ANNUAL REPORT 2008extapps.mz-ir.com/rao/bradespar/2008/raen.pdf ANNUAL REPORT 2008 solidity...

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ANNUAL REPORT 2008solidityprospects

%V = % Voting Capital%t = % total Capital

The market value of assets owned by BRADESPAR in VALE and CPFL Energia, less net debt amounted to approximately R$8.6 billion at the end of 2008.

Bradespar

antares

Brumado

CpFL energia

100% V/T

100% V/T

5.9% V/T

Millennium

100% V/T

Valepar

VaLe

21.2% V 17.4% T

2.8% V/T53.6% V32.9% T

COMpaNY prOFILe

Currently, BRADESPAR is a holding company with investments in VALE and CPFL Energia. The Company was created in March 2000 from the carve out of Banco Bradesco S.A.. The market value of its assets, less net debt, amounted to R$8.6 billion on December 31, 2008.

MIssION

To create value for its shareholders, combining active management and investments with effective participation in investees’ strategic decisions.

CONsOLIdatedHOLdING

Coordenação geral e textoBradespar S.a.

Revisão Final e apoio a CoordenaçãoMZ Comunicação Corporativa integrada

Fotos Marcos piffer/Sambaphotoarquivos da Bradespar

Design gráfico e EditorialCássio leitão Design

pré-impressão e impressãoStilgraf

BRaDESpaR tiMElinE

2008

JULYBRADESPAR participates in VALE global offering, investing R$1.376 billion by means of Valepar. The funds were raised on the market on July 18, 2008 with the first Public Offering of registered Promissory Notes, amounting to R$1.4 billion, maturing on January 14, 2009. Valepar (holding company) owns a 53.6% interest in the voting capital and 32.9% of total capital of VALE.

NOVeMBerBRADESPAR approves the first Public Offering of Simple Debentures, in the amount of R$610 million and the second Public Offering of Promissory Notes, in the amount of R$690 million. In January 2009, BRADESPAR settled the liability of the first Issue of Promissory Notes, using the proceeds of these issues plus R$100 million with the balance between the debt amount and new issues with Company’s funds.

2007

JaNUarY tO MaY Administrative restructuring with cost savings. During first five months of the year, a broad administrative restructuring was carried out. Since February, BRADESPAR has been outsourcing the execution of general and administrative services, and in May, the Company reduced the number of statutory officers to only two.

2006

FeBrUarY tO aprILCorporate restructuring of BRADESPLAN.BRADESPLAN transferred its stake in Antares and Millennium to BRADESPAR, by means of a spin-off and capital decrease. The remaining assets are represented by tax credits and Globopar Euronotes.

MaYBRADESPAR sold 100% of BRADESPLAN shares for R$308 million in cash. This operation added profit of R$57.7 million to 2006 results.Bonds issued by subsidiary Millennium were settled in the amount of US$50 million with Bradespar’s funds thus eliminating the group’s indebtedness.

deCeMBerCorporate restructuring of VBC/CPFL Energia. BRADESPAR concluded its withdrawal from VBC, becoming the direct holder of 43,049,000 CPFL Energia shares, not binding upon the Shareholders’ Agreement and representing 8.97% of the capital stock, which may be traded in the open market.

2005

MarCH In August 2004, NET common shares were swapped for preferred shares, and received a 20% control premium. As a result of this swap, the rights and obligations of BRADESPAR in NET Serviços shareholders’ agreement were extinguished. Then BRADESPAR initiated the sale of its preferred share stake derived from swap on the stock exchange. In March 2005, the Company completed the sale of its stake in NET Serviços.

septeMBerSecondary Public Tender Offer of BRADESPAR shares held by Grupo Espírito Santo. A total of 9.5 million shares were sold, raising the free float from 60.7% to 71.6%. Average daily trading volume increased 70%, from R$11.5 million from January to August to R$19.6 million from September to December.Tag-along rights. BRADESPAR extended 80% tag-along right to preferred shareholders, without prejudice of receiving dividends over 10% than those received by common shares. In addition, minority shareholders tag-along rights were increased from 80% to 100%.

OCtOBerThe minimum dividend policy is disclosed. Based on cash flows and aiming to improve the predictability of shareholders’ minimum compensation in the form of dividends and interest on equity, the Minimum Dividend Policy took effect in February 2006.

2004

MarCHPurchase of Valepar shares held by Opportunity for R$376.9 million. At the same time, Elétron was spun off, increasing the liquidity of BRADESPAR’s stake in Valepar.

septeMBerCPFL Energia conducted its initial public offering, raising over R$821 million. This operation also enabled the partial sale of CPFL Energia shares by VBC, a holding company in which BRADESPAR owned 33.3% on the secondary market. BRADESPAR implemented its investment management strategy and at the same time provided higher liquidity for its stake.

deCeMBer Public Tender Offer of BRADESPAR preferred shares raised over R$1 billion. This was the second largest operation in Brazil’s capital markets in 2004, exceeding by 35% the lot of 10 million shares originally tendered. Thanks to this fact, at year-end, BRADESPAR’s net debt amounted to R$46 million against R$1.1 billion on September 30, 2004.

2003

MarCH Acquisition of 45% held by Sweet River in Valepar. Amounting to R$827 million, this operation enabled BRADESPAR to increase its stake in Valepar and eliminate the conflict of interests in VALE’s controlling groups, to the extent that one of its main competitors held approximately 67% of Sweet River’s capital.

septeMBer Mitsui buys Company’s stake in Valepar. The operation, which amounted to R$2.5 billion, allowed BRADESPAR to pay down more than R$2 billion in debt. Share sales price represented at that time a 64% premium over the market price of VALE’s common shares.

2002

FeBrUarYScopus Tecnologia is sold for R$37 million.

aUGUstCPFL Energia is incorporated (corporation renamed Draft II Participações). The holding company took control of CPFL Group’s energy generation, distribution and commercialization activities.

deCeMBerConsolidation of Valepar’s control of VALE by means of capital increase. Valepar’s stake in VALE increased from 42% to 52% of the voting capital.

2001

JaNUarYBRADESPAR’s capital is increased, in the amount of R$500 million, which relied on the participation of Grupo Espírito Santo in the Company’s ownership structure and respective Shareholders’ Agreement.

MarCH Financial settlement to unwind the cross-shareholding of VALE and CSN. This operation enabled VALE to focus its strategy on mining and logistics activities.

2000

MarCH BRADESPAR is incorporated.

aUGUstBRADESPAR shares begin trading on the stock exchange.

septeMBerPublic tender offer of BRADESPAR shares by its controlling shareholders. No shareholders tendered their shares in the operation, evidence of shareholder confidence in the company.

(1) Elétron: company formed to hold interest in Valepar; 85.6% of its capital was held by BRADESPLAN and 14.4% by Opportunity group.





Bradespar

antares

Brumado

CpFL energia

100% V/T

100% V/T

5.9% V/T

Millennium

100% V/T

Valepar

VaLe

21.2% V 17.4% T

2.8% V/T53.6% V32.9% T

COMpaNY prOFILe


MIssION


CONsOLIdatedHOLdING

INVESTMENT APPRECIATION

Over eight years of active participation in the market, the net value of BRADESPAR assets increased at an annual average rate of 23.2%, while CDI yielded 16.7% and Ibovespa 8.9%.

30.12.2008 29.2.2000

Valepar/VALE(1) 8,374.6 764.4

CPFLEnergia(1)(2) 1,210.9 201.2

NetServiços(1) – 725.1

CSN(1) – 694.2

ScopusTecnologia(1) – 16.0

Total Assets 9,585.5 2,400.9

NetDebt(3) (1,006.0) (1,043.1)

Assets Net Value 8,579.5 1,357.8

Accumulated AnnualAverage

AssetsNetValue 532% 23.2%

CDI 292% 16.7%

Ibovespa 113% 8.9%

(1)Investmentsanddivestmentsofinvestees

arereflectedinBrADESPAr’snetdebt.

(2)VBCbookvalue(parentcompanyofCPFL

Energia)onFebruary29,2000.

(3)NetdebtonFebruary29,2000adjusted

by:(i)capitalincreaseofr$500millionin

2001(usedinbuybackofdebentures);(ii)

DividendspaidbyBrADESPArin2001of

r$28million;(iii)capitalincreasein2004

ofr$1.044billion(usedinbuybackof

debentures);(iv)InterestonEquitypaidby

BrADESPArin2005ofr$180million;(v)

InterestonEquitypaidbyBrADESPArin

2006ofr$213million;(vi)r$285.9million

ofInterestonEquityandr$99.2millionof

dividendspaidbyBrADESPArin2007;(vii)

r$240.2millioninInterestonEquity

andr$143.5millionindividendspaid

byBrADESPArin2008.Theseamounts

werediscountedbytheaccumulatedCDI

betweentherespectivepaymentdates

andFebruary29,2000.

Assets Net Market Value (R$ million)

Return on Investment

TABLEOFCONTENTS

01. Message to shareholders 04

02. strategy 06

03. Corporate governanCe 08Ownership Structure 10Tag Along 10Shareholders’ Agreement 10Board of Directors 11Board Members 11Board of Executive Officers 11Control Bodies 11

04. eConoMiC and FinanCial aspeCts 12

Operating Revenue 14Payroll, General and Administrative Expenses 15Financial Result 15Other Operating Revenues (Expenses) 15Net Income 16Payment of Dividends and Interest on Equity 16

05. risk ManageMent 18

3

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Annualr

eport2008

06. Capital Markets 20Share Price Performance 22Liquidity 23Premium/Discount 25

07. CoMMents on operating investees 26

VALE 26CPFL Energia 28

08. soCial responsibility 30

09. outlook 32

10. CoMpany inForMation 34

11. FinanCial stateMents 35

Important note: the images illustrating this Annual Report inspire our vision of broad horizons and also productive capacity, portraying confidence in building the Company’s future and solidity, always confident in the performance capacity of our investees and in the country.

3

01 MESSAgETOShArEhOLDErS

CONfIdENCE ANd SOlIdITy The year 2008 was marked by great challenges for all. The deterioration of the global economy and financial turbulence were deeply felt, especially in the last quarter of the year.

Despite the unstable macroeconomic scenario, we made significant achievements in 2008. BRADESPAR recorded Net Income of R$1.13 billion, the highest in its history. Dividends and Interest on Equity paid to shareholders totaled R$383.7 million in the year, keeping pace with the highest annual amount ever paid by the Company and proving its commitment to generate value for its shareholders.

The main event in the year was BRADESPAR’s subscription of the preferred C-class shares issued by Valepar which, in turn, used the funds to subscribe to the common and preferred shares of VALE under the latter’s global public offering. Thus, BRADESPAR further consolidated its interest in VALE, a global company, the largest private investor in Brazil that stands out in its key markets by the size and quality of its assets.

To finance its investment in Valepar, BRADESPAR carried out its 1st Issue of Promissory Notes in July, totaling R$1.4 billion, for a 6-month term. As this transaction matured, it launched the 1st Issue of Simple Debentures totaling R$610 million for a

36-month term, which could be refinanced in 18 months, and the 2nd Issue of Promissory Notes amounting to R$690 million, with a 6-month term. Funds from these operations were used exclusively to pay off the principal amount of the 1st Issue of Promissory Notes. To pay off the remaining debt, the Company used its own funds.

The evolution of BRADESPAR’s results may be described and analyzed based on the success of the companies in which it invests – VALE and CPFL Energia. Despite the shrinking of the global market, VALE has been quickly adapting to the new scenario, surpassing expectations. Its net income of R$21.3 billion resulted in a R$1.08 billion equity income for BRADESPAR. VALE’s gross revenue was the highest in its history, reaching R$72.8 billion, 9.6% above 2007.

The active participation of BRADESPAR in VALE’s Board of Directors and Advisory Committees, in partnership with other controlling shareholders of Valepar S.A., has positively contributed to minimizing costs, revaluating the investment program and preserving cash in pursuit of more profitable growth options.

As for CPFL Energia, despite the adverse scenario, the results were also positive, yielding R$118.4 million in Dividends and Interest on

Annualr

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5

Equity. It is important to mention that CPFL Energia is currently one of the most solid companies in Brazil, strengthened by its market leadership, which is crucial to the development of the economy.

Conservative and well-coordinated measures, transparency, and the determination to act were BRADESPAR’s traits in 2008. The main unifier of the initiatives, according to the Company’s tradition, was upholding the interests of its shareholders. Thus, the general strategy was to ensure the solidity of the Company in the actions to provide confidence for the future. This is what BRADESPAR has sought to show its shareholders, the market and analysts.

The determination to act and positive expectations regarding all actions carried out in 2008 were originated during the eight years when the Company was constructed actively, as well as during the perfecting of its Corporate Governance. In 2009 larger challenges will arise, the investees must have the ability to continue to reduce costs and guide their business with competence and wisdom, always aiming at safety and meeting the demands of adjustments in the economy.

In this scenario of constant change, BRADESPAR is well positioned – with a solid Company, shareholder confidence, and the dedication of its executive officers, employees and the efforts of its

investee companies to look ahead, advance and progress. We thank all those who supported us, once again, with the confidence that they will be by our side in 2009.

São Paulo, SP, March 26, 2009.

Lázaro de Mello BrandãoChairman of the Board of Directors

02 STrATEgY

Annualr

eport2008BRADESPAR’s active participation in

VALE’s top management contributed to mitigate adverse factors, benefiting the Company’s adjustment to a scenario of global deceleration.

BRADESPAR’s priority is to create value for its shareholders and evaluate business structures that provide higher liquidity for its stakes. The focus on active participation in VALE’s management, added to the stake in CPFL Energia, resulted in record of net income and distribution of dividends and interest on equity.

Its participation in VALE’s controlling block, with representatives on the Board of Directors and Executive Development, Governance and Sustainability Committees, Controllership and Financial Committee, results in a significant

competitive advantage in terms of investment management. In 2008, this practice consolidated over the years, contributed to soften adverse effects, allowing the company to adapt to the global deceleration. For CPFL Energia, the leading company in its sector, BRADESPAR constantly monitors performance and decision-making, without direct participation in the management. In both investees, it is part of our strategic positioning to evaluate divestment opportunities that prove to be in the best interest of shareholders.

7

COrPOrATEgOVErNANCE03

Annualr

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Entrepreneurial behavior standards of BRADESPAR’s controlling shareholders are guided by the principles of responsible corporate practices, based on transparency, respect for minority sha-reholders’ rights, equity and accountability. BRADESPAR’s shares have been listed on the capi-tal markets since 2000, and it has become one of the main companies to adhere to the Corporate Governance Level 1 at BM&FBOVESPA S.A. – Se-curities, Commodities and Futures Exchange. In the same year, a new phase in its history began by means of two important events: joining the Index of Companies with Special Corporate Governance Practices and by trading its shares with the Corpo-rate Governance Quality seal. In addition, it is lis-ted on the Latibex – Market for Latin American Stocks in Euros of Madrid Stock Exchange, in Spain, and the Over-the-Counter Market on the London Stock Exchange. On the Madrid Stock Ex-change, its stocks are traded in Euros, by means of a Depositary Receipts Program, connected to Glo-bal Depositary Receipts.

Transparent and regular communication with the market plays an important role in BRADESPAR’s management. We seek to keep shareholders, authorities, and other stakeholders informed in a timely manner about all events in-volving the Company . In line with good corpora-te governance practices, communication is carried out in an integrated fashion, combining several initiatives including press releases of material in-formation, a bimonthly bulletin for investors, conference calls, quarterly reports and the Annual Report. Key drivers for the success of this process are seminars and public meetings with market analysts which took place especially in São Paulo and Rio de Janeiro in 2008, besides the participa-tion in meetings with investors in Europe and the United States. In addition, the Company’s Web page (www.bradespar.com), makes available in Portuguese, English and Spanish versions a com-plete track record, year by year of its activities.

Transparency in communication with the market plays an important role in BRADESPAR’s management and integrates a broad set of initiatives.

9

03. CORPORATE GOVERNANCE

TAG AlONGBRADESPAR’s Corporate Governance model is characterized by best practices, which have been constantly renewed. The Tag Along is an example of this model, at higher levels than those set forth by law. The tag along for common shares corresponds to 100% of the amount paid per share composing the control block. Tag along is 80% for preferred shares, besides the right to receive dividends higher than 10% those paid to common shares.

SHAREHOldERS’ AGREEMENTBRADESPAR’s shareholders agreement , established in March 2001, has a 10-year duration. Controlling shareholders are entitled to preemptive rights in the acquisition of shares held by the Group, except for transfers between Grupo Espírito Santo’s companies. Since Grupo Espírito Santo holds a stake representing more than 5% of voting capital, it is entitled to appoint a member to the Board of Directors.

OwNERSHIP STRuCTuREBRADESPAR’s control group is composed of same controlling shareholders of Banco Bradesco S.A.: Cidade de Deus – Companhia Comercial de Participações, Fundação Bradesco, NCF Participações S.A. and Nova Cidade de Deus Participações S.A. Grupo Espírito Santo, by means of its Pension Fund, owns 5.4% of voting capital and is entitled to appoint a member to the Board of Directors, a prerogative established in the Shareholders’ Agreement.BRADESPAR’s control group structure is composed as follows:

Grupo Espírito Santo5.4% ON1.9% Total

BRAdESPAR

Controlling Group 72.1% ON1.4% PN26.2% Total

On December 31,2008, BRADESPAR’s capital stock was composed of 349,689,400 shares, of which 122,664,504 are common shares and 227,024,896 are preferred shares

free float22.5% ON98.6% PN71.9% Total

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11

BOARd Of dIRECTORS The Board of Directors of BRADESPAR S.A. is composed of eight members and it held 24 meetings in 2008. It is responsible for setting the Company’s strategy in addition to relevant business decisions and risk management. Among its attributions, it elects the members of the Board of Executive Officers. The board members’ term of office is one year and coincides with the Board of Executive Officers.

BOARd MEMBERS Lázaro de Mello Brandão has been Chairman of the Board of Directors since the Company’s inception, and he also chairs the Board of Directors of Banco Bradesco S.A.. Antônio Bornia is the Vice-Chairman, a position also held at Bradesco. The Board members are Mário da Silveira Teixeira Júnior, a member of Bradesco’s Board of Directors and Vice Chairman of Companhia VALE do Rio Doce S.A. and Valepar S.A.’s Board of Directors; Márcio Artur Laurelli Cypriano, João Aguiar Alvarez and Denise Aguiar Alvarez, members of Bradesco’s Board of Directors; Ricardo Abecassis Espírito Santo Silva, member of Banco Espírito Santo S.A.’s Board of Directors; and Francisco Ravara Cary, administrator of Banco Espírito Santo de Investimento.The group of BRADESPAR S.A.’s controlling shareholders is composed of same shareholders that control Banco Bradesco S.A.

BOARd Of ExECuTIVE OffICERS The Board of Executive officers answers for the execution of strategies outlined by the Board of Directors, as well as the business management and the fulfillment of objectives defined for the Company. It is composed of João Moisés de Oliveira, Chief Executive Officer, also member of the Board of Directors of Valepar S.A. and deputy member of VALE, who also was Departmental Director of Banco Bradesco S.A., and Renato da Cruz Gomes, Investor Relations Officer, also member of the Board of Directors of VALE and Valepar S.A.; and Officer of Valepar S.A.

CONTROl BOdIESThese represent the control bodies of the Fiscal Council and external audit. The Fiscal Council, which is not permanent, is composed of three sitting members and respective deputies. It is structured as an independent entity and is focused on management actions and company accounting. In 2008, the Council held five meetings. The independent external audit, under the responsibility of Deloitte Touche Tohmatsu Auditores Independentes does not perform any other service at BRADESPAR that is not specifically related to audit. Control bodies provide balance and effectiveness to the management in its Corporate Governance model. Thus, they contribute to a continued improvement of internal control systems and management of eventual conflicts.

