FORM 6-K
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

March 2004

Commission File Number 001-15030

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 if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1))

(Check One) Yes [  ] No [X]

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7))

(Check One) Yes [  ] No [X]

(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-     .)

 


Table of Contents

Table of Contents

Brazilian GAAP Press Release for 2003 of Companhia Vale do Rio Doce

Brazilian GAAP Financial Statements

 


TABLE OF CONTENTS

PART I
1- Management’s Discussion and Analysis of the Operating Results
1.1- General Aspects
1.2- Comments on the Parent Company Results
1.2.1- Gross Revenue
1.2.2- Cost of Products and Services
1.2.3- Result of Shareholdings by Business Area
1.2.4- Operating Expenses
1.2.5- Net Financial Result
1.2.6- Income Tax and Social Contribution
1.2.7- Cash Generation
1.2.8- Interest on Stockholders’ Equity
1.2.9- Shareholder Remuneration Policy for 2004
1.2.10- Concessions and Leases
1.3- Comments on the Consolidated Results
1.3.1- Consolidated Gross Revenue
1.3.2- Consolidated Cost of Products and Services
Part II
Financial Statements and Notes to the Financial Statements
2- Balance Sheet
3- Statement of Income
4- Statement of Changes in Stockholders’ Equity
5- Statement of Changes in Financial Position
6- Statement of Cash Flows (Additional Information)
7- Statement of Value Added (Additional Information)
8- Labor and Social Indicators (Additional Information)
9- Statement of Income by Segment (Additional Information)
10- Notes to the Financial Statements at December 31, 2003 and 2002
10.1- Operations
10.2- Presentation of Financial Statements
10.3- Principles of Consolidation
10.4- Significant Accounting Policies
10.5- Cash and Cash Equivalents
10.6- Accounts Receivable from Customers
10.7- Related Parties
10.8- Inventories
10.9- Deferred Income Tax and Social Contribution
10.10- Investments
10.11- Property, Plant and Equipment
10.12- Loans and Financing
10.13- Export Receivable Securitization Program
10.14- Contingent Liabilities
10.15- Environmental and Site Reclamation and Restoration Costs
10.16- Pension Plan - Valia
10.17- Paid-up Capital
10.18- American Depositary Receipts (ADR) Program
10.19- Treasury Stock
10.20- Remuneration of Stockholders
10.21- Financial Result – Parent company and consolidated
10.22- Financial Instruments — Derivatives
10.23- Exchange Rate Exposure
10.25- Effects on the Statements if Price-Level Restatement were Applied
10.26- Insurance
10.27- Profit Sharing Plan
10.28- Deferred Income
10.29- Subsequent Event
10.30- Shareholding Interests (Organization Chart at 12/31/03)
PART III
11- ATTACHMENT I - STATEMENT OF INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED COMPANIES
12- ATTACHMENT II - EQUITY INVESTEE INFORMATION
12.1- Aluminum Area - Albras (Adjusted and Unaudited)
12.2- Aluminum Area - Alunorte (Adjusted and Unaudited)
12.3- Aluminum Area — Aluvale (Adjusted and Unaudited)
12.4- Aluminum Area - MRN (Adjusted and Unaudited)
12.5- Aluminum Area – Valesul (Adjusted and Unaudited)
12.6- Pellets Area – Hispanobras (Adjusted and Unaudited)
12.7- Pellets Area – Itabrasco (Adjusted and Unaudited)
12.8- Pellets Area – Kobrasco (Adjusted and Unaudited)
12.9- Pellets Area – Nibrasco (Adjusted and Unaudited
12.10- Pellets Area – Samarco (Adjusted and Unaudited)
12.11- Pellets Area – GIIC (Adjusted and Unaudited)
12.12- Pellets Area – Ferteco (Adjusted and Unaudited)
12.13- Manganese and Ferrolloys Area – RDM (Adjusted and Unaudited)
12.14- Manganese and Ferrolloys Area – Urucum (Adjusted and Unaudited)
12.15- Manganese and Ferrolloys Area – RDME (Adjusted and Unaudited)
12.16- Steel Area – CST (Adjusted and Unaudited)
12.17- Steel Area – CSI (Adjusted and Unaudited)
12.18- Logistics Area – DOCENAVE (AdjUS$ted and Unaudited)
12.19- Logistics Area – FCA (Adjusted and Unaudited)
12.20- Non ferrous minerals area – PPSA (Adjusted and Unaudited)
13- ATTACHMENT III – OTHER INFORMATION THE COMPANY DEEMS RELEVANT
13.1 — Business Performance Ratios (Unaudited)
13.2 — Iron Ore and Pellet Sales (Main Markets) (Unaudited)
14- REPORT OF THE INDEPENDENT ACCOUNTANTS
15- OPINION OF THE FISCAL COUNCIL ON THE ANNUAL REPORT AND FINANCIAL STATEMENTS AT DECEMBER 31, 2003
16- OPINION OF THE BOARD OF DIRECTORS ON THE ANNUAL REPORT AND FINANCIAL STATEMENTS AT DECEMBER 31, 2003
17- BOARD OF DIRECTORS, FISCAL COUNCIL, ADVISORY COMMITTEES AND EXECUTIVE OFFICERS
SIGNATURES


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(BR GAAP LOGO)

(COMPANHIA VALE DO RIO DOCE LOGO)

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

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

Investor Relations Department

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 2003

The financial and operational information contained in this press release, except otherwise indicated, was calculated in accordance with generally accepted accounting principles in Brazil (BR GAAP). As specifically indicated throughout the text, this information either refers to the financial statements of the Parent Company or the Consolidated financial statements. In the case of the Consolidated financial statements, in accordance with BR GAAP, the companies that are consolidated are those in which CVRD has effective control or shared control, as defined through a formal shareholders agreement. In the case of those companies in which CVRD holds definitive control, consolidation is carried out on a 100% basis, the difference between this figure and the percentage stake held by CVRD in the capital of a given subsidiary being discounted at the “minority interests” line. The main subsidiaries of CVRD are: Caemi, Alunorte, RDM, RDME, RDMN, Urucum Mineração, Pará Pigmentos, Docenave, Ferrovia Centro-Atlântica (FCA), Rio Doce Europa, Itaco, CVRD Overseas and Rio Doce International Finance. In the case of those companies where control is shared, the consolidation is carried out in proportion to the size of the stake that CVRD holds in the capital of each company. The main companies in which CVRD has shared control are: Albras, MRN, Valesul, Kobrasco, Nibrasco, Hispanobras, Itabrasco, GIIC and Samarco.

2003 — A RECORD YEAR

Rio de Janeiro, March 24, 2004 — Companhia Vale do Rio Doce obtained net earnings of R$ 4.509 billion in 2003, the equivalent of R$ 11.75 per share, the highest in the Company’s history. This result was more than double of that reported in 2002 and 47.8% higher than the previous record achieved in 2001 of R$3.051 billion.

Consolidated cash generated, as measured by EBITDA (earnings before interest tax depreciation and amortization), amounted to R$ 7.765 billion, another record. EBITDA in 2003 showed an increase of 17.5% relative to 2002.

Return on equity (ROE) amounted to 30.2%, compared to 16% in 2002.

Various other records were beaten in 2003:

  Consolidated gross revenues amounted to R$ 20.219 billion, an increase of 32.4% on that reported in the previous year, of R$15.267 billion.
 
  Revenues from exports amounted to US$ 3.952 billion, representing a rise of 24.6%, compared to exports generated of US$ 3.173 billion in 2002.
 
  The Company’s net exports (exports minus imports), totaled US$ 3.422 billion, accounting for 13.8% of Brazil’s trade surplus in 2003.

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  Sales volume of iron ore and pellets amounted to 186.812 million tons, an increase of 14.0% in relation to 2002.
 
  The sales of alumina made by Alunorte, of 2.275 million tons, represented a rise of 42.9% compared to 2002.
 
  Sales volume of manganese ferro-alloys of 512,000 tons, compared to 466,000 tons in 2002.
 
  Sales of kaolin totaled 731,000 tons, compared to 451,000 in 2002.
 
  The volume of general cargo transported for third parties by the railroads of CVRD (Vitória a Minas Railroad — EFVM, Carajás Railroad - EFC and Centro-Atlantic Railroad — FCA) totaled 26.3 billion net ton kilometers (ntk), an increase of 5.1% compared to 2002.
 
  Capital expenditure amounted to US$1.8 billion, carried out by CVRD Parent Company.

The good results reported by CVRD are due to the considerable increase in global demand for ore and metals, and the Company’s strong commitment to the generation of shareholder value. This implies consistent execution of business strategy, with efforts being concentrated on maximizing the performance of existing assets, using discipline in the allocation of capital to organic growth projects and acquisitions and in cost of capital reduction.

The Company’s cash generation has allowed it to finance its growth initiatives, each evaluated according to their own merit, and distribute a good level of dividends to its shareholders.

In 2003, the first year that saw implementation of the Dividend Policy, dividends of R$5.04 per share were paid, amounting to R$ 1.930 billion, compared to R$ 1.807 billion, or R$4.99 per share, in 2002.

The dividends distributed by CVRD in 2003 resulted in a dividend yield of 3.4% in US dollars. In the period from 1999 to 2003, the average dividend yield for the shares of CVRD amounted to 5.6%, the highest of the world’s largest global mining and metals companies. Total shareholder return, measured in US dollars, amounted to 93.7% in 2003, the annual average for the period 1999-2003 being 40.2%.

In January 2004, Company’s management proposed to its Board the payment of a minimum dividend for 2004, of US$ 1.43 per share, a total of US$ 550 million. The value proposed is consistent with the expected behavior of free cash flow, while maintaining CVRD’s prudent levels of financial leverage.

The Parent Company carried out investments of US$ 1,819.2 million in 2003, R$ 502 million of which was spent on acquisitions. Expenditure on mineral exploration totaled US$ 69 million, with expenditure on projects amounting to US$ 784 million. Of the main projects carried out, of particular note were: the 14 million ton expansion in iron ore production capacity at Carajás, the completion of Pier III at Ponta da Madeira maritime terminal, the purchase of 101 locomotives and 2,986 wagons for the transport of iron ore and general cargo, and the development of the Sossego copper mine, which will begin operations in July 2004.

Performance highlights by the Parent Company in the fourth quarter of 2003

  Record gross revenues of R$2.877 billion.

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  Record volume of iron ore and pellets shipments, of 44.8 million tons.
 
  EBITDA of R$1.239 billion, 8.9% lower than in 4Q02.
 
  Net earnings of R$ 792 million, R$ 2.06 per share, compared to R$1.541 billion reported in 4Q02.

(GRAPHIC) RECENT RELEVANT EVENTS

In the last few months, negotiations were concluded which have important implications for CVRD’s iron ore businesses. At the same time, the Company reinforced its commitment to good corporate governance practice and continued the streamlining of its operational structure. A 30-year bond was issued in the global capital markets and the substantial capex budget for 2004 has been approved.

  Iron ore and pellet reference prices for 2004

For the fourth year running, the Company led the process of price negotiations with the world’s largest steel companies.

In January 2004, CVRD concluded negotiations with its clients for the setting of iron ore reference prices for the year 2004, resulting in an average increase of 18%, compared to those prices practiced in 2003.

In February, new pellet reference prices were implemented with the Company’s clients, showing an average increase of 19%.

  Long-term iron ore supply contracts

In December, CVRD and Shanghai Baosteel Group Corporation (Baosteel), China’s largest steel producer, signed a long-term contract for the supply of iron ore for a period of 10 years, from 2006 to 2016. This contract is in addition to that signed in October 2001, and determines that iron ore shipments made by CVRD will increase annually to satisfy the growing requirements of Baosteel, reaching 14 million tons a year from 2010. Given that the earlier contract already makes provision for annual shipments of 6 million tons, CVRD’s sales of iron ore to Baosteel should reach 20 million tons from 2010 onwards.

In February 2004, CVRD signed another two important iron ore supply contracts. The contract with Corus, one of Europe’s main steel companies, was extended for a period of 10 years and makes provision for the sale of 10 million tons a year, which will therefore mean that CVRD will become Corus’ largest iron ore supplier. Currently, CVRD supplies approximately 5 million tons a year to Corus.

The contract with Arcelor, the world’s largest steel producer, makes provision for the shipment of 20 million tons a year of iron ore fines and lumps for its plants in Europe, up to 2009. Neither the sale of pellets produced by Hispanobras — a Brazilian joint-venture between CVRD and Arcelor, nor CVRD’s sale of iron ore and pellets to Arcelor’s steelworks in Brazil, form part of this contract.

Long-term contracts result in closer relationships between the Company and its clients, providing them with guaranteed supplies of high-quality iron ore and pellets, while at the same time making it possible to develop solutions that create value for the steelmakers.

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  Steel slab project

On February 2004, CVRD and Baosteel signed contracts with engineering companies to carry out a feasibility study for a joint-venture to build and operate an integrated steel plant in São Luís, in the state of Maranhão, for the production of 3.7 million tons of steel slabs a year. Preliminary estimates are for the plant to begin operations in 2007.

CVRD’s strategic objective is to promote the development of semi-finished steel projects in Brazil, which show a clear comparative advantage in the production of these products, with a view to leveraging the Company’s sales of iron ore and pellets. The Company may take minority shareholdings in these enterprises.

  Corporate Governance

In December, CVRD joined Bovespa’s “Program of Differentiated Corporate Governance Practices”, formally committing itself to following good corporate governance practices. This represented another demonstration of the Company’s commitment to a transparent management model, ensuring that a balanced picture is presented to its shareholders, providing quick and efficient disclosure of information, as well as reflecting CVRD’s respect for the rights of its investors.

  Simplification of operational structure

Continuing the process of simplifying its operational structure, in December CVRD absorbed the following companies into the Parent Company: Rio Doce Geologia e Mineração S.A. — Docegeo (Docegeo), Mineração Serra do Sossego S.A. (MSS), Vale do Rio Doce Alumínio S.A. — Aluvale (Aluvale) and Mineração Vera Cruz S.A. (MVC).

The object of this process is to reduce costs and increase transparency.

  Issue of debt

In January 2004, CVRD issued a 30-year US$ 500 million bond — CVRD 2034 . This issue is the longest-dated debt ever issued by a Brazilian company in international capital markets.

CVRD 2034 represents pure credit of the Company, being rated Ba2 by Moody ´s Investor Service. The issue was placed in the market with a return to investor of 8.35% a year, 336 basis points over the yield offered by US Treasury bonds of similar duration.

  Investment program for 2004

In January, the Company announced an investment program of US$ 1.536 billion for 2004, with expenditure on growth — mineral exploration and projects, of US$ 1.075 billion, and “stay-in-business capex” — maintenance, modernization, environmental protection, and information technology — of US$ 461 million.

The amount allocated to greenfield and brownfield projects totaled US$ 1.011 billion. The most important initiatives involve: expanding production capacity of iron ore, bauxite, alumina and potash, completion of the Sossego copper project, starting development of project 118, power generation and the purchase of locomotives and wagons for the transport of iron ore and general cargo.

Investments in mineral exploration are estimated at US$ 78 million.

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(GRAPHIC) BUSINESS OUTLOOK

China continued to exercise a predominant influence in the minerals and metals markets in 2003. Demand for steel grew by 25%, having been satisfied through an increase of 21.2% in its domestic production — being the first time that a country has exceeded production of 200 million tons of crude steel a year - supplemented by importing 38 million tons of steel products. China’s external purchases of refined copper were up by 17%, those of copper concentrate by 28% and those of alumina by 21%.

Global seaborne trade iron ore grew at an extraordinary rate in 2003 — 10.3% - totaling 537.1 million tons, an increase of 50 million tons in relation to the previous year — the largest expansion in seaborne trade ever. China was responsible for 72% of this increase, its imports expanding by 112 million tons in 2002 to 148 million last year. Western Europe increased its purchases by 5 million tons, Japan by 4 million — from 126 million to 130 million tons — the United States by 2 million and Argentina by 2 million.

The strong Chinese demand has altered the dynamics in the global iron ore market. In the last five years, seaborne trade has grown by an average rate of 5.2%, Chinese imports rising by 23.4% a year, accounting for 80% — 96 million tons — of the increase seen in the period. During the nineties, seaborne trade increased at a slower pace, averaging 3% a year between 1992 and 1999.

For 2004, we are estimating an increase in seaborne trade of 7.1%, which corresponds to an additional volume of approximately 40 million tons. This is likely to keep the iron ore industry working at full capacity, while at the same time maintaining existing pressure on the logistics system: railroads, ports and maritime transport. Demand for manganese and ferro-alloys, whose behavior is correlated to that of iron ore, is therefore likely to continue buoyant.

In the first two months in 2004, China imported 31.6 million tons of iron ore, an increase of 36.7%, compared to the same period in the previous year.

The combination of the synchronized recovery in the global economy, together with this performance by China, has without doubt contributed to maintaining buoyant demand for ores and metals. This effect, allied to the obstacles to short-term growth apparent in the supply of mineral products, suggests a relatively long upcycle in the sector, similar to that which occurred in the second half of the eighties.

In the case of China, there has been unprecedented growth in the demand for mineral and metals products, which has had significant implications on their price behavior in relation to those of manufactured products. The gains in productivity obtained from the revolution in information technology and China’s emergence as a low-cost manufacturing platform for industrial products, as well as a large consumer of ores and metals, will tend to provoke a long-lasting change in relative prices.

Thus, in contrast to what has happened until recently, it is very likely that ore and metal prices will cease to exercise a deflationary effect on the global economy.

On the supply side, the mining and metals industry reacted to the Asian financial crisis of 1997 by cutting investment in capacity expansion and mineral exploration. We estimate that growth capex dropped by almost 50% in nominal terms, between 1997 and 2002.

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Finally, the depreciation in the US dollar has a favorable effect on metals prices, particularly gold, copper and aluminum.

We believe that there is a structural imbalance between the demand and supply of various products, among which are: iron ore, alumina, and copper concentrate, which is impossible to correct in the short term. As a consequence, the medium-term scenario is likely to have a positive influence on the performance of CVRD, whose operational and investment costs are low.

