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GERDAU S.A. (Exact Name of Registrant As Specified in Its Charter)

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GERDAU S.A. (Exact Name of Registrant As Specified in Its Charter) U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 to FORM 20-F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 Commission file number 1-14878 GERDAU S.A. (Exact Name of Registrant as Specified in its Charter) Federative Republic of Brazil (Jurisdiction of Incorporation or Organization) N/A (Translation of Registrant's name into English) Av. Farrapos 1811 Porto Alegre, Rio Grande Do Sul - Brazil CEP 90220-005 (Address of principal executive offices) (Zip code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange in Which Registered Preferred Shares, no par value per share, each represented by American Depositary Shares New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None The total number of issued shares of each class of stock of GERDAU S.A. as of December 31, 1999 was: 19,691,010,193 Common Shares, no par value per share 37,054,842,993 Preferred Shares, no par value per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark which financial statement item the Registrant has elected to follow Item 17 Item 18 X . TABLE OF CONTENTS Page INTRODUCTION ............................................................................................................................................ 1 PART I.............................................................................................................................................................. 2 ITEM 1.DESCRIPTION OF BUSINESS........................................................................................... 2 ITEM 2.PROPERTIES....................................................................................................................... 23 ITEM 3.LEGAL PROCEEDINGS ..................................................................................................... 24 ITEM 4.CONTROL OF REGISTRANT............................................................................................ 25 ITEM 5.NATURE OF TRADING MARKET.................................................................................... 25 ITEM 6.EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS................................................................................... 29 ITEM 7.TAXATION.......................................................................................................................... 32 ITEM 8.SELECTED FINANCIAL DATA ........................................................................................ 37 ITEM 9.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......................................... 42 ITEM 10.DIRECTORS AND OFFICERS OF REGISTRANT.......................................................... 58 ITEM 11.COMPENSATION OF DIRECTORS AND OFFICERS ................................................... 60 ITEM 12.OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES .................................................................................... 60 ITEM 13.INTERESTS OF MANAGEMENT IN CERTAIN TRANSACTIONS..............................................................................................60 PART II............................................................................................................................................................. 61 ITEM 14.DESCRIPTION OF SECURITIES..................................................................................... 61 PART III ........................................................................................................................................................... 62 ITEM 15.DEFAULTS UPON SENIOR SECURITIES...................................................................... 62 ITEM 16.CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES ................................................................ 62 PART IV........................................................................................................................................................... 62 ITEM 17.FINANCIAL STATEMENTS ITEM 17. ........................................................................... 62 ITEM 18.FINANCIAL STATEMENTS ITEM 18. ........................................................................... 62 ITEM 19.FINANCIAL STATEMENTS AND EXHIBITS................................................................ 62 i INTRODUCTION Unless otherwise indicated, all references herein (i) to the "Company" or to "Gerdau" are references to Gerdau S.A., a corporation organized under the laws of the Federative Republic of Brazil ("Brazil") and its consolidated subsidiaries, and (ii) to "Preferred Shares" and "Common Shares" refer to the Company's authorized and outstanding preferred stock and common stock, designated as ações preferenciais and ações ordinárias, respectively, each without par value. All references herein to the "real," "reais" or "R$" are to the Brazilian real, the official currency of Brazil. As of July 1, 1994, the denomination of the Brazilian currency unit was changed to the real from the cruzeiro real (each real being equal to 2,750 cruzeiros reais at such time), which, in turn, was changed as of August 1, 1993 from the cruzeiro (each cruzeiro real being equal to 1,000 cruzeiros at such time). All references to (i) "U.S. dollars," "dollars" or "U.S.$" are to United States dollars, (ii) "billions" are to thousands of millions, (iii) "km" are to kilometers, and (iv) "tons" denotes metric tons. The Company has prepared the consolidated financial statements included herein in conformity with generally accepted accounting principles in the United States ("U.S. GAAP"). F-1 PART I ITEM 1. DESCRIPTION OF BUSINESS General Gerdau S.A. is a producer of long ordinary and specialty steel through its industrial units located in Brazil and its subsidiaries in Uruguay, Chile, Canada, Argentina and the United States, with installed production capacity of 7.7 million tons of crude steel, 7.0 million tons of rolled product and 0.9 million tons of drawn products. The Company produces steel based on the mini-mill concept, whereby steel is produced in electric arc furnaces, starting with scrap and pig iron acquired mainly in the region where each mill operates (the so-called mini-mill concept). Gerdau also operates plants capable of producing steel starting with iron ore in blast furnaces and through the direct reduction process. Gerdau's products are manufactured with a wide range of specifications, intended to satisfy a large spectrum of consuming groups. The three principal markets in which the Company operates are the civil construction, manufacturing and agricultural breeding sectors, the first two of which represented approximately 97% of the total sales volume of the Company measured in tons in 1999. In 1999, Gerdau produced 5.1 million tons of crude steel, of which 3.9 million (including 0.6 million from Açominas) were produced in Brazil (15.5% of national production) and 1.2 million tons through its subsidiaries abroad. In the segment of long rolled steel, Gerdau is the largest Brazilian producer, with approximately 46.5% of total production. For the fiscal year ended December 31, 1999, the Company achieved consolidated net sales in the amount of U.S.$ 1.72 billion, generating consolidated net income of U.S.$ 197.7 million. Corporate History Gerdau is part of an industrial conglomerate which began in 1901, with the acquisition by the Gerdau family of a nail factory located in Porto Alegre, in the Southern region of Brazil. In 1969, the business changed its name to Metalúrgica Gerdau S.A., which today controls Gerdau S.A. With the objective of assuring the supply of raw material, immediately after the end of World War II, Siderúrgica Riograndense S.A., a steel producer also located in Porto Alegre, was acquired. The Company's production capacity was increased through, among other things the construction of a new mill. In the second half of the 1960s, the Company began to expand and diversify its activities. The expansion involved the acquisition of existing companies (which increased the Company's market share) and the construction of new plants, in Brazil and abroad. The first company acquired was Indústria de Arames São Judas Tadeu S.A. in São Paulo, which is today known as "Comercial Gerdau". Comercial Gerdau, through a network of more than 60 branches, covers all of Brazil for retail sales of product. Subsequently, the Group expanded with various steel mills, drawing mills and factories for the production of strands, steel cables, soldered wire mesh and similar products located in principal Brazilian and foreign markets. In order to assure competitive advantages in each region in which the Company operates, the Company adopted a principal strategy of acting through medium-sized companies situated in the heart of the economic regions capable of supplying raw materials originating in the same areas in
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