BRADESPAR S.A.’s controlling block is composed of the same shareholders that control Banco Bradesco S.A.

ECONOMICANDFINANCIALASPECTS04

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13

As has been happening every year, to make its results more transparent, BRADESPAR discloses its financial information annually, consolidating its non-operational subsidiaries. This method allows a better understanding of its financial position, as it clearly separates its rights and obligations relating to the investees. In line with Brazilian Corporate Law, this information is disclosed in thousands of Reais.

The effects of new accounting practices intro-duced by Law 11.638/07, amended by Provisional Measure 449/08, impacted BRADESPAR’s results by reducing the equity and net income in the amount of R$473 million (See Note 2).

12.31.2008 12.31.2007

Equityintheearningsofsubsidiariesand

associatedcompanies 978,837 968,070

Equitypick-up–redeemableshares 100,828 –

Divestments 9,591 –

DividendsreceivedfromCPFLEnergia 118,448 140,365

Gross Operating Income 1,207,704 1,108,435

PersonnelExpenses (4,542) (6,702)

generalandAdministrativeExpenses (7,560) (3,865)

goodwillAmortization – (47,433)

Financialrevenue(Expense),net (45,661) 34,567

OtherOperatingrevenue(Expense) (22,490) 4,032

Operating Income 1,127,451 1,089,034

Income Tax/Social Contribution (1,180) (4,247)

Net Income 1,126,271 1,084,787

Statement of Income (R$ thousand)

OPERATING REVENuE As an investment company, BRADESPAR’s operating revenue is generated by equity income, which includes Dividends and Interest on Equity from Valepar/VALE and CPFL Energia.

In 2008, BRADESPAR’s operating revenue totaled R$1.2 billion, 9% higher than in the previous year, and was as follows:

• Equity income R$1.08 billion from Valepar/VALE, which was 11.5% higher than the recurring equity income in 2007.

• Revenue of R$118.4 million related to the dividends received from CPFL Energia, which was 15.6% lower than in the previous year.

• A sum of R$9.6 million resulting from the sale of 1,178,100 shares of CPFL Energia.

04. ECONOMIC AND FINANCIAL ASPECTS

12.31.2008 12.31.2007

Equitypick-upofVale/Valepar 1,079,665 968,070

Divestments 9,591 –

DividendsreceivedfromCPFLEnergia 118,448 140,365

Total 1,207,704 1,108,435

Operating Revenues (R$ thousand)

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PAyROll, GENERAl ANd AdMINISTRATIVE ExPENSESPersonnel expenses totaled R$4.5 million in 2008, 32.2% lower than in 2007. General and Administrative expenses were R$7.6 million, mainly due to the hiring of financial consultants, lawyers and other advisors for the Public Offering of Promissory Notes and Debentures between July 2008 and January 2009.

fINANCIAl RESulTThe net financial expense of R$45.7 million reflects the provision for payment of interest on BRADESPAR’s First Issue of Promissory Notes, corresponding to the accrued variation of 106% of the average one-day interbank deposit rate (DI). Such interest was fully paid, along with the main debt, in January 2009.

15

OTHER OPERATING REVENuES (ExPENSES)Other Operating Expenses, made up mainly of taxes and provisions, was R$22.5 million in 2008 due to the higher taxes from higher payment of Interest on Equity by Valepar/VALE. In 2007, the result was a revenue of R$4 million, due to the reversal of R$20.2 million from the tax contingency provisions thanks to a favorable decision by the Supreme Court with regard to the calculation of COFINS on revenues.

NET INCOMEIn 2008, BRADESPAR recorded net income of R$1.13 billion, 3.8% higher than in 2007. Return on Average Equity (ROAE) was 25.6%.

PAyMENT Of dIVIdENdS ANd INTEREST ON EQuITyAt BRADESPAR, payment of Dividends and/or Interest on Equity is assured by the “Minimum

04. ECONOMIC AND FINANCIAL ASPECTS

2000* 2001 2002 2003 2004 2005 2006 2007 2008*It corresponds to 10 months of activities. Note: ROAE = Net Income/Average Shareholders’ Equity

NET INCOmE (LOSS) – R$ mILLION

ROAE-%

93.0

9.1%

(162.0)

-9.7%

(222.1)

-16.7%

(114.0)

-9.8%

174.2

10.4%

636.9

26.0%

764.3

26.3%

30.9%

25.6%

1,084.81,126.3

Net Income (R$ million)x ROAE (%)

Annualr

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17

In 2008, for the fifth consecutive year, BRADESPAR posted an increase in net income.

Annual Shareholder Remuneration Policy” esta-blished in 2005 that without prejudice to the Byla-ws stipulates payment of at least 30% of Adjusted Net Income.

True to its commitment, on February 29 the Executive Board proposed the minimum payment in Brazilian Reais to be distributed as Dividends and Interest on Equity, equivalent to US$200 million for the year 2008, divided into two installments of US$100 million each, paid in May and in November.

The First Installment of US$100.9 million (R$172.2 million) was paid as Interest on Equity on May 15, 2008.

The Second Installment, consisting of R$68 million as Interest on Equity and R$143.5 million as Dividends, was paid on November 14, 2008, and was at the same levels as in 2007.

In February 2009, BRADESPAR announced the minimum payment of US$200 million for the current fiscal year, to be converted to Reais at the Brazilian Reais/US dollar exchange rate (Ptax-Option 5) published by the Brazilian Central Bank one business day before the Board of Directors’ Meetings scheduled for April 30, 2009 and October 30, 2009. Said amount will be paid in two equal installments of US$100 million, on May 15, 2009 and November 13, 2009.

2001(27,811)

2005(180,000)

2006(212,957)

2007(385,111)

5.30.2001

12.24.2005

11.11.2005

5.15.2006

11.13.2006

1.08.2007

5.15.2007

11.14.2007

11.14.2008

5.15.2008

2000(27,811)

2004(80,000)

2006(262,827)

2007(379,996)

2008(211,510)

2005(227,445)

27,811

80,000

127,445

85,512

120,000

57,315

84,932

81,000

143,510

41,864

68,000

100,000

172,200

2008(383,710)

1717

Amount Year CashBase Year

(R$ thousand)

Payment date of

dividends/interest

on equity

rISKMANAgEMENT05

Annualr

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1919

All risk management at BRADESPAR is focused on reducing the uncertainties inherent to the Company’s businesses and equity interests are its core businesses. Management methodology basic funda-mentals are to assess risks at early stages and define coherent performance boun-daries, always attentive to market risks and asset exposure. At the end of 2008, net debt that had been reduced to zero in 2007, increased to R$1 billion due to investment in VALE’s global offering.

CAPITALMArKETS06

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21

BRADESPAR has been listed on the BM&F BOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros, since it was created, and also on the Latibex in Madrid. It has been included in two important indices: the Ibovespa, which includes the most liquid companies traded on the Brazilian stock market and, since 2001, the IGC index of companies committed to the highest standards of corporate governance, when it joined BOVESPA’s Level 1 of Corporate Governance.

21

06. CAPITAL MARKETS

Prices adjusted by dividends and/or interest on equitySource: Economática

DEC28,0

7

jAN13,0

8

jAN29,0

8

FEB14

,08

MAr1,0

8

MAr17,0

8

APr2,0

8

APr18,0

8

MAY4,0

8

MAY20,0

8

juN5,0

8

juN21,08

juL7,08

juL23

,08

Aug8,0

8

Aug24,0

8

SEP9,0

8

SEP25,0

8

OCT11,08

OCT27,08

NOV12,08

NOV28,0

8

DEC14

,08

DEC30,0

8

SHARE PERFORmANCE AT Bm&BOVESPA IN 2008

BrAP3:-62.7%BrAP4:-57.9%VALE3:-51.7%CPFE3:-3.4%IBOV:-41.2%

80.0%

60.0%

40.0%

20.0%

0.0%

-20.0%

-40.0%

-60.0%

-80.0%

Share Price Performance – BRAP3 xBRAP4 x VAlE3 x CPf3 x IBOV

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Average daily traded volume of preferred shares issued by BRADESPAR reached a record of R$47.7 million in 2008.

2323

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

200020012002200320042005200620072008

BrAP3

BrAP4

8.1

0.22.1

0.1 1.10.11.5

0.1

5.4

0.4

14.1

0.5 1.3

58.3

47.7

0.9 0.4

lIQuIdITy Average daily traded volume of preferred shares issued by BRADESPAR reached a record of R$47.7 million in 2008.

32.2

Performance of Average daily financial Volume of Traded Shares (R$ thousand)

Net Value of BRAdESPAR Assets x BRAdESPAR Market Value BRADESPAR’S interest

Companies Price Number of Shares % Total Market Market Market (R$/share) Capital Value Value Value (R$ thousand) (US$ thousand) (EURO thousand)

VALEON(1) 27.69 299,381,425 5.67% 8,289,872 3,547,228 2,502,452VALEPNA(1) 23.89 3,547,713 0.07% 84,755 36,267 25,585CPFL-EON 28.92 41,870,900 8.72% 1,210,906 518,145 365,534

BRADESPAR’s assets value (A) 9,585,533 4,101,640 2,893,571

BRADESPAR’s net debt (B)(2) (1,006,000) (430,467) (303,679)BrADESPArcash 482,000 206,247 145,501 BRADESPAR gross debt (1,488,000) (636,714) (449,180)

BRADESPAR assets net value (C)=(A)+(B) 8,579,533 3,671,173 2,589,892BRADESPAR market value(D) 6,622,405 2,833,721 1,999,096Commonshares(BrAP3) 18.49 122,664,504 2,268,067 970,504 684,658Preferredshares(BrAP4) 19.18 227,024,896 4,354,338 1,863,217 1,314,438

Balance between BRADESPAR’s assets net value and market value (C)-(D) 1,957,128 837,452 590,796Discount(3) 22.8%

(1) The number of VALE shares was calculated based on ownership interest held through Valepar.(2) Net debt on December 31, 2008.(3) [(BRADESPAR market value)/(Assets Value + Net Debt)]

06. CAPITAL MARKETS

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25

the stake in VALE and 12.6% corresponds to interest in CPFL Energia. BRADESPAR‘s market value, compared to that of investees, less net debt of R$1 billion represented a discount of 22.8%.

PREMIuM/dISCOuNTThe market value of interest held by BRADESPAR, excluding control premium for interest in VALE, reached approximately R$9.6 billion on December 31, 2008. Of this amount, 87.4% corresponds to

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

FEB08

12.9%

MAr08

10.5%

DEC

07

4.8%

jAN08

10.9%

APr08

13.9%

MAY

08

14.2%

juN08

13.5%

juL08

15.7%

Aug08

16.1%

SEP

08

19.4%OCT08

25.5%

NOV08

23.3%

DEC

08

22.8%

2525

discount Performance between Bradespar’s Assets Net Value and Market Value

Note: discount on the last business day of each month.

COMMENTSONOPErATINgINVESTEES07

Corporate social responsibility investments reached US$678 million for environmental protection and conservation and US$231 million in social projects.

The capital increase carried out in July 2008 raised about US$ 12 billion, sufficient to ensure that the expansion and modernization projects are continued despite the strong retraction in the market in the second half of the year. VALE remains confident about the long-term fundamentals of the mineral and metals markets.

Continued investments in training, added to the optimization of its operations have sought to improve the Company’s efficiency.

In 2008, agreements were negotiated with all strategic suppliers of equipment at preferential prices for the next five years. A material fact in 2008 was the conclusion of the Pelletizing Project in Itabiri¬to, Minas Gerais, an investment of US$1 billion.

On the whole, investments in 2009 will be US$14.2 billion, with another 30 projects located

Vale do Rio Doce is the worldwide leader in iron ore production, with a presence in 16 countries across 5 continents, and employing more than 100,000 people. It is the second largest diversified mining company in the world and operates mining, logistics and energy businesses.

It is the largest publicly-held company in Latin America and one of the world’s 40 biggest companies in terms of market capitalization. It is the largest iron ore exporter in the international market and leads net exports (exports minus imports) from Brazil. In 2008, its net exports accounted for 65.2% of Brazil’s trade surplus.

Net income in 2008 reached R$21.3 billion. Shareholder remuneration amounted to R$5.5 billion, an increase of 55.5% in relation to the amount paid in 2007. In 2008, investments, excluding acquisitions, totaled US$10.2 billion, and rose 34.2% above investments in 2007. Brazil absorbed most of VALE’s investments, US$6.7 billion, and accounted for 66.2% of total.

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in Brazil, Canada, Mozambique, Oman, Australia, Indonesia and Peru, among others. Investments in Brazil will receive 69.8% of funds budgeted for 2009, US$9.9 billion.

VALE is listed on the BM&FBOVESPA S.A. – Securities, Commodities and Futures Exchange (VALE 3 and VALE 5), New York Stock Exchange, (NYSE) (RIO and RIOPR) and Latibex (XVALE e XVALO). BRADESPAR was the first Brazilian company to obtain the rating of Investment Grade, assigned in 2005 by Moody’s Investors Service, Dominion.

VALE’s key numbers in 2008 were:• Net income: R$21.3 billion, or R$4.08 per

share;• Gross revenue: R$72.8 billion, the highest

in the company’s history and 9.6% higher than in 2007;

• VALE Brazil exports: US$17.6 billion;• Net exports: US$16.2 billion, 40.5% above

2007 and 84.5% higher than in 2006;

• Operating income measured by EBIT (earnings before interest and taxes): R$29.8 billion, in line with operating income obtained in 2007 of R$29.3 billion;

• EBIT Margin: 42.3%, versus 45.3% in 2007; • Record cash generation, measured by

EBITDA (earnings before interest, taxes, depreciation and amortization): R$35 billion, 4.2% higher than in 2007;

Shareholders’ Agreement BRADESPAR holds interest in VALE through joint control of Valepar, parent company of VALE, with 53.6% of its voting capital. BRADESPAR has preemptive rights in the transfer of Valepar shares, filling three seats on its Board of Directors and two seats on the Board of Directors of VALE. BRADESPAR is represented on the Financial, Executive Development, Controllership and Governance and Sustainability Committees of VALE.

27

In addition, CPFL Atende was set up to carry out contact and call center services.

In the generation segment, the construction of Castro Alves hydroelectric power plant (130 MW) and the first generation unit of 14 de Julho hydroelectric power plant were concluded, and the Company reached installed generation power of 1,704 MW. With the start-up of Foz do Chapecó hydroelectric power plant (855 MW) in 2010, already in advanced phase of construction, the Group’s generation capacity will reach 2,202 MW.

In the distribution segment, the restructuring process of distribution companies acquired in 2006 and 2007 moved forward. The Group maintained its leadership in the Brazilian market, with a 13% market share and exceeding the record of 6.4 million clients in the states of São Paulo, Rio Grande do Sul, Minas Gerais and Paraná.

CPFL Energia, the largest private company in Brazil’s electricity sector is a holding company that operates through its subsidiaries that distribute, generate and commercialize electricity in the free and regulated markets.

The company’s ownership breakdown is as follows: 31.1% of the shares belong to 521 Participações S.A. (Previ), 28% to VBC Energia S.A. (as of February 20, 2009 fully controlled by the Camargo Corrêa Group), 12.7% to Bonaire (Funcesp, Petros, Sistel and Sabesprev) and 28.2% of the shares make up the free float.

In 2008, CPFL Energia strengthened its position in the electricity segment by diversifying its business portfolio and increasing the efficiency of operations. CPFL Bioenergia was created, by which a partnership was established for direct investment in an energy cogeneration plant that generated power from sugarcane biomass.

07. COMMENTS ON OPERATING INVESTEES

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Concerning the energy commercialization segment, CPFL maintained its leadership in the domestic market, with a 22% market share.

One of the landmarks of the period was the implementation of Corporate University with a view to improving knowledge and aligning the training of its 8,000 employees with the Company’s business strategy. The model mixes on-site and virtual courses which will be applied in its concession area. In 2008, Agência Brasil de Segurança considered three companies of Grupo CPFL Energia among the best Brazilian companies to work for in the health and safety segments.

In September 2004, CPFL Energia listed its shares to be traded on the Novo Mercado, special segment of BM&FBOVESPA, which establishes stricter Corporate Governance rules applicable to Brazilian listed companies. For the fourth consecutive year, CPFL Energia was included in the Corporate Sustainability Index (ISE) of BM&FBOVESPA S.A.

– Securities, Commodities and Futures Exchange, for its sustainability practices and corporate social responsibility.

Highlights of CPFL Energia’s results in 2008 were:

• Net Income: R$1.3 billion, 22.2% below the previous year;

• Net operating revenue: R$9.7 billion, which corresponds to an increase of 3.1% compared to 2007;

• Gross operating revenue: R$14.4 billion, 1.2% above 2007;

• EBITDA: R$2.8 billion, 16.1% lower than in 2007, reflecting the 19.7% increase in energy costs;

• Average daily traded volume of CPFL Energia shares: rose 10.4% in relation to 2007, reaching R$36 million per day;

• -3.4% variation in CPFL Energia’s share price in 2008, compared an -11,6% variations of the IEE Index and -41.2% of Ibovespa.

29

08 SOCIALrESPONSIBILITY

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BRADESPAR S.A.’s investees prove even more consistent when they present a combination of economic and social development with care for the environment.

BRADESPAR’s investees show themselves to be more solid when we verify the combination of economic, social development and care for the environment. VALE and CPFL Energia have their brands allied with incentives to culture and several environmental projects. Both of them are benchmarks in the strategic field of sustainability, for the amount of their investments, or for continued projects. Equally important is the quality of their relationship with employees and the communities where they invest and have put down roots.

31

OuTLOOK09

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VALE and CPFL Energia are consolidated companies that continue investing in expansion and modernization, ensuring them to blaze a trail of success.

Solidity and confidence were fundamental elements for BRADESPAR to overcome the challenges in 2008, characterized by the international crisis that emerged in the second half of the year that has continued into 2009. With consolidated positions in the mining and energy segments, BRADESPAR’s investees continue developing expansion and modernization projects, in addition to making rapid adjustments to the new world scenario. Once the necessary adjustments have been made, businesses will prosper again and further success is sure to follow.

