AmBev ITR - WEG

(A free translation of the original in Portuguese) FEDERAL GOVERNMENT SERVICE BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) STANDARD FINANCIAL STATEMENTS (DFP) COMMERCIAL, INDUSTRY AND OTHER TYPES OF COMPANY

Brazilian Corporation Law

December 31, 2008

REGISTRATION WITH CVM SHOULD NOT BE CONSTRUED AS AN EVALUATION OF THE COMPANY. COMPANY MANAGEMENT IS RESPONSIBLE FOR THE INFORMATION PROVIDED. 01.01 - IDENTIFICATION 1 - CVM CODE

2 - COMPANY NAME

3 - CNPJ (Corporate Taxpayer’s ID)

00541-0

WEG SA

84.429.695/0001-11

4 - NIRE (Corporate Registry ID) 42300012203 01.02 - HEAD OFFICE 1 - ADDRESS AV. PREFEITO WALDEMAR GRUBBA - 3.300

2 - DISTRICT CENTRO

3 - ZIP CODE 89256-900

4 - CITY JARAGUÁ DO SUL

5 - STATE SC

6 - AREA CODE 047

7 - TELEPHONE 3276-4000

8 - TELEPHONE -

9 - TELEPHONE -

11 - AREA CODE 047

12 - FAX 3276-4010

13 - FAX -

14 - FAX -

10 - TELEX

15 - E-MAIL [email protected] 01.03 - INVESTOR RELATIONS OFFICER (Company Mailing Address) 1- NAME ALIDOR LUEDERS 2 - ADDRESS AV. PREFEITO WALDEMAR GRUBBA - 3.300

3 - DISTRICT CENTRO

4 - ZIP CODE 89256-900

5 - CITY JARAGUÁ DO SUL

6 - STATE SC

7 - AREA CODE 047

8 - TELEPHONE 3276-4533

9 - TELEPHONE -

10 - TELEPHONE 11 - TELEX -

12 - AREA CODE 047

13 - FAX 3276-4201

14 - FAX -

15 - FAX -

15 - E-MAIL [email protected] 01.04 - DFP REFERENCE AND AUDITOR INFORMATION YEAR 1- Last 2 - Next to last 3 - Last but two

1 - DATE OF THE FISCAL YEAR BEGINNING 2 - DATE OF THE FISCAL YEAR END 01/01/2008 12/31/2008 01/01/2007 12/31/2007 01/01/2006 12/31/2006

4 - INDEPENDENT ACCOUNTANT ERNST & YOUNG AUDITORES INDEPENDENTES S/S

5 - CVM CODE 00471-5

6 - PARTNER IN CHARGE MARCOS ANTONIO QUINTANILHA

7 – TECHNICIAN’S CPF (Individual Tax ID) 006.840.298-80


December 31, 2008



December 31, 2008


01.01 - IDENTIFICATION 1 - CVM CODE 00541-0

2 - COMPANY NAME WEG SA

3 - CNPJ (Corporate Taxpayer’s ID) 84.429.695/0001-11

01.05 - CAPITAL STOCK Number of Shares (Units) Paid-in Capital

1 12/31/2008

1 - Common

2 12/31/2007

617,626,729

2 - Preferred

3 12/31/2006

617,626,729

288,000,000

0

0

329,626,729

617,626,729

617,626,729

617,626,729

4 - Common

0

0

0

5 - Preferred

0

0

0

6 - Total

0

0

0

3 - Total Shares held in treasury

01.06 - COMPANY PROFILE 1 - TYPE OF COMPANY Commercial, Industry and Other Types of Company 2 - STATUS Operational 3 - NATURE OF OWNERSHIP Domestic holding 4 - ACTIVITY CODE 3070 - Holding Company - Machinery, Equipment, Vehicles and Parts 5 - MAIN ACTIVITY MANAGEMENT OF EQUITY INTEREST (HOLDINGS) 6 - CONSOLIDATION TYPE Full 01.07 - COMPANIES NOT INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS 1 - ITEM

2 - CNPJ (Corporate Taxpayer’s ID)

3 - COMPANY NAME

01.08 - CASH DIVIDENDS 1 - ITEM 2 - EVENT

3 - APPROVAL

4 - TYPE

5 - DATE OF PAYMENT 6 - TYPE OF SHARE

01 02 03 04 05 06

03/18/2008 06/17/2008 07/21/2008 09/18/2008 12/16/2008 02/16/2009

Interest on Equity Interest on Equity Dividends Interest on Equity Interest on Equity Dividends

08/13/2008 08/13/2008 08/13/2008 03/11/2009 03/11/2009 03/11/2009

RCA * RCA * RCA * RCA * RCA* RCA*

*Board of Directors’ Meeting

Common Common Common Common Common Common

7 - AMOUNT PER SHARE

0.0380000000 0.0390000000 0.1630000000 0.0390000000 0.0400000000 0.1410000000


December 31, 2008




01.09 - INVESTOR RELATIONS OFFICER 1- DATE 01/30/2009

2 - SIGNATURE



December 31, 2008





02.01 - BALANCE SHEET - ASSETS (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

1

Total assets

1.01

Current assets

1.01.01

Cash and cash equivalents

1.01.01.01

Cash and banks

1.01.01.02

Financial investments

1.01.02

3 - 12/31/2008

4 - 12/31/2007

5 - 12/31/2006

2,347,539

2,026,305

1,694,410

241,482

260,483

179,776

88,503

81,751

61,718

98

232

69

88,405

81,519

61,649

Credits

0

0

0

1.01.02.01

Customers

0

0

0

1.01.02.02

Sundry credits

0

0

0

1.01.03

Inventories

1.01.04

Other

1.01.04.01 1.01.04.02 1.01.04.03

Recoverable taxes

8,423

10,055

443

1.02

Non-current assets

2,106,057

1,765,822

1,514,634

1.02.01

Long-term assets

44,631

20,370

16,780

0

0

0

18,086

7,407

4,212

0

0

0

152,979

178,732

118,058

Dividends

97,129

100,740

102,949

Interest on equity

47,427

67,937

14,666

1.02.01.01

Sundry credits

1.02.01.02

Credits with related parties

1.02.01.02.01 Direct and Indirect associated companies 1.02.01.02.02 Subsidiaries 1.02.01.02.03 With other related parties

0

0

0

18,086

7,407

4,212

0

0

0

26,545

12,963

12,568

1.02.01.03.01 Court deposits

19,744

7,970

9,178

1.02.01.03.02 Deferred taxes

6,801

4,993

3,390

1.02.01.03

Other

1.02.02

Permanent assets

2,061,426

1,745,452

1,497,854

1.02.02.01

Investments

2,060,141

1,744,023

1,496,281

0

0

0

1.02.02.01.01 In direct/indirect associated companies 1.02.02.01.02 In direct/indirect associated companies - Goodwill

0

0

0

2,060,141

1,744,022

1,495,880

1.02.02.01.04 In subsidiaries - Goodwill

0

0

0

1.02.02.01.05 Other investments

0

1

401

1,285

1,429

1,573

1,285

1,429

1,573

1.02.02.01.03 In subsidiaries

1.02.02.02

Property, plant and equipment

1.02.02.02.01 Real estate 1.02.02.03

Intangible assets

0

0

0

1.02.02.04

Deferred charges

0

0

0


December 31, 2008





02.02 - BALANCE SHEET - LIABILITIES (in thousands of Brazilian reais) 1 - CODE 2 2.01 2.01.01

2 - DESCRIPTION Total liabilities Current liabilities

3 - 12/31/2008

4 - 12/31/2007

5 - 12/31/2006

2,347,539

2,026,305

1,694,410

146,083

161,377

125,603

0

0

0

0

Loans and financing

0

2.01.02

Debentures

0

2.01.03

Suppliers

0

0

0

2.01.04

Taxes, fees and contributions

7,140

10,477

146

2.01.04.01

Social liabilities

3,032

174

25

2.01.04.02

Tax liabilities

4,108

10,303

121

2.01.05

Dividends payable

138,038

150,420

124,756

2.01.05.01

Dividends

88,117

80,624

102,765

2.01.05.02

Interest on equity

49,921

69,796

21,991

2.01.06

Provisions

0

0

0

2.01.07

Debts with related parties

0

0

0

2.01.08

Other

905

480

701

2.02

Non-current liabilities

22,876

35,754

16,083

2.02.01

Long-term liabilities

22,876

35,754

16,083

2.02.01.01

Loans and financing

0

0

0

2.02.01.02

Debentures

0

0

0

2.02.01.03

Provisions

0

0

0

2.02.01.04

Debts with related parties

2,967

21,072

6,161

2.02.01.05

Advance for future capital increase

2.02.01.06

Other

2.02.01.06.01 Provision for contingencies 2.02.01.06.02 Other liabilities

0

0

0

19,909

14,682

9,922

19,909

14,682

9,909

0

0

13

0

0

0

2.03

Deferred income

2.05

Shareholders' equity

2,178,580

1,829,174

1,552,724

2.05.01

Paid-in capital

1,360,500

1,360,500

907,000

2.05.02

Capital reserves

0

0

0

2.05.03

Revaluation reserves

6,071

6,754

7,432

2.05.03.0 1

Own assets Subsidiaries/Direct and Indirect associated companies

0

0

0

6,071

6,754

7,432

722,180

461,920

638,292

56,769

28,749

43,882

665,411

433,171

594,410

0

0

0

2.05.03.02 2.05.04

Profit reserves

2.05.04.01

Legal

2.05.04.02

Statutory

2.05.04.03

For contingencies

2.05.04.04

Unrealized profits

0

0

0

2.05.04.05

Profit retention

0

0

0

2.05.04.06

Special reserve for undistributed dividends

0

0

0

2.05.04.07

Other profit reserves

0

0

0

2.05.05

Adjustment to Asset Valuation

89,829

0

0

2.05.05.01

Adjustment of Securities

0

0

0


December 31, 2008





02.02 - BALANCE SHEET - LIABILITIES (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

2.05.05.02

Accumulated Conversion Adjustments

2.05.05.03

3 - 12/31/2008

4 - 12/31/2007

5 - 12/31/2006

89,829

0

0

Business Combination Adjustment

0

0

0

2.05.06

Retained earnings/accumulated losses

0

0

0

2.05.07

Advance for future capital increase

0

0

0


December 31, 2008





03.01 - STATEMENT OF INCOME (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

3.01

Gross revenue from sales and/or services

3.02

Gross revenue deductions

0

0

0

3.03

Net revenue from sales and/or services

0

0

0

3.04

Cost of goods and/or services sold

0

0

0

3.05

Gross income

3.06

Operating Expenses/Revenues

3.06.01

Selling

3.06.02

General and administrative

3.06.02.01

Management fees

3.06.02.02

General and administrative expenses

3.06.03

Financial

3.06.03.01

Financial revenues

3.06.03.01.01 Interest on equity (Assets) 3.06.03.01.02 Other revenues 3.06.03.02

Financial expenses

3.06.03.02.01 Interest on equity (Liabilities) 3.06.03.02.02 Other expenses

3 - 01/01/2008 to 12/31/2008 0

4 - 01/01/2007 to 12/31/2007 0

6 - 01/01/2006 to 12/31/2006 0

0

0

0

556,244

573,595

496,598

0

0

0

(3,657)

(3,020)

(2,244)

(2,052)

(1,754)

(1,421)

(1,605)

(1,266)

(823)

583

4,532

(1,163)

114,248

107,768

47,327

109,251

95,195

32,561

4,997

12,573

14,766

(113,665)

(103,236)

(48,490)

(113,353)

(98,094)

(42,871)

(312)

(5,142)

(5,619)

3.06.04

Other operating revenues

69

0

0

3.06.05

Other operating expenses

(282)

197

(1,239)

3.06.06

Equity in the earnings of subsidiaries and associated companies

559,531

571,886

501,244

3.07

Operating income

556,244

573,595

496,598

3.08

Non-operating income

111

848

0

3.08.01

Revenues

111

848

0

3.08.02

Expenses

0

0

0

3.09

Income before taxes/interest

556,355

574,443

496,598

3.10

Provision for income and social contribution taxes

22

(2,686)

(3,655)

3.11

Deferred income tax

1,808

1,602

1,000

3.12

Statutory interest/contributions

(1,885)

(1,274)

(1,421)

3.12.01

Interest

(1,885)

(1,274)

(1,421)

3.12.02

Contributions

0

0

0

3.13

Reversal of interest on equity

4,101

2,899

10,309

3.15

Income/loss for the period NUMBER OF SHARES EX-TREASURY (Units) EARNINGS PER SHARE (Reais) LOSS PER SHARE (Reais)

