Form 6-K
Table of Contents

 
 
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of February 2010
Vale S.A.
Avenida Graça Aranha, No. 26
20030-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive office)
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
(Check One) Form 20-F þ Form 40-F o
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1))
(Check One) Yes o No þ
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7))
(Check One) Yes o No þ
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
(Check One) Yes o No þ
(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82-_______.)
 
 

 

 

 

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Table of Contents

Press Release
(IMAGE)
Filed at CVM and SEC on 02/10/2010
Gerência Geral de Controladoria — GECOL

 

 

Table of Contents

(VALE LOGO)
Contents
         
A- Financial Statements
     3  
 
        
1- Balance Sheet
     3  
 
        
2- Statement of Income
     4  
 
        
3- Statement of Changes in Stockholders’ Equity
     5  
 
        
4- Statement of Cash Flows
     6  
 
        
5- Statement of Added Value
     7  
 
        
6- Notes To The Financial Statements for the years ended December 31, 2009 And 2008
     8  
 
        
6.1- Operational Context
     8  
 
        
6.2- Summary of the Principal Accounting Practices
     8  
 
        
6.3- Acquisitions and Divestments
     11  
 
        
6.4- Cash and Cash Equivalents
     11  
 
        
6.5- Short-Term Investments
     11  
 
        
6.6- Accounts Receivable from Customers
     12  
 
        
6.7- Related Parties
     12  
 
        
6.8- Inventories
     15  
 
        
6.9- Taxes to recover or to offset
     15  
 
        
6.10- Deferred Income Tax and Social Contribution
     15  
 
        
6.11- Investments
     17  
 
        
6.12- Intangible
     18  
 
        
6.13- Impairment of Assets
     18  
 
        
6.14- Property, Plant and Equipment
     18  
 
        
6.15- Loans and Financing
     19  
 
        
6.16- Contingent Liabilities and Commitments
     21  
 
        
6.17- Provision for Asset Retirement Obligations
     22  
 
        
6.18- Pension Plan
     23  
 
        
6.19- Long-term Incentive Compensation Plan
     28  
 
        
6.20- Paid-up Capital
     28  
 
        
6.21- Funds linked to Future Mandatory Conversion into Shares
     29  
 
        
6.22- ADR Program — American Depositary Receipts
     29  
 
        
6.23- Treasury Stock
     30  

 

1

Table of Contents

(VALE LOGO)
         
6.24- Compensation of Stockholders
     30  
 
        
6.25- Financial Results
     31  
 
        
6.26- Derivatives Financial Instruments
     32  
 
        
6.27- Selling, Administrative, Other Operating Expenses and Results from disposal of Assets
     46  
 
        
6.28- Concessions, Sub concessions and Leases
     47  
 
        
6.29- Insurance
     48  
 
        
6.30- Profit Sharing Plan
     49  
 
        
6.31- Information by Segment
     50  
 
        
6.32- Social Report (unaudited)
     52  
 
        
6.33- Subsequent events
     53  
 
        
7- REPORT OF THE INDEPENDANT ACOUNTANTS
     54  
 
        
8- Opinion Of The Fiscal Council On The Annual Report And Financial Statements of Vale S.A. on December 31, 2009
     55  
 
        
9- Opinion Of The Board Of Directors On The Annual Report And Financial Statements On December 31, 2009
     56  
 
        
10- ANNEX I — STATEMENT OF INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED COMPANIES
     57  
 
        
B- Additional Information
     58  
 
        
11- Cash generation (UNAUDITED)
     58  
 
        
12- Board of Directors, Fiscal Council, Advisory Committees and Executive Officers
     59  

 

2

Table of Contents

(VALE LOGO)
A- Financial Statements
(A free translation from the original in Portuguese, accounting practices adopted in Brazil)
1- Balance Sheet
     
Years ended December, 31   In millions of Reais
                                     
        Consolidated     Parent Company  
    Notes   2009     2008     2009     2008  
Assets
                                    
Current assets
                                    
Cash and cash equivalents
   6.4     13,221       24,639       1,250       6,713  
Short term investments
   6.5     6,525       5,394       —       —  
Accounts receivable from customers
   6.6     5,643       7,933       3,360       9,827  
Related parties
   6.7     144       28       4,360       2,232  
Inventories
   6.8     5,913       9,686       1,881       2,913  
Deferred income tax and social contribution
   6.10     1,492       1,305       1,219       1,220  
Taxes to recover or offset
   6.9     2,685       4,886       1,881       3,312  
Derivatives at fair value
   6.26     183       —       —       —  
Advances for suppliers
         872       946       751       813  
Others
         1,580       1,242       155       186  
 
                            
 
         38,258       56,059       14,857       27,216  
 
                            
Non-current assets
                                    
Related parties
   6.7     64       —       1,842       3,398  
Loans and financing
         286       180       136       128  
Prepaid expenses
         295       632       —       —  
Judicial deposits
         2,478       1,794       1,370       1,299  
Advances to energy suppliers
         889       953       —       —  
Deferred income tax and social contribution
   6.10     —       —       747       640  
Taxes to recover or offset
   6.9     1,540       1,067       158       189  
Derivatives at fair value
   6.26     1,506       85       1,098       5  
Others
         546       414       358       245  
 
                            
 
         7,604       5,125       5,709       5,904  
 
                            
Investments
   6.11     4,590       2,442       87,711       91,543  
Intangibles
   6.12     10,127       10,727       7,852       8,386  
Property, plant and equipment
   6.14     115,160       110,494       43,628       38,711  
 
                            
 
         129,877       123,663       139,191       138,640  
 
                            
 
         175,739       184,847       159,757       171,760  
 
                            
Liabilities, and stockholders’ equity
                                    
Current liabilities
                                    
Payable to suppliers and contractors
         3,849       5,248       2,383       2,145  
Payroll and related charges
         1,556       1,428       1,010       881  
Current portion of long-term debt
   6.15     5,305       1,583       2,053       711  
Short-term debt
   6.15     646       1,088       —       —  
Related parties
   6.7     33       162       7,343       9,578  
Taxes, contributions and royalties
         256       188       97       56  
Provision for income tax
         366       1,423       —       —  
Pension Plan
         243       239       111       86  
Ferrovia Norte Sul subconcession
         496       934       —       —  
Derivatives at fair value
   6.26     264       —       —       —  
Provision for asset retirement obligations
   6.17     157       113       122       44  
Dividends and interest on stockholders’ equity
   6.24     2,907       4,834       2,907       4,834  
Others
         1,338       1,399       466       400  
 
                            
 
         17,416       18,639       16,492       18,735  
 
                            
Non-current liabilities
                                    
Pension Plan
         3,334       3,563       440       523  
Long-term debt
   6.15     36,126       42,694       12,072       11,602  
Related parties
   6.7     103       125       28,111       38,011  
Provisions for contingencies
   6.16     3,571       2,989       1,667       1,730  
Deferred income tax and social contribution
   6.10     7,673       7,105       1,320       —  
Derivatives at fair value
   6.26     40       1,345       —       1,084  
Provision for asset retirement obligations
   6.17     1,844       1,997       724       848  
Debêntures
         1,308       886       1,308       886  
Others
         2,779       3,148       1,886       2,066  
 
                            
 
         56,778       63,852       47,528       56,750  
 
                            
Minority interest
         5,808       6,081       —       —  
 
                            
Stockholders’ equity
                                    
Paid-up capital
   6.20     47,434       47,434       47,434       47,434  
Cost with capital increase
         (161 )     (161 )     (161 )     (161 )
Resources linked to the future mandatory conversion in shares
   6.21     4,587       3,064       4,587       3,064  
Equity adjustments
         (21 )     8       (21 )     8  
Cumulative translation Adjustments
         (2,904 )     5,982       (2,904 )     5,982  
Revenue reserves
         46,802       39,948       46,802       39,948  
 
                            
 
         95,737       96,275       95,737       96,275  
 
                            
 
         175,739       184,847       159,757       171,760  
 
                            
The notes and annex I are an integral part of the financial statements

 

3

Table of Contents

(VALE LOGO)
(A free translation from the original in Portuguese, accounting practices adopted in Brazil)
2- Statement of Income
     
Period ended in   In millions of Reais (except as otherwise stated)
                                                             
        Consolidated     Parent Company  
        (Unaudited)     Accumulated     Accumulated  
    Notes   4Q/09     3Q/09     3Q/08     2009     2008     2009     2008  
Operating revenues
                                                            
Ore and metals
         9,633       11,217       14,193       40,478       59,892       24,979       31,645  
Aluminum-related products
         1,108       1,027       1,824       4,217       5,843       483       390  
Transport services
         726       791       914       2,843       3,666       1,267       2,027  
Steel products
         133       136       304       546       1,348       —       —  
Other products and services
         448       412       711       1,728       2,017       556       383  
 
                                            
 
         12,048       13,583       17,946       49,812       72,766       27,285       34,445  
Added Value taxes
         (367 )     (374 )     (563 )     (1,316 )     (2,225 )     (855 )     (1,545 )
 
                                            
Net operating revenues
         11,681       13,209       17,383       48,496       70,541       26,430       32,900  
 
                                            
 
                                                            
Cost of products and services
                                                            
Ores and metals
         (4,952 )     (4,950 )     (5,890 )     (19,498 )     (23,804 )     (11,877 )     (14,006 )
Aluminum-related products
         (1,030 )     (1,018 )     (1,099 )     (4,203 )     (3,873 )     (559 )     (399 )
Transport services
         (543 )     (506 )     (568 )     (2,040 )     (2,215 )     (816 )     (955 )
Steel products
         (129 )     (123 )     (278 )     (510 )     (1,177 )     —       —  
Other products and services
         (545 )     (366 )     (276 )     (1,469 )     (1,087 )     (397 )     (143 )
 
                                            
 
         (7,199 )     (6,963 )     (8,111 )     (27,720 )     (32,156 )     (13,649 )     (15,503 )
 
                                            
 
                                                            
Gross profit
         4,482       6,246       9,272       20,776       38,385       12,781       17,397  
 
                                                            
Gross margin
         38.4 %     47.3 %     53.3 %     42.8 %     54.4 %     48.4 %     52.9 %
 
                                                            
Operating expenses
                                                            
Selling and Administrative
   6.27     (704 )     (577 )     (1,716 )     (2,369 )     (3,618 )     (1,244 )     (1,412 )
Research and development
         (522 )     (438 )     (718 )     (1,964 )     (2,071 )     (1,314 )     (1,233 )
Impairment
   6.13     —       —       (2,447 )     —       (2,447 )     —       —  
Other operating expenses, net
   6.27     (996 )     (647 )     (1,626 )     (3,262 )     (2,849 )     (927 )     (832 )
 
                                            
 
         (2,222 )     (1,662 )     (6,507 )     (7,595 )     (10,985 )     (3,485 )     (3,477 )
 
                                            
 
                                                            
Operating profit before financial results and equity results
         2,260       4,584       2,765       13,181       27,400       9,296       13,920  
 
                                                            
Equity results
   6.11     22       30       (59 )     116       104       (3,744 )     19,036  
Amortization of goodwill
   6.12     —       —       (351 )     —       (1,429 )     —       (1,429 )
 
                                            
 
         22       30       (410 )     116       (1,325 )     (3,744 )     17,607  
 
                                            
Financial results, net
   6.25     (460 )     199       (2,343 )     1,952       (3,838 )     9,960       (11,706 )
Gain (loss) on disposal of assets
   6.27     (330 )     128       —       93       139       284       —  
 
                                            
Income before income tax and social contribution
         1,492       4,941       12       15,342       22,376       15,796       19,821  
Income tax and social contribution
   6.10     1,206       (1,840 )     2,465       (4,925 )     (665 )     (5,547 )     1,458  
 
                                            
Current
         849       (1,397 )     2,028       (4,991 )     (2,057 )     (4,813 )     12  
Deferred
         357       (443 )     437       66       1,392       (734 )     1,446  
Minority interest
         (69 )     (98 )     (36 )     (168 )     (432 )     —       —  
 
                                            
Net income for the period
         2,629       3,003       2,441       10,249       21,279       10,249       21,279  
 
                                            
Number of shares outstanding at the end of the period (in thousands) (a)
         5,212,724       5,212,724       5,213,512       5,212,724       5,213,512       5,212,724       5,213,512  
 
                                            
Net income per share outstanding at the end of the period (R$)
         0.50       0.58       0.47       1.97       4.08       1.97       4.08  
 
                                            
     
(a)  
Includes 77,580,256 and 74,997,899 preferred and common shares, respectively, linked to issue of convertible notes, (see note 6.21).
The notes and annex I are an integral part of the financial statements

 

4

Table of Contents

(VALE LOGO)
(A free translation from the original in Portuguese, accounting practices adopted in Brazil)
3- Statement of Changes in Stockholders’ Equity
     
Periods ended   In millions of Reais
                                                                                                         
                    Profit reserves             Resources linked to             Cumulative              
                    Expansion/             Unrealized             Fiscal     Transaction     mandatory     Equity     translation     Retained        
    Notes     Paid-up capital     Investments     Treasury stock     income     Legal     incentives     cost     conversion in shares     adjustments     Adjustments     earnings     Total  
December 31, 2007
             28,000       24,284       (790 )     61       2,320       91       —       3,064       —       —       —       57,030  
 
                                                                                
 
                                                                                                        
Net income for the year
             —       —       —       —       —       —       —       —       —       —       21,279       21,279  
Treasury stock
             —       —       (1,658 )     —       —       —       —       —       —       —       —       (1,658 )
Cumulative translation Adjustments
             —       —       —       —       —       —       —       —       —       5,982       —       5,982  
Unrealized gain on available — for — sale securities
             —       —       —       —       —       —       —       —       8       —       —       8  
Capital increase
     6.20       19,434       —       —       —       —       —       (161 )     —       —       —       —       19,273  
Additional distribution — 2007
             —       (580 )     —       —       —       —       —       —       —       —               (580 )
Appropriation of net income
                                                                                                        
Interest on stockholders’ equity paid
             —       —       —       —       —       —       —       —       —       —       (225 )     (225 )
Stockholder’s remuneration proposed
             —       —       —       —       —       —       —       —       —       —       (4,834 )     (4,834 )
Apropriation to profit reserves
             —       15,179       —       (23 )     1,064       —       —       —       —       —       (16,220 )     —  
 
                                                                                
December 31, 2008
             47,434       38,883       (2,448 )     38       3,384       91       (161 )     3,064       8       5,982       —       96,275  
 
                                                                                
 
                                                                                                        
Net income for the year
             —       —       —       —       —       —       —       —       —       —       10,249       10,249  
Treasury stock
             —       —       (22 )     —       —       —       —       —       —       —       —       (22 )
Resources linked to mandatory conversion in shares
             —       —       —       —       —       —       —       1,523       —       —       —       1,523  
Cumulative translation Adjustments
             —       —       —       —       —       —       —       —       —       (8,886 )     —       (8,886 )
Unrealized result of changes in market value
             —       —       —       —       —       —       —       —       (29 )     —       —       (29 )
Additional distribution — 2008
             —       (371 )     —       —       —       —       —       —       —       —       —       (371 )
Appropriation of net income
                                                                                                        
Interest on stockholders’ equity paid
             —       —       —       —       —       —       —       —       —       —       (95 )     (95 )
Stockholder’s remuneration proposed
             —       —       —       —       —       —       —       —       —       —       (2,907 )     (2,907 )
Apropriation to profit reserves
             —       6,653       —       (38 )     512       120       —       —       —       —       (7,247 )     —  
 
                                                                                
December 31, 2009
             47,434       45,165       (2,470 )     —       3,896       211       (161 )     4,587       (21 )     (2,904 )     —       95,737  
 
                                                                                
The notes and annex I are an integral part of the financial statements

 

5

Table of Contents

(VALE LOGO)
(A free translation from the original in Portuguese, accounting practices adopted in Brazil)
4- Statement of Cash Flows
     
Period ended   In millions of Reais
                                                         
    Consolidated     Parent Company  
    (Unaudited)     Accumulated     Accumulated  
    4Q/09     3Q/09     3Q/08     2009     2008     2009     2008  
Cash flows from operating activities:
                                                        
Net income for the period
     2,629       3,003       2,441       10,249       21,279       10,249       21,279  
Adjustments to reconcile net income for the period with cash provided by operating activities:
                                                        
Results of equity investments
     (22 )     (30 )     410       (116 )     1,325       3,744       (17,607 )
Disposal of assets
     330       (128 )     —       (93 )     (139 )     (284 )     —  
Depreciation, amortization and depletion
     1,449       1,448       1,322       5,447       5,112       1,931       1,641  
Deferred income tax and social contribution
     (357 )     443       (437 )     (66 )     (1,392 )     734       (1,446 )
Inflation and exchange rate variations on assets and liabilities, net
     (1,808 )     (1,157 )     4,050       (6,604 )     3,184       (9,980 )     11,793  
Impairment
     —       —       2,447       —       2,447       —       —  
Disposal of property, plant and equipment
     177       173       28       653       740       343       579  
Net unrealized losses (gains) on derivatives
     (366 )     (611 )     1,470       (2,649 )     1,832       (2,140 )     1,475  
Minority interest
     69       98       36       168       432       —       —  
Dividends/interest on stockholders’ equity received
     —       —       25       21       63       734       1,121  
Others
     4       137       57       (47 )     233       (113 )     76  
 
                                          
 
     2,105       3,376       11,849       6,963       35,116       5,218       18,911  
 
                                          
Decrease (increase) in assets:
                                                        
Accounts receivable
     565       (529 )     3,434       2,287       (449 )     6,378       (7,448 )
Inventories
     (186 )     1,216       (1,112 )     2,766       (2,413 )     1,091       (638 )
Taxes to recover or offset
     (820 )     (2,743 )     —       (1,151 )     —       733       —  
Others
     81       4       (780 )     (559 )     (886 )     395       (2,344 )
 
                                          
 
     (360 )     (2,052 )     1,542       3,343       (3,748 )     8,597       (10,430 )
 
                                          
Increase (decrease) in liabilities:
                                                        
Suppliers and contractors
     1,375       (243 )     836       (51 )     1,586       238       136  
Payroll and related charges
     179       192       75       112       125       129       95  
Taxes and contributions
     (292 )     1,139       208       736       380       693       (16 )
Others
     (320 )     239       (480 )     435       (1,272 )     468       413  
 
                                          
 
     942       1,327       639       1,232       819       1,528       628  
 
                                          
Net cash provided by operating activities
     2,687       2,651       14,030       11,538       32,187       15,343       9,109  
 
                                          
 
                                                        
Cash flows from investing activities:
                                                        
Short term investments
     1,585       (2,255 )     (4,180 )     (1,131 )     (5,394 )     —       —  
Loans and advances receivable
     (73 )     (337 )     20       (1,067 )     (4 )     (101 )     (1,660 )
Guarantees and deposits
     12       (53 )     (166 )     (153 )     (295 )     (142 )     (248 )
Additions to investments
     (2,032 )     (601 )     (148 )     (3,422 )     (327 )     (9,037 )     (7,685 )
Additions to property, plant and equipment
     (4,895 )     (3,364 )     (9,024 )     (16,108 )     (18,716 )     (7,481 )     (7,259 )
Proceeds from disposal of property, plant and equipment/investments
     293       305       —       1,200       371       692       —  
Net cash used in acquisitions and increase of funds to subsidiaries, net of the cash of subsidiary
     —       (1,452 )     —       (4,246 )     —       —       —  
 
                                          
Net cash used in investing activities
     (5,110 )     (7,757 )     (13,498 )     (24,927 )     (24,365 )     (16,069 )     (16,852 )
 
                                          
 
                                                        
Cash flows from (used in) financing activities:
                                                        
Short-term debt additions
     761       2,127       120       3,940       2,660       1,785       4,393  
Short-term debt repayments
     (756 )     (1,363 )     (313 )     (3,624 )     (2,669 )     (5,888 )     (5,042 )
Long-term debt
     2,874       2,069       935       6,286       4,053       5,254       4,242  
Issue of convertible notes, in common share’s
     —       577       —       577       —       —       —  
Issue of convertible notes, in preferred share’s
     —       1,281       —       1,281       —       —       —  
Repayments:
                                                        
Related parties
     —       —       —       —       —       (129 )     —  
Financial institutions
     (118 )     (264 )     (181 )     (808 )     (1,725 )     (438 )     (1,366 )
Dividends and interest on stockholders’ equity paid to stockholders
     (2,647 )     —       (3,579 )     (5,381 )     (5,827 )     (5,299 )     (5,558 )
Capital increase
     —       —       —       —       19,273       —       19,273  
Treasury stock
     —       1       (1,658 )     (22 )     (1,658 )     (22 )     (1,658 )
 
                                          
Net cash provided by (used in) financing activities
     114       4,428       (4,676 )     2,249       14,107       (4,737 )     14,284  
 
                                          
 
                                                        
Increase (decrease) in cash and cash equivalents
     (2,309 )     (678 )     (4,144 )     (11,140 )     21,929       (5,463 )     6,541  
Cash and cash equivalents at beginning of the period
     15,560       16,333       28,385       24,639       2,128       6,713       120  
Foreign exchange effects on cash and cash equivalents
     (30 )     (95 )     398       (278 )     582       —       —  
Initial cash in new consolidated subsidiary
     —       —       —       —       —       —       52  
 
                                          
Cash and cash equivalents, end of the period
     13,221       15,560       24,639       13,221       24,639       1,250       6,713  
 
                                          
Cash paid during the period for:
                                                        
Short-term interest
     (23 )     (28 )     (72 )     (110 )     (138 )     (108 )     (166 )
Long-term interest
     (513 )     (463 )     (744 )     (2,277 )     (2,321 )     (2,370 )     (2,784 )
Income tax and social contribution
     (1,795 )     (276 )     (977 )     (2,698 )     (6,383 )     (1,535 )     (1,707 )
Non-cash transactions:
                                                        
Additions to property, plant and equipment — interest capitalization
     (103 )     (90 )     (307 )     (384 )     (673 )     (11 )     (527 )
Transfer of advance for future capital increase to investments
     —       —       —       —       —       (268 )     (316 )
The notes and annex I are an integral part of the financial statements

 

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(VALE LOGO)
(A free translation from the original in Portuguese, accounting practices adopted in Brazil)
5- Statement of Added Value
     
Period ended   In millions of Reais
                                 
    Consolidated     Parent Company  
    2009     2008     2009     2008  
Generation of added value
                                
Gross revenue
                                
Revenue from products and services
     49,812       72,766       27,285       34,445  
Revenue from the construction of own assets
     13,919       17,706       7,493       7,259  
Allowance for doubtful accounts
     (23 )     (32 )     (17 )     (27 )
 
  
Less: Acquisition of products
     (1,219 )     (2,805 )     (363 )     (1,565 )
Outsourced services
     (6,242 )     (8,244 )     (3,117 )     (3,734 )
Materials
     (20,653 )     (23,958 )     (11,808 )     (11,493 )
Fuel oil and gas
     (2,777 )     (3,761 )     (1,128 )     (1,477 )
Energy
     (1,776 )     (2,052 )     (758 )     (648 )
Impairment
     —       (2,447 )     —       —  
Other costs
     (6,920 )     (6,829 )     (3,279 )     (2,518 )
 
                        
Gross added value
     24,121       40,344       14,308       20,242  
 
Depreciation, amortization and depletion
     (5,447 )     (5,112 )     (1,931 )     (1,641 )
 
                        
 
Net added value
     18,674       35,232       12,377       18,601  
 
Received from third parties
                                
 
  
Financial revenue
     866       1,221       437       903  
Equity results
     116       (1,325 )     (3,744 )     17,607  
 
                        
Total added value to be distributed
     19,656       35,128       9,070       37,111  
 
                        
 
  
Personnel
     5,086       5,046       2,540       2,240  
Taxes, rates and contribution
     5,810       5,267       6,336       2,704  
Taxes paid recover
     (571 )     (1,955 )     (532 )     (1,672 )
Remuneration on third party’s capital
     3,433       4,157       3,342       3,422  
Inflation and exchange rate variation, net
     (4,519 )     902       (12,865 )     9,138  
Remuneration on stockholders’ equity
                                
Stockholders
     3,373       5,640       3,373       5,640  
Reinvested
     6,876       15,639       6,876       15,639  
Minority interest
     168       432       —       —  
 
                        
 
  
Distribution of added value
     19,656       35,128       9,070       37,111  
 
                        

 

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(VALE LOGO)
(A free translation from the original in Portuguese, accounting practices adopted in Brazil)
6- Notes To The Financial Statements for the years ended December 31, 2009 And 2008
(In millions of Brazilian Reais, except as otherwise stated)
6.1- Operational Context
Vale S.A, previously named Companhia Vale do Rio Doce (“Vale”, the “Company”) is a Public Limited Liability Company with its headquarters in municipality of Rio de Janeiro, Rio de Janeiro, Brazil, whose main activities are mining, processing and sale of iron ore, pellets, copper concentrate and potash, as well as logistic services, power generation and mineral research and development. In addition, through its direct and indirect subsidiaries and jointly controlled companies, operates in nickel, copper, precious metals, cobalt (sub product), manganese, ferroalloys, kaolin, coal, steel and aluminum-related products.
On December 31, 2009 the principal operational consolidated subsidiaries and jointly controlled companies that we proportionally consolidate are:
                                 
            % voting              
Company   % ownership     capital     Head office location     Principal activity
Parent Company
                                
Alumina do Norte do Brasil S.A. — Alunorte
     57.03       59.02     Brazil   Alumina
Alumínio Brasileiro S.A. — Albras
     51.00       51.00     Brazil   Aluminium
CADAM S.A
     61.48       100.00     Brazil   Kaolin
CVRD Overseas Ltd.
     100.00       100.00     Cayman Islands   Trading
Ferrovia Centro-Atlântica S. A.
     99.99       99.99     Brazil   Logistic
Ferrovia Norte Sul S.A.
     100.00       100.00     Brazil   Logistic
Mineração Corumbá Reunidas S.A.
     100.00       100.00     Brazil   Iron ore
Pará Pigmentos S.A.
     86.17       85.57     Brazil   Caulim
PT International Nickel Indonesia Tbk
     59.09       59.09     Indonesia   Nickel
Vale Australia Pty Ltd.
     100.00       100.00     Australia   Coal
Vale Colômbia Ltd.
     100.00       100.00     Colombia   Coal
Vale Inco Limited
     100.00       100.00     Canada   Nickel
Vale International S.A
     100.00       100.00     Switzerland   Trading
Vale Manganês S.A
     100.00       100.00     Brazil   Manganese and Ferroalloys
Vale Manganèse France
     100.00       100.00     France   Ferroalloys
Vale Manganese Norway
     100.00       100.00     Norway   Ferroalloys
 
                                
Subsidiaries and jointly controlled companies
                                
California Steel Industries, Inc.
     50.00       50.00     EUA   Steel
Mineração Rio do Norte S.A.
     40.00       40.00     Brazil   Bauxite
MRS Logística S.A
     41.50       37.86     Brazil   Logistic
Samarco Mineração S.A.
     50.00       50.00     Brazil   Iron ore
6.2- Summary of the Principal Accounting Practices
(a) Basis of Presentation
These financial statements were approved by the Board of Directors in February 10, 2010, and there were not events subsequent to the balance sheet date that should be recognized.
The financial statements were prepared under the accounting practices adopted in Brazil, based on the Brazilian Corporate Law (amended by Law 11.638), and the rules and guidelines issued by the Federal Accounting Board “CFC” and Securities and Exchange Commission of Brazil “CVM”. These statements followed uniform principles, methods and criteria in relation to the ones adopted on year ending closing as of and for the year ended December 31, 2008, except for the goodwill amortization.
As required by the pronouncement CPC 13 — First-time adoption of Law 11.638 and Law 11.941, the amount of goodwill on expected future results resulting from the acquisition of other company is no longer amortized as from 2009. On December 31, 2008 the amount recorded was R$ 1,429 (R$ 351 as of 4Q08).
The preparation of the financial statements requires the management to use estimates and assumptions that affect the amounts of assets and liabilities and the disclosure of assets and contingent liabilities on the date of the reported financial statements as well as the amounts of revenues and expenses recognized during the fiscal year. The estimates are used but not limited to the selection of useful lives of property, plant and equipment, contingent liabilities, fair value of assets and liabilities in businesses combinations, provisions for losses on income tax credits, post retirement benefits and other similar evaluations. Actual results may vary from these estimates.
Vale presents as supplemental information to the financial statements the calculation of income before financial income, results of equity investments, income tax and social contribution, depreciation, amortization and depletion — (EBITDA). Although it does not provide a measure of operating cash flow according to accounting practices adopted in Brazil, it is often used by financial analysts in evaluating business, and the Company’s Management uses this indicator to measure operating performance.
Certain figures on the Financial Statements of 2008 have been reclassified in order to better comparability.
(b) Translation of Foreign Exchange Transactions
The monetary rights and obligations denominated in foreign currencies are translated at the prevailing exchange rates at the time the balance sheet date, of which US$ 1,00 equal to R$ 1,7412 on December 31, 2009 (US$ 1,00 equal to R$ 2,3370 on December 31, 2008).
Revenues, costs and expenses denominated in foreign currencies are translated at the average rate of the month when they occur.