The restrictions which are being applied by the Chinese government to the construction of steel plants and aluminum smelters, are not capable of reversing the current trend, only serving to alleviate the acute shortage of raw materials which would result from an excessive volume of investments.

The growth performance seen by CVRD’s logistics services has seen relatively little correlation with Brazil’s GDP growth, due to the existence of considerable pent-up demand. Continued expansion will tend to depend increasingly on investment in rolling stock, in order to enable existing demand to be met. The Company is making significant investments in logistics, with the recapitalization of FCA, and the recent orders placed for thousands of wagons and more than one hundred locomotives.

Agricultural production in Brazil has been expanding rapidly in the past few years, due to, among other factors, the growing use of fertilizer, whose consumption has increased at an average annual rate of 6%. With this, Brazil has been transformed into the world’s fourth-largest consumer of this agricultural input. Consequently there is a strong demand for potash, a raw material used in the production of fertilizer, whose consumption amounted to 6.7 million tons in 2003. CVRD, Brazil’s only producer of potash, is only capable of meeting 10% of the domestic demand, even with Taquari-Vassouras operating at above nominal capacity.

For 2004, the IBGE is predicting that Brazil’s harvest will expand by 8%, therefore expected to reach 132 million tons — so signaling buoyant conditions for the potash market.

(GRAPHIC) PERFORMANCE IN 2003 — CONSOLIDATED RESULT

SELECTED FINANCIAL INDICATORS — CONSOLIDATED

                 
    R$ million
    2002
  2003
Gross Operating Revenues
    15,267       20,219  
Gross Margin (%)
    47.9 %     43.5 %
Net Earnings
    2,043       4,509  
Net Earnings per Share (R$)
    5.32       11.75  
EBITDA
    6,609       7,765  
EBITDA Margin (%)
    45.0 %     39.9 %
Operating Cash Flow
    7,534       6,477  
ROE (annualized) (%)
    16.0 %     30.2 %
Exports (US$ million)
    3,173       3,952  
Gross Debt
    14,706       14,096  
Net Debt
    10,435       12,004  
Gross Debt / EBITDA
    2.23       1.82  

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

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(BR GAAP LOGO)

  Sales volumes and revenues

In 2003, the volumes sold of almost all CVRD’s products showed an increase on the previous year. The only exceptions were gold, due to the exhaustion of the Igarapé Bahia mine in June 2002 and the sale of the last mine in operation, Fazenda Brasileiro, and potash, which despite the record production of 658,000 tons, saw a drop in 2003, available stock being draw-down in 2002, so inflating the comparison in that year.

Once again, iron ore and pellet sales reached record levels, totaling 186.8 million tons, an increase of 14% compared to the previous year. Shipments of iron ore amounted to 154.2 million tons, and those of pellets, 32.6 million tons, respective increases of 14% and 13.6%, compared to the previous year.

Sales of manganese ore — 885,000 tons, and ferro-alloys — 512,000 tons, each saw a rise of 33.1% and 9.9%, respectively.

Sales of kaolin, of 731,000 tons, were up 62.1% compared to 2002, as a result of sales efforts, which included the diversification of products manufactured by PPSA and the 100% consolidation of Caemi, and consequently CADAM, from September 2003.

In the area of aluminum, we obtained record sales for all types of products.

Shipments of bauxite produced by MRN amounted to 14,120,000 tons, up 42.2% in relation to the previous year. Sales of alumina, produced by the Alunorte refinery totaled 2,275,000 tons, an increase of 42.9% compared to 2002. MRN and Alunorte saw their capacity expansion projects completed in April 2003.

Albras sold 434,000 tons of primary aluminum, which exceeded its nominal production capacity of 406,000 tons, thanks to operational improvements which allowed it to produce 432,000 tons in 2003. Valesul sold 98,000 tons of aluminum products, operating at full capacity.

The volume of general cargo transported for clients on our railroads — EFVM, EFC and FCA — amounted to 26.3 billion net ton kilometers (ntk), an increase of 5.1% in relation to 2002. About 42% of cargo transported consisted of raw materials (pig iron and coal) and products for the steel industry, and 31% of agricultural products, principally soybean, soybean meal, sugar, and fertilizer. To meet the strong demand for general cargo transportation, the Company purchased an additional 57 locomotives and 926 wagons.

SALES VOLUME * — CONSOLIDATED

                 
    thousand tons
    2002
  2003
Iron Ore
    135,187       154,172  
Pellets
    28,729       32,640  
Manganese
    665       885  
Ferro Alloys
    466       512  
Gold (troy oz)
    331,479       61,763  
Potash
    731       674  
Kaolin
    451       731  
Port Services
    27,288       28,743  
Bauxite
    2.862       4,326  
Alumina
    1,126       2,214  
Aluminum
    257       284  

* volumes attributable to CVRD according to BR GAAP consolidation.

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(BR GAAP LOGO)

GENERAL CARGO RAILROAD TRANSPORTATION — CONSOLIDATED

                                         
    million ntk
    4Q02
  3Q03
  4Q03
  2002
  2003
EFVM
    2,968       3,497       3,233       11,561       12,768  
EFC
    819       1,077       808       3,172       3,534  
FCA
    2,568       2,797       2,361       10,294       9,993  
Total
    6,355       7,371       6,402       25,027       26,295  

Gross consolidated revenues amounted to R$ 20.219 billion, 32.4% higher than those generated in 2002, of R$15.267 billion. Gross margin narrowed, from 47.9% to 43.5%, basically due to fuel price increases and a rise in electricity tariffs, the greater volume of iron ore purchased from third parties and also the 100% consolidation of Caemi and FCA, from September 2003, these companies having lower margins than those of CVRD.

Of the total revenues, 54.8% derived from the sale of iron ore and pellets, which generated R$ 11.089 billion, up 27.9% on the previous year. Iron ore revenues amounted to R$ 7.743 billion and pellet revenues, R$ 3.346 billion.

Revenues from logistics services, of R$ 2.134 billion, showed an increase of 48.7% in relation to 2002, representing 10.6% of CVRD’s total revenues. This revenue expansion was due to the higher volume transported and greater productivity from rolling stock.

CVRD’s railroads — EFVM, EFC and FCA — have been improving their energy efficiency, consuming less fuel and thus reducing costs and environmental impact. EFC reduced its consumption of diesel per thousand gross ton-kilometers to 1.38 liters, 10% less than in 2001. EFVM and FCA reached historic lows of 2.30 and 7.64 liters, respectively, in the year.

The revenues generated by the aluminum businesses, of R$ 2,858 million, were up 61.7% in relation to the previous year, due to higher volumes and prices.

GROSS REVENUES — CONSOLIDATED

                                 
    R$ million
    2002
  %
  2003
  %
Iron Ore and Pellets
    8,673       56.8 %     11,089       54.8 %
Iron Ore
    5,987       39.2 %     7,743       38.3 %
Pellets
    2,686       17.6 %     3,346       16.5 %
Pelletizing Plants Operation Services
    55       0.4 %     68       0.3 %
Logistics
    1,435       9.4 %     2,134       10.6 %
Railroads
    1,101       7.2 %     1,700       8.4 %
Ports
    334       2.2 %     434       2.1 %
Gold
    280       1.8 %     71       0.4 %
Steel Products
    1,713       11.2 %     2,217       11.0 %
Aluminum
    1,767       11.6 %     2,858       14.1 %
Manganese and Ferro-Alloys
    845       5.5 %     1,098       5.4 %
Potash
    272       1.8 %     289       1.4 %
Kaolin
    179       1.2 %     320       1.6 %
Others
    48       0.3 %     75       0.4 %
Total
    15,267       100.0 %     20,219       100.0 %

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  Record net earnings- R$ 4.5 billion

CVRD obtained net earnings of R$ 4.509 billion in 2003, the highest in its history. This represented an increase of 120.7% on 2002, R$ 2.466 billion in absolute terms.

The achievement of this milestone was largely a result of two factors: an increase of R$ 4.765 billion in net operating revenues and of R$ 3.152 billion in monetary variation.

The effect of the Real’s 18.2% appreciation against the US dollar between December 31, 2002 and December 31, 2003, on the Company’s foreign currency-denominated debt, resulted in a monetary variation gain of R$ 721 million in 2003, compared to losses of R$ 2.431 billion in 2002.

On the other hand, the cost of goods sold (COGS) increased by 43.7%, R$ 3.339 billion. Part of this increase was due to the 100% consolidation of Caemi and FCA from September 2003 into the Parent Company, and also by the fact that Alunorte had been wholly consolidated for all of last year, compared to just six months in 2002.

The changes in the principle components that make up COGS were mainly affected by general acceleration in the Company’s business rhythm, as well as a number of price increases, this being particularly marked in the case of fuel oil. The following increases were recorded:

a)   Expenditure on fuel oil and gas of R$ 551 million.
 
b)   Expenditure on material, of R$ 699 million.
 
c)   Cost of outsourced services, of R$ 605 million, inflated by the full consolidation of Caemi, which hires MRS to carry its iron ore.
 
d)   Cost of electricity, of R$ 281 million.
 
e)   Goodwill amortization of R$ 65 million, basically due to the goodwill amortization associated with Ferteco, which was absorbed into CVRD.
 
f)   R$ 813 million in products purchased, as a consequence of the greater volumes of iron ore purchased from third parties, as well as larger volumes of bauxite to meet the growth in alumina production.

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COGS BREAKDOWN — CONSOLIDATED

                                 
    R$ million
    2002
  %
  2003
  %
Personnel
    973       12.7 %     1,190       10.8 %
Material
    1,053       13.8 %     1,752       15.9 %
Fuel Oil and Gases
    850       11.1 %     1,401       12.8 %
Outsourced Services
    1,108       14.5 %     1,713       15.6 %
Energy
    567       7.4 %     848       7.7 %
Acquisition of products and tolling
    1,401       18.3 %     2,214       20.2 %
Depreciation and Exhaustion
    945       12.4 %     1,010       9.2 %
Goodwill amortization
    101       1.3 %     166       1.5 %
Others
    648       8.5 %     691       6.3 %
Total
    7,646       100.0 %     10,985       100.0 %

A provision of R$ 898 million was made for the payment of income tax and social contribution in 2003, compared to the tax credit of R$ 634 million in 2002. This difference is due to the significant increase in taxable earnings and a lowering in tax incentives.

  Cash generation — R$7.8 billion

EBITDA generated in 2003 amounted to R$ 7.765 billion, 17.5% higher than the figure of R$ 6.609 billion reported in 2002. It should be pointed out that EBITDA in 2002 was revised from R$ 6.857 billion to R$ 6.609 billion, to reflect the new calculation methodology adopted since 1Q03. This just involved elimination of the effects of events considered to be non-recurring, in line with the specific regulations issued by the US Securities and Exchange Commission (SEC).

As well as the increase of R$ 1,426 million seen between 2002 and 2003 in gross profit, EBITDA in 2003 was boosted by an additional R$ 151 million worth of depreciation and amortization, and R$ 21 million in additional dividends received from non-consolidated companies. On the other hand, there was an increase of R$ 172 million in sales and administrative expenses, and an additional R$ 101 million spent on research and development. The adjustment for non-recurring items in 2002 amounted to R$ 233 million, while in 2003 this was only R$ 88 million. Most of this difference was explained by the write-down of gold assets in 2002, due to the closure of the Igarapé Bahia mine, of R$ 147 million, considered to be non-recurring.

Of the total EBITDA, 69.1% was generated from ferrous mineral businesses, 14.1% from the aluminum business, 8.9% from logistics, 5.8% from steel, 1.6% from non-ferrous mineral businesses and 0.5% by other areas.

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FINANCIAL STATEMENT — CONSOLIDATED

                 
    R$ million
    2002
  2003
Gross Operating Revenues
    15,267       20,219  
Taxes
    (589 )     (776 )
Net Operating Revenues
    14,678       19,443  
Cost of Goods Sold
    (7,646 )     (10,985 )
Gross Earnings
    7,032       8,458  
Gross Margin (%)
    47.9 %     43.5 %
Operational Expenses
    (1,790 )     (2,087 )
Sales
    (228 )     (289 )
Administratives
    (681 )     (792 )
Research and Development
    (148 )     (249 )
Other Operational Expenses
    (733 )     (757 )
Result from Shareholdings
    (473 )     (540 )
Equity Income
    50       209  
Goodwill Amortization
    (523 )     (612 )
Provision for Losses
          29  
Others
          (166 )
Financial Result
    (3,481 )     (254 )
Financial Expenses
    (1,445 )     (1,237 )
Financial Revenues
    395       262  
Monetary Variation
    (2,431 )     721  
Operating Profit
    1,288       5,577  
Result of Discontinued Operations
          174  
Change in Accounting Method
          (91 )
Income Tax and Social Contribution
    634       (898 )
Minority Interest
    121       (253 )
Net Earnings
    2,043       4,509  

BALANCE SHEET — CONSOLIDATED

                 
    R$ million
    12/31/2002
  12/31/2003
Assets
               
Current
    10,878       8,559  
Long Term
    3,333       3,826  
Fixed
    19,255       24,707  
Total
    33,466       37,092  
Liabilities
               
Current
    6,793       7,579  
Long Term
    13,576       13,419  
Others
    346       1,154  
Shareholders’ Equity
    12,751       14,940  
Paid-up Capital
    5,000       6,300  
Reserves
    7,751       8,640  
Total
    33,466       37,092  

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(GRAPHIC) PARENT COMPANY RESULT IN 4Q03

SELECTED FINANCIAL INDICATORS — PARENT COMPANY

                                         
    R$ million
    4Q02
  3Q03
  4Q03
  2002
  2003
Gross Operating Revenues
    2,786       2,766       2,877       8,570       10,367  
Gross Margin (%)
    52.1       49.6       44.7       49.8       46.5  
EBITDA
    1,360       1,506       1,239       3,974       4,877  
EBITDA Margin (%)
    50.9       56.2       44.3       48.3       48.7  
Net Earnings
    1,541       1,278       792       2,043       4,509  
ROE (annualized) (%)
    48.3       35.2       21.2       16.0       30.2  
Investments (US$ million) *
    218.9       831.0       400.6       748.0       1,819.3  

*including acquisitions

ROE = return on equity = net earnings / equity

The Parent Company’s gross revenues in 4Q03 amounted to R$ 2.877 billion, up 3.3% and 4.0%, respectively, compared to 4Q02 and 3Q03. Iron ore and pellets generated 84.5% of these revenues, logistics services 11.3%, potash 2.5% and others 1.7%.

Gross margin narrowed from 49.6% in 3Q03 to 44.7% in 4Q03, basically due to the incorporation of Ferteco, which has lower margins than CVRD, as well as an increase in personnel costs.

SALES VOLUMES — PARENT COMPANY

                                         
    thousand tons
       
    4Q02
  3Q03
  4Q03 2002
  2003
       
Iron Ore and Pellets
    39,424       40,297       44,797       146,342       157,913  
Iron Ore
    34,557       35,430       38,134       129,893       136,973  
Fines
    26,997       31,597       33,263       115,329       122,018  
Lumps
    7,560       3,833       4,871       14,564       14,955  
Pellets
    4,867       4,867       6,663       16,449       20,940  
Gold (troy ounce)
    40,671       14,211       2,026       331,511       61,763  
Potash
    203       198       169       731       674  
Port Services
    7,634       6,515       5,761       27,165       25,311  

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IRON ORE AND PELLETS SALES — PARENT COMPANY

                                         
    million tons
DESTINATION
  4Q02
  3Q03
  4Q03
  2002
  2003
ASIA
                                       
China
    3.9       7.1       6.4       17.5       23.7  
South Korea
    1.9       1.7       2.0       7.1       7.0  
Philippines
    0.8       0.6       0.7       2.6       2.3  
Japan
    4.3       4.1       4.0       16.3       16.1  
Taiwan
    0.8       0.5       0.5       2.1       1.9  
Total
    11.7       14.0       13.6       45.6       51.0  
EUROPE
                                       
Germany
    4.3       4.4       5.2       14.7       15.9  
Spain
    0.7       0.4       1.0       2.9       3.1  
France
    1.6       1.7       2.3       5.8       7.7  
Italy
    1.2       1.2       1.3       5.2       4.9  
United Kingdom
    0.4       0.6       0.9       2.3       2.6  
Others
    3.7       3.6       4.7       13.4       14.3  
Total
    11.9       11.9       15.4       44.3       48.5  
THE AMERICAS
                                       
Argentina
    0.7       0.7       0.9       2.3       3.2  
United States
    0.7       1.0       0.7       3.8       3.5  
Other
    0.9       0.7       0.9       2.4       3.0  
Total
    2.3       2.4       2.5       8.5       9.7  
Others
                                       
Bahrein
    0.5       1.0       0.8       2.4       2.7  
Others
    1.6       0.5       1.5       4.3       5.0  
Total
    2.1       1.5       2.3       6.7       7.7  
TOTAL
    28.0       29.8       33.8       105.1       116.9  
                                         
DOMESTIC MARKET
  4Q02
  3Q03
  4Q03
  2002
  2003
Steel Mills
    6.0       5.7       6.4       22.3       21.8  
Pelletizing Joint Ventures
    5.3       4.7       4.6       18.9       19.2  
Total
    11.3       10.4       11.0       41.2       41.0  
TOTAL
    39.3       40.2       44.8       146.3       157.9  

GENERAL CARGO RAILROAD TRANSPORTATION — PARENT COMPANY

                                         
    million ntk
    4Q02
  3Q03
  4Q03
  2002
  2003
Vitória a Minas Railroad
    2,968       3,497       3,233       11,561       12,768  
Carajás Railroad
    819       1,077       808       3,172       3,534  
Total
    3,787       4,574       4,041       14,733       16,302  

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GROSS REVENUES BY PRODUCT — PARENT COMPANY

                                                                                 
    R$ million
    4Q02
  %
  3Q03
  %
  4Q03
  %
  2002
  %
  2003
  %
Iron Ore
    1,764       63.3       1,777       64.2       1,808       62.8       5,322       62.1       6,492       62.6  
Domestic Market
    463       16.6       410       14.8       373       13.0       1,390       16.2       1,558       15.0  
Export Market
    1,301       46.7       1,367       49.4       1,435       49.9       3,932       45.9       4,935       47.6  
Pellets
    515       18.5       488       17.6       623       21.7       1,400       16.3       1,982       19.1  
Domestic Market
    77       2.8       87       3.2       120       4.2       230       2.7       361       3.5  
Export Market
    438       15.7       400       14.5       503       17.5       1,169       13.6       1,621       15.6  
Pelletizing Plants Operation Services
    32       1.1       36       1.3       41       1.4       105       1.2       137       1.3  
Railroad Transport
    249       8.9       281       10.2       249       8.7       881       10.3       1,059       10.2  
Port Services
    78       2.8       78       2.8       77       2.7       261       3.1       307       3.0  
Potash
    91       3.3       81       2.9       73       2.5       272       3.2       290       2.8  
Gold
    48       1.7       16       0.6       3       0.1       280       3.3       71       0.7  
Others
    9       0.3       10       0.4       3       0.1       49       0.6       28       0.3  
Total
    2,786       100.0       2,766       100.0       2,877       100.0       8,570       100.0       10,366       100.0  

Net earnings by the Parent Company fell from R$ 1.278 billion in 3Q03 to R$ 792 million in 4Q03.