560,401

574,984

502,831

617,626,729

617,626,729

617,626,729

0.90735

0.93096

0.81413


December 31, 2008





04.01 - STATEMENTS OF CASH FLOW – INDIRECT METHOD (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

4.01

Net cash from operating activities

4.01 .01

Cash generated from operating activities

4.01 .01.01

Net income before taxes (IR/CS)

4.01.01.02

Depreciation and amortization

4.01 .01.03

Equity pick-up

4.01.01.04

3 - 01/01/2008 to 12/31/2008

4 - 01/01/2007 to 12/31/2007

6 - 01/01/2006 to 12/31/2006

(36,853)

20,820

0

639

6,464

0

556,354

574,443

0

144

144

0

(559,531)

(571,886)

0

Interest on equity

4,101

2,899

0

4.01 .01.05

Other

(429)

864

0

4.01 .02

Changes in assets and liabilities

(37,492)

14,356

0

4.01 .02.01

Increase/Reduction in accounts receivable

(19,847)

(10,739)

0

4.01 .02.02

Increase/Reduction in accounts payable

(17,331)

28,163

0

4.01 .02.03

Income and social contribution taxes paid

(314)

(3,068)

0

4.01 .03

Other

0

0

0

4.02

Net cash from financing activities

341 ,397

258,664

0

4.02.01

Investments

7,266

400

0

4.02.02

Dividends/Interest on equity received

334,131

258,264

0

4.03


(297,792)

(259,451)

0

4.03.0 1

(297,792)

(259,451)

0

0

0

0

4.05

Payment of dividends/interest on equity Exchange rate variation on cash and cash equivalents Increase (Reduction) in cash and cash equivalents

6,752

20,033

0

4.05.01

Cash balance at the beginning of the period

81,751

61,718

0

4.05.02

Cash balance at the end of the period

88,503

81,751

0

4.04


December 31, 2008




3 - CNPJ (Corporate Taxpayers’ ID) 84.429.695/0001-11

05.01 - STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FROM 01/01/2008 TO 12/31/2008 (in thousands of Brazilian reais) 1 - CODE 2 - DESCRIPTION

3 - CAPITAL STOCK

4 - CAPITAL RESERVE

5 - REVALUATION 6 - REVENUE RESERVES RESERVES

7 - RETAINED EARNINGS/ ACCUMULATED LOSSES

5.01 5.02 5.03 5.04 5.05 5.05.01 5.05.02 5.05.03 5.06 5.07 5.07.01 5.07.02 5.07.03 5.08 5.09 5.10 5.11 5.12 5.13

Opening balance Prior-years adjustments Adjusted balance Income/loss for the period Allocations Dividends Interest on equity Other allocations Realization of profit reserves Adjustment to asset valuation Adjustment of securities Accumulated conversion adjustments Business combination adjustment Increase/decrease in capital stock Recording/realization of capital reserves Treasury shares Other capital transactions Other Closing balance

1,360,500 0 1,360,500 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,360,500

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

6,754 0 6,754 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,754

461,920 0 461,920 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 461,920

0 0 0 560,401 (560,401) (560,401) 0 0 0 0 0 0 0 0 0 0 0 0 0

8 – ADJUSTMENTS 9 - TOTAL TO ASSET SHAREHOLDERS’ VALUATION EQUITY 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1,829,174 0 1,829,174 560,401 (560,401) (560,401) 0 0 0 0 0 0 0 0 0 0 0 0 1,829,174



December 31, 2008




05.02 - STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FROM 01/01/2007 TO 12/31/2007 (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

5.01 5.02 5.02.01 5.02.02 5.03 5.04 5.05 5.05.01 5.05.02 5.05.03 5.05.03.01 5.05.03.02 5.06 5.07 5.07.01 5.07.02 5.07.03 5.08

Opening balance Prior-years adjustments Dividend reversal Realization of revaluation reserve Adjusted balance Income/loss for the period Allocations Dividends Interest on equity Other allocations Legal reserve Reserve for capital budget Realization of profit reserves Adjustment to asset valuation Adjustment of securities Accumulated conversion adjustments Business combination adjustment Increase/decrease in capital stock

5.09 5.10 5.11 5.12 5.13

Recording/realization of capital reserves Treasury shares Other capital transactions Other Closing balance

3 - CAPITAL STOCK

4 - CAPITAL 5 - REVALUATION 6 - REVENUE RESERVE RESERVES RESERVES

8 – ADJUSTMENTS 9 - TOTAL TO ASSET SHAREHOLDERS’ VALUATION EQUITY

7 - RETAINED EARNINGS / ACCUMULATED LOSSES

907,000 0 0 0 907,000 0 0 0 0 0 0 0 0 0 0 0 0 453,500

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

7,432 (678) 0 (678) 6,754 0 0 0 0 0 0 0 0 0 0 0 0 0

638,292 0 0 0 638,292 0 277,128 0 0 277,128 28,749 248,379 0 0 0 0 0 (453,500)

0 967 289 678 967 574,984 (575,951) (200,729) (98,094) (277,128) (28,749) (248,379) 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1,552,724 289 289 0 1,553,013 574,984 (298,823) (200,729) (98,094) 0 0 0 0 0 0 0 0 0

0 0 0 0 1,360,500

0 0 0 0 0

0 0 0 0 6,754

0 0 0 0 461,920

0 0 0 0 0

0 0 0 0 0

0 0 0 0 1,829,174


December 31, 2008





05.03 - STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FROM 01/01/2006 TO 12/31/2006 (in thousands of Brazilian reais)

1 - CODE

2 - DESCRIPTION

5.01 5.02 5.02.01 5.02.02 5.03 5.04 5.05 5.05.01 5.05.02 5.05.03 5.05.03.01 5.05.03.02 5.06 5.07 5.07.01 5.07.02 5.07.03 5.08 5.09 5.10 5.11 5.12 5.13

Opening balance Prior-years adjustments Dividend reversal Realization of revaluation reserve Adjusted balance Income/loss for the period Allocations Dividends Interest on equity Other allocations Legal reserve Reserve for capital budget Realization of profit reserves Adjustment to asset valuation Adjustment of securities Accumulated conversion adjustments Business combination adjustment Increase/decrease in capital stock Recording/realization of capital reserves Treasury shares Other capital transactions Other Closing balance

3 - CAPITAL STOCK

1,000,000 0 0 0 1,000,000 0 0 0 0 0 0 0 0 0 0 0 0 (93,000) 0 0 0 0 907,000

4 -CAPITAL 5 - REVALUATION 6 - REVENUE RESERVE RESERVES RESERVES

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

8,116 (684) 0 (684) 7,432 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7,432

363,347 0 0 0 363,347 0 274,945 0 0 274,945 25,142 249,803 0 0 0 0 0 0 0 0 0 0 638,292

7 - RETAINED EARNINGS / ACCUMULATED LOSSES 0 891 207 684 891 502,831 (503,722) (185,906) (42,871) (274,945) (25,142) (249,803) 0 0 0 0 0 0 0 0 0 0 0

8 – ADJUSTMENTS 9 - TOTAL TO ASSET SHAREHOLDERS’ VALUATION EQUITY 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1,371,463 207 207 0 1,371,670 502,831 (228,777) (185,906) (42,871) 0 0 0 0 0 0 0 0 (93,000) 0 0 0 0 1,552,724


December 31, 2008


01.01 – IDENTIFICATION 1 - CVM CODE 00541-0



06.01- STATEMENT OF VALUE ADDED (in thousands of Brazilian reais)

1 - CODE 6.01

2 - DESCRIPTION Revenues

6.01 .01

Sale of goods, products and services

6.01 .02

Other revenues

6.01.03

Revenues related to the construction of own assets

3 - 01/01/2008 4 - 01/01/2007 6 - 01/01/2006 to 12/31/2008 to 12/31/2007 to 12/31/2006 100 (872) 0 0

0

100

(872)

0 0

0

0

0 0

6.01.04

Provision/reversal of Doubtful accounts

0

0

6.02

Inputs acquired from third-parties

(1 ,024)

(264)

0

6.02.0 1

Cost of good s and services sold

0

0

0

6.02.02

Materials, energy, outsourcing and other

(810)

(447)

0

6.02.03

Loss/recovery of assets

(214)

183

0

6.02.04

Other

0

0

0

6.03

Gross value added

(924)

(1,136)

0

6.04

Retentions

(144)

(144)

0

6.04.01

Depreciation, amortization and depletion

(144)

(144)

0

6.04.02

Other

6.05

Net value added produced

6.06 6.06.01

0

0

0

(1,068)

(1,280)

0

Value added received as transfer

673,790

681,388

0

Equity pick-up

559,542

573,620

0

6.06.02

Financial revenues

114,248

107,768

0

6.06.03

Other

0

0

0

6.07

Total value added to distribute

672,722

680,108

0

6.08

Value added distribution

672,722

680,108

0

6.08.01

Personnel

4,098

3,327

0

6.08.01.01

Direct compensation

4,044

3,290

0

6.08.01.02

Benefits

6.08.01.03

Workers severance fund (FGTS)

5

0

0

49

37

0

6.08.01.04

Other

0

0

0

6.08.02


(1,339)

1,461

0

6.08.02.01

Federal

(1,340)

1,461

0

6.08.02.02

State

0

0

0

6.08.02.03

Municipal

1

0

0

6.08.03

Third-party’s capital remuneration

109,562

100,336

0

6.08.03.01

Interest

109,562

100,336

0

6.08.03.02

Rentals

0

0

0

6.08.03.03

Other

0

0

0

6.08.04

Equity remuneration

560,401

574,984

0

6.08.04.01

Interest on equity

113,353

98,094

0

6.08.04.02

Dividends

187,758

200,729

0

6.08.04.03

Retained earnings/accumulated losses in the year

259,290

276,161

0

6.08.05

Other

0

0

0


December 31, 2008





07.01- CONSOLIDATED BALANCE SHEET - ASSETS (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

1

Total assets

3 - 12/31/2008 5,772,774

4 - 12/31/2007 4,873,845

5 - 12/31/2006 3,743,195

1.01

Current assets

4,386,420

3,799,067

2,956,249

1.01.01

Cash and cash equivalents

1,849,478

2,174,972

1,716,503

1.01.01.01

Cash and banks

71,198

108,900

35,202

1.01.01.02

Financial investments

1,778,280

2,066,072

1,681,301

1.01.02

Credits

1,110,905

749,587

609,719

1.01.02.01

Customers

1,110,905

749,587

609,719

1.01.02.02

Sundry credits

1.01.03

Inventories

1.01.04 1.01.04.01

0

0

0

1,106,585

705,553

535,052

Other

319,452

168,955

94,975

Recoverable taxes

176,383

84,793

42,465

1.01.04.02

Other credits

143,069

84,162

52,510

1.02

Non-current assets

1,386,354

1,074,778

786,946

1.02.01

Long-term assets

197,616

176,914

130,237

1.02.01.01

Sundry credits

0

0

0

1.02.01.02

Credits with related parties

0

0

0

1.02.01.02.01 Direct and Indirect associated companies

0

0

0

1.02.01.02.02 Subsidiaries

0

0

0

1.02.01.02.03 Other related parties

0

0

0

197,616

176,914

130,237

1.02.01.03.01 Court deposits

52,152

76,488

91,808

1.02.01.03.02 Deferred taxes

79,240

59,400

27,602

1.02.01.03.03 Recoverable taxes

57,043

32,392

9,757

1.02.01.03

Other

1.02.01.03.04 Other 1.02.02

Permanent assets

1.02.02.01

Investments

1.02.02.01.01 In Direct/Indirect associated companies 1.02.02.01.02 In subsidiaries 1.02.02.01.03 Other investments

9,181

8,634

1,070

1,188,738

897,864

656,709

13,342

48,215

17,348

12,242

9,814

10,357

0

36,582

4,719

1,100

1,819

2,272

1,047,333

745,599

543,379

1.02.02.02.01 Real estate

287,620

267,496

197,497

1.02.02.02.02 Equipment and facilities

514,305

340,261

250,593

18,066

24,879

20,786

2,234

3,072

3,232

1.02.02.02.05 Other

225,108

109,891

71,271

1.02.02.03

Intangible assets

128,063

0

0

1.02.02.04

Deferred charges

0

104,050

95,982

1.02.02.02


1.02.02.02.03 Furniture and fixtures 1.02.02.02.04 Vehicles



December 31, 2008




07.02 - CONSOLIDATED BALANCE SHEET - LIABILITIES (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

2 2.01 2.01.01 2.01.02 2.01.03 2.01.04 2.01.04.01 2.01.04.02 2.01.05 2.01.05.01 2.01.05.02 2.01.06 2.01.07 2.01.08 2.01.08.01 2.01.08.02 2.01.08.03 2.02 2.02.01 2.02.01.01 2.02.01.02 2.02.01.03 2.02.01.04 2.02.01.05 2.02.01.06 2.02.01.06.01 2.02.01.06.02 2.02.01.06.03 2.02.01.06.04 2.03 2.04 2.05 2.05.01 2.05.02 2.05.03 2.05.03.0 1

