VALLEY OF THE RIO DOCE COMPANY
 

United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant To Rule 13a-16 or 15d-16
of the
Securities Exchange Act of 1934

For the month of

November 2003

Valley of the Rio Doce Company

(Translation of Registrant’s name into English)

Avenida Graca Aranha, No. 26
20030-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive office)

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

(Check One) Form 20-F  [X]  Form 40-F [   ]

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

(Check One) Yes [   ]  No  [X]

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82-      .)

 


 

Companhia Vale of the Rio Doce

TABLE OF CONTENTS:

This form 6-K contains the following:

                 
Item                
Press Release titled “Performance of Companhia Vale do Rio Doce in the Third Quarter of 2003; BR GAAP dated November 13, 2003”
    1.  
 
Third Quarterly Financial Statements; BR GAAP
    2.  


 

BR GAAP

(COMPANHIA VALE DO RIO DOCE LOGO)

BOVESPA: VALE3, VALE5
NYSE: RIO, RIOPR
LATIBEX: XVALO, XVALP

www.cvrd.com.br
rio@cvrd.com.br

Departamento de Relações
com Investidores

Roberto Castello Branco
Rafael Campos
Barbara Geluda
Daniela Tinoco
Eduardo Mello Franco
Rafael Azevedo
Tel: (5521) 3814-4540

PERFORMANCE OF COMPANHIA VALE DO RIO DOCE IN THE THIRD QUARTER OF 2003

The financial and operational information contained in this press release, except otherwise indicated, refers to the Parent Company and was calculated in accordance with generally accepted Brazilian accounting principles (Brazilian GAAP). This information, with the exception of that referring to investment and market behaviour, is based on the quarterly financial statements, which have been reviewed by independent auditors.

Rio de Janeiro, November 12, 2003 – Companhia Vale do Rio Doce (CVRD) has reported net earnings of R$ 1.279 billion, for the third quarter of 2003 (3Q03), corresponding to R$ 3.33 per share, the second highest quarterly profit in the Company’s history. This result was slightly higher than that for the previous quarter (2Q03) of R$ 1.275 billion, and contrasts with the loss of R$ 216 million in 3Q02, which at that time was caused by the effect of the depreciation of the Real on the Company’s foreign currency-denominated debt.

Return on shareholders’ equity (ROE) annualized in the quarter amounted to 35.2%.

Net earnings for the first nine months of 2003 (9M03) amounted to R$ 3.717 billion, compared to R$ 502 million in the same period a year earlier.

The good results obtained by CVRD were due to the favorable conditions in the markets in which it operates, and particularly the quality of business strategy execution, consistent with the aim of maximizing value over the long term.

Revenues

The gross operating revenue, of R$ 2.767 billion reported in 3Q03, was 25.4% higher than the figure reported in 2Q03 and 18.2% higher than in 3Q02. In the first nine months of 2003, accumulated revenues amounted to R$ 7.491 billion compared to R$ 5.784 billion in the same period a year earlier, showing an increase of 29.5%.

Exports

CVRD’s consolidated export revenues, in accordance with BR GAAP, amounted to US$ 994 million in 3Q03, an increase of 5.0% on the previous quarter figure (2Q03) of US$ 947 million, and 27.4% higher than that reported in 3Q02, of US$ 780 million. Export revenues accumulated to the end of September 2003 amounted to US$ 2.741 billion, compared with US$ 2.370 billion in the same period a year earlier.

3Q 03

1


 

BR GAAP

CVRD’s net consolidated exports (exports minus imports) amounted to US$ 2.373 billion in the period January/September 2003, representing 13.4% of Brazil’s trade surplus of US$ 17.797 billion during the period.

Record cash generation

Cash generation, as measured by EBITDA (earnings before interest, tax, depreciation and amortization) amounted to R$ 1.506 billion, an increase of 53.2% on 2Q03 and 34.0% higher than in 3Q02. The quarterly EBITDA registered in 3Q03 is the highest in the Company’s history. In the first nine months of 2003, accumulated EBITDA amounted to R$ 3.637 billion, compared to R$ 2.615 billion in the same period a year earlier.

EBITDA margin (EBITDA/net revenues) in 3Q03 also set a new record, amounting to 56.2%, compared to 46.4% in 2Q03 and 49.8% in 3Q02, surpassing the previous record of 55.5% achieved in 3Q01.

Sales

Shipments of iron ore and pellets amounted to 40.297 million tons in the quarter, 10.6% higher than the amount shipped in 2Q03 and 9.1% more than in 3Q02. Accumulated sales in the first nine months of 2003 amounted to 113.1 million tons, an increase of 5.8% compared to the same period in 2002.

General cargo transported (cargo other than iron ore and pellets) for customers on the Vitória a Minas (EFVM) and Carajás (EFC) railroads set a new quarterly record, with 4.574 billion net ton kilometres (ntk). The third quarter saw 6.4% more general cargo transported by railroad than in 2Q03, which was also an improvement of 17.6% on 3Q02.

Investments

During 3Q03, CVRD’s capital expenditures amounted to US$ 831 million, of which US$ 426.4 million was spent on the acquisition of Caemi. Up to the end of September, the Company had invested a total of US$ 1.419 billion, of which US$ 502 million was spent on acquisitions.

Dividends

On October 31, the Company distributed two tranches of dividends to its shareholders.

The first tranche, of R$ 1.48 per share, corresponds to the second instalment of the minimum dividend announced on January 30 this year. The second tranche, of R$ 1.94 per share, refers to the additional dividend approved by CVRD’s Board of Directors on August 27.

In 2003, the first year in which the new Dividend Policy, approved on 30 November 2002, was implemented, the Company has paid interest on shareholder’s equity of R$ 5.04 per share, amounting to a total of R$ 1.935 billion.

In the 12 months to the end of October, the dividend yield in US dollars is estimated to be 5.4% for common shareholders and 6.1% for preferred shareholders.

3Q 03

2


 

BR GAAP

SELECTED FINANCIAL INDICATORS

                                 
    R$ million
   
    3Q02           2Q03   3Q03
   
         
 
Gross Operating Revenues
    2,340               2,206       2,767  
Gross Margin (%)
    54.5               42.9       49.6  
EBITDA
    1,124               983       1,506  
EBITDA Margin (%)
    49.8               46.4       56.2  
Net Earnings
    (216 )             1,275       1,279  
ROE (annualized) (%)
    (7.7 )             35.9       35.2  
Investments (US$ million) *
    155.5               389.7       831.0  

*including acquisitions

ROE= return on shareholders’ equity = annualized net earnings in the quarter /shareholders’ equity

(COMPANHIA VALE DO RIO DOCE LOGO) RELEVANT EVENTS

In recent months, a number of initiatives have been concluded whose principal aim is to adhere to the strategic focus of the Company and to help increase transparency.

Acquisitions

On September 2, the Company completed the purchase of 50% of the common shares and 40% of the preferred shares of Caemi Mineração e Metalurgia S.A. (Caemi) for US$ 426.4 million, now having 60.2% of the total capital of this company and all the common shares.

Restructuring of logistics assets

With the authorization granted by the Brazilian Regulatory Agency for the Transportation Sector (ANTT), a capital increase of Ferrovia Centro Atlântica (FCA) was carried out. CVRD fully subscribed for the capital increase, for a total of R$ 1.003 billion, of which R$ 798.3 million corresponded to the conversion of advance payments for future capital increases already made, and the remaining R$ 204.9 million to be paid in 4 cash instalments, of which three have already been made. The last installment, for R$ 61.5 million, will be paid in December 2003. As a consequence, CVRD became the controlling shareholder of this railroad company, with 99.99% of its common shares and 99.99% of its total capital. FCA will now be fully integrated into CVRD’s logistics strategy, thereby making investment in the railroad possible, in order to enlarge and improve its general cargo transportation capacity for the Company’s clients.

On November 7, 2003, authorized by ANTT, CVRD divested its stakes in Companhia Ferroviária do Nordeste (CFN) and Sepetiba Tecon S.A.

Simplification of operational structure

CVRD has consolidated Ferteco Mineração S.A. into the Parent Company, taking over the management of Córrego do Feijão and Fábrica iron ore mines, as well as the Fábrica pelletizing plant, located in the Iron Quadrangle, in the state of Minas Gerais. Therefore, starting in September 2003, the results of CVRD Parent Company will directly include - rather than via the equity income result, as previously done - the operational and financial performance of the assets formerly held by Ferteco.

3Q 03

3


 

BR GAAP

CVRD has also consolidated Celmar S.A. which assets were transferred to Ferro Gusa Carajás S.A., a joint venture created with Nucor Corporation for the production of pig iron in the north of Brazil.

Starting in January 2004, CVRD’s manganese and ferro-alloys operations will be conducted through four wholly owned subsidiaries: Rio Doce Manganês (Sibra’s new name starting on October 15, 2003), Urucum Mineração S.A., Rio Doce Manganese Norway (RDMN) and Rio Doce Manganèse Europe (RDME).

Divestitures

On August 15, CVRD finalized the sale of the Fazenda Brasileiro gold mine assets. The accounting gain from this sale, which amounted to R$ 63.0 million, were accounted for in this quarter under the item “other operational revenues/expenses”.

On October 24, the Company sold its 11.1% stake in Fertilizantes Fosfatados S.A. – Fosfértil for R$ 240 million. The accounting gain from this transaction, of R$ 115 million, will be added to the result in 4Q03.

(COMPANHIA VALE DO RIO DOCE LOGO) BUSINESS OUTLOOK

Global production of crude steel, according to the International Iron and Steel Institute (IISI), grew 7.1% in the first nine months of 2003, compared to the same period last year, hence registering a slowdown in relation to the first six months of 2003, when production expanded by 8.2%. This was due to production cutbacks in 3Q03 in the European Union, particularly in Germany, France and Spain, as well as in the US, in reaction to the lacklustre macroeconomic performance in the first half of the year.

The driving force behind the global expansion of crude steel production, which according to our estimates is likely to reach 960 million tons this year, compared to 903 million tons in 2002, is China, whose steel production has increased 21.6% this year to the end of September. In the last 60 months up to the end of September 2003, Chinese production of steel has grown at an average annual rate of 15%, while in the rest of the world steel production has expanded at an annual rate of 2.6%.

Consistent with its current stage of economic development, steel consumption in China is growing even more rapidly and CRU expects China’s imports to exceed 40 million tons in 2003, compared to 29 million last year. The increase in China’s overseas purchases of steel influences rising production in certain Asian countries, Japan in particular, whose steel industry is growing at a 3.5% rate this year.

The IISI’s most conservative scenario for the medium term indicates Chinese steel consumption should reach 330 million tons for 2007, with an annual average growth of 9.3% between 2002 and 2007, compared to 15.3% between 1997 and 2002. According to the same source, global consumption will grow until 2007 at an average annual rate of 3.6%, the same rate as that registered in the period 1997/2002.

The strong Chinese demand is having a positive impact on steel prices, with the CRU Steel Price Index (CRUspi) returning to its upward cycle since June. Between December 2001 and October 2003, CRUspi increased by 45.4%.

Another important implication is the substantial increase in demand for iron ore, with Chinese imports during the period January-September 2003 totaling 110

3Q 03

4


 

BR GAAP

million tons, almost the same volume imported during the whole of last year, which amounted to 111.7 million tons. Compared with the same period in 2002, Chinese imports of iron ore were up 33.1%.

It is estimated that Chinese imports of iron ore will increase by approximately 35 million tons in 2003, with total imports into Asia rising by 40 million tons.

Japan imported 98.8 million tons of iron ore in the first nine months of 2003, 3.2% more than in the same period last year.

It is likely that the global economy in 3Q03 registered its highest rate of growth since the stock market bubble burst in the US, in 1Q00. The USA, whose GDP grew by an annualized rate of 7.2% in 3Q03, extraordinarily high for a developed economy, and Asia where China’s GDP grew by an annualized 9.1% in 3Q03, led the acceleration in global growth.

At the same time, leading indicators are signalling the start of a synchronized recovery in the global economy. In fact, the strongest signals for future growth are coming not only from the US, but also Japan, Southeast Asia, Latin America and even the European Union, where GDP growth this year is likely to be very modest, below 1%. After almost three years of below trend growth, the global economy seems likely to resume its normal expansion rate.

The change in the global economic cycle has been adding more consistency to the demand for ores and metals, whose pattern, although favorable, has been relying almost exclusively on the extraordinary expansion in China. Metal prices, already influenced by the weakness in the US dollar, reacted positively to the change in expectations for global GDP growth. The price of copper, for example, is now fluctuating in the range of US$ 0.90c a pound, having reached at the end of October 2003 its highest level since October 1997, while the prices of primary aluminum, of approximately US$ 1,500 per ton, even in the face of relatively high stock levels in the industry, are among its highest since May 2001.

The combination of dramatic growth in Chinese demand, now leveraged by prospect of a synchronized recovery in the global economy, and the restricted growth in the supply of ores and metals in the last few years – the mining and metals industry reacted to the financial crisis in Southeast Asia in 1997 by reducing the level of investment in expansion of production capacity - have created imbalances in the markets of certain products, which, despite the expansion projects currently under development, are likely to persist for at least another two years.

CVRD estimates that seaborne trade of iron ore will amount to 545 million tons in 2004, compared to 515 million tons this year, with more than 80% of this growth due to the increasing amount of Chinese purchases overseas. With the extra capacity at Carajás set to come on stream in 2004, pushing production up to 70 million tons a year, the enlargement of the Maritime Terminal at Ponta da Madeira to a capacity of 74 million tons a year and the small increase in capacity in the Southern System (3 million tons), the Company should benefit to a greater extent from the pick-up in demand.

The dynamics of price elasticity is likely to gradually correct the excessive increase in freight rates, which has been caused by the considerable expansion in seaborne iron ore trade - evaluated at approximately 65 million tons in 2002/2003. China has doubled its average monthly imports from 6 million tons in 2001 to 12 million tons in 2003, while at the same time, investment in the construction of new Capesize vessels has not kept pace with this trade expansion.

