As filed with the Securities and Exchange Commission onMay 28, 2010 June 17, 2011

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

1

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

R

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 20092010

 

OR

1

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

OR

1

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-14732

 

COMPANHIA SIDERÚRGICA NACIONAL
(Exact Name of Registrant as Specified in its Charter)

NATIONAL STEEL COMPANY
(Translation of Registrant’s name into English)

THE FEDERATIVE REPUBLIC OF BRAZIL
(Jurisdiction of incorporation or organization)

 

Paulo Penido Pinto Marques, Chief Financial Officer
Phone:  +55 11 3049-7100   Fax:  +55 11 3049-7212

invrel@csn.com.br
Av.  Brigadeiro Faria Lima, 3,400 – 20th floor
04538-132, São Paulo-SP, Brazil

(Address of principal executive offices)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class

Name of each exchange on which registered

Common Shares without par value

New York Stock Exchange*

American Depositary Shares, (as evidenced by American Depositary Receipts), each representing one share of Common Stock

New York Stock Exchange

____________________

*  Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report:

Common Shares, without par value.

1,510,359,220,1,483,033,685, including 52,389,11225,063,577 common shares held in treasury.  This amount takes into account the two-for-one stock split that took placecancellation of 27,325,535 common shares held in Marchtreasury in November 2010.  For further information, see “Item 7A.  Major Shareholders,”  “Item 9A.  Offer and Listing Details” and “Item 10B.  Memorandum and Articles of Association.”

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

R  Yes   1  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

1  Yes   R  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

R  Yes  1  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

1R  Yes   R1  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer R                Accelerated Filer 1                 Non-accelerated Filer  1

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAPR1 

International Financial Reporting Standards as issued by the International Accounting Standards Board1R 

Other1

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 1   Item 18 1

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

1  Yes    R  No

 

 

TABLE OF CONTENTS

Page

Introduction

1

Forward-Looking Statements

2

Presentation of Financial and Other Information

23

Item 1.

Identity of Directors, Senior Management and Advisors

43

Item 2.

Offer Statistics and Expected Timetable

43

Item 3.

Key Information

43

3A.Selected Financial Data

43

3B.Capitalization and Indebtedness

7

3C.Reasons for the Offer and Use of Proceeds

7

3D.Risk Factors

7

Item 4.

Information on the Company

1615

4A.History and Development of the Company

1615

4B.Business Overview

2117

4C.Organizational Structure

5349

4D.Property, Plant and Equipment

5349

Item 4A.

Unresolved Staff Comments

5554

Item 5.

Operating and Financial Review and Prospects

5654

5A.Operating Results

5655

5B.Liquidity and Capital Resources

8672

5C.Research & Development and Development, Patents and Licenses, etc.Innovation

9076

5D.Trend Information

9076

5E.Off-Balance Sheet Arrangements

9278

5F.Tabular Disclosure of Contractual Obligations

9581

5G.Safe Harbor

9582

Item 6.

Directors, Senior Management and Employees

9682

6A.Directors and Senior Management

9682

6B.Compensation

9885

6C.Board Practices

9885

6D.Employees

9986

6E.Share Ownership

9986

Item 7.

Major Shareholders and Related Party Transactions

9986

7A.Major Shareholders

9986

7B.Related Party Transactions

9987

Item 8.

Financial Information

10087

8A.Consolidated Statements and Other Financial Information

10087

8B.Significant Changes

10591

Item 9.

The Offer and Listing

10591

9A.Offer and Listing Details

10591

9B.Plan of Distribution

10692

9C.Markets

10692

9D.Selling Shareholders

10995

9E.Dilution

10995

9F.Expenses of the Issue

10995

Item 10.

Additional Information

10995

10A.Share Capital

10995

10B.Memorandum and Articles of Association

11095

10C.Material Contracts

11398

10D.Exchange Controls

11399

10E.Taxation

11499

10F.Dividends and Paying Agents

122

108

10G.Statement by Experts

122108

10H.Documents on Display

122108

10I.Subsidiary Information108

10I. Subsidiary Information

122

Item 11.

Quantitative and Qualitative Disclosures About Market Risk

122108

Item 12.

Description of Securities Other Than Equity SecuritiesSecurities

126114

Item 13.

Defaults, Dividend Arrearages and Delinquencies

127114

Item 14.

Material Modification to the Rights of Security Holders and Use of ProceedsProceeds

127115

Item 15.

Controls and Procedures

127115

Item 16. [Reserved]

128[Reserved]

116

16A.Audit Committee Financial Expert

128116

16B.Code of Ethics

129116

16C.Principal Accountant Fees and Services

129116

16D.Exemptions from the Listing Standards for Audit Committees

130117

16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers

130117

16F.Change in Registrant’s Certifying Accountant

130117

16G.Corporate Governance

131117

Item 17.

Financial Statements

133119

Item 18.

Financial Statements

133119

Item 19.

Exhibits

133119

Table of Contents

 

INTRODUCTIONIntroduction

Unless otherwise specified, all references in this annual report to:

  • ·“we,” “us,” “our” or “CSN” are to Companhia Siderúrgica Nacional and its consolidated subsidiaries;

  • “parent company” is to Companhia Siderúrgica Nacional.·

  • “Brazilian government” are to the federal government of the Federative Republic of Brazil;

  • ·“real,” “reais” or “R$” are to Brazilianreais, the official currency of Brazil;

  • ·“U.S. dollars,” “$,” “US$” or “USD” are to United States dollars;

  • ·“billions” are to thousands of millions, “km” are to kilometers, “m” are to meters, “mt” or “tons” are to metric tons, “mtpy” are to metric tons per year and “MW” are to megawatts;

  • ·“TEUs” to twenty-foot equivalent units;

  • ·“consolidated financial statements” are to the consolidated financial statements of Companhia Siderúrgica Nacional and its consolidated subsidiaries reported in International Financial Reporting Standards as issued by the IASB – IFRS as of December 31, 20082009 and 20092010 and for the years ended December 31, 2007, 20082009 and 2009,2010, together with the corresponding Report of Independent Registered Public Accounting Firms;Firm;

  • “ADSs”· “ADSs” are to CSN’s American Depositary Shares and “ADRs” are to CSN’s American Depositary Receipts; and

  • ·“Brazil” is to the Federative Republic of Brazil.

1

 

Table of Contents

 

FORWARD-LOOKING STATEMENTSForward-Looking Statements

This annual report includes forward-looking statements, within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, principally under the captions “Item 3. Key Information,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and “Item 11.  Quantitative and Qualitative Disclosures About Market Risk.”  We have based these forward-looking statements largely on our current expectations and projections about future events, industry and financial trends affecting our business.  Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our fo rward-lookingforward-looking statements, including, among other things:

  • ·general economic, political and business conditions in Brazil and abroad, especially in China;

  • ·the ongoing effects of the recent global financial markets and economic crisis;

  • ·changes in competitive conditions and in the general level of demand and supply for our products;

  • ·management’s expectations and estimates concerning our future financial performance and financing plans;

  • ·our level of debt;

  • ·availability and price of raw materials;

  • ·changes in international trade or international trade regulations;

  • ·protectionist measures imposed by Brazil and other countries;

  • ·our capital expenditure plans;

  • ·inflation, interest rate levels and fluctuations in foreign exchange rates;

  • ·our ability to develop and deliver our products on a timely basis;

  • ·lack of infrastructure in Brazil;

  • ·electricity and natural gas shortages and government responses to them;

  • ·existing and future governmental regulation; and

  • ·other risk factors as set forth under “Item 3D.Risk3D. Risk Factors.”

The words “believe,” “may,” “will,” “aim,” “estimate,” “forecast,” “plan,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements.  Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors.  In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not an indication of future performance.  As a result of various factors, such as those risks described in “Item 3D.  Risk Factors,” undue re liancereliance should not be placed on these forward-looking statements.

2

Table of Contents

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Presentation of Financial and Other Information

Our consolidated financial statements as of December 31, 20082010 and 2009 and for each of the years ended December 31, 2007, 20082009 and 20092010 contained in “Item 18.  Financial Statements” have been presented in U.S. dollarsthousands of reais (R$) and prepared in accordance with accounting principles generally accepted inInternational Financial Reporting Standards (IFRS) as issued by the United States of America, or U.S. GAAP.International Accounting Standards Board (IASB).  See Note 2(a) to our consolidated financial statements.

For certain purposes, such as providing reports to our Brazilian shareholders, filing financial statements with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or CVM, and determining dividend payments and other distributions and tax liabilities in Brazil, we have prepared and will continue to be required to prepare financial statements in accordance with the accounting principles required by Brazilian laws No. 6,404, dated December 15, 1976, as amended, and No. 11,638 dated December 28, 2007, as amended, or the Brazilian Corporate Law, and the rules and regulations of the CVM, or Brazilian GAAP, which differ in certain significant respects from U.S. GAAP.

Changes on Regulatory Requirements for Presentation of Financial Statements – Convergence to International Financial Reporting Standards (“IFRS”)

Presentation of  financial statements in accordanceStarting with IFRS

On July 13, 2007, the CVM issued Rule No. 457 to requireyear ended December 31, 2010, Brazilian listed companies are required to publish their consolidated financial statements in accordance with IFRS starting with the year ending December 31, 2010. IFRS.  Those consolidated financial statements must be prepared based on IFRS as issued by the International Accounting Standards Board.IASB.

Convergence of Brazilian GAAP  to IFRS

On December 28, 2007, Law No. 11,638 was enactedConsequently, the financial statements and amended numerous provisions of the Brazilian Corporate Law relating to accounting principles and authority to issue accounting standards.  Law No. 11,638 sought to enable greater convergence between Brazilian GAAP and IFRS.  To promote convergence, Law No. 11,638 modified certain accounting principles of the Brazilian Corporate Law and required the different applicable regulators (including CVM) to issue accounting rules conforming to the accounting standards adopted in international markets.  Additionally, the statute acknowledged a role in the setting of accounting standardsother financial information for the CPC, which is a committee of officials from the Brazilian Federal Accounting Board (Conselho Feder al de Contabilidade), Brazilian Independent Auditors Institute (Instituto dos Auditores Independentes do Brasil), São Paulo Stock Exchange (BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros) or BM&FBOVESPA, industry representativesyears ended December 31, 2010 and academic bodies that has issued accounting guidance2009 included elsewhere in this Form 20-F, unless otherwise indicated, were prepared and pursued the improvement of accounting standardspresented in Brazil.  Law No. 11,638 permits the CVM to relyaccordance with IFRS.

Previously published consolidated financial statements in our annual report on the accounting standards issued by the CPC in establishing accounting prin ciplesForm 20-F for regulated entities.

Subsequently on May 27, 2009, Law No. 11,941 was enacted and, among other issues, amended numerous provisions of the Brazilian Corporate Law and tax regulation, to enable greater convergence between Brazilian GAAP and IFRS.

As result of the issuance of Law No. 11,638, and Law No. 11,941, CPC has issued approximately 40 standards with the objective of making Brazilian GAAP similar to IFRS.  CPC has issued several standards for application beginning with theour financial year ended December 31, 2008 and during 2009, issued several additional standards.  Our management is currentlyas well as all prior financial periods, were prepared in accordance with accounting principles generally accepted in the process of analyzing the potential impact of these new regulations and standards.

Reporting Currency

     Because we operateUnited States (“U.S. GAAP”). IFRS differs in an industry that uses the U.S. dollar as its currency of reference, our management believes that it is appropriate to present ourcertain material respects from U.S. GAAP and, accordingly, the consolidated financial statements in U.S. dollars in our filings with the U.S. Securities and Exchange Commission, or SEC. Accordingly, as permitted by the rules of the SEC, we have adopted the U.S. dollar as our reporting currency for our U.S. GAAP financial statements containedyears ended December 31, 2010 and 2009 prepared in our annual reports that we fileaccordance with the SEC.

3

Table of Contents

     As described more fully in Note 2(a)IFRS are not comparable to our consolidated financial statements theprepared in accordance with U.S. dollar amounts as of the datesGAAP for 2009 and for the periodsprior years presented in our reports on Form 20-F.  See “Item 5. Operating and Financial Review and Prospects—Change in Accounting from U.S. GAAP to IFRS” and Note 4 to our consolidated financial statements have been translated from thereal amounts in accordance with the criteria set forth in the U.S. Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation,” at the year-end exchange rate (for balance sheet items) or the average exchange rate prevailing during the period (for income statement items). In this annual report, we refer to a Statement of Financial Accounting Standards issued by the U.S. Financial Accounting Standards Board as an “SFAS.”

     Unless the context otherwise indicates:

  • historical data containedincluded elsewhere in this annual report that were not derived from our consolidated financial statements have been translated fromreaison a basis similar to that used in our consolidated financial statements for the same periods or as of the same dates, except investment amounts that have been translated at the exchange rate in effect on the date the investment was made.
  • forward-looking statements have been translated fromreaisat the exchange rate in effect at the time of the most recently budgeted amounts. We may not have adjusted all of the budgeted amounts to reflect all factors that could affect them. In addition, exceptionally we may have translated budgeted amount based on the exchange rate in effect on the date of the action, operation or document.
Form 20-F.

     SomeCertain figures included in this annual report have been subject to rounding adjustments.  Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.

PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

3A.  Selected Financial Data

     The following table presentsWe present in this section the summary financial and operating data derived from our selected financial data as of the dates and for each of the years indicated, prepared in accordance with U.S. GAAP. Our U.S. GAAPaudited consolidated financial statements as of and for the year ended December 31, 20082009 and 20092010.

The consolidated financial statements included in this annual report have been prepared in accordance with IFRS, as issued by the IASB, inreais. However, we have translated some of thereal amounts contained in this annual report into U.S. dollars.  The rate used to translate such amounts in respect of the year ended December 31,

3 

2010 was R$1.6662 to US$1.00, which was the commercial rate for the purchase of U.S. dollars in effect as of December 31, 2010, as reported by the Central Bank. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that thereal amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate.  See “Exchange Rates” for more detailed information regarding the translation ofreais into U.S. dollars.

IFRS Summary and Financial Data

The following tables present summary historical consolidated financial and operating data for us for each of the years inperiods indicated.  Solely for the three-year periodconvenience of the reader,real amounts as of and for the year ended December 31, 2009 appear elsewhere herein, together with2010 have been translated into U.S. dollars at the reports of our Independent Registered Public Accounting Firm, KPMG Auditores Independentes, for the periods notedcommercial market rate in their reports. The selected financial informationeffect as of December 31, 2005, 2006 and 2007 and for each2010 as reported by the Brazilian Central Bank of the years in the two-year period ended December 31, 2006 have been derived from our U.S. GAAP consolidated financial statements in U.S. dollars, not included in this annual report.R$1.6662 to US$1.00 The selected financial data below should be read in conjunction with “Item 5.Operating and Financial Review and Prospects.”

 

 

  

Year Ended December 31,

Statement of income data:  

 

2010

 

2010

 

2009

 

 

(in million of US$, except per share data)

 

(in million of R$, except per share data)

Net operating revenues

 

                                    8,673

 

                                  14,451

 

                                  10,978

         Cost of products sold

 

                                  (4,613)

 

                                  (7,687)

 

                                  (7,022)

Gross Profit

 

                                    4,060

 

                                    6,764

 

                                    3,956

Operating expenses

 

                                          -  

 

 

 

 

         Selling 

 

                                     (407)

 

(678)

 

                                     (636)

         General and Administrative 

 

                                     (322)

 

(537)

 

(480)

        Equity in results of affiliated companies

 

0

 

0

 

0

        Other Expenses

 

                                     (386)

 

(643)

 

(696)

        Other  Income

 

                                         55

 

92

 

1,417

         Total  

 

(1,060)

 

(1,766)

 

(395)

 

 

 

 

 

 

 

Operating income  

 

                                    3,000

 

                                    4,998

 

                                    3,561

Non-operating income (expenses), net  

 

 

 

 

 

 

         Financial Income (expenses), net

 

                                  (1,147)

 

                                  (1,911)

 

                                     (246)

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Taxes

 

                                    1,853

 

                                    3,087

 

                                    3,315

Income Tax

 

 

 

 

 

 

         Current 

 

                                     (188) 

 

                                     (313)

 

                                     (582)

         Deferred 

 

                                     (154)

 

                                     (257)

 

                                     (118) 

 

 

 

 

 

 

 

                  Total  

 

                                    1,511

 

                                    2,517

 

                                    2,615

 

 

 

 

 

 

 

Net income  

 

                                    1,511

 

                                    2,517

 

                                    2,615

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

-    

 

-  

 

                                         (4)

 

 

 

 

 

 

 

Net income attributable to Companhia Siderúrgica Nacional

 

                                    1,511  

 

                                    2,517

 

                                    2,619

 

 

 

 

 

 

 

Basic earnings per common share

 

1.03586

 

1.72594

 

1.75478

Diluted earnings per common share

 

1.03586

 

1.72594

 

1.75478

 

 

 

 

 

 

 

4

 

Table of Contents

 

 

 

Year Ended December 31, 

Income Statement Data: 

 

2005 

 

2006 

 

2007 

 

2008 

 

2009 

 

 

(in millions of US$, except per share data)

Operating revenues 

 

 

 

 

 

 

 

 

 

 

         Domestic sales 

 

3,449 

 

3,550 

 

5,283 

 

7,377 

 

5,204 

         Export sales 

 

1,224 

 

1,263 

 

1,695 

 

1,830 

 

1,137 

         Total 

 

4,673 

 

4,813 

 

6,978 

 

9,207 

 

6,341 

 

Deductions from operating revenues 

 

 

 

 

 

 

 

 

 

 

         Sales taxes 

 

829 

 

899 

 

1,305 

 

1,835 

 

1,257 

         Discounts, returns and allowances 

 

39 

 

68 

 

156 

 

185 

 

70 

Net operating revenues

 

3,805 

 

3,846 

 

5,517 

 

7,187 

 

5,014 

         Cost of products sold 

 

1,837 

 

2,102 

 

3,076 

 

3,602 

 

3,250 

Gross profit 

 

1,968 

 

1,744 

 

2,441

 

3,585 

 

1,764 

Operating expenses 

 

 

 

 

 

 

 

 

 

 

         Selling 

 

186 

 

167 

 

310 

 

412 

 

345 

         General and administrative 

 

108 

 

148 

 

185 

 

219 

 

208 

         Other income (expense)

 

28 

 

149 

 

85 

 

110 

 

47 

         Total 

 

322 

 

464 

 

580 

 

741 

 

600 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income 

 

1,646 

 

1,280 

 

1,861 

 

2,844 

 

1,164 

Non-operating income (expenses), net 

 

 

 

 

 

 

 

 

 

 

         Financial income (expenses), net 

 

(550)

 

(533)

 

(219)

 

(380)

 

(871)

         Foreign exchange and monetary gain (loss), net 

 

183 

 

218 

 

438 

 

(1,265)

 

422

         Other 

 

3

 

22 

 

81 

 

1,742 

 

(26) 

 

 

 

 

 

 

 

 

 

 

 

         Total 

 

(364)

 

(293)

 

300

 

97 

 

(475) 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

Year Ended December 31, 

 

 

2005 

 

2006 

 

2007 

 

2008 

 

2009 

 

 

(in millions of US$, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and equity in results of affiliated companies 

 

1,282 

 

987 

 

2,161 

 

2,941 

 

689 

Income taxes 

 

 

 

 

 

 

 

 

 

 

         Current 

 

(458)

 

(198)

 

(619)

 

(615)

 

(167)

         Deferred 

 

31

 

(98) 

 

85

 

201 

 

(52) 

 

 

 

 

 

 

 

 

 

 

 

                  Total 

 

(427)

 

(296)

 

(534)

 

(414)

 

(219)

 

 

 

 

 

 

 

 

 

 

 

Equity in results of affiliated companies 

 

47 

 

58 

 

76 

 

127 

 

809 

 

 

 

 

 

 

 

 

 

 

 

Net income 

 

902 

 

749 

 

1,703 

 

2,654 

 

1,279 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

-

 

-

 

-

 

-

 

2 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Companhia Siderúrgica Nacional

 

902 

 

749 

 

1,703 

 

2,654 

 

1,281 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share 

 

0,56 

 

0.48 

 

1.11 

 

1.73 

 

0.86

Weighted average number of common shares outstanding (in thousands)(1)

 

1,621,650 

 

1,544,604

 

1,539,489 

 

1,534,067 

 

1,492,453

 

 

 

As of December 31, 

Balance Sheet Data:

 

2010

 

2010

 

2009

 

 

(in million of US$)

 

(in million of R$)

Current assets 

 

  9,479

 

  15,794

 

12,835

Investments

 

  1,263

 

  2,104

 

  322

Property, plant and equipment

 

  8,269

 

  13,777

 

11,133

Other assets 

 

 3,676  

 

  6,126

 

6,436

 

 

 

 

 

 

 

Total assets

 

  22,687

 

  37,801

 

30,726

 

 

 

 

 

 

 

Current liabilities 

 

  2,674

 

  4,456

 

3,998

Non -current liabilities(1)

 

  15,317

 

  25,522

 

   20,139  

Stockholders’ equity 

 

  4,696

 

  7,823

 

6,589

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

  22,687  

 

37.801

 

30,726

 

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Table of Contents

 

Common stock 

 

2,447

 

2,447

 

2,447

Dividends declared and interest on stockholders’ equity (in millions ofreais)(1)

 

  937

 

   1,561  

 

2,571

Dividends declared and interest on stockholders’ equity per common share (inreais)(1)

 

0.64

 

1.07

 

1.76

 

 

As of December 31, 

Balance Sheet Data: 

 

2005 

 

2006 

 

2007 

 

2008 

 

2009 

 

 

(In millions of US$)

Current assets 

 

3,330 

 

3,962 

 

4,665 

 

7,307 

 

6,841 

Property, plant and equipment, net 

 

2,547 

 

3,211 

 

4,824 

 

3,543 

 

5,616 

Investments in affiliated companies and other investments (including goodwill)

 

312 

 

375 

 

565 

 

2,715 

 

4,384 

Other assets 

 

968 

 

1,000 

 

2,011 

 

2,144 

 

2,347 

 

 

 

 

 

 

 

 

 

 

 

Total assets 

 

7,157 

 

8,548 

 

12,065 

 

15,709 

 

19,188 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities 

 

1,398 

 

1,678 

 

2,865 

 

3,813 

 

2,091 

Long-term liabilities(2)

 

4,750 

 

5,823 

 

6,512 

 

8,580 

 

12,833 

Stockholders’ equity 

 

1,009 

 

1,047 

 

2,688 

 

3,316 

 

4,264  

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity 

 

7,157 

 

8,548 

 

12,065 

 

15,709 

 

19,188 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the year ended December 31, 

Other Data: 

 

2005 

 

2006 

 

2007 

 

2008 

 

2009 

 

 

(In millions of US$, except per share data and where otherwise stated)

 

Cash flows from operating activities 

 

1,757 

 

919 

 

1,264 

 

2,067 

 

40 

Cash flows used in investing activities 

 

(593)

 

(839)

 

(1,091)

 

(1,292)

 

(829)

Cash flows from (used in) financing activities 

 

(996)

 

(263)

 

(122)

 

1,867

 

872 

Common shares outstanding (in thousands)

 

1,549,092 

 

1,544,480 

 

1,538,940 

 

1,517,339

 

1,457,970 

Common stock 

 

2,447 

 

2,447 

 

2,447 

 

2,447 

 

2,447 

Dividends declared and interest on stockholders’ equity(1)

 

969 

 

914 

 

550 

 

1,414

 

1,334 

Dividends declared and interest on stockholders’ equity per common share(1)(3)

 

0.63 

 

0.59 

 

0.36

 

0.93

 

0.81 

Dividends declared and interest on stockholders’ equity (in millions ofreais)(3)

 

2,268 

 

1,954 

 

1,039 

 

2,755

 

2,571 

Dividends declared and interest on stockholders’ equity per common share (inreais)(1)(3)

 

1.47 

 

1.27 

 

0.68 

 

1.82

 

1.76 

 

 

(1)

Takes into account the one-for-three stock split occurred in January 2008 whereby each common share of our capital stock on December 31, 2007 became represented by three common shares and the one-for-two stock split occurred in March 2010 whereby each common share of our capital stock on December 31, 2009 became represented by two common shares. See “Item 10B. Memorandum and Articles of Association.”

(2) 

Excluding the current portion of long-term debt.

(3) 

Amounts consist of dividends declared andaccruedand accrued interest on stockholders’ equity during the year.  For a discussion of our dividend policy and dividend and interest payments made in 2009,2010, see “Item 8A.  Consolidated Statements and Other Financial Information-Dividend Policy.”

5

Exchange Rates

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.  The Brazilian currency has during the last decades experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies.

Between 2000 and 2002, thereal realdepreciated significantly against the U.S. dollar, reaching an exchange rate of R$3.53 per US$1.00 at the end of 2002.  Between 2003 and mid-2008, thereal realappreciated significantly against the U.S. dollar due to the stabilization of the macroeconomic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.56 per US$1.00 in August 2008.  In the context of the crisis in the global financial markets after mid-2008, therealdepreciated 31.9% against the U.S. dollar over the year 2008, reaching R$2.34 per US$1.00 on December 31, 2008.  DuringSince 2009, thereal realappreciated by approximately 25%, reaching R$1.74 per US$1.00against the U.S. dollar and on December 31, 2009, mainly due to the strong economic recovery of Brazil. On May26, 2010 the exchange rate was R$1.67 per US$1.00 and on June1.84614, 2011, the exchange rate was1.58 per US$1.00.  The Central Bank has intervened occasionally to control instability in foreign exchange rates.  We cannot predict whether the Central Bank or the Brazilian government will continue to allow thereal realto float freely or will intervene in the exchange rate market through a currency band system or otherwise.  Thereal realmay depreciate or appreciate against the U.S. dollar substantially.

6

Table of Contents

The following tables present the selling rate, expressed inreais reaisper U.S. dollar (R$/US$), for the periods indicated.

 

 

 

 

 

 

 

 

 

 

 

Low 

 

High 

 

Average (1)

 

Period-end 

Year ended 

 

 

 

 

 

 

 

 

December 31, 2005 

 

2.163 

 

2.762 

 

2.413 

 

2.341 

December 31, 2006 

 

2.059 

 

2.371 

 

2.177 

 

2.138 

December 31, 2007 

 

1.733 

 

2.156 

 

1.948 

 

1.771 

December 31, 2008 

 

1.559 

 

2.500 

 

1.837 

 

2.337 

December 31, 2009

 

1.702 

 

2.422 

 

1.994 

 

1.741 

 

 

 

 

 

 

 

 

 


 

        

 

 

Low 

 

High 

 

   Average 

 

Period-end 

 

 

 

 

 

 

 

 

 

Month ended 

 

 

 

 

 

 

 

 

November 30, 2009

 

1.702

 

1.759

 

1.726

 

1.751

December 31, 2009

 

1.701

 

1.788 

 

1.750 

 

1.741 

January 31, 2010

 

1.723 

 

1.875 

 

1.780 

 

1.875 

February 28, 2010

 

1.805 

 

1.877 

 

1.842 

 

1.811 

March 31, 2010

 

1.764 

 

1.823 

 

1.786 

 

1.781 

April 30, 2010

 

1.731 

 

1.781 

 

1.757 

 

1.731 

May26, 2010

 

1.732 

 

1.881 

 

1.811 

 

1.846 


Source: Central Bank. 

(1) 

Represents the daily average of the close exchange rates during the period. 

 

 

 

 

 

 

 

 

 

 

 

Low  

 

High  

 

Average (1)

 

Period-end  

Year ended  

 

 

 

 

 

 

 

 

December 31, 2006 

 

2.059 

 

2.371 

 

2.177 

 

2.138 

December 31, 2007 

 

1.733 

 

2.156 

 

1.948 

 

1.771 

December 31, 2008 

 

1.559 

 

2.500 

 

1.837 

 

2.337 

December 31, 2009

 

1.702 

 

2.422 

 

1.994 

 

1.741 

December 31, 2010

 

1.655 

 

1.881 

 

1.759 

 

1.666 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Low  

 

High  

 

   Average  

 

Period-end  

 

 

 

 

 

 

 

 

 

Month ended  

 

 

 

 

 

 

 

 

December 2010

 

1.655 

 

1.881 

 

1.759 

 

1.666

January 2011

 

1.651 

 

1.691 

 

1.674 

 

1.673 

February 2011

 

1.661 

 

1.677 

 

1.668 

 

1.661 

March 2011

 

1.628 

 

1.675 

 

1.659 

 

1.629 

April 2011

 

1.565 

 

1.619 

 

1.586

 

1.573 

May 2011

 

1.580

 

1.634

 

1.613

 

1.580

June 2011 (through June14, 2011)

 

1.574

 

1.594

 

1.583

 

1.582

Source: Central Bank. 

(1) Represents the daily average of the close exchange rates during the period. 

6

We will pay any cash dividends and make any other cash distributions with respect to our common shares in Brazilian currency.  Accordingly, exchange rate fluctuations may affect the U.S. dollar amounts received by the holders of ADSs on conversion by the depositary of such distributions into U.S. dollars for payment to holders of ADSs.  Fluctuations in the exchange rate between thereal realand the U.S. dollar may also affect the U.S. dollar equivalent of thereal realprice of our common shares on the BM&FBOVESPA.

3B.  Capitalization and Indebtedness

Not applicable.

3C.  Reasons for the Offer and Use of Proceeds

Not applicable.

3D.  Risk Factors

An investment in our ADSs or common shares involves a high degree of risk.  You should carefully consider the risks described below before making an investment decision.  Our business, financial condition and results of operations could be materially and adversely affected by any of these risks.  The trading price of our ADSs could decline due to any of these risks or other factors, and you may lose all or part of your investment.  The risks described below are those that we currently believe may materially affect us.

Risks Relating to Brazil

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy.  This involvement, as well as, Brazilian political and economic conditions, could adversely affect our business and the trading prices of our ADSs and common shares.

The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulations.regulation.  The Brazilian government’s actions, policies and regulations to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls (such as those imposed on the steel sector prior to privatization), currency devaluations, capital controls and limits on imports.  Our business, financial condition and results of operations may be adversely affected by political, social, and economic developments in or affecting Brazil, and by changes in policy or regulations involving or affecting factors, such as:

  • ·interest rates;

  • ·exchange controls and restrictions on remittances abroad, such as those that were briefly imposed in 1989 and early 1990;controls;

  • ·currency fluctuations;

  • ·inflation;

  • ·lack of infrastructure in Brazil;

  • ·energy shortages and rationing programs;

  • ·liquidity of the domestic capital and lending markets;

  • ·environmental policies and regulations;

  • ·tax policies and regulations; and

  • ·other political, social and economic developments in or affecting Brazil.

Uncertainty over whether the Brazilian government will make changes affecting these and other factors may create instability. This may also adversely affect our business, financial condition and results of operations.

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Table of Contents

Exchange rate instability may adversely affect our financial condition, and  results of operations and the market price of our common shares and ADSs.

The Brazilian currency has during the last decadeslong experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies.  Between 2000 and 2002, thereal realdepreciated significantly against the U.S. dollar, reaching an exchange rate of R$3.53 per US$1.00 at the end of 2002.  Between 2003 and mid-2008, thereal realappreciated significantly against the U.S. dollar due to the stabilization of the macroeconomic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.56 per US$1.00 in August 2008.  In the context of the crisis in the global financial markets after mid-2008, thereal realdepreciated 31.9% against the U.S. dollar over the year 2008 and reached R$2.34 per US$1.00 at year end.  DuringSince 2009, thereal realappreciated  by approximately 25%, reaching R$1.74 per US$1.00 on December 31, 2009,againts the U.S. dollar, mainly due to the strong economic recovery of Brazil. On May26,Brazil and high domestic real interest rate, and on December 31, 2010 the exchange rate was R$1.8461.66 per US$1.00.  On June 14, 2011, the exchange rate was R$1.58 per US$1.00.