33

COMPANYINFOrMATION10BOARd Of dIRECTORSChairmanLázaro de Mello Brandão

Vice-ChairmanAntônio Bornia

MembersMário da Silveira Teixeira JúniorMárcio Artur Laurelli CyprianoJoão Aguiar AlvarezDenise Aguiar AlvarezRicardo Abecassis Espírito Santo SilvaFrancisco Ravara Cary

BOARd Of ExECuTIVE OffICERSChief Executive OfficerJoão Moisés de Oliveira

Investor Relations Officer Renato da Cruz Gomes

fISCAl COuNCIlAntonio José da BarbaraJosé Luis EliasManuel Maria Pulido Garcia Ferrão de Sousa

HEAdQuARTERSAvenida Paulista. 1450 - 9º andar01310-917 - São Paulo - SPPhone: 55 11 2178-6300Fax: 55 11 2178- 6315e-mail: [email protected]

SHAREHOldERS SERVICEBanco Bradesco S,A,Shares and Custody DepartmentCidade de Deus. s/n - Prédio Amarelo,3º andar - Vila Yara06029-900 - Osasco - SPPhone: 55 11 3684-9495Fax: 55 11 3684-2944e-mail: [email protected]

INdEPENdENT AudITORSDeloitte Touche Tohmatsu Auditores Independentes

PuBlICATIONS ANd INfORMATIONThe Financial Statements of BRADESPAR observe the accounting standards established by the Brazilian Corporation Law and are published annually in widely circulated newspapers: the Official Gazette of the State of São Paulo and Valor Econômico. All material facts of BRADESPAR and of its subsidiaries are disclosed to shareholders, authorities and regulatory agencies of Brazil, as well as to the market in general. The quarterly and annual Financial Statements, presentations, conference calls, material facts and notices to shareholders are available on the website.

www.bradespar.com

11

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35

01. balanCe sheets 36

02. stateMents oF inCoMe 38

03. stateMents oF Changes in shareholders’ equity 39

04. stateMents oF Cash Flows 40

05. stateMents oF value added 41

06. notes to the FinanCial stateMents 42

07. independent auditors’ report 96

Assets Company ConsolidatedHolding Consolidated

2008 2007 2008 2007 2008 2007

Current Assets 535,161 355,133 582,665 313,419 3 ,742,673 1 ,512,820Cash and cash equivalents (Note 6) 396,227 304,930 481,812 313,417 1,914,827 434,015Securities (Note 3a) – – – – 3 13,416 –Inventories (Note 7) – – – – 562,800 410,904Trade accounts receivable (Note 8) 138,934 50,201 100,828 – 474,132 417,312Allowance for doubtful accounts – – – – (11,563) (11,256)Recoverable taxes (Note 10) – – – – 286,077 127,980Deferred income and social contribution taxes (Note 9) – – – – 75,826 61,372Other – 2 25 2 127,158 72,493

Noncurrent Assets 6,183,256 3,773,215 6,136,634 3,817,045 8,185,520 6,884,442Long-term assets 100,222 82,898 113,196 96,723 465,250 377,651Trade accounts receivable(Note 8) – – – – – 301Loans and financing – – – – 10,459 12,783Escrow deposits (Note 15) – – – – 104,239 48,917Prepaid expenses – – – – 92,096 83,510Recoverable taxes (Note 10) 65,220 47,896 78,194 61,721 140,190 90,030Deferred income and social contribution taxes (Note 9) 35,002 35,002 35,002 35,002 89,272 62,292Deferred losses on derivative transactions – – – – 4,939 67,430Other – – – – 24,055 12,388Permanent assets 6,083,034 3,690,317 6,023,438 3,720,322 7,720,270 6,506,791Investments (Note 12) 6,082,966 3,690,157 6,023,370 3,720,162 262,995 1,192,333Intangible assets (Note 13) 1 – 1 – 1,037,014 –Property, plant and equipment (Note 14) 67 158 67 158 6,420,261 5,206,533Deferred charges – 2 – 2 – 6,925

Total Assets 6,718,417 4,128,348 6,719,299 4,130,464 11,928,193 8,397,262

The accompanying notes are an integral part of these financial statements.

BalanceSheetsasofDecember31,2008and2007 (InthousandsofBrazilianreais–R$)

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LiabilitiesandShareholders’Equity Company ConsolidatedHolding Consolidated

2008 2007 2008 2007 2008 2007

Current Liabilities 1,684,362 201,067 1,685,244 203,183 2,498,061 1,029,422Loans and financing (Note 14) – – – – 155,197 190,311Trade accounts payable – – – – 304,934 243,103Issue of Commercial Promissory Notes (Note 16) 1,488,474 – 1 ,488,474 – 1,488,474 –Payroll and related charges 43 29 43 29 83,016 76,097Taxes payable 104 40 104 2,156 11,036 161,168Accrued interest on capital and dividends (Note 18b) 168,615 174,356 168,615 174,356 168,615 174,356Pension plan (Note 20) – – – – 13,887 13,135Other 27,126 26,642 28,008 26,642 272,902 171,252

Noncurrent Liabilities 98,283 70,883 98,283 70,883 4,141,027 3,246,286Long-term liabilities 98,283 70,883 98,283 70,883 4,141,027 3,241,019Loans and financing (Note 14) – – – – 2,480,712 1,836,906Reserve for contingencies (Note 17) 98,283 70,883 98,283 70,883 372,303 318,407Pension plan (Note 20) – – – – 207,026 215,596Provision for asset retirement – – – – 116,035 93,361Deferred income and social contribution taxes (Note 9) – – – – 467,102 457,065Other payables – – – – 497,849 319,684

Deferred Income – – – – – 5 ,267

Minority Interest – – – – 353,333 265,156

Shareholders’ Equity 4,935,772 3,856,398 4,935,772 3,856,398 4,935,772 3,856,398Capital (Note 18a) 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000Valuation adjustments to equity in subsidiaries (Note 2) 331,475 – 331,475 – 331,475 –Profit reserves (Note 16c) 1,605,759 856,398 1,605,759 856,398 1,605,759 856,398Treasury shares (Note 18c) (1,462) – (1,462) – (1,462) –

Total Liabilities and Shareholders’ Equity 6,718,417 4,128,348 6,719,299 4,130,464 11,928,193 8,397,262


BalanceSheetsasofDecember31,2008and2007 (InthousandsofBrazilianreais–R$)

FortheYearsEndedDecember31,2008and2007

Company ConsolidatedHolding Consolidated

2008 2007 2008 2007 2008 2007

Gross Revenue From Sales and Services – – – – 4,228,029 3,758,457 Iron ore and pellets – – – – 3,479,992 3,132,707 Railroad and port services – – – – 213,011 197,988 Sale of aluminum – – – – 339,504 313,033 Sale of steel products – – – – 78,325 70,657 Other products and services – – – – 117,197 44,072 Taxes on Sales and Other Deductions – – – – 129,282 91,773 Net Revenue From Sales and Services – – – – 4,098,747 3,666,684 Cost of Sales and Services – – – – 1,868,408 1,703,237 Minerals and metals – – – – 1,383,119 1,290,348 Railroad and port services – – – – 128,701 122,801 Aluminum – – – – 225,039 183,777 Iron and steel products – – – – 68,389 67,883 Other – – – – 63,160 38,428 Gross Profit – – – – 2,230,339 1,963,447 Operating Income (Expenses) 1,126,271 1,084,787 1,127,451 1,089,034 (1,039,147) (385,273)Equity in subsidiaries (Note 12) 1,110,162 1,116,866 978,837 968,070 6,043 1,755 Equity in subsidiaries – redeemable shares 100,828 – 100,828 – – –Proceeds from sale of investments (Note 12) – – 9,591 – 17,668 82,526 Income from dividends (Note 12) – – 118,448 140,365 118,448 140,365 General and Administrative Expenses (11,496) (10,436) (12,102) (10,567) (32,861) (112,703)Research and development – – – – (120,334) (79,093)Goodwill amortization (Note 12) – (47,433) – (47,433) (152,908) (247,601)Financial income (Expenses) (50,746) 20,362 (45,661) 34,567 (285,267) 50,301 Other Operating Income (Expenses) (22,477) 5,428 (22,490) 4,032 (589,936) (220,823) Income From Operations 1,126,271 1,084,787 1,127,451 1,089,034 1,191,192 1,578,174 Income before taxes on income 1,126,271 1,084,787 1,127,451 1,089,034 1,191,192 1,578,174 Income and Social Contribution Taxes – – (1,180) (4,247) (39,820) (405,408)Minority Interest – – – – (25,101) (87,979)Net Income 1,126,271 1,084,787 1,126,271 1,084,787 1,126,271 1,084,787 Number of Shares (In Thousands) 349,689 349,689Earnings per Thousand Shares 3.22 3.10

StatementsofIncome (InthousandsofBrazilianreais–R$,exceptearningsperthousandshares)

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Profitreserves Valuation Forcapital Adjustments Treasury Retained Capital Legal increase Bylaws toEquity Shares Earnings Total

Balances as of December 31, 2006 2,045,000 83,428 1,023,179 – – – – 3,151,607 Capital increase with reserves (Note 16) 955,000 – (955,000) – – – – –

Net income – – – – – – 1,084,787 1,084,787 Allocations: – Reserves (Note 16) – 54,240 650,551 – – – (704,791) – – Interim interest

on capital – paid in November 2007 (Note 16) – – – – – – (165,932) (165,932)

– Interim dividends – paid in November 2007 (Note 16) – – – – – – (41,864) (41,864)

Proposed interest on capital (Note 16) – – – – – – (172,200) (172,200) Balances as of December 31, 2007 3,000,000 137,668 718,730 – – – – 3,856,398 Purchase of treasury shares – – – – – (1,462) – (1,462)Valuation adjustments to equity in subsidiaries – – – – 331,475 – – 331,475 Net income – – – – – – 1,126,271 1,126,271 Allocations: – Reserves – 56,314 – 693,047 – – (749,361) – – Interim interest

on capital – paid in November 2008 – – – – – – (68,000) (68,000)

– Interim dividends – paid in November 2008 – – – – – – (143,510) (143,510)

Proposed interest on capital – – – – – – (165,400) (165,400)

Balances as of December 31, 2008 3,000,000 193,982 718,730 693,047 331,475 (1,462) – 4,935,772


StatementsofChangesinShareholders’Equity (InthousandsofBrazilianreais–R$)


Company ConsolidatedHolding Consolidated

2008 2007 2008 2007 2008 2007

Operation Activities Net income 1,126,271 1,084,787 1,127,451 1,089,034 1,191,192 1,578,174 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and depletion (Note 13) 62 65 62 65 297,092 233,269Proceeds from barter/sale of investments and property, plant and equipment – – (9,591) – (17,668) (82,526)Interest, monetary and exchange variations, net 91,329 (585) 90,655 (1,258) 323,638 (293,003)Goodwill amortization (Note 12) – 47,433 – 47,433 152,908 247,601Equity in subsidiaries (Note 12) (1,210,990) (1,116,866) (1,079,665) (968,070) (6,043) (1,755)Dividends received from investment stated at cost (Note 12) – – (118,448) (140,365) (118,448) (140,365)Reserve for contingencies (Note 15) 20,625 – 20,625 – 41,383 81,864Unrealized losses on derivatives – – – – 105,576 (97,097)Other 2,165 (6,624) 2,164 (6,612) 133,613 (455,608)

Changes in Assets and Liabilities(Increase) in other assets (7,551) (4,067) (8,418) (6,906) (244,697) (40,387)Barter/sale of investments (Note 12) – – 38,134 – 59,692 84,925Acquisition of investments (1,367,773) – (1,367,773) – ( 332,415) (390,428)Interest on capital and dividends received 428,695 393,425 464,781 308,790 122,109 147,952Increase (decrease) in other liabilities (689) (683) (735) (1,756) 46,863 78,527Withholding income tax on interest oncapital received (33,160) (20,951) (33,160) (20,951) – –

Net Cash Provided by (used in) Operating Activities (951,016) 375,934 (873,918) 299,404 1,754,795 951,143

Investing Activities: Purchase of property, plant and equipment and deferred charges – – – – (1,087,484) (745,017)

Net Cash Used in Investing Activities – – – – (1,087,484) (745,017)

Financing Activities Decrease in minority interest – – – – (213,408) –Loans (Note 14) – – – – 1 34,744 (449,422)Issue of securities/payment of securities abroad – – – – – 203,871Issue of promissory notes 1,400,000 – 1,400,000 – 1,400,000 –Purchase of treasury shares (1,462) – (1,462) – ( 97,799) –Interest on capital and dividends paid (Note 16) (356,225) (352,687) (356,225) (352,687) (356,225) (352,687)Other – – – – ( 53,811) (95,031)

Net cash provided by (used in) financing activities 1,042,313 (352,687) 1,042,313 (352,687) 813,501 (693,269)Increase (Decrease) In Cash and Cash Equivalents 91,297 23,247 168,395 (53,283) 1,480,812 (487,143)

Changes in cash and cash equivalents, netAt Beginning of Year 304,930 281,683 313,417 366,700 434,015 921,158At end of year 396,227 304,930 481,812 313,417 1,914,827 434,015Increase (decrease) in cash and cash equivalents 91,297 23,247 168,395 (53,283) 1,480,812 (487,143)

The accompanying notes are an integral part of these financial statements

StatementsofCashFlows

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Company Consolidated

2008 2007 2008 2007

RevenuesSales of products and services – – 4,216,136 3,758,458Revenues related to construction, own assets – – 1,028,825 652,759Allowance for doubtful accounts – – (1,823)Other operating revenues – 20,273 23,334 20,273 – 20,273 5,266,472 4,431,490

Inputs Purchased From Third PartiesPurchase of goods – – (162,983) (276,855)Outside services (4,530) (1,846) (484,087) (298,297)Materials – – (1,392,067) (926,360)Oil, fuel, gas and electric power – – (337,761) (278,950)Loss/recovery of assets – – (142,169) –Other (2,526) (1,746) (549,845) (477,632) (7,056) (3,592) (3,068,912) (2,258,094)

Gross Value Added (7,056) 16,681 2 ,197,560 2 ,173,396RetentionsDepreciation and Amortization (62) (47,498) (367,001) (345,866)Value added created (used) (7,118) (30,817) 1,830,559 1,827,530Value added received in transferEquity in subsidiaries 1,210,990 1,116,866 6,043 1,755Financial income 44,621 23,057 571,305 289,991Dividends received – – 1 18,448 140,365 1,255,611 1,139,923 695,796 432,111

Value added for distribution 1,248,493 1,109,106 2,526,355 2,259,641Value added distributedEmployees (4,043) (5,988) (297,265) (290,252)Taxes and contributions (22,735) (15,580) (216,336) (569,207)Third parties (95,444) (2,751) (861,382) (227,416)Interest on capital (233,400) (338,132) (233,400) (338,132)Dividends (143,510) (41,864) (143,510) (41,864) Retained earnings (749,361) (704,791) (749,361) (704,791) Minority interest in retained earnings – – (25,101) (87,979) Value added distributed (1,248,493) (1,109,106) (2,526,355) (2,259,641)


StatementsofValueAdded (InthousandsofBrazilianreais–R$)

1.OperationsBradespar S.A. (the “Company” or “Bradespar”) holds equity interests in other companiesas a partner or shareholder.

Direct and indirect investments are held in the following companies:

a) Millennium Security Holdings Corp. (“Millennium”)Millennium is engaged in entering into any acts or activities that are not prohibited by the legislation in force in the British Virgin Islands.

b) Antares Holdings Ltda. (“Antares”)Antares is engaged in managing, leasing, purchasing and selling owned assets and investing in other companies as a partner or shareholder.

c) Brumado Holdings Ltda. (“Brumado”)Brumado is engaged in holding equity interests in other companies as a partner or shareholder.

d) Valepar S.A. (“Valepar”)Valepar is a closely-held corporation engaged solely in holding equity interest in Companhia Vale do Rio Doce (“VALE”).

e) Companhia Vale do Rio Doce (“VALE”)VALE is a publicly-traded corporation engaged in mining, processing and sale of iron ore, pellets, copper and potassium, provision of logistics services, generation of electric power and mining research and development. In addition, through its direct and indirect subsid-iaries and jointly-owned subsidiaries, it operates in the following business segments: iron ore, pellets, nickel, copper, precious metals, cobalt (byproduct), manganese, ferroalloys, ka-olin, iron and steel products, aluminum products and logistics services.

f) CPFL Energia S.A. (“CPFL”)CPFL is a publicly-traded company whose main corporate purpose is to act as a holding company, investing

2.PresentationoftheFinancialStatementsWe present herein the financial statements of Bradespar (Company) and Bradespar and its subsidiaries and jointly-owned subsidiaries (consolidated) for the years ended December 31, 2008 and 2007.

On December 28, 2007, Law 11638, amended by Provisional Act 499, of December 4, 2008, was enacted, altering and adding new provisions to the Brazilian Corporate Law. Said Law and Provisional Act were designed primarily to update the Brazilian Corporate Law, so as to enable the convergence of Brazilian accounting practices with the international accounting standards issued by the International Accounting Standard Board – IASB. As permitted by CVM Resolution 565, Bradespar adopted for the first time and with no restrictions the provisions of Law 11638 and Provisional Act 449 for the year ended December 31, 2008. The financial statements for 2007, presented with the 2008 financial statements, have been prepared in conformity with Brazilian accounting practices in effect until December 31, 2007, as permitted by Technical Pronouncement CPC 13 – First-time doption of Law 11638/07 and Provisional Act 449/08.

Notes to the Financial StatementsFor the years ended December 31, 2008 and 2007 (Amounts in thousands of Brazilian reais – R$, unless otherwise stated)

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In order to enable the convergence of Brazilian accounting practices with international accounting standards, the Accounting Pronouncements Committee (CPC) issued until December 2008 15 pronouncements ratified by the CVM (Brazilian Securities and Exchange Commission) in effect since the beginning of 2008.

The effects on net income and shareholders’ equity arising from the adoption of new accounting practices are as follows:

(1) On November 1, 2007, the CVM issued Resolution 527 approving the Technical Pronouncement CPC 01, which regulates the impairment of assets for application to the year ending December 2008. In accordance with this pronouncement, these assets should be tested for impairment. VALE conducted expected tests for this new pronouncement and as a result recorded loss of R$2,447 (effect on Bradespar – R$142) due to the impairment of goodwill, linked to the nickel business and recorded in the statement of income.(2) On January 29, 2008, the CVM issued Resolution 534, approving Technical Pronouncement CPC 02 – Effects of Changes in Exchange Rates and Translation of Financial Statements. As a result of this pronouncement, exchange rate changes on investments in subsidiaries and associates with a functional currency different from the Company’s functional currency should not, starting in 2008, affect the statement of income, being recorded in a suspense account of shareholders’ equity. These effects reduced VALE’s operating performance by R$5,982 (Bradespar’s effect – R$348), mainly from exchange rate changes from subsidiary Vale Inco.(3) On November 12, 2008, the CVM issued Resolution 556 approving Technical Pronouncement CPC 08 – Transaction Costs and Premiums on the Issue of Securities. As a result, costs incurred in fund raising are recorded in a specific account of shareholders’ equity.

NETINComE SHAREHoLDERS’EQUITY

Balances prior to adoption of new practices 1,600 5,078 Effects on equity in subsidiaries (effects of subsidiary VALE): CPC 01 – Impairment of Assets (1) (142) (142)CPC 02 – Translation of Financial Statements (2) (348) –CPC 08 – Transaction Costs and Premium on Issuance of Securities (3) 9 – Total effects of subsidiary VALE (481) (142) Effects on equity in subsidiaries (effects of subsidiary Valepar): CPC 08 – Transaction Costs and Premiums on Issuance of Securities (3) 7 –Total effects of subsidiary Valepar 7 – Total effects of subsidiaries VALE/Valepar (474) (142) Balance as per financial statements as of December 31, 2008 1,126 4,936

Replacement of the statement of changes in financial position by the statement of cash flows, through the approval of CVM Resolution 547, of August 13, 2008.Preparation of the statement of value added, through the issuance of CVM Resolution 565,of December 17, 2008.Estimates used in the preparation of financial statements for deferred tax assets and liabilities, provisions and contingent liabilities, were based on the best available evidence and assumptions at the balance sheet dates. Actual results may differ from those estimates.

3.SignificantAccountingPractices

a) Current and noncurrent assets – long-term assetsStated at cost, including, when applicable, income earned and inflation adjustment and exchange rate changes (on a daily “pro rata” basis), adjusted to their probable realization amounts, when applicable.Tax credits are stated at probable realizable values resulting from tax loss carryforwards and temporary differences and are recognized, when applicable, in current assets and long-term assets.

I - Cash and cash equivalentsInclude investments stated at cost with maturities of less than 90 days, plus income earned through the balance sheet dates. Investments with maturities of more than 90 days are stated at fair value as marketable securities.

II - Allowance for doubtful accounts (VALE)Recognized in an amount considered sufficient by Management to cover losses on the realization of receivables. The estimated amount of the allowance for doubtful accounts can change due to Management’s assessment of recoverability of receivables and changes in customers’ financial position.

