Votorantim Financial Report

(A free translation of the original in Portuguese)
Votorantim Participaes S.A.

and Subsidiaries
Consolidated Financial Statements at
December 31, 2007 and 2006
and Report of Independent Auditors

2

3

Votorantim Participaes S.A. and Subsidiaries

Consolidated Balance Sheets at December 31
In thousands of reais (A free translation of the original in Portuguese)

4
Supplementary information

Consolidated Industrial segment Financial segment Energy segment

Assets Note 2007 2006 2007 2006 2007 2006 2007 2006

Current assets
Cash and banks 878,735 377,592 727,074 282,875 55,070 56,168 96,591 38,549
Interbank investments 3 15,977,491 17,951,404 15,977,491 17,951,404
Financial investments and derivative financial instruments 3 27,925,993 23,959,773 10,559,780 8,842,475 19,384,246 15,657,616 72,543 107,011
Interbank accounts 1,006,101 1,438,828 1,006,101 1,438,828
Trade accounts receivable 4 2,532,712 2,436,270 2,274,519 2,128,430 258,193 307,840
Credit operations 5 12,976,669 9,136,992 12,976,669 9,136,992
Allowance for doubtful accounts (568,470) (308,703) (95,633) (459,253) (294,273) (13,584) (14,430)
Inventories 6 3,377,364 2,914,337 3,375,260 2,912,018 2,104 2,319
Taxes recoverable 7 2,034,135 2,089,612 1,516,400 1,849,410 483,414 205,627 34,321 34,575
Related parties 213,976
Dividends and interest on own capital receivable 78,158 34,502 237,719 159,452 856,958
Foreign exchange portfolio 856,958 752,238 752,238
Other 1,612,063 1,944,066 528,812 747,592 933,620 1,072,536 149,631 121,512

68,687,909 62,726,911 19,123,931 16,922,252 51,214,316 45,977,136 599,799 811,352

Non-current assets
Long-term receivables
Interbank investments 3 984,311 1,499,112 984,311 1,499,112
Financial investments and derivative financial instruments 3 820,357 755,262 318,610 1,112,443 957,273 1,715,645 549,190 250,352
Trade accounts receivable 90,222 24,435 59,682 505 30,540 23,930
Credit operations 5 13,804,461 7,300,087 13,804,461 7,300,087
Allowance for doubtful accounts (121,533) (119,846) (121,533) (119,846)
Loans receivable 8 513,744 456,588 513,744 456,588
Notes receivable 178,400 374,035 374,035
Tax incentives 7,636 23,058 7,636 23,058
Judicial deposits 15 721,109 569,458 664,926 541,869 33,617 6,531 22,566 21,058
Deferred income tax and social contribution 14 1,497,677 1,309,035 1,042,152 1,020,972 290,197 156,435 165,328 131,628
Taxes recoverable 7 894,414 986,747 880,218 799,383 172,435 14,196 14,929
Other receivables 809,954 575,159 465,959 64,087 372,394 401,148 149,990 144,834

20,200,752 13,753,130 3,952,927 4,392,940 16,320,720 11,131,547 931,819 586,731

Permanent assets
Investments
In affiliated companies 9 1,428,764 1,014,002 1,396,697 982,686 15,651 30,864 16,416 452
Goodwill 9 3,192,270 3,011,245 2,916,543 2,708,089 275,727 303,156
Property, plant and equipment 10 21,874,496 17,718,540 20,886,245 16,818,347 55,881 44,422 932,370 855,771
Deferred charges 582,308 720,353 534,888 684,833 38,523 28,019 8,897 7,500

27,077,838 22,464,140 25,734,373 21,193,955 110,055 103,305 1,233,410 1,166,879

47,278,590 36,217,270 29,687,300 25,586,895 16,430,775 11,234,852 2,165,229 1,753,610

Total assets 115,966,499 98,944,181 48,811,231 42,509,147 67,645,091 57,211,988 2,765,028 2,564,962


Consolidated Balance Sheets at December 31
In thousands of reais (continued)

The accompanying notes are an integral part of these consolidated financial statements and supplementary information.

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Liabilities and shareholders' equity Note 2007 2006 2007 2006 2007 2006 2007 2006

Current liabilities
Loans and financing 11 7,878,788 5,437,204 4,986,486 2,976,285 2,741,824 2,339,771 150,478 121,148
Deposits 8,944,093 8,351,556 10,526,343 8,902,138
Open market 17,347,430 13,784,733 17,347,430 13,784,733
Funds from acceptance and issuance of securities 12 509,563 446,739 509,563 446,739
Debentures 13 269,153 171,579 202,430 107,111 66,723 64,468
Suppliers 1,816,999 1,661,682 1,693,703 1,537,857 123,296 123,825
Salaries and payroll charges 638,288 398,206 363,142 292,283 275,146 105,923
Income tax and social contribution 8 890,851 1,314,198 295,105 660,500 585,021 628,388 10,725 25,310
Taxes and contributions payable 440,261 1,202,247 348,522 611,366 14,843 522,292 76,896 68,589
Dividends and interest on own capital payable 991,611 511,046 991,611 509,509 156,047 124,950 3,514 1,537
Derivative financial instruments 19 2,859,638 2,069,332 647,901 650,993 2,717,479 1,507,746 2,583 7,340
Foreign exchange portfolio 913,496 439,269 913,496 439,269
Advances from customers 145,799 218,379 145,799
Provision for contingencies and tax liabilities 15 660,149 486,001 637,473 486,001 22,676
Other liabilities 2,270,447 770,383 533,544 718,371 1,640,790 182,309 96,113 88,082

46,576,566 37,262,554 10,005,813 7,957,164 38,267,885 29,577,370 553,004 500,299

Non-current liabilities
Long-term liabilities
Loans and financing 11 16,743,054 15,449,309 12,723,367 12,764,257 2,993,836 1,713,426 1,025,851 971,626
Deposits 3,966,187 8,561,766 4,656,133 10,580,804
Open market 6,044,402 2,633,798 6,044,402 2,633,798
Funds from acceptance and issuance of securities 12 1,591,059 2,269,588 1,591,059 2,269,588
Debentures 13 4,005,394 4,190,241 3,878,687 3,770,220 441,387 420,021
Deferred income tax and social contribution 14 940,009 973,906 905,172 780,232 34,837 188,598 5,076
Provision for contingencies and tax liabilities 15 1,989,910 1,800,506 1,926,435 1,764,423 46,940 16,535 36,083
Derivative financial instruments 19 904,276 1,018,298 11,244 371,542 870,601 947,405 22,520 3,491
Subordinated debt 13 2,578,842 2,578,842
Other 1,013,112 800,189 643,734 904,571 232,928 489 136,450 141,588

39,776,245 37,697,601 16,209,952 16,585,025 22,928,265 22,104,328 1,642,743 1,577,885

Deferred income 9 2,445,014 660,374 2,433,814 652,814 11,200 7,560

Minority interest 2,913,131 2,657,956 2,895,625 2,654,335 4,988 3,326 12,518 295

Shareholders' equity 16 24,255,543 20,665,696 17,266,027 14,659,809 6,432,753 5,519,404 556,763 486,483

Total liabilities and shareholders' equity 115,966,499 98,944,181 48,811,231 42,509,147 67,645,091 57,211,988 2,765,028 2,564,962


Consolidated Statements of Income
Years Ended December 31


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Note 2007 2006 2007 2006 2007 2006 2007 2006

Gross revenues
Domestic sales 16,640,270 14,454,124 7,573,930 14,454,124
Export sales 7,573,930 7,639,052 16,640,270 7,639,052
Income from financial intermediation 7,427,103 8,017,160 7,607,426 8,071,313
Supply of electric energy 2,018,899 1,729,406 136,916 211,872 1,881,981 1,517,534
Service revenues 1,696,700 1,456,361 1,003,447 1,005,025 693,253 451,336

35,356,902 33,296,103 25,354,563 23,310,073 8,300,679 8,522,649 1,881,981 1,517,534

Taxes on sales and services and other deductions (4,940,671) (4,318,207) (3,960,120) (3,627,566) (287,934) (279,987) (692,617) (410,654)

Net revenues 30,416,231 28,977,896 21,394,443 19,682,507 8,012,745 8,242,662 1,189,364 1,106,880
Cost of products and services (14,776,964) (14,458,496) (13,977,793) (13,739,358) (4,747,934) (799,170) (719,138)
Expenses from financial intermediation (4,585,772) (5,683,868) (5,683,868)

Gross profit 11,053,495 8,835,532 7,416,650 5,943,149 3,264,811 2,558,794 390,194 387,742

Operating income (expenses)
Selling and lending expenses (2,109,614) (1,648,924) (1,338,906) (1,067,267) (709,309) (538,325) (61,399) (43,332)
General and administrative expenses (2,804,467) (1,373,987) (1,838,282) (623,471) (913,413) (709,285) (52,772) (41,231)
Other operating income (expenses), net 563,557 563,593 226,051 396,651 174,187 175,405 163,319 (8,463)

(4,350,524) (2,459,318) (2,951,137) (1,294,087) (1,448,535) (1,072,205) 49,148 (93,026)

Operating profit before results from investments and financial results 6,702,971 6,376,214 4,465,513 4,649,062 1,816,276 1,486,589 439,342 294,716

Results from investments
Equity in results of investees 9 174,921 152,261 174,921 152,261
Exchange variation on foreign investments (732,587) (420,958) (533,297) (327,685) (199,290) (93,273)
Goodwill amortization (933,382) (466,204) (905,363) (448,445) (28,019) (17,759)

(1,491,048) (734,901) (1,263,739) (623,869) (199,290) (93,273) (28,019) (17,759)

Financial income (expenses), net 1,963,079 739,501 2,020,442 779,110 (75,523) (93,762)

Operating profit 7,175,002 6,380,814 5,222,216 4,804,303 1,616,986 1,393,316 335,800 183,195
Non-operating income (expenses), net 20 539,387 280,829 207,920 280,584 319,124 (13,762) 12,343 14,007

Profit before taxation and minority interest 7,714,389 6,661,643 5,430,136 5,084,887 1,936,110 1,379,554 348,143 197,202

Income tax and social contribution
Current (2,029,366) (1,571,526) (1,499,880) (1,153,940) (416,859) (341,925) (112,627) (75,661)
Deferred (179,164) (174,893) (142,489) (261,641) (29,687) 103,903 (6,988) (17,155)

(2,208,530) (1,746,419) (1,642,369) (1,415,581) (446,546) (238,022) (119,615)

Profit before minority interest 5,505,859 4,915,224 3,787,767 3,669,306 1,489,564 1,141,532 228,528 104,386
Profit sharing (282,241) (196,032) (24,082) (14,913) (258,159) (181,119)
Minority interest (418,439) (319,581) (416,878) (318,861) (813) (720) (748)

Net income for the year 4,805,179 4,399,611 3,346,807 3,335,532 1,230,592 959,693 227,780 104,386
Votorantim Participaes S.A.

