VALLEY OF THE RIO DOCE COMPANY
Table of Contents

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-      .)

 


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This current report on Form 6-K is hereby incorporated by reference into the Registration Statement on Form F-4 of Vale Overseas Limited, File No. 333-109610, and the Registration Statement of Companhia Vale do Rio Doce, File No. 333-109610-01.

 


TABLE OF CONTENTS

Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income (Loss)
Condensed Consolidated Statements of Cash Flows
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Notes to the Condensed Consolidated Financial Information


Table of Contents

COMPANHIA VALE DO RIO DOCE
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

         
    Page
 
Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002
    F-3  
 
Consolidated Statements of Income for the three-month periods ended September 30,
2003, June 30, 2003 and September 30, 2002 and for the nine-month periods
ended September 30, 2003 and 2002
    F-5  
 
Consolidated Statements of Cash Flows for the three-month periods ended September 30,
2003, June 30, 2003 and September 30, 2002 and for the nine-month periods
ended September 30, 2003 and 2002
    F-6  
 
Consolidated Statements of Changes in Stockholders’ Equity for the three-month
periods ended September 30, 2003, June 30, 2003 and September 30, 2002 and for
the nine-month periods ended September 30, 2003 and 2002
    F-7  
 
Notes to the Consolidated Financial Information
    F-8  
 
Supplemental Financial Information
    S-1  

F - 1


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F - 2


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Condensed Consolidated Balance Sheets
Expressed in millions of United States dollars

                     
        September   December
        30, 2003   31, 2002
       
 
        (unaudited)        
Assets
               
Current assets
               
 
Cash and cash equivalents
    1,340       1,091  
 
Accounts receivable
               
   
Related parties
    125       121  
   
Unrelated parties
    617       539  
 
Loans and advances to related parties
    27       49  
 
Inventories
    505       292  
 
Deferred income tax
    121       211  
 
Others
    404       286  
 
 
   
     
 
 
    3,139       2,589  
 
 
   
     
 
Property, plant and equipment, net
    5,888       3,297  
Investments in affiliated companies and joint ventures and other investments and provision for losses on equity investments
    990       732  
Other assets
               
 
Goodwill on acquisition of subsidiaries
    480       412  
 
Loans and advances
               
   
Related parties
    61       89  
   
Unrelated parties
    68       73  
 
Prepaid pension cost
    79       79  
 
Deferred income tax
    266       358  
 
Judicial deposits
    390       239  
 
Unrealized gain on derivative instruments
    2       3  
 
Others
    137       84  
 
 
   
     
 
 
    1,483       1,337  
 
 
   
     
 
TOTAL
    11,500       7,955  
 
 
   
     
 

F - 3


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Condensed Consolidated Balance Sheets
Expressed in millions of United States dollars

(Continued)

                   
      September   December
      30, 2003   31, 2002
     
 
      (unaudited)        
Liabilities and stockholders’ equity
               
Current liabilities
               
 
Suppliers
    418       325  
 
Payroll and related charges
    94       76  
 
Interest attributed to stockholders
    419       3  
 
Current portion of long-term debt - unrelated parties
    1,147       717  
 
Short-term debt
    129       184  
 
Loans from related parties
    101       64  
 
Others
    294       139  
 
 
   
     
 
 
    2,602       1,508  
 
 
   
     
 
Long-term liabilities
               
 
Employees post-retirement benefits
    173       141  
 
Long-term debt - unrelated parties
    2,921       2,359  
 
Loans from related parties
    6       7  
 
Provisions for contingencies (Note 9)
    563       428  
 
Unrealized loss on derivative instruments
    87       76  
 
Others
    214       122  
 
 
   
     
 
 
    3,964       3,133  
 
 
   
     
 
Minority interests
    293       27  
 
 
   
     
 
Stockholders’ equity
               
 
Preferred class A stock - 600,000,000 no-par-value shares authorized and 138,575,913 issued
    1,055       904  
 
Common stock - 300,000,000 no-par-value shares authorized and 249,983,143 issued
    1,902       1,630  
 
Treasury stock - 4,183 (2002 - 4,481) preferred and 4,715,170 common shares
    (88 )     (88 )
 
Additional paid-in capital
    498       498  
 
Other cumulative comprehensive income
    (4,449 )     (5,175 )
 
Appropriated retained earnings
    2,251       2,230  
 
Unappropriated retained earnings
    3,472       3,288  
 
 
   
     
 
 
    4,641       3,287  
 
 
   
     
 
TOTAL
    11,500       7,955  
 
 
   
     
 

See notes to condensed consolidated financial information.

F - 4


Table of Contents

Condensed Consolidated Statements of Income (Loss)
Expressed in millions of United States dollars (Unaudited)
(except number of shares and per-share amounts)

                                             
            Nine months ended
        Three months ended   September 30,
       
 
        September   June   September    
        30, 2003   30, 2003   30, 2002   2003   2002
       
 
 
 
 
Operating revenues, net of discounts, returns and allowances
                                       
 
Sales of ores and metals
                                       
   
Iron ore and pellets
    918       761       713       2,425       2,083  
   
Gold
    5       7       21       21       90  
   
Manganese and ferroalloys
    81       89       92       245       216  
   
Potash
    28       21       27       70       67  
   
Others
    25       14       13       55       33  
   
 
   
     
     
     
     
 
 
    1,057       892       866       2,816       2,489  
 
Revenues from logistic services
    159       138       118       412       360  
 
Aluminum products
    243       188       146       598       312  
 
Other products and services
    24       1       7       29       20  
   
 
   
     
     
     
     
 
 
    1,483       1,219       1,137       3,855       3,181  
 
Value-added tax
    (51 )     (49 )     (39 )     (143 )     (117 )
   
 
   
     
     
     
     
 
 
Net operating revenues
    1,432       1,170       1,098       3,712       3,064  
   
 
   
     
     
     
     
 
Operating costs and expenses
                                       
 
Cost of ores and metals sold
    (530 )     (438 )     (374 )     (1,396 )     (1,187 )
 
Cost of logistic services
    (89 )     (73 )     (63 )     (232 )     (196 )
 
Cost of aluminum products
    (185 )     (157 )     (113 )     (484 )     (273 )
 
Others
    (8 )     (2 )     (4 )     (11 )     (18 )
   
 
   
     
     
     
     
 
 
    (812 )     (670 )     (554 )     (2,123 )     (1,674 )
 
Selling, general and administrative expenses
    (74 )     (45 )     (65 )     (168 )     (173 )
 
Research and development
    (22 )     (12 )     (15 )     (45 )     (36 )
 
Employee profit sharing plan
    (2 )     (9 )     (14 )     (23 )     (20 )
 
Others
    (21 )     (46 )     9       (101 )     (73 )
   
 
   
     
     
     
     
 
 
    (931 )     (782 )     (639 )     (2,460 )     (1,976 )
   
 
   
     
     
     
     
 
Operating income
    501       388       459       1,252       1,088  
   
 
   
     
     
     
     
 
Non-operating income (expenses)
                                       
 
Financial income
    27       29       10       84       87  
 
Financial expenses
    (83 )     (64 )     (148 )     (229 )     (327 )
 
Foreign exchange and monetary gains (losses), net
    (57 )     257       (506 )     250       (837 )
   
 
   
     
     
     
     
 
 
    (113 )     222       (644 )     105       (1,077 )
   
 
   
     
     
     
     
 
Income before income taxes, equity results and minority interests
    388       610       (185 )     1,357       11  
   
 
   
     
     
     
     
 
Income taxes
                                       
 
Current
    41       (135 )           (100 )     (4 )
 
Deferred
    (41 )     (25 )     148       (131 )     262  
   
 
   
     
     
     
     
 
 
          (160 )     148       (231 )     258  
   
 
   
     
     
     
     
 
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    89       35       (160 )     218       (208 )
Minority interests
    (9 )     (29 )     47       (56 )     50  
   
 
   
     
     
     
     
 
Income (loss) from continuing operations
    468       456       (150 )     1,288       111  
   
 
   
     
     
     
     
 
Change in accounting pratice for asset retirement obligations (note 4)
                      (10 )      
   
 
   
     
     
     
     
 
Net income (loss)
    468       456       (150 )     1,278       111  
   
 
   
     
     
     
     
 
Basic earnings(losses) per Preferred Class A Share
    1.22       1.19       (0.39 )     3.33       0.29  
   
 
   
     
     
     
     
 
Basic earnings(losses) per Common Share
    1.22       1.19       (0.39 )     3.33       0.29  
   
 
   
     
     
     
     
 
Weighted average number of shares outstanding (thousands of shares)
                                       
 
Common shares
    245,268       245,268       245,268       245,268       245,268  
 
Preferred Class A shares
    138,571       138,571       138,575       138,571       138,575  

See notes to condensed consolidated financial information.

