VALLEY OF THE RIO DOCE COMPANY
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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

August 2004

Valley of the Rio Doce Company

(Translation of Registrant’s name into English)

Avenida Graça Aranha, No. 26
20005-900 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 þ Form 40-F o

(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 o No þ

(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 o No þ

(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 o No þ

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



 


COMPANHIA VALE DO RIO DOCE
Report on Form 6-K

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(US GAAP LOGO)

(COMPANIA VALE DO RIO DOCE LOGO)

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

PERFORMANCE OF COMPANHIA VALE DO

RIO DOCE IN THE SECOND QUARTER OF 2004



Except where otherwise indicated, the operational and financial information contained in this press release is presented based on the consolidated figures in accordance with generally accepted accounting principles in the United States of America (US GAAP). Except for the information on investments and market behavior, this information is based on quarterly financial statements reviewed by independent auditors. The main subsidiaries of CVRD that are consolidated are: Caemi, Alunorte, Albras, RDM, RDME, RDMN, Urucum Mineração, Pará Pigmentos (PPSA), Docenave, Ferrovia Centro-Atlântica (FCA), Itaco, CVRD Overseas and Rio Doce International Finance.

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
Phone: (5521) 3814-4540

SALES, OPERATING INCOME AND CASH FLOW REACHING ALL TIME HIGHS

Rio de Janeiro, August 11, 2004 – Companhia Vale do Rio Doce (CVRD) achieved an extraordinary performance in the second quarter of 2004 (2Q04), marked by several new operating and financial records.

This performance was due to the good execution of CVRD’s strategy, discipline in allocation of capital and management of operations, and the strong expansion in global demand for minerals and metals.

2Q04 net earnings reached US$ 504 million, equivalent to earnings per share of US$1.31, 10.5% higher than the net earnings of US$ 456 million achieved in 2Q03, and 24.4% higher than the 1Q04 net earnings of US$ 405 million.

Return on equity (ROE) was 31.8%, higher than the 26.9% achieved in 2Q03 and the 31.4% of 1Q04.

Operating income – adjusted EBIT – was a record US$ 832 million, 114.4% higher than in 2Q03 (US$ 388 million), and 42.7% higher than in 1Q04 (US$ 583 million). Operating margin, at 43.3%, was also a record, exceeding the 2Q03 operating margin of 33.2% by 1,010 basis points (bp).

Cash flow, as measured by adjusted EBITDA, reached the highest quarterly level in CVRD’s history, at US$ 971 million, 98.2% higher than in 2Q03 and 30.7% higher than in 1Q04.

Various other records were also achieved:

    Gross revenue of US$ 2.033 billion, 66.8% higher than in 2Q03, and 17.4% higher than in 1Q04.

(2Q04 LOGO)

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(US GAAP LOGO)

    Shipments of iron ore and pellets totaled 55.816 million tons, an increase of 34.5% vis-à-vis 2Q03 and of 5.4% relative to 1Q04.
 
    Sales of kaolin were 293 thousand tons versus 285 thousand tons in 1Q04.
 
    The volume of general cargo (cargo excluding iron ore and pellets) transported for clients on CVRD’s railroads totaled 7.632 billion net ton kilometers (ntk), compared with 6.236 billion ntk in 1Q04.

CVRD’s capital expenditure in 2Q04 was US$ 488.3 million, totaling US$ 846.3 million in the first half of the year. These investments continue to position CVRD on the path to achieve profitable growth and shareholder value creation.

In June, the Company began shipping copper concentrate produced by Sossego, the mine in the Carajás mineral province in the Brazilian state of Pará, generating in the 2Q04 revenue of US$ 24 million. The implementation of the Sossego operations fully met expectations and confirmed CVRD’s technical skills in the development of non-ferrous mineral projects, already proven over the years with its experience in bauxite, kaolin, gold and potash.

There was a substantial reduction in financial leverage, and an increase in interest coverage – both indicators reached excellent levels, demonstrating the Company’s capacity to distribute good dividends to shareholders and finance its own growth initiatives without concern for liquidity problems in the short term.

                                         
    SELECTED FINANCIAL INDICATORS
    US$ million
    2Q03   1Q04   2Q04   Δ%   Δ%
    (A)
  (B)
  (C)
  (C/A)
  (C/B)
Gross Revenues
    1,219       1,731       2,033       66.8       17.4  
Gross Margin (%)
    42.7       45.2       52.5              
Adjusted EBIT
    388       583       832       114.4       42.7  
Adjusted EBIT Margin (%)
    33.2       35.2       43.3              
Adjusted EBITDA
    490       743       971       98.2       30.7  
Net Earnings
    456       405       504       10.5       24.4  
Annualized ROE (%)
    26.9       31.4       31.8              
Total Debt/ (LTM) Adjusted EBITDA (x) 3
    1.74       1.86       1.55              
Investments *
    407.3       358.0       488.3       19.9       36.4  


*   including acquisitions

BUSINESS OUTLOOK

Global economic growth has shown itself to be resilient despite the negative impact of higher nominal oil prices. The influence of expansionist monetary and fiscal policies and the improvement in corporate profitability has allowed a solid and synchronized global recovery to take place. Leading indicators of global economic activity continue to signal expansion over the next few months.

The growth gap between the US economy and other industrialized economies appears to be narrowing, in contrast to what happened in the most recent cycles. We believe Japan is likely to register economic growth rates at least equal to those of the US, with the Japanese economy showing excellent signs of vitality, expressed, for example, in the good domestic consumption performance and the level of private investment.

(2Q04 LOGO)

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(US GAAP LOGO)

Improved corporate performance, with better earnings and liquidity, is stimulating investment in capital equipment. In the US and Europe, we expect investment to substitute consumption as the principal source of GDP growth in the short term. In Japan, consumer spending behaviour appears, for the first time in many years, to be the most important element in determining the performance of its economy.

Restrictive measures put into practice by the Chinese economic authorities appear, up to now, to be having the desired result. Although it is premature to make a more fundamental diagnosis, data available thus far is pointing towards a soft landing for the Chinese economy. July was the fifth consecutive month to show a reduction in the rate of industrial production expansion, which amounted to 15.5%, compared to 23.2% in February, 19.4% in March, 19.1% in April, 17.5% in May and 16,2% in June.

In the iron ore market these measures had an impact on imports through the spot market, with a strong drop in prices and total volumes imported. In May and June, China’s imports of iron ore averaged 14.7 million tons a month, compared to 18.5 million for the previous three months, a drop of 20.5%. External Chinese purchases of iron ore in the first half of 2004 amounted to 97.8 million tons, an increase of 34.9% compared to the same period a year earlier, while steel production, of 124.7 million tons, increased by 21.1%.

CVRD does not participate in transactions on the iron ore spot market — it gives priority to commercial relationships based on medium and long-term contracts.

The spot alumina price fell to 17.5% of the aluminum price on the LME (London Metal Exchange), still much higher than the price prevailing up to the middle of 2003, reflecting restrictions on credit and the rise in the cost of electricity for the Chinese aluminum industry. However, the spot price represents a quote of marginal volumes in an alumina market which is dominated by inter-company product transfers and long-term contracts. Alumina imported by China during the first half of the year amounted to 2.85 million tons, an increase of 11.1% on the same period in 2003.

One of the aims of the Chinese government in implementing a selective tightening approach to slow down its GDP growth rate is to seek higher levels of efficiency and productivity, which are key to sustainable long-term economic growth. In the case of steel, this means the consolidation of an industry which is extremely fragmented, with some 1,000 players, into a small group of companies with competitive operations. If successfully implemented, in our opinion, this would result in greater demand for imported iron ore and increasingly sophisticated buying policies, with the more frequent use of long-term contracts and joint ventures with suppliers, which will tend to benefit CVRD.

In contrast to what occurred in the period 2001/2003, the synchronized recovery in the global economy has made demand for ores and metals less dependent on Chinese expansion. For example, there are forecasts that Japanese steel production for the fiscal year 2004/2005 will be the highest since 1973/1974. In the case of copper and particularly aluminum, the premia of Comex prices relative to LME prices reflect strengthening demand in North America compared to the rest of the world.

(2Q04 LOGO)

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(US GAAP LOGO)

We consider that the slowdown in the growth rate of Chinese demand for ores and metals, and the fall seen in spot market prices, to be healthy trends which will help to preserve sustainable growth in the global markets for these products. World demand for metals and their respective ore inputs continues strong, exceeding current levels of production; no reversal in this picture is expected in the short term.

RECENT MATERIAL EVENTS

In 2Q04, a number of events occurred which were of significant importance for the future performance of the Company. Of particular note were: the start-up of operations at Sossego; the signing of contracts to form joint ventures with Chinese companies for the production of alumina, metallurgical coal and coke; the sale of the Company’s stake in CST; and the signing of new long-term contracts for the supply of iron ore.

    Inauguration of Sossego copper mine

The Sossego mine, CVRD’s first copper project, began shipping copper concentrate on June 3, establishing a new value creation platform for shareholders.

Sossego, the only greenfield project in the world to begin operations in 2004, has proven and probable reserves of 244.7 million tons of copper ore – not including the reserves contained in satellite mines – with copper content estimated at 1%, with approximately 0.26 grams of gold per tonne as a by-product. The ore is processed by a plant which has an annual average production capacity of 467,000 tons of copper concentrate, equivalent to 140,000 tons of copper.

CVRD invested US$ 413 million in the Sossego project, which once again demonstrates the Company’s discipline in the allocation of capital. Only six years elapsed between the initial discovery of the ore deposits and the start of operations, which can be considered a record development time for the copper industry.

    Joint ventures with Chinese companies strengthen CVRD’s position in the global metals and mining markets

At the end of May, CVRD signed contracts with Chinese companies for joint investment in alumina, metallurgical coal and coke.

In association with Chalco – Aluminum Corporation of China Limited, CVRD is planning to build an alumina refinery (ABC Refinery) in Barcarena, state of Pará, Brazil, as a greenfield project, with an initial nominal production capacity of 1.8 million tons per year. The refinery is expected to begin operations by 2007, supplied with bauxite from the Paragominas mine, currently being developed by CVRD, which will also supply stages 4 and 5 at Alunorte.

The estimated investment cost of the refinery is US$ 810 million, equivalent to US$ 450 per ton, which is extremely competitive for an alumina greenfield project.

CVRD has signed a joint venture agreement with the Shanghai Baosteel Group Corporation and the Yongcheng Coal & Electricity Group, for the production of anthracite and metallurgical coal in China. CVRD’s stake in this project will amount to 25%, involving an investment of US$ 60 million.

The Company has also entered into an agreement with the Yankuang Group, of China, and the Japanese trading company, Itochu Corporation, for the creation of the Shandong Yankuang International Coking Co. Ltd, for the production of coke. The industrial plant will be located in China, with an annual production capacity of

(2Q04 LOGO)

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(US GAAP LOGO)

2 million tons of coke and 200,000 tons of methanol as a by-product. Operational start-up is planned for 2006, with investment by CVRD of around US$ 27 million, guaranteeing a 25% stake in the joint venture.

A contract has also been signed between CVRD and the Yankuang Group for the development of a coking coal mine at Zhaolou, in China, with production capacity estimated at 3 million tons a year.

These agreements strengthen CVRD’s relationship with important players in the aluminum, steel and coal industries and the Company’s presence in the Chinese economy, while also heralding the Company’s entrance into the coal market, complementing its portfolio of products and services for the steel industry.

    Divestiture of CST

CVRD has signed a contract with Arcelor for the complete sale of its 28.02% stake in Companhia Siderúrgica de Tubarão (CST) for US$ 578.5 million, corresponding to US$ 40.50 per share.

This transaction is consistent with CVRD’s strategy of focusing its efforts on exploiting profitable growth opportunities in the global metals and mining markets.

    Iron ore – additional long-term supply contracts

CVRD’s long-term contracts with its clients provide support for investment in iron ore production capacity expansion while, at the same time, eliminating risks attached to the future supply of raw material to the steel industry.

Two contracts were signed in July. The first was with the Nippon Steel Corporation, Japan’s largest steel producer, for the supply of 70 million tons of iron ore for 10 years, starting in 2005. The second was with COSIPA - Companhia Siderúrgica Paulista for the annual supply of 1.1 million tons of iron ore, for a period of three years.

CONSOLIDATION OF ALBRAS IN THE FINANCIAL STATEMENTS

The consolidation of Albras, a primary aluminum producer in which CVRD holds 51% of the voting capital, in our US GAAP financial reporting starting on January 1, 2004 conforms with Interpretation 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (FIN 46), issued in January 2003 by the US Financial Accounting Standards Board (FASB), and revised in December 2003 (FIN 46-R).

The financial statements for the second quarter thus reflect the consolidation of Albras, as do those for 1Q04. All 1Q04 information presented herein reflects the consolidation of Albras in our restated 1Q04 US GAAP financial statements.

The consolidation required by FIN 46-R should enable market participants to obtain a more thorough assessment of the operating and financial performance of CVRD.

(2Q04 LOGO)

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(2Q04 LOGO)

BEST OPERATING PERFORMANCE IN CVRD’S HISTORY

  Gross revenue of US$2.033 billion

CVRD’s gross operating revenue in 2Q04 was US$ 2.033 billion, 66.8% higher than in 2Q03 and 17.4% higher than in 1Q04.

The increase of US$ 814 million in revenue from 2Q03 to 2Q04 was mainly due to expansion in sales volume – which contributed US$ 546 million, or 67.1%, while the increase in prices was responsible for US$ 268 million. The consolidation of Albras added US$ 61 million to the 2Q04 revenue.

The ferrous minerals businesses – iron ore, pellets, manganese and ferroalloys – generated revenue of US$ 1.426 billion, representing 70.1% of the Company’s total revenue. Iron ore produced sales revenue of US$ 943 million, pellets US$ 304 million, operating service fees at the Tubarão pelletizing plants US$ 15 million, manganese ore US$ 11 million, and ferro alloys US$ 139 million.

CVRD’s revenue from sales to Europe, its main market, were US$ 706 million, 34.7% of the Company’s total revenue. The domestic market contributed with US$ 580 million, 28.5% of the total; China accounted for US$ 203 million, 10.0% of the total; Japan US$ 197 million, 9.7% of the total; and the rest of emerging Asia US$ 87 million, 4.3% of the total.

Shipments of iron ore and pellets totaled 55.816 million tons, a volume 34.5% greater than that of 2Q03 and 5.4% more than that of 1Q04. The increase in volume shipped, a new quarterly record, surpassing the prior record achieved in 4Q03, resulted from the growth in production in response to strong global demand. In 2Q04 CVRD produced 51.516 million tons of iron ore, an increase of 10.7% relative to 1Q04.

In 2Q04, CVRD sold 48.357 million tons of iron ore and 7.459 million tons of pellets. The Company also acquired 4.372 million tons of iron ore from mining companies operating in the Iron Quadrangle, in the state of Minas Gerais, Brazil, to complement its own production and meet the growing demand from clients for iron ore and pellets.