3Q 03

5


 

BR GAAP

The enlargement of port capacity in Brazil, Australia and China, to reduce ship-waiting time, should in the short-term help to increase the effective supply of maritime transportation. Furthermore, according to Clarkson Research Studies, in 2004 shipyards will place an extra 5.6 million deadweight tons of shipping in the marketplace, the equivalent of 35 Capesize vessels, representing an increase of approximately 6% in the global fleet, which will also help to ease the current imbalance between supply and demand for transoceanic transportation. The reaction to the increased shipping supply will be more significant in 2006 and 2007, bearing in mind the length of time between orders being placed and deliveries being met.

Notwithstanding the sharp rise in freight prices on the spot market, with a widening of the spread between Brasil/Asia–Australia/Asia rates, and the probable slowdown in Chinese GDP growth to around 7% in the next few quarters, demand for CVRD’s iron ore might continue to be very strong. This is because of the expansion plans for the Chinese steel industry – the Chinese Iron and Steel Association recently estimated that Chinese production capacity will expand by 120 million tons between the end of 2003 and 2005 – and also because of the Company’s position as a supplier of high content ore with low levels of impurities, important factors for increasing productivity and improving the quality of steel products. Furthermore, the long-term contracts with its Chinese clients permit CVRD to make an effective contribution in optimizing the value chain for steel production.

In the case of alumina, spot prices have remained at around US$ 300 per ton FOB, approximately 20% of the current primary aluminum price on the LME, reflecting the strong demand pressure from China. In the first nine months of this year, Chinese imports amounted to 4.24 million tons, an increase of 32.3% in relation to the same period in 2002.

We expect that the market shortages will continue during 2004 and 2005, which will mean that prices will remain high for many months, in contrast to what occurred in 1995 and 1999/2000, when the high prices seen in alumina saw a rapid reversal.

Spot market prices are influencing prices in short and long-term contracts. This benefits Alunorte, a subsidiary of CVRD, which is signing contracts to absorb its additional production capacity of 1.8 million tons a year, from the construction of stages 4 and 5, which are due to come into service in 2006.

The recent increase in the price of primary aluminum on the LME has had a positive effect on CVRD’s alumina revenues, whose contracts are indexed to metal prices. This situation benefits the sales of Albras, whose production, due to the debottleneckings, will amount to 430,000 tons in 2003, rising to 450,000 tons in 2004. However, depending on the recovery in the global economy, it is estimated that in 2004 there will be an excess supply situation in the aluminum market, in relation to global consumption, which will tend to limit the trend of recent price increases.

Stocks of copper have been falling, due to the slow expansion in the supply of copper concentrate and the sharp increase in Chinese consumption. Moreover, it has been estimated that this shortage will continue next year as a result of expected growth in demand. Despite the fact that the increase in the metal price tends to stimulate expansion in the supply of copper concentrate, no downward pressure is expected on prices for this product, given the continued level of excess demand. This scenario is therefore positive for the sales outlook of Sossego, which will be running at full production capacity in the middle of 2004, at an annual production rate of 470,000 tons of concentrate.

3Q 03

6


 

BR GAAP

(COMPANHIA VALE DO RIO DOCE LOGO) SALES VOLUME AND REVENUES

Iron ore and pellet shipments amounted to 40.297 million tons, up 9.1% in relation to the volume sold in 3Q02, of 36.925 million tons, and an increase of 10.6% on that sold in 2Q03, of 36.428 million. However, it is important to note that from September, with the consolidation of Ferteco into the Parent Company, shipments of iron ore produced by the Córrego do Feijão and Fábrica mines and the Fábrica pelletizing plant were included in the figures for CVRD Parent Company, representing an additional 1.601 million tons. Disregarding this added amount, the volume sold of 38.696 million tons showed an increase of 4.8% in relation to 3Q02 and a rise of 6.2% compared to the previous quarter.

Sales accumulated in the first nine months of the year amounted to 113.116 million tons, compared to 106.918 million tons in the same period in 2002, an increase of 5.8%.

Ore fines accounted for 78.4% of shipments in 3Q03, lumps, 9.5% and pellets 12.1%. Iron ore sales amounted to 35.430 million tons and pellet sales, 4.867 million tons. Since 3Q03, the São Luis pelletizing plant has been operating at full capacity – 6 million tons per year, all of its production being sold to the export market. Therefore, in addition to a higher production capacity, CVRD now has more flexibility in the supply of pellets for its clients, via the Tubarão complex in the Southeast of the country, via São Luís in the state of Maranhão, at Ponta da Madeira, and via the Fábrica plant in the state of Minas Gerais (this last one is more focused to the domestic market).

China continued to be the main source of sales expansion for CVRD’s iron ore and pellets. Shipments to Chinese clients in 3Q03, of 7.1 million tons, rose 69.0% in relation to the same period a year earlier, 4.2 million tons, and were up 47.9% in relation to 2Q03’s figure of 4.8 million tons. In the first nine months of 2003, China purchased 17.3 million tons of iron ore and pellets from CVRD, which in annualized terms represents an increase of 31.8% compared to the volume purchased in 2002, showing that despite current capacity constrains, CVRD is being able to take advantage of the opportunities offered by the most dynamic market in the world. CVRD’s market share of Chinese imports remained close to 16%.

Approximately 74% of iron ore and pellet shipments in 3Q03 were sold to the export market, 12% to the pelletizing joint ventures, and 14% to domestic clients. Approximately 24% of export volume was shipped to China, which continues to be CVRD’s main client. Germany accounted for 14.8% of exports, with 4.4 million tons, and Japan accounted for 13.8%, with 4.1 million tons. Asia accounted for 47.0% of exports, and Europe, 39.9%.

Sales of potash amounted to 198,000 tons, an increase of 32.9% in relation to the previous quarter and a drop of 11.2% compared to 3Q02. The drop in the level of shipments in comparison to the same quarter in 2002 is explained by the drawdown of existing stock at that time, which boosted sales to 731,000 tons in 2002. At the moment, the Taquari-Vassouras mine is operating at production levels of 650,000 tons a year, above its nominal capacity of 600,000 tons, with stock levels being practically non-existent.

3Q 03

7


 

BR GAAP

SALES VOLUME

                             
        ‘000 tons
       
        3Q02   2Q03   3Q03
       
 
 
Iron Ore and Pellets
    36,925       36,428       40,297  
 
Iron Ore
    32,668       32,102       35,430  
   
Fines
    28,688       29,001       31,597  
   
Lumps
    3,980       3,101       3,833  
Pellets
    4,257       4,326       4,867  
Gold (troy ounce)
    63,531       19,773       14,211  
Potash
    223       149       198  
Port Services
    7,007       7,411       6,515  

SALES OF IRON ORE AND PELLETS

                           
      million tons
     
DESTINATION   3Q02   2Q03   3Q03

 
 
 
ASIA
                       
 
China
    4.2       4.8       7.1  
 
South Korea
    2.0       1.7       1.7  
 
Philippines
    0.7       0.6       0.6  
 
Japan
    4.0       4.1       4.1  
 
Taiwan
    0.5       0.5       0.5  
 
Total
    11.4       11.7       14.0  
EUROPE
                       
 
Germany
    3.6       2.8       4.4  
 
Spain
    0.7       0.9       0.4  
 
France
    1.4       2.3       1.7  
 
Italy
    0.8       1.2       1.2  
 
United Kingdom
    0.8       0.6       0.6  
 
Others
    3.6       2.8       3.6  
 
Total
    10.9       10.6       11.9  
THE AMERICAS
                       
 
Argentina
    0.6       0.8       0.7  
 
United States
    1.2       0.8       1.0  
 
Other
    0.7       0.6       0.7  
 
Total
    2.5       2.2       2.4  
Others
                       
 
Bahrein
    0.6       0.4       1.0  
 
Others
    1.2       2.0       0.5  
 
Total
    1.8       2.4       1.5  
TOTAL
    26.6       26.9       29.8  
                             
DOMESTIC MARKET   3Q02   2Q03   3Q03

 
 
 
 
Steel Mills
    5.4       4.6       5.7  
 
Pelletizing Joint Ventures
    4.9       4.9       4.7  
   
Total
    10.3       9.5       10.4  
TOTAL
    36.9       36.4       40.2  

General cargo volume transported by EFVM and EFC also represented a new record – amounting to 4.574 billion ntk, an increase of 17.6% in relation to 3Q02, and up 6.4% compared to 2Q03. In the first nine months of 2003, these railroads transported 12.261 billion ntk of general cargo, compared to 10.946 billion in the same period last year, an increase of 12.0%.

3Q 03

8


 

BR GAAP

The improvement in productivity indicators for these railroads has also been extremely satisfactory. Average revenue per wagon, generated by EFVM, increased by 35.4% from 3Q02 to 3Q03. Ntks transported per locomotive in service, per day on EFC increased by 19.2% in the same period.

The integration of CVRD’s assets, the clear definition of a marketing policy, the launching of new services and the carrying out of investment, are all enabling the Company’s logistics services to expand at much faster rates than brazilian GDP growth.

Cargo handling for clients in CVRD’s ports and maritime terminals amounted to 6.515 million tons, down 7.0% in relation to 3Q02 and down 12.1% in relation to 2Q03. The reduction in the volume of cargo handled for clients is basically due to the absorption of Ferteco into the Parent Company.

GENERAL CARGO TRANSPORTED BY RAILROAD

                           
      million ntk
     
      3Q02   2Q03   3Q03
     
 
 
 
Vitória a Minas Railroad
    3,049       3,311       3,497  
 
Carajás Railroad
    841       987       1,077  
Total
    3,890       4,298       4,574  

The Company’s gross operating revenues amounted to R$ 2.767 billion in 3Q03, 18.2% higher than in 3Q02 and an increase of 25.4% on the previous quarter (2Q03). Comparing the total revenues obtained in 2Q03, of R$ 2.206 billion, with those reported in 3Q03, an increase of R$ 561 million can be seen, of which R$ 367 million can be explained by price increases and R$ 219 million by growth in sales volume. The average depreciation of the Real of 10.4% in 3Q03, in relation to 2Q03, alone contributed to a reduction in revenues of R$ 25 million, given that 83% of quarterly sales were either denominated in, or indexed to, the US dollar.

The revenue obtained from the sales of iron ore amounted to R$ 1.777 billion - 64.2% of the total – constituting another record. Revenue growth amounted to 22.4% in comparison to 3Q02, and 31.1% compared to 2Q03. Pellet sales generated revenues of R$ 488 million in 3Q03 - 17.6% of total revenues - an increase of 24.2% in relation to 3Q02 and up 30.1% on 2Q03. As a result of the price increase negotiated with clients, R$ 170 million correspondent to adjustment of shipments made in 1H03 were booked in 3Q03 revenues, leaving another R$ 6 million to be booked in the fourth quarter of 2003.

Revenue generated from the operation of the five joint ventures pelletizing plants in Tubarão, amounted to R$ 36 million, compared to R$ 29 million in 3Q02 and R$ 32 million in 2Q03.

Logistics services generated gross revenues of R$ 359 million correspondent to 13% of total revenues. Railroad transportation generated R$ 281 million in revenues this quarter, registering an increase of 17.1% in relation to 3Q02, which generated revenue of R$ 240 million, and was up 4.1% compared to 2Q03’s (R$ 270 milion). The main elements behind this increase were services provided to the steel industry, which accounted for 38.0% of the total, services to the agro-industry, which accounted for 31.9% of revenues (with particular emphasis on soy beans, sugar and alcohol), and inter-modal transportation, with 3.1%. Despite the small proportion of logistics revenues represented by inter-modal transport, which basically involves the transport of products from factories to large distribution centres, the growth rate in this segment has been extremely high.

3Q 03

9


 

BR GAAP

Due to the closure of the Igarapé Bahia mine and the sale of the Fazenda Brasileiro mine, gold sales have dropped from R$ 63 million in 3Q02 to R$ 20 million in 2Q03 and R$ 16 million in 3Q03. Potash sales have remained stable at R$ 81 million in relation to 3Q02, thanks to higher prices, and were up 28.6% in relation to 2Q03, mainly due to an increase in the volume sold.

REVENUE BREAKDOWN BY PRODUCT

                                                   
      R$ million
     
      3Q02   %   2Q03   %   3Q03   %
     
 
 
 
 
 
Iron Ore
    1,452       62.1       1,355       61.4       1,777       64.2  
 
Domestic Market
    395       16.9       364       16.5       410       23.1  
 
Export Market
    1,057       45.2       991       44.9       1,367       76.9  
Pellets
    393       16.8       375       17.0       488       17.6  
 
Domestic Market
    56       2.4       64       2.9       88       18.0  
 
Export Market
    337       14.4       311       14.1       400       82.0  
Railroad Transport
    240       10.3       270       12.2       281       10.2  
Port Services
    73       3.1       84       3.8       78       2.8  
Potash
    81       3.5       63       2.9       81       2.9  
Gold
    63       2.7       20       0.9       16       0.6  
Pelletizing Plants Operation Services
    29       1.2       32       1.4       36       1.3  
Others
    9       0.4       8       0.3       10       0.4  
Total
    2,340       100.0       2,206       100.0       2,767       100.0  

(COMPANHIA VALE DO RIO DOCE LOGO) NET EARNINGS OF R$ 1.279 BILLION

Net earnings in 3Q03 were the second highest in CVRD’s history, of R$ 1.279 billion, higher than the figure reported in 2Q03 of R$ 1.275 billion and the loss of R$ 216 million reported in 3Q02. Earnings accumulated in the first nine months of 2003 amounted to R$ 3.717 billion, 81.9% higher than net earnings for the whole year 2002, which amounted to R$ 2.043 billion.

Annualized ROE for 3Q03 amounted to 35.2%, showing the same level seen in the two previous quarters.

Factors behind the increase in earnings in relation to 3Q02

The net revenue increase of R$ 421 million in the 3Q03 vis-à-vis the 3Q02 had a major influence on the very good performance of the Company.

The negative impact of the monetary variation in the 3Q03 amounted to R$ 188 million, a substantially smaller amount when compared to the R$ 2.103 billion registered in the 3Q02, which was caused by the strong depreciation of the Real in that quarter. In the 3Q02, the net financial result was negative in the amount of R$ 510.1 million, being impacted by a provision of R$ 139 million. In the 3Q03, the negative net financial result was reduced to R$ 85.1 million.