Total liabilities Current liabilities Loans and financing Debentures Suppliers Taxes, fees and contributions Social liabilities Tax liabilities Dividends payable Dividends Interest on equity Provisions Debts with related parties Other Profit sharing Advance from customers Other liabilities Non-current liabilities Long-term liabilities Loans and financing Debentures Provisions Debts with related parties Advance for future capital increase Other Provision for contingencies Social and tax liabilities Deferred taxes Other liabilities Deferred income Interest of non-controlling shareholders Shareholders' equity Paid-in capital Capital reserves Revaluation reserves Own assets Subsidiaries/Direct and Indirect associated companies

2.05.03.02 2.05.04 2.05.04.01 2.05.04.02 2.05.04.03

Profit reserves Legal Statutory For contingencies

3 - 12/31/2008

4 - 12/31/2007

5 - 12/31/2006

5,772,774 2,520,871 1,314,098 0 318,029 146,609 92,823 53,786 140,167 89,882 50,285 0 0 601,968 50,046 465,506 86,416 1 ,030,982 1,030,982 847,118 0 0 0 0 183,864 135,917 31,208 7,505 9,234 0 42,341 2,178,580 1,360,500 0 6,071 0

4,873,845 2,158,053 1,077,487 0 193,580 213,065 84,933 128,132 151,991 82,087 69,904 0 0 521,930 52,571 360,895 108,464 852,428 852,428 654,253 0 0 0 0 198,175 175,545 13,312 1,672 7,646 0 34,190 1,829,174 1,360,500 0 6,754 0

3,743,195 1,450,094 818,568 0 129,887 108,793 67,107 41,686 124,861 102,863 21,998 0 0 267,985 45,966 144,891 77,128 739,345 739,345 593,353 0 0 0 0 145,992 144,357 1,262 0 373 0 1,032 1,552,724 907,000 0 7,432 0

6,071

6,754

7,432

722,180 56,769 665,411 0

461,920 28,749 433,171 0

638,292 43,882 594,410 0


December 31, 2008





07.02 - CONSOLIDATED BALANCE SHEET - LIABILITIES (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

2.05.04.04 2.05.04.05 2.05.04.06 2.05.04.07 2.05.05 2.05.05.01 2.05.05.02 2.05.05.03 2.05.06 2.05.07

Unrealized profits Profit retention Special reserve for undistributed dividends Other profit reserves Adjustment to Asset Valuation Adjustment of Securities Accumulated Conversion Adjustments Business Combination Adjustment Retained earnings/accumulated losses Advance for future capital increase

3 - 12/31/2008 0 0 0 0 89,829 0 89,829 0 0 0

4 - 12/31/2007 0 0 0 0 0 0 0 0 0 0

5 - 12/31/2006 0 0 0 0 0 0 0 0 0 0


December 31, 2008





08.01 - CONSOLIDATED STATEMENT OF INCOME (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

3 - 01/01/2008 to 12/31/2008

4 - 01/01/2007 to 12/31/2007

3.01

Gross revenue from sales and/or services

3.02

Gross revenue deductions

(969,151)

(801,468)

(517,722)

3.03

Net revenue from sales and/or services

4,502,041

3,749,177

3,009,388

3.04

Cost of goods and/or services sold

(2,933,931)

(2,353,495)

(1,946,430)

5,471,192

6 - 01/01/2006 to 12/31/2006

4,550,645

3,527,110

3.05

Gross income

1,568,110

1,395,682

1,062,958

3.06

Operating Expenses/Revenues

(897,740)

(668,732)

(446,435)

3.06.01

Selling

(403,220)

(333,313)

(277,789)

3.06.02

General and administrative

(249,176)

(203,076)

(150,233)

3.06.02.01

Management fees

(13,343)

(12,711)

(139,736)

3.06.02.02

General and administrative expenses

(235,833)

(190,365)

(10,497)

3.06.03

Financial

(155,599)

34,779

89,160

3.06.03.01

Financial revenues

464,131

345,469

323,582

3.06.03.02

Financial expenses

(619,730)

(310,690)

(234,422)

3.06.03.02.01 Interest on equity (Liabilities)

(113,810)

(98,227)

(42,887)

3.06.03.02.02 Other expenses

(505,920)

(212,463)

(191,535)

3.06.04

Other operating revenues

12,035

6,551

4,809

3.06.05

Other operating expenses

(105,017)

(176,212)

(118,810)

3.06.06

Equity in earnings of subsidiaries and associated companies

3,237

2,539

6,428

3.07

Operating income

670,370

726,950

616,523

3.08

Non-operating income

3,817

(152)

1,485

3.08.01

Revenues

3,817

4,452

3,323

3.08.02

Expenses

3.09

Income before taxes/interest

0

(4,604)

(1,838)

674,187

726,798

618,008

3.10

Provision for income and social contribution taxes

(221,465)

(269,046)

(156,413)

3.11

Deferred income tax

15,172

31,228

7,776

3.12

Statutory interest/contributions

(8,310)

(7,620)

(9,185)

3.12.01

Interest

(8,310)

(7,620)

(9,185)

3.12.02

Contributions

0

0

0

3.13

Reversal of interest on equity

113,810

98,227

42,887

3.14

Noncontrolling interest

(12,993)

(4,603)

(242)

3.15

Income/loss for the period NUMBER OF SHARES EX-TREASURY (Units) EARNINGS PER SHARE (Reais) LOSS PER SHARE (Reais)

560,401

574,984

502,831

617,626,729

617,626,729

617,626,729

0.90735

0.93096

0.81413


December 31, 2008





09.01 – CONSOLIDATED STATEMENTS OF CASH FLOW – INDIRECT METHOD (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

4.01

Net cash from operating activities

4.01 .01

Cash generated from operating activities

4.01 .01.01

3 - 01/01/2008 to 12/31/2008

4 - 01/01/2007 to 12/31/2007

6 - 01/01/2006 to 12/31/2006

(80,799)

812,992

0

1,085,792

1,098,538

0

Net income before taxes (IR/CS)

674,187

726,798

0

4.01.01.02

Depreciation and amortization

206,081

156,633

0

4.01 .01.03

Equity pick-up

(3,237)

(2,539)

0

4.01.01.04

Profit sharing

86,246

86,634

0

113,810

98,227

0

8,705

32,785

0

(1,166,591)

(285,546)

0

(553,390)

(243,671)

0

158,677

427,947

0

4.01 .01.05

Interest on equity

4.01 .01.06

Other

4.01 .02

Changes in assets and liabilities

4.01 .02.01

Increase/Reduction in accounts receivable

4.01 .02.02

Increase/Reduction in accounts payable

4.01 .02.03

Increase/Reduction in inventories

(401,932)

(177,033)

0

4.01 .02.04

Income and social contribution taxes paid

(274,461)

(207,405)

0

(95,485)

(85,384)

0

0

0

0

(376,892)

(416,373)

0

(4,868)

(37,851)

0

(457,168)

(349,486)

0 0

4.01 .02.05

Profit sharing paid

4.01 .03

Other

4.02


4.02.01

Investments

4.02.02


4.02.03

Intangible assets

(5,930)

(29,628)

4.02.04

Permanent assets write-off

1 ,245

592

0

4.02.05

Accumulated conversion adjustment

89,829

0

0

4.03


132,197

61,850

0

4.03.01

Working capital financing

126,567

220,570

0

4.03.02

Long-term financing

302,909

99,250

0

4.03.03

Payment of dividends/interest on equity Exchange rate variation over cash and cash equivalents Increase (Reduction) in cash and cash equivalents Cash and cash equivalents balance at the beginning of the period Cash and cash equivalents balance at the end of the period

(297,279)

(257,970)

0

0

0

0

(325,494)

458,469

0

2,174,972

1,716,503

0

1,849,478

2,174,972

0

4.04 4.05 4.05.01 4.05.02



December 31, 2008




10.01 – CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FROM 01/01/2008 TO 12/31/2008 (in thousands of Brazilian reais) 1 - CODE 2 - DESCRIPTION

3 - CAPITAL STOCK

4 - CAPITAL RESERVE

5 - REVALUATION 6 - PROTFIT RESERVES RESERVES

7 - RETAINED EARNINGS/


ACCUMULATED LOSSES 5.01 5.02 5.03 5.04 5.05 5.05.01 5.05.02 5.05.03 5.06 5.07 5.07.01 5.07.02 5.07.03 5.08 5.09 5.10 5.11 5.12 5.13

Opening balance Prior-years adjustments Adjusted balance Income/loss for the period Allocations Dividends Interest on equity Other allocations Realization of profit reserves Adjustment to asset valuation Adjustment of securities Accumulated conversion adjustments Business combination adjustment Increase/decrease in capital stock Recording/realization of capital reserves Treasury shares Other capital transactions Other Closing balance

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0



December 31, 2008




10.02 – CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FROM 01/01/2007 TO 12/31/2007 (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

3 - CAPITAL STOCK

4 - CAPITAL RESERVE

5 - REVALUATION 6 - PROFIT RESERVES RESERVES



ACCUMULATED LOSSES 5.01 5.02 5.02.01 5.02.02 5.03 5.04 5.05 5.05.01 5.05.02 5.05.03 5.06 5.07 5.07.01 5.07.02 5.07.03 5.08

Opening balance Prior-years adjustments Dividends reversal Realization of revaluation reserve Adjusted balance Income/loss for the period Allocations Dividends Interest on equity Other allocations Realization of profit reserves Adjustment to asset valuation Adjustment of securities Accumulated conversion adjustments Business combination adjustment Increase/decrease in capital stock

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

5.09 5.10 5.11 5.12 5.13

Recording/realization of capital reserves Treasury shares Other capital transactions Other Closing balance

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0



December 31, 2008




10.03 – CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FROM 01/01/2006 TO 12/31/2006 (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

3 - CAPITAL STOCK

4 - CAPITAL RESERVE

5 - REVALUATION 6 - PROFIT RESERVES RESERVES



ACCUMULATED LOSSES 5.01 5.02 5.02.01 5.02.02 5.03 5.04 5.05 5.05.01 5.05.02 5.05.03 5.06 5.07 5.07.01 5.07.02 5.07.03 5.08 5.09 5.10 5.11 5.12 5.13

Opening balance Prior-years adjustments Dividends reversal Realization of revaluation reserve Adjusted balance Income/loss for the period Allocations Dividends Interest on equity Other allocations Realization of profit reserves Adjustment to asset valuation Adjustment of securities Accumulated conversion adjustments Business combination adjustment Increase/decrease in capital stock Recording/realization of capital Treasury shares Other capital transactions Other Closing balance

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

(A free translation of the original in Portuguese) FEDERAL GOVERNMENT SERVICE BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) STANDARD FINANCIAL STATEMENTS (DFP) COMMERCIAL, INDUSTRY AND OTHER TYPES OF COMPANY 00541-0


December 31, 2008

WEG SA

84.429.695/0001-11

13.01 – MANAGEMENT REPORT 01.01 – IDENTIFICATION 1 - CVM CODE 00541-0



11.01- CONSOLIDATED STATEMENT OF VALUE ADDED (in thousands of Brazilian reais) 1 - CODE

2 - DESCRIPTION

6.01

Revenues

6.01 .01

Sale of goods, products and services

6.01 .02

Other revenues

6.01.03

Revenues related to the construction of own assets

6.01.04

Provision/reversal of Doubtful accounts

6.02

3 - 01/01/2008 4 - 01/01/2007 6 - 01/01/2006 to 12/31/2008 to 12/31/2007 to 12/31/2006 5,482,014 4,490,029 0 5,471,192

4,550,645

0

9,034

(59,395)

0

0

0

0

1 ,788

(1 ,221)

0

Inputs acquired from third-parties

(3,216,575)

(2,587,410)

0

6.02.0 1

Cost of good s and services sold

(3,200,070)

(2,559,027)

0

6.02.02

Materials, energy, outsourcing and other

6.02.03

Loss/recovery of assets

6.02.04

Other

6.03

Gross value-added

6.04

Retentions

(196,624)

(150,530)

0

6.04.01

Depreciation, amortization and depletion

(196,624)

(150,530)

0

6.04.02

Other

6.05

Net value added produced

6.06

Value added received as transfer

6.06.01

Equity pick-up

6.06.02

Financial revenues

6.06.03

Other

0

0

0

6.07

Total value added to distribute

2,536,183

2,100,097

0

6.08

Value added distribution

2,536,183

2,100,097

0

6.08.01

Personnel

743,157

632,325

0

6.08.01.01

Direct compensation

633,746

547,267

0

0

0

0

(16,505)

(28,383)

0

0

0

0

2,265,439

1,902,619

0

0

0

0

2,068,815

1,752,089

0

467,368

348,008

0

3,237

2,539

0

464,131

345,469

0

6.08.01.02

Benefits

74,261

57,483

0

6.08.01.03

Workers severance fund (FGTS)

35,150

27,575

0

6.08.01.04

Other

0

0

0

6.08.02


722,156

680,325

0

6.08.02.01

Federal

631,316

610,103

0

6.08.02.02

State

84,720

65,369

0

6.08.02.03

Municipal

6,120

4,853

0

6.08.03

Third-party‘s capital remuneration

510,469

212,463

0

6.08.03.01

Interest

505,920

212,463

0

6.08.03.02

Rentals

4,549

0

0

6.08.03.03

Other

6.08.04

Equity remuneration

6.08.04.01

Interest on equity

113,353

98,094

0

6.08.04.02

Dividends

187,759

200,729

0

6.08.04.03

Retained earnings/accumulated losses in the year

259,289

276,161

0

6.08.04.03

Minority interest in retained earnings

0

0

0

6.08.05

Other

0

0

0

0

0

0

560,401

574,984

0


December 31, 2008

WEG SA


84.429.695/0001-11

13.01 – MANAGEMENT REPORT

To the Shareholders, Board of Directors, and Executive Officers of WEG S/A Jaraguá do Sul - SC 1.

