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<SEC-DOCUMENT>0000911420-05-000382.txt : 20060314
<SEC-HEADER>0000911420-05-000382.hdr.sgml : 20060314
<ACCEPTANCE-DATETIME>20050916110514
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000911420-05-000382
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20050916

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			GERDAU S.A.
		CENTRAL INDEX KEY:			0001073404
		STANDARD INDUSTRIAL CLASSIFICATION:	STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310]
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			D5
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		AVENIDA FARRAPOS, 1811
		CITY:			PORTO ALEGRE, RIO GRANDE DO SU
		STATE:			D5
		ZIP:			90220-005
		BUSINESS PHONE:		011-55-51-3323-2703

	MAIL ADDRESS:	
		STREET 1:		AVENIDA FARRAPOS, 1811
		CITY:			PORTO ALEGRE, RIO GRANDE DO SU
		STATE:			D5
		ZIP:			90220-005

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	GERDAU SA
		DATE OF NAME CHANGE:	19981112
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<TEXT>
                       [GRAPHIC OMITTED] [GRAPHIC OMITTED]





                                                             September 15, 2005



By EDGAR

Nili Shah
Accounting Branch Chief
Securities and Exchange Commission
Mail Stop 7010
100 F Street, N.E.
Washington, D.C. 20549


                           RE: Gerdau S.A. (File No. 001-14878)
                               --------------------------------


Dear Ms. Shah:

         We acknowledge receipt of the letter from the Staff of the Securities
and Exchange Commission, dated August 17, 2005, regarding the annual report on
Form 20-F of Gerdau S.A. (the "Company") for the fiscal year ended December 31,
2004 (the "Annual Report"). For your convenience, we have included the Staff's
comments below and have keyed our responses accordingly.

         As noted below in our responses, we have supplied the requested
clarification or agreed to change or supplement the disclosures in our future
filings, as the case may be. Our agreement to change or supplement the
disclosures in our filings is undertaken to cooperate fully with the Staff and
to enhance the overall disclosure in our filings, and not because we believe our
prior filing is materially deficient or inaccurate. Accordingly, any changes
implemented in future filings should not be taken as an admission that prior
disclosures were in any way deficient.



<PAGE>

Nili Shah
September 15, 2005
Page 2



F.  DISCLOSURE OF CONTRACTUAL OBLIGATIONS, PAGE 43

                  1.       INCLUDE YOUR INTEREST COMMITMENTS UNDER YOUR
                           INTEREST-BEARING DEBT IN THIS TABLE, OR PROVIDE
                           TEXTUAL DISCUSSION OF THIS OBLIGATION BELOW THE
                           TABLE. IF YOU PROVIDE A TEXTUAL DISCUSSION, THE
                           DISCUSSION SHOULD QUANTIFY THE INTEREST PAYMENTS
                           USING THE SAME TIME FRAMES STIPULATED IN THE TABLE.
                           REFER TO FOOTNOTE 46 TO RELEASE 33-8350
                           "INTERPRETATION: COMMISSION GUIDANCE REGARDING
                           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                           CONDITION AND RESULTS OF OPERATIONS."

       Our response: We appreciate the comment by the staff and we will include
       such disclosure in our future filings. For your information, please find
       below the interest commitments under our interest-bearing debt as of
       December 31, 2004, using the same time frame stipulated in the table and
       use for our disclosures in our Form 20-F for the year ended December 31,
       2004:

<TABLE>
<CAPTION>
                                            PAYMENTS DUE BY PERIOD

      CONTRACTUAL OBLIGATIONS                               LESS THAN                                   MORE THAN
      ($ THOUSANDS)                             TOTAL        1 YEAR         1-3 YEARS      4-5 YEARS     5 YEARS
      -------------                            -------      ---------       ---------      ---------     -------
<S>                                            <C>           <C>             <C>            <C>          <C>
      Interest payments on debt (*)            567,560       78,546          230,751        111,937      146,326
</TABLE>

      (*)Computed using interest rates and exchange rates as of December 31,
      2004 for variable interest debt and for debt denominated other than in
      U.S. dollars, respectively.



