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FORM 6-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For APRIL 24, 2002
Companhia Vale do Rio Doce
(Exact name of Registrant as specified in its charter)
Valley of the Doce River Company
(Translation of Registrant's name into English)
Federative Republic of Brazil
(Jurisdiction of incorporation or organization)
Avenida Graca Aranha, No. 26
20005-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F:]
FORM 20-F X FORM 40-F
--- ---
[Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
+Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of
1934.]
YES NO X
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[If "Yes " is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):] Not applicable
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Companhia Vale do Rio Doce
TABLE OF CONTENTS
This Form 6-K contains the following:
Sequential
Page
Item Number
---- ------
1. Index to Consolidated Financial Statements..........................3
COMPANHIA VALE DO RIO DOCE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of PricewaterhouseCoopers Auditores Independentes.................. F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000.............. F-3
Consolidated Statements of Income for the three years
ended December 31, 2001, 2000 and 1999 ............................... F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 2001, 2000 and 1999 ............................... F-6
Consolidated Statements of Changes in Stockholders' Equity for
the three years ended December 31, 2001, 2000 and 1999 ............... F-7
Notes to the Consolidated Financial Information........................... F-8
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Companhia Vale do Rio Doce
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated
statements of income, of cash flows and of changes in stockholders' equity,
present fairly, in all material respects, the financial position of Companhia
Vale do Rio Doce and its subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of certain affiliates, the investments in
which total US$441 million and US$1,188 million at December 31, 2001 and 2000,
respectively, and equity in earnings of US$53 million, US$213 million and US$42
million for 2001, 2000 and 1999, respectively. Also, we did not audit the
financial statements of the majority-owned shipping and ferrous alloys
subsidiaries as at and for the years ended December 31, 2001, 2000 and 1999,
which statements reflect total assets of US$500 million and US$584 million at
December 31, 2001 and 2000, respectively, and total revenues of US$407 million,
US$480 million and US$177 million for 2001, 2000 and 1999, respectively. The
financial statements of these affiliates and subsidiaries were audited by other
auditors whose reports thereon have been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts for these affiliates and
subsidiaries, is based solely on the reports of the other auditors. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
Auditores Independentes
Rio de Janeiro, Brazil
March 28, 2002
F-2
Consolidated Balance Sheets
Expressed in millions of United States dollars
As of December 31
-----------------
2001 2000
------- -------
Assets
Current assets
Cash and cash equivalents................................... 1,117 1,211
Accounts receivable
Related parties........................................... 106 125
Unrelated parties......................................... 443 365
Loans and advances to related parties....................... 160 121
Inventories................................................. 323 306
Deferred income tax......................................... 265 89
Others...................................................... 224 285
------- -------
2,638 2,502
------- -------
Property, plant and equipment, net........................... 3,813 3,955
Investments in affiliated companies and
joint ventures and other investments....................... 1,227 1,816
Provision for losses on equity investments................... (9) (21)
Other assets
Goodwill on acquisition of consolidated subsidiaries....... 540 175
Loans and advances
Related parties.......................................... 555 704
Unrelated parties........................................ 100 52
Unrecognized pension obligation............................ 14 125
Prepaid pension cost....................................... 99 -
Deferred income tax........................................ 227 255
Judicial deposits.......................................... 235 173
Unrealized gain on derivative instruments.................. 7 -
Others..................................................... 76 59
------- -------
1,853 1,543
------- -------
TOTAL........................................................ 9,522 9,795
======= =======
F-3
Consolidated Balance Sheets
Expressed in millions of United States dollars (Continued)
As of December 31
-----------------
2001 2000
------- -------
Liabilities and stockholders' equity
Current liabilities
Suppliers.................................................. 296 321
Payroll and related charges................................ 85 51
Interest attributed to stockholders........................ 340 657
Current portion of long-term debt
Related parties.......................................... 22 30
Unrelated parties........................................ 274 250
Short-term debt............................................ 589 465
Loans from related parties................................. 168 152
Others..................................................... 147 210
------- -------
1,921 2,136
------- -------
Long-term liabilities
Employees postretirement benefits.......................... 187 591
Long-term debt
Related parties.......................................... 156 128
Unrelated parties........................................ 2,014 1,892
Loans from related parties................................. 21 21
Provisions for contingencies (Note 15)..................... 452 338
Unrealized loss on derivative instruments.................. 40 -
Others..................................................... 86 111
------- -------
2,956 3,081
------- -------
Minority interests........................................... 5 9
------- -------
Stockholders' equity
Preferred class A stock - 600,000,000
no-par-value shares authorized and 138,575,913 issued.... 820 709
Common stock - 300,000,000 no-par-value
shares authorized and 249,983,143 issued................. 1,479 1,279
Treasury stock - 91 (2000 - 3,659,311) preferred
and 4,715,170 common shares.............................. (88) (61)
Additional paid-in capital................................. 498 498
Other cumulative comprehensive income...................... (3,465) (3,040)
Appropriated retained earnings............................. 3,212 3,537
Unappropriated retained earnings........................... 2,184 1,647
------- -------
4,640 4,569
------- -------
TOTAL........................................................ 9,522 9,795
======= =======
See notes to consolidated financial information.
F-4
Consolidated Statements of Income
Expressed in millions of United States
dollars (except number of shares and per-share amounts)
Year ended December 31
-------------------------
2001 2000 1999
------- ------- -------
Operating revenues, net of discounts, returns
and allowances
Sales of ores and metals
Iron ore and pellets.......................... 2,600 2,177 1,694
Gold.......................................... 139 156 155
Others........................................ 426 412 175
------- ------- -------
3,165 2,745 2,024
Revenues from transportation services........... 608 760 642
Aluminum products............................... 284 362 363
Other products and services..................... 75 202 128
------- ------- -------
4,132 4,069 3,157
Value-added tax................................. (142) (134) (81)
------- ------- -------
Net operating revenues.......................... 3,990 3,935 3,076
------- ------- -------
Operating costs and expenses
Cost of ores and metals sold.................... (1,605) (1,423) (996)
Cost of transportation services................. (378) (481) (368)
Cost of aluminum products....................... (269) (334) (323)
Others.......................................... (75) (191) (119)
------- ------- -------
(2,327) (2,429) (1,806)
Selling, general and administrative expenses.... (241) (225) (138)
Research and development........................ (43) (48) (27)
Employee profit sharing plan.................... (38) (29) (24)
Others.......................................... (412) (278) (165)
------- ------- -------
(3,061) (3,009) (2,160)
------- ------- -------
Operating income.................................. 929 926 916
------- ------- -------
Non-operating income (expenses)
Financial income................................ 135 208 200
Financial expenses.............................. (335) (315) (233)
Foreign exchange and monetary losses, net....... (393) (142) (213)
Gain on sale of investments..................... 784 54 -
------- ------- -------
191 (195) (246)
------- ------- -------
Income before income taxes, equity results and
minority interests.............................. 1,120 731 670
------- ------- -------
Income taxes
Current......................................... 46 (10) -
Deferred........................................ 172 42 (33)
------- ------- -------
218 32 (33)
------- ------- -------
Equity in results of affiliates and joint
ventures........................................ (49) 260 41
Change in provision for losses on equity
investments..................................... (4) 62 (268)
Minority interests................................ 2 1 2
------- ------- -------
Net income........................................ 1,287 1,086 412
======= ======= =======
Basic earnings per Common and Preferred
Class A Share................................... 3.34 2.82 1.07
------- ------- -------
Weighted average number of shares outstanding
(thousands of shares)
Common shares................................... 249,864 249,983 249,983
Preferred Class A shares........................ 135,042 134,917 134,917
See notes to consolidated financial information.
F-5
Consolidated Statements of Cash Flows
Expressed in millions of United States dollars
(Unaudited)
Year ended December 31
--------------------------
2001 2000 1999
------- ------- -------
Cash flows from operating activities:
Net income....................................... 1,287 1,086 412
Adjustments to reconcile net income with cash
provided by operating activities:
Depreciation, depletion and amortization....... 212 195 163
Equity in results of affiliates and joint
ventures, net of dividends received.......... 181 (127) 23
Change in provision for losses on equity
investments.................................. 4 (62) 268
Deferred income taxes.......................... (172) (42) 33
Provisions for contingencies................... 79 101 57
Loss on disposals of property, plant and
equipment.................................... 79 47 23
Gain on sale of investments.................... (784) (54) -
Pension plan................................... 32 105 55
Foreign exchange and monetary losses........... 460 208 399
Net unrealized derivative losses............... 38 - -
Others......................................... 129 54 61
Decrease (increase) in assets:
Accounts receivable............................ (49) (63) (135)
Inventories.................................... (40) (50) (6)
Others......................................... 17 (103) (25)
Increase (decrease) in liabilities:
Suppliers...................................... 21 84 49
Payroll and related charges.................... 42 (1) 2
Others......................................... (18) 46 (43)
------- ------- -------
Net cash provided by operating activities........ 1,518 1,424 1,336
------- ------- -------
Cash flows from investing activities:
Loans and advances receivable
Related parties
Additions.................................... (75) (168) (202)
Repayments................................... 79 32 42
Others......................................... 7 8 5
Guarantees and deposits.......................... (85) (98) (4)
Additions to investments......................... (338) (538) (49)
Additions to property, plant and equipment....... (595) (447) (265)
Proceeds from disposals of property, plant and
equipment...................................... 3 1 1
Proceeds from disposal of investments............ 989 44 -
Net cash used to acquire subsidiaries............ (516) (323) -
Others........................................... - - 3
------- ------- -------
Net cash used in investing activities............ (531) (1,489) (469)
------- ------- -------
Cash flows from financing activities:
Short-term debt, net issuances................... (28) (278) (110)
Loans
Related parties
Additions.................................... 145 8 223
Repayments................................... (44) (42) (42)
Perpetual notes.................................. - 120 -
Long-term debt
Related parties................................ 66 62 60
Others......................................... 317 750 175
Repayments of long-term debt
Related parties................................ (40) (25) (48)
Others......................................... (310) (419) (299)
Interest attributed to stockholders.............. (1,066) (246) (452)
Treasury stock................................... (27) - -
------- ------- -------
Net cash used in financing activities............ (987) (70) (493)
------- ------- -------
Increase (decrease) in cash and cash equivalents. - (135) 374
Effect of exchange rate changes on cash and cash
equivalents.................................... (94) (107) (110)
Cash and cash equivalents, beginning of
period......................................... 1,211 1,453 1,189
------- ------- -------
Cash and cash equivalents, end of period......... 1,117 1,211 1,453
======= ======= =======
Cash paid during the period for:
Interest on short-term debt.................... (45) (48) (55)
Interest on long-term debt, net of
interest capitalized of $11 in 2001,
$12 in 2000 and $12 in 1999.................. (153) (128) (107)
Income tax..................................... (46) (6) -
Non-cash transactions
Special pension plan contribution in shares of
CSN.......................................... 249 - -
Exchange of loans receivable for
investments.................................. 35 7 241
Transfer of credits from related parties
ar fair value................................ - - 126
See notes to consolidated financial information.
F-6
Consolidated Statements of Changes in Stockholders' Equity
Expressed in millions of United States dollars (except number of shares and
per-share amounts)
Year ended December 31
--------------------------------------
Shares 2001 2000 1999
----------- ------- ------- -------
Preferred class A stock (including one special share)
Balance January 1, 2001, 2000 and 1999............ 138,575,913 709 709 642
Transfer from appropriated retained earnings...... - 111 - 67
----------- ------- ------- -------
Balance December 31, 2001, 2000 and 1999.......... 138,575,913 820 709 709
----------- ------- ------- -------
Common stock
Balance January 1, 2001, 2000 and 1999............ 249,983,143 1,279 1,279 1,159
Transfer from appropriated retained earnings...... - 200 - 120
----------- ------- ------- -------
Balance December 31, 2001, 2000 and 1999.......... 249,983,143 1,479 1,279 1,279
----------- ------- ------- -------
Treasury stock
Balance January 1................................. (3,666,611) (61) (61) (61)
Acquisitions in 2001.............................. (1,048,650) (27) - -
----------- ------- ------- -------
Balance December 31............................... (4,715,261) (88) (61) (61)
----------- ------- ------- -------
Additional paid-in capital
Balance January 1 and December 31................. 498 498 498
------- ------- -------
Other cumulative comprehensive income
Amounts not recognized as net periodic pension
cost
Balance January 1................................. (100) - (153)
Excess of additional minimum liability............ 151 (151) 229
Tax effect on above............................... (51) 51 (76)
------- ------- -------
Balance December 31............................... - (100) -
------- ------- -------
Cumulative translation adjustments
Balance January 1................................. (2,972) (2,535) (735)
Change in the year................................ (503) (437) (1,800)
------- ------- -------
Balance December 31............................... (3,475) (2,972) (2,535)
------- ------- -------
Unrealized gain on available-for-sale security
Balance January 1................................. 24 54 30
Change in the year ............................... (24) (30) 24
------- ------- -------
Balance December 31............................... - 24 54
------- ------- -------
Adjustments relating to investments in affiliates
Balance January 1................................. 8 (6) (7)
Change in the year................................ 2 14 1
------- ------- -------
Balance December 31............................... 10 8 (6)
------- ------- -------
Total other cumulative comprehensive income......... (3,465) (3,040) (2,487)
------- ------- -------
Appropriated retained earnings
Balance January 1................................. 3,537 3,567 5,212
Transfer to retained earnings..................... (14) (30) (1,458)
Transfer to capital stock......................... (311) - (187)
------- ------- -------
Balance December 31............................... 3,212 3,537 3,567
------- ------- -------
Retained earnings
Balance January 1................................. 1,647 1,186 (193)
Net income...................................... 1,287 1,086 412
Interest attributed to stockholders
Preferred class A stock ($1.99, $1.70
and $1.28 per share in 2001, 2000 and
1999)......................................... (276) (230) (172)
Common stock ($1.99, $1.70 and $1.28
per share in 2001, 2000 and 1999)........... (488) (425) (319)
Appropriation from reserves..................... 14 30 1,458
------- ------- -------
Balance December 31............................... 2,184 1,647 1,186
----------- ------- ------- -------
Total stockholders' equity.......................... 383,843,795 4,640 4,569 4,691
=========== ======= ======= =======
Comprehensive income is comprised as follows:
Net income........................................ 1,287 1,086 412
Amounts not recognized as net periodic pension
cost............................................ 100 (100) 153
Cumulative translation adjustments................ (503) (437) (1,800)
Unrealized gain on available-for-sale security.... (24) (30) 24
Adjustments relating to investments in
affiliates...................................... 2 14 1
------- ------- -------
Total comprehensive income (loss)................... 862 533 (1,210)
======= ======= =======
See notes to consolidated financial information.