Depreciation of thereal realagainst the U.S. dollarmajor foreign currencies could create inflationary pressures in Brazil and causecontribute to Central Bank increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and harm our financial condition and results of operations, may curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies.  Depreciation of thereal realagainst the U.S. dollar can also, as in the context of the global economic and financial crisis in 2008 and 2009, lead to d ecreaseddecreased consumer spending deflationary pressures and reduced growth of the economy as a whole.

On the other hand, appreciation of thereal realrelative to the U.S. dollar and othermajor foreign currencies could lead to a deterioration of the Brazilian foreign exchange current accounts, as well as dampen export-driven growth.  Depending on the circumstances, either depreciation or appreciation of thereal realcould materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

In the event thereal realdepreciates in relation to the U.S. dollar, the cost inreais reaisof our foreign currency-denominated borrowings and imports of raw materials, particularly coal and coke, will increase.  To the extent that we do not succeed in promptly reinvesting the funds received from such borrowings in dollar-denominated assets, we are exposed to a mismatch between our foreign currency-denominated expenses and revenues.  On the other hand, if therealappreciates in relation to the U.S. dollar, it will causereal-denominated production costs to increase as a percentage of total production costs and cause our exports to be less competitive.  We had total U.S. dollar-denominated or –linked indebtedness of US$4,5905,804 million, or 59%48% of our total indebtedness, at December 31, 2009.2010. 

Depreciation of thereal realmay also reduce the U.S. dollar value of distributions and dividends on the ADSs and the U.S. dollar equivalent of the market price of our common shares and, as a result, the ADSs.

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Table of Contents

Government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm our business.

Brazil has in the past experienced extremely high rates of inflation and has therefore followed monetary policies that have resulted in one of the highest real interest rates in the world.  Since the implementation of theRealPlan in 1994, the annual rate of inflation in Brazil has decreased significantly, as measured by the National Broad Consumer Index (Índice Nacional de Preços ao Consumidor Amplo,or IPCA). Inflation measured by the IPCA index was 4.31 and 5.91 in 2009 and 2010, respectively.

Between 2004 and 2008,2010, the base interest rate, or SELIC rate, in Brazil varied between 19.25% p.a. and 11.25% per year.8.75% p.a.. Inflation and the Brazilian government’s measures to fight it, principally through the Central Bank, have had and may have significant effects on the Brazilian economy and our business.  Tight monetary policies with high interest rates may restrict Brazil’s growth and the availability of credit.  Conversely, more lenient government and Central Bank policies and interest rate decreases may trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect our bus iness.business.  In addition, we may not be able to adjust the price of our products in the export markets to offset the effects of inflation in Brazil on our cost structure, given that most of our costs are incurred inreais.

8

Developments and perception of risk in other countries, especially in the United States, China and other emerging market countries, may adversely affect the trading price of Brazilian securities, including our common shares and ADSs.

The market value of securities of Brazilian companies is affected to varying degrees by economic and market conditions in other countries, including the United States, China, other Latin American and emerging market countries.  Although economic conditions in these countries may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers.  Crisis in other emerging market countries or economic policies of other countries may diminish investor interest in securities of Brazilian issuers, including ours.  This could adversely affect the trading price of our common shares and/or ADSs, and could also make it more difficult or impossible for us to access the capital markets and finance our operations in the future, on acceptable terms.

     The global financial crisis has had significant consequences in 2008 and 2009, including in Brazil, such as stock and credit market volatility, unavailability of credit, higher interest rates, a general slowdown of the world economy, volatile exchange rates, and inflationary pressure, among others, which have and may continue to, directly or indirectly, materially and adversely affect our operating results, financial position and the price of our common shares and/or ADSs. Although the scenario has improved significantly since the second half of 2009, it is still not clear that the global economy has substantially recovered.

Risks Relating to Us and the Industries in Which We Operate

We are exposed to substantial changes in the demand for steel and iron ore, which has a substantial impact in the prices for our products.

The steel and mining industries are highly cyclical, both in Brazil and abroad.  To the extent the Brazilian economy cannot absorb our entire steel production capacity, we are dependent on exporting our steel products, as in 2005 and 2006, for example.  The demand for our steel and mining products (international commodities) and, thus, the financial condition and results of operations of companies in the steel and mining industries, including us, are generally affected by macroeconomic fluctuations in the world economy and the economies of steel-producing countries, including trends in the automotive, construction, home appliances, packaging and distribution industries.  In recent years, the price of steel and iron ore in world markets has been at historically high levels, but inwith the exception of 2009, when these prices decreased as a result of lower domestic and international demand and the effects of the 2008 worldwide financial crisis. In addition, reducedcrisis, but with consistent recovery over 2010 due to product mix and recovery of international economy and prices.  Reduced demand can lead to overcapacity and excessive downtime, lower utilization of our significant fixed assets and therefore reduced operating profitability. Any material decrease in the demand for steel and iron ore in the domestic or export markets served by us could have a material adverse effect on us.effect.

The availability and the price of raw materials that we need to produce steel, particularly coal and coke, may adversely affect our results of operations.

In 20082010 and 2009, raw material costs accounted for 56.9%56.4% and 53.6%, respectively, of total production costs.  Our principal raw materials include iron ore, coal, coke (a portion of which we produce from coal), limestone, dolomite, manganese, zinc, tin and aluminum.  We depend on third parties for some of our raw materialrequirements.  In addition, we import all of the coal required to produce coke and approximately 16.5%28% of our coke requirements.

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Table of Contents

Global developments, for example the dramatic increase in 2008 in Chinese and Indian demand for raw materials used in steel manufacturing, may cause severe shortages and/or substantial price increases in key raw materials and ocean transportation capacity.  Our inability to pass those cost increases on to our customers or to meet our customers’ demands because of non-availability of key raw materials may cause a material adverse effect on us.

In addition, anywe require significant amounts of energy, both in the form of natural gas ad electricity, to power our plant and equipment.  Any prolonged interruption in the supply of raw materials, natural gas or energy, or substantial increases in their costs, could also materially and adversely affect us.  These interruptions in the supply of raw materials, natural gas or energy may be a result of changes in laws or trade regulations, the availability and cost of transportation, suppliers’ allocations to other purchasers, interruptions in production by suppliers or accidents or similar events on suppliers’ premises or along the supply chain.

9

We face significant competition, including price competition and competition from other domestic or foreign producers, which may adversely affect our profitability and market share.

The global steel industry is highly competitive with respect to price.  Brazil exports steel products and is influenced by several factors:  the protectionist policies of other countries, questioning of WTO (World Trade Organization), the Brazilian government’s exchange rate policy and the growth rate of world economy.  Further, continuous advances in materials sciences and resulting technologies have given rise to improvements in products such as plastics, aluminum, ceramics and glass that permit them to substitute steel.  Due to high start-up costs, the economics of operating a steelworks facility on a continuous basis may encourage mill operators to maintain high levels of output, even in times of low demand, which increases the pressure on industry profit margins.  In addition, downward pressure on steel prices by our competitors may affect our profitabili ty.profitability.

The steel industry is also highly competitive with respect to product quality and customer service, as well as technological advances that enable the steel manufacturer to reduce its production costs.  Steel makersIn 2010 the steel companies in Brazil already facehave faced strong competition from imports andof imported products.Some of the factors that facilitated this may increase due to increase in foreign steel installed capacity, the appreciation of thereal against the U.S. dollar andscenario were the reduction of domestic steel products demand in other markets.mature markets, the exchange rate appreciation and some state tax incentives.  The necessary measures were taken to contain imported products and domestic and imported prices were equated.

Over the past three years, China has become a major exporter of steel.steel producer. If we are not able to remain competitive in relation to China or other steel-producing countries, that are competitive, in the future we may be materially and adversely affected.

In response to the increase of Recently steel imports toin Brazil at very competitive or subsidized prices,have increased in 2007light of idle installed capacity in foreign markets, then if the Brazilian government reinstated the official agreed tariffs (External Common Tariff – TEC) of the Mercosul agreement for certainGovernment were to remove current protective measures or fails to act against cheap subsidized steel products in order to defend the domestic steel industry.  These tariffs had previously been reduced in 2005 to zero as part of a “list of exceptions” of the TEC allowed by the agreement. Until December 2011 the Brazilian government may reduce these tariffs again and if tariffs are reduced we will face more competition from imported steel products andimports, our results of operation may be negatively aadversely affected.

ffected.Protectionist and other measures adopted by foreign government could adversely affect our export sales.

In addition,response to the increased production and export of steel by many countries, anti-dumping, countervailing duties and safeguard measures were imposed in the late 1990s and early 2000s by foreign governments representing the main markets for our exports which are in force until nowadays.  Foreign countries continue to impose restrictions on the exports to certain countries, such as the restrictions on exports of hot-rolled products from Brazil to the United States, Canada and Argentina.  The imposition of these and other factors influenceprotectionist measures by foreign countries may materially and adversely affect our competitiveness, including our efficiencyexport sales.

Changes of laws and operating rates,regulation and the availability, quality and cost of raw materials and labor.

     Governmentgovernment measures could adversely affect us.

Our activities depend on authorizations from and concessions by governmental regulatory agencies of the countries in which we operate.  If related laws and regulations change, modifications to our technologies and operations could be required, and we could be required to make unexpected capital expenditures.  The loss of any such authorization or changes in the regulatory framework we operate in may materially and adversely affect us.

Mining is subject to government regulation in the form of taxes and royalties, which can have an important financial impact on our operations.  In the countries where we operate, governments may impose new taxes, raise existing taxes and royalties, or change the basis on which they are calculated in a manner unfavorable to us.

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Table of Contents

Furthermore, in response to the increased production and export of steel by many countries, anti-dumping, countervailing duties and safeguard measures were imposed in the late 1990s and early 2000s by governments of the principal foreign markets for our steel exports in that period.  Some of these restrictions are still in force, such as the restrictions on exports of hot-rolled products from Brazil to the United States, Canada and Argentina and the restrictions imposed by the European Union on exports of certain chemical substances contained either in products used to protect the steel products or in products used to pack them, effective as of January 2009.  These and other restrictions could materially and adversely affect us, especially to the extent we rely on exporting our iron ore and steel production.

10

 

Malfunctioning equipment or accidents on our premises, railways or ports may decrease or interrupt production, internal logistics or distribution of our products.  We do not haveOur insurance policies may not be sufficient to cover losses and liabilities in connection with operational risks, and may not have sufficient insurance coverage for certain other events.all our losses.

The steel and iron ore production processes depend on certain critical equipment, such as blast furnaces, steel converters, continuous casting machines, drillers, crushing and screening equipments and shiploaders, internal logistics and distribution channels, such as railways and seaports.  This equipment and infrastructure may be affected in the case of malfunction or damage.  In 2006, there was an accident involving the gas cleaning system adjacent to Blast Furnace No. 3 at the Presidente Vargas steelworks, which prevented us from operating this blast furnace for approximately six months and resulted in losses of approximately US$520 million, all of which was reimbursed by our insurers.  Similar or any other significant interruptions in our production process, internal logistics or distribution channels (including our ports and railways) could materially and adver sely affect us.

     Our insurance policies for losses in connection with operational risks, covering damage to our major facilities in connection with the Presidente Vargas steelworks (including damage to equipment and blockage of port facilities) and profit losses, expired on February 22, 2009 and we are currently renegotiating new insurance policies. Lack of insurance coverage for operational risks exposes us to potential significant liability in the event of an accident or business interruption, which may materially and adversely affect us.

We maintain several types of insurance policies in line with our view to managing risk, but the coverage obtained in these may not be sufficient to cover all our risks which may adversely affect our financial position. We have an operational risks policy for the Presidente Vargas Steelworks and some other branches and subsidiaries, but for an insured value of R$ 850 million out of a total risk amount of R$ 25.1 billion. Despite this coverage, CSN remains responsible for the first tranche of R$ 170 million in losses (material damages and loss of profits), in excess to the deductibles, and shall be responsible for 64% of the losses above this first tranche.

We may not be able to successfully contract or renew our insurance policies in terms satisfactory to us, which may adversely affect our financial position.

Our projects are subject to risks that may result in increased costs or delay or prevent their successful implementation.

We are investing to further increase our steel, mining and cement production capacity, as well as our logistics capabilities.  Our expansion and projects are subject to a number of risks that may adversely affect our growth prospects and profitability, including the following:

  • ·we may encounter delays or higher than expected costs in obtaining the necessary equipment or services to build and operate a project;

  • ·our efforts to develop projects according to schedule may be hampered by a lack of infrastructure, including a reliable power supply;

  • ·we may fail to obtain, or experience delays or higher than expected costs in obtaining the required permits and/or regulatory approvals to build a project; and

  • ·changes in market conditions or regulations may make a project less profitable than expected at the time we initiated work on it.

Any one or a combination of factors described above may materially and adversely affect us.  

New or more stringent environmental and health regulations imposed on us may result in increased liabilities and increased capital expenditures.

Our steel making, mining, cement and logistics facilities are subject to a broad range of laws, regulations and permit requirements in Brazil relating mainly to the protection of health and the environment.  Brazilian pollution standards are expected to continue to change, including new effluent and air emission standards and solid waste-handling regulations.  New or more stringent environmental (including measures seeking to address globalwarming) and health standards imposed on us can require us to make increased capital expenditures.  We could be exposed to civil penalties, criminal sanctions and closure orders for non-compliance with these regulations.  Waste disposal and emission practices may result in the need for us to clean up or retrofit our facilities at substantial costs and/or could result in substantial liabilities.  Environmental legislation restrictions imposed by foreign markets to which we export our products, may also materially and adversely affect our export sales and us.

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Our governance and compliance processes may fail to prevent regulatory penalties and reputational harm.

We operate in a global environment, and our activities straddle multiple jurisdictions and complex regulatory frameworks with increased enforcement activities worldwide.  Our governance and compliance processes may not preventnotprevent future breaches of law, accounting or governance standards.  We may be subject to breaches of our Code of Ethics, business conduct protocols and instances of fraudulent behavior and dishonesty by our employees, contractors or other agents.  Our failure to comply with applicable laws and other standards could subject us to fines, loss of operating licenses and reputational harm, which may materially and adversely affect us.

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Some of our operations depend on joint ventures, consortia and other forms of cooperation, and our business could be adversely affected if our partners fail to observe their commitments.

We currently operate parts of our business through joint-ventures with other companies.  We have established a joint-venture with an Asian consortium at our 60% non-consolidatedconsolidated investee Nacional Minérios S.A., or Namisa, to mine iron ore; a joint-venture with other Brazilian steel and mining companies at MRS Logística S.A., or MRS, to explore railway transportation in the Southeastern region of Brazil; andBrazil, a joint-venture with Tractebel and Itambe at Itá Energética S.A., or ITASA and a consortium with Vale, Votorantim Metais, CEMIG and Anglo Gold Ashant at Igarapava Hydroelectric Power Plant to produce electricity.

Our forecasts and plans for these joint-ventures and consortia assume that our partners will observe their obligations to make capital contributions, purchase products and, in some cases, provide managerial personnel or financing.  In addition, many of the projects contemplated by our joint-ventures or consortia rely on financing commitments, which contain certain preconditions for each disbursement.  If any of our partners fails to observe their commitments or we fail to comply with all preconditions required under our financing commitments, the affected joint-venture, consortium or other project may not be able to operate in accordance with its business plans, or we may have to increase the level of our investment to implement these plans.  Any of these events may have a material adverse effect on us.

     Particularly with respect to our joint-venture at Namisa, we may be required to reacquire all ownership interest of our Asian partners in Namisa in the event of an unresolved dead-lock with respect to a material issue under our shareholders’ agreement.

Interruptions in the supply of natural gas and power transmission grid may adversely affect our business, financial condition and results of operations.

We require significant amounts of energy, both in the form of natural gas and electricity, to power our plant and equipment. We purchase our natural gas needs through distributors which purchase natural gas from Petróleo Brasileiro S.A. – Petrobras, or Petrobras, (the sole producer and supplier of natural gas in Brazil). Petrobras, in turn, is significantly dependent upon the supply of natural gas from Bolivia. On May 1, 2006, the president of Bolivia announced the nationalization of the country’s gas reserves. The long-term effects of this measure on the supply of natural gas in Brazil are still uncertain. The events in Bolivia could result in the disruption of the natural gas supply to Petrobras or an additional increase in the prices of natural gas. Any resulting interruption or reduction in the levels of supply of natural gas by Petrobras or a significa nt price increase, may negatively affect our production and production costs and consequently have a material adverse effect on us.

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Our mineral reserve estimates may materially differ from mineral quantities that we may be able to actually recover; our estimates of mine life may prove inaccurate; and market price fluctuations and changes in operating and capital costs may render certain ore reserves uneconomical to mine.

Our reported ore reserves are estimated quantities of ore and minerals that we have determined can be economically mined and processed under present and anticipated conditions to extract their mineral content.  There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including many factors beyond our control.  Reserve engineering involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment.  As a result, no assurance can be given that the indicated amount of ore will be recovered or that it will be recovered at the rates we anticipate.  Estimates of different engineers may vary, and results of our mining and produc tionproduction subsequent to the date of an estimate may lead to revision of estimates.  Reserve estimates and estimates of mine life may require revision based on actual production experience and other factors.  For example, fluctuations in the market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a restatement of reserves.

We may not be able to adjust our mining production volume in a timely or cost-efficient manner in response to changes in demand.

Revenues from our mining business represented in 2009 10.9%and 2010, respectively, 17% and 24% of our consolidatedtotal net revenues.  Our ability to rapidly increase production capacity is limited, which could render us unable to fully satisfy demand for our products when demand is higher.products.  When demand exceeds our production capacity, we may meet excess customer demand by purchasing iron ore from unrelated parties and reselling it, which would increase our costs and narrow our operating margins.  If we are unable to satisfy excess customer demand in this way, we may lose customers.  In addition, operating close to full capacity may expose us to higher costs, including demurrage fees due to capacity restraints in our logistics systems.

Conversely, operating at significant idle capacity during periods of weak demand may expose us to higher unit production costs since a significant portion of our cost structure is fixed in the short-term due to the high capital intensity of mining operations.  In addition, efforts to reduce costs during periods of weak demand could be limited by labor regulations or existing labor or government agreements.

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Adverse economic developments in China could have a negative impact on our revenues, cash flow and profitability.

China has been the main driver of global demand for minerals and metals over the last few years.  In 2009,2010, Chinese demand represented 68%60% of global demand for seaborne iron ore.  The percentage of our mining operating revenues attributable to sales to consumers in China was 46%47% in 2009.2010. A contraction of China’s economic growth could result in lower demand for our products, leading to lower revenues, cash flow and profitability.  Poor performance in the Chinese real estate sector, one of the largest consumers of carbon steel in China, could also negatively impact our results.

Drilling and production risks could adversely affect the mining process.

Once mineral deposits are discovered, it can take a number of years from the initial phases of drilling until production is possible, during which the economic feasibility of production may change.  Substantial time and expenditures are required to:

  • ·establish mineral reserves through drilling;

  • ·determine appropriate mining and metallurgical processes for optimizing the recovery of metal contained in ore;

  • ·obtain environmental and other licenses;

  • ·construct mining, processing facilities and infrastructure required for greenfield properties; and

  • ·obtain the ore or extract the minerals from the ore.

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If a project proves not to be economically feasible by the time we are able to exploit it, we may incur substantial write-offs.  In addition, potential changes or complications involving metallurgical and other technological processes arising during the life of a project may result in cost overruns that may render the project not economically feasible.

We may not be able to consummate proposed acquisitions successfully or integrate acquired businesses successfully.

From time to time, we may evaluate acquisition opportunities that would strategically fit our business objectives.  If we are unable to complete acquisitions, or integrate successfully and develop these businesses to realize revenue growth and cost savings, our financial results could be adversely affected.  In addition, we may incur asset impairment charges related to acquisitions, which may reduce our profitability.  Finally, our acquisition activities may present financial, managerial and operational risks, including diversion of management attention from existing core businesses, difficulties integrating or separating personnel and financial and other systems, adverse effects on existing business relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or key employees of acquired businesses, and indemnities and potential disputes with the buyers or sellers.  Any of these activities could affect our product sales, financial condition and results of operations.

We have experienced labor disputes in the past that have disrupted our operations, and such disputes may recur.

A substantial number of our employees and some of the employees of our subcontractors are represented by labor unions and are covered by collective bargaining or other labor agreements, which are subject to periodic renegotiation.  Strikes and other labor disruptions at any of our facilities or labor disruptions involving third parties who may provide us with goods or services, have in the past and may in the future materially and adversely affect the operation of facilities, or the timing of completion and the cost of our projects.

A significant devaluation of our common shares may cause our pension funds to have a deficit of plan assets over pension benefit obligations.13

     We are the principal sponsor of Caixa Beneficente dos Empregados da CSN, or CBS, our employee pension plan. As of December 31, 2009, CBS had invested a significant portion of its portfolio in our common shares and held 4.70% of our capital stock. As a result, the ability of CBS to honor its pension obligations is subject to fluctuations in the fair value of CBS’s assets, including fluctuations in the trading price of our common shares.

     As of December 31, 2009, CBS had an excess of plan assets over pension benefit obligations of US$245 million. The funding status of CBS is affected by, among other things, fluctuations in the fair value of CBS’s assets, which totaled US$1,245 million as of December 31, 2009, while CBS’s accumulated obligations and projected benefit obligations were US$1,000 million in the same period.

     In the event of a depreciation of our common shares, CBS may become unfunded and have an adverse impact on its ability to fulfill its obligations. In this event, we may have to make substantial contributions to the fund to meet its pension benefit obligations, which may have a material adverse effect on us. See “Item 6D—Employees” and Note 15 to our consolidated financial statements contained in “Item 18. Financial Statements.”

Risks Relating to our Common Shares and ADSs

Our controlling shareholder has the ability to direct our business and affairs and its interests could conflict with yours.

Our controlling shareholder has the power to, among other things, elect a majority of our directors and determine the outcome of any action requiring shareholder approval, including transactions with related parties, corporate reorganizations, dispositions, and the timing and payment of any future dividends, subject to minimumdividend payment requirements imposed under the Brazilian corporation law.  Our controlling shareholder may have an interest in pursuing acquisitions, dispositions, financings or similar transactions that could conflict with your interests as a holder of our common shares and ADSs.

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If you surrender your ADSs and withdraw common shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages.

As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our common shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the common shares into non-Brazilian currency and remit the proceeds abroad.  If you surrender your ADSs and withdraw common shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal.  Thereafter, upon the disposition of or distributions relating to the common shares, you will not be able to remit abroad non-Brazilian currency unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign invest orsinvestors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration.  If you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our common shares.

If you seek to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our common shares or the return of your capital in a timely manner.  The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes.

Holders of ADSs may not be able to exercise their voting rights.

Holder of ADSs may only exercise their voting rights with respect to the underlying common shares in accordance with the provisions of the deposit agreement.  Under the deposit agreement, ADS holders must vote by giving voting instructions to the depositary.  Upon receipt of the voting instructions of the ADS holder, the depositary will vote the underlying common shares in accordance with these instructions.  Otherwise, ADS holders will not be able to exercise their right to vote unless they surrender the ADS for cancellation in exchange for our common shares.  Pursuant to our bylaws, the first call for a shareholders’ meeting must be published at least 15 days in advance of the meeting, the second call must be published at least eight days in advance of the meeting.  When a shareholders’ meeting is convened, holders of ADSs may not receive sufficient advanc eadvance notice to surrender the ADS in exchange for the underlying common shares to allow them to vote with respect to any specific matter.  If we ask for voting instructions, the depositary will notify ADS holders of the upcoming vote and will arrange to deliver the proxy card.  We cannot assure that ADS holders will receive the proxy card in time to ensure that they can instruct the depositary to vote the shares.  In addition, the depositary and its agents are not liable for failing to carry out voting instructions or for the manner of carrying out voting instructions.  As a result, holders of ADSs may not be able to exercise their voting rights.

The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the common shares underlying the ADSs at the price and time you desire.

Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature.  The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States.  Accordingly, although you are entitled to withdraw the common shares underlying the ADSs from the depositary at any time, your ability to sell the common shares underlying the ADSs at a price and time at which you wish to do so may be substantially limited.  There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States.UnitedStates.  The ten largest companies in terms of market capitalization represented 52.5%55.3% of the aggregate market capitalization of the BM&FBOVESPA as of December 31, 2009.2010.  The top ten stocks in terms of trading volume accounted for 41.5%, 53.2%43.4% and 49.7% and 53.2%  of all shares traded on the BM&FBOVESPA in 2007,2010, 2009 and 2008, and 2009, respectively.

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Holders of ADSs may be unable to exercise preemptive rights with respect to our common shares.

We may not be able to offer our common shares to U.S. holders of ADSs pursuant to preemptive rights granted to holders of our common shares in connection with any future issuance of our common shares unless a registration statement under the Securities Act is effective with respect to such common shares and preemptive rights, or an exemption from the registration requirements of the Securities Act is available.  We are not obligated to file a registration statement relating to preemptive rights with respect to our common shares, and we cannot assure you that we will file any such registration statement.  If such a registration statement is not filed and an exemption from registration does not exist, JPMorganThe JP Morgan Chase Bank, N.A., as depositary, will attempt to sell the preemptive rights, and you will be entitled to receive the proceeds of such sale.  However, these preemptive rights will exp ireexpire if the depositary does not sell them, and U.S. holders of ADSs will not realize any value from the granting of such preemptive rights.

Substantial sales of our ADSs could cause the price of our ADSs to decrease significantly.

The sale of a substantial number of common shares, or the belief that this may occur, could decrease the trading price of our common shares and our ADSs.  Holders of our common shares and/or ADSs may not be able to sell their securities at or above the price they paid for them.

Our pension fund CBS invests heavily in our common shares, holding as of December 31, 2009 4.70% of our capital stock. Brazilian governmental authorities are discussing with CBS and other pension funds regulatory limits on investments by pension funds in the shares of related parties. As a result, CBS may be required to diversify its portfolio, which, if not done in an organized manner, may cause a substantial amount of our common shares to be sold in the market, negatively affecting the trading price of our common shares.

Item 4. Information on the Company

4A.  History and Development of the Company

History

     Companhia Siderúrgica Nacional is a Brazilian corporation (sociedade por ações) incorporated in 1941 pursuant to a decree of Brazilian President at the time, Getúlio Vargas. The Presidente Vargas steelworks, located in the city of Volta Redonda, in the State of Rio de Janeiro, started production of coke, pig iron castings and long products in 1946.

     Three major expansions were undertaken at the Presidente Vargas steelworks during the 1970s and 1980s. The first, completed in 1974, increased installed annual production capacity to 1.6 million tons of crude steel. The second, completed in 1977, increased annual production capacity to 2.4 million tons of crude steel. The third, completed in 1989, increased annual production capacity to 4.5 million tons of crude steel.

     We were privatized through a series of auctions held in 1993 and early 1994, through which the Brazilian government sold its 91% ownership interest in us.

     From 1993 through 2002, we implemented a capital improvement program aimed at increasing our annual production of crude steel, improving the quality of our products and enhancing our environmental protection and cleanup programs. As part of the investments, since February 1996, all our production has been based on the continuous casting process, rather than ingot casting, an alternative method that results in higher energy use and metal loss. From 1996 through 2002, we spent the equivalent of US$2.4 billion under the capital improvement program and on maintaining our operational capacity, culminating with the renovation in 2001 of Blast Furnace No. 3 and Hot Strip Mill No. 2 at the Presidente Vargas steelworks. These measures resulted in the increase of our annual production capacity to 5.6 million tons of crude steel and 5.1 million tons of rolled products.

General

     We are one of the largest fully integrated steel producers in Brazil and in Latin America in terms of crude steel production. Our current annual crude steel capacity and rolled product capacity is 5.6 million and 5.1 million tons, respectively. Production of crude steel and rolled steel products, decreasedincreased in 20092010 by 12% to 4.44.9 million tons and finished steel production decreasedincreased in 20092010 by 9%14% to 4.14.7 million tons, as compared to 2008, as an effect of the2009, due to a recovery fromthe global economic and financial crisis in 2008 and 2009. In addition to our steel business, we operate in the mining and cement businesses, which have become increasingly important to our operations and growth.

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Steel

     Our fully integrated manufacturing facilities produce a broad line of steel products, including slabs, hot- and cold-rolled, galvanized and tin mill products for the distribution, packaging, automotive, home appliance and construction industries. In 2009,2010, we accounted for approximately 47%46% of the galvanizedcoated steel products market share in Brazil. We are also one of the world’s leading producers of tin mill products for packaging containers. In 2009,2010, we accounted for approximately 98% of the tin mill products market share in Brazil.

     Our production process is based on the integrated steelworks concept. Below is a brief summary of the steel making process at our Presidente Vargas steelworks, located in the city of Volta Redonda, in the State of Rio de Janeiro:

  • iron ore produced from our own mines is processed in continuous sintering machines to produce sinter;
  • sinter and lump ore direct charges are smelted with lump coke and injected powdered coal in blast furnaces to produce pig iron;
  • pig iron is then refined into steel by means of basic oxygen converters;
  • steel is continuously cast in slabs; and
  • slabs are then hot rolled, producing hot bands that are coiled and sent to finishing facilities.

     We currently produce all of our requirements of iron ore, limestone and dolomite, and a portion of our tin requirements from our own mines. Using imported coal, we produce approximately 75% of our coke requirements, at current production levels, in our own coke batteries at Volta Redonda. Imported coal is also pulverized and used directly in the pig iron production process. Zinc, manganese ore, aluminum and a portion of our tin requirements are purchased in local markets. Our steel production and distribution also require water, industrial gases, electricity, rail and road transportation, and port facilities.

Mining

     The first step to our entry into the international iron ore market was taken in February 2007, with the completion of the first phase of the expansion of our solid bulks seaport terminal in the city of Itaguaí, in the State of Rio de Janeiro, which enabled the terminal to also handle and export iron ore and to load from its facilities the first shipment of our iron ore products.

    Our mining activities are oneCSN owns a number of the largest in Brazil and are mainly driven by exploration of one of the richest Brazilianhigh quality iron ore reserves, Casa de Pedra,mines, all located within the Quadrilátero Ferrífero, in the State of Minas Gerais. Casa de Pedra Mining, located in Congonhas – MG, produces high quality iron ore. As far as it concerns quality, the previous statement is also applicable to Namisa – Nacional Minérios S.A. In addition to that, the company’s mining assets also include TECAR (two deep-sea water terminals), located in Porto de Itaguai (RJ), Mineração Bocaina, located in Arcos (MG), which produces dolomite and limestone, and Estanho de Rondônia SA - ERSA, which mines and casts tin.

CementLogistics

     Our cementThe verticalization strategy and intense synergies among the Company's business aimsunits are strongly dependent on the logistics created to increase utilizationguarantee the transportation of by-products by constructingthe inputs at a greenfield grinding milllow operating cost.

     A number of railroads and a clinker facility. This project represented our entry intoport terminals make up the logistics system integrating CSN's mining and steelmaking units.

     CSN manages two port terminals at Itaguaí, in Rio de Janeiro — bulk solids (Tecar) and Containers (Sepetiba Tecon).

     CSN has interests in two railroad companies: MRS Logística, which operates the former Southeast Network of the Federal Railroad Network, along the Rio de Janeiro-São Paulo-Belo Horizonte axis, and the Transnordestina Logística S/A. With 1,728km of track, Nova Transnordestina railway, when completed, will connect the northeastern cerrado to Pecém and Suape Ports.

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Cement

     In May 2009, CSN entered the cement market takingdriven by the high synergy between this new activity and its current business. This project takes advantage of the slag generated by our blast furnaces and of our limestone reserves, located in the city of Arcos, in the State of Minas Gerais. The limestone, which is transformed into clinker, and the slag, account for approximately 95% of the production cost to produce cement.

Acquisitions     CSN plans to increase its share of the segment in Brazil aiming to diversify its products and Dispositionsmarkets and help reduce risk and adding value for its shareholders.

