Cash and cash equivalents

Short-term investments

Accounts receivable

Related parties

Unrelated parties

Loans and advances to related parties

Inventories

Deferred income tax

Unrealized gains on derivative instruments

Advances to suppliers

Recoverable taxes

Others

 

 

 

Other assets

Goodwill on acquisition of subsidiaries

Loans and advances

Related parties

Unrelated parties

Prepaid pension cost

Prepaid expenses

Judicial deposits

Advances to suppliers — energy

Recoverable taxes

Unrealized gains on derivative instruments

Others

 

 

 

 

Suppliers

Payroll and related charges

Current portion of long-term debt

Short-term debt

Loans from related parties

Provision for income taxes

Taxes payable and royalties

Employees postretirement benefits

Railway sub-concession agreement payable

Unrealized losses on derivative instruments

Provisions for asset retirement obligations

Minimum mandatory dividends payable

Other

 

 

 

Employees postretirement benefits

Long-term debt

Provisions for contingencies (Note 16 (b))

Unrealized losses on derivative instruments

Deferred income tax

Provisions for asset retirement obligations

Debentures

Other

 

 

 

 

 

Stockholders’ equity

Preferred class A stock — 7,200,000,000 no-par-value shares authorized and 2,108,579,618 (2009 — 2,108,579,618) issued

Common stock — 3,600,000,000 no-par-value shares authorized and 3,256,724,482 (2009 — 3,256,724,482) issued

Treasury stock —77,581,904 (2009 — 77,581,904) preferred and 74,997,899 (2009 - 74,997,899) common shares

Additional paid-in capital

Mandatorily convertible notes — common shares

Mandatorily convertible notes — preferred shares

Other cumulative comprehensive loss

Undistributed retained earnings

Unappropriated retained earnings

 

 

 

 

Sales of ores and metals

Aluminum products

Revenues from logistic services

Other products and services

 

 

Taxes on revenues

 

 

Cost of ores and metals sold

Cost of aluminum products

Cost of logistic services

Other

 

 

Selling, general and administrative expenses

Research and development expenses

Other

 

 

 

Financial income

Financial expenses

Gains (losses) on derivatives, net

Foreign exchange and indexation gains (losses), net

Loss on sale of assets

 

 

 

 

 

Income taxes

Current

Deferred

 

 

 

Equity in results of affiliates, joint ventures and other investments

 

 

 

 

Net income (loss) attributable to noncontrolling interests

 

 

 

Basic and diluted earnings per share attributable to Company’s stockholders

Earnings per preferred share

Earnings per common share

Earnings per preferred share linked to convertible mandatorily notes (*)

Earnings per common share linked to convertible mandatorily notes (*)

 

Adjustments to reconcile net income to cash from operations:

Depreciation, depletion and amortization

Dividends received

Equity in results of affiliates, joint ventures and other investments

Deferred income taxes

Loss on disposal of property, plant and equipment

Loss on sale of investments

Discontinued operations, net of tax

Foreign exchange and indexation gains, net

Unrealized derivative losses (gains), net

Unrealized interest (income) expense, net

Others

Accounts receivable

Inventories

Recoverable taxes

Others

Suppliers

Payroll and related charges

Income taxes

Others

 

 

Short term investments

Loans and advances receivable

Related parties

Loan proceeds

Repayments

Others

Judicial deposits

Investments

Additions to, property, plant and equipment

Proceeds from disposal of investments/property, plant and equipment

Acquisition of subsidiaries, net of cash acquired

 

 

Short-term debt, additions

Short-term debt, repayments

Loans

Related parties

Loan proceeds

Repayments

Issuances of long-term debt

Third parties

Repayments of long-term debt

Third parties

Treasury stock

Dividends and interest attributed to Company’s stockholders

Dividends and interest attributed to noncontrolling interest

 

 

Increase (decrease) in cash and cash equivalents

Effect of exchange rate changes on cash and cash equivalents

Cash and cash equivalents, beginning of period

 

 

Interest on short-term debt

Interest on long-term debt

Income tax

Interest capitalized

Beginning of the period

 

 

Beginning of the period

 

 

Beginning of the period

Acquisitions

 

 

Beginning of the period

 

 

Beginning of the period

 

 

Beginning of the period

 

 

Beginning of the period

Change in the period

 

 

Beginning of the period

Change in the period

 

 

Beginning of the period

Change in the period

 

 

Beginning of the period

Change in the period

 

 

 

Beginning of the period

Transfer from/to unappropriated retained earnings

 

 

Beginning of the period

Net income attributable to the stockholders’ Company

Interest on mandatorily convertible debt

Preferred class A stock

Common stock

Preferred class A stock

Common stock

Appropriation from/to undistributed retained earnings

 