LEGAL PROCEEDINGS, PAGE 56

                  2.       WE NOTE THAT YOU HAVE ASSESSED THE MATERIALITY OF THE
                           YOUR LEGAL PROCEEDINGS WITH REFERENCE TO THE
                           FINANCIAL POSITION OF THE COMPANY. EXPAND YOUR
                           ASSESSMENT OF MATERIALITY WITH REFERENCE TO YOUR
                           RESULTS OF OPERATIONS AND LIQUIDITY.

       Our response: We appreciate the comment by the staff and we will include
       in future filings under Item 8.A an assessment of materiality also with
       reference to results of operations and liquidity. We respectfully
       indicate to the staff that such assessment has already been included in
       Note 16 to the consolidated financial statements included in our Form
       20-F for the year ended December 31, 2004. Below we reproduce the
       disclosure made in such note under "Tax and Legal Contingencies":

       "The Company is party to claims with respect to certain taxes, civil and
       Labor matters. Management believes, based in part on advice from legal
       counsel, that the provision for contingencies is sufficient to meet
       probable and reasonably estimable losses from unfavorable rulings, and
       that the ultimate resolution will not have a significant effect on the

<PAGE>


Nili Shah
September 15, 2005
Page 3

       consolidated financial position as of December 31, 2004, although it may
       have a significant effect on future results of operations or cash flows."

ITEM 15 - CONTROLS AND PROCEDURES, PAGE 82

                  3.       WE NOTE THAT YOUR CHIEF  EXECUTIVE  OFFICER AND CHIEF
                           FINANCIAL OFFICER CONCLUDED YOUR DISCLOSURE CONTROLS
                           AND PROCEDURES "...WERE EFFECTIVE IN PROVIDING
                           REASONABLE ASSURANCE THAT THE INFORMATION WHICH THE
                           COMPANY WAS OBLIGED TO DISCLOSE IN THE REPORTS THAT
                           IT FILED AND SUBMITTED UNDER THE TERMS OF THE
                           EXCHANGE ACT WOULD BE RECORDED, PROCESSED, SUMMARIZED
                           AND REPORTED AS AND WHEN REQUIRED." THIS IS AN
                           INCOMPLETE DEFINITION OF DISCLOSURE CONTROLS AND
                           PROCEDURES PER RULES 13A-L5(E) AND 15D-15(E) OF THE
                           EXCHANGE ACT. PLEASE REVISE YOUR DISCLOSURE TO
                           CLARIFY, IF TRUE, THAT YOUR OFFICERS CONCLUDED THAT
                           YOUR DISCLOSURE CONTROLS AND PROCEDURES ARE EFFECTIVE
                           TO ENSURE THAT INFORMATION REQUIRED TO BE DISCLOSED
                           BY YOU IN THE REPORTS THAT YOU FILE OR SUBMIT UNDER
                           THE EXCHANGE ACT IS RECORDED, PROCESSED, SUMMARIZED
                           AND REPORTED, WITHIN THE TIME PERIODS SPECIFIED IN
                           THE COMMISSION'S RULES AND FORMS AND TO ENSURE THAT
                           INFORMATION REQUIRED TO BE DISCLOSED BY AN ISSUER IN
                           THE REPORTS THAT IT FILES OR SUBMITS UNDER THE
                           EXCHANGE ACT IS ACCUMULATED AND COMMUNICATED TO YOUR
                           MANAGEMENT, INCLUDING ITS PRINCIPAL EXECUTIVE AND
                           PRINCIPAL FINANCIAL OFFICERS, OR PERSONS PERFORMING
                           SIMILAR FUNCTIONS, AS APPROPRIATE TO ALLOW TIMELY
                           DECISIONS REGARDING REQUIRED DISCLOSURE. OTHERWISE,
                           PLEASE SIMPLY CONCLUDE THAT YOUR DISCLOSURE CONTROLS
                           AND PROCEDURES ARE EFFECTIVE OR INEFFECTIVE,
                           WHICHEVER THE EASE MAY BE.

