08 Nonoperating income (expenses) 0 0 0 0 3.08.01 Income 0 0 0 0 3.08.02 Expenses 0 0 0 0 3.09 Income before taxes and profit sharing 790,567 642,781 1,343,610 1,501,273 3.10 Provision for income and social contribution taxes 0 8,588 1,203 0 3.11 Deferred income tax 5,810 4,930 1,451 (24,682) 3.12 Profit sharing and contributions (200) (287) (521) (399) 3.12.01 Profit sharing 0 (287) (521) 0 3.12.02 Contributions 0 0 0 0 3.13 Reversal of interest on capital 0 0 0 0 3.15 Net income 796,177 656,012 1,345,743 1,476,192


Page 8




03.01 - Statements of Income (R$ thousand) 1 - CVM CODE 2 - DESCRIPTION 3 - 4/1/2007 to 6/30/2007 4 - 1/1/2007 to 6/30/2007 5 - 4/1/2006 to 6/30/2006 6 - 1/1/2006 to 6/30/2006

Number of shares (thousands), excluding treasury stock

662,562 662,562 663,392 663,392

EARNINGS PER SHARE (Reals) 0.99011 2.03112 1.20016 2.22522 LOSS PER SHARE (Reals)


Page 9

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS NOTE 1 - OPERATIONS Gerdau S.A. (the "Company") is a publicly traded corporation with its head office in the city of Rio de Janeiro, and the holding company of the Gerdau Group. The Company is engaged principally in the production and sale of steel and iron products in general, with plants located in Brazil, Argentina, Chile, Colombia, Peru, Uruguay, Venezuela, United States, Canada, Mexico, Dominican Republic, Spain, and India. The Gerdau Group has an installed capacity of 20.1 million tons of crude steel per year, producing steel in electric furnaces using scrap and pig iron that are mostly purchased in the region in which each plant operates (mini-mill concept). Gerdau also produces steel from iron ore (through blast furnaces and direct reduction) and has units engaged exclusively in producing specialty steels. It is the largest scrap recycling group in Latin America and is among the largest in the world. The industrial sector is the most important market, where manufacturers of consumer goods, such as vehicles and equipment for commercial and home use, basically use merchant bars available in various specifications. The next most important market is the civil construction sector, which demands a high volume of rebar and wires for concrete. There are also numerous customers for nails, staples and wires, commonly used in the agribusiness sector. NOTE 2 - PRESENTATION OF INTERIM FINANCIAL STATEMEN TS The interim financial statements have been prepared and are presented in accordance with accounting practices established by the Brazilian Corporate Law and standards established by the Brazilian Securities Commission (CVM). NOTE 3 - SIGNIFICANT ACCOUNTING PRACTICES a) Cash and Marketable Securities - marketable securities are recorded at cost plus income earned through the date of the interim financial statements, applying the interest rates agreed with the financial institutions, which does not exceed market value. b) Trade Accounts Receivable - are stated at realizable values, and accounts receivable from foreign customers are adjusted based on the exchange rates in effect at the date of the interim financial statements. The allowance for doubtful accounts is calculated based on a risk assessment, which considers the history of losses, individual situation of each customer and the economic group to which they belong, collateral and guarantees and legal counsel’s opinion, and is considered sufficient to cover any losses on uncollectible receivables. c) Inventories - are stated at the lower of market value and average production or acquisition cost. d) Investments - investments in subsidiaries and affiliates are accounted for under the equity method, adjusted for unamortized goodwill/negative goodwill and provision for losses, when applicable, and equity in earnings or losses of subsidiaries and affiliates is recorded in an income statement account. Capital gains or losses resulting from changes in equity interests in subsidiaries are recorded as nonoperating income or expenses.


Page 10

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS e) Property, Plant and Equipment - are recorded at cost, net of depreciation. Depreciation is calculated on the straight-line basis at the rates stated in Note 11, based upon the estimated useful lives of the assets. The capitalization of interest, calculated based on the Company's average funding rate, is made over the period of construction of the assets. f) Intangible Assets - are amortized over a period of ten years from the date benefits begin to be earned. g) Deferred Charges - are amortized on the straight-line basis at rates determined based on the production of the implemented projects in relation to their installed capacities. h) Loans and Financing - are stated at the contract values plus interest and monetary or exchange variations. The adjustments receivable or payable on swap transactions linked to financing contracts are classified together with the related financing. i) Income and Social Contribution Taxes - are calculated using the tax rates in effect and take into consideration the offset of tax losses for purposes of determining the tax due. Deferred taxes are recognized on tax loss carryforwards and temporary differences. j) Employee Benefits - the actuarial obligations related to the pension and retirement benefits and the actuarial obligations related to the health care plan are recorded according to CVM Resolution No. 317/2000, based an actuarial calculation made every year by an independent actuary, using the projected unit credit method, net of the assets that fund the plan, when applicable, and the corresponding costs are recognized over the employees' working lives. The projected unit credit method considers each period of service as a triggering event of an additional benefit unit, which is accumulated to calculate the total obligation. Other actuarial assumptions are also used, such as estimates of increase in health care costs, biological and economic hypotheses and, also, historical data of costs incurred and employee contributions. k) Other Current and Noncurrent Assets and Liabilit ies - are recorded at realizable amounts (assets) and at known or estimated amounts plus accrued charges and monetary variations (liabilities), when applicable. l) Related Parties - loan agreements between Brazilian companies are adjusted at the weighted average interest rate for market funding. The loan agreements with foreign companies are adjusted by charges (LIBOR + 3% per year) plus exchange variation, when applicable. Sales and purchases of inputs and products are made under terms and conditions similar to those for transactions with unrelated parties.


Page 11

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS m) Long-Term Incentive Plans - the Company pays its chief officers a portion of the compensation in preferred stock options. Therefore, the Company buys back its own shares and keeps them in treasury for delivery to the officers when they exercise their options and pay the exercise price. Gains and losses related to the difference between the cost of shares and the amount received from the officers are recorded in capital reserves without passing through P&L. n) Results of Operations - are determined on the accrual basis. o) Use of Estimates - the preparation of interim financial statements requires the use of estimates to record certain assets, liabilities and other transactions. The interim financial statements include, therefore, estimates of useful lives of property, plant and equipment, reserve for contingencies, provisions for income taxes and other. Actual results could differ from those estimates. p) Investments in Environmental Protection - expenditures related to compliance with environmental regulations are considered as cost of production or are capitalized when incurred. q) Translation of Foreign Currency Balances - assets and liabilities of transactions in foreign currencies are translated into local currency (Brazilian real) at the exchange rate prevailing at the quarter end.