The average sale price of iron ore was US$ 19.50 per ton, an increase of 10.5% vis-à-vis 1Q04. The average price obtained for pellets, of US$ 40.76 per ton, was 11.9% higher than in 1Q04. The increase in average prices reflects the fact that the price increases negotiated for 2004 were in effect for a full quarter for the first time in 2Q04.

The Chinese market, with 8.4 million tons, was the principal destination of CVRD’s exports of iron ore and pellets in 2Q04, accounting for 15.0% of total iron ore and pellet sales, followed by Japan with 12.2%, Germany with 11.1% and France with 5.5%. The domestic market absorbed 25.1% of CVRD’s iron ore and pellet sales in the quarter.

Sales of manganese ore in the quarter reached 203 thousand tons, 13.3% less than in 2Q03, but 24.5% more than in 1Q04. Ferro alloy sales, at 137 thousand tons, were 33.0% higher than in 2Q03, and 31.1% lower than in 1Q04. The significant increase, in comparison with 2Q03, mainly reflects the operation of RDMN starting in June 2003; whereas, in 2Q04, there was a maintenance stoppage in the electric furnace of RDME, resulting in the fall in volume sold from 1Q04.

(2Q04 LOGO)

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(US GAAP LOGO)

The aluminum chain products – bauxite, alumina and primary aluminum – produced revenue of US$ 289 million in 2Q04, 14.2% of the Company’s total revenue. The consolidation of Albras added US$ 61 million to this amount.

The consolidation of Albras results in the reduction in the accounting figures for alumina volumes and sales revenue by an amount equal to the transactions involving the supply to Albras by Alunorte, since both are consolidated in the result. Thus, the consolidated volume of alumina sales in 2Q04 was 336 thousand tons, not considering the 212 thousand tons sold by Alunorte to Albras.

The average price obtained for alumina shipments reached US$ 244.05 per ton in 2Q04, a substantial increase of 41.7% in relation to 2Q03, and 12.0% more than in 1Q04.

Sales volume of primary aluminum totaled 119 thousand tons in 2Q04. The average sale price was US$ 1,655.46 per ton, 2.9% higher than in 1Q04.

CVRD sold 34 thousand tons of copper concentrate in the quarter, generating revenue of US$ 24 million.

Sales of potash provided revenue of US$ 31 million in 2Q04, 1.5% of the Company’s total revenue, representing an increase of 34.8% vis-à-vis 1Q04, and of 47.6% relative to 2Q03. With the resumption of full activitiy at Taquari-Vassouras mine, which had been reduced in 1Q04 due to capacity expansion work, shipments in 2Q04 were 166 thousand tons, 20.3% higher than the 138 thousand tons sold in 1Q04, and 11.4% higher than the 149 thousand tons sold in 2Q03. Furthermore, the price of potash has been rising, from US$ 140.94 in 2Q03 to US$ 166.67 in 1Q04, and US$ 186.75 in 2Q04, due to excess global demand.

Kaolin sales generated revenue of US$ 39 million, 1.9% of the Company’s total revenue, practically unchanged from 1Q04. The volume sold reached 293 thousand tons, an increase of 2.8% vis-à-vis the 285 thousand tons sold in 1Q04.

Logistics services provided revenue of US$ 220 million in 2Q04, 59.4% greater than the US$ 138 million generated in 2Q03, and 15.2% greater than the US$ 191 million achieved in 1Q04. Logistics services provided 10.8% of the Company’s revenue in the quarter. Rail transportation for clients in the Estrada de Ferro Carajás (EFC), the Estrada de Ferro Vitória a Minas (EFVM) and Ferrovia Centro-Atlântica (FCA) contributed revenue of US$ 153 million. Revenue from port services reached US$ 45 million and revenue from coastal shipping and port support services was US$ 22 million.

CVRD’s railroads transported 7.632 billion ntk of general cargo for clients in 2Q04, an increase of 10.6% vis-à-vis 2Q03 and of 22.4% relative to 1Q04, surpassing their prior record of 7.371 billion ntk established in 3Q03. The main types of cargo carried for clients were steel industry inputs and products (43.8%), agricultural products (37.1%), and fuels (9.0%).

In all three railroads, there were increases in revenue per 1,000 ntk of general cargo carried: at EFVM, from US$ 15.99 in 1Q04 to US$16.08 in 2Q04; at EFC, from US$ 13.94 to US$13.97; and at FCA from US$ 20.02 to US$ 20.62.

Due to the repressed demand in Brazil for efficient cargo transportation, the improvement in the performance of the railroads is much more a function of the increase in supply than demand. With the significant capital expenditure alocated to increase the number of wagons and locomotives, volume of cargo transported has grown rapidly in the last three years, at a compound annual growth rate of 9.1%.

(2Q04 LOGO)

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(US GAAP LOGO)

The operating productivity of locomotives on CVRD’s railroads has increased: EFVM carried 8.53 ntk per horse power (HP) in 2Q04, compared with 8.15 in 1Q04; EFC increased locomotive productivity from 14.97 in 1Q04 to 15.18 in 2Q04; and FCA increased it from 1.18 to 1.33.

Fuel consumption levels in CVRD railroads also improved. In EFVM, it decreased from 2.32 liters per 1,000 gross tons kilometer (gtk) in the 1Q04 to 2.28, in FCA, from 7.79 liters per 1,000 gtk to 7.55 in the 2Q04, while EFC showed a small increase, from 1.39 per gtk in the 1Q04 to 1.40.

CVRD’s ports and maritime terminals handled 7.614 million tons of cargo for clients in 2Q04, an increase of 5.2% on 2Q03, and of 19.0% on 1Q04.

                                                 
    VOLUME SOLD – IRON ORE AND PELLETS
    thousand tons
    2Q03
  %
  1Q04
  %
  2Q04
  %
Iron ore
    36,321       87.5       46,825       88.4       48,357       86.6  
Pellets
    5,175       12.5       6,125       11.6       7,459       13.4  
Total
    41,496       100.0       52,950       100.0       55,816       100.0  
                                 
    IRON ORE AND PELLET SALES BY DESTINATION                             
    thousand tons
    1Q04
  %
  2Q04
  %
EU
    15,288       28.9 %     17,577       31.5 %
Germany
    5,087       9.6 %     6,199       11.1 %
France
    2,616       4.9 %     3,088       5.5 %
Belgium
    1,669       3.2 %     2,047       3.7 %
Italy
    2,165       4.1 %     1,883       3.4 %
Others
    3,751       7.1 %     4,360       7.8 %
China
    8,632       16.3 %     8,400       15.0 %
Japan
    5,698       10.8 %     6,818       12.2 %
South Korea
    2,501       4.7 %     1,823       3.3 %
Middle East
    1,866       3.5 %     1,136       2.0 %
USA
    995       1.9 %     1,755       3.1 %
Rest of World
    4,830       9.1 %     4,322       7.7 %
Brazil
    13,140       24.8 %     13,985       25.1 %
Total
    52,950       100.0 %     55,816       100.0 %
                         
    VOLUME SOLD - MINERALS AND METALS
    thousand tons
    2Q03
  1Q04
  2Q04
Manganese ore
    234       163       203  
Ferro alloy
    103       199       137  
Alumina
    604       482       336  
Primary aluminum
    51       97       119  
Bauxite
    262       545       365  
Potash
    149       138       166  
Kaolin
    84       285       293  
Copper concentrate
    0       0       34  

(2Q04 LOGO)

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(US GAAP LOGO)

                         
    LOGISTICS SERVICES
    2Q03
  1Q04
  2Q04
Railroads (million ntk)
    6,900       6,236       7,632  
Ports (thousand tons)
    7,237       6,396       7,614  
                                                 
    GROSS REVENUES BY PRODUCT
    US$ million
    2Q03
  %
  1Q04
  %
  2Q04
  %
Ferrous Minerals
    850       69.7       1,192       68.9       1,426       70.1  
Iron Ore
    593       48.6       826       47.7       943       46.4  
Pellet plant operation services
    11       0.9       12       0.7       15       0.7  
Pellets
    157       12.9       223       12.9       304       15.0  
Manganese ore
    16       1.3       9       0.5       11       0.5  
Ferro-alloys
    62       5.1       114       6.6       139       6.8  
Others
    11       0.9       8       0.5       14       0.7  
Logistics Services
    138       11.3       191       11.0       220       10.8  
Railroads
    79       6.5       133       7.7       153       7.5  
Ports
    38       3.1       38       2.2       45       2.2  
Shipping
    21       1.7       20       1.2       22       1.1  
Aluminum Chain
    188       15.4       280       16.2       289       14.2  
Primary Aluminum
    70       5.7       156       9.0       197       9.7  
Alumina
    104       8.5       105       6.1       82       4.0  
Bauxite
    6       0.5       15       0.9       8       0.4  
Others
    8       0.7       4       0.2       2       0.1  
Non-ferrous Minerals
    42       3.4       62       3.6       94       4.6  
Gold
    7       0.6                          
Potash
    21       1.7       23       1.3       31       1.5  
Kaolin
    14       1.1       39       2.3       39       1.9  
Copper
    0             0             24       1.2  
Others
    1       0.1       6       0.3       4       0.2  
Total
    1,219       100.0       1,731       100.0       2,033       100.0  
                                                 
    GROSS REVENUES BY DESTINATION
    US$ million
    2Q03
  %
  1Q04
  %
  2Q04
  %
Domestic market
    405       33.2       488       28.2       580       28.5  
External market
    814       66.8       1,243       71.8       1,453       71.5  
USA
    42       3.4       79       4.6       58       2.9  
Europe
    375       30.8       522       30.2       706       34.7  
Japan
    122       10.0       171       9.9       197       9.7  
Emerging Asia
    50       4.1       97       5.6       87       4.3  
China
    93       7.6       171       9.9       203       10.0  
Rest of the World
    132       10.8       203       11.7       202       9.9  
Total
    1,219       100.0       1,731       100.0       2,033       100.0  

  Record operating income: US$ 832 million

In 2Q04, CVRD’s operating income, as measured by adjusted EBIT, reached US$ 832 million, the highest quarterly operating income in its history and 42.7% higher than the prior record of US$ 583 million achieved in 1Q04, and an increase of 114.4% in relation to the US$ 338 million achieved in 2Q03. The consolidation of

(2Q04 LOGO)

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(US GAAP LOGO)

Albras starting in January 2004 added US$ 74 million to CVRD’s operating income in 2Q04, and US$ 54 million in 1Q04. Adjusted EBIT margin was 43.3%, another record, 1,010 and 810 bps higher than the margins of 33.2% in 2Q03 and 35.2% in 1Q04, respectively.

The consolidation of Albras added 250 bp to the 2Q04 operating margin, and 230 bp to the 1Q04 operating margin.

The increase of US$ 750 million in CVRD’s net operating revenue was a key element in the improvement of adjusted EBIT from 2Q03 to 2Q04.

Cost of goods sold (COGS) increased US$ 242 million vis-à-vis 2Q03. The consolidation of Albras contributed US$ 20 million to this figure.

The main causes of the increase in COGS from 2Q03 to 2Q04 were: (a) an increase of US$ 76 million in outsourced services, mainly expenditures on rail transportation of the iron ore produced by Caemi; (b) growth of US$ 52 million in the cost of materials resulting from the increased volume of activity; (c) increase of US$ 40 million in the cost of electricity due to the increase in electricity tariffs; (d) an additional US$ 38 million in depreciation and amortization due to the expansion of the asset base with the consolidation of Caemi, FCA and Albras; (e) increase of US$ 33 million in expenses on acquisition of iron ore from third parties – the purchase of 4.4 million tons in 2Q04 compared to 2.3 million tons in 2Q03. A factor which reduced COGS were the decrease of US$ 42 million in purchases of other products, mainly due to the consolidation of Albras, removing the volume of alumina that Albras purchases from Alunorte from the financial statements.

Net operating revenue was US$ 264 million higher than in 1Q04, while cost of goods sold increased by only US$ 4 million, explaining the increase in operating income.

Demurrage expenses, which are an indicator of global iron ore market tightness, totaled US$ 14 million, an increase of US$ 2 million from 1Q04. In the second quarter of 2003, US$ 12 million was spent on such penalties for delays in ship loading.

                                                 
    COGS BREAKDOWN
    US$ million
    2Q03
  %
  1Q04
  %
  2Q04
  %
Personnel
    63       9.4       88       9.7       92       10.1  
Material
    97       14.5       103       11.3       149       16.3  
Fuel
    83       12.4       97       10.7       102       11.2  
Outsourced Services
    102       15.2       194       21.4       178       19.5  
Acquisition of Iron Ore and Pellets
    83       12.4       102       11.2       116       12.7  
Acquisition of Other Products
    125       18.7       116       12.8       83       9.1  
Depreciation and Exhaustion
    47       7.0       95       10.5       85       9.3  
Energy
    28       4.2       64       7.0       68       7.5  
Others
    42       6.3       49       5.4       39       4.3  
Total
    670       100.0       908       100.0       912       100.0  

The adjusted EBIT margin of the ferrous minerals division in 2Q04 reached 45.8%, an increase of 890 bp, from 36.9% in 1Q04, and of 730 bp higher than the 38.5% reached in 2Q03. This increase in operating margin mainly reflects the inclusion of the full 2004 increase in the iron ore and pellet prices for a whole quarter for the first time this year.

(2Q04 LOGO)

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The adjusted EBIT margin of logistics services continues to improve, reaching 28.1% in 2Q04, 340 bp higher than the 24.7% obtained in 1Q04, though still lower than the 32.0% EBIT margin of 2Q03. The increase from 1Q04 is explained by the improvement in the performance of FCA, due to cost reduction and price increases.

The adjusted EBIT margin of the aluminum businesses in 2Q04 reached 47.5%, an increase of 750 bp from the 40.0% adjusted EBIT margin of 1Q04. This high figure reflects the full capture of the performance of the primary aluminum operations and increased prices resulting from strong world demand and declining inventories.

                         
    OPERATING MARGINS BY SEGMENT - EBIT MARGIN
    2Q03
  1Q04
  2Q04
Ferrous Minerals
    38.5 %     36.9 %     45.8 %
Aluminum
    11.8 %     40.0 %     47.5 %
Logistics
    32.0 %     24.7 %     28.1 %
Total
    33.2 %     35.2 %     43.3 %

RECORD CASH FLOW GENERATION: US$ 971 MILLION

Cash flow generation as measured by adjusted EBITDA reached US$ 971 million, the highest quarterly amount in CVRD’s history – the previous record was US$ 743 million established in 1Q04. The 2Q04 adjusted EBITDA surpassed the prior record by 30.7% and was 98.2% higher than the 2Q03 adjusted EBITDA.

Adjusted EBITDA in the 12 months to the end of June 2004 was US$ 2.912 billion. 2Q04 is the ninth consecutive quarter of growth in CVRD’s LTM adjusted EBITDA. From 1Q02 to 2Q04, LTM adjusted EBITDA grew at a compound annual rate of 33.7%, providing a clear illustration of the success of the strategy adopted, its good execution, and the Company’s focus on profitable growth.