Statements of Changes in Shareholders' Equity
In thousands of reais unless otherwise indicated (A free translation of the original in Portuguese)


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Capital Revenue
reserve reserve
Revaluation
Tax reserve Legal Retained
Note Capital incentives of subsidiaries reserve earnings Total

At December 31, 2005 12,112,210 836 17,047 561,699 5,618,540 18,310,332
Prior-year adjustments 16(e) (904,605) (904,605)

Adjusted opening balance 12,112,210 836 17,047 561,699 4,713,935 17,405,727
Capital increase 16(a) 268,328 268,328
Prior-year adjustments 16(e) (379,343) (379,343)

Net income for the year 4,337,983 4,337,983
Appropriation of net income
Legal reserve 216,899 (216,899)
Interest on own capital proposed (R$ 90.70 per thousand shares) 16(d) (488,028) (488,028)
Dividends paid and proposed (R$ 100.77 per thousand shares) 16(c) (542,242) (542,242)

At December 31, 2006 12,380,538 836 17,047 778,598 7,425,406 20,602,425
Appropriation of net income 16(c)
Legal reserve 239,210 (239,210)
Dividends paid and proposed (R$ 211.16 per thousand shares) (1,136,245) (1,136,245)

At December 31, 2007 12,380,538 836 17,047 1,017,808 10,834,144 24,250,373

Consolidated Statements of Changes in Financial Position

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2007 2006 2007 2006 2007 2006 2007 2006

Financial resources were provided by
Operations
Net income for the year 4,805,179 4,399,611 3,346,807 3,335,533 1,230,592 959,693 227,780 104,386
Amounts not affecting working capital
Prior-year adjustments (379,343) (379,343)
Equity in results of investees (174,921) (152,261) (174,921) (152,261)
Exchange variation on foreign long-term net assets 242,519 420,958 242,519 327,685 93,273
Goodwill amortization 933,382 466,204 905,363 448,445 54,924 17,759
Depreciation, amortization and depletion 1,745,881 1,942,407 1,681,680 1,888,008 9,277 17,306 28,019 37,093
Residual value of permanent asset disposals 933,942 73,168 899,502 71,048 15,213 19,227 2,120
Gains on changes in equity investments (136,000) (136,000)
Deferred income tax and social contribution 179,164 174,893 142,489 261,641 29,687 (103,903) 6,988 17,155
Interest and monetary variation on long-term items (174,965) 147,165 (194,160) 121,460 19,195 25,705
Provision for contingencies 363,552 437,229 162,012 268,417 198,412 198,319 3,128 (29,507)
Minority interest 418,439 319,581 416,878 318,861 813 720 748

Funds provided by operations 9,272,172 7,713,612 7,428,169 6,752,837 1,483,994 786,065 360,009 174,711

From shareholders
Payment of capital 1,000,000 318 185,000

From third parties
Decrease in long-term receivables 602,165 509,760 92,405
Dividends and interest on own capital receivable and received 98,018 34,502 572,761 307,971
Sales of investments 9,261 133 9,128
Increase in long-term liabilities 1,213,188 7,895,018 579,015 776,802 625,525 6,817,463 267,301 300,753
Reduction of permanent assets due to capital decrease 159,779 159,779
Working capital of merged companies/increase in ownership interest 192,653

Total funds provided 10,583,378 16,414,337 8,579,945 8,347,370 2,109,519 8,603,661 627,628 1,114,429

Consolidated Statements of Changes in Financial Position
In thousands of reais (continued)


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2007 2006 2007 2006 2007 2006 2007 2006

Financial resources were used for
Long-term receivables 6,280,162 1,938,128 800,497 5,218,860 1,728,652 260,805 209,476
Permanent assets
Investments 337,858 58,299 542,121 1,058,299 7,603 76,332
Property, plant and equipment 4,684,951 3,511,480 4,492,802 3,390,742 31,240 43,738 160,909 77,000
Deferred charges 51,485 108,137 46,685 106,918 4,800 1,219
Goodwill on acquisition of investments 1,114,407 875,398 1,061,316 875,398 53,091
Long-term net assets of subsidiaries acquired 171,659 768,394 171,659 675,193
Decrease in long-term liabilities 174,166 258,653 174,166
Change in minority interest 163,265 (319,855) 175,589 (321,584) (849) 2,024 (11,475) (295)
Tax incentives and others 14,104 (9,296) 9,902
Dividends and interest on own capital paid and proposed 1,136,245 1,030,270 1,136,244 1,030,270 317,243 273,471 157,500 23,001
Decrease in deferred income (3,640) 10,764 (3,640) 10,764
Capital reduction 178,441

Total funds used 13,936,392 8,169,285 8,426,913 6,805,940 5,562,854 2,058,649 891,886 749,242

Increase (decrease) in working capital (3,353,014) 8,245,052 153,030 1,541,430 3,453,335 6,545,012 (264,258) 365,187

Changes in working capital

Current assets
At the end of the year 68,687,909 62,726,911 19,123,931 16,922,252 51,214,316 45,977,136 599,799 811,352
At the beginning of the year (62,726,911) (50,401,338) (16,922,252) (13,366,243) (45,977,136) (37,245,848) (811,352) (564,312)

5,960,998 12,325,573 2,201,679 3,556,009 5,237,180 8,731,288 (211,553) 247,040

Current liabilities
At the end of the year 46,576,566 37,262,554 10,005,813 7,957,164 38,267,885 29,577,370 553,004 500,299
At the beginning of the year (37,262,554) (33,182,033) (7,957,164) (5,942,585) (29,577,370) (27,391,094) (500,299) (618,446)

9,314,012 4,080,521 2,048,649 2,014,579 8,690,515 2,186,276 52,705 (118,147)

Increase (decrease) in working capital (3,353,014) 8,245,052 153,030 1,541,430 3,453,335 6,545,012 (264,258) 365,187
(A free translation of the original in Portuguese)


Notes to the Consolidated Financial Statements
at December 31, 2007 and 2006
In thousands of reais, unless otherwise indicated

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1 Operations

The corporate purpose of Votorantim Participaes S.A. and its subsidiaries (the Votorantim
Group) is to manage assets and businesses and to invest in other civil and commercial
companies of any nature, to further its interests.

The Votorantim Group is a privately-held conglomerate which holds investments in a business
portfolio, as follows:

(a) Industrial segment

(i) Votorantim Cement Division (VC)

The Cement Division is comprised of companies that manufacture cement, aggregates,
hydrated lime, mortar, agricultural limestone, plaster and concrete. Through its investees, in
addition to the operations in Brazil, VC carries out operations in the United States, Canada and
Bolivia.

In December 2006, the Cement Division acquired Companhia de Cimento Ribeiro Grande
("CCRG") and, in October 2007, it acquired the companies of the Prestige Group
headquartered in Florida (United States), which are leading companies in the ready-mix
concrete sector in the states of Florida, North Carolina, California and Texas.

(ii) Votorantim Metal Division

In the metal segment, Votorantim operates in the aluminum, zinc, nickel and steel markets.

In addition to its operations in Brazil, the Metal Division has investments in Peru, through
Votorantim Metais - Cajamarquilla S.A., where it operates in the production and sale of zinc,
and in Colombia, in the long steel market, through a 52% interest in Aceras Paz Del Rio, a
company purchased at the beginning of 2007.

(iii) Votorantim Pulp and Paper Division (VCP)

With integrated operations in Brazil, ranging from the production of timber to the distribution of
products to the end consumer, VCP's shares are traded on the So Paulo Stock Exchange
and its Level III ADRs are traded on the New York Stock Exchange.



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Approximately 80% of the pulp production is channeled to the foreign market, whereas the
paper production is mainly destined for the Brazilian market.

On May 24, 2006, the corporate restructuring related to the acquisition of the ownership
interest in Ripasa S.A. Celulose e Papel was completed. As a result of this transaction, there
are the following contractual conditions for put and call stock options with the former controlling
shareholders of Ripasa, who received preferred shares of VCP: in the first five years, the
former shareholders have a put option, which is exercisable only if the shares are free of any
liens or encumbrances, and, in the last year, VCP has a call option. The amount of the option,
as established in a contract, is R$ 318,488, adjusted by the SELIC interest rate effective on
March 31, 2005 up to the date of the transaction, should such take place.

On February 1, 2007, the Votorantim Group entered into an agreement with International
Paper, the purpose of which was the exchange of industrial and forest assets between these
two companies. As a result of this agreement, VCP transferred to International Paper the pulp
and paper plant based in the municipality of Luiz Antonio (State of So Paulo), as well as the
forest base of this unit. In turn, International Paper transferred to VCP assets relating to a pulp
plant under construction, with all related rights, as well as the land and planted forests located
in the outskirts of Trs Lagoas (State of Mato Grosso do Sul). This transaction generated
negative goodwill of R$ 1,781,000 relating to the difference between the shareholders' equity
of the companies participating in the exchange.

In September 2007, VCP and the Finnish company Ahlstrom Corporation formalized a joint
venture involving the paper businesses of VCP's unit located in Jacare (State of So Paulo),
as described in Note 9(a).

(iv) Votorantim Energy Division

The Energy Division manages the production of 31 hydroelectric power plants, some of which
under the shared energy system and others owned by the Votorantim Group, as well as four
thermoelectric power plants. The Votorantim Group owns another six hydroelectric power
plants which are in the project phase or under construction.

In 2006, the Energy Division increased to 50% its ownership interest in VBC Energia, which is
the main parent company of CPFL, one of the leading companies in the Brazilian electric
power sector.

(v) Votorantim Agribusiness Division

The Agribusiness Division is mainly engaged in the production of concentrated orange juice,
and has commercial offices in Europe, North America and Asia, in addition to port terminals in
Santos, Antwerp (Belgium) and Newcastle (Australia).


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(vi) Votorantim Chemical Division

The Chemical Division supplies raw materials such as nitrocellulose, hydrofluoric acid and
aluminum fluoride to various industrial sectors.

