Table of Contents. Mission and Corporate Profile. Shareholding Structure. Appreciation of Investments. Message to Shareholders.

Transcription

1 2013 Annual Report

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3 Table of Contents Bradespar 2013 Annual Report 3 Mission and Corporate Profile Shareholding Structure Appreciation of Investments Message to Shareholders Timeline Corporate Governance Shareholding Structure Tag Along Board of Directors Executive Officers Monitoring Bodies Economic and Financial Aspects Capital Market Liquidity Information on Investees VALE CPFL Energia Sustainability Perspectives COMPANY INFORMATION FINANCIAL STATEMENTS, INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS AND FISCAL COUNCIL S REPORT

4 Mission and Corporate Profile Mission To generate value and optimize returns for its shareholders. Corporate Profile Created in March 2000, as a result of the partial split-off of Banco Bradesco S.A., BRADESPAR s investments are concentrated at present in VALE and CPFL Energia. At the end of the year, the market value of its assets, less net debt, corresponded to some R$ 11.0 billion.

5 Shareholding Structure Bradespar 2013 Annual Report 5 Shareholding Structure in 2013 %V = % Voting Capital %T = % Total Capital 100% V/T 21.2% V 17.0% T Antares 100% V/T 100% V/T 0.0% V 0.4% T Millennium Brumado Valepar 1.7% V/T 3.6% V/T 53.9% V 33.7% T

6 Appreciation of Investments BRADESPAR has participated in the capital markets for over thirteen years and during this period has shown an average annual growth of 21.1% of the net value of its assets, while at the same time the CDI yielded 12.6% and Ibovespa rose by 8.0%. Net Market Value of Assets (R$ million) Valepar/VALE (1) 10, CPFL Energia (1)(2) Net Serviços (1) CSN (1) Scopus Tecnologia (1) Total de Ativos 11, ,400.9 Dívida Líquida (3) (787.9) (1,626.1) Valor Líquido dos Ativos 10, (1) The investments and divestments made in the investee companies are reflected in BRADESPAR s net debt. (2) Book value of VBC (controlling company of CPFL Energia) on 02/29/2000. (3) Net Debt on 02/29/2000 adjusted by: (i) capital increase of R$ 500 million in 2001 and R$ 1 billion in (ii) Interest on equity and dividends paid by BRADESPAR between May/2001 and November/2013. These values were discounted by CDI accumulated between the dates they occurred and 02/29/2000. >> Appreciation of Investments (accumulated) 2000 to 2013 (in %) +1, IBOVESPA CDI 21.1 BRADESPAR (Net Asset Value) Yearly average in the period

7 Message to Shareholders Bradespar 2013 Annual Report 7 Facing a challenging scenario presented by the international market, BRADESPAR continued strengthening its ability to create value and its commitment to seeking better results for its shareholders through its investments in VALE and CPFL Energia in Distributions of R$ million were made to shareholders during the year, equal to US$ 220 million, which was 10% more than the minimum distribution announced on February 28 th. VALE, BRADESPAR s most important investment, presented solid operating performance in 2013 despite adverse macroeconomic and sectorial conditions. However, non-recurring accounting adjustments, mostly non-cash in nature, had a negative impact on its results, and consequently, on BRADESPAR s equity pick-up. It is worth highlighting BRADESPAR s active participation on VALE s Board of Directors and Advisory Committees. Together with the other controlling shareholders of Valepar S.A., VALE s parent company, it made positive contributions toward strategic decisions aimed at cutting costs and investing with greater discipline, thereby preserving the company s cash. Regarding CPFL Energia, the Company is a leader in its sector and strategic to the development of the country. Its performance resulted in the receipt of R$ 43.0 million in dividends during the year. BRADESPAR has adopted a policy of transparency with regard to its results, and therefore, continuously seeks to improve its relationships with investors and analysts. During 2013, BRADESPAR held meetings with APIMEC (Capital Markets Association of Investment Analysts and Professionals) in São Paulo and Rio de Janeiro, and participated in events and meetings with a number of different investors and financial institutions. We would like to thank the administrators and employees of BRADESPAR for their dedication and hard work, and our investors and shareholders for their support and trust, as they are the foundations for the sustainability, growth and longevity of the business. São Paulo, SP, March 18, Lázaro de Mello Brandão Chairman of the Board of Directors

8 Timeline Treading the path of excellence 2000 March - BRADESPAR is created. August - BRADESPAR s shares begin to be traded on the stock exchange. September - Public offer to purchase shares issued by BRADESPAR by its controlling shareholders. The operation did not bring up selling offers, demonstrating the confidence of the shareholders in the Company January - BRADESPAR had a capital increase of R$ 500 million due to the entry of the Espírito Santo Group in the Company s shareholding structure and the signing of the Shareholders Agreement. March - Settlement of the unwinding of cross-shareholdings of Vale and CSN shares, allowing VALE to concentrate its strategic focus on its mining and logistics activities March - BRADESPAR s interest in Valepar increased through the acquisition of 45% of shares held by Sweet River for the amount of R$ 827 million. September - Sale of stake in Valepar to Mitsui for R$ 2.5 billion. The sale price of the shares at the time the deal was closed represented a premium of 64% over the market price of VALE s common shares March - Termination of BRADESPAR s interest in the capital of NET Serviços with the sale of the Company s shares on the Stock Exchange. September - Sale of 9.5 million shares of BRADESPAR belonging to the Espírito Santo Group with the Secondary Public Offering of shares, increasing the free float from 60.7% to 71.6%. Granting of Tag Along rights to 80% of preferred shareholders and expansion of the right to tag along to the minority shareholders from 80% to 100%. October - Announcement of minimum Dividend Policy, increasing the predictability of distributions to shareholders regarding the receipt of Dividends and Interest on Equity February - Sell of Scopus Tecnologia for R$ 37 million. August - Constitution of CPFL Energia (formerly Draft II Participações), the holding company for the energy generation, distribution, and retail businesses of the CPFL Group. December - Consolidation of the control of Valepar over VALE with a capital increase from 42% to 52% of the voting share capital of Valepar in VALE March - Purchase of shares of Valepar belonging to Opportunity in the amount of R$ million, parallel to the spin-off of Elétron 1, which created better conditions for the liquidity of BRADESPAR s interest in Valepar. September - CPFL Energia s IPO, raising more than R$ 821 million in its initial public offering of shares. This transaction allowed the partial sale of shares of CPFL Energia by VBC, a holding in which BRADESPAR held 33.3% in the secondary market. December - BRADESPAR s Public Offering of Preferred Shares, which raised funds of over R$ 1 billion and was the second largest operation on the Brazilian capital market in Elétron was a company that meant to hold shares of Valepar. 85.6% of its capital belonged to BRADESPLAN and 14.4%, to the Opportunity Group February to April - Corporate reorganization of Bradesplan with the transfer of its shares in Antares and Millennium to BRADESPAR through a spin-off and capital reduction; the remaining assets of Bradesplan since then consist of tax credits and Globopar s Euronotes. May - Sale of Bradesplan for R$ 308 million with cash payment and settlement of the bonds issued by subsidiary Millennium in the amount of US$ 50 million, zeroing the group s debt. December - Reorganization of VBC/ CPFL Energia with BRADESPAR leaving VBC, which made BRADESPAR hold directly 43,049,000 shares of CPFL Energia not linked to the Shareholders Agreement and representing 8.97% of the capital stock that can be freely traded.

9 Bradespar 2013 Annual Report January to May - Reduced costs through Administrative Restructuring, outsourcing the execution of general and administrative services, and by decreasing the number of bylaw officers to only two July - First Public Issue of Promissory Notes with funding of R$ 1.4 billion and investment of funds of R$ billion, through Valepar, in the Global Offering of VALE shares July - Settlement of the First Series of the Second Public Issue of Simple Debentures in the amount of R$ million July - Settlement of the First Series of the Third Public Issue of Simple Debentures in the amount of R$ million and placement of the Fourth Public Issue of Simple Debentures totaling R$ 350 million January - First Public Issue of Simple Debentures in the amount of R$ 610 million and Second Public Issue of Promissory Notes in the amount of R$ 690 million. May - Sale of 16,600,000 common shares of CPFL Energia for R$ million and partial settlement of First Public Issue of Simple Debentures. June - Settlement of the balance of the First Public Issue of Simple Debentures. July - Second Public Issue of Simple Debentures in the amount of R$ 800 million and Settlement of the Second Public Issue of Promissory Notes July - Settlement of the Second Series of the Second Public Issue of Simple Debentures in the amount of R$ million and placement of the Third Public Issue of Simple Debentures in the amount of R$ 800 million July - Fifth public issuance of debentures in the amount of R$ 1 billion and settlement of the second series of the third public issuance of debentures totaling R$ million and fourth public issuance of debentures totaling R$ million.

10 01 Corporate Governance

11 01 Corporate Governance Bradespar 2013 Annual Report 11 BRADESPAR maintains high standards of Corporate Governance guided by the principles of fairness, transparency and accountability. This has allowed it to build a solid reputation and is well regarded by the market for both the management of its investments and the Company itself. BRADESPAR is a member of the Level I Corporate Governance listing segment of BM&FBOVESPA Stock, Commodities and Futures Exchange, which is comprised of companies committed to strong governance practices that go beyond minimum legal requirements. This ensures an environment of greater transparency and openness with the market. Furthermore, BRADESPAR s shares are part of the Companies with Superior Corporate Governance Practices Index (IGC), having received the Quality in Corporate Governance certification. This represents another important recognition of the advances made in the Company s management practices. Among the initiatives in the area of communication, it is also worth highlighting BRADESPAR s open channel of communication with its shareholders, in addition to its release of quarterly reports, material facts, bi-weekly newsletters and the Annual Report. A complete listing of BRADESPAR s activities and the information and documents that have been released can be found on the website in both Portuguese and English. BRADESPAR manages its investments with experience and prudence to create value for its shareholders.

12 >> Shareholding Structure BRADESPAR has the same controlling shareholders as Banco Bradesco S.A., one of the largest privately owned financial conglomerates in Brazil, which include Cidade de Deus - Companhia Comercial de Participações, Nova Cidade de Deus Participações S.A, Fundação Bradesco and NCF Participações S.A. Controlling Group 77,6% of voting shares 1,4% of non-voting shares 28,1% of total shares Free Float 22,4% of voting shares 98,6% of non-voting shares 71,9% of total shares Base date: 12/31/2012 Number of shares Common 122,523,049 Preferred 227,024,896 Total 349,547,945

13 Bradespar 2013 Annual Report 13 >> Tag Along BRADESPAR grants Tag Along rights at levels higher than those set by legislation. Common shares are entitled to Tag Along rights corresponding to 100% of the amount paid to the controller in the case of transfer of control of the Company. In turn, those holding preferred shares are guaranteed to receive 80% of the amount paid per share that is part of the controlling block and receive dividends 10% higher than those received by common shares. >> Board of Directors BRADESPAR s Board of Directors is comprised of eight members, each with a one-year term and possibility for reelection, in accordance with the Bylaws. The Board is responsible for setting the strategic direction of the Company and key decisions impacting the business and risk management activities. It is also responsible for electing members of the Executive Committee and monitoring their activities. BRADESPAR s Board of Directors met 20 times during >> Monitoring Bodies Under BRADESPAR s Corporate Governance model, supervisory activities are the responsibility of the Statutory Supervisory Board and external auditor, providing greater balance and effectiveness to the management process. The Statutory Supervisory Board is non-permanent in nature and independent from management, consisting of five members and their respective alternates. It met 5 times during 2013 and focused its activities on the supervision of management s activities and accounts. The external audit is the responsibility of the Independent Auditors PricewaterhouseCoopers. >> Executive Officers Responsible for executing the strategies defined by the Board of Directors and overall management of the business, BRADESPAR s Executive Committee members are Luiz Maurício Leuzinger, Chief Executive Officer, member of Valepar s Board of Directors and alternate member for VALE, and Renato da Cruz Gomes, Executive Officer and IR Director, member of the Board of Directors of Valepar and VALE and Valepar Director.