 

 

Beginning of the period

Disposals and (acquisitions) of noncontrolling interests

Cumulative translation adjustments

Cash flow hedge

Net income (loss) attributable to noncontrolling interests

Dividends and interest attributable to noncontrolling interests

Capitalization of stockholders advances

 

 

 

 

Preferred class A stock (including twelve golden shares)

Common stock

Buy-backs

Beginning of the period

Acquisitions

 

End of the period

 

 

 

Net income attributable to Company’s stockholders

Cumulative translation adjustments

Unrealized gain (loss) — available-for-sale securities

Gross balance as of the period/year end

Tax (expense) benefit

 

 

Gross balance as of the period/year end

Tax (expense) benefit

 

 

Gross balance as of the period/year end

Tax expense

 

 

 

 

Net income (loss) attributable to noncontrolling interests

Cumulative translation adjustments

Cash flow hedge

 

 

 

Vale S.A., (“Vale”, the “Company” or “we”) is a limited liability company incorporated in Brazil. Operations are carried out through Vale and our subsidiary companies, joint ventures and affiliates, and mainly consist of mining, non-ferrous metal production, logistics and steel activities.

At March 31, 2010, our principal consolidated operating subsidiaries are the following:

Alumina do Norte do Brasil S.A. — Alunorte

Alumínio Brasileiro S.A. — Albras

Ferrovia Centro-Atlântica S. A

Ferrovia Norte Sul S.A

Mineração Corumbá Reunidas S.A.

PT International Nickel Indonesia Tbk

Vale Australia Pty Ltd.

Vale Colombia Ltd

Vale Manganése Norway

Vale Manganês S.A.

Vale Manganèse France

Vale Inco Limited

Vale International S.A

All majority-owned subsidiaries in which we have both share and management control are consolidated. All significant intercompany accounts and transactions are eliminated. Our variable interest entities in which we are the primary beneficiary are consolidated. Investments in unconsolidated affiliates and joint ventures are accounted for under the equity method (Note 10).

We evaluate the carrying value of our equity accounted investments in relation to publicly quoted market prices when available. If the quoted market price is below book value, and such decline is considered other than temporary, we write-down our equity investments to quoted market value.

We define joint ventures as businesses in which we and a small group of other partners each participate actively in the overall entity management, based on a stockholders agreement. We define affiliates as businesses in which we participate as a noncon trolling interests but with significant influence over the operating and financial policies of the investee.

Our participation in hydroelectric projects is made via consortium contracts under which we have undivided interests in the assets and are liable for our proportionate share of liabilities and expenses, which are based on our proportionate share of power output. We do not have joint liability for any obligations. No separate legal or tax status is granted to consortia under Brazilian law. Accordingly, we recognize our proportionate share of costs and our undivided interest in assets relating to hydroelectric projects.

Our condensed consolidated interim financial information for the three-month periods ended March 31, 2010, December 31, 2009 and March 31, 2009, prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), are unaudited. However, in our opinion, such condensed consolidated financial information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for interim periods. The results of operations for the three-month periods ended March 31, 2010, are not necessarily indicative of the actual results expected for the full fiscal year ending December 31, 2010.

This condensed consolidated interim financial information should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2009, prepared in accordance with US GAAP.

In preparing the condensed consolidated financial information, we are required to use estimates to account for certain assets, liabilities, revenues and expenses. Our condensed consolidated financial statements therefore include various estimates concerning the selection of useful lives of property, plant and equipment, impairment, provisions necessary for contingent liabilities, fair values assigned to assets and liabilities acquired and assumed in business combinations, income tax uncertainties, employee post-retirement benefits and other similar evaluations. Actual results may vary from our estimates.

Since December 2007, significant modifications have been made to Brazilian GAAP as part of a convergence project with International Financial Reporting Standards (IFRS) and as from 2010 annual financial statements the convergence will be completed and therefore the IFRS will be the accounting practice adopted in Brazil. The Company does not expect to discontinue the US GAAP reporting during 2010.

The Brazilian real is the parent Company’s functional currency. We have selected the US dollar as our reporting currency.

All assets and liabilities have been translated to US dollars at the closing rate of exchange at each balance sheet date (or, if unavailable, the first available exchange rate). All statement of income accounts have been translated to US dollars at the average exchange rates prevailing during the respective periods. Capital accounts are recorded at historical exchange rates. Translation gains and losses are recorded in the Cumulative Translation Adjustments account (“CTA”) in stockholders’ equity.

The results of operations and financial position of our entities that have a functional currency other than the US dollar, have been translated into US dollars and adjustments to translate those statements into US dollars are recorded in the CTA in stockholders’ equity.

