6-K
 

 
 

United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 6-K

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

For the month of

March 2005

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
Table of Contents
     
 
PERFORMANCE OF COMPANHIA VALE DO RIO DOCE IN
2004 (BRAZILIAN GAAP)
 
 
MANAGEMENT REPORT
 
 
INDEX TO CONSOLIDATED FINANCIAL INFORMATION
(BRAZILIAN GAAP)
 
 
SIGNATURES
 


 

BR GAAP

                        (COMPANHIA VALE DO RIO DOCE LOGO)

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

PERFORMANCE OF COMPANHIA VALE DO RIO DOCE IN 2004

www.cvrd.com.br
 rio@cvrd.com.br

       Investor Relations
          Departament

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


The financial and operational information contained in this press release, except where otherwise indicated, was calculated in accordance with generally accepted Brazilian accounting principles (Brazilian GAAP). As will be explicitly indicated in the text, such information may refer to the financial statements of the Parent Company or the consolidated financial statements. In the case of the consolidated financial statements, according to the criteria of Brazilian GAAP, those companies in which CVRD has effective control or shared control as defined by shareholders agreement, are included in the consolidated figures. In the instances where CVRD has effective control, the consolidation is carried out on a 100% basis and the difference between this amount and the percentage of CVRD’s equity stake in the subsidiary is discounted at the minority shareholding line. CVRD’s main subsidiaries are Caemi, Alunorte, Albras, RDM, RDME, RDMN, Urucum Mineração, Docenave, Ferrovia Centro-Atlântica (FCA), Rio Doce Europa, Itaco, CVRD Overseas and Rio Doce International Finance. For companies in which control is shared, the consolidated figures are proportional to the equity stake held by CVRD in each company. The main companies in which CVRD has shared control are MRN, Valesul, Kobrasco, Nibrasco, Hispanobras, Itabrasco, GIIC, Samarco and CSI.1 Staring 1Q05, CVRD will release BRGAAP Consolidated financial and operational figures on a quarterly basis.

BEATING RECORDS AND CREATING VALUE

Rio de Janeiro, March 21st 2005 – Companhia Vale do Rio Doce (CVRD) hereby reports net earnings of R$ 6.460 billion for the year 2004, 43.3% higher than the previous year’s net earnings of R$ 4.509 billion, so setting a new record. Net earnings per share amounted to R$ 5.61. Return on equity (ROE) of 35.6%, exceeded the figure of 30.2% achieved in 2003.

The combination of considerable expansion in the global demand for ore and metals and the expansion in the capacity of all operational activities, achieved by the carrying out of highly competitive expansion projects and well succeeded acquisitions, together with the achievement of significant gains in efficiency, enabled the Company to maintain its excellent track record. This resulted in new records, as well as the substantial creation of value for the shareholders.

SELECTED FINANCIAL INDICATORS — CONSOLIDATED

                 
            R$ million  
    2003     2004  
Gross operating revenues
    20,895       29,020  
Gross margin
    43.7 %     48.7 %
Net earnings
    4,509       6,460  
Net earnings per share (R$)
    3.92       5.61  
EBITDA
    8,100       12,249  
EBIT
    6,665       10,306  
EBIT margin
    33.1 %     37.4 %
ROE
    30.2 %     35.6 %
Exports (US$ million)
    4,229       5,534  


1   Albras became wholly consolidated in CVRD’s balance sheet from January 2004. In this report, all the information related to 2003 has been revised to include the integral consolidation of Albras making comparisons easier with 2004 results.

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BR GAAP

Over the period 2001-2004 the average total shareholder return (TSR) was 38.9% per year, for 2004 alone TSR was 45.9%.

Operational performance, as measured by EBIT (earnings before interest and taxes) amounted to R$ 10.306 billion, compared to R$ 6.665 billion in 2003, setting a new record. EBIT margin amounted to 37.4%, compared to 33.1% in the previous year.

Consolidated cash generation, as measured by EBITDA (earnings before interest, tax, depreciation and amortization) was the largest in CVRD’s history, totalling R$ 12.249 billion, an increase of 51.2% compared to 2003.

Consolidated exports amounted to US$ 5.534 billion, an increase of 30.8% on the figure for the previous year. Net exports (exports less imports) amounted to US$ 4.618 billion, an increase of 25.7% compared to 2003. Once again, CVRD was the company that most contributed to Brazil’s trade balance, accounting for 13.7% of the US$ 33.7 billion surplus obtained in 2004, the largest in the history of the Brazilian economy.

Various other records were set in 2004:

  •   consolidated gross revenues of R$ 29.020 billion compared to R$ 20.895 billion in 2003, an increase of 38.9%;
 
  •   sales of iron ore and pellets of 231.504 million tons, 23.9% higher than that achieved in 2003;
 
  •   sales of manganese ore of 999 thousand tons, an increase of 12.9% in relation to 2003;
 
  •   sales of ferro-alloys of 542 thousand tons, 5.9% higher than sales in 2003;
 
  •   sales of bauxite, of 5.429 million tons, an increase of 25.5% compared to 2003;
 
  •   sales of kaolin, of 1.207 million tons, an increase of 65.1% compared to 2003;
 
  •   volume transported by railroad for clients (general cargo and iron ore) amounted to 40.055 billion net ton kilometres (NTKs), 32.8% higher than in 2003, when 30.171 billion NTKs were transported.

In 2004, four important projects were completed: the Sossego copper mine, the expansion of iron ore production capacity at Carajás to 70 million tons a year, Pier III at the Ponta da Madeira maritime terminal, and the Candonga hydroelectric power plant.

CVRD invested US$ 1.956 billion during the year, an amount calculated according to generally accepted accounting principles in the United States (US GAAP), the second largest in real terms in the Company’s history. Of this, US$ 1.245 billion went into organic growth, US$ 568 million into sustaining capex, and US$ 143 million in acquisitions.

In 2004, shareholders received dividends of R$ 2.271 billion, corresponding to R$ 1.96 per share. This amount was 17.7% higher than that distributed in 2003, and 25.7% higher than the distribution in 2002.

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(LOGO) BUSINESS OUTLOOK

In spite of the slowdown in the second half, the world economy is estimated to have grown by 4.8% in 2004, the highest rate in the last 20 years, while international trade grew by 18.6% in the year – the highest expansion since 1995.

The recovery was led by the United States, with GDP growth of 4.4%. A 9.5% expansion of the Chinese economy was also extremely important for the excellent performance of the world economy. In broad terms it was a synchronized recovery, though with reasonable variance between regions: 1.7% growth in the Euro zone, 2.6% in Japan, and 6% in Latin America, with the Brazilian economy showing its best performance since 1994 with GDP growth of 5.2%.

As well as the natural cyclical effect of the global economy recovery, the strong growth of China, faster than its already high average annual growth rate over the last 20 years (9.2%), and the fact that its economy is an intensive user of industrial raw materials at this stage of economic development, contributed to considerable demand pressure for ores and metals.

In response to the acceleration of demand, world steel production exceeded one billion tons for the first time, reaching 1.055 billion in the year, 8.8% higher than 2003, and almost double the average annual growth rate of 4.5% in the post-Asian-crisis period (1998-2003). In spite of this significant supply reaction, for the second year running there was a substantial increase in the prices of steel products.

Also as a result of this movement, seaborne iron ore trade grew to 602 million tons in 2004, 12.1% more than in 2003. Part of the disequilibrium between supply and demand was satisfied by the emergence of a spot market of considerable scale, in which prices reached multiples of the benchmark prices.

We expect the world economy to continue to grow at a rate above average long-term trend, although more slowly than in the first half of 2004. Together with the good outlook for the performance of the Chinese economy this tends to support up cycle of ores and metals prices.

Although investments by the global metals and mining industry are firmly expanding, indicating that in 2005 they could reach twice their amount of 2002, we believe that, at least for the next two years, reasonably large-scale imbalances between supply and demand in several markets continue to exist, especially iron ore, alumina and aluminum.

Capacity utilization levels are extremely high, resulting in higher operational costs and problems in the supply chain. Inventories, both in absolute terms and also in relation to consumption, are at historically low levels, while a considerable portion of the increase in the value of investments programmed is due to the increase in the cost of equipment. Further, the average time between the decision to invest and the conclusion of a project is relatively long, and has increased, worldwide, due to the increase in requirements for approval.

In the specific case of iron ore, we estimate an increase of global seaborne demand of 50 million tons. This increase, of 8.3%, would be lower than in 2004, but still shows significant vigor, as this expansion is stonger than the growth trend of the last 10 years – of 5% since the beginning of the 90s. In view of the relative rigidity of supply expansion in the short term, with operation at full capacity and virtual non-existence of inventories, persistence of very tight market conditions can be foreseen.

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BR GAAP

Although CVRD’s programmed iron ore production for this year is more than 10% greater than in 2004, the Company still faces excess demand.

In 2004 the Company signed contracts for supply of iron ore and pellets totaling approximately 750 million tons with about 40 clients in the Americas, Asia and Europe, with weighted average maturity of seven years. The shipments under these new contracts will provide support for investments in expansion of production capacity.

According to estimates by the International Copper Study Group there was a 705,000-ton deficit in copper in 2004, after an imbalance between demand and production of 368,000 tons in 2003. Furthermore, the known inventories of copper are at their lowest level for the last 18 years. For this year, there is a forecast of balance between supply and demand starting in the third quarter, but without short-term availability for the necessary rebuilding of inventories.

We expect the Brazilian economy to continue to recover from the period of low growth in 2002 and 2003, while exports will continue to increase, resulting in favorable conditions for the logistics services offered by CVRD in Brazil.

(LOGO)RECENT MATERIAL EVENTS

  •   Iron ore and pellets: prices for 2005

On February 22, 2005 CVRD and Nippon Steel agreed a 71.5% increase in prices of iron ore fines from Carajás and Southern System.

On March 3, CVRD completed agreement with Arcelor on prices for blast furnace pellets for 2005: an increase of 86.67% for the Tubarão product and 86.43% for the São Luís product.

The agreement with Nippon Steel marked the first time that CVRD agreed the reference price with an Asian client. This can be explained by the fact that Asia is responsible for more than two thirds of the global seaborne iron ore imports and for approximately 80% of the demand growth in recent years.

  •   Fostering growth

CVRD has announced a capital expenditure budget of US$ 3.332 billion for 2005. Of the total budgeted, 22.1% will be allocated to sustain the existing business, and 77.9% to investment in organic growth.

The amount for organic growth is made up of US$ 2.221 billion to be invested in brownfield and greenfield projects, and US$ 375 million in research and development. This is the largest annual Capex in CVRD’s history, in both nominal and real terms. Over the period 2003-2005, 74% of the Company’s total investment was directed to organic growth, projects, and research and development. CVRD has been accelerating its investments in order to anticipate the start-up of important projects, such as the expansion of iron ore production capacity at Carajás.

The Company has won several international tenders for exploration of mineral deposits that strengthen its growth potential in the long term.

One was an international tender by the government of Mozambique for exploration of coal deposits in the Moatize region, the world’s largest unexplored coal reserve.

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BR GAAP

The Company paid US$ 122.8 million for the concession. Feasibility studies for exploration of these reserves are currently in progress.

Operations at the African continent will be an important step for CVRD’s growth. Besides Mozambique, CVRD is developing mineral exploration activities in Gabon, searching for manganese ore deposits, Angola and South Africa. In Angola, CVRD holds mineral rights over an area of approximately 225.000 square kilometers, with good potential for discovering iron ore, potash, copper, nickel, gold and diamond.

In Argentina, CVRD obtained a license for research, evaluation and exploration of a potash deposit in a region on the Colorado River, in the province of Neuquén.

In Brazil, CVRD won an international tender, for US$ 20.0 million, for research, evaluation and exploration of a bauxite deposit in the region of Pitinga, in the Brazilian state of Amazonas.

In Peru, CVRD obtained the rights to exploration of the Bayóvar phosphates deposit, in the department of Piura.

  •   Copper processing plant

CVRD will build a semi-industrial plant to process copper by the hydrometallurgical route, to test this new technological option for production of the metal from sulphide copper concentrate. The investment is estimated at US$ 58 million and the plant will have production capacity of 10 million tons of copper cathode per year. If the technology is approved, a larger-scale plant will be built for processing of copper from other deposits, such as Salobo.

  •   Repurchase of debt securities

In December 2004 CVRD completed the repurchase of US$ 186.996 million of its US$ 300 million debt issue with political risk insurance (PRI) and maturity in 2007.

  •   Minimum dividend to shareholders of US$ 1 billion

CVRD’s senior management will submit a proposal to the Board of Directors for payment of minimum dividend of US$ 1 billion to shareholders for 2005, corresponding to US$ 0.87 per share outstanding.

(LOGO) RECORD SALES AND REVENUES

Consolidated gross revenues amounted to R$ 29.020 billion, the largest in the Company’s history, being 38.9% higher than that obtained in 2003. The average appreciation of the Brazilian real against the US dollar, of 4.8% during 2004, had an unfavourable effect on CVRD’s revenues in reais, to the extent that around 84% of the Company’s revenues are denominated and/or indexed to the US dollar. Between the fourth quarter of 2002 and the fourth quarter of 2004, the real appreciated by an average of 32.2% compared to the US dollar, which was not enough to prevent a strong increase in the Company’s revenues and cash generation.

In terms of geographical distribution, the revenue from sales to Europe, of R$ 8.012 billion, accounted for 27.6% of the total, to Brazil 23.9%, the USA 11.3%, China 10.6% and Japan 8.7%. Compared to 2003, the highest rates of growth were

4T 04

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BR GAAP

seen in the sales revenue from the United States, up 63.3%, from China, up 52.1% and Asian emerging markets (ex China) up 44.0%.

The gross margin achieved in 2004 was 48.7%, compared to 43.7% in 2003.

SALES VOLUME — CONSOLIDATED

                 
            thousand tons  
    2003     2004  
Iron ore
    154,172       190,651  
Pellets
    32,640       40,853  
Manganese
    885       999  
Ferro alloys
    512       542  
Copper concentrate
          269  
Potash
    674       630  
Kaolin
    731       1,207  
Bauxite
    4,326       5,429  
Alumina
    1,805       1,678  
Aluminum
    488       477  
Railroad transportation (NTK million)
    30,171       40,055  
Port services
    28,743       28,697  

Sales of iron ore, of 190.651 million tons, increased by 23.7% compared to 2003, constituting a new record. In 2004, the Company concluded its production capacity expansion at Carajás, to 70 million tons of iron ore a year. Already in this same year, Carajás produced 69.376 million tons, 10.5 million more than in 2003.

To meet the considerable customer demand, 15.9 million tons of iron ore were purchased from small mining companies in the Iron Quadrangle, in the state of Minas Gerais. In 2003, 9.2 million tons were purchased.

Pellets sales volume also set a new record, totalling 40.853 million tons, 25.2% higher than that sold in 2003.

Revenues generated from shipments of iron ore and pellets amounted to R$ 15.549 billion, accounting for 53.6% of the Company’s total revenue. This figure was 40.2% higher than that obtained in 2003, as a result of growth in sales volume and rising product prices.

Sales of manganese ore and ferro-alloys also set new records in 2004, with 999 thousand tons of manganese and 542 thousand tons of ferro-alloys, respective increases of 12.9% and 5.9%, compared to the previous year. Revenues from the sale of these products totalled R$ 2.084 billion — 7.2% of consolidated gross revenues.

With the Sossego copper mine entering into operation in the first half of last year, 269 thousand tons of copper concentrate were shipped, corresponding to revenues of R$ 592 million.