 

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(VALE LOGO)
(c) Consolidation
The consolidated financial statements reflect the balances of assets and liabilities on December 31, 2009 and 2008 and the operations for years then ended of the Parent Company, its direct and indirect subsidiaries and its jointly controlled companies, the latest based on interest held. For the jointly controlled companies in which Vale has significant influence but not control, investments are accounted for at equity method. Overseas operations are translated into the financial statements reporting currency for in Brazil to account for equity investments, whole and proportional consolidation of the financial statements. The accounting practices of the subsidiaries and jointly controlled companies are adjusted to assure the consistence with the accounting practices adopted by the Parent Company. The operations between the consolidated companies, as well as their balances, unrealized gains and losses on those operations are eliminated.
The participation in hydroelectric projects is made via consortium contracts under undivided interests in the assets and liable for its proportionate share of liabilities, which are based on our proportionate share of power output. The Company does not have joint liability for any obligations. Since there is no legal entity related to the project, there are no separate financial statements, income tax statement, income or stockholder’s equity statements. No separate legal or tax status is granted to consortia under Brazilian law. Accordingly, the company recognizes its proportionate share of costs and its undivided interest in assets relating to hydroelectric projects.
(d) Cash and cash equivalents and short-term investments
The cash flows from short-term investments are reported net (inflows and outflows). Short-term investments which have immediate liquidity and original maturity up to 90 days are considered as “Cash and cash equivalents”. The remaining investments, with maturities over 90 days, are measured at fair value and recorded as “Short-term investments”.
(e) Accounts receivable
Accounts receivable are recorded and stated on the balance sheet at their nominal value plus monetary or exchange variations and reduced by provisions to cover extraordinary loss on realization as applicable.
The allowance for doubtful accounts is set up at an amount considered sufficient by the Management to cover possible loss on the realization of these credits. The estimated value of the allowance for doubtful accounts is modified based on the expectations of the Management with respect to the possibility of recovery of the amounts as well as changes in the financial situation of the customers.
(f) Non-current
Realizable assets and liabilities due more than 12 months after the financial statements date are classified as non-current.
(g) Revenues and expenses
Sales revenues are recognized when title to the products are transferred or when the services are provided. The transport revenues are recognized when the service is provided.
(h) Inventories
Inventories are presented at the lower of average cost of acquisition or production and replacement or completion values. When applicable, a provision for loss for obsolete or slow-moving inventory is constituted to reflect our regular estimative of recovering.
When ore is physically extracted, this is no longer part of the calculation of proven reserves and becomes part of the stockpiled ore inventories and, therefore these are not part of the calculation of depreciation, depletion and amortization per unit of output.
(i) Property, plant and equipment
Property, plant and equipment are recorded at historical cost (of which the assets acquired in Brazil are also increased by inflation restatement up to 1995) including interest incurred during the construction period. Properties are depreciated using the straight-line method, based on the estimated useful lives. Depletion of mineral reserves is based on the ratio between effective production and the total proven and probable reserves.
(j) Programed maintenance policies
Relevant cost for maintenance of industrial areas and ships, including replacement parts, assembly services among others, are registered in assets and depreciated over the period that benefits are continued until the next stop.
(k) Intangibles
Intangibles are recorded at acquisition cost, less accumulated amortization and impairment, when applicable. The intangibles assets that have definite useful life are amortized considering their effective use or a method that reflect the economic benefit of the asset, while the indefinite useful life assets are tested annually for impairment.
(l) Impairment of long-term assets
The Company analyses annually if there are evidences that the carrying value of an asset is not recoverable. In case of such evidence, the Company estimates the asset recoverable value. Irrespective of the indication of recovery of carrying values, goodwill balances resulting from business combinations and intangible assets with indefinite useful lives are tested for recovery at least annually. When the residual value of the asset exceeds its recoverable value, the Company recognizes a reduction on the asset (impairment or deterioration) book value. If the recoverable amount of an individual asset is not able to be determined, analysis is performed for the recoverable value of the cash-generating unit to which the asset belongs.

 

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(VALE LOGO)
(m) Research and Development Costs
Mineral research and development costs are recognized as operating expenses until the economic feasibility to commercially exploit a mine is proven. Once proven, the costs are capitalized as mine development costs.
During the start-up phase of a mine, before the start of production, costs of removal of overburden (for example, costs associated with removal of overburden and all other waste materials) are included as part of the depreciable cost of development. Subsequently, these costs are amortized during the life of the mine based on proven and probable reserves. After the beginning of production of the mine, the ore removal expenses are treated as a cost of production.
(n) Leasing
Leases in which a significant part of the benefits and risks of ownership remain with the lessor are classified as operating leases. Payments for operating leases are included in the results over the term of the lease using the linear method.
(o) Asset Retirement Obligation
Costs related to closing a mine, due to the ending of activities are recognized as asset retirement obligations. The obligations consist primarily of costs associated with termination activities. The cost of assets retirement related is capitalized as part of the carrying value of the asset and subsequently depreciated over the useful life of the asset.
(p) Employee Benefits
Payments of benefits such as salary, won vacation or proportional, as well as their payroll taxes levied on these benefits are recognized on a monthly basis through the provision in compliance with the accrual basis.
(q) Pension Fund and Post-Retirement Benefits
The Company adopts the accounting rules due to the Resolution CVM 371/00 for the recognition of liabilities and results sourced from actuarial assessment of its employee’s pension plans and health care of its retired employees. Gains and losses due to actuarial adjustments in assumptions and changes to pension benefits, retirement and actuarial commitments related to health plan are recognized in the results, according to the corridor method.
(r) Profit Sharing
Amounts payable to employees on profits sharing, in the following year is monthly recognized at the accrual basis and are classified as cost of products and services or operational expenses according to the employee department in operational or administrative activities, respectively.
(s) Long-term Incentives
The Company accounts for the incentive cost according to the Long Term Remuneration Plan, following the requirements of Deliberation CVM no. 562/2008. The obligations are measured at each reporting date based on market quotations. The compensation costs are recognized during the three years defined as acquisition period.
(t) Derivatives and hedging operations
Derivatives financial instruments are recognized as assets or liabilities in the financial statements and are measured at fair value. Changes in fair value of derivatives are registered in each period as gains or losses in results or in other comprehensive income, when the transaction is characterized as an effective hedge and if it has been effective during the year.
(u) Deferred Taxes
The recognition of deferred taxes are based on the temporary differences between the accounting value and the tax bases of our assets and liabilities, income tax losses and on the negative base of the social contribution calculation to the extent that is probable their realization against future taxable profits. If the Company generates future loss, or if it is not able to generate future taxable profit, or if there is a significant change in the effective tax rates or in the necessary time for these deferred taxes to be taxable or deductible. Management may evaluate the need to constitute a provision for losses of these deferred assets.
(v) Present Value
Long term assets and liabilities of the Company and its subsidiaries are adjusted to present value when applicable, based on a discount rate that reflects the Company’s best estimate.
(w) Appropriation of results
At year end the Company appropriates its results between dividends and reserves as provided for the Brazilian Corporate Law. With respect to dividends the Company can use the tax benefit through the interest on capital method respecting the criteria and limits set by Brazilian Legislation. The benefit attributed to shareholders in this mode is legally considered as part of the minimum annual dividend and therefore is recorded for accounting purposes as dividends payable with the offset on retained earnings.
The financial statements of the Parent Company reflect the proposal of the Board for the allocation of net income assuming its approval by the Annual General Meeting.

 

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(VALE LOGO)
(x) Contingent Liabilities
Contingent liabilities are recognized whenever the loss is considered probable, which would cause an outflow of resources likely to settlement of liabilities and when the amounts involved are measurable with sufficient certainty, taking into consideration the opinion of legal counsel, the nature of actions, the similarity to previous cases, complexity, and the positioning of the courts. The contingent liabilities classified as possible losses are not recognized, and only disclosed in the financial statements, and those classified as remote and do not require provision or disclosure.
Judicial deposits are updated and presented as deduction of the corresponding liability incurred when there is no possibility to recover these deposits, unless there is a favorable outcome of the issue to the entity.
6.3- Acquisitions and Divestments
(a) Mineração Corumbá Reunidas S.A.
In September 2009, Vale acquired from Rio Tinto, the Company Mineração Corumbá Reunidas, holder of the assets related to the ore operations in Corumbá by R$ 1,473 (including working capital change of the period payment). In the acquisition, the assets and liabilities were measured at market value resulting in an increase of R$ 788 compared to the carrying amount, with no goodwill recognition.
(b) Diamond Coal Ltd.
In March 2009, Vale acquired from Cement Argos the company Diamond Coal Ltd., which owns thermal coal assets in Colombia by R$ 695. In the acquisition, the assets and liabilities were measured at market value resulting in an increase of R$ 475 compared to the carrying amount, with no goodwill recognition.
(c) Green Mineral Resources
In February 2009, Vale acquired the Green Mineral Resources, the owner of mineral rights of Project Regina (Canada) and Project Colorado (Argentina) from Rio Tinto by R$ 1,995. In the acquisition, the assets and liabilities were measured at market value resulting in an increase of R$ 1,745 compared to the carrying amount, with no goodwill recognition.
(d) Other transactions
In September 2009, Vale concluded an agreement with ThyssenKrupp Steel AG to increase of its interest in ThyssenKrupp CSA Siderúrgica do Atlântico Ltda. (CSA) to 26.87%, from the current 10% interest, through a capital increase of R$ 2,532.
In July 2009, Vale signed an agreement which involves the sale of some its forest assets, totaling 84, 7 thousand hectares including preservation areas and eucalyptus forests in southwest of Maranhão, by approximately R$ 235, obtaining a gain of R$ 111 (see note 6.27).
In April 2009, Vale sold its remaining interest in Usiminas for R$ 595 obtaining a gain of R$ 288.
In March 2009, the Company acquired 50% of Teal Minerals Incorporated, a joint venture with African Rainbow Minerals Limited by R$ 139. In the acquisition, the assets and liabilities were measured at market value resulting in an increase of R$ 254 compared to the carrying amount, with no goodwill recognition.
In February 2008, the Company sold its interests of 4.83% in common shares of Jubilee Mines N.L., held by Vale Inco, by R$ 232 obtaining a gain of R$ 139 (see note 6.27).
6.4- Cash and Cash Equivalents
                                 
    Consolidated     Parent Company  
    2009     2008     2009     2008  
Cash and bank accounts
     1,405       1,814       86       59  
Time deposits
     11,816       22,825       1,164       6,654  
 
                        
 
     13,221       24,639       1,250       6,713  
 
                        
All the above mentioned time deposits represent low risk investments. Part of them is denominated in Brazilian Reais indexed to the CDI rate, and part denominated in US dollars comprised of time deposits, with maturity of up to 90 days.
6.5- Short-Term Investments
                 
    Consolidated  
    2009     2008  
 
                
Time deposit
     6,525       5,394  
 
            
Represent low risk investments with redemption between 91 and 360 days.

 

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6.6- Accounts Receivable from Customers
                                 
    Consolidated     Parent Company  
    2009     2008     2009     2008  
 
                                
Domestic
     1,538       1,135       1,211       825  
Export
     4,327       6,997       2,234       9,071  
 
                        
 
     5,865       8,132       3,445       9,896  
 
                                
Allowance for doubtful accounts
     (222 )     (199 )     (85 )     (69 )
 
                        
 
     5,643       7,933       3,360       9,827  
 
                        
6.7- Related Parties
In the Company’s normal course of business, Vale enters into transactions with related parties regarding the sale and purchase of products and services, including the leasing of assets, loans under normal market conditions, marketing of raw material and rail transport services.
The balances of related parties operations, and its effects in the quarterly information’s, can be identified as follows:
                                 
    Consolidated  
    Assets  
    2009     2008  
    Customers     Related party     Customers     Related party  
 
                                
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
     29       —       8       —  
Companhia ítalo-Brasileira de Pelotização — ITABRASCO
     1       —       35       7  
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
     —       —       10       1  
Korea Nickel Corporation
     19       —       90       —  
Samarco Mineração S.A
     10       37       1       11  
Teal Minerals Incorporated
     —       146       —       —  
Others
     33       25       117       9  
 
                        
Total
     92       208       261       28  
 
                        
 
                                
Registered as:
                                
Current
     92       144       261       28  
Non-current
     —       64       —       —  
 
                        
 
     92       208       261       28  
 
                        
                                 
    Consolidated  
    Liabilities  
    2009     2008  
    Suppliers     Related party     Suppliers     Related party  
 
                                
Baovale Mineração S.A
     19       —       23       —  
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
     5       2       18       8  
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
     28       1       15       51  
Companhia ítalo-Brasileira de Pelotização — ITABRASCO
     5       —       46       27  
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
     8       10       23       58  
Minas da Serra Geral
     8       14       8       7  
Mineração Rio do Norte S.A.
     26       —       53       —  
MRS Logistica S.A.
     310       109       168       125  
Mitsui & CO, LTD
     45       —       —       —  
Others
     55       —       49       11  
 
                        
Total
     509       136       403       287  
 
                        
 
                                
Registered as:
                                
Current
     509       33       403       162  
Non-current
     —       103       —       125  
 
                        
 
     509       136       403       287  
 
                        

 

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(VALE LOGO)
                                 
    Parent Company  
    Assets  
    2009     2008  
    Customers     Related party     Customers     Related party  
 
                                
ALUNORTE — Alumina do Norte do Brasil S.A.
     33       72       65       127  
Baovale Mineração S.A
     3       3       3       2  
CVRD OVERSEAS Ltd.
     545       —       —       30  
Ferrovia Centro — Atlântica S.A.
     59       68       61       30  
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
     1       —       2       —  
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
     60       —       —       —  
Minerações Brasileiras Reunidas S.A. — MBR
     6       687       10       678  
MRS Logistica S.A.
     1       6       1       17  
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
     —       —       20       47  
Salobo Metais S.A.
     3       234       2       234  
Samarco Mineração S.A
     21       75       1       378  
Vale International S.A.
     1,672       4,652       7,857       3,102  
Vale Manganês S.A.
     36       181       7       597  
Others
     166       224       1,415       388  
 
                        
Total
     2,606       6,202       9,444       5,630  
 
                        
 
                                
Registered as:
                                
Current
     2,606       4,360       9,444       2,232  
Non-current
     —       1,842       —       3,398  
 
                        
 
     2,606       6,202       9,444       5,630  
 
                        
                                 
    Parent Company  
    Liabilities  
    2009     2008  
    Suppliers     Related party     Suppliers     Related party  
 
                                
ALUNORTE — Alumina do Norte do Brasil S.A.
     16       —       13       —  
Baovale Mineração S.A
     39       —       46       —  
Companhia Portuária Baía de Sepetiba — CPBS
     30       2       —       80  
CVRD OVERSEAS Ltd.
     —       491       —       790  
Ferrovia Centro — Atlântica S.A.
     14       2       13       57  
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
     9       —       36       12  
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
     57       —       —       —  
Minerações Brasileiras Reunidas S.A. — MBR
     30       88       28       22  
MRS Logistica S.A.
     433       —       224       —  
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
     17       21       47       139  
Salobo Metais S.A.
     16       —       —       —  
Vale International S.A.
     42       34,808       30       46,117  
Vale Manganês S.A.
     —       —       —       54  
Mitsui & CO, LTD
     45       —       —       —  
Others
     97       42       182       318  
 
                        
Total
     845       35,454       619       47,589  
 
                        
 
                                
Registered as:
                                
Current
     845       7,343       619       9,578  
Non-current
     —       28,111       —       38,011  
 
                        
 
     845       35,454       619       47,589  
 
                        

 

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(VALE LOGO)
                                                                         
    Consolidated  
    Income (Unaudited)     Expense / Cost (Unaudited)     Financial (Unaudited)  
    4Q/09     3Q/09     3Q/08     4Q/09     3Q/09     3Q/08     4Q/09     3Q/09     3Q/08  
Baovale Mineração S.A.
     2       —       —       4       5       5       —       —       —  
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
     —       —       —       33       —       —       —       —       —  
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
     49       17       34       49       18       56       (2 )     2       (2 )
Companhia ítalo-Brasileira de Pelotização — ITABRASCO
     —       —       7       5       5       73       36       (2 )     29  
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
     —       —       —       10       9       125       (36 )     —       (42 )
Log-in S.A.
     14       —       —       —       —       21       —       —       —  
Mineração Rio do Norte S.A
     —       —       —       48       55       97       —       —       —  
MRS Logistica S.A.
     4       4       1       138       150       428       26       (26 )     —  
Samarco Mineração S.A.
     42       21       63       —       —       —       —       —       —  
Usinas Siderúrgicas de Minas Gerais S.A. — USIMINAS (*)
     —       —       292       —       —       —       —       —       —  
Others
     22       2       27       7       5       30       5       1       —  
 
                                                      
 
     133       44       424       294       247       835       29       (25 )     (15 )
 
                                                      
                                                 
    Consolidated  
    Income     Expense / Cost     Financial  
    2009     2008     2009     2008     2009     2008  
Baovale Mineração S.A.
     5       —       18       17       —       —  
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
     —       85       33       —       —       —  
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
     75       270       68       433       (2 )     (3 )
Companhia ítalo-Brasileira de Pelotização — ITABRASCO
     —       184       17       256       —       34  
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
     —       45       44       404       (1 )     (37 )
Log-in S.A.
     28       —       —       —       1       —  
Mineração Rio do Norte S.A
     —       —       240       276       —       —  
MRS Logistica S.A.
     13       9       526       936       (30 )     —  
Samarco Mineração S.A.
     92       234       —       —       —       —  
Usinas Siderúrgicas de Minas Gerais S.A. — USIMINAS (*)
     —       1,198       —       —       —       —  
Others
     2       27       11       38       —       6  
 
                                    
 
     215       2,052       957       2,360       (32 )     —  
 
                                    
                                                 
    Parent Company  
    Income     Expense / Cost     Financial  
    2009     2008     2009     2008     2009     2008  
ALBRAS — Alumínio Brasileiro S.A.
     130       26       —       —       —       —  
ALUNORTE — Alumina do Norte do Brasil S.A.
     368       384       131       53       (22 )     —  
Baovale Mineração S.A.
     10       —       37       —       —       —  
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
     —       175       66       409       —       (1 )
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
     161       579       130       617       (3 )     (9 )
Companhia ítalo-Brasileira de Pelotização — ITABRASCO
     —       391       35       277       (1 )     6  
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
     —       162       89       642       63       (54 )
Companhia Portuária Baia de Sepetiba — CPBS
     —       —       291       282       (7 )     (14 )
CVRD Overseas Ltd.
     2,551       4,262       —       —       131       (53 )
Ferrovia Centro — Atlântica S.A.
     182       206       9       43       5       (7 )
MRS Logistica S.A.
     19       38       899       1,312       —       —  
Samarco Mineração S.A.
     184       467       —       —       —       —  
Usinas Siderúrgicas de Minas Gerais S.A. — USIMINAS (*)
     —       1,025       —       —       —       —  
Vale Energia S.A.
     —       —       217       118       —       —  
Vale International S.A.
     19,002       18,975       —       —       8,370       (11,422 )
Vale Manganês S.A.
     72       83       —       —       —       (13 )
Others
     18       92       22       89       26       (10 )
 
                                    
 
     22,697       26,865       1,926       3,842       8,562       (11,577 )
 
                                    
     
(*)  
Investment disposed in April 2009.
Additionally, Vale has outstanding balances with Banco Nacional de Desenvolvimento Social and BNDES Participações S.A. in the amounts of R$ 2,945 and R$ 1,153 respectively on December 31, 2009, related to loans with charges at market interest rates, maturing up to September, 2029. These operations generated R$ 183 of interest expenses.
Vale also has short-term investments with Bradesco in the amount of R$ 185 in December 31, 2009. The effect of these operations on results was R$ 77.
         
Remuneration of key management personnel   2009  
Short-term benefits to management
     41  
Other long-term benefits to management
     11  
 
      
Total
     52  
 
      

 

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6.8- Inventories
                                 
    Consolidated     Parent Company  
    2009     2008     2009     2008  
Finished products
                                
• Nickel, co-products and sub products Inco
     1,886       3,537       56       33  
• Iron ore and pellets
     1,324       1,917       999       1,677  
• Manganese and ferroalloys
     290       518       —       —  
• Aluminum products
     251       365       1       22  
• Kaolin
     73       94       —       —  
• Coal
     89       101       —       —  
• Copper
     61       60       61       60  
• Steel products
     25       55       —       —  
• Other
     13       77       30       39  
 
                        
 
     4,012       6,724       1,147       1,831  
Spare parts and maintenance supplies
     1,901       2,962       734       1,082  
 
                        
 
     5,913       9,686       1,881       2,913  
 
                        
On December 31, 2009, inventory balances include adjustment to net realizable for steel in the amount of R$ 4,6 (R$ 150 in 2008). For nickel, there was no such adjustment in 2009 (R$ 184 in 2008).
6.9- Taxes to recover or to offset
                                 
    Consolidated     Parent Company  
    2009     2008     2009     2008  
Income tax
     1,577       3,957       402       2,581  
Value-added tax — ICMS
     570       733       466       538  
PIS and COFINS
     1,898       1,057       1,105       328  
Others
     180       206       66       54  
 
                        
Total
     4,225       5,953       2,039       3,501  
 
                        
Current
     2,685       4,886       1,881       3,312  
Non-current
     1,540       1,067       158       189  
 
                        
 
     4,225       5,953       2,039       3,501  
 
                        
6.10- Deferred Income Tax and Social Contribution
Company’s income is subjected to the normal tax system applicable to Companies in general. Net balances of deferred assets and liabilities are presented as follows:
                                 
    Net Deferred  
    Consolidated     Parent Company  
    2009     2008     2009     2008  
Tax loss carryforward
     1,373       725       799       —  
Temporary differences:
                                
• Pension Plan
     1,238       430       187       235  
• Contingent liabilities
     781       687       667       654  
• Provision for losses on assets
     750       1,167       400       1,047  
• Goodwill from propety, plan and equipments acquired
     (9,039 )     (8,518 )     —       —  
• Others
     36       (291 )     (88 )     (76 )
 
                        
Total
     (6,234 )     (6,525 )     1,166       1,860  
 
                        
Social contribution
     (1,320 )     —       (1,320 )     —  
 
                        
Total
     (6,181 )     (5,800 )     645       1,860  
 
                        
Current
     1,492       1,305       1,219       1,220  
Non-current
     —       —       747       640  
 
                        
ASSETS
     1,492       1,305       1,966       1,860  
 
                        
LIABILITIES
     (7,673 )     (7,105 )     (1,320 )     —  
 
                        
Deferred assets and liabilities related to income tax and social contribution arising from tax losses, negative social contribution bases and temporary differences are recognized from an accounting standpoint considering an analysis of likely future results, based on economic and financial projections prepared based on internal assumptions and macroeconomic, commercial and fiscal scenarios which could change in the future.

 

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These temporary differences that will be realized upon the occurrence of the corresponding taxable events are presented as follows:
                 
    Net amount of credits  
Years   Consolidated     Parent Company  
2010
     1,492       1,219  
2011
     (243 )     109  
2012
     (286 )     109  
2013
     (301 )     109  
2014
     (305 )     109  
2015
     (372 )     41  
2016
     (362 )     41  
2017
     (359 )     40  
2018
     (359 )     40  
2019
     (3,765 )     149  
 
            
 
     (4,860 )     1,966  
 
            
The Income Tax in Brazil comprises the taxation on income and the social contribution on profit. The composite statutory rate applicable in the periods presented is 34%. In other countries where we have operations, the applicable tax rate varies from 1,67% to 40%.
The total amount presented as income tax and social contribution results in the financial statements is reconciled with the rates established by law, as follows:
                                                         
    Consolidated     Parent Company  
    Quarter (Unaudited)     Accumulated     Accumulated  
    4Q/09     3Q/09     3Q/08     2009     2008     2009     2008  
Income before income tax and social contribution
     1,492       4,941       12       15,342       22,376       15,796       19,821  
Results of equity investment e amortização de ágio
     (22 )     (30 )     410       (116 )     1,325       3,744       (17,607 )
Exchange variation — Not taxable
     866       1,458       (5,315 )     10,577       (6,992 )     —       —  
 
                                          
 
     2,336       6,369       (4,893 )     25,803       16,709       19,540       2,214  
Income tax and social contribution at combined tax rates
     34 %     34 %     34 %     34 %     34 %     34 %     34 %
 
                                          
Federal income tax and social contribution at statutory rates
     (794 )     (2,165 )     1,664       (8,773 )     (5,681 )     (6,644 )     (753 )
 
                                                        
Adjustments that affects the basis of taxes:
                                                        
 
                                                        
Income tax benefit from interest on stockholders’ equity
     872       —       446       872       1,315       872       1,315  
Fiscal incentives
     113       62       (25 )     368       227       184       —  
Results of overseas companies taxed by different rates wich diference than the parent company rate
     769       273       (17 )     2,126       3,046       —       —  
Others
     246       (10 )     397       482       428       41       896  
 
                                          
Income tax and social contribution
     1,206       (1,840 )     2,465       (4,925 )     (665 )     (5,547 )     1,458  
 
                                          
Vale in Brazil has a tax incentive for partial reduction of income tax due for the amount equivalent to the amount assigned by tax law to transactions in the north and northeast, such as rail, railway, manganese, copper, bauxite, alumina, aluminum, kaolin and potash. The incentive is calculated based on the profit tax of the activity (called operating income), takes into consideration the allocation of operating profit for the level of production encouraged during the periods indicated as a benefit for each product, and generally expire in 2018. Part of railroad operations and iron in the north region has been recognized as encouraged by 10 years from 2009. An amount equal to the tax saving must be appropriated in a reserve account of profits in equity, and may not be distributed as dividends to shareholders.
Vale can benefit from allocation of part of the income tax to be reinvested in purchase of equipment on an encouraged operation; subject to be approved by the regulatory agency in the encouraged area, Superintendência de Desenvolvimento da Amazônia “Sudam” and Superintendência de Desenvolvimento do Nordeste “SUDENE”. Once the reinvestment is approved, the tax benefit is also appropriate in a profit reserve, prevented to de distributed as dividends to shareholders.
Vale also has tax incentives related to Goro, in New Caledonia (Goro). These tax incentives include temporary full exemption of income tax during the construction phase of the project and also for a 15-year period beginning in the first year of commercial production, as defined by the applicable law, followed by a 5-year period with 50% of temporary tax incentives. Besides the, Goro Project also qualifies for certain exemptions of indirect taxes such as import tax during the construction phase and during all the commercial life of the project. Some of these tax benefits, including temporary tax incentives, are subject to an earlier phase out in case the project achieves a specified cumulative rate of return. Goro is subject to taxation on part of the income commencing in the first year in which commercial production is achieved, as defined by the applicable law. To date, we have not recorded any taxable income for New Caledonian tax purposes. The benefits of this legislation are expected to apply with respect to taxes payable once the Goro project is in operation. Vale obtained fiscal benefit for projects in Mozambique, Oman and Malaysia, which will have effect when the projects begin their commercial operation.
Vale is subject to examination of income tax by tax authorities for up to five years for Companies in operations in Brazil, ten years for operations in Indonesia, and up to six years for Companies with operations in Canada.
In Brazil, the compensation of tax loss carry-forwards has no expiration date, though its offset is restricted to 30% of annual and quarter taxable income.

 

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6.11- Investments
                                                         
    Investments     Equity Results  
                    Quarter (Unaudited)     Accumulated  
    2009     2008     4Q/09     3Q/09     3Q/08     2009     2008  
Investments carried at market value (a)
                                                        
Usinas Siderúrgicas de Minas Gerais S.A. — USIMINAS (b)
     —       384       —       —       —       17       33  
Mirabela Nickel Ltd (b)
     —       19       —       —       —       —       —  
Skye Resources (e)
     —       —       —       —       (83 )     —       (83 )
Hudbay Minerals Inc. (b)
     —       20       —       —       —       —       —  
Heron Resources Inc
     14       5       —       —       —       —       —  
Others
     14       33       —       —       —       —       —  
 
                                          
 
     28       461       —       —       (83 )     17       (50 )
 
                                                        
Investments valued by equity method of accounting
                                                        
Henan Longyu Energy Resources Co. Ltd.
     435       411       33       32       35       148       145  
Korea Nickel Corp.
     22       49       1       —       4       1       7  
Log-In — Logistica Intermodal S/A.
     218       221       —       —       12       4       37  
Shandong Yankuang International Company Ltd (d)
     —       58       (7 )     (3 )     (33 )     (35 )     (33 )
ThyssenKrupp CSA — Cia Siderúrgica do Âtlantico (c)
     3,546       1,034       (11 )     —       —       (11 )     —  
Vale Soluções em Energia
     172       98       —       —       —       —       —  
Zhuhai YPM Pellet e Co.,Ltd.
     22       —       6       2       —       3       —  
Others
     147       110       —       (1 )     6       (11 )     (2 )
 
                                          
 
     4,562       1,981       22       30       24       99       154  
 
                                          
 
     4,590       2,442       22       30       (59 )     116       104  
 
                                          
     
(a)  
Investments measured at market value, or similar, with their reflects recorded in Other Comprehensive Income.
 
(b)  
Investiment disposed in 2009.
 
(c)  
Investiment measured at fair value until Sep, 2009.
 
(d)  
Company with negative net equity in 2009.
 