The COGS increase in 3Q03 amounted to R$ 323 million vis-á-vis 3Q02. This change was the result of: an increase of R$ 79 million in cost of materials, principally due to provisions made for renovations, an increase of R$ 51 million in fuel oil and gas purchases, R$ 36 million from the acquisition of iron ore and pellets, R$ 20 million referring to the transport of iron ore and pellets from Ferteco to the Sepetiba port (referring to September, when it was consolidated into the parent company), R$ 14 million in demurrage costs, R$ 11 million with energy due to increase in consumption and prices and R$ 6 million in taxes, as a result of the increase in sales.

3Q 03

10


 

BR GAAP

COGS BREAKDOWN

                                                 
    R$ million
   
    3Q02   %   2Q03   %   3Q03   %
   
 
 
 
 
 
Personnel
    137       13.3       124       10.2       144       10.6  
Material
    135       13.1       206       17.0       214       15.9  
Fuel Oil and Gases
    111       10.8       156       12.9       162       12.0  
Contracted Services
    146       14.2       180       14.9       229       17.0  
Energy
    32       3.1       33       2.7       43       3.2  
Acquisition of Products
    258       25.1       263       21.7       294       21.7  
Depreciation and Exhaustion
    168       16.3       155       12.8       185       13.7  
Others
    41       4.0       95       7.8       81       6.0  
Total
    1,028       100.0       1,211       100.0       1,351       100.0  

With regard to asset sales, there was a year-on-year negative variation of R$ 48 million, seeing that in 3Q02, R$ 111 million in revenues was recorded from the sale of the assets of Florestas Rio Doce and in 3Q03, there were R$ 63 million in revenues from the sale of the Fazenda Brasileiro mine. This item is accounted for at the “Other Operational Revenues/Expenses” line in 3Q03 .

The result from shareholdings saw little change, increasing from R$ 482 million in 3Q02 to R$ 487 million in 3Q03. The main contribution in this quarter came from iron ore and pellet companies, totalling R$ 159 million, followed by steel companies with R$ 136 million and aluminum with R$ 130 million.

In the iron ore and pellets business area, we can highlight Samarco, which not only paid R$ 44 million in dividends to CVRD, but also generated a quarterly equity income result of R$ 52 million. Samarco sales increased by 14,9% in the first nine months of the year vis-à-vis the same period of 2002, becoming the largest pellet supplier of China. Year September, Samarco net income totaled R$ 386.5 million.

GIIC, a pelletizing plant located in Bahrain, also presented a good performance. Sales in the first nine months of 2003, of 2.850 million tons, increased 33.1% yoy. In the same period, net income amounted to R$ 52.9 million and contributed with R$ 10 million to CVRD net income.

Ferteco generated in July and August (the two months before its consolidation into CVRD) results from shareholdings of R$ 7 million. This includes a goodwill amortization of R$ 26 million.

As a consequence of the growth in demand derived from the world steel production and of the restructuring of the manganese and ferro alloys companies, this business area has shown good performance. Sibra contributed with R$ 10 million for CVRD’s quarterly net income, RDME with R$ 9 million, RDMN with R$ 6 million and Urucum, R$ 5 million.

In logistics, MRS generated a positive result of R$ 23 million due to and increase in volume transported and Docenave, R$ 14 million, partly offset by a loss of R$ 30 million from FCA.

Given the capacity expansions that took place in MRN, Alunorte and Albras, the increase in alumina prices and the recent recovery in aluminum prices, the operational performance of those companies improved substantially in 2003. However, losses realized with aluminum price hedging, through the use of derivatives, caused a drop in the results from shareholdings from R$ 267 million in 2Q03 to R$ 130 in 3Q03. Anyway the aluminum business area contributed with R$ 618 million for the Company net earnings during 2003, 16.6% of the total amount.

3Q 03

11


 

BR GAAP

The interest of CVRD in steel companies generated R$ 136 million in 3Q03, due to the good performance of this industry. CST contributed with R$ 83 million, Usiminas with R$ 47 million and CSI with R$ 5 million.

RESULT FROM SHAREHOLDINGS BY BUSINESS AREA

                           
      R$ million
     
Business Area   3Q02   2Q03   3Q03

 
 
 
Ferrous Minerals
    868       7       202  
 
Iron Ore and Pellets
    791       (3 )     159  
 
Manganese and Ferro Alloys
    77       10       43  
Non-Ferrous Minerals
    (52 )     27       (26 )
Logistics
    (153 )     (178 )     8  
Steel
    133       15       136  
Aluminum
    (321 )     267       130  
Others
    7       12       37  
Total
    482       151       487  
   
(COMPANHIA VALE DO RIO DOCE LOGO) EBITDA BEHAVIOR

In this quarter, the Company generated record EBITDA, of R$ 1,506 million, an increase of 34.0% in relation to 3Q02 (R$ 1,124 million) and 53.2% higher than in 2Q03 (R$ 983 million). EBITDA margin also constituted a record, 56.2%, higher than that in 3Q02 (49.8%) and that in 2Q03 (46.4%).

EBITDA growth in relation to 3Q02

The main factor behind the increase in EBITDA in 3Q03, compared to 3Q02 was the growth in net operating revenue of R$ 421 million.

Furthermore, a number of other factors combined to contribute to this increase: (i) an increase in the amount of dividends received from subsidiaries and affiliates of around R$ 182 million; (ii) gain of R$ 63 million from the sale proceeds of the Fazenda Brasileiro mine, booked at the “other operating expenses/revenues” line; (iii) a reduction of R$ 18 million in depreciation.

In 3Q03, CVRD Parent Company received dividends of R$ 212 million, from which R$ 87.8 million were paid by CST, R$60.6 million by Docenave, R$ 43.7 million by Samarco, R$ 9.6 million by Usiminas, and R$ 6.1 million by Fosfértil, with R$ 4.2 million being received in dividends from other companies.

The increase of R$ 324 million in COGS, of R$ 17 million in Research and Development expenses, and the increase of R$ 18 million in Sales and Administrative expenses, all contributed to limit EBITDA growth. The major item that contributed for the increase in these expenses was sales commissions generated by the increase in revenues.

3Q 03 12

 


 

BR GAAP

EBITDA CALCULATION

                         
    R$ million
   
    3Q02   2Q03   3Q03
   
 
 
Net Operating Revenues
    2,259       2,119       2,680  
COGS
    (1,027 )     (1,211 )     (1,351 )
Sales Expenses
    (44 )     (45 )     (56 )
Administrative Expenses
    (91 )     (97 )     (97 )
Research & Development
    (47 )     (36 )     (64 )
Other Operational Expenses
    (130 )     (131 )     (9 )
EBIT
    920       600       1,102  
Depreciation and Amortization
    174       163       192  
Dividends Received
    30       185       212  
Adjustments for Non-Recurring Items (asset write- off)
          36        
EBITDA
    1,124       983       1,506  

FINANCIAL STATEMENTS

                         
    R$ million
   
    3Q02   2Q03   3Q03
   
 
 
Gross Operating Revenues
    2,340       2,206       2,767  
Taxes
    (81 )     (87 )     (87 )
Net Operating Revenues
    2,259       2,119       2,679  
Cost of Goods Sold
    (1,028 )     (1,211 )     (1,351 )
Gross Earnings
    1,232       908       1,328  
Gross Margin (%)
    54.5       42.9       49.6  
Result from Shareholdings
    482       151       487  
Equity Income
    967       370       246  
Goodwill Amortization
    (109 )     (185 )     (113 )
Provision for Losses
    (377 )     (35 )     354  
Others
                 
Operational Expenses
    (313 )     (308 )     (226 )
Sales
    (44 )     (45 )     (56 )
Administrative
    (91 )     (97 )     (97 )
Research and Development
    (47 )     (36 )     (64 )
Other Operational Expenses
    (130 )     (131 )     (9 )
Financial Result
    (2,613 )     783       (273 )
Financial Expenses
    (542 )     (164 )     (145 )
Financial Revenues
    32       61       60  
Monetary Variation
    (2,103 )     885       (188 )
Operating Profit
    (1,212 )     1,534       1,317  
Result from Discontinued Operations
    111              
Income Tax and Social Contribution
    885       (259 )     (38 )
Net Earnings
    (216 )     1,275       1,279  
Earnings per share (R$)
    (0.56 )     3.32       3.33  

3Q 03 13

 


 

BR GAAP

BALANCE SHEET

                             
        R$ million
       
        09/30/02   06/30/03   09/30/03
       
 
 
Asset
                       
 
Current
    6,412       4,127       5,617  
 
Long Term
    3,425       2,894       2,646  
 
Fixed
    17,997       20,774       22,177  
Total
    27,834       27,796       30,440  
Liabilities
                       
 
Current
    5,199       5,297       6,392  
 
Term
    11,396       8,310       9,515  
Shareholders’ Equity
    11,239       14,188       14,533  
   
Paid-up Capital
    5,000       6,300       6,300  
   
Reserves
    6,240       7,888       8,233  
Total
    27,834       27,796       30,440  

(COMPANHIA VALE DO RIO DOCE LOGO) INVESTMENTS

During 3Q03, CVRD’s capital expenditure amounted to US$ 831 million, of which US$ 426.4 million was spent on the purchase of Caemi. In the first nine months of the year, the Company invested a total of US$ 1,418.7 million, US$ 502 million of which referred to acquisitions.

In this quarter, US$ 210.9 million was invested in projects. The largest portion of this being spent on the Sossego project, with an investment of US$ 106.3 million; US$ 8.6 million being spent on the expansion of the Taquari-Vassouras potash mine and US$ 28.6 million being spent on the purchase of locomotives and railcars. In addition to this, US$ 32.8 million was invested in enlarging iron ore production and logistics capacity in the Northern System and US$ 13.6 million in the Southern System.

Expenditure on maintenance and environmental protection in 3Q03 amounted to US$ 107.9 million, representing 13.0% of total capital expenditure.

Capital injections totalling US$ 61 million - 7.3% of total capital expenditure, were distributed between FCA, PPSA and companies dedicated to mineral exploration in Peru and Gabon.

Expenditure on mineral exploration and technological research amounted to US$ 18.9 million. US$ 9.1 million was spent on information technology, US$ 4.8 million of which was spent on the implementation of the ERP system.

Of the total amount invested in 3Q03, the ferrous mineral business accounted for 69.0%, the non-ferrous business, 20.2% and logistics, 7.5%.

3Q 03 14

 


 

BR GAAP

Main projects:

                                         
        Investment realized    
        US$ million    
       
   
Area   Project   1Q03   2Q03   3Q03   9M03   Status

 
 
 
 
 
 
    Expansion of iron ore production capacity in the Northern System     6.1       7.7       14.2       28.0     It is expected that the Northern System will be operating at a rate of 70 million tons per year in 1Q04, consequently being some 12 months ahead of schedule.
                                         
    Pier III at the Maritime Terminal of Ponta da Madeira     2.1       2.8       4.7       9.6     Completion scheduled for February 2004 . The implementation of this project is proceeding on schedule with capex estimated at US$ 33.3 million. Pier III will have a shipment loading capacity of 18 million tons a year, increasing the capacity of TMPM to 74 million tons a year.
                                         
Ferrous   (TMPM)
Brucutu iron
ore mine –
Southern
System
    0.146       0.296       1.1       1.5     Completion of first phase scheduled for 2006, when the mine will have a production capacity of 12 million tons per year. The work is proceeding according to schedule. Total investment is budgeted at US$ 219.9 million.
                                         
    Fábrica Nova
iron ore mine
–Southern
System
    0.637       2.5       5.9       9.0     11% of the investment has already been realised and work is proceeding according to schedule. Fábrica Nova should reach nominal production capacity of 10 million tons a year in 2005, reaching 15 million tons in 2009. Total capex is estimated at US$ 84.4 million, with investment in 2003 budgeted at US$ 39.6 million . The project is on schedule and within budget.
                                         
    Sossego
Copper Mine
    40.5       87.5       106.3       234.3     83% of the total investment for the project has already been carried out, which represents completion of around 90% of the work. Commissioning is scheduled for 1Q04, production ramp up for 2Q04 and start up commercial production for July 04.
                                         
Non Ferrous   Expansion of the Taquari- Vassouras Potash Mine     4.0       6.9       8.6       19.5     Completion scheduled for 1H05. 38% of the total investment in the project has already been realised. 42% of the work has already been completed. After the expansion, the mine will have a production capacity of 850,000 tons a year.
                                         
    Purchase of Locomotives and Railcars     18.9       35.3       28.6       82.8     Of the 2,010 railcars and 77 locomotives, which will be purchased by the end of 2003 , the Company has already received 1,356 railcars and 66 locomotives. Part of this equipment will be allocated to the transport of general cargo and part for the transport of iron ore. 51% of the total investment, estimated at US$ 162.9 million has already been carried out.
                                         
Logistics   Praia Mole
Maritime
Terminal
(phases I & II)
    0.707       1.5       3.0       5.2     Phase I was concluded in April 2003. After the completion of Phase II, scheduled for 2Q04, the shipment capacity of the Terminal will be 14.5 million tons a year. Total investment is budgeted at US$ 20.9 million.
                                         
    Aimorés
Hydroelectric
Plant
    6.4       7.6       2.9       16.9     Full operation has been postponed to October 2004, due to delays in the relocation of a town due to legal issues. The construction of the plant is proceeding according to schedule. The plant will be ready within the initial period envisaged, but will not be able to generate electricity because the water reservoir will not be full.
                                         
Power
Generation
  Candonga
Hydroelectric
Plant
    6.7       5.4       3.6       15.7     Completion scheduled for December 2003. Almost 100% of the total investment in the project, estimated at US$ 40.1 million, has been completed.