(b) Votorantim financial division

The Financial Division operates in the wholesale, retail, treasury and resource management
sectors. It has a subsidiary and a branch in Nassau, as well as an office in London and a
brokerage firm in New York. The transactions are carried out by a group of institutions which
operate in the financial market in an integrated manner. The main activities carried out by this
division are related to: (i) consumer financing (especially vehicle financing); (ii) investment
banking and treasury products for corporate customers; (iii) resource management;
(iv) brokerage; and (v) lease transactions for both corporate entities and individuals.

(c) Votorantim New Businesses Division (VNN)

VNN is specialized in the new investments of the Votorantim Group and operates in two areas
- the diversification of businesses and venture capital management.

2 Presentation of the Financial Statements and
Significant Accounting Practices

The consolidated financial statements have been prepared and are presented in accordance
with accounting practices adopted in Brazil.

The preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and revenues and
expenses, including estimates relating to the selection of the useful lives of property, plant and
equipment, provisions necessary for contingent liabilities and the determination of provisions
for income tax and other similar charges. Actual results may differ from the estimates.

(a) Determination of net income

Net income is determined on the accrual basis of accounting. Sales and service revenues and
related costs are recognized upon product delivery or at the time the services are rendered.
Provisions are recorded for discounts and rebates granted to customers, return estimates and
other adjustments in the same period in which the sales are recorded.


13

Income from financial intermediation basically consists of income accrued on credit operations,
foreign exchange transactions, marketable securities and derivative financial instruments.

Revenues from electric energy distribution are recognized based on the tariffs regulated by the
National Electric Energy Agency (ANEEL) when the energy is billed. Unbilled revenues, related
to each monthly billing cycle, are accrued considering the actual energy load made available in
the month and the annual loss rate. The difference between the estimated unbilled revenues
and the actual unbilled revenues, which, from a historical perspective, has not been significant,
is recognized in the subsequent month. Revenues arising from the sale of the energy
generated are accounted for based on the delivery and capacity generated at rates specified in
contractual terms or current market price.

(b) Financial investments and derivative
financial instruments

(i) Financial segment

Marketable securities are classified into the following categories, based on management's
investment intention:

. Trading securities - acquired to be actively and frequently traded, adjusted to market value
against results for the period.

. Securities available for sale - securities that are neither trading securities nor securities held
to maturity, adjusted to market value against a shareholders' equity account, net of tax
effects.

. Securities held to maturity - securities which management acquires with the intention and
financial capacity to hold up to maturity, recorded at updated acquisition cost and not
adjusted to market value.

Derivative financial instruments are evaluated and classified as hedge or non-hedge. In the
financial segment, the transactions that use financial instruments, carried out at customers'
request, or on own account, or which do not comply with the hedging criteria defined in
BACEN Circular 3082, are recorded at market value, with realized and unrealized gains and
losses directly recorded in the statement of income.

(ii) Industrial and energy segments

Investment fund quotas are classified as "Trading securities", as they were acquired to be
actively and frequently traded. The other financial investments are recorded at cost of
purchase plus accrued income, since Votorantim Participaes S.A. and its subsidiaries intend
to hold the investment up to maturity.


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The derivative financial instruments (Note 19) for hedge purposes are evaluated and
accounted for according to the conditions under which they were contracted and are not
recorded at market value.

The financial investments, as well as the transactions involving derivative financial instruments,
contracted with Votorantim Finanas S.A. and subsidiaries, were fully eliminated upon
consolidation.

(c) Allowance for doubtful accounts

The allowance for doubtful accounts is recorded at an amount deemed sufficient by
management to cover estimated losses on the collection of trade accounts receivable, as well
as the rules of the Brazilian Central Bank (BACEN) for the financial segment and the official
accounting manual for the shared energy segment.

(d) Inventories

Inventories are stated at average cost of purchase or production, which is lower than
replacement cost or realizable value. Provisions are established for inventory obsolescence
and impairment, when applicable. Advances to suppliers and imports in transit are stated at
the accumulated cost at the end of the year.

(e) Other current assets and long-term receivables

These are recorded at cost plus, when applicable, earnings calculated on a pro rata daily basis
and accrued monetary and exchange variations up to the balance sheet date, adjusted by a
provision to reflect the realizable values. Assets which will be realized after the twelve months
subsequent to the date of the financial statements are classified as non-current assets.

(f) Investments

Investments in associated companies are accounted for on the equity method of accounting,
plus goodwill and negative goodwill arising from investments (Note 9).

Other investments are stated at cost of purchase, adjusted for inflation up to December 31,
1995, including a provision for probable losses on their realization, when applicable.

Goodwill and negative goodwill determined on the purchase of a company is calculated as the
difference between the purchase value and the book value of the investment acquired.


15

Goodwill, based on future economic recovery, is amortized over the period of recovery, not
exceeding 10 years. Negative goodwill is amortized only upon the realization of the related
asset by sale or disposal.

(g) Property, plant and equipment

Property, plant and equipment is stated at cost of purchase or construction, plus price-level
adjustments up to 1995. Depreciation is calculated on the straight-line basis at the rates
mentioned in Note 10. Forestry development costs, primarily project implementation costs, are
capitalized as incurred. The interest arising from financing directly linked to these assets while
under construction is capitalized. The capitalized interest is added to the cost of the related
assets and amortized over their useful lives.

The Votorantim Group is a member of consortia for operating hydroelectric power plants and
has its own hydroelectric power plants which are recorded in its property, plant and equipment.
The revenues generated by the consortia, arising from the sale of production surpluses, are
traded on the Wholesale Energy Market and presented in the statement of income net of
expenses.

Expenses with mineral studies and research are treated as operating expenses until the
economic feasibility of the commercial exploration of mineral reserves is proven. Once this
feasibility has been proven, the expenses incurred start to be capitalized as costs with mine
development. During the development stage of a mine, the expenses with removal of topsoil
are capitalized as part of the development costs. After the mine becomes productive, these
expenses are treated as production costs.

(h) Deferred charges

Deferred charges, which consist primarily of pre-operational expenditures related to expansion
projects, are amortized over a period of up to 10 years.

(i) Income tax, social contribution and
tax incentives

The provision for income tax and deferred income tax on tax losses and temporary differences
is determined at the rate of 25%, and for social contribution and deferred social contribution on
social contribution losses and temporary differences at the rate of 9%. Certain subsidiaries are
also subject to income tax arising from their operations abroad.

Income tax and social contribution are accrued on taxable results. The deferred tax benefit on
tax losses and credits available for offset is generally recognized as an asset to the extent that


16

realization is considered probable. The realization of a deferred income tax asset is dependent
on whether there will be sufficient taxable income in future years. Accordingly, the amount of
deferred income tax asset considered realizable may be reduced should there be a reduction
in the estimates of future taxable income.

Taxes on income are recognized in the statement of income gross of tax incentives. The tax
incentive benefit is credited directly to shareholders' equity at the time the option for the
incentive is made, against a decrease in liabilities.

(j) Current and long-term liabilities

These liabilities are stated at known or estimated amounts including, when applicable, accrued
charges and indexation adjustments. The provisions for profit sharing are recorded when the
companies grant this right to the employees, in accordance with performance-based plans. As
occurs with assets, liabilities which will be realized after the twelve months subsequent to the
date of the financial statements are classified as non-current liabilities.

(l) Contingent assets, contingent liabilities
and legal obligations

The recognition, measurement and disclosure of contingent assets and liabilities and legal
obligations are carried out in accordance with the criteria defined by Accounting Standards and
Procedures (NPC) 22 of the Institute of Independent Auditors of Brazil (IBRACON).

. Contingent assets - are only recognized in the financial statements when there is enough
evidence to assure their realization and final and unappealable court decisions, which
makes the gain practically certain.

. Contingent liabilities - are recognized in the financial statements when, based on the
opinion of legal advisors and management, the risk of an unfavorable outcome for a judicial
or administrative lawsuit is regarded as probable, requiring a probable disbursement of
funds to settle the obligations and when the amounts involved are measurable with
sufficient security. The contingent liabilities classified as possible losses are not recorded in
the books and should only be disclosed in the notes to the financial statements, whereas
those classified as remote are neither accrued nor disclosed.

. Legal obligations - these derive from legal proceedings related to tax liabilities being
challenged with respect to their legality or constitutionality. Regardless of the assessment
about the probability of a favorable outcome, these amounts are fully recognized in the
financial statements.


17

(m) Environmental expenses

Expenses related to environmental restoration are recorded in the statement of income when
incurred. Other environmental costs are also recorded as expenses unless they increase the
value of the assets and/or provide future economic benefits, in which cases they are
capitalized.

Liabilities are recorded when the expenses are considered probable and can be reasonably
estimated. The calculation of the liabilities is based on current laws and regulations, as well as
on available technology. In general, this record is only made when the companies are
committed to a formal action plan.

(n) Interest on own capital

Brazilian corporations are allowed to deduct, as a financial expense for tax purposes, the
interest attributed to shareholders' equity. For financial reporting purposes, the interest
attributed to shareholders' equity is recorded as a deduction from unappropriated retained
earnings, in a manner similar to a dividend.

(o) Pension plan and other post-retirement
benefits

The contributions made by Votorantim Participaes S.A. and its subsidiaries to defined
contribution pension plans and employee welfare plans (Note 17) were determined by
independent actuaries and are recorded as operating expenses.

An indirect subsidiary of Votorantim Participaes S.A. abroad, Votorantim Cement North
America Inc., and the jointly-controlled companies VBC Energia S.A., Usinas Siderrgicas de
Minas Gerais S.A. - USIMINAS, Ripasa S.A. Celulose e Papel and Aracruz Celulose S.A. have
defined benefit plans that also offer, among other services, medical assistance and life
insurance. The cost of the retirement benefits and of the other benefits of these plans granted
to eligible employees is determined on the projected benefit method pro-rated over the period
of service and management's best estimates of investment yields, salary adjustments, future
cost trends and mortality and retirement age of the employees.

(p) Consolidated financial statements

To enhance the transparency as to its financial position and the results of its operations, the
Votorantim Group has opted to present consolidated financial statements, prepared in


18

accordance with accounting practices adopted in Brazil, and covering the industrial, financial
and energy segments. Investments, accounts receivable and payable, income and expenses
and unrealized gains among the companies were eliminated. Minority interest in shareholders'
equity and in the results is stated separately.

Jointly-controlled companies were consolidated proportionally to the ownership interest held in
their capital and include VBC Energia S.A., Aracruz Celulose S.A., Ripasa S.A. Celulose e
Papel, Usinas Siderrgicas de Minas Gerais S.A. - Usiminas and Suwannee American
Cement, LLC.

The results of the subsidiaries and jointly-controlled companies acquired during the period
were included in the consolidated financial statements as from the date of acquisition.