(e)  
The amount registered as equity equivalence refer to a loss of a non-temporary mark-to-market.
                                                                 
            Adjusted     Adjusted net                     Results of equity     Dividends  
    Partici-     stockholders’     income (loss) for     Investments     investments     received  
Parent Company   tion %     equity     the year     2009     2008     2009     2008     2009  
Avaliados pelo método de equivalência patrimonial
                                                                
ALBRAS — Alumínio Brasileiro S.A.
     51.00       2,035       154       1,038       992       78       76       6  
ALUNORTE — Alumina do Norte do Brasil S.A.
     57.03       4,557       243       2,599       2,479       139       137       8  
Belém — Administrações e Participações LTDA.
     100.00       1       (15 )     1       232       (15 )     22       —  
Cadam S.A.
     61.48       229       (24 )     141       156       (15 )     (33 )     —  
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
     50.00       301       45       150       127       23       78       —  
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
     50.89       286       (47 )     146       170       (24 )     103       —  
Companhia ítalo-Brasileira de Pelotização — ITABRASCO
     50.90       312       45       159       136       22       55       —  
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
     51.00       500       (4 )     255       257       (2 )     149       46  
Companhia Portuária da Baía de Sepetiba — CPBS
     100.00       347       155       347       325       155       140       46  
Ferrovia Norte Sul S.A.
     100.00       1,291       14       1,291       820       14       26       6  
Green Mineral Resources Inc (a)
     100.00       1,433       (74 )     1,433       —       (74 )     —       —  
LOG-IN — Logística Intermodal S/A
     31.33       695       12       218       221       4       37       6  
Minas da Serra Geral S.A. — MSG
     50.00       102       6       51       49       3       2       —  
Mineração Rio do Norte S.A.
     40.00       640       46       256       237       19       88       86  
Mineração Tacumã Ltda
     100.00       (84 )     3       (84 )     (88 )     3       56       —  
AFAC Mineração Tacumã Ltda
     —       —       —       1,788       1,788       —       —       —  
Minerações Brasileiras Reunidas S.A. — MBR (b)
     87.94       4,258       (325 )     3,744       4,129       (286 )     420       —  
Mineração Corumbá Reunidas S.A
     100.00       1,426       (28 )     1,426       —       (28 )     —       —  
MRS Logística S.A. (b)
     10.89       1,958       643       213       200       70       69       54  
Salobo Metais S.A.
     100.00       917       (60 )     917       417       (60 )     —       —  
AFAC Salobo Metais S.A.
     —       —       —       682       415       —       —       —  
Samarco Mineração S.A.
     50.00       1,804       1,179       902       300       590       553       346  
Thyssenkrupp CSA Companhia Siderúrgica do Atlântico
     26.87       13,200       (42 )     3,547       1,034       (11 )     —       —  
Vale Manganês S.A.
     100.00       689       194       689       600       194       657       —  
Valesul Alumínio S.A. (b)
     56.44       556       (100 )     313       370       (56 )     12       —  
Vale International S.A. (a)
     100.00       64,203       (4,236 )     64,203       75,583       (4,236 )     16,162       —  
Vale Colombia Ltd (a)
     100.00       678       (26 )     678       —       (26 )     —       —  
Urucum Mineração
     100.00       68       8       68       38       8       163       100  
Others
             —       —       540       172       (233 )     64       30  
Carried at market value
                                                                
Usinas Siderúrgicas de Minas Gerais S.A. — USIMINAS
                             —       384       —       —       —  
 
                                                      
 
                             87,711       91,543       (3,744 )     19,036       734  
 
                                                      
     
(a)  
The foreign company equity was translated to the Brazilian currency according to the prevailing exchange rates at balance sheet date.
 
(b)  
This percentage comprises only Vale’s direct ownership.

 

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6.12- Intangible
                         
    Consolidated/Parent Company  
    2009     2008     End amortization  
Intangible by segment
                        
 
                        
Iron ore and pellets
                        
Goodwill of Minerações Brasileiras Reunidas — MBR (Includes goodwill Caemi) (b)
     4,060       4,060     Indefinite
Goodwill other companies (a, b)
     5       5     Indefinite
Right of use of the actions of the EBM
     656       679     May 2037
 
                    
 
     4,721       4,744          
 
                        
Nickel
                        
Goodwill of Inco Limited (a, b, d)
     2,948       3,471     Indefinite
Other rights Vale Inco
     609       667     September 2046
 
                    
 
                        
 
     3,557       4,138          
Coal
                        
Goodwill of Vale Australia (a, b)
     168       171     Indefinite
 
                        
Logistic
                        
Subconcessions — Ferrovia Norte Sul — FNS
     1,666       1,660     December 2037
 
                        
Other
     15       14          
 
                    
Total consolidated
     10,127       10,727          
 
                        
Intangible not recorded at the parent company
     (2,275 )     (2,341 )        
 
                    
Total parent company
     7,852       8,386          
 
                    
     
(a)  
Goodwill not recorded in the parent company; and
 
(b)  
Goodwill paid due to the expectation of future profitability.
 
(*)  
Goodwill amortization was ceased in December 2008 (see note 6.2-a)
Changes in intangibles during the fiscal year ended on December 31, 2009 of R$ 10,727 as of December 31, 2008 to R$ 10,127 on December 31, 2008, were as follows: decrease of amortization in the amount of R$ 43, decrease of translation adjustment in the amount of R$ 582, increase of exchange monetary variation by R$ 25.
6.13- Impairment of Assets
As described in note 6.2 (l), Vale tests the recoverable value of long-lived assets if there is evidence that their book values are not recoverable, and regardless of the existence of evidence. Vale tests annually the recoverability of intangibles with indefinite useful lives, which are mainly comprised of goodwill based on estimated future results arising from business combination.
No Impairment expense was recognized in 2009 as a result of the annual impairment test of goodwill. In 2008, an impairment loss for the non-recoverability related to the operations of nickel was recognized in the amount of R$ 2,447.
Management determines its cash flows based on approved budgets. The gross margin projections are based on past performance and expectations of management about the development of the markets. Information about sales prices are consistent with projections used in reports published by the industry, considering the quoted price when available and appropriate. The discount rates used reflect specific risks related to assets to each individual cash-generating unit, depending on their composition and location.
The assets recoverability based on the criterion of discounted cash flow, depends on several estimates which are influenced by current market conditions at the time that recoverability is tested and thus can not determine if further impairment losses will occur in the future, and whether occurs, if would be material.
6.14- Property, Plant and Equipment
                                                                         
            Consolidated     Parent Company  
    Average     2009     2008     2009     2008  
    depreciation             Accumulated                           Accumulated                
    rates     Cost     depreciation     Net     Net     Cost     depreciation     Net     Net  
Lands
     —       506       —       506       425       300       —       300       170  
Buildings
     1.50 %     9,094       (2,407 )     6,687       6,885       3,904       (1,010 )     2,894       2,439  
Installations
     4.23 %     30,227       (10,304 )     19,923       19,371       14,306       (4,491 )     9,815       9,495  
Equipment
     7.73 %     14,722       (4,998 )     9,724       9,587       5,509       (1,975 )     3,534       2,916  
Computer Equipment
     20.00 %     2,287       (1,425 )     862       948       1,870       (1,163 )     707       721  
Railroads
     3.73 %     13,439       (4,667 )     8,772       7,558       11,451       (4,114 )     7,337       6,224  
Mining Assets
     5.09 %     27,342       (3,475 )     23,867       25,734       1,976       (445 )     1,531       1,445  
Others
     6.57 %     15,182       (3,757 )     11,425       8,651       3,463       (1,681 )     1,782       1,855  
 
                                                      
 
             112,799       (31,033 )     81,766       79,159       42,779       (14,879 )     27,900       25,265  
Construction in progress
             33,394       —       33,394       31,335       15,728       —       15,728       13,446  
 
                                                      
Total
             146,193       (31,033 )     115,160       110,494       58,507       (14,879 )     43,628       38,711  
 
                                                      

 

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(b)  
By business area:
                                 
    Consolidated  
    2009     2008  
            Accumulated                
    Cost     depreciation     Net     Net  
Ferrous
                                
In operation
     41,245       (14,184 )     27,061       20,732  
Construction in Progress
     9,403       —       9,403       9,068  
 
                        
 
     50,648       (14,184 )     36,464       29,800  
 
                        
Non — Ferrous
                                
In operation
     47,302       (8,119 )     39,183       43,304  
Construction in Progress
     18,756       —       18,756       18,121  
 
                        
 
     66,058       (8,119 )     57,939       61,425  
 
                        
Logistics
                                
In operation
     10,071       (3,376 )     6,695       6,170  
Construction in Progress
     1,369       —       1,369       837  
 
                        
 
     11,440       (3,376 )     8,064       7,007  
 
                        
Holdings
                                
In operation
     12,113       (4,192 )     7,921       8,065  
Construction in Progress
     1,843       —       1,843       1,265  
 
                        
 
     13,956       (4,192 )     9,764       9,330  
 
                        
Corporate Center
                                
In operation
     2,068       (1,162 )     906       888  
Construction in Progress
     2,023       —       2,023       2,044  
 
                        
 
     4,091       (1,162 )     2,929       2,932  
 
                        
Total
     146,193       (31,033 )     115,160       110,494  
 
                        
The depreciation in the period allocated to the production cost and the expenses amount R$ 5,447 in 2009 (R$ 5,112 in 2008) in the consolidated and R$ 1,931 in 2009 (R$ 1,647 in 2008) in the Parent Company financial statements.
6.15- Loans and Financing
Current
                                 
    Consolidated     Parent Company  
    2009     2008     2009     2008  
Trade finance
     546       958       —       —  
Working capital
     100       130       —       —  
 
                        
 
     646       1,088       —       —  
 
                        
Relates to short-term financing for export denominated in US dollars, with average annual interest rate of 2,02% per year.
Non-current
                                                                 
    Consolidated     Parent Company  
    Current liabilities     Non-current     Current liabilities     Non-current  
    2009     2008     2009     2008     2009     2008     2009     2008  
Foreign operations
                                                                
Loans and financing in:
                                                                
U.S. dollars
     2,846       568       10,683       15,287       276       380       1,095       1,046  
Other currencies
     51       54       715       390       6       8       6       15  
Notes in U.S. dollars
     —       —       12,851       15,214       —       —       —       —  
Export securitization (*)
     261       129       —       348       —       —       —       —  
Perpetual notes
     —       —       136       194       —       —       —       —  
Accrued charges
     346       507       —       —       7       24       —       —  
 
                                                
 
     3,504       1,258       24,385       31,433       289       412       1,101       1,061  
 
                                                
 
                                                                
Local operations
                                                                
Indexed by TJLP, TR, IGP-M and CDI
     145       103       6,233       4,879       108       76       5,976       4,645  
Basket of currencies
     2       2       5       9       2       3       5       10  
Loans in U.S. dollars
     —       —       990       386       —       —       990       386  
Non-convertible debentures
     1,500       —       4,513       5,987       1,500       —       4,000       5,500  
Accrued charges
     154       220       —       —       154       220       —       —  
 
                                                
 
     1,801       325       11,741       11,261       1,764       299       10,971       10,541  
 
                                                
 
     5,305       1,583       36,126       42,694       2,053       711       12,072       11,602  
 
                                                
     
(*)  
Refers to, debt securities collateralized by future receivables arising from certain exports sales. (Securities settled in 2010, see note 6.33)

 

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Long-term portions as of December 31, 2009 mature as follows:
                                 
    Consolidated     Parent Company  
2011
     4,697       13 %     392       3 %
2012
     2,544       7 %     433       4 %
2013
     5,973       17 %     4,428       37 %
2014
     1,861       5 %     1,474       12 %
2015 onwards
     20,402       56 %     5,345       44 %
No due date (Perpetual notes and non-convertible debentures)
     649       2 %     —       0 %
 
                        
 
     36,126       100 %     12,072       100 %
 
                        
As of December 31, 2009, annual interest rates on long-term debt were as follows:
                 
    Consolidated     Parent Company  
Up to 3%
     11,928       2,375  
3.1% to 5%
     202       —  
5.1% to 7%(*)
     15,060       1,166  
7.1% to 9%(*)
     10,276       6,995  
9.1% to 11%
     1,746       1,514  
Over 11% (*)
     2,077       2,075  
Variable (Perpetual notes )
     142       —  
 
            
 
     41,431       14,125  
 
            
     
(*)  
Includes non-convertible debentures and other loans denominated in Brazilian Reais which interest is equal to the accumulated variation of CDI and TJLP;(Brazilian interbank certificate of deposit and Long-term interest rate) plus spread. For these operations were contracted derivatives instruments to protect the Company from the exposure of variations of floating debt denominated in Reais. The total contracted amount for these operations is R$ 11,623, where R$ 6,876 has an original interest rate between 7,1% and 9%, and the major balance has original interest rate above 9%. After the derivatives contracts the average cost of these operations is equivalent to 4,47%.
Vale has non-convertible debentures denominated in Reais presented as follows:
                                                 
    Quantity as of December 31, 2009                     Balances in  
    Issued     Outstanding     Maturity   Annual Fees   2009     2008  
Emissões
                                                
1st Series — 7th Public Offering
     150,000       150,000     Nov. 20, 2010   101,75% CDI     1,514       1,522  
2nd Series — 7th Public Offering
     400,000       400,000     Nov. 20, 2010   100% CDI + 0,25%     4,037       4,057  
Salobo — Tranche ‘B’
     5       5     No due date   6,5% a.a + IGPDI     513       487  
 
                                            
 
                                     6,064       6,066  
 
                                            
 
                                                
Short-term portion
                                     1,500       —  
Long-term portion
                                     4,513       5,987  
Accrued chages
                                     51       79  
 
                                            
 
                                     6,064       6,066  
 
                                            
The percentage variations related applied to the debt were as follows:
                         
    2009     2008     2007  
TJLP — Long-Term Interest Rate (effective rate)
     6.2       6.3       6.4  
IGP-M — General Price Index — Market
     (1.7 )     9.8       7.8  
Devaluation of Real against United States Dollar
     34.2       (24.2 )     20.7  
In November 2009, Vale issued US$ 1 billion (corresponding to R$ 1,7 billion) of 30-year Bonds through its wholly-owned subsidiary Vale Overseas. The notes due to November 2039 have a coupon of 6.875% per year, payable semiannually at a price of 98.564% of the face value of the title.
In September, 2009, Vale issued US$ 1 billion (corresponding to R$ 1,8 billion) of 10-year bonus through its wholly-owned subsidiary Vale Overseas. The notes due 2019 will bear a coupon of 5 5/8% per year, payable semiannually, at a price of 99.23% of the principal amount.
On January, 2008 the Company entered into a transaction with Brazilian bank to finance working capital in the amount of R$ 2 billions with final maturity in 2018.
Credit Lines
In November 2009, Vale signed a credit line of US$ 300 (corresponding to R$ 522), through its subsidiary PT International Nickel Indonesia Tbk (PTI), with Japanese financial institutions, using insurance from Nippon Export and Investment Insurance (NEXI) from Japan, to finance the construction of the hydroelectric plant Karebbe, at Indonesia. Until December 31, 2009 PT International withdrew US$ 150 (corresponding to R$ 261) from this credit line.
In 2008, Vale entered into agreements with Banco Nacional de Desenvolvimento Econômico e Social (BNDES) of R$ 7,300 and with Japanese credit facility agencies granting long-term financials of US$ 5 billion (corresponding to R$ 8,706) of which US$ 3 billion (corresponding to R$ 5,224) with Japan Bank for International Cooperation (JBIC) and US$ 2 billion (corresponding to R$ 3,482) with Nippon Export and Investment Insurance (NEXI) for the financing of the mining, logistics and power generation projects developed under Vale’s investment program for 2008-2012. Until December 31, 2009 Vale had draw down R$ 1,554 from the credit facility granted by BNDES.

 

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Additionally, Vale has revolving credit lines available under which amounts can be disbursed and paid at the option of the borrower. At December 31, 2009, the total amount available under revolving credit lines was US$ 1,900 (corresponding to R$ 3,308), of which US$ 1,150 (corresponding to R$ 2,002) was granted to Vale International and the balance to Vale Inco. Up to December 31,2009 no amount were draw down by Vale International or by Vale Inco, however letters of credit were issued in the amount of US$ 115 (corresponding to R$ 200) related to credit line of Vale Inco.
Guarantees
At December 31, 2009 , R$ 1,311 (December 31, 2008 — R$ 1,299) of the outstanding debt was guaranteed, of which R$ 265 (December 31, 2008 — R$ 487) of which guaranteed by receivables from the subsidiary CVRD Overseas Ltd. R$ 59 (December 31, 2008 — R$ 133) guaranteed by Brazilian Federal Government and R$ 987 (December 31, 2008 — R$ 689) guaranteed by other receivables. The remaining balance of R$ 40,120 (December 31, 2008 — R$ 42,978 ) have no guarantees.
Some long-term debt instruments have financial coverage. The main financial coverage relates to certain ratios that must be maintained, such as debt versus EBITDA and interest coverage. Vale is in full compliance with financial coverage required.
6.16- Contingent Liabilities and Commitments
Vale and its subsidiaries are parties to labor, civil, tax and other suits and have been contesting these matters both administratively and in court, which, when applicable, these are backed by judicial deposits. Provisions for losses are estimated and inflation restated by Management based on the opinion of the Legal Department and its external legal counsels.
In addition to the provisions recorded, there are other contingent liabilities, split between taxes, labor and civil claims, estimated as possible losses in the amount of R$ 9.242 (R$ 4.009 in the parent Company).
Contingent Liabilities
Provisions for contingencies net of judicial deposits, considered by Management and its legal counsel as sufficient to cover probable losses from, are detailed as follows:
                                 
    Consolidated     Parent Company  
    2009     2008     2009     2008  
I) Tax contingencies
     1,933       2,299       404       1,203  
(-) Judicial deposits
     (495 )     (1,082 )     (245 )     (862 )
 
                        
 
     1,438       1,217       159       341  
 
                                
II) Civil contingencies
     935       687       539       475  
(-) Judicial deposits
     (41 )     (44 )     (2 )     —  
 
                        
 
     894       643       537       475  
 
                                
III) Labor contingencies
     1,273       1,097       993       905  
(-) Judicial deposits
     (95 )     —       (48 )     —  
 
                        
 
     1,178       1,097       945       905  
 
                                
IV) Environmental contingencies
     61       32       26       9  
 
                        
Total accrued liabilities
     3,571       2,989       1,667       1,730  
 
                        
                                 
    2009     2008     2009     2008  
Balance at the beginning of the period
     2,989       3,189       1,730       1,979  
Provisions, net of reversals
     536       (1,234 )     192       (747 )
Payment
     (377 )     (30 )     (237 )     (30 )
Monetary update
     (10 )     568       184       385  
Judicial deposits
     433       496       (202 )     143  
 
                        
Balance at the end of period
     3,571       2,989       1,667       1,730  
 
                        
I) Tax Contingencies:
Main tax causes refer substantially to discussions about the calculation basis of the Financial Compensation by Exploration of Mineral Resources (CFEM) and on denials of applications for compensation claims in the settlement of federal taxes. Others refer to collections of Additional Compensation Labor Ports (AITP) and questions about the location for Tax Services (ISS) incidence.
In 2009, accrued values related to discussion of compensation for losses and negative basis of social contribution above 30% were wrote down, due to withdrawal of the action and therefore the extinction process with release of funds deposited in escrow in favor of the Union.
II) Civil Contingencies:
The civil lawsuits are mainly related to claims made against the Company by contractors in connection with losses allegedly incurred by them as a result of several economic plans, accidents and return of land.

 

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III) Labor Contingencies:
Labor and social security contingencies — it refers mainly to claims for (a) payment of time spent traveling from their residences to the work-place, (b) additional health and safety related payments, and (c) disputes about the amount of indemnities paid upon dismissal and one-third extra holiday pay.
Other commitments
(a)  
In connection with a tax benefit for lease financing arrangement sponsored by the French Government, Vale provided certain guarantees on behalf of Vale Inco New Caledonia (VINC) pursuant to which it was guaranteed payments due from VINC of up to a maximum amount of R$ 174 (US$ 100 million) (“Maximum Amount”) in connection with an indemnity. The Company also provided an additional guarantee covering the payments due from VINC of (a) amounts exceeding the Maximum Amount in connection with the indemnity and (b) other amounts payable by VINC under a lease agreement covering certain assets.
 
   
During the second quarter two new bank guarantees totaling R$ 108 (€ 43 million) were established by the Company on behalf of VINC in favor of the South Province of New Caledonia in order to guarantee the performance of VINC with respect to certain environmental obligations in relation to the metallurgical plant and the Kwe West residue storage facility.
 
   
Sumic Nickel Netherlands B.V., a 21% shareholder of VINC, has a put option to sell to Vale 25%, 50%, or 100% of the shares they own of VINC. The put option can be exercised if the defined cost of the nickel-cobalt development project exceeds the agreed value with the shareholders and an agreement cannot be reached on how to proceed with the project.
 
   
Vale provided a guarantee covering certain termination payments due from VINC (Vale Inco New Caledonia) to the supplier under an electricity supply agreement (“ESA”) entered into in October 2004 for the VINC project. The amount of the termination payments guaranteed depends upon a number of factors, including whether any termination of the ESA is a result of a default by VINC and the date on which an early termination of the ESA were to occur. If VINC defaults under the ESA prior to the anticipated start date for supply of electricity to the project, the termination payment, which currently is at its maximum, would be R$ 364 (€ 145 million). Once the supply of electricity under the ESA to the project begins, the guaranteed amounts will decrease over the life of the ESA.
 
   
In February 2009, Vale Inco Newfoundland and Labrador Limited (“VINL”), Vale’s subsidiary, entered into a fourth amendment to the Voisey’s Bay Development agreement with the Government of Newfoundland and Labrador Canada, which permits VINL to ship up to 55,000 metric tones of nickel concentrate from the Voisey’s Bay area mines. As part of the agreement, VINL agreed to provide the Government of Newfoundland and Labrador financial assurance in the form of letters of credit each in the amount of R$ 27 (CAD$ 16 million) for each shipment of nickel concentrate shipped out of the province from January 1, 2009 to August 31, 2009. The maximum amount of this financial assurance is R$ 186 (CAD$ 112 million) based on seventh shipment of nickel concentrate. As at December 31, 2009, all letters of credit had been issued, remaining R$ 102 (CAD$ 61,6 million) opened.
 
(b)  
At the time of our privatization in 1997, Vale issued debentures to its then-existing stockholders, including the Brazilian Government. The terms of the debentures, were set to ensure that the pre-privatization stockholders, including the Brazilian Government would participate in possible future financial benefits that could be obtained from exploiting certain mineral resources.
 
   
Vale has 388,559,056 Debentures were issued at a par value of R$ 0.01 (one cent), whose value will be restated in accordance with the variation in the General Market Price Index (IGP-M), as set forth in the Issue Deed.
 
   
The debentures holders has the right to receive premiums, paid semiannually, corresponding to a percentage of net revenues from specific mine resources as set forth in the indenture.
 
   
In April and in September, 2009, the Company paid interest on debentures in the amount of R$ 8 and R$ 7 respectively.
6.17- Provision for Asset Retirement Obligations
                                 
    Consolidated     Parent Company  
    2009     2008     2009     2008  
 
                                
Provisions in the beginning of year
     2,110       1,763       892       790  
 
                                
Ac cretion expense
     136       294       90       163  
 
                                
Liabilities settled in the current period
     (86 )     (16 )     (74 )     (11 )
 
                                
Revisions in estimated cash flows
     (48 )     (153 )     (62 )     (50 )
 
                                
Cumulative translation adjustment
     (111 )     222       —       —  
 
                        
Provisions in the end of year
     2,001       2,110       846       892  
 
                        
Current
     157       113       122       44  
Non-current
     1,844       1,997       724       848  
 
                        
 
     2,001       2,110       846       892  
 
                        

 

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6.18- Pension Plan
Since 1973, Vale sponsors a supplementary social security plan with characteristics of a defined benefit plan (the “Old Plan”) covering substantially all Brazilian employees, with benefits calculated based on years of service, age, contribution salary and supplementary social security benefits. This plan is administered by Fundação Vale do Rio Doce de Seguridade Social — VALIA and was funded by monthly contributions made by the sponsor and employees, calculated based on periodic actuarial appraisals.
In May 2000 was implemented a new supplementary social security plan with characteristics of variable contribution, comprising the earnings of programmed retirements and risk benefits (death pension, physical invalidity, and sickness assistance). At the launch of this “New Plan” (a Benefit Mix Plan — Vale Mais), was offered to the employees the opportunity to migrate to it. Over 98% of our employees opted for the transference. The old plan continues to exist, covering almost exclusively retired participants and their beneficiaries.
Additionally a specific group of former employees has the right of supplementary payments in addition to the regular benefits from VALIA, though Abono Complementação plus a post retirement benefit plan which covers health and dental care and pharmaceutical benefits to this specific group. Upon the acquisition of Inco, we assumed benefits through defined benefit pension plans that cover essentially all its employees and post retirement benefits other than pensions that also provide certain health care and life insurance benefits for retired employees.
Vale did not register in the Balance Sheet the asset from actuarial valuation on overfunded pension plan, because there is no evidence of realization, according to item 49 of NPC 26. However, in order to provide a better understanding, the granted assets of those plans were disclosed in notes.
The following information details the status of the defined benefit elements of all plans in accordance with Deliberação CVM 371/00, as well as their related costs.
The results of the actuarial valuation are presented as follows:
Pension Plans
(a) Development of Assets Present Value
                                                 
    Consolidated  
    2009     2008  
    Overfunded     Underfunded     Underfunded     Overfunded     Underfunded     Underfunded  
    pension     pension     other benefits     pension     pension     other benefits  
Fair value of plan assets at beginning of year
     5,666       7,084       2,499       5,629       7,127       2,668  
Cost of current service
     22       86       33       20       110       42  
Cost of interest
     614       495       176       556       379       127  
Benefits paid
     (443 )     (555 )     (129 )     (512 )     (467 )     (97 )
Plan amendment
     —       —       —       —       29       —  
Hypotheses changes
     498       28       19       (712 )     —       —  
Actuarial (gain) loss
     17       615       248       685       (1,207 )     (684 )
Effect of exchange rate changes
     —       (922 )     (354 )     —       383       143  
 
                                    
Fair value of plan assets at end of year
     6,374       6,831       2,492       5,666       6,354       2,199  
 
                                    
                                                 
    Parent Company  
    2009     2008  
    Overfunded     Underfunded     Underfunded     Overfunded     Underfunded     Underfunded  
    pension     pension     other benefits     pension     pension     other benefits  
Fair value of plan assets at beginning of year
     5,666       730       300       5,629       732       292  
Cost of current service
     22       —       3       20       —       3  
Cost of interest
     614       78       32       556       71       29  
Benefits paid
     (443 )     (73 )     (27 )     (512 )     (67 )     (31 )
Plan amendment
     —       —       —       —       —       —  
Hypotheses changes
     498       28       19       (712 )     (63 )     (34 )
Actuarial (gain) loss
     17       (5 )     (3 )     685       57       41  
Effect of exchange rate changes
     —       —       —       —       —       —  
 
                                    
Fair value of plan assets at end of year
     6,374       758       324       5,666       730       300  
 
                                    

 

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(b) Development of Assets Fair Value
                                                 
    Consolidated  
    2009     2008  
    Overfunded     Underfunded     Underfunded     Overfunded     Underfunded     Underfunded  
    pension     pension     other benefits     pension     pension     other benefits  
Fair value of assets at the begining of the year
     7,111       5,859       21       7,417       6,405       18  
Actual return of assets
     1,952       788       2       132       (1,147 )     2  
Contribution from sponsor
     78       308       129       74       399       97  
Benefits paid
     (443 )     (555 )     (129 )     (512 )     (467 )     (97 )
Effect of exchange rate changes
     —       (777 )     (4 )     —       328       1  
 
                                    
Fair value of assets at the end of the year
     8,698       5,623       19       7,111       5,518       21  
 
                                    
                                                 
    Parent Company  
    2009     2008  
    Overfunded     Underfunded     Underfunded     Overfunded     Underfunded     Underfunded  
    pension     pension     other benefits     pension     pension     other benefits  
Fair value of assets at the begining of the year
     7,111       341       —       7,417       259       —  
Actual return of assets
     1,952       90       —       132       49       —  
Contribution from sponsor
     78       111       27       74       100       31  
Benefits paid
     (443 )     (73 )     (27 )     (512 )     (67 )     (31 )
Effect of exchange rate changes
     —       —       —       —       —       —  
 
                                    
Fair value of assets at the end of the year
     8,698       469       —       7,111       341       —  
 
                                    
Plans assets on December 31, 2009 include R$ 1,022 (R$ 439 on December 31, 2008) and R$ 120 (R$ 124 in 31 December 2008) relating to portfolio investments in our own shares and debentures, respectively and R$ 111 (R$ 103 on December 31, 2008) of shares from related parties, respectively. They also include R$ 5,678 of securities of the Federal Government (R$ 5,777 on 31 December 2008) and R$ 681 of securities from Canada Government (R$ 811 on December 31, 2008).
(c) Reconciliation of assets and liabilities recognized in the balance sheet
                                                 
    Consolidated  
    2009     2008  
    (*) Overfunded     Underfunded     Underfunded     (*) Overfunded     Underfunded     Underfunded  
    pension     pension     other benefits     pension     pension     other benefits  
Fair value of plan assets at the end of the year
     (6,374 )     (6,831 )     (2,492 )     (5,666 )     (6,354 )     (2,199 )
Fair value of assets at the end of the year
     8,698       5,623       19       7,111       5,518       21  
Net (gains) and losses not recognized on the balance sheet
     (45 )     602       (498 )     545       231       (410 )
 
                                    
Total
     2,279       (606 )     (2,971 )     1,990       (605 )     (2,588 )
 
                                    
 
                                                
Actuarial assets / (liabilities) recorded in the balance sheet:
                                                
Short-term
     —       (108 )     (135 )     —       (26 )     (127 )
Long-term
     2,279       (498 )     (2,836 )     1,990       (579 )     (2,461 )
 
                                    
Actuarial assets / (liabilities) recorded in the balance sheet
     2,279       (606 )     (2,971 )     1,990       (605 )     (2,588 )
 
                                    
                                                 
    Parent Company  
    2009     2008  
    (*) Overfunded     Underfunded     Underfunded     (*) Overfunded     Underfunded     Underfunded  
    pension     pension     other benefits     pension     pension     other benefits  
Fair value of plan assets at the end of the year
     (6,374 )     (758 )     (324 )     (5,666 )     (730 )     (300 )
Fair value of assets at the end of the year
     8,698       469       —       7,111       341       —  
Net (gains) and losses not recognized on the balance sheet
     (45 )     22       40       545       49       31  
 
                                    
Total
     2,279       (267 )     (284 )     1,990       (340 )     (269 )
 
                                    
 
                                                
Actuarial assets / (liabilities) recorded in the balance sheet:
                                                
Short-term
     —       (84 )     (27 )     —       (62 )     (24 )
Long-term
     2,279       (183 )     (257 )     1,990       (278 )     (245 )
 
                                    
Actuarial assets / (liabilities) recorded in the balance sheet
     2,279       (267 )     (284 )     1,990       (340 )     (269 )
 
                                    
     
(*)  
The Company has not recorded the actuarial asset on its balance sheet, since there is no clear evidence to its realization, as established by item 49 of NPC 26.