F - 5


Table of Contents

Condensed Consolidated Statements of Cash Flows
Expressed in millions of United States dollars (Unaudited)

                                                 
                Nine months ended
            Three months ended   September 30,
           
 
            September   June   September    
            30, 2003   30, 2003   30, 2002   2003   2002
           
 
 
 
 
Cash flows from operating activities:
                                       
 
Net income (loss)
    468       456       (150 )     1,278       111  
 
Adjustments to reconcile net income with cash provided by operating activities:
                                       
   
Depreciation, depletion and amortization
    63       54       44       160       171  
   
Dividends received
    66       36       17       138       72  
   
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    (89 )     (35 )     160       (218 )     208  
   
Deferred income taxes
    41       25       (148 )     131       (262 )
   
Current income taxe contingency
          108             108        
   
Provisions for others contingencies
                (15 )     9       54  
   
Impairment of property, plant and equipment
          12             12       11  
   
Change in accounting pratice for asset retirement obligations (note 4)
                      10        
   
Pension plan
    3       2       2       8       8  
   
Foreign exchange and monetary losses (gains)
    13       (258 )     875       (387 )     1,341  
   
Net unrealized derivative losses (gains)
    21       (1 )     37       23       50  
   
Minority interests
    9       29       (47 )     56       (50 )
   
Others
    (20 )     (7 )     17       (21 )     145  
 
Decrease (increase) in assets:
                                       
   
Accounts receivable
    (24 )     65       (90 )     105       (172 )
   
Inventories
    (27 )     (25 )     (18 )     (28 )     (43 )
   
Others
    (1 )     (26 )     (54 )     (28 )     (84 )
 
Increase (decrease) in liabilities:
                                       
   
Suppliers
    (2 )     18       (9 )     (77 )     (23 )
   
Payroll and related charges
    (15 )     13       17       (8 )     22  
   
Others
    (71 )     (14 )     33       (28 )     39  
 
 
   
     
     
     
     
 
 
Net cash provided by operating activities
    435       452       671       1,243       1,598  
 
 
   
     
     
     
     
 
Cash flows from investing activities:
                                       
 
Loans and advances receivable
                                       
   
Related parties
                                       
     
Additions
    (15 )     (54 )     (6 )     (92 )     (35 )
     
Repayments
    33             23       62       52  
   
Others
    18       1       16       35       18  
 
Guarantees and deposits
    78       (152 )     (22 )     (86 )     (61 )
 
Additions to investments
    (8 )     (61 )           (69 )     (1 )
 
Additions to property, plant and equipment
    (443 )     (308 )     (191 )     (949 )     (508 )
 
Proceeds loss disposal of assets
    21             49       21       49  
 
Proceeds from disposals of property, plant and equipment
          37       1       37       2  
 
Cash used to acquire subsidiaries, net of cash acquired
    (380 )                 (380 )     (45 )
 
 
   
     
     
     
     
 
 
Net cash used in investing activities
    (696 )     (537 )     (130 )     (1,421 )     (529 )
 
 
   
     
     
     
     
 
Cash flows from financing activities:
                                       
 
Short-term debt, net issuances (repayments)
    (4 )     60       (354 )     (37 )     (143 )
 
Loans
                                       
   
Related parties
                                       
     
Additions
    48             20       48       32  
     
Repayments
    (2 )     (6 )     (10 )     (24 )     (29 )
 
Issuances of long-term debt
                                       
   
Related parties
                      2       11  
   
Others
    779       40       148       996       661  
 
Repayments of long-term debt
                                       
   
Related parties
          (4 )           (4 )     (15 )
   
Others
    (139 )     (175 )     (105 )     (415 )     (245 )
Interest attributed to stockholders
    (33 )     (215 )           (248 )     (329 )
 
 
   
     
     
     
     
 
Net cash used in financing activities
    649       (300 )     (301 )     318       (57 )
 
 
   
     
     
     
     
 
Increase (decrease) in cash and cash equivalents
    388       (385 )     240       140       1,012  
Effect of exchange rate changes on cash and cash equivalents
    (14 )     67       (410 )     109       (727 )
Cash and cash equivalents, beginning of period
    966       1,284       1,572       1,091       1,117  
 
 
   
     
     
     
     
 
Cash and cash equivalents, end of period
    1,340       966       1,402       1,340       1,402  
 
 
   
     
     
     
     
 
Cash paid during the period for:
                                       
     
Interest on short-term debt
          (1 )     (15 )     (7 )     (31 )
     
Interest on long-term debt, net of interest capitalized
    (50 )     (28 )     (43 )     (127 )     (111 )
       
Interest capitalized
    4       5       1       13       11  
     
Income tax
    (6 )     (27 )           (39 )     (4 )
Non-cash transactions
                                       
     
Conversion of loans receivable to investments
    9       76       20       96       40  

See notes to condensed consolidated financial information.

F - 6


Table of Contents

Condensed Consolidated Statements of Changes in Stockholders’ Equity
Expressed in millions of United States dollars (Unaudited)
(except number of shares and per-share amounts)

                                                 
                Nine months ended
            Three months ended   September 30,
           
 
            September   June   September    
            30, 2003   30, 2003   30, 2002   2003   2002
           
 
 
 
 
Preferred class A stock (including one special share)
                                       
 
Beginning of the period
    1,055       904       904       904       820  
 
Transfer from appropriated retained earnings
          151             151       84  
 
 
   
     
     
     
     
 
 
End of the period
    1,055       1,055       904       1,055       904  
 
 
   
     
     
     
     
 
Common stock
                                       
 
Beginning of the period
    1,902       1,630       1,630       1,630       1,479  
 
Transfer from appropriated retained earnings
          272             272       151  
 
 
   
     
     
     
     
 
 
End of the period
    1,902       1,902       1,630       1,902       1,630  
 
 
   
     
     
     
     
 
Treasury stock
                                       
 
Begining and end of the period
    (88 )     (88 )     (88 )     (88 )     (88 )
 
 
   
     
     
     
     
 
Additional paid-in capital
                                       
 
Beginning and end of the period
    498       498       498       498       498  
 
 
   
     
     
     
     
 
Other cumulative comprehensive income
                                       
 
Cumulative translation adjustments
                                       
   
Beginning of the period
    (4,406 )     (4,999 )     (4,253 )     (5,185 )     (3,475 )
   
Change in the period
    (67 )     593       (1,042 )     712       (1,820 )
 
 
   
     
     
     
     
 
   
End of the period
    (4,473 )     (4,406 )     (5,295 )     (4,473 )     (5,295 )
 
 
   
     
     
     
     
 
 
Unrealized gain on available-for-sale security
                                       
   
Beginning of the period
    18       13                    
   
Change in the period
    (4 )     5             14        
 
 
   
     
     
     
     
 
   
End of the period
    14       18             14        
 
 
   
     
     
     
     
 
 
Adjustments relating to investments in affiliates
                                       
   
Begining and end of the period
    10       10       10       10       10  
 
 
   
     
     
     
     
 
Total other cumulative comprehensive income
    (4,449 )     (4,378 )     (5,285 )     (4,449 )     (5,285 )
 