14 02 Economic and Financial Aspects

15 Economic and 02 Financial Aspects Bradespar 2013 Annual Report 15 Below we present the Consolidated Income Statement in accordance with the accounting practices adopted in Brazil. Statement of Income (In thousands of reais) (*) Var % Equity accounting (117,182) 392,134 - Interest on redeemable shares 142, , % Dividends from investments 43,014 73, % Operating income (expenses) 68, , % Personnel expenses (6,772) (6,368) 6.3% General and administrative expenses (5,458) (6,183) -11.7% Financial income (expenses) (65,826) (61,499) 7.0% Other operating income (expenses) (36,206) (41,787) -13.4% Operating result before IR and CS (46,232) 518,266 - Income tax and social contribution (1,477) (32,200) -95.4% Result for the year (47,709) 486,066 - (*) Period adjusted based on the changes in accounting practices. >> Operating Income As an investment Company, BRADESPAR s operating income originates from equity accounting of Valepar/VALE, which includes dividends and interest on equity received, interests from the redeemable shares received from Valepar, and dividends and interest on equity received from CPFL Energia. It is worth mentioning that Vale was impacted by non-recurring accounting adjustments, mostly non-cash in nature, which had a negative impact on its results. The main adjustments related to signing up for the federal tax refinancing agreement (REFIS), asset impairment and losses from monetary and foreign exchange variation. However, the company obtained solid results in all of its businesses during the period and benefited from the cost-cutting efforts, investment discipline and focus on the core business. Excluding the non-recurring accounting impacts BRADESPAR s equity pick-up was R$ 1.4 billion, resulting in adjusted operating income of R$ 1.6 billion.

16 Including the non-recurring accounting adjustments, which did not impact the financial result, BRADESPAR registered operating income of R$ 68.0 million in 2013, consisting of the negative equity pick-up of R$ million from Valepar/VALE, R$ million in interest received on Valepar redeemable shares and R$ 43.0 million in dividends received from CPFL Energia. >> Financial Income BRADESPAR s net financial expense totaled R$ 65.8 million in 2013, primarily due to interest on debentures issued by BRADESPAR alculated based on the CDI rate. >> Payroll, General and Administrative Expenses Personnel, general and administrative expenses totaled R$ 12.2 million in 2013, down 2.6% compared to the previous year. >> Net Income for the Period BRADESPAR s adjusted net income in 2013 excluding the non-recurring accounting impacts was R$ 1.5 billion. The accounting adjustments in VALE relate to, among others, net financial expenses and tax effects related to REFIS, impairment of assets mainly related to the Rio Colorado potassium project and losses due to monetary and exchange variation. These adjustments totaled R$ 26.6 billion and negatively impacted BRADESPAR s equity pick-up by R$ 1.6 billion. Including the effect of the non-recurring accounting adjustments, which did not affect the financial result, BRADESPAR registered a loss of R$ 47.7 million for the year.

17 Bradespar 2013 Annual Report 17 >> Evolution of Results In millions of reais 26.0% 26.3% 30.9% 25.6% 31.4% 1, , % 1, % 10.4% , , % , % 16.4% % 2000* % % -9.8% Net income / Loss ROAE - % Ajusted Net Income ROAE - % -16.7% * Corresponds to 10 months of activity. N.B. ROAE = Net income / Average equity does not consider the mark-to-market (MTM) effect of available-for-sale securities recorded in equity. Adjusted net income = Net income excluding the non-cash effects of non-recurring items.

18 >> Dividends and Interest on Capital In order to increase predictability related to the receipt of dividends and/or interest on equity, BRADESPAR implemented the Indicative Minimum Annual Remuneration Policy for Shareholders. The policy is in accordance with the Bylaws that provide for a minimum distribution of 30% of adjusted net income. In accordance with the policy, on February 28, 2013, BRADESPAR announced the Executive Committee s proposal to pay the minimum required remuneration in Reais in the form of dividends and interest on equity, in the amount of US$ 200 million. Payment was divided into two tranches of US$ 100 million each, payable in May and November, On May 15, 2013, together with the 1st tranche of US$ 100 million, an additional distribution of US$ 10 million was made, resulting in a total of US$ 110 million, or R$ million. The distribution consisted of R$ million in interest on equity and R$ 90.0 million in dividends. On November 14, 2013, together with the 2nd tranche of US $ 100 million, an additional distribution of US$ 10 was made, which corresponded to a total distribution of R$ million. The distribution consisted of R$ million in interest on equity and R$ 37.8 million in dividends. In February 2014, BRADESPAR announced its minimum distribution in the total amount equivalent to US$ 250 million for the current year to be converted into Reais using the dollar selling exchange rate (Ptax-option 5) published by the Central Bank of Brazil on the business day prior to the Board of Directors meetings scheduled for April 28 and October 31, Payment Date Div./interest on equity Amount (In thousands of reais) Cash Reference Year Effect Year , (27,811) 2000 (27,811) , (80,000) ,000 (180,000) , (227,445) ,512 (212,957) , ,315 84, ,864 81, , , , ,400 52, ,000 46, ,400 77, ,000 11, , , ,000 1, , , (385,111) 2008 (383,710) 2009 (392,740) 2010 (344,330) 2011 (575,400) 2012 (627,104) 2006 (262,827) 2007 (379,996) 2008 (376,910) 2009 (322,740) 2010 (569,530) 2011 (661,870) 105, , (220,034) 90, ,000 37, , * (460,779) - Interest on equity and dividend payments totaled R$ million in 2013, equal to US$ 220 million, 10% more than the Minimum Annual Remuneration previously announced. Interest on Equity Dividends * Payment of interest on stockholders equity and dividends in the amount of R$ million, paid in 2013, was designed with a balance of Revenue Reserve - Statutory 2008.

19 Capital Market Bradespar 2013 Annual Report 19 BRADESPAR s shares are listed on BM&FBOVESPA under ticker symbols BRAP3 (Ordinary shares) and BRAP4 (Preferred shares). The preferred shares are part of the Ibovespa index, which includes the most liquid companies in the domestic market. When BRADESPAR listed on the Level I Corporate Governance segment in 2001, it also became part of the Corporate Governance Index (IGC), comprised of companies committed to adopting the highest standards of corporate governance. Furthermore, in order to expand investment alternatives, BRADESPAR s shares are also traded on Latibex Latin American Companies Segment of the Madrid Stock Exchange, Spain. These shares are traded in Euros through the Depositary Receipts Program (GDRs). >> Share performance on the BM&FBOVESPA % 10% 0% -10% -20% -30% -40% -50% Jan-4-13 Feb-3-13 Mar Apr May Jun Jul-3-13 Aug Sep Oct-1-13 Oct Nov Dec BRAP3 BRAP4 VALE3 CPFE3 IBOVESPA % -19% -11% -7% -15 Prices adjusted by remuneration, including dividends and/or interest on stockholders equity. Source: Economatica.

20 Liquidity Average daily trading volume of BRADESPAR s preferred shares ended 2013 at R$ 37.4 million, an increase of 10.3% over average daily volume in >> Evolution of average daily financial volume of traded shares R$ Million BRAP4 BRAP Source: Economatica >> Premium/Discount At the end of the year the market value of BRADESPAR s investments, without considering a control premium in relation to VALE, totaled R$ 11.8 billion, with 91.8% related to the investment in VALE and 8.2% to CPFL Energia. The value of BRADESPAR s interests compared to the market value of the investments, after deducting Net Debt of R$ million, presented a discount of 25.5%.

21 Bradespar 2013 Annual Report 21 >> Evolution of Discount between Net Asset Value and BRADESPAR Market Value 28.2% 21.4% 22.3% 25.0% 24.2% 24.6% 22.4% 24.7% 25.5% 13.7% 13.8% 16.6% Jan/13 Feb/13 Mar/13 Apr/13 May/13 Jun/13 Jul/13 Aug/13 Sep/13 Oct/13 Nov/13 Dec/13 N.B. Discount on the last business day of each month. >> BRADESPAR Net Asset Value x BRADESPAR Market Value (closing price on 12/28/2012) Companies Quote on (R$/share) Number of shares BRADESPAR STAKE % of Capital Stock Market Value (R$ thousand) Market Value (US$ thousand) Market Value ( thousand) VALE ON (1) ,380, % 10,690,881 4,563,682 3,307,924 VALE PNA (1) ,547, % 116,116 49,567 35,928 CPFL-E ON ,541, % 964, , ,537 Bradespar Asset Value (A) 11,771,840 5,025,117 3,642,389 Bradespar Net Debt (B) (2) (787,940) (336,353) (243,801) Bradespar Cash 257, ,743 79,546 Bradespar Gross Debt (1,045,024) (446,096) (323,347) Bradespar Net Asset Value (C)=(A)+(B) 10,983,900 4,688,764 3,398,588 Bradespar Market Value (D) 8,181,002 3,492,274 2,531,329 Common Shares (BRAP3) ,523,049 2,487,218 1,061, ,584 Preferred Shares (BRAP4) ,024,896 5,693,784 2,430,540 1,761,745 Difference between Net Asset Value and Bradespar Market Value (C) (D) 2,802,898 1,196, ,259 DISCOUNT (3) 25.5% (1) The number of VALE shares was calculated based on the ownership percentage held by Valepar. (2) Net Debt on 12/28/2012, and (3) ((Bradespar Market Value)/(Asset Value + Net Debt)) 1.

22 03 Information on Investees

23 Bradespar 2013 Annual Report 03 Information on Investees >> VALE VALE is the global leader in the production of iron ore and pellets, operating in more than 30 countries in the production and sale of iron ore, logistics, fertilizers, energy and steel. It is also the second largest producer of nickel in the world, an important raw material for the stainless steel and metal alloy industry used to manufacture mining and energy equipment, aircraft, automobiles and batteries, among others. In 2013, a year characterized by a challenging economic scenario, VALE exceeded expectations and ended the year having generated cash, as measured by adjusted EBITDA, in the amount of US$ 22.7 billion. This represented an increase of about 18% compared to 2012 and the third best result in VALE s history. This indicator measures earnings before interest, taxes, depreciation and amortization and eliminates non-recurring effects on cash flows. It is important to highlight that these results reflect the company s efforts to increase sales, and most importantly, a significant reduction in costs during the year. 23

24 VALE s decisions are guided by discipline in the allocation of resources, reinforcing its commitment to simplify the asset base and focus on its core business activities. Within this context, it is worth highlighting the S11D project in southeast Pará, which encompasses expansion of the iron ore mining and processing activities out of the Carajás Mining Complex. Representing the largest global project in the iron ore industry, all of the necessary licenses for the project and related logistics were obtained in VALE is listed on BM&FBOVESPA (VALE3 and VALE5), on the New York Stock Exchange (NYSE) (VALE and VALE.P), on the NYSE Euronext Paris (VALE3 and VALE5), on Latibex (XVALO and XVALP) and on the Hong Kong Stock Exchange (HKEx) (6210 and 6230). The main highlights of VALE s performance in 2013 were as follows:»» Basic earnings of R$ 26.7 billion;»» Cash flow generation of R$ 49.3 billion as measured by adjusted EBITDA, the second best result in its history;»» Record sales volume of iron ore and pellets, copper, gold and coal, and best nickel sales result since 2008;»» Record production of copper, gold, coal, phosphate rock and the highest annual level of nickel since 2008; and»» Distribution of dividends in the amount of US$ 4.5 billion.