In the consolidated financial statements, the goodwill arising from transactions with third
parties continued to be recorded in investments, whereas the negative goodwill was
transferred to the "Deferred income" account.

The balances and results of derivative financial instruments and financial investments
contracted to hedge the consolidated foreign exchange exposure of the Votorantim Group
were fully eliminated in the preparation of the consolidated financial statements.

Votorantim Participaes S.A. and its subsidiaries adopt uniform accounting practices to
record their operations and value their balance sheet accounts. The financial statements of
foreign associated companies and subsidiaries were prepared under the accounting principles
of their home countries, in their respective currencies. For equity accounting and consolidation
purposes, these financial statements were adjusted to the accounting practices adopted in
Brazil and translated into reais at the rates in effect at the balance sheet date. The statement
of income accounts were translated at the average monthly exchange rate. Foreign exchange
gains and losses of the Parent Company are directly recorded in the statement of income for
the year.

The consolidated financial statements include the balances of the following directly or
indirectly-held subsidiaries:

Percentage

2007 2006

Industrial segment
Cement
Call Ita Participaes Minas Gerais S.A. 100.00 100.00
Calmit Industrial Ltda. 100.00 100.00


19

Percentage

2007 2006

Calsete Industrial S.A. 100.00 100.00
Votorantim Cimentos Brasil Ltda. 100.00 100.00
Votorantim Cimentos NNE 98.80 98.80
Empresa de Transporte CPT Ltda. 100.00 100.00
Engemix S.A. 100.00 100.00
St. Barbara Cement Inc. (Canada) 100.00 100.00
St. Marys Cement Inc. (Canada and United States) 100.00 100.00
Suwannee American Cement, LLC (United States) 50.00 50.00
Votorantim Cement North America, Inc. (Canada) 100.00 100.00
Votorantim Cimentos Ltda. 98.47 98.47
Votorantim Investimentos Internacionais S.A. 100.00 100.00

Metallurgy
Companhia Brasileira de Alumnio 99.77 99.74
Indstria e Comrcio Metalrgica Atlas S.A. 99.86 99.86
Votorantim Metais Nquel S.A. (i) 100.00 100.00
Votorantim Metais - Cajamarquilla S.A. (Peru) 99.06 99.06
Siderrgica Barra Mansa S.A. 100.00 100.00
Votorantim Metais e Zinco S.A. 99.92 99.92
Votorantim Metais Ltda. 100.00 100.00
Usinas Siderrgicas de Minas Gerais S.A. - Usiminas 5.76 5.76
Aceras Paz del Ro S.A. (Colombia) 52.00

Pulp and paper
Aracruz Celulose S.A. 12.35 12.35
Nova HPI Participaes e Comrcio Ltda. (ii) 100.00
Ripasa S.A. Celulose e Papel 50.00 50.00
Votorantim Celulose e Papel S.A. 52.15 52.15

Agribusiness
Citrovita Comercial Exportadora S.A. (iii) 99.99
Citrovita Industrial e Comercial Ltda. (iii) 100.00
Citrovita Agro Industrial Ltda. 99.99 99.99
Citrovita Agro Pecuria Ltda. 99.99 99.99
Sucorrico S.A. (ii) 100.00

Chemical
Companhia Agro Industrial Igarassu (iv) 99.98
Companhia Nitro Qumica Brasileira 99.98 99.98

Trading
Votorantim International Holding 100.00 100.00
The Bulk Service Corporation 75.00 75.00



20

Percentage

2007 2006

Holding companies and other segments
Hailstone Limited 100.00 100.00
TIVIT - Tecnologia da Informao S.A. 99.99 99.99
Santa Cruz Gerao de Energia S.A. 100.00 100.00
Votorantim Comercial Exportadora e Importadora Ltda. 99.98 99.98
Votorantim Comrcio e Indstria Ltda. 100.00 100.00
Votorantim Investimentos Industriais S.A. 100.00 100.00
Votorantim Investimentos Latino-Americanos S.A. 100.00 94.56
Votorantim Cimentos Amrica S.A. 100.00 94.56
Votocel Investimentos Ltda. 100.00 100.00
Votorantim Energia Ltda. 100.00 100.00
Voto - Votorantim Overseas Trading Operations III Ltd. 100.00 100.00
Voto - Votorantim Overseas Trading Operations IV Ltd. 100.00 100.00
Votorantim Novos Negcios Ltda. 99.99 99.99

Financial segment
Banco Votorantim S.A. 99.92 99.92
BV Financeira S.A. 99.99 99.99
BV Leasing e Arrendamento Mercantil S.A. 99.99 99.99
BV Sistemas Ltda. 99.94 99.94
BV Trading S.A. 99.99 99.99
CP Promotora de Vendas Ltda. 99.40 99.40
Votorantim Bank Limited 95.94 95.84
Votorantim Finanas S.A. 100.00 100.00
Votorantim International Business Limited 100.00 100.00
Votorantim C.T.V.M. Ltda. 99.98 99.98
Votorantim Asset Management D.T.V.M. Ltda. 99.99 99.99
Votorantim Seguros e Previdncia S.A. 99.99 99.99
Banco Votorantim Securities, Inc. 100.00 100.00

Energy segment
VBC Energia S.A. 50.00 50.00

(i) Companhia Nquel Tocantins was merged into Minerao Serra da Fortaleza S.A. during 2006 and
its name was changed to Votorantim Metais Nquel S.A.

(ii) Transferred to Votorantim Investimentos Industriais S.A. and merged in December 2007.

(iii) Merged into Votorantim Participaes S.A. in December 2007.

(iv) Company sold in July 2007.


21

(q) Reconciliation of shareholders' equity and
net income for the year between the parent
company and the consolidated

Shareholders' equity Results for the year

2007 2006 2007 2006

Parent Company 24,250,373 20,602,425 4,784,193 4,337,983
Supplement to equity pick-up (*) 86,711 63,271 25,083 61,628
Adjustment of unrealized
profits, net of tax effects (81,541) (4,097)

Consolidated 24,255,543 20,665,696 4,805,179 4,399,611

(*) Refers to a supplement of equity pick-up of companies included in the consolidated
statements of Votorantim Participaes S.A., with residual investments spread over the
Group and stated at historical cost, whose balances were adjusted upon consolidation.



22

3 Financial Investments and Derivative
Financial Instruments



2007 2006 2007 2006 2007 2006 2007 2006

Trading securities (*)
Financial Treasury Bills (LFTs) 169,337 332,983 169,337 332,983
National Treasury Bills (LTNs) 218,668 2,129,024 218,668 2,129,024
National Treasury Notes (NTNs) 7,866,028 4,724,047 7,866,028 4,724,047
Bank Deposit Certificates (CDBs)
Eurobonds 1,505,742 958,304 1,505,742 958,304
Brazilian foreign debt securities 211,271 289,498 211,271 289,498
Foreign debt securities of other countries 2,098,682 2,220,603 2,098,682 2,220,603
Debentures 1,194,440 1,087,669 1,194,440 1,087,669
Investment fund quotas 5,264,698 5,009,917 4,100,902 3,666,966 1,163,796 1,342,951
Credit Rights Investment Fund (FIDC) 829,479 77,519 2,715 77,519 826,764
Floating rate securities 1,093,238 465,223 94,827 998,411 465,223
Other 224,796 832,453 224,796 832,453

20,676,379 18,127,240 4,198,444 3,744,485 16,477,935 14,382,755

Securities held to maturity
Eurobonds 202,370 680,910 202,370 680,910
Foreign currency denominated investments 2,172,435 1,652,865 2,171,767 2,016,264 27,672
Bank Deposit Certificates (CDBs) 1,055,734 1,792,611 3,228,385 3,891,821 72,543 107,011
Interbank Deposit Certificates (CDIs) 286,757 209,658 286,757 209,658
Purchase and sale commitments 462,228 462,228
Debentures 509,979 343,042 275,470 92,690 549,190 250,352
Other 248,843 248,843

4,938,346 4,679,086 6,673,450 6,210,433 230,042 680,910 621,733 357,363

Derivative financial instruments (Note 19) 3,131,625 1,908,709 6,496 3,633,542 2,309,596

28,746,350 24,715,035 10,878,390 9,954,918 20,341,519 17,373,261 621,733 357,363

Current (27,925,993) (23,959,773) (10,559,780) (8,842,475) (19,384,246) (15,657,616 ) (72,543) (107,011)

Long-term 820,357 755,262 318,610 1,112,443 957,273 1,715,645 549,190 250,352



23

(*) Trading securities - the criteria for the pricing of marketable securities are defined by the risk management area of Votorantim Participaes S.A.
and Votorantim Finanas S.A., considering prices and rates officially disclosed by entities such as the National Association of Open Market
Institutions (ANDIMA) and the Futures and Commodities Exchange (BM&F), in addition to possible price adjustments for low liquidity securities,
which consider offers, latest prices, possible dispersal and other factors to fairly determine the market value, in the local and foreign markets.

For securities traded in the Brazilian market, the average rates of the instruments disclosed by ANDIMA are considered, for the closing date, as
well as the closing price disclosed for positions in the BM&F, the prices of the last negotiations of debentures disclosed by ANDIMA, taking into
account the adoption of criteria considered to be adequate to establish the price of low liquidity instruments. For the assets of foreign investees,
the closing prices for the public debt securities in the international market disclosed by Bloomberg and other information services are
considered, as well as the adoption of criteria considered to be adequate for the correct pricing of low liquidity securities.

The Public Securities, Eurobonds and C-Bonds issued by the Brazilian government fall due up to January 2018 and, for the most part, are
recorded in current assets, irrespective of their maturity terms, due to the highly liquid nature of the instruments and intent to optimize market
opportunities.

Investment fund quotas are recorded at their realizable value obtained by the quotation available at the closing date of the financial statements.

Votorantim Finanas S.A., through its subsidiary Votorantim Asset Management D.T.V.M.
Ltda., manages various fixed and variable income funds with total net assets of R$ 28,921,606
(2006 - R$ 23,649,758). Of the total financial investments in investment fund quotas held by
the industrial segment, R$ 3,800,654 (2006 - R$ 3,814,713) was invested in funds managed
by Votorantim Asset Management D.T.V.M. Ltda.