The US$ 228 million increase in adjusted EBITDA from 1Q04 to 2Q04 is primarily due to a US$ 249 million increase in adjusted EBIT. The consolidation of Albras added US$ 77 million and US$ 58 million, respectively, to 2Q04 and 1Q04 adjusted EBITDA.

Dividends received by CVRD in 2Q04 totaled US$ 60 million, of which US$ 30 million were paid by Samarco, US$ 20 million by MRN, US$ 7 million by Valesul, and US$ 3 million by other companies.

By business area, 2Q04 adjusted EBITDA was generated as follows: ferrous minerals 69.8%, aluminum 16.9%, logistics 10.2%, non-ferrous minerals 2.9% and other businesses – corresponding to dividends received from steel companies – 0.2%.

(2Q04 LOGO)

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(US GAAP LOGO)

                         
    ADJUSTED EBITDA
    US$ million
    2Q03
  1Q04
  2Q04
Net Operating Revenues
    1,170       1,656       1,920  
COGS
    (670 )     (908 )     (912 )
S,G &A
    (45 )     (101 )     (106 )
Research and Development
    (12 )     (23 )     (27 )
Other Operational Expenses
    (55 )     (41 )     (43 )
Adjusted EBIT
    388       583       832  
 
Depreciation, Amortization & Exhaustion
    54       99       79  
Dividends Received
    36       61       60  
 
Adjustment for Non-recurring Items (asset impairment)
    12              
 
Adjusted EBITDA
    490       743       971  
                                                 
    ADJUSTED EBITDA BY BUSINESS AREA
    US$ million
    2Q03
  %
  1Q04
  %
  2Q04
  %
Ferrous Minerals
    392       80.0       506       68.1       678       69.8  
Non-Ferrous Minerals
          0.0       8       1.1       28       2.9  
Logistics
    58       11.8       75       10.1       99       10.2  
Aluminum
    27       5.5       141       19.0       164       16.9  
Others
    13       2.7       13       1.7       2       0.2  
Total
    490       100.0       743       100.0       971       100.0  

NET INCOME OF US$ 504 MILLION

2Q04 net income of US$ 504 million, represented an increase of 10.5% vis-à-vis the US$ 456 million achieved in 2Q03 and of 24.4% relative to the 1Q04 net income of US$ 405 million.

The earnings growth from 2Q03 to 2Q04 had two basic causes: (a) improvement of US$ 444 million in operating income; and (b) increase of US$ 115 million in results from shareholdings in spite of the consolidation of Albras.

The 6.8% depreciation of the Real against the US dollar, which occurred between the end of March and the end of June 2004, produced a negative effect of US$ 245 million on the 2Q04 net income via foreign exchange losses. 2Q03 net income was positively impacted by the Real appreciation of 14.3% against the US Dollar on that quarter when US$ 257 million in gains in foreign exchange were achieved.

There were two reasons the result from shareholdings was US$ 115 million higher in 2Q04 than in 2Q03. There were no provisions for losses in 2Q04, while US$ 66 million was provisioned in 2Q03. In 2Q03, provisions for losses were made in FCA (US$ 73 million) and CFN (US$ 2 million), while US$ 9 million was reversed.

Equity income was US$ 49 million higher in 2Q04 relative to 2Q03.

(2Q04 LOGO)

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(US GAAP LOGO)

The strong equity income reflects an increase of US$ 76 million in the contribution from steel companies and an increase of US$ 80 million in the contribution from the logistics companies. The result of the aluminum companies fell by US$ 29 million, mainly as a result of the consolidation of Albras. Equity income from iron ore and pellet companies fell US$ 10 million, basically due to the consolidation of Caemi.

The US$ 53 million increase in interest from minority shareholdings, mainly due to the consolidation of Albras, and the US$ 52 million increase in net financial expenses, also negatively affected 2Q04 income in comparison to 2Q03.

In the 2Q04 gains in the amount of US$ 23 million were realized in derivatives transactions to protect against market risks (exchange rate, interest rate and commodity price volatility). In the 2Q03, the financial result from these transactions was a gain of US$ 4 million.

                         
    RESULTS FROM SHAREHOLDINGS
    US$ million
    2Q03
  1Q04
  2Q04
Steel
    16       34       92  
Aluminum, Alumina and Bauxite
    47       14       18  
Logistics
    (72 )     6       8  
Iron Ore and Pellets
    42       33       32  
Others
    2       (1 )      
Total
    35       86       150  

DEBT: LEVERAGE AND COVERAGE INDICATORS AT EXCELLENT LEVELS

CVRD’s total debt on June 30, 2004 was US$ 4.514 billion, a small reduction from the position at March 31, 2004, of US$ 4.526 billion. The consolidation of Albras added US$ 295 million to the total debt in 2Q04. Without the consolidation, the total debt would have been US$ 4.219 billion at the end of June 2004.

Short-term debt was reduced by US$ 40 million from the end of March 2004, while long-term debt increased by US$ 28 million. The debt average life rose to 6.43 years at the end of 2Q04, more than double the level at the end of 2002. The lengthening of the maturity profile of the debt was achieved without any significant increase in average cost, which remains below 7% per year.

Net debt4 increased slightly, from US$ 3.442 billion at the end of March 2004, to US$ 3.455 billion at the end of June 2004.

The value of guarantees given to non-consolidated affiliates and joint ventures totaled only US$ 8 million (Samarco, US$ 7 million and Valesul, US$ 1 million), given that out of the US$ 260 million in guarantees existing at March 31, 2004, US$ 252 million was related to Albras, now consolidated.

Reflecting the strong expansion of LTM adjusted EBITDA, to US$ 2.912 billion, total debt/LTM adjusted EBITDA fell to 1.55x. Also, it is important to consider that this ratio is still artificially inflated, since its numerator takes into account all the debt of Albras, Caemi and FCA, while the denominator includes only the adjusted EBITDA generated by these companies from their respective consolidation dates (September 2003 for Caemi and FCA, January 2004 for Albras). Total debt/enterprise value6 at the end of 2Q04 was 21.7%.

(2Q04 LOGO)

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(US GAAP LOGO)

There was a strong improvement in interest coverage, as measured by LTM adjusted EBITDA/LTM interest payments5, which increased from 11.51x at the end of 2003 to 12.94x at the end of 2Q04.

At the end of July 2004, Alunorte obtained a syndicated loan of US$ 310 million, with total tenor of 10 years, average life of 7.3 years, at a cost of six-month Libor plus 2% p.a. This cost will be changed to six-month Libor plus 3% p.a. upon the completion of the construction of stages 4 and 5 of the refinery which the loan was obtained to finance.

                 
    FINANCIAL EXPENSES
    US$ million
Financial Expenses on:
  1Q04
  2Q04
Local Debt
    (13 )     (12 )
External Debt
    (43 )     (67 )
Debt with Related Parties
    (2 )     (5 )
Total Debt-related Financial Expenses
    (58 )     (84 )
                 
Gross Interest on:
  1Q04
  2Q04
Tax and Labour Contingencies
    (6 )     (9 )
Tax on Financial Transactions (CPMF)
    (4 )     (14 )
Derivatives
    (59 )     23  
Others
    (15 )     (22 )
Total Gross Interest
    (84 )     (22 )
 
Total
    (142 )     (106 )
                         
                         DEBT INDICATORS
    US$ million
    2Q03
  1Q04
  2Q04
Gross Debt
    3,282       4,526       4,514  
Net Debt
    2,316       3,442       3,455  
Gross Debt / LTM Adjusted EBITDA (x)
    1.74       1.86       1.55  
LTM Adjusted EBITDA / LTM Interest Expenses (x)
    9.36       11.69       12.94  
Gross Debt / EV (x)
    0.24       0.19       0.22  

Enterprise Value = market capitalization + net debt

CONTINUING TO POSITION THE COMPANY ON A PROFITABLE GROWTH PATH: INVESTMENT OF US$ 488.3 MILLION IN THE 2Q04

During the second quarter of 2004, CVRD carried out investments of approximately US$ 488.3 million, accumulating a total of US$ 846.3 million in the first half of the year.

In 2Q04, investment in organic growth (growth capex) amounted to US$ 311.3 million, while investment in the maintenance of existing operations (stay-in-business capex) amounted to US$ 177.0 million.

Of the amount invested in growth, US$ 22 million was spent on mineral exploration, of which 84% in Brazil and 16% in other countries, mainly Chile, Peru, Gabão, Angola and Mongólia. Mineral exploration focused on the search for copper, nickel, gold, kaolin, bauxite, manganese and metals of the platinum group.

(2Q04 LOGO)

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(US GAAP LOGO)

All projects are within budget and running according to schedule. In 2004, the Sossego copper mine and the Carajás iron ore mine expansion for 70 million tons per year were concluded. In addition to these two projects, all the remaining expansion projects in the iron ore and alumina businesses are supported by medium and long-term supply contracts.

Status of the main ongoing projects

                                 
        Amount invested
   
        US$million
       
Area
  Project
  1Q04
  2Q04
  1H04
  Status
Ferrous Minerals
  Expansion of iron ore mines in Carajás to 85 Mtpa –Northern System     2       24       26     This project will add 15 million tons a year to CVRD’s production capacity and is scheduled for completion by 2006. The conclusion of the construction work of Phase II of Pier III at the Ponta da Madeira Maritime Terminal is scheduled for July 2005. Work on the beneficiation plant is already ongoing.
 
                               
  Iron ore mine of Brucutu Phase I –Southern System     2       10       12     Brucutu is not a modular project and is likely to produce 4 million tons this year. Phase I will be concluded in 2006, when it will reach nominal production capacity of 12 million tons a year. The building of the foundation is already complete and building construction is underway. Around 90% of the equipment purchasing and service contracting has already been completed, or is in the process of being carried out.
 
                               
  Iron ore mine at
Fábrica Nova
–Southern System
    3       7       10     First phase scheduled for completion in 2005, when the mine will have a nominal production capacity of 10 million tons a year. The start-up of the second phase is scheduled for 2007, when the mine is expected to reach production of 15 million tons a year. The project is in the electro-mechanical assembly stage in its installations and equipment.
 
                               
  Expansion of the iron ore mines at Itabira –Southern System     4       4       8     Production capacity expansion of 3 million tons a year and modernization of the operations in the mines at Itabira, raising nominal production capacity to 46 million tons a year. Completion scheduled for 2006.
 
                               
Non-ferrous minerals
  Expansion of Taquari-Vassouras potash mine     16       5       21     About 72% of the expansion works have already been carried out. Operational start-up for the expansion is scheduled for the second half of 2005.
 
                               
Aluminum
  Paragominas I     2       2       4     Environmental licences have been obtained for the development of the mine and the construction of an ore pipeline, 230km in length, which will transport the bauxite to the Alunorte refinery. Operation is scheduled to begin at the end of 2006, with annual production capacity of 9.0 million tons of bauxite. The basic project for the plant and for the ore pipeline have already been completed and the pilot plant has already seen its start-up. The total cost of the project is US$353 million.
 
                               
  Alunorte Stages 4 and 5     23       36       59     Stages 4 and 5 will increase the refinery production capacity to 4.2 million tons of alumina per year. The start-up is scheduled for 2006.
 
                               
                              The project total cost is US$582.7 million.
 
                               
Logistics
  Purchase of locomotives and wagons–EFVM/EFC/FCA     85       100       185     In 1H04, 2,572 wagons – 1,531 for the transportation of iron ore and 1,041 for general cargo – and 38 locomotives were delivered. The total budgeted for the year is 3,178 wagons and 88 locomotives.
 
                               
Power Generation
  Aimorés
Hydroelectric Power
Plant
    11       5       16     The plant is located on the Rio Doce river, in the state of Minas Gerais, Brazil, and will have a generation capacity of 330MW, with start-up scheduled for July 2005.
 
                               
  Candonga
Hydroelectric Power
Plant
    2       1       3     The plant is in the commissioning phase with commercial operations scheduled to begin in August this year. The plant’s generation capacity is 140MW. CVRD ´s take will be used to supply energy to the Southern System operations.
 
                               
  Capim Branco I & II
Hydroelectric Power
Plants
    6       9       15     Both plants are located on the Araguari river, in the state of Minas Gerais, Brazil, and will have a generation capacity of 240MW and 210MW respectively. Operational start-up for both projects is scheduled for 2006.

(2Q04 LOGO)

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(US GAAP LOGO)

SELECTED FINANCIAL INDICATORS FOR THE MAIN AFFILIATES AND JOINT VENTURES

Selected financial indicators for the Company’s main non-consolidated affiliates and joint ventures are available on CVRD’s Quarterly Financial Statements, on the Company’s website, www.cvrd.com.br, investor relations.

CONFERENCE CALL/WEBCAST

On Friday, August 13, CVRD will be holding a conference call/webcast at 12:00 pm, local time (Rio de Janeiro, Brazil), 11:00 am United States Eastern Standard Time and 4:00 pm British Standard Time. Instructions to participate in these events are available on CVRD’s website, www.cvrd.com.br, investor relations. A recording of CVRD’s conference call/webcast will be available for a period of 90 days after August 13, 2004.