The exchange rates used to translate the assets and liabilities of the Brazilian operations at March 31, 2010 and December 31, 2009, were R$1.7810 and R$1.7412, respectively.

The Company has assessed subsequent events through May 05, 2010 which is the date the financial statements were issued.

Accounting Standards Update (ASU) number 2010-11 Derivatives and Hedging (Topic 815) clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Only one form of embedded credit derivative qualifies for the exemption—one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. This Codification does not impact our financial position, results of operations or liquidity.

Accounting Standards Update (ASU) number 2010-10 Consolidation (Topic 810) defers the effective date of the amendments to the consolidation requirements made by FASB Statement 167 to a reporting entity’s interest in certain types of entities and clarify other aspects of the Statement 167 amendments. As a result of the deferral, a reporting entity will not be required to apply the Statement 167 amendments to the Subtopic 810-10 consolidation requirements to its interest in an entity that meets the criteria to qualify for the deferral. This Update also clarifies how a related party’s interests in an entity should be considered when evaluating the criteria for determining whether a decision maker or service provider fee represents a variable interest. In addition, the Update also clarifies that a quantitative calculation should not be the sole basis for evaluating whether a decision maker’s or service provider’s fee is a variable interest. This Codification does not impact our financial position, results of operations or liquidity.

Accounting Standards Update No. 2010-09 Subsequent Events (Topic 855) addresses both the interaction of the requirements of Topic 855, Subsequent Events, with the SEC’s reporting requirements and the intended breadth of the reissuance disclosures provision related to subsequent events (paragraph 855-10-50-4). The amendments in this Update have the potential to change reporting by both private and public entities, however, the nature of the change may vary depending on facts and circumstances. This Codification does not impact our financial position, results of operations or liquidity.

The Company understands that the other recently issued accounting pronouncements, that are not effective as of and for the year ending December 31, 2010, are not expected to be relevant for its consolidated financial statements.

Accounting Standards Update (ASU) number 2010-06 Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 and are expected to provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The Company fully adopted this standard in 2010 with no impact on our financial position, results of operations or liquidity.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued an amendment to Interpretation No. 46(R) on the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). Subsequently, in December 2009, the Accounting Standards Update (ASU) number 2009-17 Amendments to FASB Interpretation No. 46(R) was issued. The amendments replace the quantitative-based risks and rewards calculation, for determining which reporting entity has a controlling financial interest in a VIE, with a qualitative analysis when determining whether or not it must consolidate a VIE. The newly required approach is focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. The amendments also require an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendments eliminated the scope exception on qualifying special-purpose entities (“QSPE”) and require enhanced disclosures about: involvement with VIEs, significant changes in risk exposures, impacts on the financial statements, and, significant judgments and assumptions used to determine whether or not to consolidate a VIE. The Company adopted these amendments in 2010, with no impact on our financial position, results of operations or liquidity.

In June 2009, the “FASB” issued an amendment to the accounting and disclosure requirements for transfers of financial assets. Subsequently, in December 2009, the Accounting Standards Update (ASU) number 2009-16 Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140 was issued. The amendments improve financial reporting requiring greater transparency and additional disclosures for transfers of financial assets and the entity’s continuing involvement with them and also change the requirements for derecognizing financial assets. In addition, the amendments eliminate the exceptions for QSPE from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. The Company adopted these amendments in 2010, with no impact on our financial position, results of operations or liquidity.

Accounting Standards Update (ASU) number 2009-08 Earning per share issued by the FASB provides additional guidance related to calculation of earnings per share. This guidance amends ASC 260. This colification does not impact our fimancial position, results of operations or liquidity.

In line with our strategy to become a leading global player in the fertilizer business, during 2010 we entered into purchase agreements to acquire fertilizer assets in Brazil from Bunge Participações e investimentos S.A. (Bunge). Among these assets are phosphate rock mines and phosphates assets, and a 78,9% stake in the equity capital of Fertilizantes Fosfatados S.A. — Fosfertil (Fosfertil) formerly owned by Bunge, Fertifós, Heringer, Fertipar, Yara and Mosaic. The total amount to be paid is US$5,660. The transaction is still subject to the approval of governmental regulatory agencies. Control over these business have not been obtained when these financial statements were approved to be issued.

We entered into agreements to sell a minority stake of the Bayóvar Project with Mosaic Company (Mosaic) and Mitsui & Co. Ltd. (Mitsui), for US$660. The capital amount invested as at December 31, 2009 was approximately US$400. Actual closing of the transaction remains subject to the parties’ finalization of the definitive stockholders’ agreement and commercial off take agreements, certain governmental regulatory approvals and other customary closing conditions.