III - Inventories (VALE)Stated at average cost of acquisition or production and imports in transit are carried at acquisition cost, which does not exceed market or realizable values. An allowance for obsolete or slow-moving inventories was recorded, reflecting the periodic estimated for recovery, when applicable. The amounts of proved and probable reserves attributable to the ore pile inventory are considered processed when extracted from the mine, recording therefore products inventory.

IV - Costs of mining research and development (VALE)Considered to be operating expenses until the economic feasibility of a certain natural deposit is determined. After that, costs begin to be capitalized as cost of development of mine. In the mine development stage, waste removal expenses are recorded as part of development costs. After the start of the mine production, ore extraction expenses are treated as production cost.

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V - On an annual basis, the Company performs analyses for indications that assets may be impaired. If any evidence of impairment is identified, the Company estimates the asset recoverable value. Although there is no evidence of impairment, goodwill balances arising from business combinations and intangible assets with undefined useful lives are tested for impairment at least once a year. When the net book value of the asset exceeds its recoverable value, the Company recognizes a reduction in the carrying amount of this asset (impairment or deterioration). The impairment of assets stated at cost is recorded in the statement of income for the year. If the recoverable amount of an asset cannot be individually determined, the cash generating unit to which such asset belongs is tested for impairment.

VI - Leases for which a material portion of risks and rights is maintained by the lessor are classified as operating leases. Lease-related charges are recognized over the agreement period under the straight-line method.

b) InvestmentsStated at cost of acquisition, considering the following:

I - Significant investments in affiliates, subsidiaries and jointly-owned subsidiaries are accounted for under the equity method of accounting, plus/less unamortized goodwill/negative goodwill and provision for losses, when applicable. Other investments are stated at cost, less provision for losses, when applicable.

II - The financial statements of foreign subsidiaries are translated into Brazilian reais at the exchange rate prevailing at the balance sheet dates, and related exchange rate changes are recorded as operating income (expenses).

c) Property, plant and equipment (VALE)Stated at historical cost plus monetary adjustment through December 31, 1995 and financial charges incurred during the construction period. Depreciation is calculated under the straight-line method based on the estimated useful lives of the assets. Depletion of natural deposits is recorded based on actual production-estimated capacity ratio.

d) Intangible assets (VALE)Stated at acquisition cost, less accumulated amortization and provision for losses, if applicable. Those refer basically to goodwill paid based on the future earnings of Vale Inco, Caemi, MBR and Vale Australia. In the consolidated financial statements, intangible assets are under the caption “Investments”, in permanent assets.

e) Current and noncurrent liabilities – long-term liabilitiesStated at known or estimated amounts, plus, if applicable, related charges and monetary and exchange rate changes incurred on a “pro rata” basis. The provision for income tax is recorded at the rate of 15%, plus a 10% surtax when applicable.The provision for social contribution tax is calculated at the rate of 9% on taxable income before income tax. Provisions for other taxes were recognized in accordance with prevailing legislation.

f) Contingent assets and liabilities and legal obligations – tax and social securityContingent assets and liabilities are measured, recognized and disclosed according to the criteria established by CVM Resolution 489/05.

• Contingent assets: are not recognized, unless Management has total control over the ituation or when there is assurance or favorable, final and unappealable court decisions, indicating that a favorable outcome is virtually certain. Contingent assets with probable favorable outcome are merely disclosed in notes to the financial statements.

• Contingent liabilities: are recognized taking into consideration the legal counsel’s opinion, nature of lawsuits, similarity with prior lawsuits, complexity and prior court decisions, whenever the risk of loss is assessed as probable, with probable outflow of funds to settle obligations, and when the amounts involved can be reliably measured. Contingent liabilities assessed as possible losses are not recognized and are merely disclosed in notes to financial statements, whereas contingent liabilities assessed as remote losses do not require reserve and disclosure.

• Legal obligations – tax and social security: arise from lawsuits in which the legality or constitutionality of taxes is challenged. Regardless of the assessment of the likelihood of a favorable outcome, the amounts of these lawsuits are fully recognized in the interim financial statements.

g) Results of operationsRecorded on the accrual basis of accounting.

h) Earnings per shareCalculated based on the number of shares outstanding at the balance sheet dates.

4.ConsolidatedHoldingFinancialStatementsThe consolidated financial statements have been prepared in accordance with consolidation principles established by Law 6404/76 and standards of the CVM. In consolidation, intercompany accounts and transactions and unrealized profits were eliminated; minority interest was reported separately in shareholders’ equity and statement of income.Goodwill on acquisition of consolidated investments is recorded in permanent assets – intangible assets. Portions of the shareholders’ equity and statement of income related to minority interest in subsidiaries were also reported separately, when applicable.In the case of investments in jointly-owned subsidiaries, components of assets and liabilities, income and expenses are included in the consolidated financial statements proportionately to the Company’s interest in each subsidiary.Bradespar’s consolidated financial statements include the following direct and indirect subsidiaries and jointly-owned subsidiaries:

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5.CondensedBalanceSheetsandStatementsofIncomeofJointly-OwnedSubsidiaries

Following are the balance sheets and statements of income of the main indirect jointly- -owned subsidiaries of Bradespar as of December 31:

VALE VALEPAR

2008 2007 2008 2007Assets Current assets 56,059 21,153 1,630 1,553Noncurrent assets – long-term assets 6,059 4,962 – –Noncurrent assets – investments 2,442 1,869 31,051 17,517Noncurrent assets – intangible 10,727 14,316 3,073 2,369Noncurrent assets – property/deferred 110,494 90,599 – –Total 185,781 132,899 35,754 21,439 Liabilities Current liabilities 18,639 19,347 1,614 1,543Noncurrent liabilities – long-term liabilities 64,786 51,839 575 384Minority interest 6,081 4,683 – –Shareholders’ equity and capitalizable funds 96,275 57,030 33,565 19,512Total 185,781 132,899 35,754 21,439 Direct and indirect ownership – % 5.81 5.66 17.44 17.44

BalanceSheets

Companies BRADESPAR’sdirectand indirectownershipinterest–%

2008 2007

– Antares Holdings Ltda.(1) 100.00 100.00– Millennium Security Holdings Corp.(1) 100.00 100.00– Brumado Holdings S.A.(1) 100.00 100.00– Valepar S.A.(2) 17.44 17.44– VALE and subsidiaries(2) 5.81 5.66(1) Included in consolidated holding.(2) The control of these companies is shared with other shareholders.

December31

VALE VALEPAR

2008 2007 2008 2007

Gross revenue from sales and services 72,766 66,385 – –Taxes on sales and services (2,225) (1,621) – –Net revenue from sales and services 70,541 64,764 – –Cost of sales and services (32,156) (30,084) – –Gross profit 38,385 34,680 – –Operating expenses, net (10,985) (5,365) (122) (587)Financial income (expenses), net (3,838) 277 (95) –Equity in subsidiaries (1,325) (2,405) 6,531 6,254Capital gain 139 1,458 – –Income before taxes on income 22,376 28,645 6,314 5,667Income and social contribution taxes (665) (7,085) – –Minority interest (432) (1,554) – –Net income 21,279 20,006 6,314 5,667

StatementsofIncome

VALE and VBC are publicly-traded companies and, therefore, file their financial statements with CVM. Thus, detailed information on these companies as of December 31, 2008 and 2007 can be obtained directly from the CVM website at www.cvm.gov.br.

6.CashandCashEquivalents

Cash and cash equivalents consist of:

7.Inventories(Consolidated)

Inventories are composed principally of VALE’s inventory:

ComPANY CoNSoLIDATEDHoLDING CoNSoLIDATED

2008 2007 2008 2007 2008 2007

Financial investment funds 396 305 482 313 482 313Investments with yield based on theinterbank deposit rate (CDI) – – – – 319 19Overnight investments/time deposits – – – – 1,007 56Other – – – – 107 46Total 396 305 482 313 1,915 434

December31

2008 2007

Finished products 391 290Spare parts and maintenance materials 172 121Total 563 411

December31

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VALE(1) CoNSoLIDATEDHoLDING CoNSoLIDATED

2008 (337) 35 (302)2007 (368) 35 (333)

9.DeferredincomeandsocialcontributiontaxAssetsandliabilities

(1) VALE

VALE’s income is subject to the common taxation regime applicable to companies in general. Deferred tax assets and liabilities arising from tax loss carryforwards and temporary differences are recorded taking into consideration the analysis of future results, based on financial projections prepared using internal assumptions and macroeconomic, commercial and tax scenarios subject to changes in the future.The realization of these temporary differences, which will occur at the time of the respective taxable events, is expected as follows:

Years NETTAxCREDITS

2009 762010 (7)2011 (9)2012 (7)2013 (11)2014 (25)2015 (27)2016 (26)2017 (301) (337)

CurrentandLongTerm December31

AsofDecember31

CoNSoLIDATED ComPANY HoLDING CoNSoLIDATED

2008 2007 2008 2007 2008 2007

Interest on capital/dividends receivable (1) 139 50 101 – – –Transactions of VALE (2) – – – – 472 415Other – – – – 2 2Total 139 50 101 – 474 417(1) In 2008, R$101 refer to redeemable preferred shares dividends of subsidiary Valepar.

(2) Refer to trade accounts receivable from domestic and foreign customers.

December31

8.TradeAccountsReceivable(CurrentandNoncurrent)

Income and social contribution taxes that affected income, considering the total balance and not the proportional balance of Bradespar, are as follows:

Consolidated–VALE

2008 2007

Income before income and social contribution taxes 22,376 28,645Equity in subsidiaries 1,325 2,405 23,701 31,050Combined income and social contribution tax rate – % 34 34Income and social contribution taxes at statutory tax rates (8,058) (10,557)Adjustments to net income: - Income and social contribution taxes on interest on capital 1,315 839- Tax incentives 227 386- Income of foreign companies taxed at rates different from rates applicable to the Company 3,046 5,682- Tax incentive – tax rate reduction 2,377 (3,407)- Other 431 –

- Income and social contribution taxes (3) (28)

Income and social contribution taxes on interest on capital (665) (7,085)

(2) COMPANy

a) Calculation of income and social contribution tax charges:

b) Tax credits

Tax credits for 2008 and 2007 refer to income tax loss carryforwards of R$25, social contribution tax loss carryforwards of R$9 and temporary differences of R$1, which are expected to be realized in less than ten years. Unrecorded tax credits totaled R$379.

2008 2007

Income before income and social contribution taxes 1,126 1,085Income and social contribution taxes at the statutory rates of 25% and 9%, respectively (383) (369)

Effect of additions and deductions on tax calculation: Investments in subsidiaries, taxed in the corresponding companies 412 380Nondeductible expenses and provisions, net of nontaxable income (1) (1)Interest on capital (paid) 82 56Interest on capital (received) (75) (47)Unrecorded tax credits (35) (19)

Income and social contribution taxes – –Effect of additions and deductions on tax calculation – –

IncomeandSocialContributionTaxes December31

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b) Tax creditsTax credits for 2008 and 2007 refer to income tax loss carryforwards of R$25, social contribution tax loss carryforwards of R$9 and temporary differences of R$1, which are expected to be realized in ten years. Unrecorded tax credits totaled R$414.

10. Recoverable Taxes (Consolidated – Current And Noncurrent)The Company’s recoverable taxes refer to prior years’ recoverable income tax and withholding income tax (IRRF) on temporary cash investments and interest on capital in the amount of R$65 (2007 – R$48).

2008 2007

Income before income and social contribution taxes 1,127 1,089Income and social contribution taxes at the statutory rates of 25% and 9%, respectively (383) (370) Effect of additions and deductions on tax calculation: Investments in subsidiaries, taxed in the corresponding companies 367 329Nondeductible expenses and provisions, net of nontaxable income 40 46Interest on capital (paid) 82 56Interest on capital (received) (75) (47)Unrecorded tax credits (32) (18) Income and social contribution taxes (1) (4)

Consolidated ValePaR Vale(1) HoldinG(2) total

2008 2 346 78 4262007 1 155 62 218

december31

Income and Social Contribution Taxes december31

(3) ConsolIdaTed holdIng

a) Calculation of income and social contribution tax charges:

2008 2007

IRRF on cash investments and interest on capital received 230 73State VAT (ICMS) 43 34Noncumulative taxes on revenue (PIS and COFINS) 61 40Social security contribution (INSS) 1 2Other 11 6Total 346 155 Current 284 126Noncurrent 62 29Total 346 155

(1) Vale

december31

(2) CONSOLIDATED HOLDING

Recoverable taxes refer to prior years’ income and social contribution taxes and IRRF on cash investments and interest on capital, in the amount of R$78 (2007 – R$62). 11.Related-PartyTransactions

The main balances and transactions between Bradespar and its subsidiaries are presented below:

a) BRADESPAR

Shown below are the balances and transactions with related parties, according to information prepared by the subsidiaries, considering the total balance of transactions and not the proportional balance of Bradespar:

b) ANTARES

c) VALEPAR

2008 2007

Assets Income Assets Income (liabilities) (expenses) (liabilities) (expenses)

Dividends and interest on capital: - Antares Holdings Ltda. 38 – 50 –- Valepar S.A. 101 – – –

2008 2007


Dividends and interest on capital: - Bradespar S.A. (38) – (50) –

2008 2007


Dividends and interest on capital: - Bradespar S.A. (101) – – –

December31

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The main results of commercial and financial transactions between VALE and related parties, classified under the captions “Gross revenue and costs from/of sales and services” and “Financial income (expenses)”, in the statement of income, are shown below:

Assets Liabilities

2008 2007 2008 2007

Related Related Related Related Customers parties Customers parties Customers parties Customers parties

Companhia Nipo–Brasileira de Pelotização – NIBRASCO 10 1 60 10 23 58 26 –Companhia Hispano – Brasileira de Pelotização – HISPANOBRÁS 8 – 45 6 15 51 40 –Companhia Ítalo–Brasileira de Pelotização – ITABRASCO 35 7 46 – 46 27 43 –Companhia Coreano–Brasileira de Pelotização – KOBRASCO 1 – 21 1 18 8 12 –Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS 42 – 52 9 1 6 – –Samarco Mineração S.A. 1 11 4 5 – – – –MRS Logística S.A. – – 2 – 168 125 30 –Baovale Mineração S.A. 2 – 14 – 23 – 36 –Mitsui & Co. Ltd – – – – – – 37 –

Mineração Rio do Norte S.A. – – – – 53 – 30 –Minas Serra Geral S.A. – – – – 8 7 10 3Korea Nickel Corporation 90 – 16 – – – – –Other 72 9 37 10 48 5 10 12Total 261 28 297 41 403 287 274 15 Recorded in: Current 261 28 297 36 403 162 274 15Noncurrent – – – 5 – 125 – –

261 28 297 41 403 287 274 15

d) VALE

Refers to sales and purchases of products and services or loan agreements made under usual market conditions for similar transactions, sale of raw materials and railway transportation services. Related-party transactions that have not been eliminated mainly arise from the abovementioned transactions, as follows:

Additionally, VALE obtained loans from Mitsui & Co, Ltd., the National Bank for Economic and Social Development (BNDES) and BNDES Participações S.A. in the amounts of R$10, R$1,412 and R$713, as of December 31, 2008, subject to market interest rates and maturing in November 2013. These amounts are recorded under loans and financing.The Company also has short-term investments with Banco Bradesco S.A. in the amount of R$43 in 2008.

Compensation of key management personnel

The Annual Shareholders’ Meeting resolves on:

• Management’s overall annual compensation, which is distributed among the Board and Management members at a Board of Directors’ Meeting, pursuant to the bylaws.• The amount allocated to fund the Pension Plans available to Management, which is part of the Employees and Management of Bradesco Organization.

In 2008, Management’s annual compensation was set at a maximum amount of R$3,500,and R$1,100 was allocated to fund defined contribution pension plans.

Revenue Expense/Cost

2008 2007 2008 2007

Baovale Mineração S.A. – – 17 16Companhia Hispano-Brasileira de Pelotização – HISPANOBRÁS 291 216 457 327Companhia Ítalo-Brasileira de Pelotização – ITABRASCO 231 203 269 292Companhia Coreano-Brasileira de Pelotização – KOBRASCO 85 197 258 331Companhia Nipo-Brasileira de Pelotização – NIBRASCO 78 334 408 540Mineração Rio do Norte S.A. – – 276 271MRS Logística S.A. 9 2 936 674Samarco Mineração S.A. 234 112 – –Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS 1,198 886 – –Other 34 15 39 34 2,160 1,965 2,660 2,485

2008

Salaries 1,537Bonuses 1,133Bonuses 748Total 3,418

Short-termbenefitstoManagement December31,2008

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The Company does not grant long-term, severance or share-based compensation benefits to its key management personnel.

Other information

Ownership interestThe Board of Directors and Executive Committee members hold the following interest in Bradespar as of December 31, 2008:

12.Investmentsa) The adjustments arising from accounting for investments under the equity method were recorded under the caption “Equity in subsidiaries” and represented gains of R$1,211 (2007 – R$1,117) – Company, R$1,080 (2007 – R$968) – consolidated holding and R$6 (2007 – R$2) – consolidated. b) Bradespar’s direct investments, accounted for under the equity method, are as follows:

Adjusted Adjusted Numberof shareholders’ net shares(in Intereston Valuation Capital equity income thousands) capital–% Investments adjustments(3)

Shares QuotasCompanies 12.31.08 12.31.07 31,12,08 31,12,07

Antares Holdings Ltda.(1)(8) 275 181 131 – 274,547 100.000 181 120 131 149Valepar S.A.(1)(2)(4)(5)(6)(7)(8) 7,259 33,838 6,192 299,690 – 17.442 5,902 3,570 1,080 968 Total 6,083 3690 1,211 1,117

2008

Defined contribution pension plan 1,100Total 1,100

2008

Common shares 0.6871%Preferred shares 0.5341%Total shares 0.5878%

Post-employmentbenefits December31,2008

December31,2008

ToTAL VALUATIoN INVESTmENTS ADjUSTmENTS(3)

Companies 12.31.2008 12.31.2007 12.31.2008 12.31.2007

- Valepar S.A. 4,206 3,570 979 968- Valepar S.A. – adjustment (1) 331 – – –- Valepar S.A. (2) 1,365 – 101 – Sub Total 5,902 3,570 1,080 968- CPFL Energia S.A. (4) 121 150 – –Total 6,023 3,720 1,080 968

(1) Valuation adjustments to subsidiaries’ equity (note 2). (2) Refers to redeemable class C preferred shares (note 12(7)).(3) Valuation adjustment, which considers net income (loss) recorded by the companies on the acquisition and includes changes in equity of the investees

not arising from income or loss and adjustments arising from the alignment of accounting principles, when applicable.(4) In November 2008, 1,178,100 shares were sold and the Company now holds 41,870,900 shares (note 21.e)).