Sales of potash amounted to 630 thousand tons, down compared to that recorded in 2003 of 674 thousand tons, generating revenues of R$ 362 million. The weaker performance compared to 2003 is explained by the drop in production at the Taquari-Vassouras mine, from 658 thousand tons in that year to 638 thousand tons in 2004, as a result of a speeding up in the capacity expansion works, and by the low level of inventories, used in that year to support the increased sales.

In 2004, 1.207 million tons of kaolin were sold, resulting in revenues of R$ 468 million. The increase of 65.1% in the shipments of kaolin in relation to the

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BR GAAP

previous year was influenced by the consolidation of Caemi into the Company’s figures from September 2003. However, even disregarding the effect of this change, there was an increase in sales, to the extent that PPSA increased its shipments by 9.6%.

Revenues derived from the sale of non-ferrous minerals – copper, potash and kaolin – amounted to R$ 1.423 billion, corresponding to 4.9% of the Company’s total consolidated gross revenue.

In 2004, CVRD sold 5.429 million tons of bauxite, a record volume, up 25.5% compared to 2003.

CVRD accelerated its alumina shipments in 2003, reaching 1.805 billion. Part of this volume was obtained due to swaps of alumina with competitors. In 2004, as CVRD had to supply its competitors with the amount received the year before, its sales were reduced in 7.0%, amounting to 1.678 million tons.

Revenues from the sale of products in the aluminum chain amounted to R$ 4.055 billion, an increase of 14.7% compared to 2003.

In 2004, CVRD’s railroads transported 40.055 billion NTKs (general cargo and iron ore) for clients, compared to 30.171 billion NTKs transported in 2003. The increase of 48.5% in revenues derived from railroad transport was due to three main factors: an increase in volume, a rise in the price of services and the total consolidation of FCA into CVRD’s figures from September 2003.

Revenues derived from logistics services, from railroad transportation, port operations and coastal shipping, amounted to R$ 3.025 billion, which represented an increase of 41.8% relative to 2003, and corresponded to 10.4% of the Company’s total net revenues. Railroad transport contributed with revenues of R$ 2.125 billion, port operations and support services with R$ 450 million and coastal shipping with R$ 450 million.

Revenues generated by CVRD’s equity stakes in the steel industry amounted to R$ 2.731 billion, 9.4% of the Company’s total revenues, which reflected an improvement in performance as a result of the favourable period currently being enjoyed by the steel industry.

GROSS REVENUES — CONSOLIDATED

                                 
                            R$ million  
    2003     %     2004     %  
Iron ore and pellets
    11,089       53.1 %     15,549       53.6 %
iron ore
    7,743       37.1 %     11,030       38.0 %
pellets
    3,346       16.0 %     4,519       15.6 %
Pelletizing plants operation services
    68       0.3 %     77       0.3 %
Manganese and ferro-alloys
    1,098       5.3 %     2,084       7.2 %
Copper concentrate
                592       2.0 %
Potash
    289       1.4 %     362       1.2 %
Kaolin
    320       1.5 %     468       1.6 %
Aluminum
    3,534       16.9 %     4,055       14.0 %
Logistics
    2,134       10.2 %     3,025       10.4 %
railroads
    1,431       6.8 %     2,125       7.3 %
ports
    371       1.8 %     450       1.6 %
shipping
    332       1.6 %     450       1.6 %
Steel products
    2,217       10.6 %     2,731       9.4 %
Others
    146       0.7 %     77       0.3 %
Total
    20,895       100.0 %     29,020       100.0 %

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BR GAAP

(LOGO) EXCELLENT OPERATIONS IN AN ENVIRONMENT OF COST INFLATION

The mining and metals industry throughout the world have been suffering from cyclical pressure in labour costs, energy and equipment.

In addition, the currencies of the main producing countries, such as the Brazilian real, the Chilean peso, the Canadian dollar, the South African rand and the Australian dollar have all appreciated significantly in relation to the US dollar. On one hand, this phenomenon has stimulated an increase, in US dollar terms, of mineral products prices, but on the other hand, has contributed to an increase in the costs of mining companies. In the case of the Brazilian real, the nominal appreciation against the US dollar amounted to 26.6% between December 2002 and February 2005.

Finally, operating at full capacity implies higher costs, resulting in, for example, demurrage expenses – increasing CVRD expenses from R$ 126 million in 2003 to R$ 245 million in 2004 — and a greater number of maintenance shutdowns.

Aiming to optimize its performance, in 2005 CVRD launched a program of operational excellence. This program is composed of dozens of small projects, whose purpose is to achieve a reduction in costs and gains in productivity.

The excellent operational performance by the Company in 2004 was demonstrated by the obtaining of a record consolidated EBIT, of R$ 10.306 billion. As a result, the previous consolidated EBIT record set in 2003, of R$ 6.665 billion was generously exceeded.

EBIT margin also widened, to 37.4% compared to 33.1% in 2003.

The net effect of the consolidation of Caemi and FCA on gross profit, was of the order of R$ 1.248 billion – increasing revenues by R$ 2.254 billion and the cost of goods sold (COGS) by R$ 1.006 billion – thus contributing to expansion in EBIT.

COGS increased by 24.7% compared to 2003, corresponding to R$ 2.793 billion in absolute numbers. As well as the impact already mentioned from the consolidation on an integral basis of Caemi and FCA, the principal sources of cost pressure were the rises in energy prices (electricity and fuel), salaries, materials and products acquired, especially iron ore purchased from small mining companies, and demurrage, which increased R$ 119 million. These costs, due to the delay in loading ships, reflected the effect of significant demand pressure for iron ore, on the logistics infrastructure.

COGS BREAKDOWN — CONSOLIDATED

                                 
                            R$ million  
    2003     %     2004     %  
Personnel
    1,213       10.7 %     1,412       10.0 %
Material
    1,797       15.9 %     2,325       16.5 %
Fuel oil and gases
    1,362       12.0 %     1,597       11.3 %
Outsourced services
    1,802       15.9 %     2,474       17.5 %
Energy
    998       8.8 %     1,253       8.9 %
Acquisition of products
    2,262       20.0 %     2,520       17.8 %
Depreciation and exhaustion
    1,035       9.1 %     1,191       8.4 %
Goodwill amortization
    166       1.5 %     384       2.7 %
Others
    695       6.1 %     967       6.8 %
Total
    11,330       100.0 %     14,123       100.0 %

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BR GAAP

Administrative expenses increased by R$ 303 million due to salary increases, 17% in July 2003 and 4.5% in July 2004, and higher expenditure on technical consulting and the incorporation of around 7,500 employees as the result of total consolidation of companies. Expenditure on research and development increased by R$ 191 million as a result of CVRD’s decision to gear up its efforts to identify new mineral deposits in Brazil and other countries, in South America, Africa and Asia. The acceleration in the amortization of goodwill paid for the acquisition of Samitri also had a negative effect of R$ 183 million on operating profit.

There was an increase of R$ 200 million in other operational expenses, principally due to provisions for contingency, which increased from R$ 239 million in 2003 to R$ 277 million in 2004 and provisions for payment of a bonus to employees of the Company, which increased in R$ 62 million.

(LOGO) RECORD CASH GENERATION R$ 12 BILLION

Consolidated cash generation, as measured by EBITDA, amounted to R$ 12.249 billion, constituting another record. The EBITDA obtained in 2004 was 51.2% higher than that reported in 2003, of R$ 8.100 billion.

Ferrous minerals – iron ore, pellets, manganese and ferro-alloys – contributed with 64.9% of the EBITDA generated in 2004, while the products in the aluminum chain were responsible for 16.0%, logistics services 10.1%, steel 6.5% and non-ferrous minerals 2.5%.

EBITDA CALCULATION — CONSOLIDATED

                 
            R$ million  
    2003     2004  
Net operating revenues
    20,116       27,544  
Cost of goods sold
    (11,330 )     (14,123 )
SG & A expenses
    (1,117 )     (1,537 )
Research & development expenses
    (249 )     (440 )
Other operational expenses
    (755 )     (1,138 )
Adjustment for non recurring items
    95       183  
Depreciation & amortization
    1,302       1,694  
Dividends received
    38       66  
EBITDA
    8,100       12,249  

(LOGO) RECORD NET EARNINGS: R$ 6.5 BILLION

The Company’s net earnings in 2004 amounted to R$ 6.460 billion, R$ 5.61 per share. This was an increase of 43.3% compared to the earnings in 2003, of R$ 4.509 billion.

The increase of R$ 7.428 billion in net operating revenues, was partially offset by an increase in COGS, of R$ 2.793 billion and by a negative contribution, of R$ 1.797 billion, from the net financial result.

In 2004, CVRD’s net financial result was a negative R$ 2 billion compared to R$ 203 million in 2003. The effect of monetary variation contributed to the deterioration in this result with R$ 1.274 billion.

Result from shareholdings increased by R$ 696 million compared to 2003. The main contributions came from logistics (an increase of R$ 258 million) and steel (an increase of R$ 196 million).

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BR GAAP

The sale of CVRD’s stake in CST generated earnings of R$ 541 million.

In 2004, R$ 1.810 billion was provisioned for income tax and social contribution.

(LOGO)  PERFORMANCE OF THE PARENT COMPANY IN THE FOURTH QUARTER 2004 (4Q04)

In 4Q04, CVRD’s gross revenues amounted to R$ 3.735 billion, an increase of 29.8% on 4Q03.

The sales of iron ore and pellets amounted to 49.404 million tons and accounted for 75.9% of the gross sales generated by the Parent Company in 4Q04, R$ 2.834 billion. Of this amount, R$ 2.110 billion derived from sales of iron ore, an increase of 16.7% on 4Q03, and R$ 724 million from pellets shipments, compared to R$ 623 million in 4Q03.

In 4Q04, sales of copper concentrate totalled 139 thousand tons, producing gross revenues of R$ 324 million, compared to R$ 196 million in 3Q04 and R$ 72 million in 2Q04, when the first shipment of this product was made.

Sales of potash, 165 thousand tons, were in line with the quantities sold in 4Q03, of 169 thousand tons. Revenue generated in 4Q04, of R$ 98 million, however was up by 34.2%, due to the high price of this product.

In 4Q04, 6.063 billion NTKs were transported via the EFVM and EFC railroads, an increase of 8.2% on 4Q03. Of this total, 4.350 billion NTKs referred to general cargo for CVRD’s clients and 1.713 billion NTKs, referred to iron ore and pellets transported for Brazilian clients.

Logistics services were responsible for R$ 392 million in revenues, or 10.5%, of the total revenue generated by CVRD in 4Q04, an increase of 20.2% on 4Q03. Revenue generated by railroad transportation amounted to R$ 305 million and by port services, R$ 87 million.

SALES VOLUME – PARENT COMPANY

                                         
                                    thousand tons  
    4Q03     3Q04     4Q04     2003     2004  
Iron ore and pellets
    44,797       48,893       49,404       157,913       187,447  
iron ore
    38,134       41,791       42,382       136,973       159,737  
fines
    33,263       36,530       37,225       122,018       140,686  
lumps
    4,871       5,261       5,157       14,955       19,051  
pellets
    6,663       7,102       7,022       20,940       27,710  
Potash
    169       161       165       674       630  
Copper concentrate
          96       139             269  
Port services
    5,761       6,654       6,221       25,311       25,406  

RAILROAD TRANSPORTATION OF GENERAL CARGO – PARENT COMPANY

                                         
                                    ntk million  
    4Q03     3Q04     4Q04     2003     2004  
Vitória a Minas Railroad
    3,233       3,724       3,187       12,768       13,536  
Carajás Railroad
    808       1,310       1,163       3,534       4,686  
Total
    4,041       5,034       4,350       16,302       18,222  

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BR GAAP

GROSS REVENUES BY PRODUCT — PARENT COMPANY

                                                                                 
                                                                            R$ million  
    4Q03     %     3Q04     %     4Q04     %     2003     %     2004     %  
Iron ore
    1,808       62.9       2,214       59.2       2,110       56.5       6,492       62.6       8,092       58.7  
domestic market
    374       13.0       543       14.5       514       13.8       1,559       15.0       2,009       14.6  
export market
    1,434       49.9       1,671       44.7       1,596       42.7       4,934       47.6       6,084       44.1  
Pellets
    623       21.7       768       20.5       724       19.4       1,982       19.1       2,949       21.4  
domestic market
    120       4.2       157       4.2       160       4.3       361       3.5       590       4.3  
export market
    503       17.5       611       16.3       564       15.1       1,621       15.6       2,359       17.1  
Pelletizing plants operation services
    41       1.4       34       0.9       40       1.1       137       1.3       156       1.1  
Copper concentrate
                196       5       324       8.7                   592       4.3  
Potash
    72       2.5       103       2.8       98       2.6       289       2.8       362       2.6  
Railroad transportation
    249       8.7       333       8.9       305       8.2       1,059       10.2       1,218       8.8  
Port services
    77       2.7       89       2.4       87       2.3       307       3.0       338       2.5  
Others
    6       0.2       6       0.2       47       1.3       99       1.0       77       0.6  
Total
    2,876       100.0       3,742       100.0       3,735       100.0       10,365       100.0       13,785       100.0  

In 4Q04, EBIT amounted to R$ 1.097 billion, 22.8% higher than that obtained in 4Q03. EBIT margin amounted to 30.8%, compared to 31.9% in 4Q03.

EBITDA amounted to R$ 1.602 billion, 29.3% higher than the amount reported in 4Q03, of R$ 1.239 billion. In 4Q04, dividends received totalled R$ 245 million, R$ 85 million from Samarco, R$ 84 million from Docenave, R$ 30 million from Usiminas and R$ 36 million from Mineração Rio do Norte (MRN).

EBITDA CALCULATION – PARENT COMPANY

                                         
                                    R$ million  
    4Q03     3Q04     4Q04     2003     2004  
Net operating revenues
    2,798       3,534       3,563       10,013       13,088  
COGS
    (1,548 )     (1,855 )     (2,041 )     (5,357 )     (7,147 )
Sales expenses
    (64 )     (8 )     (7 )     (216 )     (26 )
Administrative expenses
    (124 )     (123 )     (169 )     (406 )     (531 )
Research & development
    (95 )     (99 )     (111 )     (233 )     (349 )
Other operational expenses
    (74 )     (237 )     (138 )     (320 )     (731 )
EBIT
    893       1,212       1,097       3,481       4,305  
Depreciation and amortization
    244       258       260       759       1,007  
Dividends received
    102       68       245       602       716  
Adjustments for non-recurring items
                      36       183  
EBITDA
    1,239       1,538       1,602       4,878       6,211  

Net earnings by the Parent Company in 4Q04 amounted to R$ 1.528 billion, an increase of 92.7% compared to 4Q03. Among the main reasons contributing to this increase of R$ 735 million in earnings, we would like to highlight the increase in gross revenues of R$ 858 million and the result from shareholdings, up R$ 553 million, while at the same time monetary variation had a positive impact of R$ 427 million. On the negative side, there was an increase of R$ 571 million in provisions for the payment of income tax and social contribution, and a rise of R$ 493 million in COGS.

