Form 20-F - Gerdau

• Law suits filed by the State Government of Minas Gerais to collect presumed value added tax (ICMS)
credits, based mainly on sales by exporting companies, with claims amounting to $ 10,788. Management
understands that this tax is not applicable, since sales of products for export purposes are exempt from
value added tax. The Company thus has not recognized any provision related to these issues.
• The Company and its subsidiary, Gerdau Açominas S.A. are defendants in tax claims filed by the State
Government of Minas Gerais for value added (ICMS) tax credits on exports of industrialized semi-finished
products. The total amount of this contingency is $ 59,139. The Company has not made a provision for
such claims, as its management believes that this tax is not applicable, since its products do not fit the
definition of industrialized semi-finished products, as established in federal law, so that these are not
subject to value added tax.
• The Federal Revenue Service has submitted claims for $ 18,954, relating to operations of the Company’s
subsidiary, Gerdau Açominas S.A. under the drawback concession act issued by DECEX, the Department
of Foreign Trade. The Federal Revenue Service understands that this concession is not in accordance with
the law. Gerdau Açominas is awaiting judgment of its previous administrative defense, which claims that
the operation is legal. Since the tax credit has not yet been definitely constituted, and considering that the
operation that generated the demand fits the requirements of concession and also, that the concession was
sustained after analysis by the competent administrative authority, the Company believes that it faces only
a remote chance of losing this case and has not, therefore, provisioned for this contingent liability.
Management believes that it may be able to realize certain contingent assets. Contingent but unprovisioned tax assets
include:
• $ 9,200 relating to an ordinary action against the State Government of Rio de Janeiro, for breaching the
“Mutual Contract of Periodic Execution in Cash”, a tax incentive program signed as part of the Special
Industrial Development Program – PRODI, which established payments to be made by the State
Government of Rio de Janeiro to the Company. Due to the insolvency of the State Government of Rio de
Janeiro, as well as the lack of implementation by it of Constitutional Amendment 30/00, which granted the
state government a 10 year moratorium for payment of non-food judicial debts (precatórios nãoalimentares),
there is no expectation that this credit will be realized in 2004.
• The Company and its subsidiaries are plaintiffs in many ordinary actions challenging changes in the basis
for calculating PIS defined by Complementary Law N o . 7/70, and based on the unconstitutionality rulings
on Decrees N os . 2,445/88 and 2,449/88, expect to recover tax credits relating to the payment of the
difference. Management believes the total amount of tax credits claimed to be $ 37,718.
• Based on previous court decisions on preliminary judgments, the Company and its subsidiary Gerdau
Açominas S.A. expect to recover IPI tax credits. Gerdau S.A. has filed administrative requests for
reimbursement, and is awaiting judgment of these requests. In the case of subsidiary, Gerdau Açominas
S.A., the claim has been filed in court, where an unfavorable ruling was given, with the company currently
awaiting an appeal, estimating that the amount reimbursable is $ 136,371.
II) Labor Contingencies
The Company is also a party to a number of lawsuits by ex-employees. As of December 31, 2003, the
Company had made provisions of $10,248 relating to such lawsuits. None of these individual actions entail significant
amounts, and disputes mainly involve claims of overtime, health and danger bonuses. As of December 31, 2003,
balances of escrow deposits relating to labor contingencies, amounted to $3,546.
III) Civil Contingencies
The Company is involved in a number of lawsuits with only a remote likelihood of loss, and great uncertainty with
regard to their applicability, for which it has not, therefore, made contingency provisions. These include:
• Antitrust proceedings pending against Gerdau S.A, relating to a complaint brought by two construction
unions in São Paulo which alleging that Gerdau S.A. and other Brazilian long steel producers in Brazil
were dividing clients among themselves and thus violating antitrust laws. Following investigations
conducted by the Department of Economic Rights (Secretaria de Direito Econômico) “(SDE)” and based
on a number of public hearings, the Department decided that a cartel existed. This conclusion was also
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