25 Bradespar 2013 Annual Report 25 >> CPFL Energia CPFL Energia is the largest privately owned company in the Brazilian electric sector, with a history spanning over 100 years. The holding company, through its subsidiaries, generates, distributes and sells electricity in both the regulated and free markets. CPFL Energia s shares are traded on the Novo Mercado segment of BM&FBOVESPA and the New York Stock Exchange (NYSE) through Level III ADRs, demonstrating its commitment to the highest standards of corporate governance. For the 9 th consecutive year, in addition to the Novo Mercado, the Company s shares have been included in BM&FBOVESPA s Corporate Sustainability Index (ISE). The index recognizes companies that are committed to the principles of corporate sustainability, considering medium and long-term economic, social and environmental performance. CPFL Energia s ownership structure includes the BB Carteira Livre Equity Investment Fund (Previ) with a 30.0% interest, Camargo Corrêa with 24.4%, and the São Paulo Energy Participation Investment Fund (Funcesp, Petros, Sistel and Sabesprev) with 15.1%. The remaining 30.5% of shares consist of the free float of which 5.3% is held by BRADESPAR.

26 Sustainability BRADESPAR is committed to sustainable values and monitors the performance and management of the companies in which it invests in terms of sustainable performance. In doing this, it considers economic, social and environmental aspects, seeking to minimize risks and increase opportunities and business longevity. VALE s mission is to transform natural resources into prosperity and sustainable development, maintaining a commitment of investing in only world class assets with long useful lives, low costs and the ability to create value over time. CPFL Energia is a signatory to a number of different initiatives that promote corporate sustainability, including Global Compact a United Nations initiative to mobilize the business community around the adoption of sustainable practices Perspectives BRADESPAR concentrates its investments in companies from sectors recognized as strategic to the development of the country s economy. Despite the adverse macroeconomic and sectorial scenarios, VALE generated cash of US$ 22.7 billion during the year, as measured by adjusted EBITDA, the third best performance in its history. In addition, the Company s strategy has been focused on significantly reducing costs and increasing efficiency. Regarding CPFL Energia, the Company meets a demand that has been on the rise in recent years. With the creation of CPFL Renováveis in 2011, the company is well positioned in a market that faces new and growing challenges regarding the use of renewable energy. Both companies, therefore, continue to develop expansion and modernization projects, besides adapting quickly to the new world scenario, enabling BRADESPAR to keep up its pace of generating and distributing solid results.

27 COMPANY INFORMATION Publications and Information Bradespar 2013 Annual Report 27 Board of Directors Chairman Lázaro de Mello Brandão Vice-Chairman Antônio Bornia Members Mário da Silveira Teixeira Júnior João Aguiar Alvarez Denise Aguiar Alvarez Luiz Carlos Trabuco Cappi Carlos Alberto Rodrigues Guilherme Milton Matsumoto Executive Officers CEO Luiz Mauricio Leuzinger Executive Officer and Chief Investor Relations Officer Renato da Cruz Gomes Fiscal Council Ariovaldo Pereira João Batista de Moraes Marcos Antônio Martins Julio Sergio de Souza Cardozo Peter Edward C. M. Wilson BRADESPAR s Financial Statements follow international accounting standards (IFRS) implemented in Brazil by the Accounting Pronouncements Committee (CPC) and are published annually in major newspapers: Official Gazette of the State of São Paulo (Diário Oficial do Estado de São Paulo) and Valor Econômico. All relevant facts regarding BRADESPAR and its subsidiaries are disclosed to shareholders, authorities, and regulators in 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 ( Headquarters Avenida Paulista, º andar São Paulo SP Phone: Fax: bradespar@bradespar.com Shareholders Relations Banco Bradesco S.A. Departamento de Ações e Custódia Cidade de Deus, s/n Prédio Amarelo, 2º andar Vila Yara Osasco SP Phone: Fax: acecustodia@bradesco.com.br Independent Auditors PricewaterhouseCoopers Auditores Independentes

28 04 FINANCIAL STATEMENTS, Independent Auditors Report on the Consolidated Interim Financial Statements and Fiscal Council s Report

29 Bradespar 2013 Annual Report 29 >> BALANCE SHEET In thousands of reais ASSETS PARENT COMPANY CONSOLIDATED (I) (I) (I) (I) CURRENT ASSETS 848, , ,489 1,117, , ,296 Cash and cash equivalents (Note 8) Receivables from redeemable preferred shares (Note 9) 139, , , , , , , , , , , ,754 Amounts receivable (Note 19a) 332, , , , , ,559 NON-CURRENT ASSETS 9,591,618 9,574,178 9,407,464 9,741,485 10,017,110 9,932,024 Long-term receivables 161, , ,969 1,434,623 2,053,359 2,427,560 Financial assets available for sale (Note 17a) Receivables from redeemable preferred shares (Note 9) Taxes recoverable or available for offset (Note 14) ,843 1,081,595 1,315, , , , , , , ,288 98, , , ,305 Judicial deposits (Note 12b) 22,664 21, ,664 21, Investments (Note 10) 9,429,844 9,050,464 8,748,458 8,306,835 7,963,719 7,504,427 Property and equipment TOTAL 10,439,983 10,442,341 10,112,953 10,858,768 10,900,714 10,662,320 (I) Year adjusted as described in Note 6. The accompanying notes are an integral part of these financial statements.

30 >> BALANCE SHEET In thousands of reais LIABILITIES AND EQUITY PARENT COMPANY CONSOLIDATED (I) (I) (I) (I) CURRENT LIABILITIES 32,408 1,011, ,737 33,460 1,012, ,286 Taxes and contributions payable Interest on stockholders' equity and dividends (Note 13c) Debentures payable (Note 11) 73 28,389 13,171 1,125 29,334 25,720 4,623 4, ,783 4,623 4, , , , , ,882 Other liabilities (Note 19b) 27,712 26,713 26,901 27,712 26,713 26,901 NON-CURRENT LIABILITIES 1,373, , ,669 1,791, ,396 1,291,487 Debentures payable (Note 11) Provision for income tax and social contribution Provisions and legal obligations (Note 12) 1,045, ,036 1,045, , , , , , , , , , ,633 CONTROLLING INTEREST EQUITY 9,034,225 9,156,234 8,597,547 9,034,225 9,156,234 8,597,547 Paid-up capital (Note 13a) 4,100,000 3,900,000 3,220,000 4,100,000 3,900,000 3,220,000 Revenue reserves 3,437,804 4,145,248 4,568,545 3,437,804 4,145,248 4,568,545 Carrying value adjustments 1,496,421 1,109, ,287 1,496,421 1,109, ,287 Retained earnings/ accumulated deficit - 1,044 (8,285) - 1,044 (8,285) TOTAL 10,439,983 10,442,341 10,112,953 10,858,768 10,900,714 10,662,320 (I) Year adjusted as described in Note 6. The accompanying notes are an integral part of these financial statements.

31 Bradespar 2013 Annual Report 31 >> STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 In thousands of reais PARENT COMPANY CONSOLIDATED (I) (I) OPERATING INCOME (EXPENSES) 23, ,714 19, ,765 Equity in the results of investees (Note 10) (2,774) 536,959 (117,182) 392,134 Interest on redeemable preferred shares (Note 9) 74, , , ,504 Dividends from investments (Note 19c) ,014 73,465 General and administrative expenses (Note 19d) (12,061) (12,418) (12,230) (12,551) Other operating income (expenses) (Note 19e) (36,206) (41,787) (36,206) (41,787) RESULT BEFORE FINANCIAL INCOME AND EXPENSES AND TAXES 23, ,714 19, ,765 Financial income (Note 15) 27,123 23,735 32,183 29,537 Financial expenses (Note 15) (97,906) (90,825) (98,009) (91,036) INCOME BEFORE TAXES ON INCOME (47,691) 516,624 (46,232) 518,266 Income tax and social contribution (Note 14) (18) (30,558) (1,477) (32,200) NET INCOME/LOSS FOR THE YEAR (47,709) 486,066 (47,709) 486,066 Basic and diluted earnings per share based on weighted average number of shares attributable to stockholders (expressed in reais per share): Earnings per common share (0.13) 1.31 Earnings per preferred share (0.14) 1.44 (I) Year adjusted as described in Note 6. The accompanying notes are an integral part of these financial statements.

32 >> STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31 In thousands of reais PARENT COMPANY AND CONSOLIDATED (I) NET INCOME/LOSS FOR THE YEAR (47,709) 486,066 OTHER COMPREHENSIVE INCOME 386, ,655 Financial assets available for sale (77,057) (154,111) Effects of jointly controlled entity 463, ,766 COMPREHENSIVE INCOME FOR THE YEAR 338, ,721 (I) Year adjusted as described in Note 6. The accompanying notes are an integral part of these financial statements.

33 Bradespar 2013 Annual Report 33 >> STATEMENT OF CHANGES IN EQUITY In thousands of reais EVENTS PAID-UP CAPITAL REVENUE RESERVES LEGAL STATUTORY OTHER COMPREHEN- SIVE INCOME RETAINED EARNINGS (ACCUMULATED DEFICIT) EQUITY AT DECEMBER 31, 2011 (1) 3,220, ,045 4,137, ,287 (8,285) 8,597,547 Net income for the year , ,066 Financial assets available for sale Effects of jointly controlled entity (154,111) - (154,111) , ,766 Comprehensive income ,721 Capital increase through reserves 680,000 - (680,000) Appropriations: - Reserves - Interest on stockholders' equity paid - 23, ,866 - (256,703) (220,034) (220,034) AT DECEMBER 31, 2012 (1) 3,900, ,882 3,690,366 1,109,942 1,044 9,156,234 Loss for the year (47,709) (47,709) Financial assets available for sale Effects of jointly controlled entity (77,057) - (77,057) , ,536 Comprehensive income ,770 Capital increase through reserves Absorption of accumulated deficit 200,000 (200,000) (46,665) - 46,665 - Appropriations: - Interest on stockholders' equity/ dividends paid - - (460,779) - - (460,779) AT DECEMBER 31, ,100, ,882 3,182,922 1,496,421-9,034,225 (I) Year adjusted as described in Note 6. The accompanying notes are an integral part of these financial statements.

34 >> STATEMENT OF INDIRECT CASH FLOWS AT DECEMBER 31 In thousands of reais PARENT COMPANY CONSOLIDATED Cash flows from operating activities Net income (loss) before income tax and social contribution Adjustments to net income (loss) before taxes: (i) (i) (47,691) 516,624 (46,232) 518,266 Equity in the results of investees 2,774 (536,959) 117,182 (392,134) Interest on redeemable preferred shares (9,201) (13,688) (20,222) (24,444) Income from dividends - - (43,014) (73,465) Interest and monetary and exchange variations, net 54,160 68,937 53,949 68,811 Legal obligations 36,041 44,865 36,041 44,865 Other 2,233 1,216 2,234 1,216 Adjusted result 38,316 80,995 99, ,115 (Increase) in other assets (68,368) (111,127) (125,960) (169,032) Increase in other liabilities 33,220 11,398 33,220 11,398 Interest on stockholders' equity and dividends received 104, , , ,417 Redeemable preferred shares 192, , , ,824 Income tax and social contribution paid - - (443) (6,590) Net cash provided by operating activities 300, , , ,132 Cash flows from financing activities Issue of debentures, net 999, , , ,938 Settlement of debentures (986,873) (322,066) (986,873) (322,066) Interest on stockholders equity and dividends paid (423,180) (594,782) (423,180) (594,782) Net cash used in financing activities (410,256) (566,910) (410,256) (566,910) Increase (decrease) in cash and cash equivalents (109,926) (944) 4,473 (9,778) Cash and cash equivalents - at the beginning of the year 249, , , ,983 Cash and cash equivalents - at the end of the year 139, , , ,205 Increase (decrease) in cash and cash equivalents (109,926) (944) 4,473 (9,778) (I) Year adjusted as described in Note 6. The accompanying notes are an integral part of these financial statements.