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BR GAAP

COGS BREAKDOWN – PARENT COMPANY

                                                                                 
                                                                            R$ million  
    4Q03     %     3Q04     %     4Q04     %     2003     %     2004     %  
Personnel
    185       12.0       191       10.3       185       9.1       572       10.7       691       9.7  
Material
    243       15.7       350       18.9       432       21.2       874       16.3       1,349       18.9  
Fuel oil and gases
    180       11.6       204       11.0       217       10.6       636       11.9       776       10.9  
Outsourced services
    250       16.1       269       14.5       228       11.2       753       14.1       971       13.6  
Outsourced transportation
    50       3.2       73       3.9       130       6.4       86       1.6       358       5.0  
Energy
    51       3.3       69       3.7       50       2.4       151       2.8       217       3.0  
Acquisition of products
    249       16.1       346       18.7       367       18.0       1,192       22.3       1,337       18.7  
Depreciation and amortization
    230       14.9       247       13.3       254       12.4       720       13.4       968       13.5  
Others
    110       7.1       106       5.7       178       8.7       373       7.0       481       6.7  
Total
    1,548       100.0       1,855       100.0       2,041       100.0       5,357       100.0       7,147       100.0  

RESULT FROM SHAREHOLDINGS BY BUSINESS AREA – PARENT COMPANY

                                         
                                    R$ million  
Business Área   4Q03     3Q04     4Q04     2003     2004  
Ferrous minerals
    208       496       336       469       1,713  
iron ore and pellets
    9       324       215       198       1,217  
manganese and ferro-alloys
    199       172       121       270       495  
Non-ferrous minerals
    (49 )     16       (25 )     (24 )     (5 )
Logistics
    (150 )     36             (359 )     63  
Steel
    86       125       207       301       752  
Aluminum
    93       235       176       711       729  
Others
    (39 )     (5 )     8       24        
Total
    149       903       702       1,122       3,251  

(LOGO)  HIGHLIGHTS OF THE PARENT COMPANY’S PERFORMANCE IN 2004

Gross revenues of the Parent Company in 2004 amounted to R$ 13.785 billion, a new record, compared to R$ 10.367 billion in 2003. Of this amount, R$ 2.515 billion referred to higher volumes sold and R$ 1.338 billion, increase in prices, partially offset by a loss of R$ 435 million as a result of the average appreciation of 4.8% in the Brazilian real, against the US dollar in 2004.

Sales of iron ore and pellets totalled 187.447 million tons, accounting for 80.1% of the revenues generated by the Parent Company in 2004. Shipments of potash accounted for 2.6% of revenues. The revenues obtained from the sales of copper concentrate starting from June, amounted to R$ 592 million, representing 4.3% of the total revenues of the Parent Company.

In 2004, 24.941 billion NTKs were transported by the EFVM and EFC railroads, an increase of 11.2% on the previous year, which saw 22.434 billion NTKs transported. Of this total, 18.222 billion NTKs referred to general cargo for clients of CVRD and 6.719 billion NTKs referred to iron ore and pellets for Brazilian clients.

The logistics services provided by the Parent Company, railroad transportation and port services, produced revenues of R$ 1.556 billion in 2004, which accounted for 11.3% of the total revenue.

EBIT amounted to R$ 4.305 billion, compared to R$ 3.480 billion in 2003. EBITDA totalled R$ 6.211 billion, in comparison to R$ 4.876 billion in the

4T 04

12


 

BR GAAP

previous year. Dividends received by the Parent Company in 2004 amounted to R$ 716 million, the main contributions being made by Samarco, MRN and Usiminas.

The sale of CVRD’s equity stake in CST generated earnings of R$ 541 million.

In 2004, a provision of R$ 885 million was made for the payment of income tax and social contribution.

(LOGO)  DEBT: LOWER LEVERAGE, HIGHER INTEREST COVERAGE, LOWER RISK PROFILE

The below analysis is based on US GAAP figures.

CVRD’s total debt on December 31, 2004 was US$ 4.088 billion, US$ 330 million lower than on September 30, 2004, US$ 4.418 billion. Part of the reduction on debt was due to repurchase of 62.33% of the US$ 300 million PRI bonds outstanding issued in 2002 and due in 2007. The purpose of this transaction was the improvement of cash management with the buyback of securities that did not fully reflect the Company’s level of risk.

Net debt at the end of December 2004 was US$ 2.839 billion, compared to US$ 2.479 billion at the end of September, and US$ 3.443 billion at the end of December 2003.

The Company’s leverage indicators improved substantially: gross debt/adjusted EBITDA fell from 1.89x as of December 31, 2003 to 1.10x as of December 31, 2004. Total debt/enterprise value fell from 16.0% to 11.8%. Interest coverage measured as adjusted EBITDA/interest paid increased, from 11.51x at the end of 2003 to 12.41x at the end of 2004. These changes are in line with the Company’s strategy of preserving a sound balance sheet.

CVRD has also been successful in reducing the implicit risk of its debt portfolio. Average debt maturity was increased, from 3.60 years at December 2003 to 6.83 years at December 2004, helping reduce refinancing risks. One of the main factors in this change was the issue of a 30-year bond, CVRD 2034. At the same time the percentage of debt with floating interest rates decreased from 71% in December 2002 to 56% in December 2004, reducing interest rate risk. The change in the risk profile took place with an increase in the average cost of debt of less than 100 basis points.

The Company contracted committed credit lines totaling US$ 500 million, contributing to efficiency in cash management and reducing risks of liquidity.

CVRD is rated Ba1 by Moody’s, only one notch below investment grade, with a positive outlook. In view of the importance of cost of capital for its growth projects and creation of value for the shareholders, obtaining the investment grade rating is one of the Company’s main targets.

DEBT INDICATORS — US GAAP

                                         
                                    US$ million  
    4Q03     3Q04     4Q04     2003     2004  
Gross debt
    4,028       4,418       4,088       4,028       4,088  
Net debt
    3,443       2,479       2,839       3,443       2,839  
Gross debt / LTM adjusted EBITDA (x)
    1.89       1.34       1.10       1.89       1.10  
LTM adjusted EBITDA / LTM interest expenses (x)
    11.51       13.00       12.41       11.51       11.51  
Gross debt / EV (x)
    0.16       0.16       0.12       0.16       0.12  

EV = Enterprise Value = Market Capitalization + Net Debt

4T 04

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BR GAAP

(LOGO)  CONFERENCE CALL/WEBCAST

On Wednesday, March 23, CVRD will be holding a conference call and webcast at 12:00pm (Rio de Janeiro time), 10:00am US Eastern Standard Time and 3:00pm British Standard Time. Instructions for participating in the conference call/webcast are available on CVRD’s website, www.cvrd.com.br, investor relations. A recording of the conference call/webcast will be available on the Company’s website for 90 days following March 23, 2005.

FINANCIAL STATEMENTS – CONSOLIDATED

                 
            R$ million  
    2003     2004  
Gross operating revenues
    20,895       29,020  
Taxes
    (779 )     (1,476 )
Net operating revenues
    20,116       27,544  
Cost of goods sold
    (11,330 )     (14,123 )
Gross profit
    8,786       13,421  
Gross margin (%)
    43.7 %     48.7 %
Operational expenses
    (2,121 )     (3,115 )
Sales
    (295 )     (412 )
Administrative
    (822 )     (1,125 )
Research and development
    (249 )     (440 )
Other operational expenses
    (755 )     (955 )
Change accounting pratices
          (183 )
Result from shareholdings
    (540 )     156  
Equity income
    209       408  
Goodwill amortization
    (612 )     (252 )
Provision for losses
    (137 )      
Financial result
    (203 )     (2,000 )
Financial expenses
    (1,368 )     (1,866 )
Financial revenues
    322       297  
Monetary variation
    843       (431 )
Operating profit
    5,922       8,462  
Result of discontinued operations
    174       551  
Change in accounting method
    (91 )      
Income tax and social contribution
    (963 )     (1,810 )
Minority interest
    (533 )     (743 )
Net earnings
    4,509       6,460  

BALANCE SHEET — CONSOLIDATED

                 
            R$ million  
    12/31/03     12/31/04  
Asset
               
Current
    8,709       11,930  
Long term
    3,764       3,711  
Fixed
    25,266       27,831  
Total
    37,739       43,472  
Liabilities
               
Current
    7,697       9,326  
Long term
    13,481       13,935  
Others
    1,621       2,041  
Shareholders’ equity
    14,940       18,170  
Paid-up capital
    6,300       7,300  
Reserves
    8,640       10,870  
Total
    37,739       43,472  

4T 04

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BR GAAP

FINANCIAL STATEMENTS – PARENT COMPANY

                                         
                                    R$ million  
    4Q03     3Q04     4Q04     2003     2004  
Gross operating revenues
    2,877       3,742       3,735       10,367       13,785  
Taxes
    (79 )     (208 )     (172 )     (354 )     (697 )
Net operating revenues
    2,798       3,534       3,563       10,013       13,088  
Cost of goods sold
    (1,548 )     (1,855 )     (2,041 )     (5,357 )     (7,147 )
Gross profit
    1,250       1,679       1,522       4,656       5,941  
Gross margin (%)
    44.7       47.5       42.7       46.5       45.4  
Operational expenses
    (357 )     (467 )     (425 )     (1,176 )     (1,636 )
Sales
    (64 )     (8 )     (7 )     (217 )     (26 )
Administrative
    (124 )     (123 )     (169 )     (406 )     (531 )
Research and development
    (95 )     (99 )     (111 )     (233 )     (349 )
Other operational expenses
    (74 )     (237 )     (138 )     (320 )     (548 )
Change accounting pratices
                            (183 )
Operating profit
    893       1,212       1,097       3,479       4,305  
Result from shareholdings
    149       903       702       1,122       3,251  
Equity income
    417       970       769       1,452       3,581  
Goodwill amortization
    (114 )     (57 )     (55 )     (505 )     (249 )
Provision for losses
    (154 )     (10 )     (12 )     175       (81 )
Financial result
    (261 )     (54 )     211       395       (751 )
Financial expenses
    (240 )     (276 )     (172 )     (732 )     (766 )
Financial revenues
    51       24       28       222       101  
Monetary variation
    (72 )     198       355       905       (86 )
Gain on sale of affiliates
          463       78             541  
Income tax and social contribution
    11       (228 )     (560 )     (487 )     (885 )
Net earnings
    793       2,296       1,528       4,509       6,460  
Earnings per share (R$)
    0.69       1.99       1.33       3.92       5.61  

BALANCE SHEET – PARENT COMPANY

                         
                    R$ million  
    12/31/03     09/30/04     12/31/04  
Asset
                       
Current
    4,009       5,818       4,726  
Long term
    2,603       2,734       2,391  
Fixed
    23,604       27,163       28,221  
Total
    30,216       35,715       35,339  
Liabilities
                       
Current
    5,248       6,012       6,793  
Long term
    10,027       11,082       10,376  
Shareholders’ equity
    14,940       18,621       18,170  
Paid-up capital
    6,300       7,300       7,300  
Reserves
    8,640       11,321       10,870  
Total
    30,216       35,715       35,339  

“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.”

4T 04

15


 

     
(COMPANHIA VALE DO RIO DOCE LOGO)
  MANAGEMENT REPORT 2004

(LOGO) 2004: SETTING NEW RECORDS AND CREATING VALUE

The combination of strong expansion in the global demand for ore and metals and the expansion of production capacity in all the operational activities of Companhia Vale do Rio Doce — CVRD, as a result of implementing highly competitive projects and carrying out very successful acquisitions, added to the significant efficiency gains achieved, enabled the Company to add another year to its excellent track record track. New records were set as a result, and substantial value created for shareholders.

The substantial investments which are currently being implemented by CVRD benefit its shareholders at the same time as contributing directly and indirectly to the generation of tens of thousands of jobs in various states in Brazil, as well as the significant growth in Brazil’s exports. The investment in its railroads has caused a rebirth of the railroad materials industry in Brazil, and is making new businesses possible by opening up efficient transport channels.

The strong cash generation has made it possible to finance growth initiatives as well as distributing a good level of dividends to shareholders, while continuing to preserve a healthy balance sheet, with a low level of financial leverage, a high level of interest coverage, and a comfortable average debt maturity.

  •   Fostering growth

Last year CVRD invested US$ 1.956 billion, an amount calculated according to generally accepted accounting principles in the United States (US GAAP), the second highest level, in real terms in the Company’s history.

In 2004, four important projects were completed: the Sossego copper mine, the expansion of Carajás iron ore production capacity to 70 million tons a year (both in the state of Pará), Pier III at the Ponta da Madeira maritime terminal, in the state of Maranhão, and the Candonga hydroelectric power plant, in the state of Minas Gerais.

For 2005, the Company has announced an investment budget of US$ 3.3 billion. Of the total budget, 22.1% will be allocated to sustain the existing businesses and 77.9% for investment in organic growth.

The amount allocated for organic growth is made up of US$ 2.221 billion to be invested in brownfield and greenfield projects and US$ 375 million in research and development. This is the largest capital expenditure, both in nominal and real terms, in CVRD’s history. Over the period 2003-2005, 74% of the Company’s total investment was directed to organic growth, projects, and research and development.

Five years ago, the amount invested by CVRD in research and development only amounted to US$ 36 million per year, 80% of this being allocated to the prospecting for copper deposits in Carajás. In 2005, as well as investing more than 10 times this amount, the Company has extended its mineral prospecting activities across 10 states in Brazil and nine other countries: Venezuela, Peru, Chile, Argentina, Gabon, Angola, South Africa, Mozambique and Mongolia. Shortly, the Company will begin activities in Australia.

The Company has won a number of international tenders bids, which has strengthened its long-term growth potential.

CVRD successfully competed against international rivals in a tender bid carried out by the government of Mozambique for the exploitation of coal deposits in the Moatize region. These are the largest non-exploited coal reserves in the world. US$ 122.8 million was spent on the concession and


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  MANAGEMENT REPORT 2004

feasibility studies are being developed for the extraction of this deposit. The Company expects to begin the production of metallurgical coal and thermo coal from 2009.

In Argentina, the Company has obtained a licence for the prospecting, evaluation and exploration of a potash deposit located in the region on the banks of the Colorado River, in Neuquén Province.

In Brazil, a concession was obtained, through the payment of US$ 20 million, for the prospecting, evaluation and exploration of a bauxite deposit in the region of Pitinga, in the state of Amazonas.

In Peru, CVRD won a bid for the exploration of the Bayóvar phosphate deposits, located in the Department of Piura.

Currently, the Company is investing in six iron ore projects, five in the Southern System, in the state of Minas Gerais, being one new mine, Fábrica Nova, which will begin operations in the first half of this year, and one in Carajás, in the state of Pará. Iron ore production in 2004 reached a record level of 218 million tons, and the Company estimates that this figure will top 275 million tons by 2007.

At the same time, a new bauxite mine is being opened in Paragominas, located in the state of Pará, whose production capacity will initially be 4.5 million tons a year, requiring a total investment of US$ 352 million. Stages 4 and 5 are being built at the alumina refinery at Alunorte, in Barcarena, in the state of Pará, for an investment of US$ 583 million. In 2005 CVRD will conclude the expansion project of the Taquari-Vassouras potash mine, in the state of Sergipe, and it is also set to begin the development of two new mines: 118, its second copper mine, and Vermelho, its first nickel mine, both located in Carajás.

US$ 760 million is being invested in logistics, with the purchase of 5,606 railcars and 123 locomotives, and on increasing capacity at the maritime terminals of Ponta da Madeira, in the state of Maranhão, Tubarão, in the state of Espírito Santo, and Sepetiba, in the state of Rio de Janeiro.

Over the last four years CVRD’s railroads transported 101.286 billion net ton kilometers (NTK) of general cargo for clients. The main cargos transported were steel industry inputs and products, agricultural products, building materials, paper pulp, fuels and many different other types of goods. The average annual growth rate of general cargo volume transported was 10.7%.