 
   
     
     
     
     
 
Appropriated retained earnings
                                       
 
Beginning of the period
    2,292       2,351       2,425       2,230       3,212  
 
Transfer (to) from retained earnings
    (41 )     364       (790 )     444       (1,342 )
 
Transfer to capital stock
          (423 )           (423 )     (235 )
 
 
   
     
     
     
     
 
 
End of the period
    2,251       2,292       1,635       2,251       1,635  
 
 
   
     
     
     
     
 
Retained earnings
                                       
 
Beginning of the period
    3,281       3,321       2,846       3,288       2,184  
       
Net income
    468       456       (150 )     1,278       111  
       
Interest attributed to stockholders
                                       
       
Preferred class A stock ($0.87 and $0.39 per share in 2003 and 2002)
    (115 )     (48 )     (62 )     (235 )     (116 )
       
Common stock ($0.87 and $0.39 per share in 2003 and 2002)
    (203 )     (84 )     (110 )     (415 )     (207 )
       
Appropriation (to) from reserves
    41       (364 )     790       (444 )     1,342  
 
 
   
     
     
     
     
 
 
End of the period
    3,472       3,281       3,314       3,472       3,314  
 
 
   
     
     
     
     
 
Total stockholders’ equity
    4,641       4,562       2,608       4,641       2,608  
 
 
   
     
     
     
     
 
Comprehensive income is comprised as follows:
                                       
       
Net income (loss)
    468       456       (150 )     1,278       111  
       
Cumulative translation adjustments
    (67 )     593       (1,042 )     712       (1,820 )
       
Unrealized gain (loss) on available-for-sale security
    (4 )     5             14        
 
 
   
     
     
     
     
 
Total comprehensive income (loss)
    397       1,054       (1,192 )     2,004       (1,709 )
 
 
   
     
     
     
     
 
Shares
                                       
Preferred class A stock (including one special share)
    138,575,913       138,575,913       138,575,913       138,575,913       138,575,913  
 
 
   
     
     
     
     
 
Common stock
    249,983,143       249,983,143       249,983,143       249,983,143       249,983,143  
 
 
   
     
     
     
     
 
Treasury stock (1)
                                       
 
Beginning of the period
    (4,719,405 )     (4,719,635 )     (4,719,921 )     (4,719,651 )     (4,715,261 )
 
Acquisitions
                            (4,660 )
 
Sales
    52       230             298        
 
 
   
     
     
     
     
 
 
End of the period
    (4,719,353 )     (4,719,405 )     (4,719,921 )     (4,719,353 )     (4,719,921 )
 
 
   
     
     
     
     
 
 
    383,839,703       383,839,651       383,839,135       383,839,703       383,839,135  
 
 
   
     
     
     
     
 

(1)  As of September 30, 2003, 4,715,170 common shares and 4,183 preferred shares were held in treasury in the amount of US$ 88. The 4,715,170 common shares guarantees a loan given to our subsidiary Alunorte.

See notes to condensed consolidated financial information.

F - 7


Table of Contents

    Notes to the Condensed Consolidated Financial Information
    Expressed in millions of United States dollars, unless otherwise stated (unaudited)
 
1   The Company and its operations
 
    Companhia Vale do Rio Doce (CVRD) is a limited liability company, duly organized and existing under the laws of the Federative Republic of Brazil. Our operations are carried out through CVRD and its subsidiary companies, joint ventures and affiliates, and mainly consist of mining, non-ferrous metal production and logistics, as well as energy, aluminum and steel activities. Further details of our operations and those of our joint ventures and affiliates are described in Note 8.
 
    The main operating subsidiaries we consolidate are as follows:
                         
            Head office   Principal
Subsidiary   % ownership   location   activity

 
 
 
Alumina do Norte do Brasil S.A - Alunorte
    57     Brazil   Aluminum
CADAM S.A. (2) (4)
    61     Brazil   Kaolin
CELMAR S.A. - Indústria de Celulose e Papel (3)
    100     Brazil   Forestry
CVRD Overseas Ltd.
    100     Cayman Island   Trading
Ferrovia Centro-Atlântica S.A. (4)
    100     Brazil   Logistics
Ferteco Mineração S.A. - FERTECO (3)
    100     Brazil   Iron ore and Pellets
Florestas Rio Doce S.A.
    100     Brazil   Forestry
Itabira Rio Doce Company Ltd. - ITACO
    100     Cayman Island   Trading
Mineração Serra do Sossego S.A. (1)
    100     Brazil   Copper
Minerações Brasileiras Reunidas S.A. - MBR (2) (4)
    85     Brazil   Iron ore
Navegação Vale do Rio Doce S.A. - DOCENAVE
    100     Brazil   Shipping
Pará Pigmentos S.A.
    76     Brazil   Kaolin
Rio Doce International Finance Ltd. - RDIF
    100     Bahamas   International finance
Rio Doce Manganèse Europe - RDME
    100     France   Ferroalloys
Rio Doce Manganese Norway - RDMN
    100     Norway   Ferroalloys
Salobo Metais S.A. (1)
    100     Brazil   Copper
SIBRA - Eletrosiderúrgica Brasileira S.A.
    100     Brazil   Manganese and Ferroalloys
Urucum Mineração S.A.
    100     Brazil   Iron ore, Ferroalloys and
Manganese
Vale do Rio Doce Alumínio S.A. - ALUVALE
    100     Brazil   Aluminum

  (1)   Development stage companies
  (2)   Through Caemi Mineração e Metalurgia S.A.
  (3)   Merged with CVRD as from August 29, 2003
  (4)   Consolidated as from September 1, 2003

2   Basis of consolidation
 
    All majority-owned subsidiaries where we have both share and management control are consolidated, with elimination of all significant intercompany accounts and transactions. Investments in unconsolidated affiliates and joint ventures are reported at cost plus our equity in undistributed earnings or losses. Included in this category are certain joint ventures in which we have majority ownership but, by force of shareholders’ agreements, do not have effective management control. We provide for losses on equity investments with negative stockholders’ equity where applicable (see Note 8).
 
    We evaluate the carrying value of our listed investments relative to publicly available quoted market prices. If the quoted market price is below book value, and such decline is considered other than temporary, we write-down our equity investments to quoted market value.
 
    We define joint ventures as businesses in which we and a small group of other partners each participate actively in the overall entity management, based on a shareholders agreement. We define affiliates as businesses in which we participate as a minority stockholder but with significant influence over the operating and financial policies of the investee.

F - 8


Table of Contents

3   Summary of significant accounting policies
 
    Our condensed consolidated interim financial information as of September 30, 2003 for the three-month periods ended September 30, 2003, June 30, 2003, and September 30, 2002 and for the nine month periods ended September 30, 2003 and 2002 is unaudited. However, in our opinion, such condensed consolidated financial information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for interim periods. The results of operations for the nine-month period ended September 30, 2003 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2003.
 
    This condensed interim financial information should be read in conjunction with our consolidated financial statements for the year ended December 31, 2002.
 
    The provision for losses on equity investments relates to our investments in affiliates which have reported negative stockholders’ equity in their financial information prepared in accordance with US GAAP and in circumstances where we have assumed commitments to fund our share of the accumulated losses, if necessary, through additional capital contributions or other means. Accordingly we (a) first reduce the value of the investment to zero and (b) subsequently provide for our portion of negative equity.
 
    Other current assets include $30 related to ships held for sale, at September 30, 2003.
 
4   Change in accounting practice
 
    In June 2001, the FASB issued SFAS 143 - “Accounting for Asset Retirement Obligations”. We adopted SFAS 143 as from January 1, 2003, as a consequence an additional $26 for asset retirement obligations was recorded as “Others - long-term liabilities”, a net increase of $11 in mine development costs was registered within “Property, plant and equipment” and a resulting change of $10 was registered as “Change in Accounting Practice for Asset Retirement Obligations” on the Statement of Income, net of income tax ($15 gross of deferred income tax). Over time the liabilities will be accreted for the change in their present value and initial capitalized costs will be depleted over the useful lives of the related assets.
 
