Form 20-F - Gerdau

Financial Expenses and Financial Revenue
Net financial expenses increased 76.7% to $ 323.7 million, due to the higher net foreign exchange loss for
the period ($ 131.7 million in 2002 against $ 71.8 million in 2001), due principally to the sharp devaluation of the
real, as well as higher debt levels arising from the consolidation of the Co-Steel operations and the purchase of a stake
in Açominas.
Equity in earnings (losses) of unconsolidated companies, net
Negative equity income of $ 10.1 million in 2002 was largely due to losses in Dona Francisca Energética S.A. and
Sipar Aceros S.A.
Provision for Income Tax
In 2002, the income tax provision of $ 6.6 million represents a reduction of $ 48.1 million with respect to the
loss recorded in 2001, mainly as a result of increased tax benefits from the distribution of interest on stockholders’
equity, the recognition of deferred tax income through the reversal of a valuation allowance at Açominas and higher
levels of non-taxable income.
Net Income
2002 consolidated net income amounted to $ 231.8 million, a 38.5% increase relative to the previous year,
with a corresponding increase in net margin to 7.10% from 6.96% in 2001. It should be noted that the Company’s
Brazilian operations accounted for $ 209.7 million of this figure, its North American operations for $ 11.1 million and
its South American operations for $ 11.0 million.
B. LIQUIDITY AND CAPITAL RESOURCES
Net cash generated by operating activities amounted to $ 395.4 million, $ 350.5 million and $ 468.5 million
for the years ended December 31, 2001, 2002 and 2003 respectively, giving a cumulative total for the three years of $
1,214.4 million. Net cash generated by operating activities was one of the main sources of liquidity utilized by the
Company. Cumulative short and long-term financing agreements amounted to $ 3,561.7 million for the period,
providing $ 377.6 million in 2001, $ 1,186.1 million in 2002 and $ 1,998 million in 2003, toward the Company’s
liquidity needs. Disposals of fixed assets generated cumulative proceeds of $ 19.8 million for the years 2001, 2002
and 2003.
In 2003, the main uses of capital resources were: $ 297.8 million for investment in fixed assets, $ 2,126.5
million for short and long-term debt payments and $ 122.3 million for payment of dividends. In 2002, the main uses
of capital resources were: $ 185.9 million for investment in fixed assets, $ 824.9 million for short and long-term debt
payments and $ 74.3 million for payment of dividends. In 2001, the main uses of capital resources were: $ 244.0
million for investment in fixed assets, $ 436.6 million for short and long-term debt payments and $ 64.4 million for
payment of dividends. Resources invested in fixed assets from 2001 to 2003 ($ 727.7 million) were used to modernize
the Company’s industrial plants and subsidiaries and to upgrade their technology.
Between December 31, 2002 and December 31, 2003, net working capital (current assets less current
liabilities) increased by $ 364.2 million, from ($ 63.6) million in 2002 to $ 300.7 million in 2003. Between December
31, 2001 and December 31, 2002 net working capital decreased by $ 314.2 million, from $ 250.6 million in 2001 to ($
63.6) million in 2002. The increase in 2003 was primarily due to a reduction in current liabilities, mainly in short-term
debt due to the lengthening of the debt profile of Gerdau Ameristeel and Gerdau Açominas.
Debt and Financial Strategy
The Company’s borrowings are intended to finance investments in fixed assets, both in the modernization
and technological upgrading of its plants and in the expansion of installed capacity, as well as working capital, the
purchase of stakes in other companies, and, depending on market conditions, short-term financial investments.
The Company’s loan balance (total debt less debentures and parent company) stood at $ 1,930.9 million and
$1,899.4 million as of December 31, 2003 and 2002, respectively. On the same dates, balances of short-term financial
investments and cash stood at $ 330.6 million and $ 423.2 million, respectively.
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