(2q 04)

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US GAAP

                         
    FINANCIAL STATEMENTS
    US$ million
    2Q03
  1Q04
  2Q04
Gross operating revenues
    1,219       1,731       2,033  
Taxes
    (49 )     (75 )     (113 )
Net Operating Revenue
    1,170       1,656       1,920  
Cost of Goods Sold
    (670 )     (908 )     (912 )
Gross Profit
    500       748       1,008  
Gross Margin (%)
    42.7       45.2       52.5  
Selling, General and Administrative Expenses
    (45 )     (101 )     (106 )
Research and Development Expenses
    (12 )     (23 )     (27 )
Employee Profit-Sharing
    (9 )     (13 )     (17 )
Others
    (46 )     (28 )     (26 )
Operating Profit
    388       583       832  
Financial Revenues
    29       12       19  
Financial Expenses
    (64 )     (142 )     (106 )
Monetary Variation
    257       (42 )     (245 )
Gains on Sale of Affiliates
                 
Tax and Social Contribution (Current)
    (135 )     (97 )     (41 )
Tax and Social Contribution (Deferred)
    (25 )     32       (23 )
Equity Income and Provision for Losses
    35       86       150  
Accounting Changes for Asset Write-offs
                 
Minority Shareholding Participation
    (29 )     (27 )     (82 )
Net Earnings
    456       405       504  
Earnings per Share (US$)
    1.19       1.06       1.31  
                         
    BALANCE SHEET
    US$ million
    06/30/03
  03/31/04
  06/30/04
Assets
                       
Current
    2,482       3,117       3,069  
Long-term
    1,727       1,574       1,527  
Fixed
    5,574       7,971       7,838  
Total
    9,783       12,662       12,434  
Liabilities
                       
Current
    2,044       2,301       1,980  
Long Term
    3,177       5,262       5,275  
Shareholders’ Equity
    4,562       5,099       5,179  
Paid-up Capital
    3,367       3,367       3,707  
Reserves
    1,195       1,732       1,472  
Total
    9,783       12,662       12,434  

(2Q04 LOGO)

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(US GAAP LOGO)

                         
    CASH FLOW STATEMENT
    US$ million
    2Q03
  1Q04
  2Q04
Cash flows from operating activities:
                       
Net income
    456       405       504  
Adjustments to reconcile net income with cash provided by operating activities:
                       
Depreciation, depletion and amortization
    54       99       79  
Dividends received
    36       61       60  
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    (35 )     (86 )     (150 )
Deferred income taxes
    25       (32 )     23  
Provisions for contingencies
                 
Impairment of property, plant and equipment
    12              
Gain on sale of investment
                 
Change in accounting practice for asset retirement obligations
                 
Pension plan
    2       3       3  
Foreign exchange and monetary losses
    (258 )     45       291  
Net unrealized derivative losses
    (1 )     54       (22 )
Minority interest
    29       27       82  
Others
    (3 )     (35 )     51  
Decrease (increase) in assets:
                       
Accounts receivable
    65       (23 )     (132 )
Inventories
    (27 )     (15 )     (67 )
Others
    23       (25 )     67  
Increase (decrease) in liabilities:
                       
Suppliers
    28       (25 )     (59 )
Payroll and related charges
    13       (3 )     (18 )
Others
    39       147       (12 )
Net cash provided by operating activities
    459       597       700  
Cash flows from investing activities:
                       
Loans and advances receivable
    (53 )     56       3  
Guarantees and deposits
    (152 )     (24 )     (18 )
Additions to investments
    (61 )     (9 )     (6 )
Additions to property, plant and equipment
    (305 )     (381 )     (416 )
Proceeds from disposals of investment
                 
Proceeds from disposals of property, plant and equipment
    37              
Net cash used to acquire subsidiaries
                 
Net cash used in investing activities
    (534 )     (358 )     (437 )
Cash flows from financing activities:
                       
Short-term debt, net issuances (repayments)
    60       44       (44 )
Loans
    (6 )     (3 )     2  
Long-term debt
    40       665       227  
Repayments of long-term debt
    (179 )     (470 )     (201 )
Interest attributed to stockholders
    (215 )           (269 )
Net cash used in financing activities
    (300 )     236       (285 )
Increase (decrease) in cash and cash equivalents
    (375 )     475       (22 )
Effect of exchange rate changes on cash and cash equivalents
    57       (3 )     (2 )
Cash and cash equivalents, beginning of period
    1,284       611       1,083  
Cash and cash equivalents, end of period
    966       1,083       1,059  
Cash paid during the period for:
                       
Interest on short-term debt
    (1 )     (2 )      
Interest on long-term debt
    (33 )     (80 )     (51 )
Income tax
    (27 )            
Non-cash transactions
                       
Conversion of loans receivable to investments
    76              
Income tax paid with credits
    0              

(2Q04 LOGO)

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(US GAAP LOGO)

APPENDIX

Reconciliation of “non-GAAP” information with corresponding US GAAP figures

(1) Adjusted EBIT

                         
    US$ million
    2Q03
  1Q04
  2Q04
Net operating revenues
    1,170       1,656       1,920  
COGS
    (670)       (908)       (912)  
SG&A
    (45)       (101)       (106)  
Research & Development
    (12)       (23)       (27)  
Other operating expenses
    (55)       (41)       (43)  
Adjusted EBIT
    388       583       832  

(2) Adjusted EBITDA

The term “EBITDA” refers to a financial measure that is defined as earnings (losses) before interest, taxes, depreciation and amortisation; we use the term “Adjusted EBITDA” to reflect that our financial measure also excludes monetary gains/losses, equity in results of affiliates and joint ventures less dividends received from those companies, changes in provision for losses on equity investments, adjustments for changes in accounting practices, minority interests and non-recurring expenses. However, Adjusted EBITDA is not a measure determined under GAAP in the United States of America and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA should not be construed as a substitute for operating income or as a better measure of liquidity than cash flow from operating activities, which are determined in accordance with GAAP. We have presented Adjusted EBITDA to provide additional information with respect to our ability to meet future debt service, capital expenditure and working capital requirements. The following schedule reconciles Adjusted EBITDA to net cash provided by (used in) operating activities reported on our Consolidated Statements of Cash Flows, which we believe is the most directly comparable GAAP measure:

                         
    RECONCILIATION BETWEEN ADJUSTED EBITDA VS. OPERATING CASH FLOW
    US$ million
    2Q03
  1Q04
  2Q04
Operating cash flow
    459       597       700  
Income tax
    135       97       41  
Monetary and Foreign Exchange Losses
          (3)       (46)  
Financial Expenses
    32       144       60  
Net Working Capital
    (141)       (56)       221  
Others
    5       (36)       (5)  
Adjusted EBITDA
    490       743       971  

(3) Gross Debt / last 12 months’ Adjusted EBITDA

                         
    2Q03
  1Q04
  2Q04
Gross Debt / LTM Adjusted EBITDA (x)
    1.74       1.86       1.55  
Gross Debt / LTM Operating cash flow (x)
    1.65       2.27       2.01  

(2Q04 LOGO)

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Table of Contents

(US GAAP LOGO)

(4) Net Debt

                         
    RECONCILIATION BETWEEN GROSS DEBT VS. NET DEBT
    US$ million
    2Q03
  1Q04
  2Q04
Gross Debt
    3,282       4,526       4,514  
Cash and cash equivalents
    966       1,084       1,059  
Net Debt
    2,316       3,442       3,455  

(5) LTM Adjusted EBITDA / LTM interest expenses

                         
    2Q03
  1Q04
  2Q04
LTM Adjusted EBITDA / LTM interest expenses (x)
    9.36       11.69       12.94  
LTM Operating income / LTM interest expenses (x)
    7.68       8.96       10.26  

(6) Gross Debt / Enterprise Value

                         
    2Q03
  1Q04
  2Q04
Gross Debt / EV (x)
    0.24       0.19       0.22  
Gross Debt / Total Assets (x)
    0.34       0.36       0.36  

Entreprise Value = net debt + market capitalization


“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.”

(2Q04 LOGO)

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COMPANHIA VALE DO RIO DOCE
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

         
    Page
    F-2  
    F-3  
    F-5  
    F-6  
    F-7  
    F-8  
    S-1  

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Companhia Vale do Rio Doce

We have reviewed the accompanying unaudited condensed consolidated balance sheet of Companhia Vale do Rio Doce and subsidiaries as of June 30, 2004, and the unaudited condensed consolidated statements of income, of cash flows and of changes in stockholders’ equity for the three-month periods ended June 30 and March 31, 2004 and June 30, 2003 and for the six-month periods ended June 30, 2004 and 2003, respectively. This interim financial information is the responsibility of the Company’s management. The unaudited financial information of certain affiliates, the equity in earnings which total US$ 9 million and US$ 19 million for the three and six-month periods ended June 30, 2003, respectively were reviewed by other independent accountants whose reports thereon have been furnished to us.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews and the reports of the other accountants, we are not aware of any material modifications that should be made to the condensed consolidated interim financial information referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Companhia Vale do Rio Doce and subsidiaries as of December 31, 2003, and the related consolidated statements of income, of change in stockholders’ equity, and cash flows for the year then ended (not presented herein) and in our report dated February 20, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

As discussed in Note 4 to the financial statements, the Company changed its method of accounting for asset retirement obligations, as from January 1, 2003 and, as discussed in Note 5 to the financial statements, the Company also changed its accounting policy for consolidation of variable interest entities as from January 1, 2004.

PricewaterhouseCoopers
Auditores Independentes

Rio de Janeiro, Brazil
August 6, 2004

F-2


Table of Contents

Condensed Consolidated Balance Sheets
Expressed in millions of United States dollars

                 
    June   December
    30, 2004
  31, 2003
Assets
  (unaudited)
       
Current assets
               
Cash and cash equivalents
    1,059       585  
Accounts receivable
               
Related parties
    121       115  
Unrelated parties
    782       703  
Loans and advances to related parties
    36       56  
Inventories
    609       505  
Deferred income tax
    66       91  
Others
    396       419  
 
   
 
     
 
 
 
    3,069       2,474  
 
   
 
     
 
 
Property, plant and equipment, net and mining rights
    6,872       6,484  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses on equity investments
    966       1,034  
Other assets
               
Goodwill on acquisition of subsidiaries
    419       451  
Loans and advances
               
Related parties
    33       40  
Unrelated parties
    61       68  
Prepaid pension cost
    70       82  
Deferred income tax
    369       234  
Judicial deposits
    419       407  
Unrealized gain on derivative instruments
    1       5  
Others
    155       155  
 
   
 
     
 
 
 
    1,527       1,442  
 
   
 
     
 
 
TOTAL
    12,434       11,434  
 
   
 
     
 
 

F-3


Table of Contents

Condensed Consolidated Balance Sheets
Expressed in millions of United States dollars
(Except number of shares)

(Continued)

                 
    June   December
    30, 2004
  31, 2003
Liabilities and stockholders’ equity
  (unaudited)
       
Current liabilities
               
Suppliers
    364       482  
Payroll and related charges
    84       78  
Interest attributed to stockholders
    142       118  
Current portion of long-term debt — unrelated parties
    853       1,009  
Short-term debt
    127       129  
Loans from related parties
    45       119  
Others
    365       318  
 
   
 
     
 
 
 
    1,980       2,253  
 
   
 
     
 
 
Long-term liabilities
               
Employees post-retirement benefits
    192       198  
Long-term debt — unrelated parties
    3,488       2,767  
Loans from related parties
    1       4  
Provisions for contingencies (Note 10)
    658       635  
Unrealized loss on derivative instruments
    122       96  
Others
    281       268  
 
   
 
     
 
 
 
    4,742       3,968  
 
   
 
     
 
 
Minority interests
    533       329  
 
   
 
     
 
 
Stockholders’ equity
               
Preferred class A stock - 600,000,000 no-par-value shares authorized and 138,575,913 issued
    1,176       1,055  
Common stock - 300,000,000 no-par-value shares authorized and 249,983,143 issued
    2,121       1,902  
Treasury stock - 4,183 (2003 - 4,183) preferred and 4,715,170 common shares
    (88 )     (88 )
Additional paid-in capital
    498       498  
Other cumulative comprehensive loss
    (4,696 )     (4,375 )
Appropriated retained earnings
    2,501       3,035  
Unappropriated retained earnings
    3,667       2,857  
 
   
 
     
 
 
 
    5,179       4,884  
 
   
 
     
 
 
TOTAL
    12,434       11,434  
 
   
 
     
 
 

See notes to condensed consolidated financial information.

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Table of Contents

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

                                         
    Three-month   Six months
    periods ended
  ended June 30
    June   March   June        
    30, 2004
  31, 2004
  30, 2003
  2004
  2003
Operating revenues, net of discounts, returns and allowances
                                       
Sales of ores and metals
                                       
Iron ore and pellets
    1,262       1,061       761       2,323       1,507  
Kaolin
    39       39       14       78       30  
Manganese and ferroalloys
    164       131       89       295       164  
Potash
    31       23       21       54       42  
Copper
    24                   24        
Others
                7             16  
 
   
 
     
 
     
 
     
 
     
 
 
 
    1,520       1,254       892       2,774       1,759  
Revenues from logistic services
    220       191       138       411       253  
Aluminum products
    289       280       188       569       355  
Other products and services
    4       6       1       10       5  
 
   
 
     
 
     
 
     
 
     
 
 
 
    2,033       1,731       1,219       3,764       2,372  
Value-added tax
    (113 )     (75 )     (49 )     (188 )     (92 )
 
   
 
     
 
     
 
     
 
     
 
 
Net operating revenues
    1,920       1,656       1,170       3,576       2,280  
 
   
 
     
 
     
 
     
 
     
 
 
Operating costs and expenses
                                     
Cost of ores and metals sold
    (647 )     (643 )     (438 )     (1,290 )     (866 )
Cost of logistic services
    (117 )     (115 )     (73 )     (232 )     (143 )
Cost of aluminum products
    (143 )     (147 )     (157 )     (290 )     (299 )
Others
    (5 )     (3 )     (2 )     (8 )     (3 )
 
   
 
     
 
     
 
     
 
     
 
 
 
    (912 )     (908 )     (670 )     (1,820 )     (1,311 )
Selling, general and administrative expenses
    (106 )     (101 )     (45 )     (207 )     (94 )
Research and development
    (27 )     (23 )     (12 )     (50 )     (23 )
Employee profit sharing plan
    (17 )     (13 )     (9 )     (30 )     (21 )
Others
    (26 )     (28 )     (46 )     (54 )     (80 )
 
   
 
     
 
     
 
     
 
     
 
 
 
    (1,088 )     (1,073 )     (782 )     (2,161 )     (1,529 )
 
   
 
     
 
     
 
     
 
     
 
 
Operating income
    832       583       388       1,415       751  
 
   
 
     
 
     
 
     
 
     
 
 
Non-operating income (expenses)
                                       
Financial income
    19       12       29       31       57  
Financial expenses
    (106 )     (142 )     (64 )     (248 )     (146 )
Foreign exchange and monetary gains (losses), net
    (245 )     (42 )     257       (287 )     307  
 
   
 
     
 
     
 
     
 
     
 
 
 
    (332 )     (172 )     222       (504 )     218  
 
   
 
     
 
     
 
     
 
     
 
 
Income before income taxes, equity results and minority interests
    500       411       610       911       969  
 
   
 
     
 
     
 
     
 
     
 
 
Income taxes
                                       
Current
    (41 )     (97 )     (135 )     (138 )     (141 )
Deferred
    (23 )     32       (25 )     9       (90 )
 
   
 
     
 
     
 
     
 
     
 
 
 
    (64 )     (65 )     (160 )     (129 )     (231 )
 
   
 
     
 
     
 
     
 
     
 
 
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    150       86       35       236       129  
Minority interests
    (82 )     (27 )     (29 )     (109 )     (47 )
 
   
 
     
 
     
 
     
 
     
 
 
Income from continuing operations
    504       405       456       909       820  
 
   
 
     
 
     
 
     
 
     
 
 
Change in accounting pratice for asset retirement obligations (Note 4)
                            (10 )
 
   
 
     
 
     
 
     
 
     
 
 
Net income for the period
    504       405       456       909       810  
 
   
 
     
 
     
 
     
 
     
 
 
Basic earnings per Preferred Class A Share
    1.31       1.06       1.19       2.37       2.11  
 
   
 
     
 
     
 
     
 
     
 
 
Basic earnings per Common Share
    1.31       1.06       1.19       2.37       2.11  
 
   
 
     
 
     
 
     
 
     
 
 
Weighted average number of shares outstanding (thousands of shares)
                                       
Common shares
    245,268       245,268       245,268       245,268       245,268  
Preferred Class A shares
    138,571       138,571       138,571       138,571       138,571  

See notes to condensed consolidated financial information.