F-7
Notes to the Consolidated Financial Statements
Expressed in millions of United States dollars, unless otherwise stated
-----------------------------------------------------------------------
1 The Company and its operations
Companhia Vale do Rio Doce (CVRD) is a limited liability company, duly
organized and existing under the laws of the Federative Republic of
Brazil. Our operations are carried out through CVRD and its subsidiary
companies, joint ventures and affiliates, and mainly consist of mining,
non-ferrous metal production and logistics, as well as pulp and paper,
aluminum and steel activities. Further details of our operations and those
of our joint ventures and affiliates are described in Note 16.
The main operating subsidiaries we consolidate are as follows:
Head office Principal
Subsidiary % ownership location activity
---------------------------------------------------- --------------- ----------------- -----------------------
Ferteco Mineracao S.A. - FERTECO 100 Brazil Iron ore and pellets
Para Pigmentos S.A. 80 Brazil Kaolin
SIBRA - Eletrosiderurgica Brasileira S.A. 98 Brazil Ferrous alloys
Navegacao Vale do Rio Doce S.A. - DOCENAVE 100 Brazil Shipping
Vale do Rio Doce Aluminio S.A. - ALUVALE 100 Brazil Aluminum
Itabira Rio Doce Company Ltd. - ITACO 100 Cayman Island Trading
Rio Doce International Finance Ltd. - RDIF 100 Bahamas International finance
CELMAR S.A. - Industria de Celulose e Papel 85 Brazil Pulp
Florestas Rio Doce S.A. 100 Brazil Pulp
Rio Doce Manganese Europe - RDME 100 France Ferrous alloys
Urucum Mineracao S.A. 100 Brazil Iron ore
2 Summary of significant accounting policies
In preparing the consolidated financial information, we are required to
use estimates to account for certain assets, liabilities, revenues and
expenses. Our consolidated financial information therefore includes
various estimates concerning the selection of useful lives of property,
plant and equipment, provisions necessary for contingent liabilities, fair
values assigned to assets and liabilities acquired in business
combinations, income tax valuation allowances, employee post-retirement
benefits and other similar evaluations; actual results may vary from our
estimates.
(a) Basis of presentation
We have prepared the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
("US GAAP"), which differ in certain respects from the Brazilian
accounting principles that we use in preparing our statutory financial
information.
The U.S. dollar amounts for the period presented have been remeasured
(translated) from the Brazilian currency amounts in accordance with the
criteria set forth in Statement of Financial Accounting Standards 52 -
"Foreign Currency Translation" ( SFAS 52).
Prior to July 1, 1997, Brazil was considered under SFAS 52 to have a
highly inflationary economy, defined as an economy in which the cumulative
inflation rate over the latest thirty-six month period has exceeded 100%.
Accordingly, up to June 30, 1997, we adopted the U.S. dollar as both our
functional currency and reporting currency.
As from July 1, 1997, we concluded that the Brazilian economy had ceased
to be highly inflationary and changed our functional currency from the
reporting currency (U.S. dollars) to the local currency (Brazilian reais).
Accordingly, at July 1, 1997, we translated the U.S. dollar amounts of
non-monetary assets and liabilities into reais at the current exchange
rate, and those amounts became the new accounting bases for such assets
and liabilities. The resulting deferred taxes associated with the
differences between the new functional currency bases and the tax bases,
including those relating to
F-8
affiliates and joint ventures, net of related valuation allowances, were
reflected in the cumulative translation adjustments component of
stockholders' equity.
We have remeasured all assets and liabilities into U.S. dollars at the
current exchange rate at each balance sheet date (R$2.3204 and R$1.9554 to
US$1.00 at December 31, 2001 and 2000, respectively), and all accounts in
the statements of income (including amounts relative to local currency
indexation and exchange variances on assets and liabilities denominated in
foreign currency) at the average rates prevailing during the period. The
translation gain or loss resulting from this remeasurement process is
included in the cumulative translation adjustments account in
stockholders' equity.
The net exchange transaction loss included in our statement of income was
$410, $115 and $265 in 2001, 2000 and 1999, respectively, with the line
"Foreign exchange and monetary losses, net".
(b) Basis of consolidation
All majority-owned subsidiaries where we have both share and management
control are consolidated, with elimination of all significant intercompany
accounts and transactions. Investments in unconsolidated affiliates and
joint ventures are reported at cost less amortized goodwill plus our
equity in undistributed earnings or losses. Included in this category are
certain joint ventures in which we have majority ownership but, by force
of shareholders' agreements, do not have effective management control. We
provide for losses on equity investments with negative stockholders'
equity where applicable (see Note 10).
We evaluate the carrying value of our listed investments relative to
publicly available quoted market prices. If the quoted market price is
below book value, and such decline is considered other than temporary, we
write-down our equity investments to quoted market value.
We define joint ventures as businesses in which we and a small group of
other partners each participate actively in the overall entity management,
based on a shareholders agreement. We define affiliates as businesses in
which we participate as a minority stockholder but with significant
influence over the operating and financial policies of the investee.
(c) Business combinations
We adopt the procedures determined by Accounting Principles Board Opinion
16 - "Business Combinations" (APB 16) to recognize acquisitions of
interests in other companies. The method of accounting normally used in
our business combination transactions is the "purchase method", which
requires that acquirers reasonably determine the fair value of the
identifiable assets and liabilities of acquired companies, individually,
in order to determine the goodwill paid in the purchase to be recognized
as an intangible asset. On the acquisition of assets which include the
rights to mine reserves of natural resources, the establishment of values
for these assets includes the placing of fair values on purchased
reserves, which are classified in the balance sheet as property, plant and
equipment.
Goodwill recorded in our business combination transactions realized prior
to July 1, 2001 is amortized in a systematic manner over the periods
estimated to be benefited through December 31, 2001.
For acquisitions after July 1, 2001 goodwill resulting from the
acquisitions is not amortized.
(d) Inventories
Inventories are stated at the average cost of purchase or production,
lower than replacement or realizable values. We record allowances for
slow-moving or obsolete inventories when considered appropriate,
reflecting our periodic assessment of recoverability. A write-down of
inventory utilizing the allowance establishes a new cost basis for the
related inventory.
Finished goods inventories include all related materials, labor and direct
production expenditures, and exclude general and administrative expenses.
(e) Property, plant and equipment
Property, plant and equipment are recorded at cost, including interest
cost incurred during the construction of major new facilities. We compute
depreciation on the straight-line basis at rates which take into
consideration the useful lives of the items, principally an average of 80
years for the railroads, 20 years for ships, 25 years for buildings and
improvements and between 10 to 20 years for mining and other equipment.
Expenditures for maintenance and repairs are charged to operating costs
and expenses as incurred.
F-9
We capitalize the costs of developing major new ore bodies or expanding
the capacity of operating mines and amortize these to operations on the
unit-of-production method based on the total probable and proven quantity
of ore to be recovered. Exploration costs are expensed until viability of
mining activities is established; subsequently such costs are capitalized
together with further exploration costs. We capitalize mine development
costs as from the time we actually begin such development.
(f) Available-for-sale equity securities
Equity securities classified as "available-for-sale" are recorded in
accordance with SFAS 115 "Accounting for Certain Investments in Debt and
Equity Securities". Accordingly, we exclude unrealized holding gains and
losses, net of taxes, if applicable, from income and recognize them as a
separate component of stockholders' equity until realized.
(g) Revenues and expenses
Revenues are recognized when title has transferred to the customer or
services are rendered. Expenses and costs are recognized on the accrual
basis. Revenue from exported products is recognized when such products are
loaded on board the ship. Revenue from products sold in the domestic
market is recognized when delivery is made to the customer. Revenue from
transportation services, other than shipping operations, is recognized
when the service order has been fulfilled. Shipping operations are
recorded on the completed voyage basis and net revenue, costs and expenses
of voyages not completed at period-end are deferred. Anticipated losses on
voyages are provided when probable and can be reasonably estimated.
(h) Environmental and site reclamation and restoration costs
Expenditures relating to ongoing compliance with environmental regulations
are charged against earnings or capitalized as appropriate. These ongoing
programs are designed to minimize the environmental impact of our
activities. With respect to our two major iron ore mines at Itabira and
Carajas, which have extensive remaining reserves, liabilities for final
site reclamation and restoration costs will be recorded when the
respective reclamation and restoration strategies can be reasonably
determined and the related costs can be reasonably estimated.
(i) Compensated absences
We fully accrue the liability for future compensation to employees for
vacations vested during the year.
(j) Income taxes
In accordance with SFAS 109 "Accounting for Income Taxes", the deferred
tax effects of temporary differences have been recognized in the
consolidated financial statements. A valuation allowance is made when we
believe that it is more likely than not that tax assets will not be fully
recoverable in the future.
(k) Statement of cash flows
Cash flows relating to overnight financing and investment are reported
net. Short-term investments that have a ready market and maturity to us,
when purchased, of 90 days or less are considered cash equivalents.
At December 31, 2001 and 2000 dividends of $132 and $133, respectively,
received from equity method affiliates and joint ventures have been netted
against the equity in results of these entities in the statement of cash
flows. For comparative purposes dividends received in 1999 of $64 have
been reclassified from investing activities to reflect the same
presentation.
(l) Earnings per share
Earnings per share are computed by dividing net income by the weighted
average number of common and preferred shares outstanding during the
period.
(m) Interest attributed to stockholders
As from January 1, 1996 Brazilian corporations are permitted to attribute
interest on stockholders' equity. The calculation is based on the
stockholders' equity amounts as stated in the statutory accounting records
and the interest rate applied may not exceed the long-term interest rate
(TJLP) determined by the Brazilian Central Bank. Also, such interest may
not exceed the greater of 50% of net income for the year or 50% of
retained earnings plus revenue reserves.
F-10
The amount of interest attributed to stockholders is deductible for income
tax purposes. Accordingly, the benefit to us, as opposed to making a
dividend payment, is a reduction in our income tax charge equivalent to
the statutory tax rate applied to such amount. Income tax is withheld from
the stockholders relative to interest at the rate of 15%, except for
interest due to the Brazilian Government which is exempt from tax
withholdings.
We have opted to pay such tax-deductible interest to our stockholders and
have therefore accrued the amounts due as of December 31, 2001 and 2000,
with a direct charge to stockholders' equity.
Under Brazilian law interest attributable to stockholders is considered as
part of the annual minimum dividend (See Note 13). Accordingly such
distributions are treated as dividends for accounting purposes.
n) Derivatives and hedging activities
As of January 1, 2001 we adopted SFAS 133 "Accounting for Derivative
Financial Instruments and Hedging Activities", as amended by SFAS 137 and
SFAS 138. Those standards require that we recognize all derivative
financial instruments as either assets or liabilities on our balance sheet
and measure such instruments at fair value. Changes in the fair value of
derivatives are recorded in each period in current earnings or in other
comprehensive income, in the later case depending on whether a transaction
is designated as an effective hedge.
The transition adjustment relating to the fair value of derivatives
existing as of December 31, 2000 is recorded as a charge of $8 in our
statement of income for the year ended December 31, 2001. In view of the
immateriality of this effect of a change in accounting principle the
corresponding amount was included with other non-operating expenses.
Certain of our affiliated companies and joint ventures also recorded
similar charges, of which our portion of $4 is included in the caption
"Equity in results of affiliates and joint ventures" in the statement of
income.
Further information about our derivatives and hedging activities is
included in Note 19.
(o) Comprehensive income
We have disclosed comprehensive income as part of the Statement of Changes
in Stockholders' Equity, in compliance with SFAS 130 - "Reporting
Comprehensive Income".
(p) Recently-issued accounting pronouncements
In June 2001 the Financial Accounting Standards Board (FASB) issued SFAS
141 "Business Combinations" and SFAS 142 "Goodwill and Other Intangible
Assets". We do not expect that the provisions of SFAS 141 will affect our
current accounting practices relative to business combinations. However,
the adoption of SFAS 142 on January 1, 2002 (or immediately for goodwill
relating to acquisitions after June 30, 2001) is expected to have the
following effects:
(i) goodwill relative to consolidated subsidiaries will no longer be
amortized, but will be aggregated to reporting units and subject at
least annually to testing for impairment, considering the reporting
unit as a whole.
(ii) goodwill relative to affiliates and joint ventures will no longer be
amortized but will remain allocated to the respective investment and
included in the measurement of the gain or loss on sale, or the loss
arising from an other than temporary decline in the value of the
investment.
Goodwill charged against earnings for the year December 31, 2001 totaled
$45 relating to subsidiaries and $47 relating to equity investees which
were classified as other operating expenses and equity in results of
affiliates and joint ventures, respectively.
In June 2001 and August 2001, respectively, the FASB also issued SFAS 143
"Accounting for Asset Retirement Obligations" and SFAS 144 "Accounting for
the Impairment or Disposal of Long-Lived Assets" . SFAS 143 is effective
for us as from January 1, 2003 and we are still studying the potential
effects that adoption may have on our financial statements. SFAS 144 will
be effective for us as from January 1, 2002 and the provisions thereof
generally are to be applied prospectively.