3Q 03 15

 


 

BR GAAP

INVESTMENTS - 3Q03

                 
By Business Area   US$ million   %

 
 
Ferrous Minerals
    573.6       69.0 %
Logistics
    62.3       7.5 %
Non-ferrous Minerals
    167.8       20.2 %
Power Generation
    12.8       1.5 %
Others
    14.5       1.7 %
Total
    831.0       100.0 %
                 
By Category   US$ million   %

 
 
Capital infusions
    57.8       7.0 %
Maintenance & Environmental Protection
    107.9       13.0 %
Projects
    210.9       25.4 %
Mineral Exploration & Technological Research
    18.9       2.2 %
Information Technology
    9.1       1.1 %
Acquisitions
    426.4       51.3 %
Total
    831.0       100.0 %

3Q 03 16

 


 

BR GAAP

IRON ORE AND PELLET COMPANIES -FINANCIAL INDICATORS

                           
      R$ million
     
HISPANOBRAS   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    685       890       824  
 
Export Markets
    165       625       94  
 
Domestic Market
    520       265       730  
Average Price (US$/ton)
    32.07       36.33       32.59  
 
Net Revenues
    67       93       79  
Cost of Goods Sold
    (57 )     (85 )     (64 )
Net Financial Result
    8       (7 )     0  
Net Earnings
    10       8       4  
Gross Margin (%)
    15.5       8.6       19.5  
EBITDA
    9       17       7  
EBITDA Margin (%)
    13.9       18.2       9.2  
                           
NIBRASCO   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    1,842       1,719       1,626  
 
Export Markets
    290       513       509  
 
Domestic Market
    1,552       1,206       1,117  
Average Price (US$/ton)
    25.96       27.03       33.79  
 
Net Revenues
    162       147       174  
Cost of Goods Sold
    (148 )     (153 )     (156 )
Net Financial Result
    (2 )     2       (5 )
Net Earnings
    4       (5 )     17  
Gross Margin (%)
    8.7       (3.8 )     10.4  
EBITDA
    14       (3 )     20  
EBITDA Margin (%)
    8.7       (2.1 )     11.6  
Gross Debt (US$ million)
    5       2       2  
 
- Short Term
    2       2       2  
 
- Long Term
    2              
                           
ITABRASCO   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    815       843       838  
 
Export Markets
    572       778       838  
 
Domestic Market
    243       65        
Average Price (US$/ton)
    30.06       35.25       32.96  
 
Net Revenues
    80       91       80  
Cost of Goods Sold
    (67 )     (76 )     (73 )
Net Financial Result
    13       (5 )     2  
Net Earnings
    13       6       4  
Gross Margin (%)
    16.7       16.6       8.4  
EBITDA
    8       14       4  
EBITDA Margin (%)
    9.6       15.0       5.0  
Gross Debt (US$ million)
    16       0       0  
 
- Short Term
    16       0       0  
 
- Long Term
                 

3Q 03 17

 


 

BR GAAP

IRON ORE AND PELLET COMPANIES - FINANCIAL INDICATORS

                           
      R$ million
     
KOBRASCO   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    850       1,128       1,134  
 
Export Markets
    850       667       453  
 
Domestic Market
          461       681  
Average Price (US$/ton)
    29.47       30.35       34.59  
 
Net Revenues
    74       102       102  
Cost of Goods Sold
    (60 )     (89 )     (82 )
Net Financial Result
    (147 )     50       (8 )
Net Earnings
    (92 )     35       5  
Gross Margin (%)
    18.9       12.2       19.1  
EBITDA
    9       9       18  
EBITDA Margin (%)
    11.9       8.4       18.2  
Gross Debt (US$ million)
    147       102       102  
 
- Short Term
                 
 
- Long Term
    147       102       102  
                           
SAMARCO   3Q02   2Q03   3Q03

 
 
 
Quantity Sold - Export Market (‘000 tons)
    3.871       4.277       3.928  
Pellets
    3.275       3.339       3.359  
Iron ore
    596       938       569  
 
Average Price (US$/ton)
                       
Pellets
    30,13       35,03       35,47  
Iron ore
    15,81       16,57       17,56  
 
Net Revenues
    311       371       348  
Cost of Goods Sold
    (138 )     (166 )     (163 )
Net Financial Result
    (163 )     25       (14 )
Net Earnings
    (73 )     142       105  
Gross Margin (%)
    56       55       53  
EBITDA
    137       168       163  
EBITDA Margin (%)
    44,1       167,9       162,6  
Gross Debt (US$ million)
    322       138       136  
 
- Short Term
    76              
 
- Long Term
    246       138       136  
                           
GIIC*   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    643       1.178       900  
 
Export Market
    643       1.178       900  
Average Price (US$/ton)
    41,55       43,30       41,18  
 
Net Revenues
    104       140       120  
Cost of Goods Sold
    (97 )     (106 )     (88 )
Net Financial Result
    (1 )     (1 )     (1 )
Net Earnings
    8       21       20  
Gross Margin (%)
    6,7       23,8       26,3  
EBITDA
    14       24       23  
EBITDA Margin (%)
    13,0       16,9       18,9  
Gross Debt (US$ million)
    40       35       30  
 
- Short Term
                 
 
- Long Term
    40       35       30  

*Financial indicators calculated according to IASC norms (International Accounting Standards Committee)

3Q 03 18

 


 

BR GAAP

MANGANESE AND FERRO-ALLOY COMPANIES -FINANCIAL INDICATORS

                           
      R$ million
     
SIBRA (Consolidated)   3Q02   2Q03   3Q03

 
 
 
Quantity Sold - Ferro Alloys (‘000 tons)
    104       78       90  
 
Export Market
    63       40       47  
 
Domestic Market
    41       38       43  
Average Price (US$/ton)
    442.63       606.47       569.57  
Quantity Sold - Manganese (‘000 tons)
    239       382       344  
 
Export Market
    181       306       261  
 
Domestic Market
    58       76       83  
Average Price (US$/ton)
    46.38       42.93       45.52  
Net Revenues
    168       171       177  
Cost of Goods Sold
    (101 )     (93 )     (112 )
Net Financial Result
    13       (19 )     (6 )
Net Earnings
    46       25       29  
Gross Margin (%)
    39.7       45.6       36.8  
EBITDA
    53       57       43  
EBITDA Margin (%)
    31.7       33.3       24.2  
Gross Debt (US$ million)
    45       64       58  
 
- Short Term
    25       25       18  
 
- Long Term
    20       39       40  
                           
URUCUM   3Q02   2Q03   3Q03

 
 
 
Quantity Sold - Iron ore (‘000 tons)
    198       174       217  
 
Export Market
    197       174       214  
 
Domestic Market
    1             3  
Average Price (US$/ton)
    14.31       15.03       15.67  
Quantity Sold - Manganese (‘000 tons)
    78       109       107  
 
Export Market
    25       43       52  
 
Domestic Market
    53       66       55  
Average Price (US$/ton)
    40.76       37.18       40.66  
Quantity Sold - Ferro Alloys (‘000 tons)
    3       3       8  
 
Export Market
    3       3       8  
 
Domestic Market
                 
Average Price (US$/ton)
    452.09       503.55       483.38  
Net Revenues
    21       23       31  
Cost of Goods Sold
    (9 )     (10 )     (18 )
Net Financial Result
    5       (7 )     0  
Net Earnings
    5       7       5  
Gross Margin (%)
    57.8       57.2       43.8  
EBITDA
    12       15       10  
EBITDA Margin (%)
    55.7       65.7       31.2  
Gross Debt (US$ million)
          5       5  
 
- Short Term
          5       5  
 
- Long Term
                 

3Q 03 19

 


 

BR GAAP

ALUMINUM COMPANIES – FINANCIAL INDICATORS

                             
        R$million
       
MRN   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    2,554       3,512       4,049  
 
Export Markets
    740       958       1,324  
 
Domestic Market
    1,814       2,554       2,725  
Average Price (US$/ton)
    18.46       18.98       19.21  
 
Net Revenues
    147       184       211  
Cost of Goods Sold
    (73 )     (89 )     (100 )
Net Financial Result
    (74 )     (11 )     (2 )
Net Earnings
    (7 )     75       97  
Gross Margin (%)
    50.5       51.5       52.8  
EBITDA
    87       110       128  
EBITDA Margin (%)
    59.3       59.6       60.5  
Gross Debt (US$ million)
    101       200       203  
 
- Short Term
    23       134       145  
 
- Long Term
    78       65       58  
                           
ALUNORTE   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    348       537       631  
 
Export Market
    115       303       395  
 
Domestic Market
    233       234       236  
Average Price (US$/ton)
    170.13       173.68       185.78  
 
Net Revenues
    196       273       340  
Cost of Goods Sold
    (131 )     (218 )     (235 )
Net Financial Result
    (374 )     137       (62 )
Net Earnings
    (307 )     151       23  
Gross Margin (%)
    33.1       20.2       30.9  
EBITDA
    74       68       109  
EBITDA Margin (%)
    37.5       25.1       32.2  
Gross Debt (US$ million)
    473       498       487  
 
- Short Term
          4       8  
 
- Long Term
    473       494       479  
                           
ALBRAS   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    104       106       111  
 
Export Market
    101       102       107  
 
Domestic Market
    3       4       4  
Average Price (US$/ton)
    1,289.68       1,326.07       1,366.25  
 
Net Revenues
    414       424       446  
Cost of Goods Sold
    (249 )     (271 )     (274 )
Net Financial Result
    (505 )     176       (76 )
Net Earnings
    (322 )     247       71  
Gross Margin (%)
    39.9       35.9       38.5  
EBITDA
    161       157       170  
EBITDA Margin (%)
    38.8       37.1       38.1  
Gross Debt (US$ million)
    519       400       387  
 
- Short Term
    20              
 
- Long Term
    499       400       387  

3Q 03 20

 


 

BR GAAP

ALUMINUM COMPANIES – FINANCIAL INDICATORS

                           
      R$million
     
VALESUL   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    18       24       26  
 
Export Market
    8       15       17  
 
Domestic Market
    10       9       9  
Average Price (US$/ton)
    1,654.96       1,685.83       1,668.32  
 
Net Revenues
    94       112       121  
Cost of Goods Sold
    (62 )     (89 )     (99 )
Net Financial Result
    (1 )           1  
Net Earnings
    20       3       13  
Gross Margin (%)
    34.1       21.1       18.3  
EBITDA
    28       14       22  
EBITDA Margin (%)
    30.1       12.8       18.0  
Gross Debt (US$ million)
    1       2       2  
 
- Short Term
    0       1       1  
 
- Long Term
    1       1       1  

STEEL COMPANIES – FINANCIAL INDICATORS

                           
      R$ million
     
CSI   3Q02   2Q03   3Q03

 
 
 
Quantity Sold (‘000 tons)
    508       447       507  
 
Export Markets
    508       447       507  
 
Average Price (US$/ton)
    382.38       401.96       374.08  
Net Revenues
    763       521       559  
Cost of Goods Sold
    (650 )     (515 )     (571 )
Net Financial Result
    (36 )     (9 )     (9 )
Net Earnings
    60       (3 )     (11 )
Gross Margin (%)
    14.8       1.3       (2.2 )
EBITDA
    141       30       9  
EBITDA Margin (%)
    18.5       5.7       1.5  


This communication may include declarations which represent the expectations of the Company’s Management about future results or events. All such declarations, when based on future expectations and not on historical facts, involve various risks and uncertainties. The Company cannot guarantee that such declarations turn out to be correct. Such risks and uncertainties include factors relative to the Brazilian economy and capital markets, which are volatile and may be affected by developments in other countries; factors relative to the iron ore business and its dependence on the steel industry, which is cyclical in nature; and factors relative to the high degree of competitiveness in industries in which CVRD operates. To obtain additional information on factors which could cause results to be different from those estimated by the Company, please consult the reports filed with the Comissão de Valores Mobiliários (CVM - Brazilian stock exchange regulatory authority) and the U.S. Securities and Exchange Commission - SEC, including the most recent Annual Report - CVRD Form 20F.

3Q 03 21

 


 

CONTENTS

           
Part I
    3  
1- Management’s Discussion and Analysis of the Operating Results for the Nine Months Ended September 30, 2003 Compared with the Nine Months Ended September 30, 2002
    3  
1.1- General Aspects
    3  
1.2- Comments on the Company Results
    4  
 
     1.2.1- Gross Revenues
    4  
 
     1.2.2- Cost of Products and Services
    5  
 
     1.2.3- Result of Shareholdings by Business Area
    6  
 
     1.2.4- Operating Expenses
    8  
 
     1.2.5- Net Financial Result
    8  
 
     1.2.6- Cash Flow
    8  
 
     1.2.7- Income Tax and Social Contribution
    9  
 
     1.2.8- Interest on Stockholders’ Equity
    9  
Part II
    10  
Quarterly Information and Notes to the Quarterly Information
    10  
2- Balance Sheet
    10  
3- Statement of Income
    11  
4- Statement of Changes in Stockholders’ Equity
    12  
5- Statement of Cash Flows (Additional Information)
    13  
6- Notes to the Quarterly Information at September 30, 2003 and 2002
    14  
6.1- Operations
    14  
6.2- Presentation of Quarterly information
    14  
6.3- Significant Accounting Policies
    14  
6.4- Cash and Cash Equivalents
    14  
6.5- Transactions with Related Parties
    15  
6.6- Inventories
    15  
6.7- Deferred Income Tax and Social Contribution
    16  
6.8- Investments
    17  
6.9- Property, Plant and Equipment
    20  
6.10- Loans and Financing
    21  
6.11- Contingent Liabilities
    22  
6.12- Environmental and Site Reclamation and Restoration Costs
    23  
6.13- Paid-up Capital
    23  
6.14- Treasury Stock
    24  
6.15- Financial Result
    24  
6.16- Financial Instruments - Derivatives
    25  
6.17- Exchange Rate Exposure
    28  
6.18- Administrative and Other Operating Expenses
    28  
6.19- Subsequent Events
    29  
Part III
    31  
7- Other Information the Company Deems Relevant
    31  
7.1- Iron Ore and Pellet Sales (Main Markets) (Not Reviewed)
    31  
Part IV
    32  
8- Attachment I - Equity Investee Information
    32  
8.1- Aluminum Area - ALBRAS (Adjusted and Not Reviewed)
    32  
8.2- Aluminum Area - ALUNORTE (Adjusted and Not Reviewed)
    33  
8.3- Aluminum Area - ALUVALE (Adjusted and Not Reviewed)
    34  
     
  CVRD 1

 


 

           
8.4- Aluminum Area - MRN (Adjusted and Not Reviewed)
    35  
8.5- Aluminum Area - VALESUL (Adjusted and Not Reviewed)
    36  
8.6- Pelletizing Area - HISPANOBRAS (Adjusted and Not Reviewed)
    37  
8.7- Pelletizing Area - ITABRASCO (Adjusted and Not Reviewed)
    38  
8.8- Pelletizing Area - KOBRASCO (Adjusted and Not Reviewed)
    39  
8.9- Pelletizing Area - NIBRASCO (Adjusted and Not Reviewed)
    40  
8.10- Pelletizing Area - SAMARCO (Adjusted and Not Reviewed)
    41  
8.11- Pelletizing Area - GIIC (Adjusted and Not Reviewed)
    42  
8.12- Iron Ore Area - FERTECO (Adjusted and Not Reviewed)
    43  
8.13- Manganese and Ferroalloys Area - SIBRA (Adjusted and Not Reviewed)
    44  
8.14- Manganese and Ferroalloys Area - URUCUM (Adjusted and Not Reviewed)
    45  
8.15- Steel Area - CST (Adjusted and Not Reviewed)
    46  
8.16- Steel Area - CSI (Adjusted and Not Reviewed)
    47  
9- Report of the Independent Accountants
    48  
10- Board of Directors, Fiscal Council, Advisory Committees and Executive Officers
    49  
     
2 CVRD  

 


 

PART I

Expressed in thousands of reais

   
1- MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 2002

1.1- General Aspects

(a)   The Companhia Vale do Rio Doce’s segments of business are mining, logistics and energy, directly or through its interests, as follows:

    ferrous minerals: iron ore and pellets as well as manganese and ferroalloys;
 
    non-ferrous minerals: gold, potash, kaolin and copper;
 
    logistics: railroads, ports and maritime terminals and shipping;
 
    energy: electric power generation; and
 
    shareholdings: equity holdings in producers of aluminum, steel and fertilizers.