 

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(d) Costs recognized in the income statement
                                                 
    Consolidated  
    2009     2008  
    Overfunded     Underfunded     Other pension     Overfunded     Underfunded     Other pension  
    pension plans (*)     pension plans     benefits     pension plans (*)     pension plans     benefits  
Current period service cost
     22       85       34       20       110       45  
Interest on projected benefit obligation
     614       494       178       556       450       153  
Expected return on assets
     (846 )     (390 )     (4 )     (926 )     (483 )     (9 )
Amortization and (gains) and losses, net
     —       36       (74 )     18       20       —  
 
                                    
Total costs, net
     (210 )     225       134       (332 )     97       189  
 
                                    
                                                 
    Parent Company  
    2009     2008  
    Overfunded     Underfunded     Other pension     Overfunded     Underfunded     Other pension  
    pension plans (*)     pension plans     benefits     pension plans (*)     pension plans     benefits  
Current period service cost
     22       —       4       20       —       3  
Interest on projected benefit obligation
     614       77       32       556       71       26  
Expected return on assets
     (846 )     (45 )     —       (926 )     (49 )     —  
Amortization and (gains) and losses, net
     —       —       —       (11 )     —       —  
 
                                    
Total costs, net
     (210 )     32       36       (361 )     22       29  
 
                                    
     
(*)  
The Company did not recognized the actuarial valuation on overfunded pension plan, because there is no evidence of realization, as established by item 49 of NPC 26.
(e) Actuarial and economic hypotheses
All calculations include future projections in relation to certain parameters, for example: salaries, interest, inflation, benefits from social security, mortality, invalidity and others. No actuarial results can be analyzed without previous knowledge of the scenarios hypotheses used in the evaluation.
The actuarial economic hypotheses were formulated considering the long-term for their maturity, and should therefore be analyzed from this point of view. Thus, in short period of time, they cannot be necessarily realized.
The evaluation was based on the following economic hypotheses:
                                                 
    Brasil  
    2009     2008  
    Overfunded     Underfunded     Underfunded
other		     Overfunded     Underfunded     Underfunded
other		  
    pension     pension     benefits     pension     pension     benefits  
Discount rate
     11.08 % p.a.     11.08 % p.a.     11.08 % p.a.     11.28 % p.a.     11.28 % p.a.     11.28 % p.a.
Rate expected return of assets
     12.00 % p.a.     11.50 % p.a.     N/A       12.22 % p.a.     13.00 % p.a.     N/A  
Rate of compensation increase — up to 47 years
     7.64 % p.a.     7.64 % p.a.     N/A       7.12 % p.a.     N/A       N/A  
Rate of compensation increase — over 47 years
     4.50 % p.a.     4.50 % p.a.     N/A       4.00 % p.a.     N/A       N/A  
Inflation
     4.50 % p.a.     4.50 % p.a.     4.50 % p.a.     4.00 % p.a.     4.00 % p.a.     4.00 % p.a.
Health care cost trend rate
     N/A       N/A       7.63 % p.a.     N/A       N/A       7.12 % p.a.
                                                 
    Exterior  
    2009     2008  
    Overfunded     Underfunded     Underfunded
other		     Overfunded     Underfunded     Underfunded
other		  
    pension     pension     benefits     pension     pension     benefits  
Discount rate
     N/A       6.21 % p.a.     6.20 % p.a.     N/A       5.58 % p.a.     7.32 % p.a.
Rate expected return of assets
     N/A       7.00 % p.a.     6.23 % p.a.     N/A       6.99 % p.a.     7.35 % p.a.
Rate of compensation increase — up to 47 years
     N/A       4.11 % p.a.     3.58 % p.a.     N/A       4.12 % p.a.     3.58 % p.a.
Rate of compensation increase — over 47 years
     N/A       4.11 % p.a.     3.58 % p.a.     N/A       4.12 % p.a.     3.58 % p.a.
Inflation
     N/A       2.00 % p.a.     2.00 % p.a.     N/A       2.00 % p.a.     2.00 % p.a.
Health care cost trend rate
     N/A       N/A       6.04 % p.a.     N/A       N/A       6.19 % p.a.
All assumptions were revised in 2009.
(f) Plan assets
Brazilian Plans
Pension Plans Investment Policy Statements sponsored for Brazilian employees are based on a long term macroeconomic scenario and expected returns presented in the Asset Liability Modeling study prepared by the actuarial consulting. The definition for Investment Policy Statement was established for each obligation, and the following results of this strategic asset allocation study are presented for 2009.

 

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Plans asset allocations comply with pension funds local regulation issued by CMN — Conselho Monetário Nacional (Resolução CMN 3792/09). Allowing investing in six different asset classes, defined as segments by the law, as follows: fixed income, equity, structured investments (alternative investments and infra-structure projects), international investments, real estate and loans to participants.
The Investment Policy Statements are approved by the Board, the Executive Directors and two Investments Committees. The internal and external portfolio managers are allowed to exercise the investment discretion under the limitations imposed by the Board and the Investment Committees.
The pension fund has a risk management process with established policies that intend to identify measure and control all kind of risks faced by our plans, such as: market, liquidity, credit, operational, systemic and legal.
Foreign Plans
The strategy for each of the pension plans sponsored by Vale Inco is based upon a combination of local practices and the specific characteristics of the pension plans in each country, including the structure of the liabilities, the risk versus reward trade-off between different asset classes and the liquidity required to meet benefit payments.
Overfunded pension plans
Brazilian Plans
The Defined Benefit Plan (the “Old Plan”) has the most part of its assets allocated in fixed income, mainly in Brazilian government (like TIPS) and corporate long term inflation linked bonds with the objective to reduce the asset-liability volatility. The target is 55% of the total assets. This LDI (Liability Driven Investments) strategy, when considered together with Loans to Participants segment, aims to hedge plan’s liabilities against inflation risk and volatility. Other segments or asset classes have their targets, as follows: Equity Investments- 28%; Structured Investments — 5%; International Investments — 2%; Real estate — 6% and Loans to Participants — 4%. Structured Investments segment has invested only in Private Equity Funds in an amount of R$ 151 and R$ 156 at the end of December 31, 2009 and 2008, respectively.
The Investment Policy has the objective to achieve the adequate diversification, current income and long term capital growth through the combination of all asset classes described above to fulfill its obligations with the adequate level of risk. This plan has an average nominal return of 21.3% per year, in dollars terms in the last 10 years.
The Vale Mais Plan (the “New Plan”) has obligations with characteristics of defined benefit and defined contribution plans, as mentioned. The most part of its investments is in fixed income. It was also implemented a LDI (Liability Driven Investments) strategy to reduce asset-liability volatility of the defined benefits plan’s component by using inflation linked bonds (like TIPS). The target allocation is 60% in fixed income. Other segments or asset classes have their targets, as follows: Equity — 24%; Structured Investments — 2%; International Investments — 2%; Real estate — 3% and Loans to Participants — 10%. Structured Investments segment has invested only in Private Equity Funds in an amount of R$ 43 and R$ 11 at the end of December 31, 2009 and 2008, respectively.
The Defined Contribution Vale Mais offers three options of asset classes mix that can be chosen by participants. The options are: Fixed Income — 100%; 80% Fixed Income and 20% Equities and 65% Fixed Income and 35% Equities. Equity option is an indexed- fund that has Bovespa Index as a benchmark.
The Investment Policy Statement has the objective to achieve the adequate diversification, current income and long term capital growth through the combination of all asset classes described above to fulfill its obligations and targets with the adequate level of risk. This plan has an average nominal return of 20% p.a. in dollars terms in the last 10 years.
Overfunded plans by asset category
                 
    Parent Company  
Assets by category   2009     2008  
Cash and cash equivalents
     2       2  
Accounts Receivable
     29       —  
Equity securities — liquid
     2,270       1,078  
Equity securities — non-liquid
     112       281  
Debt securities — Corporate bonds
     250       353  
Debt securities — Financial Institutions
     394       342  
Debt securities — Government bonds
     3,036       2,592  
Investment funds — Fixed Income
     3,546       3,180  
Investment funds — Equity
     1,004       515  
Investment funds — Private Equity
     169       167  
Real estate
     433       364  
Loans to Participants
     491       535  
 
            
Total
     11,736       9,409  
 
            
Funds not related to risk plans
     (3,038 )     (2,298 )
 
            
Fair value of plan assets at end of year
     8,698       7,111  
 
            
Overfunded plans assets in the Parent Company and in Consolidated are equal, therefore were only disclosed in the Parent Company.
The target return for private equity assets in 2010 is 10,20%. The target allocation is 5%, varying between 2% and 10%. Those investments have a longer investment horizon and low liquidity that aim to profit from economic growth, especially in the infra-structure sector of the Brazilian economy. Usually non-liquid assets’ fair value is established considering: the acquisition cost or book value. For some private equity funds we have alternatively the following methodologies: discounted cash flows analysis or analysis based on multiples.

 

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The target return for loans to participants in 2010 is11,90%. The fair value pricing of these assets includes provisions for non-paid loans, according to the local pension fund regulation.
The target return for real estate assets in 2010 is 9,90%. Fair value for these assets is considered book value. The pension fund hires companies specialized in real estate valuation that do not act in the market as brokers. All valuation techniques follow the local regulation.
Underfunded pension plans
Brazilian Obligation
This obligation has an exclusive allocation in fixed income. It was also used a LDI (Liability Driven Investments) strategy for this plan. Most of the resources were invested in long term government and corporate inflation linked bonds with the objective to minimize asset-liability volatility and reduce inflation risk.
The Investment Policy Statement has the objective to achieve the adequate diversification, current income and long term capital growth through the combination of all asset classes described above to fulfill its obligations with the adequate level of risk. This obligation has an average nominal return of 22,8% per year, in dollars terms in the last 8 years.
Foreign plans
For all pension plans except PT Inco, this has resulted in a target asset allocation of 60% in equity investments and 40% in fixed income investments, with all securities being traded in the public markets. Fixed income investments are in domestic bonds for each plan’s market and involve a mixture of government and corporate bonds. Equity investments are primarily global in nature and involve a mixture of large, mid and small capitalization companies with a modest explicit investment in domestic equities for each plan. The Canadian plans also use a currency hedging strategy (each developed currency’s exposure is 50% hedged) due to the large exposure to foreign securities. For PT Inco, the target allocation is 20% equity investment and the remainder in fixed income, with the vast majority of these investments being made within the domestic market.
Underfunded plans by asset category
                 
    Consolidated  
Assets by category   2009     2008  
Cash and cash equivalents
     58       84  
Equity securities — liquid
     2,345       1,955  
Debt securities — Corporate bonds
     21       21  
Debt securities — Financial Institutions
     34       30  
Debt securities — Government bonds
     776       915  
Investment funds — Fixed Income
     1,719       1,961  
Investment funds — Equity
     712       944  
 
            
Total
     5,665       5,910  
 
            
Funds not related to risk plans
     (42 )     (51 )
 
            
Fair value of plan assets at end of year
     5,623       5,859  
 
            
                 
    Consolidated  
Assets by category   2009     2008  
Debt securities — Corporate bonds
     21       21  
Debt securities — Financial Institutions
     34       30  
Debt securities — Government bonds
     48       45  
Investment funds — Fixed Income
     408       296  
 
            
Total
     511       392  
 
            
Funds not related to risk plans
     (42 )     (51 )
 
            
Fair value of plan assets at end of year
     469       341  
 
            
Other underfunded benefits
Foreign Plans
Other underfunded benefits by assets category
                 
    Consolidated  
Assets by category   2009     2008  
Cash and cash equivalent
     19       21  
 
            
Fair value of plan assets at end of year
     19       21  
 
            

 

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(g) Disbursement of future cash flows
In 2010, Vale expects to disburse with pension plans and other benefits, R$ 522 and R$ 210 for the consolidated and parent company respectively.
(h) Estimated future benefit payment
The following table presents the expected benefit payments, which reflect future services, as follows:
                                 
    Consolidated  
    Overfunded     Underfunded     Other pension        
    pension plans     pension plans     benefits     Total  
2010
     482       542       143       1,167  
2011
     509       549       153       1,211  
2012
     536       550       161       1,247  
2013
     564       548       168       1,280  
2014
     592       541       175       1,308  
2015 and thereafter
     3,404       2,647       878       6,929  
 
                        
                                 
    Parent Company  
    Overfunded     Underfunded     Other pension        
    pension plans     pension plans     benefits     Total  
2010
     482       86       28       596  
2011
     509       89       31       629  
2012
     536       90       34       660  
2013
     564       90       37       691  
2014
     592       90       41       723  
2015 and thereafter
     3,404       441       168       4,013  
 
                        
6.19- Long-term Incentive Compensation Plan
In 2008, with the purpose of introducing a “stockholders vision” to some of the Company’s executives, as well as improving the retention of these executives and reinforcing a sustainable performance culture, the Board of Directors approved a long-term incentive compensation plan, which was implemented with a three-year cycle.
According to the plan terms, the participants may elect to allocate part of their annual bonuses to the plan to purchase Vale’s preferred shares through a previously defined financial institution at market conditions and with no benefit provided by Vale.
The shares purchased by each executive have no restrictions and may, at the participant’s discretion, be sold at any time. However, in order to be entitled to the long-term incentive compensation plan to be provided by Vale, the amount of shares initially purchased by the executives on the plan’s adoption must be held for a three-year period and the executive must retain their employment relationship with Vale during that period. By meeting the two conditions described above (keeping the number of shares purchased and remaining a Vale employee over the three-year period), the participant becomes entitled to receive from Vale, at the end of each cycle, a cash payment equivalent to the total amount of the shares held, based on the their market quotations. As of December 31, 2009, 1,809,117 shares (711,005 shares as of December, 31, 2008) were covered by that benefit.
Additionally, certain executives eligible to the long-term incentive have the opportunity to receive at the end of the three-year cycle an amount equal to the market value of a certain number of shares, based on an evaluation of their career and Vale’s performance factor as measured by the indicator of total return to stockholders.
As of December 31, 2009, the amount accrued to support this plan is R$ 125 (R$ 17 as of December 31, 2008), fully recognized in the statement of income.
6.20- Paid-up Capital
Class A preferred shares have the same rights as common shares, except for the right to elect the members of the Board of Directors. They have priority to a minimum annual dividend of 6% on the portion of capital represented by this class of share or 3% on the book net equity value of the share, whichever is greater.
In May, 04 2009, Vale changed the code for negotiation of its ADR’s negotiated in New York Stock Exchange (NYSE) from RIO e RIO P to VALE and VALE P, respectively.
In July and August 2008, Vale issued 256,926,766 common shares and 189,062,948 preferred shares through a global offering, in Brazil and abroad. In the end of the transaction the capital stock increased by R$ 19,434 and additionally the transaction costs of R$ 161 was recorded in rectifying account of the stockholder’s equity.

 

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On December 31, 2009, the Company’s capital is R$ 47,434, corresponding to 5,365,304,100 shares (3,256,724,482 common and 2,108,579,618 preferred), without par value.
                                                 
    Number of shares  
Stockholders   Commom     %     Preferred     %     Total     %  
Valepar S.A.
     1,716,435,045       52       20,340,000       1       1,736,775,045       32  
Brazilian Government (National Treasury / BNDES/ INSS / FPS)
     56,712       —       12       —       56,724       —  
American Depositary Receipts — ADRs
     723,543,045       22       771,781,814       37       1,495,324,859       28  
FMP — FGTS
     114,442,258       4       —       —       114,442,258       2  
PIBB — BNDES
     3,823,246       —       4,570,779       —       8,394,025       —  
BNDESPar
     218,386,481       7       69,432,771       3       287,819,252       5  
Foreign — Institutional investors in Brazilian market
     134,549,803       4       344,681,659       16       479,231,462       9  
Brazil — Institutional investors
     212,945,027       7       429,824,078       20       642,769,105       12  
Brazil — Retail investors in Brazilian market
     57,544,966       2       390,366,601       19       447,911,567       8  
Treasury stock in Brazil
     74,997,899       2       77,581,904       4       152,579,803       4  
 
                                    
Total
     3,256,724,482       100       2,108,579,618       100       5,365,304,100       100  
 
                                    
The members of the Board of Directors and the Executive Board together own 157,340 common shares and 1,007,420 preferred shares.
The Board of Directors may, regardless of statutory amendment, decide the emission of new shares (authorized capital), even through the capitalization of profits and reserves up to the limit of 3,600,000,000 common shares and 7,200,000,000 preferred shares, all without par value.
6.21- Funds linked to Future Mandatory Conversion into Shares
Vale issued mandatory convertible notes, according to the table below:
                                         
    Date     Value (In thousands of reais)        
Headings   Emission     Expiration     Gross     Net of charges     Coupon  
 
Tranches RIO e RIO P.
   June/2007   June/2010     3,601       3,064       5,50 % a.a.
 
Tranches VALE - 2012
                                        
Tranches VALE P- 2012
   July/2009   June/2012     1,858       1,523       6,75 % a.a.
The securities have coupons payable quarterly and give the right to receive additional remuneration equivalent to the distribution of money paid to ADS holders. These were classified as equity instruments, mainly due to the fact that neither Vale nor the holders have the option to settle the operation, in whole or part of the transactions with financial resources, and therefore, mandatory conversion into shares and payments thus been recognized, net of finance charges, and specific component of equity.
The mandatory conversion in shares will be settled to the maximum of common and preferred shares, as presented below. All the shares are currently held in treasury (see note 6.23).
                 
    Maximum amount of shares  
Headings   Common     Preferred  
 
Tranches RIO e RIO P.
     56,582,040       30,295,456  
 
Tranches VALE - 2012
                
Tranches VALE P- 2012
     18,415,859       47,284,800  
On April 30, 2009 Vale paid additional interests to the holders of mandatory convertible notes from tranches RIO and RIO-P in the amount of R$ 1,073721 and R$ 1,274361 per note, respectively.
On October 30, 2009, Vale paid additional interests to the holders of mandatory convertible notes from tranches RIO, RIO-P, VALE-2012 and VALE.P-2012 in the amount of R$ 0,857161, R$ 1,017334, R$ 1,236080 and R$ 1,429662, respectively.
6.22- ADR Program — American Depositary Receipts
The Company has a registration with the United States Securities and Exchange Commission (SEC) that permits its preferred shares and common shares to be traded on the New York Stock Exchange (NYSE) as ADR — American Depositary Receipts since June 2000 and March 2002, respectively. Each ADR represent 1 (one) class “A” preferred share or common share, traded with codes “VALEP” and “VALE”, respectively.
For of this registration maintenance the Company also discloses its financial statements according to United States Generally Accounting Principles (USGAAP) whose net income in 2009 was of US$ 5,349 (equivalent to R$ 10,458).

 

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6.23- Treasury Stock
On May 27, 2009, after the acquisition of 18,415,859 common shares and 47,284,800 preferred shares, the Board of Directors approved the closing of program to repurchase shares approved on October 16, 2008.
As of December 31, 2009, 152,579,803 shares were held in the treasury, totaling R$ 2,470 as follows:
                                                         
Shares              
Class   Quantity     Unit acquisition cost     Average quoted market price  
    2009     2008     Average     Low     High     2009     2008  
Preferred
     77,581,904       76,854,304       23.56       21.02       27.96       33.22       37.99  
Common
     74,997,899       74,937,889       37.07       23.33       31.00       38.23       44.44  
 
                                                    
 
     152,579,803       151,792,193                                          
 
                                                    
A substantial part of these shares are linked to resources for future capital increase. (See note 6.21)
6.24- Compensation of Stockholders
In October 15, 2009 the Board of Directors approved the payment of the second tranche of the minimum dividend and an additional dividend, totaling R$ 2,565, corresponding to R$ 0,492036226 per common or preferred share in circulation.
In April 30, 2009, Vale paid its stockholders the amount of R$ 2,735 in the form of dividends. Following, the destination of results for 2009:
         
Net income for the year
     10,249  
Legal reserve
     (512 )
Fiscal incentive investment reserve
     (120 )
Realization of unrealized income reserve
     38  
 
      
Adjusted net income
     9,655  
 
      
Mandatory dividend amount — 25% (R$0.46 per outstanding share)
     2,414  
 
      
Statutory dividend on preferred shares (3% of net equity, R$0.57 per outstanding share)
     1,164  
 
      
Statutory dividend on preferred shares (6% of paid-up capital, R$0.55 per outstanding share)
     1,108  
 
      
 
        
Dividendos propostos:
        
 
  
Dividends/ Interest on stockholders’ equity — Total
     3,002  
Antecipated dividends in october, 2009
     (95 )
 
      
Dividends/ Interest on stockholders’ equity Proposed payer
     2,907  
 
      

 

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6.25- Financial Results
                         
    Consolidated  
    Quarter (Unaudited)  
    4Q/09     3Q/09     3Q/08  
Financial expenses
                        
Interest
     (424 )     (402 )     (786 )
Labor, tax and civil contingencies
     (57 )     (36 )     (51 )
Others
     (583 )     (478 )     (156 )
 
                  
 
     (1,064 )     (916 )     (993 )
 
                  
Financial income
                        
Short-term investments
     87       143       495  
Others
     39       57       91  
 
                  
 
     126       200       586  
 
                  
 
                        
Derivatives
     447       635       (1,327 )
 
                  
 
                        
Monetary and exchange rate variation:
                        
Cash and cash equivalents
     (247 )     (755 )     3,187  
Loans
     493       2,273       (5,490 )
Others
     (215 )     (1,238 )     1,694  
 
                  
Net
     31       280       (609 )
 
                  
Financial income (expenses), net
     (460 )     199       (2,343 )
 
                  
                                 
    Accumulated  
    Consolidated     Parent Company  
    2009     2008     2009     2008  
Financial expenses
                                
Interest
     (1,859 )     (2,996 )     (2,253 )     (2,885 )
Labor, tax and civil contingencies
     (160 )     (183 )     (156 )     (173 )
Others
     (1,414 )     (978 )     (933 )     (364 )
 
                        
 
     (3,433 )     (4,157 )     (3,342 )     (3,422 )
 
                        
Financial income
                                
Related parties
     —       4       41       39  
Short-term investments
     705       1,023       318       772  
Others
     161       194       78       92  
 
                        
 
     866       1,221       437       903  
 
                        
 
                                
Derivatives
     2,939       (1,817 )     2,528       (1,475 )
 
                        
 
                                
Monetary and exchange rate variation:
                                
Cash and cash equivalents
     (3,446 )     5,045       (33 )     3,058  
Loans
     7,755       (7,295 )     523       (260 )
Partes Relacionadas
     —       3       9,724       (10,094 )
Others
     (2,729 )     3,162       123       (416 )
 
                        
Net
     1,580       915       10,337       (7,712 )
 
                        
Financial income (expenses), net
     1,952       (3,838 )     9,960       (11,706 )
 
                        

 

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6.26- Derivatives Financial Instruments
a) Risk Management Policy
Vale has developed its risk Management strategy in order to provide an integrated approach of the risks the Company is exposed to. To do that, we evaluate not only the impact of market risk factors in the business results (market risk), but also the risk arising from third party obligations with Vale (credit risk) and those risks inherent in Vale’s operational processes (operational risk).
Traditional market risk measures such as VaR (Value at Risk) are not sufficient to evaluate the group exposures once Vale’s main goal is to avoid a possible lack of cash to fulfill its future obligations.
The enterprise wide risk Management approach, that encompasses all kinds of risk, as well as the relations between the several market risk factors (correlations), aims to assess the impact that such events would bring considering the natural hedges presented in the company’s portfolio. Therefore, when assessing the risk associated with Vale’s business, one can observe the positive effect due to the mix of products and currencies in Vale’s portfolio. This diversification implies in a natural reduction of the overall risk of the company. Any risk mitigation strategy, whenever necessary, will be implemented if it contributes significantly for the reduction on the volatility on Vale’s cash flows bringing the risk of the company to an acceptable level.
Vale considers that the effective Management of risk is a key objective to support its growth strategy and financial flexibility. The risk reduction on Vale’s future cash flow contributes to a better perception of the company’s credit quality, improving its ability to access different markets and reducing the financing costs. Therefore, the board of directors has established an enterprise-wide risk Management policy and a risk Management committee.
The risk Management policy determines that Vale should evaluate regularly its cash flow risks as well as risk mitigation strategies. As previously stated, whenever considered necessary, these mitigation strategies should be put in place with the objective of reducing the risks regarding the obligations assumed by the Company, both with third parties and its shareholders.
The executive board is responsible for the evaluation and approval of the risk mitigation strategies recommended by the risk Management committee. The committee is responsible for overseeing and reviewing our risk Management principles and risk Management instruments, besides reporting periodically to the executive board regarding the Management process and risk monitoring, including the main risks Vale is exposed to and their impact on Vale’s cash flow.
The risk Management policy and procedures, that complement the risk Management governance model, require the diversification of operations and counterparties and prohibit speculative transactions with derivatives.
Besides the risk Management governance model, Vale has in place a well defined corporate governance structure with well defined roles and responsibilities. The recommendation and execution of derivative transactions are implemented by different and independent areas. It is responsibility of the risk Management department to define and propose to the risk Management committee market risk mitigation strategies consistent with Vale and it’s wholly owned subsidiaries corporate strategy. It is responsibility of the finance department the execution of the risk mitigation strategies through the use of derivatives. The independence of the areas guarantees an effective control on these operations.
The monitoring and monthly evaluations of the consolidated risk exposure allow us to evaluate the financial results and the impact on Vale’s cash flow, as well as guarantee that the initial goals will be achieved. The fair value measurements of the trades are reported weekly to Management.
All derivative trades were recognized in our balance sheet at fair value and their respective gains or losses were recognized in the earnings.
Considering the nature of Vale’s business and operations, the main market risk factors which the Company is exposed are:
  •  
Interest rates;
 
  •  
Foreign exchange;
 
  •  
Products prices;
 
  •  
Input and other costs.
b) Fair value computation methodology
Well-known market participants’ valuation methodologies were used to compute the fair value of the financial instruments. These instruments were evaluated computing their present values considering market curves that impact the instrument in the valuation date. The curves and prices used in the pricing for each group of instruments are detailed in the topic “market curves”.
The pricing method considered in the case of European options is the Black & Scholes model, which is widely used among derivatives market participants for the option pricing. In this model, the derivative fair value is a function of the volatility, spot price of the underlying asset, the strike price, the risk free rate and the time to maturity. In the case of options where the financial result is a function of the average of the underlying price for a certain period of the time, called Asian options, we use the Turnbull & Wakeman model, also widely used to price this type of instrument. Besides the parameters used on the Black & Scholes model it is considered in this model the price averaging period.
In the case of swaps, the long and short legs’ present values are estimated discounting their cash flows using the interest rate of the currency in which they are denominated. The difference between the present values of the long leg and short leg of the swap is the fair value.
The computation method for the swaps linked to TJLP follows the description enclosed in CETIP’s formula book, which includes the TJLP forward curve definition. Therefore, TJLP is computed using the inflation target, published by Banco Central do Brasil, based on IPCA (Extended National Consumer Price Index) plus the Brazilian credit spread, which comprehends an international real interest rate and a Brazilian credit risk component, that is computed using the credit risk for the government bonds, for the medium and long term perspective.
The pricing for the commodities future settlement contracts (buy or sell) is computed using forward curves for each commodity. Normally, these curves are collected in the exchanges where these commodities are traded, among them, London Metals Exchange (LME) and COMEX (Commodities Exchange) or market price providers. When there is no price for a specific date, we use interpolations between the available periods.