35 Bradespar 2013 Annual Report 35 >> STATEMENT OF VALUE ADDED AT DECEMBER 31 In thousands of reais CONTROLADORA CONSOLIDADO (i) (i) GOODS AND SERVICES ACQUIRED FROM THIRD PARTIES (5,139) (2,214) (5,221) (2,262) Third-party services (3,968) (492) (4,036) (540) Other (1,171) (1,722) (1,185) (1,722) VALUE ADDED (5,139) (2,214) (5,221) (2,262) VALUE ADDED TRANSFERRED FROM OTHERS 98, , , ,640 Equity in the results of investees (2,774) 536,959 (117,182) 392,134 Interest on redeemable preferred shares 74, , , ,504 Dividends from investments ,014 73,465 Financial income 27,123 23,735 32,183 29,537 TOTAL VALUE ADDED TO BE DISTRIBUTED 93, ,440 94, ,378 DISTRIBUTION OF TOTAL VALUE ADDED 93, ,440 94, ,378 Personnel 5,772 5,717 5,772 5,717 Taxes, charges and contributions 37,278 76,742 38,824 78,468 Remuneration of third-party capital 98,002 90,915 98,105 91,127 Remuneration of own capital (47,709) 486,066 (47,709) 486,066 Interest on stockholders' equity and dividends paid 460, , , ,034 Retained earnings (loss) for the year (508,488) 266,032 (508,488) 266,032 (I) Year adjusted as described in Note 6. The accompanying notes are an integral part of these financial statements.

36 Notes to the Financial Statements (In thousands of reais, unless otherwise stated) 1. Operations The main activity of BRADESPAR S.A. (BRADESPAR, the Company or Parent Company), a publicly traded corporation headquartered at 9 th Floor, 1450, Avenida Paulista, São Paulo, State of São Paulo, Brazil, is to invest in other companies as a partner or stockholder. The main direct and indirect investments are held in the following companies: a) Antares Holdings Ltda. (ANTARES) The main activity of this company is to manage, lease, purchase and sell its own assets and to invest in other companies as a quotaholder or shareholder. b) Brumado Holdings Ltda. (BRUMADO) The main activity of this company is to invest in other companies as a partner or shareholder. c) Millennium Security Holdings Corp. (MILLENNIUM) The main activity of this company is to participate in any acts or activities which are not prohibited by the legislation effective in the British Virgin Islands. d) Valepar S.A. (VALEPAR) The main activity of VALEPAR, a privately held corporation, is to invest exclusively as a stockholder in the capital of Vale S.A. (VALE). e) Vale S.A. (VALE) VALE is a publicly traded corporation principally engaged in the research, production and marketing of iron ore and pellets, nickel, fertilizers, copper, coal, manganese, iron alloys, cobalt, platinum group metals and other precious metals. The Company also acts in the energy and steel manufacturing industries. 2. Financial Statement Presentation We present the financial statements of BRADESPAR (Parent company) and of the Consolidated company, which includes BRADESPAR, ANTARES, BRUMADO and MILLENNIUM at December 31, 2013 and The consolidated financial statements were prepared and are presented in accordance with international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB), implemented in Brazil through the Brazilian Accounting Pronouncements Committee (CPC), as well as the related technical pronouncements (CPCs), interpretations (ICPCs) and guidelines (OCPCs) approved by the Brazilian Securities Commission (CVM). The parent company financial statements were prepared in accordance with the accounting practices adopted in Brazil issued by CPC and are published in conjunction with the consolidated financial statements. The accounting practices adopted in Brazil applied to the parent company financial statements differ from the IFRS applicable to separate financial statements only in relation to the measurement of investments in subsidiaries, associates and jointly controlled investments, which is based on equity accounting, while IFRS would require measurement based on cost or fair value. The accounting estimates used for preparing the financial statements related to deferred tax assets and liabilities, provisions and contingent liabilities consider

37 Bradespar 2013 Annual Report 37 the most appropriate available evidence and are based on assumptions existing at the year-end closing dates. Actual results, after realization, could differ from the estimated amounts. BRADESPAR evaluated the subsequent events up to March 19, 2014, which is the date on which the financial statements were authorized for issue. 3. Significant Accounting Practices a) Consolidation principles The consolidated financial statements reflect the balances and transactions of the parent company and its direct and indirect subsidiaries. The investment in the jointly controlled investment is recorded based on the equity method of accounting. The accounting practices of the subsidiaries are adjusted to ensure that they are consistent with the policies adopted by the parent company. Transactions between the consolidated companies and the related balances and unrealized gains and losses are eliminated. The consolidated financial statements of BRADESPAR include the following direct and indirect subsidiaries: At December 31 Companies BRADESPAR s direct and indirect percentage ownership ANTARES BRUMADO MILLENNIUM

38 b) Segment reporting BRADESPAR is a holding company and its main activity is to invest as a partner or stockholder in other companies and, accordingly, it does not present its information by segment. c) Functional currency and reporting currency The financial statements are presented in reais which is BRADESPAR s functional currency. d) Cash and cash equivalents Cash and cash equivalents are used by the Company to manage its short-term commitments and comprise cash in local currency and investments in investment funds with maturities at the original investment dates equal to or less than 90 days and which present an immaterial risk of change in fair value and are readily convertible into cash. The market value of the investment funds is determined based on the price of the quota on the last day of the reporting period, as disclosed by the fund administrator. The analysis of the available funds and investments recorded in cash and cash equivalents is presented in Note 8. e) Financial assets The Company classifies its financial assets in accordance with the purpose for which they were purchased and determines their classification at initial recognition into the following categories: Loans and receivables these are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The principal and interest of the redeemable preferred shares of VALEPAR are classified in this category. The analysis of receivables from redeemable shares is presented in Note 9; Available-for-sale these are non-derivative assets that are initially recognized at cost of acquisition, which is the fair value of the price paid, including transaction costs. Subsequent to initial recognition, they are re-measured at fair value based on their market value at the balance sheet date, as a counter entry to equity, less tax effects. When these securities are sold or become impaired, the accumulated fair value adjustments, recorded in equity, are recognized in the income statement as financial income or expense, at the time of the sale, or in other expenses at the time of the impairment. The shares of CPFL Energia S.A. (CPFL Energia) are classified in this category and the dividends to which they are entitled are recorded as Operating income. f) Investments Investments in subsidiaries and jointly controlled investments are accounted for under the equity method and, where applicable, net of the provision for impairment. The analysis of these investments is presented in Note 10. g) Impairment of financial assets I) Assets measured at amortized cost At each balance sheet date, the Company assesses whether there is any objective evidence of the impairment of its financial assets. Any loss identified is recognized in the results for the period when the carrying amount of the financial asset exceeds its recoverable amount. The criteria used by the Company to determine whether there is objective evidence of loss or impairment include the following: Significant financial difficulty of the issuer or borrower

39 Bradespar 2013 Annual Report 39 Breach of contract, such as default or arrears in the payment of interest or principal A probable situation in which the borrower declares bankruptcy or other financial rearrangement The disappearance of an active market for the related financial asset as a result of financial difficulties Observable data indicating that there has been measurable decrease in the estimated future cash flows, based on a portfolio of financial assets from the initial recognition of those assets, even though this decrease cannot be identified in the portfolio s individual financial assets, including: adverse changes in the borrower s payment status in the portfolio and in national or local economic conditions which are correlated with defaults in the portfolio assets. The amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows (excluding future credit losses which have not been incurred), discounted at the financial assets original effective interest rate. The asset s carrying amount is decreased and the amount of the loss is recognized in the statement of income. If, in a future period, the amount of the impairment loss is decreased and this decrease can be related objectively to an event which occurred subsequent to the date on which the impairment was recognized (such as an improvement in the borrower s credit rating), the previously recognized impairment loss should be reversed, and the amount of the reversal recognized in the statement of income. II) Assets classified as available for sale At each balance sheet date, the Company assesses whether there is any objective evidence of the impairment of its financial assets. In the case of investments classified as available for sale, a significant or prolonged decrease in the fair value of the security to below its cost also serves as evidence that the assets are impaired. If this type of evidence exists in the case of available-for-sale financial assets, the cumulative loss, which is measured as the difference between the purchase cost and the current fair value, less any impairment loss in the financial asset previously recognized in results, is eliminated from equity and recognized in the statement of income. Impairment losses recognized in the statement of income are not reversed. There were no impairment losses for the years ended December 31, 2013 and h) Financial liabilities These are stated at known or estimated amounts including the related charges and monetary and exchange variations (on a daily pro rata basis), where applicable. The Company classifies its financial liabilities in the following categories: At amortized cost these are the financial liabilities which are not measured at fair value through profit or loss. Initially they are recognized at their fair value and, subsequently, they are remeasured at amortized cost. At fair value through profit or loss designated at initial recognition these are recorded and measured at fair value and the corresponding changes in fair value recognized immediately in the income statement. In the Company the variation in the fair value of the financial liabilities through profit and loss is due only to the change in market risk based on interest rate variations, and is not attributable to credit risk. Debentures issued by the Company are classified in this category. The analysis of the debentures is presented in Note 11.

40 i) Provisions, contingent assets and liabilities and legal obligations The recognition, measurement, and disclosure of the provisions, contingent assets and liabilities and legal obligations are based on the criteria defined by CPC 25, approved by CVM Decision 594/09, as follows: Contingent assets: these are not recorded except when management has full control of the situation or when there are real guarantees or favorable unappealable court sentences, characterizing an almost certain gain and through confirmation of recoverability through receipt or offset against another liability. When a successful outcome is deemed probable, the contingent assets are disclosed in the notes to the financial statements. Provisions: these are recorded taking into consideration the opinion of the legal advisors, the nature of the lawsuits, similarity with prior lawsuits, complexity and the Court s position, whenever the loss is evaluated as probable, resulting in the likely outflow of funds to settle the obligations and when the amounts involved can be reliably estimated. Contingent liabilities: pursuant to CPC 25, the term contingent is used for liabilities which are not recognized, since their existence will only be confirmed upon the occurrence of one or more future and uncertain events which cannot be fully controlled by Management. Contingent liabilities do not meet the criteria for recognition since they are considered as a possible loss and are only disclosed in the notes to the financial statements when individually significant. Those classified as a remote loss require neither provision nor disclosure. Legal obligations Provision for tax risks: these arise from lawsuits contesting the legality or constitutionality of the tax liabilities and which, regardless of the evaluation of their probability of success, are recorded as a provision in the financial statements at the full amounts in dispute. The details on the legal proceedings, as well as the activity of the amounts recorded, are presented in Note 12. j) Pension plan obligations The Company sponsors a supplementary pension plan of the defined contribution type for its board members. Under this plan, the Company pays fixed contributions into an open private pension fund and has no legal or constructive obligations to make further payments if the fund does not have sufficient assets to pay all of the employees entitlements to receive benefits related to management services provided during present and prior periods. BRADESPAR contributes on a voluntary basis to the defined contribution plan and has no further obligation to make payments after the contribution has been made. The contributions are recorded monthly as an expense for employee benefits. For 2013, the Company made these voluntary contributions up to April k) Income tax (IR) and social contribution (CSLL) Deferred tax assets are recorded at their probable realizable amounts and comprise income tax and social contribution benefits related to tax losses and temporary differences and are recognized, where applicable, in current and non-current assets - long-term receivables.