5   Recently-issued accounting pronouncements
 
    In June 2002, the FASB has issued SFAS 146 - “Accounting for Costs Associated with Exit or Disposal Activities”. The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We adopted SFAS 146 as from January 1, 2003. We have not committed to disposal of or disposed of any significant activities since adoption.
 
    In November 2002 the FASB issued FIN 45 - “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial information. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor’s fiscal year-end. The disclosure requirements in the Interpretation, applicable as from December 31, 2002 are disclosed in Note 9. We have not issued any material guarantees since December 31, 2002.

F - 9


Table of Contents

    In January 2003, FASB issued Interpretation No. 46 (FIN 46) – Consolidation of Variable Interest Entities. FIN 46 provides guidance on when certain entities should be consolidated or the interests in those entities should be disclosed by enterprises that do not control them through majority voting interest. This interpretation applies immediately to variable interest entities created after January 31, 2003. We are evaluating the impact on our financial statements.
 
    In May 2003. FASB issued SFAS No. 150, Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”) this Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The Board decided to make this statement effective shortly after issuance for contracts created or modified after it is issued and for existing contracts at the beginning of the first interim period beginning after June 15, 2003. We do not expect SFAS 150 to have a material impact on our financial statements.
 
6   Income taxes
 
    Income taxes in Brazil comprise federal income tax and social contribution, which is an additional federal tax. The statutory enacted tax rates applicable in the periods presented are as follows:
                 
    Nine months ended September 30 - %
   
    2003   2002
   
 
Federal income tax
    25       25  
Social contribution
    9       9  
 
   
     
 
Composite tax rate
    34       34  
 
   
     
 

F - 10


Table of Contents

    The amount reported as income tax expense in our consolidated financial information is reconciled to the statutory rates as follows:
                                           
          Nine months ended
      Three months ended   September 30,
     
 
      September   June 30,   September    
      30, 2003   2003   30, 2002   2003   2002
     
 
 
 
 
Income before income taxes, equity results and minority interests
    388       610       (185 )     1,357       11  
 
   
     
     
     
     
 
Federal income tax and social contribution expense at statutory enacted rates
    (132 )     (207 )     63       (461 )     (4 )
Adjustments to derive effective tax rate:
                                       
 
Tax benefit on interest attributed to stockholders
    107       59       47       229       90  
 
Exempt foreign income (expenses)
    9       (26 )     82       (33 )     174  
 
Tax incentives
    8       40             48       2  
 
Valuation allowance
    4             (43 )     13       (37 )
 
Other non-taxable gains (losses)
    4       (26 )     23       (27 )     33  
 
Adjustment to reflect expected annual effective tax rate
                (24 )            
 
   
     
     
     
     
 
Federal income tax and social contribution expense in consolidated statements of income
          (160 )     148       (231 )     258  
 
   
     
     
     
     
 

    We have certain tax incentives relative to our iron ore and manganese operations in Carajás and relative to alumina in Barcarena. The incentives relative to iron ore and manganese comprise full income tax exemption on defined production levels up to 2005 and partial exemption up to 2013. Both incentives relative to alumina expires in 2010. An amount equal to the tax saving must be appropriated to a reserve account within stockholders’ equity and may not be distributed in the form of cash dividends.
 
7   Inventories
                   
      September 30,   December 31,
      2003   2002
     
 
Finished products
               
 
Iron ore and pellets
    168       86  
 
Manganese and ferroalloys
    62       51  
 
Alumina
    20       15  
 
Others
    26       12  
Spare parts and maintenance supplies
    229       128  
 
 
   
     
 
 
    505       292  
 
 
   
     
 

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Table of Contents

8   Investments in affiliated companies and joint ventures, unless otherwise stated
                                                                   
      September 30, 2003   Investments   Goodwill
     
 
 
                              Net                                
                              income   September           September        
      Participation in   Net   for the   30,   December   30,   December
      capital (%)   equity   period   2003   31, 2002   2003   31, 2002
     
 
 
 
 
 
 
      voting   total                                                
     
 
                                               
Steel
                                                               
 
Usinas Siderúrgicas de Minas Gerais S.A USIMINAS
    22.99       11.46       270       296       31                    
 
Companhia Siderúrgica de Tubarão - CST (1)
    24.93       28.02       307       101       86       27              
 
California Steel Industries Inc. - CSI
    50.00       50.00       204       2       102       107              
 
SIDERAR (costs $15) - available for sale investments
    4.85       4.85                   62       30              
 
                                   
     
     
     
 
 
                                    281       164              
Aluminum and bauxite
                                                               
 
Mineração Rio do Norte S.A. - MRN
    40.00       40.00       418       53       167       162              
 
Valesul Alumínio S.A. - VALESUL
    54.51       54.51       96       14       52       39              
 
Alumínio Brasileiro S.A. - ALBRAS
    51.00       51.00       197       183       101                    
 
Alumina do Norte do Brasil S.A. - ALUNORTE (Consolidated as from ‘September 30, 2002, after acquisition of control)
    62.09       57.03                                      
 
                                   
     
     
     
 
 
                                    320       201              
Iron ore and pellets
                                                               
 
Caemi Mineração e Metalurgia S.A. (3)
                      17             77              
 
Companhia Nipo-Brasileira de Pelotização - NIBRASCO
    51.11       51.00       33       6       17       12              
 
Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS
    51.00       50.89       34       5       17       14              
 
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
    50.00       50.00                                      
 
Companhia Ítalo-Brasileira de Pelotização - ITABRASCO
    51.00       50.90       24       5       12       9              
 
Gulf Industrial Investment Company - GIIC
    50.00       50.00       75       18       37       37              
 
SAMARCO Mineração S.A. - SAMARCO
    50.00       50.00       392       117       196       154       37       30  
 
Minas da Serra Gera S.A - MSG
    50.00       50.00       34       4       17       9              
 
Others
                            14       12              
 
                                   
     
     
     
 
 
                                    310       324       37       30  
Other affiliates and joint ventures
                                                               
 
Fertilizantes Fosfatados S.A. - FOSFERTIL (2)
    10.96       11.12       284       92       32       25              
 
Others
                            25       15              
 
                                   
     
     
     
 
 
                                    57       40              
 
                                   
     
     
     
 
 
                                    968       729       37       30  
 
                                   
     
     
     
 
Balance / Change in provision for losses on equity investments:
                                                               
 
Alumínio Brasileiro S.A. - ALBRAS
                                          (1 )            
 
Companhia Ferroviária do Nordeste - CFN
                                                       
 
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
                                    (9 )     (16 )            
 
Ferroban - Ferrovias Bandeirantes S.A.
                                                       
 
Ferrovia Centro-Atlântica S.A. - FCA
                                                       
 
MRS Logística S.A
                                          (6 )            
 
Sepetiba Tecon S.A.
                                    (6 )     (4 )            
 
                                   
     
     
     
 
 
                                    (15 )     (27 )            
 
                                   
     
     
     
 
Total
                                    953       702       37       30  
 
                                   
     
     
     
 

[Additional columns below]

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

                                           
      Equity Adjustments
     
                              Nine months ended
      Three months ended   September 30,
     
 
              June                        
      September   30,   September                
      30, 2003   2003   30, 2002   2003   2002
     
 
 
 
 
Steel
                                       
 
Usinas Siderúrgicas de Minas Gerais S.A USIMINAS
    14       10       (7 )     34       (15 )
 
Companhia Siderúrgica de Tubarão - CST (1)
    14       6       16       26       11  
 
California Steel Industries Inc. - CSI
    (2 )           6       1       12  
 
SIDERAR (costs $15) - available for sale investments
                             
 
   
     
     
     
     
 
 