In a consortium with other companies, CVRD is building three new hydroelectric power plants: Aimorés, Capim Branco I and Capim Branco II, in the state of Minas Gerais.

     
CVRD’S INVESTMENTS 1970-2005
at December 2004 prices1
 
(BAR CHART)


1)   nominal values adjusted by the producer price index (PPI) – USA

Source: CVRD



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  MANAGEMENT REPORT 2004

     
INVESTMENTS - 2000-2005
 
(BAR CHART)

  •   International partnerships

CVRD is in the process of developing a number of partnerships with large international, European and Asian companies. These ventures strengthen the Company’s market share in the global scenario, attracting new and significant investment to Brazil and allowing the Company to be shortly able to enter the metallurgical coal market.

The Company is set to build an alumina refinery, a joint-venture greenfield project (Alumina Brasil China) with Chalco – Aluminium Corporation of China Limited in Barcarena, in Pará, supplied with bauxite provided from the Paragominas mine.

CVRD has purchased — for US$ 86 million — a 25% stake in a project for the production of anthracite in China in association with Shanghai Baosteel Group Corporation and Yongcheng Coal & Electricity Group. It has invested US$ 27 million in the creation of Shandong Yankuang International Coking Co. Ltd. in partnership with the Yankuang Group, of China, and the Itochu Corporation, of Japan, for the production of metallurgical coke in China.

The Company has signed memorandums of understanding (MOUs) with various foreign steel companies with the aim of promoting projects for the production of semi-finished steel in Brazil. Feasibility studies are being developed on the following projects: (a) São Luís, in the state of Maranhão, with Baosteel, of China; (b) São Luís, in the state of Maranhão, with Posco, of Korea; (c) Fortaleza, in the state of Ceará, with Dongkuk, of Korea, and Danielli, of Italy; (d) in the state of Rio de Janeiro, with ThyssenKrupp, of Germany.

  •   Iron ore and pellets – new contracts and prices valid for 2005

In 2004 the Company signed contracts for supply of iron ore and pellets totaling approximately 750 million tons with about 40 clients in the Americas, Asia and Europe, with weighted average maturity of seven years. The shipments under these new contracts will provide support for investments in expansion of production capacity.

On February 22, 2005, an agreement was reached between CVRD and Nippon Steel for a 71.5% increase in the price of iron ore fines from Carajás and the Southern System.

On March 3, CVRD concluded an agreement with Arcelor on price increases for blast furnace pellets for 2005: an increase of 86.67% for the Tubarão product and 86.43% for the product from São Luís.

This is the first time that CVRD has agreed a reference price with an Asian client, which is explained by the fact that Asia is responsible for more than two thirds of seaborne imports and a large part of the growth in demand.


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  MANAGEMENT REPORT 2004

  •   Divestitures

Last year, CVRD sold its stake in Companhia Siderúrgica de Tubarão (CST) for US$ 578.5 million. This transaction is consistent with the Company’s strategy of focusing its efforts on taking maximum advantage of profitable growth opportunities in the global market of ores and metals.

CVRD sold its stake in PPSA for US$ 117.8 million to its subsidiary Caemi. The object of the transaction was to consolidate all the kaolin businesses into Caemi, which was already operating in the sector through Cadam.

  •   Stock split

At an Extraordinary General Meeting of Shareholders held on August 18, it was agreed that the Company’s shares would be split. As a result, each share of CVRD was split into three shares, post-split. The aim of this was to reposition the Company’s share price after having appreciated substantially, at the same time facilitating retail investor transactions.

  •   Issue of a 30-year bond

In January 2004, CVRD established an important milestone in Brazil’s financial history. The Company carried out an unsecured bond issue, with a face value of US$ 500 million and maturity of 30 years. The 30-year tenor of the notes is the longest ever for a Brazilian company in the international capital markets.

The bond has a coupon of 8.25% per year and is currently rated Ba1 by Moody’s Investor Service, only one level below investment-grade. The success of this issue was yet another demonstration of the confidence shown by the global capital markets in the financial strength of CVRD.

  •   Committed credit lines

The capital market’s confidence in CVRD was also expressed by the granting of US$ 500 million in committed credit lines by a consortium of banks in the United States, Europe and Asia. This was the first time that a Brazilian Company has had access to an instrument of this nature, which helps to reduce liquidity risks and also optimizes cash management.

  •   Buyback of debt securities

In December 2004 CVRD completed the repurchase of US$ 186.996 million of its US$ 300 million debt issue with political risk insurance (PRI) and maturity in 2007. The purpose of this transaction was improvement of cash management with the buyback of securities that did not fully reflect the Company’s level of risk.

(LOGO) OPERATIONAL FINANCIAL PERFORMANCE

CVRD reported net earnings of R$ 6.460 billion for the year 2004, 43.3% higher than the previous year’s net earnings of R$ 4.509 billion, so setting a new record. Net earnings per share amounted to R$ 5.61. The consolidated return on equity (ROE) of 35.6%, exceeded the figure of 30.2% achieved in 2003.

Operational performance, as measured by consolidated EBIT (earnings before interest and taxes) amounted to R$ 10.306 billion, compared to R$ 6.665 billion in 2003, setting a new record. EBIT margin amounted to 37.4%, compared to 33.1% the previous year.

Consolidated cash generation, as measured by consolidated EBITDA (earnings before interest, tax, depreciation and amortization) was the largest in CVRD’s history, totalling R$ 12.249 billion, an increase of 51.2% compared to 2003.


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  MANAGEMENT REPORT 2004

Consolidated exports amounted to US$ 5.534 billion, an increase of 30.8% on the figure for the previous year. Net exports (exports less imports) amounted to US$ 4.618 billion, an increase of 25.7% compared to 2003. Once again, CVRD was the company that most contributed to Brazil’s trade balance, accounting for 13.7% of the US$ 33.7 billion surplus obtained in 2004, the largest in the history of the Brazilian economy.

Various other records were set in 2004:

  •   consolidated gross revenues of R$ 29.020 billion compared to R$ 20.895 billion in 2003, an increase of 38.9%;

  •   sales of iron ore and pellets of 231.504 million tons, 23.9% higher than that achieved in 2003;

  •   sales of manganese ore of 999,000 tons, an increase of 12.9% in relation to 2003;

  •   sales of ferro-alloys of 542,000 tons, 5.9% higher than sales in 2003;

  •   sales of bauxite, of 5.429 million tons, an increase of 25.5% compared to 2003;

  •   sales of kaolin, of 1.207 million tons, an increase of 65.1% compared to 2003;

  •   freight volume — in general cargo and iron ore — transported by railroad for clients amounted to 40.055 billion net ton kilometres (NTKs), 32.8% higher than in 2003, when 30.171 billion NTKs were transported.

CONSOLIDATED FINANCIAL INDICATORS – BR GAAP

                         
                    R$ billion  
    2002     2003     2004  
Gross operating revenues
    15.267       20.895       29.020  
Gross margin (%)
    47.9 %     43.7 %     48.7 %
Net earnings
    2.043       4.509       6.460  
Net earnings per share (R$)
    1.77       3.92       5.61  
EBITDA
    6.609       8.100       12.249  
EBIT
    5.242       6.665       10.306  
EBIT margin (%)
    35.7 %     33.1 %     37.4 %
ROE (%)
    16.0 %     30.2 %     35.6 %
Exports (US$ billion)
    3.173       4.229       5.534  
Net exports a (US$ billion)
    2.824       3.672       4.618  


a exports less imports

     
CVRD EXPORTS – 2000-2004
 
(BAR CHART)


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  MANAGEMENT REPORT 2004

     
NET EARNINGS – 2000-2004
 
(BAR CHART)

Consolidated cash generation, as measured by EBITDA, amounted to R$ 12.249 billion, another new record. EBITDA obtained in 2004 was 51.2% higher than the figure in 2003, of R$ 8.100 billion.

Ferrous mineral operations – iron ore, pellets, manganese and ferro-alloys – accounted for 64.9% of EBITDA generated in 2004, while products from the aluminium chain were responsible for 16.0%, logistics services 10.1%, steel 6.5% and non-ferrous minerals 2.5%.

     
CONSOLIDATED EBITDA - 2000-2004
 
(BAR CHART)

     
CONSOLIDATED EBITDA BY BUSINESS AREA - 2004
 
(PIE CHART)

(LOGO)  DEBT: LOWER LEVERAGE, HIGHER INTEREST COVERAGE, LOWER RISK PROFILE1

CVRD’s total debt on December 31, 2004 was US$ 4.088 billion, US$ 330 million lower than on September 30, 2004, US$ 4.418 billion


1 Debt values calculated according to generally accepted accounting principles in the United States (US GAAP)


6


 

     
(LOGO)
  MANAGEMENT REPORT 2004

The Company’s leverage indicators improved substantially: gross debt/EBITDA fell from 1.89x as of December 31, 2003 to 1.10x as of December 31, 2004. Interest coverage measured as EBITDA/interest paid increased, from 11.51x at the end of 2003 to 12.41x at the end of 2004. These changes are in line with the Company’s strategy of preserving a sound balance sheet.

The Company has also been successful in reducing the implicit risk of its debt portfolio. Average debt maturity was increased, from 3.60 years at the end of December 2003 to 6.83 years at the end of 2004, helping reduce refinancing risks. One of the main factors in this change was the issue of a 30-year bond, CVRD 2034. At the same time the percentage of debt with floating interest rates decreased from 71% at the end of December 2002 to 56% at the end of 2004, reducing interest rate risk. The change in the risk profile took place with an increase in the average cost of debt of less than 100 basis points.

CVRD is rated Ba1 by Moody’s, only one notch below investment grade, with a positive outlook. In view of the importance of cost of capital for its growth projects and creation of value for the shareholders, obtaining the investment grade rating is one of the Company’s main targets.

(LOGO) TOTAL SHAREHOLDER RETURN

In 2004, dividends of R$ 2.271 billion was paid to CVRD’s shareholders, corresponding to R$ 1.96 per share. This amount was 17.7% higher than that distributed in 2003 and 25.7% higher than the figure in 2002.

For 2005, CVRD’s Executive Board will make a proposal to the Board of Directors for the payment of minimum dividend to shareholders of US$ 1 billion, corresponding to US$ 0.87 per outstanding share.

In 2004, the shares traded on Bovespa, Vale ON and Vale PNA, appreciated by 29.8% and 27.0%, respectively, compared to the appreciation of 17.8% in the Ibovespa Index. The price of the ADRs traded on the New York Stock Exchange (NYSE), RIO and RIO PR, rose by 43.1% and 38.0%, exceeding the performance of the MSCI Metals & Mining index, which is representative of the share prices of the global metals and mining industry, which increased by 14.2%, and that of the MSCI World index, indicative of the behaviour of equity markets throughout the world, which appreciated by 12.7%.

CVRD ended 2004 with a market capitalization of US$ 31.9 billion, more than three times the value at the end of 2001, of US$ 9.0 billion. On February 24, 2005, CVRD’s market value reached a record US$ 39.9 billion. CVRD is currently one of the largest metals and mining companies in the world and the largest private company in Latin America.

The total shareholder return in 2004, measured in US dollars, amounted to 45.9%. In the period between 2001 and 2004, average total shareholder return was 38.9% per year.


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(COMPANHIA VALE DO RIO DOCE LOGO)
  MANAGEMENT REPORT 2004

     
VALE PNA vs. IBOVESPA INDEX– Base January-2000
 
(LINE GRAPH)

     
RIOPR vs. MSCI Metals & Mining Index – Base January-2000
 
(LINE GRAPH)

     
Expansion of CVRD’s Market Value Since 1998
 
(LINE GRAPH)

(LOGO) CORPORATE SOCIAL RESPONSIBILITY

Social corporate responsibility activities are strategic investments. Through several initiatives, CVRD aim at improving the business environment in the regions where it operates and assure the preservation of its long term competitiveness.

CVRD has two main permanent and prioritary goals. One is environmental protection and the other is the creation of conditions of effective economic and social opportunities for the communities located close to its operations.


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(COMPANHIA VALE DO RIO DOCE LOGO)
  MANAGEMENT REPORT 2004

The Company invests an average of US$ 12 million per year in social projects driven to lower income communities, focused in education, health and citizenship promotion. The main specific segments are: education and community development, environmental education, teach children and adults to read and write, musical education, teaching and school structure improvements, social inclusion.

In Canaã dos Carajás, municipality located close to the copper belt at the south of the Carajás mineral province, CVRD established a benchmark in social development in the modern mining industry. The Company built a hospital equipped with 40 beds, a new school to attend 700 children and two kinder gardens. The new town has a 20 km water treatment station and a sewage system for all the population, 100 km of paved roads and 20 km paved streets. CVRD also built a culture center, and a police department. Total investment realized by the Company in these projects achieved US$ 13 million.

CVRD invests on average US$ 40 million per year in environmental protection and management. All of the iron ore produced by the Company is originated in mines certified by ISO 14001. It was the first company in the world to obtain these certifications. The Company adopts pollution controls, using advanced technology to comply with all legal requirements. Its dumps and reservoirs are constructed in accordance with the best international patterns and are regularly submitted to rigorous auditing process.

(LOGO) BUSINESS OUTLOOK

In spite of the slowdown in the second half, the world economy is estimated to have grown by 4.8% in 2004, the highest rate in the last 20 years, while international trade grew by 18.6% in the year – the highest expansion since 1995.

The recovery was led by the United States, with GDP growth of 4.4%. A 9.5% expansion of the Chinese economy was also extremely important for the excellent performance of the world economy. In broad terms it was a synchronized recovery, though with reasonable variance between regions: 1.7% growth in the Euro zone, 2.6% in Japan, and 6% in Latin America, with the Brazilian economy showing its best performance since 1994 with GDP growth of 5.2%.

As well as the natural cyclical effect of the global economy recovery, the strong growth of China, faster than its already high average annual growth rate over the last 20 years (9.2%), and the fact that its economy is an intensive user of industrial raw materials at this stage of economic development, contributed to considerable demand pressure for ores and metals.

In response to the acceleration of demand, world steel production exceeded one billion tons for the first time, reaching 1.055 billion in the year, 8.8% higher than 2003, and almost double the average annual growth rate of 4.5% in the post-Asian-crisis period (1998-2003). In spite of this significant supply reaction, for the second year running there was a substantial increase in the prices of steel products.

Also as a result of this movement, seaborne iron ore trade grew to 602 million tons in 2004, 12.1% more than in 2003. Part of the disequilibrium between supply and demand was satisfied by the emergence of a spot market of considerable scale, in which prices reached multiples of the benchmark prices.

We expect the world economy to continue to grow at a rate above average long-term trend, although more slowly than in the first half of 2004. Together with the good outlook for the performance of the Chinese economy this tends to support up cycle of ores and metals prices.

Although investments by the global metals and mining industry are firmly expanding, indicating that in 2005 they could reach twice their amount of 2002, we believe that, at least for the next two years,


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  MANAGEMENT REPORT 2004

reasonably large-scale imbalances between supply and demand in several markets continue to exist, especially iron ore, alumina and aluminum.

Capacity utilization levels are extremely high, resulting in higher operational costs and problems in the supply chain. Inventories, both in absolute terms and also in relation to consumption, are at historically low levels, while a considerable portion of the increase in the value of investments programmed is due to the increase in the cost of equipment. Further, the average time between the decision to invest and the conclusion of a project is relatively long, and has increased, worldwide, due to the increase in requirements for approval.