41 Bradespar 2013 Annual Report 41 The provision for federal income tax is calculated at the standard rate of 15% of taxable income, plus a 10% surcharge, where applicable. The provision for social contribution is recorded on taxable profit at the rate of 9% of pre-tax income. Provisions for other taxes and social contributions were recorded pursuant to the specific applicable legislation. l) Determination of the results of operations Results are determined on the accrual basis of accounting, which establishes that income and expenses should be included in the determination of results for the periods in which they occur, always simultaneously when they are correlated, irrespective of receipt or payment. In transactions for obtaining funds through the issue of securities, the related expenses are recorded as a discount to the corresponding liability account and appropriated to results over the term of the transaction. m) Earnings per share Basic earnings per share are calculated by dividing the amount of the income attributable to the Company s stockholders by the weighted average number of outstanding shares (total number of shares less treasury shares). There are no profit dilution factors. 4. Critical Accounting Estimates and Judgments The presentation of financial statements, in accordance with the principles of recognition and measurement based on the accounting standards issued by CPC and IASB, requires Company Management to make judgments, estimates and assumptions that may affect the amounts of the assets and liabilities presented. These estimates are based on management s best current knowledge for each period and on the actions plans to be implemented and are constantly reviewed based on available information. Changes in facts and circumstances could lead to a review of the estimates and accordingly actual future results could differ from these estimates.

42 We present below the significant estimates and assumptions used by Company Management: Classification and measurement of financial assets The classification of financial assets is based on management s intention, on the date of their acquisition, to hold or trade these securities. The accounting treatment of the securities depends on how they are classified by the Company. Fair value is estimated using quoted market prices, where available. The amount may be affected by the volume of shares traded and, moreover, may not reflect the control premium arising from the shareholder agreements. Nevertheless, Management considers that prices quoted in the market are the most appropriate fair value indicators. In determining fair value when there are no market price quotations available, management uses its own judgment, since the models depend on how the different factors are weighted and the quality of the information received. This judgment should also establish whether a decrease in fair value to below the adjusted cost of an available-for-sale security is temporary or not, so that a devaluation in the adjusted cost can be recognized and the decrease can be reflected as an expense. Upon analysis, if a devaluation is deemed not to be temporary, Management decides which historical period should be considered and how severe a loss should be recognized. These evaluation methods may produce different results, if the assumptions and estimates used are not subsequently confirmed. Provisions and contingent liabilities Accounting provisions are recorded taking into consideration the opinion of the legal advisors, the nature of the lawsuits, similarity with prior lawsuits, complexity and the Court s position, whenever a loss is deemed probable, resulting in a probable outflow of funds to settle the obligations and when the amounts involved can be reliably estimated. The contingent liabilities classified as a possible loss are not recorded and are only required to be disclosed in the financial statements when individually significant, while those classified as remote require neither provision nor disclosure.

43 Bradespar 2013 Annual Report 43 The legal proceedings are permanently monitored to evaluate, among other factors: (i) their nature and complexity; (ii) the development of the proceedings; (iii) the opinion of the legal advisors and (iv) the Company s experience in similar lawsuits. For the purpose of determining whether a loss is probable and in estimating its amount, the following are also taken into consideration: the probability of loss arising from lawsuits which were filed prior to, or on the balance sheet date, but which were identified by the Company subsequent to the reporting date of these statements but prior to their publication; the need to disclose processes filed or events which occurred subsequent to the date of the financial statements, but prior to their publication. 5. Accounting Pronouncements The Company prepared its consolidated financial statements pursuant to the standards that have been issued by CPC and ratified by CVM. The Company will not be an early adopter of the standards which have been set by IASB, but not yet issued by CPC and accordingly not ratified by CVM. a) New accounting standards applicable to financial statements for the year ended December 31, 2013: CPC 18 (R1) - Investments in associated and subsidiary companies and jointly controlled investments CPC 19 (R2) Joint ventures CPC 26 (R1) Presentation of financial statements CPC 33 (R1) Employee benefits CPC 36 (R2) - Consolidated financial statements CPC 40 (R1) Financial instruments: disclosure CPC 45 Disclosure of investments in other entities CPC 46 - Fair value measurement. The new standards, interpretations or guidelines issued and/or amended by CPC, which came into effect in 2013 had no impact on the Company s financial statements, except CPC 33 (R1) Employee benefits, adopted retrospectively by the indirect investee VALE. The effects of this adoption are presented in Note 6. b) We present below the standards and interpretations issued and/or amended by IASB but not yet ratified by CVM, and consequently, not adopted by the Company, which is currently analyzing their potential impact on its financial statements: IFRS 9 - Financial Instruments: The main change is that, in cases where the fair value option is used for financial liabilities, the amount of the change in fair value resulting from an entity s own credit risk is recorded in other comprehensive income and not in the income statement, except in specific situations established by the standard. The standard is applicable as from January 1, IAS 19 - Employee benefits: In November 2013, IASB issued an amendment which was designed to simplify the accounting treatment of contributions made by employees and third parties, under defined benefit plans. The adoption of this amendment will become effective as from July IAS 39 - Financial Instruments: Recognition and Measurement. The main change is that hedge accounting does not cease when a hedging derivative, as determined by legislation or specific regulation, is discontinued and novated. The adoption of the amendment is applicable from January 1, IAS 36 - Impairment of Assets, which clarifies matters regarding recoverable amount disclosures for non-financial assets. The adoption of the amendment is applicable from January 1, IFRIC 21 - Levies, addresses the recognition of a liability for a levy imposed by a government agency. The standard is applicable from January 1, 2014.

44 6. Changes in Accounting Practices On January 1, 2013, the indirect investee VALE adopted the revised standard IAS 19 Employee benefits, correlated to CPC 33 (R1) Employee benefits. The statement of the effects of these adjustments on BRADESPAR for the comparative periods is presented below: Balance sheet Originally disclosed balance Parent company Effect of changes Balance considering changes introduced by CPC 33 (R1) Originally disclosed balance Consolidated Effect of changes December 31, 2012 Balance considering changes introduced by CPC 33 (R1) Total assets 10,602,452 (160,111) 10,442,341 11,060,825 (160,111) 10,900,714 Total non-current assets 9,734,289 (160,111) 9,574,178 10,177,221 (160,111) 10,017,110 Investments 9,210,575 (160,111) 9,050,464 8,123,830 (160,111) 7,963,719 Total liabilities and equity 10,602,452 (160,111) 10,442,341 11,060,825 (160,111) 10,900,714 Total equity 9,316,345 (160,111) 9,156,234 9,316,345 (160,111) 9,156,234 Retained earnings - 1,044 1,044-1,044 1,044 Carrying value adjustments 1,271,097 (161,155) 1,109,942 1,271,097 (161,155) 1,109,942 Balance sheet Originally disclosed balance Parent company Effect of changes Balance considering changes introduced by CPC 33 (R1) Originally disclosed balance Consolidated Effect of changes January 1, 2012 Balance considering changes introduced by CPC 33 (R1) Total assets 10,190,059 (77,106) 10,112,953 10,739,426 (77,106) 10,662,320 Total non-current assets 9,484,570 (77,106) 9,407,464 10,009,130 (77,106) 9,932,024 Investments 8,825,564 (77,106) 8,748,458 7,581,533 (77,106) 7,504,427 Total liabilities and equity 10,190,059 (77,106) 10,112,953 10,739,426 (77,106) 10,662,320 Total equity 8,674,653 (77,106) 8,597,547 8,674,653 (77,106) 8,597,547 Retained earnings - (8,285) (8,285) - (8,285) (8,285) Carrying value adjustments 886,108 (68,821) 817, ,108 (68,821) 817,287

45 Bradespar 2013 Annual Report 45 Statement of income Originally disclosed balance Parent company Effect of changes Balance considering changes introduced by CPC 33 (R1) Originally disclosed balance Consolidated Effect of changes Accumulated 2012 Balance considering changes introduced by CPC 33 (R1) Operating income (expenses) 574,385 9, , ,436 9, ,765 Equity in the results of investees 527,630 9, , ,805 9, ,134 Net income for the year 476,737 9, , ,737 9, ,066 Other comprehensive income 384,989 (92,334) 292, ,989 (92,334) 292,655 Effects of jointly controlled investment 539,100 (92,334) 446, ,100 (92,334) 446,766 Comprehensive income for the year 861,726 (83,005) 778, ,726 (83,005) 778,721 Statement of income Originally disclosed balance Parent company Effect of changes Balance considering changes introduced by CPC 33 (R1) Originally disclosed balance Consolidated Effect of changes Accumulated 2011 Balance considering changes introduced by CPC 33 (R1) Operating income (expenses) 2,157, ,158,353 2,167, ,168,422 Equity in the results of investees 2,071, ,072,576 1,947, ,948,051 Net income for the year 2,023, ,024,274 2,023, ,024,274 Other comprehensive income 534,897 (34,141) 500, ,897 (34,141) 500,756 Effects of jointly controlled investment 354,099 (34,141) 319, ,099 (34,141) 319,958 Comprehensive income for the year 2,558,449 (33,419) 2,525,030 2,558,449 (33,419) 2,525,030

46 7. Risk Management The Company considers that risk management is essential for strategic planning and financial flexibility. Accordingly, its risk management strategy has been developed to provide an integrated view of the risks to which it is exposed. BRADESPAR is a holding company in which income originates mainly from equity in the results of its subsidiaries and jointly controlled investments. Accordingly, the Company is subject, principally, to the impact of the variable rates negotiated in the financial market on the results of the business (market risk), the risk arising from the obligations assumed by third parties with the Company (credit risk), those inherent to internal processes (operational risk) and those arising from economic factors (liquidity risk). Liquidity risk management The liquidity risk arises from the possibility that the Company may not be able to settle its contractual obligations on the established due dates, or may face difficulties in meeting its cash flow requirements given the market s liquidity constraints. To mitigate this risk, the Company s receivables from redeemable preferred shares have scaled maturity dates to ensure that the liabilities assumed with third parties are settled on a timely basis. Moreover, these shares comprise the guarantees offered on issuance of the debentures by the Company. Credit risk management Credit risk arises from potential negative effects on the Company s cash flows as a result of uncertainty in the ability of counterparties to meet their contractual obligations. Accordingly, credit risk arises mainly from cash and cash equivalents and from credit exposure to outstanding accounts receivable. The Company considers that the credit risk exposure originating from the financial investments classified as cash and cash equivalents is low, since the amounts invested are not significant and dividends and/or interest on stockholders equity are regularly distributed to shareholders during the year, and the interest and/or principal of the debentures issued is settled on a timely basis. Exposure to counterparties The Company mainly uses a qualitative risk analysis which takes into consideration the payment history of the counterparties, their commercial relationship with BRADESPAR and their strategic position in the corresponding economic sector. VALE s parent company VALEPAR is the Company s main investee and provides its most important cash flow. Depending on the specific counterparty, the Company uses its corporate guarantee strategy to mitigate credit risk. The Company controls its receivables to ensure that there are no principal or interest amounts pending settlement by the counterparties. Market risk The Company is exposed to the behavior of a number of market risk factors that could affect its cash flows, such as the risk of changes in the price of shares, arising from investments maintained as available for sale and interest rate risk arising from debentures issued at floating rates. This potential impact is evaluated periodically to provide