Page 12

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS NOTE 4 - CONSOLIDATED INTERIM FINANCIAL STATEMENTS a) The consolidated interim financial statements as of June 30, 2007 have been prepared in accordance with accounting practices established by the Brazilian Corporate Law and standards established by the Brazilian Securities Commission (CVM) and include the accounts of Gerdau S.A. and its direct or indirect subsidiaries as listed below.

Consolidation Equity

Consolidated company Country percentage net assets Total capital (*) Voting capital

Gerdau GTL Spain S.L. Spain 100 4,160,185 100.00 100.00Gerdau Internacional Empreendimentos Ltda. - Gerdau Group Brazil 100 4,159,645 100.00 100.00

Gerdau Ameristeel Corporation and subsidiaries (1) USA/Canada 100 4,151,863 66.78 66.78

Gerdau Açominas and subsidiaries (2) Brazil 100 3,581,167 89.35 89.36

Gerdau Aços Longos S.A. and subsidiaries (3) Brazil 100 3,569,450 89.35 89.36Gerdau Steel Inc. Canada 100 1,948,788 100.00 100.00

Paraopeba - �Fixed-rate investment fund (4) Brazil 100 1,724,555 97.47 97.47

Corporación Sidenor S.A. and subsidiaries (5) Spain 40 1,423,872 40.00 40.00Gerdau América Latina Participações S.A. Brazil 100 948,374 89.35 89.36Axol S.A. Uruguay 100 743,836 100.00 100.00Gerdau Aços Especiais S.A. Brazil 100 717,140 89.35 89.36

Gerdau Chile Inversiones Ltda. and subsidiaries (6) Chile 100 688,207 99.00 99.00Gerdau Hungria Holdings Limited Liability Company Hungary 100 651,752 98.75 98.75Gerdau Comercial de Aços S.A. Brazil 100 592,709 89.35 89.36

Aramac S.A. and subsidiaries (7) Uruguay 100 377,172 100.00 100.00

Empresa Siderúrgica del Perú S.A.A. - Siderperú Peru 100 358,317 83.28 83.28

Diaco S.A. and subsidiaries (8) Colombia 100 355,738 57.76 57.76Feld Group S.A. and subsidiaries (9) Mexico 100 296,402 100.00 100.00Seiva S.A. - Florestas e Indústrias Brazil 100 275,571 97.06 99.73Itaguaí Com. Imp. e Exp. Ltda. Brazil 100 253,014 100.00 100.00Multisteel Business Holdings Corp. and subsidiaries (10) Dominican Rep. 30 164,311 30.45 30.45Dona Francisca Energética S.A. Brazil 52 135,424 51.82 51.82Gerdau Laisa S.A. Uruguay 100 97,020 99.90 99.90

Sipar Gerdau Inversiones S.A. and subsidiaries (11) Argentina 100 87,746 83.77 83.77Siderúrgica del Pacífico S.A. Colombia 100 66,696 98.30 98.30Sizuca - Siderúrgica Zuliana, C. A. Venezuela 100 65,643 100.00 100.00GTL Financial Corp. Netherlands 100 3,578 100.00 100.00

Ownership percentage

(*) The equity interest reported represents the ownership percentage directly and indirectly held by the investor in the subsidiary. (1) Subsidiaries: Gerdau Ameristeel MRM Special Sections Inc., Gerdau USA Inc., Ameristeel Bright Bar Inc., Gerdau Ameristeel US Inc., Gerdau Ameristeel Perth Amboy Inc., Sheffield Steel Corporation, Gerdau Ameristeel Sayreville Inc., Pacific Coast Steel and Gallatin Steel Company (50% - proportionately consolidated). (2) Subsidiaries: Gerdau Açominas Overseas Ltd. and Açominas Com. Imp. Exp. S.A. – Açotrading. (3) Subsidiaries: Margusa – Maranhão Gusa S.A. and Florestal Itacambira S.A.. (4) Fixed-rate investment fund managed by Banco Gerdau S.A., which began to be consolidated in 2006 in accordance with CVM Instruction 408/2004. (5) Subsidiaries: Corporación Sidenor, S.A. y Cía, Sidenor Industrial S.L., Aços Villares S.A. (58.44%), Forjanor S.L., Sidenor y Cía Sociedad Colectiva, Sidenor I+D S.A., Faersa S.A. and GSB Acero, S.A.. (6) Subsidiaries: Indústria del Acero S.A., Industrias del Acero Internacional S.A., Gerdau Aza S.A., Armacero Industrial y Comercial S.A. (50% - proportionately consolidated), Distribuidora Matco S.A., Aceros Cox Comercial S.A, Salomon Sack S.A., and Matco Instalaciones Ltda.. (7) Subsidiaries: GTL Equity Investments Corp., Focus Resources Corp., and Sprint Global Corp. (8) Subsidiaries: Ferrer Ind. Corporation, Laminados Andinos S.A., Laminadora Diaco S.A., Aceros Figurados S.A., and Ferrofigurados Lasa S.A. (55%).


Page 13

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS (9) Subsidiaries: Siderúrgica Tultitlán, S.A., Ferrotultitlán, S.A. and Arrendadora Valle de México, S.A.A.. (10) Subsidiaries: Industrias Nacionales C. por A. (Dominican Rep.), Steelchem Trading Corp., NC Trading, and Industrias Nacionales C. x A., S.A. (Costa Rica). (11) Subsidiaries: Sipar Aceros S.A. and Siderco S.A. b) Significant accounting practices used in preparing the consolidated interim financial statements are as follows:

Gerdau S.A. and its subsidiaries adopt consistent practices to record their transactions and determine their assets and liabilities. The financial statements of foreign subsidiaries were adjusted to conform to Brazilian accounting practices.

II) Asset, liability and income statement balances arising from transactions between consolidated

companies have been eliminated; and III) Minority interest in subsidiaries is shown separately.

c) The principal transactions for the quarter ended June 30, 2007 are as follows:

I) On May 25, 2007 the Gerdau Group formed a strategic alliance with steel products producer Industrias Nacionales, C. por A. (Inca) for US$ 42 million (R$ 81,984 on date of acquisition). This will give it a stake of 30.45% in the holding Multisteel Business Holdings Corp, which owns 98.57% of Inca. Goodwill of US$ 19.7 million (R$ 37,976 on date of acquisition) arose on this acquisition, based on expected future earnings. Inca is a long steel rolling mill, mainly of rebars. It also produces steel mesh, barbed and barbless galvanized wires, fences, nails and clamps, as well as PVC tubes and connections. It also imports flat rolled steel for manufacturing metal roofs, seamed tubes, bent profiles, and is a plate retailer. Its annual sales of steel products stands at 400,000 metric tons. This partnership will give to Inca new investments in steel production, access to technical and managerial assistance, as well as support in distribution, which are all factors that will contribute to the company improving their production and sales performance of steel products

II) On June 13, 2007, the subsidiary Gerdau Ameristeel announces that its joint venture with Pacific

Coast Steel acquired the assets of Valley Placers, Inc., a company specialized in delivering and assembling steel products located in Las Vegas, Nevada, United States for approximately US$ 8.8 million (R$ 17,109 on date of acquisition). Goodwill of US$ 2.6 million (R$ 5,015 on date of acquisition) arose on this acquisition.