Interbank investments

The breakdown of the interbank investment portfolio, by type, is as follows:


Financial segment

2007 2006

Open market investments
Funded position 4,600,203 6,264,005
Financed position 5,835,783 9,127,721
Short position 2,473,654 1,523,791
Investments in interbank deposits 2,436,187 2,494,632
Investments in foreign currency 1,338,823 19,240
Other 277,152 21,127

16,961,802 19,450,516

Short-term (15,977,491) (17,951,404)

Long-term 984,311 1,499,112



24

4 Trade Accounts Receivable -
Industrial Segment

Credit risk is minimized by the broad customer base and control procedures, as well as the
monitoring of customers' credit limits. Votorantim Participaes S.A. and its subsidiaries also
contract a credit insurance policy for most of their export receivables.

The companies of the industrial segment have irrevocable receivable assignment transactions
to the Credit Rights Investment Fund (FIDC). The fund is managed by Banco Bradesco S.A.
and, at December 31, 2007, reported a net equity of R$ 3,123 (2006 - R$ 251,707), of which
R$ 285 (2006 - R$ 191,721) are in senior quotas owned by closed-end funds of subsidiaries
and R$ 2,838 (2006 - R$ 59,987) in subordinated quotas held by subsidiaries. In December
2007, management of Votorantim requested the dissolution of this fund, to be carried out in the
first quarter of 2008.

At December 31, 2007, the outstanding balance of receivables assigned to the FIDC is R$ 516
(2006 - R$ 257,896). During the year ended December 31, 2007, the expenses incurred on
these assignments amounted to R$ 20,000 (2006 - R$ 30,231), classified as financial
expenses in the consolidated statement of income for the year.

At December 31, 2007, the subsidiary VCP has outstanding vendor transactions amounting to
R$ 224,207 (2006 - R$ 257,708), classified as a deduction from the balances of local trade
accounts receivable. VCP guarantees these transactions and potential losses are taken into
consideration in the establishment of the allowance for doubtful accounts.

5 Credit Operations

(a) Breakdown of credit operations


Financial segment

2007 2006

Loans - public sector 182,856 200,725
Loans - private sector 8,977,910 4,532,312
Financing - private sector 16,860,252 11,561,819
Financing - rural, marketable securities and others 159,561 142,223
Leasing and foreign exchange portfolio (*) 600,551

26,781,130 16,437,079

Short-term (12,976,669 ) (9,136,992)

Long-term 13,804,461 7,300,087


25

(*) In 2006, leasing was classified as "Other receivables" and the foreign exchange portfolio as a deduction from
"Other liabilities".

(b) Analysis of the portfolio by type of customer


Financial segment

2007 2006

Industry 5,938,605 2,739,690
Commerce 1,769,176 1,259,171
Rural 256,346 182,034
Other services 2,375,674 1,882,152
Financial institutions 25,560 33,857
Individuals 16,415,769 10,741,946

26,781,130 16,838,850

(c) Analysis of the portfolio of credit operations by
corresponding risk levels

The analysis of the portfolio by risk level in the financial segment, including, in 2006, the
balances of leasing and the foreign exchange portfolio, is as follows:


2007

Credits Credits
Risk level falling due overdue Total

AA 6,431,916 6,431,916
A 15,375,964 15,375,964
B - overdue from 15 to 30 days 2,820,479 669,475 3,489,954
C - overdue from 31 to 60 days 275,077 410,059 685,136
D - overdue from 61 to 90 days 94,290 152,636 246,926
E - overdue from 91 to 120 days 8,451 99,339 107,790
F - overdue from 121 to 150 days 1,358 79,486 80,844
G - overdue from 151 to 180 days 4,401 59,727 64,128
H - overdue for more than 180 days 10,543 287,929 298,472

25,022,479 1,758,651 26,781,130


26


2006

Credits Credits
Risk level falling due overdue Total

AA 2,614,249 2,614,249
A 10,266,181 10,266,181
B - overdue from 15 to 30 days 1,209,110 556,442 1,765,552
C - overdue from 31 to 60 days 1,175,702 411,318 1,587,020
D - overdue from 61 to 90 days 104,208 112,503 216,711
E - overdue from 91 to 120 days 6,004 82,395 88,399
F - overdue from 121 to 150 days 630 57,656 58,286
G - overdue from 151 to 180 days 675 46,585 47,260
H - overdue for more than 180 days 4,360 190,832 195,192

15,381,119 1,457,731 16,838,850

6 Inventories

Consolidated

2007 2006

Finished products 932,005 878,976
Work in process 1,091,118 873,490
Raw materials and auxiliary materials 513,116 413,405
Consumable materials warehouse 454,448 445,764
Imports in transit 150,280 202,518
Other 236,397 100,184

3,377,364 2,914,337

7 Taxes Recoverable

Taxes recoverable mainly refer to income tax withheld on earnings from financial investments
and Value-added Tax on Sales and Services (ICMS) credits arising from the purchase of
property, plant and equipment and consumable products, recorded based on the realization
terms estimated by management.


27

8 Main Balances and Transactions with Related Parties

Consolidated

Assets Liabilities Expenses

Company 2007 2006 2007 2006 2007 2006

Suppliers
BAESA - Energtica Barra Grande S.A. 99 8,404 (34,354) (48,337)
Machadinho Energtica S.A. 28,421 30,651 (52,188) (48,639)
Minerao Rio do Norte S.A. 5,677 (121,492)
Petrocoque S.A. Indstria e Comrcio 5,546 (108,789)

34,197 44,601 (208,034) (205,765)

Loans
Hejoassu Administrao S.A. 513,744 456,588

The transactions are carried out under conditions agreed upon between the parties and may or may not bear financial charges, with no defined settlement term.



28

9 Investments

(a) Main investees

2007 Consolidated

Adjusted net Equity in results Investment balance
Adjusted income for Ownership -
Companies net equity the year % 2007 2006 2007 2006

BAESA - Energtica Barra Grande S.A. 525,199 82,914 15.00 12,437 7,662 78,780 66,461
Campos Novos Energia S.A. 487,688 129,706 44.77 58,070 218,338 174,032
Ahlstrom VCP Indstria de Papis Especiais S.A. (*) 166,377 4,386 40.00 1,755 66,551
Compaia Minera Milpo S.A.A. 539,465 167,129 24.88 41,582 51,215 134,263 123,055
Machadinho Energtica S.A. 355,598 (1,797) 33.14 (625) 935 117,828 104,038
Minerao Rio do Norte S.A. 591,012 432,143 10.00 43,727 34,567 59,101 58,489
Petrocoque S.A. Indstria e Comrcio 59,103 27,475 22.50 7,079 (823 ) 13,298 9,944
Rio Verdinho Energia S.A. 34,580 100.00 34,580
Sirama Participaes Administrao e Transportes Ltda. 252,967 90,990 38.25 34,804 34,097 96,762 89,984
Exchange variation in affiliated company (20,747)
Other investments (3,161) 24,608 228,908 232,069
Advances for purchase of subsidiaries 140,400

Total investments stated on the equity
method of accounting 174,921 152,261 1,188,809 858,072

Investments carried at cost
Alunorte - Alumina do Norte S.A. 95,858 85,208
Tijuca Sociedade de Minerao 29,910
Other investments
Industrial segment 82,120 39,406
Financial segment 15,651 30,864
Energy segment 16,416 452

239,955 155,930

Total investments 174,921 152,261 1,428,764 1,014,002


29

(*) As mentioned in Note 1(a), VCP and the Finnish company Ahlstrom Corporation formalized a joint venture
involving the paper businesses of VCP's unit located in Jacare, State of So Paulo. The Brazilian subsidiary of
Ahlstrom Corporation became the holder of 60% of the capital of Ahlstrom VCP Indstria de Papis Especiais
S.A., whereas the remaining 40% is held by VCP. The amount of the transaction was R$ 233,458, generating a
non-operating gain of R$ 136,264. In addition, a Put and Call Option Agreement was entered into between
VCP and Ahlstrom relating to the 40%-interest held by VCP. This agreement is effective for up to two years as
from September 2007.

The financial statements of the associated companies and subsidiaries at December 31, 2007
and 2006 were audited and/or reviewed by independent auditors.

The report of the independent auditors on the financial statements at December 31, 2007 and
2006 of the jointly-controlled subsidiary VBC Energia S.A. contains a matter of emphasis
paragraph relating to the provisional tariff rates granted by ANEEL to some of its subsidiaries.
In view of the provisional nature of this tariff revision, there may be changes upon its final
approval.

(b) Changes in investments

Consolidated

2007 2006

Balance at the beginning of the year 1,014,002 885,535
Equity in results 195,668 152,264
Purchases of investments and capital increase in investees 337,858 58,299
Sales of investments and capital reduction in investees (9,261)
Gains (losses) and exchange variation on investments (20,747) (38,333)
Dividends received and receivable (98,018) (34,502)

Balance at the end of the year 1,428,764 1,014,002



30

(c) Goodwill (negative goodwill) on acquisitions



2007 2006 2007 2006 2007 2006 2007 2006
Goodwill
Aceras Paz Del Rio S.A. (i) 584,577 584,577
Angra do Reis Ltda. (v) 50,655 50,655
Aracruz Celulose S.A. (ii) 185,499 329,411 185,499 329,411
BAESA - Energtica Barra Grande S.A. (iii) 7,545 9,334 7,545 9,334
Campos Novos Energia S.A. (iii) 64,297 68,891 64,297 68,891
Companhia de Cimento Ribeiro Grande (iv) 231,607 224,693 231,607 224,693
Companhia Paulista de Fora e Luz (viii) 136,356 149,971 136,356 149,971
Compaia Minera Milpo S.A.A. (v) 103,922 155,191 103,922 155,191
Machadinho Energtica S.A. (v) 16,652 16,652
Minerao Zona da Mata Ltda. (v) 25,993 26,986 25,993 26,986
Prestige Gunite Inc. (v) 220,006 220,006
Rio Grande Energia S.A. (viii) 42,527 42,602 42,527 42,602
Rio Verdinho Energia S.A. (v) 28,990 28,990
RioCell S.A. (vii) 23,120 27,806 23,120 27,806
Ripasa S.A. Celulose e Papel (v) 545,344 734,999 545,344 734,999
S&W Materials Inc. (ii) 11,872 17,735 11,872 17,735
Softway Center Servios de Teleatendimentos a Clientes S.A. (v) 43,038 43,038
St. Marys Cement Inc. (v) 336,303 432,191 336,303 432,191
Sucorrico S.A. 148,071 148,071
Suwannee American Cement, LLC (ii) 23,735 37,616 23,735 37,616
The Bulk Service (v) 50,935 63,906 50,935 63,906
Tivit Terceirizao de Tecnologia e Servio S.A. (v) 36,766 36,766
VBC Energia S.A. (v) 126,945 120,000 126,945 120,000
Votorantim Metais - Cajamarquilla S.A. (v) 138,640 196,813 138,640 196,813
Other (v) 156,946 225,029 60,102 114,446 96,844 110,583

3,192,270 3,011,245 2,916,543 2,708,089 275,727 303,156

Negative goodwill (deferred income)
Empresa de Transporte CPT Ltda. (1,409) (1,409) (1,409) (1,409)
Hailstone Limited (vi) (199,013) (199,013) (199,013) (199,013)
VCP-MS Celulose Sul Mato-Grossense Ltda. (1,781,000) (1,781,000)
Votorantim Celulose e Papel (349,996) (349,996) (349,996) (349,996)
Other (113,596) (109,956) (102,396) (102,396) (11,200) (7,560)

(2,445,014) (660,374) (2,433,814) (652,814) (11,200) (7,560)



31

(i) As mentioned in Note 1, on March 16, 2007, the Votorantim Group purchased, at an auction held on the Stock Exchange of Colombia,
8,206,215,228 common shares of the Colombian steel company Aceras Paz del Rio S.A., which account for 52% of this company's capital, for
US$ 502,100 thousand, equivalent to R$ 1,034,268 on that date, including goodwill of R$ 925,094, of which R$ 634,823 is supported by the
expectation of future profitability and will be amortized in up to ten years, and R$ 290,271 relates to the appreciation of assets and will be
amortized over the useful lives of the assets.