(1) Information relating to December 31, 2008.(2) Jointly-owned subsidiary.(3) This adjustment considers the subsidiaries’ results from the acquisition date and includes subsidiaries’ changes in assets and liabilities not derived from results, as well as adjustments for consistency in accounting principles, when applicable.(4) The financial statements of certain subsidiaries, jointly-owned subsidiaries and associates for the year ended December 31, 2008 were audited by other independent auditors, whose investments total R$837 as of December 31, 2008 and losses thereon for 2008 amount to R$96.(5) Adjusted shareholders’ equity includes R$701 related to the adjustment to the controlling company’s accounting criteria with respect to the period for amortization of goodwill, the effect of which on 2008 net income is R$117 (2007 – R$117).(6) Adjusted shareholders’ equity comprises R$1,900 related to the valuation adjustments to equity of subsidiaries Valepar/VALE, in accordance with the adoption of new accounting practices (note 2).(7) On July 18, 2008, Bradespar subscribed 23,724,193 class “C” preferred shares issued by Valepar with the following features: (i) are not entitled to vote in the Company’s general meetings, except in the cases provided for by the Law, (ii) are entitled to cumulative fixed dividends to be paid on a semiannual basis, beginning 2009, corresponding to a fixed annual rate of 16%, (iii) they are redeemable on a semiannual basis from May 5, 2011 to November 5, 2015, (iv) they are not convertible into any other type or class of shares issued by the Company. After subscription, Bradespar holds 26.83% of the redeemable class C preferred shares, 21.21% of the common shares, and 17.44% of Valepar’s total capital. Adjusted shareholders’ equity comprises R$7,889 related to the Company’s capital increase with redeemable class B and C preferred shares.(8) Companies which had its financial information for the year ended December 31, 2008 audited by the same independent auditors of Bradespar.

c) Investments in subsidiaries (consolidated holding) are represented by:

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INVESTmENT BRADESPARINDIRECT AmoUNT INVESTmENT

Companies 31.12.2008 31.12.2008 31.12.2007

Bradespar S.A. - CPFL Energia S.A. 121 121 150 Companhia Vale do Rio Doce – VALE - Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS 384 22 17 - ThyssenKrupp CSA – Cia Siderurgica. 1,034 60 39 - Henan Longyu Energy Resources Co. Ltd, 411 24 11 - Log-in Logística Intermodal S.A. 221 13 11 - Other 392 23 28= Subtotal (VALE) 2,442 142 106

Overall Total 2,563 263 256

ToTAL BRADESPAR’S INTANGIBLEASSETS INDIRECTINTEREST

Intangibleassetsbysegment 12.31.2008 12.31.2008 12.31.2007

Valepar S.A. - Cia. Vale do Rio Doce (goodwill) 2,372 414 311 Companhia Vale do Rio Doce – VALE Iron ore and pellets 4,744 276 263Nickel (1) 4,138 240 456Coal 171 10 7Logistics 1,660 96 84Other rights 14 1 1= Subtotal (VALE) 10,727 623 811 Total 13,099 1,037 1,122

(1) In 2008, impairment of R$2,447 was recorded (effect on Bradespar of R$142).

d) The main consolidated permanent investments are represented by:

13.IntangibleAssets(Consolidated)

14.Property,PlantandEquipment(Consolidated)

15.LoansandFinancing(Consolidated)

ToTAL(1)

Average depreciation rates–% 2008 2007

Land – 25 11Properties 3.63 400 335Facilities 3.73 1,125 881Equipment 7.34 557 425IT equipment 20.00 55 46Railways 3.09 439 369Mining rights 3.26 1,495 1,366Other assets 7.27 503 471Property, plant and equipment in progress – 1,821 1,218Total 6,420 5,122

(1) 2008 and 2007 amounts refer to VALE’s balances, net of accumulated depreciation.

(1) VALE – amounts proportional to Bradespar.

Loans and financing long-term portions as of December 31, 2008 mature as follows:

Total(1)

2008 2007

Current 155 190 - Local currency 26 70 - Foreign currency 129 120Noncurrent 2,481 1,837 - Local currency 654 466 - Foreign currency 1,827 1,371Total 2,636 2,027

Consolidated

2010 324 13%2011 386 16%2012 175 7%2013 365 15%2014 onwards 1,190 48%No maturity date (perpetual notes and nonconvertible debentures) 41 1%Total 2,481 100%

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As of December 31, 2008, the annual interest rates on long-term debts were as follows:

As of December 31, 2008, fixed interest notes denominated in U.S. dollars in the amount of R$884 (2007 – R$670) and other debts in the amount of R$1,605 (2007 – R$1,209) are not securitized. Exports securitization of R$28 (2007 – R$26) is securitized by futurereceivables from export sales made by the subsidiary CVRD Overseas Ltd. Loans obtained from international agents of R$8 (2007 – R$8) are guaranteed by the Brazilian FederalGovernment, and have counter-guarantees in the same amounts collateralized by the shares. The remaining long-term debt of R$40 (2007 – R$56) is mainly collateralized by the subsidiaries’ assets.

16.PromissoryNotesPayable(Consolidated)On July 18, 2008, Bradespar carried out the public issuance of 1,400 promissory notes with unit value of R$1,000, totaling R$1,400,000, with a maturity of 180 days from the issuance date.Interest will be equivalent to the accumulated fluctuation of 106% of the average one-day DI (interbank deposit) rates, based on 252 days, disclosed daily by CETIP S.A., calculated on a “pro rata” basis until the payment of each promissory note, and will be paid together with the principal.Promissory notes had the following guarantees: (i) collateralization of 100% of class C preferred shares issued by Valepar, directly held by Bradespar; and (ii) collateralization of 100% of CPFL Energia S.A.’s common shares, indirectly held by Bradespar.Principal and interest in the amount of R$1,495 were paid on January 2 and 14, 2009.

17.ContingentAssetsandLiabilities/LegaloObligations/Guarantees/EscrowDeposits(Consolidated)

a) ContingenciesSubsidiaries and jointly-owned subsidiaries have contingent liabilities recognized in amounts considered sufficient by their Management, based on the opinion of their legal counsel, as described below, and refer basically to tax, civil and labor lawsuits. The caption “Escrow deposits” in the consolidated financial statements, in noncurrent

Consolidated

Up to 3% 1063.1% to 5% 8005.1% to 7% (*) 8187.1% to 9% (*) 2909.1% to 11% (*) 12Over 11% (*) 506Variable (perpetual notes) 40Total 2,572

(*) Includes nonconvertible debentures and other loans denominated in Brazilian reais, whose interest equals

the accumulated fluctuation of the CDI and long-term interest rate (TJLP) plus spread. Derivatives have been

contracted to hedge VALE’s exposure to floating rate debt in Brazilian reais. The total contracted for these

transactions is R$566, of which R$496 have interest rates above 11%. After contracting the hedge, the average

cost of these transactions is 4.9%.

assets – long-term assets, in the amount of R$104 (2007 – R$49) refer to the jointly-owned subsidiary VALE.

VALE VALEPAR CoNSoLIDATEDHoLDING ToTAL

2008 2007 2008 2007 2008 2007 2008 2007

Tax contingencies 134 185 136 102 100 72 370 359(-) Escrow deposits (63) (76) (36) (35) (2) (1) (101) (112) 71 109 100 67 98 71 269 247 Civil contingencies 40 32 – – – – 40 32(–) Escrow deposits (3) (15) – – – – (3) (15) 37 17 37 17 Labor contingencies 64 53 – – – – 64 53Other 2 1 – – – – 2 1

Total 174 180 100 67 98 71 372 318

December31

1) CONSOLIDATED HOLDING

Contingent assets

As of December 31, 2008, contingent assets were not recognized, although there are lawsuits in which the likelihood of a favorable outcome is probable, as shown below:• Tax on revenue (COFINS) – R$8 (2007 – R$8): the Company seeks refund or offset of COFINS, paid under the terms of Law 9718/98, in the period from January to October 2001, in the amount exceeding the tax due on revenues.• Tax on revenue (PIS) – R$2 (2007 – R$2): the Company seeks refund or offset of PIS, paid under the terms of Law 9718/98, in the period from January to October 2001, in the amount exceeding the tax due as per Supplementary Law 07/70 (“PIS Repique”) or at least the amount exceeding the tax due on revenues.

Contingent liabilities assessed as probable losses and legal obligations – taxes and social security

The companies included in the consolidated holding are parties to tax lawsuits arising in the normal course of business.

The reserves were recorded taking into account the legal counsel’s opinion, nature of lawsuits, similarity with prior lawsuits, complexity and prior court decisions, whenever loss is assessed as probable.

Bradespar’s Management understands that the reserve recorded is sufficient to cover losses that may result from lawsuits.

The liability related to legal obligations under litigation is maintained until a favorable, final and unappealable court decision is rendered or the statute of limitations has expired.

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I. Contingent liabilitiesUnder the sale agreement for Bradesplan shares signed with Banco Bradesco S.A. in May 2006, Bradespar is liable for tax lawsuits (PIS and COFINS) of the former subsidiary Bradesplan, and a reserve for contingencies was recorded in the amount of R$50, R$20 of which was reversed in 2007 and the remaing amount this year because of a favorable final and unappealable decision on a COFINS lawsuit. The balance as of December 31, 2008 is R$31 (2007 – R$30).

II. Legal obligations – taxes and social securityBradespar is challenging in court the legality and constitutionality of certain taxes, which are fully covered by a reserve, despite the good chances of a favorable outcome in the medium and long term, based on the legal counsel’s opinion.

The main matters are:

• PIS and COFINS – R$57 (2007 – R$23): the Company seeks the noninclusion, in the PIS and COFINS tax basis, of the interest on capital received from investees, since this interest is legally considered to be dividends, which are not subject to PIS and COFINS.

• COFINS – R$9 (2007 – R$8): the Company seeks the right to calculate and pay COFINS, from November 2001 to January 2004, based on the actual revenues, as set forth in article 2 of Supplementary Law 70/91, thus not considering the unconstitutional increase in the tax basis established by paragraph 1, article 3, of Law 9718/98.

• PIS – R$2 (2007 – R$1): the Company seeks the cancellation of the changes introduced by Law 10637/02 and the release from penalties for having calculated and paid PIS, beginning December 2002, as provided for in Supplementary Law 07/70 (“PIS Repique”).

III – Change in legal obligations and contingent liabilities

Contingent liabilities assessed as possible losses

Bradespar monitors all administrative and judicial proceedings filed by or against it and classifies the proceedings according to the estimate of loss based on the legal counsel’s opinion. In this respect, proceedings assessed as possible loss are not accounted for. Bradespar and its subsidiaries (consolidated holding) did not have material contingent liabilities assessed as possible loss.

Legalobligations ReserveforContingencies

Legal Escrow Contingent obligations Deposits Total Liabilities Total

Balance at 12.31.07 42 (1) 41 30 30Supplemental recognition during the year 21 (1) 20 – –Monetary adjustment 6 – 6 1 1Balance at 12.31.08 69 (2) 67 31 31

CompanyandConsolidatedHolding

2) VALE

Following are contingent liabilities, considering the total amount and not the proportional balance of Bradespar.

VALE and its subsidiaries are parties to ongoing administrative and judicial proceedings involving labor, civil, tax and other matters, which, when applicable, are supported by escrow deposits. The reserves for losses on these lawsuits are estimated and adjusted by VALE’s Management based on the opinion of its legal department and outside legal counsel.

At the consolidated financial statement date, VALE has the following contingent liabilities:

I. Reserves for contingencies, net of escrow deposits, considered by VALE’s Management and its legal counsel as sufficient to cover potential losses on any type of lawsuits, as follows:

2008 2007

a) Tax contingencies 2,299 3,269(–) Escrow deposits (1,082) (1,346) 1,217 1,923 b) Civil contingencies 687 575(–) Escrow deposits (44) (277) 643 298 c) Labor contingencies 1,097 937d) Environmental contingencies 32 31Total accrued liabilities 2,989 3,189

December31

2008

Balance at beginning of year 3,189Recognition of reserves, net of reversals (1,234)Payments (30)Monetary adjustment 568Escrow deposits 496Balance at end of year 2,989

Tax contingencies

The main tax lawsuits are as follows:

• ICMS – refers to entitlement to tax credits and difference in tax rate related to transfers of assets between establishments of VALE.

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• Service tax (ISS) – most lawsuits refer to the location for tax collection.

• COFINS – most lawsuits refer to the increase in tax rate from 2% to 3% from 1990 to 2000 of merged companies.

• Import duty (II) – the reserve recorded is related to merged companies’ nonqualification under tax classification in imports of equipment.

• Additional Indemnity of Port Workers (AITP) – refers to the collection of port worker indemnity fee in concession of public port equivalent to private port.

• Income and social contribution taxes – refer principally to offset of tax loss carryforwards above the limit of 30% of taxable income and monetary adjustment of merged companies’ assets.

• Other – refers to offset of tax credits and calculation basis of CFEM (Financial Compensation for Exploration of Mineral Resources).

Civil contingencies

Refer to claims filed by companies engaged by VALE for alleged losses caused by several economic plans, accidents and land repossession action.

Labor contingencies

Labor and social security contingencies – refer principally to: (i) commute hours; (ii) hazardous duty premium and health hazard premium; and (iii) termination pay and 1/3 vacation bonus.

II. In regards to the “Girardin Financing”, VALE has guaranteed debts owed by Goro in the amount of US$100 million (maximum amount). In addition, VALE has guaranteed Goro’s payables related to: (a) amounts exceeding the maximum indemnity amount; and (b) other amounts to be paid by Goro according to a lease agreement on certain assets.

VALE granted a guarantee for certain contract rescission payments payable by Goro to its power supplier (ESA), regarding an electricity supply agreement signed in October 2004, in relation to the nickel-cobalt development project for the Goro mine in New Caledonia. The total guarantees for payments depend on several factors, including rescission by ESA as a result of Goro default, and the date of ESA’s rescission. If Goro rescinds the agreement with ESA before the date established for the start of power supply to the project, the contractual fine may total €145 million. When the electricity supply starts pursuant to the agreement, the total guarantees will decrease over the contract period.

VALE expects that such guarantees will not be executed and, therefore, there are norecorded liabilities.

III. As the first step to its privatization, in 1997 VALE issued debentures to the shareholders existing at that time, including the Brazilian government. The terms of the debentures were established to guarantee that the pre-privatization shareholders, including the Brazilian government, could have a share of possible future benefits that might be obtained from the exploration of certain mineral resources.

VALE issued 388,559,056 debentures with par value of R$0.01 at the issue date, subject to adjustment based on the fluctuation of the IGP-M (general market price index), according to the debenture indenture. The debenture holders are entitled to semiannual payments equivalent to a percentage of net revenues from certain mineral resources held in May 1997, as determined by the debenture indenture.

Pursuant to the debenture indenture, the premium amount bears interest until the month prior to the payment and 1% in the month in which the amount is made available to the debenture holder.

VALE’s accumulated sales of iron ore in reserves covered by participating debentures, from May 1997 to December 31, 2008, totaled 596 million metric tons in the Southeast System and 671 million metric tons in the North System, Carajás.

If annual sales of iron ore remain equal to the record of the last 12 years, levels mentioned in the Debenture Issue Deed for paying premiums, of 1.7 billion metric tons to the Southeast System and 1.2 billion metric tons to the North System, would be reached in 2018 and 2013, respectively. However, if the above-mentioned estimate is not confirmed, dates previously mentioned may be accelerated or postponed.

In 2008, VALE made available the amount of R$20 (2007 – R$22) for the paymentof the participating debentures yield.

3) VALEPAR

Valepar recognized a reserve for tax contingencies, classified in noncurrent liabilities, considered by its Management, based on the opinion of its legal counsel, as sufficient to cover potential losses. Valepar also has escrow deposits related to these contingencies, as follows:

2008 2007

Reservefor Escrow Reservefor Escrow Contingencies Deposits Net Contingencies Deposits Net

Tax 780 (205) 575 586 (202) 384

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2008 2007

Balance at beginning of year 586 –Adjustment for inflation 75 –Additions 119 586Balance at end of year 780 586

2008 2007

Common 122,664,504 122,664,504Preferred 227,024,896 227,024,896 349,689,400 349,689,400Held in treasury (common) (66,455) –Total outstanding shares 349,622,945 349,689,400

AsofDecember31

Contingencies refer mainly to: (i) noninclusion of Valepar as a social contribution tax and COFINS taxpayer, because Valepar is not an employer; (ii) noninclusion of interest on capital income in the PIS and COFINS tax basis; (iii) prevent Valepar from being assessed for not including its financial income in the COFINS tax basis, regarding taxable events from February 2000 to January 2004; and (iv) claim for noninclusion of interest on capital income in the noncumulative PIS and COFINS tax basis, credited starting February 2004.

Changes in the reserve for contingencies:

The escrow deposits were made according to court requirements, to allow Valepar tofile and/or proceed with the lawsuit.

18.Shareholders’Equity

a) Capital

Fully subscribed and paid-up capital is represented by registered book-entry shares, with no par value, as follows:

b) Interest on capitalPreferred shares are nonvoting but entitle their holders to all rights and advantages of common shares, as well as priority guaranteed by the bylaws in capital reimbursement and an additional 10% on interest on capital and/or dividends, as provided for in item II, paragraph 1, article 17, of Law 6404/76, with new wording provided by Law 10303/01.

Under the bylaws, shareholders are entitled to interest on capital and/or dividends that, when summed up, correspond to at least 30% of net income adjusted as per Brazilian Corporate Law.

Calculation of proposed interest on capital and dividends for 2008 is as follows:

R$ %(1)

Net income 1,126 Legal reserve (56) Calculation basis 1,070 Interest on capital paid on November 14, 2008 (gross) 68 Additional interest on capital accrued – 2008 (gross) 165 Total interest on capital (gross) 233 21.81Withholding income tax on interest on capital 35 Interest on capital (net) – 2008 198 18.54Dividends paid on November 14, 2008 143 13.41Total interest on capital (net) and dividends – 2008 341 31.95Total interest on capital (net) and dividends – 2007 329 31.95

(1) Percentage of interest on capital applied to the calculation basis.

In order to improve Corporate Governance practices and increase the predictability of the return to shareholders, Bradespar adopts, since 2006, a Minimum Annual Return to Shareholders Policy, to be paid as dividends and/or interest on capital, based on the Company’s cash flow estimates, as follows:

• The Company’s Executive Committee will announce by the last business day of February of each year a proposal to be submitted to the Board of Directors for payment of a minimum return to shareholders, in U.S. dollars, in two semiannual installments due by May and November 15.• The amounts approved will be translated into local currency at the U.S. dollar selling rate (“Ptax-opção 5”), released by the Central Bank of Brazil (BACEN) on the business day prior to that of the Board of Directors’ meetings in which the declaration and payment of said return will be resolved.• The Executive Committee may also propose to the Board of Directors, based on an analysis of the Company’s cash flows, the declaration and payment of dividends and/or interest on capital in addition to the minimum return to be announced.

On May 15, 2008, Bradespar paid to its shareholders interest on capital, to supplement interest on capital paid in 2007, in the amount of R$172,200, at R$0.462419066 per common share (0.393056206 net of withholding income tax) and R$0.508660973 per preferred share (0.432361827 net of withholding income tax), as per resolution of the Annual Shareholders’ Meeting held on April 30, 2008. This amount corresponded to the first portion of the minimum annual return to shareholders, in the amount of US$100,000,000.00.On November 14, 2008, Bradespar paid interest on capital to its shareholders in the amount of R$68, considering the gross amount of R$0.182635925 (R$0.155240536 net of withholding income tax) per common share and R$0.200899519 (R$0.170764591 net of withholding income tax) per preferred share and dividends in the amount of R$143, of which R$0.385442376 per common share and R$0.423986613 per preferred share. These amounts totaled R$211, equivalent to US$100 and refer to the second portion of the 2008 Minimum Annual Dividends.

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Carryingamount StockExchangePrice(*)

Valepar/VALE ON 5,902 8,375 CPFL Energia S.A. – ON 121 1,211(*) Average price on December 31, 2008.

c) Treasury shares

At the Extraordinary Meeting held on January 18, 2008, Bradespar’s Board of Directors decided to authorize the Company’s Executive Committee to buy back up to 1,500,000 registered shares, without par value, of which 500,000 are common and 1,000,000 are preferred, to hold them in treasury for subsequent sale or cancellation, without any capital reduction. This resolution was effective for six months (from January 22 to July 21, 2008). At a new Extraordinary Meeting held on July 21, 2008, Bradespar’s Board of Directors authorized the Company’s Executive Committee to buy back the same number of Bradespar’s shares to hold them in treasury for subsequent sale or cancellation, also for a six-month period (July 22, 2008 to January 22, 2009). On January 22, 2009 a new Extraordinary Meeting of Bradespar’s Board of Directors was held, authorizing the Company’s Executive Committee to purchase the same amount of Bradespar’s shares to be held in treasury for subsequent sale or cancellation, also for six months (January 23 to July 23, 2009). Up to December 31, 2008, 66,455 common shares were purchased and held in treasury in the amount of R$1. The minimum, weighted average, and maximum costs per share are, respectively, R$19.69186, R$21.99789 and R$45.30364.The market value of these shares as of December 31, 2008 was R$18.43 per registered common share and R$18.96 per registered preferred share.