In the specific case of iron ore, we estimate an increase of global seaborne demand of 50 million tons. This increase, of 8.3%, would be lower than in 2004, but still shows significant vigor, as this expansion is stonger than the growth trend of the last 10 years – of 5% since the beginning of the 90s. In view of the relative rigidity of supply expansion in the short term, with operation at full capacity and virtual non-existence of inventories, persistence of very tight market conditions can be foreseen.

Although CVRD’s programmed iron ore production for this year is more than 10% greater than in 2004, the Company still faces excess demand.

We expect the Brazilian economy to continue to recover from the period of low growth in 2002 and 2003, while exports will continue to increase, resulting in favorable conditions for the logistics services offered by CVRD in Brazil.


10


 

         
(LOGO)       (LOGO)

Financial Statements — 2004

BRGAAP

Filed at CVM and SEC on 03/21/05

Gerência Geral de Controladoria — GECOL

 


 

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CVRD


 

         
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3

CVRD


 

Part I

Expressed in millions of reais

1-    Management’s Discussion and Analysis of the Operating Results for the Year Ended December 31, 2004 Compared With    the Year Ended December 31, 2003

1.1-    General Aspects

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

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

Ferrous Minerals

Iron Ore and Pellets

Operating through two world-class integrated systems for ore production and distribution, each consisting of mines, railroads and maritime terminals. The Southern System, based in the states of Minas Gerais and Espírito Santo and the Northern System, based in the states of Pará and Maranhão. Currently CVRD operates nine pelletizing plants in Brazil, five of them in joint ventures with international partners. The Company also has a 50% interest in Samarco, which owns and operates two pelletizing plants in Espírito Santo, and a pelletizing plant in Bahrein (GIIC), which CVRD has a 50% interest.

Iron ore and pellets export sales are generally made pursuant to long-term supply contracts which provide for annual price negotiations. Cyclical changes in the world demand for steel products affect sales prices and volumes in the world iron ore market. Different factors, such as the iron content of specific ore deposits, the various beneficiation processes required to produce the desired final product, granulometric, moisture content, and the type and concentration of contaminants (such as phosphorus, alumina and manganese) in the ore, influence contract prices for iron ore. Contract prices also depend on transportation costs. Annual price negotiations generally occur from November to February, with separate prices established for the Asian and European iron ore markets. In the Asian market, the renegotiated prices are effective as of April of each year up to March of the next year. In the European market, the renegotiated prices are effective as of January of each year. Because of the wide variety of iron ore and pellet quality and physical characteristics, iron ore and pellets are less commodity-like than other minerals which are fungible and have standard international prices. This factor combined with the structure of the market has prevented the development of an iron ore and pellets futures market which we could, if we wished, use to mitigate our exposure to price fluctuations of these products. Currently, the Company does not hedge its exposure to iron ore and pellet price volatility.

Manganese and Ferroalloys

This activity is carried out through the subsidiaries RDM located in the state of Bahia and Minas Gerais, Urucum located in the state of Mato Grosso do Sul, Rio Doce Manganèse Europe in France and Rio Doce Manganese Norway in Norway.

Non-Ferrous Minerals

Potash

The potash is an important raw material for making fertilizers. The Company has leased a potash mine in the state of Sergipe from Petróleo Brasileiro S.A. – PETROBRAS since 1995, which is the unique of this kind in Brazil.

In November, 2004, CVRD won an international competition for the research evaluation and exploration of a potash deposit in the Neuquen Province, Argentina.

Copper

CVRD’s copper activities have been operating since June, 2004 the Sossego mine in Pará. Sossego is the first copper mine of CVRD and the only project Greenfield in the world to begin to operate in 2004.

3

CVRD


 

Kaolin

Kaolin is a fine white aluminum silicate clay, used in the paper, ceramic and pharmaceutical industries as a coating and filler. Kaolin commercial activities are conducted through Pará Pigmentos S.A. and Cadam.

Gold

Gold operations were substantially reduced with the sale of Fazenda Brasileiro in 2003. At present, gold operations are linked to copper as a by-product and the small productions in Itabira mine in connection with our iron ore operations.

Logistics

The logistics system includes the Vitória to Minas Railroad and the Tubarão port complex in the Southern System, and the Carajás Railroad and Ponta da Madeira Marine Terminal in the Northern System. In addition, CVRD controls the railroad Ferrovia Centro-Atlântica S.A. – FCA, and has interest in MRS Logística. The principal cargo of CVRD’s railroad is the Company’s own iron ore, along with steel, coal, pig iron, agricultural products and fuel. The Company charges market rates for third-party cargo, which vary based upon the distance traveled and the density of the freight in question.

Energy

The Company participates in nine hydroelectric plants, four of which are in operation. CVRD’s investments in the sector seek to optimize the Group’s supply of electric power.

Holdings

Aluminum Operations

The Company sells aluminum, alumina and bauxite to an active world market in which prices are determined based on prices for the primary aluminum quoted on the London Metals Exchange and the Commodity Exchange, Inc (Comex) at the time of delivery.

The bauxite extraction activities are done through a 40% participation in the joint venture Mineração Rio do Norte S.A. – MRN. We have had a 57.03% interest in the voting capital of Alunorte, which refines the bauxite into alumina and also a participation in aluminum smelting through Albras, in which it held a 51% interest, and through Valesul, of which it owned 54.51%.

Steel

Commercial activities in the steel industry are conducted through the jointly-controlled company California Steel Industries Inc. (50% of total capital), located in California, which manufacturers various processed steel products, and through the affiliated company Usiminas (11.46% of the total capital).

(b)   The variations of the main currencies and indices in relation to the real, which impacted the results of the Company and its subsidiaries, jointly-controlled companies and affiliates, were as follows:
                                                 
    D%     Parity  
Currencies / Indices   U.S.                                
Period   DOLLAR     YEN     IGP-M     TJLP     US$ x R$     US$ x Yen  
Year ended 2004
    (8.1 )     (4.0 )     12.4       9.8       2.6544       102.55  
4Q/04
    (7.1 )     (0.2 )     2.0       2.4       2.6544       102.55  
3Q/04
    (8.0 )     (9.1 )     3.3       2.4       2.8586       110.17  
Year ended 2003
    (18.2 )     (9.3 )     8.7       11.5       2.8892       107.17  
4Q/03
    (1.2 )     3.0       1.5       2.6       2.8892       107.17  

About 83% of the Company’s gross revenue (84% consolidated) for 2004 is linked to the U.S. dollar. About 31% (36% consolidated) of total costs are linked to the U.S. dollar. Consequently, fluctuations in the exchange rate between the two currencies have a significant impact on the operating cash flows.

Approximately 96% (91% consolidated) of the short-term and long-term loans of the Company for 2004 are denominated in U.S. dollars. As a result, exchange rate fluctuations have a significant impact on the financial expenses (Notes 10.14 and 10.23).

4

CVRD


 

(c)   Divestitures
 
    CST
 
    CVRD through its indirect subsidiary Rio Doce International Finance Ltd., sold to Arcelor its holdings in Companhia Siderurgica de Tubarão (CST) for US$ 578.5 million, accounting for results of R$ 541 million (R$ 463 in 3Q/04 and R$ 78 in 4Q/04), disclosed as “Results on sale of assets” in the income statement.
 
    PPSA
 
    CVRD sold to Caemi Mineração e Metalurgia S.A., in October, 2004 for US$ 117.8 million, the voting capital of Para Pigmentos S.A.. The result of the operation was registered in the Financial Statements as a non-realized result by the parent company.
 
(d)   Consolidation
 
    CVRD received approval from Comissão de Valores Mobiliários – CVM, and its independent auditors the permission to fully consolidate Albras Alumínio Brasileiro S.A. (Albras), an aluminum producer company.
 
    For the purpose of comparability, CVRD discloses 2003 “proforma” amounts with the necessary adjustments to reflect the effects of the full consolidation in 2003 (Note 10.3).
 
(e)   In 2004, the consolidated trade balance of US$ 4,618 million was generated as follows:
                 
    Consolidated (in US$ million)  
    2003     2004  
Exports
    4,229       5,534  
Imports
    (557 )     (916 )
 
           
 
    3,672       4,618  
 
           

(f)   Corporate governance – Sarbanes-Oxley
 
    Sarbanes-Oxley was approved in the United States, and its application is obligatory to all American and foreign companies registered with the Securities and Exchange Commission that negotiate American Depositary Receipts in United States stock exchanges. CVRD also has ADR in the New York Stock Exchange and has been accomplished to the Regulatory Entities’ demand.
 
(g)   Independent auditors policy
 
    The policy concerning independent accountants in relation to non-audit services is based on the maintenance of their independence. During 2004, the amount of non-audit services paid was less than 5% compared to the total fees paid to independent auditors.
 
    Beginning in 2004, the Company has been audited by Deloitte Touch Tohmatsu Auditores Independentes in accordance with Instruction CVM 308, related to auditors’ rotation.
 
(h)   Stock Split
 
    On August 18, 2004 the Extraordinary General Stockholders’ Meeting approved the forward stock split. After the split the Company’s capital comprises 1,165,677,168 shares, of which 749,949,429 common shares 415,727,739 class “A” preferred.
 
    Beginning August 19, each share of the Company traded in the São Paulo Stock Exchange (Bovespa) underwent a forward stock split into three shares. Hence, each current share, both common (VALE3) and preferred (VALE5) is represented by three shares post-split.
 
    Beginning September 7, each American Depositary Receipt (ADR) representing common shares (RIO) or preferred shares (RIOPR) of the Company listed on the New York Stock Exchange (NYSE) was also undergo a forward split. As a result, the proportion of one ADR to one underlying common or preferred share is maintained.
   
CVRD 5


 

1.2- Comments on the Parent Company Results

The net income of the Company in 2004 was R$ 6,460 compared with net income of R$ 4,509 in 2003 (the earnings per share corresponds to R$ 5.61 in 2004 versus R$ 3.92 in 2003).

The gross margin declined from 46.5% in 2003 to 45.4% in 2004. The gross revenue rose R$ 3,418 (to R$ 13,785 in 2004 from R$ 10,367 in 2003), while the cost of products and services increased R$ 1,790 (to R$ 7,147 in 2004 from R$ 5,357 in 2003).

1.2.1- Gross Revenue

The 33% increase in gross revenue (R$ 13,785 in 2004 against R$ 10,367 in 2003) is the result of the 19% higher volume sold of iron ore and pellets, considering the merger of Ferteco in September 2003 and for the operation at full capacity of the pelletizing plant of São Luis since June, 2003. The revenues of the year includes the first transportation of copper (269 thousands of tons – R$592) began in June, 2004. This effect was compensated in part for the average valuation of the real against the United States Dollar by 4.8%, incident on 83% of the revenue of the Company.

The increase in iron ore and pellets sales was due to growth in Europe, Asia and steel companies in Brazil of 23%, 17% and 25% respectively.

                                                                                                 
    In thousands of metric tons (except gold and railroad        
    transportations)     In millions of reais  
    Quarter     Accumulated     Quarter     Accumulated  
    4Q/04     3Q/04     4Q/03     2004     2003     D%     4Q/04     3Q/04     4Q/03     2004     2003     D%  
External market
                                                                                               
Iron ore - fines
    29,183       28,538       25,769       108,772       91,812       18       1,450       1,507       1,295       5,548       4,513       23  
Iron ore - lump ore
    2,516       2,646       2,611       9,105       7,866       16       146       164       140       535       422       27  
Pellets
    5,729       5,742       5,416       22,595       17,231       31       564       611       503       2,359       1,621       46  
 
                                                                           
 
    37,428       36,926       33,796       140,472       116,909       20       2,160       2,282       1,938       8,442       6,556       29  
 
                                                                           
Internal market
                                                                                               
Iron ore - fines
    8,042       7,992       7,494       31,914       30,206       6       386       410       302       1,533       1,314       17  
Iron ore - lump ore
    2,641       2,615       2,260       9,946       7,089       40       128       132       71       476       244       95  
Pellets (*)
    1,293       1,360       1,247       5,115       3,709       38       200       191       161       747       498       50  
 
                                                                           
 
    11,976       11,967       11,001       46,975       41,004       15       714       733       534       2,756       2,056       34  
 
                                                                           
 
Total Iron ore - fines
    37,225       36,530       33,263       140,686       122,018       15       1,836       1,917       1,597       7,081       5,827       22  
Iron ore - lump ore
    5,157       5,261       4,871       19,051       14,955       27       274       296       211       1,011       666       52  
Pellets
    7,022       7,102       6,663       27,710       20,940       32       764       802       664       3,106       2,119       47  
 
                                                                           
 
    49,404       48,893       44,797       187,447       157,913       19       2,874       3,015       2,472       11,198       8,612       30  
 
                                                                           
Copper
    139       96             269                   324       196             592              
Potash
    165       161       169       630       674       (7 )     98       103       73       362       289       25  
Gold (kg)
    33             63       33       1,921       (98 )     1             3       1       71       (99 )
Railroad transportation (millions of TKU) (**)
    6,063       6,783       5,605       24,941       22,434       11       305       333       249       1,218       1,059       15  
Port services
    6,221       6,654       5,761       25,406       25,311             87       89       77       338       307       10  
Alumina
    28                   28                   26                   26              
Other products and services
                                        20       6       3       50       29       72  
 
                                                                                     
 
                                                    3,735       3,742       2,877       13,785       10,367       33  
 
                                                                                     


(*) Includes revenues derived from services provided to pelletizing joint ventures in the amounts of R$ 40, R$ 34, R$ 41, R$ 156 and R$ 137 in 4Q/04, 3Q/04, 4Q/03, 2004 and 2003, respectively.

(**) The company carried through its railroad system 4,350, 5,034, 4,041, 18,222 and 16,302 million of TKUs of general cargo and 1,713, 1,749, 1,564, 6,719 and 6,132 million of TKUs of iron ore and pellets in 4Q/04, 3Q/04, 4Q/03, 2004 and 2003, respectively.

(PIE CHART)

6


 

Gross revenue by segment

                                                         
                            Total  
    Ferrous     Non-Ferrous                                
    Minerals     Minerals     Logistics     2004     %     2003     %  
External market
                                                       
Americas, except the United States
    661                   661       5       484       5  
United States
    325       1             326       2       301       3  
Europe
    3,522       142             3,664       26       2,727       26  
Middle East/Africa/Oceania
    771                   771       6       549       5  
Japan
    804                   804       6       787       8  
China
    1,577       96             1,673       12       1,226       12  
Asia, other than Japan and China
    783       303             1,086       8       552       5  
 
                                         
 
    8,443       542             8,985       65       6,626       64  
 
Internal market
    2,805       439       1,556       4,800       35       3,741       36  
 
                                         
 
Total gross revenues
    11,248       981       1,556       13,785       100       10,367       100  
 
                                         

1.2.2- Cost of Products and Services

The 33% (R$ 1,790) increase in the cost of products and services (R$ 7,147 in 2004 against R$ 5,357 in 2003) results mainly from the principal factors:

•   Ferteco’s merger in September 2003, adding costs of R$ 607 from increase of sales totalling 12,233 thousand tons of iron ore and pellets, besides the impact of R$ 137 goodwill amortization;
 
•   Acceleration of goodwill amortization period of Samitri as a result of the revision of its projection of rentability, increasing costs by R$ 81 in twelve months of 2004;
 
•   Increase in volumes of iron ore and pellets purchased, as well as increase in prices totalling in R$ 93;
 
•   Operations at full capacity of the São Luís Pellets Plant (UPSL), adding costs of R$ 147 to sales of 2,386 thousand tons in 2004;
 
•   Inclusion of the first transportation of copper at Sossego Mine increasing R$ 262 of costs due to sales of 269 thousands of tons in 2004; and
 
•   R$ 693 due to the increase in sales, the increase in maintenance of goods and equipment and price adjustments to contracts of services and oil-derived products.