(ii) Goodwill supported by the expectation of future profitability, amortized over an eight-year period.

(iii) Goodwill supported by the expectation of future profitability, amortized over ten years as from the start-up of the plant's operations.

(iv) In November 2006, the Votorantim Group purchased the control of Companhia de Cimento Ribeiro Grande, for R$ 425,376, including goodwill
of R$ 319,963, of which R$ 224,912 is supported by the expectation of future profitability and will be amortized in up to ten years, and
R$ 94,781, net of tax effects, relates to the appreciation of assets and will be amortized over the useful lives of the assets.

(v) Goodwill supported by the expectation of future profitability, amortized in up to ten years.

(vi) In August 2002, Votorantim Participaes S.A. acquired the control of Optiglobe Tecnologia da Informao S.A. This transaction generated net
negative goodwill of R$ 199,013.

(vii) Goodwill on the acquisition of the control of Riocell S.A. supported by: (i) the market value of the assets, which will be amortized in accordance
with their realization and (ii) the expectation of future profitability, which will be amortized over ten years as from January 2004.

(viii) Goodwill being amortized based on the expectation of future profitability over the remaining concession period.

9 Property, Plant and Equipment

Consolidated

2007 2006

Cost
Accumulated
depreciation/
depletion Net Net
Annual depreciation/
depletion rates - %

Land and buildings 6,008,415 (1,788,109) 4,220,306 3,684,332 0 to 10
Equipment and installations 18,987,349 (10,047,134) 8,940,215 8,735,418 4 to 25
Vehicles 673,324 (498,960) 174,364 201,842 10 to 25
Furniture and fixtures 216,406 (144,292) 72,114 88,872 10 to 20
Mining rights 874,597 (87,548) 787,049 790,152 (i)
Plantations and forests 1,725,583 (262,120) 1,463,463 1,135,007 (i)
Construction in progress (ii) 5,899,991 5,899,991 2,449,636
Other 527,613 (210,619) 316,994 633,281 4 to 33

34,913,278 (13,038,782) 21,874,496 17,718,540


Industrial segment

2007 2006

Cost
Accumulated
depreciation/
depletion Net Net
Annual depreciation/
depletion rates - %

Land and buildings 5,846,335 (1,735,536) 4,110,799 3,606,786 0 to 10
Equipment and installations 17,635,705 (9,244,377) 8,391,328 8,225,831 4 to 25
Vehicles 653,977 (481,494) 172,483 199,338 10 to 25
Furniture and fixtures 209,909 (139,811) 70,098 85,055 10 to 20
Mining rights 874,597 (87,548) 787,049 790,152 (i)
Plantations and forests 1,725,583 (262,120) 1,463,463 1,135,007 (i)
Construction in progress (ii) 5,738,450 5,738,450 2,252,375
Other 304,486 (151,911) 152,575 523,803 4 to 33

32,989,042 (12,102,797) 20,886,245 16,818,347



32

Financial segment

2007 2006
Accumulated
Annual
depreciation
Cost depreciation Net Net rates - %

IT equipment 66,958 (37,788) 29,170 20,788 20
Other 42,946 (16,235) 26,711 23,634 10

109,904 (54,023) 55,881 44,422

Energy segment

2007 2006
Cost
Accumulated
depreciation/
depletion Net Net
Annual
depreciation/
depletion
rates - %

Land and buildings 162,080 (52,573) 109,507 77,546 (iii)
Equipment and installations 1,284,686 (764,969) 519,717 488,799 (iii)
Vehicles 19,347 (17,466) 1,881 2,504 (iii)
Furniture and fixtures 6,497 (4,481) 2,016 3,817 (iii)
Construction in progress 161,541 161,541 197,261 (iii)
Other 180,181 (42,473) 137,708 85,844 (iii)

1,814,332 (881,962) 932,370 855,771

(i) Depletion is calculated based on the extraction of mineral resources and forests, taking into consideration the estimated lives
of the reserves or the total volume of timber to be harvested from the forests.

(ii) Refers mainly to the projects for the expansion, modernization and operational improvements at the plants of the Metal,
Cement and CBA divisions, as well as the assets of VCP's pulp plant under construction, arising from the exchange described
in Note 1. In addition, it includes investments of CBA for the construction of hydroelectric power plants of R$ 63,922.
Management expects to obtain environmental licenses so that these power plants can start to generate energy in the medium
term. Based on the opinion of its legal advisors, management expects favorable outcomes to the environmental lawsuits and
approval of the pending licenses.

(iii) The average depreciation rate of the assets is approximately 5.00% p.a. in the distribution companies and 2.6% p.a. in the
generating companies.



33
11 Loans and Financing


Annual financial charges at
Type/purpose December 31, 2007 2007 2006 2007 2006 2007 2006 2007 2006

In foreign currency
Export prepayment Exchange variation + LIBOR + 0.25% to 4.125% 4,813,028 5,975,237 4,813,028 5,975,237
Advances on exchange contracts Exchange variation + 5.4% to 5.7% 683,835 47,157 683,835 47,157
Purchases of assets Exchange variation + LIBOR + 2.14 to 3.56% 1,472,351 2,142,924 1,472,351 2,142,924
Eurobonds Exchange variation + 7.75% and 7.875% 1,092,243 1,317,325 1,092,243 1,317,325
Import financing Exchange variation + LIBOR 1.2% to 1.80% 989,223 354,455 989,223 354,455
Compror supplier financing Exchange variation + LIBOR + 2.60% 289,506 251,601 289,506 251,601
Working capital (includes Resolutions no. 63 and 2770) Exchange variation + 5.15% to 6.70% 2,768,654 2,826,881 2,768,654 2,736,664 90,217
Loans for onlending Exchange variation + 5.59% to 6.79% 2,610,463 4,053,197 2,610,463 4,053,197
Other Exchange variation + 3.00% to 4.00% 1,293,876 336,104 1,135,188 336,104 158,688

16,013,179 17,304,881 13,244,028 13,161,467 2,610,463 4,053,197 158,688 90,217

In local currency
National Bank for Economic and Social
Development (BNDES) TJLP + 3.8% to 7.36% 3,006,808 3,062,855 2,079,690 2,144,800 927,118 918,055
Loans for onlending 1.30% to 11% 3,125,197 3,125,197
Working capital 102.3% to 102.59% of the CDI 1,468,597 1,468,597
Other Long-term Interest Rate (TJLP) + 2.75% to 3.30% 1,008,061 518,777 917,538 434,275 90,523 84,502

8,608,663 3,581,632 4,465,825 2,579,075 3,125,197 1,017,641 1,002,557

24,621,842 20,886,513 17,709,853 15,740,542 5,735,660 4,053,197 1,176,329 1,092,774

Current (7,878,788) (5,437,204) (4,986,486) (2,976,285) (2,741,824) (2,339,771) (150,478) (121,148)

Long-term 16,743,054 15,449,309 12,723,367 12,764,257 2,993,836 1,713,426 1,025,851 971,626

Long-term amounts fall due as follows
2008 2,527,900 1,675,226 770,000 82,674
2009 3,422,374 2,148,569 2,520,041 1,644,234 655,585 306,393 246,748 197,942
2010 2,750,767 1,529,413 1,950,740 916,209 655,585 486,686 144,442 126,518
2011 2,585,387 3,852,228 1,799,133 3,590,884 655,585 150,347 130,669 110,997
2012 4,390,796 5,391,199 3,868,634 4,937,704 411,022 111,140 453,495
2013 onwards 3,593,730 2,584,819 616,059 392,852

16,743,054 15,449,309 12,723,367 12,764,257 2,993,836 1,713,426 1,025,851 971,626
Votorantim Participaes S.A. Subsidiaries


34
(a) Agreements

Votorantim Participaes S.A., the subsidiaries Votorantim Celulose e Papel S.A. and
Votorantim International Holding N.V. and the jointly-controlled subsidiary VBC Energia S.A.
entered into loan and financing agreements subject to the following main covenants:
(a) certain restrictions upon issuing new financing, (b) restrictions on certain transactions with
related parties and participation in mergers with other companies, (c) commitment to meet the
volume of contracts to be in conformity with a coverage rate, (d) conformity with financial
indices, such as capitalization, interest coverage, minimum retained earnings and financial
borrowing rates. In the event of non-compliance with the conditions of these covenants,
through a notification from the financial institutions, the outstanding balance becomes
immediately due. The subsidiary Votorantim Cement North America, Inc. has loans with
covenants that restrict the payment of dividends and new financing. Additionally, the covenants
have been calculated considering only the consolidated financial statements of the industrial
segment to ensure their consistency with the financial statements of previous periods. The
Companies are in compliance with all the terms set forth in the covenants.

(b) Collateral

Loans and financing are collateralized by statutory lien on the financed equipment, promissory
notes and sureties from the shareholders.

12 Funds from Acceptance and Issuance
of Securities

Liabilities for funds from acceptance and issuance of securities relate to funds in foreign and
local currency raised through the issuance of securities in the international market and with
foreign banks for onlending to local customers, bearing financial charges of up to 14.28% p.a.,
plus exchange variation.