NamisaEnergy

     On July 20, 2007, Namisa, our then wholly-owned mining subsidiary, acquired 100.0%CSN is one of Brazil’s largest industrial electric power consumers only behind the shares issued byCompanhia de Fomento Mineral e Participações, or CFM. The final acquisition price amounted to US$400 million, which was fully paid by us. CFM explores various iron ore mines and owns ore processing facilitiesaluminum producers. Since 1999, we have been investing inthe State of Minas Gerais. CFM is located in the State of Minas Gerais and has facilities close to Casa de Pedra, our most important mining asset.

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     On December 30, 2008, our ownership interest in Namisa was reduced to 60% of the voting and total capital stock upon Namisa’s issuance of new shares for the aggregate amount of approximately US$3.08 billion to Big Jump Energy Participações S.A., or Big Jump, an Asian consortium whose shareholders are Itochu Corporation, JFE Steel Corporation, Nippon Steel Corporation, Sumitomo Metal Industries, Ltd., Kobe Steel, Ltd, Nisshin Steel Co, Ltd., and Posco. In connection with this sale, Namisa paid us approximately US$3 billion on December 30, 2008 as pre-payment for a portion of the purchase price agreed between the parties for future sales of crude iron ore (run-of-mine, or ROM) and the rendering of port services by us to Namisa. The ROM will be extracted by us from the Casa de Pedra mine and will be sold to Namisa, which will be required to beneficiat e the product at its own industrial facilities. All pre-payment agreements were negotiated at arms-length basis. For further information on the effect of these pre-payments in our long-term obligations, see “Item 5E. Off-Balance Sheet Arrangements.”

     We and Big Jump have entered into a shareholders’ agreement power generation projects in order to govern our joint-control of Namisa. Under certain extreme situations provided forensure self-sufficiency. Its electrical assets are the Itá Hydroelectric Power Plant, in Santa Catarina (CSN holding a 29.5% stake), corresponding to 167 MW, the shareholders’ agreement,210-MW Igarapava Hydroelectric Power Plant in Minas Gerais (holding a dead-lock resolution process may be established. This procedure requires us to initiate mediation with our partners17.9% interest) and if no solutionthe 238-MW cogeneration thermoelectric power plant in Presidente Vargas Steelworks, in Volta Redonda, which is reached, the matter is then submitted to be addressed directlyfueled by the senior executives ofwaste gases from the companies in dispute. In the event the dead-lock remains, the shareholders’ agreement provides for call and put options, which entitles Big Jump to elect to sell all its ownership interest in Namisa tosteel production process. These three plants give CSN and CSN to elect to buy all ownership interest of Big Jump in Namisa, in each case for the fair market value of the respective shares.

Riversdale

     On November 24, 2009, we approved the acquisition of a 16.3% minority interest on Riversdale Mining Limited (“Riversdale”), a mining company listed on the Australian Stock Exchange. In November we acquired 28,750,598 shares issued by Riversdale, representing 14.99% of its capital stock. On January 13, 2010 we obtained authorization from Australian authorities to acquire additional 2,482,729 shares issued by Riversdale, representing 1.3% of its capital stock. As of the date of this annual report we indirectly hold an interest of 16.1% in Riversdale. Riversdale has an Anthracite operation and an Anthracite project in South Africa and coal projects in Moçambique.

Segregation of Mining Assets

On December 15, 2009, our board of directors authorized the adoption of internal measures in connection with the segregation of our iron ore business and correlated logistics activities into one of our subsidiaries. The segregation is expected to occur upon the transfer, by means of a capital increase, of assets, liabilities, rights and obligations comprising our mining and correlated logistic businesses as well as of investments in related operating companies. The implementation of the segregation depends on certain regulatory approvals and we expect to complete it by the second quarter of 2010.

Panatlântica

     On January 8, 2010, we approved the acquisition of a minority interest in the capital stock of Panatlântica S.A., or Panatlântica, a small publicly-held company whose object is the industrialization, commercialization, import, export and processing of steel and metals. This interest is currently held by LP Aços Comércio e Participações Ltda. The acquisition comprises the acquisition of 802,069 common shares, representing 9.4% of Panatlântica’s capital stock.

Cimpor

On December 18, 2009, we launched a tender offer for the acquisition of all outstanding shares of Portugal’s largest cement company, Cimpor – Cimentos de Portugal, SGPS, S.A., or Cimpor. Cimpor’s shares are traded on Euronext Lisboa. The tender offer was registered with the Portuguese securities authority and its corresponding launching announcement was disclosed on January 27, 2010, as amended on February 12, 2010.

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On February 23, 2010, at a special Euronext Lisboa session, the public offering expired without the fulfillment of a condition precedent requiring the acquisition of at least 1/3 of Cimpor’s shares. Consequently, no shares were acquired.

Capital Expenditures

     We invested US$980 million, US$886 million and US$930 million in 2007, 2008 and 2009, respectively in capital expenditures. Expenditures in 2009 were used mainly for the acquisitions of equipment, of which US$214 million was used in the Casa de Pedra mine expansion, US$23 million in projects relating to the Itaguaí port expansion and US$245 million in major overall projects that extend our fixed assets useful life. For further information, see “Item 5B. Liquidity and Capital Resources-Short-Term Debt and Short-Term Investments.”

     In 2009, we continued to implement our strategy of developing downstream opportunities, new products and market niches by creating or expandingaverage generation capacity of galvanized products430 MW, supplying the group’s total need for the automotive sector and by investing in a galvanizing and pre-painting plant in order to supply the construction and home appliance industries, as described in “Item 4B. Business Overview—Facilities.”

     We also intend to control production costs and secure reliable sources of raw materials, energy and transportation in support of our steelmaking operations through a program of strategic investments. The principal strategic investments already made are set forth in “Item 4B. Business Overview—Facilities.”

powerPlanned Investments

In light of an improvement in the worldwide economic scenario since the second half of 2009 and higher growth projection for Brazil, where we plan to sell the majority of our steel production, and also considering our comfortable debt level and cash position, our board of directors approved, on April, 13, 2010, an investment plan for the period between 2010 and 2016. Total planned investments amount to US$18.8 billion, of which: US$6.2 billion are planned for our mining business (Casa de Pedra capacity expansion to 50 mtpy; Namisa capacity expansion to 39 mtpy; TECAR capacity expansion to 84 mtpy); US$4.8 billion are planned for our steel business (increase in long steel capacity of 1.5 mtpy with 3 plants; expansion of flat steel of 1.5 mt; and other projects focused on improving our operational return, such as coke battery revamp); US$1 billion are planned for our cement business (3 plants of 1 mt each, Arcos Integrated Plant of 0.6 mt and Volta Redonda Expansion to 2.4 mt); US$3.4 billion are planned for logistics (Transnordestina Extension and Berth 301 in TECON); and US$3.4 billion for our maintenance and programs to improve our performance.

Certain projects that were previously announced, such as the greenfield slab mills in the city of Itaguaí, in the State of Rio de Janeiro, and the greenfield slab mill in the city of Congonhas, in the State of Minas Gerais and the Logistics Platform Project, in the city of Itaguaí, in the State of Rio de Janeiro (except for the ongoing improvements on its Container Terminal and for the expansion of its Solid Bulks Terminal) are being re-evaluated.

Our planned investments in iron ore, steelmaking, cement and logistic are described below.

Iron Ore

Our iron ore business comprises the expansion of our mining activities and our seaport facilities, the construction of pellet plants and, to a lesser extent, the trading of iron ore produced by other companies through our own logistics network. We expect to reach an annual sales level of 89 mtpy of iron ore products by 2014, of which 50 mtpy from Casa de Pedra and 39 mtpy through our 60% non-consolidated investee Namisa. We expect to finance these investments with the National Economic and Social Development Bank (Banco Nacional deDesenvolvimento Econômico Social-BNDES), export credit agencies, the proceeds from offerings of securities and use part of our free cash flow from our current operations..  

We are also investing in the expansion of the seaport Solid Bulks Terminal in Itaguaí, or TECAR, to enable annual exports of 84 million tons of iron ore. Our current annual export capacity is equivalent to 30 million tons.

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In addition to these projects, which are already being implemented, we are analyzing further expansions, such as Casa de Pedra reaching 70 mtpy and TECAR to reach 130 mtpy, other brownfield and greenfield opportunities and acquisitions options.

Steel

We initiated our long steel products brownfield project in the city of Volta Redonda, in the State of Rio de Janeiro, which will be developed inside its main steelmaking facility. In this plant we intend to produce 500,000 tons per year of long steel products, such as rod bar (400,000 tons per year) and wire rod. We expect to benefit from the existing infrastructure and utilities used to support a blast furnace and a former foundry. The total investment in long steel products production will be of approximately US$340 million in installations, including expanding and upgrading a 30-ton electric furnace. The facility will use surplus pig iron and low value added slabs as raw materials. In addition to this plant, we are developing in Brazil two greenfield long steel projects with 500,000 tons per year each. Our forecast is that these two plants will start production by the end of 2013. We are developing a flat steel project with an expected capacity of 1.5 mtpy in a location to be confirmed.

Cement

We are investing approximately US$410 million to build a greenfield grinding mill and clinker furnace, with capacity of 2.4 million tons of products and 830,000 tons, respectively. This project represented our entry into the cement market, taking advantage of the slag generated by our blast furnaces and of our limestone reserves, located in the city of Arcos, in the State of Minas Gerais. The limestone, which is transformed into clinker, and the slag, account for approximately 95% of the production cost to produce cement. In 2009 our cement sales reached 338,000 tons, all from the grinding mill, and we expect to reach full production capacity by 2011. These investments will be financed by BNDES, which has already approved a seven-year credit line of up to US$81 million indexed partially on the long-term interest rate (Taxa de Juros de Longo-Prazo), or TJLP, and partially on US dollars, as well as the use of free cash flow from our current operations. In addition to this plant, we are developing other projects, such as the installation of an integrated cement plant in the city of Arcos, in the State of Minas Gerais, taking advantage of our calcareous mine, with capacity of 600,000 tons per year. We intend to build three new integrated plants (cement and clinker) in Brazil until 2013, each with a projected capacity of 1 million tons per year. Taken together these projects are expected to have a production capacity of 6.4 million tons of cement.

Transnordestina

In August 2006, in order to enable the implementation of a major infrastructure project led by the Brazilian federal government, our Board of Directors approved a transaction to merge Transnordestina S.A., a company that at the time was state-owned, into and with Companhia Ferroviária do Nordeste – CFN, an affiliate of CSN that holds a 30-year concession granted in 1998 to operate the Northeastern Railroad of the RFFSA with 4,238 km of railway track. The surviving entity was later renamed Transnordestina Logística S.A., or Nova Transnordestina. The Nova Transnordestina Project includes an additional 1,728 km of large gauge, state-of-the-art railway track. We expect the investments will allow the company to increase the transportation of various products, such as iron ore, limestone, soy beans, cotton, sugar cane, fertilizers, oil and fuels. The investments will be financed through several agencies, such as FINOR – Northeastern Investment Fund, SUDENE - the Northeastern Development Federal Agency and BNDES. We have obtained certain of the required environmental permits, purchased parts of the equipments and services and implementation is advanced in certain regions.

Until 2008 Transnordestina was jointly controlled by us and Taquari Participações S.A., or Taquari, pursuant to a shareholders´ agreement dated November 27, 1997, as amended on May 6, 1999 and on November 7, 2003. During 2009, we increased the capital of Transnordestina upon disbursing certain advances for future capital increases. Taquari decided not to participate in such capital increases, being diluted and relinquishing control over Transnordestina. Transnordestina is currently a subsidiary fully controlled by us and has been consolidated in our financial statements since December 2009.

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Additional Investments

     In addition to the currently planned investments and maintenance capital expenditures, we continue to consider possible acquisitions, joint ventures and brownfield or greenfield projects to increase or complement our steel, cement, mining producing and logistics capabilities, in addition to logistic infrastructure and energy generation.

Other Information

     CSN’s legal and commercial name is Companhia Siderúrgica Nacional.  CSN is organized for an unlimited period of time under the laws of the Federative Republic of Brazil.  Our head offices are located at Rua São José, 20, 16thAv. Brigadeiro Faria Lima, 3400, 20º floor, 20010-020, Rio de Janeiro, RJ,Itaim Bibi, Sao Paulo, Brazil, andCEP04538-132 our telephone number is +55-21-2141-1800.+55-11-3049-7100.  CSN’s agent for service of process in the United States is CT Corporation, with offices at 111 Eighth Avenue, New York, New York 10011.

4B.  Business Overview

Competitive Strengths

     We believe that we have the following competitive strengths:

Fully integrated business model.We believe we are one of the mostlymost fully integrated steelmakers in the world. We have captive iron ore reserves, which differentiate us from our main competitors in Brazil that purchase their iron ore from mining companies such as Vale S.A., or Vale. In 2006, we hired Golder Associates S.A., or Golder, to evaluate the Casa de Pedra iron ore reserves. The results confirmed proven and probable mineral resources of 1.6 billion tons with a grade of approximately 48.0%. In addition to our iron ore reserves, we have captive dolomite and limestone mines that supply our Presidente Vargas steelworks. Our steelworks are close to the main steel consumer centers in Brazil, with easy access to port facilities and railroads. Our operations are strongly i ntegratedintegrated as a result of our captive sources of raw materials, such as iron ore, and our access to owned infrastructure, such as railroads and deep-sea water port facilities.

     Profitable mining businessThe Mining business has received investments in recent years, lifting CSN into a prominent position among the country’s leading mining firms. Additional investments will increase capacity to approximately 89 mtpy, including third parts purchases in the next years, thereby strengthening CSN’s position as an important player in the iron ore worldwide market. The Company has reserves of high-quality iron ore in Casa de Pedra mine and Namisa, both located in Minas Gerais. Our mining activities provide us with strong revenue generation and have significantly increased production of iron ore in the last four years. In 2007 we sold 10.5 million tons, 18.4 million tons in 2008, 22.4 million tons in 2009 and 25.3 million tons in 2010 (considering a 100% stake in Namisa throughout this period).  All these factors contribute to the high EBITDA margins of this segment.  The company’s mining assets also include TECAR (two deep-sea water terminals) with 30Mtpy capacity, located in Porto de Itaguai (RJ), Mineração Bocaina, located in Arcos (MG), which produces dolomite and limestone, and Estanho de Rondônia SA - ERSA, which mines and casts tin.

17

Thoroughly developed transport infrastructure.We have a thoroughly developed transport infrastructure, from our iron ore mine to our steel mill to our ports. The location of our steelworks facility is next to railroad systems and port facilities, facilitating the supply of raw material, the shipment of our production and easy access to our principal clients. The concession for the main railroad used and operated by us is owned by MRS, a company in which we hold, directly and indirectly, a 33.27% ownership interest. The railway connects the Presidente Vargas steelworks to the container terminal at Itaguaí Port, which handles most of our steel exports. Since we obtained the concession to operate MRS’ railway in 1996, we have significantly improved its tracks and de velopeddeveloped its business, with strong cash generation. We also own concessions to operate two deep-sea water terminals from which we export our products and also import coal and small amounts of coke, which are the only important raw materials that we need to purchase from third-parties.

     Self-sufficiency in energy generation.We are self-sufficient in energy, through our interests in the hydroelectric plants of Itá and Igarapava, and our own thermoelectric plant inside the Presidente Vargas steelworks. We also sell excess energy we generate into the energy market. Our 238 MW thermoelectric co-generationcogeneration plant provides the Presidente Vargas steelworks with approximately 60% of its energy needs for its steel mills, using as its primary fuel the waste gases generated by our coke ovens, blast furnaces and steel processing facilities. We indirectly hold 29.5% of the Itá hydroelectric plant that has installed capacity of 1,450 MW, with a guaranteed output of 668 MW to us and to the other shareholders of Itá Energética S.A., or ITASA, proportio nallyproportionally to our interests in the project, pursuant to 30-year power purchase agreements at a fixed price per megawatt hour, adjusted annually for inflation. In addition, we hold 17.9% of the Igarapava hydroelectric, with 210 MW fully installed capacity. We have been using part of our 22 MW take from Igarapava to supply energy to the Casa de Pedra and Arcos mines.

     Low cost structure.As a result of our fully integrated business model, our thoroughly developed transportation infrastructure and our self-sufficiency in energy generation, we have been consistently generatinghigh margins. Other factors that lead to these margins are the strategic location of our steelworks facility, the use of state of the art technology and our qualified work force.

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     Diverse product portfolio and product mix.We have a diversified product mix that includes: hot-rolled, cold-rolled, galvanized and steel tin mill products. We offer many kinds of steel packaging produced in Brazil, accounting for approximately 98.0% of the steel tin mill products and 47.0%46.0% of the galvanizedcoated flat steel produced in Brazil.We also produce a diversified portfolio of products to meet a wide range of customer needs across all steel consuming industries. We focus on selling high margin products, such as tin plate, pre-painted, galvalume and galvanized products, in our product mix. Our GalvaSudgalvanized product provides mate rialmaterial for exposed auto parts, using hot-dip galvanized steel and laser-welded blanks. This, together with our hot-dip galvanizing process know-how, allows us to increase our sales to the automotive segment. In 2009, our market share in the automotive industry accounted for 24.0% of total domestic sales 3 p.p. higher than 2008, and we expect to further increase our sales to the automotive industry in 2010. Our branch CSN Paraná provides us additional capacity to produce high-quality galvanized, galvalume and pre-painted steel products for the construction and home appliance industries. In addition, our subsidiary, Prada, the largest flat steel distributor in Brazil, is a strong sales channel in the domestic market, enabling us to meet demands from smaller customer, and therefore to have a strong presence in this market.

     Strong presence in domestic market and strategic international exposure.We have a strong presence in the domestic market for steel products, with aapproximately 98.0% market share of the steel tin mill product industry in Brazil and a large market share for galvanized flat steel. In addition, our subsidiaries CSN LLC and Lusosider constitute sales channels for our products, selling in the United States and in Europe kept stable in 5.0% and 5.0%, respectively, of our total sales in 2009 in comparison to 2008.2010 and 2009.  

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Strategies

Our goal is to increase value for our shareholders by further benefiting from our competitive cost advantages, maintaining our position as one of the world’s lowest-cost steel producers, becoming an important iron ore global player, growing our cement business and optimizing our infrastructure assets (including ports, railways and power generating plants). To achieve this goal we have developed specific strategies for each of our business segments as described below.

Steel

Our strategy for our steel business involves:

·üfocus on domestic markets, in which we have historically recorded higher profit margins and better competitiveness, by expanding our market-share in flat steel and by entering in the long steel market as a relevant player;

·üconstant pursuit of operational excellence, by implementing cost reduction projects (eg. pellet plant, coque battery revamp, energy efficiency) and programs (eg, internal logistic optimization, inventories reduction, project development and implementation disciplines);

·üemphasis on high value-added steel products, such as galvanized, pre-painted and tin-coated, in addition to enhancing service centers and finished goods offering (eg. expansion of Galvasud service center for automotive segment and expansion of pre-painted production);offering;

·üexplore synergic markets and profitability, by employing flat steel distribution units and portfolio complementarily to accelerate entrance in longs market, capturing synergies with cement and others products; and

·ügain market-share in services and distribution network, via new deposits and service centers regions, by importing products.regions.

For information on our planned investments relating to our steel activities, see “Item 4A. History4D. Property, Plant and Development of the Company —Planned Investments—Steel.”

22Equipment – Capital Expenditures – Planned Investments”.  

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Mining

In order to strengthen our position as a player in the iron ore market, we plan to expand our mining assets, Casa de Pedra and Namisa, and search for investment opportunities, primarily in mining operations and advanced projects.

We planexpect to reach an annual salesproduction level of approximately 89 mtpy of iron ore products by 2014,in the next years, including third parts purchases, which represents more thanroughly 3 times the volume of observed in 2009,2010, by increasing capacity to 50 mtpy in Casa de Pedra and 3933 mtpy in our 60% non-consolidated investee Namisa.Namisa, thereby strengthening CSN’s position as an important player in the iron ore worldwide market.

In order to maximize the profitability of our product portfolio and resources, we will also focus on pellet and pellet-feed, by using Itabiritos resources, investing with strategic partners and clients in pellet capacity and seeking strategic partnerships towards captive consumption of pellet feed.

Regarding our infrastructure to sustain this growth, we will increase capacity in TECAR (our private port in the State of Rio de Janeiro) from 30 mtpy to 84 mtpy until 2014,in the next years, and we are analyzing other capacity additions. In addition to the port expansion, we are also studying seaborne shipping opportunities, focused on gaining competitiveness in the Asian market.

For information on our planned investments relating to our mining activities, see “Item 4. Information on the Company —A. History4D. Property, Plant and Development of the Company —Planned Investments—Iron Ore.”Equipment – Capital Expenditures – Planned Investments”.  

On December 15, 2009, our board of directors authorized the adoption of internal measures in connection with the segregation of our iron ore business and correlated logistics activities into one of our subsidiaries. For information on the segregation of our mining assets, see “Item 4. Information on the Company —A. History and Development of the Company —Acquisitions and Dispositions—Segregation of Mining Assets.”

Logistics

We expect to take advantage of and expand our logistics capabilities, including our integrated infrastructure operations of railways and ports.

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We have substantially improved the infrastructure that supports the Presidente Vargas steelworks by investing in projects such as railways and port facilities in order to increase our ability to control production costs and delivery services.

In addition to investments in TECAR mentioned above (iron ore and coal), we will strengthen STSA (container terminal) in order to operate larger ships, increasing its capacity and competitiveness by aggregating services to facilitate client loyalty.

In railways, we plan to accelerate implementation of our Transnordestina project and explore its logistic potential through terminals and regional cargo, focusing on iron ore, agricultural, gypsum and fuel volumes. We also plan to invest in increasing our efficiency and capacity in the southern region of Brazil, through our interest in MRS.

Cement

Our strategy for cement business includes greater utilization of by-products by continuing construction of our cement grinding and athe clinker facility that we expect will produce 2.82.4 million tons per year of cement by 2011. We have an advanced project to build a new integrated cement plant in the State of Minas Gerais (grinding and clinker), taking advantage ofnext years. We are evaluating other organic growth initiatives to expand our calcareous reserves, with capacity to produce 0.6in additional 3 million tons per year, in order to capture the strong growth expected with the Soccer World Cup of cement. We are also developing 3 other2014 and the Olympic Games in 2016, besides the strong pace of construction of new projects with projected capacity 1 mtpy each, in locations in Brazil yet to be defined.housing units, commercial and infrastructure projects. For information on our planned investments relating to our cement activities, see “Item 4. Information on the Company —A. History4D. Property, Plant and Development of the Company —Planned Investments—Cement.”

23Equipment – Capital Expenditures – Planned Investments”.  

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Additional Investments

In addition to the currently planned investments and maintenance capital expenditures, we continue to consider possible acquisitions, joint ventures and brownfield or greenfield projects to increase or complement our steel, cement, mining producing and logistics capabilities, in addition to logisticlogistics infrastructure and energy generation.

Our Steel Segment

We produce carbon steel, which is the world’s most widely produced type of steel, representing the vast bulk of global steel consumption.  From carbon steel, we sell a variety of steel products, both domestically and abroad, to manufacturers in several industries.

The following chart reflects our production cycle in general terms.

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fp22a

 

Our Presidente Vargas steelworks produces flat steel products — slabs, hot-rolled, cold-rolled, galvanized and tin mill products.  For further information on our production process, see “—Product Process.”

Slabs

Slabs are semi-finished products used for processing hot-rolled, cold-rolled or coated coils and sheet products.  We are able to produce continuously cast slabs with a standard thickness of 250 millimeters, widths ranging from 830 to 1,600 millimeters and lengths ranging from 5,250 to 10,500 millimeters.  We produce high, medium and low carbon slabs, as well as micro-alloyed, ultra-low-carbon and interstitial free slabs.

Hot-Rolled Products

Hot-rolled products comprise heavy-gauge hot-rolled coils and sheets, and light-gauge hot-rolled coils and sheets.  A heavy gauge hot-rolled product, as defined by Brazilian standards, is a flat-rolled steel coil or sheet with a minimum thickness of 5.01 millimeters.  We are able to provide coils of heavy gauge hot-rolled sheet having a maximum thickness of 12.70 millimeters.  Heavy gauge sheet steel is used to manufacture automobile parts, pipes, mechanical construction and other products.  Light gauge hot-rolled coils and sheets produced by ushave a minimum thickness of 1.20 millimeters and are used for welded pipe and tubing, automobile parts, gas containers, compressor bodies and light cold-formed shapes, channels and profiles for the construction industry.

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Cold-Rolled Products

Cold-rolled products comprise cold-rolled coils and sheets.  A cold-rolled product, as defined by Brazilian standards, is a flat cold-rolled steel coil or sheet with thickness ranging from 0.30 millimeters to 3.00 millimeters.  Compared to hot-rolled products, cold-rolled products have more uniform thickness and better surface quality and are used in applications such as automotive bodies, home appliances and construction.  In addition, cold-rolled products serve as the base steel for our galvanized and tin mill products.  We supply cold-rolled coils in thicknesses of 0.30 millimeters to 2.99 millimeters.

Galvanized Products

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Galvanized products comprise flat-rolled steel coated on one or both sides with zinc or a zinc-based alloy applied by either a hot-dip or an electrolytic process.  We use the hot-dip process, which is approximately 20% less expensive than the electrolytic process.  Galvanizing is one of the most effective and low-cost processes used to protect steel against corrosion caused by exposure to water and the atmosphere.  Galvanized products are highly versatile and can be used to manufacture a broad range of products, such as:

  • ·bodies for automobiles, trucks and buses;

  • ·manufactured products for the construction industry, such as panels for roofing and siding, dry wall and roofing support frames, doors, windows, fences and light structural components;

  • ·air ducts and parts for hot air, ventilation and cooling systems;

  • ·culverts, garbage containers and other receptacles;

  • ·storage tanks, grain bins and agricultural equipment;

  • ·panels and sign panels; and

  • ·pre-painted parts.

Galvanized sheets, both painted and bare, are also frequently used for gutters and downspouts, outdoor and indoor cabinets, all kinds of home appliances and similar applications.  We produce galvanized sheets and coils in continuous hot-dip processing lines, with thickness ranging from 0.30 millimeters to 3.00 millimeters.  The continuous process results in products with highly adherent and uniform zinc coatings capable of being processed in nearly all kinds of bending and heavy machinery.

In addition to standard galvanized products, we produceGalvanew®, galvanized steel that is subject to a special annealing process following the hot-dip coating process.  This annealing process causes iron to diffuse from the base steel into the zinc coating.  The resulting iron-zinc alloy coating allows better welding and paint performance.  The combination of these qualities makes ourGalvanew® product particularly well suited for manufacturing automobile and home appliance parts including high gloss exposed parts.

At CSN Paraná, one of our branches, we produce galvalume, a cold-rolled material coated with a zinc-aluminum alloy.  The production process is similar to hot-dip galvanized coating, and galvalume has at least twice the corrosion resistance of standard galvanized steel.  Galvalume is primarily used in outdoor construction applications that may be exposed to severe acid corrosion environments like marine uses.

The added value from the galvanizing process permits us to price our galvanized products with a higher profit margin.  Our management believes that our value-added galvanized products present one of our best opportunities for profitable growth because of the anticipated increase in Brazilian demand for such high margin products.

Through our branch CSN Paraná, we also produce pre-painted flat steel, which is manufactured in a continuous coating line.  In this production line, a layer of resin-based paint in a choice of colors is deposited overeither cold-rolled or galvanized base materials.  Pre-painted material is a higher value-added product used primarily in the construction and home appliance markets.

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Tin Mill Products

Tin mill products comprise flat-rolled low-carbon steel coils or sheets with, as defined by Brazilian standards, a maximum thickness of 0.45 millimeters, coated or uncoated.  Coatings of tin or chromium are applied by electrolytic process.  Coating costs place tin mill products among the highest priced products that we sell.  The added value from the coating process permits us to price our tin mill products with a higher profit margin.  There are four types of tin mill products, all produced by us in coil and sheet forms:

  • ·tin plate - coated on one or both faces with a thin metallic tin layer plus a chromium oxide layer, covered with a protective oil film;

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·tin free steel - coated on both faces with a very thin metallic chromium layer plus a chromium oxide layer, covered with a protective oil film;

  • ·low tin coated steel - coated on both faces with a thin metallic tin layer plus a thicker chromium oxide layer, covered with a protective oil film; and

  • ·black plate - uncoated product used as the starting material for the coated tin mill products.

    • Tin mill products are primarily used to make cans and other containers.  With six electrolytic coating lines, we are one of the biggest producers of tin mill products in the world and the sole producer of coated tin mill products in Brazil.

    Production

    Production Process

    The principal raw materials for steel production in an integrated steelworks are iron ore, coal, coke, and fluxes like limestone and dolomite.  The iron ore consumed at the Presidente Vargas steelworks is extracted, crushed, screened and transported by railway from our Casa de Pedra mine located in the city of Congonhas, in the State of Minas Gerais, 328 km from the Presidente Vargas steelworks.  The high quality ores mined and sized at Casa de Pedra, with iron content of approximately 60%, and their low extraction costs are major contributors to our low steel production costs.

    Because Brazil lacks quality coking coals, we import all the coal required for coke production.  The coal is then charged in coke batteries to produce coke through a distillation process.  See “—Raw Materials and Suppliers—Raw Materials and Energy Requirements.”  This coal distillation process also produces coke oven gas as a byproduct, which we use as a main source of fuel for our thermoelectric co-generation power plant.  After being screened, coke is transported to blast furnaces, where it is used as a combustion source and as a component for transforming iron ore into pig iron.  In 2009,2010, we produced approximately 75% of our coke needs and imported the balance.  At sintering plants, fine-sized iron ore and coke or other fine-sized solid fuels are mixed with fluxes (limestone and dolomite) to produce sinter.  The sinter, lump iron ore, fluxing mate rialsmaterials and coke are then loaded into our two operational blast furnaces for smelting.  We operate a pulverized coal injection, or PCI, facility, which injects low-cost pulverized coal directly into the blast furnaces as a substitute for approximately one-third of the coke otherwise required.

    The iron ore is reduced to pig iron through successive chemical reactions with carbon monoxide (from the coke and PCI) in two blast furnaces that operate 24 hours a day.  The ore is gradually reduced, then melts and flows downward.  Impurities are separated from the iron to form a liquid slag with the loaded fluxes (limestone and dolomite).  From time to time, white-hot liquid iron and slag are drawn off from the bottom of the furnace.  Slag (containing melted impurities) is granulated and now is being used to produce cement.

    The molten pig iron is transported to the steelmaking shop by 350-ton capacity torpedo cars and charged in basic oxygen furnaces together with scrap and fluxes.  In the basic oxygen furnaces, oxygen is blown onto theliquid burden to oxidize its remaining impurities and to lower its carbon content, thus producing liquid steel.  The molten steel is conveyed from the basic oxygen furnaces to the secondary refining equipment (degasser, ladle furnace and Argon Stirring Station).  After adjusting the chemical composition, the molten steel is transferred to the continuous casting machines from which crude steel (i.e., rectangular shaped slabs) is produced.  A portion of the slab products is sold directly in the export market.

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    The hot-rolling, reheated slabs from the continuous casting machines are fed into hot strip mills to reduce the thickness of the slabs from 250 millimeters to a range between 1.2 and 12.7 millimeters.  At the end of the hot strip mill, the long, thin steel strip from each slab is coiled and conveyed to a cooling yard.  Some hot-rolled coils are dispatched directly to customers in the as-rolled condition.  Others are further processed in the pickling line, in a hydrochloric bath, to remove surface oxides and improve surface quality.  After pickling, the hot-rolled coils selected to produce thinner materials are sent to be rolled in cold strip mills.  The better surface characteristics of cold-rolled products enhance their value to customers as compared to hot-rolled products.  Additional processing related to cold-rolling may further improve surface quality.  Following c old-rolling,cold-rolling, coils may be annealed, coated (bycoated(by a hot dip or electrolytic tinning process) and painted, to enhance medium-and long-term anti-corrosion performance and to add characteristics that will broaden the range of steel utilization.  Coated steel products have higher profit margins than bare steel products.  Of our coated steel products, tin mill and galvanized products are our highest margin products.