19.FinancialInstrumentsBradespar’s subsidiaries conduct transactions involving financial instruments to managetheir exposure to interest rate risks.

a) BradesparThe main financial instruments recorded in balance sheet accounts refer mainly to direct and indirect investments; those related to Valepar are accounted for under the equity method while those related to CPFL are recorded at cost. The main investments regularly traded on stock exchanges are summarized below, considering the last quotation available on December 31, 2008:

Stock exchange quotations of investments in Valepar/VALE do not reflect the control premium corresponding to a lot of shares of capital stock.Bradespar and other consolidated holding companies did not have derivative transactions as of December 31, 2008.The fair value of other financial instruments of Bradespar is equivalent to their carrying amounts.

Sensitivity Analysis Pursuant to CVM Instruction 475, of December 17, 2008, we present below the ensitivity analysis of positions subject to price fluctuations or market rates:

The sensitivity analysis was made based on the following scenarios:Scenario 1: consists of the probable scenario for risk factors and it is based on market information (BM&FBOVESPA, Andima, etc.). For example: the one-year fixed interest rate was 11.60% per year.Scenario 2: shocks of 25% based on the market as of December 31, 2008 and applied on Scenario 1. For example: the one-year fixed interest rate was 14.64% per year.Scenario 3: shocks of 50% based on the market as of December 31, 2008 and applied on Scenario 1. For example: the one-year fixed interest rate was 17.68% per year.

b) VALEAll amounts disclosed herein are fully presented by VALE, and thus do not refer to Bradespar’s proportional interest.

Risk management policyVALE developed its risk management strategy to provide an integrated view of risks to which it is exposed. Therefore, the Company evaluates not only the impact of variables traded in the financial market on business results (market risk), but also the risk from obligations assumed by third-parties with VALE (credit risk) and those related to productive processes (operating risk).Traditional measurement metrics related to market risk such as Value at Risk – VaR are not enough to determine the Group’s (VALE) exposure, once the main goal is to avoid a possible lack of funds to honor with future obligations.The integrated risk management, which comprises several types of risk, in addition to the relationship between different market risk factors (correlations), aims to evaluate the impact such events would cause, considering natural hedges present in VALE’s portfolio. Thus, evaluating the risk linked to VALE’s businesses, it is possible to observe the positive effect associated with the diversification of its product and currency portfolio. This diversification results in a natural reduction of VALE’s risk levels. Any risk mitigation strategy, whenever necessary, will only be implemented when significantly contribute to the reduction of cash flows volatility in addition to levels initially observed and desired.VALE understands that the risk management is essential to support its growth and financial flexibility strategy. The risk reduction of future cash flows improves credit capacity, making access to several markets easier and reducing costs related to possible fund raising. Accordingly, VALE’s Board of Directors has established a corporate Risk Management Policy and a Risk Executive Management Committee.The Risk Management Policy determined that VALE will assess cash flow risks on a regular basis and all proposals for risk mitigation. As previously mentioned, these proposals, whenever necessary, will be performed aiming to reduce risks related to the compliance with VALE’s commitments, both with third-parties and its shareholders.

Scenarios

Riskfactors Definition 1 2 3

Interest rates in Exposures subject to Brazilian reais interest rate fluctuation (28) (1,205) (2,347)

December31,2008

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VALE’s Executive Committee is responsible for evaluating and approving long-term risk mitigation strategies, as suggested by its Risk Management Executive Committee.VALE’s Committee is responsible for issuing a report on the principles and risk management instruments, in addition to inform, on a periodic basis, VALE’s Executive Committee about the risk management and monitoring process, the main risks to which it is exposed and the impacts on cash flow.The risk management policy and rules, which supplement risk management corporate governance regulations, require the diversification of transactions and counterparts and the prohibition of derivative transactions for speculative purposes.In addition to the risk management’s regulation structure, VALE has a corporate structure with well-established responsibilities. The recommendation and performance of transactions are conducted by independent areas. The risk management area is responsible for defining and suggesting transactions or market risk mitigation measures to the Risk Management Executive Committee in line with VALE’s strategies and its consolidated companies. The financial area is responsible for conducting risk mitigation transactions involving derivatives contracts. The independence between areas ensures the effective control of these transactions.VALE monitors and assesses its monthly consolidated position to follow up financial results and the impact of its cash flow and guarantee that the objectives originally set are accomplished. The calculation of fair value positions is released weekly for managerial follow up.All derivative transactions were presented on VALE’s balance sheets according to the fair value. Gains and losses were accounted for in the statement of income.Considering the nature of VALE’s business and operations, the main market risk factors to which VALE is exposed are as follows:

• Interest rates.• Foreign exchange rates.• Prices of products.

Methodology to calculate the fair value of positionsVALE measures its financial instruments by calculating its present value based on market curves that impact the instrument on the calculation dates.In the case of options, prices are determined through the Black & Scholes model, which is largely used to evaluate options based on the volatility and price of the assets subject to the model, option exercise price, interest rate and expiration period.For swaps, both the long and the short positions are estimated separately and discounted to present value, and the gap between them corresponds to the swap’s fair value.The calculation model of swaps pegged to the TJLP follows the specification described in CETIP’s formula notebook, which involves defining the TJLP forward yield curve. Accordingly, the TJLP can be represented by an inflation target disclosed by BACEN, based on the Extended Consumer Price Index (IPCA) plus Brazil risk premium, which comprises an actual international interest rate and a Brazil risk component, calculated based on the risk spread of the medium- and long-term bonds issued by Brazil.The product and inputs purchase and sale contracts for future settlement are priced using the future curves of each product. Usually, these curves are obtained in the exchanges where these products are traded, including the London Metals Exchange – LME and the COMEX, or market price providers. When there is no price for the wanted maturity, VALE uses interpolations between the available maturities.

Methodology for the calculation of the value at risk of positionsVALE measured the value at risk of positions with derivatives through a historic simulation approach. Different risk factors that influenced the pricing of derivatives in VALE’S portfolio and a sample of its historical daily returns over a two-year time period were identified.The current positions of VALE’s derivatives were used to simulate their returns based on sample data and built a nonparametric return distribution and, consequently, the value at risk for the portfolio considering a one-business day time horizon. The VaR of the portfolio considers a 95% confidence level.

Sensitivity analysisThis topic presents the sensitivity analysis tables for all the outstanding positions as of December 31, 2008. The scenarios defined for these analyses were as follows:• Scenario I: probable – considers the market curves as of December 31, 2008.• Scenario II: depreciation of 25% – on the market curves used by VALE for pricing the probable scenario, adversely impacting the fair value of VALE’s derivatives positions.• Scenario III: appreciation of 25% – considers a shock of 25% based on the market curves used by VALE for pricing the probable scenario, positively impacting the fair value of VALE’s derivatives positions.• Scenario IV: depreciation of 50% – considers a shock of 50% based on the market curves used by VALE for pricing the probable scenario, adversely impacting the fair value of VALE’s derivatives positions.• Scenario V: appreciation of 50% – considers a shock of 50% based on the market curves used by VALE for pricing the probable scenario, positively impacting the fair value of VALE’s derivatives positions.

Agreements subject to margin callsVALE has contracts subject to margin calls only for copper and nickel transactions contracted by Vale Inco. The total amount deposited in cash in December 2008 was R$23.6 million, and it refers to positions that will mature in 2009.

Definitions of the main positionsCash flow hedge – hedging transactions for the purpose of reducing cash flow volatility arising from the mismatch between the currencies of VALE’s revenue, predominantly in U.S. dollars, and its costs and investments, predominantly in Brazilian reais. This position was settled in December 2008.

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Hedging of Brazilian real-denominated loans and financing indexed to CDI• CDI versus U.S. dollar fixed rate swaps – in order to reduce cash flow volatility, VALE entered into swaps to convert Brazilian real-denominated debt cash flows indexed to CDI to U.S. dollar. In these transactions VALE pays fixed rates in U.S. dollars and receives yield pegged to the CDI.• CDI versus U.S. dollar floating rate swaps – in order to reduce cash flow volatility, VALE entered into swaps to convert Brazilian real-denominated debt cash flows indexed to CDI to U.S. dollar. In these transactions VALE pays floating rates in U.S. dollars (London Interbank Offered Rate – LIBOR) and receives yield pegged to the CDI.

These instruments were used to convert the cash flows of debentures issued by VALE in 006 in the notional amount of R$5.5 billion, the Credit Export Note (NCE) issued in 2008 in the notional amount of R$2 billion, and financing for the purchase of assets and services in 2006 and 2007 in the notional amount of R$1 billion.

Hedging of Brazilian real-denominated loans and financing indexed to TJLP• TJLP versus U.S. dollar fixed rate swap – in order to reduce cash flow volatility, VALE entered into swaps to convert Brazilian real-denominated debt cash flows indexed to TJLP, arising from loans agreements with the BNDES, to U.S. dollar. In these transactions VALE pays fixed rates in U.S. dollars and receives yield pegged to the TJLP.• TJLP versus U.S. dollar floating rate swap – in order to reduce cash flow volatility, VALE entered into swaps to convert Brazilian real-denominated debt cash flows indexed to TJLP, arising from loans agreements with the BNDES, to U.S. dollar. In these transactions VALE pays floating rates in U.S. dollars (LIBOR) and receives yield pegged to the TJLP.

Hedging of euro-denominated loans and financing• Euro floating rate versus U.S. dollar floating rate swap – in order to reduce cash flow volatility, VALE entered into a swap transaction to convert euro-denominated loan cash flows indexed to the Euribor to U.S. dollars indexed to the LIBOR. This transaction was used to convert the cash flows of a euro-denominated debt, in the notional amount of €19.1 million, issued in 2003 by VALE. In this transaction VALE receives floating rates in euro (Euribor) and pays floating rates in U.S. dollars (LIBOR).

Hedging of loans and financing subject to U.S. dollar floating rateU.S. dollar floating rate versus U.S. dollar fixed rate swap – in order to reduce the cash flow volatility, a swap transaction was entered into to convert the cash flows of a syndicated debt issued by Vale Inco Ltd., a wholly-owned subsidiary of VALE, in 2004, in the notional amount of US$200 million indexed to a floating rate (LIBOR) into a fixed rate debt. In this transaction VALE pays the counterparty interest at fixed rates and yield pegged to a floating rate (LIBOR).

Nickel fixed price sale program – in order to maintain the exposure to nickel price fluctuations, VALE entered into derivative transactions to convert to floating prices the contracts with customers that request a fixed price. The transactions’ purpose is to ensure sales prices are equivalent to the average prices traded in LME on the date the product is delivered to the customer. These transactions usually involve buying nickel forwards whether is an exchange (LME) or over-the-counter. These transactions are usually reversed before original maturity to match them with the settlement dates of contracts whose prices are fixed.

Nickel purchase hedging program – implemented to reduce cash flow volatility and eliminate the mismatch between the nickel purchase pricing period (concentrate, cathode, sinter and other types) and the processed product pricing period. The goods purchased are raw materials used to produce refined nickel. The transactions usually carried out in this case are nickel forwards whether is an exchange (LME) or over-the-counter.

Natural gas hedging – transactions entered into to minimize the impact of the natural gas price fluctuations in VALE costs. Transactions usually carried out through futures or forward contracts.

Copper scrap purchase hedging program – transactions carried out to reduce cash flow volatility and eliminate the mismatch between pricing in the copper scrap purchase period and pricing when the final product is sold to customers. Copper scrap purchased is combined with other inputs of Vale Inco Ltd., a wholly-owned subsidiary of VALE, to produce copper sold to final customers. The transactions usually carried out in this case are forward sales whether is an exchange (LME) or over-the-counter.

Copper hedging – hedging transactions intended to reduce cash flow volatility due to copper price fluctuations on the LME. Usually these transactions consist of the forward sales on an exchange (LME or COMEX) or over-the-counter, and zero-cost collars contracts (purchase of put options associated to the sale of call options). These transactions were settled in December 2008.

Aluminum hedging – hedging transactions intended to reduce cash flow volatility due to aluminum price fluctuations on the LME. Usually these transactions consist of the forward sales on an exchange (LME or COMEX) or over-the-counter, and zero-cost collars contracts (purchase of put options associated to the sale of call options). These transactions were settled in December 2008.

Platinum hedging – hedging transactions intended to reduce cash flow volatility due to platinum price fluctuations on the LME. Usually these transactions consist of the forward sales on an exchange (COMEX) or over-the-counter, and zero-cost collars contracts (purchase of put options associated to the sale of call options). These transactions were settled in December 2008.

Gold hedging – hedging transactions intended to reduce cash flow volatility due to price fluctuations of gold, a byproduct of our copper production. Usually these transactions consist of the forward sales and zero-cost collars contracts (purchase of put options associated with sale of call options). These transactions were settled in December 2008.

Embedded derivatives• Energy purchase – energy purchase agreement between Albrás, VALE’S subsidiary, and Eletronorte which includes a clause that defines that a premium can be charged if aluminum prices trade in the range of US$1,450/ton to US$2,773/ton. This clause is considered an embedded derivative.• Purchase of intermediate products and raw material – raw material and nickel concentrate purchase agreements entered into by Vale Inco Ltd., a wholly-owned subsidiary of VALE, which include price terms based on future nickel and copper prices. These terms are considered embedded derivatives.

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Foreign exchange and interest rate riskVALE’S cash flow is subject to the volatility of several currencies against the U.S. dollar. While most products’ prices are indexed to the U.S. dollar, accounting for approximately 94% of total revenue, most costs, expenses and investments are indexed to other currencies, mainly Brazilian reais and Canadian dollars.Accordingly, the basic reference currency for VALE’S obligations is the U.S. dollar, which reduces the possible volatility of the Company’s cash flow from the mismatch between its floating indebtedness in Brazilian reais and its revenue, almost fully denominated in U.S. dollars. Therefore, VALE has derivatives whose portfolio includes basically interest rate swaps to convert floating cash flows in Brazilian reais into cash flows in U.S. dollars at fixed and floating rates, without leverage.On the other hand, VALE is also exposed to interest rate risk on loans and financing. Debt at floating interest rate in U.S. dollar comprises mainly loans, including export prepayment transactions, loans with commercial banks and multilateral organizations. In general, floating debts at floating rate in U.S. dollar are indexed to the LIBOR. To minimize the volatility effects of interest rates in cash flows, VALE considers the natural hedge between the U.S. dollar rate fluctuation and price of metals. When there is no natural hedge, VALE may opt to use financial instruments for the same purpose.Debts subject to floating interest rates in Brazilian reais comprise loans in the form of debentures, loans made by BNDES, and financing obtained in the Brazilian market for the acquisition of goods and services. These debts in reais are indexed mainly to the CDI and the TJLP.As of December 31, 2008, the real-denominated debt converted through swaps into U.S. dollars was US$4.2 billion, with an average cost in U.S. dollars of 4.9% after the swaps transactions, and maturity from November 2010 to December 2027, with semiannual interest payments.The maturities and amounts of the swap transactions are similar to the interest payment and principal repayment dates, as market liquidity permits it. At each maturity date, swap gains or losses partially offset the impact of the U.S. dollar to Brazilian real exchange rate on our obligations, helping to stabilize our cash flows in U.S. dollars for the payment of interest and or repayment of principal our real-denominated debt.In the event of an appreciation (depreciation) of the Brazilian real against the U.S. dollar, the adverse (positive) impact on the debt service (interest payment and or principal repayment) measured in U.S. dollars will be almost fully offset by the gain (loss) on the swap transaction, regardless of the U.S. dollar/Brazilian real exchange rate on the payment date.On the fourth quarter of 2008, VALE paid an amount equivalent to R$438 million in interest related to its Brazilian real-denominated debt pegged to U.S. dollar swap transactions. However, VALE received R$50 on the settlement of the swap, offsetting the U.S. dollar/Brazilian real fluctuation impact on its debt service.The tables below represent VALE’S derivative positions as of December 31, 2008 with the following information: notional amount, initial cost, fair value, value at risk, gains or losses in the period and fair value by maturity year per each group of instruments.

Cash flow hedging

Hedging of Brazilian real-denominated loans and financing

Average Unrealized RealizedInitialamount Principal Index Rate (loss)gain(R$) (loss)gain(R$)

12.31.08 09.30.08 12.31.08 09.30.08 12.31.08

Assets – US$ 100 US$ 3.65% – 192 236 Liabilities – R$ 159 CDI 100.00% – (159) (166)Total – 33 70

Average Unrealized RealizedInitialamount Principal Index rate–% (loss)gain(R$) (loss)gain(R$) VaR

12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Assets R$ 7,531 R$ 7,103.58 CDI 101.14 8,463 8,112 759 1 Liabilities US$ 3,672 US$ 3,493.80 US$ + 5.3395 (9,338) (7,584) (521) 277 Total (875) 528 238 278


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Assets R$ 792 R$ 792 CDI 102.26 834 838 61 – Liabilities US$ 430 US$ 430 Libor + 3.876 (1,057) (866) (20) 31 Total (223) (28) 41 31

U.S.dollarversusfixedrateCDIswap

CDIversusU.S.DollarFixedRateSwap

CDIversusU.S.DollarFloatingRateSwap

Year Unrealized(loss)gainperyear(R$)

2009 3762010 (1,035)2011 222012 (64)2013 112014 92015 (193)

CDIversusU.S.DollarFixedRateSwap(Cont.)

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12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Assets R$ 518 R$ 525 TJLP TJLP+1.57 p.y. 436 434 31 8 Liabilities US$304 US$307 USD USD+3.76 p.y. (580) (528) (25) 22 Total (144) (94) 6 30


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Assets R$ 645 R$ 647 TJLP TJLP+0.96 p.y. 503 471 10 12 Liabilities US$378 US$378 Libor Libor+1.13 p.y. (572) (580) (5) 26 Total (69) (109) 5 38

TJLPversusU.S.DollarFixedRateSwap

TJLPversusU.S.DollarFloatingRateSwap


2009 652010 (51)2011 232012 172013 122014 82015 (296)


2009 (5)2010 (8)2011 (12)2012 (4)2013 (14)2014 (39)2015 (14)2016 (13)2017 (12)2018 (11)2019 (14)

CDIversusU.S.DollarFloatingRateSwap(Cont.)

TJLPversusU.S.DollarFixedRateSwap(Cont.)


2009 22010 –2011 (1)2012 822013 92014 (99)2015 (6)2016 (6)2017 (5)2018 (5)2019 (39)


2009 22010 22011 1

TJLPversusU.S.DollarFloatingRateSwap(Cont.)

EuroFloatingRateversusU.S.DollarFloatingRateSwap(Cont.)

To reduce cash flow volatility related to a financing of KfW Bankengruppe indexed to the uribor, a swap transaction was conducted under which flows in euros are converted into U.S. dollars.