F-11
3 Our privatization
In May 1997, we were privatized by the Brazilian Government, which
transferred voting control to Valepar S.A. ("Valepar"). The Brazilian
Government has retained certain rights with respect to our future
decisions and those of Valepar and has also caused us to enter into
agreements which may affect our activities and results of operations in
the future. These rights and agreements are:
. Preferred Special Share. The Brazilian Government holds a preferred
special share of CVRD which confers upon it permanent veto rights
over changes in our (i) name, (ii) headquarters location, (iii)
corporate purpose with respect to mineral exploration, (iv) continued
operation of our integrated iron ore mining systems and (v) certain
other matters.
. Preferred Class A Share of Valepar. The Brazilian Government holds a
preferred class A share of Valepar which confers upon it approval
rights for a period of five years in respect of (i) concentration of
ownership of Valepar by particular types of investors in excess of
prescribed limitations and (ii) changes in the Valepar holding
company structure relating to ownership of our common shares.
. Shareholder revenue interests. On July 7, 1997, we issued to
shareholders of record on April 18, 1997 (including the Brazilian
Government) revenue interests providing holders thereof with the
right to receive semi-annual payments based on a percentage of our
net revenues above threshold production volumes from identified
mining resources. These instruments are not secured by the
corresponding mineral reserves and deposits.
In addition to the preferred special share mentioned above, the National
Treasury and the Banco Nacional de Desenvolvimento Economico e Social -
BNDES, the Government - owned development bank, together hold 32% of our
common shares and 4% of our preferred shares, which in aggregate
represents 22% of our total capital at December 31, 2001. These common
shares were sold through a public offering in Brazil and abroad which was
completed on March 27, 2002.
4 Major acquisitions and disposals during the years presented
We made the following acquisitions during the periods presented. Pro forma
information with respect to results of operations is not presented since
the effects are not considered material to an understanding of our
consolidated financial statements.
(a) On May 11, 2000, we acquired the entire capital of Mineracao SOCOIMEX
S.A., a non-public company whose main activity is production and
commercialization of iron ore, for the total price of $55, being an
initial cash payment of $47 and two further cash payments of $3 and $5, in
2001 and 2002, respectively, plus interest based on 89% of the Brazilian
Interbank Rate through the payment date. The increment of the fair value
over the book value of SOCOIMEX at the date of purchase was entirely
attributable to its mineral reserves, which are included in the property,
plant and equipment. In August 2000 SOCOIMEX was merged into CVRD.
(b) On May 30, 2000, we acquired 4,026,694,190 common shares and 4,231,324,374
preferred shares of S.A. Mineracao Trindade - SAMITRI, representing 79.27%
of the voting capital and 63.06% of the total capital for $520 in cash,
becoming the controlling stockholder. At the date of the purchase, SAMITRI
was a publicly listed Brazilian iron ore mining company, which also owned
a 51% interest in the voting capital of SAMARCO Mineracao S.A., a large
iron ore pellets producer (see Note 10). On June 29, 2000, we sold 1% of
the share capital of SAMARCO to BHP Brasil Ltda. (BHP), a subsidiary of
The Broken Hill Proprietary Company Limited of Australia, for $8, to
equalize our shareholdings in the joint venture.
F-12
(c) The assets and liabilities acquired as a result of the above transactions
and corresponding goodwill were as follows:
Consolidated Subsidiaries
-------------------------------------
Unconsolidated
joint venture
SAMARCO SAMITRI SOCOIMEX
--------------- --------------- ---------------
Fair value of assets .................................... 1,006 293 77
Fair value of liabilities ............................... (450) (144) (22)
--------------- --------------- ---------------
Net assets at fair value ................................ 556 149 55
--------------- --------------- ---------------
Interest acquired ....................................... 50.00% 63.06% 100.00%
Fair value of net assets acquired ....................... 278 94 55
Attributable to minority stockholders
of SAMITRI (36.94%) ................................... (103) - -
Tax benefits ............................................ 31 - -
--------------- --------------- ---------------
Effective interest acquired ............................. 206 94 55
Purchase price .......................................... 252 268 55
--------------- --------------- ---------------
Goodwill ................................................ 46 174 -
=============== =============== ===============
The main assets for which fair values differ from book values are
inventories and property, plant and equipment. We determined the fair
values of inventories based on the current replacement costs for raw
materials and the estimated selling prices for finished goods, net of
disposal costs and a selling margin. The fair values of property, plant
and equipment were determined based on current replacement costs for
similar capacity and the estimated market value of purchased reserves.
Deferred taxes were recorded for the differences between fair values and
tax bases.
For SAMARCO, SAMITRI and SOCOIMEX inventories were valued at $36, $38 and
$9, respectively, property, plant and equipment were valued at $830, $161
and $58, respectively, and the deferred tax liability was $60, $49 and
$15, respectively.
We had adopted a policy to amortize the goodwill on the SAMITRI and
SAMARCO purchases on the straight-line basis over a period of 6 years,
starting on the date of acquisition. However, as explained in note 2(p),
upon adoption of SFAS 142 on January 1, 2002 such straight-line
amortization will cease.
(d) On September 22, 2000 we acquired via public tender a further
1,014,529,197 common shares and 3,716,344,366 preferred shares of SAMITRI
bringing our ownership to 99.25% of the voting capital and 99.19% of the
total capital. The cash cost of this purchase was $180 and resulted in
additional goodwill of $27, all attributed to SAMARCO.
(e) In October 2000, we acquired 50% of Gulf Industrial Investment Company
(GIIC), a pelletizing company located in Bahrain, for $91, including
goodwill of $20 totally amortized.
(f) On April 27, 2001 we acquired 100% of Ferteco Mineracao S.A. - FERTECO, a
non-public company whose main activity is production and commercialization
of iron ore and pellets, for $523 in cash.
The assets and liabilities acquired and corresponding goodwill were as
follows:
December 31, 2001
-----------------
Fair value of assets ................................ 401
Fair value of liabilities ........................... (251)
-----------------
Net assets at fair value ............................ 150
Purchase price ...................................... 523
-----------------
Goodwill ............................................ 373
=================
F-13
For FERTECO inventories were valued at $57, property, plant and equipment
were valued at $178, and the deferred tax liability was $24.
(a) On January 14, 2000 we sold 20.81% of the capital of Alumina do Norte do
Brasil S.A.- ALUNORTE and a beneficial interest in 8% of the capital of
Mineracao Rio do Norte S.A. - MRN owned by us for an aggregate of $164,
resulting in a gain of $54. The total consideration of $164 was received
in cash; however, $120 was received through the issue and sale of
Perpetual Notes with a fair value of $55 and this fair value continues to
be reported as a liability and periodically adjusted based on an early
termination formula reflecting the underlying profitability of MRN.
(b) On March 9, 2001 we transferred our 10.33% interest in Companhia
Siderurgica Nacional - CSN to VALIA, as a special pension plan
contribution, for $249 (fair market value determined based on the weighted
average price of the last thirty trading sessions at the Sao Paulo stock
exchange in the period ended on March 9, 2001). This transfer resulted in
a gain of $107.
(c) On April 27, 2001 we concluded the sale of our 32.00% interest in Bahia
Sul Celulose S.A. - BSC for $318, received in cash on May 7, 2001. This
operation resulted in a gain of $170.
(d) On June 6, 2001 we concluded the sale of our 51.48% interest in Celulose
Nipo-Brasileira S.A. - CENIBRA for $671, received in cash on September 14,
2001. This operation resulted in a gain of $507.
(e) In December 2001, we acting through our wholly-owned foreign subsidiary
Itabira Rio Doce Company Ltd. - ITACO, acquired 659,375,000 common shares
of Caemi Mineracao e Metalurgia S.A. (Caemi), corresponding to 50% of its
voting capital from Cayman Iron Ore Investment Co., Ltd., a wholly-owned
subsidiary of Japan's Mitsui & Co., Ltd. (MITSUI) for US$ 279. Caemi is a
Brazilian company headquartered in Rio de Janeiro, which operates in the
iron ore, kaolin, refractory bauxite and railroad sectors and is accounted
for as an equity investee.
This acquisition was approved by the European Commission subject to the
commitment for Caemi to sell its equity investment in Quebec Cartier
Mining Company (QCM), a Canadian producer of iron ore and pellets.
CVRD and Mitsui each of which holds 50% of Caemi's common shares, entered
into a shareholder agreement requiring both shareholders to approve all
major decisions affecting Caemi.
The estimated assets and corresponding goodwill were as follows:
December 31, 2001
-----------------
Estimated fair value of assets .......................... 1,127
Estimated fair value of liabilities...................... (734)
-----------------
Net assets at book value................................ 393
Interest in total capital acquired...................... 16.82%
Estimated fair value of net assets acquired............. 66
Purchase price.......................................... 279
-----------------
Goodwill................................................ 213
=================
5 Income taxes
Income taxes in Brazil comprise federal income tax and social
contribution, which is an additional federal tax. The statutory enacted
tax rates applicable in the periods presented are as follows:
Year ended December 31 - %
--------------------------------------------
2001 2000 1999
------------ ------------- --------------
Federal income tax........... 25 25 25
Social contribution (*)...... 9 9 to 12 8 to 12
------------ -------------- --------------
Composite tax rate........... 34 34 to 37 33 to 37
============ ============== ==============
(*) As from May 1, 1999 through January 31, 2000, the social contribution
rate was increased from 8% to 12%. February 1, 2000 to December 31,
2002 the rate was reduced to 9%.
F-14
The amount reported as income tax benefit in this consolidated financial
information is reconciled to the statutory rates as follows:
Year ended December 31
-------------------------
2001 2000 1999
----- ---- ----
Income before income taxes, equity
results and minority interests ........ 1,120 731 670
Federal income tax and social
contribution expense at statutory
enacted rates ......................... (381) (249) (248)
Adjustments to derive effective tax rate:
Tax benefit on interest attributed to
stockholders .......................... 260 222 181
Exempt foreign income ................... 226 69 (4)
Tax-dedutible in goodwill business
combination ........................... 58 - -
Tax effect related to provision for
losses and write-downs ................ 59 - -
Tax incentives .......................... 26 31 -
Valuation allowance reversal (provision). (44) (51) 37
Other non-taxable gains ................. 14 10 1
----- ---- ----
Federal income tax and social
contribution expense in consolidated
statements of income .................. 218 32 (33)
===== ==== ====
We have certain tax incentives relative to our iron ore and manganese
operations in Carajas and other from gold and potash operations. The
incentives comprise full income tax exemption on defined production levels
up to 2005 and partial exemption up to 2013. An amount equal to the tax
saving must be appropriated to a reserve account within stockholders'
equity (Note 13) and may not be distributed in the form of cash dividends.
The major components of the deferred tax accounts in the balance sheet are
as follows:
As of December 31
------------------
2001 2000
----- -----
Net current deferred tax assets
Accrued expenses deductible only when
disbursed........................................ 265 89
----- -----
265 89
===== =====
Long-term deferred tax assets and liabilities
Assets
Deferred tax relative to temporary differences:
Established on the July 1, 1997 change in
functional currency, less reversals............ 9 16
Relative to investments acquired .................. 9 15
Tax-deductible goodwill in business
combinations .................................... 134 103
Related to provision for losses and
write-downs of investments ...................... 120 61
Additional retirement benefits provision
(in 2000 net of unrecognized pension
obligation)...................................... 58 158
Tax loss carryforwards............................. 220 190
Other temporary differences ....................... 21 6
----- -----
571 549
----- -----
Liabilities
Inflationary income ............................... (25) (32)
Prepaid retirement benefit ........................ (34) -
Fair value adjustments in business
combinations .................................... (72) (61)
----- -----
(131) (93)
----- -----
Valuation allowance
Beginning balance ................................. (201) 178)
Translation adjustments ........................... 32 15
Additions ......................................... (44) (51)
Reversals ......................................... - 13
----- -----
Ending balance..................................... (213) (201)
----- -----
Net long-term deferred tax
assets............................................. 227 255
===== =====
F-15
6 Cash and cash equivalents
As of December 31
-------------------------
2001 2000
----------- -----------
Cash ........................................ 22 28
Deposits in local currency .................. 76 694
Deposits in United States dollars ........... 1,019 489
----------- -----------
1,117 1,211
=========== ===========
7 Accounts receivable
As of December 31
--------------------------
2001 2000
----------- -----------
Customers
Domestic ............................... 170 198
Export, all denominated in
United States dollars ............. 408 312
----------- -----------
578 510
Allowance for doubtful accounts ............. (21) (14)
Allowance for ore weight credits ............ (8) (6)
----------- -----------
Total ....................................... 549 490
=========== ===========
Accounts receivable from customers in the steel industry amount to 28.3%
and 16.3% of domestic receivables (export receivables - 91.5% and 78.8%)
at December 31, 2001 and 2000, respectively. No single customer accounted
for more than 10% of total revenues in any of the years presented.