       Our response: The intention was not to suggest that the necessary
       controls and procedures are ineffective. For the avoidance of doubt, and
       as you suggest, our future filings will contain the following disclosure
       (in pertinent part):

       "Based on that evaluation, the Company's Chief Executive Officer and
       Chief Financial Officer concluded that the design and operation of the
       Company's disclosure controls and procedures are effective to ensure that
       information required to be disclosed in the reports that the Company
       files and submits under the Exchange Act is (i) recorded, processed,
       summarized and reported within the time periods specified in Securities
       and Exchange Commission rules and forms, and (ii) accumulated and
       communicated to management, including the Chief Executive Officer and
       Chief Financial Officer, to allow timely decisions regarding required
       disclosure as of the end of the Company's most recent fiscal year."

<PAGE>


Nili Shah
September 15, 2005
Page 4


       REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, PAGE F-2

                  4.       WE NOTE THAT PRICEWATERHOUSECOOPERS AUDITORES
                           INDEPENDENTES MAKES REFERENCE TO ANOTHER AUDITORS'
                           REPORT. PLEASE FURNISH US WITH A COPY OF THIS REPORT
                           AND PROVIDE THE REFERENCED REPORT IN FUTURE FILINGS.

       Our response: We respectfully indicate to the staff that the report from
       Ernst & Young LLP on the consolidated financial statements of Gallatin
       Steel Company as of December 31, 2004 and 2003 was included as Exhibit
       15.01 of our Form 20-F for the year ended December 31, 2004 filed on June
       30, 2004. We have also reproduced such report as an Exhibit to this
       letter.

2.2 CURRENCY REMEASUREMENT, PAGE F-10

                  5.       TELL US UNDER WHAT CIRCUMSTANCES THE U.S. DOLLAR
                           AMOUNTS HAVE BEEN REMEASURED FROM THE FINANCIAL
                           STATEMENT EXPRESSED IN THE LOCAL CURRENCY OF THE
                           COUNTRIES WHERE GERDAU AND EACH SUBSIDIARY OPERATE.
                           EXPAND YOUR DISCLOSURES ACCORDINGLY.

       Our response: We have reviewed note 2.2 to our consolidated financial
       statements filed on our Form 20-F for the year ended December 31, 2004
       after your comment and realized that the term "translation" should have
       been used instead of the term "remeasurement". In future filings we will
       remove the reference to currency remeasurement and will be using the
       expression currency translation instead.


3.14 REVENUE RECOGNITION, PAGE F-14

                  6.       WE ASSUME THAT TITLE IS TRANSFERRED UPON DELIVERY.
                           PLEASE REVISE TO CLARIFY OR TELL US UNDER WHAT
                           CIRCUMSTANCE YOU HAVE RECOGNIZED REVENUE PRIOR TO
                           DELIVERY. REFER TO SAB TOPIC L3.A.3.A.

       Our response: We confirm that title is transferred upon delivery. We also
       confirm that Gerdau does not have sales transactions based on bill and
       hold arrangements addressed in SAB 104 Topic 13.A.3.a , or any other
       transactions where revenue is recognized prior delivery.


<PAGE>



Nili Shah
September 15, 2005
Page 5

16.2 OTHER COMMITMENTS, PAGE F-45

                  7.       DISCLOSE THE SIGNIFICANT TERMS OF YOUR LONG-TERM
                           SUPPLY AGREEMENTS.

       Our response: Our long-term agreements with suppliers have been entered
       into to facilitate a continuous supply of raw materials (mainly iron ore
       and chemical gases) and energy (electric and natural gas) in quantities
       expected to be used in the normal course of business.