III) On June 18, 2007 the Gerdau Group signed a contract to purchase all of the capital stock of

Siderúrgica Zuliana, C.A. (Sizuca), the third largest steel producer in Venezuela, for US$ 92.5 million (R$ 176,185 on date of acquisition). Goodwill of US$ 58.7 million (R$ 111,934 on date of acquisition) arose on this acquisition, based on expected future earnings.


Page 14

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS

Sizuca is located in Ciudad Ojeda, 90 kilometers outside of Maracaibo, and is a mini-mill that produces rebars with an annual installed capacity of 300,000 metric tons of steel and 200,000 metric tons of rolled products. The company, focused largely on the internal market, has 340 associates

III) On June 22, 2007, the Gerdau Group and the Kalyani group signed a contract to form the Kalyani

Gerdau joint venture with current steelmaking assets of US$ 170 million. The partnership includes the SJK Steel Limited unit located in the city of Tadipatri in the state of Andhra Pradesh, which is close to three large urban centers (Bangalore, Chennai, and Hyderabad) as well as to the main railways in the country. The equipment involved - a mini blast furnace, a melt shop with two converters, a ladle furnace, a continuous casting process, and a plant for producing pig iron - will be used to meet the growing internal demand in the country. The controlling stockholders own the same percentage (approximately 45%) and have the same rights in the joint venture and the other 10% is owned by other investors. The management of the business, therefore, is shared between the Gerdau Group and the Kalyani Group. Gerdau Group's investment to buy this stake will be approximately US$ 71 million (R$ 136,760 on June 30, 2007). The final amount will be determined when the operation is closed, at which time the financial statements of Kalyani Gerdau will be consolidated. According to preliminary studies, in the next years Kalyani Gerdau's annual installed capacity will grow from its current level of 275,000 metric tons of liquid steel to 1.6 million, which will call for US$ 250 million to US$ 300 million in investments. One of the highlights of this investment program is the installation of rolling mills. With this equipment it will be possible to produce steel with higher added-value and supply both the automotive and civil construction industry, as well as a broad range of special bar quality (SBQ) and products for building projects.

d) The consolidated financial statements include the accounts of the jointly-owned subsidiaries Dona

Francisca Energética S.A., Gallatin Steel Company, Corporación Sidenor S.A. and its subsidiaries, Armacero Industrial y Comercial Ltda., and Multisteel Business Holdings Corp and its subsidiaries, whose assets, liabilities, revenues and expenses were included proportionately to the direct and indirect interest of the parent company in these subsidiaries.


Page 15

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS The principal balances of the financial statements of these companies, under the proportionate consolidation, are as follows:

Multisteel Business Holdings Corp.

Group6/30/2007 3/31/2007 6/30/2007 3/31/2007 6/30/2007 3/31/2007 3/30/2007 3/31/2007 6/30/2007

AssetsCurrent 134,084 136,488 392,974 406,267 2,372,269 2,328,132 36,680 37,893 369,411 Non-current 229,497 230,992 384,316 431,125 1,753,746 1,852,575 32,846 31,650 165,236 Total assets 363,581 367,480 777,290 837,392 4,126,015 4,180,707 69,526 69,543 534,647

LiabilitiesCurrent 43,760 41,217 117,196 131,123 1,404,501 1,500,367 42,042 39,756 230,316 Non-current 184,397 194,936 44,566 47,540 1,297,642 1,368,836 14,780 15,928 140,020 Minority ownership - - - - 281,829 247,719 - - 3,159 Adjusted net assets 135,424 131,327 615,528 658,729 1,142,043 1,063,785 12,704 13,859 161,152 Total liability and shareholders’ equity 363,581 367,480 777,290 837,392 4,126,015 4,180,707 69,526 69,543 534,647

6/30/2007 6/30/2006 6/30/2007 6/30/2006 6/30/2007 6/30/2006 6/30/2007 6/30/2006 6/30/2007 (1)

Statement of incomeNet sales revenue 24,295 23,529 912,833 1,037,248 2,649,106 1,877,305 47,875 35,818 172,732Cost of sales (7,834) (9,758) (790,950) (727,285) (1,993,786) (1,352,041) (44,607) (33,464) (125,542)Gross profit 16,461 13,771 121,883 309,963 655,320 525,264 3,268 2,354 47,190 Sales, general and administrative expenses (669) (744) (10,808) (52,916) (182,085) (143,225) (4,373) (3,775) (9,162)Net income (3,353) (4,098) (1,357) (750) (23,431) (22,161) (563) (613) (1,617)Other operating expenses/revenues - - (6,828) (3,087) (11,924) (9,711) 275 287 359 Operating profit (loss) 12,439 8,929 102,890 253,210 437,880 350,167 (1,393) (1,747) 36,770 Non-operating income 126 (302) (33) 462 5,014 6,124 - 2 (4)Provision for income tax and social contribution (4,338) (2,921) (71) (225) (138,202) (107,568) (174) - (4,262)Minority ownership - - - - (67,664) (55,806) - - (254)Net profit (loss) 8,227 5,706 102,786 253,447 237,028 192,917 (1,567) (1,745) 32,250

Dona Francisca Energética S.A.

Corporación Sidenor S.A.Consolidated

Armacero Ind. Com. Ltda.