(b)   The variations of the main currencies and indices in terms of percentages in relation to the real, which impacted the results of the Company and its subsidiaries, jointly controlled companies and affiliates, were as follows:
                                                         
    D%   Parity
   
 
Currencies / Indice   U.S.                                                
Period   DOLLAR   YEN   GOLD   IGP-M   TJLP   US$ x R$   US$ x Yen

 
 
 
 
 
 
 
Until 09/30/03
    (17.3 )     (11.9 )     11.8       7.1       8.6       2.9234       111.65  
3Q/03
    2.1       9.4       12.1       1.1       2.9       2.9234       111.65  
2Q/03
    (14.3 )     (15.6 )     3.3       (0.4 )     2.9       2.8720       119.94  
Until 12/31/02
    52.3       68.2       25.0       25.3       9.9       3.5333       118.87  
Until 09/30/02
    67.9       80.8       16.6       10.5       7.3       3.8949       121.87  
3Q/02
    37.0       45.7       17.1       4.3       2.8       3.8949       121.87  

    About 63% of the Company’s gross revenue for nine months ended September 30, 2003 is derived from exports and part of domestic sales is linked to U.S. dollars, as well as 35% of total costs. Consequently, fluctuations in the exchange rate between the two currencies have a significant impact on the operating cash flows.
 
    Approximately 95% of the short-term and long-term loans of the Company at 09/30/03 are denominated in U.S. dollars. As a result, exchange rate fluctuations have a significant impact on the financial expenses (Notes 6.10 and 6.15).
 
(c)   For the first nine months of 2003, the consolidated trade balance of US$ 2,373 million was generated:
                                         
    Consolidated (in US$ millions)
   
    Quarter   Accumulated
   
 
    3Q/03   2Q/03   3Q02   09/30/03   09/30/02
   
 
 
 
 
Exports
    994       947       780       2,741       2,370  
Imports
    (172 )     (80 )     (180 )     (368 )     (439 )
 
   
     
     
     
     
 
 
    822       867       600       2,373       1,931  
 
   
     
     
     
     
 
     
  CVRD 3

 


 

(CONSOLIDATED TRADE BALANCE LINE GRAPH)

1.2- Comments on the Company Results

The net income of the Company for the nine months ended September 30, 2003 was R$ 3,717,323 (net income of R$ 2,438,555 in the first six months and net income of R$ 1,278,768 in the third quarter), compared with net income of R$ 502,212 in the nine months ended September 30, 2002 (the earnings per share corresponds to R$ 9.68 in the nine months ended September 30, 2003 versus R$ 1.31 in the nine months ended September 30, 2002).

1.2.1-      Gross Revenues

The 29.5% increase in gross revenue (R$ 7,490,599 on 09/30/03 against R$ 5,784,506 on 09/30/02) is a result of the devaluation of the real against the United States dollar, affecting 83% of the Company’s revenue, and the higher volumes sold of iron ore and pellets, as shown in the table below. The increase in oellets sales was due to growth in the Chinese, North American and European markets.

                                                   
      In thousands of metric tons (except gold)
     
      Quarter   Accumulated
     
 
      3Q/03   2Q/03   3Q/02   09/30/03   09/30/02   D%
     
 
 
 
 
 
External market
                                               
 
Iron ore - fines
    23,734       21,761       20,937       66,043       63,833       3  
 
Iron ore - lump ore
    2,052       1,599       2,013       5,255       3,679       43  
 
Pellets
    4,026       3,618       3,646       11,815       9,553       24  
 
   
     
     
     
     
         
 
    29,812       26,978       26,596       83,113       77,065       8  
 
   
     
     
     
     
         
Internal market
                                               
 
Iron ore - fines
    7,863       7,240       7,751       22,712       24,499       (7 )
 
Iron ore - lump ore
    1,781       1,502       1,967       4,829       3,325       45  
 
Pellets (*)
    841       708       611       2,462       2,029       21  
 
   
     
     
     
     
         
 
    10,485       9,450       10,329       30,003       29,853       1  
 
   
     
     
     
     
         
Total
                                               
 
Iron ore - fines
    31,597       29,001       28,688       88,755       88,332        
 
Iron ore - lump ore
    3,833       3,101       3,980       10,084       7,004       44  
 
Pellets
    4,867       4,326       4,257       14,277       11,582       23  
 
   
     
     
     
     
         
 
    40,297       36,428       36,925       113,116       106,918       6  
 
   
     
     
     
     
         
Railroad transportation
    13,675       13,564       14,755       39,391       42,925       (8 )
Port services
    6,515       7,411       7,007       19,550       19,531        
Gold (kg)
    442       615       1,976       1,858       9,046       (79 )
Potash
    198       149       223       505       528       (4 )
Other products and services
                                   

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                   
      In thousands of reais
     
      Quarter   Accumulated
     
 
      3Q/03   2Q/03   3Q/02   09/30/03   09/30/02   D%
     
 
 
 
 
 
External market
                                               
 
Iron ore - fines
    1,244,758       918,841       955,873       3,217,501       2,390,728       35  
 
Iron ore - lump ore
    122,241       72,067       100,243       282,111       240,291       17  
 
Pellets
    400,154       311,402       336,931       1,117,617       731,335       53  
 
   
     
     
     
     
         
 
    1,767,153       1,302,310       1,393,047       4,617,229       3,362,354       37  
 
   
     
     
     
     
         
Internal market
                                               
 
Iron ore - fines
    345,520       308,698       345,827       1,011,887       811,179       25  
 
Iron ore - lump ore
    64,156       55,104       49,410       172,988       116,006       49  
 
Pellets (*)
    123,175       95,683       84,728       337,487       226,657       49  
 
   
     
     
     
     
         
 
    532,851       459,485       479,965       1,522,362       1,153,842       32  
 
   
     
     
     
     
         
Total
                                               
 
Iron ore - fines
    1,590,278       1,227,539       1,301,700       4,229,388       3,201,907       32  
 
Iron ore - lump ore
    186,397       127,171       149,653       455,099       356,297       28  
 
Pellets
    523,329       407,085       421,659       1,455,104       957,992       52  
 
   
     
     
     
     
         
 
    2,300,004       1,761,795       1,873,012       6,139,591       4,516,196       36  
 
   
     
     
     
     
         
Railroad transportation
    281,231       270,018       239,998       810,115       632,132       28  
Port services
    77,898       83,519       72,509       229,715       182,443       26  
Gold (kg)
    16,229       20,085       63,465       68,612       232,030       (70 )
Potash
    81,455       63,343       81,783       217,328       181,468       20  
Other products and services
    9,751       7,653       9,546       25,238       40,237       (37 )
 
   
     
     
     
     
         
 
    2,766,568       2,206,413       2,340,313       7,490,599       5,784,506       29  
 
   
     
     
     
     
         

(*)   Includes revenues derived from services with joint ventures of pelletizing in the amount of R$ 35,616, R$ 31,748, R$ 28,833, R$ 96,126 and R$ 72,988 on 3Q/03, 2Q/03, 3Q02, 09/30/03 and 09/30/02, respectively.
     
4 CVRD  

 


 

(GROSS REVENUE PIE CHART)

1.2.2-     Cost of Products and Services

The 33.6% increase in the cost of products and services (R$ 3,809,974 on 09/30/03 against R$ 2,852,228 on 09/30/02) results mainly from the rise in sales of purchased pellets, the increase in expenses for maintenance of goods and equipment, higher prices for petroleum derivatives and the effect of exchange rate variation on the portion of costs denominated in U.S. dollars (35%).

(COST OF PRODUCTS AND SERVICES PIE CHART)

By Nature

                                                                 
    09/30/03                                                
   
                                               
    Denominated   Quarter
   
 
    R$   US$   3Q/03   %   2Q/03   %   3Q/02   %
   
 
 
 
 
 
 
 
Personnel
    387,421             143,550       11       123,609       10       137,121       13  
Material
    411,587       219,681       214,149       16       206,016       17       134,898       13  
Oil and gas
    456,362             161,544       12       155,642       13       110,636       11  
Outsourced services
    483,453       55,246       229,259       17       179,705       15       145,693       14  
Energy
    99,980             43,021       3       32,792       3       32,500       3  
Acquisition of iron ore and pellets
          942,989       293,683       22       262,838       22       258,190       25  
Depreciation and depletion
    399,421             143,291       11       130,582       11       143,621       14  
Amortization of goodwill
    90,379             41,541       3       24,419       2       24,419       2  
Others
    132,972       130,483       81,204       5       95,246       7       40,613       5  
 
   
     
     
     
     
     
     
     
 
Total
    2,461,575       1,348,399       1,351,242       100       1,210,849       100       1,027,691       100  
 
   
     
     
     
     
     
     
     
 
 
    65 %     35 %                                                
 
   
     
                                                 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                         
    Accumulated
   
    09/30/03   %   09/30/02   %   D%
   
 
 
 
 
Personnel
    387,421       10       389,575       14       (1 )
Material
    631,268       17       364,005       13       73  
Oil and gas
    456,362       12       280,599       10       63  
Outsourced services
    538,699       14       410,036       14       31  
Energy
    99,980       3       89,529       3       12  
Acquisition of iron ore and pellets
    942,989       25       651,506       23       45  
Depreciation and depletion
    399,421       10       418,765       15       (5 )
Amortization of goodwill
    90,379       2       73,257       2       23  
Others
    263,455       7       174,956       6       51  
 
   
     
     
     
         
Total
    3,809,974       100       2,852,228       100       34  
 
   
     
     
     
         
 
                                       

     
  CVRD 5

 


 

1.2.3-      Result of Shareholdings by Business Area

The numbers reported per area do not necessarily reflect the individual results of each company, but rather the amounts effectively applicable to the business area.

                                                         
    Quarter   Accumulated
   
 
Business Area   3Q/03   1Q/03   %   3Q/02   09/30/03   09/30/02   %

 
 
 
 
 
 
 
Ferrous Minerals
                                                       
• Iron ore and pellets
    158,691       (3,364 )     4,817       791,370       189,708       1,474,291       (87 )
• Manganese and ferroalloys
    43,369       10,282       322       77,465       70,101       139,137       (50 )
Non-Ferrous Minerals
    (26,058 )     27,192       (196 )     (52,606 )     25,110       (88,212 )     128  
Logistics
    8,408       (177,543 )     105       (152,770 )     (209,625 )     (286,205 )     27  
Investments
                                                       
• Steel
    135,579       15,231       790       133,395       215,696       181,907       19  
• Aluminum
    130,068       266,945       (51 )     (321,132 )     617,997       (382,726 )     261  
Others
    37,427       12,249       206       6,397       64,569       2,514       2,468  
 
   
     
             
     
     
         
 
    487,484       150,992       223       482,119       973,556       1,040,706       (6 )
 
   
     
             
     
     
         

Ferrous Minerals

(a)   Iron ore and pellets

  Ferteco – An increase in the equity result of R$ 128,749 (a gain of R$ 221,144 on 09/30/03 against a gain of R$ 92,395 on 09/30/02) due to a 16.4% increase in volume of iron ore sold (12.155 thousand tons on 09/30/03 against 10,440 thousand tons on 09/30/02), offset partly by a 13.3% reduction in pellets sold (2,788 thousand tons on 09/30/03 versus 3,216 thousand tons on 09/30/02). Average pellet prices rose by 19.9% (US$ 31.31 per ton on 09/30/03 against US$ 26.11 per ton on 09/30/02), while iron ore prices remained stable (US$ 13.74 per ton on 09/30/03 compared with US$ 13.82 per ton on 09/30/02). On 09/30/03, amortization of goodwill of R$ 95,587 was booked. Ferteco was incorporated on 08/29/2003.
 
  Caemi – An increase in the equity result of R$ 18,771 (a gain of R$ 38,284 on 09/30/03 against a gain of R$ 19,513 on 09/30/02) due to a 13.2% rise in sales volume (28,138 thousand tons on 09/30/03 against 24,867 thousand tons on 09/30/02) and the positive effects of exchange rate variation on debt.
 
  Itaco/RDE – A reduction in the equity result of R$ 1,640,200 (loss of R$ 216,983 on 09/30/03 against a gain of R$ 1,423,217 on 09/30/02), due basically to the effect of the depreciation of the dollar against the real on net equity in the year to date (negative exchange rate variation of R$ 666,537 on 09/30/03 against positive exchange rate variation of R$ 1,614,747 on 09/30/02). In operational terms, iron ore sales increased by 7.6% (68,621 thousand tons on 09/30/03 against 63,791 thousand tons on 09/30/02) and pellet sales went up by 25.4% (9,835 thousand tons on 09/30/03 against 7,841 thousand tons on 09/30/02), including sales of its subsidiary CVRD Overseas.
 