F-5


Table of Contents

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

                                         
    Three-month   Six months
    periods ended
  ended June 30
    June   March   June        
    30, 2004
  31, 2004
  30, 2003
  2004
  2003
Cash flows from operating activities:
                                       
Net income
    504       405       456       909       810  
Adjustments to reconcile net income to cash provided by operating activities:
                                       
Depreciation, depletion and amortization
    79       99       54       178       97  
Dividends received
    60       61       36       121       72  
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    (150 )     (86 )     (35 )     (236 )     (129 )
Deferred income taxes
    23       (32 )     25       (9 )     90  
Provisions for other contingencies
                            9  
Impairment of property, plant and equipment
                12             12  
Change in accounting pratice for asset retirement obligations (Note 4)
                            10  
Pension plan
    3       3       2       6       5  
Foreign exchange and monetary losses (gains)
    291       45       (257 )     336       (399 )
Net unrealized derivative losses (gains)
    (22 )     54       (1 )     32       2  
Minority interests
    82       27       29       109       47  
Others
    51       (35 )     (3 )     16       3  
Decrease (increase) in assets:
                                       
Accounts receivable
    (132 )     (23 )     65       (155 )     129  
Inventories
    (67 )     (15 )     (27 )     (82 )     (3 )
Others
    67       (25 )     23       42       22  
Increase (decrease) in liabilities:
                                       
Suppliers
    (59 )     (25 )     28       (84 )     (65 )
Payroll and related charges
    (18 )     (3 )     13       (21 )     7  
Others
    (12 )     147       39       135       96  
 
   
 
     
 
     
 
     
 
     
 
 
Net cash provided by operating activities
    700       597       459       1,297       815  
 
   
 
     
 
     
 
     
 
     
 
 
Cash flows from investing activities:
                                       
Loans and advances receivable
                                       
Related parties
                                       
Additions
    (6 )           (54 )     (6 )     (77 )
Repayments
    5       41             46       29  
Others
    4       15       1       19       17  
Guarantees and deposits
    (18 )     (24 )     (152 )     (42 )     (164 )
Additions to investments
    (6 )     (9 )     (61 )     (15 )     (61 )
Additions to property, plant and equipment
    (416 )     (381 )     (305 )     (797 )     (503 )
Proceeds from disposal of investments
                37             37  
 
   
 
     
 
     
 
     
 
     
 
 
Net cash used in investing activities
    (437 )     (358 )     (534 )     (795 )     (722 )
 
   
 
     
 
     
 
     
 
     
 
 
Cash flows from financing activities:
                                       
Short-term debt, net issuances (repayments)
    (44 )     44       60             (33 )
Loans
                                       
Related parties
                                       
Additions
    3       3             6        
Repayments
    (1 )     (6 )     (6 )     (7 )     (22 )
Issuances of long-term debt
                                       
Related parties
                            2  
Others
    227       665       40       892       217  
Repayments of long-term debt
                                       
Related parties
                (4 )           (4 )
Others
    (201 )     (470 )     (175 )     (671 )     (276 )
Interest attributed to stockholders
    (269 )           (215 )     (269 )     (215 )
 
   
 
     
 
     
 
     
 
     
 
 
Net cash provided by (used in) financing activities
    (285 )     236       (300 )     (49 )     (331 )
 
   
 
     
 
     
 
     
 
     
 
 
Increase (decrease) in cash and cash equivalents
    (22 )     475       (375 )     453       (238 )
Effect of exchange rate changes on cash and cash equivalents
    (2 )     (3 )     57       (5 )     113  
Initial cash in new consolidated subsidiary
          26             26          
Cash and cash equivalents, beginning of period
    1,083       585       1,284       585       1,091  
 
   
 
     
 
     
 
     
 
     
 
 
Cash and cash equivalents, end of period
    1,059       1,083       966       1,059       966  
 
   
 
     
 
     
 
     
 
     
 
 
Cash paid during the period for:
                                       
Interest on short-term debt
          (2 )     (1 )     (2 )     (7 )
Interest on long-term debt
    (51 )     (80 )     (33 )     (131 )     (86 )
Income tax
                (27 )           (33 )
Non-cash transactions
                                       
Conversion of loans receivable to investments
                76             87  

See notes to condensed consolidated financial information.

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Table of Contents

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

                                         
    Three-month periods ended
  Six months ended June 30
    June 30,   March 31,   June 30,        
    2004
  2004
  2003
  2004
  2003
Preferred class A stock (including one special share)
                                       
Beginning of the period
    1,055       1,055       904       1,055       904  
Transfer from appropriated retained earnings
    121             151       121       151  
 
   
 
     
 
     
 
     
 
     
 
 
End of the period
    1,176       1,055       1,055       1,176       1,055  
 
   
 
     
 
     
 
     
 
     
 
 
Common stock
                                       
Beginning of the period
    1,902       1,902       1,630       1,902       1,630  
Transfer from appropriated retained earnings
    219             272       219       272  
 
   
 
     
 
     
 
     
 
     
 
 
End of the period
    2,121       1,902       1,902       2,121       1,902  
 
   
 
     
 
     
 
     
 
     
 
 
Treasury stock
                                       
Beginning and end of the period
    (88 )     (88 )     (88 )     (88 )     (88 )
 
   
 
     
 
     
 
     
 
     
 
 
Additional paid-in capital
                                       
Beginning and end of the period
    498       498       498       498       498  
 
   
 
     
 
     
 
     
 
     
 
 
Other cumulative comprehensive loss
                                       
Cumulative translation adjustments
                                       
Beginning of the period
    (4,480 )     (4,449 )     (4,999 )     (4,449 )     (5,185 )
Change in the period
    (277 )     (31 )     593       (308 )     779  
 
   
 
     
 
     
 
     
 
     
 
 
End of the period
    (4,757 )     (4,480 )     (4,406 )     (4,757 )     (4,406 )
 
   
 
     
 
     
 
     
 
     
 
 
Unrealized gain on available-for-sale securities
                                       
Beginning of the period
    77       74       13       74        
Change in the period
    (16 )     3       5       (13 )     18  
 
   
 
     
 
     
 
     
 
     
 
 
End of the period
    61       77       18       61       18  
 
   
 
     
 
     
 
     
 
     
 
 
Adjustments relating to investments in affiliates
                                       
Beginning and end of the period
                10             10  
 
   
 
     
 
     
 
     
 
     
 
 
Total other cumulative comprehensive loss
    (4,696 )     (4,403 )     (4,378 )     (4,696 )     (4,378 )
 
   
 
     
 
     
 
     
 
     
 
 
Appropriated retained earnings
                                       
Beginning of the period
    3,016       3,035       2,351       3,035       2,230  
Transfer (to) from retained earnings
    (175 )     (19 )     364       (194 )     485  
Transfer to capital stock
    (340 )           (423 )     (340 )     (423 )
 
   
 
     
 
     
 
     
 
     
 
 
End of the period
    2,501       3,016       2,292       2,501       2,292  
 
   
 
     
 
     
 
     
 
     
 
 
Retained earnings
                                       
Beginning of the period
    3,119       2,857       3,321       2,857       3,288  
Net income
    504       405       456       909       810  
Interest attributed to stockholders
                                       
Preferred class A stock
    (48 )     (58 )     (48 )     (106 )     (120 )
Common stock
    (83 )     (104 )     (84 )     (187 )     (212 )
Appropriation (to) from reserves
    175       19       (364 )     194       (485 )
 
   
 
     
 
     
 
     
 
     
 
 
End of the period
    3,667       3,119       3,281       3,667       3,281  
 
   
 
     
 
     
 
     
 
     
 
 
Total stockholders’ equity
    5,179       5,099       4,562       5,179       4,562  
 
   
 
     
 
     
 
     
 
     
 
 
Comprehensive income is comprised as follows:
                                       
Net income for the period
    504       405       456       909       810  
Cumulative translation adjustments
    (277 )     (31 )     593       (308 )     779  
Unrealized gain (loss) on available-for-sale securities
    (16 )     3       5       (13 )     18  
 
   
 
     
 
     
 
     
 
     
 
 
Total comprehensive income
    211       377       1,054       588       1,607  
 
   
 
     
 
     
 
     
 
     
 
 
Shares
                                       
Preferred class A stock (including one special share)
    138,575,913       138,575,913       138,575,913       138,575,913       138,575,913  
 
   
 
     
 
     
 
     
 
     
 
 
Common stock
    249,983,143       249,983,143       249,983,143       249,983,143       249,983,143  
 
   
 
     
 
     
 
     
 
     
 
 
Treasury stock (1)
                                       
Beginning of the period
    (4,719,353 )     (4,719,353 )     (4,719,635 )     (4,719,353 )     (4,719,651 )
Sales
                230             246  
 
   
 
     
 
     
 
     
 
     
 
 
End of the period
    (4,719,353 )     (4,719,353 )     (4,719,405 )     (4,719,353 )     (4,719,405 )
 
   
 
     
 
     
 
     
 
     
 
 
 
    383,839,703       383,839,703       383,839,651       383,839,703       383,839,651  
 
   
 
     
 
     
 
     
 
     
 
 
Interest attributed to stockholders (per share)
                                       
Preferred class A stock (including one special share)
    0.78       0.42       0.52       0.78       0.52  
Common stock
    0.78       0.42       0.52       0.78       0.52  

(1)   As of June 30, 2004, 4,715,170 common shares and 4,183 preferred shares were held in treasury in the amount of $ 88. The 4,715,170 common shares guarantee a loan of our subsidiary Alunorte.

See notes to condensed consolidated financial information.

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Table of Contents

Notes to the Condensed Consolidated Financial Information
Expressed in millions of United States dollars, unless otherwise stated (Unaudited)

1   The Company and its operations
 
    Companhia Vale do Rio Doce (CVRD) is a limited liability company, duly organized and existing under the laws of the Federative Republic of Brazil. Our operations are carried out through CVRD and its subsidiary companies, joint ventures and affiliates, and mainly consist of mining, non-ferrous metal production and logistics, as well as energy, aluminum and steel activities. Further details of our operations and those of our joint ventures and affiliates are described in Note 8.
 
    The main operating subsidiaries we consolidate are as follows:
                 
            Head office   Principal
Subsidiary
  % ownership
  location
  activity
Alumina do Norte do Brasil S.A. — Alunorte
    57     Brazil   Aluminum
Alumínio Brasileiro S.A. — Albras (8)
    51     Brazil   Aluminum
CADAM S.A. (2) (4)
    37     Brazil   Kaolin
CELMAR S.A. — Indústria de Celulose e Papel (3)
    100     Brazil   Forestry
CVRD Overseas Ltd.
    100     Cayman Island   Trading
Ferrovia Centro-Atlântica S.A. (4)
    100     Brazil   Logistics
Ferteco Mineração S.A. — FERTECO (3)
    100     Brazil   Iron ore and Pellets
Itabira Rio Doce Company Ltd. — ITACO
    100     Cayman Island   Trading
Mineração Serra do Sossego S.A. (1) (5)
    100     Brazil   Copper
Minerações Brasileiras Reunidas S.A. — MBR (4) (7)
    56     Brazil   Iron ore
Navegação Vale do Rio Doce S.A. — DOCENAVE
    100     Brazil   Shipping
Pará Pigmentos S.A.
    76     Brazil   Kaolin
Rio Doce International Finance Ltd. — RDIF
    100     Bahamas   International finance
Rio Doce Manganèse Europe — RDME
    100     France   Ferroalloys
Rio Doce Manganese Norway — RDMN
    100     Norway   Ferroalloys
Salobo Metais S.A. (1)
    100     Brazil   Copper
Rio Doce Manganês S.A. (6)
    100     Brazil   Manganese and Ferroalloys
Urucum Mineração S.A.
    100     Brazil   Iron ore, Ferroalloys and Manganese
Vale do Rio Doce Alumínio S.A. — ALUVALE (5)
    100     Brazil   Aluminum

  (1)   Development stage companies
 
  (2)   Through Caemi Mineração e Metalurgia S.A.
 
  (3)   Merged with CVRD on August 29, 2003
 
  (4)   Consolidated as from September 2003
 
  (5)   Merged with CVRD on December 30, 2003
 
  (6)   Formerly Sibra-Eletrosiderúrgica Brasileira S.A.
 
  (7)   Through Caemi Mineração e Metalurgia S.A. and Belém Administrações e Participações Ltda.
 
  (8)   Consolidated as from January 1, 2004 (See Note 4)

2   Basis of consolidation
 
    All majority-owned subsidiaries where we have both share and management control are consolidated, with elimination of all significant intercompany accounts and transactions. Investments in unconsolidated affiliates and joint ventures are reported at cost plus our equity in undistributed earnings or losses. Included in this category are certain joint ventures in which we have majority ownership but, by force of shareholders’ agreements, do not have effective management control. We provide for losses on equity investments with negative stockholders’ equity where applicable (see Note 8).
 
    We evaluate the carrying value of our listed investments relative to publicly available quoted market prices. If the quoted market price is below book value, and such decline is considered

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    other than temporary, we write-down our equity investments to quoted market value. We define joint ventures as businesses in which we and a small group of other partners each participate actively in the overall entity management, based on a shareholders agreement. We define affiliates as businesses in which we participate as a minority stockholder but with significant influence over the operating and financial policies of the investee.
 
    Investments in unincorporated joint ventures, formed for the purpose of investing in electrical energy projects, are proportionately consolidated.
 
3   Summary of significant accounting policies
 
    Our condensed consolidated interim financial information for the three-month periods ended June 30, 2004 and 2003 and March 31, 2004 and for the six month periods ended June 30, 2004 and 2003 is unaudited. However, in our opinion, such condensed consolidated financial information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for interim periods. The results of operations for the three month period ended June 30, 2004 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2004.
 
    In preparing the consolidated financial statements, we are required to use estimates to account for certain assets, liabilities, revenues and expenses. Our consolidated financial statements therefore include various estimates concerning the selection of useful lives of property, plant and equipment, provisions necessary for contingent liabilities, fair values assigned to assets and liabilities acquired in business combinations, income tax valuation allowances, employee post-retirement benefits and other similar evaluations, actual results may vary from our estimates.
 
    Exchange rates at June 30, 2004, March 31, 2004 and December 31, 2003 were R$ 3,1075: US$ 1,00, R$ 2,9086: US$ 1,00 and R$ 2,8892: US$ 1,00, respectively.
 
4   Change in accounting practices
 
    In June 2001, the FASB issued SFAS 143 — “Accounting for Asset Retirement Obligations”. We adopted SFAS 143 as from January 1, 2003, and as a consequence an additional $26 for asset retirement obligations was recorded as “Others — long-term liabilities”, a net increase of $11 in mine development costs was registered within “Property, plant and equipment” and a resulting charge of $10 was registered as “Change in Accounting Practice for Asset Retirement Obligations” on the Statement of Income, net of income tax ($15 gross of deferred income tax). Over time the liabilities will be accreted for the change in their present value and initial capitalized costs will be amortized over the useful lives of the related assets.
 