The equity income result (result from shareholdings) was the principle reason for the drop in earnings, down R$ 338 million from the previous quarter. Itaco’s result fell by R$ 117 million, and that of Florestas Rio Doce, by R$ 44 million, both due to the effect of the variation in the Real/Dollar exchange rate on foreign currency-denominated assets. An increase of R$ 116 million was made to the provision for losses at CFN, due to its sale; there also being a R$ 50 million drop in profits at FCA, and a drop of R$ 27 million in profits at Docenave.

RESULTS OF EQUITY INVESTMENTS — BY BUSINESS AREA — PARENT COMPANY

                                         
    R$ million
Business Area
  4Q02
  3Q03
  4Q03
  2002
  2003
Ferrous Minerals
    (52 )     202       204       1,561       463  
Iron Ore and Pellets
    (143 )     158       5       1,331       194  
Manganese and Ferro-Alloys
    91       44       199       230       270  
Non-Ferrous Minerals
    24       (26 )     (49 )     (64 )     (24 )
Logistics
    (98 )     9       (145 )     (384 )     (355 )
Steel
    119       135       86       302       301  
Aluminum
    459       130       93       76       712  
Others
    (40 )     37       (40 )     73       24  
Total
    412       487       149       1,564       1,122  

The other item which contributed to this drop in profits was the increase of R$ 197 million in COGS, of which R$ 140 million referred to the impact of absorbing Ferteco into CVRD.

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COGS BREAKDOWN — PARENT COMPANY

                                                                                 
                                    R$ million
               
    4Q02
  %
  3Q03
  %
  4Q03
  %
  2002
  %
  2003
  %
Personnel
    123       9.6       144       10.7       185       12.0       513       12.4       572       10.7  
Material
    272       21.2       214       15.8       243       15.7       636       15.4       874       16.3  
Fuel Oil and Gases
    111       8.7       162       12.0       180       11.6       392       9.5       636       11.9  
Contracted Services
    142       11.1       229       17.0       300       19.4       552       13.4       839       15.7  
Energy
    31       2.4       43       3.2       51       3.3       121       2.9       151       2.8  
Acquisition of products
    388       30.3       294       21.8       249       16.1       1,039       25.1       1,192       22.3  
Depreciation and Exhaustion
    153       11.9       185       13.7       230       14.9       634       15.3       720       13.4  
Others
    61       4.8       80       5.9       110       7.1       246       6.0       373       7.0  
Total
    1,281       100.0       1,351       100.0       1,548       100.0       4,133       100.0       5,357       100.0  

The net financial result was down by R$ 104 million, principally due to increased financial expenses of R$ 44 million, associated with labor, civil and tax contingencies, and a drop of R$ 34 million in derivative gains.

The “Other Expenses” line, which was impacted positively in 3Q03 by a capital gain of R$ 63 million from the sale of the Fazenda Brasileiro gold mine, was up by R$ 65 million in 4Q03.

Added to this, we also saw an increase of R$ 31 million in expenditure on research and development and R$ 27 million in administrative expenses, this last being explained by personnel training expenses and staff benefits.

These negative effects on the Company’s earnings were partially offset by an increase of R$ 119 million in net revenues and by an improvement of R$ 116 million in monetary variation.

EBITDA generated by the Parent Company in 4Q03 amounted to R$ 1.239 billion, 17.7% less than in the previous quarter. The main reasons of this being the rise of R$ 197 million in COGS, only partially offset by the increase of R$ 119 million in revenues; a drop of R$ 110 million in the amount of dividends received from subsidiaries and affiliates; and the increase of R$ 65 million at the “Other Operational Expenses” line.

EBITDA margin narrowed from 56.2% in 3Q03 to 44.3% in 4Q03.

EBITDA CALCULATION

                                         
    R$ million
    4Q02
  3Q03
  4Q03
  2002
  2003
Net Operating Revenues
    2,672       2,679       2,798       8,237       10,013  
COGS
    (1,281 )     (1,351 )     (1,548 )     (4,133 )     (5,357 )
Sales Expenses
    (79 )     (56 )     (64 )     (186 )     (217 )
Administrative Expenses
    (98 )     (97 )     (124 )     (374 )     (406 )
Research & Development
    (47 )     (64 )     (95 )     (147 )     (233 )
Other Operational Expenses
    (138 )     (9 )     (74 )     (382 )     (320 )
EBIT
    1,029       1,102       893       3,015       3,480  
Depreciation and Amortization
    150       192       244       659       759  
Dividends Received
    34       212       102       154       602  
Adjustments for Non-Recurring Items (asset write-off)
    147                   147       36  
EBITDA
    1,360       1,506       1,239       3,975       4,877  

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The Parent Company’s annual gross revenue increased by 21.0% between 2002 and 2003, amounting to R$ 10.367 billion. This increase was due basically to an increase in volume sold and a rise in the price of iron ore and pellets, as well as an increase in the price of rail transport.

EBITDA increased from R$ 3.975 billion in 2002 to R$ 4.877 billion in 2003, an increase of 22.7%, basically due to a rise of R$ 1.776 million in net revenues and an increase of R$ 448 million in dividends received, partially offset by a rise of R$ 1.224 billion in COGS. EBITDA margin widened from 48.2% in 2002, to 48.7% in 2003.

FINANCIAL STATEMENT — PARENT COMPANY

                                         
    R$ million
    4Q02
  3Q03
  4Q03
  2002
  2003
Gross Operating Revenues
    2,786       2,766       2,877       8,570       10,367  
Taxes
    (114 )     (87 )     (79 )     (333 )     (354 )
Net Operating Revenues
    2,672       2,679       2,798       8,237       10,013  
Cost of Goods Sold
    (1,281 )     (1,351 )     (1,548 )     (4,133 )     (5,357 )
Gross Earnings
    1,391       1,328       1,250       4,104       4,656  
Gross Margin (%)
    52.1       49.6       44.7       49.8       46.5  
Result from Shareholdings
    412       487       149       1,564       1,122  
Equity Income
    472       246       417       2,461       1,450  
Goodwill Amortization
    (194 )     (113 )     (114 )     (472 )     (503 )
Provision for Losses
    134       354       (154 )     (425 )     175  
Others
                             
Operational Expenses
    (362 )     (226 )     (357 )     (1,089 )     (1,176 )
Sales
    (79 )     (56 )     (64 )     (186 )     (217 )
Administrative
    (98 )     (97 )     (124 )     (374 )     (406 )
Research and Development
    (47 )     (64 )     (95 )     (147 )     (233 )
Other Operational Expenses
    (138 )     (9 )     (74 )     (382 )     (320 )
Financial Result
    598       (273 )     (261 )     (3,226 )     394  
Financial Expenses
    (73 )     (145 )     (240 )     (961 )     (733 )
Financial Revenues
    45       60       51       205       222  
Monetary Variation
    626       (188 )     (72 )     (2,470 )     905  
Operating Profit
    2,039       1,316       781       1,353       4,996  
Income Tax and Social Contribution
    (498 )     (38 )     11       690       (487 )
Net Earnings
    1,541       1,278       792       2,043       4,509  
Earnings per share (R$)
    4.01       3.33       2.06       5.32       11.75  

BALANCE SHEET — PARENT COMPANY

                         
    R$ million
    12/31/02
  09/30/03
  12/31/03
Asset
                       
Current
    4,346       5,617       4,009  
Long Term
    3,167       2,646       2,689  
Fixed
    19,321       22,177       23,603  
Total
    26,834       30,440       30,301  
Liabilities
                       
Current
    4,218       6,392       5,249  
Long Term
    9,865       9,515       10,112  
Shareholders’ Equity
    12,751       14,533       14,940  
Paid-up Capital
    5,000       6,300       6,300  
Reserves
    7,751       8,233       8,640  
Total
    26,834       30,440       30,301  

(GRAPHIC)

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(BR GAAP LOGO)

(GRAPHIC) INVESTMENTS — PROMOTING GROWTH

  Capital expenditure in 2003

During the year 2003, CVRD carried out investments of US$ 1.819 billion. Of this total, US$ 853 million was spent on items for promoting growth (growth capex) for the Company, US$ 464 million on maintaining existing operations (stay-in-business capex) and US$ 502 million on acquisitions.

Without doubt, 2003 was an important year due to the development of a series of projects which have already begun — expansion of MRN and Module 3 of Alunorte, and those which shortly will add to cash generation and produce a higher return for shareholders, such as the Sossego project and the expansion project at Carajás. The acquisition of Caemi, a holder of world class assets, was carried out on terms which provide strong potential for the creation of value.

Growth capex consisted of US$ 784 million on projects and US$ 69 million dedicated to mineral exploration.

The main investment projects were as follows:

  US$ 61.0 million on increasing annual production capacity at the Carajás iron ore mine by 14 million tons. The enlarging of capacity at Carajás, which will be producing 70 million tons in 2004, was completed almost 12 months ahead of the original schedule, reflecting CVRD’s high degree of flexibility in implementing its projects.
 
  US$ 27.7 million on development of the Fábrica Nova and Brucutu mines, located in the Southern System, whose first phases will enter into operation in 2005 and 2006, respectively, adding a total of 22 million tons a year of iron ore to CVRD’s production capacity.
 
  US$ 9.9 million on the construction of Pier III at Ponta da Madeira, which entered into operation at the end of 2003. The pier is being used for the shipment of iron ore and pellets, supporting the expansion to production capacity at Carajás.
 
  US$ 329 million on the Sossego copper mine project, which is already beginning its ramp-up process, with commercial production at full capacity scheduled for July 2004. Sossego is the only copper greenfield project to enter into operation in 2004.
 
  US$ 28.4 million in the expansion of capacity at the Taquari-Vassouras potash mine, from the current 600,000 tons a year, to 850,000 tons, whose completion is scheduled for the end of the first half of 2005.
 
  US$ 156 million on the purchase of 1,860 wagons and 44 locomotives for the transport of iron ore, and 57 locomotives and 1,126 wagons for the transport of general cargo: 101 locomotives and 2,986 wagons in all. Of this total, 77 locomotives and 2,022 wagons have already been delivered by the manufacturers and incorporated into CVRD’s railroad fleet.

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(BR GAAP LOGO)

  US$ 17.5 million on the construction of the Candonga hydroelectric plant, where work is practically at the completion stage, scheduled to begin operations in 2004.
 
  US$ 19.6 million on the construction of the Aimorés hydroelectric plant, scheduled to enter into service in 2004.

US$ 69 million was invested in mineral exploration, US$ 50 million being spent by CVRD and US$ 19 million being invested by the BNDES, in accordance with the Mineral Risk Contract, signed in 1997. Of this total, 63% was spent on prospecting in the Carajás mineral province, where we are principally searching for copper, nickel, gold, platinum metals group and manganese. 19% of this total was invested in other areas of Brazil, particularly in prospecting for kaolin and bauxite in the east of state of Pará; prospecting for copper, in the states of Ceara and Paraíba; and nickel in the states of Piaui, Goias and São Paulo. The remaining 18% was spent on prospecting for mineral deposits outside Brazil, the Company having established mineral prospecting offices in Peru and Chile, where the search is for copper and gold, and in Gabon, where the search is for manganese.

Expenditure on acquisitions consisted of purchasing full control in Rana, now Rio Doce Manganese Norway, a producer of ferromanganese alloys, for US$ 17.6 million; purchasing shares of CST for US$ 57.8 million, which increased CVRD’s stake in this steel company from 22.85% to 28.02%; and 50% of the ordinary shares and 40% of the preferred shares of Caemi, for US$ 426.4 million. After this acquisition, CVRD has ended up with control of Caemi, owning 100% of its voting capital and 40% of its preferred shares, corresponding to 60.2% of Caemi’s total capital.

  Capital expenditure budget for 2004

Total investment of US$ 1.536 billion has been budgeted for 2004, consisting of growth capex - mineral exploration and projects — of US$ 1.075 billion, and stay-in-business capex - maintenance, modernization, environmental protection and information technology — of US$ 461 million.

The amount allocated to greenfield and brownfield projects is US$ 1.011 billion. The most important initiatives are dedicated to expanding production capacity of iron ore, bauxite, alumina and potash, the completion of the Sossego copper project, starting development for Project 118, power generation and the purchase of wagons and locomotives for the transport of iron ore and general cargo.

The projects under development will add to CVRD’s annual production capacity over the next few years: 73 million tons a year of iron ore, 4.5 million tons of bauxite, 1.8 million tons of alumina, 250,000 tons of potash and 185,000 tons of copper. The cost of investment per ton of capacity for all these projects is very competitive, being therefore capable of generating considerable value for CVRD’s shareholders.

With the operational start-up of the Candonga and Aimorés hydroelectric plants in 2004, additional electricity generating capacity will be added of 119 MW. This, together with that produced by the hydroelectric plants already in service, Igarapava, Porto Estrela and Funil, will make it possible for the Company to supply, from its own energy sources, all electricity demand in the Southern System (iron ore mines, the Vitória to Minas Railroad, and the port and pellets plants at Tubarão) and part of the demand from the copper mines at Carajás.

The purchase of 88 locomotives and 3,178 wagons will enable CVRD to increase the size of its railroad fleet — from 744 locomotives and 30,473 wagons at the end

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(BR GAAP LOGO)

of 2003 — sufficiently to be able to transport the additional iron ore being produced, as well as expanding logistics services to customers. Most of the investment in rolling stock will be dedicated to the transport of general cargo, with the scheduled purchase of 82 locomotives and 1,921 wagons.

CVRD’s mineral exploration program, budgeted at US$ 78 million for 2004, is of a “multi-commodity” nature, involving at least seven different minerals, as well as being of global coverage. Despite the fact that 77.1% of the expenditure planned will be dedicated to prospecting in Brazil — 41.6% of the total in the Carajás mineral province — there are significant exploration efforts being made in South America (Peru and Chile), Africa (Gabon and Mozambique) and Asia (Mongolia and China), as well as opportunities that are being evaluated in various other countries.

  Divestitures

CVRD sold the following assets in 2003:

(i)   ships, owned by Docenave, for US$ 36 million, due to the strategic decision to leave the transoceanic freight business;
 
(ii)   the Fazenda Brasileiro gold mine, for R$ 63 million — due to its being close to exhaustion;
 
(iii)   the stake in Fosfértil, for R$ 240 million, since this was a portfolio investment.

(GRAPHIC) CONFERENCE CALL/ WEBCAST

On Thursday, March 25, CVRD will hold a conference call and webcast at 2 pm Rio de Janeiro time — 12 noon US Eastern Time and 5 pm UK time — to present 2003 results. For access instructions, see the Investor Relations section of CVRD’s website, www.cvrd.com.br. The webcast and a conference call playback will be available on the site for 90 days after the event.


    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.”