Hedging of euro-denominated loans and financing

Hedging of loans and financing subject to US dollar floating rate


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Assets €7 €8 EUR Euribor+0.875 24 23 8 – Liabilities US$ 8 US$ 9 USD Libor+1.0425 (19) (18) (7) – Total 5 5 1 –


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Assets US$ 200 US$ 200 USD 3MLIBOR 466 385 14 –Liabilities USD 4.795 p.y. (498) (395) (18) 1Total (32) (10) (4) 1

EuroFloatingRateversusU.S.DollarFloatingRateSwap

U.S.DollarFloatingRateversusU.S.DollarFixedRateSwap

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2009 (17)2010 (10)2011 (5)


2009 (103)2010 (14)2011 (–)

U.S.DollarFloatingRateversusU.S.DollarFixedRateSwap(Cont.)

Nickelforwardpurchasecontracts(Cont.)

In addition, in order to reduce the cash flow volatility of Brazil’s payroll for 2007 and 2008, VALE entered into foreign exchange swap transactions that mature on a monthly basis. In June, this position’s fair value was R$194 million. In September, the Company decided to settle this position in advance, in view of the natural hedge provided by the investment of part of VALE’S cash funds raised in the global share offering completed in August 2008, in financial instruments denominated in Brazilian reais. The total amount received in this quarter referring to this operation was R$326 million.

Product price riskVALE is also exposed to several market risks related to the price volatility in global markets for its products. At present, transactions involving derivatives related to the price of VALE’S products and/or inputs include nickel, aluminum, copper, gold, platinum and natural gas derivatives, all of which are intended to mitigate VALE’S cash flow volatility.

Nickel – VALE has negotiated future purchase contracts in LME to hedge its exposition to nickel price fluctuations, considering that, in some cases, the product is sold at a fixed price. VALE has also entered into forward sales contracts on the LME to minimize the risk of mismatch between the intermediate products cost and finished goods sales price.

Nickel sale program at fixed prices

Averagestrike Unrealized RealizedInitialamount Principal(tons) B/S (US$/ton) (loss)gain(R$) (loss)gain(R$) VaR

12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Futures 10,140 9,330 C 16,756 (117) (132) (215) 18

Nickelforwardpurchasecontracts

Nickel purchase program at fixed prices

In addition to the agreements above, VALE has contracts for the purchase of nickel andcopper intermediate products, whose pricing is based on commodity rates, which, inpractice, results in the treatment of these contracts as embedded derivatives.

Embedded derivative – raw material purchased

Embedded derivative – purchase of intermediate products


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Futures 4,944 2,430 V 10,712 (16) 13 103 11


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Nickel Forwards 6,213 6,291 C 10,886 9 8 (68) 4 Copper Forwards 6,213 6,291 C 3,613


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Forward 3,966 4,985 C 15,330 42 52 89 3

Nickelforwardsalecontracts


2009 (16)


2009 9


2009 42

Nickelforwardsalecontracts(Cont.)

(Cont.)

(Cont.)

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Aluminum – To reduce cash flow volatility after the acquisition of Inco due to the additional indebtedness incurred, VALE conducted aluminum and copper hedging transactions that matured in December 2008.

In the fourth quarter of 2008, the settlement of VALE’s remaining aluminum derivative ositions generated a gain of R$58.8 million that offset the decrease in revenue subject to lower sales prices if compared to the price set in the hedging transactions.The table below shows VALE’s September 2008 positions and the amounts settled:

Aluminum hedging

Embedded derivatives – energy purchase

Copper – Vale Inco Ltd. hedges price mismatches between the copper scrap purchase period and the finished product pricing date. The table below illustrates transactions outstanding in December 2008:


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Call 200,228 200,228 C 2,773 3 73 – 1 Call 200,228 200,228 V 1,450 (116) (441) – 17 Total (113) (368) – 18

Averagestrike Unrealized RealizedInitialamount Principal(tons) B/S (US$/ton) (loss)gain(R$) (loss)gain(R$)

12.31.08 09.30.08 12.31.08 09.30.08 12.31.08

Forwards – 12,000 V – (2) 114 Put – 88,500 C – 1 72 Call – 88,500 V – (8) 2 Other – 16,500 – – (30) (8)Total – (39) 180


2009 (41)2010 (72)

(Cont.)

PrograCopper scrap purchase hedging program

In the fourth quarter of 2008, the settlement of VALE’s remaining copper derivative positions generated, at the time of the acquisition of Inco, proceeds of R$62.7 million that mitigated the decrease in revenue at lower sales prices if compared to the price set in the hedging transactions.

The other transactions intended to reduce cash flow volatility matured in December 2008. The table below shows the settlement amounts:

Copper hedging

PGMs and other precious metals – Platinum and gold hedging transactions matured in December 2008.

In the fourth quarter of 2008, the settlement of the remaining PGM and precious metals derivative positions generated a disbursement of R$20.4.

The table below shows VALE’s September 2008 positions and the amounts settled in the year:


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Inco- Futures 136 170 V 5,031 1 – 1 –

Copperforwardsalecontracts


2009 1

Copperforwardsalecontracts(Cont.)


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08

Inco

Put – 14,595 C – – – Call – 12,096 V – (83) (354) Vale Put – 19,500 C – 7 94 Call – 19,500 V – (1) (18)Total – 6 76

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Platinum hedging

Gold Hedging

Natural gas – VALE uses natural gas swap contracts to minimize the impact of price fluctuations of this input on company costs.

Natural gas hedging

Averagestrike Unrealized RealizedInitialamount Principal(Gigajoule) B/S (US$/Gj) (loss)gain(R$) (loss)gain(R$) VaR

12.31.08 09.30.08 12.31.08 09.30.08 12.31.08 12.31.08

Forwards 1,773,000 2,601,000 V 7.68 (4) (3) (1) 2

ForwardGasPurchaseContract


12.31.08 09.30.08 12.31.08 09.30.08 12.31.08

IncoPut – 8,661 C – – – Call – 8,661 V – (3) (46)Total – (3) (46)

Averagestrike Unrealized RealizedInitialamount Principal(oZ) B/S (US$/oZ) (loss)gain(R$) (loss)gain(R$)

12.31.08 09.30.08 12.31.08 09.30.08 12.31.08

Put – 20,685 C – – – Call – 19,425 V – (19) (74)


2009 (4)

ForwardGasPurchaseContract(Cont.)

01/14/09 6.2502/16/09 6.2503/16/09 6.2501/16/09 6.4305/18/09 6.3606/15/09 6.2807/15/09 6.2108/14/09 6.1509/14/08 6.1010/14/09 6.0616/11/09 6.0512/15/09 6.0401/14/10 6.0302/15/10 6.0203/16/10 6.0004/16/10 5.9905/19/10 5.9906/14/10 5.9807/15/10 5.9908/16/10 6.0009/14/10 6.0010/14/10 6.0111/15/10 6.001/14/11 6.0302/15/11 6.0303/16/11 6.0404/18/11 6.0505/17/11 6.0606/14/11 6.0607/15/11 6.0708/15/11 6.0709/14/11 6.08

10/14/11 6.0911/14/11 6.1012/15/11 6.1101/16/12 6.1202/15/12 6.1203/15/12 6.1304/16/12 6.1305/16/12 6.1406/14/12 6.1607/16/12 6.1708/14/12 6.1709/14/12 6.1810/15/12 6.1911/14/12 6.1912/17/12 6.1901/14/13 6.2002/15/13 6.2003/18/13 6.2004/16/13 6.2005/17/13 6.2008/14/13 6.2107/15/13 6.2108/14/13 6.2109/16/13 6.2110/14/13 6.2111/14/13 6.2112/16/13 6.2201/14/14 6.2202/17/14 6.2203/17/14 6.2204/16/14 6.2305/19/14 6.23

06/16/14 6.2307/15/14 6.2308/14/14 6.2309/15/14 6.2310/14/14 6.2411/14/14 6.2412/15/14 6.2401/14/15 6.2402/16/15 6.2403/16/15 6.2504/16/15 6.2505/20/15 6.2506/15/15 6.2507/15/15 6.2508/14/15 6.2509/14/15 6.2510/14/15 6.2516/11/15 6.2612/15/15 6.2601/14/16 6.2602/15/16 6.2603/15/16 6.2604/15/16 6.205/16/16 6.2606/14/16 6.2607/15/16 6.2608/15/16 6.2609/14/16 6.2510/14/16 6.2511/14/16 6.2512/15/16 6.2501/16/17 6.25

02/15/17 6.2503/16/17 6.2517/04/17 6.2505/15/17 6.2506/14/17 6.2507/17/17 6.2508/14/17 6.2509/15/17 6.2510/16/17 6.2511/14/17 6.2512/15/17 6.2501/15/18 6.2502/15/18 6.2503/16/18 6.2504/16/18 6.2505/17/18 6.2506/14/18 6.2507/16/18 6.2508/15/18 6.2509/14/18 6.2510/15/18 6.2511/14/18 6.2512/17/18 6.2501/14/19 6.2502/15/19 6.2503/18/19 6.2504/16/19 6.2505/17/19 6.2506/14/19 6.2507/15/19 6.2508/14/19 6.2509/16/19 6.25

03/01/09 2.0704/01/09 2.7707/01/09 3.8410/01/09 4.6801/02/10 5.0104/01/10 5.0507/01/10 5.10

10/01/10 5.1801/03/11 5.2504/01/11 5.6007/01/11 5.6810/03/11 5.8001/02/12 5.9004/02/12 6.05

07/02/12 6.2910/01/12 6.5301/02/13 6.7404/01/13 6.9307/01/13 7.1510/01/13 7.4501/02/14 7.60

04/01/14 7.8507/01/14 8.1310/01/14 8.4501/02/15 9.00

maturity Rate(%p.y.) maturity Rate(%p.y.) maturity Rate(%p.y.) maturity Rate(%p.y.)


TIPL

ForexCoupon

Market Curves

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VOLSPOT 34.42VOL1M 34.10VOL3M 32.22

VOL6M 29.52VOL9M 27.37VOL1Y 25.59

VOL2Y 22.24VOL3Y 21.06VOL4Y 20.15

VOL5Y 19.73VOL7Y 19.75VOL10Y 19.75

01/31/09 1.3502/28/09 1.2203/31/09 1.2006/30/09 1.38

09/30/09 1.5512/31/09 1.7212/31/10 2.5112/31/11 2.81

12/31/12 2.9212/31/13 3.1712/31/15 3.4212/31/18 3.53

12/31/20 3.4312/31/23 2.84

€/US$ 1.4102US$/C$ 1.2188US$/R$ 2.3370

Jan/09 1.38 Feb/09 1.39 Mar/09 1.40

SPOT 1,461JAN/09 1,468FEB/09 1,479MAR/09 1,490APR/09 1,502MAY/09 1,517JUN/09 1,529JUL/09 1,541AUG/09 1,555SEP/09 1,567OCT/09 1,581

NOV/09 1,592DEC/09 1,602JAN/10 1,612FEB/10 1,622MAR/10 1,632APR/10 1,642MAY/09 1,652JUN/10 1,662JUL/10 1,672AUG/10 1,682SEP/10 1,692

OCT/10 1,701NOV/10 1,711DEC/10 1,720JAN/11 1,730FEV/11 1,739APR/11 1,749MAY/11 1,767JUN/11 1,776JUL/11 1,785AUG/11 1,794

maturity Vol.(%p.y.) maturity Vol.(%p.y.) maturity Vol.(%p.y.) maturity Vol.(%p.y.)


maturity Price(US$/lb.) maturity Price(US$/lb.) maturity Price(US$/lb.)

maturity Price(US$/ton) maturity Price(US$/ton) maturity Price(US$/ton)

Aluminum

US$InterestCurve

Currencies

Copper

Aluminum

€SPOT 1.41€1M 1.41€3M 1.41

€6M 1.40€9M 1.40€1Y 1.40

€2Y 1.39€3Y 1.38€4Y 1.38

€5Y 1.37€7Y 1.33€10Y 1.28

maturity €/US$ maturity €/US$ maturity €/US$ maturity €/US$

€

Jan/09 11,630Feb/09 11,658Mar/09 11,685Apr/09 11,716May/09 11,757Jun/09 11,791Jul/09 11,819Aug/09 11,846Sep/09 11,868

Oct/09 11,896Nov/09 11,918Dec/09 11,941Jan/10 11,973Feb/10 12,001Mar/10 12,029Apr/10 12,064May/10 12,092Jun/10 12,120

Jul/10 12,155Aug/10 12,183Sep/10 12,211Oct/10 12,246Nov/10 12,274Dec/10 12,302Jan/11 12,317Feb/11 12,324Mar/11 12,331

maturity Price(US$/ton.) maturity Price(US$/ton.) maturity Price(US$/ton.)

Nickel

01/02/09 13.6102/02/09 13.4103/01/09 13.5804/01/09 13.0207/01/09 12.6810/01/09 12.3301/02/10 12.21

04/01/10 12.1207/01/10 12.1210/01/10 12.1601/03/11 12.1904/01/11 12.2307/01/11 12.2710/03/11 12.32

01/02/12 12.2904/02/12 12.3507/02/12 12.4510/01/12 12.5201/02/13 12.5504/01/13 12.5507/01/13 12.55

10/02/13 12.5501/02/14 12.5601/02/15 12.6501/04/16 12.7101/02/17 12.7301/02/18 12.7301/03/22 12.73

maturity Rate(%p.a.) maturity Rate(%p.a.) maturity Rate(%p.a.) maturity Rate(%p.a.)

Realyieldcurve

The curves used in derivative pricing were built based on public information from BM&F, BACEN, LME and proprietary data from Thomson Reuters, Bloomberg L.P. and Enerdata.

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Sensitivity analysis

ImpactProgram Instrument description ScenarioI ScenarioII ScenarioIII ScenarioIV ScenarioV

Real-denominated CDI versus US$ US$/R$ parityloans and financing fixed rate swap fluctuationl (875.3) (3,210.0) 1,459.3 (5,544.6) 3,793.9(indexed to CDI) Forex coupon fluctuation (875.3) (1,059.1) (657.0) (1,186.6) (450.4)

CDI versus US$ US$/R$ parity floating rate swap fluctuation USD/BRL (222.2) (486.3) 42.0 (750.4) 306.1 Forex coupon fluctuation (222.2) (266.2) (172.0) (297.8) (126.9)


Real-denominated CDI versus US$ US$/R$ parityloans and financing fixed rate swap fluctuationl (143.2) (288.1) 1.7 (433.0) 146.6(indexed to CDI) Forex coupon fluctuation (143.2) (185.1) (97.5) (216.0) (57.9) Real fixed rate fluctuation (143.2) (211.3) 74.5 (354.2) 217.4

CDI versus US$ US$/R$ parity floating rate swap fluctuation (68.4) (194.2) 57.4 (320.0) 183.2 Forex coupon fluctuation (68.4) (130.0) (2.3) (176.2) 53.8 Real fixed rate fluctuation (68.4) (142.7) 3.7 (203.1) 59.6


Real-denominated CDI versus US$ US$/R$ parityloans and financing fixed rate swap fluctuation 4.8 (1.2) 10.9 (7.3) 16.9(indexed to CDI) Forex coupon fluctuation 4.8 4.4 5.1 4.0 5.4 Real fixed rate fluctuation 4.8 4.6 5.1 4.5 5.3


Real-denominated CDI versus US$ US$ LIBORloans and financing fixed rate swap fluctuation (31.8) (35.5) (27.6) (39.7) (23.6) (indexed to CDI)


Nickel sale program Nickel forward Nickel price at fixed prices purchase contracts fluctuation (117.1) (186.9) (46.8) (256.9) 23.3


Nickel purchase hedging Nickel forward Nickel price transactions program purchase contracts fluctuation (15.7) (44.4) 22.9 (78.0) 56.5


Natural gas hedging Natural gas Natural forward purchase gas price contracts fluctuation (4.4) (9.8) 1.1 (15.2) 6.5


Copper scrap Copper forward Copper purchase purchase price hedging program contracts fluctuation 0.6 0.4 0.9 0.1 1.1

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Embedded derivative- Nickel -purchase of price intermediate products fluctuation 42.3 32.9 51.7 23.4 61.1

HoldingCompanyName CounterpartName moody’s S&P

Banco do Brasil S,A Banco do Brasil S,A A1 BBB-Banco Bradesco S,A Banco Bradesco S,A Ba2 BBBCitigroup Inc, Citigroup Inc, A2 ABanco Votorantim S,A Banco Votorantim S,A Baa1 BB+HSBC Holdings plc HSBC Holdings plc Aa2 AA-JPMorgan Chase & Co, JPMorgan Chase & Co, Aa3 A+Banco Santander S,A (Spain) Banco Santander S,A (Spain) Aa1 AAHSBC Holdings plc HSBC Bank Brasil S,A A1 BBB-Banco Itaú S,A Banco Itaú S,A Ba2 BBBJPMorgan Chase & Co, JPMorgan Chase Bank NA Aa1 AA-Goldman Sachs Group. Inc,(The) J Aron & Co, A1** A**Unibanco S,A Unibanco S,A Ba2 BBB-

** Parent company rating.


Embedded derivative- Nickel and -purchase of copper price raw material fluctuation 9.1 (11.3) 20.2 (27.1) 35.6


Embedded derivative- Aluminum -purchase of energy price fluctuation (113.0) (250.8) (40.9) (386.5) (17.7)

Credit risk on transactions and ratings of financial institutionsDerivatives transactions are conducted with prime financial institutions. The exposure limits to financial institutions are proposed annually to the Executive Risk Committee and approved by the Executive Committee. The credit risk of financial institutions is monitored using a credit risk assessment methodology which considers, among other information, published ratings provided by international rating agencies. The table below presents the ratings in foreign currency published by Moody’s and S&P for the main financial institutions with which VALE had outstanding transactions as of December 31, 2008:

Summary of changes in VALE’S derivatives in the reporting periods:

2008

Currencies/ interest Aluminum (libor) Gold products Copper Nickel Platinum Total

Unrealized fair value at 12.31.07 1,108 (65) (173) (332) 74 (43) 569Cash inflows (outflows) (682) 74 181 227 91 45 (14)Financial expenses, net (1,980) (8) (10) 66 (110) (3) (2,045)Exchange rate change, net 214 (1) 2 (10) 24 1 230Unrealized fair value at 12.31.08 (1,340) – – (49) 79 – (1,260)

2007

Currencies/ interest Aluminum (libor) Gold products Copper Nickel Platinum Total

Unrealized fair value at 12.31.06 (20) (115) (679) (638) 34 (42) (1,460)Cash inflows (outflows) (530) 65 222 458 (77) 23 161Financial expenses, net 1,741 (30) 191 (269) 115 (33) 1,715Exchange rate change, net (83) 15 93 117 2 9 153Unrealized fair value at 12.31.07 1,108 (65) (173) (332) 74 (43) 569

2008

Currencies/ interest(libor) Gold Copper Total

Unrealized fair value at 12.31.07 1,064 (45) (2) 1,017Cash inflows (outflows) (641) 52 (32) (621)Financial expenses, net (1,734) (6) 30 (1,710)Exchange rate change, net 232 (1) 4 235Unrealized fair value at 12.31.08 (1,079) – – (1,079)

2007

Currencies/ interest(libor) Gold Copper Total

Unrealized fair value at 12.31.06 5 (69) 46 (18)Cash inflows (outflows) (493) 41 (2) (454)Financial expenses, net 1,625 (28) (46) 1,551Exchange rate change, net (73) 11 – (62)Unrealized fair value at 12/31/07 1,064 (45) (2) 1,017

Aculumado

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The maturities of consolidated financial instruments are as follows:

Following are the sponsors of the pension plans provided to employees, according to the information provided by the Companies, considering the total balance of the operations and not the proportional balance of Bradespar:

VALE

(a) Benefit plan:

The results of this actuarial valuation are as follows:

Currencies/interest (LIBOR) December 2019Copper concentrate January 2009Nickel March 2011

20.PensionPlan

Total

2008 2007

Current 14 13Noncurrent 207 216Total 221 229

December31

2008 2007 Surplus Deficit other Surplus Deficit other

pensionplans pensionplans pensionplans pensionplans pensionplans deficitários

Fair value of assets at beginning of year 7,417 6,405 18 7,483 6,386 9Asset recognized uponacquisition of Inco 132 (1,147) 2 447 131 2Actual return on plan assets 74 399 97 63 631 109Sponsors’ contributions (512) (467) (97) (576) (481) (101)Benefit paid for the year - 328 1 - (262) (1)Exchange rate change 7,111 5,518 21 7,417 6,405 18

Changesinfairvalueofassets


pensionplans pensionplans pensionplans pensionplans pensionplans deficitários

Fair value of assets at beginning of year 5,629 7,127 2,668 5,402 7,293 2,523Liability recognized upon acquisition of Vale Inco – – – – 214 455Current service cost 20 110 42 17 119 39Interest cost 556 379 127 588 368 127Benefit paid for the year (512) (467) (97) (576) (481) (101)Adjustment to the plan – 29 – – 7 –Change of assumptions (712) – – – – –Actuarial gain (loss) 685 (1,207) (684) 198 (64) (220)Exchange rate change – 383 143 – (329) (155)Present value of obligations at end of year 5,666 6,354 2,199 5,629 7,127 2,668


pensionplans(*) pensionplans pensionplans pensionplans(*) pensionplans deficitários

AssetsPresent value of actuarial obligations totally or partially funded (5,666) (6,354) (2,199) (5,629) (7,127) (2,668)Fair value of plan assets 7,111 5,518 21 7,417 6,405 18Unrecognized gains, net 545 231 (410) (232) – (122)Net actuarial assets to be accrued 1,990 (605) (2,588) 1,556 (722) (2,772)

Net actuarial assets(liabilities) to be accruedCurrent – (26) (127) – (38) (117)Noncurrent 1,990 (579) (2,461) 1,556 (684) (2,655)Net actuarial assets (liabilities) to be accrued 1,990 (605) (2,588) 1,556 (722) (2,772)

(*) VALE did not record in its balance sheet the asset arising from the actuarial valuation, since the realization of this asset cannot be assured, as set forth in item 49 of Accounting

Standard and Procedure 26 (NPC 26).