 

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c) Value at Risk computation methodology
The Value at Risk of the positions was measured using the historical simulation approach. Different market risk factors that impact the price of the derivatives included in our portfolio were identified and a two year sample of their historical daily returns was gathered.
The current positions of Vale’s derivatives were used to simulate their returns based on sample data and built a non parametric return distribution and consequently the value at risk for the portfolio considering one business day time horizon. The value at risk of the portfolio considers a 95% confidence level.
d) Sensitivity Analysis methodology
In the topic “sensitivity analysis” we present sensitivity analysis tables for all outstanding positions as of December 31, 2009. The scenarios defined for these analyses were:
•  
MtM: it is the mark to market value of the instruments on December 31st, 2009;
 
•  
Scenario I: unfavorable change of 25% - Potential losses considering a shock of 25% in the market risk factors used for MtM calculation that negatively impacts the fair value of Vale’s derivatives positions;
 
•  
Scenario II: favorable change of 25% - Potential profits considering a shock of 25% in the market curves used for MtM calculation that positively impacts the fair value of Vale’s derivatives positions;
 
•  
Scenario III: unfavorable change of 50% - Potential losses considering a shock of 50% in the market curves used for MtM calculation that negatively impacts the fair value of Vale’s derivatives positions;
 
•  
Scenario IV: favorable change of 50% - Potential profits considering a shock of 50% in the market curves used for MtM calculation that positively impacts the fair value of Vale’s derivatives positions;
e) Contracts subjected to margin calls
Vale has contracts subject to margin calls only for part of copper and nickel trades executed by its wholly-owned subsidiary Vale Inco Ltd. The total cash amount as of December 2009 was not relevant.
f) Initial Cost of Contracts
The financial derivatives negotiated by Vale and its controlled companies described in this document didn’t have initial costs (initial cash flow) associated. Even the option contracts were executed trough zero cost structures (zero cost collars.)
g) Foreign Exchange and Interest Rate Derivative Positions
The Company’s cash flow is subjected to volatility of several different currencies against the U.S. Dollar. While most of our product prices are indexed to US dollars, most of our costs, disbursements and investments are indexed to currencies other than the U.S. Dollar, mainly Brazilian Reais and Canadian dollars.
In order to reduce the company’s potential cash flow volatility arising from this currency mismatch we use FX derivatives instruments. Our main strategy is to swap Debts linked to BRL into USD so as to attenuate the impact of BRL/USD exchange rate as most of our revenues are denominated in USD.
These swap transactions have settlement dates and values similar to the interest and principal payment dates, taking into account the liquidity restrictions of the market. At each settlement date, the results on the swap transactions partially offset the impact of the foreign exchange rate in our obligations, contributing to stabilize the cash disbursements in U.S. Dollars for the interest and/or principal payment of our Brazilian Real denominated debt.
In the event of an appreciation (depreciation) of the Brazilian Real against the U.S. Dollar, the negative (positive) impact on Vale debt service (interest and/or principal payment) measured in U.S. Dollars will be almost totally offset by a positive (negative) effect from the swap transaction, regardless of the U.S. dollar / Brazilian Real exchange rate on the payment date.
Vale has also a cash flow exposure to interest rates risks over loans and financings. The U.S. Dollars floating rate debt in the portfolio consists mainly of loans including export pre-payments, commercial banks and multilateral organizations loans. In general, the U.S. Dollar floating rate debt is mainly subject to changes in the Libor. To mitigate the impact of the interest rate volatility on the cash flow, Vale takes advantage of natural hedges allowed by the positive correlation of metal prices and U.S. Dollar floating rates. When natural hedges are not present, Vale enters into financial instruments to obtain the same effect.
As of December 31, 2009, the total amount and interests of Brazilian Real denominated debt converted through swaps into US Dollars was R$ 11,6 billion (US$ 6,7 billion), with an average cost in dollars of 4.47% after the swaps transactions were implemented and maturity between November 2010 and December 2027, with semi-annual interest payments1.
On the fourth quarter of 2009, Vale paid in Brazilian Reais an interest amount equivalent to R$ 320 related to the Real denominated debt that were converted into U.S. Dollars through the use of swap transactions. However, the company has received R$ 157on the settlement of the swaps, offsetting the U.S. Dollar / Brazilian Real exchange rate variation impact in Vale debt service.
The following tables show as of December 31, 2009, the derivatives positions for Vale and controlled companies with the following information: notional amount, fair value, value at risk, gains or losses in the period and the fair value for the remaining years of the operations per each group of instruments.
 
     
1  
With the exception of a US$ 975 debt with monthly and quarterly interests and amortization payments.

 

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Protection program for the Real denominated debt indexed to CDI
•  
CDI vs. USD fixed rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to convert the cash flows from debt instruments denominated in Brazilian Reais linked to CDI to U.S. Dollars. In those swaps, Vale pays fixed rates in U.S. Dollars and receives payments linked to CDI.
 
•  
CDI vs. USD floating rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to convert the cash flows from debt instruments denominated in Brazilian Reais linked to CDI to U.S. Dollars. In those swaps, Vale pays floating rates in U.S. Dollars (Libor — London Interbank Offered Rate) and receives payments linked to CDI.
Those instruments were used to convert the cash flows from debentures issued in 2006 with a nominal value of R$ 5,5 billion, from the NCE (Credit Export Notes) issued in 2008 with nominal value of R$ 2 billion and also from property and services acquisition financing realized in 2006 and 2007 with nominal value of R$ 1 billion.
                                                                                     
                                R$ million  
                                                Realized                
    Notional ($ million)                 Fair value     Gain/Loss     VaR     Fair value by year*  
Flow   31-dez-09     31-dez-08     Index   Average rate     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010     2012     2015  
                                   
Swap CDI vs. fixed rate swap                                                                
Receivable
   R$ 7,574     R$ 7,531     CDI     101.19 %     8,062       8,463       876                                  
Payable
   USD 3,670     USD 3,672     USD     5.59 %     (6,959 )     (9,338 )     (494 )                                
 
                                                                      
Net
                                 1,103       (875 )     382       222       965       128       10  
 
                                                                      
Swap CDI vs. floating rate swap                                                                
Receivable
   R$ 792     R$ 792     CDI     102.07 %     830       834       90                                  
Payable
   USD 430     USD 430     Libor     2.05 %     (739 )     (1,057 )     (28 )                                
 
                                                                      
Net
                                 91       (223 )     62       27       58       —       33  
 
                                                                      
     
*  
There are no fair value cash flows with maturity on the years of 2011, 2013 and 2014.
Type of contracts: OTC Contracts
Protected Item: Debts linked to BRL
The protected items are the Debts linked to BRL because the objective of this protection is to transform the obligations linked to BRL into obligations linked to USD so as to achieve a currency offset by matching Vale’s receivables (mainly linked to USD) with Vale’s payables.
Protection program for the real denominated debt indexed to TJLP
•  
TJLP vs. USD fixed rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to convert the cash flows of the loans with Banco Nacional de Desenvolvimento Econômico e Social (BNDES) from TJLP to U.S. Dollars. In those swaps, Vale pays fixed rates in U.S. Dollars and receives payments linked to TJLP.
 
•  
TJLP vs. USD floating rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to convert the cash flows of the loans with BNDES from TJLP to U.S. Dollars. In those swaps, Vale pays floating rates in U.S. Dollars and receives payments linked to TJLP.
                                                                                     
                                R$ million  
                                                Realized             R$ million  
    Notional ($ million)                 Fair value     Gain/Loss     VaR     Fair value by year*  
Flow   31-dez-09     31-dez-08     Index   Average rate     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2013     2014     2019  
                                                                 
Swap TJLP vs. fixed rate swap                                                                
Receivable
   R$ 1,164     R$ 518     TJLP     1.34 %     1,845       436       110                                  
Payable
   USD 636     USD 304     USD     3.31 %     (1,710 )     (580 )     (88 )                                
 
                                                                      
Net
                                 135       (144 )     22       65       165       (13 )     (17 )
 
                                                                      
 
                                                                                    
Swap TJLP vs. floating rate swap                                                                
Receivable
   R$ 658     R$ 645     TJLP     0.94 %     616       503       17                                  
Payable
   USD 385     USD 378     Libor   Libor -1,14 %     (562 )     (572 )     (10 )                                
 
                                                                      
Net
                                 54       (69 )     7       33               24       30  
 
                                                                      
     
*  
There are no fair value cash flows with maturity on the years of 2015, 2016, 2017 and 2018.
Type of contracts: OTC Contracts
Protected Item: Debts linked to BRL
The protected items are the Debts linked to BRL because the objective of this protection is to transform the obligations linked to BRL into obligations linked to USD so as to achieve a currency offset by matching Vale’s receivables (mainly linked to USD) with Vale’s payables.

 

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Foreign Exchange cash flow hedge
•  
Brazilian Real fixed rate vs. USD fixed rate swap — In order to reduce the cash flow volatility, Vale entered into swap transactions to mitigate the foreign exchange exposure that arises from the currency mismatch between the revenues denominated in U.S. Dollars and the disbursements and investments denominated in Brazilian Reais.
                                                                             
                                R$ million  
                                                Realized              
    Notional ($ million)                 Fair value     Gain/Loss     VaR     Fair value by year  
Flow   31-dez-09     31-dez-08     Index   Average rate     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010     2011  
 
                                                                            
Receivable
   R$ 2,675       —     Fixed     7.52 %     2,644       —       —                          
Payable
   USD 1,469       —     USD     0.00 %     (2,516 )     —       —                          
 
                                                                
Net
                                 128       —       —       73       58       70  
 
                                                                
Type of contracts: OTC Contracts
Hedged Item: part of Vale’s revenues in USD
The P&L shown in the table above is offset by the hedged items’ P&L due to BRL/USD exchange rate. Again, the final objective of this program, according to the currency hedging strategy at Vale, is to offset the currency exposure of receivables with the currency exposure of payables.
Foreign Exchange Protection Program on cash flow
•  
NDFs — In order to reduce the cash flow volatility, Vale entered into non-deliverable forward transactions to mitigate the foreign exchange exposure that arises from the currency mismatch between the revenues denominated in U.S. Dollars and the disbursements and investments denominated in Brazilian Reais.
                                                                         
                                    R$ million  
                                                    Realized             Fair value by  
    Notional (USD million)             Average Strike     Fair value     Gain/Loss     VaR     year  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (USD/day)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010  
 
                                                                        
Forward
     60       —       S       1.8425       (0.2 )     —       —       3       (0.2 )
 
                                                              
Type of contracts: OTC Contracts
Protected Item: part of Vale’s revenues in USD
The P&L shown in the table above is offset by the protected items’ P&L due to BRL/USD exchange rate. Again, the final objective of this program, according to the currency hedging strategy at Vale, is to offset the currency exposure of receivables with the currency exposure of payables.
Protection program for the dividends paid on the 4th Quarter 2009
In order to reduce the cash flow volatility of the disbursement due to the dividend payment in Brazilian Reais, Vale contracted a swap to hedge the market risk which arises from the foreign exchange rate between U.S. dollars and Brazilian Reais. In this swap, Vale paid fixed rates in U.S. Dollars and received payment linked to CDI. This swap was hired on October 14 and, in the settlement, on October 29, Vale paid R$ 1,4 .
Protection program for the Euro denominated floating rate debt
•  
Euro floating rate vs. USD floating rate swap — In order to reduce the cash flow volatility, Vale entered into a swap transaction to convert the cash flows from loans in Euros linked to Euribor to U.S. Dollars linked to Libor. This trade was used to convert the cash flow of a debt in Euros, with an outstanding notional amount of € 5,3, issued in 2003 by Vale. In this trade, Vale receives floating rates in Euros (Euribor) and pays floating rates in U.S. Dollars (Libor).
                                                                                 
                                    R$ million  
                                                    Realized           Fair value by  
    Notional ($ million)                     Fair value     Gain/Loss     VaR     year  
Flow   31-dez-09     31-dez-08     Index     Average rate   31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010     2011  
 
                                                                                
EUR floating rate vs. USD floating rate swap                                                      
Receivable
   € 5     € 7     EUR   Euribor + 0,875%     12       24       7                          
Payable
   USD 5     USD 8     USD   Libor + 1,0425%     (9 )     (19 )     (5 )                        
 
                                                                    
Net
                                     3       5       2       0.2       1       2  
 
                                                                    
Type of contracts: OTC Contracts
Protected Item: Vale’s Debt linked to EUR.
The P&L shown in the table above is offset by the hedged items’ P&L due to EUR/USD exchange rate. Again, the final objective of this program, according to the currency hedging strategy at Vale, is to achieve a currency offset matching receivables with payables.

 

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(VALE LOGO)
Protection program for the USD floating rate debt
•  
USD floating rate vs. USD fixed rate swap — In order to reduce the cash flow volatility, Vale Inco Ltd., Vale’s wholly-owned subsidiary, entered into a swap to convert U.S. Dollar floating rate debt into U.S Dollar fixed rate debt. Vale Inco used this instrument to convert the cash flow of a debt issued in 2004 with notional amount of US$ 200. In this trade, Vale pays fixed rates in U.S. Dollars and receives floating rates in U.S. Dollars (Libor).
                                                                                 
                                    R$ million  
                                                    Realized              
    Notional ($ million)                     Fair value     Gain/Loss     VaR     Fair value by year  
Flow   31-dez-09     31-dez-08     Index     Average rate     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010     2011  
 
                                                                                
Receivable
   USD 200     USD 200     USD   3M Libor       260       466       4                          
Payable
                   USD     4.795 %     (274 )     (498 )     (19 )                        
Net
                                     (14 )     (32 )     (15 )     1       (9 )     (5 )
 
                                                                    
Type of contracts: OTC Contracts
Protected Item: Vale Inco’s floating rate debt.
The P&L shown in the table above is offset by the protected items’ P&L due to Libor.
Foreign Exchange protection program for Coal Fixed Price Sales
In order to reduce the cash flow volatility associated with a fixed price coal contract, Vale used Australian Dollar forward purchase in order to equalize production cost and revenues currencies.
                                                                                 
                                    R$ million  
                                                    Realized              
    Notional ($ million)             Average rate     Fair value     Gain/Loss     VaR     Fair value by year  
Fluxo   31-dez-09     31-dez-08     Buy/ Sell     (AUD/USD)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010     2011  
 
                                                                                
Forward
   AUD 41     —       B       0.66       15       —       10       1       13       2  
 
                                                                    
Type of contracts: OTC Contracts
Protected Item: part of Vale’s costs in Australian Dollar.
The P&L shown in the table above is offset by the protected items’ P&L due to USD/AUD exchange rate. Again, the final objective of this program, according to the currency hedging strategy at Vale, is to achieve a currency offset matching receivables with payables.
h) Commodity Derivative Positions
The Company’s cash flow is also exposed to several market risks associated to global commodities price volatilities. To offset these volatilities, Vale contracted the following derivatives transactions:
Aluminum Strategic cash flow protection program
In order to protect our cash flow for 2009 and 2010, Vale entered into hedging transactions where we set fixed prices for part of Vale revenues for these periods.
                                                                         
                                    R$ million  
                                                    Realized             Fair value by  
    Notional (ton)             Average Strike     Fair value     Gain/Loss     VaR     year  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (USD/ton)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010  
 
                                                                        
Put
     120,000       —       B       1,940       15       —       —                  
Call
     120,000       —       S       2,073       (62 )     —       —                  
 
                                                              
Net
                                     (47 )     —       —       15       (47 )
 
                                                              
 
                                                                        
Forward
     120,000       —       S       1,945       (65 )     —       (48 )     17       (65 )
 
                                                              
Type of contracts: OTC Contracts
Protected Item: part of Vale’s revenues linked to Aluminum price
The P&L shown for forwards in the table above is offset by the protected items’ P&L due to Aluminum price. Nevertheless, in case of options, which are non-linear instruments, their P&L is partially compensated by the hedged item’s P&L.
Nickel Strategic cash flow protection program
In order to protect our cash flow for 2009 and 2010, Vale entered into hedging transactions where we set fixed prices for part of Vale’s revenues for these periods.
                                                                         
                                    R$ million  
                                                    Realized             Fair value by  
    Notional (ton)             Average Strike     Fair value     Gain/Loss     VaR     year  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (USD/ton)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010  
 
                                                                        
Forward
     29,122       —       S       17,884       (36 )     —       (147 )     69       (36 )
 
                                                              
Type of contracts: OTC Contracts
Protected Item: part of Vale’s revenues linked to Nickel price.
The P&L shown in the table above is offset by the protected items’ P&L due to Nickel price.

 

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(VALE LOGO)
Nickel Fixed Price Program
In order to maintain the exposure to Nickel price fluctuations, we entered into derivatives to convert to floating prices all contracts with clients that required a fixed price. These trades aim to guarantee that the prices of these operations would be the same of the average prices negotiated in LME in the date the product is delivered to the client. It normally involves buying Nickel forwards (Over-the-Counter) or futures (exchange negotiated). Those operations are usually reverted before the maturity in order to match the settlement dates of the commercial contracts in which the prices are fixed. This program was discontinued for sales in 2009 due to the decision to protect our cash flow this year.
                                                                                 
                                    R$ million  
                                                    Realized              
    Notional (ton)             Average Strike     Fair value     Gain/Loss     VaR     Fair value by year  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (USD/ton)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010     2011  
 
                                                                                
Nickel Futures
     3,426       10,140     B       14,886       (21 )     (117 )     (50 )     7       (19 )     (2 )
 
                                                                    
Type of contracts: LME Contracts
Protected Item: part of Vale’s revenues linked to fixed price sales of Nickel.
The P&L shown in the table above is offset by the protected items’ P&L due to Nickel price.
Nickel Purchase Protection Program
In order to reduce the cash flow volatility and eliminate the mismatch between the pricing of the purchased nickel (concentrate, cathode, sinter and others) and the pricing of the final product sold to our clients, hedging transactions were implemented. The items purchased are raw materials utilized to produce refined Nickel. The trades are usually implemented by the sale of nickel forward or future contracts at LME or over-the-counter operations.
                                                                         
                                    R$ million  
                                                    Realized             Fair value by  
    Notional (ton)             Average Strike     Fair value     Gain/Loss     VaR     year  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (USD/ton)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010  
 
                                                                        
Nickel Futures
     1,446       4,944     S       16,720       (4 )     (16 )     (83 )     3       (4 )
 
                                                              
Type of contracts: LME Contracts
Protected Item: part of Vale’s revenues linked to Nickel price.
The P&L shown in the table above is offset by the protected items’ P&L due to Nickel price.
Protection program of Natural Gas Program
In order to minimize the impact of the input price volatility in the company’s costs, natural gas derivative trades were implemented. These transactions are usually implemented through the purchase of future and forward contracts. All the positions matured in the fourth quarter of 2009 and there are no open positions left.
                                                         
                                                    Realized  
    Notional (Giga Joule)             Average Strike     Fair value     Gain/Loss  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (CAD/GJ)     31-dez-09     31-dez-08     31-dez-09  
 
                                                        
Forwards
     —       1,773,000     B       N/A       —       (4 )     (12 )
 
                                                  
Type of contracts: OTC Contracts
Protected Item: part of Vale’s costs linked to Natural Gas price.
The P&L shown in the table above is offset by the protected items’ P&L due to Natural Gas price.
Bunker Oil Purchase Protection Program
In order to reduce the impact of bunker oil price fluctuation on Vale’s freight hiring and consequently reducing the company’s cash flow volatility, bunker oil derivatives were implemented. These transactions are usually executed through forward purchases and swaps.
                                                                         
                                    R$ million  
                                                    Realized             Fair value by  
    Notional (mt)             Average Strike     Fair value     Gain/Loss     VaR     year  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (USD/mt)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010  
 
                                                                        
Forward
     452,000       —     B       389       78       —       38       15       78  
 
                                                              
Type of contracts: OTC Contracts
Protected Item: part of Vale’s costs linked to Bunker Oil price.
The P&L shown in the table above is offset by the protected items’ P&L due to Bunker Oil price.
Maritime Freight Hiring Protection Program
In order to reduce the impact of maritime freight price fluctuation hired to support CIF and CFR sales and consequently reduce the company’s cash flow volatility, freight derivatives (FFA - Forward Freight Agreement) were implemented. These transactions are usually executed through forward purchases.
                                                                         
                                    R$ million  
                                                    Realized             Fair value by  
    Notional (days)             Average Strike     Fair value     Gain/Loss     VaR     year  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (USD/day)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010  
 
                                                                        
Forward
     6,125       —     B       30,644       50       —       69       28       50  
 
                                                              
Type of contracts: OTC Contracts
Protected Item: part of Vale’s costs linked to Freight price.
The P&L shown in the table above is offset by the protected items’ P&L due to Freight price.

 

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(VALE LOGO)
i) Embedded Derivative Positions
The Company’s cash flow is also exposed to several market risks associated to contracts that contain embedded derivatives or derivative-like features. From Vale’s perspective, it may include, but is not limited to, commercial contracts, procurement contracts, rental contracts, bonds, insurance policies and loans. The following embedded derivatives were observed in 2009:
Energy purchase
Energy purchase agreement between Albras, Vale’s controlled subsidiary, and Eletronorte. The contract has a clause that defines that a premium can be charged if aluminum prices trades in the range from US$ 1,450/t until US$ 2,773/t. This clause is considered as an embedded derivative.
                                                                                 
                                    R$ million  
                                                    Realized              
    Notional (ton)             Average Strike     Fair value     Gain/Loss     VaR     Fair value by year  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (USD/ton)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010     2011  
 
                                                                                
Call
     200,228       200,228     B       2,773       45       3       —                          
Call
     200,228       200,228     S       1,450       (299 )     (116 )     —                          
 
                                                                    
Total
                                     (254 )     (113 )     —       18       (130 )     (124 )
 
                                                                    
Raw material and intermediate products purchase
Nickel concentrate and raw materials purchase agreements of Vale Inco Ltd, Vale’s wholly-owned subsidiary, in which there are provisions based on nickel and copper future prices behavior. These provisions are considered as embedded derivatives.
                                                                         
                                    R$ million  
                                                    Realized             Fair value by  
    Notional (ton)             Average Strike     Fair value     Gain/Loss     VaR     year  
Flow   31-dez-09     31-dez-08     Buy/ Sell     (USD/ton)     31-dez-09     31-dez-08     31-dez-09     31-dez-09     2010  
 
                                                                        
For Customer Raw Material Contracts                                  
Nickel Forwards
     440       6,213     S       17,523       0.3       9       (9 )             0.3  
Copper Forwards
     3,463                       6,696       (1.7 )             (7 )             (1.7 )
 
                                                              
Total
                                     (1.4 )     9       (16 )     2       (1.4 )
 
                                                              
 
                                                                        
For Nickel Concentrate Customer Sales                                  
Forward
     —       3,966     N/A       N/A       —       42       27       —       —  
 
                                                              
j) Derivative Positions from jointly controlled companies
Below we present the fair values of the derivatives from jointly controlled companies. These instruments are managed under the risk policies of each company. However the effects of mark-to-market are recognized in financial statements to the extent of participation of each of these companies.
Protection program
In order to reduce the cash flow volatility, swap transactions was contracted to convert into Reais the cash flows from debt instruments denominated in US Dollars. In this swap, fixed rates in U.S. Dollars are received and payments linked to Reais (CDI index) are made.
                                         
                            In millions of R$  
    Notional                     Fair value     VaR  
Flow   31-dez-09     Index     Average rate     31-dez-09     31-dez-09  
 
                                        
Swap CDI vs. fixed rate
                                        
Receivable
   USD 114     USD     3.97 %     210       —  
Payable
   R$ 245     CDI     100.22 %     (272 )     —  
 
                                    
Net
                             (62 )     6.3  
 
                                    
Type of contracts: OTC Contracts
Protected Item: Debts indexed to USD
The P&L shown in the table above is offset by the protected items’ P&L due to BRL/USD exchange rate.
Hedging program
Swap transactions to fix the rate of part of a USD denominated obligation linked to Libor USD were contracted. In this swap, floating rates (Libor USD) in US Dollars are received and payments linked to a fixed rate also in US Dollars are made.
                                         
                            In millions of R$  
    Notional                     Fair value     VaR  
Flow   31-dez-09     Index     Average rate     31-dez-09     31-dez-09  
 
Swap USD floating rate vs. fixed rate
                                        
Receivable
   USD 20     Libor     Libor + 0,65 %     30.0       —  
Payable
           Fixed       3.98 %     (30.9 )     —  
 
                                    
Net
                             (0.9 )     0.1  
 
                                    
Type of contracts: OTC Contracts
Hedged Item: Debts indexed to Libor USD
The P&L shown in the table above is offset by the hedged items’ P&L due to fluctuations in the Libor USD rate.

 

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(VALE LOGO)
k) Sensitivity Analysis on Derivatives
Amounts in R$
                                                 
Program   Instrument   Risk   MtM     Scenario I     Scenario II     Scenario III     Scenario IV  
Protection program for the Real denominated debt indexed to CDI
   CDI vs. USD fixed rate swap   USD/BRL fluctuation     1,103       (1,706 )     1,706       (3,413 )     3,413  
 
       USD interest rate inside Brazil variation     1,103       (69 )     66       (141 )     130  
 
   CDI vs. USD floating rate swap   USD/BRL fluctuation     91       (185 )     185       (369 )     369  
 
       USD interest rate inside Brazil variation     91       (24 )     22       (49 )     43  
 
   Protected Items - Debt indexed to CDI   USD/BRL fluctuation     n.a.       —       —       —       —  
Protection program for the Real denominated debt indexed to
  TJLP vs. USD fixed rate swap   USD/BRL fluctuation     135       (427 )     427       (855 )     855  
TJLP
       USD interest rate inside Brazil variation     135       (59 )     56       (123 )     108  
 
       Brazilian interest rate fluctuation     135       (134 )     155       (250 )     335  
 
   TJLP vs. USD floating rate swap   USD/BRL fluctuation     54       (140 )     140       (281 )     281  
 
       USD interest rate inside Brazil variation     54       (42 )     38       (89 )     73  
 
       Brazilian interest rate fluctuation     54       (74 )     91       (136 )     204  
 
   Protected Items - Debts indexed to TJLP   USD/BRL fluctuation     n.a.       —       —       —       —  
Protection Program for the Euro denominated floating rate debt
   EUR floating rate vs. USD floating rate swap   EUR/USD fluctuation     3       (3 )     3       (6 )     6  
 
       Euribor variation     3       (0 )     0       (0 )     0  
 
       USD Libor variation     3       (0 )     0       (0 )     0  
 
   Protected Items - Debts indexed to EUR   EUR/USD fluctuation     n.a.       3       (3 )     6       (6 )
Protection Program for the USD floating rate debt
   USD floating rate vs. USD fixed rate swap   USD/BRL fluctuation     (14 )     (4 )     4       (7 )     7  
 
       USD Libor variation     (14 )     (1 )     1       (2 )     2  
 
   Protected Items - Vale Inco's Floating rate debt   USD Libor variation     n.a.       1       (1 )     2       (2 )
Bunker Oil Purchase Protection Program
   Bunker Oil forward   Bunker Oil price fluctuation     78       (96 )     96       (191 )     191  
 
   Protected Item: part of Vale's costs linked to Bunker Oil price   Bunker Oil price fluctuation     n.a.       96       (96 )     191       (191 )
Maritime freight hiring protection program
   Forward freight agreement   Freight price fluctuation     50       (94 )     94       (188 )     188  
 
   Protected Item: part of Vale's costs linked to Freight price   Freight price fluctuation     n.a.       94       (94 )     188       (188 )
Aluminum strategic cash flow protection program
   Sale of aluminum forward contracts   Aluminum price fluctuation     (65 )     (117 )     117       (235 )     235  
 
   Aluminum options collars   Aluminum price fluctuation     (47 )     (111 )     103       (227 )     216  
 
   Protected Items - Part of Vale's revenues linked to Aluminum price   Aluminum price fluctuation     n.a.       235       (235 )     470       (470 )
Foreign Exchange Protection Program on Coal Fixed Price Sales
   Australian dollar forwards   USD/AUD fluctuation     15       (10 )     10       (21 )     21  
 
   Protected Item: Part of Vale's costs in Australian Dollar   USD/AUD fluctuation     n.a.       10       (10 )     21       (21 )
Foreign Exchange cash flow hedge
   BRL fixed rate vs. USD   USD/BRL fluctuation     128       (655 )     655       (1,310 )     1,310  
 
       USD interest rate inside Brazil variation     128       (10 )     10       (21 )     21  
 
       Brazilian interest rate fluctuation     128       (57 )     60       (111 )     122  
 
   Hedged Items - Part of Revenues denominated in USD   USD/BRL fluctuation     n.a.       655       (655 )     1,310       (1,310 )
Foreign Exchange Protection Program on cash flow
   Non-deliverable forward   USD/BRL fluctuation     (0.2 )     (26 )     26       (52 )     52  
 
       USD Libor variation     (0.2 )     (0.1 )     0.1       (0.2 )     0.2  
 
   Protected Items - Part of Revenues denominated in USD   USD/BRL fluctuation     n.a.       26       (26 )     52       (52 )
Nickel strategic cash flow protection program
   Sale of nickel future/forward contracts   Nickel price fluctuation     (36 )     (394 )     394       (788 )     788  
 
   Protected Item: Part of Vale's revenues linked to Nickel price   Nickel price fluctuation     n.a.       394       (394 )     788       (788 )
Nickel purchase fixed price program
   Purchase of nickel future/forward contracts   Nickel price fluctuation     (21 )     (28 )     28       (55 )     55  
 
   Protected Item: Part of Vale's revenues linked to fixed price sales of Nickel   Nickel price fluctuation     n.a.       28       (28 )     55       (55 )
Nickel purchase protection program
   Sale of nickel future/forward contracts   Nickel price fluctuation     (4 )     (12 )     12       (23 )     23  
 
   Protected Item: Part of Vale's revenues linked to Nickel price   Nickel price fluctuation     n.a.       12       (12 )     23       (23 )
Embedded derivatives — Raw material purchase
   Embedded derivatives - Raw material purchase   Nickel price fluctuation     0.3       (0.2 )     0.1       (0.4 )     0.2  
Embedded derivatives — Raw material purchase
   Embedded derivatives - Raw material purchase   Copper price fluctuation     (2 )     (25 )     20       (56 )     34  
Embedded derivatives — Energy purchase
   Embedded derivatives - Energy purchase - Aluminum Options   Aluminum price fluctuation     (254 )     (105 )     140       (154 )     233  

 

39

Table of Contents

(VALE LOGO)
l) Sensitivity Analysis on Derivatives from jointly controlled companies
Amounts in R$ million
                                                 
Program   Instrument   Risk   MtM     Scenario I     Scenario II     Scenario III     Scenario IV  
Protection program
   CDI vs. USD fixed rate swap   USD/BRL fluctuation     (62 )     (53 )     53       (105 )     105  
 
       USD interest rate inside Brazil variation     (62 )     (0 )     0       (0 )     0  
 
   Protected Item - Debt indexed to USD   USD/BRL fluctuation     n.a.       53       (53 )     105       (105 )
Hedging program
   USD floating rate vs. USD fixed rate swap   USD/BRL fluctuation     (0.9 )     (0.2 )     0.2       (0.5 )     0.5  
 
   Hedged Item - Debt indexed to Libor   USD Libor variation     (0.9 )     (0.2 )     0.2       (0.3 )     0.3  
 
       USD Libor variation     n.a.       0.2       (0.2 )     0.3       (0.3 )
m) Sensitivity Analysis on Debt and Cash Investments
The Company’s funding and cash investments programs linked to currencies different from Brazilian Reais are subjected to volatility of foreign exchange currencies, such as EUR/USD and USD/BRL.
Amounts in R$ million
                                         
Program   Instrument   Risk   Scenario I     Scenario II     Scenario III     Scenario IV  
Funding
   Debt denominated in BRL   No fluctuation     —       —       —       —  
Funding
   Debt denominated in USD   USD/BRL fluctuation     (6,763.4 )     6,763.4       (13,526.7 )     13,526.7  
Funding
   Debt denominated in EUR   EUR/USD fluctuation     (3.0 )     3.0       (6.0 )     6.0  
Cash Investments
   Cash denominated in BRL   No fluctuation     —       —       —       —  
Cash Investments
   Cash denominated in USD   USD/BRL fluctuation     (3,005.9 )     3,005.9       (6,011.7 )     6,011.7  
n) Credit risk on financial trades and financial institutions ratings
Derivatives transactions are executed with financial institutions that we consider to have a very good credit quality. The exposure limits to financial institutions are proposed annually for the Executive Risk Committee and approved by the Executive Board. The financial institutions credit risk tracking is performed making use of a credit risk valuation methodology which considers, among other information, published ratings provided by international rating agencies. In the table below, we present the ratings in foreign currency published by Moody’s e S&P agencies for the financial institutions that we had outstanding trades as of December 31, 2009.
             