8 Inventories
As of December 31
-------------------------
2001 2000
----------- -----------
Finished products
Iron ore ................................... 110 100
Gold ....................................... 5 4
Manganese .................................. 27 7
Ferrous alloys ............................. 28 32
Others ..................................... 16 34
Spare parts and maintenance supplies .......... 137 129
----------- -----------
323 306
=========== ===========
F-16
9 Property, plant and equipment
a) Per business area:
As of December 31, 2001 As of December 31, 2000
------------------------------------ ------------------------------------
Accumulated Accumulated
Cost depreciation Net Cost depreciation Net
---------- ---------- ---------- ---------- ---------- ----------
Ferrous
Ferrous - Southern System
Mining .................................. 1,000 460 540 1,096 533 563
Railroads ............................... 935 463 472 1,022 513 509
Marine terminals ........................ 194 92 102 157 102 55
---------- ---------- ---------- ---------- ---------- ----------
2,129 1,015 1,114 2,275 1,148 1,127
Ferrous - Northern System
Mining .................................. 733 308 425 691 310 381
Railroads ............................... 1,075 408 667 1,206 439 767
Marine terminals ........................ 202 97 105 222 108 114
---------- ---------- ---------- ---------- ---------- ----------
2,010 813 1,197 2,119 857 1,262
Pelletizing ............................. 198 108 90 194 123 71
Ferrous-alloys .......................... 206 106 100 278 140 138
Energy .................................. 82 6 76 77 4 73
Construction in progress ................ 569 - 569 406 - 406
---------- ---------- ---------- ---------- ---------- ----------
5,194 2,048 3,146 5,349 2,272 3,077
---------- ---------- ---------- ---------- ---------- ----------
Non-Ferrous
Potash .................................. 50 17 33 47 16 31
Gold .................................... 256 167 89 295 132 163
Kaolin .................................. 96 21 75 91 12 79
Research and projects ................... 17 9 8 19 10 9
Construction in progress ................ 35 - 35 43 - 43
---------- ---------- ---------- ---------- ---------- ----------
454 214 240 495 170 325
---------- ---------- ---------- ---------- ---------- ----------
Logistics
General cargo ........................... 353 179 174 349 173 176
Maritime transportation ................. 238 130 108 351 167 184
Construction in progress ................ 23 - 23 14 - 14
---------- ---------- ---------- ---------- ---------- ----------
614 309 305 714 340 374
---------- ---------- ---------- ---------- ---------- ----------
Holdings
Pulp and paper .......................... 58 13 45 175 26 149
Others .................................. 14 7 7 - - -
Construction in progress ................ 45 - 45 - - -
---------- ---------- ---------- ---------- ---------- ----------
117 20 97 175 26 149
---------- ---------- ---------- ---------- ---------- ----------
Corporate Center
Corporate ............................... 40 17 23 41 15 26
Construction in progress ................ 2 - 2 4 - 4
---------- ---------- ---------- ---------- ---------- ----------
42 17 25 45 15 30
---------- ---------- ---------- ---------- ---------- ----------
Total ...................................... 6,421 2,608 3,813 6,778 2,823 3,955
========== ========== ========== ========== ========== ==========
b) Per type of assets:
As of December 31, 2001 As of December 31, 2000
--------------------------------- -------------------------------
Accumulated Accumulated
Cost depreciation Net Cost depreciation Net
------- ------------ -------- ------ ------------ -------
Land and buildings..................... 678 255 423 824 289 535
Installations.......................... 1,470 775 695 1,634 885 749
Equipment.............................. 673 306 367 597 290 307
Ships.................................. 235 127 108 348 165 183
Railroads.............................. 1,675 729 946 1,741 770 971
Mine development costs................. 302 77 225 326 83 243
Others................................. 714 339 375 841 341 500
------- ----------- -------- ------ ------------ -------
5,747 2,608 3,139 6,311 2,823 3,488
Construction in progress............... 674 - 674 467 - 467
------- ----------- -------- ------ ------------ -------
Total.................................. 6,421 2,608 3,813 6,778 2,823 3,955
======= =========== ======== ====== ============ =======
Losses on disposals of property, plant and equipment totaled $48, $47 and
$23 in 2001, 2000 and 1999, respectively. In 2001, 2000 and 1999,
disposals mainly relate to sales of ships, trucks, locomotives and other
equipment which were replaced in the normal course of business.
F-17
10 Investments
As of December 31
--------------------------------------------
2001
--------------------------------------------
(1)Net
income
Participation (loss)
in capital (1)Net for the
(%) equity year
----------------- -------- --------
Investments in affiliated companies and joint ventures voting total
------ -----
Steel
Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS (3) . 22.99 11.46 279 (3)
Companhia Siderurgica Nacional - CSN (2) ................ - - - -
Companhia Siderurgica de Tubarao - CST (3) .............. 20.51 22.85 79 (4)
California Steel Industries Inc. - CSI .................. 50.00 50.00 195 (6)
Paper and pulp
Celulose Nipo-Brasileira S.A. - CENIBRA (2) ............ - 17
Bahia-Sul Celulose S.A. - BSC (2) ...................... - 6
Aluminum and bauxite
Mineracao Rio do Norte S.A. - MRN ...................... 40.00 40.00 386 81
Valesul Aluminio S.A. - VALESUL ......................... 54.51 54.51 93 21
Alumina do Norte do Brasil S.A. - ALUNORTE .............. 50.31 45.58 142 (13)
Pellets
Companhia Nipo-Brasileira de Pelotizacao - NIBRASCO...... 51.11 51.00 32 (3)
Companhia Hispano-Brasileira de Pelotizacao - HISPANOBRAS 51.00 50.89 36 9
Companhia Coreano Brasileira de Pelotizacao - KOBRASCO .. 50.00 50.00 4 (17)
Companhia Italo-Brasileira de Pelotizacao - ITABRASCO ... 51.00 50.90 26 8
Gulf Industrial Investment Company - GIIC(5) ............ 50.00 50.00 75 13
SAMARCO Mineracao S.A.(5) ............................... 50.00 50.00 433 36
Others
Fertilizantes Fosfatados S.A. - FOSFERTIL (3) ........... 10.96 10.96 264 47
Caemi Mineracao e Metalurgia S.A. ....................... 50.00 16.82 393 -
Salobo Metais S.A. (4) .................................. 50.00 50.00 44 -
Ferrovia Centro-Atlantica S.A. - FCA(5) ................. 20.00 45.65 - (47)
Others .................................................. - -
Investments at cost
SIDERAR (market value $11 in 2001 - $42 in 2000) ........ 4.85 4.85
Unrealized holding gains on equity security .............
MRS Logistica S.A. ...................................... 17.19 9.76
Others ..................................................
Change in provision for losses on equity investments:
Para Pigmentos S.A. .....................................
Vale Usiminas Participacoes S.A. - VUPSA ................
Alumina do Norte do Brasil S.A. - ALUNORTE ..............
Aluminio Brasileiro S.A. - ALBRAS .......................
Companhia Ferroviaria do Nordeste .......................
As of December 31
--------------------------------------------------------
Investments Equity Adjustments
-------------------- --------------------------------
2001 2000 2001 2000 1999
-------- -------- -------- -------- --------
Investments in affiliated companies and joint ventures
Steel
Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS (3) . 32 40 - 7 (13)
Companhia Siderurgica Nacional - CSN (2) ................ - 167 9 13 3
Companhia Siderurgica de Tubarao - CST (3) .............. 18 35 (1) 22 (5)
California Steel Industries Inc. - CSI .................. 98 119 (3) 17 22
Paper and pulp
Celulose Nipo-Brasileira S.A. - CENIBRA (2) ............ - 210 9 66 (4)
Bahia-Sul Celulose S.A. - BSC (2) ...................... - 162 2 42 13
Aluminum and bauxite
Mineracao Rio do Norte S.A. - MRN ...................... 154 153 32 36 10
Valesul Aluminio S.A. - VALESUL ......................... 51 44 11 12 -
Alumina do Norte do Brasil S.A. - ALUNORTE .............. 89 80 (6) 11 -
Pellets
Companhia Nipo-Brasileira de Pelotizacao - NIBRASCO ..... 16 28 (2) 11 10
Companhia Hispano-Brasileira de Pelotizacao - HISPANOBRAS 18 21 5 9 7
Companhia Coreano Brasileira de Pelotizacao - KOBRASCO .. 2 12 (8) 2 (11)
Companhia Italo-Brasileira de Pelotizacao - ITABRASCO ... 13 16 4 7 7
Gulf Industrial Investment Company - GIIC(5) ............ 38 93 (17) 1 -
SAMARCO Mineracao S.A.(5)................................ 258 318 11 8 -
Others
Fertilizantes Fosfatados S.A. - FOSFERTIL (3) ........... 29 31 5 5 7
Caemi Mineracao e Metalurgia S.A. ....................... 289 - - - -
Salobo Metais S.A. (4) .................................. 22 25 - - -
Ferrovia Centro-Atlantica S.A. - FCA(5) ................. - 82 (95) (30) -
Others .................................................. 62 131 (5) 21 (5)
-------- -------- -------- -------- --------
1,189 1,767 (49) 260 41
Investments at cost
SIDERAR (market value $11 in 2001 - $42 in 2000) ........ 15 15 - - -
Unrealized holding gains on equity security ............. (4) 27 - - -
MRS Logistica S.A. ...................................... 22 - - - -
Others .................................................. 5 7 - - -
-------- -------- -------- -------- --------
1,227 1,816 (49) 260 41
======== ======== ======== ======== ========
Change in provision for losses on equity investments:
Para Pigmentos S.A. ..................................... - - (15)
Vale Usiminas Participacoes S.A. - VUPSA ................ - - (56)
Alumina do Norte do Brasil S.A. - ALUNORTE .............. - - (89)
Aluminio Brasileiro S.A. - ALBRAS ....................... 4 66 (104)
Companhia Ferroviaria do Nordeste ....................... (8) (4) (4)
-------- -------- --------
(4) 62 (268)
======== ======== ========
(1) Based on US GAAP financial statements.
(2) Investments sold in 2001.
(3) Value based on quoted market price at December 31, 2001 is $41 and
$172 for Usiminas and CST, respectively. Investments in Usiminas and
CST are presented net of write-down provisions of $185 and $215,
respectively, for all periods presented.
(4) Development stage enterprise.
(5) Equity adjustments incudes amortization of goodwill in the amonts of
Samarco $7, GIIC $23 and FCA $74.
F-18
Goodwill included in the above investments is as follows:
As of December 31
-------------------
Investee 2001 2000
----------------------------------------- -------- --------
Alumina do Norte do Brasil S.A. - ALUNORTE ........ 24 30
SAMARCO Mineracao S.A ............................. 41 59
Ferrovia Centro-Atlantica S.A. - FCA .............. - 22
Gulf Industrial Investment Company - GIIC ......... - 20
Caemi Mineracao e Metalurgia S.A. ................. 223 -
-------- --------
288 131
======== ========
Based on our revised expectation for profitability and other economic
facts, we fully amortized the remaining goodwill relative to FCA and GIIC
in 2001.
The combined financial position and results of operations of our
affiliates in the steel sector is as follows:
Steel sector affiliates (Combined)
----------------------------------
As of December 31
----------------------------------
2001 2000
--------------- ---------------
Balance sheet
Current assets .................... 1,139 3,094
Noncurrent assets ................. 6,070 10,231
Current liabilities ............... (1,071) (2,695)
Noncurrent liabilities ............ (2,584) (5,094)
Purchase accounting adjustments ... (3,001) (3,175)
--------------- ---------------
Stockholders' equity .............. 553 2,361
=============== ===============
Investments ....................... 148 361
=============== ===============
Steel sector affiliates (Combined)
------------------------------------
Year ended December 31
------------------------------------
2001 2000 1999
---------- ---------- ----------
Statement of operations
Net sales ........................ 3,293 4,581 4,174
Costs and expenses ............... (3,276) (4,082) (4,790)
Purchase accounting adjustments .. 3 24 83
---------- ---------- ----------
Income before income taxes ....... 20 523 (533)
Income taxes ..................... 59 (199) 556
---------- ---------- ----------
Net income ....................... 79 324 23
========== ========== ==========
Equity adjustments ............... 5 59 7
========== ========== ==========
F-19
Information with respect to other major affiliates' financial position and
results of operations is as follows:
As of December 31
------------------------------------------------------------------
CAEMI ALUNORTE ALBRAS MRN
------ ---------------- ---------------- ----------------
2001 2001 2000 2001 2000 2001 2000
------ ------ ------ ------ ------ ------ ------
Balance Sheet
Current assets ........................................ 398 159 130 158 128 55 90
Noncurrent assets ..................................... 729 509 505 510 627 425 349
Current liabilities ................................... (307) (95) (79) (219) (247) (35) (19)
Noncurrent liabilities ............................... (427) (431) (454) (463) (538) (59) (37)
------ ------ ------ ------ ------ ------ ------
Stockholders' equity .................................. 393 142 102 (14) (30) 386 383
====== ====== ====== ====== ====== ====== ======
Our participation ........................................ 16.82% 45.58% 49.29% 51.00% 51.00% 40.00% 40.00%
------ ------ ------ ------ ------ ------ ------
Investments .............................................. 66 65 50 (7) (15) 154 153
====== ====== ====== ====== ====== ====== ======
Year ended December 31
-----------------------------------------------------------------------------
ALUNORTE ALBRAS MRN
----------------------- ----------------------- -----------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
----- ----- ----- ----- ----- ----- ----- ----- -----
Statement of Operations
Net sales .................................. 294 322 253 472 551 459 211 217 205
Costs and expenses ......................... (302) (327) (446)(*) (429) (452) (755)(*) (121) (109) (156)
Income (loss) before income
taxes ................................... (8) (5) (193) 43 99 (296) 90 108 49
Income taxes ............................... (5) 28 56 (35) 30 93 (9) (17) (23)
Equity in results of affiliates ............ - - - - - - - - -
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) .......................... (13) 23 (137) 8 129 (203) 81 91 26
===== ===== ===== ===== ===== ===== ===== ===== =====
Our participation ............................. 45.58% 49.29% 65.82% 51.00% 51.00% 51.00% 40.00% 40.00% 40.00%
Participation in results ...................... (6) 11 (89) 4 66 (104) 32 36 10
Change in provision for losses ................ - 89 (4) (66) 104 - - -
----- ----- ----- ----- ----- ----- ----- ----- -----
Equity adjustments ............................ (6) 11 - - - - 32 36 10
===== ===== ===== ===== ===== ===== ===== ===== =====
(*) Includes exchange losses of $213 (ALUNORTE), and $378 (ALBRAS) for
the year ended December 31, 1999 - see Note 20.
The provision for losses on equity investments of $9 and $21 at December
31, 2001 and 2000, respectively, relates to our investments in affiliates
which have reported negative stockholders' equity in their financial
statements prepared in accordance with US GAAP and in circumstances where
we have assumed commitments to fund our share of the accumulated losses,
if necessary, through additional capital contributions or other means.