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    Steel plant equipment regularly undergoes scheduled maintenance shutdowns.  Typically the rolling mills and coating lines are maintained on a weekly or monthly basis whereas the blast furnaces and other special equipment are scheduled for routine maintenance on a semi-annual or annual basis.

    Our business encompasses operations and commercial activities.  Our operations activities are undertaken by our production sector, which is composed of the following two units:

    • ·the operations unit is responsible for steel production operations, repair shops, in-plant railroad, and process development at Volta Redonda;

    • ·the support unit is responsible for production planning, management of product stockyards, energy and utility facilities and work force safety assistance at the Presidente Vargas steelworks.

    The production sector is also responsible for environment and quality consultancy, new products development, capital investment implementation for steel production and processing, as well as the supervision of GalvaSud’s CSNPorto Real’s and CSN Paraná’s operations.

    Quality Management Program

    We practice Total Quality Management, a set of techniques that have been adopted by many leading companies in our industry.  We also maintain a Quality Management System that has been certified to be in compliance with the ISO 9001 standards set forth by the International Standardization Organization, or ISO.  In October 2003, we were awarded the ISO 9000:  2000 certificate for the design and manufacture of hot-rolled, pickled and oiled products, cold-rolled, galvanized and tin mill products, which replaced the ISO 9001 Certificate that we were awarded in December 1994.  In October 2003, we were also awarded the automotive industry’s Technical Specification - 16949:  2002, for the design and manufacture of hot-rolled, pickled and oiled, cold-rolled and galvanized products, which replaced the QS 9000 standards that we were awarded in 1997.  Some important automotiv eautomotive companies, like Volkswagen, General Motors and Ford, require their suppliers to satisfy the QS 9000 standards.

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    Production Output

    The following table sets forth, for the periods indicated, the annual production of crude steel within Brazil and by us and the percentage of Brazilian production attributable to us.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    CSN% of 

     

     

     

     

     

    CSN% of

    Crude Steel Production

     

    Brazil 

     

    CSN 

     

    Brazil 

     

    Brazil

     

    CSN

     

    Brazil

     

    (In millions of tons)

     

     

     

    (In millions of tons)

     

     

    2010

     

    32.8

     

    4.9

     

    14.9%

    2009

     

    26.5 

     

    4.4 

     

    16.6% 

     

    26.5 

     

    4.4 

     

    16.6% 

    2008

     

    33.7 

     

    5.0 

     

    14.8% 

     

    33.7 

     

    5.0 

     

    14.8% 

    2007

     

    33.8 

     

    5.3 

     

    15.7% 

     

    33.8 

     

    5.3 

     

    15.7% 

    2006

     

    30.9 

     

    3.5 * 

     

    11.3% 

     

    30.9 

     

    3.5 * 

     

    11.3% 

    2005

     

    31.6 

     

    5.2 

     

    16.5% 

     

     

     

     

     

     

    _______________

    Source:  Brazilian Steel Institute (InstitutoInstituto Brasileiro de SiderurgiaAçoBrasil), or IBS.IABr..  

    * Lower production due to accident at Blast Furnace No. 3 on January 22, 2006.  

     

    The following table contains some of our operating statistics for the periods indicated.

     

     

     

     

     

     

     

     

     

     

     

     

    Certain Operating Statistics

     

     

     

     

     

     

     

     

     

     

     

     

     

    2007 

     

    2008 

     

    2009 

     

    2010

     

    2009

     

    2008

     

     

     

    (In millions of tons)

     

     

     

    (In millions of tons)

     

     (In millions of tons)

     

    (In millions of tons)

    Production of:

     

     

     

     

     

     

     

     

     

     

     

     

    Iron Ore

     

    15.0 

     

    17.0 

     

    17.1 

    Iron Ore *

     

    21.6 

     

    17.1 

     

     

    17.0

    Molten Steel

     

    5.4 

     

    5.1 

     

    4.5

     

    5.0

     

    4.5

     

     

    5.1

    Crude Steel

     

    5.3 

     

    5.0 

     

    4.4 

     

    4.9

     

    4.4 

     

     

    5.0

    Hot-Rolled Coils and Sheets

     

    5.1 

     

    4.7 

     

    4.1 

     

    5.0 

     

    4.1 

     

     

    4.7

    Cold-Rolled Coils and Sheets

     

    3.1 

     

    2.6 

     

    2.4 

     

    2.5 

     

    2.4 

     

     

    2.6

    Galvanized Products

     

    2.2 

     

    1.1 

     

    0.7 

     

    1.1 

     

    0.7 

     

     

    1.1

    Tin Mill Products

     

    0.9 

     

    0.7 

     

    0.6 

     

    0.7 

     

    0.6 

     

     

    0.7

    Consumption of Coal for Coke Batteries

     

    2.3 

     

    2.3 

     

    2.1 

     

    2.2 

     

    2.1 

     

     

    2.3

    Consumption of Coal for PCI

     

    0.9 

     

    0.8 

     

    0.6 

     

    0.7 

     

    0.6 

     

     

    0.8

    *Casa de Pedra

     

     

     

     

     

     

    24

     

    Raw Materials and Suppliers

    The principal raw materials we use in our integrated steel mill include iron ore, coke, coal (from which we make coke), limestone, dolomite, aluminum, tin and zinc.  In addition, our production operations consume water, gases, electricity and ancillary materials.

    Raw Materials and Energy Requirements

    In light of the global economic and financial crisis, which resulted in lower economic activity in 2009 as compared to 2008 and decrease demand for various commodity type industrial segments, coal and iron ore miners, and coke producers charged customers lower prices.  At the end of 2009 we noticed a recovery in the economy of certain countries, including Brazil.  Consequently, there was a pressure for increase in prices of certain raw materials.

    In 2010, prices of main raw materials increased due to increased post crisis demand and a strengthening of steel industry worldwide.      

    These commodity type industrial segments are highly concentrated in the hands of a few global players and there can be no assurance that price increases will not be imposed on steel producers in the future.

    Iron Ore

    We are able to obtain all of our iron ore requirements from our Casa de Pedra mine located in the State of Minas Gerais.  For a description of our iron ore segment see “– Our Mining Segment.”

    Coal

    In 2009,2010, our coal consumption totaled 2.762.9 million tons and accounted for 22.1%22% of our production cost.

    After the post-crisis demand recovery in the end of 2009, 2010 was a year of consolidation in terms of coal demand, especially from Asia.  Because of the cyclical and volatile nature of the coal industry, price negotiation of coking coal and quantity terms contained in ourPCI coal supplycontracts, which are denominated in U.S. dollars, are usually renegotiated annually. Thus, ourswitched from an annual to a quarterly basis, as of April 2010.  CSN’s coking coal and PCI coal costs can varyduring 2010 increased significantly compared with previous year due to a demand recovery.  The prices in 2010 varied from yearquarter to year.quarter, following the benchmark price settled between BHP Billiton and Japanese Steel producers prior to the beginning of each quarter.

    28

    25 

    Table of Contents

     

    CokeIn addition the 2010 average spot prices of coking coal and PCI Coal increased significantly compared to 2009, affected by demand fluctuation and unexpected heavy rains in Australia during fourth quarter, when some major exporters started to face serious operational issues at their mines as well as logistics constraints.

    CSN uses a PCI system that allows its production area to use less coke in the blast furnaces during the process, substituting a portion of the coke with lower grade coal.  The PCI system has reduced our need for imported coking coal and imported coke, thereby reducing production costs.  In 2009,2010, we used 710,940 tons of imported PCI coal.

    Coke

    In 2010, in addition to the approximately 1.521.6 million tons of coke we produced, we also consumed 299,141440,696 tons of coke bought from third parties in China, India, Colombia and in the domestic market.  This figure represents a decreasean increase of 11%47% as compared to our consumption in 20082009 and expresses CSN’sis similar to our historical level of consumption.  The market for coke has been very competitive since 2002, because China, a major player in the sea-borne trade, has increased its internal consumption and adopted restrictive export quotas.  In addition, India has become a major consumer of coke, considerably increasing its consumption in the past years.  Due to logistical reasons, China supplies most of India’s coke and this increase in consumption tightened even more the worldwide supply-demand balance of metallurgical coke. During 2009, the financial crisis hit the steel industry an d coke consumption worldwide was drastically reduced, resulting in lower prices of this raw material. In the fourth quarter of 2009, in light of a recovery

    Limestone and Dolomite

    Our Bocaina mine is located in the steel industry worldwide, prices started increasing.

         We use a PCI system that allows us to use less coke in our blast furnaces, substituting a portion of the coke with lower grade coal. The PCI system has reduced our need for imported coal and imported coke, thereby reducing our production costs. In 2009, we used approximately 642,259 tons of imported PCI coal.

    Limestone and Dolomite

         We obtain limestone and dolomite from our Bocaína mine in the citytown of Arcos in the State of Minas Gerais which produces 1.7 million tonsand it has been suppling, since the early '70s, limestone (calcium carbonate) and dolomite (dolomitic limestone) to  our Presidente Vargas Steelworks in Volta Redonda.  These products are used in the process of sintering and calcination.  Arcos has one of the biggest and best world’s reserves of limestone, and 0.8it’s used for the production of various products, including cement.

    The annual production of limestone and dolomite to our steelworks is approximately 2 million tons.

    The main products obtained from limestone and dolomite that are transferred to our steelworks in Volta Redonda are:

    ·limestone and dolomite calcination:  they have  granulometry between 32 and 76 mm, and they are used in the lime plant in Volta Redonda to produce calcitic and dolomitic lime, for further use, in the steelmaking process and sintering.  At the steelworks, lime is used for chemical controlling of liquid slag, in order to preserve the refractory of the converters and assist in the stabilization of the chemical reactions that occur during the manufacturing process of steel.  In the sintering, the purpose of lime is to increase the performance of this process and final quality of the sinter that is produced.

    ·limestone and dolomite sintering:  used in the production of “sinter”, in our steelworks.  The sinter is composed by fine ores, solid fuel and flux, which enable the semi-melting and sintering ore.  The sinter is used in blast furnace as a source of Fe for the production of pig iron.

    ·From 2009 on, with our entry in the cement market, Arcos’mine also became responsible for supplying limestone for the cement manufacturing process in Volta Redonda.

    With the startup of clinker production in 2011, our Bocaina mining will also be in charge of providing non steel limestone (limestone with high silica content), in approximately 1.3 million tons of dolomite on an annual basis. See/ year for clinker production, the map under “Item 4D. Property, Plants and Equipment”main raw material for the location of the Bocaína mine in relation to the Presidente Vargas steelworks.cement production.

    Aluminum, Zinc and Tin

    Aluminum is mostly used for steelmaking.  Zinc and tin are important raw materials used in the production of certain higher-value steel products, such as galvanized and tin plate, respectively.  We purchase aluminum, zinc and tin typically from third-party domestic suppliers under one or two-year contracts.  We maintain approximately a 50-day reserve of such materials at the Presidente Vargas steelworks.

    26

    Other Raw Materials

    In our production of steel, we also consume, on an annual basis, significant amounts of spare parts, refractory bricks and lubricants, which are generally purchased from domestic suppliers.

    We also consume significant amounts of oxygen, nitrogen, hydrogen, argon and other gases at the Presidente Vargas steelworks.  These gases are supplied by a third-party under long-term contracts from its gas production facilities located on the Presidente Vargas steelworks site.  In 20092010, we used 689,256786,746 tons of oxygen to produce 4.54.9 million tons of crude steel.

    Water

    Large amounts of water are also required in the production of steel.  Water serves as a solvent, a catalyst and a cleaning agent.  It is also used to cool, to carry away waste, to help produce and distribute heat and power, and to dilute liquids.  Our source of water is the Paraíba do Sul River, which runs through the city of Volta Redonda.  Over 80% of the water used in the steelmaking process is recirculated and the balance, after processing, is returned to the Paraíba do Sul River.  Since March 2003, the Brazilian government has imposed a monthly tax for our use of water from the Paraíba do Sul River, based on an annual fee of approximately US$1.6 million.

    Electricity

    Steelmaking also requires significant amounts of electricity to power rolling mills, production lines, hot metal processing, coking plants and auxiliary units.  In 2009,2010, the Presidente Vargas steelworks consumed approximately 2.72.97 million MWh of electric energy or 604664 kilowatt hours per ton of crude steel.  This consumption made us oneof the largest consumers of electricity in Brazil, accounting for approximately 11%12% of the overall consumption of electricity in the State of Rio de Janeiro.

    29

    Table of Contents

    Our main current source of electricity is our 238 MW thermoelectric co-generation power plant at the Presidente Vargas steelworks, besides the Itá and Igarapava hydroelectric facilities held by us, from which we have a take capacity available of 167 MW and 22 MW, respectively.  In addition, we have approved the construction of a new turbine generator at the Presidente Vargas steelworks, which will increase 20 MW to our existing installed capacity.  This turbine will be allocated near to our Blast Furnace No. 3, using the outlet gases from the iron making process to generate energy.

    Natural Gas

    In addition to electricity, we consume natural gas, mainly in our hot strip mill.  Companhia Estadual de Gás do Rio de Janeiro S.A., or CEG Rio, which was privatized in 1997, is currently our major source of natural gas.  Variations in the supply of gas can affect the level of steel production.  We have not experienced any significant stoppages of production due to a shortage of natural gas.  We also purchase fuel oil from Petrobras.  See “Item 3D.  Risk Factors—Risks Relating to the Steel Industry and CSN—Interruptions in the supply of natural gas and power transmission over the government power grid may adversely affect our business, financial condition and results of operations.”

    Diesel Oil

    In mid-October 2006 and July of 2008, we entered into an agreement to receive diesel oil from the Companhia Brasileira de Petróleo Ipiranga, or Ipiranga, in order to supply our equipment in Casa de Pedra, Arcos and Namisa in the State of Minas Gerais, which are the plants responsible for our mining activity.  In 20082009 and 2009,2010, we had a consumption of 49,56557,177 kiloliters and 57,17766,237 kiloliters of diesel oil, respectively.  This increase was mainly due to the growth of our mining activity to support our growing iron ore production, which required us to enlarge our mining equipment fleet.  In 20082009 and 2009,2010, we paidUS$45.060.4 million andUS$60.437.8 million, respectively, for the diesel oil we consumed.

    27

    Clinker

    Clinker

     In August 2009, we entered into an agreement to receive clinker from Votorantim Cimentos Brasil S.A.,

    We are importing Clinker  in order to supply our cement mill in the Presidente Vargas steelworks in the state of Rio de Janeiro State, which is theJaneiro. Addionally, as from Abril 2011, we started producing our own clinker in our plant responsible for our cement production.in Arcos, Minas Gerais.

    Suppliers

    We acquire the inputs necessary for the production of our products in Brazil and abroad, with aluminum, zinc, tin, spare parts, refractory bricks, lubricants, oxygen, nitrogen, hydrogen and argon being the main inputs acquired in Brazil.  Coal and coke are the only inputs acquired abroad.

    Our main raw materials suppliers are set forth below:

     

     

     

     Main Suppliers  

     

    Raw Material  

     

     

     

     BHP Billiton, Jim Walter Resources, Alpha Natural Resources, Rio Tinto, Marubeni and Jellinbah 

     

    Coal 

     Noble, Glencore and CI Milpa

     

    Coke 

     Reciclagem Brasileira de Metais Ltda.

     

    Aluminum 

     Votorantim Metais(1)

     

    Zinc 

     White Solder and Melt 

     

    Tin 

     Sotreq, P & H Minepro and MTU do Brasil .  

     

    Spare parts 

     Magnesita, RHI and Saint Gobain 

     

    Refractory bricks 

     

    Petrobras,Ipiranga and Quaker 

     

    Lubricants 

    ___________

    (1) We depend on Votorantim Metais as they are the only suppliers of zinc in Brazil

     

    Facilities

    Steel Mill

    The Presidente Vargas steelworks, located in the city of Volta Redonda, in the State of Rio de Janeiro, began operating in 1946.  It is an integrated facility covering approximately 4.0 square km and containing five coke batteries (three of which are currently in operation), three sinter plants, two blast furnaces, a basic oxygen furnace steel shop, or BOF shop, with three converters, three continuous casting units, one hot strip mill, three cold strip mills, two continuous pickling lines, one continuous annealing line, three continuous galvanizing lines, four continuous annealing lines exclusively for tin mill products and six electrolytic tinning lines.

    Our major operational units and corresponding effective capacities as of December 31, 2010, including CSN LLC and Lusosider, are set forth in the following chart:

    Effective Capacity

    Tons
    per year

    Equipment
    in operation

    Process:

       Coking plant 

    1,680,000 

    3 batteries 

       Sintering plant 

    6,930,000 

    3 machines 

       Blast furnace 

    5,380,000 

    2 furnaces 

       BOF shop 

    5,750,000 

    3 converters 

       Continuous casting 

    5,600,000 

    3 casters 

    Finished Products:

       Hot strip mill 

    5,100,000 

    1 mill 

       Cold strip mill 

    4,550,000 

    6 mills 

       Galvanizing line 

    2,095,000 

    7 lines 

       Electrolytic tinning line 

    1,190,000 

    7 lines 

    30

    28 

    Downstream Facilities

    CSN Paraná

    Our branch CSN Paraná produces and supplies plain regular galvanized,Galvalume® and pre-painted steel products for the construction and home appliance industries.  The plant has an annual capacity of 330,000 tons of galvanized products andGalvalume® products, 100,000 tons of pre-painted products, which can use cold-rolled or galvanized steel as substrate, and 220,000 tons of pickled hot-rolled coils in excess of the coils required for the coating process.

    Metalic

    We have a 99.99% ownership interest in Cia.  Metalic Nordeste, or Metalic.  Metalic is one of the few two-piece steel can producer in all the Americas.  It has approximately 48% of the packaging market for carbonated drinks in the Northeastern regions of Brazil.  Currently, we are the only supplier to Metalic of the steel used to make two-piece cans.  The development of drawn-and-wall-ironed steel for the production of two-piece cans is an important achievement in the production process at the Presidente Vargas steelworks.  In 2010, the company sold 831 million cans of 350 ml, 60 million cans of 250 ml and 1,284 million ends, and of these 13% were exported to Latin America.

    Prada

    We have a 99.99% ownership interest in Cia.  Matelúrgica Prada, or Prada.  Established in 1936, Prada is the largest Brazilian steel can manufacturer and has an annual production capacity of over one billion cans in its three industrial facilities located in the states of São Paulo, Rio Grande do Sul and Minas Gerais.  Currently, we are the only Brazilian producer of tin plate, Prada’s main raw material, which makes Prada one of our major customers of tin plate products.  Prada has important clients in the food and chemical industries, including packages of vegetables, fishes, dairy products, meat, aerosols, paints and varnishes, and other business activities.  On December 30, 2008, we merged one of our subsidiaries, Indústria Nacional de Aços Laminados S.A., or INAL, into Prada.  INAL was a distributor of laminated steel founded in 1957 and, after the merger,itbecame a branch of Prada responsible for distribution of Prada’s products, or Prada Distribuição.

    Prada Distribuição is also the leader in the Brazilian distribution market, with 460,000 tons per year of installed processing capacity.  Prada Distribuição has two steel service centers and five distribution centers strategically located in Brazil.  Its main service center is located in the city of Mogi das Cruzes between the cities of São Paulo and Rio de Janeiro.  Its product mix also includes sheets, slit coils, sections, tubes, and roofing in standard or customized format, according to client’s specifications.  Prada Distribuição processes all range of products produced by us and services 4,000 customers annually from the civil construction, automotive and home appliances sectors, among others.

    Inal Nordeste

    Inal Nordeste, or INOR, is our subsidiary and a distributor of laminates located in Northeastern Region.  INOR has a service center located in the city of Camaçari, in the State of Bahia, to support sales in the Northeastern and North regions of Brazil, with 155,000 tons per year of installed processing capacity.  On May 30, 2011, INOR was merged into the Company, then allowing the optimization of processes and operations as well as reduction of costs.

    Companhia Siderurgica Nacional, LLC

    CSN LLC holds the assets of former Heartland Steel, a flat-rolled steel processing facility in Terre Haute, Indiana.  This facility has an annual production capacity of 180,000 tons of cold-rolled products and 315,000 tons of galvanized products.  Currently, CSN LLC is obtaining hot coils by buying slabs from CSN and then having them converted into hot coils by local steel companies or buying hot rolled coils directly from mills in the United States.  See “Item 4B.  Government Regulation and Other Legal Matters—Anti-Dumping Proceedings—United States” for a discussion about anti-dumping issues on Brazilian hot coils exports to the United States.

    29

    Table of Contents

     

    Lusosider, Aços Planos, S.A.

    We own 99.94% of Lusosider, a producer of hot-dip galvanized products and cold-rolled located in Seixal, near Lisbon, Portugal.  Lusosider produces approximately 240,000 tons of galvanized products and 50,000 tons of cold-rolled annually.  Its main customers include service centers and tube making industries.

    Our Mining Segment

    Our mining activities are one of the largest in Brazil and are mainly driven by exploration of one of the richest Brazilian iron ore reserves, Casa de Pedra, in the State of Minas Gerais.  We sell our iron ore products mainly in Brazil,Asia, Europe and AsiaBrazil with sales and marketing taking place through our principal hubs of Minas Gerais, in Brazil, Madeira Islands, in Portugal, andHong Kong.Kong.

    Our Mines

    Our Mines

    Location, Access and Operation

    Casa de Pedra

    Casa de Pedra mine is an open pit mine located next to the city of Congonhas in the State of Minas Gerais, Brazil, approximately 80 km South of the city of Belo Horizonte and 360 km North of the city of Rio de Janeiro.  The site is approximately 1,000 meters above sea level and accessible from the cities of Belo Horizonte or Congonhas through mostly paved roads.

    Casa de Pedra mine is a hematite-rich iron deposit of an early proterozoic banded iron formation in Brazil’s Iron Ore Quadrangle region (Quadrilátero Ferrífero), which is located in the central part of the State of Minas Gerais in the Southeastern region of Brazil and has been one of the most important iron producing regions for the last 50 years.

         OreOur iron ore at Casa de Pedra is currently excavated by a fleet composed of Marion 191M electric shovels, P&H 1900AL electric shovels, PC 5500 Demag hydraulic shovels, wheel loaders (different brands) and then hauled by a fleet of Terex MT3300AC (150 tons), Komatsu Dresser 510E (150 tons), Caterpillar CAT793 (240 tons) and Terex Unit Rig  MT4400 (240 tons).

    Casa de Pedra mine is wholly-owned by us and accounts for all our iron ore supply, producing lump ore, sinter feed and pellet feed fines with high iron content.

    The maps below illustrate the location of our Casa de Pedra mine:

    fp50a

    31fp50a  

     

    30

    Table of Contents

     

    fp50bfp50b

    Namisa

    We own additional iron ore assets through Namisa, our 60% non-consolidatedconsolidated investee, which acquired CFM in July, 2007.  CFM was incorporated in 1996 with the purpose of utilizing and enhancing the ore treatment facilities of the Itacolomy mines, for the beneficiation of crude ore extracted from its deposit, the Engenho mine.

    The Engenho mine is located at the Southwestern region of the Iron Ore Quadrangle, 60 km South of the city of Belo Horizonte.

    32

    Table of Contents

    The maps below illustrate the location of our Engenho mine:

    fp52a

    fp52a  

    31

    TheFernandinho mine, an asset that we also hold through Namisa, is located in the city of Itabirito, in the State of Minas Gerais.  This town is located in the Middle-East region of the State of Minas Gerais and approximately 43 km from the city of Belo Horizonte.

    The maps below illustrate the location of our Fernandinho mine:

    fp53a

    33

     

    Table of Contents

    Limestone and Dolomite Mine

    Our extraction and preparation of limestone and dolomite is done at our Bocaína mining facility located in the city of Arcos, in the State of Minas Gerais.  This mining facility has an installed annual production capacity of approximately 4.0 million tons.  We believe this mining facility has sufficient limestone and dolomite reserves to adequately supply our steel production, at current levels, for more than 45 years.  The mining facility is located 455 km from the Presidente Vargas steelworks.

    Tin

    We own a tin mine and a smelter located in the State of Rondônia.  The inventory of the geological reserves has been prepared from a review of the major reports from the Santa Barbara Mine Document Center.  The majority of the deposits and/or target areas are within Mining Leases that have been consolidated into Mining Group (Grupamento Mineiro No. 131/92).  The reserves provided were recognized by the DNPM.  The reserves and resources presented are “in situ.”

    MiningMineral Rights and Ownership

    The Mining Code and the Brazilian Federal Constitution impose requirements on mining companies relating to, among other things, the manner in which mineral deposits are exploited, the health and safety of workers, the protection and restoration of the environment, the prevention of pollution and the promotion of the health and safety of local communities where the mines are located.  The Mining Code also imposes certain notifications and reporting requirements.

    We hold concessions to mine iron ore, limestone and dolomite.  We purchase manganese onin the local market.  Except for Namisa’s mines, in which we have a 60% ownership interest, we own 100% of each of our mines.  In addition, each mine is an “open pit” mine.  Iron ore extraction, crushing, screening and concentration are done in threeinthree different sites:  Casa de Pedra (CSN’s property), Pires Beneficiation Plant and Fernandinho Mine (both Namisa’s property).

    32

    Casa de Pedra

    Our mining rights for Casa de Pedra mine include the mine, beneficiation plant, roads, loading yard and railway branch and are duly registered with the Brazilian Department of Mineral Production (Departamento Nacional de Produção Mineral), or DNPM.  We have also been granted by DNPM easements in 15 mine areas located in the surrounding region, which are not currently part of Casa de Pedra mine, and hold title to all our proved and probable reserves.

    We believe we have obtained and are in compliance with all licenses and authorizations for our operations and projects at Casa de Pedra mine.

    The exploitation in Casa de Pedra mine is subject to mining lease restrictions, which were duly addressed in our iron ore reserve calculations.  Quality requirements (chemical and physical) are the key “modifying factors” in the definition of ore reserves at Casa de Pedra and were properly accounted for by the CSN mine planning department.

    Mineral Reserves

    The following table sets forth the type of each of our mines, period of operation, projected exhaustion dates and percentage of our interest:

    Mine  

     

    Type  

     

    Operating Since  

     

    Projected exhaustion date  

     

    CSN % interest  

     

     

     

     

     

     

     

     

     

    Iron:  

     

     

     

     

     

     

     

     

    Casa de Pedra (Congonhas, Minas Gerais)

     

    Open pit 

     

    1913 

     

    2041 

     

    100 

    Engenho (Congonhas, Minas Gerais)

     

    Open pit 

     

    2007 (Start of operation by Namisa)

     

    2041 

     

    60 

    Fernandinho (Itabirito, Minas Gerais)

     

    Open pit 

     

    2007 (Start of operation by Namisa)

     

    2030 

     

    60 

     

    Limestone and Dolomite:  

     

     

     

     

     

     

     

     

    Bocaina (Arcos, Minas Gerais)

     

    Open pit 

     

    1946 

     

    2052 

     

    100 

     

    Tin:  

     

     

     

     

     

     

     

     

    (Itapoã do Oeste, Rondônia)

     

    Open pit 

     

    1950 

     

    - 

     

    100 

     

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    Table of Contents

    The following table sets forth our estimates of proven and probable reserves and other mineral deposits at our mines reflecting the results of reserve study.  They have been calculated in accordance with the technical definitions contained in the SEC’s Industry Guide 7, and estimates of mine life described herein are derived from such reserve estimates.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

           MINERAL RESOURCES– As of December 31, 2009 

     

           MINERAL RESOURCES– As of December 31, 2010 

     

     

     

     

     

     

     

     

     

     

     

    Mineral Deposits 

     

     

     

     

     

     

     

     

     

     

     

      

     

    Proven and Probable Reserves(1)

     

    Resources(2)

     

    Proven and Probable Reserves(1)

     

    Mineral Deposits Resources(2)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Recoverable 

     

     

     

     

     

     

     

     

     

     

     

    Recoverable  

     

     

    Mine Name

     

    Ore Tonnage(3)

     

     

     

     

     

    Product(5)

     

    Tonnage 

    and Location

     

    (millions of tons)

     

    Grade(4)

     

    Rock Type 

     

    (millions of tons)

     

    (millions of tons)

     

    Ore Tonnage(3)

     

     

     

     

     

    Product(5)

     

    Tonnage  

    Mine Name and Location

     

    (millions of tons)

     

    Grade(4)

     

    Rock Type  

     

    (millions of tons)

     

    (millions of tons)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Proven(6)

     

    Probable(7)

     

     

     

     

     

     

     

     

     

    		           

    )

     

    Probable(7)

     

     

     

     

     

     

     

     

    		  

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Iron:

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Casa de Pedra(Congonhas,

     

     

     

     

     

     

     

    Hematite (21%)

     

     

     

     

     

     

     

     

     

     

     

    Hematite (21%)

     

     

     

     

    Minas Gerais)

     

    1,048 

     

    514 

     

    47.79% Fe 

     

    Itabirite (79%)

     

    943

     

    8,317

     

    1,016 

     

    514 

     

    47.79% Fe 

     

    Itabirite (79%)

     

    891

     

    8,285

    Engenho

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    (Congonhas, Minas Gerais)

     

     

     

     

     

    46.07% 

     

    Itabirite (100%)

     

     

     

    857

     

     

     

     

     

    46.07% 

     

    Itabirite (100%)

     

     

     

    857

    Fernandinho

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    (Itabirito, Minas Gerais)

     

     

     

     

     

    40.21% 

     

    Itabirite (100%)

     

     

     

    582

     

     

     

     

     

    40.21% 

     

    Itabirite (100%)

     

     

     

    582

    Total Iron:

     

    1,048

     

    514 

     

     

     

     

     

    943

     

    9,788

     

    1,016

     

    514  

     

     

     

     

     

    891

     

    9,724

    (Congonhas, Minas Gerais)

    (Congonhas, Minas Gerais)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Limestone and Dolomite:

     

    Proven(6)

     

    Probable(7)

     

     

     

     

     

     

     

     

     

    Proven(6)

     

    Probable(7)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Bocaina

     

     

     

     

     

    41.3%CaO 

     

    Limestone (86%)

     

     

     

     

     

     

     

     

     

    41.3%CaO 

     

    Limestone (86%)

     

     

     

     

    (Arcos, Minas Gerais)

     

    120.2

     

    41.9

     

    5.99%MgO 

     

    Dolomite (14%)

     

    158.5

     

    1,190

     

    117.71

     

    41.9

     

    5.99%MgO 

     

    Dolomite (14%)

     

    156

     

    1,187.5

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Proven+Probable Reserves(Mm3)

     

     

     

     

     

    Recoverable Product5 

     

    Resources (Mm3) 

     

    Proven+Probable Reserves(Mm3)

     

     

     

     

     

    Recoverable Product5 

     

    Resources (Mm3) 

     

     

     

     

     

     

     

     

     

    (in tons)

     

    (in million cubic meters)

     

     

     

     

     

     

     

     

     

    (in tons)

     

    (in million cubic meters)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Tin

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    (Itapoã do Oeste,

     

     

     

     

     

     

     

    Paleo valley and 

     

     

     

     

    Rondônia)

     

    41.33

     

     

     

    shallow 

     

    24,066 

     

    95.87

     

     

     

     

     

     

     

    Paleo valley and 

     

     

     

     

    (Itapoã do Oeste, Rondônia)

     

    40,31

     

     

     

    shallow 

     

    23,509 

     

    94,85

     

     

     

     

     

     

     

     

     

     

     

     

    __________________

    (1)      Reserves means that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.
    (2)      Includes inferred tonnages.
    (3)      Represents ROM material.
    (4)      Grade is the proportion of metal or mineral present in ore or any other host material.
    (5)      Represents total product tonnage after mining and processing losses.
    (6)      Means reserves for which:  (i) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (ii) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well- established.
    (7)      Means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measure) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced.  The degree of assurance, although lower than that for proven (measure) reserves, is high enough to assume continuity between points of observation.

    33

    Casa de Pedra

    We have concluded an extensive, multi-year study of our iron ore reserves at Casa de Pedra.  The study consisted of three phases.  Phase one, which was completed in 1999, covered the ore bodies that are currently being mined or are close to the current operating open pits.  Phase two, which was completed in early 2003, covered the other iron ore deposits at Casa de Pedra site.  Phase three started in 2005 and involved a complete revaluation of our mineral reserves at Casa de Pedra.