(PIE CHART)

7

CVRD


 

By Nature

                                                                                                         
    2004              
    Denominated     Quarter     Accumulated  
    R$     US$     4Q/04     %     3Q/04     %     4Q/03     %     2004     %     2003     %     D%  
Personnel
    691             185       9       191       10       185       12       691       10       572       11       21  
Material
    917       431       432       21       350       19       243       16       1,348       19       874       16       54  
Oil and gas
    777             217       11       204       11       180       12       777       11       636       12       22  
Outsourced services
    971             228       11       269       15       250       16       971       14       753       14       29  
Outsourced transportation
    358             130       6       73       4       50       3       358       5       86       2       316  
Energy
    217             50       2       69       4       51       3       217       3       151       3       44  
Acquisition of iron ore and pellets
          1,247       329       16       329       18       232       15       1,247       17       1,154       21       8  
Tolling industrialization
          89       38       2       17       1       17       1       89       1       38       1       134  
Depreciation and depletion
    584             158       8       151       8       154       10       584       8       554       10       5  
Amortization of goodwill
    384             96       5       96       5       76       5       384       5       166       3       131  
Others
    59       422       178       9       106       5       110       7       481       7       373       7       29  
 
                                                                               
Total
    4,958       2,189       2,041       100       1,855       100       1,548       100       7,147       100       5,357       100       33  
 
                                                                               
 
    69 %     31 %                                                                                        
 
                                                                                                   

1.2.3- Results of Shareholdings by Business Area

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

                                                 
    Quarter     Accumulated  
Business Area   4Q/04     3Q/04     4Q/03     2004     2003     %  
Ferrous Minerals
                                               
. Iron ore and pellets
    512       505       20       1,666       783       113  
. Manganese and ferroalloys
    138       207       221       572       385       49  
 
                                               
Non-Ferrous Minerals
    (24 )     16       (39 )     (4 )     (56 )     93  
 
                                               
Logistics
    17       68       17       166       (143 )     216  
 
                                               
Holdings
                                               
. Steel
    251       178       93       802       436       84  
. Aluminum
    176       235       138       728       761       (4 )
 
Others
    17       (3 )     (24 )     17       (91 )     119  
 
                                     
Gain on investments accounted for by the equity method
    1,087       1,206       426       3,947       2,075       90  
 
                                     
 
                                               
Provision for losses
    (12 )     (10 )     (154 )     (81 )     175       (146 )
 
                                               
Amortization of goodwill
    (55 )     (57 )     (114 )     (250 )     (503 )     50  
 
                                               
Exchange variation in Stockholders’ Equity of companies abroad
    (318 )     (236 )     (9 )     (365 )     (625 )     42  
 
                                     
 
                                               
Results of equity investments
    702       903       149       3,251       1,122       190  
 
                                     

The effects of exchange rate variation on debt generated a negative variation impacting the results of equity investments due to the real valuation against US dollar of only 8.1% in 2004 compared to 18.2% in 2003.

Ferrous Minerals

(a) Iron Ore and Pellets

There were increases in sales volume of iron ore and pellets as well as of average prices, partially offset by the Real appreciation of 4.8% (the average exchange rate floated from R$ 3.0723 in 2003 to R$ 2.9257 in 2004).

In September 2003, CVRD increased its ownership in Caemi Mineração e Metalurgia S.A. (60.23% in 2004 against 16.86% in the first eight months of 2003). As opposed, due to the incorporation of Ferteco Mineração S.A. in September 2003, equity in the results of Ferteco is no longer applicable as from the first eight months in 2003.

(b) Manganese and Ferroalloys

Equity in the results of investees had an increase, mainly due to the increases in sales volume and selling average prices of manganese and ferroalloys, partially offset by the effects of the Real appreciation of 4.8%.

Non-Ferrous Minerals

8

CVRD


 

There were increases in sales volume and stability in average prices in US dollar. The gains were partially offset by the effects of the Real appreciation of 4.8% and the increase of mineral researches expenses related to several countries.

Logistic

Equity in the results of investees increased substantially, due to the increase in volume transported through the railroads and shipments, partially offset by the reduction in the volume of bulk transportation as a result of the divestitures program in the shipping business. Selling average prices increased mainly due to the strong demand for transportation services, especially from the exporters.

Additionally, the result of equity investment at 2003 was negatively impacted by the change in the accounting practice to recognize the costs of leasing of R$ 238 in FCA.

Holdings

(a) Steel

Equity in the results of investees had an increase mainly due to the increases in sales volume and selling average prices, partially offset by the effects of the 4.8% Real appreciation against the US dollar.

Additionally, CST had a favorable decision in Court and, accordingly, recognized R$ 74, in June, 2004, of income tax credits related to the “Plano Verão” and reversal of provision for contingencies. From June, 2004 the interest in CST was reduced from 28.02% to 7.91% as a result of the sale of CST interest, which were sold in December, 2004.

(b) Aluminum

There were increases in sales volume, mainly of alumina and bauxite, due to the increase in the capacity production of the plants and increase in the selling average prices partially offset by the effects of the Real appreciation against the US dollar. The aluminum production costs of Valesul significantly increased as a result of the increase in energy costs.

Additionally, as a result of the increase in metal prices, the marking of the market price derivative instruments for metal prices generated losses in 2004.

1.2.4- Operating Expenses

The operating expenses, except for non recurring item refering to Samitri´s amortization goodwill, increased R$ 277 (R$ 1,453 in 2004 compared to R$ 1,176 in 2003), due to higher administrative expenses and expenses for research and studies involving copper and nickel projects.

1.2.5- Non Recurring Item – Samitri’s Amortization of Goodwill

In 2004, according to instruction CVM 247, we reviewed the terms of goodwill originated from Samitri acquisition. After reviewing the projections of future results we adopted five years of amortization, mainly due to the increase of cashflow dividends received from Samarco. Consequently, we recorded an expense of R$ 183.

1.2.6- Net Financial Results

The net financial result in 2004 had a negative impact of R$ 1,146 (expense of R$ 752 in 2004 compared to revenue of R$ 394 in 2003), mainly due to exchange rate effects arising from the valuation of the real against the dollar of 18% in 2003 and of 8% in 2004. (Note 10.23)

1.2.7- Income Tax and Social Contribution

9

CVRD


 

Income tax and social contribution reflect an expense of R$ 885 in 2004 compared with an expense of R$ 487 in 2003, mainly caused by reduction on the benefit of interest on stockholders’ equity, temporary difference due to capital loss non-deductible and taxation over amortized investment discount. (Note 10.11)

1.2.8- Cash Generation

The operating cash generation measured by EBITDA (earnings before financial results, results of equity investments, interest, income tax and depreciation, amortization and depletion) was R$ 6,211 in 2004, against R$ 4,877 in 2003, an increase of 27.4%.

EBITDA

                                         
    Quarter     Accumulated  
    4Q/04     3Q/04     4Q/03     2004     2003  
Net operating revenue
    3,563       3,534       2,798       13,088       10,013  
Cost of products and services
    (2,041 )     (1,855 )     (1,548 )     (7,147 )     (5,357 )
Operating expenses
    (425 )     (467 )     (357 )     (1,636 )     (1,176 )
 
                             
Operating profit
    1,097       1,212       893       4,305       3,480  
Depreciation, amortization and depletion
    260       258       244       1,007       759  
 
                             
 
    1,357       1,470       1,137       5,312       4,239  
Dividends received
    245       68       102       716       602  
Write-off of assets
                            36  
Goodwill Samitri
                      183        
 
                             
EBITDA R$
    1,602       1,538       1,239       6,211       4,877  
 
                             
Current liabilities
                                       
Current portion of long-term debt — unrelated parties
    670       785       1,897       670       1,897  
Short-term debt
          142       106             106  
Loans from related parties
    2,043       1,564       1,365       2,043       1,365  
 
                             
 
    2,713       2,491       3,368       2,713       3,368  
 
                                       
Long-term liabilities
                                       
Long-term debt — unrelated parties
    2,911       3,214       2,771       2,911       2,771  
Loans from related parties
    3,784       4,388       4,395       3,784       4,395  
 
                             
 
    6,695       7,602       7,166       6,695       7,166  
 
                             
Gross debt
    9,408       10,093       10,534       9,408       10,534  
 
                             
Interest paid
    69       71       92       345       369  
Stockholders’ equity
    18,170       18,621       14,940       18,170       14,940  
EBITDA / Interest paid
    23.22       21.66       13.47       18.00       13.22  
 
Gross debt / LTM EBITDA
    1.51       1.73       2.16       1.51       2.16  
Gross debt / Equity Capitalization
    34       35       41       34       41  

10

CVRD


 

1.3- Comments on the Consolidated Results

1.3.1- Consolidated Gross Revenue

Sales volume and revenues by products and services:

                                                 
    In thousands of metric tons                      
    (except gold and railroad transportation)             In millions of reais        
                                    2003        
    2004     2003     D%     2004     Proforma     D%  
Iron ore
    190,651       154,172       24       11,030       7,743       42  
Pellets (*)
    40,853       32,640       25       4,596       3,414       35  
 
                                       
 
    231,504       186,812       24       15,626       11,157       40  
 
                                       
Manganese
    999       885       13       178       150       19  
Ferroalloys
    542       512       6       1,906       948       101  
Copper
    269                   592              
Potash
    630       674       (7 )     362       289       25  
Kaolin
    1,207       731       65       468       320       46  
Gold (kg)
    33       1,921       (98 )     1       71       (99 )
Railroad transportation (millions of TKU)
    40,055       30,171       33       2,125       1,431       48  
Port services
    28,697       28,743             450       371       21  
Maritime transportation
                      450       332       36  
Aluminum
    477       488       (2 )     2,439       2,151       13  
Alumina
    1,678       1,805       (7 )     1,315       1,134       16  
Bauxite
    5,429       4,326       25       301       249       21  
Steel
                      2,731       2,217       23  
Other products and services
                      76       75       1  
 
                                           
 
                            29,020       20,895       39  
 
                                           

(*)    Includes revenues derived from services provided to palletizing join ventures in the amount of R$ 77 and R$ 68, referring to 2004 and 2003, respectively.

Revenues from iron ore and pellets increased by 40% (R$ 15,626 in 2004 against R$ 11,157 in 2003) due to modification of the product mix and higher prices in 2004.

Revenues from manganese and ferroalloys increased by 90% (R$ 2,084 in 2004 against R$ 1,098 in 2003) and reflect the performance of the companies of the segment discussed in Item 1.2.3 Ferrous Minerals (b) Manganese and ferroalloys.

Revenues from kaolin increased by 46% (R$ 468 in 2004 against R$ 320 in 2003). This increase was basically due to the acquisition of indirect control of Cadam, through an increase in the holding in the subsidiary Caemi, since September, 2003.

Revenues from transportation rose 48% (R$ 2,125 in 2004 against R$ 1,431 in 2003), due mainly to acquisition of indirect control of MRS (through Caemi) and FCA since September, 2003, along with higher railway freight rates.

Revenues in the aluminum area rose 15% (R$ 4,055 in 2004 versus R$ 3,534 in 2003), due to increase of production capacity of bauxite and alumina plants as well as the average selling prices, discussed in Item 1.2.3 Holdings (b) Aluminum.

Revenues from steel products increased by 23% (R$ 2,731 in 2004 compared with R$ 2,217 in 2003). This reflects the performance of CSI and CST, discussed in Item 1.2.3 Holdings (a) Steel.

(PIE CHART)

11

CVRD


 

Gross Consolidated Revenue by Segment

                                                                                 
            Non-             Holdings             Total  
    Ferrous     Ferrous                                                     2003        
    Minerals     Minerals     Logistics     Aluminum     Steel     Eliminations     2004     %     Proforma     %  
External market
                                                                               
America, except United States
    2,170       6       196       672       138       (1,086 )     2,096       7       1,410       7  
United States
    1,564       1       44       727       2,063       (1,127 )     3,272       11       2,004       10  
Europe
    10,024       541       31       2,189       43       (4,816 )     8,012       28       5,828       28  
Middle East/Africa/Oceania
    1,721       12             7             (407 )     1,333       4       1,082       5  
Japan
    2,240       77             1,059             (847 )     2,529       9       2,249       10  
China
    4,271       238             380       45       (1,855 )     3,079       11       2,025       10  
Asia, other than Japan and China
    2,104       604       1             148       (1,087 )     1,770       6       1,229       6  
 
                                                           
 
    24,094       1,479       272       5,034       2,437       (11,225 )     22,091       76       15,827       76  
 
                                                                               
Internal Market
    4,711       486       3,029       1,127       367       (2,791 )     6,929       24       5,068       24  
 
                                                           
 
                                                                               
Total operating revenues
    28,805       1,965       3,301       6,161       2,804       (14,016 )     29,020       100       20,895       100  
 
                                                           

1.3.2- Consolidated Cost of Products and Services

By Nature

                                         
    2004                      
    Denominated in                      
                            2003        
    R$     US$     2004     Proforma     D%  
Personnel
    1,262       150       1,412       1,213       16  
Material
    1,547       778       2,325       1,797       29  
Oil and gas
    1,212       385       1,597       1,362       17  
Outsourced services
    2,169       305       2,474       1,802       37  
Energy
    686       567       1,253       998       26  
Raw Material
    258       2,262       2,520       2,262       11  
Depreciation and depletion
    1,125       66       1,191       1,035       15  
Amortization of goodwill
    384             384       166       131  
Others
    466       501       967       695       39  
 
                               
Total
    9,109       5,014       14,123       11,330       25  
 
                               
 
    64 %     36 %                        
 
                                   

The 25.0% (R$ 2,793) increase in the cost of products and services is due to changes in consolidated entities, increases in sales volumes and changes in the prices of the various elements which comprise production cost, as follows:

Change in consolidated entities:

•   Increase in the percentage of consolidation of FCA (100% as from September 2003);
 
•   Reduction in the percentage of consolidation of CST (28.73% up to June 2004 to 7.91% among July and December, 2004);
 
•   Increase in the percentage of consolidation of Caemi (100% as from September 2003);
 
•   Incorporation of Ferteco as from September, 2003; and
 
•   Incorporation of Mineração Serra do Sossego as from December, 2003.

Increases in sales volumes:

•   Increase of 24% and 25% in sales volume of iron ore and pellets, respectively;
 
•   Increase of 13% and 6% in sales volume of manganese and ferroalloys, respectively; and
 
•   Increase of 25%, decrease of 7% and 2% in sales volume of bauxite, alumina and aluminum, respectively.

Changes in the elements of costs:

•   Wage increases awarded to various categories of employees;
 
•   Increases in the cost of materials and contracts referenced to the US dollar or inflation indices (INPC, IGP-M, etc);
 
•   Increases in the price and volume of ore, alumina and bauxite purchased from third parties;
 
•   Increase in electricity rates; and
 
•   Increase in goodwill amortization resulting from the merger of Ferteco and revision of its projection of rentability of Samitri’s goodwill.

12

CVRD


 

1.3.3- Cash Generation Consolidated

The operating cash generation consolidated measured by EBITDA (earnings before financial results, results of equity investments, interest, income tax and depreciation, amortization and depletion added of dividends received) was R$ 12,249 in 2004, against R$ 8,100 in 2003, an increase of 51.22%.