Accordingly we (a) first reduce the value of the investment to zero and
(b) subsequently provide for our portion of negative equity. The provision
is comprised as follows:
Cia
Ferroviaria
do Nordeste ALBRAS TOTAL
------------ ------------ ------------
Provision at January 1, 2000 ............. (4) (83) (87)
Change in provision - results ............ (4) 66 62
Payment of capital ....................... 1 - 1
Translation adjustment ................... 1 2 3
------------ ------------ ------------
Provision at December 31, 2000 ........... (6) (15) (21)
Change in provision - results ............ (8) (4) (4)
Payment of capital ....................... 10 - 10
Translation adjustment ................... 2 4 6
------------ ------------ ------------
Provision at December 31, 2001 ........... (2) (7) (9)
============ ============ ============
F-20
Our participation in ALUNORTE (45.58% at December 31, 2001) changed
several times during the periods presented, but we did not consolidate the
financial statements of this investee due to the temporary nature of our
increased holding. Movements on the investment account and related
provision during the three years ended December 31, 2001 are as follows:
Total ALUNALUNORTE
shares of shares owned
ALUNALUNORTE by CVRD
(in thousands) (in thousands) Investment Goodwill Provision
-------------- -------------- ------------ ------------ ------------
Balance January 1, 1999 ........................... 325,107 174,279 - - (9)
Purchase of additional participation:
January 1999 .................................... 453,921 124,491 68 48 9
December 1999 ................................... 598,184 144,263 55 30 -
Participation in 1999 losses ...................... - - (89) - -
Translation adjustment ............................ - - (7) - -
------------ ------------ ------------ ------------
Balance December 31, 1999 ......................... 598,184 443,033 27 78 -
Sale of participation in January 2000 ............. 598,184 (124,491) (7) (48) -
Changes in participation-subscriptions by
other shareholders .............................. - - 19 - -
Capital call ...................................... 673,494 13,437 5 - -
Participation in 2000 net income .................. - - 11 - -
Translation adjustment ............................ - - (5) - -
------------ ------------ ------------ ------------
Balance December 31, 2000 ......................... 673,494 331,979 50 30 -
Purchase of additional participation .............. 211,916 71,542 20 - -
Changes in participation-subscriptions by
other shareholders .............................. - - 6 - -
Participation in 2001 net income .................. - - (6) - -
Goodwill amortized ................................ - - - (1) -
Translation adjustment ............................ - - (5) (5) -
------------ ------------ ------------ ------------
Balance December 31, 2001 ......................... 885,410 403,521 65 24 -
============ ============ ============ ============
Net
------------
Balance January 1, 1999 ........................... (9)
Purchase of additional participation:
January 1999 .................................... 125
December 1999 ................................... 85
Participation in 1999 losses ...................... (89)
Translation adjustment ............................ (7)
------------
Balance December 31, 1999 ......................... 105
Sale of participation in January 2000 ............. (55)
Changes in participation-subscriptions by
other shareholders .............................. 19
Capital call ...................................... 5
Participation in 2000 net income .................. 11
Translation adjustment ............................ (5)
------------
Balance December 31, 2000 ......................... 80
Purchase of additional participation .............. 20
Changes in participation-subscriptions by
other shareholders .............................. 6
Participation in 2001 net income .................. (6)
Goodwill amortized ................................ (1)
Translation adjustment ............................ (10)
------------
Balance December 31, 2001 ......................... 89
============
On January 14, 2000 we entered into a structured transaction with an
unrelated party to sell both a 20.81% of the capital of ALUNORTE and a
beneficial interest in 8% of the capital of MRN owned by us for a total of
$164, resulting in a net gain to us of $54, recorded in other operating
income, as follows:
Book value of 124,491 thousand shares of ALUNORTE sold ..... (7)
Goodwill amortized ......................................... (48)
Book value of beneficial interest in 8% of MRN ............. -
-------
(55)
Cash received by us
On transfer of ALUNORTE shares ........................... 44
On issue and sale of Perpetual Notes ..................... 120
Fair value of Perpetual Notes .............................. (55)
-------
Gain recognized on the transaction ......................... 54
=======
The Perpetual Notes are exchangeable for 48 billion preferred shares of
the affiliate MRN (initially equivalent to 8% of the total number of
shares of MRN owned by us). Interest is payable on the Notes in an amount
equal to dividends paid on the underlying preferred shares, relative to
periods starting as from the 2000 fiscal year. The Notes may be redeemed
at our option or the Noteholders at any time by transfer of the underlying
preferred shares to the Noteholders, providing the rights of pre-emption
of the existing shareholders of MRN have been waived or have expired.
Redemption by transfer of the underlying net assets of MRN is compulsory
if certain events occur, including the liquidation or merger of MRN or the
transfer of MRN's asset and liabilities to a consortium formed by its
shareholders to take over the operations of MRN. In the event of early
termination the Notes may be redeemed, at the option the Noteholders, in
lieu of transfer of the shares, for a cash sum equal to $48 plus the net
present value of average annual earnings declared and paid by MRN for the
three years immediately preceding such termination multiplied by 20 and
discounted by 10% per year. This latter amount represents a fair value of
$55.
F-21
On October 6, 2000, with the objective of financing part of the expansion
in its alumina production capacity from 1.5 million tons to 2.3 million
tons per year, ALUNORTE called a capital increase of $126, to be paid up
in 6 installments. Up to December 31,2000, three of these installments
have been made and ALUVALE contributed with $25, changing its stockholding
interest to 48.58%.
During 1999 our 50%-owned affiliate VUPSA incurred significant losses, of
which we recognized our portion of $56 through the provision for losses on
equity investments. In December 1999 we acquired the remaining 50% of
VUPSA in exchange for the transfer of amounts owed to the seller from
subsidiaries of VUPSA amounting to $126, resulting in negative goodwill of
$86. At December 31, 1999 the balance sheet of VUPSA has been consolidated
and the negative goodwill used to reduce the carrying value of VUPSA's
property, plant and equipment.
In 2000, we acquired a further 34.41% of Ferrovia Centro-Atlantica S.A.,
for $25, bringing our participation to 45.65%.
Dividends received from investees aggregated $132, $133 and $64 in 2001,
2000 and 1999, respectively.
11 Short-term debt
Our short-term borrowings are principally from commercial banks and
include import and export financing denominated in United States dollars,
as follows:
As of December 31
---------------------
2001 2000
--------- ---------
Export ...................................... 498 386
Import ...................................... 1 11
Working Capital ............................. 90 68
--------- ---------
589 465
========= =========
Average annual interest rates on short-term borrowings were 4.96% and
8.18% in 2001 and 2000, respectively.
F-22
12 Long-term debt
As of December 31
--------------------------------------------------
Current liabilities Long-Term liabilities
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Foreign debt
Loans and financing contracted in the following currencies,
maturing up to 2011 :
United States dollars .......................................... 192 170 1,104 990
Japanese Yen ................................................... 8 10 27 4
Others ......................................................... 2 2 2 4
Fixed Rate Notes - US$ denominated ...................................... - - 500 500
Export Securitization - US$ denominated ................................. - - 300 300
Perpetual notes ......................................................... - - 55 55
Accrued charges ......................................................... 25 41 - -
----------- ----------- ----------- -----------
227 223 1,988 1,853
----------- ----------- ----------- -----------
Local debt
Indexed by Long-Term Interest Rate - TJLP
maturing up to 2002 ............................................ 28 6 9 40
Indexed by General Price Index-Market (IGPM)
maturing up to 2005 ........................................... 21 21 31 49
Basket of currencies .............................................. 15 15 39 51
Capital Lease ...................................................... - 1 -
Shareholders revenue interests (Note 3) ............................ - 3 3
Indexed by U S dollars ............................................ 4 11 100 24
Accrued charges .................................................... 1 3 - -
----------- ----------- ----------- -----------
69 57 182 167
----------- ----------- ----------- -----------
Total ................................................................... 296 280 2,170 2,020
=========== =========== =========== ===========
The long-term portion at December 31, 2001 becomes due in the following
years:
2003 ................................................... 662
2004 ................................................... 725
2005 ................................................... 255
2006 ................................................... 151
2007 ................................................... 225
2008 and thereafter .................................... 97
No due date (Perpetual notes) .......................... 55
---------
2,170
=========
At December 31, 2001 annual interest rates on long-term debt were as
follows:
Up to 7% ............................................... 1,309
7.1% to 9% ............................................. 495
9.1% to 11% ............................................ 509
Over 11% ............................................... 89
Variable (Perpetual notes) ............................. 64
---------
2,466
=========
F-23
The indexes applied to debt and respective percentage variations in each
year were as follows:
2001 2000 1999
----- ----- -----
TJLP - Long-Term
Interest Rate (effective rate) ..... 3.34 4.56 6.92
IGP-M - General Price Index - Market ...... 10.40 9.95 20.10
United States Dollar ...................... 18.70 9.30 48.01
Long-term debt at December 31, 2001 is guaranteed or secured as follows:
Amount of debt
guaranteed
--------------
Federal Government guarantee (for which we have
provided counter-guarantees) .......................... 308
Third party guarantees .................................. 150
Export receivables (securitization) ..................... 125
Ships ................................................... 50
In October 2000 we issued $300 under a US dollar - denominated export
securitization program, divided into three tranches as follows:
Grace Period Effectives
Amount Tenor (years) (years) rate p.a.
---------- ------------- ------------- -------------
Tranche 1 25 7 2 8.682%
Tranche 2 125 7 2 Libor+0.65%
Tranche 3 150 10 3 8.926%
----------
300
==========
Tranche 2 is guaranteed by an insurance contract with a major U.S.
insurance company.
On March 8, 2002 our wholly-owned subsidiary, Vale Overseas Limited,
issued $300 of 8.625% Enhanced Guaranteed Notes due March 8, 2007,
unconditionally guaranteed by us.
13 Stockholders' equity
Each holder of common and preferred class A stock is entitled to one vote
for each share on all matters that come before a stockholders' meeting,
except for the election of the Board of Directors, which is restricted to
the holders of common stock. As described in Note 3, the Brazilian
Government holds a preferred special share which confers on it permanent
veto rights over certain matters.
The Board of Directors authorized the acquisition of up to 9,832,691 of
our own preferred class A shares, to remain in treasury for subsequent
disposal or cancellation. As of December 31, 2001, 3,519,288 shares had
been acquired, at an average weighted unit cost of R$20.03 (minimum cost
of R$14.02 and maximum of R$24.19).
Both common and preferred stockholders are entitled to receive a dividend
of at least 25% of annual net income, upon approval at the annual
stockholders' meeting. In the case of preferred stockholders, this
dividend cannot be less than 6% of the preferred capital as stated in the
statutory accounting records. With respect to each of 2001, 2000 and 1999
we distributed dividends to preferred stockholders in excess of this
limit. Interest attributed to stockholders as from January 1, 1996 is
considered part of the minimum dividend.
Brazilian law permits the payment of cash dividends only from retained
earnings as stated in the
F-24
statutory accounting records and such payments are made in Reais. At
December 31, 2001, we had no undistributed retained earnings. In addition,
appropriated retained earnings at December 31, 2001 includes $2,215,
related to the unrealized income and expansion reserves, which could be
freely transferred to retained earnings and paid as dividends, if approved
by the stockholders.
No withholding tax is payable on distribution of profits earned as from
January 1, 1996, except for distributions in the form of interest
attributed to stockholders as explained in Note 2 (m).
Brazilian laws and our By-laws require that certain appropriations be made
from retained earnings to reserve accounts on an annual basis, all
determined in accordance with amounts stated in the statutory accounting
records, as detailed below:
Year ended December 31
------------------------------------
2001 2000 1999
-------- -------- --------
Appropriated retained earnings
Unrealized income reserve
Balance January 1 ........................................................ 874 1,062 1,636
Transfer to retained earnings ............................................ (326) (188) (574)
-------- -------- --------
Balance December 31 ..................................................... 548 874 1,062
Expansion reserve
Balance January 1 ........................................................ 1,546 1,367 1,685
Transfer to capital stock ................................................ (278) - -
Transfer to retained earnings ............................................ 399 179 (318)
-------- -------- --------
Balance December 31 ..................................................... 1,667 1,546 1,367
Legal reserve
Balance January 1 ........................................................ 307 284 368
Transfer to retained earnings ............................................ 18 23 (84)
-------- -------- --------
Balance December 31 ...................................................... 325 307 284
Fiscal incentive depletion reserve
Balance January 1 ........................................................ 771 842 1,246
Transfer to retained earnings ............................................ (122) (71) (404)
-------- -------- --------
Balance December 31 ...................................................... 649 771 842
Fiscal incentive investment reserve
Balance January 1 ........................................................ 39 12 277
Transfer to capital stock ................................................ (33) - (187)
Transfer (to) from retained earnings ..................................... 17 27 (78)
-------- -------- --------
Balance December 31 ...................................................... 23 39 12
-------- -------- --------
Total appropriated retained earnings ........................................ 3,212 3,537 3,567
======== ======== ========
The purpose and basis of appropriation to such reserves is described below:
. Unrealized income reserve - this represents principally our share of
the earnings of affiliates and joint ventures, not yet received in
the form of cash dividends.
. Expansion reserve - this is a general reserve for expansion of our
activities.
. Legal reserve - this reserve is a requirement for all Brazilian
corporations and represents the appropriation of 5% of annual net
income under Brazilian GAAP up to a limit of 20% of capital stock
under Brazilian GAAP.
. Fiscal incentive depletion reserve - this represents an additional
amount relative to mineral reserve depletion equivalent to 20% of the
sales price of mining production, which is deductible for tax
purposes providing an equivalent amount is transferred from retained
earnings to the reserve account. This fiscal incentive expired in
1996.
. Fiscal incentive investment reserve - this reserve results from an
option to designate a portion of
F-25
income tax otherwise payable for investment in government approved
projects and is recorded in the year following that in which the
taxable income was earned. As from 2000, this reserve also
contemplates the tax incentives described in Note 5.