  Kobrasco – An increase in the shareholding result, due to reversion of part of the provision for losses, in the amount of R$ 98,416 (a gain of R$ 29,140 on 09/30/03 versus a loss of R$ 69,276 on 09/30/02), and also due to the positive effects of exchange rate variation on debt. In operational terms, sales increased by 20.0% (3,262 thousand tons on 09/30/03 against 2,718 thousand tons on 09/30/02) and the average price went up by 5.2% (US$ 31.66 per ton on 09/30/03 compared with US$ 30,09 per ton on 09/30/02).
 
  Nibrasco – An increase in the equity result of R$ 4,888 (a gain of R$ 7,486 on 09/30/03 against a gain of R$ 2,598 on 09/30/02), caused by 0.9% higher sales volume (5,145 thousand tons on 09/30/03 against 5,099 thousand tons on 09/30/02), along with a 3.7% rise in the average price (US$ 29.76 per ton on 09/30/03 against US$ 28.69 per ton on 09/30/02).
 
  Samarco – An increase in the equity result of R$ 210,575 (a gain of R$ 193,256 on 09/30/03 against a loss of R$ 17,319 on 09/30/02), caused by the positive effects of exchange rate variation on debt. In operational terms, sales volume rose by 14.9% (12,193 thousand tons on 09/30/03 versus 10,608 thousand tons on 09/30/02) and the average price went up by 7.4% (US$ 30.48 per ton on 09/30/03 against US$ 28.38 per ton on 09/30/02).

(b)   Manganese and ferroalloys

  Sibra – A reduction in the equity result of R$ 29,165 (a gain of R$ 74,097 on 09/30/03 against a gain of R$ 103,262 on 09/30/02), due to the negative effects of exchange rate variation on accounts receivable in the 3rd quarter 2003, offset partly by the positive effects of exchange rate variation on export revenues. In operational terms, sales of ferroalloys fell by 2.9% (235 thousand tons on 09/30/03 against 242 thousand tons on 09/30/02), sales of manganese went up by 30.0% (967 thousand tons on 09/30/03 against 744 thousand tons on
     
6 CVRD  

 


 

    09/30/02), the average price of ferroalloys increased by 23.6% (US$ 572.44 per ton on 09/30/03 versus US$ 463.16 per ton on 09/30/02) and the average manganese price decreased by 10.3% (US$ 43.78 per ton on 09/30/03 against US$ 48.80 per ton on 09/30/02).

Non-ferrous Minerals

  Pará Pigmentos – An increase in the shareholding result of R$ 113,203 (a gain of R$ 25,145 on 09/30/03 against a loss of R$ 88,058 on 09/30/02), caused by the positive effects of in the 3rd quarter 2003 of exchange rate variation on debt. In operational terms, sales volume increased by 30.2% (306 thousand tons on 09/30/03 versus 235 thousand tons on 09/30/02) and the average price decreased by 3.0% (US$ 151.72 per ton on 09/30/03 against US$ 156.35 per ton on 09/30/02).

Logistics

  Docenave – A fall in the equity result of R$ 73,176 (a gain of R$ 33,838 on 09/30/03 against a gain of R$ 107,014 on 09/30/02), due to the effect of the fall of the dollar against the real in the 3rd quarter 2003 on dollarized assets. In operational terms, bulk cargo transported rose by 23.3% (7,201 thousand tons on 09/30/03 versus 5,839 tons on 09/30/02), and the number of tugboat operations also increased by 14.1% (5,669 maneuvers on 09/30/03 against 4,968 maneuvers on 09/30/02), offset partly by the 16.5% reduction in container movement (42,919 TEUs on 09/30/03 against 51,407 TEUs on 09/30/02). The 51.3% jump in the average freight rate (US$ 7.26 per ton on 09/30/03 against US$ 4.80 per ton on 09/30/02) was basically neutralized by the rise of 90% in vessel charter costs, caused mainly by higher demand in the Asian market for charter of Panamax/Cape Size vessels in 2003.
 
  Docepar – In the first quarter of 2002, a provision for losses of R$ 50.735 was booked on fiscal assets without perspective for short-term realization.
 
  FCA – On 09/30/03, a negative shareholding result of R$ 283,688 was registered (R$ 127,370 of provision for losses and R$ 156,318 of amortization of goodwill) against R$ 217,287 on 09/30/02 (R$ 131,115 of provision for losses and R$ 86,172 of amortization of goodwill), basically caused by recognition of lease and concession costs, in the amount of R$ 238,051 in the second quarter 2003. CVRD’s interest in this investment is held through its subsidiary Mineração Tacumã.
 
  MRS – An increase in the equity result of R$ 124,918 (a gain of R$ 42,494 on 09/30/03 compared with a loss of R$ 82,424 on 09/30/02), basically due to the positive effects of exchange rate variation on debt.

Shareholdings

(a)   Steel

  CSI – A reduction in the equity result of R$ 477,697 (a loss of R$ 125,536 on 09/30/03 against a gain of R$ 352,161 on 09/30/02), mainly caused by the fall in the value of the dollar against the real (negative exchange rate variation of R$ 127,626 on 09/30/03 positive against exchange rate variation of R$ 303,682 on 09/30/02). In operational terms, there was an 8.1% decrease in the volume of steel products sold (1,397 thousand tons on 09/30/03 versus 1,520 thousand tons on 09/30/02).
 
  CST – An increase in the equity result of R$ 230,384 (a gain of R$ 187,477 on 09/30/03 against a loss of R$ 42,907 on 09/30/02), caused basically by the positive effects of exchange rate variation on debt. Operationally, the average price went up 33.4%, offset in part by a 19.1% fall in sales volume (2,871 thousand tons on 09/30/03 against 3,547 thousand tons on 09/30/02).
 
  Usiminas - An increase in the equity result of R$ 228,814 (a gain of R$ 121,361 on 09/30/03 compared with a loss of R$ 107,453 on 09/30/02), caused mainly by a reduction in the negative effects of exchange rate variation on debt.

(b)   Aluminum

  Albras - An increase in the equity result of R$ 496,372 (a gain of R$ 275,897 on 09/30/03 against a loss of R$ 220,475 on 09/30/02), due mainly to the positive effects of exchange rate variation on debt. Operationally, aluminum sales volume went up by 6.0% (320 thousand tons on 09/30/03 against 302 thousand tons on 09/30/02) and the average price rose by 2.3% (US$ 1,343.84 per ton on 09/30/03 against US$ 1,313.92 per ton on 09/30/02).
 
  Alunorte - An increase in the equity result of R$ 371,601 (a gain of R$ 157,819 on 09/30/03 versus a loss of R$ 213,782 on 09/30/02), due principally to the positive effects of exchange rate variation on debt. In operational terms, the amount of alumina sold went up by 39.9% (1,658 thousand tons on 09/30/03 against 1,185 thousand tons on 09/30/02), caused by the start-up of the 3rd production line in March 2003, along with a 7.4% increase in the average alumina sales price (US$ 177.80 per ton on 09/30/03 against US$ 165.51 per ton on 09/30/02). On 09/30/03, R$ 4,989 of amortization of goodwill was booked.
 
  MRN - An increase in the equity result of R$ 82,368 (a gain of R$ 92,624 on 09/30/03 against a gain of R$ 10,256 on 09/30/02), caused by a 40.5% increase in sales volume (9,757 thousand tons on 09/30/03 against 6,946 thousand tons on 09/30/02), in turn due to the
     
  CVRD 7

 


 

    conclusion of expansion of capacity begun in April 2000, along with a 2.0% increase in the average bauxite price (US$ 19.13 per ton on 09/30/03 versus US$ 18.75 per ton on 09/30/02).
 
  Valesul - An increase in the equity result of R$ 1,308 (a gain of R$ 23,751 on 09/30/03 against a gain of R$ 22,443 on 09/30/02), due to a 9.5% rise in sales volume (69 thousand tons on 09/30/03 against 63 thousand tons on 09/30/02) and a 0.7% increase in the average price of aluminum (US$ 1,691.54 per ton on 09/30/03 against US$ 1,679.61 per ton on 09/30/02).
 
  Aluvale - An increase in the equity result (own operations) of R$ 2,569 (a gain of R$ 25,012 on 09/30/03 against a gain of R$ 22,443 on 09/30/02), basically caused by the fiscal benefits of paying interest on stockholders’ equity.
 
  Itaco - An increase in the equity result of R$ 52,093 (a gain of R$ 47,883 on 09/30/03 against a loss of R$ 4,210 on 09/30/02), due to a 25.4% rise in the average price of alumina, 13.5% for bauxite and 0.6% for aluminum, while the sales volume of aluminum, alumina and bauxite rose by 6.2%, 288.5% and 1.7%, respectively.

1.2.4-      Operating Expenses

The operating expenses increased R$ 91,777 (R$ 819,118 on 09/30/03 compared to R$ 727,341 on 09/30/02), due to:

  selling expenses: due to an increase in commissions (in turn caused by higher export sales); and
 
  expenses for research and studies (mainly on copper and nickel projects).

1.2.5-      Net Financial Result

The net financial result increased R$ 4,478,717 (revenue of R$ 655,014 on 09/30/03 compared to expense of R$ 3,823,703 on 09/30/02), mainly due to the positive effect of exchange rate variation on the Company’s net debt on 09/30/03 (Note 6.15).

1.2.6-      Cash Flow

The operating cash flow measured by EBITDA (earnings before interest, income tax and depreciation, amortization and depletion) was R$ 3,637,366 on 09/30/03, against R$ 2,614,971 on 09/30/02, an increase of 39.1%.

                                         
    Quarter   Accumulated
   
 
    3Q/03   2Q/03   3Q/02   09/30/03   09/30/02
   
 
 
 
 
Net operating revenue
    2,679,622       2,119,013       2,259,457       7,215,406       5,565,489  
Cost of products
    (1,351,242 )     (1,210,849 )     (1,027,691 )     (3,809,974 )     (2,852,228 )
Operating expenses
    (226,070 )     (308,491 )     (312,634 )     (819,118 )     (727,341 )
 
   
     
     
     
     
 
Operating profit
    1,102,310       599,673       919,132       2,586,314       1,985,920  
Depreciation / amortization of goodwill
    191,629       162,565       174,132       515,590       508,944  
 
   
     
     
     
     
 
 
    1,293,939       762,238       1,093,264       3,101,904       2,494,864  
Dividends received
    212,218       185,260       30,465       499,865       120,107  
Write-off
          35,597 (*)           35,597        
 
   
     
     
     
     
 
EBITDA R$
    1,506,157       983,095       1,123,729       3,637,366       2,614,971  
 
   
     
     
     
     
 
US$ average
    2.9332       2.9854       3.1227       3.1311       2.6789  
 
   
     
     
     
     
 
EBITDA US$
    513,486       329,301       359,855       1,161,690       976,136  
 
   
     
     
     
     
 

(*) See Note 6.18.

     
8 CVRD  

 


 

1.2.7-      Income Tax and Social Contribution

Income tax and social contribution were an expense of R$ 497,561 compared with a credit of R$ 1,188,596 on 09/30/02, mainly caused by the increase in the tax basis (income before income tax and social contribution less the equity method result, goodwill and provisions for nondeductible losses) from negative R$ 3,364,551 on 09/30/03 to positive R$ 2,244,190 on 09/30/02, partly reduced by the tax benefit of R$ 657,713 on 09/30/03 provided by paying interest on stockholders’ equity (R$ 349,753 on 09/30/02) (Note 6.7).

1.2.8-      Interest on Stockholders’ Equity

During 2003, CVRD deliberated a total of R$ 1,934,552 (Note 6.19) as interest on stockholders’ equity, in the following tranches:

                         
            US$ million
           
            Amount at the   Amount at the
Payment date   Value   deliberation date   payment date

 
 
 
04/30/03
    621,820       200       215  
10/31/03
    744,649       250       261  
10/31/03
    568,083       200       199  
 
   
     
     
 
 
    1,934,552       650       675  
 
   
     
     
 
     
  CVRD 9

 


 

PART II

QUARTERLY INFORMATION AND NOTES TO THE QUARTERLY INFORMATION

(A free translation of the original in Portuguese relating to the quarterly information prepared in accordance with the requirements of
Accounting Practices Generally Accepted in Brazil)

     
2- BALANCE SHEET   In thousands of reais
                           
      Notes   09/30/03   06/30/03
     
 
 
Assets
                       
Current assets
                       
 
Cash and cash equivalents
    6.4       964,793       263,946  
 
Accounts receivable from customers
          1,469,650       1,080,445  
 
Related parties
    6.5       1,426,137       1,053,193  
 
Inventories
    6.6       550,060       443,428  
 
Taxes to recover or offset
          476,758       392,613  
 
Deferred income tax and social contribution
    6.7       459,286       631,466  
 
Others
          269,954       262,079  
 
           
     
 
 
            5,616,638       4,127,170  
 
           
     
 
Long-term receivables
                       
 
Related parties
    6.5       757,337       776,542  
 
Loans and financing
          148,095       188,693  
 
Deferred income tax and social contribution
    6.7       777,046       668,092  
 
Judicial deposits
    6.11       941,570       1,172,822  
 
Others
          22,295       87,868  
 
           
     
 
 
            2,646,343       2,894,017  
 
           
     
 
Permanent assets
                       
 
Investments
    6.8       12,134,149       11,557,530  
 
Property, plant and equipment
    6.9       10,042,656       9,216,859  
 
           
     
 
 
            22,176,805       20,774,389  
 
           
     
 
 
            30,439,786       27,795,576  
 
           
     
 
Liabilities and stockholders’ equity
                       
Current liabilities
                       
 
Short-term debt
    6.10       105,807       102,920  
 
Current portion of long-term debt
    6.10       2,559,681       2,394,227  
 
Payable to suppliers and contractors
          915,439       804,520  
 
Related parties
    6.5       1,011,631       1,085,334  
 
Interest on stockholders’ equity
          1,215,625       379,286  
 
Payroll and related charges
          213,223       176,198  
 
Pension Plan - Valia
          81,211       83,896  
 
Others
          288,737       270,738  
 
           
     
 
 
            6,391,354       5,297,119  
 
           
     
 
Long-term liabilities
                       
 
Long-term debt
    6.10       3,006,897       2,563,575  
 
Related parties
    6.5       3,976,621       2,982,995  
 
Deferred income tax and social contribution
    6.7       83,975       84,035  
 
Provisions for contingencies
    6.11       1,296,586       1,441,780  
 
Pension Plan - Valia
          501,590       518,085  
 
Others
          649,457       720,005  
 
           
     
 
 
            9,515,126       8,310,475  
 
           
     
 
Stockholders’ equity
                       
 
Paid-up capital
    6.13       6,300,000       6,300,000  
 
Revenue reserves
          8,233,306       7,887,982  
 
           
     
 
 
            14,533,306       14,187,982  
 
           
     
 
 
            30,439,786       27,795,576  
 
           
     
 

The additional information, notes and attachment I are an integral part of these statements.