EBITDA

                 
    Accumulated  
            2003  
    2004     Proforma  
Net operating revenue
    27,544       20,116  
Cost of products and services
    (14,123 )     (11,330 )
Operating expenses
    (3,115 )     (2,121 )
 
           
Operating profit
    10,306       6,665  
Depreciation / amortization of goodwill
    1,694       1,302  
 
           
 
    12,000       7,967  
Dividends received
    66       38  
Write-off of assets
    183       95  
 
           
EBITDA R$
    12,249       8,100  
 
           
 
               
Current liabilities
               
Current portion of long-term debt - unrelated parties
    2,526       3,575  
Short-term debt
    515       888  
Loans from related parties
    73       63  
 
           
 
    3,114       4,526  
 
               
Long-term liabilities
               
Long-term debt - unrelated parties
    9,045       9,724  
Loans from related parties
    41       9  
 
           
 
    9,086       9,733  
 
           
Gross debt
    12,200       14,259  
 
           
Interest paid
    965       838  
Stockholders’ equity
    18,170       14,940  
 
               
EBITDA / Interest paid
    12.69       9.67  
Gross debt / LTM EBITDA
    1.00       1.76  
Gross debt / Equity Capitalization
    40       49  

Consolidated EBITDA by Segment

                                                 
                            2003  
    2004     Proforma  
            EBITDA % of     EBITDA             EBITDA % of     EBITDA  
    EBITDA     total     margin %     EBITDA     total     margin %  
Ferrous minerals
    7,947       65 %     47 %     5,360       66 %     45 %
Non - ferrous minerals
    309       3 %     23 %     127       2 %     20 %
Logistics
    1,234       10 %     48 %     689       8 %     35 %
Investments
                                               
Aluminum
    1,965       16 %     50 %     1,432       18 %     46 %
Steel
    794       6 %     30 %     452       6 %     21 %
Other
                      40              
 
                                       
 
    12,249       100 %     44 %     8,100       100 %     41 %
 
                                       

13

CVRD


 

Part II

Financial Statements and Notes to the Financial Statements

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

2- Balance Sheet

                                         
December 31                           In millions of reais  
            Parent Company     Consolidated  
                                    2003  
    Notes     2004     2003     2004     Proforma  
Assets
                                       
 
                                       
Current assets
                                       
 
                                       
Cash and cash equivalents
    10.6       306       342       3,917       2,129  
Accounts receivable from customers
    10.7       1,850       1,187       3,076       2,577  
Related parties
    10.8       589       668       73       48  
Inventories
    10.9       870       553       2,894       2,195  
Taxes to recover or offset
    10.10       512       537       898       800  
Deferred income tax and social contribution
    10.11       347       398       428       299  
Others
          253       324       644       661  
 
                               
 
            4,727       4,009       11,930       8,709  
 
                               
 
                                       
Long-term receivables
                                       
Related parties
    10.8       587       708       109       59  
Loans and financing
          106       143       150       197  
Deferred income tax and social contribution
    10.11       523       740       1,058       1,325  
Judicial deposits
    10.16       1,147       985       1,680       1,430  
Prepaid expenses
                      95       118  
Accounts receivable - sale of assets
                      38       119  
Property held for sale
                      111       86  
Securities
                            69  
Advances to energy suppliers
                      99        
Others
          28       27       371       361  
 
                               
 
            2,391       2,603       3,711       3,764  
 
                               
 
                                       
Permanent assets
                                       
 
                                       
Investments
    10.12       12,975       11,241       2,830       3,313  
Property, plant and equipment
    10.13       15,246       12,362       24,798       21,717  
Deferred charges
                      203       236  
 
                               
 
            28,221       23,603       27,831       25,266  
 
                               
 
            35,339       30,215       43,472       37,739  
 
                               
 
                                       
Liabilities and stockholders’ equity
                                       
 
                                       
Current liabilities
                                       
Short-term debt
    10.14             106       515       888  
Current portion of long-term debt
    10.14       670       1,897       2,526       3,575  
Payable to suppliers and contractors
          1,516       959       1,972       1,518  
Related parties
    10.8       2,043       1,365       73       63  
Payroll and related charges
          288       169       399       268  
Pension Plan - Valia
    10.18       91       92       91       92  
Proposed dividends and interest on stockholders’ equity
          1,279       319       1,557       337  
Taxes and contributions
          527       99       1,286       225  
Others
          379       242       907       731  
 
                               
 
            6,793       5,248       9,326       7,697  
 
                               
 
                                       
Long-term liabilities
                                       
Long-term debt
    10.14       2,911       2,771       9,045       9,724  
Related parties
    10.8       3,784       4,395       41       9  
Provisions for contingencies
    10.16       1,953       1,483       2,604       2,086  
Pension Plan - Valia
    10.18       570       570       570       570  
Provision for environmental liabilities
    10.17       255       232       255       232  
Provisions for derivatives
          55       212       430       323  
Others
          848       364       990       537  
 
                               
 
            10,376       10,027       13,935       13,481  
 
                               
Deferred income
    10.30                   10       157  
 
                               
Minority interests
                      2,031       1,464  
 
                               
Stockholders’ equity
                                       
Paid-up capital
    10.19       7,300       6,300       7,300       6,300  
Revenue reserves
          10,870       8,640       10,870       8,640  
 
                               
 
            18,170       14,940       18,170       14,940  
 
                               
 
            35,339       30,215       43,472       37,739  
 
                               

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

14

CVRD


 

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

3- Statement of Income

                                                                 
Years ended December 31   In millions of reais  
    Parent Company     Consolidated  
            Quarter     Accumulated     Accumulated  
                                                            2003  
    Notes     4Q/04     3Q/04     4Q/03     2004     2003     2004     Proforma  
Operating revenues
    1.2.1 /                                                          
Sales of ore and metals
    1.3.1                                                          
Iron ore and pellets
            2,874       3,015       2,472       11,198       8,612       15,626       11,157  
Manganese and ferroalloys
                                          2,084       1,098  
Copper
            324       196             592             592        
Potash
            98       103       73       362       289       362       289  
Kaolin
                                          468       320  
Gold
            1             3       1       71       1       71  
 
                                                 
 
            3,297       3,314       2,548       12,153       8,972       19,133       12,935  
Transport services
            392       422       326       1,556       1,366       3,025       2,134  
Sales of aluminum-related products
            26                   26             4,055       3,534  
Sales of steel products
                                          2,731       2,217  
Other products and services
            20       6       3       50       29       76       75  
 
                                                 
 
            3,735       3,742       2,877       13,785       10,367       29,020       20,895  
 
Value Added taxes
            (172 )     (208 )     (79 )     (697 )     (354 )     (1,476 )     (779 )
 
                                                 
Net operating revenues
            3,563       3,534       2,798       13,088       10,013       27,544       20,116  
 
                                                 
 
                                                               
Cost of products and services
    1.2.2 /                                                          
Ores and metals
    1.3.2       (1,878 )     (1,730 )     (1,420 )     (6,640 )     (4,888 )     (8,528 )     (6,255 )
Transport services
            (147 )     (119 )     (121 )     (479 )     (449 )     (1,805 )     (1,397 )
Aluminum-related products
            (16 )                 (16 )           (2,013 )     (2,072 )
Steel products
                                          (1,738 )     (1,551 )
Other products and services
                  (6 )     (7 )     (12 )     (20 )     (39 )     (55 )
 
                                                 
 
            (2,041 )     (1,855 )     (1,548 )     (7,147 )     (5,357 )     (14,123 )     (11,330 )
 
                                                 
 
                                                               
Gross profit
            1,522       1,679       1,250       5,941       4,656       13,421       8,786  
 
                                                               
Gross margin
            42.7 %     47.5 %     44.7 %     45.4 %     46.5 %     48.7 %     43.7 %
 
                                                               
Operating expenses
                                                               
Selling
            (7 )     (8 )     (64 )     (25 )     (217 )     (412 )     (295 )
Administrative
    10.26       (169 )     (123 )     (124 )     (531 )     (406 )     (1,125 )     (822 )
Research and development
            (111 )     (99 )     (95 )     (349 )     (233 )     (440 )     (249 )
Other operating expenses
    10.26       (138 )     (237 )     (74 )     (548 )     (320 )     (955 )     (755 )
Non recurring item - Samitri’s Goodwill amortization
                              (183 )           (183 )      
 
                                                 
 
            (425 )     (467 )     (357 )     (1,636 )     (1,176 )     (3,115 )     (2,121 )
 
                                                 
Operating profit before financial results and results of equity investments
            1,097       1,212       893       4,305       3,480       10,306       6,665  
Results of equity investments
    10.12                                                          
Gain on investments accounted for by the equity method
            1,087       1,206       426       3,947       2,075       408       209  
Amortization of goodwill
            (55 )     (57 )     (114 )     (250 )     (503 )     (252 )     (612 )
Provision for losses
            (12 )     (10 )     (154 )     (81 )     175             (137 )
Exchange variation in stockholders ’ equity of companies abroad
            (318 )     (236 )     (9 )     (365 )     (625 )            
 
                                                 
 
            702       903       149       3,251       1,122       156       (540 )
 
                                                               
Financial results
            211       (54 )     (261 )     (752 )     394       (2,000 )     (203 )
 
                                                               
Operating profit
            2,010       2,061       781       6,804       4,996       8,462       5,922  
 
                                                               
Change of accounting practices
                                                (91 )
Results on sale of assets
            78       463             541             551       174  
 
                                                 
Income before income tax and social contribution
            2,088       2,524       781       7,345       4,996       9,013       6,005  
Income tax and social contribution
    10.11       (560 )     (228 )     11       (885 )     (487 )     (1,810 )     (963 )
 
                                                 
Income before minority interests
            1,528       2,296       792       6,460       4,509       7,203       5,042  
Minority interests
                                          (743 )     (533 )
 
                                                 
Net income for the year
            1,528       2,296       792       6,460       4,509       6,460       4,509  
 
                                                 
Number of shares outstanding at the end of the year (in thousands)
            1,151,520       1,151,520       1,151,520       1,151,520       1,151,520                  
 
                                                     
Net earnings per share outstanding at the end of the year (R$)
            1.33       1.99       0.69       5.61       3.92                  
 
                                                     

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

15

CVRD


 

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

4- Statement of Changes in Stockholders’ Equity

                                                                                 
Years ended December 31                                                                   In millions of reais  
    Revenue reserves              
            Paid-up     Expansion/             Unrealized             Fiscal     Treasury     Retained        
    Notes     capital     Investments     Depletion     income     Legal     incentives     stock     earnings     Total  
            5,000     5,277     1,004     746     855         (131)         12,751  
December 31, 2002
                                                                               
 
                                                                               
Changing of pratices - environmental provision
                                                      (66 )     (66 )
Capitalization of reserves
            1,300       (1,300 )                                          
Realization of reserve
                              (189 )                       189        
Net income for the year
                                                      4,509       4,509  
Appropriations:
                                                                               
Interest on stockholders’ equity
                                                      (2,254 )     (2,254 )
Appropriation to revenue reserves
                  2,062                   226       90             (2,378 )      
 
                                                             
 
December 31, 2003
            6,300       6,039       1,004       557       1,081       90       (131 )           14,940  
 
                                                             
 
Capitalization of reserves
            1,000       (910 )                       (90 )                  
Realization of reserve
    10.22                         (211 )                       211        
Net income for the year
                                                      6,460       6,460  
Appropriations:
    10.22                                                                          
Interim interest on stockholders’ equity
                                                      (1,671 )     (1,671 )
Interim dividends
                                                      (280 )     (280 )
Additional remuneration proposed
                                                      (1,279 )     (1,279 )
Appropriation to revenue reserves
                  3,077                   323       41             (3,441 )      
 
                                                             
 
December 31, 2004
            7,300       8,206       1,004       346       1,404       41       (131 )           18,170  
 
                                                             

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

16

CVRD


 

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

5- Statement of Changes in Financial Position

                                 
Years ended December 31                   In millions of reais  
    Parent Company     Consolidated  
                            2003  
    2004     2003     2004     Proforma  
Funds were provided by:
                               
Net income for the year
    6,460       4,509       6,460       4,509  
Expenses (income) not affecting working capital:
                               
Result of equity investments
    (3,251 )     (1,122 )     (156 )     540  
Dividends/interest on stockholders’ equity
    974       549       66       38  
Depreciation, amortization and depletion
    704       601       1,406       1,144  
Deferred income tax and social contribution
    218       21       324       69  
Disposal of investments
    1,267             1,701        
Result on sale of assets
    (541 )           (551 )     (174 )
Net monetary and exchange rate variations on long-term assets and liabilities
    266       (612 )     (344 )     (1,136 )
Disposal of property, plant and equipment
    5       36       17       88  
Amortization of goodwill in the cost of products sold
    384       166       384       166  
Non recurring item - goodwill of Samitri
    183             183        
Net unrealized derivative losses
    22       57       368       216  
Minority interests
                743       533  
Others
    230       69       416       260  
 
                       
 
                               
Total funds from operations
    6,921       4,274       11,017       6,253  
 
                               
Loans to related parties, transferred to current assets
    162       2,624       43       351  
Loans and financing obtained
    1,106       1,172       3,664       3,323  
Loans from related parties
    798       1,621       36       12  
Others
    234       439       632       506  
 
                       
Total funds provided
    9,221       10,130       15,392       10,445  
 
                       
 
                               
Funds were used for:
                               
Long-term debt transferred to current liabilities
    1,902       2,218       3,785       3,663  
Related parties
    79       1,265       62       225  
Additions to permanent assets
    3,810       2,857       6,014       5,110  
Capital subscription in subsidiary and affiliated companies
    798       2,642       289       889  
Dividends/interest on stockholders’ equity
    3,230       2,255       3,230       2,255  
Guarantees and deposits
    163       260       256       499  
Others
    66             164       877  
 
                       
Total funds used
    10,048       11,497       13,800       13,518  
 
                       
 
                               
Increase (decrease) in working capital
    (827 )     (1,367 )     1,592       (3,073 )
 
                       
 
                               
Changes in working capital are as follows:
                               
 
                               
Current assets:
                               
At the end of the year
    4,727       4,009       11,930       8,709  
At the beginning of the year
    4,009       4,346       8,709       10,878  
 
                       
 
    718       (337 )     3,221       (2,169 )
 
                       
 
                               
Current liabilities:
                               
At the end of the year
    6,793       5,248       9,326       7,697  
At the beginning of the year
    5,248       4,218       7,697       6,793  
 
                       
 
    1,545       1,030       1,629       904  
 
                       
Increase (decrease) in working capital
    (827 )     (1,367 )     1,592       (3,073 )
 
                       

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

17

CVRD


 

(A free translation of the original in Portuguese)

6- Statement of Cash Flows (Additional Information)
                                                         
Years ended December 31   In millions of reais  
    Parent Company     Consolidated  
    Quarter     Accumulated     Accumulated  
                                                    2003  
    4Q/04     3Q/04     4Q/03     2004     2003     2004     Proforma  
Cash flows from operating activities:
                                                       
Net income for the year
    1,528       2,296       792       6,460       4,509       6,460       4,509  
Adjustments to reconcile net income for the year with cash provided by operating activities:
                                                       
Results of equity investments
    (702 )     (903 )     (149 )     (3,251 )     (1,122 )     (156 )     540  
Depreciation, amortization and depletion
    185       182       176       704       601       1,406       1,144  
Deferred income tax and social contribution
    682       (347 )     51       269       427       873       1,066  
Result on sale of assets
    (78 )     (463 )           (541 )           (551 )     (174 )
Financial expenses and monetary and exchange rate variations on assets and liabilities, net
    (69 )     (429 )     167       106       (1,035 )     (144 )     (1,989 )
Minority interests
                                  743       533  
Disposal of property, plant and equipment
    (14 )     (12 )     30       5       36       17       88  
Amortization of goodwill in the cost of products sold
    96       96       76       384       166       384       166  
Non recurring item - goodwill of Samitri
                      183             183        
Net losses on derivatives
    10       31       16       22       57       368       216  
Dividends/interest on stockholders’ equity
    245       68       102       716       602       66       38  
Others
    (21 )     (2 )     (40 )     (22 )     (53 )     247       76  
 