We have examined the balance sheet of WEG S.A. (parent company and consolidated) as of December 31, 2008, and the respective statement of income, statements of changes in shareholders’ equity, of cash flows, and value added corresponding to the year ended on that date, prepared under the responsibility of its Management. Our responsibility is to express an opinion on these financial statements. The financial statements of certain subsidiaries and associated companies, whose investments represented R$519,867 thousand on December 31, 2008 and generated earnings in subsidiaries’ equity of R$42,944 thousand during the year ended on that date, were examined by other independent auditors, which issued an unqualified review report. In our opinion, concerning the amount of these investments and the earnings in the subsidiaries’ equity generated by them, it is based on the review report of these other auditors.

2.

Our review was conducted in compliance with the auditing rules applicable in Brazil and comprise: a) the planning of the works, taking in consideration the relevance of the balances, the volume of transactions and the accounting and internal control systems of the Company; b) the verification, based on tests, of the evidences and records that support the accounting figures and information disclosed; and (c) the evaluation of the most representative accounting practices and estimates adopted by the Management of the Company, and of the presentation of the financial statements taken as a whole.

3.

In our opinion, based on our reviews, and on the report on other independent auditors’ reviews, as mentioned in paragraph 1, the financial statements referred to above adequately represent, in all relevant aspects, the equity and financial position of WEG S/A on December 31, 2008, the result of its operations, the changes in shareholders’ equity its cash flows, and the value added in operations related to the year ended on that date, pursuant to the accounting practices adopted in Brazil.

4.

The financial statements (parent company and consolidated) referring to year ended on December 31, 2007, comprising the balance sheet, the statements of income, of changes in the shareholders’ equity, and of changes in financial position, in addition to the supplementary information comprising the statements of cash flow, were audited by other independent auditors, which issued a unqualified opinion, dated February 4, 2008. As mentioned in note 20 (ii), the accounting practices adopted in Brazil were amended as of January 1, 2008. The financial statements related to the year ended on December 31, 2007 presented jointly with the 2008 financial statements, were prepared according to the accounting practices adopted in Brazil effective up to December 31, 2007 and, as permitted by the Technical Pronouncement CPC 13 – Initial Adoption of Law 11,638/07 and Provisional Measure no. 449/08, are not being newly presented with the adjustments for comparison purposes between the fiscal years.

5.

The statements of valued added, corresponding to year ended on December 31, 2007, prepared together with the financial statements of 2008 fiscal year, were submitted to the same audit procedures described in paragraph 2, and, in our opinion, it is properly presented, in all its relevant aspects, in relation to the financial statements mentioned in paragraph 4, taken as a whole.

(A free translation of the original in Portuguese) FEDERAL GOVERNMENT SERVICE BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) STANDARD FINANCIAL STATEMENTS (DFP) COMMERCIAL, INDUSTRY AND OTHER TYPES OF COMPANY 00541-0 13.01 – MANAGEMENT REPORT

Blumenau, February 2, 2009 ERNST & YOUNG Auditores Independentes S.S. CRC-2-SP 015.199/O-6 F-SC Marcos Antonio Quintanilha Accountant CRC-1-SP 132.776/O-3-T-SC

WEG SA

December 31, 2008


84.429.695/0001-11


WEG SA

December 31, 2008


84.429.695/0001-11


We submit to our shareholders’ examination the Consolidated Financial Statements of Grupo WEG and WEG S.A. related to the fiscal year ended December 31, 2008. The financial statements were prepared pursuant to the provisions in Brazilian Corporation Law and the rules set forth by the Brazilian Securities and Exchange Commission (CVM). ECONOMIC SCENARIO The world economic scenario was marked by two very distinct periods in 2008. First, there was the continuation of one of the longest uninterrupted economic expansion periods in contemporary history. However, beginning mid-year unbalances accumulated during the expansion period like problems in the American real estate sector, caused instability in world financial markets and the beginning of an economic downturn. Within the Brazilian economic context, we saw that: •

The expansion of domestic product in 2008, estimated at nearly 6%, was due to the good performance in the first three quarters, with increased consumption and investment. In the same period, the Brazilian currency continued to appreciate. However, the adjustment caused by the international crisis was quick and violent, reducing the economic activity level and the Brazilian currency depreciated against the US dollar, as was the case with almost all other currencies;

•

The industrial sector enjoyed a significant and growing expansion until October, with an adjustment at the end of the year. According to the Brazilian Institute of Geography and Statistics (IBGE), industrial production grew 3.1% in 2008. Keeping with the productive investment cycle begun in 2007, production of capital goods grew more quickly, accumulating 14.4% on the previous year;

•

Accordingly, the electronics and appliance industry growth in 2008, estimated by the Brazilian Electric and Electronic Industry Association (ABINEE) at 11% compared to the previous year, was achieved in most part during the first part of the year.

•

ABINEE data show that performance in the segments where WEG concentrates its operations, Industrial Automation, Industrial Equipment, and Energy Generation, Transmission and Distribution (GTD), was better than average sector growth, estimated at 15% compared to the previous year.

We believe that the growth in demand for our products is structural because of two long-term trends: •

Growing demand for more energy efficient industrial equipment (electric motors and associated equipment) resulting from industrial companies’ constant search for productivity and operating cost reduction;

•

Growing concern about the environmental impacts of traditional means of electricity generation, making the use of renewable energy sources viable, including small hydroelectric power plants and thermoelectric plants run on biomass.

ECONOMIC-FINANCIAL ASPECTS Gross Operating Revenues Consolidated Gross Operating Revenues (GOR) grew 20% compared to the previous year, reaching R$5,471.2 million in 2008. Each one of the four distinct areas into which our


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businesses are divided also enjoyed revenue growth. We would like to point out the following aspects in each one of these areas: •

Industrial electronic equipment and appliances – the 16% growth compared to 2007 would be even higher if the real had not appreciated, since sales to foreign markets are significant in this operating area;

•

Equipment for energy generation, transmission and distribution (GTD) – sales in this business sector grew 44% compared to 2007, maintaining the good performance seen over the past years and showing the competitiveness of the solutions we offer to the consumer market.

•

Motors for domestic use – we saw a 4% year-on-year sales increase in this business sector that was particularly affected by the economic instability at the end of the year;

•

Paints and varnishes – sales increased by 7% compared to the previous year.

Domestic Market Gross Operating Revenues in the domestic market reached R$3,570.1 million, accounting for 65% of our Total Gross Operating Revenues and increasing 21.4% over the previous year, a reflection of the growth in demand for capital goods and for energy generation, transmission and distribution. We are leaders in the Brazilian electric motor market and have outstanding positions in all operating areas in the domestic market. This position has been built over time with the continuous expansion of our product line and the increased technological content of our products as part of our strategy of providing complete and integrated industrial solutions. Foreign Market In the foreign market, Gross Operating Revenues grew 18.1% over the previous year, reaching R$1,901.1 million and accounting for 35% of Total Gross Operating Revenues. When measured in US dollars, foreign market Gross Revenues added up to US$1,028.6 million for a 23.6% increase over the previous year. We are a company that operates globally, distributing our products to over 100 countries across five continents, with direct operation in more than 20 of the main world markets and industrial operations in Brazil, Argentina, Mexico, Portugal and China. During 2008 we announced the establishment of another distribution subsidiary in Russia, as well as the construction of a new electric motor plant in India. This geographic coverage has allowed us to grow continuously in the foreign market, minimizing the effects of specific variations in economic performance in each country or region. We continue to pursue new opportunities in several world markets and expect to keep our corporate performance standard from the point of view of both growth in revenues and operating results. Cost of Goods Sold Cost of Goods Sold (COGS) reached R$2,933.9 million in 2008, 24.7% higher than in the previous year, accounting for 65% of Net Operating Revenues. The gross margin decreased by 2 percentage points compared to the previous year, due to the following impacts suffered during the year:


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•

The rapid appreciation of the Brazilian currency against almost all the world’s principal convertible currencies, especially the US dollar, up to the middle of the year, affecting the profitability of sales on foreign markets.

•

The high price volatility of the main raw materials, especially steel and copper, making the transfer of cost increases harder.

Selling, General and Administrative Expenses Consolidated Selling, General and Administrative Expenses totaled R$652.4 million, accounting for 14.5% of Net Operating Revenues in 2008, with a 21% increase over the R$536.4 million posted in 2007. The growth was a result of operating expenses related to the implementation of the WIS (WEG Integrated System) Project, mainly incurred in the first half of the year and partially neutralized by the intensification of efforts to reduce other, non-related operating expenses. EBITDA As a result of the previously discussed impacts, EBITDA in 2008 (calculated according to the methodology set forth by CVM in Circular Letter 01/07) reached R$1,026.1 million, increasing 11% over the result obtained in 2007, with a 2008 EBITDA margin of 23%, 1.8 percentage points below the EBITDA margin of the previous year. Other Operating Revenues/Expenses According to Law 11,638/07 that set forth the new corporate accounting rules in Brazil and the subsequent regulation set forth by CVM, exchange variations on investments in subsidiaries abroad are no longer accounted for in the income for the year, but rather directly accounted for as adjustments to Shareholders’ Equity. In 2008, these exchange variations, which until 2007 were posted to income, represented R$89.8 million and were added to Shareholders’ Equity. Thus, in 2008 the “other operating revenues/expenses” account mainly includes amounts provisioned during the year with the WEG Quality and Productivity Program (PWQP) for employee profit sharing. In 2008 this amount stood at R$86.2 million compared to R$86.6 million in the previous year. Financial Revenues and Expenses Financial Revenues came to R$464.1 million (R$345.5 million in 2007) and Financial Expenses amounted to R$505.9 million (R$212.5 million in 2007). Consequently, the Financial Result was a negative R$41.8 million (positive R$133.0 in 2007). These amounts do not consider interest on stockholders’ equity, shareholder remuneration classified as a financial expense for tax purposes. The increases in financial revenues and expenses are a result of the significant depreciation of the real beginning in September. The effects of this depreciation on foreign currency debt are immediate, while the positive effects of foreign market sales revenues increases are realized over time.


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Net Income As a result of the previously mentioned impacts, Net Income for the Year reached R$560.4 million, 2.5% lower than the R$575.0 million posted in 2007 and representing a 30.6% return on shareholders’ equity in 2008. CAPITALIZATION We have a conservative financing policy, allowing us to maintain funds and liquidity sources that are sufficient to meet our needs for debt service and finance the investment program, in addition to enabling us to take advantage of several business opportunities. We use short-term foreign currency financing sources to finance foreign trade operations, taking advantage of the natural hedge and constantly monitoring financial exposure to foreign exchange. Our long-term debt is mainly in domestic currency, using financing sources available from development agencies. Cash funds are invested in prime banks mainly in domestic currency. On December 31, 2008 our short-term cash position and financial investments totaled R$1,849.5 million and gross financial debt amounted to R$2,161.2 million, of which: •

Short-term operations totaled R$1,314.1 million (61% of the total debt), represented by foreign currency trade finance related debt and the short-term portion of loans contracted with the Brazilian Development Bank (BNDES) and other development agencies, usually in domestic currency.

•

Long-term operations totaled R$847.1 million (39% of the total debt), mainly represented by financing contracted with BNDES and other development agencies, primarily in domestic currency, and by the long-term portion of the financing of working capital for subsidiaries abroad, in the respective currencies of each country.