    26       16       15       61       8  
Aluminum and bauxite
                                       
 
Mineração Rio do Norte S.A. - MRN
    11       6       12       21       31  
 
Valesul Alumínio S.A. - VALESUL
    2       1       4       7       8  
 
Alumínio Brasileiro S.A. - ALBRAS
    14       40             93        
 
Alumina do Norte do Brasil S.A. - ALUNORTE (Consolidated as from ‘September 30, 2002, after acquisition of control)
                            (23 )
 
   
     
     
     
     
 
 
    27       47       16       121       16  
Iron ore and pellets
                                       
 
Caemi Mineração e Metalurgia S.A. (3)
    3       7       (88 )     15       (87 )
 
Companhia Nipo-Brasileira de Pelotização - NIBRASCO
    3       (1 )     1       3       2  
 
Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS
    1       2       2       4       5  
 
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
                            (2 )
 
Companhia Ítalo-Brasileira de Pelotização - ITABRASCO
    1       1       2       2       4  
 
Gulf Industrial Investment Company - GIIC
    3       4             9       3  
 
SAMARCO Mineração S.A. - SAMARCO
    17       23       (11 )     59       (3 )
 
Minas da Serra Gera S.A - MSG
    1       1       (3 )     3        
 
Others
                (1 )            
 
   
     
     
     
     
 
 
    29       37       (98 )     95       (78 )
Other affiliates and joint ventures
                                       
 
Fertilizantes Fosfatados S.A. - FOSFERTIL (2)
    5       2       3       10       5  
 
Others
    6       (1 )     3       8       (22 )
 
   
     
     
     
     
 
 
    11       1       6       18       (17 )
 
   
     
     
     
     
 
 
    93       101       (61 )     295       (71 )
 
   
     
     
     
     
 
Balance / Change in provision for losses on equity investments:
                                       
 
Alumínio Brasileiro S.A. - ALBRAS
                (47 )     1       (59 )
 
Companhia Ferroviária do Nordeste - CFN
          (2 )     (1 )     (2 )     (3 )
 
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
    1       6       (12 )     10       (17 )
 
Ferroban - Ferrovias Bandeirantes S.A.
                1             (1 )
 
Ferrovia Centro-Atlântica S.A. - FCA
    (8 )     (73 )     (22 )     (92 )     (32 )
 
MRS Logística S.A
    2       3       (7 )     6       (14 )
 
Sepetiba Tecon S.A.
    1             (11 )           (11 )
 
   
     
     
     
     
 
 
    (4 )     (66 )     (99 )     (77 )     (137 )
 
   
     
     
     
     
 
Total
    89       35       (160 )     218       (208 )
 
   
     
     
     
     
 

[Additional columns below]

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

                                                   
                                              Quoted
      Dividends received   market
     
 
                              Nine months ended   September
      Three months ended   September 30,   30,
     
 
 
              June                                
      September   30,   September                        
      30, 2003   2003   30, 2002   2003   2002   2003
     
 
 
 
 
 
Steel
                                               
 
Usinas Siderúrgicas de Minas Gerais S.A USIMINAS
    3             2       3       4       128  
 
Companhia Siderúrgica de Tubarão - CST (1)
    30             1       35       1       295  
 
California Steel Industries Inc. - CSI
    2       3       6       5       6        
 
SIDERAR (costs $15) - available for sale investments
                                  62  
 
   
     
     
     
     
     
 
 
    35       3       9       43       11       485  
Aluminum and bauxite
                                               
 
Mineração Rio do Norte S.A. - MRN
    11             8       16       31        
 
Valesul Alumínio S.A. - VALESUL
          3             3              
 
Alumínio Brasileiro S.A. - ALBRAS
                                   
 
Alumina do Norte do Brasil S.A. - ALUNORTE (Consolidated as from ‘September 30, 2002, after acquisition of control)
                                   
 
   
     
     
     
     
     
 
 
    11       3       8       19       31        
Iron ore and pellets
                                               
 
Caemi Mineração e Metalurgia S.A. (3)
                            3       182  
 
Companhia Nipo-Brasileira de Pelotização - NIBRASCO
                                   
 
Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS
                      2       1        
 
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
                                   
 
Companhia Ítalo-Brasileira de Pelotização - ITABRASCO
          1             1              
 
Gulf Industrial Investment Company - GIIC
    4                   9       6        
 
SAMARCO Mineração S.A. - SAMARCO
    14       25             53       17        
 
Minas da Serra Gera S.A - MSG
          1             1       1        
 
Others
                                   
 
   
     
     
     
     
     
 
 
    18       27             66       28       182  
Other affiliates and joint ventures
                                               
 
Fertilizantes Fosfatados S.A. - FOSFERTIL (2)
    2       2             9       2       70  
 
Others
          1             1              
 
   
     
     
     
     
     
 
 
    2       3             10       2       70  
 
   
     
     
     
     
     
 
 
    66       36       17       138       72       737  
 
   
     
     
     
     
     
 
Balance / Change in provision for losses on equity investments:
                                               
 
Alumínio Brasileiro S.A. - ALBRAS
                                   
 
Companhia Ferroviária do Nordeste - CFN
                                   
 
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
                                   
 
Ferroban - Ferrovias Bandeirantes S.A.
                                   
 
Ferrovia Centro-Atlântica S.A. - FCA
                                   
 
MRS Logística S.A
                                   
 
Sepetiba Tecon S.A.
                                   
 
   
     
     
     
     
     
 
 
                                   
 
   
     
     
     
     
     
 
Total
    66       36       17       138       72       737  
 
   
     
     
     
     
     
 

(1)   During the quarter ended June 30, 2003 CVRD acquired an additional 4.42% of the voting shares and 5.64% of the preferred shares, representing 5.17% of CST’s total capital for US$ 60.
(2)   We have significant influence through a shareholders’ agreement – See Note 12 – Subsequent Events.
(3)   Consolidated as from September 01, 2003, after acquisition of control.

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Caemi Pro-forma

The condensed pro-forma income statement below shows the impact of the acquisition of Caemi on the consolidated statements of income as if the current 60.23% participation in Caemi had been acquired on January 1, 2002 (instead of the 16.86% equity investment previously held).

                                                 
    Nine-months ended (Unaudited)
   
    September 30, 2003   September 30, 2002
   
 
    CVRD   Pre-acquisition           CVRD                
    Consolidated   CAEMI (1)   Pro Forma   Consolidated   CAEMI (2)   Pro Forma
   
 
 
 
 
 
Net operating revenues
    3,712       424       4,136       3,064       414       3,478  
Operating costs and expenses
    (2,460 )     (343 )     (2,803 )     (1,976 )     (428 )     (2,404 )
 
   
     
     
     
     
     
 
Operating income (loss)
    1,252       81       1,333       1,088       (14 )     1,074  
Non-operating income (expenses)
    105       16       121       (1,077 )     (128 )     (1,205 )
 
   
     
     
     
     
     
 
Income (loss) before income taxes, equity results and minority interests
    1,357       97       1,454       11       (142 )     (131 )
Income taxes
    (231 )     (41 )     (272 )     258       39       297  
Equity in results of affiliates and joint ventures
    218       (20 )     198       (208 )     116       (92 )
Minority interests
    (56 )     18       (38 )     50       40 (3)     90  
 
   
     
     
     
     
     
 
Income from continuing operations
    1,288       54       1,342       111       53       164  
Change in accounting pratice for asset retirement obligations
    (10 )           (10 )                  
 
   
     
     
     
     
     
 
Net income
    1,278       54       1,332       111       53       164  
 
   
     
     
     
     
     
 

(1)   Period of January to August, 2003 (September is consolidated).
(2)   Period of January to September, 2002, net of consolidation adjustments.
(3)   Includes elimination of goodwill write-off related to Caemi equity investment - $86.