                                         
 
    1,862       517       1,221       5,035       4,188       9,896       6,213  
 
                                         
Decrease (increase) in assets:
                                                       
Accounts receivable
    1,043       (1,531 )     265       (663 )     547       (503 )     26  
Inventories
    (123 )     (49 )     2       (317 )     (61 )     (699 )     (243 )
Others
    (86 )     120       (268 )     8       (194 )     (721 )     (429 )
 
                                         
 
    834       (1,460 )     (1 )     (972 )     292       (1,923 )     (646 )
 
                                         
Increase (decrease) in liabilities:
                                                       
Suppliers and contractors
    686       108       130       705       148       787       97  
Payroll and related charges and others
    36       63       (45 )     66       (14 )     137       (42 )
Taxes and contributions
    (81 )     574       116       673       70       678       245  
Others
    (543 )     692       83       213       44       453       (214 )
 
                                         
 
    98       1,437       284       1,657       248       2,055       86  
 
                                         
Net cash provided by operating activities
    2,794       494       1,504       5,720       4,728       10,028       5,653  
 
                                         
Cash flows from investing activities:
                                                       
Loans and advances receivable
    158       (126 )     265       318       (798 )     81       (51 )
Guarantees and deposits
    (42 )     (26 )     (29 )     (163 )     (260 )     (256 )     (499 )
Additions to investments
    (253 )     (130 )     (45 )     (798 )     (292 )     (289 )     (889 )
Additions to property, plant and equipment
    (1,457 )     (569 )     (1,079 )     (3,810 )     (2,811 )     (6,014 )     (5,110 )
Proceeds from disposal of property, plant and equipment/investments
    431       834       18       1,268       188       1,736       427  
 
                                         
Net cash used in investing activities
    (1,163 )     (17 )     (870 )     (3,185 )     (3,973 )     (4,742 )     (6,122 )
 
                                         
Cash flows from financing activities:
                                                       
Short-term debt
    71       356       404       (308 )     (206 )     (203 )     (194 )
Long-term debt
    12             287       2,380       2,793       3,669       3,335  
Repayments:
                                                       
Related parties
    (108 )     (368 )           (475 )                  
Financial institutions
    (113 )     (399 )     (857 )     (1,897 )     (1,542 )     (4,693 )     (2,993 )
Dividends/interest on stockholders’ equity paid
    (1,481 )           (1,212 )     (2,271 )     (1,930 )     (2,271 )     (1,930 )
 
                                         
Net cash provided by (used in) financing activities
    (1,619 )     (411 )     (1,378 )     (2,571 )     (885 )     (3,498 )     (1,782 )
 
                                         
Increase (decrease) in cash and cash equivalents
    12       66       (744 )     (36 )     (130 )     1,788       (2,251 )
Cash and cash equivalents, beginning of the year
    294       228       965       342       259       2,129       4,380  
Cash of merged companies
                121             213              
 
                                         
Cash and cash equivalents, end of the year
    306       294       342       306       342       3,917       2,129  
 
                                         
Cash paid during the year for:
                                                       
Short-term interest
    (1 )                 (5 )     (16 )     (52 )     (87 )
Long-term interest
    (68 )     (71 )     (92 )     (340 )     (353 )     (913 )     (751 )
Income tax and social contribution paid
                            (47 )     (318 )     (184 )
Non-cash transactions:
                                                       
Transfer of advance for future capital increase to investments
    (185 )     (130 )     (321 )     (566 )     (2,117 )            
Additions to property, plant and equipment - interest capitalization
    78       95       (5 )     35       90       123       420  
Additions to property, plant and equipment - mergers
                (1,342 )           (1,831 )            

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

18

CVRD


 

(A free translation of the original in Portuguese)

7- Statement of Value Added (Additional Information)
                                                                 
Years ended December 31                                           In millions of reais  
    Parent Company     Consolidated  
                                                    2003        
    2004     %     2003     %     2004     %     Proforma     %  
Generation of Value Added
                                                               
 
                                                               
Sales revenue
    13,785       100       10,367       100       29,020       100       20,895       100  
 
                                                               
Less: Acquisition of products
    (1,368 )     (11 )     (1,154 )     (11 )     (2,755 )     (9 )     (2,300 )     (11 )
 Outsourced services
    (2,005 )     (15 )     (1,317 )     (13 )     (4,156 )     (14 )     (2,862 )     (14 )
 Materials
    (1,453 )     (12 )     (880 )     (8 )     (2,497 )     (9 )     (1,797 )     (9 )
 Fuel oil and gas
    (848 )     (6 )     (636 )     (6 )     (1,698 )     (6 )     (1,402 )     (7 )
 Research and development, selling and administrative
    (432 )     (3 )     (397 )     (4 )     (764 )     (3 )     (939 )     (4 )
 Other operating expenses
    (782 )     (6 )     (232 )     (2 )     (2,207 )     (8 )     (1,135 )     (5 )
 
                                               
 
Gross Value Added
    6,897       50       5,751       56       14,943       51       10,460       50  
 
Depreciation, amortization and depletion
    (1,007 )     (7 )     (759 )     (7 )     (1,694 )     (6 )     (1,302 )     (6 )
 
                                               
 
Net Value Added
    5,890       43       4,992       49       13,249       45       9,158       44  
 
                                                               
Received from third parties
                                                               
 
                                                               
Financial revenue
    102       1       53       1       347       1       335       2  
Results of equity investments
    3,251       24       1,122       11       156       1       (540 )     (3 )
Results on sale of assets
    541       4                   551       2       174       1  
 
                                               
 
Total Value Added
    9,784       72       6,167       61       14,303       49       9,127       44  
 
                                               
 
                                                               
Distribution of Value Added
                                                               
Employees
    901       9       770       12       1,885       13       1,335       14  
Government
    1,653       17       1,301       21       2,862       20       2,307       25  
Third parties’ capital (interest and monetary and exchange variances, net)
    770       8       (413 )     (7 )     2,353       16       443       5  
Stockholders’ remuneration
    3,230       33       2,254       37       3,230       23       2,254       25  
Minority interests
                            743       5       533       6  
Retained earnings
    3,230       33       2,255       37       3,230       23       2,255       25  
 
                                               
 
Total Value added distributed
    9,784       100       6,167       100       14,303       100       9,127       100  
 
                                               

19

CVRD


 

(A free translation of the original in Portuguese)

8- Labor and Social Indicators (Additional Information)
                                                                                                 
Years ended December 31                                                                                   In millions of reais  
    Parent Company     Consolidated (unaudited)  
    2004     2003     2004     2003 Proforma  
Basis for computation
                                                                                               
 
                                                                                               
Gross revenues
                    13,785                       10,367                       29,020                       20,895  
Operating profit — before financial results and results of equity investments
                    4,305                       3,480                       10,306                       6,665  
Gross payroll
                    585                       471                       1,195                       990  
                                                                                                 
    2004     2003     2004     2003 Proforma  
            % of             % of             % of             % of  
            Gross     Operating             Gross     Operating             Gross     Operating             Gross     Operating  
    Amount     payroll     profit     Amount     payroll     profit     Amount     payroll     profit     Amount     payroll     profit  
Labor indicators
                                                                                               
Food
    58       10       1       44       9       1       106       9       1       78       8       1  
Compulsory social charges
    244       42       6       201       43       6       416       35       4       359       36       5  
Private pension plan
    73       12       2       52       11       1       91       8       1       82       8       1  
Health
    40       7       1       34       7       1       77       6       1       64       6       1  
Education
    40       7       1       29       6       1       66       6       1       44       4       1  
Profit sharing
    176       30       4       96       20       3       252       21       2       148       15       2  
Other benefits
    69       13       2       54       12       2       117       11             98       11        
 
                                                                       
Total — Labor indicators
    700       121       17       510       108       15       1,125       96       10       873       88       11  
 
                                                                       
                                                                                                 
    2004     2003     2004     2003 Proforma  
            % of             % of             % of             % of  
            Operating     Gross             Operating     Gross             Operating     Gross             Operating     Gross  
    Amount     profit     revenues     Amount     profit     revenues     Amount     profit     revenues     Amount     profit     revenues  
Social indicators
                                                                                               
 
                                                                                               
Taxes
    1,366       32       10       1,183       34       11       2,124       21       7       2,109       32       10  
Social investments
    54       1       1       54       2       1       81       1             61       1        
Social projects and actions
    35       1       1       36       1       1       62       1             43       1        
Indigenous communities
    19                   18       1             19                   18              
Environmental expenditures
    107       2       1       110       3       1       166       1             157       2       1  
Operational
    69       1       1       90       2       1       128       1             137       2       1  
On outside programs and/or projects
    38       1             20       1             38                   20              
 
                                                                       
Total — Social indicators
    1,527       35       12       1,347       39       13       2,371       23       7       2,327       35       11  
 
                                                                       
                                                                                                 
    2004     2003     2004   2003 Proforma  
Headcount
                                                                                               
No. of employees at end of year
                    18,457                       16,338                       36,176(* )                     33,282  
No. of new hires during year
                    3,060                       3,245                       5,275                       6,588  

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

(*) Reduce of 1,138 employees due to the divestment in CST.

20


 

(A free translation of the original in Portuguese)

9- Statement of Income by Segment (Additional Information)

     
Years ended December 31
  In millions of reais

                                                                 
    2004  
                            Holdings              
            Non-                                              
    Ferrous     Ferrous                                     Corporate        
    Minerals     Minerals     Logistics     Aluminum     Steel     Others     Center     Total  
Operating revenues
                                                               
Sales of ore and metals
                                                               
Iron ore and pellets
    15,626                                           15,626  
Manganese and ferroalloys
    2,084                                           2,084  
Copper
          592                                     592  
Potash
          362                                     362  
Kaolin
          468                                     468  
Gold
          1                                     1  
 
                                               
 
    17,710       1,423                                     19,133  
Transport services
                3,025                               3,025  
Sales of aluminum-related products
                      4,055                         4,055  
Sales of steel products
                            2,731                   2,731  
Other products and services
    68                   8                         76  
 
                                               
 
    17,778       1,423       3,025       4,063       2,731                   29,020  
 
                                                               
Value Added taxes
    (738 )     (77 )     (462 )     (112 )     (87 )                 (1,476 )
 
                                               
 
                                                               
Net operating revenues
    17,040       1,346       2,563       3,951       2,644                   27,544  
 
                                               
 
                                                               
Cost of products and services
                                                               
 
                                                               
Ores and metals
    (7,873 )     (655 )                                   (8,528 )
Transport services
                (1,805 )                             (1,805 )
Aluminum-related products
                      (2,013 )                       (2,013 )
Steel products
                            (1,738 )                 (1,738 )
Other products and services
    (33 )     (6 )                                   (39 )
 
                                               
 
    (7,906 )     (661 )     (1,805 )     (2,013 )     (1,738 )                 (14,123 )
 
                                               
 
                                                               
Gross profit
    9,134       685       758       1,938       906                   13,421  
 
                                                               
Gross margin
    53.6 %     50.9 %     29.6 %     49.1 %     34.3 %                 48.7 %
 
                                                               
Operating expenses
                                                               
Selling
    (192 )     (97 )     (40 )     (45 )     (38 )                 (412 )
Administrative
    (865 )     (11 )     (59 )     (132 )     (56 )     (2 )           (1,125 )
Research and development
    (133 )     (303 )     (4 )                             (440 )
Non recurring item — Samitri’s goodwill amortization
    (183 )                                         (183 )
Other operating expenses
    (847 )     (49 )     (25 )     (8 )     (27 )     1             (955 )
 
                                               
 
                                                               
 
    (2,220 )     (460 )     (128 )     (185 )     (121 )     (1 )           (3,115 )
 
                                               
Operating profit before financial results and results of equity investments
    6,914       225       630       1,753       785       (1 )           10,306  
Results of equity investments
                                                               
Gain on investments accounted for by the equity method
    76                         332                   408  
Amortization of goodwill
    (229 )           (23 )                             (252 )
 
                                               
 
    (153 )           (23 )           332                   156  
 
                                                               
Financial results
                                                               
Financial expenses, net
                                        (1,556 )     (1,556 )
Monetary and exchange rate variation, net
                                        (444 )     (444 )
 
                                               
 
                                        (2,000 )     (2,000 )
 
                                               
Operating profit (loss)
    6,761       225       607       1,753       1,117       (1 )     (2,000 )     8,462  
Results on sale of assets
    (6 )           21       (5 )     541                   551  
 
                                               
Income before income tax and social contribution
    6,755       225       628       1,748       1,658       (1 )     (2,000 )     9,013  
Income tax and social contribution
    (1,532 )     (22 )     (68 )     (127 )     (51 )     (10 )           (1,810 )
 
                                               
Income before minority interests
    5,223       203       560       1,621       1,607       (11 )     (2,000 )     7,203  
Minority interests
    (297 )     (26 )     (22 )     (398 )                       (743 )
 
                                               
 
                                                               
Net income for the year
    4,926       177       538       1,223       1,607       (11 )     (2,000 )     6,460  
 
                                               

21


 

                                                                 
                                                            2003  
    Proforma  
                            Holdings              
            Non-                                              
    Ferrous     Ferrous                                     Corporate        
    Minerals     Minerals     Logistics     Aluminum     Steel     Others     Center     Total  
Operating revenues
                                                               
Sales of ore and metals
                                                               
Iron ore and pellets
    11,157                                           11,157  
Manganese and ferroalloys
    1,098                                           1,098  
Potash
          289                                     289  
Kaolin
          320                                     320  
Gold
          71                                     71  
 
                                               
 
    12,255       680                                     12,935  
Transport services
                2,134                               2,134  
Sales of aluminum-related products
                      3,534                         3,534  
Sales of steel products
                            2,217                   2,217  
Other products and services
    62                   13                         75  
 
                                               
 
    12,317       680       2,134       3,547       2,217                   20,895  
 
                                                               
Value Added taxes
    (378 )     (58 )     (214 )     (70 )     (59 )                 (779 )
 
                                               
 
                                                               
Net operating revenues
    11,939       622       1,920       3,477       2,158                   20,116  
 
                                               
 
                                                               
Cost of products and services
                                                               
Ores and metals
    (5,824 )     (431 )                                   (6,255 )
Transport services
                (1,397 )                             (1,397 )
Aluminum-related products
                      (2,072 )                       (2,072 )
Steel products
                            (1,551 )                 (1,551 )
Other products and services
    (36 )     (16 )           (3 )                       (55 )
 
                                               
 
    (5,860 )     (447 )     (1,397 )     (2,075 )     (1,551 )                 (11,330 )
 
                                               
 
                                                               
Gross profit
    6,079       175       523       1,402       607                   8,786  
 
                                                               
Gross margin
    50.9 %     28.1 %     27.2 %     40.3 %     28.1 %                 43.7 %
 
                                                               
Operating expenses
                                                               
Selling
    (211 )     (21 )     (5 )     (27 )     (31 )                 (295 )
Administrative
    (556 )     (22 )     (50 )     (125 )     (68 )     (1 )           (822 )
Research and development
    (59 )     (190 )