14 Pension plans
Since 1973 we have sponsored a defined benefit pension plan (the "Old
Plan") covering substantially all employees, with benefits based on years
of service, salary and social security benefits. This plan is administered
by Fundacao Vale do Rio Doce de Seguridade Social - VALIA and was funded
by monthly contributions made by us and our employees, calculated based on
periodic actuarial appraisals.
In May 2000, we implemented a new pension plan, which is primarily a
defined contribution plan with a defined benefit feature relative to
service prior to May 2000 (the "New Plan"), and offered our active
employees the opportunity of transferring to the New Plan. Over 98% of our
active employees opted to transfer to the New Plan. The Old Plan will
continue in existence, covering almost exclusively retired participants
and their beneficiaries.
The following information details the status of the defined benefit
elements of our plans in accordance with SFAS 132 "Employers' Disclosure
about Pensions and Other Post-retirement Benefits":
(a) Change in benefit obligation
As of December 31
---------------------
2001 2000
--------- ---------
Benefit obligation at beginning of year ........... 1,596 1,440
Service cost ...................................... 2 10
Interest cost ..................................... 78 91
Benefits paid ..................................... (88) (109)
Plan amendments ................................... - (13)
Effect of exchange rate changes ................... (252) (65)
Actuarial loss .................................... 52 242
--------- ---------
Benefit obligation at end of year ................. 1,388 1,596
========= =========
The actuarial loss of $ 242 in the year ended December 31, 2000 is mainly
due to the adoption of a new mortality table which is considered to better
reflect the current life expectancy of the plan participants.
(b) Change in plan assets
As of December 31
---------------------
2001 2000
--------- ---------
Fair value of plan assets at beginning of year .... 1,189 1,231
Actual return on plan assets ...................... 220 128
Special employer contributions (Note 4 (i)) ....... 249 -
Employer contributions ............................ 17 34
Employee contributions ............................ - 5
Benefits paid ..................................... (88) (109)
Effect of exchange rate changes ................... (213) (100)
--------- ---------
Fair value of plan assets at end of year .......... 1,374 1,189
========= =========
F-26
Plan assets at December 31, 2001 include $83 of portfolio investments in
our own shares ($95 at December 31, 2000) and $12 of shares of related
parties ($9 at December 31, 2000), as well as $551 of Federal Government
Securities ($480 at December 31, 2000).
(c) Accrued pension cost liability
As of December 31
------------------------
2001 2000
---------- ----------
Funded status, excess of benefit obligation over plan assets ........ 14 407
Unrecognized net transitory obligation .............................. (94) (125)
Unrecognized net actuarial loss ..................................... (19) (152)
---------- ----------
Accrued pension cost liability (prepaid pension cost) ............... (99) 130
========== ==========
(d) Recognition of additional minimum liability
As of December 31
------------------------
2001 2000
---------- ----------
Accrued pension cost liability ...................................... - 130
Unrecognized pension obligation, limited to
unrecognized net transitory obligation ........................... 14 125
Additional amount recognized in stockholders' equity ................ - 151
---------- ----------
Minimum liability ................................................... 14 406
========== ==========
(e) Assumptions used in each period (expressed in nominal terms)
2001 2000
---------- ----------
Discount rate 11% p.a. 11% p.a.
Expected return on plan assets 11% p.a. 11% p.a.
Rate of compensation increase 6.82% p.a. 6.82% p.a.
Net pension cost includes the following components:
Year ended December 31
------------------------------
2001 2000 1999
------ ------ ------
Service cost - benefits earned during the period .............. 2 10 31
Interest cost on projected benefit obligation ................. 78 91 126
Actual return on assets ....................................... (220) (128) (345)
Amortization of initial transitory obligation ................. 12 15 17
Net deferral .................................................. 160 58 241
------ ------ ------
32 46 70
Employee contributions ........................................ - (5) (15)
------ ------ ------
Net periodic pension cost ..................................... 32 41 55
====== ====== ======
In addition to benefits provided under our pension plan accruals have been
made relative to supplementary benefits extended in previous periods as
part of early-retirement programs. Such accruals included in long-term
liabilities totaled $173 and $185, at December 31, 2001 and 2000,
respectively, plus $28 and $30 in current liabilities.
The cost recognized in the years 2001 and 2000 relative to the defined
contribution element of the New Plan was $5 and $3, respectively.
F-27
15 Commitments and contingencies
(a) At December 31, 2001, we had extended guarantees for borrowings obtained
by affiliates and joint ventures in the amount of $702, of which $492 is
denominated in United States dollars and the remaining $210 in local
currency. These guarantees include $317 relative to ALBRAS and $51
relative to ALUNORTE (see Note 10).
(b) CVRD and its subsidiaries are defendants in numerous legal actions in the
normal course of business. Based on the advice of our legal counsel,
management believes that the provision made against contingent losses is
sufficient to cover probable losses in connection with such actions.
The provision for contingencies and the related judicial deposits are
composed as follows:
As of December 31
----------------------------------------------------------------------
2001 2000
---------------------------------- ----------------------------------
Provision for Judicial Provision for Judicial
contingencies deposits contingencies deposits
---------------- ---------------- ---------------- ----------------
Labor claims ..................... 147 50 114 60
Civil claims ..................... 123 53 137 58
Tax - related actions ............ 177 131 80 54
Others ........................... 5 1 7 1
---------------- ---------------- ---------------- ----------------
452 235 338 173
================ ================ ================ ================
Long-term ........................ 452 235 338 173
================ ================ ================ ================
Labor-related actions principally comprise employee claims for (i) payment
of time spent travelling from their residences to the work-place, (ii)
additional payments for alleged dangerous or unhealthy working conditions
and (iii) various other matters, often in connection with disputes about
the amount of indemnities paid upon dismissal.
Civil actions principally relate to claims made against us by contractors
in connection with losses alleged to have been incurred by them as a
result of various past government economic plans during which full
indexation of contracts for inflation was not permitted.
Tax-related actions principally comprise our challenges of changes in
basis of calculation and rates of certain revenue taxes and of the tax on
financial movements - CPMF.
We continue to vigorously pursue our interests in all the above actions
but recognize that probably we will incur some losses in the final
instance, for which we have made provisions.
Our judicial deposits are made as required by the courts for us to be able
to enter or continue a legal action. When judgment is favorable to us, we
receive the deposits back; when unfavorable, the deposits are delivered to
the prevailing party.
Contingencies settled in the years December 31, 2001 and 2000 aggregated
$6 and $36, respectively, and additional provisions aggregated $79 and
$101 in these years, respectively.
(c) We are defendants in two actions seeking substantial compensatory damages
brought by the Municipality of Itabira, State of Minas Gerais, which we
believe are without merit. Due to the remote likelihood that any loss will
arise therefrom no provision has been made in the financial statements
with respect to these two actions.
(d) We are committed under a take-or-pay agreement to take delivery of
approximately 175,950 metric tons per year of aluminum from ALBRAS at
market prices. This estimate is based on 51% of ALBRAS expected production
and, at a market price of $1,453.66 per metric ton at December 31,
F-28
2001, represents an annual commitment of $256. We are also committed to
take-or-pay 437,214 metric tons per year of alumina produced by ALUNORTE
which at a market price of $176.08 per metric ton at December 31, 2001,
represents an annual commitment of $77. Actual take from ALBRAS was $220,
$242 and $222 in 2001, 2000 and 1999, respectively, and direct from
ALUNORTE (net of take ceded to ALBRAS) was $36, $52 and $30 in 2001, 2000
and 1999, respectively.
(e) We and BNDES entered into a contract, known as the Mineral Risk Contract,
in March 1997, relating to prospecting authorizations for mining regions
where drilling and exploration are still in their early stages. The
Mineral Risk Contract provides for the joint development of certain
unexplored mineral deposits in approximately two million identified
hectares of land in the Carajas region, as well as proportional
participation in any financial benefits earned from the development of
such resources. Iron ore and manganese deposits already identified and
subject to development are specifically excluded from the Mineral Risk
Contract.
Pursuant to the Mineral Risk Contract, we and BNDES each agreed to provide
$205, which represents half of the $410 in expenditures estimated as
necessary to complete geological exploration and mineral resource
development projects in the region over a period of five years. Under
certain circumstances, this period may be extended for an additional two
years. We oversee these projects and BNDES advances us half of our costs
on a quarterly basis. Under the Mineral Risk Contract, as of December 31,
2001, each of us and BNDES had remaining commitments to contribute an
additional $89 toward exploration and development activities. We both
expect to fund a portion of these contributions through the end of 2001.
In the event that either of us wishes to conduct further exploration and
development after having spent such $205, the contract provides that each
party may either choose to match the other party's contributions, or may
choose to have its financial interest proportionally diluted. If a party's
participation in the project is diluted to an amount lower than 40% of the
amount invested in connection with exploration and development projects,
then the Mineral Risk Contract provides that the diluted party will lose
(1) all the rights and benefits provided for in the Mineral Risk Contract
and (2) any amount previously contributed to the project.
Under the Mineral Risk Contract, BNDES has agreed to compensate us for our
contribution of existing development and ownership rights in the Carajas
region through a finder's fee production royalty on mineral resources that
are discovered and placed into production. This finder's fee is equal to
3.5% of the revenues derived from the sale of gold, silver and platinum
group metals and 1.5% of the revenues derived from the sale of other
minerals, including copper, except for gold and other minerals discovered
at Serra Leste, for which the finder's fee is equal to 6.5% of revenues.
(f) At the time of our privatization in 1997, we issued shareholder revenue
interests known in Brazil as "debentures" to our then-existing
shareholders, including the Brazilian Government. The terms of the
"debentures", which are described below, were set to ensure that our
pre-privatization shareholders, including the Brazilian Government, would
participate alongside us in potential future financial benefits that we
are able to derive from exploiting our mineral resources.
In preparation for the issuance of the debentures, we issued series B
preferred shares on a one-for-one basis to all holders of our common
shares and series A preferred shares. We then exchanged all of the series
B shares for the debentures at par value. The debentures are not
redeemable or convertible, and do not trade on a stapled basis or
otherwise with our common or preferred shares. At present the debentures
cannot be traded. Holders will be able to trade the debentures only after
a three-month period that will commence upon completion of the sale by the
Brazilian Government of its 32% stake in our common shares, which occurred
on March 27, 2002 (see Note 3). We will be required to register the
debentures with the CVM in order to permit trading at this time.
Under Brazilian Central Bank regulations, pre-privatization shareholders
that held their shares through our preferred share American Depositary
Receipt, or ADR, program were not permitted to receive the debentures or
any financial benefits relating to the debentures. We sought approval from
the Central Bank to distribute the debentures to the ADR holders, but the
Central Bank rejected our request. We intend to renew our request to the
Central Bank, but we cannot be sure that we will succeed. If the Central
Bank does not approve our request, the ADR depositary will not be able to
distribute the debentures to the ADR holders and will not be able to sell
the debentures. Therefore, unless the Central Bank approves our request,
the debentures will not have any value for ADR holders.
F-29
Under the terms of the debentures, holders will have the right to receive
semi-annual payments equal to an agreed percentage of our net revenues
(revenues less value added tax) from certain identified mineral resources
that we owned as of May 1997, to the extent that we exceed defined
threshold production volumes of these resources, and from the sale of
mineral rights that we owned as of May 1997. Our obligation to make
payments to the holders will cease when the relevant mineral resources are
exhausted. Based on current production levels, and estimates for new
projects the for cast is to start payments referring to cooper resource in
2004 we would related to iron ore resources in approximately 2012, and
payments related to other mineral resources in later years.
The table below summarizes the amounts we will be required to pay under
the debentures based on the net revenues we earn from the identified
mineral resources and the sale of mineral rights.
Area Mineral Required Payments by CVRD
-------------------------------- -------------------- -----------------------------------------------------
Southern System Iron ore 1.8% of net revenue, after total production from May
1997 exceeds 1.7 billion tons.
Northern System Iron ore 1.8% of net revenue, after total production from May
1997 exceeds 1.2 billion tons.
Pojuca, Andorinhas, Gold and copper 2.5% of net revenue from the beginning of commercial
Liberdade and Sossego production.
Igarape Bahia and Gold and copper 2.5% of net revenue, after total production from the
Alemao beginning of commercial production exceeds 70 tons of
gold.
Fazenda Brasileiro Gold 2.5% of net revenue after total production from the
beginning of commercial production exceeds 26 tons.
Other areas, excluding Gold 2.5% of net revenue.
Carajas/ Serra Leste
Other areas owned as Other minerals 1% of net revenue, 4 years after the beginning of
of May 1997 commercial production.
All areas Sale of mineral 1% of the sales price.
rights owned as
of May 1997
(g) At December 31, 2001 we have provided $29 for environmental liabilities.
Such provisions relate to site restoration at mines already closed or
which are expected to be closed in the next two years.
We use various judgments and assumptions when measuring our environmental
liabilities. Changes in circumstances, law or technology may affect our
estimates and we periodically review the amounts accrued and adjust them
as necessary. Our accruals do not reflect unasserted claims because we are
currently not aware of any such issues. Also the amounts provided are not
reduced by any potential recoveries under cost sharing, insurance or
indemnification arrangements because such recoveries are considered
uncertain.
16 Segment and geographical information
In 1999 we adopted SFAS 131 "Disclosures about Segments of an Enterprise
and Related Information" with respect to the information we present about
our operating segments. SFAS 131 introduced a "management approach"
concept for reporting segment information, whereby financial information
is required to be reported on the basis that the top decision-maker uses
such information internally for evaluating segment performance and
deciding how to allocate resources to segments. Our business segments are
currently organized as follows:
F-30
Ferrous products - comprises iron ore mining and pellet production, as
well as the Northern and Southern transportation systems, including
railroads, ports and terminals, as they pertain to mining operations.
Manganese mining and ferrous alloys are also classified in this segment.