    We conducted extensive work throughout 2006 to document and classify all information related to both the current and future operations of the Casa de Pedra mine.

    In 2006, we hired Golder Associates S.A., or Golder, to undertake an independent analysis of the Casa de Pedra iron ore reserves.  Golder carried out a full analysis of all available information and has independently validated our reported reserves.

    Golder accepts as appropriate the estimates regarding proven and probable reserves made by us, totaling 1,631 million tons of iron ore (as of December 31, 2006) at a grade of 47.79% Fe and 26.63% SiO2.  This new estimate of our iron ore reserves at Casa de Pedra is significantly larger than our estimate of 444 million tons, reported on an appraisal report prepared in 2003.

    In 2010, we had a total drilling of 8,489 meters.  We are extending our drilling campaign with additional 24,00066,000 meters to increase and improve our knowledge about the iron ore deposits at Casa de Pedra. Of this total, we have already concluded 8,271 meters.  When this drilling campaign is concluded, we intend to runconduct a new program of ore reserve audit.

    35

    34 

    Table of Contents

     

    Namisa

    An initial study was conducted at Fernandinho and Engenho mines to define the geological resources and final pits.  We are extendingIn 2008 and 2009, we extended our drilling campaign with additional 10,0005,179 meters at both mines this yearEngenho mine and 2,771 meters at Fernandinho mine (totalizing a campaign of 7,950 meters) to increase and improve our knowledge about the iron ore deposits at these mines.  We expect that, as soon this drilling campaign is concluded andas a new model and final pit is finished, this reserve could be audited and incorporated in our mineral deposits.

    Production

    Production

    Casa de Pedra

    In 2009, the ROM was 27.0 million tons (with a total crusher feed of 21.5 million tons and a total classification and concentration feed of 21.1 million tons). The resulting product tonnage was 17.1 million tons of processed iron ore (mass recovery on wet basis of 80.5%). Of this total amount, 6.4 million tons were delivered to the Presidente Vargas steelworks and 7.5 million tons were sold to third parties, consisting of 3.8 million tons of sinter-feed material, 3.3 million tons of pellet feed materials, 0.3 million tons of lump ore and 0.2 million tons of small lump ore.

    The Casa de Pedra facilities are located in the city of Congonhas, in the State of Minas Gerais.  The Casa de Pedra mine is located 350 km from the Presidente Vargas steelworks and supplies iron ore products to our steel mill, as well as for export through the Itaguai Port.  Casa de Pedra’s equipment fleet and treatment facilities have an installed annual ROM capacity of approximately 60.085.0 million tons and 21.5 million tons, respectively.

    Namisa

    In 2009, Namisa sold 14.6 million tons through production from its two complexes and acquisition of iron ore from third parties and CSN, of which 14.4 million tons were exported. Trading iron ore is obtained from small mining companies in the region. In 2009, 2.82010 Casa de Pedra produced 21.6 million tons of ROM were extracted from the Engenho mine with a waste/ore ratio of 0.35.iron ore.

    Namisa

    The beneficiation plant at Pires also processed crude ore acquired from CSN (Casa de Pedra),other companies, which along with its own ROM, generated 5.0 million tons composed ofgenerates final products such as: lump ore, small lump ore or hematitinha,(hematitinha), sinter feed and concentrates. In 2009, 0.8 million tons were extracted from the Fernandinho mine with a waste/ore ratio of 0.17.  The beneficiation plant at the Fernandinho unit generated 0.5 million tons of small lump ore and sinter feed products, in which the sinter feed practically corresponded to the total production.

    Most of the ROM of the Pires Beneficiation Plant comes from Engenho mine (Namisa’s property), which is located at the northern border of the Casa de Pedra mine.  Pires Beneficiation Plant has the capacity to process 10.3 million tons per year.  From this total, 6approximately 3 million tons are currently provided by the Engenho mine and the balance is purchased from third parties.

         The Fernandinho mine produced 1.2 million tons of feed in 2009.

    Namisa complements our strategy to be a world leading producer of high quality iron ore.  Namisa remains fully integrated with our railway and port logistics corridor, through long-term contracts, which provide sufficient railway and port logistics capacity for Namisa’s current and future production.  Namisa is a leading company in iron ore mining and trading, with mining and processing operations in the State of Minas Gerais.  Trading iron ore is obtained from small mining companies in the neighborhood and other trading companies.  For information on the sale of 40% of our ownership interest in Namisa, see “Item 4. Information on the Company —A.  History and Development of the Company—Acquisitions and Dispositions.”

    Our steelmaking operations consumed 6.26.9 million tons of iron ore during 2009,2010, consisting of 4.75.1 million tons of sinter-feed material and 1.51.8 million tons of lump ore.  As we do not have pelletizing plants, the total amount of pellets has been acquired in the Brazilian market. In 2009, we entered into an agreement to receive pellets from Vale, in order to supply our equipment in the Presidente Vargas steelworks in the State of Rio de Janeiro.

    36

    Table of Contents

    LogisticsDistribution

    Transportation costs are a significant component of our steel and iron ore production costs and are a factor in our price-competitiveness in the export market.  Railway transportation is the principal means by which we transport raw materials from our mines to the Presidente Vargas steelworks and steel and iron ore products to ports for shipment overseas.  Iron ore, limestone and dolomite from our two mines located in the State of Minas Gerais are transported by railroad to the Presidente Vargas steelworks for processing into steel.  The distances from our mines to the Presidente Vargas steelworks are 328 km and 455 km.  The distances from our mines to the ports are 440 km and 160 km.  Imported coal and coke bought from foreign suppliers are unloaded at the port of Itaguaí, 90 km west of the city of Rio de Janeiro, and shipped 109 km by train to the Presidente Va rgasVargas steelworks.  Our finished steel products are transported by train, truck and ships to our customers throughout Brazil and abroad.  Our principal Brazilian markets are the cities of São Paulo (335 km from the Presidente Vargas steelworks), Rio de Janeiro (120 km) and Belo Horizonte (429 km).

    35

     

    Until recently, Brazil’s railway system (including railcars and tracks) was principally government-owned and in need of repair, but has now been largely privatized.  In an attempt to increase the reliability of our rail transportation, we indirectly hold concessions for the main railway systems we use.  For further information on our railway concessions, see “—Facilities—Railways.”

    We export mainly through the ports of Itaguaí and Rio de Janeiro, and import coal and coke through the Itaguaí Port, all in the State of Rio de Janeiro.  The coal and container terminals have been operated by us since August 1997 and 1998, respectively.

    Marketing OrganizationOur Logistics Segment

    Our logistics segment is comprised of railway and Strategy

    Steel

         Our steel products are sold both domestically and abroad as a main raw material for several different manufacturing industries, including the automotive, home appliance, packaging, construction and steel processing industries.

         Our sales approach is to establish brand loyalty and achieve a reputation for quality products by developing relationships with our clients and focusing on their specific needs.

         Our commercial area is responsible for sales of all of our products. This area is divided into two major teams, one focused on international sales and the other on domestic sales. The domestic market oriented sales team is divided into five market segments: packaging, distribution, automotive, home appliances and original equipment manufacturer, or OEM, and construction. Each one of these segments has a specific strategic goal to provide tailor-made steel solutions that meet the specific needs of each client they serve.

         The distribution unit is responsible for supplying large steel processors and distributors, as well as some industries that produce small diameter pipe and light profiles. The packaging unit acts in an integrated way with suppliers, representatives of the canning industry and distributors to respond to customer needs for finished-products. The automotive unit is supplied by a specialized mill, CSN Porto Real , and also by a portion of the galvanized material produced at Presidente Vargas steelworks, benefiting from a combined sales strategy.

         In 2009, approximately two thirds of our domestic sales were made through our own sales force directly to customers. The remaining sales were to independent distributors for subsequent resale to smaller clients.

         Historically, our export sales were made primarily through international brokers. However, as part of our strategy to establish direct, longer-term relationships with end-users, we have decreased our reliance on such brokers. We have focused our international sales to more profitable markets in order to maximize revenues and shareholder returns.port facilities.

         All of our sales are on an order-by-order basis and have an average delivery time of 45 days. As a result, our production levels closely reflect our order log book status. We forecast sales trends in both the domestic and export markets based on the historical data available from the last two years and the general economic outlook for the near future. We have our own data systems to remain informed of worldwide and Brazilian marketdevelopments. Further, our management believes that one of the keys to our success is maintaining a presence in the export market. Such presence give to us the flexibility to shift between domestic and export markets, thereby allowing us to maximize our profitability.

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    Table of Contents

         Unlike classic commodity products, there is no exchange trading of steel, or uniform pricing, as wide differences exist in terms of size, quality and specifications. In general, exports are priced based on international spot prices of steel at the time of sale in U.S. dollars or Euros, depending on the destination. To establish the domestic price, the corresponding international quotations are converted intoreaisRailways and an additional amount is added to reflect, among other things, local demand, transportation and tariff costs to import similar products. Sales are normally paid at sight, or within 14 or 28 days, and, in the case of exports, usually backed by a letter of credit and an insurance policy. Sales are made primarily on cost and freight terms.

    Sales by Geographic Region

         In 2009, we sold steel products to customers in Brazil and 41 other countries. The fluctuations in the portion of total sales assigned to domestic and international markets, which can be seen in the table below, reflect our ability to adjust sales in light of variations in the domestic and international economies, as well as steel demand and prices, domestically and abroad.

         The four main export markets for our products are Europe, Asia, North America and Latin America, representing 33%, 30%, 28% and 6%, respectively, of our export sales volume in 2009.

         In North America, we take advantage of our subsidiary CSN LLC, which acts as a commercial channel for our products. In order to gain a cost advantage among our U.S. competitors, CSN is able to export slabs to CSN LLC which are processed at third parties into hot-rolled coil and then transformed into more added value products at CSN LLC’s plant, such as cold-rolled coil and galvanized. Moreover, we are able to export cold-rolled coils which can be directly sold or processed by CSN LLC in order to manufacture galvanized products.

         In Europe, we sell hot-rolled coil as raw material to Lusosider, our subsidiary located in Portugal.

         The following table contains information relating to our sales of steel products by destination:

     

     

    CSN – Sales of Steel Products by Destination

     

     

    (In thousands of metric tons and millions of US$)

     

     

    2007

     

    2008

     

    2009

     

     

     

     

     

     

     

     

     

     

     

     

     

    Gross

     

     

     

     

     

     

     

    Gross

     

     

     

     

     

     

     

    Gross

     

     

     

     

     

     

    % of

     

    Operating

     

    % of

     

     

     

    % of

     

    Operating

     

    % of

     

     

     

    % of

     

    Operating

     

    % of

     

     

    Tons

     

    Total

     

    Revenues(2)

     

    Total

     

    Tons

     

    Total

     

    Revenues(2)

     

    Total

     

    Tons

     

    Total

     

    Revenues(2)

     

    Total

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Brazil

     

    3,614

     

    67.2

     

    4,853

     

    77.0

     

    4,158

     

    85.0

     

    6,845

     

    89.6

     

    3,243

     

    78.9

     

    4,585

     

    89.1

    Export

     

    1,764

     

    32.8

     

    1,446

     

    23.0

     

    733

     

    15.0

     

    791

     

    10.4

     

    867

     

    21.1

     

    562

     

    10.9

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

       Total

     

    5,378

     

    100.0

     

    6,299

     

    100.0

     

    4,891

     

    100.0

     

    7,636

     

    100.0

     

    4,110

     

    100.0

     

    5,147

     

    100.0

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Exports by Region

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Asia

     

    57

     

    1.1

     

    47

     

    0.7

     

    17

     

    0.3

     

    19

     

    0.3

     

    259

     

    6.3

     

    125

     

    2.4

    North America(1)

     

    970

     

    18.0

     

    651

     

    10.4

     

    268

     

    5.5

     

    291

     

    3.8

     

    243

     

    5.9

     

    142

     

    2.8

    Latin America

     

    122

     

    2.3

     

    94

     

    1.5

     

    96

     

    2.0

     

    105

     

    1.4

     

    55

     

    1.3

     

    61

     

    1.2

    Europe

     

    548

     

    10.2

     

    601

     

    9.5

     

    331

     

    6.8

     

    352

     

    4.6

     

    290

     

    7.1

     

    213

     

    4.1

    All Others

     

    67

     

    1.2

     

    53

     

    0.9

     

    21

     

    0.4

     

    24

     

    0.3

     

    20

     

    0.5

     

    21

     

    0.4

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

      Total Exports

     

    1,764

     

    32.8

     

    1,446

     

    23.0

     

    733

     

    15.0

     

    791

     

    10.4

     

    867

     

    21.1

     

    562

     

    10.9

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    _______________

    (1)  Sales to Mexico are included in North America.

    (2)  Total gross operating revenues presented above differ from amounts in our U.S. GAAP financial statements because they do not include revenues from non-steel products (non-steel products include mainly by-products, iron ore, logistics services and cement), which in 2007 represented US$679 million, in 2008 represented US$1,571 million and in 2009 represented US$1,194 million.

    38

    Table of Contents

    Sales by Product

         The following table sets forth our market shares for steel sales in Brazil of hot-rolled, cold-rolled, galvanized and tin mill products for the past three years according to the Brazil Steel Institute (Instituto Aço Brasil), orIABr.

     

     

     

     

     

     

     

    CSN Domestic Market Share 

     

     

     

     

     

     

     

     

    2007 

     

    2008 

     

    2009   

     

     

    (As a percentage of the market for each product)

    Hot-Rolled Products 

     

    31.0%

     

    34.0%

     

    33.0%

    Cold-Rolled Products 

     

    21.0%

     

    26.0%

     

    29.0%

    Galvanized Products 

     

    44.0%

     

    49.0%

     

    47.0%

    Tin Mill Products 

     

    98.0%

     

    99.0%

     

    98.0%

    Sales by Industry

         We sell our steel products to manufacturers in several industries. Following is a breakdown of our domestic shipments by volume for the last three years among our market segments:

    Sales by Industrial Segment in Brazil

     

     

     

     

     

     

     

     

     

    2007

     

    2008

     

    2009

     

     

    (In percentages of total domestic volume shipped)

    Distribution 

     

    43.3% 

     

    44.7% 

     

    38.9% 

    Packaging 

     

    16.3% 

     

    15.1% 

     

    15.4% 

    Automotive 

     

    14.6% 

     

    19.6% 

     

    20.6% 

    Home Appliances/OEM 

     

    13.3% 

     

    12.1% 

     

    14.6% 

    Construction 

     

    12.5% 

     

    8.5% 

     

    10.5% 

         We believe we have a particularly strong domestic and export position in the sale of tin mill products used for packaging. Our customers for these products include some of the world’s most important food processing companies, as well as many small and medium-sized entities. We also maintain a strong position in the sale of galvanized products for use in the automobile manufacturing, construction and home appliance industries in Brazil and abroad, supplied by CSN Porto Real and CSN Paraná. No single customer accounts for more than 10% of our net operating revenues.

         For further information on steel sales, see “Item 5A. Operating Results - Results of Operations - Year 2009 Compared to Year 2008 - Operating Revenues”.

    Seasonality

         The seasonality item was not identified in the Company activity, once its production is continuous during the year.

    Iron Ore

         Iron ore products are commercialized by our commercial team located in Brazil and overseas. In Europe (Portugal) and Asia (Hong Kong), our offices also include our technical assistance management. These three marketing units allow us to stay in close contact with our customers worldwide, understand the environment where they operate, monitor their requirements and provide all necessary assistance in a short period of time. Domestic sales, market intelligence analysis, planning and administration of sales are handled from Brazil by the staff in our Nova Lima office, which is located approximately 70 km from the Casa de Pedra mine, in the State of Minas Gerais.

         We supply our iron ore to the steel industry and our main targets are the Brazilian, European and Asian markets. Prevailing and expected levels of demand for steel products directly affect demand for iron ore. Demand for steel products is influenced by many factors, such as GDP, global manufacturing production, civil construction and infrastructure spending.

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    Table of Contents

         We believe our competitiveness has been improved by our customer service and market intelligence. It is paramount for us to have a clear understanding of our customers’ businesses in order to address their needs, surpass their expectations and build long-term relationships. We have a customer-oriented marketing policy and place specialized personnel in direct contact with our clients to help determine the mix that best suits each particular customer.

    Sales

         The first step to our entry into the international iron ore market was taken in February 2007, with the completion of the first phase of the expansion of our coal seaport terminal in Itaguaí, in the State of Rio de Janeiro, which enabled us to also handle and export iron ore and to load from our own facilities the first shipment of our iron ore products.

         In 2009, after the first three years trading in the international iron ore market, excluding the sales of our 60% non-consolidated investee Namisa, we exported 9.2 million tons of iron ore, which represents a 37.4% decrease, as compared to 2008. If we consider the sales of our 60% non-consolidated investee Namisa, our exports of iron ore reached 21.8 million tons, a 48.3% increase as compared to 2008. In our consolidated financial statements, export sales decreased 43.1% from US$980 million in 2008 to US$558 million in 2009.

         Although the world economy, since the last quarter of 2008, was affected by the side-effects from the economy meltdown, we were able to maintain and increase our iron ore sales if we consider the 2009 sales of our 60% non-consolidated investee Namisa.

         In 2009, China accounted for mostly of our iron ore sales, followed by Europe. In 2009, the Asian market (primarily China and Japan) and Europe were the primary markets for our sinter feed while Middle East was the primary market for our pellet feed.

         As global iron ore markets are highly competitive, we focus on our flexibility, reliability and efficient manner of supplying iron ore to the world market. The iron ore market worldwide is mainly affected by price, quality, range of products offered, reliability, operating costs and shipping costs. Facing this environment we constantly seek better offer options not just for us but also for our customers.

         Through our marketing offices, we have long term relationship with most players of the steel industry in China, Japan, Taiwan, South Korea, Europe and Brazil.

         For further information on iron ore sales, see “Item 5A. Operating Results - Results of Operations - Year 2009 Compared to Year 2008 - Operating Revenues.”

    Facilities

    Steel Mill

         The Presidente Vargas steelworks, located in the city of Volta Redonda, in the State of Rio de Janeiro, began operating in 1946. It is an integrated facility covering approximately 4.0 square km and containing five coke batteries (three of which are currently in operation), three sinter plants, two blast furnaces, a basic oxygen furnace steel shop, or BOF shop, with three converters, three continuous casting units, one hot strip mill, three cold strip mills, two continuous pickling lines, one continuous annealing line, three continuous galvanizing lines, four continuous annealing lines exclusively for tin mill products and six electrolytic tinning lines.

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    Table of Contents

         Our major operational units and corresponding effective capacities as of December 31, 2009, including CSN LLC and Lusosider, are set forth in the following chart:

    Effective Capacity

    Tons
    per year

    Equipment
    in operation

    Process:

       Coking plant 

    1,680,000 

    3 batteries 

       Sintering plant 

    6,930,000 

    3 machines 

       Blast furnace 

    5,380,000 

    2 furnaces 

       BOF shop 

    5,750,000 

    3 converters 

       Continuous casting 

    5,600,000 

    3 casters 

    Finished Products:

       Hot strip mill 

    5,100,000 

    1 mill 

       Cold strip mill 

    4,550,000 

    6 mills 

       Galvanizing line 

    2,095,000 

    7 lines 

       Electrolytic tinning line 

    1,190,000 

    7 lines 

    Downstream Facilities

    GalvaSud

         On January 29, 2010, we merged GalvaSud S.A., a producer and seller of galvanized steel, Galvanew®, laser-welded and pre-stamped parts for the automotive industry, into us. We held a 99.99% ownership interest in GalvaSud. GalvaSud had an annual capacity of 350,000 tons.

    CSN Paraná

         Our branch CSN Paraná produces and supplies plain regular galvanized,Galvalume® and pre-painted steel products for the construction and home appliance industries. The plant has an annual capacity of 330,000 tons of galvanized products andGalvalume® products, 100,000 tons of pre-painted products, which can use cold-rolled or galvanized steel as substrate, and 220,000 tons of pickled hot-rolled coils in excess of the coils required for the coating process.

    Metalic

         We have a 99.99% ownership interest in Cia. Metalic Nordeste, or Metalic. Metalic is one of the few two-piece steel can producer in all the Americas. It has approximately 48% of the packaging market for carbonated drinks in the Northeastern regions of Brazil. Currently, we are the only supplier to Metalic of the steel used to make two-piece cans. The development of drawn-and-wall-ironed steel for the production of two-piece cans is an important achievement in the production process at the Presidente Vargas steelworks. In addition to the production of the 350ml steel cans, in 2009 Metalic started the 250ml steel cans production, increasing its portfolio of products and servicing the market demand for cans of different sizes.

    Prada

    We have a 99.99% ownership interest in Cia. Matelúrgica Prada, or Prada. Established in 1936, Prada is the largest Brazilian steel can manufacturer and has an annual production capacity of over one billion cans in its three industrial facilities located in the states of São Paulo, Rio Grande do Sul and Minas Gerais. Currently, we are the only Brazilian producer of tin plate, Prada’s main raw material, which makes Prada one of our major customers of tin plate products. Prada has important clients in the food and chemical industries, including packages of vegetables, fishes, dairy products, meat, aerosols, paints and varnishes, and other business activities. On December 30, 2008, we merged one of our subsidiaries, Indústria Nacional de Aços Laminados S.A., or INAL, into Prada. INAL was a distributor of laminated steel founded in 1957 and, after the merger, became a branch of Prada responsible for distribution of Prada’s products, or Prada Distribuição.

    Prada Distribuição is also the leader in the Brazilian distribution market, with 460,000 tons per year of installed processing capacity. Prada Distribuição has two steel service centers and five distribution centers strategically located in Brazil. Its main service center is located in the city of Mogi das Cruzes between the citiesof São Paulo and Rio de Janeiro. Its product mix also includes sheets, slit coils, sections, tubes, and roofing in standard or customized format, according to client’s specifications. Prada Distribuição processes all range of products produced by us and services 4,000 customers annually from the civil construction, automotive and home appliances sectors, among others.

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    Table of Contents

    Inal Nordeste

    Inal Nordeste, or INOR, is our subsidiary and a distributor of laminated located in Northeastern Region. INOR has a service center located in the city of Camaçari, in the State of Bahia, to support sales in the Northeastern and North regions of Brazil, with 155,000 tons per year of installed processing capacity.

    Companhia Siderurgica Nacional, LLC

         CSN LLC holds the assets of former Heartland Steel, a flat-rolled steel processing facility in Terre Haute, Indiana. This facility has an annual production capacity of 180,000 tons of cold-rolled products and 315,000 tons of galvanized products. Currently, CSN LLC is obtaining hot coils by buying slabs from us and then having them converted into hot coils by local steel companies or buying hot rolled coils directly from mills in the United States. See “Item 4B. Government Regulation and Other Legal Matters—Anti-Dumping Proceedings—United States” for a discussion about anti-dumping issues on Brazilian hot coils exports to the United States.

    Lusosider, Aços Planos, S.A.

         We own 99.94% of Lusosider, a producer of hot-dip galvanized products and cold-rolled located in Seixal, near Lisbon, Portugal. Lusosider produces approximately 240,000 tons of galvanized products and 50,000 tons of cold-rolled annually. Its main customers include service centers and tube making industries.

    Electricity Distribution and Generation

    Thermoelectric Co-Generation Power Plant

         We completed the construction of a 238 MW thermoelectric co-generation power plant at the Presidente Vargas steelworks in December 1999. Since October 2000, the plant has provided the Presidente Vargas steelworks with approximately 60% of the electric energy needs for its steel mills. Aside from operational improvements, the power plant supplies our strip mills with electric energy, processed steam and forced air from the blast furnaces, benefiting the surrounding environment through the elimination of flares that burn steel-processing gases into the atmosphere.

    Itá Hydroelectric Facility

         Each of Tractebel and we own 48.75%, and Companhia de Cimento Itambé, or Itambé, owns the remaining 2.5% of ITASA, a special-purpose company formed for the purpose of owning and operating, under a 30-yearconcession, 60.5% of the Itá hydroelectric facility on the Uruguay river in Southern Brazil. Tractebel directly owns the remaining 39.5% of the Itá hydroelectric facility.

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    Table of Contents

         The power facility was built under a project finance structure with an investment of approximately US$860 million. The long-term financing for the project was closed in March 2001 and consisted of US$78 million of debentures issued by ITASA, a US$144 million loan from private banks and US$116 million of direct financing from BNDES, all of which are due by 2013. The sponsors of the project have invested approximately US$306 million in this project.

         Itá has an installed capacity of 1,450 MW, with a firm guaranteed output of 668 MW, and became fully operational in March 2001.

         We and the other shareholders of ITASA have the right to take our pro rata share (proportionally to our ownership interest in the project) of Itá’s output pursuant to 30-year power purchase agreements at a fixed price per megawatt hour, adjusted annually for inflation. Since October 2002, we have been using our entire Itá take internally.

    Igarapava Hydroelectric Facility

         We own 17.9% of a consortium that built and is to operate for 30 years the Igarapava hydroelectric facility.Other consortium members are Vale, Companhia Mineira de Metais, Votorantim Metais Zinco, AngloGold Ashanti Mineração Ltda., and Companhia Energética de Minas Gerais, or CEMIG.The plant became full operational on December 30, 1999 with an installed capacity of 210 MW, corresponding to 136 MW of firm guaranteed output as of December 31, 2008. We have been using part of our 22.8 MW take from Igarapava to supply energy to the Casa de Pedra and Arcos mines and to the Presidente Vargas steelworks. From time to time, we also sell the excess energy in the spot energy market.

    Railways

    Southeastern Railway System

    MRS has a concession to operate, through the year 2026, Brazil’s Southeastern railway system.  As of December 31, 2009,2010, we held directly and indirectly 33.27% of MRS’ total capital.  The Brazilian Southeastern railway system, with 1,674 km of track, serves the São Paulo – Rio de Janeiro – Belo Horizonte industrial triangle in Southeast Brazil, and links our mines located in the State of Minas Gerais to the ports located in the states of São Paulo and Rio de Janeiro and to the steel mills of CSN, Companhia Siderúrgica Paulista, or Cosipa, and Gerdau Açominas.  In addition to serving other customers, the line transports iron ore from our mines at Casa de Pedra in the State of Minas Gerais and coke and coal from the Itaguaí Port in the State of Rio de Janeiro to the Presidente Vargas steelworks and transports our exports to the ports of Itaguaí and Rio de Janeiro.  The railway system connects the Presidente Vargas steelworks to the container terminal at Itaguaí Port, which handles most of our steel exports.  Our transport volumes represent approximately 28% of the Brazilian Southeastern railway system’s total volume.  As of December 31, 2009, US$1,964 million (R$3,420 million) were outstanding and payable by MRS to the Brazilian government federal agencies within the next 17 years, of which US$1,899 million (R$3,306 million) are treated as an off-balance sheet item (See “Item 5E. Off-Balance Sheet Arrangements”). While we are jointly and severally liable with the other principal MRS shareholders for the full payment of the outstanding amount (See “Item 5E.  Off-Balance Sheet Arrangements”) , we expect that MRS will make the lease payments through internally generated funds and proceeds from financing.

    Northeastern Railway System

    As of December 31, 2009,2010, we hold 84.3%76.45% of the capital stock of Transnordestina Logística S.A. Transnordestina Logística S.A. has a 30-year concession granted in 1998 to operate Brazil’s Northeastern railway system.  The Northeastern railway system includes 4,238 km of track and operates in the states of Maranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and Rio Grande do Norte.  It also connects with the region’s leading ports, thereby offering an important competitive advantage through opportunities for intermodal transportation solutions and made-to-measure logistics projects. As of December 31, 2009, a payment in the amount of US$21.7 million (R$37.8 million) was outstanding in connection with the remaining 17-year term of theconcession, of which US$2 1.5 million (R$37.5 million) are treated as an off-balance sheet item (See “Item 5E. Off-Balance Sheet Arrangements”).

    For more information on the merger and financings for Transnordestina, see “Item 4. Information on the Company —A. History4D. Property, Plant and Development of the Company —Planned Investments—Transnordestina.”

    43Equipment – Capital Expenditures – Planned Investments”.  

    Table of Contents

    Port Facilities

    Solid Bulks Terminal

    We hold the concession to operate TECAR, a solid bulks terminal, one of four terminals that form the Itaguaí Port, located in the State of Rio de Janeiro, for a term expiring in 2022 and renewable for another 25 years.  Itaguaí Port, in turn, is connected to the Presidente Vargas steelworks, Casa de Pedra and Namisa by the southeastern railway system.  Our imports of coal and coke are made through this terminal.  Under the terms of the concession, we undertook to load and unload at least 3.03.0 million tons of bulk cargo annually.  Among the approved investments that we announced is the development and expansion of the solid bulks terminal at Itaguaí to also handle up to upto 84 million tons of iron ore per year.  For further information, see “Item 4. Information on the Company —A.  History and Development of the Company —Planned Investments—Iron Ore Project.”

    36

    Container Terminal

    Container Terminal

    We own 99.99% of Sepetiba Tecon S.A., or TECON, which has a concession to operate, for a 25-year term that is renewable for another 25 years, the container terminal at Itaguaí Port.  As of December 31, 2009,2010, US$174183 million of the cost of the concession remained payable over the next 1615 years of the lease.  For more information, see “Item 5E.  Off-Balance Sheet Arrangements.”Arrangements”.  The Itaguaí Port is located in the heart of Brazil’s Southeast Region, with all major exporting and importing areas of the states of São Paulo, Minas Gerais and Rio de Janeiro within 500 km from the port.  This area represents more than 60% of the Brazilian gross domestic product, or GDP, according to the Brazilian Geography and Statistics Institute (Instituto(Instituto Brasileiro de Geografia e Es tatística)Estatística).  The Brazilian Federal Port Agency spent US$7048 million in port infrastructure projects such as expanding the maritime access channel and increasing the depth from 18.5 meters to 20 meters.depth.  In addition, significant investments are also beingwere made by the Brazilian federal government in adding two extra lanes to the Rio Santos road, and are being made in constructing the Rio de Janeiro Metropolitan Bypass, a beltway that will cross the Rio de Janeiro metropolitan area.  Also, MRS railway is investing in an extra rail track along the way to the Itaguaí Port.  These factors, combined with favorable natural conditions, like natural deep waters and low urbanization rate around port area, allow the operation of large vessels as well as highly competitive prices for all the services rendered, resultresulting in the terminal being a major hub port in Brazil.  For further information on our planned investments relating to our Itaguaí CSN Logist icsLogistics Platform Project, see “Item 4. Information on the Company —A.  History and Development of the Company —Planned Investments—Itaguaí CSN Logistics Platform Project.”Project”.

    The figures show the effect of investments made since 2007 in two Super Post Panamax Portainers and two Rubber Tired Gantry, or RTG, cranes.  These investments, along with a focused marketing and sales strategy, enabled the terminal to rank first in market share among the three terminals of the state of Rio de Janeiro, with 39%40% of the total moves in those terminals.

    We plan to carry out new infrastructure and equipment investments in Sepetiba TECON, as the Berth 301 Equalization and the acquisition of two new Super Post Panamax Portainers and four new RTG cranes to yard operations.  These investments will increase TECON’s capacity from 320,000 containers (or 480,000 TEUs) to 410,000 containers (or 610,000 TEUs) a year and from 2.0 million tons to 6.0 million tons a year of steel products.  We intend to use this port to ship all our exports of steel products.  In 2009, 91.6%2010, 69% of the exported steel products (or 666,410147,691 tons), was shipped from this port, as compared to 82%91.6% in 2008.2009.

    In 2009,2010, the terminal has resumed the growth that had its throughputbeen affected by the global downturn.  ItIs achieved 154,289196,313 units handled (or 224,898 TEUs)298,417 TEUS), which represents a 28% decrease asan increase of 27% compared to 2008.2009.

    Our Energy Segment

    Our energy segment is comprised of generation plants and is aimed at enabling us to maintain our self-sufficiency in energy, reducing our production cost and our exposure to fluctuations or availability of certain energy sources.