At the end of 2008, net debt was R$311.7 million, compared to the net cash of R$443.2 million in December 2007. The alteration from net cash to net debt is explained by: •

Investments in fixed assets for capacity expansion;

•

Increase in investments in working capital; and,

•

Immediate impact of foreign exchange depreciation on foreign currency debt.

Net Debt December 2008

December 2007

CASH & EQUIVALENTS

1,849,477

2,174,972

DEBT

2,161,216

1,731,740

- Current

1,314,098

1,077,487

- Long Term Net Cash (Debt)

847,118

654,253

(311,739)

443,232

INVESTMENTS Investments in Fixed Assets to expand production capacity reached R$457.2 million in 2008, 82% of which was allocated to industrial parks and other facilities located in Brazil and the remaining to plants and other subsidiaries abroad.


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Due to the nature of the equipment and facilities we use in our productive process, we have great flexibility to manage the investment program according to the demand actually seen. Thus, we try to optimize capacity occupation by accelerating or decelerating investments, thus maximizing return on invested capital. Within the several units built or improved in 2008, we point out the expansion of foundry capacity. INVESTMENTS IN RESEARCH AND DEVELOPMENT (R&D) Our efforts in research and development include expenditures focused on the development of new products, continuous improvement of already available products, product and system application and adaptation engineering and improvement of our industrial processes. In 2008 these expenditures added up to R$88.8 million, accounting for 2.0% of Net Operating Revenues. In 2007, investments in R&D amounted to R$86.0 million, accounting for 2.3% of Net Operating Revenues. DIVIDENDS Based on the 2008 results, the management proposes to distribute R$301.1 million to shareholders as payment of dividends and interest on stockholders’ equity, corresponding to nearly R$0.49 per share before net of taxes. This amount accounts for 53.7% of the Net Income before statutory adjustments. Below we list the dividends shareholders were entitled to on the respective dates. Beginning August 13, 2008, we made the remuneration payments to shareholders declared during the first half of the year: a) On March 18, as interest on stockholders’ equity (JCP), in the amount of R$27.6 million, or R$0.044705882 per common share; b) On June 17, as interest on stockholders’ equity (JCP), in the amount of R$28.3 million, or R$0.045882353 per common share; c) On July 21, as “Interim Dividends” related to the first half of 2008, in the amount of R$100.7 million, or R$0.163 per common share; Dividends related to the second half of 2008, as described below according to their declaration date, will be paid as of March 11, 2009: d) On September 18, as interest on stockholders’ equity (JCP), in the amount of R$28.3 million, or R$0.045882353 per common share; e) On December 16, as interest on stockholders’ equity (JCP), the total of R$29.1 million, or R$0.047058824 per common share; f)

On February 16, 2009, as supplementary dividends related to the income for the 2008 fiscal year, in the total amount of R$87.1 million or R$0.141 per common share.

The Management will propose to the Annual General Meeting to be called that the Net Income, less the legal reserve and dividends, be allocated to the reserve to finance the capital budget.


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Net Income, Dividends and Pay-out (%)

42.8%

44.2%

45.5%

52.0%

53.7%

575.0

560.4

298.8

301.1

2007

2008

502.8 403.3

374.8

172.7

165.5

2004

2005

Dividends

228.8

2006

Net Income

Pay-out

HIGHLIGHTS New Subsidiary WEG Russia On March 13 we announced the establishment of a new sales and distribution subsidiary in the foreign market, WEG Russia, incorporated in the city of Nizhny Novgorod (former Gorki), capital of the province with the same name. WEG Russia will handle the sale, distribution and technical assistance of products and systems in Russia and in the other former Soviet bloc countries. This market offers great business potential in areas such as oil and gas exploration, production and transportation. This market is attractive as one of the regions with the largest economic growth in the world. Our presence in the region is still small and our experience in the oil and gas market in other regions will be important for us to carve out a place in Eastern Europe.

New Electric Motor Plant in India On May 26 we announced our plans to expand activities in India, with the construction of an electric motor manufacturing unit to be built in the city of Hosur, Tamil Nadu State, close to Bangalore. The new plant will require total investments estimated at US$50 million for the first phase of the project and should start producing electric motors at the end of 2009.


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India has proven to be an extremely attractive market since we started our sales activities with our own subsidiary in 2004, with important supplies in irrigation, electric, hydro- and thermoelectric energy generation projects. OUTLOOK Our business plan is to be executed during several years, considering periods of larger or smaller market growth according to economic cycles. In moments of slower growth, as is expected for 2009, we should grow by consolidating our international presence, achieving more market share and launching new products. In the domestic market we expect to strengthen our position as a supplier of industrial electronic equipment and appliance solutions and developer of systems specific to energy, with packages of greater value added. In the foreign market, we will continue to increase in all world markets our market share in industrial electronic equipment and appliances and increase energy and automation equipment businesses. Our capital budget estimates the following investments: Amount Investments

(in millions of R$)

Fixed assets (plant expansion/modernization)

375.0

Current assets (working capital)

136.5

Total Investments

511.5

These investments are financed through the use of the Capital Budget Reserve and funds to be raised with financial institutions in Brazil, mainly from BNDES lines.

Jaraguá do Sul (SC), February 2009.

THE MANAGEMENT


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14.01 - NOTES TO THE FINANCIAL STATEMENTS

(Amounts expressed in thousands of Reais, excepted when otherwise indicated) 01. OPERATIONS WEG S.A. is a publicly-held company, headquartered in the city of Jaraguá do Sul, state of Santa Catarina, Brazil, a holding company comprising WEG group, and has as corporate purpose the production, industrialization, trade, import and export of industrial, electromechanical and electronic systems, rotating electrical machines, machinery and equipment in general, equipment for the production, distribution and conversion of electric power, electrical supplies, programmable controllers, machine parts and components, devices and equipment in general, hydraulic turbines of all kinds and capacities, resins in general, paint supplies, vegetable and chemical substances and products destined to industry and science, through industrial parks located in Brazil, Argentina, Mexico, Portugal and China.

02. PRESENTATION OF THE FINANCIAL STATEMENTS AND MAIN ACCOUNTING PRACTICES (i)

Overview The Financial Statements of the Company and its subsidiaries (parent company and consolidated) are presented in thousands of reais, except when otherwise indicated, including the explanatory notes, and are prepared pursuant to the accounting practices adopted in Brazil, which include the accounting practices established by the Brazilian Corporate Legislation – Laws 6,404, 9,457 and 10,303 of December 15, 1976, May 5, 1997 and November 1, 2001, respectively, and supplementary provisions from the Brazilian Securities and Exchange Commission (CVM). The process for preparing the Financial Statements involves the utilization of accounting estimates. The determination of these estimates took into account experiences from past and current events, assumptions related to future events, and other objective and subjective factors. Some of the material items subject to such estimates and assumptions are the selection of the useful life of property, plant and equipment and its recovery in operations, credit risk analysis to determine the allowance for doubtful accounts, measurement of financial instruments fair value, maintenance of the deferred income tax on tax losses and negative basis for social contribution, as well as the analysis of other risks to determine other provisions, including the provision for contingencies resulting from judicial, civil, labor and tax proceedings and evaluation of financial instruments and other assets and liabilities as of the balance sheet date. The settlement of the transactions involving these estimates might cause the amounts to differ from those recorded in the financial statements, due to inaccuracies inherent to the estimate process. The Company revises its estimates and assumptions on a quarterly basis. Assets and liabilities are classified as current when their realization or settlement is likely to occur in the subsequent twelve months. On the contrary, they are presented as non-current.


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Monetary assets and liabilities denominated in foreign currencies were converted into reais based on the exchange rate on the closing date of the balance sheet, and the differences resulting from currency conversion were recognized in the statement of income. The exchange variations of investments in subsidiaries overseas, whose assets and liabilities were converted into reais based on the exchange rate as of the closing date of the balance sheet, and the results were ascertained based on the year’s average rate are recognized in a specific Shareholders’ Equity account. Other permanent investments are recorded at the acquisition cost net of the provision for devaluation, when applicable. The authorization to complete the preparation of these financial statements occurred at the board of executive officers’ meeting held on January 30, 2009. (ii) Initial Adoption of Law 11,638/07

The effects in the Income and in Shareholders’ Equity of the initial adoption of Law 11,638/07 and Provisional Measure 449/08 are stated below:

Balances according to accounting statements on December 31, 2008 Effects of Law 11,638/07: - Accumulated Conversion Adjustment - Subsidy (Tax Reduction) - Pre-Operating Expenses Balances Before Application of Law 11,638/07 and Provisional Measure 449/08

Net Income 560,401

Shareholders’ Equity 2,178,580

89,829 (200) 130

130

650,160

2,178,710

The Company chose to prepare the balance sheet with transition date on January 1, 2008 (or December 31, 2007) which is the starting point for the adoption of changes in the accounting practices adopted in Brazil according to the corporate legislation amended by Law 11,638/07 and by Provisional Measure 449/08. The amendments introduced by the aforementioned legislation are characterized as a change in the accounting practice, however, as allowed by the Technical Pronouncement CPC 13 – Initial Adoption of Law 11,638/07 and Provisional Measure 449/08 of the Accounting Pronouncements Committee "CPC", approved by CVM Resolution 565 of December 17, 2008, all adjustments affecting the income were made against retained earnings and accumulated losses on the transition date pursuant to Article 186 of Law 6,404/76, with no retroactive effects on the financial statements. Additionally, the consolidated accounting statements for the year ended December 31, 2007 were reclassified, when applicable, for purposes of better presenting and keeping the uniformity in the comparison, according to the table below:


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12/31/2007 ASSETS CURRENT ASSETS NON-CURRENT ASSETS LONG-TERM ASSETS PERMANENT ASSETS INVESTMENTS IN SUBSIDIARIES/AFFILIATED COMPANY IN SUBSIDIARIES – GOODWILL OTHER INVESTMENTS PROPERTY, PLANT AND EQUIPMENT DEFERRED ASSETS INTANGÍBLE ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES NON-CURRENT LIABILITIES SHAREHOLDERS’ EQUITY TOTAL LIABILIITES

Adjustments

12/31/2008

3,799,067 1,074,778 176,914 897,864

(193) (193)

3,799,067 1,074,585 176,914 897,671

9,814 36,582 1,819 745,599 104,050 4,873,845

(851) (36,582) (25,321) (104,050) 166,611 (193)

8,963 1,819 720,278 166,611 4,873,652

2,158,053 886,618 1,829,174 4,873,845

(193) (193)

2,158,053 886,618 1,828,981 4,873,652

The Company adopted the rules and interpretations issued by CVM and which are effective for the year ended December 31, 2008. The main new rules applied in the preparation of the financial statements of the parent company and consolidated are listed below: 1)

Impairment – CVM Resolution 527/07 (CPC 01)

The Company measured the recoverable value of property, plant and equipment and intangible assets through the value in use method (Future Cash Flows), not assessing any impairment which should be recorded on an accounting basis. 2) Effects of Changes in Exchange Rates and Conversion of Accounting Statements – CVM Resolution 534/08 (CPC 02) The Company has adopted the following practices: a) Functional and Presentation Currency The financial statements of each subsidiary included in the Company’s consolidation are prepared using the functional currency of each entity. The functional currency of an entity is the currency of the main economic environment in which it operates. The financial statements of the subsidiaries overseas are converted into Reais, which is WEG S.A.’s functional and presentation currency.


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b) Investments Investments in subsidiaries and affiliated companies (Note 11) are adjusted by the equity method of accounting. Other investments are evaluated at acquisition cost, minus provision for depreciation, when applicable. The financial statements of subsidiaries overseas are converted into local currency, as follows: -

Balance Sheets are converted based on the exchange rate effective as of December 31, 2008; Statements of income are converted based on the average monthly rate of the period.

c) Exchange Variation on Investments

3)

-

The values of capital gains and losses, resulting from the exchange variation on investments in subsidiaries overseas, in the amount of R$89,829 on December 31, 2008, are recognized the in Shareholders’ Equity; On December 31, 2007, capital gains and losses, in the amount of R$62,386, were recorded in other operating revenues/expenses (Note 20).

-

The Company’s interest in the values resulting from the result for the period and from equity increases or reductions in subsidiaries are recorded in the operating result.