   
10 CVRD


 

(A free translation of the original in Portuguese relating to the quarterly information prepared in accordance with the requirements of
Accounting Practices Generally Accepted in Brazil)

     
3- STATEMENT OF INCOME   In thousands of reais
                                                     
                Quarter   Accumulated
               
 
        Notes   3Q/03   2Q/03   3Q/02   09/30/03   09/30/02
       
 
 
 
 
 
Operating revenues
                                               
 
Sales of ore and metals
                                               
   
Iron ore and pellets
    1.2.1       2,300,004       1,761,795       1,873,012       6,139,591       4,516,196  
   
Gold
    1.2.1       16,229       20,085       63,465       68,612       232,030  
   
Potash
    1.2.1       81,455       63,343       81,783       217,328       181,468  
 
           
     
     
     
     
 
 
            2,397,688       1,845,223       2,018,260       6,425,531       4,929,694  
 
Railroad and port services
    1.2.1       359,129       353,537       312,507       1,039,830       814,575  
 
Others
    1.2.1       9,751       7,653       9,546       25,238       40,237  
 
           
     
     
     
     
 
 
            2,766,568       2,206,413       2,340,313       7,490,599       5,784,506  
Value Added taxes
            (86,946 )     (87,400 )     (80,856 )     (275,193 )     (219,017 )
 
           
     
     
     
     
 
Net operating revenues
            2,679,622       2,119,013       2,259,457       7,215,406       5,565,489  
 
           
     
     
     
     
 
Cost of products and services
                                               
 
Ores and metals
          (1,236,927 )     (1,088,605 )     (909,677 )     (3,468,419 )     (2,537,913 )
 
Railroad and port services
          (109,223 )     (117,544 )     (107,318 )     (328,281 )     (286,487 )
 
Others
          (5,092 )     (4,700 )     (10,696 )     (13,274 )     (27,828 )
 
           
     
     
     
     
 
 
    1.2.2       (1,351,242 )     (1,210,849 )     (1,027,691 )     (3,809,974 )     (2,852,228 )
 
           
     
     
     
     
 
Gross profit
            1,328,380       908,164       1,231,766       3,405,432       2,713,261  
Gross margin
            49.6 %     42.9 %     54.5 %     47.2 %     48.8 %
Operating expenses
                                               
 
Selling
          (55,927 )     (45,319 )     (43,851 )     (152,926 )     (107,277 )
 
Administrative
    6.18       (97,097 )     (96,577 )     (91,166 )     (282,432 )     (276,198 )
 
Research and development
          (64,412 )     (35,890 )     (47,434 )     (138,557 )     (99,501 )
 
Other operating expenses
    6.18       (8,634 )     (130,705 )     (130,183 )     (245,203 )     (244,365 )
 
           
     
     
     
     
 
 
            (226,070 )     (308,491 )     (312,634 )     (819,118 )     (727,341 )
 
           
     
     
     
     
 
Operating profit before financial result and result of equity investments
            1,102,310       599,673       919,132       2,586,314       1,985,920  
Result of equity investments
                                               
 
Gain on investments accounted for by the equity method
    6.8       246,390       370,497       967,474       1,035,507       1,877,903  
 
Amortization of goodwill
    6.8       (113,258 )     (184,639 )     (108,822 )     (391,069 )     (278,536 )
 
Provision for losses
    6.8       354,352       (34,866 )     (376,533 )     329,118       (558,661 )
 
           
     
     
     
     
 
 
            487,484       150,992       482,119       973,556       1,040,706  
Financial result
                                               
 
Financial expenses, net
    6.15       (85,133 )     (102,333 )     (510,142 )     (322,495 )     (727,971 )
 
Monetary and exchange rate variation, net
    6.15       (187,892 )     885,477       (2,102,715 )     977,509       (3,095,732 )
 
           
     
     
     
     
 
 
            (273,025 )     783,144       (2,612,857 )     655,014       (3,823,703 )
 
           
     
     
     
     
 
Operating profit
            1,316,769       1,533,809       (1,211,606 )     4,214,884       (797,077 )
Discontinued operations
                        110,693             110,693  
 
           
     
     
     
     
 
Income before income tax and social contribution
            1,316,769       1,533,809       (1,100,913 )     4,214,884       (686,384 )
Income tax and social contribution
    6.7       (38,001 )     (259,082 )     884,737       (497,561 )     1,188,596  
 
           
     
     
     
     
 
Net income for the period
            1,278,768       1,274,727       (216,176 )     3,717,323       502,212  
 
           
     
     
     
     
 
Number of shares outstanding at the end of the period (in thousands)
            383,840       383,840       383,839       383,840       383,839  
 
           
     
     
     
     
 
Net earnings per share outstanding at the end of the period (R$)
            3.33       3.32       (0.56 )     9.68       1.31  
 
           
     
     
     
     
 

The additional information, notes and attachment I are an integral part of these statements.

   
CVRD 11


 

(A free translation of the original in Portuguese relating to the quarterly information prepared in accordance with the requirements of Accounting Practices Generally Accepted in Brazil)

     
4- STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY   In thousands of reais
                                                                           
      Capital reserves   Revenue reserves
     
 
              Result of   Price-level                                                
      Paid-up   share   restatement                   Unrealized           Fiscal   Treasury
      capital   exchange   Law 8,200/91   Expansion   Depletion   income   Legal   incentives   stock
     
 
 
 
 
 
 
 
 
On December 31, 2001
    4,000,000       3,426       440,258       3,869,083       1,506,513       1,271,884       752,535       53,969       (131,105 )
 
   
     
     
     
     
     
     
     
     
 
Capitalization of reserves
    1,000,000       (3,426 )     (440,258 )           (502,347 )                 (53,969 )      
Realization of revenue reserves
                                  (526,477 )                  
Provision for pension plan liabilities
                                                     
Treasury shares
                                                    (228 )
Net income for the year
                                                     
Proposed appropriations:
                                                                       
 
Interest on stockholders’ equity
                                                     
 
Appropriation to revenue reserves
                      1,408,499                   102,163              
 
   
     
     
     
     
     
     
     
     
 
On December 31, 2002
    5,000,000                   5,277,582       1,004,166       745,407       854,698             (131,333 )
 
   
     
     
     
     
     
     
     
     
 
Capitalization of reserves
    1,300,000                   (1,300,000 )                              
Treasury shares
                                                    15  
Net income for the period
                                                     
Stockholders’ equity
                                                     
 
   
     
     
     
     
     
     
     
     
 
On September 30, 2003
    6,300,000                   3,977,582       1,004,166       745,407       854,698             (131,318 )
 
   
     
     
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                   
      Retained        
      earnings   Total
     
 
On December 31, 2001
          11,766,563  
 
   
     
 
Capitalization of reserves
           
Realization of revenue reserves
    526,477        
Provision for pension plan liabilities
    (30,381 )     (30,381 )
Treasury shares
          (228 )
Net income for the year
    2,043,254       2,043,254  
Proposed appropriations:
               
 
Interest on stockholders’ equity
    (1,028,688 )     (1,028,688 )
 
Appropriation to revenue reserves
    (1,510,662 )      
 
   
     
 
On December 31, 2002
          12,750,520  
 
   
     
 
Capitalization of reserves
           
Treasury shares
          15  
Net income for the period
    3,717,323       3,717,323  
Stockholders’ equity
    (1,934,552 )     (1,934,552 )
 
   
     
 
On September 30, 2003
    1,782,771       14,533,306  
 
   
     
 

The additional information, notes and attachment I are an integral part of these statements.

   
12 CVRD


 

(A free translation of the original in Portuguese)

     
5- STATEMENT OF CASH FLOWS (ADDITIONAL INFORMATION)   In thousands of reais
                                               
          Quarter   Accumulated
         
 
          3Q/03   2Q/03   3Q/02   09/30/03   09/30/02
         
 
 
 
 
Cash flows from operating activities:
                                       
 
Net income for the period
    1,278,768       1,274,727       (216,176 )     3,717,323       502,212  
 
Adjustments to reconcile net income for the period with cash provided by operating activities:
                                       
     
Result of equity investments
    (487,484 )     (150,992 )     (482,119 )     (973,556 )     (1,040,706 )
     
Depreciation, amortization and depletion
    143,900       140,447       131,566       419,023       417,540  
     
Deferred income tax and social contribution
    73,717       102,078       (884,733 )     376,273       (1,192,561 )
     
Discontinued operations
                (110,693 )           (110,693 )
     
Financial expenses and monetary and exchange rate variations on assets and liabilities, net
    178,335       (994,774 )     2,585,323       (1,129,089 )     3,865,747  
     
Loss on disposal of property, plant and equipment
    (16,979 )     8,775       4,996       5,436       23,136  
     
Amortization of goodwill in the cost of products sold
    41,541       24,419       24,419       90,379       73,257  
     
Net losses on derivatives
    (36,340 )     (6,875 )     131,016       (31,650 )     130,062  
     
Dividends/interest on stockholders’ equity received
    212,218       185,260       30,465       499,865       120,107  
     
Others
    (19,895 )     12,871       202,018       (7,221 )     292,504  
 
 
   
     
     
     
     
 
 
    1,367,781       595,936       1,416,082       2,966,783       3,080,605  
 
 
   
     
     
     
     
 
 
Decrease (increase) in assets:
                                       
 
   Accounts receivable
    (58,130 )     248,170       (422,155 )     282,343       (515,205 )
 
   Inventories
    (32,741 )     (29,571 )     17,710       (62,809 )     61,994  
 
   Others
    137,849       (70,777 )     2,422       73,695       (30,908 )
 
 
   
     
     
     
     
 
 
    46,978       147,822       (402,023 )     293,229       (484,119 )
 
 
   
     
     
     
     
 
 
Increase (decrease) in liabilities:
                                       
 
   Suppliers and contractors
    (103,185 )     142,660       79,102       17,474       74,871  
 
   Payroll and related charges and others
    22,507       34,918       58,488       30,591       37,190  
 
   Others
    (237,690 )     92,765       77,193       (84,365 )     106,695  
 
 
   
     
     
     
     
 
 
    (318,368 )     270,343       214,783       (36,300 )     218,756  
 
 
   
     
     
     
     
 
 
Net cash provided by operating activities
    1,096,391       1,014,101       1,228,842       3,223,712       2,815,242  
 
 
   
     
     
     
     
 
Cash flows from investing activities:
                                       
 
Loans and advances receivable
    (1,028,846 )     153,830       302,988       (1,062,723 )     (571,757 )
 
Guarantees and deposits
    205,077       (400,912 )     (96,887 )     (230,530 )     (138,337 )
 
Additions to investments
    69,688       (315,618 )     (2,655 )     (246,402 )     (4,852 )
 
Additions to property, plant and equipment
    (772,271 )     (574,115 )     (332,281 )     (1,731,799 )     (1,039,157 )
 
Proceeds from disposal of property, plant and equipment/investments
    62,993       105,337       1,884       168,767       3,947  
 
 
   
     
     
     
     
 
 
Net cash used in investing activities
    (1,463,359 )     (1,031,478 )     (126,951 )     (3,102,687 )     (1,750,156 )
 
 
   
     
     
     
     
 
Cash flows from financing activities:
                                       
 
Short-term debt
    (249,558 )     (29,017 )     (681,369 )     (610,826 )     (250,883 )
 
Long-term debt
    1,599,244       330,249       368,394       2,506,690       908,180  
 
Repayments:
                                       
   
Related parties
                            (89,764 )
   
Financial institutions
    (275,696 )     (264,950 )     (100,081 )     (685,101 )     (289,794 )
 
Interest on stockholders’ equity paid
    (98,123 )     (619,921 )     (225 )     (718,248 )     (777,483 )
 
Treasury stocks
    2       13             15       (243 )
 
 
   
     
     
     
     
 
 
Net cash used in financing activities
    975,869       (583,626 )     (413,281 )     492,530       (499,987 )
 
 
   
     
     
     
     
 
 
Increase (decrease) in cash and cash equivalents
    608,901       (601,003 )     688,610       613,555       565,099  
 
Cash and cash equivalents, beginning of the period
    263,946       864,949       521,835       259,292       645,346  
 
Cash of incorporated companies
    91,946                   91,946        
 
 
   
     
     
     
     
 
 
Cash and cash equivalents, end of the period
    964,793       263,946       1,210,445       964,793       1,210,445  
 
 
   
     
     
     
     
 
 
Cash paid during the period for:
                                       
   
Short-term interest
                (13,011 )     (16,428 )     (33,420 )
   
Long-term interest net of capitalization
    (83,313 )     (64,772 )     (86,300 )     (231,692 )     (191,221 )
   
Income tax and social contribution paid
          (46,704 )           (46,704 )     (3,967 )
   
Non-cash transactions:
                                       
   
Transfer of advance for future capital increase into investments
    465,354       1,297,910       72,268       1,795,758       165,174  
   
Loans/advances transferred to equity investment
    233,369                   233,369        
   
Additions to property, plant and equipment with capitalization of interest
    22,330       (91,605 )     77,041       (94,374 )     222,212  

  CVRD 13


 

(A free translation of the original in Portuguese relating to the quarterly information prepared in accordance with the requirements of
Accounting Practices Generally Accepted in Brazil)

6- NOTES TO THE QUARTERLY INFORMATION AT SEPTEMBER 30, 2003 AND 2002

Expressed in thousands of reais

6.1- Operations

Companhia Vale do Rio Doce is a publicly traded corporation whose predominant activities are mining, processing and sale of iron ore, pellets, gold and potash, as well as port and railroad transportation services and power generation. In addition, through its direct and indirect subsidiaries and jointly controlled companies, CVRD operates in manganese and ferroalloys, steel, aluminum, kaolin, logistics and geological studies and technological research services.