Parent Company   Vale’s Counterparty   Moody’s*   S&P*
 
JP Morgan Chase & Co**
   JP Morgan Chase Bank   Aa3   A+
Banco Santander SA**
   Banco Santander Banespa SA   Aa2   AA
Banco Santander SA
   Banco Santander SA   Aa2   AA
Banco Santander SA
   Banco Santander Brasil SA   Baa3   BBB-
BNP Paribas**
   BNP Paribas Securities Corp   Aa1   AA
BNP Paribas
   BNP Paribas   Aa1   AA
The Goldman Sachs Group Inc**
   J Aron & Co   A1   A
Itau Unibanco Holding SA
   Banco Itau BBA SA   A1   BBB
Societe Generale**
   Banco Societe Generale do Brasil SA   Aa2   A+
Societe Generale
   Societe Generale   Aa2   A+
Credit Agricole SA
   Calyon (London)   Aa3   AA-
Banco Votorantim SA
   Banco Votorantim SA   A3   BB+
Itau Unibanco Holding SA
   União de Bancos Brasileiros SA   A1   BBB
Banco do Brasil SA
   Banco do Brasil SA   A2   BBB-
Citigroup Inc**
   Citibank NA (Brazil)   A3   A
Deutsche Bank AG**
   Deutsche Bank AG (London)   Aa1   A+
HSBC Holdings plc
   HSBC Bank Brasil SA - Banco Multiplo   A1   BBB-
Barclays PLC
   Barclays Bank PLC   Aa3   AA-
Banco Santander SA**
   Banco ABN AMRO Real SA   Aa2   AA
Standard Bank PLC**
   Standard Bank Limited (London)   Baa2   —
Banco Bradesco SA
   Banco Bradesco SA   A1   BBB
BNP Paribas**
   BNP Paribas Energy & Commodities   Aa1   AA
Prudential Financial Inc**
   Prudential Bache Commodities Ltd (London)   Baa2   A
Natixis**
   Natixis Metals Limited   Aa3   A+
Mitsui Co Ltd**
   Mitsui Bussan Commodities Ltd   A2   A+
     
*  
For brazilian Banks we used local long term deposit rating
 
**  
Parent company’s rating

 

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Table of Contents

(VALE LOGO)
o) Market Curves
To build the curves used on the pricing of the derivatives, public data from BM&F, Central Bank of Brazil, London Metals Exchange (LME) and proprietary data from Thomson Reuters, Bloomberg L.P. and Enerdata were used.
1. Commodities
Aluminum
                                         
Maturity   Price (USD/ton)     Maturity     Price (USD/ton)     Maturity     Price (USD/ton)  
SPOT
     2,197       NOV10       2,300       OCT11       2,376  
JAN10
     2,204       DEC10       2,307       NOV11       2,383  
FEB10
     2,215       JAN11       2,314       DEC11       2,389  
MAR10
     2,226       FEB11       2,321                  
APR10
     2,237       MAR11       2,328                  
MAY10
     2,248       APR11       2,335                  
JUN10
     2,257       MAY11       2,342                  
JUL10
     2,268       JUN11       2,349                  
AUG10
     2,276       JUL11       2,356                  
SEP10
     2,285       AUG11       2,363                  
OCT10
     2,293       SEP11       2,370                  
Nickel
                                         
Maturity   Price (USD/ton)     Maturity     Price (USD/ton)     Maturity     Price (USD/ton)  
SPOT
     18,452       SEP10       18,633       JUN11       18,675  
JAN10
     18,467       OCT10       18,647       JUL11       18,675  
FEB10
     18,493       NOV10       18,661       AUG11       18,675  
MAR10
     18,517       DEC10       18,675       SEP11       18,675  
APR10
     18,543       JAN11       18,675       OCT11       18,675  
MAY10
     18,564       FEB11       18,675       NOV11       18,663  
JUN10
     18,585       MAR11       18,675                  
JUL10
     18,606       APR11       18,675                  
AUG10
     18,621       MAY11       18,675                  
Copper
                                         
Maturity   Price (USD/ton)     Maturity     Price (USD/ton)     Maturity     Price (USD/ton)  
SPOT
     7,296       NOV10       6,675       DEC10       6,982  
OCT10
     6,288                                  
Bunker Oil
                                         
Maturity   Price (USD/ton)     Maturity     Price (USD/ton)     Maturity     Price (USD/ton)  
SPOT
     487       JUN10       486       DEC10       493  
JAN10
     487       JUL10       489       JAN11       500  
FEB10
     486       AUG10       489       FEB11       500  
MAR10
     486       SEP10       489       MAR11       500  
APR10
     486       OCT10       493       APR11       505  
MAY10
     486       NOV10       493       MAY11       505  
Aluminum — Volatility
                                         
Maturity   Vol (% a.a.)     Maturity     Vol (% a.a.)     Maturity     Vol (% a.a.)  
VOLSPOT
     34.7       VOL9M       33.1       VOL4Y       27.4  
VOL1M
     35.1       VOL1Y       32.1       VOL5Y       26.4  
VOL3M
     35.2       VOL2Y       29.8       VOL7Y       26.4  
VOL6M
     34.3       VOL3Y       28.4       VOL10Y       26.4  
FFA — Forward Freight Agreement
                                         
Maturity   Price (USD/day)     Maturity     Price (USD/day)     Maturity     Price (USD/day)  
SPOT
     37,191       JUL10       32,688       FEB11       27,109  
JAN10
     44,250       AUG10       32,688       MAR11       27,109  
FEB10
     43,057       SEP10       32,688       APR11       27,109  
MAR10
     43,213       OCT10       30,894       MAY11       27,109  
APR10
     38,500       NOV10       30,894       JUN11       27,109  
MAY10
     38,500       DEC10       30,894       JUL11       27,109  
JUN10
     38,500       JAN11       27,109       AUG11       27,109  

 

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(VALE LOGO)
2. Rates
USD-Brazil Interest Rate
                                         
Maturity   Rate (% a.a.)     Maturity     Rate (% a.a.)     Maturity     Rate (% a.a.)  
31/12/2009
     0.80       02/04/2012       3.04       01/10/2014       4.43  
01/03/2010
     0.80       02/07/2012       3.21       02/01/2015       4.65  
01/04/2010
     0.88       01/10/2012       3.31       01/04/2015       4.67  
01/07/2010
     1.15       02/01/2013       3.47       04/01/2016       4.77  
01/10/2010
     1.52       01/04/2013       3.67       02/01/2017       4.99  
03/01/2011
     1.93       01/07/2013       3.84       02/01/2018       5.17  
01/04/2011
     2.18       01/10/2013       4.00       02/01/2019       5.30  
01/07/2011
     2.48       02/01/2014       4.15       02/01/2020       5.30  
03/10/2011
     2.70       01/04/2014       4.30       04/01/2021       5.51  
02/01/2012
     2.88       01/07/2014       4.38       03/01/2022       5.69  
US Interest Rate
                                         
Maturity   Rate (% a.a.)     Maturity     Rate (% a.a.)     Maturity     Rate (% a.a.)  
USD1D
     0.16       USD9M       0.49       USD5A       2.72  
USD1M
     0.33       USD1A       0.63       USD7A       3.21  
USD2M
     0.40       USD2A       1.30       USD10A       3.61  
USD3M
     0.42       USD3A       1.91                  
USD6M
     0.39       USD4A       2.37                  
TJLP
                                         
Maturity   Rate (% a.a.)     Maturity     Rate (% a.a.)     Maturity     Rate (% a.a.)  
31/12/2009
     6.00       01/10/2011       7.07       01/10/2013       7.28  
01/01/2010
     6.00       01/01/2012       7.15       01/01/2014       7.25  
01/04/2010
     6.44       01/04/2012       7.20       01/04/2014       7.22  
01/07/2010
     6.57       01/07/2012       7.24       01/07/2014       7.22  
01/10/2010
     6.68       01/10/2012       7.27       01/10/2014       7.25  
01/01/2011
     6.79       01/01/2013       7.29       01/01/2015       7.32  
01/04/2011
     6.88       01/04/2013       7.30                  
01/07/2011
     6.97       01/07/2013       7.29                  
BRL Interest Rate
                                         
Maturity   Rate (% a.a.)     Maturity     Rate (% a.a.)     Maturity     Rate (% a.a.)  
31/12/2009
     8.55       01/07/2011       11.38       01/07/2013       12.60  
04/01/2010
     8.55       03/10/2011       11.71       01/10/2013       12.63  
01/02/2010
     9.06       02/01/2012       11.88       02/01/2014       12.66  
01/04/2010
     8.89       02/04/2012       12.07       01/04/2014       12.68  
01/07/2010
     9.30       02/07/2012       12.31       01/10/2014       12.78  
01/10/2010
     9.92       01/10/2012       12.39       02/01/2015       12.80  
03/01/2011
     10.54       02/01/2013       12.45       02/01/2017       13.11  
01/04/2011
     11.01       01/04/2013       12.53                  
3. Currencies
EURO
                                         
Maturity   EUR/USD     Maturity     EUR/USD     Maturity     EUR/USD  
EURSPOT
     1.43       EUR9M       1.43       EUR4Y       1.45  
EUR1M
     1.43       EUR1Y       1.43       EUR5Y       1.47  
EUR3M
     1.43       EUR2Y       1.43       EUR7Y       1.50  
EUR6M
     1.43       EUR3Y       1.44       EUR10Y       1.53  
AUD
                                         
Maturity   AUD/USD     Maturity     AUD/USD     Maturity     AUD/USD  
AUDSPOT
     1.12       AUD9M       1.15       AUD4Y       1.29  
AUD1M
     1.12       AUD1Y       1.17       AUD5Y       1.33  
AUD3M
     1.13       AUD2Y       1.21       AUD7Y       1.38  
AUD6M
     1.14       AUD3Y       1.25       AUD10Y       1.45  
Currencies — Ending rates as of December 31, 2009
                                         
USD/CAD
     1.0502     USD/BRL     1.7412     EUR/USD     1.4400  

 

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Table of Contents

(VALE LOGO)
                                                                         
    Consolidated     Parent Company  
    Assets     Liabilities     Assets     Assets     Liabilities  
    2009     2008     2009     2008     2009     2008  
    Short-term     Long-term     Long-term     Short-term     Long-term     Long-term     Long-term     Long-term     Long-term  
Derivatives not designated as hedge
                                                                        
Foreign exchange and interest rate risk
                                                                        
CDI & TJLP vs. USD fixed and floating rate swaps
     —       1,383       —       —       —       (1,309 )     1,058       —       (1,084 )
EURO floating rate vs. USD floating rate swap
     —       3       5       —       —       —       3       5       —  
Swap CDI vs. fixed rate
     —       —       —       (39 )     —       —       —       —       —  
Swap CDI vs. fixed rate
     —       —       —       —       (23 )     —       —       —       —  
Swap USD floating rate vs. fixed rate
     —       —       —       (1 )     —       —       —       —       —  
USD floating rate vs. fixed USD rate swap
     —       —       —       (12 )     —       (32 )     —       —       —  
USD floating rate vs. fixed USD rate swap
     —       —       —       —       (2 )     —       —       —       —  
AUD forward purchase
     —       15       —       —       —       —       —       —       —  
 
                                                      
 
     —       1,401       5       (52 )     (25 )     (1,341 )     1,061       5       (1,084 )
Commodities price risk
                                                                        
Nickel
                                                                        
Fixed price program
     22       —       79       (5 )     —       —       —       —       —  
Fixed price program
     —       3       —       —       (15 )     —       —       —       —  
Strategic program (2)
     —       —       —       (55 )     —       —       —       —       —  
Maritime freight
     50       —       —       —       —       —       —       —       —  
Natural Gas
     —       —       —       —       —       (4 )     —       —       —  
Aluminum (3)
     —       —       —       (28 )     —       —       —       —       —  
Bunker Oil (1)
     85       —       —       —       —       —       —       —       —  
Copper
     —       —       —       —       —       —       —       —       —  
 
                                                      
 
     157       3       79       (88 )     (15 )     (4 )     —       —       —  
 
                                                                        
Derivatives designated as hedge
                                                                        
Foreign exchange cash flow hedge
     26       102       —       —       —       —       37       —       —  
Aluminum (3)
     —       —       —       (124 )     —       —       —       —       —  
 
                                                      
 
                                             —             —       —  
 
                                                      
 
     26       102       —       (124 )     —       —       37       —       —  
 
                                                      
Total
     183       1,506       84       (264 )     (40 )     (1,345 )     1,098       5       (1,084 )
 
                                                      
     
(1)  
Comprise financial settlements as of Dec. 31, 2009 in the amount of R$ 7.
 
(2)  
Comprise financial settlements as of Dec. 31, 2009 in the amount of R$ (16).
 
(3)  
Comprise financial settlements as of Dec. 31, 2009 in the amount of R$ (39).

 

43

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(VALE LOGO)
The effects of derivatives on income statement
                                                         
    Gain (Loss) Recognized on Results  
    Consolidated     Parent Company  
                            Acumulated     Acumulated  
    4Q/09     3Q/09     4Q/08     2009     2008     2009     2008  
Derivatives not designated as hedge
                                                        
Foreign exchange and interest rate risk
                                                        
CDI & TJLP vs. USD fixed and floating rate swaps
     342       826       (1,516 )     3,164       (1,745 )     2,512       (1,503 )
USD floating rate vs. USD fixed rate swap
     (1 )     (3 )     (23 )     (5 )     (28 )     —       —  
EURO floating rate vs. USD floating rate swap
     —       —       1       (1 )     1       (1 )     1  
AUD forward purchase
     1       5       —       25       —       —       —  
USD floating rate vs. CDI
     (65 )     —       —       (65 )     —       —       —  
 
   —       —       —       —       —       —       —  
Commodities price risk
     —       —       —       —       —       —       —  
Nickel
     —       —       —       —       —       —       —  
Fixed price program
     (1 )     3       (78 )     5       (172 )     —       —  
Strategic program
     (11 )     (92 )     —       (187 )     —       —       —  
Copper
     —       —       138       (1 )     56       —       34  
Platinum
     —       —       3       —       (2 )     —       —  
Gold
     —       —       (1 )     —       (9 )     —       (7 )
Natural gas
     —       (1 )     (3 )     (9 )     6       —       —  
Maritime Freight Hiring Protection Program
     134       (83 )     —       119       —       17       —  
Bunker Oil Hedge
     72       20       —       116       —       —       —  
Aluminum
     —       —       99       —       (40 )     —       —  
 
   —       —       —       —       —       —       —  
Embedded derivatives
     —       —       —       —       —       —       —  
For nickel concentrate costumer sales
     —       (22 )     13       (149 )     72       —       —  
Customer raw material contracts
     7       (18 )     (6 )     (42 )     12       —       —  
Energy — Aluminum options
     —       —       47       —       32       —       —  
 
     —       —       —       —       —       —       —  
Derivatives designated as hedge
     —       —       —       —       —       —       —  
Aluminum hedge
     (31 )     —       —       (31 )     —       —       —  
 
                                          
 
     447       635       (1,326 )     2,939       (1,817 )     2,528       (1,475 )
 
                                          
                                                         
    Financial Settlement  
    Consolidated     Parent Company  
                            Acumulated     Acumulated  
    4Q/09     3Q/09     4Q/08     2009     2008     2009     2008  
Derivatives not designated as hedge
                                                        
Foreign exchange and interest rate risk
                                                        
CDI & TJLP vs. USD fixed and floating rate swaps
     153       57       (121 )     469       (687 )     369       639  
USD floating rate vs. USD fixed rate swap
     (4 )     (4 )     1       (15 )     5       —       —  
EURO floating rate vs. USD floating rate swap
     1       —       (1 )     2       (1 )     2       2  
AUD floating rate vs. fixed USD rate swap
     5       2       —       10       —       —       —  
USD floating rate vs. CDI
     (3 )     —       —       (3 )     —       —       —  
 
   —       —       —       —       —       —       —  
Commodities price risk
     —       —       —       —       —       —       —  
Nickel
     —       —       —       —       —       —       —  
Fixed price program
     (31 )     (19 )     91       (122 )     112       —       —  
Strategic program
     (64 )     (66 )     —       (130 )     —       —       —  
Copper
     —       —       (62 )     —       277       —       32  
Platinum
     —       —       3       —       45       —       —  
Gold
     —       —       20       —       74       —       (52 )
Natural gas
     (1 )     (3 )     2       (12 )     1       —       —  
Maritime Freight Hiring Protection Program
     13       47       —       69       —       17       —  
Bunker Oil Hedge
     19       10       —       31       —       —       —  
Aluminum
     —       —       (59 )     —       181       —       —  
 
   —       —       —       —       —       —       —  
Embedded derivatives
     —       —       —       —       —       —       —  
Customer raw material contracts
     —       —       (16 )     —       (21 )     —       —  
 
   —       —       —       —       —       —       —  
Derivatives designated as hedge
     —       —       —       —       —       —       —  
Aluminum hedge
     (8 )     —       —       (8 )     —       —       —  
 
                                          
 
     80       24       (142 )     291       (14 )     388       621  
 
                                          

 

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(VALE LOGO)
The assets and (liabilities) balances as well as changes in fair value of derivatives are presented as follows:
                                                                         
    Consolidated  
    Trimestres (Unaudited)  
    4Q/09  
    Currencies\                             Products by                          
    Interest rates     Bunker Oil and                     Aluminum                          
    (libor)     Natural Gas     Gold     Freight     area     Copper     Nickel     Platinum     Total  
Gains / (losses) unrealized on 09/30/09
     1,240       31       —       (71 )     19       —       (136 )     —       1,083  
Payments (receipt) financial
     (152 )     (18 )     —       (13 )     8       —       95       —       (80 )
Financial expenses, net (1)
     370       72       —       132       (179 )     —       (13 )     —       382  
Monetary variations, net (2)
     (6 )     —       —       2       —       —       4       —       —  
 
                                                      
Gains / (losses) unrealized on 12/31/09
     1,452       85       —       50       (152 )     —       (50 )     —       1,385  
 
                                                      
                                                                         
    3Q/09  
    Currencies\                             Products by                          
    Interest rates     Bunker Oil and                     aluminum                          
    (libor)     Natural Gas     Gold     Freight     area     Copper     Nickel     Platinum     Total  
Gains / (losses) unrealized on 06/30/09
     432       19       —       59       —       —       (94 )     —       416  
Payments (receipt) financial
     (55 )     (7 )     —       (47 )     —       —       85       —       (24 )
Financial expenses, net (1)
     883       23       —       (83 )     20       —       (145 )     —       698  
Monetary variations, net (2)
     (20 )     (4 )     —       —       (1 )     —       18       —       (7 )
 
                                                      
Gains / (losses) unrealized on 09/30/09
     1,240       31       —       (71 )     19       —       (136 )     —       1,083  
 
                                                      
                                                                         
    3Q/08  
    Currencies\                             Products by                          
    Interest rates     Bunker Oil and                     aluminum                          
    (libor)     Natural Gas     Gold     Freight     area     Copper     Nickel     Platinum     Total  
Gains / (losses) unrealized on 09/30/08
     323       (3 )     (19 )     —       (87 )     (75 )     73       (4 )     208  
Payments (receipt) financial
     (121 )     2       20       —       (59 )     (62 )     77       1       (142 )
Financial expenses, net
     (1,518 )     (3 )     2       —       157       152       (88 )     2       (1,296 )
Monetary variations, net
     (20 )     —       (3 )     —       (11 )     (14 )     17       1       (30 )
 
                                                      
Gains / (losses) unrealized on 12/31/08
     (1,336 )     (4 )     —       —       —       1       79       —       (1,260 )
 
                                                      
                                                                         
    Accumulated  
    2009  
    Currencies\                             Products by                          
    Interest rates     Bunker Oil and                     aluminum                          
    (libor)     Natural Gas     Gold     Freight     area     Copper     Nickel     Platinum     Total  
Gains / (losses) unrealized on 12/31/08
     (1,336 )     (4 )     —       —       —       1       79       —       (1,260 )
Payments (receipt) financial
     (463 )     (18 )     —       (69 )     8       —       252       —       (290 )
Financial expenses, net (1)
     3,267       112       —       119       (159 )     (1 )     (397 )     —       2,941  
Monetary variations, net (2)
     (16 )     (5 )     —       —       (1 )     —       16       —       (6 )
 
                                                      
Gains / (losses) unrealized on 12/31/09
     1,452       85       —       50       (152 )     —       (50 )     —       1,385  
 
                                                      
                                                                         
    2008  
    Currencies\                             Products by                          
    Interest rates     Bunker Oil and                     aluminum                          
    (libor)     Natural Gas     Gold     Freight     area     Copper     Nickel     Platinum     Total  
Gains / (losses) unrealized on 12/31/07
     1,119       (11 )     (65 )     —       (173 )     (332 )     74       (43 )     569  
Payments (receipt) financial
     (683 )     1       74       —       181       277       91       45       (14 )
Financial expenses, net
     (1,985 )     4       (8 )     —       (10 )     66       (110 )     (3 )     (2,046 )
Monetary variations, net
     213       2       (1 )     —       2       (10 )     24       1       231  
 
                                                      
Gains / (losses) unrealized on 12/31/08
     (1,336 )     (4 )     —       —       —       1       79       —       (1,260 )
 
                                                      
     
(1)  
Comprise amounts related to hedge accounting which does not affect the financial results, as follows: R$ (61), R$ 54 and R$ (1) and R$ (2), 4Q09, 3Q09, December 31, 2008 and December 31, 2009, respectively.
 
   
These figures were recorded inside shareholders’ equity in the line “unrealized results of market value” net of income tax and in the proportion of our interest, when applicable.
 
(2)  
Include exchange variance reclassification into equity: R$ (4), R$ 2 and R$ (3), 4Q09, 3Q09 and December 31, 2009, respectively.

 

45

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(VALE LOGO)
                                         
    Parent Company  
    2009  
    Currencies\                          
    Interest rates                          
    (libor)     Freight     Gold     Copper     Total  
Gains / (losses) unrealized on 12/31/08
     (1,079 )     —       —       —       (1,079 )
Payments (receipt) financial
     (371 )     (17 )     —       —       (388 )
Financial expenses, net (*)
     2,549       17       —       —       2,566  
Monetary variations, net
     (1 )     —       —       —       (1 )
 
                              
Gains / (losses) unrealized on 12/31/09
     1,098       —       —       —       1,098  
 
                              
                                         
    2008  
    Currencies\                          
    Interest rates                          
    (libor)     Freight     Gold     Copper     Total  
Gains / (losses) unrealized on 12/31/07
     1,064       —       (45 )     (2 )     1,017  
Payments (receipt) financial
     (641 )     —       52       (32 )     (621 )
Financial expenses, net
     (1,734 )     —       (6 )     30       (1,710 )
Monetary variations, net
     232       —       (1 )     4       235  
 
                              
Gains / (losses) unrealized on 12/31/08
     (1,079 )     —       —       —       (1,079 )
 
                              
     
(*)  
It comprises R$ 37 due hedge accounting which does not affect the results.
The maturities dates of the consolidated financial instruments are as follows:
         
Currencies\ Interest rates (LIBOR)
   December 2019
Aluminum
   December 2010
Óleo combustível
   December 2010
Frete
   December 2010
Nickel
   May 2011
6.27- Selling, Administrative, Other Operating Expenses and Results from disposal of Assets
                                                         
    Consolidated     Parent Company  
    Quarter (Unaudited)     Accumulated     Accumulated  
    4Q/09     3Q /09     3Q/08     2009     2008     2009     2008  
Administrative
                                                        
Personnel
     184       143       207       640       747       377       431  
Services (consulting, infrastructure and others)
     118       96       229       385       528       183       262  
Advertising and publicity
     105       56       94       236       253       227       244  
Depreciation
     113       95       70       384       294       295       225  
Travel expenses
     9       8       16       36       72       15       33  
Rents and taxes
     26       22       37       86       89       32       32  
Community aborigine
     5       6       5       20       20       19       18  
Others
     28       45       118       156       303       54       140  
Sales (*)
     116       106       940       426       1,312       42       27  
 
                                          
Total
     704       577       1,716       2,369       3,618       1,244       1,412  
 
                                          
     
(*)  
It represents the effects of fluctuations in commodity prices of copper on its receivables, expenses with offices abroad and provision for claims settlement.
                                                         
    Consolidated     Parent Company  
    Quarter (Unaudited)     Accumulated     Accumulated  
    4Q/09     3Q/09     3Q/08     2009     2008     2009     2008  
Other operating expenses (income), net
                                                        
Provisions for contingencies
     210       6       162       230       (53 )     236       (78 )
Provision for loss on ICMS credits
     108       48       63       259       386       81       213  
Provision for profit sharing
     143       58       16       320       221       196       113  
Fundação Vale do Rio Doce — FVRD
     13       42       26       99       81       99       81  
Recoverable taxes — PIS and COFINS
     (73 )     (70 )     (70 )     (295 )     (244 )     (295 )     (244 )
Provision for materials/ inventory
     —       —       142       9       407       —       126  
Adjustment to net realizable inventory
     9       —       334       122       334       —       —  
Disconnection
     16       29       —       187       —       64       —  
Shutdown plant and idle capacity
     386       489       —       1,776       —       596       —  
Others
     184       45       953       555       1,717       (50 )     621  
 
                                          
Total
     996       647       1,626       3,262       2,849       927       832  
 
                                          

 

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(VALE LOGO)
                                         
    Consolidated  
    Quarter (Unaudited)     Acumulado  
    4Q/09     3Q/09     3Q/08     2009     2008  
Sales of assets
                                        
Jubilee Mines N.L.
     —       —       —       —       139  
Usinas Siderúrgicas de Minas Gerais S.A. — USIMINAS
     —       —       —       288       —  
Companhia Alumina Para
     —       —       —       8       —  
Ativos florestais
     —       110       —       110       —  
Hurdbay Minerals Inc
     —       12       —       12       —  
Ativos de cobre
     (65 )     —       —       (65 )     —  
Ativos de alumínio
     (147 )     —       —       (147 )     —  
UTE Barcarena
     (122 )     —       —       (122 )     —  
Others
     4       6       —       9       —  
 
                              
Total
     (330 )     128       —       93       139  
 
                              
6.28- Concessions, Sub concessions and Leases
(a) Railway Companies
The Company and some Companies of the Group entered with the Brazilian government, through the Transport Ministry, agreements for concession for the exploitation and development of public rail cargo transport services and for lease of the assets designated to provide these services.
The concessions terms by railway are:
         
Railroad   End of concession period  
Vitória-Minas and Carajás (direct) (*)
   June 2027
Carajás (direct) (*)
   June 2027
Malha Centro-Leste (indirect via FCA)
   December 2037
Malha Sudoeste (indirect via MRS)
   August 2026
Ferrovia Norte Sul S.A. (FNS)
   December 2026
     
(*)  
Concessions with no disbursement
The concessions will expire upon one of the following events: termination of the contractual term, cancellation, forfeiture, rescission, annulment and bankruptcy or extinction of the concessionaire.
Concessions, sub concessions and leasing from subsidiaries Companies are treated as operating leasing and present the following characteristics:
                         
    FNS     FCA     MRS  
1) Total installments
     3       112       118  
2) Frequency of payment
       (*)     Quarterly       Quarterly  
3) Update index
     IGP-DI FGV       IGP-DI FGV       IGP-DI FGV  
4) Total installment paid
     2       47       50  
5) Installment current value
                       
Concession
   R$ —     R$ 2     R$ 3  
Leasing
   R$ —     R$ 29     R$ 49  
Subconcession
   R$ 496     R$ —     R$ —  
     
(*)  
According to the delivery of each part of the railroad

 

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(VALE LOGO)
(b) Ports
The Company owns specialized port terminals as follow:
                 
            End of concession  
Terminal (*)   Localization   period  
Tubarão, Praia Mole and Liquid Bulk Terminal
   Vitória — ES     2020  
Praia Mole Terminal
   Vitória — ES     2020  
Sundry Products Terminal
   Vitória — ES     2020  
Liquid Bulk Terminal
   Vitória — ES     2020  
Vila Velha Terminal
   Vila Velha — ES     2023  
Ponta da Madeira Maritime Terminal — Pier I and III
   São Luís — MA     2018  
Ponta da Madeira Maritime Terminal — Pier II
   São Luís — MA     2010  
Inácio Barbosa Maritime Terminal
   Aracaju — SE     2012  
Terminal de Exportação de Minério — Porto de Itaguaí
   Rio de Janeiro — RJ     2021  
Terminal Marítimo da Ilha Guaíba — TIG — Mangaratiba
   Rio de Janeiro — RJ     2018  
     
(*)  
Concessions with no disbursement.
(c) Hydroelectric Projects
                 
    Concession     % Participation on  
Project   beginning date     energy generation  
Amador Aguiar I e II (formely denominated Capim Branco I and II)
     2001       48.42  
Balambano, Larona and Karebbe
     1978, 2000 e 2000       60.80  
Engenheiro José Mendes Júnior e Eliezer Batista (formely denominated Funil and Aimorés)
     2000       51.00  
Estreito
     2002       30.00  
Igarapava
     1998       38.15  
Machadinho
     2000       8.29  
Porto Estrela
     1997       33.33  
During 2009, the Company leased tree pelletizing plants as part of the Nibrasco, Kobrasco and Itabrasco joint ventures for a period of 30 years, 5 years and 10 years respectively. Considering the main risks and benefits of the leases remain with the joint ventures, the leases were classified as operating leases with a minimum annual cost of around R$ 198.
6.29- Insurance
Operational Risks
The Company has an extensive risk management program that provides coverage and protection for all its assets as well as against possible losses from production interruptions, through an All Risks policy. This program includes on-site inspection and training carried out by the various risk committees constituted by the Company, its subsidiaries and associated companies. Vale tries to harmonize risks in all areas and provide single and uniform treatment, seeking coverage in the domestic and international markets at levels compatible with a Company of its size.
Insurance
In order to mitigate the risks, Vale contracts many types of insurances polices, as operational risks and comprehensive general liability, risks besides life insurance for its employees. The cover insurance of these policies is contracted in accordance with the company Risk Management Policy and is similar to the ones contracted by other mining companies. As one of the management risk instruments Vale has used since 2002 a captive reinsurer that allowed us to contract insurances on a competitive basis as well as direct access to the main international markets of insurance and reinsurance.
The management of insurance policies is realized in Vale with the support of the insurances committees in the operational areas of the Company that are composed by many professionals of these units.