    Our energy related assets include:

    Thermoelectric Co-Generation Power Plant

    We completed the construction of a 238 MW thermoelectric co-generation power plant at the Presidente Vargas steelworks in December 1999.  Since October 2000, the plant has provided the Presidente Vargas steelworks with approximately 60% of the electric energy needs for its steel mills.  Aside from operational improvements, the power plant supplies our strip mills with electric energy, processed steam and forced air from the blast furnaces, benefiting the surrounding environment through the elimination of flares that burn steel-processing gases into the atmosphere.

    Itá Hydroelectric Facility

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    37 

    Table of Contents

     

    Insurance

         In viewEach of Tractebel and we own 48.75%, and Companhia de Cimento Itambé, or Itambé, owns the remaining 2.5% of ITASA, a special-purpose company formed for the purpose of owning and operating, under a 30-year concession, 60.5% of the natureItá hydroelectric facility on the Uruguay river in Southern Brazil.  Tractebel directly owns the remaining 39.5% of the Itá hydroelectric facility.

    The power facility was built under a project finance structure with an investment of approximately US$860 million.  The long-term financing for the project was closed in March 2001 and consisted of US$78 million of debentures issued by ITASA, a US$144 million loan from private banks and US$116 million of direct financing from BNDES, all of which are due by 2013.  The sponsors of the project have invested approximately US$306 million in this project.

    Itá has an installed capacity of 1,450 MW, with a firm guaranteed output of 668 MW, and became fully operational in March 2001.

    We and the other shareholders of ITASA have the right to take our pro rata share (proportionally to our ownership interest in the project) of Itá’s output pursuant to 30-year power purchase agreements at a fixed price per megawatt hour, adjusted annually for inflation.  Since October 2002, we have been using our entire Itá take internally.

    Igarapava Hydroelectric Facility

    We own 17.9% of a consortium that built and has the right to operate for 30 years the Igarapava hydroelectric facility. Other consortium members are Vale, Companhia Mineira de Metais, Votorantim Metais Zinco, AngloGold Ashanti Mineração Ltda., and Companhia Energética de Minas Gerais, or CEMIG.The planthas an installed capacity of 210 MW, corresponding to 136 MW of firm guaranteed output as of December 31, 2010.  We have been using part of our operations,22.8 MW take from Igarapava to supply energy to the Casa de Pedra and Arcos mines and to the Presidente Vargas steelworks.  From time to time, we renewedalso sell the excess energy in the spot energy market.

    Marketing Organization and Strategy

    Steel

    Our steel products are sold both domestically and abroad as a main raw material for several different manufacturing industries, including the automotive, home appliance, packaging, construction and steel processing industries.

    Our sales approach is to establish brand loyalty and achieve a reputation for quality products by developing relationships with our clients and focusing on their specific needs.

    Our commercial area is responsible for sales of all of our products.  This area is divided into two major teams, one focused on international reinsurance companies,sales and the other on domestic sales.  The domestic market oriented sales team is divided into six market segments:  packaging, distribution, automotive, home appliances, original equipment manufacturer, or OEM, and construction.  Each one of these segments has a specific strategic goal to provide tailor-made steel solutions that meet the specific needs of each client they serve.

    The distribution division is responsible for supplying large steel processors and distributors, as well as some industries that produce small diameter pipe and light profiles.  The packaging unit acts in an integrated way with suppliers, representatives of the canning industry and distributors to respond to customer needs for finished-products.  The automotive unit is supplied by a specialized mill, CSN Porto Real, and also by a portion of the galvanized material produced at Presidente Vargas steelworks, benefiting from a combined sales strategy.

    In 2010, more than a half of our domestic sales were made through our own sales force directly to customers.  The remaining sales were to independent distributors for subsequent resale to smaller clients.

    Historically, our export sales were made primarily through international brokers.  However, as part of our strategy to establish direct, longer-term relationships with end-users, we have decreased our reliance on such brokers.  We have focused our international sales to more profitable markets in order to maximize revenues and shareholder returns.

    38

    All of our sales are on an order-by-order basis and have an average delivery time of 45 days.  As a result, our production levels closely reflect our order log book status.  We forecast sales trends in both the domestic and export markets based on the historical data available from the last two years and the general economic outlook for the near future.  We have our own data systems to remain informed of worldwide and Brazilian market developments.  Further, our management believes that one of the keys to our success is maintaining a presence in the export market.  Such presence gives to us the flexibility to shift between domestic and export markets, thereby allowing us to maximize our profitability.

    Unlike classic commodity products, there is no exchange trading of steel, or uniform pricing, as wide differences exist in terms of size, quality and specifications.  In general, exports are priced based on international spot prices of steel at the time of sale in U.S. dollars or Euros, depending on the destination.  Sales are normally paid at sight, or within 14 or 28 days, and, in the case of exports, usually backed by a letter of credit and an insurance policy.  Sales are made primarily on cost and freight terms.

    Sales by Geographic Region

    In 2010, we sold steel products to customers in Brazil and 35 other countries.  The fluctuations in the portion of total sales assigned to domestic and international markets, which can be seen in the table below, reflect our ability to adjust sales in light of variations in the domestic and international economies, as well as steel demand and prices, domestically and abroad.

    The four main export markets for our products are Europe, Latin America, Asia, and North America, representing 40%, 33%, 12% and 7%, respectively, of our export sales volume in 2010.

    In North America, we take advantage of our subsidiary CSN LLC, which acts as a commercial channel for our products.  In order to gain a cost advantage among our U.S. competitors, CSN is able to export slabs to CSN LLC which are processed at third parties into hot-rolled coil and then transformed into more added value products at CSN LLC’s plant, such as cold-rolled coil and galvanized.  Moreover, we are able to export cold-rolled coils which can be directly sold or processed by CSN LLC in order to manufacture galvanized products.

    CSN – Sales of Steel Products by Destination
    (In thousands of metric tons and millions of R$)

     

    2010

    2009

     

    Tons

    % of Total

    Net Operating Revenues(2)

    % of Total

    Tons

    % of Total

    Net Operating Revenues(2)

    % of Total

    Brazil

    4,135

    86.2

    8,575

    88.6

    3,243

    78.9

    6,770

    85.8

    Export

    661

    13.8

    1.107

    11.4

    867

    21.1

    1,124

    14.2

    Total

    4,796

    100.0

    9,682

    100.0

    4,110

    100.0

    7,894

    100.0

    Exports by Region

     

     

     

     

     

     

     

     

    Asia

    29

    0.6

    41

    0.4

    259

    6.3

    249

    3.9

    North America(1)

    15

    0.3

    407

    4.2

    243

    5.9

    307

    3.9

    Latin America

    55

    1.1

    187

    1.9

    55

    1.3

    115

    1.5

    Europe

    46

    1.0

    432

    4.5

    290

    7.1

    411

    5.2

    All Others

    32

    0.7

    41

    0.4

    20

    0.5

    42

    0.5

    _______________

    (1)  Sales to Mexico are included in North America.

    (2)  Total net operating revenues presented above differ from amounts in our IFRS consolidated  financial statements because they do not include revenues from non-steel products (non-steel products include mainly by-products, iron ore, logistics services and cement), which in 2010 represented R$ 4,750  million and in 2009 represented R$ 3,044 million. .

    Sales by Product

    The following table sets forth our market shares for steel sales in Brazil of hot-rolled, cold-rolled, galvanized and tin mill products for the past three years.  The data of 2008 and 2009 were filled based on IABr(Instituto Aço Brasil) and 2010 considered internal data gathered by CSN.

    39

     

     

     

    CSN Domestic Market Share  

     

     

     

     

     

     

     

     

    2010  

     

    2009  

     

    2008     

     

     

    (As a percentage of the market for each product)

    Hot-Rolled Products 

     

    36.2%

     

    33.0%

     

    34.0%

    Cold-Rolled Products 

     

    27.9%

     

    29.0%

     

    26.0%

    Galvanized Products 

     

    45.8%

     

    47.0%

     

    49.0%

    Tin Mill Products 

     

    100.0%

     

    98.0%

     

    99.0%

    Sales by Industry

    We sell our steel products to manufacturers in several industries.  Following is a breakdown of our domestic shipments by volume for the last three years among our market segments:

    Sales by Industrial Segment in Brazil

     

     

    2010

     

    2009

     

    2008

     

     

    (In percentages of total domestic volume shipped)

    Distribution 

     

    43.6% 

     

    38.9% 

     

    44.7%

    Packaging 

     

    12.7% 

     

    15.4% 

     

    15.1%

    Automotive 

     

    21.3% 

     

    20.6% 

     

    19.6%

    Home Appliances/OEM 

     

    11.6% 

     

    14.6% 

     

    12.1%

    Construction 

     

    10.8% 

     

    10.5% 

     

    8.5%

            We believe we have a particularly strong domestic and export position in the sale of tin mill products used for packaging.  Our customers for these products include some of the world’s most important food processing companies, as well as many small and medium-sized entities.  We also maintain a strong position in the sale of galvanized products for use in the automobile manufacturing, construction and home appliance industries in Brazil and abroad, supplied by CSN Porto Real and CSN Paraná.  No single customer accounts for more than 10% of our net operating revenues.

    For further information on steel sales, see “Item 5A.  Operating Results - Results of Operations - Year 2010 Compared to Year 2009 – Net Operating Revenues”.

    Seasonality

    The seasonality item was not identified in the Company activity, as out production is continuous during the year.

    Iron Ore

    Iron ore products are commercialized by our commercial team located in Brazil and overseas.  In Europe (Portugal) and Asia (Hong Kong), our offices also include our technical assistance management.  These three marketing units allow us to stay in close contact with our customers worldwide, understand the environment where they operate, monitor their requirements and provide all necessary assistance in a short period of time.  Domestic sales, market intelligence analysis, planning and administration of sales are handled from Brazil by the staff in our Nova Lima office, which is located approximately 70 km from the Casa de Pedra mine, in the State of Minas Gerais.

    We supply our iron ore to the steel industry and our main targets are the Brazilian, European, Middle Eastern and Asian markets.  Prevailing and expected levels of demand for steel products directly affect demand for iron ore.  Demand for steel products is correlated to many factors, such as GDP, global manufacturing production, urbanization, civil construction and infrastructure spending.

    We believe our competitiveness has been improved by our customer service and market intelligence.  It is paramount for us to have a clear understanding of our customers’ businesses in order to address their needs, surpass their expectations and build long-term relationships.  We have a customer-oriented marketing policy and specialized local personnel in direct contact with our clients to help determine the mix that best suits each particular customer.

    40

    Iron Ore Sales

    The first step to our entry into the international iron ore market was taken in February 21, 20082007, with the completion of the first phase of the expansion of our coal seaport terminal in Itaguaí, in the State of Rio de Janeiro, which enabled us to February 21,also handle and export iron ore and to load from our own facilities the first shipment of our iron ore products.

    In 2010, CSN’s iron ore sales reached 25.3 million tons, a 13% increase compared to 2009 (including 100% of our investee Namisa). According to our consolidated financial statements, total mining revenue increased by 84% over the year, due to rising iron ore prices as well as the increase in sales volume. The share of mining revenue in CSN's total net revenue increased from 24% in 2010 to 17% in 2009.

    In 2010, the Asian markets accounted for 61% of our sales – of which 34% correspond to China and 27% to other Asian countries – followed by the Middle East (19%) and Europe (14%). While 83% of our sinter feed and 56% of our lump ore were directed to Asia, 90% of our pellet feed and 66% of our concentrated were consumed by Europe and the Middle East.

    This result was notably influenced by world economic recovery in 2010. All Risksof our major markets – Asia, Europe, Middle East and Domestic Market – had significant GDP increases, after slowdowns or even decreases experienced in 2009. We expect the iron ore market to maintain a bullish trend supported by growing emerging market demand, high cost Chinese production, and infrastructure bottlenecks for low cost producers. The continued urbanization process in many regions as India, Middle East, Latin America and China should support this tendency.

    As global iron ore markets are highly competitive, we focus on our flexibility, reliability and efficient manner of supplying iron ore to the world market.

    Through our marketing offices, we have long term relationship with most players of the steel industry in China, Japan, Taiwan, South Korea, Europe and Brazil.

    For further information on iron ore sales, see “Item 5A.  Operating Results - Results of Operations - Year 2010 Compared to Year 2009 – Net Operating Revenues.”

    Insurance

    We and our subsidiaries maintain several types of insurance policies. These insurances are contracted in line with the risk management of our business and attempt to follow the market practices for similar activities. Coverage in such policies encompasses domestic, international, import and export cargo transport (by road, rail sea or air), carrier liability, life insurance, personal accident, health, auto insurance, D&O, general liability, erection risks, boiler coverage, forexport credit insurance, surety, ports and terminal liabilities. The coverage in these policies may be not sufficient to all risks we are exposed to.

    We have insurance policy to cover operational risks, material damage and loss of profits as of March 23, 2011, to March 22, 2012, for a total insured value of R$ 850 million (out of a total risk amount of R$ 25.1 billion), applicable to the following CSN’s branches and subsidiaries: Presidente Vargas Steelworks, Casa de Pedra Mine, Arcos Mine, Paraná Branch, Coal Terminal - TECAR, GalvaSud (property damage and loss of profits), Container Terminal - TECON and ERSA (loss of profits), for a total risk amount of US$9.57 billion (property damage and loss of profit) and a maximum indemnification amount, in the event of an accident, of US$750 million for property damage and loss of profits.

    As of February 22, 2009, we have not been able to contract with insurance and reinsurance companies insurance coverage for operational risks relating to our Presidente Vargas Steelworks.

    We currently have valid insurance policies to cover material damage and business interruption for: Namisa, CSN Porto Real (former Galvasud), Prada,Coal Terminal TECAR, Container Terminal TECON, Namisa e CSN Cimentos, Inal Nordeste, Metalic, ERSA,Cimentos. Such policy was negotiated with domestic and foreigners insurers and reinsurers. Despite this coverage, CSN LLC, CSN Paranáremains responsible for the first tranche of R$ 170 million in losses (material damages and loss of profits), Lusosider, Itá and Igarapava hydroelectric plants and Transnordestina.

    In additionin excess to the negotiations in connection with our operational risks policydeductibles, and shall be responsible for our Presidente Vargas Steelworks, the renewal of insurance policies for the following entities are currently being negotiated: CSN (Casa de Pedra and Arcos), TECON and TECAR.

         For information on how our lack of insurance coverage may affect us, see “Item 3D—Risk Factors—Malfunctioning equipment or accidents on our premises, railways or ports may decrease or interrupt production, internal logistics or distribution of our products. We do not have insurance policies to cover losses and liabilities in connection with operational risks, and may not have sufficient insurance coverage for certain other events.”

         The risk assumptions adopted, given their nature, are not part64% percent of the scope of a financial statements audit, and, consequently, they were not examined bylosses above this first tranche. We continue to analyze alternatives to further reduce our independent auditors.co-responsibility.

    Intellectual Property

    We have several technical cooperation agreements with universities and research institutes in order to provide us with special technical reports and advice related to specific products and processes.  In addition to several patents previously approved by the Brazilian National Institute of Industrial Property (Instituto Nacional da Propriedade Industrial), in 20092010 we requested the depositgranting of 213 new patents on the field of product applications.applications.

    41

    'Competition in the Steel Industry

    Both the worldwide and the Brazilian steel markets are intensely competitive.  The primary competitive factors in these markets include quality, price, payment terms and customer service.  Further, continuous advances in materials sciences and resulting technologies have given rise to improvements in products such as plastics, aluminum, ceramics, glass and concrete that permit them to substitute steel for certain purposes.

    Competition in the Brazilian Steel Industry

    The primary competitive factors in the domestic market include quality, price, payment terms and customer service.  Several foreign steel companies, however, are significant investors in Brazilian steel mills.

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    Table of Contents

    The following table sets forth the production of crude steel by Brazilian companies for the years indicated:

     

     

     

     

     

     

     

     

     

     

     

     

     

    2007 

     

    2008 

     

    2009 

     

    2010  

     

    2009  

     

    2008  

     

     

     

     

     

     

     

     

     

     

     

     

     

    Ranking 

     

    Production 

     

    Ranking 

     

    Production 

     

    Ranking 

     

    Production 

     

    Ranking  

     

    Production  

     

    Ranking  

     

    Production  

     

    Ranking  

     

    Production  

     

     

     

    (In million tons)

     

     

     

    (In million tons)

     

     

     

    (In million tons)

     

     

     

    (In million tons) 

     

     

     

    (In million tons) 

     

     

     

    (In million tons) 

    Gerdau(1)

     

    2 

     

    8.1 

     

    1 

     

    8.7 

     

    1 

     

    6.1 

     

    1

     

    7.8

     

    1

     

    6.1 

     

    1

     

    8.7 

    Usiminas

     

    1 

     

    8.7 

     

    2 

     

    8.0 

     

    2 

     

    5.6 

     

    2

     

    7.3 

     

    2

     

    5.6 

     

    2

     

    8.0 

    ArcelorMittal Tubarão

     

    3 

     

    5.7 

     

    3 

     

    6.2 

     

    3 

     

    5.3 

     

    3

     

    6.0 

     

    3

     

    5.3 

     

    3

     

    6.2 

    CSN

     

    4 

     

    5.3 

     

    4 

     

    5.0 

     

    4 

     

    4.4 

     

    4

     

    4.9 

     

    4

     

    4.4 

     

    4

     

    5.0 

    ArcelorMittal Aços Longos

     

    5 

     

    3.7 

     

    5 

     

    3.5 

     

    5 

     

    3.2 

     

    -(2)

     

    - 

     

    5

     

    3.2 

     

    5

     

    3.5 

    Others

     

     

     

    2.2 

     

     

     

    2.3 

     

     

     

    1.9 

     

    -(2)

     

    - 

     

     

     

    1.9 

     

     

     

    2.3 

    Total

     

     

     

    33.7 

     

     

     

    33.7 

     

     

     

    26.5 

     

     

     

    32.8  

     

     

     

    26.5  

     

     

     

    33.7  

    Source: IBS

     

     

     

     

     

     

     

     

     

     

     

     

    Source: IABr

     

     

     

     

     

     

     

     

     

     

     

     

    (1)Data from Aços Villares have been merged into data from Gerdau.  

    (2)Data not available


    Competitive Position — Global

    During 2009,2010, Brazil retainedmaintained its place as the largest producer of crude steel in the Latin America, with a production output of 26.532.8 million tons and a 2.2%2.3% share of total world production, according to data from IBS.Instituto Aço Brasil (IABr).  In 2009,2010, Brazil was the ninth world’slargest steel producer globally, accounting for approximately two-thirds of total production in Latin America, approximately twice the size of Mexico’s and approximately one-third40% of U.S. steel production, according to data from the World Steel Association, or WSA.  According to IABr Brazilian exports in 2009 reached 8.62010 amounted to 9.0 million tons of finished and semi-finished steel products.

    We compete on a global basis with the world’s leading steel manufacturers.  We have positioned ourselves in the world market with a product mix characterized by high margin and strong demand, such as, tin mill and galvanized.  We have relatively low-cost and sufficient availability of labor and energy, and own high-grade iron ore reserves that we believe more than meet our production needs.  These global market advantages are partially offset by costs of transporting steel throughout the world, usually by ship.  Shipping costs, while helping to protect our domestic market, put pressure on our export price.  To maintain our position in the world steel market in light of the highly competitive international environment with respect to price, our product quality and customer service must be maintained at a high level.  We have continually monitored the quality of our products by measuring customer satisfaction with our steel in Europe, Asia and the Americas.  See “Item 4B.  Business Overview—Government Regulation and Other Legal Matters—Proceedings Related to Protectionist Measures” for a description of protectionist measures being taken by steel-importing countries that could negatively impact our competitive position.

    Competitive Advantages of the Brazilian Steel Industry

    Brazil’s principal competitive advantages are its abundant supply of low-cost, high-grade iron ore and energy resources.  Brazil also benefits from a vast internal market with a large growth potential, a privatized industry making investments in plant and equipment, and deep water ports that allow the operation of large ships, which facilitates access to export markets. Nevertheless, Brazil’s products

    42

    Brazilian domestic steel prices have lost partially their competitiveness, mainly due to the appreciation of thereal against the U.S. dollar since the beginning of 2006, which resulted in the increase of the price of our products. In 2009, thereal continued to significantly appreciate against the U.S. dollar and reflected the effects of the financial crisis and weak demand. Despite all these factors, we believe Brazil’s average cost of steel production is one of the lowest in the world.

         As in most domestic markets, the domestic price of steel in Brazil has historically been higher than its export price. The low production costsHowever, in Brazil are a barrier2010, due to foreignlower demand in mature markets, the appreciation of thereal against U.S. dollar and tax incentives, imported steel imports. Consequently, most of the steel sold in theproducts caused Brazilian steel market is manufactured by Brazilian producers and we do not believe that sales in Brazil by foreign producers will increase significantly or that steelto adjust prices in Brazil will decrease significantly because of competition from foreign steel producers.

         Competition from greenfield projects of new market entrants would be discouraged by existing participant’s tiescloser to sources of raw materials and well-established distribution networks. In the last years, several foreigncompetitors announced their intention to undertake greenfield projects in Brazil. To date, some of these competitors have cancelled or postponed their projects, while others continue to evaluate their feasibility, in particular due to global economic and financial crisis in 2008 and 2009 and the high level of investment required. The strategic goal of these projects, as announced by their participants, is to replace non-competitive slab production plants in Europe or to expand upon slab capacity production of Asian companiesexport price levels in order to service their home markets.maintain competitiveness.

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    Table of Contents

    Government Regulation and Other Legal Matters

    Environmental Regulation

         Promoting responsible environmental and social management is part of our business. We prioritize processes and equipments that offer the most modern and reliable technologies on environmental risks monitoring and control. We operate a corporate environmental department managed under an Environmental Management System, or EMS, compliant with ISO 14001:2004 requirements. In addition, we have a factory committee for environmental management composed of professionals from all departments of CSN’s main steelworks. This factory committee usually meets every week to discuss any problem and to identify risks and aspects of the operations in which the group can act pro-actively, in order to prevent possible environmental harm.

    We are subject to Brazilian federal, state and municipal environmental laws and regulations governing air emissions, waste water discharges, and solid and hazardous waste handling and disposal.  We are committed to controlling the substantial environmental impact caused by our steelmaking, mining, cement and logistics operations, in accordance with international standards and in compliance with environmental laws and regulations in Brazil.  We believe we are currently in substantial compliance with applicable environmental requirements.

    The Brazilian Federal Constitution givesprovides both the federal and state governments powerauthority to enact environmental protection laws and issue regulations under such laws.  In addition, we are subject to municipal environmental laws and regulations.  While the Brazilian government has powerauthority to promulgate environmental regulations setting forth minimum standards of environmental protection, state and local governments have the power to enact more stringent environmental regulations.  Most of the environmental regulations in Brazil are thus at the state and local level complemented by a current process of regulations reviews and new propositions at the federal level.  The environmental regulations of the State of Rio de Janeiro, in which the Presidente Vargas steelworks is located, are plant-specific.  Thus, specific goals and standards are established in operating permits or e nvironmentalenvironmental accords issued to each company or plant.  These specific operation conditions complement the standards and regulations of general applicability and are required to be observed throughout the life of the permit or accord.  The terms of such operating permits are subject to change and are likely to become stricter.  All of our facilities currently have operating permits.

    In 2009,2010, we requested and obtained several emissions permits and renewals of environmental permits, both for current operations and for the development of new projects regarding steel and cement manufacturing, iron ore and limestone mining and logistics, including:  (i) the expansion of the Casa de Pedra mine; (ii) the construction of the Transnordestina Railroad, to explore railway transportation in the Northeastern region of Brazil; and (iii) the operation of a cement mill at Volta Redonda.Redonda; and (iv) the expansion of the Solid Bulks Terminal of Itaguaí Port, in the State of Rio de Janeiro, or TECAR, to 45 million tons per year.

    Environmental Expenditures and Claims

    Promoting responsible environmental and social management is part of our business.  We prioritize processes and equipments that offer the most modern and reliable technologies on environmental risks monitoring and control.  We operate a corporate environmental department managed under an Environmental Management System, or EMS, compliant with ISO 14001:2004 requirements.  In addition, we have a factory committee for environmental management composed of professionals from all departments of CSN’s units.  This factory committee usually meets every week to discuss any problem and to identify risks and aspects of the operations in which the group can act pro-actively, in order to prevent possible environmental harm.

    Since our privatization, we have invested heavily in environmental protection and remediation programs.  We had environmental expenditures (capitalized and expensed) of US$144.9R$336.0 million in 2007, US$180.02010, R$290.5 million in 2008 and US$145.42009 and. R$330.7 million in 2009.2008

    Our investments in environmental projects during 20092010 were related mainly related to:  (i) operationsoperation, maintenance and maintenanceretrofit of environmental control equipments; (ii) development of environmental studies for permit applications and (iii) studies, monitoring and remediation of environmental liabilities due to prior operations, mainlyespecially before our privatization.  FromIn 2010, we had a total of US$145.4R$336.0 million spent in 2009, US$40.7environmental expenditures, of which R$116.2 million constitutedwas capital expenditures and US$104.7R$219.8 million constitutedwas operational expenditures.

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    TableIn 2010, we signed with the Rio de Janeiro State government a Term of Contents

    Undertaking, or TAC, that requires investments of R$260.0 million in our Presidente Vargas steelworks for the next 3 years.  This TAC preview newinvestments and studies to retrofit our environmental control equipments.  Our main environmental claims on December 31, 20092010 were associated with cleaning-upclean-up obligations at former coal mines decommissioned in 1989 atin the state of Santa Catarina; legal environmental compensation projected for new projects at the States of Minas Gerais and Rio de Janeiro; and cleaning-upclean-up obligations due to formerprevious operations ofin our Presidente Vargas steelworks.  We diddo not include in the accruals anyour reserves environmental liabilities related to ERSA, as they were bornthese are contractually supported by its former owner.seller.

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    We record a reserve an accrual for remediation costs and environmental lawsuits when a loss is probable and the amount can be reasonably estimated.  As of December 31, 2009,2010, we had provisions for environmental liabilities in the total amount of US$66.8R$278.1 million, (R$116.3 million), as compared to US$30.5R$ 116.5 million as of December 31, 2008,2009, which our management and legal advisors considerwe believe are sufficient to cover all probable losses. For further information, see Note 17(b)22 to our consolidated financial statements included in “Item 18.  Financial Statements.”

    Brazil – mining regulation

    Under the Brazilian Constitution, all mineral resources in Brazil belong to thefederal government.government.  The Brazilian Constitution and MiningMineral Code impose various regulatory restrictions on mining companies relating to, among other things:

    §·        the manner in which mineral depositsmust beexploited;

    §·        the health and safety of workers and the safety of residential areas located near mining operations;

    §·        the protection and restoration of the environment;

    §·        the prevention of pollution; and

    §·        the support of local communities where mines are located.

    Mining companies in Brazil can only prospect and mine pursuant to prospecting authorizations or mining concessions granted by the National Department of Mineral Production (Departamento Nacional de Produção Mineral), or DNPM, an agency of the Ministry of Mines and Energy of the Brazilian Government.  DNPM grants prospecting authorizations to a requesting party for an initial period of three years.  These authorizations are renewable at DNPM’s discretion for another period of one to three years, provided that the requesting party is able to show that the renewal is necessary f orfor proper conclusion of prospecting activities.  On-site prospecting activities must start within 60 days of official publication of the issuance of a prospecting authorization.  Upon completion of prospecting activities and geological exploration at the site, the grantee must submit a final report to DNPM.  If the geological exploration reveals the existence of a mineral deposit that is economically exploitable, the grantee has one year (which DNPM may extend) from approval of the report by DNPM to apply for a mining concession or to transfer its right to apply for a mining concession to an unrelated party.  When a mining concession is granted, the holder of the concession must begin on-site mining activities withinsix months.  DNPM grants mining c oncessionsconcessions for an indeterminate period of time lasting until the exhaustion of the mineral deposit.  Extracted minerals that are specified in the concession belong to the holder of the concession.  With the prior approval of DNPM, the holder of a mining concession can transfer it to an unrelated party that is qualified to own concessions.  Under certain circumstances, mining concessions may be challenged by unrelated parties.

    Mining Concessions

    Our mining activities at Casa de Pedra mine are performed based on aManifesto de Mina, which gives us full ownership over the mineral deposits existing within our property limits.  Our mining activities at Engenho and Fernandinho mines are based on a concession by theMinistry of Mines and Energy,, which grants us the right to exploit mineral resources from the mine foran indeterminate period of time lasting until the exhaustion of the mineral deposi t.deposit.  Our mining activities at the Bocaína mine are based on a concession under the same conditions.  See “Item 4D.  Property, Plant and Equipment” for further information on our reserves at Casa de Pedra mine and resources at Fernandinho and Engenho mines.

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    Table of Contents

    Mineral Rights and Ownership

     

    Mining Rights and Ownership

    Our miningmineral rights for Casa de Pedra mine include the mine,mining concession, beneficiation plant, roads, loading yard and railway branch and are duly registered with the National Department of Mineral Production (Departamento Nacional de Produção Mineral - DNPM).  We have also been granted by DNPM easements in 15 mine areas located in the surrounding region, which are not currently part of Casa de Pedra mine, and hold title to all our proved and probable reserves.

    In addition, we have obtained and are in compliance with all licenses and authorizations for our operations and projects at Casa de Pedra mine.

    The exploitation in Casa de Pedra mine are subject to mining lease restrictions, which were duly addressed in our iron ore reserve calculations.  Quality requirements (chemical and physical) are the key “modifying factors” in the definition of ore reserves at Casa de Pedra and were properly accounted for by the CSN mine planning department.

    The Brazilian government charges us a royalty known as the Financial Compensation for Exploiting Mineral Resources (Compensação Financeira pela Exploração de Recursos Minerais), or CFEM, on the revenues from the sale of minerals we extract, net of taxes, insurance costs and costs of transportation.  The current annual rates on our products are:

    §·        2% for iron ore, kaolin, copper, nickel, fertilizers and other minerals;

    §·        3% on bauxite, potash and manganese ore; and

    §·        1% on gold.

    The MiningMineral Code and ancillary mining laws and regulations also impose other financial obligations.  For example, mining companies must compensate landowners for the damages and loss of income caused by the use and occupation of the land (either for exploitation or exploration) and must also share with the landowners the results of the exploration (in(in arate of 50% of the CFEM).  Mining companies must also compensate the government for damages caused to public lands.  A substantial majority of our mines and mining concessions are on la ndslands owned by us or on public lands for which we hold mining concessions.

    Antitrust Regulation

    Antitrust Regulation

    We are subject to various laws in Brazil which seek to maintain a competitive commercial environment in the Brazilian steel industry.  For instance, under Law No. 8,884/94, theLei de Defesa da Concorrência, or Competition Defense Law, theSecretaria de Direito Econômico of Brazil’s Ministry of Justice has broad authority to promote economic competition among companies in Brazil, including the ability to suspend price increases and investigate collusive behavior between companies.  In addition, if the Brazilian anti-trust agency (Conselho Administrativo de Defesa Econômica), or CADE, determines companies have acted collusively to raise prices, it has the authority to impose fines on the offending companies, prohibit them from receiving loans from Brazilian government sources and bar them from bidding on public projects.  In addition, CADE has the authority to dissolve mergers and to require a company to divest assets should it determine that the industry in which it operates is insufficiently competitive.

    For further antitrust-related information, see “Item 8A. Consolidated Statements and Other Financial Information-Legal Proceedings”.

    Proceedings Related to Protectionist Measures

    Over the past several years, exports of steel products from various countries and companies, including Brazil and us, have been the subject of anti-dumping, countervailing duty and other trade related investigations from importing countries.  These investigations resulted in duties that limit our access to certain markets.  Despite the imposed limitations, our exports have not been significantly affected, as we were able to re-direct our sales from restricted markets to other markets, and also because the volume of exports or products available for exports has been decreasing as a result of the increased demand from our domestic market and thus present participation of exports in our total sales was significantly reduced.

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    Below are summaries of the protectionist measures to which our exports are subject.