Statement of Cash Flows – CVM Resolution 547/08 (CPC 03)

Presented as an integral part of the financial statements, prepared by the indirect method, according to the Resolution’s rules and procedures. 4)

Intangible Assets – CVM Resolution 553/08 (CPC 04)

Presented the Intangible Assets group as determined, with the reclassification of the following accounts: Investments (R$37,433), Property, Plant and Equipment (R$25,321) and Deferred Charges (R$103,857) totaling R$166,611. All intangible assets are considered with defined useful life. Goodwill based on future profitability recorded by the Company was amortized by the straightline method up to December 31, 2008. 5)

Disclosure on Related Parties – CVM Resolution 560/08 (CPC 05)

The Related Parties note was prepared according to the Resolution’s criteria (Note 08). 6)

Subsidy and Government Assistances – CVM Resolution 555/08 (CPC 07)

Government subsidies as monetary contribution are recognized on systematic bases during the period in operating results. Tax reductions are recognized in a write-down account of taxes and expenses. 7)

Statement of Value Added – CVM Resolution 557/08 (CPC 09)


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Presented as an integral part of the financial statements, prepared according to the Resolution’s rules and procedures. 8) Adjustment to Present Value – CVM Resolution 564/08 (CPC12) The Company calculated the adjustment to present value based on the overall calculation on the outstanding balances of each group of monetary assets and liabilities accounts, as well as applied discount rates based on the market assumptions existing on the transition date. Items comprising each one of the account groups which were purpose of overall calculation have uniform characteristics. Given the immaterial values, the Company did not make adjustments to the financial statements. 9)

Initial Adoption of Law 11,638/07 – CVM Resolution 565/08 (CPC 13)

The Company is adopting Law 11,638 and Provisional Measure 449/08 making the comparison with the transition balance sheet of January 1, 2008 and according to the Resolution prerogative, during 2009 the Company will review the economic useful life of its property, plant and equipment and intangible assets. 10) Financial Instruments: Recognition, Measurement and Presentation – CVM Resolution 566/08 (CPC 14) Financial instruments are only recognized when the Company becomes part of the contractual provisions of the instrument. The records are made by the acquisition or issue value, monthly evaluated in each balance sheet date and recorded at their fair value and informed according to the rules set forth (Note 22). 11)

CVM Resolution 469 of May 2, 2008

The balances of revaluation reserves recorded up to December 31, 2007, considering that the accounting values of assets, purpose of revaluation, are lower than the market values, the Company maintained the amounts in their respective accounts until their effective realization. (iii) Main Accounting Practices Adopted in the Preparation of the Financial Statements a)

Determination of Net Income. Revenues and expenses are stated in compliance with the accrual basis of accounting. Revenues from product sales are recognized in the result when all risks and benefits inherent to the product are transferred to the buyer as well as the Company no longer holds control or responsibility for goods sold and it is probable that the economic benefits will favor the Company and the service revenue is recognized in the income in view of its realization.

b)

Cash and Cash Equivalents. These include the balances in checking accounts and financial investments, recorded at cost accrued of income earned up to December 31, 2008, according to rates agreed upon with financial institutions (Note 04).

c)

Trade Accounts Receivable. These are stated at realization values, and the amounts receivable from international customers are restated based on exchange rates effective at the end of each year. The provision for customer credit losses was


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calculated based on the analysis of credit risks, which takes into account the history of losses, and it is sufficient to cover losses on amounts receivable (Note 05). d)

Inventories. Inventories are stated at the average acquisition or manufacturing cost. Provisions for low turnover or obsolete inventories are recorded when considered necessary by the Management (Note 06).

e)

Other Current and Non-Current Assets. These are stated at cost or realization value, including, when applicable, income earned and monetary and exchange variations incurred.

f)

Property, Plant and Equipment. These are evaluated at acquisition cost, less the respective depreciation, except plots of land, which are not depreciated. The depreciation is calculated by the straight-line method and takes into account the economic useful life of the assets. The property, plant and equipment are net of PIS/COFINS and ICMS credits and the counter-entry is recorded as recoverable taxes (Note 12).

g)

Intangible Assets. These are evaluated at acquisition cost, less amortization and possible provision to adjust them to their probable realization values, when needed. Intangible assets are usually amortized taking into account the estimated term for their effective utilization, considering they have a defined useful life. Goodwill in the acquisitions of investments which have as economic base the future profitability was amortized on a straight-line basis for a 5-year term up to December 31, 2008. As of January 1, 2009 they will no longer be amortized, and should only be submitted to an annual impairment test (Note 14).

h)

Investments. Investments in subsidiaries and affiliated companies with interest in the voting capital higher than 20% or with a significant influence and in other companies which are part of the same group or which are under common control, are evaluated according to the equity accounting method (Note 11). Other investments that not suited in the category above are assessed by the acquisition cost, less depreciation provision, when applicable.

i)

Income Tax and Social Contribution. Ascertained by actual and presumed profit, pursuant to the prevailing legislation (Note 19). Deferred Income Tax and Social Contribution were calculated under CVM Rule 371/02 (Note 10).

j)

Other Current and Non-Current Liabilities. Stated at known or calculable values, plus, when applicable, the corresponding financial charges on a daily pro rata basis, and the incurred monetary and exchange variations.


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k)

Conversion of Foreign Currency Balances. The criterion for the conversion of the asset and liability balances of foreign exchange operations consists of the conversion to domestic currency (R$) at the exchange rate effective on the closing date of the financial statements. Gains and losses from the restatement of these assets and liabilities verified between the exchange rate effective on the transaction date and the closures of the years are recognized as financial revenues or expenses in the income.

l)

Interest on equity. For corporate purposes, interest on equity is stated as allocation of results directly to shareholders' equity. For tax purposes, it was considered a financial expense, reducing the calculation basis of income tax and social contribution.

m) Earnings per Share. These are calculated based on the amount of shares existing on the balance sheets closing date. n)

Related Parties. Purchase and sale transactions of inputs and products are made under conditions and terms similar to transactions with unrelated third parties (Note 08).

03. CONSOLIDATED FINANCIAL STATEMENTS The fiscal years of subsidiaries included in the consolidation coincide with the parent company’s, and the accounting policies have been applied in a uniform manner in all consolidated companies, and are consistent with those used in the previous year, except for the option of non-retroactive application of new accounting pronouncements effects, effective as of 2008, as described in note 2(ii). The main consolidation procedures are as follows: a) Exclusion of balances of assets and liabilities accounts among consolidated companies; b) Exclusion of interests in the capital, in reserves and in the accumulated deficit of subsidiaries; c) Exclusion of balances of revenues and expenses, as well as of unrealized profits from intercompany transactions. Unrealized losses are excluded in the same way, but only when there are no evidences of recovery problems of related assets. d) Highlight of the minority interest in the consolidated financial statements. 04. FINANCIAL INVESTMENTS

In domestic currency - Bank Deposit Certificate (CDB) - Fixed-Income Funds In foreign currency - International Deposit Certificates - Other TOTAL

Domestic Investments:

PARENT COMPANY 2008 2007 88,405 80,824 88,405 80,247 577 88,405

695 695 81,519

CONSOLIDATED 2008 2007 1,579,415 1,835,572 1,579,415 1,798,924 36,648 198,865 195,471 3,394 1,778,280

230,500 230,103 397 2,066,072


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On December 31, 2008, CDBs are being remunerated at average rates of 102% of CDI (101% on December 31, 2007). Fixed-Income Funds were remunerated at a 99% average of CDI in 2007. Investments Overseas: - Interest from 3.20% to 5.66% p.a. in bank deposit certificates issued by financial institutions overseas in the original amount of EUR40,212, whose balance on December 31, 2008 was R$131,341. - In U.S. dollar plus interest between 3.75% and 5.22% p.a., in deposit certificates issued by financial institutions overseas in the original amount of US$21,792, the balance of which was R$52,286 on December 31, 2008; - In U.S. dollar, with remuneration calculated based on 95.9% of the CDI rate, applied to the amounts in reais obtained from converting the amounts in foreign currency based on the rate on the date of investment. These investments refer to deposit certificates issued by financial institutions overseas in the original amount of US$6,234, the balance of which was R$11,844 on December 31, 2008. In all cases, they are cash investments. 05. TRADE ACCOUNTS RECEIVABLE

Domestic market Foreign market Advances on Export Contracts – ACE Provision with Credit Losses from Customers (*) Total Effective Credit Losses from Customers in the Period Trade bills due Overdue trade bills: In up to 30 days Over 30 days

CONSOLIDATED 2008 2007 486,142 390,780 635,428 370,705 (721) (1,795) (9,944) (10,103) 1,110,905 749,587 2,334 1,078 703,401 523,014 193,640 113,810 224,529 124,661


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06. INVENTORIES

Domestic market Finished Products Products under Production Raw materials and Other Imports in Progress Allowance for Losses

CONSOLIDATED 2008 820,283 248,518 236,230 291,800 48,500 (4,765)

2007 530,671 119,415 235,176 181,012 (4,932)

Foreign market Finished Products Products under Production Raw materials and Other Provision for Losses

286,302 224,138 21,450 53,661 (12,947)

174,882 156,648 14,259 15,401 (11,426)

1,106,585

705,553

Total

07. RECOVERABLE TAXES PARENT COMPANY 2008 2007 ICMS Sales Tax on acquisitions of property, plant and equipment VAT (Subsidiaries Overseas) PIS/COFINS on acquisitions of property, plant and equipment PIS/COFINS on Financial Income Tax on Industrialized Products - IPI ICMS Sales Tax Withholding Income Tax Other TOTAL Short-Term Long-Term

CONSOLIDATED 2008 2007

-

-

46,186 43,132

29,156 27,744

4,981 4,981 4,981 -

10,055 10,055 10,055 -

38,665 11,725 20,982 19,336 36,138 17,263 233,426 176,383 57,043

17,152 16,845 14,351 4,178 7,759 117,185 84,793 32,392

Credits will be realized by the Company and its subsidiaries, by means of refund and/or taxes and contributions carryforwards. 08. RELATED PARTIES Commercial transactions of purchase and sale of products, raw materials and service contracting, as well as financial loan transactions, funding among the group companies and key management personnel compensation were carried out as follows:


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PARENT COMPANY 2008 2007 EQUITY ACCOUNTS Long-Term Assets Management of Financial Resources - WEG Indústrias S.A. - WEG Exportadora S.A. - WEG Amazônia S.A. - WEG Automação S.A. Long-Term Liabilities Management of Financial Resources - WEG Exportadora S.A. - WEG EquipamentosElétricosS.A. INCOME ACCOUNTS Key Management Personnel Compensation: - Salaries and Charges - Fees - Profit Sharing


18,086 16,882 1,202 2

7,407 7,407 -

-

-

2,967 2,967

21,072 17,578 3,494

-

-

1,470 129 646 695

1,000 92 524 384

4,100 582 1,761 1,757

6,182 589 2,306 3,287

Additional information: a)

Commercial Operations Input and product purchase and sale transactions are carried out under the same conditions with unrelated third parties, prevailing cash sales.

b)

Technology Transfer WEG Equipamentos Elétricos S.A. and its subsidiary TRAFO Equipamentos Elétricos S.A. executed an agreement of mutual transfer of technology related to the calculation and project of transformers.

c)

Management of Financial Resources (i) Financial and commercial operations among group companies are recorded at a book account, complying with requirements of the group agreement;

(ii) Credit/debit agreements entered into with Managers are recorded at a book account and remunerated between 95% and 100% of CDI variation. d) Service Provision and Other Covenants (i) WEG Equipamentos Elétricos S.A. entered into a service agreement with WEG Automação S.A.; WEG Indústrias S.A. and TRAFO Equipamentos Elétricos S.A related to management consulting services. The reimbursement is made through the Service Invoice. (ii) WEG Equipamentos Elétricos S.A. and Hidráulica Industrial S.A Ind. e Com – HISA entered into a “Guarantees and Other Covenants” agreement, with the purpose of WEG being the guarantor in loan operations and in the issue of guarantee to customers (Performance Bond, surety bond, etc.).


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e) Sureties and Guarantees (i) WEG S.A. granted sureties and guarantees to subsidiaries overseas, in the amount of US$147.7 million (US$157.5 million in 2007). (ii) A WEG Equipamentos Elétricos S.A. granted sureties and guarantees to subsidiaries abroad, in the amount of US$9.4 million in 2008 (US$5.9 million in 2007).

09. COURT DEPOSITS PARENT COMPANY 2008 2007 Proceedings - Tax - Labor claims - Other Total

19,744 19,744


7,970 7,970

48,806 1,506 1,840 52,152

72,043 2,549 1,896 76,488

Court deposits subject to proceedings involving Occupational Accident Insurance (SAT) in the amount of R$31,651 and SEBRAE in the amount of R$5,395, made final and unnappealable, were reverted against tax contingencies (Note 16 a.3 and a.4), and during 2008, court deposits related to other proceedings were made in the amount of R$13,809. 10. DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION Deferred Income Tax and Social Contribution credits were ascertained in conformity with IBRACON pronouncement, approved by CVM Rule 371/02, and are based on tax losses and temporary differences, related to fiscal, labor, and civil contingencies, and provisions for losses. Tax credits recorded on temporary differences will be realized to the extent of the realization of the provisions which served as its base, and are accounted for under long-term receivables. Management believes tax losses will be offset within the next two years.