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(LOGO)
  Companhia Vale do Rio Doce
Departamento de Controladoria
  (ANEFAC LOGO)

Financial Statements BR GAAP 2003

   
 
Filed with The Comissão de Valores Mobiliários
 
– CVM (Brazilian Securities Commission) and
 
Security Exchange Commission — SEC on
 
03/24/2004

Gerência Geral de Controladoria - GECOL

 


Table of Contents

CONTENTS

         
Part I
    3  
1-Management’s Discussion and Analysis of the Operating Results for the Year Ended December 31, 2003 Compared with the Year Ended December 31, 2002
    3  
1.1- General Aspects
    3  
1.2- Comments on the Parent Company Results
    7  
1.2.1- Gross Revenue
    8  
1.2.2- Cost of Products and Services
    9  
1.2.3- Result of Shareholdings by Business Area
    10  
1.2.4- Operating Expenses
    12  
1.2.5- Net Financial Result
    12  
1.2.6- Income Tax and Social Contribution
    12  
1.2.7- Cash Generation
    12  
1.2.8- Interest on Stockholders’ Equity
    13  
1.2.9- Shareholder Remuneration Policy for 2004
    14  
1.2.10- Concessions and Leases
    14  
1.3- Comments on the Consolidated Results
    15  
1.3.1- Consolidated Gross Revenue
    15  
1.3.2- Consolidated Cost of Products and Services
    16  
Part II
    18  
Financial Statements and Notes to the Financial Statements
    18  
2- Balance Sheet
    18  
3- Statement of Income
    19  
4- Statement of Changes in Stockholders’ Equity
    20  
5- Statement of Changes in Financial Position
    21  
6- Statement of Cash Flows (Additional Information)
    22  
7- Statement of Value Added (Additional Information)
    23  
8- Labor and Social Indicators (Additional Information)
    24  
9- Statement of Income by Segment (Additional Information)
    25  
10- Notes to the Financial Statements at December 31, 2003 and 2002
    27  
10.1- Operations
    27  
10.2- Presentation of Financial Statements
    27  
10.3- Principles of Consolidation
    27  
10.4- Significant Accounting Policies
    27  
10.5- Cash and Cash Equivalents
    28  
10.6- Accounts Receivable from Customers
    28  
10.7- Related Parties
    29  
10.8- Inventories
    30  
10.9- Deferred Income Tax and Social Contribution
    31  
10.10- Investments
    33  
10.11- Property, Plant and Equipment
    36  
10.12- Loans and Financing
    37  
10.13- Export Receivable Securitization Program
    39  
10.14- Contingent Liabilities
    39  
10.15- Environmental and Site Reclamation and Restoration Costs
    41  
10.16- Pension Plan – Valia
    42  
10.17- Paid-up Capital
    44  
10.18- American Depositary Receipts (ADR) Program
    44  
10.19- Treasury Stock
    45  
10.20- Remuneration of Stockholders
    45  
     
 
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Table of Contents

         
10.21- Financial Result – Parent company and consolidated
    46  
10.22- Financial Instruments – Derivatives
    47  
10.23-Exchange Rate Exposure
    51  
10.24- Administrative and Other Operating Expenses
    51  
10.25- Effects on the Statements if Price-Level Restatement were Applied (unaudited)
    52  
10.26- Insurance
    53  
10.27- Profit Sharing Plan
    53  
10.28- Deferred Income
    53  
10.29- Subsequent Event
    53  
10.30- Shareholding Interests (Organization Chart at 12/31/03)
    54  
Part III
    55  
11- Attachment I – Statement of Investments in Subsidiaries and Jointly-Controlled Companies
    55  
12- Attachment II – Equity Investee Information
    56  
12.1- Aluminum Area – Albras (Adjusted and Unaudited)
    56  
12.2- Aluminum Area – Alunorte (Adjusted and Unaudited)
    57  
12.3- Aluminum Area – Aluvale (Adjusted and Unaudited)
    58  
12.4- Aluminum Area – MRN (Adjusted and Unaudited)
    59  
12.5- Aluminum Area – Valesul (Adjusted and Unaudited)
    60  
12.6- Pellets Area – Hispanobras (Adjusted and Unaudited)
    61  
12.7- Pellets Area – Itabrasco (Adjusted and Unaudited)
    62  
12.8- Pellets Area – Kobrasco (Adjusted and Unaudited)
    63  
12.9- Pellets Area – Nibrasco (Adjusted and Unaudited
    64  
12.10- Pellets Area – Samarco (Adjusted and Unaudited)
    65  
12.11- Pellets Area – GIIC (Adjusted and Unaudited)
    66  
12.12- Pellets Area – Ferteco (Adjusted and Unaudited)
    67  
12.13- Manganese and Ferrolloys Area – RDM (Adjusted and Unaudited)
    68  
12.14- Manganese and Ferrolloys Area – Urucum (Adjusted and Unaudited)
    69  
12.15- Manganese and Ferrolloys Area – RDME (Adjusted and Unaudited)
    70  
12.16- Steel Area – CST (Adjusted and Unaudited)
    71  
12.17- Steel Area – CSI (Adjusted and Unaudited)
    72  
12.18- Logistics Area – DOCENAVE (Adjusted and Unaudited)
    73  
12.19- Logistics Area – FCA (Adjusted and Unaudited)
    74  
12.20- Non ferrous minerals area – PPSA (Adjusted and Unaudited)
    75  
13- Attachment III – Other Information The Company Deems Relevant
    76  
13.1 - Business Performance Ratios (Unaudited)
    76  
13.2 - Iron Ore and Pellet Sales (Main Markets) (Unaudited)
    77  
14- Report of the Independent Accountants
    78  
15- Opinion of the Fiscal Council on the Annual Report and Financial Statements at December 31, 2003
    79  
16- Opinion of the Board of Directors on the Annual Report and Financial Statements at December 31, 2003
    80  
17- Board of Directors, Fiscal Council, Advisory Committees and Executive Officers
    81  
     
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PART I

Expressed In millions of reais

1- Management’s Discussion and Analysis of the Operating Results for the Year Ended December 31, 2003 Compared with the Year Ended December 31, 2002

1.1- General Aspects

(a)   Companhia Vale do Rio Doce’s segments of business are mining, logistics and energy, as follows:

  Ferrous minerals: iron ore and pellets as well as manganese and ferroalloys;
 
  Non-ferrous minerals: potash, kaolin and copper;
 
  Logistics: railroads, ports and maritime terminals and shipping;
 
  Energy: electric power generation; and
 
  Holdings: equity holdings in producers of aluminum and steel.

    Ferrous Minerals
 
    Iron Ore and Pellets
 
    The main mining activities involve iron ore, through two world-class integrated systems for ore production and distribution, each consisting of mines, railroads and maritime terminals. The Southern System, based in the states of Minas Gerais and Espírito Santo, has total proven and probable iron ore reserves of approximately 2.3 billion tons. The Northern System, based in the states of Pará and Maranhão, has total proven and probable iron ore reserves of some 1.2 billion tons. Currently CVRD operates nine pelletizing plants, six of them in joint ventures with international partners. The Company also has a 50% interest in Samarco, which owns and operates two pelletizing plants. The São Luís pelletizing plant was inaugurated on March 26, 2002, with annual capacity of 6 million tons.
 
    Iron ore and pellets export sales are generally made pursuant to long-term supply contracts which provide for annual price negotiations. Cyclical changes in the world demand for steel products affect sales prices and volumes in the world iron ore market. Different factors, such as the iron content of specific ore deposits, the various beneficiation and purifying processes required to produce the desired final product, particle size, moisture content, and the type and concentration of contaminants (such as phosphorus, alumina and manganese) in the ore, influence contract prices for iron ore. Contract prices also depend on transportation costs. Fines, lump ore and pellets command different prices. Annual price negotiations generally occur from November to February, with separate prices established for the Asian and European iron ore markets. In the Asian market, the renegotiated prices are effective as of April of each year. In the European market, the renegotiated prices are effective as of January of each year. Because of the wide variety of iron ore and pellet quality and physical characteristics, iron ore and pellets are less commodity-like than other minerals which are fungible and have standard international prices. This factor combined with the structure of the market has prevented the development of an iron ore and pellets futures market which we could, if we wished, use to mitigate our exposure to price fluctuations of these products. Currently, the Company does not hedge its exposure to iron ore and pellet price volatility.
 
    Manganese and Ferroalloys
 
    This activity is carried out through the subsidiaries RDM located in the state of Bahia, Urucum located in the state of Mato Grosso, Rio Doce Manganèse Europe in France and Rio Doce Manganese Norway in Norway. The ore is extracted from the Azul Mine in the Carajás region, in the state of Pará, and the Urucum Mine in the Pantanal region, in the state of Mato Grosso do Sul. Beneficiation is done on site at both units.
 
    Non-Ferrous Minerals
 
    Gold
 
    Gold operations are carried out by the Company itself. These operations began in 1984 and ended with the sale in 2003 of the Fazenda Brasileiro mine, located in Bahia. Gold operations will recommence with the start of copper operations, which will produce gold as a secondary product.
     
 
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    Potash
 
    The potash is found in natural deposits and is an important raw material for making fertilizers. The Company leases a potash mine in the state of Sergipe from Petróleo Brasileiro S.A. — PETROBRAS. It is the only mine of its type in the country and its present capacity is some 600 thousand tons per annum.
 
    Kaolin
 
    Kaolin is a fine white aluminum silicate clay, used in the paper, ceramic and pharmaceutical industries as a coating and filler. Kaolin activities are conducted through the subsidiary Pará Pigmentos S.A. and through Cadam (indirectly through Caemi). Pará Pigmentos began operations in 1996 with installed capacity of 300 thousand per annum. In the second half of 2002 the expansion to 600 thousand tons/year was completed. Cadam carries out extraction and beneficiation of kaolin. The mines are located in the state of Amapá, near the beneficiation and shipping installations, in the state of Pará. Total productive capacity is 810 thousand tons per annum.
 
    Copper
 
    CVRD’s copper activities are still in the implementation phase. The Company owns 100% of the Sossego and Salobo mine projects in the Carajás region, with estimated yearly capacity of 140 thousand tons and 200 thousand tons of copper, respectively, as well as participating in joint ventures involving four development projects in Brazil. These six projects contain approximately 1.7 billion tons of ore with an average metal content of 1.02%.
 
    Logistics
 
    The Company provides transport and related services to various clients. Built originally to serve the Company’s iron ore business, the logistics system includes the Vitória to Minas Railroad and the Tubarão port complex in the Southern System, and the Carajás Railroad and Ponta da Madeira Marine Terminal in the Northern System. In addition, in the last five years the Company has acquired stakes in four privatized railroads. The principal cargo of CVRD’s railroad is the Company’s own iron ore, along with steel, coal, pig iron and limestone carried for steel manufacturers located in the states of Minas Gerais and Espírito Santo. In addition the Company carries agricultural products, principally grains. The Company charges market rates for third-party cargo, which vary based upon the distance traveled and the density of the freight in question.
 
    Energy
 
    The Company participates in nine hydroelectric plants, three of which are in operation, with another two scheduled to come on line in 2004. Construction still has not begun on the remaining four projects. This total does not include the Santa Isabel Generation Consortium concession, which due to the fact that IBAMA – Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis — has ruled that the project is not feasible from an environmental standpoint, is in the process of being returned to the government. CVRD’s investments in the sector seek to optimize the Group’s supply of electric power. Depending on market conditions, the power generated by these plants will be sold or used in own operations.
 
    Holdings
 
    Aluminum Operations
 
    The Company sells aluminum to an active world market in which prices are determined based on prices for the metal quoted on the London Metals Exchange and the Commodity Exchange, Inc (Comex) at the time of delivery.
 
    Until 12/30/03, the Company conducted its aluminum operations through its wholly-owned subsidiary Aluvale, which carried out its operations basically through joint ventures. These include mining of bauxite, which is refined into alumina and then smelted into aluminum for commercialization. Aluvale operated its bauxite extraction activities through a 40% participation in the joint venture Mineração Rio do Norte S.A. — MRN, which holds substantial reserves of bauxite with low separation indices and high recovery rate. Aluvale had a 57.03% interest in the voting capital of Alunorte, which refines the bauxite into alumina, and participations in aluminum smelting through Albras, in which it detained a 51% interest, and through Valesul, of which it owned 54.51%. On December 30, 2003 Aluvale was merged into CVRD.
 
    Steel
 
    Commercial activities in the steel industry are conducted through the jointly-controlled company CST (28% of the total capital), which sells steel slabs to the domestic and foreign market, and CSI (50% of total capital), located in California, which manufacturers various processed steel products, and through the affiliated company Usiminas (11% of the total capital).
     
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(b)   Mergers
 
    Ferteco
 
    On 08/29/03, an Extraordinary General Meeting of CVRD approved the merger of Ferteco Mineração S.A. (Ferteco). This merger did not involve issuance of new shares or alteration of the Company’s share capital. The assets of Ferteco were incorporated at their book value on the balance sheet of 07/31/03 of R$ 1,307 million. The Company unconditionally assumed all the assets, rights and obligations of Ferteco, of a legal or conventional nature, pursuant to applicable legislation.
 
    The merger produced effects on the financial statements of the Parent Company starting in the third quarter of 2003. Nevertheless, the consolidated financial statements of the Company prepared according to Brazilian GAAP (Generally Accept Accounting Principles in Brazil) were not affected, because the results of Ferteco were already consolidated (the Company has owned 100% of Ferteco’s capital since the second quarter of 2001).
 
    With the merger, the Company directly assumed administration of the Córrego do Feijão and Fábrica iron ore mines and the Fábrica pelletizing plant, located in the regions known as the Iron Ore Quadrangle in the state of Minas Gerais.
 
    Ferteco was acquired by CVRD in April 2001 for US$ 566 million. The advantages of the synergies between the two companies have been materializing since then through direct reduction of costs and greater flexibility in producing iron ore and logistics operations. The merger of Ferteco into CVRD facilitates such synergies, which translates into greater shareholder value.
 
    Celmar
 
    On 08/29/03, an Extraordinary General Meeting approved the merger of Celmar S.A. – Indústria de Celulose e Papel (Celmar).
 
    Celmar owned 30,000 hectares of renewable eucalyptus forests, assets that were contributed to Ferro Gusa Carajás S.A. (Ferro Gusa), a joint venture between CVRD and Nucor Corporation, an American steel company. Ferro Gusa will invest in the construction of a plant to produce pig iron in northern Brazil.
 
    The eucalyptus will be used by Ferro Gusa to make charcoal, the only reducer of iron ore that permits producing pig iron in an environmentally sustainable form. As announced on 04/24/03, the plant will have capacity to produce 380,000 metric tons a year of pig iron and will use iron ore from Carajás.
 
    Docegeo, MSS, Aluvale and MVC
 
    An Extraordinary General Meeting held on 12/30/03 approved the mergers of Rio Doce Geologia e Mineração S.A. – Docegeo (Docegeo), Mineração Serra do Sossego S.A. (MSS), Vale do Rio Doce Alumínio S.A. – Aluvale (Aluvale) and Mineração Vera Cruz S.A. (MVC). None of these mergers involved issuance of new shares or a change in the share capital of CVRD. The assets of Docegeo, MSS, Aluvale and MVC were incorporated at their book values of 11/30/03 and the Company unconditionally assumed all the assets, rights and obligations of the merged companies, of a legal or conventional nature, pursuant to applicable law. The aim of these mergers is to simplify the organizational structure of the Company.
 
(c)   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 / Indices   U.S.                        
Period
   
  DOLLAR
  YEN
  GOLD
  IGP-M
  TJLP
  US$ x R$
  US$ x Yen
Up to 12/31/03
            (18.2 )     (9.3 )     19.9       8.7       11.5       2.8892       107.17  
4Q/03
            (1.2 )     3.0       7.3       1.5       2.6       2.8892       107.17  
3Q/03
            1.8       9.4       12.1       1.1       2.9       2.9234       111.65  
Up to 12/31/02
            52.3       68.2       25.0       25.3       9.9       3.5333       118.87  
4Q/02
            (9.3 )     (7.0 )     8.5       13.4       2.4       3.5333       118.87  

    About 64% of the Company’s gross revenue (74% consolidated) for 2003 is derived from exports and part of domestic sales are linked to the U.S. dollar. About 32% of total costs are linked to the U.S. dollar. Consequently, fluctuations in the exchange rate between the two currencies have a significant impact on the operating cash flows.
 
    Approximately 94% (92% consolidated) of the short-term and long-term loans of the Company for 2003 are denominated in U.S. dollars. As a result, exchange rate fluctuations have a significant impact on the financial expenses (Notes 10.12 and 10.21).
     
 
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(d)   Divestitures
 
    Fazenda Brasileiro
 
    On 08/15/03, the Company finalized the sale of the Fazenda Brasileiro gold mine assets to Yamana Resources Inc. (Yamana), a Canadian mining firm. The value of the transaction was R$ 63.
 
    Results from Discontinued Operations
 
    Fosfértil
 
    On 10/24/03, the subsidiary Companhia Paulista de Ferro Ligas (CPFL) finalized the sale of its shares in Fertilizantes Fosfatados S.A. (Fosfértil) to Bunge Fertilizantes S.A. for R$ 240. The profit on the operation was R$ 174.
 
    This transaction is in line with CVRD’s focus on mining and logistics and its strategy to sell equity participations which had assumed the nature of portfolio investments.
 
(e)   Restructuring
 
    Manganese and ferroalloys
 
    On 10/28/03, CVRD took some steps to simplify the operational structure of its manganese and ferroalloy businesses. Its subsidiary SIBRA, from 10/15/03 onward was renamed Rio Doce Manganês S.A. (RDM). The operations of the companies controlled by RDM, among them Companhia Paulista de Ferro Ligas (CPFL), will be transferred to RDM itself as of January 2004.
 
    Currently the main assets of RDM are the Azul mine, located at Carajás, in the state of Pará, with annual production capacity of 2 million metric tons of manganese ore, and a plant producing manganese ferroalloys with capacity of 180 thousand metric tons a year, at Simões Filho in the state of Bahia. CPFL has four plants producing ferroalloys in the state of Minas Gerais (Barbacena, Ouro Preto, Santa Rita and São João del Rei). After incorporation of the assets of CPFL and the other smaller controlled companies producing manganese ore located in the states of Minas Gerais and Bahia (Minérios Metalúrgicos do Nordeste S.A., Mineração Urandi S.A. and Sociedade Mineira de Mineração Ltda.), RDM will have annual production capacity of 2,330 thousand metric tons of manganese ore and 350 thousand metric tons of ferroalloys.
 
    In this manner, the manganese and ferroalloy operations of CVRD will be conducted by four wholly-owned subsidiaries: RDM; Urucum Mineração S.A., at Corumbá in the state of Mato Grosso do Sul; Rio Doce Manganese Europe (RDME) at Dunkirk, France; and Rio Doce Manganese Norway (RDMN), at Mo I Rana, Norway.
 
    CVRD is the world’s second largest producer of manganese ore, with total production capacity of 2.9 million metric tons a year, calculated on a contained manganese basis.
 
    Logistics
 
    On 11/07/03, CVRD concluded the restructuring of its holdings in logistics companies.
 
    A series of transactions was carried out seeking to eliminate the relations between CVRD and Companhia Siderúrgica Nacional (CSN) in the shareholding structure of Ferrovia Centro-Atlântica S.A. (FCA), Companhia Ferroviária do Nordeste (CFN) and CSN Aceros S.A. (CSN Aceros). These transactions consisted of:

(a)   sale of all the shares of FCA held by CSN to Mineração Tacumã Ltda., a subsidiary of CVRD;
 
(b)   sale of all the shares of CFN owned by CVRD to CSN and Taquari Participações S.A.;
 
(c)   sale by Itabira Rio Doce Company Limited, a CVRD subsidiary, of all its shares of CSN Aceros, a shareholder of Sepetiba Tecon S.A. (STSA), to CSN Panamá S.A., a subsidiary of CSN;
 
(d)   transfer of all the convertible debentures issued by STSA held by CVRD to CSN; and
 
(e)   execution of agreements for provision of container handling services between STSA and CVRD, for railway transport of limestone between FCA and CSN, and railway transport of dolomitic limestone and bentonite between CFN and CVRD.