    United States

    Anti-dumping(AD)and Countervailing Duties (CVD).  In September 1998, U.S. authorities initiated anti-dumping and countervailing duties investigations on hot-rolled steel sheet and coil imported from Brazil and other countries.  In February 1999, the U.S. Department of Commerce, or DOC, reached a preliminary determination on the anti-dumping and countervailing duties margins.  We were found to have preliminary margins of 50.66% for anti-dumping, and of 6.62% for countervailing duties.  In July 1999, Brazil and the United States signed a five-year suspension agreement, suspending the anti-dumping investigation and establishing a minimum price of US$327 per ton (delivery duty paid), subject to quarterly review by the DOC.  In February 2002, the U.S. government terminated the anti-dumping suspension agreement and reinstated the anti-dumping margin of 41.27%.  Also in July 1999, the Brazilian and U.S. governments signed a suspension agreement related to the countervailing duties investigation, which limited exports of hot-rolled sheets and coils from Brazil to 295,000 tons per year.  At the request of the Brazilian government, the agreement was terminated in September 2004.  Upon the termination of this agreement, countervailing duties of 6.35% became effective in September 2004, to be applied to imports of hot-rolled products from Brazil.  In April 2004, we requested the DOC to conduct an administrative review of the anti-dumping investigation.  Through this review, in April 2005, we obtained a favorable preliminary determination of “zero” margin of dumping from the DOC.  Final determination was issued in October 2005 and the “zero” margin of dumping preliminarypreliminarily found by the DOC was confirmed.

    Simultaneously to the administrative review, we participated in an anti-dumping and countervailing duties expiry review which involved the exports of hot-rolled sheet and coils to the U.S. The expiry review was jointly developed by the International Trade Commission and the DOC, through the Import Administration- I.A., thatand  was initiated in May 2004. FinalA final determination was rendered in April 2005, retaining the anti-dumping and countervailing duties orders until May 12, 2010.

    In October 2005, the DOC initiated an administrative review of the investigation of subsidies and countervailing duties involving hot-rolled products.  AsWhen the petitioners gave up ondenied their participation in the review, it was terminated by the DOC in February 2006. Since the

    In  April 2010, an anti-dumping and countervailing duties refer to subsidies related to the privatization period, and the depreciation periodexpiry review was fixed in fifteen yearsinitiated jointly developed by the investigation, byDOC and ITC through the time the next expiry review is held by the International Trade Commission, inIA.  In November 2010, the effectsDOC issued the final results of the subsidies involvedCVD sunset review.  Although it was decided that subsidization will have been terminated,continue or recur if the order is revoked, the DOC found that the likely margin of subsidization would be zero.  The final determination for the AD and therefore, the imposition of the countervailing duties might be discontinued.CVD orders are expected for June 2011.

    Canada

    Anti-dumping.  In January 2001, the Canadian government initiated an anti-dumping investigation process involving hot-rolled sheets and coils exported from Brazil.  The investigation was concluded in August 2001, with the imposition by Canada of an anti-dumping tax of 26.3% on imports of those products from Brazil, with minimum prices to be observed.  In August 2002, the Canada Border and Services Agency, or the CBSA, initiated a revision of the values previously established and, in March 2003, the revised values were issued.  These values are adjusted whenever there is an adjustment of the Canadian domestic prices.  In February 2005, the CBSA initiated a reinvestigation of hot-rolled sheets and coils.  We did not participate in this investigation.

    In December 2005, the Canadian International Trade Tribunal, or CITT, initiated an expiry review of hot-rolled products, in which we participated.  A final determination was issued in August 2006, determining the continuation of the anti-dumping order for hot-rolled products.  As a result, exports of our hot–rolled products to Canada are subject to anti-dumping duties of 77%.

    In October 2010, the Canadian International Trade Tribunal, or CITT, initiated an expiry review of hot-rolled products, in which CSN decided not to participate.

    Argentina46

    Argentina

    Anti-dumping – hot-rolled products.  Argentina commenced an anti-dumping investigation of hot-rolled products from Brazil, Russia and Ukraine in October 1998.  In April 1999, the Argentinean government applied a provisional anti-dumping order on Brazilian imports, fixing a minimum price of US$410 per ton FOB (free on board), for four months ending in August 1999.

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    Table of Contents

    In December 1999, the Argentine government accepted a suspension agreement of the anti-dumping measures, providing for quotas of 36,000 tons for the first year, 38,000 tons for the second and 39,000 tons for the third, fourth and fifth years, and minimum prices from US$325 to US$365 per ton CFR FO (cost, insurance and freight, free out), subject to quarterly adjustments based on the publication of the Argentine National Institute of Statistics and Census, or INDEC.

    In December 2004, exporters were notified of the revision of resolution No. 1,420/1999 from the Economic, Work and Public Services Ministry of Argentina relating to the export of Brazilian hot-rolled products.  In January 2005, an expiry review of the anti-dumping process was initiated to analyze the maintenance, modification and/or derogation of the action of the administrative authority of the Argentinean government.  We participated in this review.

    In June 2006, Argentina published resolution No. 412/2006 terminating the anti-dumping investigation for hot-rolled products from Brazil, Russia and Ukraine, determining to Brazil the amargin of 147.95%to Brazil. The application of anti-dumping duties was replaced by a suspension agreement set forth in that same resolution, valid for five years from its publication, on June 6, 2006.

    Overview of Steel Industry

    World Steel Industry

    The worldwide steel industry comprises hundreds of steelmaking facilities divided into two major categories, integrated steelworks and non-integrated steelworks, characterized by the method used for producing steel.  Integrated plants, which accounted for approximately 66% of worldwide crude steel production in 2008, typically produce steel by smelting in blast furnaces the iron oxide found in ore and refining the iron into steel, mainly through the use of basic oxygen furnaces or, more rarely, in electric arc furnaces.  Non-integrated plants (sometimes referred to as mini-mills), which accounted for approximately 34% of worldwide crude steel production in 2008, produce steel by melting scrap metal, occasionally complemented with other metallic materials, such as direct reduction iron or hot-briquette iron, in electric arc furnaces.  Industry experts expect that a l acklack of a reliable and continuous supply of quality scrap metal, as well as the high cost of electricity, may restrict the growth of mini- mills.

    Steel continues to be the material of choice in the automotive, construction, machinery and other industries.  Notwithstanding potential threats from substitute materials such as plastics, aluminum, glass and ceramics, especially for the automotive industry, steel continues to demonstrate its economic advantage.  From 1990 through 2005, total global crude steel production ranged between approximately 770 million and 1.1 billion tons per year.  In 2008, it reached 1.33 billion tons, representing a 1.2% decrease as compared to 2007.  In 2009, global crude steel2010, worldwide production decreased 7.9% aswas 1.41 billion tons, an increase of 15% compared to 2008,2009 and reached 1.22 billion tons.a new record for global steel industry.

    China’s crude steel production in 20092010 reached 568627 million tons, an increase of 13.5%9.3% as compared to 2008.2009.  Production volume in China has more than doubledalmost tripled in  fivein  eight years, from 222 million tons in 2002.  China’s share of world steel production continueddeclined from 47% in 2009 to grow44% in 2010, what is consequence of steelmaking recovery in rest of world (-21% in 2009 reaching 46.4% of world total crude steel.and +20% in 2010).

    Asia produced  766898 million tons of crude steel in 2009,2010, representing 63.7%63.5% of world total steel production and an increase of1% 11.6% as compared to 2008.2009.  Overall, steel production declinedincreased  in Europe, North America, South America and Commonwealth of Independent States in 2009.2010.

    Brazilian Steel Industry

    Since the 1940s, steel has been of vital importance to the Brazilian economy.  During the 1970s, hugestrong government investments were made to provide Brazil with a steel industry able to support the country’sindustrialization boom.  After a decade of little to no investment in the sector in the 1980s, the government selected the steel sector as the first for privatization commencing in 1991, resulting in a more efficient group of companies operating today.

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    A Privatized Industry

    During almost 50 years of state control, the Brazilian flat steel sector was coordinated on a national basis under the auspices ofSiderbrás, the national steel monopoly.  The state had far less involvement in the non-flat steel sector, which has traditionally been made up of smaller private sector companies.  The larger integrated flat steel producers operated as semi autonomous companies under the control of Siderbrás and were each individually privatized between 1991 and 1993.  We believe that the privatization of the steel sector in Brazil has resulted in improved financial performance, as a result of increased efficiencies, higher levels of productivity, lower operating costs, a decline in the labor force and an increase in investment.

    Domestic Demand

    Historically, the Brazilian steel industry has been affected by substantial fluctuations in domestic demand for steel.  Although national per capita consumption varies with GDP, fluctuations in steel consumption tend to be more pronounced than changes in economic activity.  Per capita crude steel consumption in Brazil has increased from 95 kilograms per capita in 1999 to 108150 kilograms in 2009,2010, which is considered low when compared to levels in developed countries such as the United States where the per capita crude steel consumption in 2007 was of 373 kilograms, and Germany, where the consumption was of 558 kilograms.Germany.

    From 2005 to 2007, despite a good global conjuncture, the Brazilian economy exhibited an average growth GDP of 4.4%4.4%.  Since September 2008, overall global economic activity has slowed significantly, which impacted our fourth quarter results.  DomesticApparent steel salesconsumption in 2008 and 2009 were 2424.0 million tons and 1818.6 million tons, respectively.  In 2010, the internal demand grew 43%, to 26.6 million tons.

    The Brazilian flat steel sector is shifting production to the higher value-added consumer durable sector.  This sector is highly dependent on domestic consumer confidence, which, in turn, is affected by economic policies and certain expectations of the current government administration.  Over the past years, automobile manufacturers made significant investments in Brazil.  VehiclesIn 2009 and 2010, the vehicles production increased regularly in the past years, until September 2008, when the effectsrecovered from the 2008 of financial crisis grew in size and scope. In spiteresponse of the slowdown in automobile production, market data indicated a recovery in car sales since the beginning of 2009.government incentives like tax cuts.

    Market Participants

    According to IBS, the Brazilian steel industry is composed of 26 mills managed by 89 corporate groups, with an installed annual capacity of approximately 4147 million tons, producing a full range of flat, long, carbon, stainless and specialty steel.  For information on the production by the largest Brazilian steel companies, for the years ended December 2006, 2007, 2008 and 2009, see “Item 4B.  Business Overview—Competition—Competition in the Brazilian Steel Industry.”

    Capacity Utilization

         TotalMean Brazilian nominal capacity in 20092010 was estimated at 42.142 million tons as compared to 41.5(the 5 million tons CSA facility started production in 2008. The Brazilianthe end of the year), what means that local steel industry operated at approximately 78%, higher than 63.4% of nominal crude steel capacity during 2009, as compared to 81% in 2008.2009.

    Exports/Imports

    Brazil has been playing an important role in the export market, primarily as an exporter of semi-finished products.  The Brazilian steel industry has taken several steps towards expanding its capacity to produce value-added products.  Brazil’s exports of semi-finished steel products reached 5.7 million tons in 2008 and 4.6 million tons in 2009, which represented 62% and 54% of total steel exports for each period, respectively.  In 2010, slabs and billets exports summed 5.3 million tons (58% of tons exported in the year).

    In 2009,2010, Brazilian steel exports totaled 8.69.0 million tons, representing 32%38% of total Brazilian steelsteelmakers sales (domestic plus exports) and accounting for US$4.7 5.8 billion in export earnings for Brazil in 2009.Brazil.  Over the last 20 years, the Brazilian steel industry has been characterized by a structural need to export, which is demonstrated by the industry’s supply demand curve.  The Brazilian steel industry has experienced periods of overcapacity, cyclicality andcyclicalityand intense competition during the past several years.  Demand for finished steel products, as measured by domestic apparent consumption, has consistently fallen short of total supply (defined as totalproduction plus imports).  In 2009,2010, supply totaled 26.732.8 million tons, as compared to apparent consumption of 1826.6 million tons.

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         Brazil also enjoys a diversified steel export market. In 2009, export sales were made to over 120 countries. North America and South America were Brazil’s main export markets, accounting for 12% and 21%, respectively, of all Brazilian steel exports in such year. United States was the main destination, representing 8% of total exports. The European Union was responsible for 9% of the Brazilian steel exports in 2009, while Asia, Africa and the Middle East were responsible for 58%. The ten largest markets, taken together, accounted for 66% of Brazil’s steel exports in 2009. See also “Item 4B. Business Overview—Competition.”

         As a result, Brazil is a negligible importer of foreign steel products. Steel imports wereclimbed 154% in 2010, to 5.93 million tons (22% of apparent domestic consumption) as compared to 2.3 million tons or 8.6% of apparent domestic consumption in 2009 as compared to 2.7 million tons, or 11% in 2008,(8.6% of steel consumption), according to IBS.

    4C.  Organizational Structure

    We doconduct our business directly and through subsidiaries.  For more information on our organizational structure, see Note 1(a)2(b) to our consolidated financial statements included in “Item 18.  Financial Statements.”

    4D.  Property, Plant and Equipment

    Our principal executive offices are located in the city of São Paulo, the State of São Paulo at Avenida Brigadeiro Faria Lima, 3,400, 20th floor (telephone number 55-11-3049-7100), and our main production operations are located in the city of Volta Redonda, in the State of Rio de Janeiro, located approximately 120 km from the city of Rio de Janeiro.  Presidente Vargas steelworks, our steel mill, is an integrated facility covering approximately 4.0 square km and located in the city of Volta Redonda in the State of Rio de Janeiro.  Our iron ore, limestone and dolomite mines are located in the State of Minas Gerais, which borders the State of Rio de Janeiro to the north.  Each of these mines is within 500 km of, and is connected by rail and paved road to, the city of Volta Redonda.

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    The table below sets forth certain material information regarding our property as of December 31, 2009.2010.

    49

     

     

     

     

     

     

     

     

     

     

     

     

     

    Facility  

     

    Location  

     

    Size  

     

    Use  

     

    Productive 
    Capacity  

     

    Title  

     

    Encumbrances  

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Presidente Vargas steelworks 

     

    Volta Redonda, State of Rio de Janeiro 

     

    4.0 square km 

     

    steel mill 

     

    5.6 million tons per year 

     

    owned 

     

    None 

     

    CSN Porto Real (former GalvaSud)

     

    Porto Real, State of Rio de Janeiro 

     

    0.27 square km 

     

    galvanized steel producer 

     

    350,000 tons per year 

     

    owned 

     

    mortgage(1)(2)

     

    CSN Paraná 

     

    Araucária, State of Paraná 

     

    0.98 square km 

     

    galvanized and pre-painted products 

     

    100,000 tons of pre- painted product and 220,000 tons of pickled hot-rolled coils 

     

    owned 

     

    None 

     

    Metalic 

     

    Maracanaú, State of Ceará 

     

    0.10 square km 

     

    steel can manufacturer 

     

    900 million cans per year 

     

    owned 

     

    mortgage(3)

     

    Prada 

     

    São Paulo, State of São Paulo and Uberlândia, State of Minas Gerais 

     

    SP – 0.14 square km; 
    MG – 0.02 square km; 

     

    steel can manufacturer 

     

    1 billion cans per year 

     

    owned 

     

    None 

     

    CSN, LLC 

     

    Terre Haute, Indiana, USA 

     

    0.78 square km 

     

    cold-rolled and galvanized products 

     

    800,000 tons of cold-rolled products and 315,000 tons per year of galvanized products 

     

    owned 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Lusosider 

     

    Seixal, Portugal 

     

    0.39 square km 

     

    hot-dip galvanized, cold-rolled and tin products 

     

    240,000 tons of galvanized products and 50,000 tons of cold-rolled products per year 

     

    owned 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Prada 

     

    Mogi das Cruzes, State of São Paulo 

     

    0.20 square km 

     

    distributor 

     

    730,000 tons per year 

     

    owned 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Casa de Pedra mine 

     

    Congonhas, State of Minas Gerais 

     

    44.57 square km 

     

    iron ore mine 

     

    60.0 mtpy(4)

     

    owned(5)

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Engenho mine(6)

     

    Congonhas, State of Minas Gerais 

     

    2.87 square km 

     

    iron ore mine 

     

    5.0 mtpy

     

    concession 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Fernandinho mine(6)

     

    Itabirito, State of Minas Gerais 

     

    1.84 square km 

     

    iron ore mine 

     

    2.0 mtpy 

     

    concession 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Bocaina mine 

     

    Arcos, State of Minas Gerais 

     

    4.11 square km 

     

    limestone and dolomite mines

     

    4.0 mtpy 

     

    concession 

     

    None 

    ERSA mine 

     

    Ariquemes, State of Rondônia 

     

    0.015 square km 

     

     tin mine 

     

    1,800 tons 

     

    concession 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Thermoelectric co- generation power plant 

     

    Volta Redonda, State of Rio de Janeiro 

     

    0.04 square km 

     

    power plant 

     

    238 MW 

     

    owned 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Itá(7)

     

    Uruguay River - Southern Brazil 

     

    9.87 square km 

     

    power plant 

     

    1,450 MW 

     

    concession 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Igarapava(8)

     

    State of Minas Gerais 

     

    5.19 square km 

     

    power plant 

     

    210 MW 

     

    concession 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Southeastern 
    Railway System(9)

     

    Southern and Southeastern regions of Brazil 

     

    1,674 km of tracks 

     

    railway 

     

    -- 

     

    concession 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Transnordestina 

     

    Northern and northeastern regions of Brazil 

     

    4,238 km of tracks 

     

    railway 

     

    -- 

     

    concession 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    TECAR at Itaguaí Port 

     

    Itaguaí, State of Rio de Janeiro 

     

    0.69 square km 

     

    raw materials 

     

    4 mtpy 

     

    concession 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Container terminal - TECON at Itaguaí port 

     

    Itaguaí, State of Rio de Janeiro 

     

    0.44 square km 

     

    containers 

     

    2 mtpy 

     

    concession 

     

    None 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Land 

     

    State of Rio de Janeiro 

     

    31.02 square km 

     

    undeveloped 

     

    -- 

     

    owned 

     

    pledge(10)/Collateral / mortgage(2)

     

     

     

     

     

     

     

     

     

     

     

     

     

    Land 

     

    State of Santa Catarina 

     

    6.22 square km 

     

    undeveloped 

     

    -- 

     

    owned 

     

    pledge(10)/Collateral 

     

     

     

     

     

     

     

     

     

     

     

     

     

    Land 

     

    State of Minas Gerais 

     

    29.09 square km 

     

    undeveloped 

     

    -- 

     

    owned 

     

    None 

    (1) Pursuant to a loan agreement entered into by the State of Rio de Janeiro and Galvasud as of May 4, 2000.
    (2) Pursuant to a loan agreement entered into by Kreditanstatt Für Wiederafbau, Galvasud and Unibanco as of August 23, 1999.
    (3) Pursuant to an industrial letter of credit issued by Banco do Nordeste do Brasil to Metalic, as of June 5, 2001, with maturity on February 5, 2011.
    (4) Information on equipment fleet installed annual ROM capacity. For information on installed annual production of products capacity, and information on mineral resources at our Casa de Pedra mine, see “—Reserves at Casa de Pedra Mine” and table under “—Casa de Pedra Mine” below.
    (5) Based on the    Manifesto de Mina.Mina. See, “Item 4. Information on the Company —A. History and Development of the Company—Government Regulation and Other Legal Matters—Mining Concessions.”
    (6) Property owned by our 60% non-consolidatedconsolidated investee Namisa.
    (7) Property 29.5% owned by us.
    (8) Property 17.9% owned by us.
    (9) We indirectly hold the concession through MRS.
    (10) Pledged pursuant to various legal proceedings, mainly related to tax claims.

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    Table of Contents

    For information on environmental issues with respect to some of the facilities described above, see “Item 4B.  Business Overview—Government Regulation and Other Legal Matters—Environmental Expenditures and Claims.”  In addition, for information on our plans to construct, expand and improve our facilities, see “Item 4. Information on the Company —A. HistoryPlanned Investments.” and Development of the Company —Planned Investments.”

    fp49aNote 22 to our financial statements included elsewhere in this Form 20-F.

     

    50

    fp49a

    The map above shows the locations of the Presidente Vargas steelworks, the CSN Paraná, Prada, CSN Porto Real (former GalvaSud), Metalic, Lusosider, ERSA and CSN LLC facilities, our iron ore, limestone and dolomite mines, the power generating facilities in which we have an ownership interest, and the main port used by us to export steel products and import coal and coke, as well as the main railway connections.

    Acquisitions and Dispositions

    Riversdale

    On November 24, 2009, we approved the acquisition, through our subsidiary CSN Europe, Ltda, of a 16.3% minority interest on Riversdale Mining Limited (“Riversdale”), a mining company listed on the Australian Stock Exchange (ASX).In January2010, we obtained the approval of the Australian Government to acquire further shares of Riversdale, and we reached a total participation of 19.9% by means of several purchases in February 10, 2010.  On April 20, 2011, we adhered to the public offering for the acquisition of Riversdale’s shares conducted by Rio Tinto and, as consequence, we sold 100% of our equity interest held in Riversdale’s capital stock, corresponding to 47,291,891 (forty-seven million, two hundred, ninety-one thousand, eight hundred, ninety-one ) shares, at the price of A$16.50 (sixteen Australian dollars and fifty cents) per share, totaling A$780,316,201.50 (seven hundred, eighty million, three hundred, sixteen thousand, two hundred, one Australian dollars and fifty cents).

    Segregation of Mining Assets

            We are analyzing the possibility of segregating our iron ore business and correlated logistics activities into one of our subsidiaries.  The segregation is expected to occur upon the transfer, by means of a capital increase, of assets, liabilities, rights and obligations comprising our mining and correlated logistics businesses as well as of investments in related operating companies.  The implementation of the segregation depends on several aspects, including certain regulatory approvals. 

    Alfonso Gallardo

    On May 19, 2011, we entered into, through our Spanish subsidiary CSN Steel SL, a share purchase agreement with the Spanish group Alfonso Gallardo (“AG Group”) to establish the acquisition of all the shares held by the AG Group in (i) Cementos Balboa S.A., a cement and clinker producer located in the Extremadura region in Spain; (ii)Corrugados Azpeitia, S.L. and Corrugados Lasao, S.L.U., long steel manufacturers with plants in the Basque Country; (iii) Stahlwerk Thüringen GmbH, a long steel manufacturer located in Unterwellenborn, Germany, specialized in the production of steel profiles, and; (iv) Gallardo Sections S.L.U., a AG Group steel distributor.Subject to adjustments, pursuant to the share purchase agreement, CSN Steel SL will pay €543 million for the acquisition of the above mentioned shares, and will assume approximately €403 million in indebtedness and further adjustments. The transaction will be submitted to necessary regulatory and/or antitrust approvals, and its closing is still subject to other conditions which are inherent to transactions of this nature.

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    Usiminas

    On April 20, 2011, the Company announced to the market that it had increased its interest in the capital stock of Usinas Siderúrgicas de Minas Gerais S.A. – Usiminas (“Usiminas”), through the acquisition of common and preferred shares, to total amount of 10.01% of the common shares and 5.25% of the preferred shares.

    The Company is currently assessing strategic alternatives in relation to its investment in Usiminas, including potential additional acquisitions of shares in percentages higher than those mentioned above.

    Capital Expenditures

    We invested R$3,636 million in 2010, R$2,201 million of which allocated as follows: Transnordestina Logística:  R$1,371 million; CSN Aços Longos:  R$275 million; CSN Cimentos:  R$249 million; MRS Logística:  R$199 million.

    The remaining R$1,435 million were expended in:  maintenance and repair:  R$483 million; expansion of the Casa de Pedra mine:  R$275 million; expansion of the Port of Itaguaí:  R$139 million; and technological improvements:  R$125 million.  For further information, see “Item 5B.  Liquidity and Capital Resources-Short-Term Debt and Short-Term Investments.”

    In 2009, we invested R$1,860 million in capital expenditures.

    In 2010, we continued to implement our strategy of developing downstream opportunities, new products and market niches by creating or expanding capacity of galvanized products for the automotive sector and by investing in a galvanizing and pre-painting plant in order to supply the construction and home appliance industries, as described in “Item 4B.  Business Overview—Facilities.”

    We also intend to control production costs and secure reliable sources of raw materials, energy and transportation in support of our steelmaking operations through a program of strategic investments.  The principal strategic investments already made are set forth in “Item 4B.  Business Overview—Facilities.”

     Planned Investments

    Our operating activities require a regular schedule of investments focused on  equipment maintenance, technological improvements, tools, vehicles, buildings, industrial plants,  among others.  In addition to current investments, the Company also makes investments to increase their operational efficiency and productivity, expand its production capacity in traditional businesses  steel, mining and logistics, as well as new businesses such as cement and long steel.

    In light of an improvement in the worldwide economic scenario since the second half of 2009 and higher growth projection for Brazil, and also considering our comfortable debt level and cash position, our board of directors approved, on December 2010, an investment plan for the period between 2011 and 2015.

    Total planned investments amount to R$29.1 billion over the next five years, of which:

    52

    ·     R$13.0 billion in our mining segment, including capacity expansion of the Casa de Pedra mine to 50 Mtpa and the expansion of the Nacional Minérios SA (Namisa) capacity to 39 Mtpa, in addition to the expansion of shipping capacity of the port terminal of Bulk Solids in Itaguaí (TECAR) to 84 Mtpa;

    ·      R$4.0 billion in our steel segment, including installation of three plants of long products withtotal capacity of 1.5 million tones per year, besides completion / implementation of other projects, such as automotive service center, pre-painted capacity expansion , and implementation of projects for operational excellence with focus on cost reduction (eg. energy efficiency);

    ·      R$770 million in our cement segment, considering investment balances for the completion of the unit of clinker in Arcos, and the installation of a new integrated unit in Arcos (both grinding and clinker);

    ·      R$4.7 billion in our logistics segment, including the Transnordestina railway and our container terminal (TECON); and

    ·      R$6.7 billion in business continuity and programs to improve our performance.

    The investments of MRS are not included in this plan.

    Certain projects that were previously announced, such as the greenfield slab mills in the city of Itaguaí, in the State of Rio de Janeiro, and the greenfield slab mill in the city of Congonhas, in the State of Minas Gerais are being reconsidered, due to market conditions during and after the worldwide crisis in 2008 and 2009.

    We expect to finance these investments through our own cash, public or private financing, or strategic partnerships.

    Our planned investments in iron ore, steel, logistics and cement are described below.

    Steel

    We are currently implementing a unit of 500 Kt / year of long steel in Volta Redonda, in the State of Rio de Janeiro, benefiting from the infrastructure and energy available, to produce rod bar (around 80%) and wire rod (around 20%). The production start is expected in 2013 representing the entrance of CSN in this new market segment.

    We  plan to install two other long steel plants, with similar scale and product mix.  The equipments are already contracted.  Detailed studies are currently being developed.  Once these units are installed, we expect to have a capacity of 1.5 Mt / year of long steel

    We are also investing in the expansion of service centers for the automotive market in which CSN market share has been successively expanded. Additionally we are implementing the expansion of our CSN Porto Real facility. The pre-painted plant operates at full capacity, and there are expansion projects in development to promote a significant expansion, with the prospect of doubling the current capacity.

    The project portfolio also includes important projects of operational excellence in development and deployment, and that will represent a significant benefit of cost reduction, such as:  the coke battery revamp project, which we expect will make us self-sufficient in coke; energy power substation, which will reduce our transmission electrical energy costs; the start-up of blast furnace turbine project, adding 17 MW of electricity self-generation.  In addition, there are several projects in order to reduce the consumption of raw materials, increase productivity and efficiency.

    Besides the organic portfolio, we constantly evaluate various options in order to accelerate our growth in the Brazilian flat steel market and to strength our competitiveness, including the implementation of new plants, expansion of the existing unities and M&A options, both in Brazil and abroad.

    53

    Mining

    We expect to achieve a capacity of 89 Mtpy in iron ore, of which 50 Mtpy in Casa de Pedra mine and 39 Mtpy in Namisa, in which the Company holds 60% share.

    We are also investing in the expansion of TECAR to allow an annual export of 84 Mtpy of iron ore.  The current capacity is 30 Mtpy. The implementation is accelerated, and the main equipments and services are already contracted. In Namisa, the projects are both concentration and pelletizing plants.

    In addition to these projects, under implementation, we are evaluating further expansions, including increasing of the capacity of the Casa de Pedra mine and TECAR, and evaluating other options for growth, such as areas for mineral exploration, acquisition of advanced exploration projects and acquisition transactions, among others, especially in Brazil.

    Logistics

    In August 2006, in order to enable the implementation of a major infrastructure project led by the Brazilian federal government, our Board of Directors approved a transaction to merge Transnordestina S.A., a company that at the time was state-owned, into and with Companhia Ferroviária do Nordeste – CFN, an affiliate of CSN that holds a 30-year concession granted in 1998 to operate the Northeastern Railroad of the RFFSA with 4,238 km of railway track.  The surviving entity was later renamed Transnordestina Logística S.A., or Nova Transnordestina.  The Nova Transnordestina Project includes an additional 1,728 km of large gauge, state-of-the-art railway track.  We expect the investments will allow the company to increase the transportation of various products, such as iron ore, limestone, soy beans, cotton, sugar cane, fertilizers, oil and fuels.  The investments will be financed through several agencies, such as FINOR – Northeastern Investment Fund, SUDENE - the Northeastern Development Federal Agency and BNDES.  We have obtained certain of the required environmental permits, purchased parts of the equipments and services and implementation is advanced in certain regions.

    Until 2008, Transnordestina was jointly controlled by us and Taquari Participações S.A., or Taquari, pursuant to a shareholders´ agreement dated November 27, 1997, as amended on May 6, 1999 and on November 7, 2003.  During 2009, we increased the capital of Transnordestina upon disbursing certain advances for future capital increases.  Taquari decided not to participate in such capital increases, being diluted and relinquishing control over Transnordestina.

    Transnordestina is currently a subsidiary fully controlled by us and has been consolidated in our financial statements since December 2009.

    The current investment budget is R$ 5.4 billion and it is funded through various agencies, such as FINOR - Investment Fund of the Northeast, SUDENE - Superintendency of Northeast Development and BNDES, and the contribution of equity.

    The implementation of the project has been conducted by Odebrecht through an Alliance Model formed with CSN.  In January, 2011, there were more than 11,000 employees working in 25 sites, 1,550 heavy equipment, daily, R$ 1.7 billion already invested and around R$ 3.0 billion in contracts entered.

    Cement

    The cement plant in Volta Redonda is currently in the ramp-up phase, and we project that in the next years we will reach the full production at a pace of 2.4 million tons per year. The acceptance of the product and the brand exceed the original estimates as a new entrant.

    With the start-up of the project to produce clinker, and gradual increase in the self-use of slag  the company can significantly reduce costs, a critical element in the cement business.  In 2010, we established four distribution centers and completed the structuring of the sales team.

    Investments in these two projects and distribution centers will sum R$ 837 million.

    54

    We are evaluating other organic growth initiatives to expand our capacity by an additional 3.0 million tons per year, in order to capture the strong growth expected with the Soccer World Cup of 2014 and the Olympic Games in 2016, considering the strong pace of construction of new housing units, commercial and infrastructure projects.

    Item 4A.  Unresolved Staff Comments

    In 2005, we filed a registration statement on SEC Form F-4 for an Exxon Capital exchange offer. We incorporated by reference in the F-4 our annual report on Form 20-F/A for the fiscal year ended December 31, 2004, or the 2004 Form 20-F. The SEC then advised us that it had reviewed our 2004 Form 20-F and our consolidated financial statements as of and for the years ended December 31, 2002, 2003 and 2004 included therein and provided us with comments and questions with regard to the 2004 Form 20-F. The unresolved staff comments are related to (i) the accounting treatment of our accruals for disputed taxes payable relating to certain tax liabilities for which we were disputing payment and (ii) the use of certain tax credits to offset such tax liabilities. The Form F-4 has not yet been declared effective.None.