 

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(VALE LOGO)
6.30- Profit Sharing Plan
The Company, based on the Profit Sharing Plan (PPR), allows definition, monitoring, assessment and recognition of individual and collective performance of its employees.
The Company’s Profit Sharing for each Employee is calculated individually depending on the achievement of goals previously established by blocks of performance indicators as: Company, Department or Business Unit, Team, individual, and concerning on individual competence. The contribution of each block of the score performance of employees is discussed and agreed each year, between Vale and Unions representing their employees.
The Company accrued expenses / costs for participation in the results as follows:
                                 
    Consolidated     Parent Company  
    2009     2008     2009     2008  
 
Operational expenses
     320       221       196       113  
Cost of Products
     439       358       439       358  
 
                        
Total
     759       579       635       471  
 
                        

 

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(VALE LOGO)
6.31- Information by Segment
The information presented to the executive management with respective to performance of each segment is generally derived from the accounting entries, with some reallocations along the segments. We analyze the segment information as follows:
     
Consolidated Statement of Income by Business Segment   In millions of Reais
Years ended December 31   2009
                                                         
    Ferrous     Non-ferrous             Holdings     Corporate        
    minerals     minerals     Logistics     Steel     Others     Center     Total  
Operating revenues
                                                        
Sales of ore and metals
     30,125       10,353       —       —       —       —       40,478  
Transport services
     —       —       2,843       —       —       —       2,843  
Sales of aluminum-related products
     —       4,217       —       —       —       —       4,217  
Sales of steel products
     —       —       —       546       —       —       546  
Other products and services
     12       142       —       —       1,574       —       1,728  
 
                                          
 
     30,137       14,712       2,843       546       1,574       —       49,812  
Added Value taxes
     (650 )     (190 )     (398 )     —       (78 )     —       (1,316 )
 
                                          
Net operational revenues
     29,487       14,522       2,445       546       1,496       —       48,496  
Ores and metals
     (11,490 )     (8,008 )     —       —       —       —       (19,498 )
Transport services
     —       —       (2,040 )     —       —       —       (2,040 )
Aluminum-related products
     —       (4,203 )     —       —       —       —       (4,203 )
Steel products
     —       —       —       (510 )     —       —       (510 )
Other products and services
     (100 )     —       —       —       (1,369 )     —       (1,469 )
 
                                          
Cost of products and services
     (11,590 )     (12,211 )     (2,040 )     (510 )     (1,369 )     —       (27,720 )
 
                                          
Gross profit
     17,897       2,311       405       36       127       —       20,776  
Gross margin
     60.7 %     15.9 %     16.6 %     6.6 %     8.5 %     —       42.8 %
Operational expenses
                                                        
Selling and admnistrative
     (1,514 )     (503 )     (105 )     (17 )     (230 )     —       (2,369 )
Administrative
     (933 )     (632 )     (126 )     —       (273 )     —       (1,964 )
Other operating expenses
     (1,556 )     (1,692 )     40       (56 )     2       —       (3,262 )
 
                                          
 
     (4,003 )     (2,827 )     (191 )     (73 )     (501 )     —       (7,595 )
 
                                          
Profit before financial results, results of equity investments and imparment
     13,894       (516 )     214       (37 )     (374 )     —       13,181  
Impairment
     —       —       —       —       —       —       —  
 
                                          
Operating profit (loss) before financial results and result of equity investments
     13,894       (516 )     214       (37 )     (374 )     —       13,181  
 
                                          
Results of equity investments
     (10 )     1       4       17       111       (7 )     116  
Financial result
     —       —       —       —       —       1,952       1,952  
 
                                          
Operating profit (loss)
     13,884       (515 )     218       (20 )     (263 )     1,945       15,249  
Profit on sale of investment
     302       (61 )     —       (148 )     —       —       93  
 
                                          
Income (loss) before income tax and social contribution
     14,186       (576 )     218       (168 )     (263 )     1,945       15,342  
Income tax and social contribution
     (5,642 )     850       (134 )     21       (20 )     —       (4,925 )
 
                                          
Income (loss) before minority interests
     8,544       274       84       (147 )     (283 )     1,945       10,417  
Minority interest
     (9 )     (148 )     —       —       (11 )     —       (168 )
 
                                          
Income (loss) for the year
     8,535       126       84       (147 )     (294 )     1,945       10,249  
 
                                          

 

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(VALE LOGO)
     
Consolidated Statement of Income by Business Segment   In millions of Reais
Years ended December 31   2008
                                                         
    Ferrous     Non-ferrous             Holdings     Corporate        
    minerals     minerals     Logistics     Steel     Others     Center     Total  
Operating revenues
                                                        
Sales of ore and metals
     43,569       16,323       —       —       —       —       59,892  
Transport services
     —       —       3,666       —       —       —       3,666  
Sales of aluminum-related products
     —       5,843       —       —       —       —       5,843  
Sales of steel products
     —       —       —       1,348       —       —       1,348  
Other products and services
     345       311       —       —       1,361       —       2,017  
 
                                          
 
     43,914       22,477       3,666       1,348       1,361       —       72,766  
Added Value taxes
     (1,272 )     (270 )     (613 )     —       (70 )     —       (2,225 )
 
                                          
Net operational revenues
     42,642       22,207       3,053       1,348       1,291       —       70,541  
Ores and metals
     (13,255 )     (10,549 )     —       —       —       —       (23,804 )
Transport services
     —       —       (2,215 )     —       —       —       (2,215 )
Aluminum-related products
     —       (3,873 )     —       —       —       —       (3,873 )
Steel products
     —       —       —       (1,177 )     —       —       (1,177 )
Other products and services
     (448 )     —       —       —       (639 )     —       (1,087 )
 
                                          
Cost of products and services
     (13,703 )     (14,422 )     (2,215 )     (1,177 )     (639 )     —       (32,156 )
 
                                          
Gross profit
     28,939       7,785       838       171       652       —       38,385  
Gross margin
     67.9 %     35.1 %     27.4% 1       2.7 %     50.5 %     —       54.4 %
Operational expenses
                                                        
Selling and admnistrative
     (1,784 )     (1,471 )     (111 )     (29 )     (223 )     —       (3,618 )
Administrative
     (677 )     (704 )     (180 )     —       (510 )     —       (2,071 )
Other operating expenses
     (2,457 )     (127 )     (64 )     (153 )     (48 )     —       (2,849 )
 
                                          
 
     (4,918 )     (2,302 )     (355 )     (182 )     (781 )     —       (8,538 )
 
                                          
Profit before financial results, results of equity investments and imparment
     24,021       5,483       483       (11 )     (129 )     —       29,847  
Operating profit (loss) before financial results and result of equity investments
     —       (2,447 )     —       —       —       —       (2,447 )
 
                                          
Operating profit (loss) before financial results and result of equity investments
     24,021       3,036       483       (11 )     (129 )     —       27,400  
 
                                          
Results of equity investments
     (557 )     (1,117 )     37       33       265       14       (1,325 )
Financial result
     —       —       —       —       —       (3,838 )     (3,838 )
 
                                          
Operating profit (loss)
     23,464       1,919       520       22       136       (3,824 )     22,237  
Profit on sale of investment
     —       139       —       —       —       —       139  
 
                                          
Income (loss) before income tax and social contribution
     23,464       2,058       520       22       136       (3,824 )     22,376  
Income tax and social contribution
     622       (1,092 )     (147 )     10       (58 )     —       (665 )
 
                                          
Income (loss) before minority interests
     24,086       966       373       32       78       (3,824 )     21,711  
Minority interest
     (31 )     (430 )     —       —       29       —       (432 )
 
                                          
Income (loss) for the year
     24,055       536       373       32       107       (3,824 )     21,279  
 
                                          
The financial statements by business area are structured in accordance with the following segments: Ferrous minerals, Non-ferrous minerals, Logistics, Steel, Corporate and other participation.
  •  
Ferrous — comprise iron ore mining and pellet production, as well as our Brazilian Northern and Southern transportation systems, including railways, ports and terminals as they pertain to mining operations. Manganese mining and ferroalloys are also included in this segment.
 
  •  
Non-ferrous minerals — comprise the production of non-ferrous minerals, including aluminum trading activities, alumina refining, investments in joint-ventures and affiliates engaged in bauxite, potash, kaolin, copper, and nickel (co-products and by-products).
 
  •  
Logistics — comprise our cargo transportation systems for third-parties divided into railway, port and ships transportation services.
 
  •  
Participation – it is divided into the following segments:
  •  
Steel — comprises the investments in steel companies.
 
  •  
Others — comprise the investments in joint ventures and affiliates engaged in other businesses.

 

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(VALE LOGO)
6.32- Social Report (unaudited)
The social report presents the social indicators, environmental, the functional quantitative and relevant information about the exercise of business citizenship and was prepared in accordance with the resolution of Federal Accounting Board of Brazil “CFC”, no. 1003. The information presented was obtained from the auxiliary records and some management information of the Company direct and indirect subsidiaries and jointly controlled companies.
                                 
    Consolidated (to review)     Parent Company (to review)  
    2009     2008     2009     2008  
Basis of calculation
                                
Gross revenue
     49,812       72,766       27,285       34,445  
Operating income before financial results and equity results
     13,181       27,400       9,296       13,920  
Gross payroll
     2,549       4,422       2,127       1,768  
                                                                                                 
            % of             % of             % of             % of  
                    Operating                     Operating                     Operating                     Operating  
    Amount     Payroll     income     Amount     Payroll     income     Amount     Payroll     income     Amount     Payroll     income  
Labor indicators
                                                                                                
Nutrition
     295       12 %     2 %     307       7 %     1 %     251       12 %     3 %     253       14 %     2 %
Compulsory payroll charges
     792       31 %     6 %     892       20 %     3 %     634       30 %     7 %     608       34 %     4 %
Transportation
     159       6 %     1 %     152       3 %     1 %     136       6 %     1 %     123       7 %     1 %
Pension Plan
     208       8 %     2 %     431       10 %     2 %     106       5 %     1 %     134       8 %     1 %
Health
     339       13 %     3 %     297       7 %     1 %     226       11 %     2 %     189       9 %     1 %
Education
     105       4 %     1 %     174       4 %     1 %     85       4 %     1 %     130       7 %     1 %
Nursery
     3       —       —       2       —       —       3       —       —       2       —       —  
Employee profit sharing plan
     868       34 %     7 %     548       12 %     2 %     635       30 %     7 %     471       27 %     3 %
Others
     86       3 %     1 %     124       3 %     —       68       3 %     1 %     95       5 %     1 %
 
                                                                        
Total — Labor indicators
     2,855       112 %     22 %     2,927       66 %     11 %     2,144       101 %     23 %     2,005       113 %     14 %
 
                                                                        
                                                                                                 
            % of             % of             % of             % of  
            Operating     Net operating             Operating     Net operating             Operating     Net operating             Operating     Net operating  
    Amount     income     revenue     Amount     income     revenue     Amount     income     revenue     Amount     income     revenue  
Social Indicators
                                                                                                
Taxes (excluding payroll charges)
     5,810       44 %     12 %     5,274       19 %     7 %     6,336       68 %     23 %     3,761       27 %     11 %
Taxes paid recover
     (571 )     -4 %     -1 %     (1,955 )     -7 %     -3 %     (532 )     -6 %     -2 %     (1,672 )     -12 %     -5 %
Citizenship investments
     —       —       —       409       1 %     1 %     —       —       —       356       3 %     1 %
Social actions and projects
     370       3 %     1 %     390       1 %     1 %     366       4 %     1 %     337       2 %     1 %
Culture
     100       1 %     —       102       —       —       97       1 %     —       67       —       —  
Native community
     19       —       —       19       —       —       19       —       —       19       —       —  
Environmental investments
     1,397       11 %     3 %     808       3 %     1 %     1,156       12 %     4 %     678       5 %     2 %
 
                                                                        
Total -Social Indicators
     7,207       55 %     14 %     6,491       24 %     9 %     7,492       81 %     27 %     4,795       34 %     14 %
 
                                                                        
Workforce Indicators
                                                                                                
Number of employees at the end of the period
                     60,036                       62,490                       40,101                       39,525  
Number of admittances during the period
                     2,633                       7,673                       1,805                       6,133  
                         
Social and environmental projects developed by the company are defined by:
      directors   (X)   directors and managers   (X)   all of employees
Occupational health and safety standards were defined by:
  (X)   directors and managers       all of employees       all + CIPA
Concerning Unions and the right to negotiate collectively and have internal representation of the employees, the company:
      is not involved in       follows the standards of ILO   (X)   encourezes and follows the ILO
The pension plan system covers:
  (X)   directors   (X)   directors and managers   (X)   all of employees
Profits sharing covers:
  (X)   directors   (X)   directors and managers   (X)   all of employees
On selecting suppliers, the same ethical standards of social and environmental responsibility adopted by the company:
      are not considered       are recomended   (X)   are required
Concerning the participation of employees in voluntary work programs, the company:
      is not involved in   (X)   support   (X)   organizes and encoureges

 

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Social responsibility criteria for suppliers selection
In addition to technical and economic aspects, the Company considers the legal, environmental and health and safety aspects in the selection of its suppliers. From the legal point of view is required regular situation in tax matters and in labor and social security. The environmental aspect is verified by documents evidencing the good standing of suppliers operations together with the competent agencies, as well as evidences of policies of environmental preservation implementation. The commitment to health and safety is assessed by a questionnaire measuring the practice of preventive policies. It also considered the importance of the performance of the supplier in their region of origin. Besides hiring suppliers taking into account the above criteria, the Company also implements the Program for Suppliers Development “PDF”. By fostering the development of suppliers, the “PDF” unfolds in benefits also for the community and businesses in the region, supporting their socioeconomic development. Vale also participates in partnership with the federations of industries, government agencies and other entities, of regional supplier development. To strengthen relationships with our small and medium regional suppliers, through training and tools to promote doing business with local suppliers, promoting business growth, generate employment and income, contributing to sustainable development in the areas we serve, Vale deployed the “Programa Inove”.
Investments in corporate social responsibility reached US$ 796 million in 2009, of which US$ 580 designated for environmental protection and US$ 216 for social projects.
In line with strategic priorities, investments in corporate social responsibility for 2010 are budgeted at US$ 999 million, of which US$ 829 million will be invested in protection and preservation of the environment and US$ 170 million in social projects. Resources are invested in actions of education, culture, income generation, sponsorship, donations and encouragement to the strengthening of social capital. Vale social programs already benefit about 3 million people.
6.33- Subsequent events
In January 2010, Vale entered into a purchase with Bunge SA and Bunge Brazil Holdings BV to acquire 100% of the outstanding shares of Bunge Participações e Investimentos S.A. (BPI), a company with assets in Brazil and investment in Fertifos Participações SA (Fertifos), which holds 42.3% of the Capital Stock of Fertilizantes Fosfatados S.A. — Fosfertil (Fosfertil) of US$ 3,8 billion to be paid in cash. The transaction is subject to usual precedent conditions, as some approvals from government agencies. Additionally, as part of this acquisition, we entered into a put-call-option contract to acquire additional shares issued by Fertifos Participações SA (Fertifos) with Fertilizantes Heringer S.A. (exercise price US$ 2,4), Fertilizantes do Parana Ltda. — Fertipar (exercise price US$ 39,5) and Yara Brazil Fertilizers SA (exercise price US$ 785,1). These agreements grant us the right to buy 16.3% of Fosfértil ownership and are also subject to some conditions among which the effective acquisition of the fertilizer business of Bunge in Brazil.
In January we redeemed all outstanding export receivable securitization notes issued in September 200 and July 2003. The redeemed notes with maturities in 2010 and 2013 have their principal and annual interest rates, US$ 28 (8,9%), US$ 122 (4,4%), respectively. Total US$ 150.
In January, the Company entered into through our wholly owned subsidiary, Valesul Alumínio S.A. (Valesul) agreement to sell its aluminum assets, located in Rio de Janeiro, for Alumínio Nordeste S.A., a subsidiary of Metal group, for US$ 31, 2 million.

 

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7- REPORT OF THE INDEPENDANT ACOUNTANTS
(PRICEWATERHOUSECOOPERS LOGO)
     
 
  PricewaterhouseCoopers
 
  Rua da Candelaria, 65 - 11°, 14°, 15° e 16°
 
  Cjs. 1302 a 1304
 
  20091-020 - Rio de Janeiro - RJ - Brasil
 
  Caixa Postal 949
(A free translation of the original in Portuguese)
  Telefone (21) 3232-6112
 
  Fax (21) 2516-6319
Report of Independent Auditors
  pwc.com/br
To the Board of Directors and Stockholders
Vale S.A.
  1  
We have audited the accompanying balance sheet of Vale S.A. (the “Company”) and the consolidated balance sheet of Vale S.A. and its subsidiaries as of December 31, 2009, and the related statements of income, of changes in stockholders’ equity and of cash flows of Vale S.A., as well as the related consolidated statements of income, of cash flows and of added value for the year then ended, prepared under the responsibility of its management. Our responsibility is to express an opinion on these financial statements.
 
  2  
We conducted our audits in accordance with approved Brazilian auditing standards, which require that we perform the audit to obtain reasonable assurance about whether the financial statements are fairly presented in all material respects. Accordingly, our work included, among other procedures: (a) planning our audit taking into consideration the significance of balances, the volume of transactions and the accounting and internal control systems of the Company, (b) examining, on a test basis, evidence and records supporting the amounts and disclosures in the financial statements, and (c) assessing the accounting practices used and significant estimates made by the Company’s management, as well as evaluating the overall financial statement presentation.
 
  3  
In our opinion, the financial statements audited by us present fairly, in all material respects, the financial position of Vale S.A. and of Vale S.A. and its subsidiaries at December 31, 2009, and the results of operations, the changes in stockholders’ equity, the cash flows and added value of the Company’s operations for the year then ended, as well as the consolidated results of operations consolidated cash flows and consolidated added value for the year then ended, in accordance with accounting practices adopted in Brazil.
 
  4  
The audit of the financial statements for the year ended December 31, 2008, presented for comparative purposes, was conducted by other independent auditors who issued opinion thereon dated February 19, 2009 including a division of responsability paragraph regarding the audit of the financial statements of certain investees of Vale S.A.
     
Rio de Janeiro, February 10, 2010
    
 
    
/s/ PricewaterhouseCoopers
 
/s/ Marcos Donizete Panassol
PricewaterhouseCoopers
  Marcos Donizete Panassol
Auditores Independentes
  Contador CRC 1SP155975/O-8 “S” RJ
CRC 2SP000160/O-5 “F” RJ
    

 

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8- Opinion Of The Fiscal Council On The Annual Report And Financial Statements of Vale S.A. on December 31, 2009
The Fiscal Council of Vale S.A, in carrying out its legal and statutory duties, after examining the Company’s Annual Report, Balance Sheet Statement of Income, Statement of Changes in Financial Position, Statement of Changes in Stockholders’ Equity and the respective Notes to the Financial Statements relative to the fiscal year ended December 31, 2009, and based on the opinion of the independent auditors, is of the opinion that the mentioned information, examined in accordance of applicable corporate legislation should be approved by the Annual Stockholders’ General Meeting.
Rio de Janeiro, February 10, 2010
     
Marcelo Amaral Moraes
  Antonio José de Figueiredo Ferreira
Chairman
    
 
    
Anibal Moreira dos Santos
  Marcus Pereira Aucélio

 

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9- Opinion Of The Board Of Directors On The Annual Report And Financial Statements On December 31, 2009
The Board of Directors of Vale S.A., after examining the Annual Report, Balance Sheet and other Financial Statements of the Company related to the fiscal year ended December 31, 2009, unanimously approved mentioned proposal.
In view of this, the Board is of the opinion that the above mentioned documents should be approved at the Annual Stockholders’ General Meeting.
Rio de Janeiro, February 10, 2010
     
Renato da Cruz Gomes
  Jorge Luiz Pacheco
Member
  Member
 
    
Sandro Kohler Marcondes
  José Ricardo Sasseron
Member
  Member
 
    
João Batista Cavaglieri
  Paulo Sérgio Moreira da Fonseca
Member
  Member
 
    
Oscar Augusto de Camargo Filho
  Hidehiro Takahashi
Member
  Member
 
    
Francisco Augusto da Costa e Silva
    
Member
    

 

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10- ANNEX I — STATEMENT OF INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED COMPANIES
     
Period ended december 31, 2009   In millions of reais
                                                                                                         
                    Accounting information - (unaudited)  
                    Assets     Liabilities and stockholders’ equity     Statement of income  
                            Non-current             Non-current        
                                    Investments,                                                    
                                    property plant                      
                                    and equipment             Não Circulante e     Adjusted             Cost of     Operating     Income tax        
    Participation (%)                     and deferred             Participações de     stockholders’             products and     income     and Social     Adjusted net  
    Total     Voting     Circulante     Non-current     charges     Current     minoritários     equity     Net revenues     services     (expenses)     contribution     income (loss)  
Jointly-controlled companies
                                                                                                        
ALBRAS — Alumínio Brasileiro S.A.
     51.00       51.00       447,428       1,597,007       1,043,024       634,286       417,367       2,035,807       1,412,446       (1,428,986 )     100,437       69,785       153,682  
ALUNORTE — Alumina do Norte do Brasil S.A.
     57.03       61.74       642,852       367,375       5,280,512       278,916       1,454,623       4,557,200       2,751,968       (2,717,179 )     333,566       (125,120 )     243,235  
Brasilux S.A.
     100.00       100.00       13,413       18,525       —       3,250       —       28,686       —       —       (8,950 )     (177 )     (9,127 )
Cadam S.A
     61.48       100.00       118,359       85,046       82,437       29,008       28,149       228,684       154,423       (129,138 )     (49,659 )     138       (24,236 )
Companhia Paulista de Ferro Ligas
     100.00       100.00       152,842       109,511       1,366       146,981       90,579       26,159       —       —       36,299       (3,409 )     32,890  
Companhia Portuária Baia de Sepetiba — CPBS
     100.00       100.00       203,617       12,058       199,962       67,296       1,485       346,857       338,463       (111,176 )     173       (72,310 )     155,150  
CVRD Overseas Ltd.
     100.00       100.00       930,200       —       1,185,500       1,407,903       34,946       672,852       3,253,555       (2,593,709 )     (597,548 )     —       62,298  
Docepar S.A.
     100.00       100.00       47,301       122,376       257       63,800       103,948       2,187       —       —       3,644       —       3,648  
Ferrovia Centro — Atlântica S.A.
     100.00       100.00       249,979       130,512       1,724,366       181,035       1,990,696       (66,875 )     678,608       (662,279 )     (11,768 )     (79 )     4,482  
Ferrovia Norte-Sul S.A.
     100.00       100.00       53,498       1,487       1,752,208       515,368       —       1,291,825       73,808       (41,120 )     (13,883 )     (4,257 )     14,548  
Florestas Rio Doce S.A.
     99.90       100.00       9,958       16,677       3,474       5,243       10,696       14,170       —       —       (6,930 )     60       (6,870 )
Green Minerals Resources Inc
     100.00       100.00       59,190       —       2,897,356       21,645       967,247       1,967,654       —       —       (6,742 )     —       (6,742 )
Mineração Corumbá Reunidas S.A.
     100.00       100.00       284,158       —       1,713,214       34,664       536,637       1,426,071       41,446       (70,368 )     6,320       (5,265 )     (27,867 )
Mineração Tacumã Ltda.
     100.00       100.00       239       —       1,722,966       19,329       1,787,810       (83,933 )     —       —       3,196       —       3,196  
Minerações Brasileiras Reunidas S.A. — MBR (a)
     92.99       92.99       186,267       207,666       5,890,800       837,225       1,189,621       4,257,887       11,297       (295,667 )     (61,765 )     20,886       (325,249 )
Para Pigmentos S.A
     86.17       85.57       71,848       67,446       (33,257 )     55,363       107,298       (56,623 )     134,340       (104,146 )     (62,185 )     (10,710 )     (42,702 )
Rio Doce Manganése Norway AS
     100.00       100.00       147,610       —       51,436       70,208       2,773       126,066       198,204       (170,008 )     (89,213 )     —       (61,017 )
Salobo Metais S.A.
     100.00       100.00       421,603       —       1,955,375       50,079       1,409,846       917,053       —       —       (60,523 )     —       (60,523 )
Urucum Mineração S.A.
     100.00       100.00       176,151       12,944       57,389       51,169       126,482       68,834       125,019       (61,667 )     (47,205 )     (7,887 )     8,260  
Vale Manganês S.A.
     100.00       100.00       808,357       176,122       367,442       345,370       317,711       688,839       690,674       (422,633 )     (63,790 )     (9,771 )     194,481  
Vale Austrália Pty Ltd.
     100.00       100.00       503,306       357,145       2,353,778       293,889       1,847,046       1,073,291       877,725       (738,600 )     (386,612 )     (383 )     (247,871 )
Vale Colômbia Ltd
     100.00       100.00       13,432       —       908,036       13,413       213,495       694,560       —       —       —       —       —  
Vale Inco
     100.00       100.00       5,674,287       372,673       45,096,881       2,519,903       37,697,399       10,926,536       8,010,581       (6,518,327 )     (3,400,236 )     1,039,349       (868,633 )
Vale International S.A.
     100.00       100.00       27,232,346       53,131,961       41,829,289       10,074,368       45,445,105       66,674,120       25,221,748       (21,541,990 )     (7,008,888 )     (18,664 )     (3,347,794 )
Vale Manganese France
     100.00       100.00       193,463       155       97,901       91,019       8,888       191,613       216,764       (228,807 )     (35,260 )     1,045       (46,258 )
Vale Overseas Ltd.
     100.00       100.00       260,273       13,540,278       —       260,275       13,540,278       —       —       —       —       —       —  
Valesul Alumínio S.A (a)
     100.00       100.00       159,717       111,541       409,884       61,615       63,448       556,079       246,643       (225,486 )     (171,541 )     50,216       (100,167 )
 
                                                                                                        
Jointly-controlled companies
                                                                                                        
Baovale Mineração S.A.
     50.00       100.00       32,683       26       54,510       4,776       —       82,443       35,003       (4,626 )     (23,228 )     (3,954 )     3,195  
California Steel Industries, Inc.
     50.00       50.00       504,574       34,208       479,224       102,308       394,025       521,672       1,092,305       (1,020,476 )     (162,356 )     42,257       (48,270 )
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
     50.00       50.00       127,574       28,629       244,315       30,534       69,395       300,589       66,018       (12,280 )     35,942       (43,891 )     45,789  
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS
     50.89       51.00       184,398       88,719       129,653       69,690       47,160       285,920       139,756       (149,042 )     (58,076 )     20,189       (47,173 )
Companhia Ítalo-Brasileira de Pelotização — ITABRASCO
     50.90       51.00       133,210       55,269       201,415       18,506       59,056       312,333       45,605       (13,583 )     23,832       (11,101 )     44,753  
Companhia Nipo-Brasileira de Pelotização — NIBRASCO
     51.00       51.11       133,222       64,621       378,420       15,509       60,668       500,085       86,549       (32,782 )     (35,527 )     (21,834 )     (3,594 )
Minas da Serra Geral S.A. — MSG
     50.00       50.00       49,457       24,951       51,443       1,587       22,403       101,861       17,922       (9,665 )     (510 )     (1,661 )     6,086  
Mineração Rio do Norte S.A.
     40.00       40.00       142,711       404,311       883,964       509,351       281,275       640,360       810,916       (519,700 )     (114,155 )     (130,742 )     46,319  
MRS Logística S.A. (a)
     41.50       37.86       1,052,716       755,180       2,889,351       998,710       1,739,655       1,958,882       2,253,416       (1,217,868 )     (81,119 )     (311,312 )     643,116  
Samarco Mineração S.A.
     50.00       50.00       1,001,440       390,329       3,575,111       1,151,917       2,010,557       1,804,406       2,748,884       (1,333,244 )     63,981       (299,923 )     1,179,698  
Teal Minerals
     50.00       50.00       150,541       —       756,611       233,836       222,491       450,825       —       —       —       —       —  
     
Comments:
 
a)  
Includes direct and indirect ownership.
Additional information of the main operational investee companies is available on the Vale website. www.vale.com — Menu: “Investors”.