GallatinSteel Company

(1) For period from April 1, 2007 to June 30, 2007 e) The Company and its direct and indirect subsidiaries have goodwill and negative goodwill that are amortized as the assets that gave rise to them are realized, based on the average useful lives of the assets or the realization of the projected future profits, limited to ten years, as follows:


Page16


Company ConsolidatedGoodwill included in the investment accounts Balance on March 31, 2007 (based on estimated future income) 14,025 - (-) Portion amortized in the period (609) - Balance on June 30, 2007 (based on estimated future income) 13,416 -

Goodwill by subsidiary: Dona Francisca Energética S.A. 13,416 -

Negative goodwill included in the investment account Balance on March 31, 2007 (59,745) - (+) Portion amortized in the period 1,578 -

Balance on June 30, 2007 (58,167) -

Negative goodwill by subsidiary: Empresa Siderúrgica del Perú S.A.A. - Siderperú (*) (58,167) -

Goodwill included in the fixed assets accounts Balance on March 31, 2007 (based on undervaluation of assets) - 374,521 (-) Foreign exchange variation - (18,918) (+) Valley Placers, Inc. (note 4c - II) - 5,015 (-) Portion amortized in the period - (11,627) Balance on 30.06.07 (based on undervaluation of assets) - 348,991

Goodwill by subsidiaries: Gerdau Ameristeel US Inc. - 63,397 Corporación Sidenor, S.A. - 220,127 GSB Acero, S.A. - 47,894 Aços Villares S.A. - 12,558 Valley Placers, Inc. - 5,015

- 348,991

Negative goodwill included in the fixed assets account Balance on March 31, 2007 (based on overvaluation of assets) - (288,360) (+) Foreign exchange variation - 2,777 (+) Portion amortized in the period - 22,374 Balance on 30.06.07 (based on overvaluation of assets) - (263,209)

Negative goodwill by subsidiaries: Gerdau Açominas S.A. - (161,383) Diaco S.A. - (20,165) Siderúrgica del Pacífico S.A. - (22,289) Empresa Siderúrgica del Perú S.A.A. - Siderperú - (58,167) Other - (1,205)

- (263,209)


Page 17


Company ConsolidatedGoodwill included in the intangible accounts Balance on March 31, 2007 (based on estimated future income) - 579,710 (-) Foreign exchange variation - (33,805) (+) Multisteel Business Holding Corp. (note 4c - I) - 37,976 (+) Siderúrgica Zuliana, C.A. (note 4c - III) - 111,934 (-) Portion amortized in the period - (15,879) Balance on 30.06.07 (based on estimated future income) - 679,936

Goodwill by subsidiaries: Dona Francisca Energética S.A. - 13,416 Distribuidora Matco S.A. - 3,697 Sipar Gerdau Inversiones S.A. - 42,454 Sheffield Steel Corporation - 113,454 Pacific Coast Steel, Inc. - 121,142 Feld Group, S.A. - 216,306 Siderúrgica Tultitlán, S.A. - 20,840 Multisteel Business Holding Corp. - 37,659 Siderúrgica Zuliana, C.A. - 110,968

- 679,936

(*) In this company, the negative goodwill was booked under the caption “investments” since Gerdau S.A. is a holding company. In the consolidated financial statements the balance was reclassified to property, plant and equipment due to the economic fundamentals of the negative goodwill. The goodwill is a result of the difference between the purchase amount and the shareholders' equity amount and is based on expected future earnings of the acquired business, calculated on the discounted cash flow method for a period of 10 years.

f) The equity in subsidiaries in the consolidated statement of income refers basically to the effects of

exchange variation on foreign investments and goodwill amortization.


Page 18

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS NOTE 5 - CASH AND MARKETABLE SECURITIES

Company Consolidated6/30/2007 3/31/2007 6/30/2007 3/31/2007

Marketable securitiesFixed income investments 19 2,787 2,057,790 1,777,932Investment funds - - 278,783 223,751Fixed income investments - Banco Gerdau S.A. - - 121,782 - Fixed income investments - Paraopeba Fund 195,040 414,577 1,724,826 2,587,165 Total marketable securities 195,059 417,364 4,183,181 4,588,848

Cash 1,332 2,692 770,423 649,403 196,391 420,056 4,953,604 5,238,251

Marketable securities consist primarily of federal government securities and bank certificates of deposit (CDB) at market prices and rates, and are stated at cost plus income earned, recognized proportionately to the quarter end, not in excess of market value. Of the existing balance, R$ 1,283,431 – consolidated (R$ 987.658 – consolidated as of March 31, 2007), refer to investments held by companies abroad in foreign currency, principally U.S. dollars. NOTE 6 - TRADE ACCOUNTS RECEIVABLE

6/30/2007 3/31/2007Customer accounts receivable - in Brazil 798,338 782,922 Trade accounts receivable - exports from Brazil 160,482 133,716 Customer accounts receivable - foreign companies 1,978,057 2,017,768 (-) Provision for credit risks (60,622) (69,279)

2,876,255 2,865,127

Consolidated

Aging list of trade accounts receivable is as follows:

6/30/2007 3/31/2007Amounts to be paid 2,554,712 2,593,068 Overdue:Up to 30 days 248,769 235,957 Between 31 and 60 days 72,396 43,725 Between 61 and 90 days 10,271 4,745 Between 91 and 180 days 8,127 5,906 Between 181 and 360 days 11,585 14,998 Over 360 days 31,017 36,007 (-) Provision for credit risks (60,622) (69,279)

2,876,255 2,865,127

Consolidated


Page 19

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS NOTE 7 - INVENTORIES

6/30/2007 3/31/2007Finished products 1,953,486 1,800,503 Products in progress 881,438 826,562 Raw materials 1,068,099 1,087,811 Storehouse materials 659,792 670,676 Advances to suppliers 81,528 82,814 Ongoing imports 162,440 119,618 (-) Provision for obsolescence and market value adjustment (25,282) (30,556)

4,781,501 4,557,428

Consolidated

Inventories are insured against fire and overflow. The insurance coverage is based on the amounts and risks involved. NOTE 8 - TAX CREDITS

6/30/2007 3/31/2007 6/30/2007 3/31/2007Short-termICMS - Tax on Sales and Services - - 139,541 125,678 PIS - Social Integration Program 30 1,722 17,090 20,469 COFINS - Social Contribution on Revenues - - 79,264 99,079 IPI - Excise tax - - 37,349 25,920 IRRF - Income Tax Withheld at Source 81,054 72,283 146,708 117,696 IVA - Value-added tax - - 7,727 10,821 Other - - 36,255 26,533

81,084 74,005 463,934 426,196

Long-termICMS - Tax on Sales and Services - - 216,119 220,631 PIS - Social Integration Program 1,106 19,441 26,406 43,844 COFINS - Social Contribution on Revenues 12,143 11,926 127,495 123,717 IPI - Excise tax - - 11,869 11,163 IRRF - Income Tax Withheld at Source - - 31,892 33,502 Other - - 576 5,357

13,249 31,367 414,357 438,214 94,333 105,372 878,291 864,410

Company Consolidated

The estimate of realization of the noncurrent tax credits is as follows:

6/30/2007 3/31/2007 6/30/2007 3/31/20072008 13,249 31,367 117,570 170,245 2009 - - 147,783 128,907 2010 - - 118,609 117,373 After 2011 - - 30,395 21,689

13,249 31,367 414,357 438,214



Page 20



Page 21

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS NOTE 9 - INCOME AND SOCIAL CONTRIBUTION TAXES a) Reconciliation of income and social contribution taxes:

Income Tax Social Contribution

Total Income Tax Social Contribution

Total

1,343,089 1,343,089 1,343,089 1,500,874 1,500,874 1,500,874 25% 9% 34% 25% 9% 34%

(335,772) (120,878) (456,650) (375,219) (135,079) (510,298)

332,502 119,701 452,203 356,622 128,383 485,005 1,274 458 1,732 (223) (80) (303) 3,203 2,166 5,369 645 269 914 1,207 1,447 2,654 (18,175) (6,507) (24,682)

114 1,089 1,203 - - - 1,093 358 1,451 (18,175) (6,507) (24,682)

Income Tax Social Contribution

Total Income Tax Social Contribution

Total

2,280,686 2,280,686 2,280,686 2,362,218 2,362,218 2,362,218 25% 9% 34% 25% 9% 34%

(570,172) (205,262) (775,434) (590,555) (212,600) (803,155)

(29,427) 116,809 87,382 (30,209) 88,742 58,533 (102,364) (36,851) (139,215) (46,275) (16,659) (62,934) 59,279 21,341 80,620 55,985 20,155 76,140 - - - 2,916 1,050 3,966 26,091 - 26,091 37,488 - 37,488 102,955 37,064 140,019 102,955 37,064 140,019 4,798 20,852 25,650 (19,508) 15,627 (3,881) (508,840) (46,047) (554,887) (487,203) (66,621) (553,824)

(464,512) (34,390) (498,902) (439,726) (50,022) (489,748) (44,328) (11,657) (55,985) (47,477) (16,599) (64,076)

- interest on own capital

- deferred amortization - CVM 349

Deferred

- permanent differences (net)Income tax and social contribution on net income

Current

- tax incentives

Profit before income tax and social contribution, after statutory ownershipStandard rates of taxExpenses for income tax and social contribution at standard rates of tax Tax adjustment with reference to: - rates of tax difference in foreign companies - equity in the (earnings) losses of subsidiaries

- recovery of deferred tax assets

Consolidated6/30/2007 6/30/2006

CurrentDeferred

Tax adjustment with reference to: - equity in the (earnings) losses of subsidiaries

- permanent differences (net)Income tax and social contribution on net income

- interest on own capital

Profit before income tax and social contribution, after statutory ownershipStandard rates of taxExpenses for income tax and social contribution at standard rates of tax

Company6/30/2007 6/30/2006

The amortization of deferred charges is recognized under the straight-line method over a period of up to 10 years, in accordance with CVM Instruction No. 349. The Company's subsidiaries received R$ 13,443 as of June 30, 2007 (R$ 17,149 as of June 30, 2006) of tax incentives in the form of income tax reduction, related to technological innovation, funds for the rights of children and adolescents, PAT (Workers’ Meal Program), and cultural and artistic activities. The units of the subsidiaries Gerdau Aços Longos S.A. and Margusa – Maranhão Gusa S.A., located in the northeast region of Brazil, will receive until 2013 a 75% reduction in income tax on operating profit, which represented R$ 12,648 as of June 30, 2007 (R$ 20,339 as of June 30, 2006). The respective tax incentives were recorded and directly affected the income tax accounts on the statement of income.


Page 22

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS b) Deferred income and social contribution taxes at statutory rates:

=Income Tax Social

Contribution TotalIncome Tax Social

Contribution TotalIncome Tax Social

Contribution TotalIncome

TaxSocial

Contribution TotalTax losses 10,029 - 10,029 6,131 - 6,131 100,226 - 100,226 112,015 - 112,015 Negative social contribution base - 3,492 3,492 - 2,130 2,130 - 7,473 7,473 - 6,328 6,328 Provision for contingencies 9,475 3,411 12,886 9,475 3,410 12,885 84,301 30,804 115,105 77,581 27,884 105,465 Benefits granted to employees - - - - - - 130,546 - 130,546 140,502 - 140,502 Other temporary differences 20 - 20 22 - 22 212,568 46,025 258,593 265,729 44,040 309,769 Amortized goodwill 2,744 988 3,732 2,591 933 3,524 12,320 4,436 16,756 12,167 4,381 16,548 Provision for losses 241 87 328 241 87 328 114,507 6,116 120,623 118,698 203 118,901

22,509 7,978 30,487 18,460 6,560 25,020 654,468 94,853 749,321 726,692 82,836 809,528

Current - - - - - - 130,070 12,181 142,251 181,491 6,159 187,650 Long-term 22,509 7,978 30,487 18,460 6,560 25,020 524,398 82,672 607,070 545,201 76,677 621,878

Income Tax Social Contribution Total



Income Tax

Social Contribution Total

Accelerated depreciation - - - - - - 555,840 392 556,232 588,581 (1,201) 587,380 Amortized negative goodwill 41,435 14,917 56,352 41,042 14,775 55,817 51,579 15,074 66,653 51,185 14,932 66,117 Inflation/foreign exchange effect - - - - - - 96,750 35,105 131,855 85,249 30,958 116,207

41,435 14,917 56,352 41,042 14,775 55,817 704,169 50,571 754,740 725,015 44,689 769,704

Current - - - - - - 108,465 34,826 143,291 97,492 29,063 126,555 Long-term 41,435 14,917 56,352 41,042 14,775 55,817 595,704 15,745 611,449 627,523 15,626 643,149

AssetsCompany Consolidated

6/30/2007 3/31/2007 6/30/2007 3/31/2007

LiabilitiesCompany Consolidated

6/30/2007 3/31/2007 6/30/2007 3/31/2007

The tax credits arising from tax loss carryforwards (Company and Consolidated) are supported by projections of future taxable income adjusted to present value, based on technical feasibility studies submitted annually to the Board of Directors. These studies consider the history of profitability of the Company and its subsidiaries and the expectation of continuous profitability and estimated the recovery of credits over a period not exceeding ten years. The other tax credits arising from temporary differences, mainly tax contingencies, and provision for losses, were recognized according to their estimate of realization. c) Estimated realization of deferred income and social contribution taxes:

6/30/2007 3/31/2007 6/30/2007 3/31/20072007 - - 142,251 187,650 2008 2,577 2,577 110,983 91,435 2009 2,577 2,577 97,951 102,427 2010 2,577 2,577 85,150 89,509 2011 to 2013 2,577 2,577 187,891 159,070 2014 to 2015 20,178 14,712 125,094 179,437

30,487 25,020 749,321 809,528

AssetsCompany Consolidated


Page 23


6/30/2007 3/31/2007 6/30/2007 6/31/20072007 - - 143,291 126,555 2008 - - 33,783 32,820 2009 - - 43,757 44,037 2010 to 2012 - - 154,515 154,795 2013 to 2014 - - 130,934 131,214 from 2015 on 56,352 55,817 248,461 280,283

56,352 55,817 754,740 769,704

Company ConsolidatedLiabilities

NOTE 10 - INVESTMENTS

Company

Other Total

Gerdau Açominas S.A.