    The purchase and sale obligations mentioned above comprise a single business operation, which resulted in a net disbursement by CVRD of R$ 23 million on the date of financial settlement, 11/14/03.
     
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(f)   In 2003, the consolidated trade balance of US$ 3,422 million was generated as follows:
                                                 
    Consolidated (in US$ millions)
    1998
  1999
  2000
  2001
  2002
  2003
Exports
    2,660       2,271       3,016       3,297       3,173       3,952  
Imports
    (238 )     (165 )     (291 )     (414 )     (349 )     (530 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
 
    2,422       2,106       2,725       2,883       2,824       3,422  
 
   
 
     
 
     
 
     
 
     
 
     
 
 

Consolidated Trade Balance — US$ Millions

(PERFORMANCE GRAPH)

(f)   Corporate governance – Sarbanes-Oxley
 
    Due to problems occured in american capital market, Sarbanes-Oxley was approved on United States congress and it obligate all american and foreign companies registered on Securities and Exchange Commission that negociate American Depositary Receipts on United States stock exchanges. CVRD also has ADR 3 on New York Stock Exchange.
 
    Sarbanes-Oxley aims to protect the investors by stablishing strict patterns concerning corporate governance. It also includes additional disclousure procedures as well as more strict patterns in relation to internal controls and financial statements discloused by the company.
 
    The Law requests for 2003 were complied by CVRD. Form 20-F year 2002 was filed accompanied by certifications signed by the CEO and CFO as well as others certifications signed by the executive officers and executives related to Form 20-F process.
 
(g)   Independent accountants policy
 
    The policy concerning independent accountants in relation to services non-audit services is based on the maintenance of their independency. During 2003, the amount of non-audit services paid was less than 5% compared to the total due.

1.2- Comments on the Parent Company Results

The net income of the Company in 2003 was R$ 4,509 compared with net income of R$ 2,043 in 2002 (the earnings per share corresponds to R$ 11.75 in 2003 versus R$ 5.32 in 2002).

The gross margin declined from 49.8% in 2002 to 46.5% in 2003. The gross revenue rose 21% (from R$ 8,570 in 2002 to R$ 10,367 in 2003), while the cost of products and services increased 29.6% (from R$ 4,133 in 2002 to R$ 5,357 in 2003).

During 2003, the Company paid interest on stockholders’ equity of R$ 1,935 and in 2004 the Company will pay R$ 319, totaling R$ 2,254, equivalent to remuneration of R$ 5.87 per outstanding common or preferred share (Note 10.20).

     
 
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1.2.1- Gross Revenue

The 21% increase in gross revenue (R$ 10,367 in 2003 against R$ 8,570 in 2002) is a result of the change at the mix of products as well as the average devaluation of the real against the United States dollar by 4.9%, affecting 83% of the Company’s revenue, and the higher volumes sold of iron ore and pellets, due to the merger of Ferteco in September 2003, as shown in the table below of the total the increase of R$ 1,797, 17% is attributed to the exchange rate, 21% to the increase in volume and 62% to price increase. The increase in pellets sales was due to growth in the Chinese, European and North American markets of 33.7%, 10.3% and 2.5%, respectively.

                                                                                                 
    In thousands of metric tons (except gold)
  In millions of reais
    Quarter
  Accumulated
  Quarter
  Accumulated
    4Q/03   3Q/03   4Q/02   2003   2002   D%   4Q/03   3Q/03   4Q/02   2003   2002   D%
   
 
 
 
 
 
 
 
 
 
 
 
External market
                                                                                               
Iron ore — fines
    25,769       23,734       20,003       91,812       83,836       10       1,295       1,245       1,192       4,513       3,583       26  
Iron ore — lump ore
    2,611       2,052       3,980       7,866       7,659       3       140       122       109       422       349       21  
Pellets
    5,416       4,026       4,123       17,231       13,676       26       503       400       438       1,621       1,169       39  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
         
 
    33,796       29,812       28,106       116,909       105,171       11       1,938       1,767       1,739       6,556       5,101       29  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
         
Internal market
                                                                                               
Iron ore — fines
    7,494       7,863       6,994       30,206       31,493       (4 )     302       346       415       1,314       1,226       7  
Iron ore — lump ore
    2,260       1,781       3,580       7,089       6,905       3       71       64       48       244       164       49  
Pellets (*)
    1,247       841       744       3,709       2,773       34       161       123       109       498       336       48  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
         
 
    11,001       10,485       11,318       41,004       41,171             534       533       572       2,056       1,726       19  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
         
Total
                                                                                               
Iron ore — fines
    33,263       31,597       26,997       122,018       115,329       6       1,597       1,591       1,607       5,827       4,809       21  
Iron ore — lump ore
    4,871       3,833       7,560       14,955       14,564       3       211       186       157       666       513       30  
Pellets
    6,663       4,867       4,867       20,940       16,449       27       664       523       547       2,119       1,505       41  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
         
 
    44,797       40,297       39,424       157,913       146,342       8       2,472       2,300       2,311       8,612       6,827       26  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
         
Railroad transportation
    12,095       13,675       15,218       51,486       58,143       (11 )     249       281       249       1,059       881       20  
Port services
    5,761       6,515       7,634       25,311       27,165       (7 )     77       78       78       307       261       18  
Gold (kg)
    63       442       1,265       1,921       10,311       (81 )     3       16       48       71       280       (75 )
Potash
    169       198       203       674       731       (8 )     73       81       91       290       272       7  
Other products and services
                                        3       10       9       28       49       (43 )
 
                                                   
 
     
 
     
 
     
 
     
 
         
 
                                                    2,877       2,766       2,786       10,367       8,570       21  
 
                                                   
 
     
 
     
 
     
 
     
 
         

  (*) Includes revenues derived from services provided to pelletizing joint ventures in the amount of R$ 41, R$ 36, R$ 32, R$137 and R$ 105 in 4Q/03, 3Q/03, 4Q02, 2003 and 2002, respectively.

Gross Revenue in 2003 — R$ 10,367 / US$ 3,395

(PIE CHART)

     
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Gross revenue by segment

                                         
                            Total
    Ferrous   Non-Ferrous            
    Minerals
  Minerals
  Logistics
  2003
  2002
External market
                                       
Americas, except the United States
    484                   484       327  
United States
    279       22             301       376  
Europe
    2,678       49             2,727       2,197  
Middle East/Africa/Oceania
    549                   549       515  
Japan
    787                   787       671  
China
    1,226                   1,226       796  
Asia, other than Japan and China
    552                   552       499  
 
   
 
     
 
     
 
     
 
     
 
 
 
    6,555       71             6,626       5,381  
Internal market
    2,461       290       990       3,741       3,189  
 
   
 
     
 
     
 
     
 
     
 
 
Total gross revenues
    9,016       361       990       10,367       8,570  
 
   
 
     
 
     
 
     
 
     
 
 

1.2.2- Cost of Products and Services

The 29.6% increase in the cost of products and services (R$ 5,357 in 2003 against R$ 4,133 in 2002) results mainly from the increase in sales of purchased pellets, the increase in expenses for maintenance of assets and equipment, higher prices for petroleum derivatives and the effect of exchange rate variation on the portion of costs denominated in U.S. dollars (32%).

Cost of Products and Services in 2003 — R$ 5,357 / US$ 1,757

(PIE CHART)

By Nature

                                                                                                         
    2003
       
    Denominated
  Quarter
  Accumulated
    R$
  US$
  4Q/03
  %
  3Q/03
  %
  4Q/02
  %
  2003
  %
  2002
  %
  D%
Personnel
    572             185       12       144       11       123       10       572       11       513       12       12  
Material
    606       268       243       16       214       16       272       21       874       16       636       15       37  
Oil and gas
    636             180       12       162       12       111       9       636       12       392       10       62  
Outsourced services
    834       5       300       19       229       17       142       11       839       16       552       13       52  
Energy
    151             51       3       43       3       31       2       151       3       121       3       25  
Acquisition of iron ore and pellets
          1,192       249       16       294       22       388       30       1,192       22       1,039       25       15  
Depreciation and depletion
    554             154       10       143       11       129       10       554       10       536       13       3  
Amortization of goodwill
    166             76       5       42       3       24       2       166       3       98       2       69  
Others
    114       259       110       7       80       5       61       5       373       7       246       7       52  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
         
Total
    3,633       1,724       1,548       100       1,351       100       1,281       100       5,357       100       4,133       100       30  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
         
 
    68 %     32 %                                                                                        
 
   
 
     
 
                                                                                         
     
 
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1.2.3- Result of Shareholdings by Business Area

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

                                                         
    Quarter
  Accumulated
Business Area
  4Q/03
  3Q/03
  %
  4Q/02
  2003
  2002
  %
Ferrous Minerals
                                                       
. Iron ore and pellets
    5       158       (97 )     (143 )     194       1,331       (85 )
. Manganese and ferroalloys
    199       44       352       91       270       230       17  
Non-Ferrous Minerals
    (49 )     (26 )     (88 )     24       (24 )     (64 )     63  
Logistics
    (145 )     9       (1,711 )     (98 )     (355 )     (384 )     8  
Holdings
                                                       
. Steel
    86       135       (36 )     119       301       302        
. Aluminum
    93       130       (28 )     459       712       76       837  
Others
    (40 )     37       (208 )     (40 )     24       73       (67 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    149       487       (69 )     412       1,122       1,564       (28 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 

Ferrous Minerals

(a)   Iron ore and pellets

.   Ferteco – Comparing the 8 months of 2003 against the 12 months in 2002, due to merger of Ferteco on 08/29/03, the equity result improved by R$100 (a gain of R$221 in 2003 against a gain of R$121 in 2002), despite a reduction of 11.5% in the quantity of iron ore sold (12,155 thousand metric tons in 2003 versus 13,728 thousand metric tons in 2002) and reduction of 38.8% in the quantity of pellets sold (2,788 thousand metric tons in 2003 against 4,558 thousand metric tons in 2002). Pellet prices increased 24.3% (US$31.31 per metric ton in 2003 against US$25.18 per metric ton in 2002) and the iron ore price remained stable (US$13.74 per metric ton in 2003 compared with US$13.46 per metric ton in 2002). In 2003, R$164 of goodwill amortization was booked, with R$68 assigned to the cost of the Parent Company since September 2003.
 
.   Caemi – An increase in the equity result of R$74 (gain of R$42 in 2003 against a loss of R$32 in 2002) due to a 14.1% increase in the sales volume (38,017 thousand metric tons in 2003 versus 33,312 thousand metric tons in 2002) and the positive effects of exchange rate variation on debt. In the previous year, the loss was due to a provision for losses arising from restructuring of Québec Cartier Mining Company (QCM).
 
.   Itaco/RDE – A decrease in the equity result of R$1,120 (loss of R$270 in 2003 against a gain of R$850 in 2002), basically caused by the affect of the appreciation of the real against the dollar on the net equity this year (negative exchange rate variation of R$704 in 2003 versus positive exchange rate variation of R$1,243 in 2002). In operational terms, iron ore sales increased 11.0% (96,137 thousand metric tons in 2003 against 86,634 thousand metric tons in 2002) and pellets by 22.9% (14,092 thousand metric tons in 2003 against 11,465 thousand metric tons in 2002), including sales of its subsidiary CVRD Overseas.
 
.   Kobrasco – An increase in the equity result, due to reversal of part of the provision for losses, in the amount of R$117 (a gain of R$57 in 2003 against a loss of R$60 in 2002), caused by the positive effects of exchange rate variation on debt. In operational terms, sales volume went up by 7,7% (4,344 thousand metric tons in 2003 versus 4,034 thousand metric tons in 2002) and the average sales price increased by 5.9% (US$31.86 per metric ton in 2003 against US$30.09 per metric ton in 2002).
 
.   Nibrasco – A decrease in the equity result of R$1 (a gain of R$9 in 2003 against a gain of R$10 in 2002), due to a 5.6% fall in sales volume (6,813 thousand metric tons in 2003 against 7,215 thousand metric tons in 2002), partly offset by a 3.9% increase in the average sales price (US$30.14 per metric ton in 2003 versus US$29.01 per metric ton in 2002).
 
.   Samarco – An increase in the equity result of R$129 (a gain of R$229 in 2003 against a gain of R$100 in 2002), due to the positive effects of exchange rate variation on debt. Operationally, sales volume increased by 10.6% (15,966 thousand metric tons in 2003 against 14,442 thousand metric tons in 2002), and the average price increased by 9.5% (US$31.32 per metric ton in 2003 compared with US$28.60 per metric ton in 2002).
 
(b)   Manganese and ferroalloys
 
.   RDM – An increase in the equity result of R$ 166 (a gain of R$ 247 in 2003 against a gain of R$ 81 in 2002), due to sale of the shareholding in Fosfértil, less the negative effects of exchange rate variation on accounts receivable in the third quarter 2003, offset partly by the positive effects of exchange rate variation on exports. In operational terms, ferroalloy sales volume increased by 1.5% (332 thousand metric tons in 2003 versus 327 thousand metric tons in 2002) and manganese sales volume went up by 30.3% (1,337
     
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    thousand metric tons in 2003 against 1,026 thousand metric tons in 2002), the average price of ferroalloys increased by 29.5% (US$ 587.07 per metric ton in 2003 against US$ 453.43 per metric ton in 2002) and the average price of manganese decreased by 7.0% (US$ 43.61 per metric ton in 2003 against US$ 46.86 per metric ton in 2002).

Non-ferrous Minerals

.   Pará Pigmentos – An increase in the equity result of R$95 (a gain of R$32 in 2003 against a loss of R$63 in 2002) caused by the positive effects in the third quarter 2003 of exchange rate variation on debt. In operational terms, sales volume went up by 28.2% (423 thousand metric tons in 2003 against 330 thousand metric tons in 2002) and the average sales price fell 0.7% (US$152.48 per metric ton in 2003 against US$153.48 per metric ton in 2002).

Logistics

.   Docenave – A decrease in the equity result of R$83 (a gain of R$21 in 2003 versus a gain of R$104 in 2002), due to the effects of the appreciation of the real against the dollar in the third quarter 2003 on dollar-denominated assets and constitution of provisions for losses on assets. In operational terms, the volume of bulk cargo hauled increased by 17.9% (9,321 thousand metric tons in 2003 against 7,906 thousand metric tons in 2002), and the volume of tugboat operations went up by 18.7% (8,100 operations in 2003 against 6,822 operations in 2002), offset partly by a reduction in container movement of 4.1% (65,860 TEUs handled in 2003 against 68,663 TEUs in 2002). The increase in average freight rates of 53.4% (US$7.53 per metric ton carried in 2003 against US$4.91 per metric ton in 2002) was basically neutralized by the 79.8% increase in vessel charter costs, mainly due to demand from the Asian market for chartering of Panamax/Cape Size ships in 2003.
 
.   FCA – In 2003, R$364 of negative equity result was booked (R$208 as provision for losses and R$156 as amortization of goodwill) against R$346 in 2002 (R$137 as provision for losses and R$209 as amortization of goodwill). In the second quarter 2003 the change in the accounting method of recognizing the costs of leases and concessions resulted in an increase of R$238 in these costs. CVRD’s interest in FCA is held through its subsidiary Mineração Tacumã.
 
.   MRS – An increase in the equity result of R$153 (a gain of R$104 in 2003 against a loss of R$49 in 2002) due to the positive effects of exchange rate variation on debt, the favorable operational performance and the constitution of tax credits (income tax and social contribution on net profits).

Holdings

(a)   Steel
 
.   CSI – A decrease in the equity result of R$424 (a loss of R$128 in 2003 against a gain of R$296 in 2002), basically due to the appreciation of the real against the dollar (negative exchange rate variation of R$135 in 2003 against positive exchange rate variation of R$234 in 2002). Operationally, sales of steel products decreased by 6.4% (1,885 thousand metric tons in 2003 against 2,014 thousand metric tons in 2002).
 
.   CST – An increase in the equity result of R$245 (a gain of R$291 in 2003 against a gain of R$46 in 2002), basically caused by the positive effects of exchange rate variation on debt. In operational terms, the average sales price increased by approximately 23.4%, offset partly by a fall of 20.7% in steel slabs sold (3,688 thousand metric tons in 2003 against 4,651 thousand metric tons in 2002).
 
.   Usiminas – An increase in the equity result of R$151 (a gain of R$138 in 2003 against a loss of R$13 in 2002), caused mainly by the reduction in the negative effects of exchange rate variation on debt.
 
(b)   Aluminum
 
.   Albras – An increase in the equity result of R$283 (a gain of R$297 in 2003 against a gain of R$14 in 2002) due to the positive effects of exchange rate variation on debt. In operational terms, aluminum sales volume increased by 6.9% (434 thousand metric tons in 2003 against 406 thousand metric tons in 2002) and the average sales price rose 4.4% (US$1,363.68 per metric ton in 2003 against US$1,306.38 per metric ton in 2002).
 
.   Alunorte – An increase in the equity result of R$272 (a gain of R$183 in 2003 against a loss of R$89 in 2002), due to the positive effects of exchange rate variation on debt. Operationally, alumina sales volume increased by 42.9% (2,275 thousand metric tons in 2003 against 1,592 thousand metric tons in 2002), caused by the start-up of the third production line in March 2003, and the average sales price increased by 8.9% (US$179.23 per metric ton in 2003 against US$164.56 per metric ton in 2002). On 09/30/03 and 10/31/03, amortization of goodwill of R$5 and R$45, respectively, was booked.
 
.   MRN – An increase in the equity result of R$35 (a gain of R$132 in 2003 against a gain of R$97 in 2002), due to the 42.2% rise in sales volume (14,120 thousand metric tons in 2003 against 9,928 thousand metric tons in 2002), in turn caused by the completion of the
     
 
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    expansion of capacity begun in April 2000 along with a 1.5% increase in the average bauxite price (US$19.23 per metric ton in 2003 against US$18.95 per metric ton in 2002).
 