47 Bradespar 2013 Annual Report 47 support in the decision making process and the Company s growth strategy and to monitor the volatility of future cash flows. Operational risk Operational risk management is the structured approach used by BRADESPAR to manage uncertainty related to the possible inadequacy or weakness of internal processes, people, systems and external events. New controls are created and existing ones are improved to mitigate the operational risk. 8. Cash and Cash Equivalents At December 31 Parent company Consolidated Cash in local currency Financial investment funds 139, , , ,318 TOTAL 139, , , ,205

48 9. Receivables from Redeemable Preferred Shares In 2008, BRADESPAR subscribed to 23,724,193 redeemable class C preferred shares of VALEPAR, with the following characteristics: a) They are not entitled to vote at VALEPAR s general meetings except when permitted by law. b) They are entitled to a cumulative fixed dividend to be paid semiannually from 2009, at a fixed rate of 16% p.a. c) They are redeemable semiannually between May 2011 and November d) They are not convertible into any other type or class of VALEPAR shares. In 2009, BRADESPAR sold 7,587,000 redeemable class C preferred shares to its indirect subsidiary BRUMADO, and retains 16,137,193 shares. In 2013, BRADESPAR received the amount of R$ 192,656 from VALEPAR, related to the redemption of 3,321,672 preferred shares. At December 31, 2013, 13,921,119 redeemable class C preferred shares were held by BRADESPAR and its indirect subsidiary BRUMADO corresponding to R$ 807,338 (December 31, R$ 999,995), of which the amount of R$ 507,196 (December 31, 2012 R$ 192,657) is recorded in current assets and R$ 300,142 (December 31, 2012 R$ 807,338) in non-current assets. At December 31, 2013, the adjusted interest receivable on redeemable preferred shares of BRADESPAR and its indirect subsidiary BRUMADO amounted to R$ 20,222 (December 31, 2012 R$ 24,444).

49 Bradespar 2013 Annual Report Investments a) The adjustments arising from investments accounted for on the equity method were recorded in Equity in the results of investees and corresponded, in the Parent company, for the year ended December 31, 2013, to losses of R$ 2,774 (2012 earnings of R$ 536,959) and in the Consolidated Company for the year ended December 31, 2013 to losses of R$ 117,182 (2012 earnings of R$ 392,134). b) We present below the parent company s direct investments, accounted for on the equity method: Companies Capital Adjusted equity Adjusted result Number of Common (ON) shares held (thousand) Number of quotas held (thousand) Percentage capital ownership Total investments Equity accounting adjustment (1) ANTARES (3) 322,700 1,123, , , ,123,009 1,086,745 1,244, , ,825 VALEPAR (2)(3) 10,078,589 47,625,473 (671,838) 275, ,306,835 7,963,719 7,504,427 (117,182) 392,134 Total 9,429,844 9,050,464 8,748,458 (2,774) 536,959 (1) Considers results determined by the companies and includes equity variations in the investees not derived from results, as well as adjustments arising from the equalization of accounting practices, where applicable. (2) Jointly controlled investment (3) Company whose information for the year ended December 31, 2013 was reviewed by the same independent auditor as BRADESPAR. c) Analysis of the Consolidated investments: Company Total investments Equity accounting adjustment (1) VALEPAR 7,398,935 7,519,355 7,506,829 (117,182) 392,134 - VALEPAR - adjusted effect (2) 907, ,364 (2,402) - - Total 8,306,835 7,963,719 7,504,427 (117,182) 392,134 (1) Considers results determined by the companies and includes equity variations in the investees not derived from results, as well as adjustments arising from the equalization of accounting practices, where applicable. (2) Carrying value adjustments, pursuant to Law 11638/07 and CPC Standards 2 and 8, which are recorded as a contra-entry to equity.

50 11. Debentures Payable In 2011, BRADESPAR conducted the third public issue of 80,000 non-convertible debentures, with a unit par value of R$ 10, (ten thousand reais), totaling R$ 800,000, in two series: (i) 29,000 debentures were allocated to the first series maturing in 366 days from the date of issue, with interest corresponding to 103.8% of the accumulated variations in the daily average one day over extra group DI (Interbank Deposit) rates, calculated and disclosed by CETIP, on a 252 business-day basis, expressed as an annual percentage ( DI rate ), payable on the unit par value of the debentures, and which were settled together with the principal on July 4, 2012 in the amount of R$ 322,066 and (ii) 51,000 debentures were allocated to the second series, maturing in 731 days from the date of issue with interest corresponding to 105.5% of the accumulated variations in the daily average one day over extra group DI (Interbank Deposit) rates, calculated and disclosed by CETIP, on a 252 businessday basis, expressed as an annual percentage ( DI rate ), payable on the unit par value of the debentures, and which were settled together with the principal on July 4, 2013 in the amount of R$ 610,679. In 2012, BRADESPAR conducted the fourth public issue of 35,000 non-convertible debentures, with a unit par value of R$ 10, (ten thousand reais), totaling R$ 350,000, maturing in 365 days from the date of issue, with interest corresponding to % of the accumulated variations in the daily average one day over extra group DI (Interbank deposit) rates, calculated and disclosed by CETIP, on a 252-business day basis, expressed as an annual percentage ( DI rate ), payable on the unit par value of the debentures, and which were settled together with the principal on July 4, 2013, in the amount of R$ 376,194. In 2013, BRADESPAR conducted the fifth public issue of 100,000 non-convertible debentures, with a unit par value of R$ 10, (ten thousand reais), totaling R$ 1,000,000, maturing in 732 days from the date of issue, i.e. July 6, The debentures will be entitled to interest corresponding to 105.3% of the accumulated variations in the average one day over extra group DI (Interbank deposit) rates, calculated and disclosed daily by CETIP, on a 252-business day basis, expressed as an annual percentage ( DI rate ), payable on the unit par value of the debentures, calculated from the date of issue up to the end of the capitalization period on a pro rata basis. The debentures are classified as fair value through profit or loss designated at initial recognition. At December 31, 2013, the adjusted balance totals R$ 1,045,686 (December 31, 2012 R$ 951,257).

51 12. Provisions, Contingent Assets and Liabilities and Legal Obligations a) Contingent assets No contingent assets were recorded, however, there are a number of lawsuits, the successful outcome of which is deemed probable, amongst which the most important are as follows: - Social contribution on revenues (COFINS) R$ 9,981 (2012 R$ 9,694): claiming the refund or offset of COFINS, paid under the terms of Law 9718/98, during the period from January to October 2001, in excess of that which would be payable on revenue. - Social Integration Program (PIS) - R$ 2,163 (2012 R$ 2,100): claiming the refund or offset of PIS, paid under the terms of Law 9718/98, during the period from January to October 2001, in excess of that which would be payable under the terms of Complementary Law 7/70 (PIS Repique) or, when less, in excess of that which would be payable on revenue. b) Provisions classified as probable loss and legal obligations The companies comprising the Consolidated company are parties to tax suits arising in the normal course of their business activities. Management considers the following when recording the provisions: the opinion of the legal advisors, the nature of the lawsuits, similarity with prior lawsuits, complexity and the Court s position, whenever a loss is evaluated as probable. BRADESPAR s Management considers that the provision recorded is sufficient to cover losses that may arise from the related legal proceedings. The liability related to the legal obligation in dispute is maintained until the case is won, based on favorable judicial decisions, against which there can be no further appeals, or until the expiry of the corresponding limitation period. I) Provisions Pursuant to the Agreement for the Sale of Shares of Bradesplan Participações Ltda. (BRADESPLAN), entered into with Banco Bradesco S.A. (BRADESCO) in May 2006, BRADESPAR is responsible for the tax suits (PIS and COFINS) of its former subsidiary BRADESPLAN, and a provision for contingencies was recorded in the amount of R$ 49,774, of which R$ 21,960 was reversed, following a favorable final and unappealable sentence related to the PIS and COFINS suits. At December 31, 2013, the adjusted amount was R$ 39,924 (December 31, 2012 R$ 38,333). Bradespar 2013 Annual Report The balance of judicial deposits, at December 31, 2013, includes the amount of R$ 22,486 (December 31, 2012 R$ 20,931) related to COFINS in dispute in the proceedings described above. II) Legal obligations BRADESPAR is challenging in the courts the legality and constitutionality of certain taxes and contributions, for which provisions have been recorded at the full amounts, despite the likelihood of a positive medium and long-term outcome, based on the opinion of its legal advisors. The main issues are as follows: - PIS and COFINS R$ 276,878 (2012 R$ 226,114): claiming the non-inclusion in the calculation bases of PIS and COFINS of interest on stockholders equity received from the investees, since these amounts are legally considered dividends, and accordingly are not subject to these taxes. - COFINS R$ 10,815 (2012 R$ 10,475): claiming the right to calculate and pay COFINS, from November 2001 to January 2004 based on actual revenue, as established in Article 2 of Complementary Law 70/91, without considering the unconstitutional increase in the calculation base established by paragraph 1, Article 3 of Law 9718/98. 51

52 III) Activity in provisions and legal obligations Parent company and Consolidated At December At the beginning of the year 274, ,633 Additions, net of amounts reversed 36,041 45,489 Indexation 16,655 14,846 At the end of the year 327, ,968 c) Contingent liabilities classified as possible losses BRADESPAR maintains a system to monitor all the administrative and legal proceedings in which it is the plaintiff or defendant and, based on the opinion of its legal advisors, classifies the lawsuits in accordance with the expectation of an unfavorable outcome. As a result, the contingent lawsuits assessed as having a risk of possible loss are not recognized in the books and are disclosed only in the notes to the financial statements. BRADESPAR is party to an Arbitral Procedure brought by Elétron S.A. (ELÉTRON) against the Company and Litel Participações S.A. (LITEL), in which ELÉTRON seeks recognition of its rights to: (i) acquire a specific number of shares of VALEPAR, which may not exceed 37,825,097 common shares and (ii) receive indemnification for possible pain and suffering. On October 3, 2011, the Court of Arbitration, based on the prior interim sentence, decided by majority vote that BRADESPAR and LITEL are obliged to: (i) proceed with the sale of the shares of VALEPAR to ELÉTRON for the amount of R$ 632,007, which should be adjusted based on the UFIR-RJ rate from June 12, 2007 to the date of effective payment and (ii) recoup the dividends and interest on stockholders equity distributed by VALEPAR from June 12, 2007, which amounted to R$ 188,642 at December 31, 2013, including adjustments based on the CDI rate. The claim for pain and suffering was rejected by the Court of Arbitration. The Company filed an action for annulment of the sentence handed down by the arbitration court of the Rio de Janeiro judiciary district and considers that the possible loss which could affect its financial statements will not exceed 2% of its equity at December 31, ANTARES, a direct subsidiary of BRADESPAR, was assessed by the Brazilian Federal Revenue authority, since it is the successor to the split-off portion of VBC Participações S.A. (VBC), as regards the offsetting by the latter of income tax and social contribution losses, at the time of its total split-off and subsequent winding up, by an amount exceeding the 30% limit imposed by Law 8981/95. These assessments, at December 31, 2013, totaled R$ 186,129 (December 31, 2012 R$ 180,278), of which R$ 137,091 for income tax (December 31, 2012 R$ 132,781) and R$ 49,038 for social contribution on net income (December 31, R$ 47,497).