Gerdau Internacional

Empreend.

Ltda. (1)

Itaguaí Com.Imp. e Export.

Ltda.Gerdau Aços Longos S.A.

Gerdau Aços Especiais S.A.

Gerdau Comercial de Aços S.A.

Gerdau América Latina Part. S.A. Other

Investment Investment Investment Investment Investment Investment Investment Investment Goodwill Investment Negative goodwill Investment

Balance on December 31, 2006 2,869,896 2,783,016 239,627 2,800,677 581,098 495,956 786,638 65,793 14,630 296,203 (61,270) 23 4,816 10,877,103

Equity (2) 201,067 111,909 6,258 242,634 52,057 21,217 31,578 2,255 (605) (401) 1,525 - - 669,494

Aquisition of investment - - - - - - - - - - - - 12,476 12,476

Balance on March 31, 2007 3,070,963 2,894,925 245,885 3,043,311 633,155 517,173 818,216 68,048 14,025 295,802 (59,745) 23 17,292 11,559,073

Equity (2) 228,590 103,397 7,129 237,559 23,705 25,263 29,188 2,123 (609) 2,590 1,578 (1) - 660,512 Dividends/Interest on own capital (99,640) - - (91,606) (16,071) (12,857) - - - - - - - (220,174)

Balance on June 30, 2007 3,199,913 2,998,322 253,014 3,189,264 640,789 529,579 847,404 70,171 13,416 298,392 (58,167) 22 17,292 11,999,411

Capital 1,654,160 2,663,342 145,110 2,207,860 379,205 517,846 625,184 66,600 356,461

Adjusted net assets 3,581,167 4,159,645 253,014 3,569,450 717,140 592,709 948,374 135,424 358,317Net income for the adjusted period 205,622 143,446 7,129 201,596 21,771 25,169 32,666 4,097 22,013Capital ownership total (%) 89.35% 72.08% 100.00% 89.35% 89.35% 89.35% 89.35% 51.82% 83.28%Capital ownership voting (%) 89.36% 72.08% 100.00% 89.36% 89.36% 89.36% 89.36% 51.82% 83.28%Common shares / shares of interest owned 160,711,825 1,919,769,142 145,109,651 160,711,825 160,711,825 160,711,825 160,711,825 345,109,212 822,310,526

Proposed dividentd/interest on own capital 111,513 - - 102,526 17,986 14,390 - - -

1 Company holder of the investments in foreign subsidiaries.2 Includes amortization of goodwill/negative goodwill.

Controlled Companies

Dona Francisca

Energética S.A.

Company Siderúrgica

Del Perú S.A.A.


Page 24


MRS Logística S.A.

EletrobrásCentrais Elétricas

Brasileiras S.A. Other Total

Investment Investment Investment

Balance on December 31, 2006 4,772 - 15,937 20,709

Acquisitions/dispositions of investment - 12,574 (372) 12,202

Balance on March 31, 2007 4,772 12,574 15,565 32,911

Aquisition/dispositions of investment - - (594) (594)

Balance on June 30, 2007 4,772 12,574 14,971 32,317

Consolidado

NOTE 11 - PROPERTY, PLANT AND EQUIPMENT

3/31/2007Annual taxes of Accrueddepreciation % Cost depreciation Net Net

Data/rights/license electronic equipment 20 to 40 397 - 397 394 397 - 397 394

3/31/2007Accrued

Annual taxes of depreciation depreciation/depletion % Cost and depletion Net Net

Lands, buildings and constructions 0 to 10 4,346,197 (1,589,722) 2,756,475 2,782,420 Machines, equipment, and installations 2 to 10 11,664,232 (6,463,592) 5,200,640 5,279,009 Furniture and appliances 5 to 10 182,807 (108,667) 74,140 78,178 Vehicles 5 to 33 134,488 (76,664) 57,824 60,706 Data/rights/license electronic equipment 5 to 40 481,906 (337,135) 144,771 147,812 Fixed assets under construction - 3,532,309 - 3,532,309 3,102,818 Foresting/reforesting Cutting plan 355,307 (74,895) 280,412 265,108

20,697,246 (8,650,675) 12,046,571 11,716,051

Consolidated6/30/2007

Company6/30/2007

a) Insured amounts – property, plant and equipment are insured against fire, electrical damage and explosion. The insurance coverage is based on the amounts and risks involved. The plants of the North and South American subsidiaries (except for Brazil) and the subsidiary Gerdau Açominas S.A. are also insured against loss of profits. b) Capitalized interest and financial charges - financial charges for the quarter ended June 30, 2007 were recorded in the amount of R$ 26,518 – consolidated (R$ 10,088 – consolidated, as of June 30, 2006). c) Guarantees - fixed assets were pledged as collateral for loans and financing in the amount of R$ 1,870,471 – consolidated (R$ 1,923,295 - consolidated as of March 31, 2007).


Page 25

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS d) Summary of changes in property, plant and equipm ent:

Company Consolidated6/30/2007 6/30/2007

Balance at the beginning of the quarter 394 11,716,051 ( + ) Acquisitions / dispositions in the quarter 3 644,880 ( - ) Depreciation and depletion in cost of sales - (250,502)( - ) Administrative depreciation and depletion - (14,415)( + ) Companies consolidated in the quarter - 101,594 ( - ) Foreign exchange effect on fixed assets abroad - (151,037)Balance at the end of the quarter 397 12,046,571 NOTE 12 - INTANGIBLE ASSETS Intangible assets (Consolidated) refer primarily to goodwill on investments in subsidiaries based on expected future earnings, Carbon Emission Reduction Certificates held by the subsidiary Corporación Sidenor, S.A., and goodwill on acquisition of Pacific Coast Steel:

Dona Francisca

Energética S.A.Distribuidora

Matco S.A.Sipar Gerdau

Inversiones S.A.Sheffield

Steel Corp. Grupo Feld.

S.A.Siderúrgica

Tultitlán, S.A.

Multisteel Business Holdings

Corp.