6.2- Presentation of Quarterly information

The quarterly information has been prepared according to the accounting principles provided for in Brazilian corporate legislation as well as the rules and guidelines issued by the Comissão de Valores Mobiliários - CVM (Brazilian Securities Commission) and IBRACON - Institute dos Auditores Independentes do Brasil (Brazilian Independent Auditors Institute).

In order to provide better information to the market, the Company is presenting the Statement of Cash Flow. The disclosure of this statement is encouraged by the CVM according to the Official Instruction 01/00 of 01/31/00.

6.3- Significant Accounting Policies

(a)   The Company adopts the accrual basis of accounting;
 
(b)   Assets and liabilities that are realizable or due more than twelve months after the quarterly information date are classified as long-term;
 
(c)   Marketable securities, classified as cash and cash equivalents, are stated at cost plus accrued income earned to the quarterly information date;
 
(d)   Inventories are stated at average purchase or production cost, and imports in transit at the cost of each item, not exceeding market or realizable value;
 
(e)   Assets and liabilities in foreign currencies are translated at exchange rates in effect at the quarterly information date, and those in local currency, when applicable, are restated based on contractual indices;
 
(f)   Investments in subsidiaries, jointly controlled companies and affiliated companies are accounted for by the equity method, based on the stockholders’ equity of the investees, and when applicable increased/decreased by goodwill and negative goodwill to be amortized and provision for losses. Other investments are recorded at cost, less provision for unrealized losses when applicable; and
 
(g)   Property, plant and equipment, including interest incurred during the construction period of large-scale projects, are recorded at historic cost (increased by monetary restatement up to 1995) and depreciated by the straight-line method, at rates that take into consideration the useful lives of the assets. Depletion of mineral reserves is based on the ratio between production and estimated capacity.

6.4- Cash and Cash Equivalents

                 
    09/30/03   06/30/03
   
 
Marketable securities related to CDI (*)
    906,871       218,042  
Fixed-yield bond investments (funds)
    48,311       26,485  
Government securities (NBC-E, NTN-D, LFT)
    6,330       15,540  
Others
    3,281       3,879  
 
   
     
 
 
    964,793       263,946  
 
   
     
 

(*)   For part of these investments the Company contracted swap operations with financial institutions related to interest rate and/or currency variations.

14 CVRD  


 

6.5- Transactions with Related Parties

Derived from sales and purchases of products and services or from loans under normal market conditions, with maturities up to the year 2013, as follows:

                                 
    Assets   Liabilities
   
 
    09/30/03   06/30/03   09/30/03   06/30/03
   
 
 
 
Subsidiaries
                               
ALUNORTE - Alumina do Norte do Brasil S.A.
    802,603       828,161       33,560       10,669  
CVRD Overseas Ltd.
    39,980       84,149       1,723,550       1,182,540  
Itabira Rio Doce Company Limited - ITACO
    622,343       540,677       1,115,939       646,792  
Ferteco Internacional
    279,005             12,954        
Mineração Andirá Ltda. (participates in Mineração Serra do Sossego S.A.)
    324       78,100       1,901        
Rio Doce International Finance Ltd.
    815,368       166,320       1,720,025       1,898,902  
Salobo Metais S.A.
    221,793       222,249              
SIBRA Eletrosiderúrgica Brasileira S.A.
    9,687       26,886       5,063       4,986  
Others
    133,442       212,091       252,190       297,823  
 
   
     
     
     
 
 
    2,924,545       2,158,633       4,865,182       4,041,712  
 
   
     
     
     
 
Jointly controlled companies
                               
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
    160,460       159,751       113,367       13,271  
Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS
    65,574       54,031       97,625       62,190  
Companhia Nipo-Brasileira de Pelotização - NIBRASCO
    89,624       92,859       66,831       92,389  
Companhia Ítalo-Brasileira de Pelotização - ITABRASCO
    50,531       46,029       35,990       37,665  
Others
    120,145       193,685       281,399       181,475  
 
   
     
     
     
 
 
    486,334       546,355       595,212       386,990  
 
   
     
     
     
 
Affiliates
    34,897       29,331       676       565  
 
   
     
     
     
 
 
    3,445,776       2,734,319       5,461,070       4,429,267  
 
   
     
     
     
 
Represented by:
                               
Trade balances (sales and purchases of products and services) (*)
    1,262,302       904,584       472,818       360,938  
Short-term financial balances
    1,426,137       1,053,193       1,011,631       1,085,334  
Long-term financial balances
    757,337       776,542       3,976,621       2,982,995  
 
   
     
     
     
 
 
    3,445,776       2,734,319       5,461,070       4,429,267  
 
   
     
     
     
 

(*) Included in “Accounts receivable from customers” and “Payable to suppliers and contractors”.

6.6- Inventories

                   
      09/30/03   06/30/03
     
 
Finished products
               
 
.Iron ore and pellets
    235,870       174,516  
 
.Others
    4,033       13,726  
 
 
   
     
 
 
    239,903       188,242  
Spare parts and maintenance supplies
    310,157       255,186  
 
 
   
     
 
 
    550,060       443,428  
 
 
   
     
 

  CVRD 15


 

6.7- Deferred Income Tax and Social Contribution

Income of the Company is subject to the normal tax system. The balances of deferred assets and liabilities are presented as follows:

                                   
      Deferred assets   Deferred liabilities
     
 
      09/30/03   06/30/03   09/30/03   06/30/03
     
 
 
 
Tax loss carryforward
    125,083       76,314              
 
   
     
     
     
 
Temporary differences:
                               
 
. Pension Plan
    210,542       215,704              
 
. Contingent liabilities
    369,027       384,787              
 
. Provision for losses on assets
    369,524       500,741              
 
. Provision for losses on derivative financial instruments
    96,226       75,155              
 
. Others
    65,930       46,857              
 
   
     
     
     
 
 
    1,111,249       1,223,244              
 
   
     
     
     
 
Accelerated depreciation
                9,020       9,239  
Long-term sales
                69,433       69,338  
Others
                6,140       6,076  
 
   
     
     
     
 
Total
    1,236,332       1,299,558       84,593       84,653  
 
   
     
     
     
 
Short-term - liabilities registred in “others”
    459,286       631,466       618       618  
Long-term
    777,046       668,092       83,975       84,035  
 
   
     
     
     
 
 
    1,236,332       1,299,558       84,593       84,653  
 
   
     
     
     
 

The deferred assets and liabilities regarding income tax and social contribution arising from tax losses, negative social contribution bases and temporary differences are recognized from an accounting standpoint considering an analysis of likely future results, based on economic and financial projections prepared in light of internal assumptions and macroeconomic, commercial and fiscal scenarios. These projections can change in the future. The maturities of the credits realization didn’t have relevant changes in comparison to the maturities discloused on December/2002.

In addition to the credits recorded, the Company has a lawsuit pending claiming an additional 51.8% monetary restatement for tax purposes applied to the months of January and February 1989 (“Plano Verão” monetary plan). A favorable ruling has already been obtained for compensation of credits corresponding to 42.7% instead of the 51.8% requested. The amount of these credits covered by the ruling totals approximately R$ 309,225 and the accounting effects have not yet been recognized in the quarterly information.

The amounts reported as income tax and social contribution which affected income for the period are as follows:

                                           
      Quarter   Accumulated
     
 
      3Q/03   2Q/03   3Q/02   09/30/03   09/30/02
     
 
 
 
 
Income before income tax and social contribution
    1,316,769       1,533,809       (1,100,913 )     4,214,884       (686,384 )
(-) Equity in results of subsidiaries and affiliated companies
    (246,390 )     (370,497 )     (967,474 )     (1,035,507 )     (1,877,903 )
(+) Non-deductible goodwill and provisions for losses
    60,621       52,920       243,049       185,174       320,097  
 
   
     
     
     
     
 
 
    1,131,000       1,216,232       (1,825,338 )     3,364,551       (2,244,190 )
Income tax and social contribution at combined tax rates
    34 %     34 %     34 %     34 %     34 %
 
   
     
     
     
     
 
Federal income tax and social contribution at statutory rates
    (384,539 )     (413,519 )     620,615       (1,143,947 )     763,025  
Adjustments to net income which modify the effect on the result for the period:
                                       
 
. Income tax benefit from interest on stockholders’ equity
    317,337       128,958       227,627       657,713       349,753  
 
. Fiscal incentives
    18,502       52,150             70,652        
 
. Others
    10,699       (26,671 )     36,495       (81,979 )     75,818  
 
   
     
     
     
     
 
Income tax and social contribution
    (38,001 )     (259,082 )     884,737       (497,561 )     1,188,596  
 
   
     
     
     
     
 

16 CVRD  


 

6.8- Investments

                                         
                            Investment participations
                    Adjusted  
    Partici-   Adjusted   net income   Investments
    pation   stockholders’   (loss) for  
    %   equity   the period   09/30/03   06/30/03
   
 
 
 
 
Iron ore and pellets
                                       
Caemi Mineração e Metalurgia S.A. (f, g, j)
    60.23       868,499       294,858       514,931       140,592  
KOBRASCO (b)
    50.00       (49,072 )     58,278       (24,535 )     (26,909 )
HISPANOBRÁS (b)
    50.89       97,800       16,096       49,771       49,175  
ITABRASCO (b)
    50.90       68,819       13,015       35,029       33,117  
NIBRASCO (b)
    51.00       98,875       14,681       50,427       41,997  
CVRD Overseas Ltd. (a, b)
    100.00       418,367       81,552       418,367       397,356  
Ferteco Mineração S.A. (b, i)
    100.00             243,379             559,686  
Gulf Industrial Investment Co. - GIIC (a, b)
    50.00       218,186       52,944       109,093       107,738  
ITACO/ RDE (a, b)
    100.00       1,023,886       (298,535 )     1,023,886       2,182,270  
Minas da Serra Geral S.A. - MSG (b)
    50.00       98,252       17,833       49,127       37,425  
Samarco Mineração S.A. (g)
    50.00       658,437       386,512       329,219       320,560  
Incorporated companies (d)
                             
Others (b)
                            234,531       167,255  
 
                           
     
 
 
                            2,789,846       4,010,262  
Manganese and ferroalloys
                                       
Rio Doce Manganèse Europe - RDME (a, b)
    100.00       169,435       (20,083 )     169,435       158,338  
SIBRA Eletrosiderúrgica Brasileira S.A. (b)
    99.31       365,275       72,159       362,755       333,703  
Urucum Mineração S.A. (b)
    100.00       52,545       18,738       52,545       47,459  
Others (b)
                            43,968       37,554  
 
                           
     
 
 
                            628,703       577,054  
Non-ferrous
                                       
Mineração Serra do Sossego (b, h)
    100.00       519,524             519,524       519,537  
Pará Pigmentos S.A. (b)
    82.04       82,088       60,160       67,345       (11,197 )
Ferro-Gusa Carajás (b)
    100.00       106,794             106,794        
Salobo Metais S.A. (b, h)
    100.00       209,751             209,751       106,437  
Others (b)
                            15,671       15,177  
 
                           
     
 
 
                            919,085       629,954  
Logistics
                                       
Companhia Ferroviária do Nordeste (b)
    32.40       (142,216 )     (26,135 )     (46,078 )     (42,612 )
DOCEPAR S.A. (b)
    100.00       25,325       11,169              
Ferrovia Centro-Atlântica S.A. (g)
    99.92       111,708       (283,688 )     111,619       (608,687 )
MRS Logística S.A. (c, g)
    29.35       47,908       179,203       14,061       (10,960 )
DOCENAVE (b)
    100.00       255,440       27,522       255,439       301,613  
Sepetiba Tecon S.A. (b)
    50.00       (33,118 )     (1,432 )     (16,559 )     (13,253 )
TVV - Terminal de Vila Velha S.A. (b)
    99.89       58,615       6,922       58,550       58,755  
Companhia Portuária da Baía de Sepetiba (b)
    100.00       155,976             155,976        
Others (b)
                            (10,222 )     2,859  
 
                           
     
 
 
                            522,786       (312,285 )
Steel
                                       
California Steel Industries, Inc - CSI (a, b)
    50.00       626,854       (203,998 )     313,427       320,601  
CST (c, e, f, g)
    28.02       3,416,321       812,084       957,253       871,387  
DOCEPAR S.A. (b)
    100.00       25,325       11,169              
Rio Doce Limited (a, b)
    100.00       305,827             305,827       290,463  
USIMINAS (b, c, f)
    11.46       4,166,252       1,058,995       477,453       439,719  
Others (b)
                            (400 )     (400 )
 
                           
     
 
 
                            2,053,560       1,921,770  
Aluminum
                                       
ALBRAS - Alumínio Brasileiro S.A. (b)
    51.00       797,715       540,976       406,835       370,576  
ALUNORTE (b)
    57.03       788,738       276,729       449,817       395,508  
Itabira Rio Doce (ITACO) (b)
                             
Mineração Rio do Norte S.A. (b)
    40.00       825,693       231,558       330,278       322,820  
Mineração Vera Cruz S.A. (b)
    100.00       39,518             39,518       39,518  
ALUVALE - own operations (b)
    100.00       60,629       25,012       60,629       64,793  
Valesul Alumínio S.A. (b)
    54.51       286,057       43,566       155,929       148,614  
 
                           
     
 
 
                            1,443,006       1,341,829  
Others
                                       
CELMAR (b, i)
    100.00             18,233             (144,807 )
DOCEPAR S.A. (b)
    100.00       25,325       11,169       25,325       30,436  
FOSFERTIL (f, g)
    11.12       595,860       193,389       66,260       68,436  
Florestas Rio Doce S.A. (b)
    99.85       181,560       14,279       181,288       160,289  
Others (b)
                            16,150       14,211  
 
                           
     
 
 
                            289,023       128,565