    In December 2003, the FASB issued FIN 46R – “Consolidation of Variable Interest Entities, (revised December 2003)”. The primary objectives of FIN 46R are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (variable interest entities or VIEs) and how to determine when and which business enterprise should consolidate the VIE (the primary beneficiary). This new model for consolidation applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46R requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures regarding the nature, purpose, size and activities of the VIE and the enterprise’s maximum exposure to loss as a result of its involvement with the VIE. Alumínio Brasileiro S.A – ALBRAS was identified as a VIE and was consolidated as from January 1, 2004.

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Table of Contents

5   Recently-issued accounting pronouncements
 
    Emerging Issue Task Force No. 04-03 (EITF 04-03), Mining assets: Impairment and Business Combinations and No. 03-01 (EITF 03-01), The Meaning of Other – Than – Temporary Impairment and its Application to Certain Investments were issued in March, 2004.
 
    The Company does not expect any significant impacts on its financial statements arising from these new pronouncements.
 
6   Income taxes
 
    Income taxes in Brazil comprise federal income tax and social contribution, which is an additional federal tax. The statutory composite enacted tax rate applicable in the periods presented is 34% represented by a 25% federal income tax rate plus a 9% social contribution rate.
 
    The amount reported as income tax expense in our consolidated financial statements is reconciled to the statutory rates as follows:
                                         
    Three-month   Six months
    periods ended
  ended June 30
    June 30,   March 31,   June 30,        
    2004
  2004
  2003
  2004
  2003
Income before income taxes, equity results and minority interests
    500       411       610       911       969  
 
   
 
     
 
     
 
     
 
     
 
 
Federal income tax and social contribution expense at statutory enacted rates
    (171 )     (139 )     (207 )     (310 )     (329 )
Adjustments to derive effective tax rate:
                                       
Tax benefit on interest attributed to stockholders
    44       55       59       99       122  
Exempt foreign income (expenses)
    21       14       (26 )     35       (42 )
Difference on tax basis of equity investees
    (16 )     (14 )           (30 )      
Tax incentives
    3       9       40       12       40  
Valuation allowance reversal
    52                   52       9  
Other non-taxable gains (losses)
    3       10       (26 )     13       (31 )
 
   
 
     
 
     
 
     
 
     
 
 
Federal income tax and social contribution expense in consolidated statements of income
    (64 )     (65 )     (160 )     (129 )     (231 )
 
   
 
     
 
     
 
     
 
     
 
 

    We have certain tax incentives relative to our iron ore and manganese operations in Carajás and relative to alumina in Barcarena. The incentives relative to iron ore and manganese comprise full income tax exemption on defined production levels up to 2005 and partial exemption up to 2013. Both incentives relative to alumina expire in 2010. An amount equal to the tax saving must be appropriated to a reserve account within stockholders’ equity and may not be distributed in the form of cash dividends.

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Table of Contents

7   Inventories
                 
    June 30,   December 31,
    2004
  2003
Finished products
               
Iron ore and pellets
    147       146  
Manganese and ferroalloys
    92       78  
Alumina
    25       20  
Aluminum
    34        
Copper
    10        
Kaolin
    18       16  
Others
    7       8  
Spare parts and maintenance supplies
    276       237  
 
   
 
     
 
 
 
    609       505  
 
   
 
     
 
 

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Table of Contents

8   Investments in affiliated companies and joint ventures
                                                                                                                                         
    June 30, 2004
  Investments
  Equity Adjustments
  Dividends received
   
                                                    Three Months   periods   Six months   Three Months   periods   Six months   Quoted
                                                     
ended
  ended June 30
   
ended
  ended June 30
  market
                            Net income                                                                    
    Participation in   Net   (loss) for   June 30,   December   June   March   June                   June   March   June                   June 30,
    capital (%)
  equity
  the period
  2004
  31, 2003
  30, 2004
  31, 2004
  30, 2003
  2004
  2003
  30, 2004
  31, 2004
  30, 2003
  2004
  2003
  2004
    voting   total                                                                                                                        
Steel
                                                                                                                                       
Usinas Siderúrgicas de Minas Gerais S.A. — USIMINAS
    22.99       11.46       436       297       50       31       16       18       10       34       20             13             13             216  
Companhia Siderúrgica de Tubarão — CST (1)
    26.93       28.79       503       280       141       86       61       17       6       78       12                               5       406  
California Steel Industries Inc. — CSI
    50.00       50.00       232       28       116       103       15       (1 )           14       3       2             3       2       3        
SIDERAR (costs $15) — available for sale investments
    4.85       4.85                   72       89                                                                   72  
 
                                   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
                                    379       309       92       34       16       126       35       2       13       3       15       8       694  
Aluminum and bauxite
                                                                                                                                       
Mineração Rio do Norte S.A. — MRN
    40.00       40.00       380       62       152       168       14       11       6       25       10       20       21             41       5        
Valesul Alumínio S.A. — VALESUL
    54.51       54.51       80       13       43       49       4       3       1       7       5       7       2       3       9       3        
Alumínio Brasileiro S.A. — ALBRAS (5)
                                  112                   40             79                                      
Alumínio Brasileiro S.A. — ALBRAS — change in provision for losses (5)
                                                                        1                                      
 
                                   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
                                    195       329       18       14       47       32       95       27       23       3       50       8        
Ferrous
                                                                                                                                       
Caemi Mineração e Metalurgia S.A. (3)
                                                    7             12                                      
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
    51.11       51.00       41       14       21       18       5       2       (1 )     7                                            
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
    51.00       50.89       37       8       19       17       3       1       2       4       3                               2        
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
    50.00       50.00       4       4       2       1       1       1             2                                            
Companhia Coreano-Brasileira de Pelotização — KOBRASCO - change in provision for losses
                                                            6             9                                      
Companhia Ítalo-Brasileira de Pelotização — ITABRASCO
    51.00       50.90       26       6       13       11       3       1       1       4       1                   1             1        
Gulf Industrial Investment Company — GIIC
    50.00       50.00       77       11       39       40       2       4       4       6       6       1       6             7       5        
SAMARCO Mineração S.A. — SAMARCO (4)
    50.00       50.00       331       90       200       221       20       25       23       45       42       30       19       25       49       39        
Minas da Serra Geral S.A. — MSG
    50.00       50.00       33       (3 )     16       15       (2 )           1       (2 )     2                   1             1        
Others
                            20       21             (1 )     (1 )     (1 )     2                   1             1        
 
                                   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
                                    330       344       32       33       42       65       77       31       25       28       56       49        
Logistics
                                                                                                                                       
Ferroban — Ferrovias Bandeirantes S.A. — change in provision for losses
                            1       1                                                                    
Ferrovia Centro-Atlântica S.A. — FCA — change in provision for losses (3)
                                                    (73 )           (84 )                                    
MRS Logística S.A
                            49       39       8       6             14                                            
MRS Logística S.A. — change in provision for losses
                                                    3             4                                      
Others, mainly investments sold in 2003
                            6       4                   (2 )           (3 )                                    
 
                                   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
                                    56       44       8       6       (72 )     14       (83 )                                    
Other affiliates and joint ventures
                                                                                                                                       
Fertilizantes Fosfatados S.A. — FOSFERTIL (2)
                                                    2             5                   2             7        
Others
                            6       8             (1 )           (1 )                                        
 
                                   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
                                    6       8             (1 )     2       (1 )     5                   2             7        
 
                                   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Total
                                    966       1,034       150       86       35       236       129       60       61       36       121       72       694  
 
                                   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

(1)   During the quarter ended June 30, 2003 CVRD acquired an additional 4.42% of the voting shares and 5.64% of the preferred shares, representing 5.17% of CST’s total capital for $ 60;
 
(2)   Investment sold in 2003;
 
(3)   Consolidated as from September, 2003, after acquisition of control;
 
(4)   Investment includes goodwill of $35 in 2004 and $ 37 in 2003;
 
(5)   Albras was consolidated as from January 1, 2004.

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Table of Contents

9   Pension plans
                                         
                            Six months
                    Quarter
  ended June 30
    June 30,   March 31,   June 30,        
    2004
  2004
  2003
  2004
  2003
Service cost — benefits earned during the period
          1       1       1       1  
Interest cost on projected benefit obligation
    36       38       36       74       67  
Actual return on assets
    (32 )     (44 )     (87 )     (76 )     (118 )
Amortization of initial transitory obligation
    2       2       2       4       4  
Net deferral
    (3 )     6       50       3       51  
 
   
 
     
 
     
 
     
 
     
 
 
Net periodic pension cost
    3       3       2       6       5  
 
   
 
     
 
     
 
     
 
     
 
 

    Employer contributions
 
    We previously disclosed in our consolidated financial statements for the year ended December 31, 2003, that we expected to contribute $14 to our pension plan in 2004. As of June 30, 2004, $7 of contributions have been made. We do not expect any change in our previous estimate.
 
10   Commitments and contingencies
 
(a)   At June 30, 2004, we had extended guarantees for borrowings obtained by affiliates and joint ventures in the amount of $8, of which $7 is denominated in United States dollars and the remaining $1 in local currency, as follows:
                         
    Amount of   Denominated       Final   Counter
Affiliate or Joint Venture
  guarantee
  currency
  Purpose
  maturity
  guarantees
SAMARCO
    7     US$   Debt guarantee   2008   None
VALESUL
    1     R$   Debt guarantee   2007   None
 
   
 
                 
 
    8                  
 
   
 
                 

    We expect no losses to arise as a result of the above guarantees. We charge commission for extending these guarantees in the case of Samarco.
 
    We have not provided any significant guarantees since January 1, 2003 which would require fair value adjustments under FIN 45 – “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”.
 
(b)   CVRD and its subsidiaries are defendants in numerous legal actions in the normal course of business. Based on the advice of our legal counsel, management believes that the provision made against contingent losses is sufficient to cover probable losses in connection with such actions.

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Table of Contents

    The provision for contingencies and the related judicial deposits are composed as follows:
                                 
    June 30, 2004
  December 31, 2003
    Provision for   Judicial   Provision for   Judicial
    contingencies
  deposits
  contingencies
  deposits
Labor claims
    184       76       177       66  
Civil claims
    135       56       167       54  
Tax — related actions
    334       283       285       279  
Others
    5       4       6       8  
 
   
 
     
 
     
 
     
 
 
 
    658       419       635       407  
 
   
 
     
 
     
 
     
 
 

    Labor — related actions principally comprise employee claims for (i) payment of time spent traveling from their residences to the work-place, (ii) additional payments for alleged dangerous or unhealthy working conditions and (iii) various other matters, often in connection with disputes about the amount of indemnities paid upon dismissal.
 
    Civil actions principally relate to claims made against us by contractors in connection with losses alleged to have been incurred by them as a result of various past government economic plans during which full indexation of contracts for inflation was not permitted.
 
    Tax — related actions principally comprise our challenges of certain revenue taxes, VAT and of the tax on financial movements — CPMF.
 
    We continue to vigorously pursue our interests in all the above actions but recognize that probably we will incur some losses in the final instance, for which we have made provisions.
 
    Our judicial deposits are made as required by the courts for us to be able to enter or continue a legal action. When judgment is favorable to us, we receive the deposits back; when unfavorable, the deposits are delivered to the prevailing party. An increase of $4 for tax deposits during 2004 refers mainly to an action in which we challenged the annual limitation on use to our tax loss carry forwards.
 
    Contingencies settled in the three-month period ended June 30, 2004, and 2003 and March 31, 2004 aggregated $14, $32 and $23, respectively, and additional provisions aggregated $39, $18 and $13, respectively.
 
    In addition to the contingencies for which we have made provisions we have possible losses in connection with tax contingencies totaling $293 and $335 at June 30, 2004 and 2003, respectively, for which no provision is maintained.
 
(c)   We are defendants in two actions seeking substantial compensatory damages brought by the Municipality of Itabira, State of Minas Gerais, which we believe are without merit. Due to the remote likelihood that any loss will arise there from no provision has been made in the financial statements with respect to these two actions.
 
(d)   We are committed under a take-or-pay agreement to purchase approximately 43,970 thousand metric tons of bauxite from Mineração Rio do Norte S.A. - MRN at a formula price, calculated based on the current London Metal Exchange (LME) quotation for aluminum. Based on a market price of US$ 19.43 per metric ton as of June 30, 2004, it represents the following total commitment:

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Table of Contents

         
2004 as from July
    27,550  
2005
    55,100  
2006
    55,100  
2007
    55,100  
2008
    55,100  
2009 and thereafter
    606,350  
 
   
 
 
 
    854,300  
 
   
 
 

(e)   We and BNDES entered into a contract, known as the Mineral Risk Contract, in March 1997, relating to prospecting authorizations for mining regions where drilling and exploration are still in their early stages. The Mineral Risk Contract provides for the joint development of certain unexplored mineral deposits in approximately two million identified hectares of land in the Carajás region, as well as proportional participation in any financial benefits earned from the development of such resources. Iron ore and manganese deposits already identified and subject to development are specifically excluded from the Mineral Risk Contract.
 
    Pursuant to the Mineral Risk Contract, we and BNDES each agreed to provide $ 205 million, which represents half of the $ 410 million in expenditures estimated as necessary to complete geological exploration and mineral resource development projects in the region over a period of five years, which had already been extended for an additional period of two years and on April 28, 2004 was extended again for another 5 years. We will oversee these projects and BNDES will advance us half of our costs on a quarterly basis. Under the Mineral Risk Contract, as of June 30, 2004, the remaining contributions towards exploration and development activities totaled $ 68 million. In the event that either of us wishes to conduct further exploration and development after having spent such $ 205 million, the contract provides that each party may either choose to match the other party’s contributions, or may choose to have its financial interest proportionally diluted. If a party’s participation in the project is diluted to an amount lower than 40% of the amount invested in connection with exploration and development projects, then the Mineral Risk Contract provides that the diluted party will lose all the rights and benefits provided for in the Mineral Risk Contract and any amounts previously contributed to the project.
 
    Under the Mineral Risk Contract, BNDES has agreed to compensate us through a finder’s fee production royalty on their share of mineral resources that are discovered and placed into production. This finder’s fee is equal to 3.5% of the revenues derived from the sale of gold, silver and platinum group metals and 1.5% of the revenues derived from the sale of other minerals, including copper, except for gold and other minerals discovered at Serra Leste, for which the finder’s fee is equal to 6.5% of revenues.
 
(f)   At the time of our privatization in 1997, we issued shareholder revenue interests known in Brazil as “debentures” to our then-existing shareholders, including the Brazilian Government. The terms of the “debentures”, were set to ensure that our pre-privatization shareholders, including the Brazilian Government, would participate alongside us in potential future financial benefits that we are able to derive from exploiting our mineral resources. On March 26, 2004 as a result of exploiting our mineral resources we declared a distribution on these “debentures” in the amount of $ 2, payable as from April 1, 2004.
 