Siderúrgica Zuliana,

C. A.Corporación Sidenor, S.A. Other Total

Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill Goo dwill Goodwill GoodwillCert. Carbon Emission

Reduction

Balance on December 31, 2006 14,630 4,278 49,979 132,737 - - - - 141,540 17,322 7,459 5,465 373,410

Exchange rate variation - (223) (2,003) (5,470) - - - - (2,206) (733) (215) (131) (10,981)

Acquisition - - - - 236,158 22,667 - - - 2,174 - 260,999

Amortization (605) (137) (1,415) (3,233) - - - - (6,987) (1,205) - (179) (13,761)

Balance on March 31, 2007 14,025 3,918 46,561 124,034 236,158 22,667 - - 132,347 15,384 9,418 5,155 609,667

Exchange rate variation - (152) (2,820) (7,455) (14,307) (1,115) - - (7,956) (1,038) (453) (127) (35,423)

Acquisition - - - - - - 37,976 111,934 1,628 - 526 152,064

Low - - - - - - - - - (6,356) (138) (6,494)

Amortization (609) (69) (1,287) (3,125) (5,545) (712) (317) (966) (3,249) (243) - (30) (16,152)

Balance on June 30, 2007 13,416 3,697 42,454 113,454 216,306 20,840 37,659 110,968 121,142 15,731 2,609 5,386 703,662

Pacific Coast Steel Inc.

Consolidated

NOTE 13 - DEFERRED CHARGES

6/30/2007 3/31/2007Preoperating Expenses 69,878 69,891 (-) Amortization (9,486) (8,055)

60,392 61,836

Consolidated


Page 26

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS NOTE 14 - LOANS AND FINANCING The obligations from loans are represented as follows:

Yearly Short term financing in reals charges (*) 6/30/2007 3/31/2007 6/30/2007 3/31/2007 Working capital 9.54% - - 492,874 225,689 Short term financing in foreign currency

Working capital (US$) 7.83% - - 377,551 202,351 Working capital (€) 5.15% - - 70,922 74,624 Working capital (Clp$) 7.50% - - 27,479 24,207 Working capital (Cop$) 8.78% - - 5,510 74,308 Working capital (PA$) 9.84% - - 48,270 41,563

Financing of investment (US$) 4.91% - - 56,500 94,119 - - 1,079,106 736,861

Plus: long-term financing current portion 6,779 6,926 863,019 938,579 Short-term financing plus current portion 6,779 6,926 1,942,125 1,675,440

Long-term financing in reals Working capital 10.86% - - 102,320 119,336 Financing of fixed assets 10.86% - - 1,258,781 1,356,106 Financing of investment 9.27% - - 162,288 145,691

Long-term financing in foreign currencyWorking capital (US$) 6.19% - - 399,752 255,853 Working capital (€) 5.15% - - 202,986 219,090 Working capital (Clp$) 7.50% - - 12,378 14,203 Bearer bonds (Perpetual bonds and Senior Notes) (US$) 9.75% 1,162,499 1,237,166 1,929,565 2,050,018 Açominas exports notes receivable (US$) 7.37% - - 357,615 418,578 Advances of exports (US$) 6.61% - - 593,971 619,565 Financing of investment (US$) 6.41% - - 23,207 24,704 Financing of fixed assets and other (US$) 7.41% - - 1,709,773 1,923,213

1,162,499 1,237,166 6,752,636 7,146,357 Minus: current portion (6,779) (6,926) (863,019) (938,579)Long-term financing minus current portion 1,155,720 1,230,240 5,889,617 6,207,778 Total financing 1,162,499 1,237,166 7,831,742 7,883,218

(*) Weighted average tax on June 30, 2007.


Loans and financing denominated in Brazilian reals are indexed to the TJLP (Long-term Interest Rate), established quarterly by the Federal Government for adjusting long-term loans granted by the BNDES (National Bank for Economic and Social Development), or to the IGP-M (General Market Price Index, a Brazilian inflation rate measured by Fundação Getúlio Vargas).


Page 27

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS Summary of loans and financing by currency:

6/30/2007 3/31/2007 6/30/2007 3/31/2007Real (R$) - - 2,016,263 1,846,822 U.S. Dollar (US$) 1,162,499 1,237,166 5,447,934 5,588,401 Euro (€) - - 273,908 293,714 Colombian Peso (Cop$) - - 5,510 74,308 Argentine Peso (PA$) - - 48,270 41,563 Chilean Peso (Clp$) - - 39,857 38,410

1,162,499 1,237,166 7,831,742 7,883,218


Maturity of long-term loans:

Company Consolidated2008 - 588,844 2009 - 1,059,853 2010 - 742,515 2011 - 1,308,610 After 2011 1,155,720 2,189,795

1,155,720 5,889,617 a) Guaranteed Perpetual Notes Gerdau S.A. concluded the private issue of Guaranteed Perpetual Notes (Notes) on September 15, 2005 in the total amount of US$ 600 million (R$ 1,155,720 as of June 30, 2007). These Notes are guaranteed by the Brazilian operating companies Gerdau Açominas S.A., Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A. and Gerdau Comercial de Aços S.A. The Notes have no maturity but may become due in certain specific circumstances (as defined in the terms of the Notes), which are not under total control of the Company. The Company has the option of redeeming these Notes after 5 years of their issue, the first option for redemption therefore being in September 2010. Interest is payable quarterly and each quarterly payment date after September 2010 is also a redemption option date. b) Guarantees The loans contracted under the FINAME/BNDES program, totaling R$ 1,236,148 as of June 30, 2007, are guaranteed by the financed assets. Other loans are guaranteed by the controlling shareholders’ collateral signatures, on which the Company pays a rate of 1% per year. c) Covenants As a way of monitoring the financial condition of the Company, the banks involved in the financing agreements use restrictive covenants, as described below: I) Consolidated interest coverage ratio - measures the debt service payment capacity in relation to EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization).