Non-ferrous products - comprises the production of gold and other
non-ferrous minerals.
Logistics - comprises our transportation systems as they pertain to
external commercial operations, and the operations of our ships.
Holdings - divided into the following sub-groups:
o Pulp and paper - comprises our forestation activities and investments
in joint ventures and affiliates engaged in the manufacture of pulp
and paper products.
o Aluminum - comprises aluminum trading activities and investments in
joint ventures and affiliates engaged in bauxite mining, alumina
refining and aluminum metal smelting.
o Steel - comprises our investments in joint ventures and affiliates
operating in the steel industry.
o Others - comprises our investments in joint ventures and affiliates
engaged in other businesses.
Corporate Center - the Corporate Center is responsible for accounting and
control, finance, legal matters, human resources and administration,
investor and external relations and internal auditing.
Information presented to top management with respect to the performance of
each segment is generally derived directly from the accounting records
maintained in accordance with Brazilian corporate law together with
certain minor inter-segment allocations, and is focused primarily on
return on capital employed (ROCE), net operating profit less taxes (NOPLT)
as well as net income.
In 2000 we transferred various accounting, control, legal and information
technology functions from the operating divisions to our Corporate Center.
We estimate that this transfer increased the costs in our Corporate Center
by approximately $8, and reduced the costs of our ferrous, non ferrous and
logistics segments by $6, $1 and $1, respectively.
Consolidated net income and principal assets are reconciled as follows
(certain minor reclassifications have been made to the 2000 and 1999
information to be comparable with that for 2001):
F-31
Consolidated net income and principal assets are reconciled as follows:
2001
-----------------------------------------------------------------------
Holdings
--------------------------
Non Pulp and
Ferrous ferrous Logistics paper Aluminum
----------- ----------- ----------- ----------- -----------
RESULTS
Revenues - Export .................................... 3,559 173 147 47 282
Revenues - Domestic .................................. 1,082 79 344 8 1
Cost and expenses .................................... (3,218) (197) (422)(1) 628(2) (259)
Interest revenue ..................................... 169 1 11 3 7
Interest expense ..................................... (368) (10) (11) - (1)
Depreciation ......................................... (167) (17) (26) (2) -
Pension plan ......................................... (27) (3) (2) - -
Equity and provision for losses ...................... (1) 1 (114) 11 41
Income taxes ......................................... 1 - (3) - 1
----------- ----------- ----------- ----------- -----------
Net income ........................................... 1,030 27 (76) 695 72
=========== =========== =========== =========== ===========
Sales classified by geographic destination:
Export market
Latin America ........................................ 238 - 65 - 9
United States ........................................ 247 139 21 47 73
Europe ............................................... 1,469 33 44 - 173
Middle East .......................................... 216 - 4 - -
Japan ................................................ 525 - 10 - 12
Asia, other than Japan ............................... 864 1 3 - 15
----------- ----------- ----------- ----------- -----------
3,559 173 147 47 282
Domestic market ...................................... 1,082 79 344 8 1
----------- ----------- ----------- ----------- -----------
4,641 252 491 55 283
=========== =========== =========== =========== ===========
Assets:
Property, plant and equipment, net ................... 3,146 240 305 90 -
Capital expenditures ................................. 506 40 25 22 -
Investments in affiliated companies and joint ventures
and other investments, net provision for losses ...... 673 29 34 - 287
=========== =========== =========== =========== ===========
Capital employed ..................................... 2,980 249 313 50 18
NOPLT ................................................ 1,356 56 149 2 25
ROCE ................................................. 46% 22% 48% 4% 139%
2001
-------------------------------------------------------------------
Holdings
--------------------------
Corporate
Steel Others Center Eliminations Consolidated
----------- ----------- ----------- ------------ ------------
RESULTS
Revenues - Export .................................... - - - (1,359) 2,849
Revenues - Domestic .................................. - - - (231) 1,283
Cost and expenses .................................... 120(3) - (759) 1,541 (2,566)
Interest revenue ..................................... 3 - - (59) 135
Interest expense ..................................... (4) - - 59 (335)
Depreciation ......................................... - - - - (212)
Pension plan ......................................... - - - - (32)
Equity and provision for losses ...................... 5 4 - - (53)
Income taxes ......................................... - - 219 - 218
----------- ----------- ----------- ----------- -----------
Net income ........................................... 124 4 (540) (49) 1,287
=========== =========== =========== =========== ===========
Sales classified by geographic destination:
Export market
Latin America ........................................ - - - (118) 194
United States ........................................ - - - (112) 415
Europe ............................................... - - - (490) 1,229
Middle East .......................................... - - - (20) 200
Japan ................................................ - - - (245) 302
Asia, other than Japan ............................... - - - (374) 509
----------- ----------- ----------- ----------- -----------
- - - (1,359) 2,849
Domestic market ...................................... - - - (231) 1,283
----------- ----------- ----------- ----------- -----------
- - - (1,590) 4,132
=========== =========== =========== =========== ===========
Assets:
Property, plant and equipment, net ................... - 7 25 - 3,813
Capital expenditures ................................. - - 2 - 595
Investments in affiliated companies and joint ventures
and other investments, net provision for losses ...... 159 36 - - 1,218
=========== =========== =========== =========== ===========
Capital employed ..................................... 13 7 (4) 4 3,630
NOPLT ................................................ 14 - (82) (49) 1,471
ROCE ................................................. 108% - - - 41%
(1) - Includes provisions $101 to reflect realizable value of assets
(2) - Includes $170 profit on sale of Bahia Sul Celulose S.A. - BSC and $507
profit on sale of Celulose Nipo-Brasileira S.A. - CENIBRA
(3) - Includes $107 profit on sale of Companhia Siderurgica Nacional - CSN
F-32
2000
-----------------------------------------------------------------------
Holdings
--------------------------
Non Pulp and
Ferrous ferrous Logistics paper Aluminum
----------- ----------- ----------- ----------- -----------
RESULTS
Revenues - Export .................................... 2,849 198 195 121 351
Revenues - Domestic .................................. 1,000 90 403 21 12
Cost and expenses .................................... (2,585) (214) (418) (156) (261)
Interest revenue ..................................... 52 1 1 7 25
Interest expense ..................................... (74) (12) (6) - (2)
Depreciation ......................................... (115) (30) (22) (22) -
Pension plan ......................................... (7) (2) - - -
Equity and provision for losses ...................... 46 - (22) 108 126
Income taxes ......................................... 8 - 5 (7) (5)
----------- ----------- ----------- ----------- -----------
Net income ........................................... 1,174 31 136 72 246
=========== =========== =========== =========== ===========
Sales classified by geographic destination:
Export market
Latin America ........................................ 224 - 30 - 23
United States ........................................ 252 156 64 73 39
Europe ............................................... 969 35 75 48 237
Middle East .......................................... 209 - 6 - 16
Japan ................................................ 544 4 15 - 34
Asia, other than Japan ............................... 651 3 5 - 2
----------- ----------- ----------- ----------- -----------
2,849 198 195 121 351
Domestic market ...................................... 1,000 90 403 21 12
----------- ----------- ----------- ----------- -----------
3,849 288 598 142 363
=========== =========== =========== =========== ===========
Assets:
Property, plant and equipment, net ................... 3,077 325 374 149 -
Capital expenditures ................................. 373 50 14 - -
Investments in affiliated companies and joint ventures
and other investments,net provision for losses ...... 519 31 151 372 262
=========== =========== =========== =========== ===========
Capital employed ..................................... 3,064 316 390 135 (10)
NOPLT ................................................ 1,155 52 165 (44) 23
ROCE ................................................. 38% 16% 42% (33%) -
2000
-------------------------------------------------------------------
Holdings
--------------------------
Corporate
Steel Others Center Eliminations Consolidated
----------- ----------- ----------- ------------ ------------
RESULTS
Revenues - Export .................................... - - - (1,068) 2,646
Revenues - Domestic .................................. 1 - - (104) 1,423
Cost and expenses .................................... (10) - (578) 1,196 (3,026)
Interest revenue ..................................... 5 - 173 (56) 208
Interest expense ..................................... (6) - (247) 32 (315)
Depreciation ......................................... - - (6) - (195)
Pension plan ......................................... - - - - (9)
Equity and provision for losses ...................... 59 5 - - 322
Income taxes ......................................... (48) - 79 - 32
----------- ----------- ----------- ----------- -----------
Net income ........................................... 1 5 (579) - 1,086
=========== =========== =========== =========== ===========
Sales classified by geographic destination:
Export market
Latin America ........................................ - - - (91) 186
United States ........................................ - - - (108) 476
Europe ............................................... - - - (222) 1,142
Middle East .......................................... - - - (19) 212
Japan ................................................ - - - (308) 289
Asia, other than Japan ............................... - - - (320) 341
----------- ----------- ----------- ----------- -----------
- - - (1,068) 2,646
Domestic market ...................................... 1 - - (104) 1,423
----------- ----------- ----------- ----------- -----------
1 - - (1,172) 4,069
=========== =========== =========== =========== ===========
Assets:
Property, plant and equipment, net ................... - - 30 - 3,955
Capital expenditures ................................. - - 10 - 447
Investments in affiliated companies and joint ventures
and other investments,net provision for losses ...... 423 37 - - 1,795
=========== =========== =========== =========== ===========
Capital employed ..................................... 1 14 (6) 8 3,912
NOPLT ................................................ (54) - (63) 16 1,250
ROCE ................................................. - - - - 32%
F-33
1999
-----------------------------------------------------------------------
Holdings
--------------------------
Non Pulp and
Ferrous ferrous Logistics paper Aluminum
----------- ----------- ----------- ----------- -----------
RESULTS
Revenues - Export .................................... 1,989 143 100 101 318
Revenues - Domestic .................................. 639 96 318 10 62
Cost and expenses .................................... (1,435) (151) (396) (103) (367)
Interest revenue ..................................... 46 - 8 4 9
Interest expense ..................................... (50) - (13) - (6)
Depreciation ......................................... (120) (16) (21) (6) -
Pension plan ......................................... (21) (4) (3) - -
Equity and provision for losses ...................... (44) (15) (9) 9 (182)
Income taxes ......................................... - - 14 (5) -
----------- ----------- ----------- ----------- -----------
Net income ........................................... 1,004 53 (2) 10 (166)
=========== =========== =========== =========== ===========
Sales classified by geographic destination:
Export market
Latin America ........................................ 149 - 13 - 5
United States ........................................ 147 139 34 62 23
Europe ............................................... 621 - 31 39 146
Middle East .......................................... 146 - 3 - -
Japan ................................................ 351 - 9 - 94
Asia, other than Japan ............................... 575 4 9 - 50
Others ............................................... - - 1 - -
----------- ----------- ----------- ----------- -----------
1,989 143 100 101 318
Domestic market ...................................... 639 96 318 10 62
----------- ----------- ----------- ----------- -----------
2,628 239 418 111 380
=========== =========== =========== =========== ===========
Assets :
Property, plant and equipment, net ................... 2,950 400 404 158 -
Capital expenditures ................................. 201 56 4 - -
Investments in affiliated companies and joint ventures
and other investments, net provision for losses ...... 116 33 68 318 208
=========== =========== =========== =========== ===========
Capital employed ..................................... 3,081 399 419 148 9
NOPLT ................................................ 1,055 68 28 6 28
ROCE ................................................. 34% 17% 7% 4% 311%
1999
-------------------------------------------------------------------
Holdings
--------------------------
Corporate
Steel Others Center Eliminations Consolidated
----------- ----------- ----------- ------------ ------------
RESULTS
Revenues - Export .................................... - - - (578) 2,073
Revenues - Domestic .................................. - - - (41) 1,084
Cost and expenses .................................... - - (428) 619 (2,261)
Interest revenue ..................................... - - 170 (37) 200
Interest expense ..................................... - - (201) 37 (233)
Depreciation ......................................... - - - - (163)
Pension plan ......................................... - - - - (28)
Equity and provision for losses ...................... 7 - 7 - (227)
Income taxes ......................................... - - (42) - (33)
----------- ----------- ----------- ----------- -----------
Net income ........................................... 7 - (494) - 412
=========== =========== =========== =========== ===========
Sales classified by geographic destination:
Export market
Latin America ........................................ - - - (60) 107
United States ........................................ - - - (71) 334
Europe ............................................... - - - (110) 727
Middle East .......................................... - - - (13) 136
Japan ................................................ - - - (83) 371
Asia, other than Japan ............................... - - - (241) 397
Others ............................................... - - - - 1
----------- ----------- ----------- ----------- -----------
- - - (578) 2,073
Domestic market ...................................... - - - (41) 1,084
----------- ----------- ----------- ----------- -----------
- - - (619) 3,157
=========== =========== =========== =========== ===========
Assets:
Property, plant and equipment, net ................... - - 31 - 3,943
Capital expenditures ................................. - - 4 - 265
Investments in affiliated companies and joint ventures
and other investments, net provision for losses ...... 426 34 - - 1,203
=========== =========== =========== =========== ===========
Capital employed ..................................... - - (9) - 4,047
NOPLT ................................................ - - (309) 11 887
ROCE ................................................. - - - - 22%
F-34
17 Related party transactions
Transactions with major related parties (including agencies of the
Brazilian Federal Government) resulted in the following balances:
As of December 31
-------------------------------------------------
2001 2000
----------------------- -----------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
AFFILIATED COMPANIES AND JOINT VENTURES
ALUNORTE (1) ...................................................... 321 76 332 45
CENIBRA (2) ....................................................... - - 126 41
Salobo Metais S.A. (3) ............................................ 70 - 76 -
FCA ............................................................... 154 2 151 18
HISPANOBRAS ....................................................... 21 28 21 23
ITABRASCO ......................................................... 18 17 17 22
NIBRASCO .......................................................... 20 5 29 38
KOBRASCO .......................................................... 35 25 34 7
Wilsea Shipping Inc. .............................................. - - - 34
USIMINAS .......................................................... 23 - 24 -
ALBRAS ............................................................ 1 15 1 24
URUCUM ............................................................ - - 8 1
Others ............................................................ 154 106 133 85
EMPLOYEE FUNDS
Fundacao Vale do Rio Doce ......................................... - - - 1
VALIA ............................................................. - 1 - 40
BRAZILIAN FEDERAL GOVERNMENT
Banco do Brasil S.A. (4) .......................................... 83 - 85 3
Rede Ferroviaria Federal S.A. ..................................... 11 32 13 39
BNDES ............................................................. 6 163 7 158
---------- ---------- ---------- ----------
917 470 1,057 579
========== ========== ========== ==========
Current .............................................................. 350 293 337 378
========== ========== ========== ==========
Long-term ............................................................ 567 177 720 201
========== ========== ========== ==========
(1) Includes onlending outstanding balance of $192 (2000 - $204), with
identical conditions and terms, of a $200 U.S. dollar denominated loan
obtained by us from the Nippon Amazon Aluminium Company (NAAC) in January
1997 (bearing interest of 6.41% p.a. and maturing up to 2011).