As part of our portfolio management, we have entered into negotiations with the intention to sell our net assets linked to kaolin activity. We have measured these assets at fair value, and recognized on first quarter results, an estimated loss in an amount of US$145, which was classified as discontinued operations in the income statement.

Income taxes in Brazil comprise federal income tax and social contribution, which is an additional federal tax. The statutory composite enacted tax rate applicable in the periods presented is 34%. In other countries where we have operations, the applicable tax rates vary from 1.67% to 40%.

We analyze the potential tax impact associated with undistributed earnings by each of our subsidiaries. For those subsidiaries in which the undistributed earnings would be taxable when remitted to the parent company, no deferred tax is recognized, based on criteria in accounting for income taxes — special areas.

The amount reported as income tax expense in our consolidated financial statements is reconciled to the statutory rates as follows:

Income before income taxes, equity results and noncontrolling interests

Exchange variation (not taxable) or not deductible

 

 

 

 

Tax at Brazilian composite rate

Adjustments to derive effective tax rate:

Tax benefit on interest attributed to stockholders

Difference on tax rates of foreign income

Tax incentives

Other non-taxable, income/non deductible expenses

 

Income tax per consolidated statements of income

 

Vale and some related companies in Brazil were granted with a tax incentive that provides for a partial reduction of the income tax due related to certain regional operations of iron ore, railroad, manganese, copper, bauxite, alumina, aluminum, kaolin and potash. The tax benefit is calculated based on taxable profit adjusted by the tax incentive (so-called “exploration profit”) taking into consideration the operational profit of the projects that benefit from the tax incentive during a fixed period. In general, such tax incentives expire in 2018. Part of the northern railroad and iron ore operations have been granted with tax incentives for a period of 10 years starting as from 2009. The tax saving must be registered in a special capital (profit) reserve in the net equity of the entity that benefits from the tax incentive and cannot be distributed as dividends to the stockholders.

We are also allowed to reinvest part of the tax savings in the acquisition of new equipment to be used in the operations that enjoy the tax benefit subject to subsequent approval from the Brazilian regulatory agencies Superintendência de Desenvolvimento da Amazônia — SUDAM and Superintendência de Desenvolvimento do Nordeste — SUDENE. When the reinvestment is approved, the corresponding tax benefit must also be accounted in a special profit reserve and is also subject to the same restrictions with respect to future dividend distributions to the stockholders.

We also have income tax incentives related to our Goro project under development in New Caledonia (“The Goro Project”). These incentives include an income tax holiday during the construction phase of the project and throughout a 15-year period commencing in the first year in which commercial production, as defined by the applicable legislation, is achieved followed by a five-year, 50 per cent income tax holiday. The Goro Project also qualifies for certain exemptions from indirect taxes such as import duties during the construction phase and throughout the commercial life of the project. Certain of these tax benefits, including the income tax holiday, are subject to an earlier phase out should the project achieve a specified cumulative rate of return. We are subject to a branch profit tax commencing in the first year in which commercial production is achieved, as defined by the applicable legislation. To date, we have not recorded any taxable income for New Caledonian tax purposes. The benefits of this legislation are expected to apply with respect to taxes payable once the Goro Project is in operation. We obtained tax incentives for its projects in Mozambique, Oman and Malaysia, that will take effects when those projects start their commercial operation.

We are subject to examination by the tax authorities for up to five years regarding our operations in Brazil, up to ten years for Indonesia, and up to seven years for Canada for income taxes.

Brazilian tax loss carryforwards have no expiration date, though offset is restricted to 30% of annual taxable income.

The reconciliation of the beginning and ending amounts is as follows: (see note 16(b)) tax — related actions)

 

Increase resulting from tax positions taken

Decrease resulting from tax positions taken

Cumulative translation adjustments

 

 

Cash

Short-term investments

 

 

 

All the above mentioned short-term investments are made through the use of low risk fixed income securities, in a way that: those denominated in Brazilian reais are concentrated in investments indexed to the CDI, and those denominated in US dollars are mainly time deposits, with the original due date less than three-months.

Time deposit

 

Represent low risk investments with original due date over three-month.

 

Nickel (co-products and by-products)

Iron ore and pellets

Manganese and ferroalloys

Aluminum products

Kaolin

Copper concentrate

Coal

Others

Spare parts and maintenance supplies

 

 

 

In March 31, 2010 and December 31, 2009, there were no adjustments to reduce inventories to market values.

Companhia Nipo-Brasileira de Pelotização — NIBRASCO (1)

Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS (1)

Companhia Coreano-Brasileira de Pelotização — KOBRASCO (1)

Companhia Ítalo-Brasileira de Pelotização — ITABRASCO (1)

Minas da Serra Geral SA — MSG