(g)   We use various judgments and assumptions when measuring our environmental liabilities and asset retirement obligations. Changes in circumstances, law or technology may affect our estimates and we periodically review the amounts accrued and adjust them as necessary. Our accruals do not reflect unasserted claims because we are currently not aware of any such issues. Also the amounts provided are not reduced by any potential recoveries under cost sharing, insurance or indemnification arrangements because such recoveries are considered uncertain. The changes are demonstrated as follows:

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Table of Contents

         
Balance as of January 01, 2004
    81  
Accretion expense
    2  
Cumulative translation adjustment
    (1 )
 
   
 
 
Balance as of March 31, 2004
    82  
 
   
 
 
Accretion expense
    4  
Cumulative translation adjustment
    (4 )
 
   
 
 
Balance as of June 30, 2004
    82  
 
   
 
 
Balance as of January 01, 2004
    81  
Accretion expense
    6  
Cumulative translation adjustment
    (5 )
 
   
 
 
Balance as of June 30, 2004
    82  
 
   
 
 

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

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

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

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Table of Contents

     Consolidated net income and principal assets are reconciled as follows:

Results by segment — before eliminations (Unaudited)

                                                         
    As of and for the three-month periods ended
    June 30, 2004
                            Holdings
       
            Non           (1)            
    Ferrous
  ferrous
  Logistics
  Aluminum
  Others
  Eliminations
  Consolidated
Gross revenues — Export
    1,875       81       22       398             (923 )     1,453  
Gross revenues — Domestic
    364       35       219       47             (85 )     580  
Cost and expenses
    (1,588 )     (89 )     (142 )     (308 )           1,008       (1,119 )
Depreciation, depletion and amortization
    (57 )     (6 )     (8 )     (8 )                 (79 )
Pension plan
    (3 )                                   (3 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating income (loss)
    591       21       91       129                   832  
Financial income
    63             2       20       1       (67 )     19  
Financial expenses
    (139 )     (2 )     (5 )     (26 )     (1 )     67       (106 )
Foreign exchange and monetary gains (losses), net
    (202 )     (2 )     (1 )     (42 )     2             (245 )
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    32             8       18       92             150  
Income taxes
    (87 )     (4 )     (1 )     31       (3 )           (64 )
Minority interests
    (31 )     1             (52 )                 (82 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net income
    227       14       94       78       91             504  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Sales classified by geographic destination:
                                                       
Export market
                                                       
America, except United States
    172             18       41             (98 )     133  
United States
    121                   7             (70 )     58  
Europe
    857       68       4       212             (435 )     706  
Middle East/Africa/Oceania
    87       1                         (19 )     69  
Japan
    187       4             105             (99 )     197  
China
    300       5             33             (135 )     203  
Asia, other than Japan and China
    151       3                         (67 )     87  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,875       81       22       398             (923 )     1,453  
Domestic market
    364       35       219       47             (85 )     580  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    2,239       116       241       445             (1,008 )     2,033  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Assets:
                                                       
Property, plant and equipment, net
    4,542       1,020       483       826       1             6,872  
Additions to Property, plant and equipment
    165       62       153       35       1             416  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    330             56       195       385             966  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Capital employed
    4,307       679       449       816       26             6,277  

     

[Additional columns below]

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

                                                         
    As of and for the three-month periods ended
    March 31, 2004
                            Holdings
       
            Non           (1)            
    Ferrous
  ferrous
  Logistics
  Aluminum
  Others
  Eliminations
  Consolidated
Gross revenues — Export
    1,562       34       19       363             (735 )     1,243  
Gross revenues — Domestic
    287       28       184       59             (70 )     488  
Cost and expenses
    (1,366 )     (53 )     (128 )     (304 )           805       (1,046 )
Depreciation, depletion and amortization
    (78 )     (6 )     (7 )     (8 )                 (99 )
Pension plan
    (3 )                                   (3 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating income (loss)
    402       3       68       110                   583  
Financial income
    44             4       (17 )     1       (20 )     12  
Financial expenses
    (116 )     (1 )     (4 )     (41 )           20       (142 )
Foreign exchange and monetary gains (losses), net
    (32 )           (5 )     (6 )     1             (42 )
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    33             6       14       33             86  
Income taxes
    (54 )           (2 )     (9 )                 (65 )
Minority interests
    (14 )     (1 )           (12 )                 (27 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net income
    263       1       67       39       35             405  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Sales classified by geographic destination:
                                                       
Export market
                                                       
America, except United States
    158             15       70             (103 )     140  
United States
    107                   38             (66 )     79  
Europe
    659       22       4       149             (312 )     522  
Middle East/Africa/Oceania
    89                               (26 )     63  
Japan
    150       8             80             (67 )     171  
China
    238       4             26             (97 )     171  
Asia, other than Japan and China
    161                               (64 )     97  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,562       34       19       363             (735 )     1,243  
Domestic market
    287       28       184       59             (70 )     488  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,849       62       203       422             (805 )     1,731  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Assets:
                                                       
Property, plant and equipment, net
    4,646       1,060       455       854       1             7,016  
Additions to Property, plant and equipment
    156       71       132       22                   381  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    353             51       207       343             954  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Capital employed
    4,298       245       404       819       28             5,794  

     

[Additional columns below]

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

                                                         
    As of and for the three-month periods ended
    June 30, 2003
                            Holdings
       
            Non                    
    Ferrous
  ferrous
  Logistics
  Aluminum
  Others
  Eliminations
  Consolidated
Gross revenues — Export
    1,115       18       18       158             (495 )     814  
Gross revenues — Domestic
    279       22       108       41             (45 )     405  
Cost and expenses
    (1,039 )     (40 )     (68 )     (175 )     7       540       (775 )
Depreciation, depletion and amortization
    (45 )     (2 )     (3 )     (4 )                 (54 )
Pension plan
    (2 )                                   (2 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating income (loss)
    308       (2 )     55       20       7             388  
Financial income
    51       (1 )     5       3       2       (31 )     29  
Financial expenses
    (85 )           (2 )     (7 )     (1 )     31       (64 )
Foreign exchange and monetary gains (losses), net
    185       14       (12 )     72       (2 )           257  
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    42             (72 )     47       18             35  
Income taxes
    (139 )     1       1       (24 )     1             (160 )
Minority interests
    (1 )     (3 )           (25 )                 (29 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net income
    361       9       (25 )     86       25             456  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Sales classified by geographic destination:
                                                       
Export market
                                                       
America, except United States
    121             4       36             (84 )     77  
United States
    70       2             17             (47 )     42  
Europe
    491       14       10       45             (185 )     375  
Middle East/Africa/Oceania
    68             1                   (14 )     55  
Japan
    131       2       2       47             (60 )     122  
China
    148                   13             (68 )     93  
Asia, other than Japan and China
    86             1                   (37 )     50  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,115       18       18       158             (495 )     814  
Domestic market
    279       22       108       41             (45 )     405  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,394       40       126       199             (540 )     1,219  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Assets:
                                                       
Property, plant and equipment, net
    3,103       634       212       522       31             4,502  
Additions to Property, plant and equipment
    177       94       17       20                   308  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    459             2       305       306             1,072  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Capital employed
    2,875       158       245       486       29             3,793  


(1)   Albras was consolidated as from January 1, 2004. Generating contribution to net revenues and operating income of $61 and $74, $46 and $54 in the three-month periods ended June 30, 2004 and March 31, 2004, respectively.

F-17


Table of Contents

Operating income by product — after eliminations (Unaudited)

                                                                                 
    For the three-month periods ended
    June 30, 2004
                                                                     
                                                                     
    Revenues
  Value                           Impairment/
Gain on sale
of property,
  Depreciation,    
                            added   Net   Cost and           plant and   depletion and   Operating
    Export
  Domestic
  Total
  tax
  revenues
  expenses
  Net
  equipment
  amortization
  income
Ferrous
                                                                               
Iron ore
    732       211       943       (38 )     905       (394 )     511             (55 )     456  
Pellets
    251       68       319       (11 )     308       (207 )     101                   101  
Manganese
    8       3       11       (2 )     9       (7 )     2                   2  
Ferroalloys
    103       50       153       (13 )     140       (72 )     68             (3 )     65  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,094       332       1,426       (64 )     1,362       (680 )     682             (58 )     624  
Non ferrous
                                                                               
Gold
                                                           
Potash
          31       31       (6 )     25       (13 )     12             (1 )     11  
Kaolin
    34       5       39       (1 )     38       (21 )     17             (4 )     13  
Copper
    24             24             24       (4 )     20             (2 )     18  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    58       36       94       (7 )     87       (38 )     49             (7 )     42  
Aluminum
                                                                               
Alumina
    83             83       (4 )     79       (66 )     13             (5 )     8  
Aluminum
    197       1       198       (1 )     197       (67 )     130             (3 )     127  
Bauxite
    8             8             8       (8 )                        
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    288       1       289       (5 )     284       (141 )     143             (8 )     135  
Logistics
                                                                               
Railroads
          153       153       (25 )     128       (81 )     47             (4 )     43  
Ports
          45       45       (3 )     42       (21 )     21             (1 )     20  
Ships
    10       12       22       (7 )     15       (25 )     (10 )           (1 )     (11 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    10       210       220       (35 )     185       (127 )     58             (6 )     52  
Others
    3       1       4       (2 )     2       (23 )     (21 )                 (21 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,453       580       2,033       (113 )     1,920       (1,009 )     911             (79 )     832  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

     

[Additional columns below]

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

                                                                                 
    For the three-months ended
    March 31, 2004
                                                                     
                                                                     
    Revenues
  Value                           Impairment/
Gain on sale
of property,
  Depreciation,    
                            added   Net   Cost and           plant and   depletion and   Operating
    Export
  Domestic
  Total
  tax
  revenues
  expenses
  Net
  equipment
  amortization
  income
Ferrous
                                                                               
Iron ore
    652       174       826       (23 )     803       (385 )     418             (70 )     348  
Pellets
    183       52       235       (8 )     227       (172 )     55             (3 )     52  
Manganese
    6       3       9       (1 )     8       (7 )     1                   1  
Ferroalloys
    91       31       122       (8 )     114       (86 )     28             (4 )     24  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    932       260       1,192       (40 )     1,152       (650 )     502             (77 )     425  
Non ferrous
                                                                               
Gold
                                                           
Potash
          23       23       (3 )     20       (9 )     11             (2 )     9  
Kaolin
    34       5       39       (2 )     37       (22 )     15             (3 )     12  
Copper
                                                           
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    34       28       62       (5 )     57       (31 )     26             (5 )     21  
Aluminum
                                                                               
Alumina
    98       6       104       (5 )     99       (90 )     9             (4 )     5  
Aluminum
    150       11       161             161       (54 )     107             (4 )     103  
Bauxite
    15             15             15       (13 )     2                   2  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    263       17       280       (5 )     275       (157 )     118             (8 )     110  
Logistics
                                                                               
Railroads
          133       133       (19 )     114       (66 )     48             (8 )     40  
Ports
          38       38       (3 )     35       (23 )     12             (1 )     11  
Ships
    11       9       20       (3 )     17       (27 )     (10 )                 (10 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    11       180       191       (25 )     166       (116 )     50             (9 )     41  
Others
    3       3       6             6       (20 )     (14 )                 (14 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,243       488       1,731       (75 )     1,656       (974 )     682             (99 )     583  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

     

[Additional columns below]

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

                                                                                 
    For the three-months ended
    June 30, 2003
                                                                     
                                                                     
    Revenues
  Value                           Impairment/
Gain on sale
of property,
  Depreciation,    
                            added   Net   Cost and           plant and   depletion and   Operating
    Export
  Domestic
  Total
  tax
  revenues
  expenses
  Net
  equipment
  amortization
  income
Ferrous
                                                                               
Iron ore
    458       135       593       (18 )     575       (283 )     292             (20 )     272  
Pellets
    118       50       168       (7 )     161       (134 )     27       (12 )     (4 )     11  
Manganese
    14       2       16       (1 )     15       (2 )     13             (1 )     12  
Ferroalloys
    46       27       73       (5 )     68       (46 )     22             (2 )     20  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    636       214       850       (31 )     819       (465 )     354       (12 )     (27 )     315  
Non ferrous
                                                                               
Gold
    7             7             7       (7 )                 (2 )     (2 )
Potash
          21       21       (2 )     19       (10 )     9             (1 )     8  
Kaolin
    13       1       14       (1 )     13       (9 )     4                   4  
Copper
                                                           
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    20       22       42       (3 )     39       (26 )     13             (3 )     10  
Aluminum
                                                                               
Alumina
    65       39       104       (2 )     102       (86 )     16             (4 )     12  
Aluminum
    74       4       78             78       (68 )     10                   10  
Bauxite
    6             6             6       (6 )                        
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    145       43       188       (2 )     186       (160 )     26             (4 )     22  
Logistics
                                                                               
Railroads
          79       79       (8 )     71       (19 )     52             (16 )     36  
Ports
          38       38       (5 )     33       (27 )     6             (2 )     4  
Ships
    13       8       21             21       (21 )                        
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    13       125       138       (13 )     125       (67 )     58             (18 )     40  
Others
          1       1             1       2       3             (2 )     1  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    814       405       1,219       (49 )     1,170       (716 )     454       (12 )     (54 )     388  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

F-18


Table of Contents

Results by segment — before eliminations (Unaudited)

                                                         
    Six-month periods ended June 30
    2004
                            Holdings
       
            Non                    
    Ferrous
  ferrous
  Logistics
  Aluminum
  Others
  Eliminations
  Consolidated
Gross revenues — Export
    3,437       115       41       761             (1,658 )     2,696  
Gross revenues — Domestic
    651       63       403       106             (155 )     1,068  
Cost and expenses
    (2,954 )     (142 )     (270 )     (612 )           1,813       (2,165 )
Depreciation, depletion and amortization
    (135 )     (12 )     (15 )     (16 )                 (178 )
Pension plan
    (6 )                                   (6 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating (loss) income
    993       24       159       239                   1,415  
Financial income
    107             6       3       2       (87 )     31  
Financial expenses
    (255 )     (3 )     (9 )     (67 )     (1 )     87       (248 )
Foreign exchange and monetary gains (losses), net
    (234 )     (2 )     (6 )     (48 )     3             (287 )
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    65             14       32       125             236  
Income taxes
    (141 )     (4 )     (3 )     22       (3 )           (129 )
Minority interests
    (45 )                 (64 )                 (109 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Income from continuing operations
    490       15       161       117       126             909  
Change in accounting pratice for asset retirement obligations (note 4)
                                         
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net income
    490       15       161       117       126             909  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Sales classified by geographic destination:
                                                       
Export market
                                                       
America, except United States
    330             33       111             (201 )     273  
United States
    228                   45             (136 )     137  
Europe
    1,516       90       8       361             (747 )     1,228  
Middle East/Africa/Oceania
    176       1                         (45 )     132  
Japan
    337       12             185             (166 )     368  
China
    538       9             59             (232 )     374  
Asia, other than Japan and China
    312       3                         (131 )     184  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
    3,437       115       41       761             (1,658 )     2,696  
Domestic market
    651       63       403       106             (155 )     1,068  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    4,088       178       444       867             (1,813 )     3,764  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Assets:
                                                       