NON-CURRENT ASSETS - Provisions - Labor/Civil Contingencies - Fiscal Contingencies - Tax Losses - NON-CURRENT LIABILITIES - Accelerated Depreciation with Incentive Law 11,196/05

PARENT COMPANY 2008 2007 6,801 4,993 74 43 6,727 4,950 -

-

CONSOLIDATED 2008 2007 82,640 59,400 49,225 27,545 10,817 8,190 16,526 17,280 2,672 6,385 7,505 7,505

1,672 1,672



December 31, 2008

WEG SA

84.429.695/0001-11


11. INVESTMENTS IN SUBSIDIARIES AND AFFILIATED COMPANY Adjusted Shareholders’ Equity WEG Equipamentos Elétricos S.A. WEG Exportadora S.A. WEG Indústrias S.A. WEG Amazônia S.A. WEG Automação S.A. WEG Itajaí Equips. Elétricos Ltda TRAFO Equips. Elétricos S.A. Hidráulica Industrial S.A. Ind. Com. - HISA WEG Chile S.A. WEG Colômbia Ltda WEG Equipamientos Electricos S.A WEG Indústrias Venezuela C.A WEG México S.A. de C.V. WEG Transformadores México S.A. de CV WEG Electric Corp. WEG Overseas S.A. WEG Europe S.A WEG France S.A.S WEG Germany GmbH WEG Ibéria S.A WEG Electric Motors (UK) Ltd. WEG Itália S.R.L WEGeuro Ind. Electricas S.A WEG Scandinávia AB WEG Austrália PTY WEG Electric (Índia) Private Limited WEG Electric Motors Japan CO Ltd. WEG Nantong Electric Motors Manufacturing WEG Singapore PTE LTD Nantong Testing Station WEG Germany NN WEG Middle East FZE WEG Industries (Índia) Private Limited TOTAL

1,450,450 482,396 116,069 8,471 193,639 26,182 61,314 27,495 9,344 4,363 34,766 12,628 52,574 28,114 67,288 2,174 46,837 1,833 29,556 485,501 6,255 6,766 29,248 3,840 10,968 418 851 4,764 (513) 364 (415) 120 8,806

Net Interest in Capital Income Stock (%) for the year Direct Indirect 470,025 99.94 90,884 99.96 21,053 99.94 (1,494) 0.02 99.98 51,441 0.00 99.99 17,714 0.00 99.99 15,152 68.70 16,378 51.00 2,794 8.00 92.00 962 99.00 6,585 20.71 79.28 1,331 99.99 2,160 0.00 99.99 (509) 70.00 9,275 0.79 99.21 9 100.00 2,869 100.00 (361) 100.00 7,114 100.00 49,705 100.00 1,630 100.00 281 0.07 99.93 7,172 5.74 94.26 1,269 100.00 225 100.00 202 4.99 94.99 174 100.00 (14,224) 100.00 (227) 100.00 43 70.00 (686) 100.00 (460) 100.00 (663) 99.99

11.2 AFFILIATED COMPANIES VOLTRAN S.A. de C.V. – Affiliated Company 38,207

Book Value of Investment

Equity Accounting 2008 445,572 90,844 21,041 224 1,339 78 9 414 10 559,531

12,520 - 30.00

2007 477,970 73,039 18,712 1 119 455 (196) (345) 84 1,700 1 378 (38) 6 571,886

2008 1,449,602 482,180 116,001 2 747 7,200 530 2,174 5 1,679 21 2,060,141

2007 1,236,303 389,718 101,291 2 496 6,005 332 1,653 1,389 5,533 4 946 344 6 1,744,022

-

12,242

9,814

-

11.3 GOODWILL IN THE ACQUISTION OF SUBSIDIARIES 11.4 OTHER

36,582 -

-

1,100

1,819


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WEG SA


84.429.695/0001-11


12. PROPERTY, PLANT AND EQUIPMENT

Land and Constructions Equipment and Facilities Furniture and Fixtures Hardware/Software Vehicles Construction in Progress Reforestation Other Subtotal Accrued Depreciations/Depletions Total

Annual Depreciation Rate % 00 to 04 10 to 30 10 to 30 20 to 30 20 to 30 -

PARENT COMPANY

CONSOLIDATED

2008

2007

2008

2007

4,320 270 4,590 (3,305) 1,285

4,320 270 4,590 (3,161) 1,429

377,337 1,308,702 38,229 50,975 8,731 184,546 10,723 18,138 1,997,381 (950,048) 1,047,333

331,825 1,003,829 63,562 92,285 8,641 47,205 10,782 16,904 1,575,033 (829,434) 745,599

In 2008, the amounts related to brands and patents and software in the net amount of R$25,321 were reclassified to the Intangible assets group. a) Summary of the changes in property, plant, and equipment: CONSOLIDATED 2008 2007 Balance at the beginning of the year (net) Acquisitions Transfer to intangible assets Inclusion of Assets (TRAFO and HISA) Write-offs Depreciation and Depletion Effect of foreign exchange on property, plant, and equipment (subsidiaries overseas) Balance at the end of the year (net)

745,599 457,168 (25,321) (1,245) (158,423)

543,379 318,204 31,282 (592) (129,043)

29,555 1,047,333

(17,631) 745,599

b) Values offered in guarantee - property, plant and equipment were offered as guarantee of loans, financings, and tax and labor claims in the amount of R$15,389 - consolidated on December 31, 2008 (R$13,752 on December 31, 2007). c) Fully depreciated assets in use in Brazil - the gross book value of the fully depreciated assets in use is R$577,365 - consolidated on December 31, 2008 (R$461,614 on December 31, 2007). d) New Estimates of Useful Life of Property, Plant and Equipment – As from September 1, 2007, based on a technical study carried out by a specialized Institute, the Company and its subsidiaries have changed their estimate of economic useful life of property, plant and equipment. This procedure resulted in an increment of R$30,566 in depreciation charges recognized in the income for the year (R$21,183 on December 31, 2007), when compared to charges that would be recognized had there not been said change in the economic useful life of assets.



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13. DEFERRED CHARGES - CONSOLIDATED Amortization Number of years 5 5 5 -

Specification Research and Development Projects Information Technology Projects Projects in Companies Overseas Other Total

2008

2007 -

40,786 61,835 238 1,191 104,050

On December 31, 2008 deferred charges balance was reclassified to intangible assets, according to procedures of CVM resolution 553/08 (CPC 04). 14. INTANGIBLE ASSETS - CONSOLIDATED Specification Projects: - Research and Development - Information Technology Goodwill in Acquisition of Subsidiaries Software License Other Total

Amortization No. of Years 5 5 5 5 5

Cost

69,505 79,241 53,746 43,561 26,228 272,281

Accumulated Amortization 42,846 33,254 20,726 25,915 21,477 144,218

2008

26,659 45,987 33,020 17,646 4,751 128,063

2007

-

The amortization schedule is as follows: 2009 20010 2011 2012 2013/14 TOTAL

38,128 23,712 20,123 10,065 3,015 95,043

15. FINANCINGS AND LOANS - CONSOLIDATED As of December 31, 2008, financings raised in foreign currency include the ACCs in the amount of R$619.5 million, and BNDES-FINEM in basket of currencies in the amount of R$12.7 million in the short term and R$13.6 million in the long term. Financings applied for by subsidiaries overseas allocated to working capital are in dollars and/or in the currency of each country, in the amount of R$264.5 million in the short term (R$113.0 in 2007) and R$81.0 million in the long-term (R$179.5 million in 2007), equivalent to US$147.8 million (US$165.0 million in 2007). Financings are secured by sureties and fiduciary disposal.


December 31, 2008

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MODALITY IN BRAZIL SHORT TERM Working Capital (ACCs) Working Capital Working Capital Non Deliverable Forwards (NDF) Property, Plant and Equipment Working Capital Property, Plant and Equipment Other

ANNUAL CHARGES

2008 1,815,666 1,049,590 619,497 390,434 12,653 16,884 9,267 832 23

2007 1,439,354 964,588 559,300 381,026 12,306 8,258 3,222 429 47

3.5% to 8.6% interest p.a. (+) Exchange Variation TJLP (+) 1.4% to 6.25% p.a. Basket of Currencies (+) 0.8% to 3.2% p.a. Exchange Variation IGPM (+) 1.0% p.a. CDI (+) 3.8% per month TJLP (+) 1.2% to 2.3% p.a. 1.1% to 1.6% interest per month

LONG TERM Working Capital Property, Plant and Equipment Property, Plant and Equipment Working Capital Working Capital Property, Plant and Equipment Other

TJLP (+) 1.5% to 5.0% p.a. IGPM (+) 1.0% p.a. UFIR (+) 1.0 to 4.0% p.a. Currency basket (+) 0.8% to 1.5% p.a. 5.3% interest p.a. TJLP (+) 1.2% to 2.3% p.a. 1.1% to 1.6% interest per month

766,076 615,765 52,004 1,293 13,610 62,935 20,464 5

474,766 399,651 52,624 18,765 3,698 28

ABROAD SHORT TERM Working Capital Working Capital Working Capital

EURIBOR (+) 0.3% to 1.5% p.a. LIBOR (+) 0.7% to 1.7% p.a. 5.02% to 18.0% interest p.a.

345,550 264,508 68,177 72,767 123,564

292,386 112,899 50,538 37,878 24,483

LONG TERM Working Capital Working Capital Working Capital

LIBOR (+) 0.7% to 0.8% p.a. EURIBOR (+) 0.6% to 0.7% p.a. 5.0% to 10.8% interest p.a.

81,042 81,042

179,487 46,192 14,277 119,018

1,314,098 847,118

1,077,487 654,253

TOTAL SHORT TERM TOTAL LONG TERM

MATURITY OF LONG-TERM FINANCINGS AND LOANS: Maturity 2009 2010 2011 2012 2013 2014 onwards Total

2008 345,996 172,676 124,338 92,927 111,180 847,118

2007 325,385 117,378 92,872 63,456 32,053 23,109 654,253


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16.

PROVISIONS FOR CONTINGENCIES

The Company and its subsidiaries are parties to legal and administrative proceedings, arising from the normal course of operations, involving tax, labor and civil issues. The respective provisions were recorded for the proceedings whose possibility of loss was evaluated as probable and/or possible, based on the expected value at risk estimated by the Company's legal advisors. Management estimates the recorded provision for contingencies is sufficient to cover possible losses with judicial proceedings in progress, as follows: PARENT COMPANY 2008 2007 a) Tax:


19,909

14,682

65,619

103,891

19,495 295

119 14,550 13

14,151 1,382 13,569 19,917 16,600

14,151 11,731 39,018 5,395 14,550 19,046

b) Labor

-

-

8,362

9,073

c) Private Pension Plan – Risk Benefits (Note 18)

-

-

10,500

-

d) Civil and Other

-

-

51,436

62,581

19,909

14,682

135,917

175,545

- Income Tax and Social Contribution - Semiannual PIS Law 07/70 - INSS - SEBRAE - PIS/COFINS on Interest on equity - Other

TOTAL

(a.1) (a.2) (a.3) (a.4) (a.5) (a.6)

a) Tax Contingencies (a.1) There were no changes in the progress of these proceedings regarding the year ended on December 31, 2007. (a.2) Reversal of the provision on PIS Semestralidade Law 07/70 proceeding in the amount of R$10,349, made final and unappealable. (a.3) Reversal of the provision on Occupational Accident Insurance (SAT) in the amount of R$31,651, against judicial deposit (Note 09), as a result of the final and unappealable decision of the proceeding. The balance refers to contributions owed to Social Security whose judicial discussions refer to social security pertinent charges on private pension, profit sharing, education allowance and others. (a.4) Reversal of the provision in the amount of R$5,395, against judicial deposit (Note 09), as a result of the final and unappealable decision of the proceeding. (a.5) The Company is judicially questioning the PIS/COFINS levied on the Interest on equity. (a.6) Tax contingencies named “Other” refer to several lawsuits of individual amounts less significant. b) Labor Contingencies


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The Company and its subsidiaries are parties to labor claims involving especially discussions about overtime, health hazard, risks, and others. Based on the payment history and on the legal advisors' opinion, the provision of R$8,362 on December 31, 2008 (R$9,073 on December 31, 2007) is deemed sufficient to cover probable losses. c) Civil and Other Contingencies They correspond especially to civil proceedings, including moral and esthetic damages, occupational diseases, and damages arising from occupational accidents. Based on the legal advisors' opinion, Management recorded a provision of R$51,436 on December 31, 2008 (R$62,581 on December 31, 2007), which is deemed sufficient to cover probable losses.