 

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B- Additional Information
11- CASH GENERATION (UNAUDITED)
Consolidated operating cash generation measured by EBITDA (earnings before financial results, equity in subsidiaries, income taxes, depreciation, amortization and depletion, increased by dividends received) was R$ 18,649 as of December 31,2009 against R$ 35,022 as of December 31, 2008, representing a decrease of 46,8%.
EBITDA is not a BR GAAP measure and does not represent the expected cash flow for the reporting periods and, therefore, should not be considered as an alternative measure to net income (loss), as an indicator of operating performance or as an alternative to cash flow as a liquidity source.
Vale definition of EBITDA may not be comparable with EBITDA as defined by other companies.
EBITDA — Consolidated
                                         
    Quarter (Unaudited)     Acumulado  
    4Q/09     3Q/09     3Q/08     2009     2008  
Operating profit — EBIT
     2,260       4,583       5,212       13,181       27,400  
Depreciation / amortization of goodwill
     1,449       1,448       1,322       5,447       5,112  
Impairment
     —       —       —       —       2,447  
 
                              
 
     3,709       6,031       6,534       18,628       34,959  
 
                                        
Dividends received
     —       —       25       21       63  
 
                              
EBITDA
     3,709       6,031       6,559       18,649       35,022  
 
                              
Depreciation / amortization of goodwill
     (1,449 )     (1,448 )     (1,322 )     (5,447 )     (5,112 )
Dividends received
     —       —       (25 )     (21 )     (63 )
Impairment
     —       —       (2,447 )     —       (2,447 )
Equity Results
     22       30       (410 )     116       (1,325 )
Gain (loss) on disposal of assets
     (330 )     129       —       93       139  
Financial results, net
     (460 )     199       (2,343 )     1,952       (3,838 )
Income tax and social contribution
     1,206       (1,840 )     2,465       (4,925 )     (665 )
Minority interests
     (69 )     (98 )     (36 )     (168 )     (432 )
 
                              
Net income
     2,629       3,003       2,441       10,249       21,279  
 
                              
Consolidated EBITDA by segment
                                         
    EBITDA  
    Quarter (Unaudited)     Acumulado  
    4Q/09     3Q/09     3Q/08     2009     2008  
Segments
                                        
Ferrous minerals
     3,279       4,879       5,712       16,207       25,067  
Non-ferrous minerals
     225       811       340       2,018       8,485  
Logistics
     180       349       529       930       1,491  
Steel
     9       14       (157 )     (7 )     18  
Others
     16       (22 )     135       (499 )     (39 )
 
                              
 
     3,709       6,031       6,559       18,649       35,022  
 
                              

 

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(VALE LOGO)
12- Board of Directors, Fiscal Council, Advisory Committees and Executive Officers
     
Board of Directors   Fiscal Council
 
    
Sérgio Ricardo Silva Rosa
  Marcelo Amaral Moraes
Chairman
  Chairman
 
    
Mário da Silveira Teixeira Júnior
  Aníbal Moreira dos Santos
Vice-President
  Antônio José de Figueiredo Ferreira
 
  Marcus Pereira Aucélio
Eduardo Fernando Jardim Pinto
    
Francisco Augusto da Costa e Silva
  Alternate
Jorge Luiz Pacheco
  Cícero da Silva
José Ricardo Sasseron
  Oswaldo Mário Pêgo de Amorim Azevedo
Ken Abe
    
Luciano Galvão Coutinho
   Executive Officers
Oscar Augusto de Camargo Filho
   
Renato da Cruz Gomes
   Roger Agnelli
Sandro Kohler Marcondes
  Chief Executive Officer
 
   
Alternate
   Carla Grasso
Deli Soares Pereira
  Executive Officer for Human Resources and Corporate
Hajime Tonoki
  Services
João Moisés de Oliveira
    
Luiz Augusto Ckless Silva
   Eduardo de Salles Bartolomeo
Luiz Carlos de Freitas
  Executive Officer for Logistics, Project Management and
Luiz Felix Freitas
  Sustainability
Paulo Sérgio Moreira da Fonseca
    
Raimundo Nonato Alves Amorim
   Fabio de Oliveira Barbosa
Rita de Cássia Paz Andrade Robles
  Chief Financial Officer and Investor Relations
Wanderlei Viçoso Fagundes
   
 
   José Carlos Martins
Advisory Committees of the Board of Directors
  Executive Officer for Ferrous Minerals
 
   
Controlling Committee
   Tito Botelho Martins
Luiz Carlos de Freitas
  Executive Officer for Non Ferrous
Paulo Ricardo Ultra Soares
   
Paulo Roberto Ferreira de Medeiros
   Marcus Vinícius Dias Severini
 
   Chief Officer of Accounting and Control Department
Executive Development Committee
    
João Moisés de Oliveira
   Chief Accountant
José Ricardo Sasseron
   Vera Lúcia de Almeida Pereira Elias
Oscar Augusto de Camargo Filho
   CRC-RJ — 043059/O-8
 
    
Strategic Committee
    
Roger Agnelli
    
Luciano Galvão Coutinho
    
Mário da Silveira Teixeira Júnior
    
Oscar Augusto de Camargo Filho
    
Sérgio Ricardo Silva Rosa
    
 
   
Finance Committee
   
Fabio de Oliveira Barbosa
    
Luiz Maurício Leuzinger
   
Ricardo Ferraz Torres
 
Wanderlei Viçoso Fagundes
   
 
    
Governance and Sustainability Committee
    
Jorge Luiz Pacheco
    
Renato da Cruz Gomes
    
Ricardo Simonsen
    

 

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Equity Investee Information – 12/31/2009
Aluminum Area — Albras (Adjusted and Unaudited)
                                                                                     
        2009     2008  
        As of and for the three-month periods ended             As of and for the three-month periods ended        
Information       March 31     June 30     September 30     December 31     Total     March 31     June 30     September 30     December 31     Total  
 
                                                                                    
Quantity sold — external market
   MT (thousand)     107       109       101       115       432       109       99       117       108       433  
Quantity sold — internal market
   MT (thousand)     5       6       5       7       23       7       6       7       6       25  
 
                                                              
Quantity sold — total
   MT (thousand)     112       115       106       122       455       116       105       124       114       459  
 
                                                              
 
                                                                                    
Average sales price — external market
   US$     1.388,35       1.378,32       1.689,77       1.852,89       1.579,27       2.486,87       2.939,31       2.888,76       2.138,46       2.605,19  
Average sales price — internal market
   US$     1.783,09       1.251,00       1.656,00       2.067,14       1.691,39       2.307,59       2.640,89       2.625,72       1.989,17       2.389,40  
Average sales price — total
   US$     1.405,98       1.372,42       1.688,08       1.865,19       1.584,94       2.476,70       2.920,77       2.874,64       2.130,52       2.593,10  
 
                                                                                    
Long-term indebtedness, gross
   US$     250.000       233.333       233,332       216.665       216.665       283.333       300.521       266.666       250.000       250.000  
Short-term indebtedness, gross
   US$     155.748       151.232       185,099       228.765       228.765       111.462       90.031       127.730       133.328       133.328  
 
                                                              
Total indebtedness, gross
   US$     405.748       384.565       418,431       445.430       445.430       394.795       390.552       394.396       383.328       383.328  
 
                                                              
 
                                                                                    
Stockholders’ equity
   R$     1.919.775       1.975.919       2.034,958       2.014.528       2.014.528       1.762.743       1.871.810       1.908.042       1.974.698       1.974.698  
 
                                                              
 
                                                                                    
Net operating revenues
   R$     361.771       325.595       332.265       392.815       1.412.446       507.262       513.302       583.876       556.610       2.161.050  
Cost of products
   R$     (377.260 )     (348.804 )     (325.348 )     (377.574 )     (1.428.986 )     (389.192 )     (370.909 )     (431.517 )     (445.146 )     (1.636.764 )
Other expenses / revenues
   R$     (29.997 )     (21.591 )     (23.647 )     (37.636 )     (112.871 )     (33.556 )     (34.060 )     (30.689 )     (36.839 )     (135.144 )
Depreciation, amortization and depletion
   R$     14.763       14.239       15.439       16.395       60.836       18.680       17.539       18.851       17.422       72.492  
 
                                                              
EBITDA
   R$     (30.723 )     (27.876 )     (1.291 )     (6.000 )     (68.575 )     103.194       125.872       140.521       92.047       461.634  
Depreciation, amortization and depletion
   R$     (14.763 )     (14.239 )     (15.439 )     (16.395 )     (60.836 )     (18.680 )     (17.539 )     (18.851 )     (17.422 )     (72.492 )
 
                                                              
EBIT
   R$     (45.486 )     (44.998 )     (16.730 )     (22.395 )     (129.411 )     84.514       108.333       121.670       74.625       389.142  
Non recurrent intens (Write-down of assets)
   R$     —               —       —       —       (6 )     —       (122 )     (19.743 )     (19.871 )
Net financial result
   R$     (3.175 )     131.343       59.173       25.967       213.308       (116.210 )     63.342       (72.234 )     (23.765 )     (148.867 )
Non operational results
   R$     —       —       —       —       —       —                                  
 
                                                              
Income before income tax and social contribution
   R$     (48.661 )     86.543       42.443       3.572       83.897       (31.702 )     171.675       49.314       31.117       220.404  
Income tax and social contribution
   R$     17.915       (30.398 )     (16.111 )     98.379       69.785       (14.510 )     (62.608 )     (13.082 )     18.084       (72.116 )
 
                                                              
Net income
   R$     (30.746 )     56.145       26.332       101.951       153.682       (46.212 )     109.067       36.232       49.201       148.288  
 
                                                              

 

 

Table of Contents

Aluminum Area — MRN (Adjusted and Unaudited)
                                                                                     
        2009     2008  
        As of and for the three-month periods ended             As of and for the three-month periods ended        
Information       March 31     June 30     September 30     December 31     Total     March 31     June 30     September 30     December 31     Total  
 
                                                                                    
Quantity sold — external market
   MT (thousand)     798       777       838       1.192       3.605       1.369       1.573       1.496       1.557       5.995  
Quantity sold — internal market
   MT (thousand)     2.640       2.865       3.182       3.346       12.033       2.621       2.949       3.268       3.415       12.253  
 
                                                              
Quantity sold — total
   MT (thousand)     3.438       3.642       4.020       4.538       15.638       3.990       4.522       4.764       4.972       18.248  
 
                                                              
 
                                                                                    
Average sales price — external market
   US$     35,19       32,96       29,66       29,90       31,51       61,52       34,93       34,71       36,96       41,47  
Average sales price — internal market
   US$     30,96       27,42       26,80       28,22       28,15       53,89       31,24       31,96       33,35       36,87  
Average sales price — total
   US$     31,94       28,61       27,39       28,66       28,92       56,51       32,52       32,83       35,16       38,56  
 
                                                                                    
Long-term indebtedness, gross
   US$     84.258       76.960       71.344       64.110       64.110       46.151       115.231       96.970       90.306       90.306  
Short-term indebtedness, gross
   US$     180.491       211.086       206.148       230.913       230.913       245.429       221.143       225.894       163.251       163.251  
 
                                                              
Total indebtedness, gross
   US$     264.749       288.046       277.492       295.023       295.023       291.580       336.374       322.864       253.557       253.557  
 
                                                              
 
                                                                                    
Stockholders’ equity
   R$     661.785       729,982       778,475       594.422       778,475       634.170       687.360       717.533       591.487       591.487  
 
                                                              
 
                                                                                    
Net operating revenues
   R$     229.025       193.875       184.243       203.773       810.916       206.543       220.647       242.896       377.298       1.047.384  
Cost of products
   R$     (121.426 )     (127.601 )     (127.221 )     (143.452 )     (519.700 )     (121.170 )     (150.287 )     (145.601 )     (168.979 )     (586.037 )
Other expenses / revenues
   R$     (2.524 )     (11.395 )     (2.365 )     878       (15.406 )     (4.622 )     (5.480 )     (5.586 )     899       (14.789 )
Depreciation, amortization and depletion
   R$     27.563       28.309       28.103       26.545       110.520       28.386       28.305       28.322       28.016       113.029  
 
                                                              
EBITDA
   R$     132.638       83.188       82.760       87.744       386.330       109.137       93.185       120.031       237.234       531.571  
Depreciation, amortization and depletion
   R$     (27.563 )     (28.309 )     (28.103 )     (26.545 )     (110.520 )     (28.386 )     (28.305 )     (28.322 )     (28.016 )     (113.029 )
 
                                                              
EBIT
   R$     105.075       54.879       54.657       61.199       275.810       80.751       64.880       91.709       209.218       446.558  
Net financial result
   R$     (1.985 )     47.642       19.059       (163.465 )     (98.749 )     (12.584 )     18.096       (53.799 )     (68.541 )     (116.828 )
 
                                                              
Income before income tax and social contribution
   R$     103.090       102.521       73.716       (102.266 )     177.061       68.167       82.976       37.910       140.677       329.730  
Income tax and social contribution
   R$     (39.480 )     (33.979 )     (26.494 )     (81.858 )     (181.811 )     (25.009 )     (29.786 )     (7.737 )     (46.817 )     (109.349 )
 
                                                              
Net income
   R$     63.610       68.542       47.222       (184.124 )     (4.750 )     43.158       53.190       30.173       93.860       220.381  
 
                                                              

 

 

Table of Contents

Aluminum Area — Alunorte (Adjusted and Unaudited)
                                                                                     
        2009     2008  
        As of and for the three-month periods ended             As of and for the three-month periods ended        
Information       March 31     June 30     September 30     December 31     Total     March 31     June 30     September 30     December 31     Total  
 
                                                                                    
Quantity sold — external market
   MT (thousand)     1.225       1.257       1.237       1.280       4.999       814       832       975       1.336       3.957  
Quantity sold — internal market
   MT (thousand)     216       273       253       218       960       235       258       301       250       1.044  
 
                                                              
Quantity sold — total
   MT (thousand)     1.441       1.530       1.490       1.498       5.959       1.049       1.090       1.276       1.586       5.001  
 
                                                              
 
                                                                                    
Average sales price — external market
   US$     192,84       214,82       255,36       287,31       238,90       322,36       372,73       378,60       286,74       359,27  
Average sales price — internal market
   US$     170,69       190,76       265,62       289,10       239,79       287,59       340,49       342,74       300,46       325,30  
Average sales price — total
   US$     195,62       210,39       257,10       287,57       239,05       314,57       365,10       370,14       288,91       343,47  
 
                                                                                    
Long-term indebtedness, gross
   US$     865.398       845.398       835.397       835.397       835.397       740.000       828.590       855.397       855.398       855.398  
Short-term indebtedness, gross
   US$     19.670       39.301       57.106       23.742       23.742       20.037       —       28.951       31.124       31.124  
 
                                                              
Total indebtedness, gross
   US$     885.068       884.699       892.503       859.139       859.139       760.037       828.590       884.348       886.522       886.522  
 
                                                              
 
                                                                                    
Stockholders’ equity
   R$     4.294       4.435       4.548.332       4.485.755       4.548.332       4.077.566       4.233.439       4.345.957       4.346.958       4.346.958  
 
                                                              
 
                                                                                    
Net operating revenues
   R$     643.619       668.535       700.910       738.493       2.751.557       574.017       660.565       789.345       1.033.795       3.057.722  
Cost of products
   R$     (705.018 )     (734.327 )     (659.268 )     (618.566 )     (2.717.179 )     (476.079 )     (478.374 )     (587.518 )     (754.073 )     (2.296.044 )
Other expenses / revenues
   R$     (19.070 )     (22.189 )     (26.458 )     (37.455 )     (105.172 )     (25.223 )     (26.517 )     (22.959 )     (49.473 )     (124.172 )
Depreciation, amortization and depletion
   R$     59.478       70.022       62.080       61.725       253.305       36.013       30.350       30.294       45.448       142.105  
 
                                                              
EBITDA
   R$     (23.991 )     (17.959 )     77.264       144.197       182.511       108.728       186.024       209.162       275.697       779.611  
Depreciation, amortization and depletion
   R$     (59.478 )     (70.022 )     (62.080 )     (61.725 )     (253.305 )     (36.013 )     (30.350 )     (30.294 )     (45.448 )     (142.105 )
 
                                                              
EBIT
   R$     (80.469 )     (87.981 )     15.184       82.472       (70.794 )     72.715       155.674       178.868       230.249       637.506  
Net financial result
   R$     43       302.604       135.850       652       439.149       (108.077 )     33.026       (57.123 )     (227.185 )     (359.359 )
Non recurrent intens (Write-down of assets)
   R$     —       —       —       —       —       —                               —  
 
                                                              
Income before income tax and social contribution
   R$     (80.426 )     214.623       151.034       83.124       368.355       (35.362 )     188.700       121.745       3.064       278.147  
Income tax and social contribution
   R$     28.075       (73.644 )     (51.321 )     (99.675 )     (196.565 )     (7.679 )     (32.826 )     (9.227 )     12.761       (36.971 )
 
                                                              
Net income
   R$     (52.351 )     140.979       99.713       (16.551 )     171.790       (43.041 )     155.874       112.518       15.825       241.176  
 
                                                              

 

 

Table of Contents

Aluminum Area — Valesul (Adjusted and Unaudited)
                                                                                     
        2009     2008  
        As of and for the three-month periods ended             As of and for the three-month periods ended        
Information       March 31     June 30     September 30     December 31     Total     March 31     June 30     September 30     December 31     Total  
 
                                                                                    
Quantity sold — external market
   MT (thousand)     2       —       —       —       2       4       7       6       4       21  
Quantity sold — internal market
   MT (thousand)     13       9       9       9       40       16       15       19       16       66  
 
                                                              
Quantity sold — total
   MT (thousand)     15       9       —       —       42       20       22       25       20       87  
 
                                                              
 
                                                                                    
Average sales price — external market
   US$     2.392,81       —       —       —       2,815,50       2.653,70       2.846,14       2.679,23       2.818,91       2.861,40  
Average sales price — internal market
   US$     2,133,06       3.629,56       3.164,66       3.596,33       2.972,28       3.786,95       4.168,23       3.321,93       2.575,30       3.695,60  
Average sales price — total
   US$     2.167,50       3,722,67       3.164,66       3.596,33       2.964,81       3.560,30       3.747,56       3.148,89       2.624,02       3.494,25  
 
                                                                                    
Stockholders’ equity
   R$     648       652       649.419       653.556       649.419       637.555       644.643       650.810       656       656  
 
                                                              
 
                                                                                    
Net operating revenues
   R$     59.818       51.448       56.965       78.412       246.643       100.607       115.282       134.658       100.820       451.367  
Cost of products
   R$     (61.642 )     (42.489 )     (52.200 )     (69.155 )     (225.486 )     (84.081 )     (91.021 )     (122.915 )     (87.461 )     (385.478 )
Other expenses / revenues
   R$     (6.948 )     (4.619 )     (7.020 )     (5.917 )     (24.504 )     (10.741 )     (10.754 )     (9.585 )     (11.768 )     (42.848 )
Depreciation, amortization and depletion
   R$     7.164       6.420       4.074       1.568       19.226       8.099       5.909       7.084       7.056       28.148  
 
                                                              
EBITDA
   R$     (1.608 )     10.760       1.819       4.908       15.879       13.884       19.416       9.242       8.647       51.189  
Depreciation, amortization and depletion
   R$     (7.164 )     (6.420 )     (4.074 )     (1.568 )     (19.226 )     (8.099 )     (5.909 )     (7.084 )     (7.056 )     (28.148 )
 
                                                              
EBIT
   R$     (8.772 )     4.340       (2.255 )     3.340       (3.347 )     5.785       13.507       2.158       1.591       23.041  
Net financial result
   R$     200       (390 )     49       798       657       (905 )     (372 )     10.469       9.248       18.440  
 
                                                              
Income before income tax and social contribution
   R$     (8.572 )     3.950       (2.206 )     4.138       (2.690 )     4.880       13.135       12.627       10.839       41.481  
Income tax and social contribution
   R$     —       —       —       —       —       (2.814 )     (6.045 )     (6.460 )     (5.405 )     (20.724 )
 
                                                              
Net income
   R$     (8.572 )     3.950       (2.206 )     4.138       (2.690 )     2.066       7.090       6.167       5.434       20.757  
 
                                                              

 

 

Table of Contents

Pellets Area – Hispanobras (Adjusted and Unaudited)
                                                                                     
        2009     2008  
        As of and for the three-month periods ended             As of and for the three-month periods ended        
Information       March 31     June 30     September 30     December 31     Total     March 31     June 30     September 30     December 31     Total  
 
                                                                                    
Quantity sold — external market
   MT (thousand)     —       —       —       75       75       404       400       618       —       1.422  
Quantity sold — internal market
   MT (thousand)     —       —       243       753       996       710       805       554       396       2.465  
 
                                                              
Quantity sold — total
   MT (thousand)     —       —       243       828       1.071       1.114       1.205       1.172       362       3.887  
 
                                                              
 
                                                                                    
Average sales price — external market
   US$   —       —       —       70,90       62,70       71,45       203,07       227,18       —       176,15  
Average sales price — internal market
   US$   —       —       70,08       75,18       65,66       75,95       203,58       236,04       146,47       164,94  
Average sales price — total
   US$     —       —       70,08       74,79       65,46       74,32       203,41       231,37       146,47       169,04  
 
                                                                                    
Short-term indebtedness, gross
   US$   —       —       —       —       —       75.338       58.382       7.474       —       7.474  
 
                                                              
Total indebtedness, gross
   US$     —       —       —       —       —       75.338       58.382       7.474       —       —  
 
                                                              
 
                                                                                    
Stockholders’ equity
   R$     222,769       204,581       296,327       285,920       285,920       157.097       264.714       301       333.094       333.094  
 
                                                              
 
                                                                                    
Net operating revenues
   R$     276       —       31.811       107.669       139.756       144.995       409.554       274.225       113.968       942.742  
Cost of products
   R$     —       —       (34.448 )     (114.593 )     (149.041 )     (129.399 )     (237.400 )     (196.794 )     (81.105 )     (644.698 )
Other expenses / revenues
   R$     (17.175 )     (20.975 )     (20.879 )     (7.625 )     (66.654 )     (4.226 )     (5.218 )     (3.828 )     (14.393 )     (27.665 )
Depreciation, amortization and depletion
   R$     21       6       1.032       3.746       4.805       1.832       2.106       2.341       1.980       8.259  
 
                                                              
EBITDA
   R$     (16.878 )     (20.969 )     (22.484 )     (10.803 )     (71.134 )     13.202       169.042       75.944       18.470       276.658  
Depreciation, amortization and depletion
   R$     (21 )     (6 )     (1.032 )     (3.746 )     (4.805 )     (1.832 )     (2.106 )     (2.341 )     (1.980 )     (8.259 )
 
                                                              
EBIT
   R$     (16.899 )     (20.975 )     (23.516 )     (14.549 )     (75.939 )     11.370       166.936       73.603       18.470       270.379  
Net financial result
   R$     2.514       2.704       1.685       1.675       8.578       901       (2.986 )     11.974       30.417       40.306  
 
                                                              
Income before income tax and social contribution
   R$     (14.385 )     (18.271 )     (21.831 )     (12.874 )     (67.361 )     12.271       163.950       85.577       48.887       310.685  
Income tax and social contribution
   R$     95       83       17.543       2.467       20.188       (5.138 )     (56.334 )     (29.992 )     (17.044 )     (108.508 )
 
                                                              
Net income
   R$     (14.290 )     (18.188 )     (4.288 )     (10.407 )     (47.173 )     7.133       107.616       55.585       31.843       202.177  
 
                                                              

 

 

Table of Contents

Pellets Area – Samarco (Adjusted and Unaudited)
                                                                                     
        2009     2008  
        As of and for the three-month periods ended             As of and for the three-month periods ended        
Information       March 31     June 30     September 30     December 31     Total     March 31     June 30     September 30     December 31     Total  
 
                                                                                    
Quantity sold — Pellets
   MT (thousand)     2.141       3.313       6.011       5.440       16.905       3.010       4.327       5.519       3.413       16.269  
Quantity sold — Iron ore
   MT (thousand)     714       236       345       314       1.609       168       140       154       202       664  
 
                                                                                    
Average sales price — Pellets
   US$   98,56       71,89       70,60       80       75,01       105,51       142,07       152,30       156,17       141,95  
Quantity sold — Iron ore
   US$     62,56       75,17       45,52       56       61,36       47,61       98,95       73,86       85,18       76,08  
 
                                                                                    
Long-term indebtedness, gross
   US$     769.734       819.663       719.676       949.564       949.564       799.634       799.597       799.666       799.726       799.726  
Short-term indebtedness, gross
   US$     698.816       455.569       415.149       520.704       520.704       591.496       845.623       987.132       783.013       783.013  
 
                                                              
Total indebtedness, gross
   US$     1.468.550       1.275.232       1.134.825       1.470.268       1.470.268       1.391.130       1.645.220       1.786.798       1.582.739       1.582.739  
 
                                                              
 
                                                                                    
Stockholders’ equity
   R$     791,000       1.235,020       1.619.465       1.804,406       1.619.465       995.859       1.493.766       1.377.023       599.872       599.872  
 
                                                              
 
                                                                                    
Net operating revenues
   R$   600.154       535.866       825.334       787.530       2.748.884       576.988       1.033.109       1.387.256       1.248.950       4.246.303  
Cost of products
   R$     (218.224 )     (360.903 )     (431.360 )     (439.901 )     (1.450.388 )     (275.764 )     (450.521 )     (520.484 )     (353.458 )     (1.600.227 )
Other expenses / revenues
   R$     (133.437 )     (7.991 )     (89.788 )     (100.548 )     (331.764 )     (76.574 )     (160.350 )     (89.263 )     (156.344 )     (482.531 )
Depreciation, amortization and depletion
   R$     32.103       35.160       36.408       69.801       173.472       13.635       26.227       44.595       44.008       128.465  
 
                                                              
EBITDA
   R$     280.596       202.132       340.594       316.882       1.140.204       238.285       448.465       822.104       783.156       2.292.010  
Depreciation, amortization and depletion
   R$     (32.103 )     (35.160 )     (36.408 )     (69.801 )     (173.472 )     (13.635 )     (26.227 )     (44.595 )     (44.008 )     (128.465 )
 
                                                              
EBIT
   R$     248.493       166.972       304.186       247.081       966.732       224.650       422.238       777.509       739.148       2.163.545  
Net financial result
   R$     (7.768 )     345.759       147.444       27.454       512.889       5.635       176.662       (466.551 )     (547.667 )     (831.921 )
 
                                                              
Income before income tax and social contribution
   R$     240.725       512.731       451.630       274.535       1.479.621       230.285       598.900       310.958       191.481       1.331.624  
Income tax and social contribution
   R$     (43.826 )     (120.145 )     (67.185 )     (68.767 )     (299.923 )     (57.342 )     (100.979 )     (46.457 )     (21.571 )     (226.349 )
 
                                                              
Net income
   R$     196.899       392.586       384.445       205.768       1.179.698       172.943       497.921       264.501       169.910       1.105.275  
 
                                                              

 

 

Table of Contents

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.
         
Date: February 10, 2010  Vale S.A.
(Registrant)
 		  
  By:   /s/ Roberto Castello Branco    
    Roberto Castello Branco   
    Director of Investor Relations