Acquisition cost of Caemi, net of cash acquired:

         
    September 1, 2003
   
Estimated fair value of assets
    1,699  
Estimated fair value of liabilities
    (716 )
 
   
 
Net assets at fair value
    983  
Interest in total capital acquired
    43.37 %
Estimated fair value of net assets acquired
    426  
Purchase price
    426  
Less cash acquired
    (46 )
 
   
 
Acquisition cost of Caemi, net of cash acquired
    380  
 
   
 

9   Commitments and contingencies
 
(a)   At September 30, 2003, we had extended guarantees for borrowings obtained by affiliates and joint ventures in the amount of $326, of which $278 is denominated in United States dollars and the remaining $48 in local currency, as follows:

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    Amount of   Denominated           Final   Counter
Affiliate or Joint Venture   guarantee   currency   Purpose   maturity   guarantees

 
 
 
 
 
ALBRAS
    249       US$     Debt guarantee     2007     None
 
    42       R$     Debt guarantee     2010     None
SEPETIBA TECON
    18       US$     Debt guarantee     2005     None
 
    5       R$     Debt guarantee     2012     None
SAMARCO
    9       US$     Debt guarantee     2020     None
VALESUL
    1       R$     Debt guarantee     2006     None
NIBRASCO
    2       US$     Debt guarantee     2004     Collateral Pledge
 
   
                                 
 
    326                                  
 
   
                                 

    We expect no losses to arise as a result of the above guarantees. We have made no charges for extending these guarantees except for commissions charged to Albras and Samarco.
 
(b)   CVRD and its subsidiaries are defendants in numerous legal actions in the normal course of business. Based on the advice of our legal counsel, management believes that the provision made against contingent losses is sufficient to cover probable losses in connection with such actions.
 
    The provision for contingencies and the related judicial deposits are composed as follows:
                                 
    September 30, 2003   December 31, 2002
   
 
    Provision for   Judicial   Provision for   Judicial
    contingencies   deposits   contingencies   deposits
   
 
 
 
Labor claims
    164       75       109       52  
Civil claims
    151       48       95       32  
Tax - related actions
    239       266       220       153  
Others
    9       1       4       2  
 
   
     
     
     
 
 
    563       390       428       239  
 
   
     
     
     
 

    Labor - related actions principally comprise employee claims for (i) payment of time spent travelling from their residences to the work-place, (ii) additional payments for alleged dangerous or unhealthy working conditions and (iii) various other matters, often in connection with disputes about the amount of indemnities paid upon dismissal.
 
    Civil actions principally relate to claims made against us by contractors in connection with losses alleged to have been incurred by them as a result of various past government economic plans during which full indexation of contracts for inflation was not permitted.
 
    Tax - related actions principally comprise our challenges of certain revenue taxes, VAT and of the tax on financial movements – CPMF.
 
    We continue to vigorously pursue our interests in all the above actions but recognize that probably we will incur some losses in the final instance, for which we have made provisions.
 
    Our judicial deposits are made as required by the courts for us to be able to enter or continue a legal action. When judgment is favorable to us, we receive the deposits back; when unfavorable, the deposits are delivered to the prevailing party. An increase of $113 for tax deposits during 2003 relates to an action in which we challenged the annual limitation on use our tax loss carryforward.
 
    Contingencies settled in the nine-month period ended September 30, 2003 and 2002, three-month period ended September 30, 2003, and 2002 and June 30, 2003 aggregated $191 $158, $138, $111 and $32, respectively, and additional provisions aggregated $114, $212, $66, $105 and $18, respectively.
 
(c)   We are defendants in two actions seeking substantial compensatory damages brought by the

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    Municipality of Itabira, State of Minas Gerais, which we believe are without merit. Due to the remote likelihood that any loss will arise therefrom no provision has been made in the financial information with respect to these two actions.
 
(d)   We are committed under a take-or-pay agreement to take annual delivery of approximately 207,060 metric tons per year of aluminum from ALBRAS at market prices. This estimate is based on 51% of ALBRAS expected production and, at a market price of $1,423.50 per metric ton, which at September 30, 2003, represents an annual commitment of $295. Actual take from Albras was $215, $192, $83, $64 and $67 during the nine-month period ended September 2003 and 2002, three-month period ended September 30, 2003 and 2002 and June 30, 2003, respectively.
 
(e)   We and BNDES entered into a contract, known as the Mineral Risk Contract, in March 1997, relating to prospecting authorizations for mining regions where drilling and exploration are still in their early stages. The Mineral Risk Contract provides for the joint development of certain unexplored mineral deposits in approximately two million identified hectares of land in the Carajás region, as well as proportional participation in any financial benefits earned from the development of such resources. Iron ore and manganese deposits already identified and subject to development are specifically excluded from the Mineral Risk Contract.
 
    Pursuant to the Mineral Risk Contract, we and BNDES each agreed to provide $205, which represents half of the $410 in expenditures estimated as necessary to complete geological exploration and mineral resource development projects in the region over a period of five years. This period was extended for an additional two years. We oversee these projects and BNDES advances us half of our costs on a quarterly basis. Under the Mineral Risk Contract, As of September 30, 2003, both we and BNDES had remaining commitments to contribute an additional $54 towards exploration and development activities. In the event that either of us wishes to conduct further exploration and development after having spent such $205, the contract provides that each party may either choose to match the other party’s contributions, or may choose to have its financial interest proportionally diluted. If a party’s participation in the project is diluted to an amount lower than 40% of the amount invested in connection with exploration and development projects, then the Mineral Risk Contract provides that the diluted party will lose (1) all the rights and benefits provided for in the Mineral Risk Contract and (2) any amount previously contributed to the project.
 
    Under the Mineral Risk Contract, BNDES has agreed to compensate us through a finder’s fee production royalty on their share of mineral resources that are discovered and placed into production. This finder’s fee is equal to 3.5% of the revenues derived from the sale of gold, silver and platinum group metals and 1.5% of the revenues derived from the sale of other minerals, including copper, except for gold and other minerals discovered at Serra Leste, for which the finder’s fee is equal to 6.5% of revenues.
 
(f)   At the time of our privatization in 1997, we issued shareholder revenue interests known in Brazil as “debentures” to our then-existing shareholders, including the Brazilian Government. The terms of the “debentures”, were set to ensure that our pre-privatization shareholders, including the Brazilian Government, would participate alongside us in potential future financial benefits that we are able to derive from exploiting our mineral resources.
 
(g)   We use various judgments and assumptions when measuring our environmental liabilities and asset retirement obligations. Changes in circumstances, law or technology may affect our estimates and we periodically review the amounts accrued and adjust them as necessary. Our accruals do not reflect unasserted claims because we are currently not aware of any such issues. Also the amounts provided are not reduced by any potential recoveries under cost sharing, insurance or indemnification arrangements because such recoveries are considered uncertain. The changes are demonstrated as follows:

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Balance as of January 1, 2003
    42  
Increase due to new subsidiaries
    9  
Accretion expense
    2  
Cumulative translation adjustment
    7  
 
   
 
Balance as of September 30, 2003
    60  
 
   
 

10   Segment and geographical information
 
    In 1999 we adopted SFAS 131 “Disclosures about Segments of an Enterprise and Related Information” with respect to the information we present about our operating segments. SFAS 131 introduced a “management approach” concept for reporting segment information, whereby financial information is required to be reported on the basis that the top decision-maker uses such information internally for evaluating segment performance and deciding how to allocate resources to segments. Our business segments are currently organized as follows:
 
    Ferrous products - comprises iron ore mining and pellet production, as well as the Northern and Southern transportation systems, including railroads, ports and terminals, as they pertain to mining operations. Manganese mining and ferroalloys are also included in this segment.
 
    Non-ferrous products – comprises the production of non-ferrous minerals.
 
    Logistics – comprises our transportation systems as they pertain to the operation of our ships, ports and railroads for third-party cargos.
 
    Holdings – divided into the following sub-groups:

    Aluminum - comprises aluminum trading activities, alumina refining and investments joint ventures and affiliates engaged in bauxite mining and aluminum metal smelting.
 
    Steel - comprises our investments in joint ventures and affiliates operating in the steel industry.
 
    Others - comprises our investments in joint ventures and affiliates engaged in other businesses.

    Information presented to top management with respect to the performance of each segment is generally derived directly from the accounting records maintained in accordance with accounting practices generally accepted in Brazil together with certain minor inter-segment allocations.