       The main terms of our long-term supply agreements for each product or
       service acquired are summarized below:

       OPERATIONS IN BRAZIL

       The agreements establish minimum quantities and maximum quantities to be
       supplied by the third parties and purchased by us.

       Purchase price is determined: (i) by the electric energy regulator for
       contracts in plants where we are "Captive consumers" as defined for
       electric regulatory purposes (ii) originally negotiated between Gerdau
       and the electricity generator company and annually adjusted based on
       contractual indexes in plants where we are "Free Consumers", (iii) by the
       gas regulator for natural gas agreements, (iv) originally negotiated
       between Gerdau and the supplier and adjusted on an annual basis based on
       a contractually agreed formula based on price indexes with respect to
       industrial gases, and (v) adjusted on an annual basis by the supplier of
       iron ore based on change in prices in the international markets.

       Under current regulatory rules the Company may choose to change the
       electric generator company and the gas distribution company once the term
       of the existing agreements expires.

       Contracts can be terminated by either party, through the payment of a
       penalty.

       OPERATIONS IN THE UNITED STATES

       Most of the Company's minimills in North America operations have
       long-term supply contracts with either major utilities or energy
       suppliers. The electric supply contracts typically have two components: a
       firm portion and an interruptible portion. The firm portion supplies a
       base load for the rolling mill and auxiliary operations. The
       interruptible portion supplies the electric arc furnace power demand,
       which represents the majority of the total electric demand and, for the
       most part, is based on spot market prices of electricity.

<PAGE>



Nili Shah
September 15, 2005
Page 6


       We have concluded that our long term supply agreements are not
       unconditional purchase obligations and do not meet the characteristic (b)
       of paragraph 6 of SFAS 47 "Disclosure of Long-Term Obligations".

       As our long-term supply agreements do not meet all the characteristics of
       paragraph 6 of SFAS 47, we have concluded that the disclosure of
       significant terms of long-term obligation established by such standard is
       not applicable to our long-term supply agreements and for that reason we
       have not included such disclosures in our Form 20-F for the year ended
       December 31, 2004.

       However, as result of the comment by the staff we expect to include
       disclosure of significant terms of long-term supply agreements in future
       filings in the format and with the content included as part of this
       response.


23 SEGMENT INFORMATION, PAGE F-55

                  8.       DISCLOSE THE REVENUES FROM EXTERNAL CUSTOMERS FOR
                           EACH PRODUCT AND SERVICE OR EACH GROUP OF SIMILAR
                           PRODUCTS AND SERVICES. REFER TO PARAGRAPH 37 OF SFAS
                           NO. 131. IN THIS REGARD, WE NOTE YOUR DISCUSSION OF
                           PRODUCT CATEGORIES UNDER YOUR BUSINESS OVERVIEW
                           SECTION.

       Our response: We do not have information about revenues for each group of
       similar products and services available on consolidated basis and we have
       concluded that is not practicable to disclose such information for the
       reasons described in the next paragraph. We expect to include in future
       filings a statement indicating that providing such information is not
       practicable.

       Information about revenues broken down by groups of products or services
       is not captured in our accounting records. Information about sales by
       groups of products (including information on a product by product basis)
       used for management purposes is compiled, prepared, reported and
       followed-up based on volumes sold and not based on revenue. We have
       included such information on volumes sold by group of products under
       "Consolidated Shipments by Product Line" in page 34 of our Form 20-F for
       the year ended December 31, 2004.Considering the commodity nature of our
       business, sales targets are defined and measured in terms of volume of
       products sold by product or group of product and not in terms of monetary
       amounts. Management information on volumes sold by groups of products is
       extracted from databases from our sales systems in Brazil and prepared
       making simplifying assumptions for sales outside Brazil. However, no
       report is prepared for management purposes based on revenues. To prepare
       such report will demand the development of new controls and procedures
       (including using of a uniform codification of products in all the
       existing systems) as well as the development of analytical procedures of
       the results achieved considering that such information is not used by
       management for any purpose.