35
13 Issuance of Debentures and Subordinated Debt

(a) Debentures

Consolidated

Annual financial
charges

2007 2006

Long- Long-
Current term Current term

Votorantim Finanas S.A.
Subject to exchange
variation
12.04% + exchange
variation

82,635 1,583,343 27,775 977,662
Floating DI + 0.35% 119,795 2,295,344 79,336 2,792,558

202,430 3,878,687 107,111 3,770,220

VBC Energia S.A.
Floating
Long-term Interest
Rate (TJLP) +
2.5 to 6%

56,211 99,088 51,972 195,606
Floating
Interbank Deposit
Certificate (CDI) +
up to 5%

8,764 10,963 198,300
Floating
General Market Price
Index (IGP-M) +
9.5%

1,748 27,619 1,533 26,115

66,723 126,707 64,468 420,021

269,153 4,005,394 171,579 4,190,241

The debentures are subject to restrictions set forth in covenants that require compliance with
certain financial indices set at pre-established parameters. Management understands that
such restrictions and covenants are being duly complied with.

(b) Subordinated debt

Annual Consolidated
financial
charges 2007

Votorantim Finanas S.A.
Bank Deposit Certificate (CDB)
Floating rate DI 1,118,215

Debentures
Floating rate DI + 0.5% p.a. 1,460,627

2,578,842



36
14 Deferred Income Tax and Social Contribution

Deferred tax assets and liabilities refer to income tax and social contribution losses and temporary differences of income tax and social contribution and are classified as long-
term receivables and liabilities reflecting the estimate of realization based on projections of future realization and profitability of the respective companies. These consider the
prescriptive periods and, in the case of income tax and social contribution losses, the limit of 30% for annual taxable income offset, as established by current legislation.



2007 2006 2007 2006 2007 2006 2007 2006

Assets
Income tax and social contribution losses 281,705 416,509 223,813 246,357 41,170 148,877 16,722 21,275
Temporary differences
Provision for contingencies 439,161 313,056 390,862 273,450 40,202 30,499 8,097 9,107
Provision for doubtful accounts 277,744 215,541 5,459 11,279 267,519 195,409 4,766 8,853
Provision for losses on investments 117,564 3,425 51,958 3,425 65,606
Deferral of loss on swap agreements 235,654 418,074 219,759 340,372 15,895 77,702
Tax benefit on goodwill 187,814 132,912 53,141 37,222 134,673 95,690
Other provisions 149,703 248,947 124,702 224,871 1 25,001 24,075

1,689,345 1,748,464 1,069,694 1,136,976 430,392 452,488 189,259 159,000

Current assets (other receivables) (191,668 ) (439,429) (27,542) (116,004) (140,195) (296,053) (23,931) (27,372)

Long-term 1,497,677 1,309,035 1,042,152 1,020,972 290,197 156,435 165,328 131,628

Liabilities
Deferral of gain on swap agreements 192,986 503,287 21,626 196,467 171,360 306,820
Adjustments to market value of property, plant and equipment 160,827 198,848 160,827 198,848
Adjustments to market value 128,362 185,028 69,118 60,934 59,244 124,094
Accelerated depreciation 78,307 44,677 72,757 44,677 5,550
Cost of reforestation 114,086 23,419 114,086 23,419
Deferral of foreign exchange variation 473,771 139,928 473,771 139,928
Other 19,362 140,595 19,362 68,674 6,742 5,076

1,167,701 1,235,782 931,547 732,947 236,154 437,656 5,076

Short-term liabilities (other liabilities) (227,692 ) (261,786) (26,375) (12,728) (201,317) (249,058)

Long-term 940,009 973,996 905,172 720,219 34,837 188,598 5,076



37
The subsidiary Votorantim Metais - Cajamarquilla S.A. has a tax benefit relating to the deduction, of up to 80% of its net income, of the income tax calculation basis. This benefit
is subject to the reinvestment of the net income generated in the company's activities. At December 31, 2007, the Ministry of Mines and Energy of Peru approved the
reinvestment of R$ 211,175 (corresponding to US$ 119,220 thousand) in the company's activities. This Ministry also approved the reinvestment plan for the next two years, in
the budgeted amount of R$ 885,000 (equivalent to US$ 500,000 thousand).

15 Contingencies, Tax Liabilities under Discussion
in Court and Commitments

(a) Contingencies and tax liabilities under
discussion in court

Votorantim Participaes S.A. and its subsidiaries are parties to labor, civil, tax and other ongoing lawsuits and are discussing these matters both in the administrative and
judicial spheres, which are backed by judicial deposits, when applicable. The provisions for losses arising from these lawsuits are estimated and updated by management,
supported by the opinion of its legal advisors. The status of the provisions for tax lawsuits and other litigations is as follows:



Judicial
deposits
Provision for
contingencies
Judicial
deposits
Provision for
contingencies
Judicial
deposits
Provision for
contingencies
Judicial
deposits
Provision for
contingencies

2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006

Tax 624,041 490,230 2,085,616 1,817,698 585,203 480,022 1,429,925 1,344,362 31,181 4,170 637,473 459,975 7,658 6,038 18,218 13,361
Labor and social security 59,189 53,753 299,987 289,095 49,446 45,788 271,376 270,205 2,436 1,070 19,150 8,643 7,307 6,895 9,461 10,247
Civil 31,986 14,068 242,652 178,969 24,385 4,686 203,330 149,111 1,257 27,790 17,383 7,601 8,125 11,532 12,475
Other 5,893 11,407 21,804 745 5,892 11,373 21,804 745 34

721,109 569,458 2,650,059 2,286,507 664,926 541,869 1,926,435 1,764,423 33,617 6,531 684,413 486,001 22,566 21,058 39,211 36,083

Short-term (660,149) (486,001) (637,473) (486,001) (22,676)

Long-term 721,109 569,458 1,989,910 1,800,506 664,926 541,869 1,926,435 1,764,423 33,617 6,531 46,940 22,566 21,058 16,535 36,083


38
The changes in the provision for contingencies in the year are as follows:


Industrial Financial Energy
Consolidated segment segment segment

Balance at December 31, 2006 2,286,507 1,764,423 486,001 36,083
Additions 295,312 139,007 150,517 5,788
Reversals (121,843) (115,774) (2,772) (3,297)
Monetary adjustment 190,083 138,779 50,667 637

Balance at December 31, 2007 2,650,059 1,926,435 684,413 39,211

At December 31, 2007, the main lawsuits are as follows:

(i) Tax lawsuits

. Social Integration Program (PIS)/Social Contribution on Revenues (COFINS) - the
Votorantim Group has been challenging the increase in the COFINS tax rate from 2% to
3%, as well as the increase in the PIS and COFINS calculation bases to include financial
income and other non-operating income.

. PIS/ COFINS on Interest on Own Capital - the Company has been challenging the payment
of PIS/COFINS on interest on own capital, claiming that interest on own capital has the
nature of dividends, not of revenues.

. Summer Plan ("Plano Vero") - challenge aimed at the deductibility of the monetary
adjustment corresponding to the variation of the Consumer Price Index (IPC) in January
1989, of 70.28%.

. Tax on Bank Account Outflows (CPMF) - the indirectly-held subsidiary BV Leasing -
Arrendamento Mercantil S.A. is claiming the right to receive the same tax treatment given to
the other financial institutions.

. Value-added Tax on Sales and Services (ICMS) - the Company has been challenging the
constitutionality of the inclusion of ICMS in the COFINS calculation basis, as well as
defending the maintenance of the ICMS credit on purchases of raw materials for the
manufacturing of tax-free paper and goods for use and consumption.



39
. Excise Tax (IPI) - the Company is defending its entitlement to recover IPI credits arising
from the acquisition of inputs, raw materials, intermediary products and packaging materials
used in the manufacture of products which are tax-free, non-taxed and/or subject to a zero
rate.

. Income tax and social contribution - the financial segment is claiming its entitlement to the
difference in income tax rate used for tax incentive investments, as well as the deduction of
the accounting result of the difference between the Consumer Price Index (IPC) and Daily
Federal Treasury Bonds (BTNF) price-level restatement, of January 1989, in income tax
and social contribution calculations.

(ii) Labor and civil lawsuits

These mainly refer to lawsuits filed by former employees and outsourced employees claiming
the payment of indemnity on dismissals, health hazard bonus, risk premium, overtime, "in
itinere" hours (overtime while in commuter transportation), as well as civil lawsuits referring to
indemnity claims by former employees or employees from outsourced companies based on
alleged occupational diseases, work accidents, material and moral damages.

(iii) Possible losses

The Votorantim Group is a party to other tax, civil and labor lawsuits arising in the normal
course of its businesses and whose loss risk is regarded as possible, totaling R$ 2,153,299
(2006 - R$ 1,442,128).

(b) Commitments

(i) The subsidiaries Votorantim Cimentos Brasil Ltda. and St. Marys Cement Inc. have supply
agreements with steel mills for the purchase of slag, effective up to 2011 and 2023,
respectively.

(ii) The subsidiary VCP entered into long-term take-or-pay agreements with EKA Chemicals, Air
Liquide Brasil and Air Products Gases Industriais for the supply of chemical products for a one
to ten-year period. These agreements contain termination clauses for noncompliance with
basic terms and conditions and discontinuation of supply. Contractual obligations do not
exceed R$ 102,037 at December 31, 2007 (December 31, 2006 - R$ 81,215). In addition, a
long-term take-or-pay agreement for the supply of pulp for a 30-year period was signed. The
commitment established by this agreement is approximately R$ 75,785 per year.



40
(iii) The subsidiary CBA has contracts for the purchase of electric energy from CESP - Companhia
Energtica de So Paulo, of 400MW, subject to a minimum consumption of 137 MW up to
2015.

(iv) The Votorantim Group has commitments for the construction and purchase of equipment for
plants that generate electric energy, either independently or through consortia, where the
future disbursement estimated by the Votorantim Group is approximately R$ 2,000 thousand.

(v) The main collateral pledged by Votorantim Participaes S.A. and its associated companies
and subsidiaries are summarized below:

2007 2006
Campos Novos Energia S.A.
Intermediation in financing agreement with the BNDES 1,080,496 1,080,496

BAESA - Energtica Barra Grande S.A.
Intermediation in financing agreement with the BNDES 300,000 300,000

Votorantim Metais Zinco S.A.

Machadinho Energtica S.A.
Letter of guarantee to the BNDES 402,000 402,000

1,970,696 1,970,696

(vi) The subsidiary Acerias Paz Del Ro S.A., as a result of the agreements entered into in 2003
and 2006 with creditors for the restructuring of debts, cannot pay dividends up to 2010.