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Table of Contents

    Consolidated net income and principal assets are reconciled as follows:

Results by segment - before eliminations

                                                                 
    As of and for the three months ended September 30, 2003
   
                            Holdings                
            Non          
               
    Ferrous   ferrous   Logistics   Aluminum   Steel   Others   Eliminations   Consolidated
   
 
 
 
 
 
 
 
Gross revenues - Export
    1,411       28       14       218                   (651 )     1,020  
Gross revenues - Domestic
    309       31       130       46                   (53 )     463  
Cost and expenses
    (1,282 )     (38 )     (91 )     (210 )           1       704       (916 )
Depreciation, depletion and amortization
    (50 )     (6 )     (3 )     (4 )                       (63 )
Pension plan
    (3 )                                         (3 )
 
   
     
     
     
     
     
     
     
 
Operating income
    385       15       50       50             1             501  
Financial income
    49       1       3       2             1       (29 )     27  
Financial expenses
    (89 )     (2 )     (2 )     (18 )     (1 )           29       (83 )
Foreign exchange and monetary gains (losses), net
    (48 )     (4 )     3       (8 )     (1 )     1             (57 )
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    32             (2 )     27       26       6             89  
Income taxes
    (1 )           (1 )     (1 )           3              
Minority interests
    (3 )                 (6 )                       (9 )
 
   
     
     
     
     
     
     
     
 
Net income
    325       10       51       46       24       12             468  
 
   
     
     
     
     
     
     
     
 
Sales classified by geographic destination:
                                                               
Export market
                                                               
America, except United States
    142             10       44                   (87 )     109  
United States
    91       2             6                   (46 )     53  
Europe
    532       19       4       96                   (236 )     415  
Middle East/Africa/Oceania
    85                                     (20 )     65  
Japan
    162       6             26                   (79 )     115  
China
    275       1             46                   (132 )     190  
Asia, other than Japan and China
    124                                     (51 )     73  
 
   
     
     
     
     
     
     
     
 
 
    1,411       28       14       218                   (651 )     1,020  
Domestic market
    309       31       130       46                   (53 )     463  
 
   
     
     
     
     
     
     
     
 
 
    1,720       59       144       264                   (704 )     1,483  
 
   
     
     
     
     
     
     
     
 
Assets:
                                                               
Property, plant and equipment, net
    4,024       858       439       529             38             5,888  
Additions to Property, plant and equipment
    235       170       16       22                         443  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    338             7       320       281       44             990  
 
   
     
     
     
     
     
     
     
 
Capital employed
    3,818       246       473       477       22       4             5,040  

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Operating income by product – after eliminations

                                                                 
    Three months ended September 30, 2003
   
                                            Impairment/                
                                            Gain on sale                
    Revenues                   of property,   Depreciation,        
   
  Cost and           plant and   depletion and   Operating
    Export   Domestic   Total   expenses   Net   equipment   amortization   income
   
 
 
 
 
 
 
 
Ferrous
                                                               
Iron ore
    554       147       701       (360 )     341             (31 )     310  
Pellets
    159       58       217       (158 )     59             (2 )     57  
Manganese
    7       4       11       (15 )     (4 )                 (4 )
Ferroalloys
    46       24       70       (52 )     18             (3 )     15  
 
   
     
     
     
     
     
     
     
 
 
    766       233       999       (585 )     414             (36 )     378  
Non ferrous
                                                               
Gold
    5             5       13       18                   18  
Potash
          28       28       (16 )     12             (1 )     11  
Kaolin
    21       4       25       (24 )     1             (3 )     (2 )
 
   
     
     
     
     
     
     
     
 
 
    26       32       58       (27 )     31             (4 )     27  
Aluminum
                                                               
Alumina
    107       42       149       (102 )     47             (4 )     43  
Aluminum
    77       4       81       (73 )     8                   8  
Bauxite
    12       1       13       (11 )     2                   2  
 
   
     
     
     
     
     
     
     
 
 
    196       47       243       (186 )     57             (4 )     53  
Logistics
                                                               
Railroads
          101       101       (45 )     56             (17 )     39  
Ports
    1       39       40       (22 )     18             (2 )     16  
Ships
    10       8       18       (29 )     (11 )                 (11 )
 
   
     
     
     
     
     
     
     
 
 
    11       148       159       (96 )     63             (19 )     44  
Others
    21       3       24       (25 )     (1 )                 (1 )
 
   
     
     
     
     
     
     
     
 
 
    1,020       463       1,483       (919 )     564             (63 )     501  
 
   
     
     
     
     
     
     
     
 

F - 18


Table of Contents

Results by segment - before eliminations

                                                                 
    As of and for the three months ended June 30, 2003
   
                            Holdings                
            Non          
               
    Ferrous   ferrous   Logistics   Aluminum   Steel   Others   Eliminations   Consolidated
   
 
 
 
 
 
 
 
Gross revenues - Export
    1,115       18       18       158                   (495 )     814  
Gross revenues - Domestic
    279       22       108       41                   (45 )     405  
Cost and expenses
    (1,039 )     (40 )     (68 )     (175 )     5       2       540       (775 )
Depreciation, depletion and amortization
    (45 )     (2 )     (3 )     (4 )                       (54 )
Pension plan
    (2 )                                         (2 )
 
   
     
     
     
     
     
     
     
 
Operating income (loss)
    308       (2 )     55       20       5       2             388  
Financial income
    51       (1 )     5       3       2             (31 )     29  
Financial expenses
    (85 )           (2 )     (7 )     (1 )           31       (64 )
Foreign exchange and monetary gains (losses), net
    185       14       (12 )     72       2       (4 )           257  
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    42             (72 )     47       16       2             35  
Income taxes
    (139 )     1       1       (24 )     1                   (160 )
Minority interests
    (1 )     (3 )           (25 )                       (29 )
 
   
     
     
     
     
     
     
     
 
Net income (loss)
    361       9       (25 )     86       25                   456  
 
   
     
     
     
     
     
     
     
 
Sales classified by geographic destination:
                                                               
Export market
                                                               
America, except United States
    121             4       36                   (84 )     77  
United States
    70       2             17                   (47 )     42  
Europe
    491       14       10       45                   (185 )     375  
Middle East/Africa/Oceania
    68             1                         (14 )     55  
Japan
    131       2       2       47                   (60 )     122  
Asia, other than Japan
    234             1       13                   (105 )     143  
 
   
     
     
     
     
     
     
     
 
 
    1,115       18       18       158                   (495 )     814  
Domestic market
    279       22       108       41                   (45 )     405  
 
   
     
     
     
     
     
     
     
 
 
    1,394       40       126       199                   (540 )     1,219  
 
   
     
     
     
     
     
     
     
 
Assets:
                                                               
Property, plant and equipment, net
    3,103       634       212       522             31             4,502  
Additions to Property, plant and equipment
    177       94       17       20                         308  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    459             2       305       277       29             1,072  
 
   
     
     
     
     
     
     
     
 
Capital employed
    2,875       158       245       486       19       10             3,793  

F - 19


Table of Contents

Operating income by product - after eliminations

                                                                 
    Three months ended June 30, 2003
   
                                            Impairment/                
                                            Gain on sale                
    Revenues                   of property,   Depreciation,        
   
  Cost and           plant and   depletion and   Operating
    Export   Domestic   Total   expenses   Net   equipment   amortization   income
   
 
 
 
 
 
 
 
Ferrous
                                                               
Iron ore
    458       135       593       (301 )     292             (20 )     272  
Pellets
    118       50       168       (141 )     27       (12 )     (4 )     11  
Manganese
    14       2       16       (3 )     13             (1 )     12  
Ferroalloys
    46       27       73       (51 )     22             (2 )     20  
 
   
     
     
     
     
     
     
     
 
 
    636       214       850       (496 )     354       (12 )     (27 )     315  
Non ferrous
                                                               