Property, plant and equipment, net
    4,542       1,020       483       826       1             6,872  
Additions to Property, plant and equipment
    322       133       285       57                   797  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    330             56       195       385             966  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Capital employed
    4,307       679       449       816       26             6,277  

     

[Additional columns below]

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

                                                         
    Six-month periods ended June 30
    2003
                            Holdings
       
            Non                    
    Ferrous
  ferrous
  Logistics
  Aluminum
  Others
  Eliminations
  Consolidated
Gross revenues — Export
    2,195       41       39       307             (971 )     1,611  
Gross revenues — Domestic
    537       46       186       78             (86 )     761  
Cost and expenses
    (2,040 )     (78 )     (129 )     (334 )     5       1,057       (1,519 )
Depreciation, depletion and amortization
    (81 )     (5 )     (5 )     (6 )                 (97 )
Pension plan
    (5 )                                   (5 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Operating (loss) income
    606       4       91       45       5             751  
Financial income
    96             8       6       3       (56 )     57  
Financial expenses
    (181 )     (2 )     (3 )     (12 )     (4 )     56       (146 )
Foreign exchange and monetary gains (losses), net
    210       19       (15 )     95       (2 )           307  
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    77             (83 )     95       40             129  
Income taxes
    (205 )                 (26 )                 (231 )
Minority interests
    (1 )     (5 )           (41 )                 (47 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Income from continuing operations
    602       16       (2 )     162       42             820  
Change in accounting pratice for asset retirement obligations (note 4)
    (10 )                                   (10 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net income
    592       16       (2 )     162       42             810  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Sales classified by geographic destination:
                                                       
Export market
                                                       
America, except United States
    237             18       67             (156 )     166  
United States
    171       6             19             (97 )     99  
Europe
    931       31       16       132             (355 )     755  
Middle East/Africa/Oceania
    119             4                   (30 )     93  
Japan
    242       3             70             (109 )     206  
China
    332       1             19             (152 )     200  
Asia, other than Japan and China
    163             1                   (72 )     92  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
    2,195       41       39       307             (971 )     1,611  
Domestic market
    537       46       186       78             (86 )     761  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    2,732       87       225       385             (1,057 )     2,372  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Assets:
                                                       
Property, plant and equipment, net
    3,103       634       212       522       31             4,502  
Additions to Property, plant and equipment
    268       145       49       43       1             506  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    459             2       305       306             1,072  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Capital employed
    2,875       158       245       486       29             3,793  

F-19


Table of Contents

Operating income by product — after eliminations (Unaudited)

                                                                                 
    Six-month periods ended June 30
    2004
                                                                     
                                                                     
    Revenues
  Value                           Impairment/
Gain on sale
of property,
  Depreciation,    
                            added   Net   Cost and           plant and   depletion and   Operating
    Export
  Domestic
  Total
  tax
  revenues
  expenses
  Net
  equipment
  amortization
  income
Ferrous
                                                                               
Iron ore
    1,384       385       1,769       (61 )     1,708       (779 )     929             (125 )     804  
Pellets
    434       120       554       (19 )     535       (379 )     156             (3 )     153  
Manganese
    14       6       20       (3 )     17       (14 )     3                   3  
Ferroalloys
    194       81       275       (21 )     254       (158 )     96             (7 )     89  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    2,026       592       2,618       (104 )     2,514       (1,330 )     1,184             (135 )     1,049  
Non ferrous
                                                                               
Gold
                                                           
Potash
          54       54       (9 )     45       (22 )     23             (3 )     20  
Kaolin
    68       10       78       (3 )     75       (43 )     32             (7 )     25  
Copper
    24             24             24       (4 )     20             (2 )     18  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    92       64       156       (12 )     144       (69 )     75             (12 )     63  
Aluminum
                                                                               
Alumina
    181       6       187       (9 )     178       (156 )     22             (9 )     13  
Aluminum
    347       12       359       (1 )     358       (121 )     237             (7 )     230  
Bauxite
    23             23             23       (21 )     2                   2  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    551       18       569       (10 )     559       (298 )     261             (16 )     245  
Logistics
                                                                               
Railroads
          286       286       (44 )     242       (147 )     95             (12 )     83  
Ports
          83       83       (6 )     77       (44 )     33             (2 )     31  
Ships
    21       21       42       (10 )     32       (52 )     (20 )           (1 )     (21 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    21       390       411       (60 )     351       (243 )     108             (15 )     93  
Others
    6       4       10       (2 )     8       (43 )     (35 )                 (35 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    2,696       1,068       3,764       (188 )     3,576       (1,983 )     1,593             (178 )     1,415  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

     

[Additional columns below]

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

                                                                                 
    Six-month periods ended June 30
    2003
                                                                     
                                                                     
    Revenues
  Value                           Impairment/
Gain on sale
of property,
  Depreciation,    
                            added   Net   Cost and           plant and   depletion and   Operating
    Export
  Domestic
  Total
  tax
  revenues
  expenses
  Net
  equipment
  amortization
  income
Ferrous
                                                                               
Iron ore
    879       261       1,140       (36 )     1,104       (532 )     572             (38 )     534  
Pellets
    270       97       367       (12 )     355       (297 )     58       (12 )     (7 )     39  
Manganese
    23       4       27       (2 )     25       (6 )     19             (1 )     18  
Ferroalloys
    93       44       137       (9 )     128       (96 )     32             (4 )     28  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,265       406       1,671       (59 )     1,612       (931 )     681       (12 )     (50 )     619  
Non ferrous
                                                                               
Gold
    16             16             16       (15 )     1             (2 )     (1 )
Potash
          42       42       (5 )     37       (19 )     18             (2 )     16  
Kaolin
    26       4       30       (1 )     29       (19 )     10             (1 )     9  
Copper
                                                           
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    42       46       88       (6 )     82       (53 )     29             (5 )     24  
Aluminum
                                                                               
Alumina
    124       73       197       (4 )     193       (157 )     36             (6 )     30  
Aluminum
    144       4       148             148       (134 )     14                   14  
Bauxite
    10             10             10       (10 )                        
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    278       77       355       (4 )     351       (301 )     50             (6 )     44  
Logistics
                                                                               
Railroads
          145       145       (15 )     130       (34 )     96             (30 )     66  
Ports
          66       66       (6 )     60       (35 )     25             (4 )     21  
Ships
    26       16       42       (2 )     40       (58 )     (18 )                 (18 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    26       227       253       (23 )     230       (127 )     103             (34 )     69  
Others
          5       5             5       (8 )     (3 )           (2 )     (5 )
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 
    1,611       761       2,372       (92 )     2,280       (1,420 )     860       (12 )     (97 )     751  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

F-20


Table of Contents

12   Derivative financial instruments
 
    Volatility of interest rates, exchange rates and commodity prices are the main market risks to which we are exposed — all three are managed through derivative operations. These have the exclusive aim of reducing exposure to risk. We do not use derivatives for speculation purposes.
 
    We monitor and evaluate our derivative positions on a regular basis and adjust our strategy in response to market conditions. We also periodically review the credit limits and credit worthiness of our counter-parties in these transactions. In view of the policies and practices established for operations with derivatives, management considers the occurrence of non-measurable risk situations as unlikely.
 
    The asset (liability) balances and the movement in fair value of derivative financial instruments is as follows (the quarterly information is unaudited):
                                                 
            Interest            
            rates            
    Gold
  (LIBOR)
  Currencies
  Alumina
  Aluminum
  Total
Unrealized gains (losses) at January 1, 2004
    (32 )     (46 )     5       (18 )           (91 )
Initial consolidation of Albras
                            (20 )     (20 )
Financial settlement
          3       (2 )                 1  
Unrealized gains (losses) in the period
    (5 )     (6 )     (2 )     (18 )     (23 )     (54 )
Effect of exchange rate changes
          1                         1  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Unrealized gains (losses) at March 31, 2004
    (37 )     (48 )     1       (36 )     (43 )     (163 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Unrealized gains (losses) at April 1, 2004
    (37 )     (48 )     1       (36 )     (43 )     (163 )
Financial settlement
    1       11                         12  
Unrealized gains (losses) in the period
    9       5             4       4       22  
Effect of exchange rate changes
    2       2             2       2       8  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Unrealized gains (losses) at June 30, 2004
    (25 )     (30 )     1       (30 )     (37 )     (121 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Unrealized gains (losses) at April 1, 2003
    (10 )     (68 )     (1 )     3             (76 )
Financial settlement
          10                         10  
Unrealized gains (losses) in the period
          4             (3 )           1  
Effect of exchange rate changes
    (1 )     (11 )           1             (11 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Unrealized gains (losses) at June 30, 2003
    (11 )     (65 )     (1 )     1             (76 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Unrealized gains (losses) at January 1, 2004
    (32 )     (46 )     5       (18 )           (91 )
Initial consolidation of Albras
                            (20 )     (20 )
Financial settlement
    1       14       (2 )                 13  
Unrealized gains (losses) in the period
    4       (1 )     (2 )     (14 )     (19 )     (32 )
Effect of exchange rate changes
    2       3             2       2       9  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Unrealized gains (losses) at June 30, 2004
    (25 )     (30 )     1       (30 )     (37 )     (121 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Unrealized gains (losses) at January 1, 2003
    (15 )     (60 )     (1 )     3             (73 )
Financial settlement
          14                         14  
Unrealized gains (losses) in the period
    5       (4 )           (3 )           (2 )
Effect of exchange rate changes
    (1 )     (15 )           1             (15 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Unrealized gains (losses) at June 30, 2003
    (11 )     (65 )     (1 )     1             (76 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 

    Unrealized gains (losses) in the period are included in our income statement under the caption of financial expenses.

F-21


Table of Contents

    Final maturity dates for the above instruments are as follows:
         
Gold
  Dec 2008
Interest rates (LIBOR)
  Oct 2007
Currencies
  Dec 2011
Alumina
  Dec 2008
Aluminum
  Dec 2006

13   Subsequent Event
 
    CVRD Divests its Stake in CST
 
    On June 28, 2004 CVRD signed a conditional sales contract with Arcelor, the world´s largest steelmaker, with the intent to sell its stake in Companhia Siderurgica de Tubarão (CST).
 
    CVRD agreed to sell to Arcelor 869,045,672 common shares and 9,381,163,397 preferred shares of CST, representing, respectively, 4.42% of the voting capital and 29.96% of the non-voting capital of this company. On July 28, 2004, the contract was consumated and CVRD was paid US$ 415.1 million for the sale of these shares.
 
    Additionally, on June 28, 2004, CVRD signed an agreement to sell to Arcelor 4,034,524,170 common shares of CST, linked to the current CST shareholders agreement. This last transaction will be concluded when one of the three following events occur, the first to occur will trigger the transaction: (i) termination of the current CST shareholders agreement on May 25, 2005; (ii) waiver given by the other participants of the shareholders agreement; (iii) purchase by Arcelor of the CST shares owned by the other participants of the CST shareholders agreement.
 
    CVRD will be paid US$ 163.4 million for the CST shares. This price will be adjusted by an interest rate equal to Libor plus 1.5% per annum, minus dividends distributed by CST to CVRD from now to the conclusion of the transaction.
 
    The sale of shares to Arcelor implies in the total divestment of the 28.02% share of the CST capital currently owned by CVRD.

* * *

F-22


Table of Contents

Supplemental Financial Statements

The following unaudited information provides additional details in relation to the balance sheet and financial performance of equity investees as well as certain financial ratios.

EBITDA – Earnings Before Interest, Income Tax, Depreciation and Amortization

(a)   EBITDA represents operating income plus depreciation, amortization and depletion plus impairment/gain on sale of property, plant and equipment plus dividends received from equity investees.
 
(b)   EBITDA is not a US GAAP measure and does not represent cash flow for the periods presented and should not be considered as an alternative to net income (loss), as an indicator of our operating performance or as an alternative to cash flow as a source of liquidity.
 
(c)   Our definition of EBITDA may not be comparable with EBITDA as defined by other companies.
 
(d)   Although EBITDA, as defined above, does not provide a US GAAP measure of operating cash flows, our management uses it to measure our operating performance and it is commonly used by financial analysts in evaluating our business.

S-1


Table of Contents

Aluminum Area – Valesul (Additional information — Unaudited)

                                                                                     
        2004
  2003
Information
      As of and for the three-month periods ended
          As of and for the three-month periods ended
   
        March 31
  June 30
  September 30
  December 31
  Total
  March 31
  June 30
  September 30
  December 31
  Total
Quantity sold — external market
  MT (thousand)     15       15                       30       9       15       17       17       58  
Quantity sold — internal market
  MT (thousand)     10       10                       20       10       9       9       12       40  
 
       
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Quantity sold — total
  MT (thousand)     25       25                   50       19       24       26       29       98  
 
       
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Average sales price — external market
  US$      1,676.30       1,802.97                       1,739.63       1,505.49       1,516.01       1,518.30       1,570.41       1,530.98  
Average sales price — internal market
  US$      2,240.26       2,214.30                       2,227.28       1,933.02       1,970.53       1,974.21       1,957.43       1,958.05  
Average sales price — total
  US$      1,903.80       1,969.71                       1,936.79       1,730.60       1,685.83       1,668.32       1,731.60       1,703.44  
Long-term indebtedness, gross
  US$      1                             1       1       1       1       1       1  
Short-term indebtedness, gross
  US$      1       1                       1       1       1       1       1       1  
 
       
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Total indebtedness, gross
  US$      2       1                   2       2       2       2       2       2  
 
       
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Stockholders’ equity
  US$      92       80                       80       84       92       96       90       90  
 
       
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net operating revenues
  US$      44       48                       92       31       38       41       47       157  
Cost of products
  US$      (35 )     (37 )                     (72 )     (20 )     (30 )     (33 )     (40 )     (123 )
Other expenses/revenues
  US$      (1 )     (2 )                     (3 )     (2 )     (5 )     (1 )     (2 )     (10 )
Depreciation, amortization and depletion
  US$      1       1                       2       1       2       1       2       6  
 
       
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
EBITDA
  US$      9       10                   19       10       5       8       7       30  
Depreciation, amortization and depletion
  US$      (1 )     (1 )                 (2 )     (1 )     (2 )     (1 )     (2 )     (6 )
 
       
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
EBIT
  US$      8       9                   17       9       3       7       5       24  
Net financial result
  US$                                                                 
 
       
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Income before income tax and social contribution
  US$      8       9                   17       9       3       7       5       24  
Income tax and social contribution
  US$      (2 )     (2 )                     (4 )     (1 )     (2 )     (2 )     (2 )     (7 )
 
       
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Net income
  US$      6       7                   13       8       1       5       3       17  

S-2


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Aluminum Area – MRN (Additional information — Unaudited)