16 Shareholders' Equity

(a) Capital

At December 31, 2007 and 2006, the Company's fully subscribed and paid-up capital
comprises 5,380,878,973 nominative common shares, in the amount of R$ 12,380,538.

In February 2006, a capital increase of R$ 268,328 was made by the shareholder Hejoassu
Administrao S.A., through the transfer of the following assets:


41
(i) 50 common shares issued by Votorantim Investimentos Latino-Americanos S.A., at the book
value of R$ 123,799.

(ii) 50 common shares issued by Votorantim Cimentos Amricas S.A., at the book value of
R$ 144,529.

(b) Interest on own capital

In compliance with Law no. 9249/95, the Company's management approved the payment of
interest on own capital to its shareholders, included in the minimum mandatory dividend
amount. Pursuant to tax legislation, interest on own capital at December 31, 2006 was
recorded as a financial expense. However, for the purposes of these financial statements,
interest on own capital is being presented as an appropriation of net income for the year.

(c) Dividends

Shareholders are assured of the right to receive mandatory dividends of 10% of adjusted net
income, as set forth in Article 202 of Brazilian Corporation Law.

The proposal for dividends recorded in the Company's financial statements, subject to
approval at the Shareholders' General Meeting, is as follows:

2007 2006

Appropriation to legal reserve (5%) (239,210 ) (216,899)

Minimum mandatory dividend calculation basis 4,544,983 4,121,084

Proposed dividends 1,136,245 542,242
Interest on own capital 488,028

1,136,245 1,030,270

Percentage on adjusted profit 25 25

(d) Retained earnings

The allocation of the remaining balance in "Retained earnings" will be decided on at the
Ordinary General Meeting.


42
(e) Prior-year adjustments

Prior to January 1, 2006, due to the corporate restructuring actions and acquisitions of
companies, the effects of temporary tax differences were recorded, resulting in the recognition
of deferred tax credits in the amount of R$ 904,699. At the time the tax credits were recorded,
the accounting entry, both in Votorantim Participaes S.A. and its subsidiaries, did not have
an impact on results for the year, as the increase in long-term receivables was recorded with a
corresponding entry to the retained earnings account.

The Votorantim Group adopts the practice of periodically analyzing the recoverability of its
assets, among which are the tax credits. Accordingly, the Votorantim Group decided to reverse
the aforementioned tax credits, with an impact on the corresponding accounts and original
dates of entry.

Furthermore, at December 31, 2006, the Parent Company Votorantim Participaes S.A. and
the indirectly-held subsidiary BV Financeira S.A. - CFI recorded the adjustment of the financing
portfolio to market value with a corresponding entry to the "Retained earnings" account, as set
forth in article 186 of Law no. 6404/76, in the amount of R$ 379,343, net of tax effects, as a
result of the change in the calculation methodology criterion.

17 Private Pension Plan

(a) Defined contribution

Votorantim Participaes and its subsidiaries are sponsors of private pension plans managed
by Fundao Senador Jos Ermrio de Moraes (FUNSEJEM), a private non-profit closed
pension fund, which is available to all employees of the Votorantim Group. Under the
regulations of the fund, the contributions from employees to FUNSEJEM are matched based
on their remuneration. For employees whose remuneration is lower than the limits established
by the regulations, the Company matches the contributions that represent up to 1.5% of their
monthly remuneration. For employees whose remuneration exceeds the limits, the Company
matches the contributions of employees that represent up to 6% of their monthly remuneration.
Voluntary contributions may also be made to FUNSEJEM. In 2007, the contributions made to
FUNSEJEM by Votorantim Participaes S.A. and its subsidiaries totaled R$ 20,537 (2006 -
R$ 19,636).



43
(b) Defined benefit

The status of the defined benefit plans and other medical and post-retirement plans is as
follows:

Consolidated

2007 2006

Supplementary Other post-
Pension retirement retirement
plans plans plans Total Total

Projected benefit liabilities 873,243 22,762 69,695 965,700 867,929
Plan assets (749,802) (749,802) (675,725)

Plan deficit 123,441 22,762 69,695 215,898 192,204
Actuarial adjustments not
amortized 14,601 15,491 (13,318) 16,773 (34,669)

Net liability 138,042 38,252 56,377 232,671 157,535

Current (27,323) (15,124)

Long-term 205,348 142,411


Industrial segment

2007 2006

Supplementary Other post-
Pension retirement retirement
plans plans plans Total Total

Projected benefit liabilities 362,248 22,762 69,695 454,705 411,546
Plan assets 300,292 300,292 300,699

Plan deficit 61,956 22,762 154,413 110,847
Actuarial adjustments not
amortized (20,600) 15,491 (13,318) (18,428) (71,576)

Net liability (assets) 41,357 38,252 56,377 135,986 39,271

Current (15,969) (3,770)

Long-term 120,017 35,501



44

Energy segment

Pension plans

2007 2006

Projected benefit liabilities 510,995 456,383
Plan assets 449,510 375,026

Plan deficit 61,485 81,357
Actuarial adjustments not amortized 35,200 36,907
Increase in liabilites upon the adoption of
CVM Deliberation no. 371

Net liability 96,685 118,264

Current (11,354) (11,354)

Long-term 85,331 106,910

The net liability is recorded under "Other liabilities".


Industrial segment - %

2007 2006

Pension
plans
Other post-
retirement
plans
Pension
plans
Other post-
retirement
plans

Discount rate 5.0 and 11.3 6.25 and 11.3 5.2 and 11.3 6.25 and 11.3
Expected rate of return on assets 7.0 and 11.3 11.3 7.0 and 17.1 11.3
Future salary increases 3.0 and 7.1 7.1 3.5 and 7.1 7.1
Capacity factor - health care 7.5 6.5

Energy segment - %

Pension plans

2007 2006

Discount rate 10.24 10.35
Expected rate of return on assets 13.76 13.71
Future salary increases 6.08 6.18


45
18 Insurance Coverage

Considering that their assets are widely spread and based on the results of work performed by
experts, who regard the possibility of significant losses as low, Votorantim Participaes S.A.
and its subsidiaries adopt, for most of their assets, a policy of monitoring, controlling and
periodically assessing the risks inherent to each business.

19 Derivative Financial Instruments

Votorantim Participaes S.A. and its subsidiaries carry out transactions involving derivative
financial instruments, operating in organized and over-the-counter markets, for the purpose of
managing market risk in a manner appropriate to the policy of each business unit of the group.

In the financial segment, the management of market risk is carried out in a centralized manner,
by business unit, adopting the following procedures: (a) monitoring of the alignment of
positions and risks with the limits established by the Risks Committee and legal limits;
(b) integrity of the pricing of assets and derivatives; (c) evaluation of market risk on the Value
at Risk method and by the simulation of scenarios; and (d) follow-up of the daily results with
back-tests.

The policy for the management of market risks also considers the use of derivative financial
instruments to mitigate risks on the positions, in order to meet the demand of counterparties
and as a means of reversing positions during periods of high fluctuations.

Management of operating risk is carried out by the Operating Risk, Risk Management,
Information Security and Internal Audit departments, under the supervision of the Risks
Committee.



46
Derivative financial instruments may be summarized as follows:



2007 2006 2007 2006 2007 2006 2007 2006

Assets (Note 3)
Differential receivable on swap agreements 1,882,635 1,694,192 6,497 2,384,552 2,095,080
Forward transactions 970,370 149,815 970,370 149,815
Premiums paid on options agreements 278,620 64,702 278,620 64,701

3,131,625 1,908,709 6,497 3,633,542 2,309,596

Liabilities
Differential payable on swap agreements 1,316,396 1,095,255 659,145 1,022,938 1,140,562 462,375 25,103 10,830
Forward transactions 973,799 160,978 973,799 160,978
Premiums received on options agreements 257,247 65,177 257,247 65,177
Amounts payable on BOX options 1,766,220 1,766,621
Other 1,216,472 1,216,472

3,763,914 3,087,630 659,145 1,022,938 3,588,080 2,455,151 25,103 10,830

Notional amount of the agreements
Swap 3,479,737 1,723,788 4,192,331 1,920,961
Cross currency 241,058 241,058
Futures 37,965,903 74,860 37,965,903 74,860
Options 908,241 934,938 908,241 934,938


47
20 Non-Operating Income (Expenses), Net

In 2007, non-operating income mainly refers to (a) the gain on the sale of shares of the
Futures and Commodities Exchange (BM&F) and the So Paulo Stock Exchange (BOVESPA),
in the amount of R$ 319,124 and (b) the gain on the joint-venture transaction with the Finnish
company Ahlstrom Corporation, in the amount of R$ 136,264.

In 2006, non-operating income mainly refers to (a) the gain on the sale of the subsidiary
Companhia Luz e Fora Santa Cruz, in the amount of R$ 124,765, (b) gains on tax lawsuits
totaling R$ 61,479 and (c) other capital gains on investments, in the amount of R$ 134,024.

21 Subsequent Events

(a) Acquisitions of companies

At the beginning of 2008, the Company purchased Prairie Material Sales Inc., one of the
largest manufacturers of concrete and aggregates in Midwest U.S.A, headquartered in
Chicago.

In January 2008, the Company acquired a 27% ownership interest in AcerBrag S.A., an
Argentinean long-steel company.

Also in January 2008, the Company acquired the shareholding control of the American
company U.S. Zinc Corporation, a company engaged in the recycling of industrial residues
from galvanization, the manufacturing of metallic zinc and products of a higher added value,
such as zinc oxide and zinc powder, which owns five plants in the United States and one plant
in the final stage of construction in China, whose operations will commence at the beginning of
2008.

(b) Change in Brazilian Corporation Law in 2008

Law No. 11638 was enacted on December 28, 2007, amending the Brazilian Corporation Law
in relation to certain accounting practices, bookkeeping records and the preparation of financial
statements, as from the year ending December 31, 2008.

In view of the extent and complexity of the changes introduced by the new Law, management
is analyzing its effects on the Company and its subsidiaries, while monitoring the discussions
and debates on the matter, especially by the accounting profession and the regulators, which
may provide guidance as to various aspects of the application of the Law.


48

Until there is greater clarification of the Law, especially in terms of its practical application,
including its regulation, management considers that it is not currently possible to analyze and
quantify with reasonable assurance the potential effects on the Company's financial
statements.

(c) Changes in tax legislation

Provisional Measure (MP) 413, dated January 3, 2008, addresses tax measures and increases
the Social Contribution on Net Income (CSLL) rate for financial institutions, insurance and
capitalization companies from 9% to 15% of taxable income, as from May 2008.

* * *

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Votorantim Participaes S.A.

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