17. SHAREHOLDERS' EQUITY a)

Capital Stock As of December 31, 2008, the capital stock consists of 617,626,729 non-par registered book-entry voting common shares.

b)

Dividends and Interest on equity

The Bylaws provide for the distribution of at least 25% of the adjusted Net Income, however the Company proposes the following:

NET INCOME FOR THE YEAR ( -) Legal Reserve DIVIDENDS CALCULATION BASIS st 1 Half Dividends (R$ 0.163/share in 2008 and R$0.196/share in 2007)

2008 560,401 28,020 532,381 100,673

2007 574,984 28,749 546,235 121,055

55,950 87,085

17,439 79,674

57,403 301,111

80,654 298,822

st

1 Half Interest on equity (R$0.077/share in 2008 and R$0.024/share in 2007) (Withholding Tax R$8,392 in 2008 and R$2,615 in 2007) nd 2 Half Dividends (R$0.141/share in 2008 and R$0.129/share in 2007) nd

2 Half Interest on equity (R$0.079/share in 2008 and R$0.111/share in 2007) (Withholding Tax R$8,610 in 2008 and R$12,098 in 2007) Total Dividends/Interest on equity for the year


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c)

Recording of Reserves -

Legal Reserve – recorded in the amount of R$28,020 equivalent to 5% of the Net Income for the Year in compliance with the 20% limit of the capital stock;

-

Profit Retention – corresponds to the remaining value of the Net Income for the Year R$231,270, plus the balance of retained earnings R$970 (resulting from the revaluation reserve realization and reversal of previous years dividends) which are allocated to the capital budget reserve, in view of the 2009 investment plan.

18. PRIVATE PENSION PLAN LIABILITIES The Company and its subsidiaries provide their employees with post-employment benefits of supplementary private pension plan, health insurance and bonus related to length of service. During 2008 and 2007 they contributed with R$13,496 and R$10,280, respectively. On December 31, 2008, the net amount of R$10,500 was recorded to cover futures benefits. The purpose of the private pension plan is to supplement retirement benefits granted by the official social security system. The plan, managed by WEG Seguridade Social, comprises the benefits of monthly income, sickness allowance additional, disability retirement additional, disability benefit, death annuity, death benefit, proportional deferred benefit and selfsponsorship. The plan’s contribution forms comprise the contributions of contributing participants and the sponsor’s additional and special monthly contribution. 19. PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION The parent company and subsidiaries in Brazil calculate the income tax and social contribution at pretax profits, except for subsidiary WEG Itajaí Equipamentos Elétricos Ltda, which assesses it at the presumed profits. The provision for income tax was recorded with a 15% rate, plus an additional 10%; and the provision for social contribution, with a 9% rate, in accordance with the prevailing legislation. Taxes of companies overseas are recorded in accordance with the legislation of each country.



December 31, 2008

WEG SA

84.429.695/0001-11


Income Tax and Social Contribution in the Result:

Income before income tax and social contribution and profit sharing Nominal rate Income tax and social contribution calculated at nominal rate Adjustments for effective income tax and social contribution ascertainment: Equity in the earnings of subsidiaries Difference of rates on results abroad Tax incentives Other effects

PARENT COMPANY CONSOLIDATED 2008 2007 2008 2007 556,354 574,443 674,188 726,799 34% 34% 34% 34% (189,160) (195,311) (229,224) (247,112)

190,241 749

194,446 (219)

2,874 (5,341) 22,430 2,967

(19,280) (6,415) 21,177 13,812

Income Tax and Social Contribution in the result

1,830

(1,084) (206,293) (237,818)

Current tax Deferred tax

22 1,808

(2,686) (221,465) (269,046) 1,602 15,172 31,228

20. OTHER OPERATING REVENUES/EXPENSES - CONSOLIDATED Values referring to the exchange variation on shareholders’ equity of companies overseas in 2007, profit sharing, goodwill amortization, provision for tax proceedings and others are recorded under other operating revenues/expenses, as follows: OTHER OPERATING REVENUES - Other

2008 12,035 12,035

2007 6,551 6,551

OTHER OPERATING EXPENSES - Employee profit sharing - Profit sharing – subsidiaries overseas - Exchange variation on Shareholders’ Equity of subsidiaries overseas - Semiannual PIS Law 07/70 - Goodwill amortization - Tax incentives of Rouanet Law - Other

(105,017) (80,885) (5,361) 10,349 (9,457) (2,652) (17,011)

(176,212) (81,632) (5,002) (62,386) (315) (6,103) (3,441) (17,333)

(92,982)

(169,661)

TOTAL NET

The amounts of capital gains and losses, resulting from the exchange variation on investments in subsidiaries overseas, in the amount of R$89,829 on December 31, 2008, are recognized in Shareholders’ Equity. 21. INSURANCE COVERAGE The Company adopts the policy of contracting insurance coverage for assets subject to risks by amounts deemed sufficient to cover possible claims, considering the nature of its activity. The risk assumptions adopted, given their nature, are not part of the scope of a financial statements audit, consequently they were not examined by our independent auditors.


December 31, 2008

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On December 31, 2008, the insurance coverage for operational risks was comprised of R$50,000 for material damages, R$25,000 for profit loss and R$10,000 for civil liability.

22. FINANCIAL INSTRUMENTS In compliance with CVM Resolution 566, of December 17, 2008, which approved the Technical Pronouncement CPC 14, and with CVM Rule 475, of December 17, 2008, the Company and its subsidiaries carried out an evaluation of their financial instruments, including derivatives, recorded in the financial statements on December 31, 2008, presenting the following book and market values:

Cash and cash equivalents Financial Investments: - In Domestic Currency - In Foreign Currency Financings and Loans - In Domestic Currency - In Foreign Currency - Derivative Instrument (NDF)

BOOK VALUE 2008 2007 71,198 108,900

MARKET VALUE 2008 2007 71,198 108,900

1,579,415 198,865

1,835,572 230,500

1,579,415 198,865

1,835,572 230,500

1,153,023 991,309 16,884

848,984 882,756 -

1,153,023 991,309 16,884

848,984 882,756 -

Financial Investments are described as follows: a)

Cash and cash equivalents These are presented at their market value, which is equivalent to their book value.

b)

Financial Investments They are classified as allocated to trading. The market value is reflected on the amounts recorded in the balance sheets.

c)

Loans and Financing The main purpose of this financial instrument is to generate funds to finance the Company’s expansion programs and occasionally meet the needs of its cash flows in the short term. -

Domestic currency loans and financing – they are classified as financial liabilities not measured to fair value, and are accounted for by their values restated according to contracted rates. The market values of these loans are equivalent to their book values, as they are financial instruments with exclusive characteristics coming from specific financing sources.

-

Foreign currency loans and financing – financing contracted to support working capital of commercial operations in Brazil and in subsidiaries overseas and restated according to contracted rates.

-

Derivative financial instruments – operations with derivatives have as purpose the protection against exchange variations in foreign currency funding, with no speculative


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nature. The fair values are calculated projecting future flows of operations (assets and liabilities) using BM&F curves and bringing these flows to present value using BM&F’s future DI rate. Risk factors of financial instruments are basically related to: (i)

Financial Risks Foreign Currency Risks In order to mitigate foreign exchange risks, the Company exports in several currencies, and it also monitors the financial exposure, seeking to balance its financial assets and liabilities within the limits established by Management. As defined by the Company’s Board of Directors, the short-term cash flow protection must be limited to the equivalent to 3 months of revenues in foreign currencies. At the end of 2008, the position was below this limit. The Company's exports amounted to US$675.7 million in 2008, representing natural hedge (US$593.9 million in 2007). Debt Charges Risks This risk results from the possibility of subsidiaries incurring in losses due to fluctuations in interest rates or other debt indexes that increase financial expenses related to loans and financing obtained in the market, or decrease financial revenue related to subsidiaries’ financial investments. The Company continuously monitors market interest rates in order to evaluate the possible need to protect itself against volatility risk of these rates. Derivative Financial Instruments The Company does not have as policy to operate with derivatives as a routine. During 2008, in view of the momentary credit insufficiency in the market, the Company and its subsidiaries carried out operations with derivatives of the NDF "Non Deliverable Forwards" type to mitigate or eliminate risks inherent to their operations. The Company’s and its subsidiaries’ Management permanently monitors the derivative financial instruments contracted by means of their internal controls. The demonstrative chart of sensitivity analysis must be read together with other financial assets and liabilities expressed in foreign currency on December 31, 2008. The effect of estimated deteriorations of exchange rates on NDFs below shall be offset, if realized, fully or partially, with depreciations on total assets and liabilities. In the preparation of the chart below, the Management defined that, for the probable scenario, exchange rates used for mark-to-market of financial instruments must be considered, due on December 31, 2008. Such rates represent the best estimate for their future price behavior, and represent the value for which the positions may be settled in the maturity. The chart below presents the “cash and expense” effects of financial instruments results in each scenario. The data relative to the “possible” and ”remote” scenarios, as they refer to prospective information, not deriving from historical accounting information, were not reviewed by independent auditors.


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Sensitivity Analysis Chart (NDF) Risk

Notional Value

Market Value on 12/31/08 Average Value Quotation

US$ High EUR High

US$40.0 million EUR 7.7 million

US$2.3844 EUR 3.3067

(13,418) (3,466)

Possible Scenario (25%) Average Value Quotation

Remote Scenario (50%) Average Value Quotation

US$2.9805 EUR 4.1334

US$3.5766 EUR 4.9601

(37,359) (5,209)

(61,203) (7,274)

We have executed the accounting registration based on its market price on December 31, 2008 by the accrual method of accounting. These operations had a net negative impact of R$16,884, which was recognized as financial expenses. (ii) Operating Risks Credit risk It arises from the possibility that the Company's subsidiaries do not receive values resulting from sales operations or from credits with financial institutions generated by financial investments. In order to mitigate this risk, the Company's subsidiaries adopt as a practice the analysis of their customers' equity and financial position, define a credit limit and permanently follow-up on their outstanding balance. As for the financial investments, the Company and its subsidiaries do not carry out investments in institutions unless they present low credit risk. Moreover, each institution has a maximum limit of investment balance, established by Management. 23. SUBBSIDY AND GOVERNMENT ASSISTANCE The Company, through its subsidiaries, was granted the following subsidies: Tax Reduction The subsidiary WEG Amazônia S.A. was granted a tax incentive from ICMS incentive credit of 90.25%, and its amount is recognized in the tax incentive reserve in the Shareholders’ Equity of that subsidiary in the amount of R$200 in 2008. Monetary Contribution The subsidiaries WEG Automação S.A. and WEG Equipamentos Elétricos S.A. were granted during 2008 an economic subsidy by FINEP to execute a research and development project of innovative products in the amount of R$1,397. This amount was recorded in the liabilities and realized to the result as expenses were incurred. On December 31, 2008, the R$196 balance remains in the liabilities.


December 31, 2008




3 - CNPJ (Corporate Taxpayer’s ID) 84.429.695/0001-11 TABLE OF CONTENTS

GROUP TABLE

DESCRIPTION

PAGE

01

01

IDENTIFICATION

1

01

02

HEAD OFFICE

1

01

03

INVESTOR RELATIONS OFFICER (Company Mailing Address)

1

01

04

DFP REFERENCE AND AUDITOR INFORMATION

1

01

05

CAPITAL STOCK

2

01

06

COMPANY PROFILE

2

01

07

COMPANIES NOT INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS

2

01

08

CASH DIVIDENDS

2

01

09

INVESTOR RELATIONS OFFICER

3

02

01

BALANCE SHEET - ASSETS

4

02

02

BALANCE SHEET – LIABILITIES

5

03

01

STATEMENT OF INCOME

7

04

01

STATEMENT OF CASH FLOW

8

05

01

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FROM 01/01/2008 TO 12/31/2008

9

05

02


10

05

03


12

06

01

STATEMENT OF VALUE ADDED

14

07

01

CONSOLIDATED BALANCE SHEET - ASSETS

15

07

02

CONSOLIDATED BALANCE SHEET - LIABILITIES

16

08

01

CONSOLIDATED STATEMENT OF INCOME

18

09

01

CONSOLIDATED STATEMENT OF CAHS FLOW

19

10

01

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FROM 01/01/2008 TO 12/31/2008

20

10

02


21

10

03


22

11

01

CONSOLIDATED STATEMENT OF VALUE ADDED

23

09

01

SPECIAL REVIEW REPORT – UNQUALIFIED OPINION

24

10

01

MANAGEMENT REPORT

26

11

01

NOTES TO THE FINANCIAL STATEMENTS

54

33/54