(2) Includes onlending outstanding balance of $94 (2000 - $117), with
identical conditions and terms, of a $200 U.S. dollar denominated loan
obtained by us from the Japanese Eximbank in 1996, bearing interest of
6.21% p.a. and maturing up to 2004.
(3) Convertible debentures bearing interest of IGPM plus 6.50% p.a., maturing
up to 2002.
(4) Represents interest bearing deposits and investment funds.
F-35
These balances are included in the following balance sheet
classifications:
As of December 31
--------------------------------------------------
2001 2000
------------------------ ------------------------
Assets Liabilities Assets Liabilities
----------- ----------- ----------- -----------
Current assets
Cash and cash equivalents ......................................... 83 - 85 -
Accounts receivable ............................................... 106 - 125 -
Loans and advances to related parties ............................. 160 - 121 -
Others ............................................................ 1 - 6 -
Other assets
Loans and advances to related parties ............................. 555 - 704 -
Others ............................................................ 12 - 16 -
Current liabilities
Suppliers ......................................................... - 101 - 179
Current portion of long-term debt ................................. - 22 - 30
Loans from related parties ........................................ - 168 - 152
Others ............................................................ - 2 - 17
Long-term liabilities
Long-term debt .................................................... - 156 - 128
Loans from related parties ........................................ - - - 21
Others ............................................................ - 21 - 52
----------- ----------- ----------- -----------
917 470 1,057 579
=========== =========== =========== ===========
The principal amounts of business and financial operations carried out
with major related parties are as follows:
Year ended December 31
--------------------------------------------------------
2001 2000 1999
---------------- ---------------- ----------------
Income Expense Income Expense Income Expense
------ ------- ------ ------- ------ -------
AFFILIATED COMPANIES AND JOINT VENTURES
CST ................................... 146 - 166 - 135 -
NIBRASCO .............................. 135 132 172 205 44 58
ALUNORTE .............................. 84 38 42 93 167 28
SIDERAR ............................... 30 - 18 - 30 -
ITABRASCO ............................. 67 33 66 24 57 23
HISPANOBRAS ........................... 74 74 75 77 26 50
KOBRASCO .............................. 75 63 76 18 62 67
CENIBRA ............................... 30 46 33 123 78 99
USIMINAS .............................. 59 - 47 - 18 -
ACOMINAS .............................. 4 - 7 - 8 -
ALBRAS ................................ 5 208 6 216 14 205
VALESUL ............................... - - 4 - - 24
MRN ................................... - 17 1 17 - 20
Others ................................ 95 142 82 75 80 59
BRAZILIAN FEDERAL GOVERNMENT
Banco do Brasil S.A ................... 27 - 46 24 46 14
Petroleo Brasileiro S.A. - PETROBRAS... 2 18 6 11 1 17
Centrais Eletricas Brasileiras S.A .... 1 - - - - -
BNDES ................................. 1 19 1 18 1 12
------ ------- ------ ------- ------ -------
Others ................................ 835 790 848 901 767 676
====== ======= ====== ======= ====== =======
F-36
These amounts are included in the following statement of income
classifications:
Year ended December 31
-------------------------------------------------------------------
2001 2000 1999
------------------- ------------------- -------------------
Income Expense Income Expense Income Expense
------- ------- ------- ------- ------- -------
Sales of iron ore and pellets .................... 518 349 494 313 288 175
Revenues from transportation services ............ 85 - 133 - 89 -
Cost of aluminum products ........................ - 254 - 327 - 271
Financial income/expenses ........................ 180 59 117 79 101 59
Others ........................................... 52 128 104 182 289 171
------- ------- ------- ------- ------- -------
835 790 848 901 767 676
======= ======= ======= ======= ======= =======
18 Fair value of financial instruments
The carrying amount of our current financial instruments generally
approximates fair market value because of the short-term maturity or
frequent repricing of these instruments.
The market value of long-term investments, where available, is disclosed
in Note 10 to these financial statements.
Based on borrowing rates currently available to us for bank loans with
similar terms and average maturities, the fair market value of long-term
debt at December 31, 2001 is estimated as follows:
As of December 31
----------------------
2001 2000
-------- --------
Fair market value ....................... 2,102 2,022
Carrying value .......................... 2,170 2,020
Fair market value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. Changes in assumptions could significantly affect the
estimates.
19 Derivative financial instruments
Volatility of interest rates, exchange rates and commodity prices are the
main market risks to which we are exposed - all three are managed through
derivative operations. These have the exclusive aim of reducing exposure
to risk. We do not use derivatives for speculation purposes.
We monitor and evaluate our derivative positions on a regular basis and
adjust our strategy in response to market conditions. We also periodically
review the credit limits and credit worthiness of our counter-parties in
these transactions. In view of the policies and practices established for
operations with derivatives, management considers the occurrence of
non-measurable risk situations as unlikely.
As from January 1, 2001 we adopted SFAS 133 "Accounting for Derivative
Financial Instruments and Hedging Activities", as amended by SFAS 137 and
SFAS 138, and began to recognize all derivatives on our balance sheet at
fair value. Accordingly we recognized an initial transition adjustment of
$12 as a charge in our statement of income relative to net unrealized
losses on contracts open as of December 31, 2000. Subsequently to January
1, 2001 all derivatives have been adjusted to fair market value at each
balance sheet date and the change included in current earnings.
F-37
For the year ended December 31, 2001 the movement of unrealized and
realized gains or losses on derivative financial instruments is as
follows:
Net Gains (losses)
----------------------------------------------------------
Interest
rates
Gold (libor) Currencies Total
---------- ---------- ---------- ----------
Initial unrealized gains and losses at January 1, 2001 ......... 9 (8) (4) (3)
Change in the period ........................................... 2 (36) (4) (38)
(Gains) and losses realized in the period ...................... (4) 8 4 8
---------- ---------- ---------- ----------
Unrealized gains and (losses) at December 31, 2001 ............. 7 (36) (4) (33)
========== ========== ========== ==========
Realized and unrealized gains and losses are included in our income
statement under the following captions:
Gold - other operating costs and expenses; Interest rates - financial
expenses; Currencies - foreign exchange and monetary losses, net.
Final maturity dates for the above instruments are as follows:
Gold ..................................................... December 2005
Interest rates (libor) ................................... October 2007
Currencies ............................................... April 2005
(a) Interest Rate and Exchange Rate Risk
Interest rate risks mainly relate to that part of the debt borrowed at
floating rates. The foreign currency debt is largely subject to
fluctuations in the London Interbank Offered Rate - LIBOR. That portion of
local currency denominated debt that is subject to floating rates is
linked to the Long Term Interest Rate - TJLP, fixed quarterly by the
Brazilian Central Bank. Since May 1998, we have used derivative
instruments to protect overselves against fluctuations in the LIBOR rate.
There is an exchange rate risk associated with our foreign currency
denominated debt. On the other hand, a substantial proportion of our
revenues are denominated in, or automatically indexed to, the U.S. dollar,
while the majority of costs are expressed in reais. This provides a
natural hedge against any devaluation of the Brazilian real against the
U.S. dollar. When events of this nature occur, the immediate negative
impact on foreign currency denominated debt is offset over time by the
positive effect of devaluation on future cash flows.
With the advent of a floating exchange rate regime in Brazil in January
1999, we adopted a strategy of monitoring market fluctuations, using
derivatives to protect against specific risks from exchange rate
variation.
From time to time we enter into foreign exchange derivative swap
transactions seeking to change the characteristics of our real-denominated
cash investments to US dollar-indexed instruments. The extent of such
transactions depends on our perception of market and currency risk, but is
never speculative in nature. All such operations are marked-to-market at
each balance sheet date and the effect included in financial income or
expense. During the years December 31, 2001 our use of such instruments
was not significant.
(b) Commodity Price Risk
We also use derivative instruments to manage exposure to changing gold
prices. Derivatives allow the fixing of an average minimum profit level
for future gold production. However, they may also have the effect of
eliminating potential gains on certain price increases in the spot market
for gold. We manage
F-38
our contract positions actively, and the results are reviewed at least
monthly, allowing adjustments to targets and strategy to be made in
response to changing market conditions. In the case of gold derivatives,
our policy has been to settle all contracts through cash payments or
receipts, without physical delivery of product.
Our affiliates Albras and Alunorte manage the risk of fluctuating aluminum
prices using derivatives, allowing an average minimum profit level for
future production and ensuring stable cash generation. However, they may
also have the effect of eliminating potential gains on certain price
increases in the spot market for aluminum. We account for both affiliates
using the equity method.
In December 2000, we introduced a new risk management system to evaluate,
measure and manage the market risk associated with our financial
activities, using the value-at-risk - VAR method. VAR incorporates a
variety of risk factors which affect our results, including commodity
prices, interest and exchange rate volatilities, as well as the
correlation between all these variables. This tool will permit more
efficient monitoring of market risk exposure.
20 Information about independent accountants
Our consolidated financial statements are audited by
PricewaterhouseCoopers Auditores Independentes. The financial statements
of certain of our subsidiaries and affiliates have been audited by
independent accountants other than PricewaterhouseCoopers Auditores
Independentes and, as mentioned in their report, PricewaterhouseCoopers
Auditores Independentes has relied on such audits when expressing their
opinion on our consolidated financial statements.
The following entities prepare financial statements in US GAAP which are
audited in accordance with auditing standards generally accept in the
United States of America:
Auditors Years Audited City State Country
-------- ---------------- ------- ----- -------
Aluminio Brasileiro S.A. - ALBRAS ................................ DTT 2001, 2000, 1999 RJ RJ Brazil
Alumina do Norte do Brasil S.A. - ALUNORTE ....................... DTT 2001, 2000, 1999 RJ RJ Brazil
Vale do Rio Doce Aluminio S.A. - ALUVALE ......................... DTT 2001, 2000, 1999 RJ RJ Brazil
Bahia Sul Celulose S.A. (4) ...................................... KPMG 2001, 2000, 1999 SP SP Brazil
California Steel Industries, Inc. ................................ KPMG LLP 2001, 2000, 1999 Orange CA USA
County
Celulose Nipo-Brasileira S.A. - CENIBRA (1)(4) ................... DTT 2001, 2000, 1999 BH MG Brazil
Navegacao Vale do Rio Doce S.A. - DOCENAVE ....................... DTT 2001, 2000, 1999 RJ RJ Brazil
DOCEPAR S.A. (1) ................................................. DTT 2001, 2000, 1999 RJ RJ Brazil
Companhia Hispano-Brasileira de Pelotizacao - HISPANOBRAS ........ AA 2001, 2000, 1999 Vitoria ES Brazil
Companhia Italo-Brasileira de Pelotizacao - ITABRASCO ............ AA 2001, 2000, 1999 Vitoria ES Brazil
Companhia Coreano Brasileira de Pelotizacao - KOBRASCO (2) ....... DTT 2001, 2000 RJ RJ Brazil
Mineracao Rio do Norte S.A. ...................................... AA 2001, 2000, 1999 RJ RJ Brazil
Companhia Nipo-Brasileira de Pelotizacao - NIBRASCO .............. DTT 2001, 2000, 1999 RJ RJ Brazil
Valesul Aluminio S.A. ............................................ KPMG 2001, 2000, 1999 RJ RJ Brazil
Companhia Siderurgica Nacional (1)(4) ............................ AA 2000, 1999 RJ RJ Brazil
In addition to the above the following entities prepare financial
statements in Brazilian GAAP which are audited in accordance with auditing
standards generally accepted in Brazil. PricewaterhouseCoopers Auditores
Independentes relies on such audits but is responsible for reviewing the
US GAAP translation and, if applicable, US GAAP adjustments.
F-39
Auditors Years Audited City State Country
-------- ---------------- ------- ----- -------
Terminal Vila Velha S.A. ....................................... DTT 2001, 2000, 1999 RJ RJ Brazil
Nova Era Silicon S.A. .......................................... DTT 2001, 2000 BH MG Brazil
Nova Era Silicon S.A. .......................................... Trevisan 1999 BH MG Brazil
Celmar S.A. - Industria de Celulose e Papel (2) ................ DTT 2001, 2000 RJ RJ Brazil
SIBRA Eletrosiderurgica Brasileira S.A. (3) .................... DTT 2001, 2000 Salvador BA Brazil
AA - Arthur Andersen S/C
DTT - Deloitte Touche Tohmatsu
RJ - Rio de Janeiro
MG - Minas Gerais
BH - Belo Horizonte
SP - Sao Paulo
ES - Espirito Santo
BA - Bahia
(1) Audited by PricewaterhouseCoopers in 1998
(2) Audited by PricewaterhouseCoopers in 1999 and 1998
(3) Consolidated as from 2000
(4) Investment sold in 2001
F-40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPANHIA VALE DO RIO DOCE
By: /s/ Roberto Castello Branco
-------------------------------
Name: Roberto Castello Branco
Title: Head of Investor Relations
Dated: April 24, 2002