.   Valesul – A decrease in the equity result of R$13 (a gain of R$30 in 2003 against a gain of R$43 in 2002), caused by the effect of the increase in electricity prices, despite an 8.9% increase in sales volume (98 thousand metric tons in 2003 against 90 thousand metric tons in 2002) and a 2.5% rise in the average aluminum price (US$1,703.41 per metric ton in 2003 against US$1,661.77 per metric ton in 2002).
 
.   Aluvale – An increase in the equity result (own operations) of R$7 (a gain of R$32 in 2003 against a gain of R$25 in 2002) caused mainly be the tax benefit of paying interest on stockholders’ equity.
 
.   Itaco – An increase in the equity result of R$102 (a gain of R$88 in 2003 against a loss of R$14 in 2002), due to increases in the average prices of alumina of 34.0%, bauxite of 9.7% and aluminum of 2.5%, while the sales volume of aluminum, alumina and bauxite increased by 7.1%, 325.9% and 27.7%, respectively.

1.2.4- Operating Expenses

The operating expenses increased R$ 87 (R$ 1,176 in 2003 compared to R$ 1,089 in 2002), due to higher expenses for research and studies involving copper and nickel projects.

1.2.5- Net Financial Result

The net financial result increased R$ 3,620 (revenue of R$ 394 in 2003 compared to expense of R$ 3,226 in 2002), mainly due to the positive effect of exchange rate variation on the Company’s net debt in 2003 (Note 10.21).

1.2.6- Income Tax and Social Contribution

Income tax and social contribution reflect an expense of R$ 487 in 2003 compared with a credit of R$ 690 in 2002, 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 non-deductible losses) from negative R$ 880 in 2002 to positive R$ 3,771 in 2003, partially reduced by the benefit of accruing interest on stockholders’ equity of R$ 766 in 2003 (R$ 350 in 2002) (Note 10.9).

1.2.7- Cash Generation

The operating cash generation measured by EBITDA (earnings before interest, income tax and depreciation, amortization and depletion) was R$ 4,877 in 2003, against R$ 3,975 in 2002, an increase of 22.7%.

Parent Company EBITDA

                                         
    Quarter
  Accumulated
    4Q/03
  3Q/03
  4Q/02
  2003
  2002
Net operating revenue
    2,798       2,679       2,672       10,013       8,237  
Cost of products and services
    (1,548 )     (1,351 )     (1,281 )     (5,357 )     (4,133 )
Operating expenses
    (357 )     (226 )     (362 )     (1,176 )     (1,089 )
 
   
 
     
 
     
 
     
 
     
 
 
Operating profit
    893       1,102       1,029       3,480       3,015  
Depreciation / amortization of goodwill
    244       192       150       759       659  
 
   
 
     
 
     
 
     
 
     
 
 
 
    1,137       1,294       1,179       4,239       3,674  
Dividends received
    102       212       34       602       154  
Write-off of assets
                147       36       147  
 
   
 
     
 
     
 
     
 
     
 
 
EBITDA R$
    1,239       1,506       1,360       4,877       3,975  
 
   
 
     
 
     
 
     
 
     
 
 
US$ average
    2.8993       2.9332       3.6774       3.0723       2.9290  
 
   
 
     
 
     
 
     
 
     
 
 
EBITDA US$
    427       513       370       1,587       1,357  
 
   
 
     
 
     
 
     
 
     
 
 
     
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Parent Company EBITDA by Segment

                                                 
    2003
  2002
            EBITDA %   EBITDA           EBITDA %   EBITDA
    EBITDA
  of total
  margin %
  EBITDA
  of total
  margin %
Ferrous minerals
    3,966       81.3 %     45.3 %     3,310       83.3 %     55.5 %
Non - ferrous minerals
    31       0.6 %     9.5 %     172       4.3 %     33.1 %
Logistics
    667       13.7 %     72.7 %     419       10.5 %     60.9 %
Other
    213       4.4 %           74       1.9 %      
 
   
 
     
 
             
 
     
 
         
 
    4,877       100.0 %     48.7 %     3,975       100.0 %     49.2 %
 
   
 
     
 
             
 
     
 
         

Consolidated EBITDA

                 
    Accumulated
    2003
  2002
Net operating revenue
    19,443       14,678  
Cost of products and services
    (10,985 )     (7,646 )
Operating expenses
    (2,087 )     (1,790 )
 
   
 
     
 
 
Operating profit
    6,371       5,242  
Depreciation / amortization of goodwill
    1,268       1,117  
 
   
 
     
 
 
 
    7,639       6,359  
Dividens received
    38       17  
Write-off of assets
    88       233  
 
   
 
     
 
 
EBITDA R$
    7,765       6,609  
 
   
 
     
 
 
US$ average
    3.0723       2.9290  
 
   
 
     
 
 
EBITDA US$
    2,527       2,256  
 
   
 
     
 
 

Consolidated EBITDA by Segment

                                                 
    2003
  2002
            EBITDA %   EBITDA           EBITDA %   EBITDA
    EBITDA
  of total
  margin %
  EBITDA
  of total
  margin %
Ferrous minerals
    5,360       69.1 %     45.1 %     4,692       71.0 %     50.6 %
Non - ferrous minerals
    127       1.6 %     19.9 %     237       3.6 %     34.2 %
Logistics
    689       8.9 %     35.2 %     401       6.0 %     30.5 %
Investments
                                               
Aluminum
    1,097       14.1 %     39.2 %     773       11.7 %     45.6 %
Steel
    452       5.8 %     21.0 %     348       5.3 %     20.4 %
Other
    40       0.5 %           158       2.4 %      
 
   
 
     
 
             
 
     
 
         
 
    7,765       100.0 %     39.9 %     6,609       100.0 %     45.0 %
 
   
 
     
 
             
 
     
 
         

1.2.8- Interest on Stockholders’ Equity

During 2003, CVRD declared total remuneration of R$ 2,254 (Note 10.20) as interest on stockholders’ equity, as follows:

                         
    R$ million
  US$ million
            Amount at the   Amount at the
Payment date
  Amount
  declaration date
  payment date
04/30/03
    622       200       215  
10/31/03
    745       250       261  
10/31/03
    568       200       199  
From 04/04/30
    319       111       (*) 111  
 
   
 
     
 
     
 
 
 
    2,254       761       786  
 
   
 
     
 
     
 
 

    (*) The amount payable in dollar will change since the value equals to an amount in Reais, and the exchange rate considered for the payment is the day of the payment.
     
 
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Interest on stockholders ´equity paid in 2003 totaled R$ 1,935 (US$ 650 million) and payable in 2004 due to 2003 totaled R$ 319 (US$ 111 million).

1.2.9- Shareholder Remuneration Policy for 2004

On 01/28/04, CVRD announced that its Executive Board had submitted to the approval of the Board of Directors a proposal to pay minimum shareholder remuneration for 2004 of US$ 1.43 per common or preferred share totaling US$ 550 million, in two equal installments, on April 30 and October 29.

The Board of Directors will discuss the proposal of the Executive Board at meetings scheduled for April 14 and October 13. The amount announced will be paid in Brazilian currency, calculated based on the real/dollar exchange rate (Ptax – option 5) disclosed by the Central Bank of Brazil on the business day immediately prior to the meeting of the Board of Directors that approves the distribution and respective payment of shareholder remuneration.

1.2.10- Concessions and Leases

(a) Railroads

The Company and some of its group companies entered into agreements with the Brazilian government, through the Ministry of Transport, for concession, exploitation and development of public rail cargo transport services and for lease of the assets destined to render these services.

The concessions periods are, by railroad:

     
    End of concession
Railroad
  period
Vitória-Minas (direct)
  June 2027
Carajás (direct)
  June 2027
Centro-Atlântica (indirect)
  August 2026
Ferroban (direct)
  December 2027
MRS (direct and indirect)
  December 2026

The concessions will expire upon one of the following events: termination of the contractual term, cancellation, forfeiture, rescission, annulment and bankruptcy or extinction of the concessionaire.

(b) Hydroelectric Projects

Currently, the Company acts as an agent in the Brazilian energy market and at the same time it is developing projects for electricity generation and improving its ability to operate competitively in this market.

The projects in which the Company has investments are:

             
Project
  Start-up of operations
  % Participation
Igarapava
  In operation     38.15  
Porto Estrela
  In operation     33.33  
Funil
  In operation     51.00  
Candonga
  May 2004     50.00  
Aimorés
  October 2004     51.00  
Capim Branco I
  February 2006     48.42  
Capim Branco II
  December 2006     48.42  
Foz do Chapecó
  July 2008     40.00  
Estreito
  October 2008     30.00  
     
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(c) Ports

The Company owns specialized port terminals as listed below:

             
Terminal
  Localization
  End of concession period
Tubarão Terminal
  Vitória — ES     2020  
Praia Mole Terminal
  Vitória — ES     2020  
Various Products Terminal
  Vitória — ES     2020  
Vila Velha Terminal
  Vila Velha — ES     2023  
Paul Quay
  Vitória — ES     2005  
Liquid Bulk Terminal
  Vitória — ES     2020  
Ponta da Madeira Maritime Terminal — Pier I
  São Luís — MA     2018  
Ponta da Madeira Maritime Terminal — Pier II
  São Luís — MA     2010  
Inácio Barbosa Maritime Terminal
  Aracaju — SE     2004  

1.3- Comments on the Consolidated Results

1.3.1- Consolidated Gross Revenue

Sales volume and revenues by products and services:

                                                 
    In thousands of metric                
    tons (except gold)
          In millions of reais
   
    2003
  2002
  D%
  2003
  2002
  D%
Iron ore
    154,172       135,187       14.0       7,743       5,987       29.3  
Pellets
    32,640       28,729       13.6       3,414       2,741       24.6  
 
   
 
     
 
             
 
     
 
         
 
    186,812       163,916       14.0       11,157       8,728       27.8  
 
   
 
     
 
             
 
     
 
         
Transportation services
    91,381       76,323       19.7       1,700       1,101       54.4  
Port services
    36,843       27,288       35.0       434       334       29.9  
Gold (kg)
    1,921       10,310       (81.4 )     71       280       (74.6 )
Steel
    2,236       1,925       16.2       2,217       1,713       29.4  
Aluminum
    6,824       4,341       57.2       2,858       1,767       61.7  
Manganese and Ferroalloys
    1,397       1,187       17.7       1,098       845       29.9  
Potash
    674       731       (7.8 )     289       272       6.3  
Kaolin
    731       451       62.1       320       179       78.8  
Other products and services
                      75       48       56.3  
 
                           
 
     
 
         
 
                            20,219       15,267       32.4  
 
                           
 
     
 
         

Revenues from iron ore and pellets grew by 27.8% (R$ 11,157 in 2003 against R$ 8,728 in 2002) due to modification of the product mix and appreciation of the dollar against the real by 4.91% for the year, as well as higher prices in 2003. The full consolidation of Caemi as from September 2003 also contributed to the higher revenues.

Revenues from transportation services rose 54.4% (R$ 1,700 in 2003 against R$ 1,101 in 2002), due mainly to acquisition of indirect control of MRS (a subsidiary of Caemi), along with higher railway freight rates.

Revenues from steel products grew 29.4% (R$ 2,217 in 2003 compared with R$ 1,713 in 2002). This reflects the performance of CSI and CST, discussed in Item 1.2.3 Holdings (a) Steel.

Revenues in the aluminum area rose 61.7% (R$ 2,858 in 2003 versus R$ 1,767 in 2002), due to the product mix, and relate basically to the performance of Albras, Alunorte, MRN, Valesul and Aluvale, discussed in Item 1.2.3 Holdings (b) Aluminum.

Revenues from manganese and ferroalloys went up by 29.9% (R$ 1,098 in 2003 against R$ 845 in 2002) and reflect the performance of RDM, RDME and Urucum, discussed in Item 1.2.3 Ferrous Minerals (b) Manganese and ferroalloys.

Revenues from kaolin grew 78.8% (R$ 320 in 2003 against R$ 179 in 2002). This increase was basically due to the acquisition of indirect control of Cadam, through an increase in the holding in the subsidiary Caemi.

     
 
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12/31/03 - R$ 20,219 / US$ 6,582

(Pie Chart)

Gross Consolidated Revenue by Segment

                                                                 
            Non -           Holdings
          Total
    Ferrous   Ferrous                        
    Minerals
  Minerals
  Logistics
  Aluminum
  Steel
  Eliminations
  2003
  2002
External market
                                                               
Latin America, except United States
    1,658       1       116       517       108       (990 )     1,410       965  
United States
    1,061       23             201       1,435       (733 )     1,987       2,061  
Europe
    7,089       245       93       1,574       72       (3,540 )     5,533       4,429  
Middle East/Africa/Oceania
    1,325       4       14       13       6       (280 )     1,082       833  
Japan
    1,915       44             862             (1,115 )     1,706       1,338  
China
    2,873       24             228       124       (1,224 )     2,025       1,255  
Ásia, other than Japan and China
    1,595       7       8       58       240       (679 )     1,229       942  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    17,516       348       231       3,453       1,985       (8,561 )     14,972       11,823  
Internal Market
    4,089       332       1,909       910       323       (2,316 )     5,247       3,444  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Total operating revenues
    21,605       680       2,140       4,363       2,308       (10,877 )     20,219       15,267  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

1.3.2- Consolidated Cost of Products and Services

By Nature

                                         
    Denominated
               
    R$
  US$
  2003
  2002
%
 
Personnel
    1,067       123       1,190       973       22.3  
Material
    1,255       497       1,752       1,053       66.4  
Oil and gas
    1,304       97       1,401       850       64.8  
Outsourced services
    1,602       111       1,713       1,108       54.6  
Energy
    694       154       848       567       49.6  
Raw Material
          2,214       2,214       1,401       58.0  
Depreciation and depletion
    954       56       1,010       945       6.9  
Amortization of goodwill
    166             166       101       64.4  
Others
    373       318       691       648       6.6  
 
   
 
     
 
     
 
     
 
         
Total
    7,415       3,570       10,985       7,646       43.7  
 
   
 
     
 
     
 
     
 
         
 
    68 %     32 %     100 %                
 
   
 
     
 
     
 
                 
     
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Comments on the cost of products and services – consolidated

The 43.7% increase in the cost of products and services is due to changes in consolidated entities, increases in sales volumes and changes in the prices of the various elements which comprise production cost, as follows:

Change in consolidated entities

  Increase in the percentage of consolidation of Alunorte (45.58% up to June 2002 and 100% as from July 2002);

  Increase in the percentage of consolidation of FCA (45.65% up to August 2003 and 100% as from September 2003);

  Increase in the percentage of consolidation of CST (23.62% up to April 2003 and 28.73% as from May 2003); and

  Increase in the percentage of consolidation of Caemi (16.85% up to August 2003 and 100% as from September 2003).

Increases in sales volumes

  Increase of 14% in sales volume of iron ore pellets;

  Increases of 33% and 10% in sales volume of manganese and ferroalloys, respectively;

  Increases of 20% and 5% in the volume transported by the railroads and port operations, respectively; and

  Increases of 58%, 51% and 11% in sales volume of alumina, aluminum and bauxite, respectively.

Changes in the elements of cost

  Wage increases awarded to various categories of employees, varying from 12% in FCA to 20.45% in Albras;

  Increases in the cost of materials and contracts referenced to the US dollar or inflation indices (INPC, IGP-M, etc);

  Increases in the price of fuel oil, lubrificants and gases of approximately 43%;

  Increases in the price and volume of ore, alumina and bauxite purchased from third parties;

  Increase in electricity rates; and

  Increase in goodwill amortization resulting from the merger of Ferteco.
     
 
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Part II

Financial Statements and Notes to the Financial Statements

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

2- Balance Sheet

     
December 31
  In millions of reais
                                         
            Parent Company
  Consolidated
    Notes
  2003
  2002
  2003
  2002
Assets
                                       
Current assets
                                       
Cash and cash equivalents
    10.5       342       259       2,092       4,271  
Accounts receivable from customers
    10.6       1,187       1,436       2,595       2,621  
Related parties
    10.7       668       986       48       56  
Inventories
    10.8       553       419       2,113       1,869  
Taxes to recover or offset
          537       129       766       366  
Deferred income tax and social contribution
    10.9       398       812       299       812  
Others
          324       305       646       883  
 
           
 
     
 
     
 
     
 
 
 
            4,009       4,346       8,559       10,878  
 
           
 
     
 
     
 
     
 
 
Long-term receivables
                                       
Related parties
    10.7       708       1,377       59       210  
Loans and financing
          143       269       197       284  
Deferred income tax and social contribution
    10.9       826       791       1,405       1,356  
Judicial deposits
    10.14       985       709       1,425       927  
Prepaid leasing expenses
                      118       108  
Long-term trade accounts receivable
                      119       136  
Property held for sale
                      86        
Securities
                      69        
Others
          27       21       348       312  
 
           
 
     
 
     
 
     
 
 
 
            2,689       3,167       3,826       3,333  
 
           
 
     
 
     
 
     
 
 
Permanent assets
                                       
Investments
    10.10       11,241       10,614       3,313       2,938  
Property, plant and equipment
    10.11       12,362       8,707       21,166       15,666  
Deferred charges
                      228       651  
 
           
 
     
 
     
 
     
 
 
 
            23,603       19,321       24,707       19,255  
 
           
 
     
 
     
 
     
 
 
 
            30,301       26,834       37,092       33,466  
 
           
 
     
 
     
 
     
 
 
Liabilities and stockholders’ equity
                                       
Current liabilities
                                       
Short-term debt
    10.12       106       398       888       1,124  
Current portion of long-term debt
    10.12       1,897       1,828       3,365       3,190  
Payable to suppliers and contractors
          959       684       1,302       1,386  
Related parties
    10.7       1,365       948       378       141  
Payroll and related charges
          169       168       264       305  
Pension Plan — Valia
          92       81       92       81  
Proposed interest on stockholders’ equity
          319             319        
Taxes and contributions
          99       29       225       128  
Others
          242       82       746       438  
 
           
 
     
 
     
 
     
 
 
 
            5,248       4,218       7,579       6,793  
 
           
 
     
 
     
 
     
 
 
Long-term liabilities
                                       
Long-term debt
    10.12       2,771       4,064       9,456       10,225  
Related parties
    10.7       4,395       3,300       9       26  
Deferred income tax and social contribution
    10.9       86       85       235       250  
Provisions for contingencies
    10.14       1,483       1,272       2,056       1,724  
Pension Plan — Valia
          570       499       570       499  
Others
          808       645       1,093       852  
 
           
 
     
 
     
 
     
 
 
 
            10,113       9,865       13,419       13,576  
 
           
 
     
 
     
 
     
 
 
Deferred income
    10.28                   157       156  
 
           
 
     
 
     
 
     
 
 
Minority interests
                      997       190  
 
           
 
     
 
     
 
     
 
 
Stockholders’ equity
                                       
Paid-up capital
    10.17       6,300       5,000       6,300       5,000  
Revenue reserves
          8,640       7,751       8,640       7,751  
 
           
 
     
 
     
 
     
 
 
 
            14,940       12,751       14,940       12,751  
 
           
 
     
 
     
 
     
 
 
 
            30,301       26,834       37,092       33,466  
 
           
 
     
 
     
 
     
 
 

The additional information, notes and attachments I, II and III are an integral part of these statements.