53 Bradespar 2013 Annual Report Equity a) Share capital in number of shares Fully subscribed and paid-up capital comprises nominative book-entry shares, with no par value, as follows. At December Common 122,523, ,523,049 Preferred 227,024, ,024,896 Total 349,547, ,547,945 b) Revenue reserves At December Legal reserve 254, ,882 Statutory reserve 3,182,922 3,690,366 Total 3,437,804 4,145,248 (i) The legal reserve mandatorily comprises 5% of net income for the year, up to 20% of paid-up capital. The purpose of the legal reserve is to ensure the integrity of capital and may only be used to offset losses or to increase capital. (ii) The statutory reserve is designed to maintain the operational margin compatible with the development of the Company s asset operations and may be recorded at 100% of the net income remaining after statutory appropriations, as proposed by the Executive Board and approved by the Board of Directors and authorized by the General Meeting, with the balance limited to 95% of paid-up capital. At the Extraordinary General Meeting held on April 29, 2013, approval was given for a capital increase of R$ 200,000, from R$ 3,900,000 to R$ 4,100,000, through the capitalization of the balance of the Revenue reserve Legal reserve account, with no new issue of shares. In 2013, R$ of the balance of the Revenue Reserve Statutory was used for the payment of interest on stockholders equity and dividends and to absorb accumulated deficit. c) Interest on stockholders equity and/or dividends Non-voting preferred shares are entitled to all rights and benefits attributed to common shares as well as, in conformity with the bylaws, priority in repayment of capital and 10% additional interest on stockholders equity and/or dividends, in accordance with the provisions of paragraph 1, item II, of Article 17 of Law 6404/76, as amended by Law 10303/01. In conformity with the by-laws, stockholders are entitled to interest on stockholders equity and/or dividends which added together correspond to at least 30% of net income for the year, adjusted in accordance with Brazilian corporate legislation. We present below the calculation of interest on stockholders equity paid in 2013:

54 Loss for the year (47,709) Retained earnings 1,044 Use of reserves 507,444 Interest on stockholders equity and dividends paid 460,779 Remuneration: Interest on stockholders equity paid 333,000 Dividends paid 127,779 Interest on stockholders equity and dividends in ,779 Interest on stockholders equity in ,034 In the pursuit of improving its Corporate Governance practices and with the objective of facilitating the projection of stockholders compensation, BRADESPAR adopted, in 2006, the Indicative Policy of Minimum Annual Compensation to be distributed in the form of dividends and/ or interest on stockholders equity, based on the Company s projected cash flows as follows: The Company s Executive Board announces, up to the last business day of February of each year, a proposal to be presented to the Board of Directors for payment of a minimum compensation to stockholders, stipulated in US dollars, in two semiannual installments due by May 15 and November 15. The amounts approved are translated into local currency at the US dollar selling rate (Ptax-opção 5), published by the Brazilian Central Bank on the last business day prior to that of the Board of Directors meetings during which the declaration and payment of this compensation are decided. Furthermore, the Executive Board may propose to the Board of Directors, based on an analysis of the growth in the Company s cash flows, the declaration and payment of dividends and/or interest on stockholders equity in addition to the minimum compensation to be announced. On May 15, 2013, BRADESPAR paid the first installment of the stockholders annual compensation in the amount of US$ 100,000 plus an additional US$ 10,000, in the total amount of US$ 110,000, benefitting all of the Company s stockholders registered as at April 29, 2013, as follows: Interest on stockholders equity amounting to R$ 130,000, at the gross amount per common share of R$ (R$ , net of withholding income tax) and per preferred share at R$ (R$ , net of withholding income tax). Dividends, amounting to R$ 90,011, at R$ per common share and R$ per preferred share. On November 14, 2013, BRADESPAR paid the second installment of the stockholders annual compensation in the amount of US$ 100,000 plus an additional US$ 10,000, in the total amount of US$ 110,000, benefitting all of the Company s stockholders registered as at October 31, 2013, as follows: Interest on stockholders equity amounting to R$ 203,000, at the gross amount per common share of R$ (R$ net of withholding income tax) and per preferred share at R$ (R$ , net of withholding income tax). Dividends, in the amount of R$ 37,768, at R$ per common share and R$ per preferred share.

55 Bradespar 2013 Annual Report 55 d) Treasury shares BRADESPAR has a program for the acquisition of own shares to be held in treasury and subsequently sold or cancelled. At the Board of Directors Meeting held on July 30, 2013, approval was given for the renewal of the program for the acquisition of own shares to be held in treasury and subsequently sold or cancelled, maintaining the same number of shares, with no capital decrease. In addition, the Executive Board was authorized to acquire up to 1,500,000 nominative book-entry shares, with no par value, comprising 500,000 common and 1,000,000 preferred shares over a period of 365 days. 14. Taxes Recoverable or Available for Offset and Deferred Tax Assets I) Parent company a) Taxes recoverable and available for offset comprise mainly prior-year income tax and social contribution, and withholding tax on financial investments and interest on stockholders equity received, in the amount of R$139,083 ( R$ 135,288). b) Calculation of income tax and social contribution charges: Income Tax and Social Contribution Years ended December Income before income tax and social contribution (47,691) 516,624 Total expense for income tax and social contribution at the statutory rates of 25% and 9%, respectively Effect of additions and deductions on the calculation of taxes: Investments in subsidiaries and jointly controlled investments, taxed in the corresponding companies 16,215 (175,652) (943) 182,566 Non-deductible expenses and provisions, net of non-taxable income 24,993 33,369 Interest on stockholders equity (received and receivable) (132,475) (164,911) Interest on stockholders equity (paid) 113,220 96,912 Unrecorded deferred tax assets and other amounts (21,028) (2,842) Income tax and social contribution expense for the year (18) (30,558) c) Unrecorded deferred tax assets At December 31, 2013, there are unrecorded deferred tax assets totaling R$ 493,388 (December 31, 2012 R$ 472,385), which were not recorded since they presented no prospects of realization.

56 II) Consolidated a) Taxes recoverable and available for offset comprise mainly prior-year income tax and social contribution, and withholding tax on financial investments and interest on stockholders equity received, in the amount of R$ 146,974 ( R$ 143,324). b) Calculation of income tax and social contribution charges Income Tax and Social Contribution Years ended December Income before income tax and social contribution (46,232) 518,266 Total expense for income tax and social contribution at the statutory rates of 25% and 9%, respectively Effect of additions and deductions on the calculation of taxes: Results from investments in jointly controlled investments taxed in the corresponding companies 15,719 (176,210) (39,842) 133,325 Non-deductible expenses and provisions, net of non-taxable income 48,176 56,357 Interest on stockholders equity (received and receivable) (132,475) (164,911) Dividend (received) 14,625 24,978 Interest on stockholders equity (paid) 113,220 96,912 Unrecorded deferred tax assets and other amounts (20,900) (2,651) Income tax and social contribution expense for the year (1,477) (32,200) c) Unrecorded deferred tax assets At December 31, 2013, there are unrecorded deferred tax assets in the total of R$ 531,823 (December 31, 2012 R$ 501,900), which were not recorded since they presented no prospect of realization. 15. Financial Result Years ended December 31 Parent company Consolidated Income from financial investments 17,401 16,837 22,025 22,299 Change in fair value of debentures (81,251) (75,933) (81,251) (75,933) Other (6,933) (7,994) (6,600) (7,865) Total (70,783) (67,090) (65,826) (61,499)

57 Bradespar 2013 Annual Report Related Parties I) The main balances and transactions between BRADESPAR and its subsidiaries are presented below: a) BRADESPAR Interest on redeemable shares and interest on stockholders equity: Assets (liabilities) At December 31 Income (expenses) VALEPAR 340, , , ,994 Redeemable shares: - VALEPAR 367, , b) BRUMADO At December 31 Assets (liabilities) Income (expenses) Interest on redeemable shares - VALEPAR 11,021 10,755 68,065 67,545 Redeemable shares: - VALEPAR 440, , c) VALEPAR Interest on redeemable shares and interest on stockholders equity: Assets (liabilities) At December 31 Income (expenses) BRADESPAR (340,388) (425,967) (463,766) (585,994) - BRUMADO (11,021) (10,755) (68,065) (67,545) Redeemable shares: - BRADESPAR (367,292) (559,949) BRUMADO (440,046) (440,046) - -

58 II) Compensation of key management personnel Annually, the Ordinary General Meeting establishes the following: Total annual compensation of Directors, which is distributed at the meeting of the Board of Directors to the members of the Board itself and to the Executive Officers, as established by the bylaws. The amount appropriated to finance the BRADESPAR Directors and Officers Supplementary Pension Plans. For 2013, a maximum amount of R$ 4,800 was determined as compensation for Directors and Officers and R$ 800 for financing the defined contribution supplementary pension plans. Short-term benefits provided to directors and officers At December Salaries 4,800 3,200 Social security contributions (INSS) Total 5,760 3,840 Private pension plan obligations Em 31 de dezembro Supplementary defined contribution pension plans 768 2,457 Other benefits BRADESPAR provides no post-employment benefits or long-term benefits related to employment contract rescissions, or share-based compensation to its key management personnel. Other information Shareholding The members of the Board of Directors and Executive Board together have the following shareholding in BRADESPAR: Em 31 de dezembro Common shares % % Preferred shares % % Total shares % %

59 Bradespar 2013 Annual Report Financial Instruments Financial instruments are classified as follows: Financial assets Loans and receivables Parent company Available for sale Total Loans and receivables Consolidated Available for sale At December 31, 2013 Cash and cash equivalents 139, , , ,678 Receivables from redeemable preferred shares Total 376, , , ,560 Available-for-sale securities , ,843 Total assets 516, ,091 1,086, ,843 2,051,081 Financial liabilities Amortized cost Parent company Fair value through profit or loss Total Amortized cost Consolidated At December 31, 2013 Fair value through profit or loss Debentures payable - 1,045,686 1,045,686-1,045,686 1,045,686 Other liabilities 25,887-25,887 25,887-25,887 Total liabilities 25,887 1,045,686 1,071,573 25,887 1,045,686 1,071,573 Total Financial assets Loans and receivables Parent company Available for sale Total Loans and receivables Consolidated Available for sale At December 31, 2012 Cash and cash equivalents 249, , , ,205 Receivables from redeemable preferred shares Total 573, ,637 1,024,439-1,024,439 Available-for-sale securities ,081,595 1,081,595 Total assets 823, ,161 1,278,644 1,081,595 2,360,239

60 Financial liabilities Amortized cost Parent company Fair value through profit or loss Total Amortized cost Consolidated Fair value through profit or loss At December 31, 2012 Debentures payable - 951, , , ,257 Other liabilities 25,945-25,945 25,945-25,945 Total liabilities 25, , ,202 25, , ,202 Total a) Financial assets The main financial instruments recorded as assets in balance sheet accounts consist of amounts of the principal and interest of the redeemable preferred shares held, directly and indirectly, in VALEPAR and the indirect investments in CPFL Energia. Redeemable preferred shares are measured at amortized cost, as described in Note 9 and the investments in CPFL Energia are classified in available-for-sale securities at fair value, with a contra-entry in equity. BRADESPAR and its subsidiaries had no transactions involving derivative financial instruments at December 31, 2013 and Credit quality of financial assets The credit quality of financial assets, which are not past due and present no evidence of loss, may be assessed based on external credit classifications (if existing) or historical information on the counterparty s default rates. None of the fully performing financial assets were renegotiated during the year and none of the amounts recorded in accounts receivable are past due or show any evidence of loss. b) Financial liabilities We present below the contractual undiscounted cash flows payable on non-derivative financial liabilities by remaining contractual maturities at the balance sheet date. Parent company and Consolidated At December 31, 2013 Less than 1 year Between 1 and 2 years Debentures payable - 1,212,681 1,212,681 At December 31, 2012 Debentures payable 985, ,841 Total The cash flows are estimates prepared by the Company and balances may vary significantly from this analysis as a result of fluctuations in the rate to which they are indexed.