Gold
    7             7       (7 )                 (2 )     (2 )
Potash
          21       21       (12 )     9             (1 )     8  
Kaolin
    13       1       14       (10 )     4                   4  
 
   
     
     
     
     
     
     
     
 
 
    20       22       42       (29 )     13             (3 )     10  
Aluminum
                                                               
Alumina
    65       39       104       (88 )     16             (4 )     12  
Aluminum
    74       4       78       (68 )     10                   10  
Bauxite
    6             6       (6 )                        
 
   
     
     
     
     
     
     
     
 
 
    145       43       188       (162 )     26             (4 )     22  
Logistics
                                                               
Railroads
          79       79       (27 )     52             (16 )     36  
Ports
          38       38       (32 )     6             (2 )     4  
Ships
    13       8       21       (21 )                        
 
   
     
     
     
     
     
     
     
 
 
    13       125       138       (80 )     58             (18 )     40  
Others
          1       1       2       3             (2 )     1  
 
   
     
     
     
     
     
     
     
 
 
    814       405       1,219       (765 )     454       (12 )     (54 )     388  
 
   
     
     
     
     
     
     
     
 

F - 20


Table of Contents

Results by segment - before eliminations

                                                                 
    As of and for the three months ended September 30, 2002
   
                            Holdings                
                           
               
            Non           (1)                                
    Ferrous   ferrous   Logistics   Aluminum   Steel   Others   Eliminations   Consolidated
   
 
 
 
 
 
 
 
Gross revenues - Export
    1,060       33       11       103                   (451 )     756  
Gross revenues - Domestic
    305       27       57       45             1       (54 )     381  
Cost and expenses
    (1,002 )     (33 )     (34 )     (113 )           55       495       (632 )
Depreciation, depletion and amortization
    (36 )     (3 )     (3 )     (1 )           (1 )           (44 )
Pension plan
    (1 )     (1 )                                   (2 )
 
   
     
     
     
     
     
     
     
 
Operating income (loss)
    326       23       31       34             55       (10 )     459  
Financial income
    23             2       4       1       1       (21 )     10  
Financial expenses
    (154 )     (2 )     (2 )     (9 )     (2 )           21       (148 )
Foreign exchange and monetary gains (losses), net
    (391 )     (29 )     49       (140 )           (5 )     10       (506 )
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    (109 )           (38 )     (31 )     15       3             (160 )
Income taxes
    162                               (14 )           148  
Minority interests
          (3 )           50                         47  
 
   
     
     
     
     
     
     
     
 
Net income (loss)
    (143 )     (11 )     42       (92 )     14       40             (150 )
 
   
     
     
     
     
     
     
     
 
Sales classified by geographic destination:
                                                               
Export market
                                                               
America, except United States
    73             8       4                   (23 )     62  
United States
    104       5             7                   (46 )     70  
Europe
    471       26       2       92                   (198 )     393  
Middle/Africa/Oceania East
    66                                     (15 )     51  
Japan
    120       1       1                         (57 )     65  
Asia, other than Japan
    226       1                               (112 )     115  
 
   
     
     
     
     
     
     
     
 
 
    1,060       33       11       103                   (451 )     756  
Domestic market
    305       27       57       45             1       (54 )     381  
 
   
     
     
     
     
     
     
     
 
 
    1,365       60       68       148             1       (505 )     1,137  
 
   
     
     
     
     
     
     
     
 
Assets:
                                                               
Property, plant and equipment, net
    2,046       313       127       321             42             2,849  
Additions to Property, plant and equipment
    107       38       4       28             14             191  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    300       4       12       128       136                   580  
 
   
     
     
     
     
     
     
     
 
Capital employed
    2,168       137       140       196       16       26       5       2,688  

(1) Control of Alunorte was acquired in June 2002 and it was consolidated from then.

F - 21


Table of Contents

Operating income by product – after eliminations

                                                                 
    Three months ended September 30, 2002
   
                                            Impairment/                
                                            Gain on sale                
    Revenues                   of property,   Depreciation,        
   
  Cost and           plant and   depletion and   Operating
    Export   Domestic   Total   expenses   Net   equipment   amortization   income
   
 
 
 
 
 
 
 
Ferrous
                                                               
Iron ore
    393       137       530       (217 )     313             (19 )     294  
Pellets
    154       29       183       (150 )     33             (2 )     31  
Manganese
    1       9       10       (14 )     (4 )                 (4 )
Ferroalloys
    64       18       82       (61 )     21                   21  
 
   
     
     
     
     
     
     
     
 
 
    612       193       805       (442 )     363             (21 )     342  
Non ferrous
                                                               
Gold
    21             21       (11 )     10             (1 )     9  
Potash
          27       27       (9 )     18             (1 )     17  
Kaolin
    13             13       (3 )     10                   10  
 
   
     
     
     
     
     
     
     
 
 
    34       27       61       (23 )     38             (2 )     36  
Aluminum
                                                               
Alumina
    18       46       64       (35 )     29             (2 )     27  
Aluminum
    72       1       73       (60 )     13                   13  
Bauxite
    9             9       (7 )     2                   2  
 
   
     
     
     
     
     
     
     
 
 
    99       47       146       (102 )     44             (2 )     42  
Logistics
                                                               
Railroads
          66       66       (12 )     54             (16 )     38  
Ports
          36       36       (22 )     14             (1 )     13  
Ships
    11       5       16       (11 )     5             (2 )     3  
 
   
     
     
     
     
     
     
     
 
 
    11       107       118       (45 )     73             (19 )     54  
Others
          7       7       (22 )     (15 )                 (15 )
 
   
     
     
     
     
     
     
     
 
 
    756       381       1,137       (634 )     503             (44 )     459  
 
   
     
     
     
     
     
     
     
 

F - 22


Table of Contents

Results by segment - before eliminations

                                                                 
    As of and for the nine months ended September 30, 2003
   
                            Holdings                
            Non          
               
    Ferrous   ferrous   Logistics   Aluminum   Steel   Others   Eliminations   Consolidated
   
 
 
 
 
 
 
 
Gross revenues - Export
    3,606       69       53       525                   (1,622 )     2,631  
Gross revenues - Domestic
    846       77       316       124                   (139 )     1,224  
Cost and expenses
    (3,322 )     (116 )     (220 )     (544 )     6             1,761       (2,435 )
Depreciation, depletion and amortization
    (131 )     (11 )     (8 )     (10 )                       (160 )
Pension plan
    (8 )                                         (8 )
 
   
     
     
     
     
     
     
     
 
Operating income
    991       19       141       95       6                   1,252  
Financial income
    145       1       11       8       2       2       (85 )     84  
Financial expenses
    (270 )     (4 )     (5 )     (30 )     (5 )           85       (229 )
Foreign exchange and monetary gains (losses), net
    162       15       (12 )     87       1       (3 )           250  
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    110             (85 )     122       61       10             218  
Income taxes
    (206 )           (1 )     (27 )           3             (231 )
Minority interests
    (5 )     (4 )           (47 )                       (56 )
 
   
     
     
     
     
     
     
     
 
Income from continuing operations
    927       27       49       208       65       12             1,288  
Change in accounting pratice for asset retirement obligations (note 4)
    (10 )                                         (10 )
 
   
     
     
     
     
     
     
     
 
Net income
    917       27       49       208       65       12             1,278  
 
   
     
     
     
     
     
     
     
 
Sales classified by geographic destination:
                                                               
Export market
                                                               
America, except United States
    379             28       111                   (243 )     275  
United States
    262       8             25                   (143 )     152  
Europe
    1,463       50       20       228                   (591 )     1,170  
Middle East/Africa/Oceania
    204             4                         (50 )     158  
Japan
    404       9             96                   (188 )     321  
China
    607       2             65                   (284 )     390  
Asia, other than Japan and China
    287             1                         (123 )     165  
 
   
     
     
     
     
     
     
     
 
 
    3,606       69       53       525                   (1,622 )     2,631  
Domestic market
    846       77       316       124                   (139 )     1,224