     
18
CVRD
 


Table of Contents

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

3- Statement of Income

     
Year ended December 31
  In millions of reais
                                                                 
            Parent Company
  Consolidated
            Quarter
  Accumulated
  Accumulated
    Notes
  4Q/03
  3Q/03
  4Q/02
  2003
  2002
  2003
  2002
Operating revenues
    1.2.1 e                                                        
Sales of ore and metals
    1.3.1                                                          
Iron ore and pellets
            2,472       2,300       2,311       8,612       6,827       11,157       8,728  
Gold
            3       16       48       71       280       71       280  
Manganese and ferroalloys
                                          1,098       845  
Potash
            73       81       91       290       272       289       272  
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
            2,548       2,397       2,450       8,973       7,379       12,615       10,125  
Railroad and port services
            326       359       327       1,366       1,142       2,134       1,435  
Sales of aluminum products
                                          2,858       1,767  
Sales of steel products
                                          2,217       1,713  
Others
            3       10       9       28       49       395       227  
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
            2,877       2,766       2,786       10,367       8,570       20,219       15,267  
Value Added taxes
            (79 )     (87 )     (114 )     (354 )     (333 )     (776 )     (589 )
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net operating revenues
            2,798       2,679       2,672       10,013       8,237       19,443       14,678  
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Cost of products and services
    1.2.2 e                                                        
Ores and metals
    1.3.2       (1,420 )     (1,237 )     (1,160 )     (4,888 )     (3,698 )     (6,089 )     (4,397 )
Railroad and port services
            (121 )     (109 )     (116 )     (449 )     (402 )     (1,397 )     (926 )
Aluminum products
                                          (1,729 )     (966 )
Steel products
                                          (1,551 )     (1,229 )
Others
            (7 )     (5 )     (5 )     (20 )     (33 )     (219 )     (128 )
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
            (1,548 )     (1,351 )     (1,281 )     (5,357 )     (4,133 )     (10,985 )     (7,646 )
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Gross profit
            1,250       1,328       1,391       4,656       4,104       8,458       7,032  
Gross margin
            44.7 %     49.6 %     52.1 %     46.5 %     49.8 %     43.5 %     47.9 %
Operating expenses
                                                               
Selling
            (64 )     (56 )     (79 )     (217 )     (186 )     (289 )     (228 )
Administrative
    10.24       (124 )     (97 )     (98 )     (406 )     (374 )     (792 )     (681 )
Research and development
            (95 )     (64 )     (47 )     (233 )     (147 )     (249 )     (148 )
Other operating expenses
    10.24       (74 )     (9 )     (138 )     (320 )     (382 )     (757 )     (733 )
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
            (357 )     (226 )     (362 )     (1,176 )     (1,089 )     (2,087 )     (1,790 )
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating profit before financial result and result of equity investments
            893       1,102       1,029       3,480       3,015       6,371       5,242  
Result of equity investments
                                                               
Gain on investments accounted for by the equity method
    10.10       417       246       472       1,450       2,461       209       50  
Amortization of goodwill
    10.10       (114 )     (113 )     (194 )     (503 )     (472 )     (612 )     (523 )
Provision for losses
    10.10       (154 )     354       134       341       (425 )     29        
Sale of investments
    10.10                         (166 )           (166 )      
 
            149       487       412       1,122       1,564       (540 )     (473 )
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Financial result
                                                               
Financial expenses, net
    10.21       (189 )     (85 )     (28 )     (511 )     (756 )     (975 )     (1,050 )
Monetary and exchange rate variation, net
    10.21       (72 )     (188 )     626       905       (2,470 )     721       (2,431 )
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
            (261 )     (273 )     598       394       (3,226 )     (254 )     (3,481 )
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating profit
            781       1,316       2,039       4,996       1,353       5,577       1,288  
Discontinued operations
    1.1                                     174       -  
Change of accounting practices
    10.4 (i)                                   (91 )     -  
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Income before income tax and social contribution
            781       1,316       2,039       4,996       1,353       5,660       1,288  
Income tax and social contribution
    10.9       11       (38 )     (498 )     (487 )     690       (898 )     634  
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Income before minority interests
            792       1,278       1,541       4,509       2,043       4,762       1,922  
Minority interests
                                          (253 )     121  
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net income for the period
            792       1,278       1,541       4,509       2,043       4,509       2,043  
 
           
 
     
 
     
 
     
 
     
 
     
 
     
 
 
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$)
            2.06       3.33       4.01       11.75       5.32                  
 
           
 
     
 
     
 
     
 
     
 
                 

The additional information, notes and attachments I, II and III are an integral part of these statements.

The quarterly information was reviewed by PricewaterhouseCoopers

     
 
CVRD
19


Table of Contents

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

4- Statement of Changes in Stockholders’ Equity

Years ended December 31   In millions of reais
                                                 
                    Capital reserves
  Revenue reserves
                    Result of   Price-level        
            Paid-up   share   restatement   Expansion/    
    Notes
  capital
  exchange
  Law 8,200/91
  Investments
  Depletion
On December 31, 2001
            4,000       4       440       3,869       1,506  
 
           
 
     
 
     
 
     
 
     
 
 
Capitalization of reserves
            1,000       (4 )     (440 )           (502 )
Realization of revenue reserve
                                     
Provision for pension plan liabilities - affiliates
                                     
Net income for the year
                                     
Appropriations:
                                               
Interest on stockholders’ equity
                                     
Appropriation to revenue reserves
                              1,408        
 
           
 
     
 
     
 
     
 
     
 
 
On December 31, 2002
            5,000                   5,277       1,004  
 
           
 
     
 
     
 
     
 
     
 
 
Change in accounting practice - environmental provision
    10.15                                
Capitalization of reserves
            1,300                   (1,300 )      
Realization of revenue reserve
    10.20                                
Net income for the year
                                   
Proposed appropriations:
                                               
Interest on stockholders’ equity
    10.20                                
Appropriation to revenue reserves
    10.20                         2,062        
 
           
 
     
 
     
 
     
 
     
 
 
On December 31, 2003
            6,300                   6,039       1,004  
 
           
 
     
 
     
 
     
 
     
 
 

     

[Additional columns below]

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

                                                 
    Revenue reserves
       
    Unrealized           Fiscal   Treasury   Retained    
    income
  Legal
  incentives
  stock
  earnings
  Total
On December 31, 2001
    1,272       753       54       (131 )           11,767  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Capitalization of reserves
                (54 )                  
Realization of revenue reserve
    (526 )                       526        
Provision for pension plan liabilities - affiliates
                            (30 )     (30 )
Net income for the year
                            2,043       2,043  
Appropriations:
                                               
Interest on stockholders’ equity
                            (1,029 )     (1,029 )
Appropriation to revenue reserves
          102                   (1,510 )      
 
   
 
     
 
     
 
     
 
     
 
     
 
 
On December 31, 2002
    746       855             (131 )           12,751  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Change in accounting practice - environmental provision
                            (66 )     (66 )
Capitalization of reserves
                                   
Realization of revenue reserve
    (189 )                       189        
Net income for the year
                            4,509       4,509  
Proposed appropriations:
                                               
Interest on stockholders’ equity
                            (2,254 )     (2,254 )
Appropriation to revenue reserves
          226       90             (2,378 )      
 
   
 
     
 
     
 
     
 
     
 
     
 
 
On December 31, 2003
    557       1,081       90       (131 )           14,940  
 
   
 
     
 
     
 
     
 
     
 
     
 
 

The additional information, notes and attachments I, II and III are an integral part of these statements.

20   CVRD    

 


Table of Contents

(A free translation of the original in Portuguese relating to the financial statements prepared in accordance with the requirements of Brazilian Corporate Law)

5- Statement of Changes in Financial Position

Years ended December 31   In millions of reais
                                 
    Parent Company
  Consolidated
    2003
  2002
  2003
  2002
Funds were provided by:
                               
Net income for the year
    4,509       2,043       4,509       2,043  
Expenses (income) not affecting working capital:
                               
Result of equity investments
    (1,122 )     (1,564 )     540       473  
Depreciation, amortization and depletion
    601       567       1,110       1,022  
Deferred income tax and social contribution
    21       (496 )     40       (706 )
Discontinued operations
                (174 )      
Net monetary and exchange rate variations on long-term assets and liabilities
    (612 )     2,858       (1,045 )     3,533  
Loss on disposal of property, plant and equipment
    35       136       88       23  
Amortization of goodwill in the cost of products sold
    166       98       166       101  
Net unrealized derivative losses (gains)
    57       194       169       167  
Others
    69       113       186       14  
 
   
 
     
 
     
 
     
 
 
Total funds from operations
    3,724       3,949       5,589       6,670  
Loans to related parties, transferred to current assets
    2,624       292       351       854  
Loans and financing obtained
    1,172       594       3,263       2,418  
Loans from related parties
    1,621       162       12       22  
Dividends/interest on stockholders’ equity received
    549       199       38       17  
Others
    438       255       324       530  
 
   
 
     
 
     
 
     
 
 
Total funds provided
    10,128       5,451       9,577       10,511  
 
   
 
     
 
     
 
     
 
 
Funds were used for:
                               
Long-term debt transferred to current liabilities
    2,218       1,742       3,554       2,989  
Related parties
    1,266       505       225       70  
Additions to permanent assets
    2,857       1,818       5,085       3,236  
Capital subscription in subsidiary and affiliated companies
    2,642       405       889       371  
Interest on stockholders’ equity
    2,254       1,029       2,254       1,029  
Guarantees and deposits
    260       191       494       292  
Others
                183       339  
 
   
 
     
 
     
 
     
 
 
Total funds used
    11,497       5,690       12,684       8,326  
 
   
 
     
 
     
 
     
 
 
Increase (decrease) in working capital
    (1,369 )     (239 )     (3,107 )     2,185  
 
   
 
     
 
     
 
     
 
 
Changes in working capital are as follows:
                               
Current assets:
                               
At the end of the year
    4,009       4,346       8,558       10,878  
At the beginning of the year
    4,346       3,990       10,878       7,206  
 
   
 
     
 
     
 
     
 
 
 
    (337 )     356       (2,320 )     3,672  
 
   
 
     
 
     
 
     
 
 
Current liabilities:
                               
At the end of the year
    5,250       4,218       7,580       6,793  
At the beginning of the year
    4,218       3,623       6,793       5,306  
 
   
 
     
 
     
 
     
 
 
 
    1,032       595       787       1,487  
 
   
 
     
 
     
 
     
 
 
Increase (decrease) in working capital
    (1,369 )     (239 )     (3,107 )     2,185  
 
   
 
     
 
     
 
     
 
 

The additional information, notes and attachments I, II and III are an integral part of these statements.

    CVRD   21

 


Table of Contents

(A free translation of the original in Portuguese)

6- Statement of Cash Flows (Additional Information)

Years ended December 31   In millions of reais
                                                         
    Parent Company
  Consolidated
    Quarter
  Accumulated
  Accumulated
    4Q/03
  3Q/03
  4Q/02
  2003
  2002
  2003
  2002
Cash flows from operating activities:
                                                       
Net income for the period
    792       1,278       1,541       4,509       2,043       4,509       2,043  
Adjustments to reconcile net income for the period with cash provided by operating activities:
                                                       
Result of equity investments
    (149 )     (487 )     (412 )     (1,122 )     (1,564 )     540       473  
Depreciation, amortization and depletion
    175       150       135       601       567       1,110       1,022  
Deferred income tax and social contribution
    51       74       498       427       (695 )     447       (815 )
Discontinued operations
                                  (174 )      
Financial expenses and monetary and exchange rate variations on assets and liabilities, net
    167       98       (506 )     (1,035 )     3,249       (1,989 )     4,645  
Loss on disposal of property, plant and equipment
    31       (17 )     113       36       136       88       23  
Amortization of goodwill in the cost of products sold
    76       42       24       166       98       166       101  
Net (gains) losses on derivatives
    16       44       28       57       269       169       249  
Dividends/interest on stockholders’ equity received
    102       212       34       602       154       38       17  
Others
    (40 )     (26 )     (237 )     (53 )     131       377       510  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,221       1,368       1,218       4,188       4,388       5,281       8,268  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Decrease (increase) in assets:
                                                       
Accounts receivable
    265       (58 )     (57 )     547       (572 )     26       (1,104 )
Inventories
    2       (33 )     (31 )     (61 )     31       (243 )     (487 )
Others
    (268 )     138       26       (194 )     (5 )     (36 )     (230 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    (1 )     47       (62 )     292       (546 )     (253 )     (1,821 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Increase (decrease) in liabilities:
                                                       
Suppliers and contractors
    131       (104 )     86       148       161       34       504  
Payroll and related charges and others
    (45 )     22       13       (14 )     50       (42 )     72  
Others
    198       (237 )     173       114       191       549       511  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    284       (319 )     272       248       402       541       1,087  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net cash provided by operating activities
    1,504       1,096       1,428       4,728       4,244       5,569       7,534  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Cash flows from investing activities:
                                                       
Time deposits
                                         
Loans and advances receivable
    265       (1,029 )     410       (798 )     (162 )     (51 )     229  
Guarantees and deposits
    (29 )     205       (53 )     (260 )     (191 )     (494 )     (292 )
Additions to investments
    (45 )     70       (9 )     (291 )     (14 )     (916 )     (8 )
Additions to property, plant and equipment
    (1,079 )     (772 )     (484 )     (2,811 )     (1,523 )     (5,012 )     (3,165 )
Net cash used to acquire or capitalize subsidiaries
                                        (316 )
Proceeds from disposal of property, plant and equipment/investments
    18       63       1       187       5       427       5  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net cash used in investing activities
    (870 )     (1,463 )     (135 )     (3,973 )     (1,885 )     (6,046 )     (3,547 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Cash flows from financing activities:
                                                       
Short-term debt
    405       (250 )     (981 )     (206 )     (1,232 )     (160 )     (1,582 )
Long-term debt
    286       1,600       (152 )     2,793       756       3,381       2,421  
Repayments:
                                                       
Related parties
                39             (51 )            
Financial institutions
    (857 )     (276 )     (121 )     (1,542 )     (411 )     (2,993 )     (1,558 )
Interest on stockholders’ equity paid
    (1,212 )     (98 )     (1,029 )     (1,930 )     (1,807 )     (1,930 )     (1,807 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net cash provided by (used in) financing activities
    (1,378 )     976       (2,244 )     (885 )     (2,745 )     (1,702 )     (2,526 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Increase (decrease) in cash and cash equivalents
    (744 )     609       (951 )     (130 )     (386 )     (2,179 )     1,461  
Cash and cash equivalents, beginning of the period
    965       264       1,210       259       645       4,271       2,810  
Cash of merged companies
    121       92             213                    
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Cash and cash equivalents, end of the period
    342       965       259       342       259       2,092       4,271  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Cash paid during the period for:
                                                       
Short-term interest
                (20 )     (16 )     (53 )     (87 )     (169 )
Long-term interest
    (92 )     (95 )     (82 )     (353 )     (307 )     (751 )     (413 )
Income tax and social contribution paid
                      (47 )     (4 )     (184 )     (120 )
Non-cash transactions:
                                                       
Transfer of advance for future capital increase to investments
    (321 )     (466 )     (236 )     (2,117 )     (401 )            
Loans/advances transferred to equity investment
          (233 )           (233 )                  
Additions to property, plant and equipment - mergers
    (1,342 )     (489 )     (26 )     (1,831 )     (26 )            

The quarterly information was reviewed by PricewaterhouseCoopers

22   CVRD    

 


Table of Contents

(A free translation of the original in Portuguese)

7- Statement of Value Added (Additional Information)

Years ended December 31   In millions of reais
                                                                 
    Parent Company
  Consolidated
    2003
  %
  2002
  %
  2003
  %
  2002
  %
Generation of Value Added
                                                               
Sales revenue
    10,367       100       8,570       100       20,219       100       15,267       100  
Less: Acquisition of products
    (1,192 )     (12 )     (1,039 )     (12 )     (2,214 )     (11 )     (1,401 )     (9 )
Outsourced services
    (1,279 )     (12 )     (854 )     (10 )     (2,702 )     (13 )     (1,832 )     (12 )
Materials
    (880 )     (9 )     (641 )     (7 )     (1,752 )     (9 )     (1,216 )     (8 )
Fuel oil and gas
    (636 )     (6 )     (391 )     (5 )     (1,401 )     (7 )     (850 )     (6 )
Research and development, selling and administrative
    (397 )     (4 )     (372 )     (4 )     (939 )     (5 )     (849 )     (6 )
Other operating expenses
    (232 )     (2 )     (286 )     (3 )     (1,163 )     (6 )     (499 )     (3 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Gross Value Added
    5,751       55       4,987       59       10,048       49       8,620       56  
Depreciation and depletion
    (593 )     (6 )     (561 )     (7 )     (1,102 )     (5 )     (1,016 )     (7 )
Amortization of goodwill
    (166 )     (2 )     (98 )     (1 )     (166 )     (1 )     (101 )     (1 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net Value Added
    4,992       47       4,328       51       8,780       43       7,503       48  
Received from third parties
                                                               