61 Bradespar 2013 Annual Report 61 c) Sensitivity analysis In compliance with CVM Instruction 475/08, we present below the sensitivity of the positions subject to price or market rate volatilities: Risk factors Definition Scenarios Interest rate in reais Variable income Exposures subject to changes in fixed interest rates and interest rate coupon Exposures subject to changes in share prices December 31, 2013 December 31, (80) (21,156) (41,280) (167) (31,164) (60,792) (9,648) (241,210) (482,421) (10,815) (270,398) (540,797) Total (9,728) (262,366) (523,701) (10,982) (301,562) (601,589) The sensitivity analyses were based on scenarios prepared at the corresponding dates, considering market information at the time and factors which would have a negative effect on the Company s positions. Scenario 1: Based on market information (BM&FBOVESPA, ANBIMA, etc.), 1 basis point shocks were applied to the interest rate and a 1% variation in prices. For example: the fixed interest rate for 1 year applied to the positions at December 31, 2013 was 10.59% p.a. Scenario 2: 25% shocks were determined based on market information. For example: the fixed interest rate for 1 year applied to the positions at December 31, 2013 was 13.23% p.a. The scenarios for the other risk factors also applied a 25% shock to the corresponding curves or prices. Scenario 3: 50% shocks were determined based on market information. For example: the fixed interest rate for 1 year applied to the positions at December 31, 2013 was 15.87% p.a. The scenarios for the other risk factors also applied a 50% shock to the corresponding curves or prices. 18. Fair Value Estimate It is assumed that the fair values of the balances of cash and cash equivalents, receivables from redeemable preferred shares and other liabilities are compatible with their carrying amounts. The Company applies CPC 40 (RI) for financial instruments measured in the balance sheet at fair value, which requires disclosure of the fair value measurements at the following levels of the fair value measurement hierarchy: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include available-for-sale securities traded in an active market. Level 2: Observable data other than Level 1 prices, such as prices quoted for similar assets or liabilities; prices quoted in non-active markets; or other data which are observable in the market or which can be confirmed by observable market data over substantially all of the term of the assets or liabilities. Level 2 assets and liabilities which are not based on a direct public quotation include debentures and their corresponding valuations considering credit risk, which do not need internal subjective assumptions for determining fair value. Level 3: Inputs not based on observable market data which are supported by little or no market activity and which are significant to the fair value of the assets and liabilities. Level 3 assets and liabilities generally include financial instruments, whose amounts are determined based on pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires a high degree of judgment or estimates by Management.

62 The following tables present the assets and liabilities measured at fair value: At December 31, 2013 Consolidated Carrying amount Level 1 Level 2 Total (*) Financial assets Available-for-sale securities 964, , ,843 Total assets 964, , ,843 Financial liabilities Debentures payable 1,045,686-1,045,686 1,045,686 Total liabilities 1,045,686-1,045,686 1,045,686 At December 31, 2012 Consolidated Carrying amount Level 1 Level 2 Total (*) Financial assets Available-for-sale securities 1,081,595 1,081,595-1,081,595 Total assets 1,081,595 1,081,595-1,081,595 Financial liabilities Debentures payable 951, , ,257 Total liabilities 951, , ,257 (*) There were no Level 3 assets or liabilities. 19. Other Information a) Other amounts receivable in the Parent Company in the amount of R$ 332,274 (December 31, 2012 R$ 412,294) and in the Consolidated in the amount of R$ 331,187 (December 31, 2012 R$ 412,298) consists substantially of interest on stockholders equity receivable from VALEPAR. b) Other liabilities in the Parent Company and Consolidated mainly comprise fractions of shares from the reverse stock split approved at the Extraordinary General Meeting of April 30, 2004, which were sold at the auction held by BM&FBovespa on July 14, 2004, with the amount of R$ 25,516 (December 31, 2012 R$ 25,551) credited or made available to the stockholders. c) Dividends from investments comprise dividends received from CPFL, in the amount of R$ 43,014 (December 31, 2012 R$ 73,465). d) General and administrative expenses in the Parent company consist of Personnel expenses of R$ 6,772 (2012 R$ 6,368) and Other general and administrative expenses of R$ 5,289 (2012 R$ 6,050). In the Consolidated, they comprise Personnel

63 Bradespar 2013 Annual Report 63 expenses of R$ 6,772 (2012 R$ 6,368) and Other general and administrative expenses of R$ 5,458 (2012 R$ 6,183). e) Other operating income (expenses) in the amount of R$ 36,206 (2012 R$ 41,787) consists substantially of tax expenses. f) On November 11, 2013, Provisional Measure 627 (MP 627/13) was published which changed the federal tax legislation for IR, CSLL, PIS and COFINS. MP 627/13 establishes the following: Revocation of the Transitional Tax Regime (RTT), regulating the adjustments arising from the new accounting methods and criteria introduced as a result of the convergence between Brazilian and international accounting standards. Taxation of corporate entities domiciled in Brazil, related to equity increases resulting from profit sharing earned abroad by associated and subsidiary companies. Special installment payment for PIS/Pasep and COFINS contributions. BRADESPAR is awaiting the enactment into law of MP 627/13 for a more in-depth and conclusive analysis. Based on a preliminary analysis, there will be no significant impact on the Company. 20. Subsequent Events On February 28, 2014, BRADESPAR announced a proposal for the payment of minimum compensation in the amount of US$ 250,000 to the Company s stockholders for 2014, corresponding to US$ per common share and US$ per preferred share. The amount will be paid in two semiannual installments of US$ 125,000 each, on May 15 and November 14, 2014, translated into local currency at the US dollar selling rate (Ptax-opção 5), disclosed by the Brazilian Central Bank, on the last business day prior to that of the Board of Directors meetings scheduled for April 28 and October 31, Additional Information on the Jointly Controlled Investments We present below the condensed balance sheets and statements of income disclosed by VALEPAR and VALE. The amounts do not reflect BRADESPAR s proportional percentage ownership of these companies:

64 BALANCE SHEETS VALE VALEPAR (*) (*) ASSETS Current assets 38,161,479 30,587,350 7,524 3,203 Non-current assets: Long-term receivables 12,195,901 10,014,596 2,135,121 1,769,555 Investments 123,369, ,436,281 53,067,730 53,512,122 Intangible assets 15,636,061 14,664, Property, plant and equipment 70,704,934 61,231, TOTAL 260,068, ,933,984 55,210,375 55,284,880 LIABILITIES AND EQUITY Current liabilities 18,269,775 20,173,330 3,863,489 4,196,351 Non-current liabilities 93,452,482 68,096,243 3,375,244 5,084,060 Equity 148,345, ,664,411 47,971,642 46,004,469 TOTAL 260,068, ,933,984 55,210,375 55,284,880 % direct and indirect ownership 5.88% 5.88% 17.44% 17.44% STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31 VALE VALEPAR (*) (*) Sales revenue 63,731,138 57,428, Cost of sales and services rendered (22,517,142) (24,244,904) - - Gross profit 41,213,996 33,183, Operating income (expenses) (5,616,646) (15,789,208) (243,479) (315,950) Net financial result (18,198,200) (8,327,182) (536,899) (794,339) Equity in the results of investees (1,996,318) 922,298 38,788 3,358,824 Result before income tax and social contribution 15,402,832 9,989,717 (741,590) 2,248,535 Income tax and social contribution (15,287,741) (98,021) 69,758 (326) Net income for the year 115,091 9,891,696 (671,832) 2,248,209 (*) Period adjusted based on the changes in accounting practices. VALE is a publicly traded corporation and consequently it is obliged to file its information with the Brazilian Securities Commission (CVM). Accordingly, detailed information on this company at December 31, 2013 and 2012 may be obtained directly from the CVM website:

65 Bradespar 2013 Annual Report 65 INDEPENDENT AUDITOR S REPORT To the Board of Directors and Stockholders Bradespar S.A. We have audited the accompanying financial statements of Bradespar S.A. ( Parent Company ), which comprise the balance sheet as at December 31, 2013 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting practices and other explanatory information. We have also audited the accompanying consolidated financial statements of Bradespar S.A. and its subsidiaries ( Consolidated ), which comprise the consolidated balance sheet as at December 31, 2013 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the parent company financial statements in accordance with accounting practices adopted in Brazil, and for the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

66 Opinion on the parent company financial statements In our opinion, the parent company financial statements referred to above present fairly, in all material respects, the financial position of Bradespar S.A. as at December 31, 2013, and its financial performance and its cash flows for the year then ended, in accordance with accounting practices adopted in Brazil. Opinion on the consolidated financial statements In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bradespar S.A. and its subsidiaries as at December 31, 2013, and their financial performance and their cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil. Emphasis of matter As discussed in Note 2 to these financial statements, the parent company financial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of Bradespar S.A., these practices differ from IFRS applicable to separate financial statements only in relation to the measurement of investments in subsidiaries, associates and jointly controlled entities based on equity accounting, while IFRS require measurement based on cost or fair value. Our opinion is not qualified in respect of this matter. Other matters Supplementary information statements of value added We also have audited the parent company and consolidated statements of value added for the year ended December 31, 2013, which are the responsibility of the Company s management. The presentation of these statements is required by Brazilian corporate legislation for listed companies, but is considered supplementary information for IFRS purposes. These statements were subjected to the same audit procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole. São Paulo, March 18, 2014 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Luís Carlos Matias Ramos Contador CRC 1SP171564/O-1

67 REPORT OF THE FISCAL COUNCIL The undersigned, sitting members of the Fiscal Council of Bradespar S.A., in the performance of their legal and statutory duties, have analyzed the Management Report and the Financial Statements for the year ended December 31, 2013, prepared in accordance with the Technical Pronouncements of the Brazilian Accounting Pronouncements Committee (CPC) and, based on the opinion of the independent auditors, PricewaterhouseCoopers Auditores Independentes expressed in their unqualified Report dated March 18, 2014, are of the opinion that said documents present the conditions required for submission to the stockholders at the Ordinary General Meeting. São Paulo, March 18, Sitting Members of the Fiscal Council Ariovaldo Pereira João Batista de Moraes Julio Sergio de Souza Cardozo Marcos Antônio Martins Peter Edward Cortes Marsden Wilson

68 MANAGEMENT BODIES Board of Directors Fiscal Council Chairman Lázaro de Mello Brandão Vice Chairman Antônio Bornia Members Mário da Silveira Teixeira Júnior João Aguiar Alvarez Denise Aguiar Alvarez Luiz Carlos Trabuco Cappi Carlos Alberto Rodrigues Guilherme Milton Matsumoto Sitting members Ariovaldo Pereira João Batista de Moraes Marcos Antônio Martins Julio Sergio de Souza Cardozo Peter Edward Cortes Marsden Wilson Alternates Clayton Neves Xavier Paulo Ricardo Satyro Bianchini Vicente Carmo Santo Mario de Castro Marchiori Silvio Cláudio Peixoto de Camargo Executive Board Chief Executive Officer Luiz Mauricio Leuzinger Officer Renato da Cruz Gomes Cid de Oliveira Guimarães Contador - CRC 1SP218369/O-0

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