Page 28

00398-0 GERDAU S.A. 33.611.500/0001-19 04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS II) Consolidated Leverage Ratio - measures the debt coverage capacity in relation to EBITDA. III) Required Minimum Net Worth - measures the minimum net worth required in financing agreements. IV) Current Ratio (current liquidity ratio) - measures the capacity to pay current liabilities. All the covenants mentioned above are calculated based on the Company's consolidated financial statements, except for item IV, which refers to Metalúrgica Gerdau S.A., and have been complied with. Pursuant to the agreements, the penalty for non-compliance with such covenants is the possibility of a default statement by the banks and acceleration of maturity of loans. d) Credit lines In October 2005, the subsidiaries Gerdau Açominas S.A., Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A. and Gerdau Comercial de Aços S.A. obtained a pre-approved credit line from the BNDES (National Bank for Economic and Social Development) in the amount of R$ 900,000 for the purchase of equipment and for expenses. The funds are provided as the subsidiaries implement their investment plans and submit proof of expenditures to the BNDES. As of June 30, 2007, R$ 366,030 of this credit line had been drawn down. The contracted interest rate was the TJLP (Long-term interest rate) + 3% per year. The contracts are guaranteed by Indac – Ind. Adm. e Comércio S.A. and the financial covenants of Metalúrgica Gerdau S.A. In August 2006, the subsidiary Gerdau Açominas S.A. obtained an approval from the BNDES for a loan of R$ 344,749 for increasing the production capacity of liquid steel at the unit in Ouro Branco, Minas Gerais state, from the present 3 million metric tons a year to 4.5 million metric tons a year by making investments in a new coke plant, new sintering facilities, and a new blast furnace, as well as for implementing social projects to be carried out by the company itself or in partnership with public or private institutions that are directly involved in the local community. The contracted interest rate was the TJLP (Long-term interest rate) + 2% per year. The contracts are guaranteed by Indac – Ind. Adm. e Comércio S.A. and the financial covenants of Metalúrgica Gerdau S.A. As of June 30, 2007, R$ 270,035 of this credit line had been drawn down. In November 2006, Gerdau S.A. concluded a Senior Liquidity Facility operation in order to obtain an additional tool for the management of its liabilities that will make it possible to better manage risks. The operation contributed to reduce the Company's level of exposure in the case of liquidity reduction in the financial and capital markets and is part of the Liability Management process being implemented by the Company. The Senior Liquidity Facility amounts to US$ 400 million (R$ 770,480 as of June 30, 2007) and the borrower will be GTL Trade Finance Inc., with guarantees provided by the following companies: Gerdau S.A., Gerdau Açominas S.A., Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A., and Gerdau Comercial de Aços S.A. The program has a 3-year period with 2 years for payment beginning with each disbursement. The costs are a Facility Fee of 0.27% per year and interest of Libor + 0.30% to 0.40% per year in the case of disbursement. No amounts have been withdrawn against this credit line as of June 30, 2007. The subsidiary Gerdau Açominas S.A. has the following credit lines:


Page 29


• US$ 267 million (R$ 514,295 as of June 30, 2007) with a group of banks led by Citibank, N.A, Tokyo Branch, whose credit insurance was given by Nippon Export and Investment Insurance (NEXI) and guarantee by Gerdau S.A. The operation has a term of ten years, of which two are the grace period and the remaining eight for payment. The contracted interest rate was LIBOR + 0.3% per year (equivalent to an all-in cost of 7.27% per year on the contracting date). As of June 30, 2007, US$ 224 million (R$ 431,469) of this credit line had been drawn down. The resources are being used to finance part of the project to increase the production capacity to 4.5 million metric tons, including the following sub-projects: Raw Material Yards, Ladle Furnace, Billet Inspection Line, Transportation and Railroads, Water and Gas Piping Systems, Firefighting, Turbgenerator Blower, Boiler, Information Technology, Management and Technical Assistance.

Together with the contracting of this line of credit, Gerdau performed a swap operation for protection against foreign exchange exposure of the Japanese yen against the US dollar (note 16).

• US$ 69 million (R$ 132,908 as of June 30, 2007) with Export Development Canada, whose credit

insurance was given by KFW and guarantee by Gerdau S.A. The operation has a term of six years, of which two are the grace period and the remaining four for payment. The operation has an all-in cost of 7.22% per year from contract date. As of June 30, 2007, US$ 42 million (R$ 80,900) of this credit line had been drawn down and part of the debt has started to be paid. The funds are being used to finance part of the Continuous Casting of Blooms project.

• US$ 201 million (R$ 387,166 as of June 30, 2007) from BNP Paribas (50%) and the Industrial and

Commercial Bank of China - ICBC (50%), whose credit insurance was given by China Export & Credit Insurance Corporation (Sinosure) and guarantee by Gerdau S. A. The operation has a term of twelve years, of which three are the grace period and the remaining nine for payment. The operation has an all-in cost of 6.97% per year from contract date. As of June 30, 2007, US$ 156 million (R$ 300,487) of this credit line had been drawn down. The funds are being used to finance 85% of the costs of new Blast Furnaces, Coke Plant, and sintering facilities at the Ouro Branco Plant.

Together with the contracting of this line of credit, Gerdau entered into a commercial loan operation for the total of US$ 50 million (R$ 96,310 as of June 30, 2007) with BNP Paribas. This line has already been fully used. The funds were used to finance 15% of the costs of new Blast Furnaces, Coke Plant, and sintering facilities at the Ouro Branco Plant as well as 100% of the Sinosure credit insurance associated with the projects.

The North American subsidiaries have a credit line in the amount of US$ 650 million (R$ 1,252,030 as of June 30, 2007) falling due in October 2010, which can be drawn in U.S. dollars (LIBOR + 1% to 2% per year or US Prime/FED Funds + -0.5% to +0.5% per year) or in Canadian dollars (at the Bankers Acceptance (BA) rate plus 1% to 2% per year, or Canadian Prime plus 0% to 1% per year). The distribution of this credit line among the companies is made in proportion to the working capital of each North American subsidiary. No amounts have been withdrawn against this credit line as of June 30, 2007. The inventories and accounts receivable of subsidiaries were given as guarantee for this credit line. In November 2006, the subsidiary Gerdau Ameristeel US Inc. obtained a credit line from KfW in the amount of US$ 75 million (R$ 153,780 as of June 30, 2007) with a maturity in November 2008. The contracted interest rate for ECA Loans was Libor plus 0.3% to 0.6% per year and for Commercial Loans it was Libor plus 1.6% to 2.2% per year. No amounts have been withdrawn against this credit line as of June 30, 2007. The funds will be used to finance the acquisitions of fixed assets. The equipment to be financed will be given as guarantee for this line.


Page 30

04.01 - NOTES TO THE INTERIM FINANCIAL STATEMENTS The subsidiary Gerdau Aza S.A. has a line of credit of Clp$ 51.2 billion (R$ 186,953 as of June 30, 2007), bearing interest of 5.76% per year. This line was not being used as of June 30, 2007. NOTE 15 – DEBENTURES

GeneralIssue Date Meeting Issued Portfolio Maturity Yearly charges 6/30/2007 3/31/20073rd - A and B 27/05/1982 144,000 87,879 6/1/2011 CDI 124,883 117,821 7th 14/07/1982 68,400 12,041 7/1/2012 CDI 159,978 37,868 8th 11/11/1982 179,964 12,711 5/2/2013 CDI 310,162 251,447 9th 6/10/1983 125,640 74,983 9/1/2014 CDI 143,793 296,409 11th - A and B 29/06/1990 150,000 103,369 6/1/2020 CDI 125,477 117,161 Total Company 864,293 820,706

Aços Villares S.A. 9/1/2005 28,500 - 9/1/2010 104.5% DI 122,914 122,909 Debentures held by consolidated subsidiaries (165,019) (151,990)Consolidated Total 822,188 791,625

Cons

federal public service brazilian securities …federal public service brazilian securities...

Documents