Financial revenue
    53       1       597       7       196       1       360       2  
Result of equity investments
    1,122       11       1,564       18       (540 )     (3 )     (473 )     (3 )
Discontinued operations
                            174       1              
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Total Value Added
    6,167       59       6,489       76       8,610       42       7,390       47  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Distribution of Value Added
                                                               
Employees
    770       12       699       11       1,312       15       1,153       16  
Government
    1,301       21       101       2       2,185       26       554       7  
Third parties’ capital (interest and monetary and exchange variances, net)
    (413 )     (7 )     3,646       55       351       4       3,761       51  
Stockholders’ remuneration
    2,254       37       1,029       16       2,254       26       1,029       14  
Minority interests
                            253       3       (121 )     (2 )
Retained earnings
    2,255       37       1,014       16       2,255       26       1,014       14  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Total Value added distribuited
    6,167       100       6,489       100       8,610       100       7,390       100  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

 

    CVRD   23

 


Table of Contents

(A free translation of the original in Portuguese)

8- Labor and Social Indicators (Additional Information)

Years ended December 31   In millions of reais
                                 
    Parent Company
  Consolidated (unaudited)
    2003
  2002
  2003
  2002
Basis for computation
                               
Gross revenues
    10,367       8,570       20,219       15,267  
Operating profit — before financial result and result of equity investments
    3,480       3,015       6,371       5,242  
Gross payroll
    471       457       970       740  
                                                     
    2003
      2002
            %of
      %of
            Gross   Operating               Gross   Operating
    Amount
  payroll
  profit
      Amount
  payroll
  profit
Labor indicators
                                                   
Food
    44       9       1           18       4       1  
Compulsory social charges
    201       43       6           174       38       6  
Private pension plan
    52       11       1           55       12       2  
Health
    34       7       1           28       6       1  
Education
    29       6       1           22       5       1  
Profit sharing
    96       20       3           84       18       2  
Other benefits
    54       12       2           48       11       1  
 
   
 
     
 
     
 
         
 
     
 
     
 
 
Total — Labor indicators
    510       108       15           429       94       14  
 
   
 
     
 
     
 
         
 
     
 
     
 
 

     

[Additional columns below]

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

                                                 
    2003
  2002
            %of
          %of
            Gross   Operating           Gross   Operating
    Amount
  payroll
  profit
  Amount
  payroll
  profit
Labor indicators
                                               
Food
    76       8       1       37       5       1  
Compulsory social charges
    351       36       6       277       37       5  
Private pension plan
    82       8       1       66       9       1  
Health
    62       6       1       44       6       1  
Education
    42       4       1       34       5       1  
Profit sharing
    146       15       2       117       16       2  
Other benefits
    96       11       1       74       10       1  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total — Labor indicators
    855       88       13       649       88       12  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
                                                 
    2003
  2002
            %of
          %of
            Operating   Gross           Operating   Gross
    Amount
  profit
  revenues
  Amount
  profit
  revenues
Social indicators
                                               
Taxes (*)
    1,183       34       11       633       21       7  
Social investments
    54       2       1       38       1        
Social projects and actions
    36       1       1       27       1        
Indigenous communities
    18       1             11              
Environmental expenditures
    110       3       1       78       2       1  
Operational
    90       2       1       66       2       1  
On outside programs and/or projects
    20       1             12              
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total — Social indicators
    1,347       39       13       749       24       8  
 
   
 
     
 
     
 
     
 
     
 
     
 
 

     

[Additional columns below]

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

                                                 
    2003
  2002
            %of
          %of
            Operating   Gross           Operating   Gross
    Amount
  profit
  revenues
  Amount
  profit
  revenues
Social indicators
                                               
Taxes (*)
    2,079       33       10       1,159       22       8  
Social investments
    60       1             52       1        
Social projects and actions
    42       1             41       1        
Indigenous communities
    18                   11              
Environmental expenditures
    154       2       1       109       2       1  
Operational
    134       2       1       97       2       1  
On outside programs and/or projects
    20                   12              
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total — Social indicators
    2,293       36       11       1,320       25       9  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
                                 
    2003
  2002
  2003
  2002
Headcount
                               
No. of employees at end of year
    16,338       14,289       30,063       29,349  
No. of new hires during year (**)
    3,245       1,518       6,567       5,089  

(*) In 2002 excluding social charges and the income tax and social contribution to the limit of the amount of tax credits.

(**) In 2003, including 1,648 employees from merged companies (Item 1.1.d)

The Consolidated amounts relate to the percentage of participation of Parent Company in the companies.

24   CVRD    

 


Table of Contents

(A free translation of the original in Portuguese)

9- Statement of Income by Segment (Additional Information)

Years ended December 31   In millions of reais
                                                                 
    2003
                                 
    Ferrous   Non-
Ferrous
          Holdings
  Corporate    
    Minerals
  Minerals
  Logistics
  Aluminum
  Steel
  Others
  Center
  Total
Operating revenues
                                                               
Sales of ore and metals
                                                               
Iron ore and pellets
    11,157                                           11,157  
Gold
          71                                     71  
Manganese and ferroalloys
    1,098                                           1,098  
Potash
          289                                     289  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    12,255       360                                     12,615  
Railroad and port services
                2,134                               2,134  
Sales of aluminum products
                      2,858                         2,858  
Sales of steel products
                            2,217                   2,217  
Others
    62       320             13                         395  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    12,317       680       2,134       2,871       2,217                   20,219  
Value Added taxes
    (421 )     (42 )     (174 )     (75 )     (64 )                 (776 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net operating revenues
    11,896       638       1,960       2,796       2,153                   19,443  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Cost of products and services
                                                               
Ores and metals
    (5,894 )     (195 )                                   (6,089 )
Railroad and port services
                (1,397 )                             (1,397 )
Aluminum products
                      (1,729 )                       (1,729 )
Steel products
                            (1,551 )                 (1,551 )
Others
    (45 )     (171 )           (3 )                       (219 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    (5,939 )     (366 )     (1,397 )     (1,732 )     (1,551 )                 (10,985 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Gross profit
    5,957       272       563       1,064       602                   8,458  
Gross margin
    50.1 %     42.6 %     28.7 %     38.1 %     28.0 %                 43.5 %
Operating expenses
                                                               
Selling
    (211 )     (21 )     (5 )     (21 )     (31 )                 (289 )
Administrative
    (556 )     (22 )     (50 )     (95 )     (68 )     (1 )           (792 )
Research and development
    (59 )     (190 )                                   (249 )
Other operating expenses
    (700 )     22       (54 )     18       (37 )     (6 )           (757 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    (1,526 )     (211 )     (109 )     (98 )     (136 )     (7 )           (2,087 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating profit before financial result and result of equity investments
    4,431       61       454       966       466       (7 )           6,371  
Result of equity investments
                                                               
Gain (loss) on investments accounted for by the equity method
    53             (4 )           136       24             209  
Amortization of goodwill
    (335 )     (78 )     (149 )     (50 )                       (612 )
Provision for losses
                38                   (9 )           29  
Sale of investments
                (166 )                             (166 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    (282 )     (78 )     (281 )     (50 )     136       15             (540 )
Financial result
                                                               
Financial expenses, net
                                        (975 )     (975 )
Monetary and exchange rate variation, net
                                        721       721  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
                                        (254 )     (254 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating profit
    4,149       (17 )     173       916       602       8       (254 )     5,577  
Discontinued operations
                                  174             174  
Change in accounting pratice
                (91 )                             (91 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Income before income tax and social contribution
    4,149       (17 )     82       916       602       182       (254 )     5,660  
Income tax and social contribution
    (705 )     (13 )     12       (158 )     (38 )     4             (898 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Income before minority interests
    3,444       (30 )     94       758       564       186       (254 )     4,762  
Minority interests
    (156 )     (12 )     48       (133 )                       (253 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net income for the year
    3,288       (42 )     142       625       564       186       (254 )     4,509  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

 

    CVRD   25

 


Table of Contents

                                                                 
    2002
                                 
    Ferrous   Non-
Ferrous
          Holdings
  Corporate    
    Minerals
  Minerals
  Logistics
  Aluminum
  Steel
  Others
  Center
  Total
Operating revenues
                                                               
Sales of ore and metals
                                                               
Iron ore and pellets
    8,728                                           8,728  
Gold
          280                                     280  
Manganese and ferroalloys
    845                                           845  
Potash
          272                                     272  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    9,573       552                                     10,125  
Railroad and port services
                1,435                               1,435  
Sales of aluminum products
                      1,749                         1,749  
Sales of steel products
                            1,713                   1,713  
Others
    48       179             18                         245  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    9,621       731       1,435       1,767       1,713                   15,267  
Value Added taxes
    (351 )     (38 )     (121 )     (71 )     (8 )                 (589 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net operating revenues
    9,270       693       1,314       1,696       1,705                   14,678  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Cost of products and services
                                                               
Ores and metals
    (4,095 )     (302 )                                   (4,397 )
Railroad and port services
                (926 )                             (926 )
Aluminum products
                      (961 )                       (961 )
Steel products
                            (1,229 )                 (1,229 )
Others
    (42 )     (86 )           (5 )                       (133 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    (4,137 )     (388 )     (926 )     (966 )     (1,229 )                 (7,646 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Gross profit
    5,133       305       388       730       476                   7,032  
Gross margin
    55.4 %     44.0 %     29.5 %     43.0 %     27.9 %                 47.9 %
Operating expenses
                                                               
Selling
    (154 )     (9 )     (15 )     (8 )     (42 )                 (228 )
Administrative
    (130 )     (13 )     (39 )     (85 )     (39 )     (1 )     (374 )     (681 )
Research and development
    (26 )     (116 )     (6 )                             (148 )
Other operating expenses
    (452 )     (138 )     (97 )     52       (61 )     125       (162 )     (733 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    (762 )     (276 )     (157 )     (41 )     (142 )     124       (536 )     (1,790 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating profit before financial result and result of equity investments
    4,371       29       231       689       334       124       (536 )     5,242  
Result of equity investments
                                                               
Gain (loss) on investments accounted for by the equity method
    55             (8 )           (13 )     16             50  
Amortization of goodwill
    (297 )           (226 )                             (523 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    (242 )           (234 )           (13 )     16             (473 )
Financial result
                                                               
Financial expenses, net
                                        (1,050 )     (1,050 )
Monetary and exchange rate variation, net
                                        (2,431 )     (2,431 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
                                        (3,481 )     (3,481 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Income before income tax and social contribution
    4,129       29       (3 )     689       321       140       (4,017 )     1,288  
Income tax and social contribution
    589             (27 )     134       (26 )     (36 )           634  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Income before minority interests
    4,718       29       (30 )     823       295       104       (4,017 )     1,922  
Minority interests
          (20 )           141                         121  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net income for the year
    4,718       9       (30 )     964       295       104       (4,017 )     2,043  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

 

26   CVRD    

 


Table of Contents

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

10- Notes to the Financial Statements at December 31, 2003 and 2002

Expressed In millions of reais

10.1- 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 mineral research and development.

10.2- Presentation of Financial Statements

The financial statements have been prepared in conformity with accounting pratices adopted in Brazil, based on corporate legislation, as well as the rules and guidelines issued by the Comissão de Valores Mobiliários - CVM (Brazilian Securities Commission) and Ibracon — Instituto dos Auditores Independentes do Brasil (Brazilian Independent Auditors Institute).

In order to provide better information to the market, the Company is presenting the following additional information regarding the Parent Company and Consolidated:

a)   Statement of Cash Flows – NPC 20 of IBRACON;
 
b)   Statement of Value Added –CVM/SNC/SEP Circular Instruction no. 01/00;
 
c)   Social Report – model of the Instituto Brasileiro de Análises Sociais e Econômicas – IBASE; and
 
d)   Statement of Results by Business Segment - prepared based on the business areas of the Company: ferrous minerals, non-ferrous minerals, aluminum, steel, logistics, others and corporate center.

Although not materially relevant individually, certain figures from the 2002 financial statements have been reclassified for better comparison.

10.3- Principles of Consolidation

(a)   The consolidated financial statements show the balances of assets and liabilities on December 31, 2003 and 2002 and the operations of the Parent Company, its direct and indirect subsidiaries and its jointly-controlled companies for the years then ended;
 
(b)   Intercompany balances and the Parent Company’s investments in its direct and indirect subsidiaries and jointly-controlled companies were eliminated in the consolidation. Minority interests are shown separately on the balance sheet and statement of income;
 
(c)   In the case of investments in companies in which the control is shared with other stockholders, the components of assets and liabilities and revenues and expenses are included in the consolidated financial statements in proportion to the participation of the Parent Company in the capital of each investee;
 
(d)   The principal figures of the subsidiaries and jointly-controlled companies included in the consolidation are presented in Attachment I.

10.4- 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 financial statements 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 Financial Statements 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 financial statements 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;

 

    CVRD   27

 


Table of Contents

(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 on the straight-line method, based on the useful lives of the assets. Depletion of mineral reserves is based on the ratio between production and estimated capacity.
 
(h)   Pre-operating costs except for financial charges capitalized as mentioned in (g) above, are deferred and amortized over a period of 10 years. The deferred charges (consolidated) refer basically to copper projects, Alunorte and Caemi
 
(i)   Seeking to improve its accounting practices, FCA changed the way it recognizes the costs of leases and concessions, now recognizing them as operational costs. As a result of this change, the write-off of the balance and prepaid lease and concession expenses already incurred was recorded directly in retained earnings. FCA management believes that adoption of this procedure is in line with the best accounting practices for government concessions, set forth in the draft deliberation of the CVM of 12/14/01. In accordance with CVM Instruction 247 of March 27, 1996 CVRD recognized the effects of the adjustments made by FCA directly in the results of equity investments. For the purposes of the consolidated financial statements, the uneliminated portion of the adjustments is presented in a separate line of the statement of income denominated “Change in accounting practice”; and
 
(j)   The financial statements of the Parent Company reflect the Board of Directors’ proposal for appropriation of the net income for the year, for the approval of the Annual General Meeting.

10.5- Cash and Cash Equivalents

                                 
    Parent Company
  Consolidated
    2003
  2002
  2003
  2002
Marketable securities linked to the interbank deposit certificate rate (*)
    300       157       610       324  
Time deposits / overnight investments
                534       2,908  
Fixed-yield bond investments (funds)
    30       24       242       518  
Government securities (NBC-E, NTN-D, LFT)
    5       74       40       88  
Others
    7       4       666       433  
 
   
 
     
 
     
 
     
 
 
 
    342       259       2,092       4,271  
 
   
 
     
 
     
 
     
 
 

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

10.6- Accounts Receivable from Customers

                                 
    Parent Company
  Consolidated
    2003
  2002
  2003
  2002
Domestic
    433       523       485       571  
Export
    841       978       2,341       2,175  
 
   
 
     
 
     
 
     
 
 
 
    1,274       1,501       2,826       2,746  
Allowance for doubtful accounts
    (53 )     (42 )     (197 )     (100 )
Allowance for ore weight credits
    (34 )     (23 )     (34 )     (25 )
 
   
 
     
 
     
 
     
 
 
 
    1,187       1,436       2,595       2,621  
 
   
 
     
 
     
 
     
 
 

 

28   CVRD    

 


Table of Contents

10.7- 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
    2003
  2002
  2003
  2002
Subsidiaries
                               
ALUNORTE - Alumina do Norte do Brasil S.A.
    804       1,055       54       53  
CVRD Overseas Ltd.
    104       163       1,747       1,375  
Ferrovia Centro-Atlântica S.A.
    6       77       8       3  
Itabira Rio Doce Company Limited - ITACO
    550       667       1,437       559  
Mineração Andirá Ltda. (participa na Mineração Serra do Sossego S.A.)
    1       80       2        
Rio Doce International Finance Ltd.
    7       326       1,975       1,855  
Rio Doce Manganês S.A. - RDM
    8       80       10       7  
Salobo Metais S.A.
    226       209              
Others
    120       287       419       362  
 
   
 
     
 
     
 
     
 
 
 
    1,826       2,944       5,652       4,214  
 
   
 
     
 
     
 
     
 
 
Jointly controlled companies
                               
Alumínio Brasileiro S.A. - ALBRAS
    3       2       193       109  
Baovale Mineração S.A.
    2       1       28       21  
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
    145       139       39       23  
Companhia Ferroviária do Nordeste
          15              
Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS
    51       64       84       89  
Companhia ¥talo-Brasileira de Pelotização - ITABRASCO
    45       65       48       50  
Companhia Nipo-Brasileira de Pelotização - NIBRASCO
    103       91       73       61  
Companhia Siderúrgica de Tubarão - CST
    79       78              
Gulf Industrial Investment Co.
          2              
Mineração Serra Geral S. A .
    4       3       49       36  
Samarco Mineração S.A.
    5       48              
Others
    35       57       23        
 
   
 
     
 
     
 
     
 
 
 
    472       565       537       389  
 
   
 
     
 
     
 
     
 
 
Affiliates
    49       35       2        
 
   
 
     
 
     
 
     
 
 
 
    2,347       3,544       6,191       4,603  
 
   
 
     
 
     
 
     
 
 
Represented by:
                               
Trade balances (sales and purchases of products and services) (*)
    971       1,181       431       355  
Short-term financial balances
    668       986       1,365       948  
Long-term financial balances
    708       1,377       4,395       3,300  
 
   
 
     
 
     
 
     
 
 
 
    2,347       3,544       6,191       4,603  
 
   
 
     
 
     
 
     
 
 

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

    CVRD   29

 


Table of Contents

The principal results arising from commercial and financial transactions carried out by the Parent Company with related parties, classified in the statement of income as revenue and costs of sales and services and financial income and expenses, are as follows:

                                 
    Parent Company
    Income
  Expense / cost
    2003
  2002
  2003
  2002
ALUNORTE - Alumina do Norte do Brasil S.A.
    (184)(* )     426       3