ChangesinPresentValueofObligations

ReconciliationofAssetsandLiabilitiesRecognizedintheBalanceSheet Consolidated

Investment targets and plan asset componentsThe fair value of these plans’ assets at the end of 2008 and 2007 is R$12,650 and R$13,840, respectively. The allocation of assets to VALE’S pension plans at the end of 2008 and 2007 and the allocation target for 2009, by type of asset, is as follows:

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Supplementarybonus

2008 2007Fair value of assets at beginning of the year 259 196Actual return on plan assets 49 32Sponsors’ contributions 100 93Benefits paid during the year (67) (62) Fair value of assets at end of the year 341 259

(*) The fair value of assets does not apply for health care purposes.

The allocation target of fixed-income investments was set to satisfy the actuarial obligations. VALE’s proposal for 2009 is to increase investments in inflation-indexed investment funds. Remaining fixed-income investments will be used to pay short-term benefits of the plan.

The allocation target for the variable income segment reflects the expected return for theIBOVESPA (Brazilian shares’ index) and the ALM.

(b) Actuarial liability

Supplementary bonus and health care plan for retirees

Refer to VALE’s responsibility for providing supplementary pension and health care relating to the early retirement program implemented in 1987 and 1989.

The results of the actuarial valuation of this liability are as follows:

Allocationtargetfor2009–% PercentageofplanassetsasofDecember31

Typeofasset (Unaudited) 2008 2007

Shares 26% 20% 29%

Real estate 6% 4% 3%

Loans 7% 6% 4%

Fixed-income investments 61% 70% 64%

Total 100% 100% 100%

Allocationtargetfor2009–% PercentageofplanassetsasofDecember31

Typeofasset (Unaudited) 2008 2007

Shares 61% 54% 61%

Fixed-income investments 39% 46% 39%

Total 100% 100% 100%

Brazil

Foreign

ChangeinFairValueofAssets(*)

Healthcare Supplementarybonus

2008 2007 2008 2007

Present value of obligations at beginning of year 292 229 732 708Cost of current service 3 – – –Interest cost 29 25 71 76Benefits paid during the year (31) (21) (67) (62) Change in assumptions (34) – (63) –Loss on liability 41 59 57 10Present value of obligations at end of year 300 292 730 732


2008 2007 2008 2007Present value of actuarial obligations fully or partially funded (300) (292) (730) (732)Fair value of assets – – 341 259Unrecognized gains, net 31 24 49 73Net actuarial liabilities accrued (269) (268) (340) (400)


2008 2007 2008 2007

Interest cost 29 25 71 76Actual return on plan assets – – (49) (32)Total net costs 29 25 22 44

ChangeinPresentValueofObligations

ReconciliationofAssetsandLiabilitiesRecognizedinVale’sBalanceSheet

CostsRecordedintheStatementofIncomeofVALE

(c) Sponsors’ Contributions

2008 2007Hybrid benefit plan – “Vale Mais” – income (46) (46)Hybrid benefit plan – “Vale Mais” – risk and proportional benefit (73) (74)Foreign pension plans (591) (632)Supplementary bonus plan (*) (101) (100)Health care plan for retirees (*) (27) (31)Total contributions (838) (883)(*) Actuarial liability.

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2008 2007

Local Foreign Local Foreign pension pension pension pensionEconomicassumptions plans plans plans plans

Discount rate 11.28%p,a 6.45%p,a 10.24%p,a 5.21%p,aExpected return on plan assets 12.22%p,a 7.17%p,a 12.78%p,a 7.18%p,aRate of increase in salaries and related taxes – up to 47 years old 7.12%p,a 3.85%p,a 7.12%p,a 4.01%p,aRate of increase in salaries and related taxes – after 47 years old 4.00%p,a 3.85%p,a 4.00%p,a 4.01%p,aInflation 4.00%p,a 2.00%p,a 4.00%p,a 2.00%p,aNominal rate of increase in medical costs 7.12%p,a 6.19%p,a 7.64%p,a 6.35%p,a

(d) Actuarial and economic assumptions All actuarial calculations involve future projections relating to certain parameters, such as salaries, interest, inflation, INSS (social security) benefit performance, mortality, disability, etc. No actuarial results should be analyzed without prior knowledge of the assumptions used in the valuation.The actuarial assumptions adopted were formulated considering their long-term maturity, and, accordingly, should be analyzed from this viewpoint. Therefore, they may not be realized in the short term.The following economic assumptions were adopted in the valuations:

All of these assumptions were revised in 2008.

21.InsuranceThe principal jointly-owned subsidiary of Bradespar has insurance coverage considered sufficient by Management to cover potential losses, as shown below:

VALE

Operating risksVALE has a comprehensive risk management program that provides coverage and protection for all its assets and possible losses caused by production disruption through an All Risks Policy. This program includes on-site inspections and training, using the structure of several risk committees at VALE, its subsidiaries and affiliates. It seeks to align the risks of all areas for a single and consistent treatment, searching in the domestic and international markets compatible coverage for a company of the size of VALE.

InsuranceIn order to mitigate risks, VALE has several different insurance policies, such as operational risk and civil liability insurance, as well as employee life insurance. The insurance coverage is contracted in line with the Corporate Risk Management Policy and is similar to the insurance contracted by other mining companies. As a risk management strategy, VALE has engaged the same reinsurance company since 2002, which allows it to contract insurance on a competitive basis, and direct access to the main international insurance markets.Insurance management at VALE is carried out with support of the insurance committees existing in its different operating areas, which are composed of several professionals from such areas.

22.OtherInformationa) Other liabilities in consolidated holding refer principally to share fractions from the reverse stock split approved at the Extraordinary Shareholders’ Meeting on April 30, 2004, which were sold at the auction on the São Paulo Stock Exchange (BOVESPA) on July 14, 2004, in the amount of R$26 (2007 – R$26).

b) Other operating income (expenses) – consolidated holding

c) General and administrative expenses in consolidated holding refer to personnel expenses in the amount of R$4 (2007 – R$7) and other general and administrative expenses in the amount of R$8 (2007 – R$4).

d) Financial income (expenses) – consolidated holding

e) Proceeds from the sale of investments in consolidated holding refer to the sale of 1,178,100 shares of CPFL Energia in December 2008.

2008 2007

Tax expenses (22) (16)Reversal of reserve for contingencies – 20Total (22) 4

2008 2007

Income from short-term investments 45 33Interest expenses on commercial promissory notes (88) –Other (3) 1Total (46) 34

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23.SubsequentEventsa) On January 14, 2009, Bradespar carried out the second public issuance of 690 promissory notes at the unit price of R$1,000,000.00, totaling R$690, maturing within 180 days as from issuance date.These promissory notes bear interest equivalent to 110% of the average DI rate for a 252-day period, disclosed on a daily basis by CETIP S.A. and calculated on a “pro rata” basis until the repayment of each promissory note. Interest will be paid together with principal repayment.The promissory notes have the following guarantees: (i) pledge of 53.1% of Valepar’s class C preferred shares subscribed and paid up by the Company as part of the Public Offering of VALE’S shares carried out on July 17, 2008; and (ii) pledge of 53.1% of CPFL Energia S.A.’s common shares indirectly held by Bradespar.

b) On January 14, 2009, Bradespar carried out the first public issuance of 610,000 debentures at the unit price of R$1,000.00, totaling R$610, maturing within 36 days as from issuance date.These debentures bear interest equivalent to 125% of the average DI rate for a 252-day period, disclosed on a daily basis by CETIP S.A. and calculated on a “pro rata” basis until the repayment of each debenture. Interest will be paid together with principal repayment.The debentures notes have the following guarantees: (i) pledge of 46.9% of Valepar’s class C preferred shares subscribed and paid up by the Company as part of the Public Offering of VALE’S shares carried out on July 17, 2008; and (ii) pledge of 46.9% of CPFL Energia S.A.’s common shares indirectly held by Bradespar.

c) CPFL Energia S.A. disclosed on February 19, 2009, through a Notice to Shareholders, the decision to paid dividends for the second half of 2008, which will be ratified at the Annual Shareholders’ Meeting to be held on April 23, 2009. The amount payable is R$606 (the amount attributable to Bradespar is R$53), equivalent to R$1.262952547 per common share, to be attributed to the 2008 mandatory dividends.

d) On February 27, 2009, Bradespar announced a minimum payment of US$200 million for the current year, to be converted into Brazilian reais at the U.S. dollar selling rate (Ptaxoption 5) disclosed by BACEN, of the last business day before the date of the Board of Directors’ meetings scheduled for April 30 and October 30, 2009. The payment will be made in two equal installments of US$100 million, on May 15 and November 13, 2009, and R$165 million of the first installment refers to the supplement to the interest on capital for 2008.

To the Shareholders and Management of Bradespar S.A., São Paulo – SP

1. We have audited the accompanying individual and consolidated balance sheets of Bradespar S.A. (the “Company”) and its subsidiaries as of December 31, 2008, and the related statements of income, changes in shareholders’ equity (Company), cash flows, and value added for the year then ended, all expressed in Brazilian reais and prepared under the responsibility of the Company’s Management. Our responsibility is to express an opinion on these financial statements. The financial statements for the year ended December 31, 2008 of certain indirect jointly-owned subsidiaries of the Company were audited by other independent auditors, whose reports issued were unqualified. The Company’s proportional investment in these subsidiaries and the loss accounted for under the equity method represent, respectively, 14.3% of the investment as of December 31, 2008 and 8.7% of equity in subsidiaries for the year then ended. Our opinion, insofar as it relates to the amounts of these indirect jointly-owned subsidiaries included in investments accounted for under the equity method in the Company’s financial statements, is based only on the reports of these independent auditors.2. Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the Company and its subsidiaries; (b) checking, on a test basis, the evidence and records that support the amounts and accounting information disclosed; and (c) evaluating the significant accounting practices and estimates adopted by Management, as well as the presentation of the financial statements taken as a whole.3. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to in paragraph 1 present fairly, in all material respects, the financial position of Bradespar S.A. (Company and consolidated) as of December 31, 2008, and the results of its operations, the changes in its shareholders’ equity (Company), its cash flows, and the values added in operations for the year then ended, in conformity with Brazilian accounting practices.4. We have previously audited the financial statements for the year ended December 31, 2007, including the balance sheets of Bradespar S.A. and its subsidiaries (Company and consolidated) as of December 31, 2007, and the related statements of income, changes in shareholders’ equity (Company), changes in financial position for the year then ended, and additional information comprising the statement of cash flows, on which we issued an unqualified opinion dated March 27, 2008, sharing responsibility for the audit conducted by other independent auditors of the financial statements for the year ended December 31, 2007.5. As mentioned in note 2, Brazilian accounting practices were changed on January 1, 2008. The financial statements for the year ended December 31, 2007, presented with the 2008 financial statements, have been prepared in conformity with Brazilian accounting practices in effect until December 31, 2007 and, as permitted by Technical Pronouncement CPC 13 – First-time Adoption of Law 11638/07 and Provisional Act 449/08, are not being restated with adjustments for purposes of comparability between years.6. The statement of value added for the year ended December 31, 2007, prepared in connection with the financial statements for the year ended December 31, 2008, has been subjected to the same audit procedures described in paragraph 2 and, in our opinion, this statement is presented fairly, in all material respects, in relation to the financial statements mentioned in paragraph 4, taken as a whole.7. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.

São Paulo, March 26, 2009

DELOITTE TOUCHE TOHMATSU Maurício Pires de Andrade ResendeAuditores Independentes Engagement PartnerCRC nº 2 SP 011609/O-8 CRC nº 1 MG 049,699/O-2 “T” SP

IndependentAuditors’Report

general Coordination and textBradespar S.a.

Final Revision and Coordination SupportMZ Comunicação Corporativa integrada

photos Marcos piffer/Sambaphotoarquivos da Bradespar

graphic and Editorial DesignCássio leitão Design

pre-printing and printingStilgraf

BRaDESpaR tiMElinE

2008

JULYBRADESPAR participates in VALE global offering, investing R$1.376 billion by means of Valepar. The funds were raised on the market on July 18, 2008 with the first Public Offering of registered Promissory Notes, amounting to R$1.4 billion, maturing on January 14, 2009. Valepar (holding company) owns a 53.6% interest in the voting capital and 32.9% of total capital of VALE.

NOVeMBerBRADESPAR approves the first Public Offering of Simple Debentures, in the amount of R$610 million and the second Public Offering of Promissory Notes, in the amount of R$690 million. In January 2009, BRADESPAR settled the liability of the first Issue of Promissory Notes, using the proceeds of these issues plus R$100 million with the balance between the debt amount and new issues with Company’s funds.

2007

JaNUarY tO MaY Administrative restructuring with cost savings. During first five months of the year, a broad administrative restructuring was carried out. Since February, BRADESPAR has been outsourcing the execution of general and administrative services, and in May, the Company reduced the number of statutory officers to only two.

2006

FeBrUarY tO aprILCorporate restructuring of BRADESPLAN.BRADESPLAN transferred its stake in Antares and Millennium to BRADESPAR, by means of a spin-off and capital decrease. The remaining assets are represented by tax credits and Globopar Euronotes.

MaYBRADESPAR sold 100% of BRADESPLAN shares for R$308 million in cash. This operation added profit of R$57.7 million to 2006 results.Bonds issued by subsidiary Millennium were settled in the amount of US$50 million with Bradespar’s funds thus eliminating the group’s indebtedness.

deCeMBerCorporate restructuring of VBC/CPFL Energia. BRADESPAR concluded its withdrawal from VBC, becoming the direct holder of 43,049,000 CPFL Energia shares, not binding upon the Shareholders’ Agreement and representing 8.97% of the capital stock, which may be traded in the open market.

2005

MarCH In August 2004, NET common shares were swapped for preferred shares, and received a 20% control premium. As a result of this swap, the rights and obligations of BRADESPAR in NET Serviços shareholders’ agreement were extinguished. Then BRADESPAR initiated the sale of its preferred share stake derived from swap on the stock exchange. In March 2005, the Company completed the sale of its stake in NET Serviços.

septeMBerSecondary Public Tender Offer of BRADESPAR shares held by Grupo Espírito Santo. A total of 9.5 million shares were sold, raising the free float from 60.7% to 71.6%. Average daily trading volume increased 70%, from R$11.5 million from January to August to R$19.6 million from September to December.Tag-along rights. BRADESPAR extended 80% tag-along right to preferred shareholders, without prejudice of receiving dividends over 10% than those received by common shares. In addition, minority shareholders tag-along rights were increased from 80% to 100%.

OCtOBerThe minimum dividend policy is disclosed. Based on cash flows and aiming to improve the predictability of shareholders’ minimum compensation in the form of dividends and interest on equity, the Minimum Dividend Policy took effect in February 2006.

2004

MarCHPurchase of Valepar shares held by Opportunity for R$376.9 million. At the same time, Elétron was spun off, increasing the liquidity of BRADESPAR’s stake in Valepar.

septeMBerCPFL Energia conducted its initial public offering, raising over R$821 million. This operation also enabled the partial sale of CPFL Energia shares by VBC, a holding company in which BRADESPAR owned 33.3% on the secondary market. BRADESPAR implemented its investment management strategy and at the same time provided higher liquidity for its stake.

deCeMBer Public Tender Offer of BRADESPAR preferred shares raised over R$1 billion. This was the second largest operation in Brazil’s capital markets in 2004, exceeding by 35% the lot of 10 million shares originally tendered. Thanks to this fact, at year-end, BRADESPAR’s net debt amounted to R$46 million against R$1.1 billion on September 30, 2004.

2003

MarCH Acquisition of 45% held by Sweet River in Valepar. Amounting to R$827 million, this operation enabled BRADESPAR to increase its stake in Valepar and eliminate the conflict of interests in VALE’s controlling groups, to the extent that one of its main competitors held approximately 67% of Sweet River’s capital.

septeMBer Mitsui buys Company’s stake in Valepar. The operation, which amounted to R$2.5 billion, allowed BRADESPAR to pay down more than R$2 billion in debt. Share sales price represented at that time a 64% premium over the market price of VALE’s common shares.

2002

FeBrUarYScopus Tecnologia is sold for R$37 million.

aUGUstCPFL Energia is incorporated (corporation renamed Draft II Participações). The holding company took control of CPFL Group’s energy generation, distribution and commercialization activities.

deCeMBerConsolidation of Valepar’s control of VALE by means of capital increase. Valepar’s stake in VALE increased from 42% to 52% of the voting capital.

2001

JaNUarYBRADESPAR’s capital is increased, in the amount of R$500 million, which relied on the participation of Grupo Espírito Santo in the Company’s ownership structure and respective Shareholders’ Agreement.

MarCH Financial settlement to unwind the cross-shareholding of VALE and CSN. This operation enabled VALE to focus its strategy on mining and logistics activities.

2000

MarCH BRADESPAR is incorporated.

aUGUstBRADESPAR shares begin trading on the stock exchange.

septeMBerPublic tender offer of BRADESPAR shares by its controlling shareholders. No shareholders tendered their shares in the operation, evidence of shareholder confidence in the company.

(1) Elétron: company formed to hold interest in Valepar; 85.6% of its capital was held by BRADESPLAN and 14.4% by Opportunity group.





Bradespar

antares

Brumado

CpFL energia

100% V/T

100% V/T

5.9% V/T

Millennium

100% V/T

Valepar

VaLe

21.2% V 17.4% T

2.8% V/T53.6% V32.9% T

COMpaNY prOFILe


MIssION


CONsOLIdatedHOLdING

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