<PAGE>


Nili Shah
September 15, 2005
Page 7


                  9.       DISCLOSE THE BASIS USED TO ATTRIBUTE REVENUES FROM
                           EXTERNAL CUSTOMERS TO INDIVIDUALLY MATERIAL
                           COUNTRIES. REFER TO PARAGRAPH 38(A) OF SFAS 131.

       Our response: Revenues from external customers are classified by the
       country from which the product has been shipped. We expect to disclose
       such basis in our future filings.


                  10.      YOU INDICATE THAT  INFORMATION  FOR LONG STEEL
                           PRODUCTS IN BRAZIL AND SPECIALTY STEEL PRODUCTS IN
                           BRAZIL IS PRESENTED UNDER YOUR REPORTABLE SEGMENT
                           LONG BRAZIL SINCE THE OPERATIONS OF SPECIALTY STEEL
                           PRODUCTS IN BRAZIL DO NOT MEET ANY OF THE
                           QUANTITATIVE THRESHOLDS ESTABLISHED BY SFAS NO. 131
                           FOR PRESENTING SEPARATE INFORMATION ABOUT SUCH
                           SEGMENT. CONFIRM TO US THAT THESE OPERATING SEGMENTS
                           MEET THE AGGREGATION CRITERIA OF PARAGRAPH 17 OF SFAS
                           NO. 131. IN THIS REGARD, WE NOTE THAT PARAGRAPH 19 OF
                           SFAS NO. 131 CLARIFIES THAT YOU MAY COMBINE
                           INFORMATION ABOUT OPERATING SEGMENTS THAT DO NOT MEET
                           THE QUANTITATIVE THRESHOLDS WITH INFORMATION ABOUT
                           OTHER OPERATING SEGMENTS THAT DO NOT MEET THE
                           QUANTITATIVE THRESHOLDS TO PRODUCE A REPORTABLE
                           SEGMENT ONLY IF THE OPERATING SEGMENTS SHARE A
                           MAJORITY OF THE AGGREGATION CRITERIA LISTED IN
                           PARAGRAPH 17 OF SFAS NO. 131. IF YOU HAVE
                           INAPPROPRIATELY AGGREGATED YOUR OPERATING SEGMENTS
                           UNDER SFAS NO. 131, ADDRESS FOR US HOW YOU WILL
                           REVISE YOUR SEGMENT DISCLOSURES.

       We noticed the staff reference to paragraph 19 of SFAS 131. Paragraph 19
       allows us to combine information about operating segments that do not
       meet the quantitative thresholds (such as our specialty steel products
       segment) with information about other operating segments that do not
       meet the qualitative thresholds (which is not the case of our long steel
       products segment).

       We have combined the information about specialty steel products with long
       steel products not based on paragraph 19 but on the provisions of
       paragraph 17 and Question 7 of the Implementation Guide to SFAS 131.

       We confirm that we believe specialty steel products and long products in
       Brazil meet not only the majority of the aggregation criteria of
       paragraph 17 of SFAS No. 131 but all of those criteria. We have presented
       information for both segments under the segment Long Brazil because we
       understand that they: (a) exhibit similar long-term financial
       performance, and (b) are similar in the following areas:

<PAGE>



Nili Shah
September 15, 2005
Page 8




       a)         The nature of the products and services;

       b)         The nature of the production process;

       c)         The type or class of customer for their products and services;
                  and

       d)         The methods used to distribute their products or provide their
                  services.

       Please note that we have not considered whether they are similar with
       respect to the regulatory environment as the activities of neither
       segment are subject to regulation.

       As result of your comment we have revisited our original conclusions and
       reaffirmed those conclusions.

                  11.      YOU DISCUSS SEVEN BUSINESS UNITS WITHIN YOUR LONG
                           STEEL SEGMENT ON PAGE 23. ADDRESS FOR US WHETHER
                           THESE SEVEN BUSINESS UNITS ARE OPERATING SEGMENTS AS
                           DEFINED BY PARAGRAPH 10 OF SFAS 131. IF SO, TELL US
                           HOW THESE SEVEN BUSINESS UNITS MEET THE AGGREGATION
                           CRITERIA OF PARAGRAPH 17 OF SFAS NO. 131. PROVIDE US
                           WITH SUFFICIENT INFORMATION FOR US TO UNDERSTAND HOW
                           THESE BUSINESS UNITS ARE ECONOMICALLY SIMILAR. IN
                           THIS REGARD, PROVIDE US WITH A 5 YEAR TREND ANALYSIS
                           OF SALES AND GROSS MARGINS AND ADDRESS ANY APPARENT
                           DISSIMILARITY AMONG THE TRENDS THESE SEVEN BUSINESS
                           UNITS DEPICT.

       Our response: The term "Business Units" which has been used on page 23 of
       our Form 20-F for the year ended December 31, 2004 is an internal term
       used to designate the seven sales divisions within our Long Steel
       segment. In fact, each of the seven "Business Units" referred to on page
       23 is a sales division established for commercial strategies purposes
       only applicable for Long Steel in Brazil. Each of those sales divisions
       is engaged exclusively in promoting sales and expanding the market share
       of the products under its responsibility. However, it is not responsible
       for producing or developing new products or for the logistic related to
       the sales made. Financial information available with respect to each
       sales division within our Long Steel segment consists exclusively of
       revenues with sales targets being established by each division (in terms
       of volumes of products sold). Achievement of sales volumes by each sales
       division are regularly reviewed by the officer of the Executive Committee
       responsible for our Long Steel segment who reports to our chief
       operations decision maker The Company does not prepare a measurement of
       operating results (such as operating income, sales less direct expenses,
       net income, or otherwise) for each sales division with a measure of
       operating income only being prepared for the segment Long Steel as a
       whole. As a result, the chief operating decision maker is not provided
       with operating results of the sales divisions but only of the Long Steel
       segment as a whole which is one of the characteristics that must be met
       under paragraph 10 of SFAS 131 for a component of an enterprise to meet
       the definition of an operating segment. For that reason, we have
       concluded that the seven sales divisions are not an operating segment
       under SFAS 131.

<PAGE>


Nili Shah
September 15, 2005
Page 9




                                    * * * * *

         We hereby acknowledge that:

       o the Company is responsible for the adequacy and accuracy of the
         disclosure in the Filing;

       o Staff comments or changes to disclosure in response to Staff comments
         do not foreclose the Commission from taking any action with respect to
         the Filing; and

       o the Company may not assert staff comments as a defense in any
         proceeding initiated by the Commission or any person under the
         federal securities laws of the United States.

       Please contact the undersigned at +55.51.33232657 if you have any
questions about this response letter.


                                           Very truly yours,
                                           GERDAU S.A.

                                           By /s/ Osvaldo Burgos Schirmer
                                              ----------------------------------
                                               Name:   Osvaldo Burgos Schirmer
                                               Title:  Chief Financial Officer


       Copy:  Ryan Rohn
              Division of Corporation Finance


<PAGE>




                                                                         EHXIBIT

AUDIT REPORT OF ERNST & YOUNG ON THE CONSOLIDATED FINANCIAL STATEMENTS OF
GALLATIN STEEL COMPANY FILED AS EXHIBIT 15.01 TO OUR FORM 20-F FOR THE YEAR
ENDED DECEMBER 31, 2004 FILED ON JUNE 30, 2005


Report of Independent Registered Public Accounting Firm

Gallatin Steel Company

We have audited the consolidated balance sheets of Gallatin Steel Company as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Gallatin Steel Company as of December 31, 2004 and 2003, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with U.S. generally accepted accounting principles.

                                                           /s/ Ernst & Young LLP
Louisville, Kentucky
January 17, 2005


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