    During 2009, the SEC reviewed our 2008 annual report on Form 20-F, or the 2008 Form 20-F, and requested clarification about a number of disclosure items, including the accounting treatments mentioned above. We amended the 2008 Form 20F and received an SEC letter concluding the SEC review process on the 2008 Form 20-F with no further comments and questions.

    We are currently working with the SEC to have the Form F-4 declared effective based on the fact that the comments underlying the 2004 Form 20F were resolved in the 2008 Form 20F.

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    Table of Contents

    Item 5. Operating and Financial Review and Prospects

    The following discussion should be read in conjunction with our consolidated financial statements as of December 31, 20082010 and 2009 and for each of the years ended December 31, 2007, 20082010 and 2009 included in “Item 18.  Financial Statements.”  Our consolidated financial statements were prepared in accordance with U.S. GAAPInternational Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and are presented in U.S. dollars,thousands of reais (R$), as explained in Note 2(a) to our consolidated financial statements included in “Item 18.  Financial Statements.”

    5A.  Operating Results

    Overview

      Macro-Economic Scenario

         The outlook for the global economy has improved since the second half of 2009. Lead indicators point to a recovery in general market conditions. According to International Monetary Fund, or IMF, emerging economies will be responsible for a higher contribution to world GDP growth than industrialized economies. The Brazilian Steel Institute (Instituto Aço BrasilBrazil), or IABr, expects strong demand on steel/iron ore, based on strong GDP growth and infrastructure investments in Brazil.

         The recovery of Brazilian domestic activity consolidated during the later part of 2009. According to Fundação Getúlio Vargas, or FGV, confidence indicators show that industrial output has returned to pre-crisis levels. This recovery in industrial production was led by production of consumer durables, which in turn increased demand for steel products.

         Control over inflation, reduced interest rates, improved earnings, lower unemployment, the increasing availability of credit and government measures to encourage consumption in Brazil contributed to re-establishBrazil’s economic growth in 2009.

         Despite2010 was among the optimism over job creation,strongest in emerging countries according to IMF (International Monetary Fund), mainly due to the latest data fromincreased employment rate, higher individual income and the expansion of credit. According to the Brazilian Labor Ministry’s employment registry, or CAGED, shows that 995,000Central Bank, GDP growth was 7.5% in 2010, the highest since the introduction of the Plano Real in 1994.

    According to Ministry of Labour, in 2010 there were 2.52 million new jobs were created in 2009, the lowest figure since 2003. In 2010, however, the Ministry expects to create 2 million new registered jobs.

         Individual and corporate loans in Brazil, continued to increase and at year end 2009 amounted to 45% of GDP. In 2009, the total volume of credit in the financial system reached R$1.4 trillion, 14.9%115% more than in 2008. Reduced interest on loan transactions encouraged2009.  In December 2010, the acquisitionBrazilian Institute of propertyGeography and durable goods.Statistics, or IBGE, recorded an unemployment rate of 5.3%, the lowest since 2002.  This decline, plus the increase in earnings, helped increase consumption.  IBGE figures show that the real salaries increased by 8.6% year-over-year in December 2010, impacting retail sales which increase by 10.9% in 2010, the greatest increase in nine years.

         InflationHowever, investments in Brazil continues withinproduction did not increase by the target range.same rate, according to Bacen, resulting in increased inflationary pressure.  The IPCA consumer price index closed 2009 at 4.3%increased by 5.91%, 0.21.41 p.p. belowabove the target established bymidpoint of the Central Bank. Given market expectationsBank’s target band, mainly pressured by services and food.  According to the Brazilian Central Bank, the total volume of inflationary pressurefinancial system credit reached R$1.7 trillion in 2010, a 21% increase as compared to 2009, while the credit/GDP ratio increased to 47%, with default rate falling throughout the year. According to the IBGE, industrial output grew by 10.5% in 2010, another strong macroeconomic indicator.  The sectors that contributed most to this performance were capital goods and consumer durables, especially vehicles and home appliance, as well as typically exporting sectors, led by commodities. Despite the government measures throughout the year, thereal appreciated strongly against the dollar in 2010.  At the beginning of the year, the Brazilian Central BankBank’s FOCUS report estimated a year-end exchange rate of around R$1.80; however, the actual rate was R$1.67.  In February 2011, foreign reserves reached the record level of US$300 billion.

    USA

    The U.S. economy recovered towards the end of 2010 and, according to IMF the annual GDP growth in 2010 was 2.9%, the largest increase since 2005, mainly due to the government’s fiscal incentives, higher exports and return of private investments. Nevertheless, according to IMF, unemployment remained high, recording 9.4% in December 2010, equivalent to approximately 14 million people out of work.  A total of 900,000 jobs were created in 2010.

    55

    Europe

    The growth rate in Europe continues low and there is uncertainty regarding sovereign debt and the general health of the financial system, especially inGreece, Ireland, Spain, Portugal and Italy.  According to CRU, these four nations hold 64% of all loans granted to financial institutions in the Eurozone. According to IMF, Eurozone unemployment is still approximately 10%, or nearly 15 million people, one of the highest levels in the last 12 years.  However, according to IMF, this is expected to improve in the coming months due to a possible increase in exports, especially in Germany, and higher consumer spending. For the SELIC base ratefirst time in more than two years, inflation exceeded the 2% target stipulated by the European Central Bank, reaching 2.2% in December, with the exceptionally cold weather pressuring food and energy prices.  According to prevent inflation.CRU, in 2011, commodity and energy prices should continue to exert inflationary pressure, although the ECB maintained the inflationary target at 2%.

    SectorsAsia

    SteelAfter fueling the recovery from the global financial crisis, China has gone through a cycle of strict monetary measures in an attempt to reduce inflation, which was 4.6% in 2010. Throughout 2010, the government adopted measures to contain growth by increasing interest rates and reserve requirements, limiting credit and introducing energy-saving targets.  Despite their restrictive nature, however, all these measures are designed to ensure that the Chinese economy grows in a sustainable manner. According to IMF, China GDP grew by 10.3% in 2010, 2% above the Chinese government’s target, and the country overtook Japan as the world’s second largest economy, with GDP of US$5.9 trillion. According to Peoples´Bank of China, China has let the Yuan appreciate by approximately 6% against the U.S. dollar since June 2010, effectively ending its two-year-long rate-fixing between the two currencies.

     Brazil’s

    Segments

    Steel

    According to the World Steel Association, or WSA, global crude steel production totaled 1.4 billion tons in 2010, a 15% increase as compared to 2009. Nevertheless, according to WSA, many steel-producing nations have still not recovered to their pre-crisis levels, China and certain other Asian countries being the exception. According to the WSA, the global steel industry finished 2009 with consistent signs of a recovery, with figures indicating a very different scenario fromcapacity utilization rate at the end of 2008, which2010 was strongly impactedapproximately 74%, although production capacity and global steel product consumption still remains unbalanced.  As stated by the economic crisis.

         UntilWSA, surplus production capacity is currently approximately 500 million tons. This imbalance, together with the beginning of 2009, sixappreciation of the 14 blast furnacesreal and the existence of state government import incentives fueled Brazil's flat steel imports in Brazil were shut down due2010. Supported by higher raw material prices, especially of coal, scrap and iron ore, international steel prices began to reduced demand. However, as both consumption and international prices recovered throughout the year, byshow signs of recovery at the end of 2009 only one2010, leading some steel plants to consider reactivating their blast furnace remained non-operational infurnaces to benefit from the country.upturn.

    Brazil

    According to the IABr, productionapparent consumption of steel products reached the record level of 26.1 million tons in Brazil2010, 41% higher than the previous year, and the Institute expects the figure to increase by a further 6% in 20092011, to 28 million tons. Annual consolidated production in 2010 totaled 26.532.9 million tons of crude steel and 11.815.2 million tons of rolled flat steel, a decreasean increase of 21.4%24% and 17.3%,28% respectively, as compared to 2008. Annualfrom the previous year. Consolidated domestic sales of rolled flat steel totaled 9.0were 11.5 million tons in 2009,2010, a 25.9% decrease as compared to 2008. Flat25% increase from 2009.

    Annual flat steel exports totaled 2.52.3 million tons, a 53.6% increase as compared to 2008.in line with the previous year’s figure.

         The prices of the main steel inputs are expected to increase in 2010, especially coal and iron ore, in turn increasing production costs in the main steel mills and benefiting the more integrated producers who have access to raw materials.

    56Automotive

    Table of Contents

         The Brazilian automobile market closed 2009 with its third consecutive annual sales record. The total number of vehicles licensed during the year was 3.1 million, an 11.4% increase as compared to 2008.  According to ANFAVEA (the Brazilian vehicleauto manufacturers’ association), annual vehicle production totaled 3.2reached 3.6 million units just 1% lessin 2010, a 14% increase as compared to 2009. Annual sales totaled 3.5 million units, 12% more than in 2008.

    2009, the seventh consecutive year of growth.  In addition, Brazil closed 2010 as the Brazilian constructionworld’s fourth largest vehicle manufacturer for the first time, behind China, the United States and Japan. Exported vehicles totaled 766,000 units in 2010, as compared to 475,000 in 2009.  According to ANFAVEA, vehicle sales are expected to grow by 5% in 2011. Recently, the sector according toannounced significant investments over the São Paulo construction industry association, or SindusCon-SP, despitenext years, for the difficulties facedexpansion of product lines, increased output and the construction industry closed 2009 withof new plants.

    56

    Construction

    According to a positive outlook. Currentstudy by the Getulio Vargas Foundation (FGV), every year 1.5 million new Brazilian families intend to purchase a home.  Demand for real estate has been fueled by the expansion of the emerging middle class, higher family income, more formal jobs and the greater availability of credit. Housing loans from the Caixa Econômica Federal (Brazilian Saving Bank), the mortgage lending leader, totaled R$77.8 billion in 2010, an increase of 57.2% from 2009. LCA, a consulting firm, estimates indicate that the sector GDPgrew by 13.9% in 2010.

    Distribution

    According to INDA (the Brazilian steel distributors’ association), flat steel sales by distributors totaled 3.8 million tons in 2010, an increase of 13% from 2009, with purchases of 4.3 million tons (+39%), resulting in increased inventories, which were sufficient for 4.3 months of sales in December 2010, higher than the historical average.

    Agricultural machinery

    According to ANFAVEA, in 2010 production of agricultural machinery increased by 1% over 2008. The Minha Casa Minha Vida housing program,34% from the Growth Acceleration Program (PAC)previous year to 89,000 units. Annual sales were 68,000 units, 24% higher than in 2009 and the infrastructure investments relatedsector’s best performance since 1976, while exports increased by 27% to 19,000 units.

    International

    According to the World CupWSA, U.S. crude steel production totaled 80.6 million tons in 2010, 38.5% more than in 2009, while the U.S. Department of Commerce estimated steel imports of 21.7 million tons, up by 47%. According to WSA, U.S. steel distributors’ inventories totaled 4.2 million tons in December 2010, equivalent to 2.6 months of sales.

    According to the WSA, Eurozone steel production reached 315 million tons in 2010, 19% up on 2009. As in the U.S., raw material cost increases have been forcing the industry to revisit pricing, resulting in increases throughout the continent. Although demand for steel has been showing signs of recovery in certain countries, there are serious doubts concerning the sustainability of these prices, principally due to weak growth prospects in most European nations.

    According to the WSA, crude steel output in China totaled 626 million tons in 2010, 9% up from the previous year and a new record, accounting for 44% of the global total. Japan's crude steel production increased by a substantial 25% over 2009, reaching 109 million tons.

    Mining

    At the beginning of 2010, a number of incentives focused on the intensive use of steel, to support the global economy were still in force. The commitment of the leading global economies to overcoming the crisis was crucial to the recovery of the market as a whole. According to CRU, as a result of the recovery, iron ore sales, mostly concentrated in the Chinese market in 2009, became more fragmented in 2010. Nevertheless, China remains an important market player.  In 2010, the country imported 619 million tons of iron ore, accounting for 60% of the seaborne market, and this figure is expected to reach 895 million tons by 2015, according to CRU.

    2010 was a year of major changes in the iron ore market.  The traditional pricing system, used for over 40 years, was replaced by a system that reflects market oscillations and is subject to periodic reviews over time. Demand continues to outpace supply on the seaborne market and certain factors in 2010 helped reduce supply even further, including government restrictions on iron ore exports in India, accompanied by the imposition of export taxes.  According to Macquire, the vast majority of new projects (brownfield and greenfield) were delayed and the Olympics will all have a positive impact onexpected increase in available market volume did not materialize. In light of this scenario, Brazil’s iron ore exports reached the sector in the future.

         The steel distribution sector in Brazil had annual sales volumerecord level of 3,397307 million tons in 2010, according to LBH Group, an 8.6% decreaseincrease of 15% as compared to 2008 due2009.

    57

    The Brazilian federal government recently launched a National Mining Program, which envisages investments of US$270 billion over 20 years and is designed to triple the significant decrease in demandproduction of iron ore, copper ore and other minerals by 2030.

    Prices increased in the first half of 2009.

         According to the Brazilian steel distributors’ association, or INDA, sales should increasein 2011, fueled by 15%growing demand in 2010, reaching 3.9 million tons, higher than 2008’s record figure, mainly driven by higher output of consumer durablesChina and the recovery of the capital goods industry.European and North American markets.

    Logistics

         In lightRailway logistics

    2010 was a positive year for the Brazilian rail logistics sector.  According to the ANTF (National Rail Transport Association), transported volume increased by 15% as compared to 2009, exceeding 455 million tons.  The number of the tax breaks in Brazil which began in Aprilrail cars produced increased by 223% as compared to 2009 and ended in January 2010, the home appliance industry overcame the originally negative outlook for 2009.  At the beginning of 2009, annual sales were expected to fall by 20% but3,300, according to Abifer (Brazilian Railway Industry Association).

    With investments by private enterprises and support from the Brazilian home appliance manufacturers’ association, or Eletros,government, the outlook is promising. The government believes the rail network will extend for 41,000 kilometers by 2020, 37% more than the current total.

    Port logistics

           According to Antaq (National Waterway Transport Agency), handled volume totaled 834 million tonnes in 2010, 14% up from 2009. In the same period, container volume increased by 12% year-over-year to 6.8 million TEUs.

    Cement

    Preliminary studies from SNIC (the Cement Industry Association) indicate local cement sales of stoves, refrigerators and washing machines increased by 6%, 20% and 25%, respectively, during the period when the IPI (federal VAT) cuts were in effect. In 2010 the outlook for the home appliance industry is positive in light of expected greater availability of credit.

    Mining

         Currently global iron ore production has not been able to meet the world steel demand. Consequently, there is pressure on price fundamentals that affect spot prices.

         China, the biggest consumer of Brazilian ore, imported 62859 million tons in 2009, 41% more than in 2008 and2010, a new record. As a result, the share of imported ore in China increased from approximately 60% to approximately 70% in 2009.

         Low freight costs improved the competitiveness of Brazilian ore over Chinese ore. The Brazil-Asia benchmark price averaged approximately US$51/t in 2009, whereas the February 2010 spot price was more than US$130/t.

         Brazil and Australia were still China’s leading suppliers, accounting for more than 68% of the country’s iron ore imports, supported by a reduction in India’s relative share.

         According to the Brazilian Mining Institute, or IBRAM, Brazilian iron ore production totaled approximately 300 million tons in 2009, a 19% decrease15% increase as compared to 2008. For 2010, IBRAM expects an2009.  The Southeast region consumed half of this total and the North was the best performer in terms of growth, growing 58%. Annual exports decreased by 23%, as manufacturers prioritized the domestic market. According to SNIC, there are 70 plants operating in Brazil, belonging to 12 national and international groups, with a joint annual outputinstalled capacity of 380 million tons.

         In 2009, Brazil exported 26767 million tons, sufficient to meet all of iron ore, 5% less than the previous year.domestic demand.

         The confidenceSignificant investments in long term global fundamentals underlines the continuity of our growth perspective to become a major iron ore supplier. CSN has already become an important player in seaborne trade by improving its ranking position every year as market recognizes its importance as a major iron ore supplier.

    TheMacquarie Group estimates that demand on the key seaborne trade routes will rise again in 2010. Based on an estimated Chinese steel production of approximately 640 million mt, iron ore imports into the country are projected to increase by approximately 55 million mt in 2010.  Allied to a recovery in steel production in Europe and Japan, demand fundamentals continue to look strong.

    57

    Table of Contents

    Our steelmaking operations consumed 6.2 million tons of iron ore during 2009, consisting of 4.7 million tons of sinter-feed material and 1.5 million tons of lump ore. As we do not have pelletizing plants, the total amount of pellets has been acquired in the Brazilian market.

    International Macro-Economic Scenario

    USA

         U.S. GDP decreased by 2.5% in 2009, declining 0.5% in the final quarter, mainly due to the tax and monetary incentives implemented along the year.

         The Organisation for Economic Co-operation and Development – OECD expects GDP to recover slowlycapacity expansion were announced in 2010, possibly achieving growththe effects of 2.3%, held back by reduced availability of jobs, credit restrictions and the high level of family debt. The steel market is expected to have a gradual recovery over the next two years.

         Crude steel production in 2009 totaled 58 million tons, a 36% decrease on the previous year.

         Distributors’ sales remained stablewhich should become apparent in the second half of 2011.

    58

    Energy

    In 2010, the electric power market was favored by Brazil’s economic performance, led by the domestic market, driven by increased employment and income, as well as the greater availability of credit.  Electricity consumption increased 7.8% from 2009, but were below pre-crisis levels. In lightaccording to the Ministry of decreaseMines and Energy’s Energy Research Company.

    Industrial consumption made the biggest contribution, increasing by 10.9% and consolidating the post-crisis recovery that begun in productionthe second half of 2009.  According to EPE (Empresa de Pesquisa Energética), residential and increased sales efforts, inventoriescommercial consumption recorded consistent growth of 6.3% and 5.9%, respectively, in November 2009 fellline with recent years.

    Even with the growing demand for electric power, Brazil has been adequately incrementing its generating capacity and safely meeting the 13th consecutive month. These conditions favor a slow recovery, which is already being reflected in an increase in steel production capacity use, currently at approximately 65%.

    Europe

         The European economy underwent a severe recession in 2009 and is expected to still be suffering from the effects of the crisis in 2010.demand.  According to the Annual Energy Operations Plan (PEN 2010), published by the National Associations of Steel, Tube and Metal Distribution, or Eurometal,System Operator (ONS), the National Integrated System’s structural energy balance for the next four years must ensure adequate supply, even in adverse hydrological conditions.

    This situation is largely the result of the 27 countries membersenergy auctions promoted by the government, as well as the contracting and construction of the European Union, only Poland recorded GDP growth in 2009. The bloc average GDP decreased by 4.1% and is only expected to increase by 0.7% in 2010.new transmission lines, which has permitted greater energetic integration among Brazil’s various regions.

         In addition, some countries are facing serious difficulties with their public debt, notably Spain, Portugal, Ireland and, especially, Greece.

         According to Worldsteel Association, annual EU steel production totaled 139 million tons, 30% less than in 2008, ratifying Eurometal’s estimate of a 33% reduction in apparent consumption of steel. In 2010 and 2011, apparent consumption is expected to increase by 12.5% and 7.6%, respectively, but still below 2007 levels.

         Also according to Eurometal, the destocking process began in March 2010. In December 2009, inventories were equivalent to 68 days of sales, close to the historical average of 71 days recorded in 2008. In the short term, demand should recover mainly through the build-up of stocks.

    Asia

         China remained in 2009 one of the main drivers of the global economy. In the fourth quarter of 2009 alone the Chinese  GDP increased 10.7%, and the annual growth for 2009 was 8.7%. The performance of the Chinese economy has a strong influence on commodity prices, especially oil and iron ore.

         Chinese industrial output is expected to record significant growth over the next two years, although not as much as before the crisis.

         Demand slowed down in the beginning of 2010, due to the normal winter seasonal effects, but is experienced to gradually recover in the rest of the year, with Chinese distributors slowly building up their inventories.

         Asian exports are still being affected by reduced global demand and non-competitive production costs, especially in a scenario of main raw material cost pressure.

    58

    Table of Contents

         All Asian countries recorded a reduction in steel production in 2009, except for China, whose output increased 14% as compared to 2008 to 568 million tons, increasing its share of the global total to 47%.

    Steel Markets and Product Mix

    Supply and Demand for Steel

    Prices of steel are sensitive to changes in worldwide and local demand, which in turn are affected by worldwide and country-specific economic cycles, and to available production capacity.  While the export price of steel (which is denominated in U.S. dollars or Euros, depending on the export destination) is the spot price, there is no exchange trading of steel or uniform pricing.  Unlike other commodity products, steel is not completely fungible due to wide differences in terms of size, chemical composition, quality and specifications, all of which impact prices.  Many companies (including us) discount their list prices for regular customers, making their actual transaction prices difficult for us to determine.

    Historically, export prices and margins have been lower than domestic prices and margins, because of the logistics costs, taxes and tariffs.  The portion of production that is exported is affected by domestic demand, exchange rate fluctuations and the prices that can be charged in the international markets.

    The following table shows Brazilian steel production and apparent consumption (domestic sales plus imports) and global production and demand for the periods indicated:

     

     

     

     

     

     

     

     

     

    Year ended December 31, 

     

     

     

     

     

    2007 

     

    2008 

     

    2009

     

     

     

     

     

     

     

    Brazilian Market(in thousands of tons)

     

     

     

     

     

     

    Total Flat and Long Steel 

     

     

     

     

     

     

    Production(1)

     

    25,850 

     

    24,726 

     

    20,223

    Apparent Consumption 

     

    22,060 

     

    24,048 

     

    18,576

    Hot-Rolled Coils and Sheets 

     

     

     

     

     

     

    Production 

     

    4,326 

     

    3,926 

     

    3,474

    Apparent Consumption 

     

    3,354 

     

    3,481 

     

    2,615

    Cold-Rolled Coils and Sheets 

     

     

     

     

     

     

    Production 

     

    3,412 

     

    3,038 

     

    2,692

    Apparent Consumption(1)

     

    2,900 

     

    2,849 

     

    2,497

    Galvanized Sheets 

     

     

     

     

     

     

    Production(1)

     

    2,459 

     

    2,343 

     

    2,004

    Apparent Consumption(1)

     

    2,154 

     

    2,478 

     

    1,913

    Tin Mill 

     

     

     

     

     

     

    Production(1)

     

    932 

     

    724 

     

    665

    Apparent Consumption(1)

     

    640 

     

    623 

     

    570

    Global Market(in millions of tons)

     

     

     

     

     

     

    Crude Steel Production 

     

    1,346 

     

    1,330 

     

    1,224

    Demand 

     

    1,202 

     

    1,309 

     

    1,202

    ___________

     

     

    2010

     

    2009

     

    2008  

     

     

     

     

     

     

     

    Brazilian Market(in thousands of tons)

     

     

     

     

     

     

    Total Flat and Long Steel  

     

     

     

     

     

     

    Production

     

    25,401

     

    20,223

     

    24,726 

    Apparent Consumption 

     

    26,104

     

    18,576

     

    24,048 

    Hot-Rolled Coils and Sheets  

     

     

     

     

     

     

    Production 

     

    4,592

     

    3,474

     

    3,926 

    Apparent Consumption 

     

    3,823

     

    2,615

     

    3,481 

    Cold-Rolled Coils and Sheets  

     

     

     

     

     

     

    Production 

     

    3,159

     

    2,692

     

    3,038 

    Apparent Consumption

     

    3,419

     

    2,497

     

    2,849 

    Galvanized Sheets  

     

     

     

     

     

     

    Production

     

    2,449

     

    2,004

     

    2,343 

    Apparent Consumption

     

    3,243

     

    2,262

     

    2,478 

    TinPlates  

     

     

     

     

     

     

    Production

     

    774

     

    665

     

    724 

    Apparent Consumption

     

    634

     

    570

     

    623 

    Global Market(in millions of tons)

     

     

     

     

     

     

    Crude Steel Production 

     

    1,414

     

    1,224

     

    1,330 

    Demand 

     

    1,284

     

    1,134

     

    1,309 

    ___________

    Source:  IABr and World Steel Association, or WSA.  

           

    59

    Source: IBS and International Iron and Steel Institute, or IISI. 

    Product Mix and Prices

    Sales trends in both the domestic and export markets are forecasted monthly based on historical data of the preceding months.  CSN uses its own information system to remain current on market developments so that it can respond swiftly to fluctuations in demand.

    CSN considers its flexibility in shifting between markets, and its ability to monitor and optimize inventory levels in light of changing demand, as key to its success.

    We also have a strategy of increasing the portion of our sales attributable to higher value-added coated products, particularly galvanized and tin plate products.  Galvanized products are directed at the automotive, construction and home appliance industries.  Tin plate products are used by the steel packaging market.

    59       Supported by higher raw material prices, especially of coal, scrap and iron ore, international steel prices increased at the close of 2010. Domestic prices are aligned with the price of imported products (including aggregated import costs).

     

    Table of Contents

         The international steel price discounts that occurred in 2009 due to the global economic and financial crisis were not sufficient to increase steel demand and prices remained at low levels until the end of 2009.

    Sales Volume and Net Operating Revenues by Steel Products and Markets

    The following table sets forth our steel product sales volume and net operating revenues by product and market.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Sales Volume 

     

     

     

     

     

    Tons 

     

    % of Sales Volume 

     

     

     

     

     

     

     

     

    In Market 

     

    Total 

     

     

     

     

     

     

     

     

     

     

     

     

     

    2007 

     

    2008 

     

    2009

     

    2007

     

    2008 

     

     2009 

     

    2007

     

    2008 

     

    2009 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    (In thousands of tons)

     

     

     

     

     

    (In percentages)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Domestic Sales 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Slabs 

     

    84 

     

    78 

     

    25 

     

    2 

     

    2 

     

    1 

     

    2

     

    2 

     

    1 

    Hot-rolled 

     

    1,535 

     

    1,746 

     

    1,204 

     

    43 

     

    42 

     

    37 

     

    28

     

    36 

     

    29 

    Cold-rolled 

     

    557

     

    685 

     

    639 

     

    15 

     

    16 

     

    20 

     

    10 

     

    14 

     

    16 

    Galvanized 

     

    873

     

    1,088 

     

    875 

     

    24 

     

    26 

     

    27 

     

    16 

     

    22 

     

    21 

    Tin Mill 

     

    565

     

    561 

     

    500 

     

    16 

     

    14 

     

    15 

     

    11 

     

    11 

     

    12 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Sub-total 

     

    3,614

     

    4,158 

     

    3,243 

     

    100 

     

    100 

     

    100 

     

    67 

     

    85 

     

    79 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Export sales 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Slabs 

     

    310 

     

    32 

     

    162 

     

    18 

     

    4 

     

    19 

     

    6 

     

    1 

     

    4 

    Hot-rolled 

     

    93 

     

    34 

     

    191 

     

    5 

     

    5 

     

    22 

     

    2 

     

    1 

     

    5 

    Cold-rolled 

     

    182 

     

    32 

     

    4 

     

    10 

     

    4 

     

    - 

     

    3 

     

    1 

     

    - 

    Galvanized 

     

    809 

     

    464 

     

    397 

     

    46 

     

    63 

     

    46 

     

    15 

     

    9 

     

    10 

    Tin Mill 

     

    370 

     

    172 

     

    114 

     

    21 

     

    24 

     

    13 

     

    7 

     

    3 

     

    2 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Sub-total 

     

    1,764 

     

    733 

     

    868 

     

    100 

     

    100 

     

    100 

     

    33 

     

    15 

     

    21 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Total 

     

    5,378 

     

    4,891 

     

    4,111 

     

     

     

     

     

     

     

    100 

     

    100 

     

    100 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Total Sales 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Slabs 

     

    394 

     

    110 

     

    187 

     

     

     

     

     

     

     

    8 

     

    2 

     

    4 

    Hot-rolled 

     

    1,627 

     

    1,780 

     

    1,395 

     

     

     

     

     

     

     

    30 

     

    36 

     

    34 

    Cold-rolled 

     

    740 

     

    717 

     

    643 

     

     

     

     

     

     

     

    13 

     

    15 

     

    16 

    Galvanized 

     

    1,682 

     

    1,552 

     

    1,272 

     

     

     

     

     

     

     

    31 

     

    32 

     

    31 

    Tin Mill 

     

    935 

     

    733 

     

    614 

     

     

     

     

     

     

     

    18��

     

    15 

     

    15 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Total 

     

    5,378 

     

    4,891 

     

    4,111 

     

     

     

     

     

     

     

    100 

     

    100 

     

    100 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Sales Volume

     

    Tons

    % of Sales Volume

     

     

    In Market

    Total

     

    2010

    2009

    2010

    2009

    2010

    2009

     

    (in thousands of tons)

    (in percentages)

    Domestic Sales

     

     

     

     

     

     

    Slabs

    51

    25

    1%

    1%

    1%

    1%

    Hot-Rolled

    1,801

    1,204

    44%

    37%

    38%

    29%

    Cold-Rolled

    707

    639

    17%

    20%

    15%

    16%

    Galvanized

    1,065

    875

    26%

    27%

    22%

    21%

    Tin Mill

    512

    500

    12%

    15%

    11%

    12%

    Subtotal

    4,135

    3,243

    100%

    100%

    86%

    79%

    Export Sales

     

     

     

     

     

     

    Slabs

    0

    162

    0%

    19%

    0%

    4%

    Hot-Rolled

    1

    191

    0%

    22%

    0%

    5%

    Cold-Rolled

    19

    4

    3%

    0%

    0%

    0%

    Galvanized

    488

    397

    74%

    46%

    10%

    10%

    Tin Mill

    152

    114

    23%

    13%

    3%

    2%

    Subtotal

    661

    868

    100%

    100%

    14%

    21%

    Total

    4,796

    4,111

     

     

    100%

    100%

    Total Sales

     

     

     

     

     

     

    Slabs

    51

    187

     

     

    1%

    4%

    Hot-Rolled

    1,803

    1,395

     

     

    38%

    34%

    Cold-Rolled

    726

    643

     

     

    15%

    16%

    Galvanized

    1,553

    1,273

     

     

    32%

    31%

    Tin Mill

    664

    614

     

     

    14%

    15%

    Total

    4,796

    4,111

     

     

    100%

    100%

    60

     

    60

    Table of Contents

     

    The following table sets forth our steel product net revenues by product and market.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Net Operating Revenues

     

     

     

     

     

    U.S. dollars 

     

    % of Net Operating Revenues 

     

     

     

     

     

     

     

     

     

     

     

     

     

    In Market 

     

    Total 

     

     

     

     

     

     

     

     

     

     

     

     

     

    2007

     

    2008

     

    2009 

     

    2007 

     

    2008

     

    2009 

     

    2007

     

    2008 

     

    2009

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    (In millions of US$) 

     

     

     

     

     

    (In percentages)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Domestic Sales 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Slabs 

     

    33

     

    47 

     

    10 

     

    1 

     

    1 

     

    -

     

    1 

     

    1 

     

    - 

    Hot-rolled 

     

    1,170 

     

    1,740 

     

    992 

     

    33 

     

    35 

     

    29 

     

    24 

     

    30 

     

    25 

    Cold-rolled 

     

    499 

     

    757 

     

    587 

     

    14 

     

    15 

     

    18 

     

    10 

     

    13 

     

    15 

    Galvanized 

     

    1,097 

     

    1,583 

     

    1,051 

     

    31 

     

    32 

     

    31 

     

    22 

     

    28 

     

    27 

    Tin Mill 

     

    754 

     

    862 

     

    757 

     

    21 

     

    17 

     

    22 

     

    15 

     

    15 

     

    19 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Sub-total 

     

    3,553 

     

    4,989 

     

    3,397 

     

    100 

     

    100 

     

    100 

     

    72 

     

    87 

     

    86 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Export sales 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Slabs 

     

    154 

     

    20 

     

    62 

     

    11 

     

    2 

     

    11 

     

    3 

     

    - 

     

    2

    Hot-rolled 

     

    62 

     

    23 

     

    91 

     

    4 

     

    3 

     

    16 

     

    1 

     

    - 

     

    2

    Cold-rolled 

     

    124 

     

    24 

     

    4 

     

    9 

     

    3 

     

    1 

     

    3 

     

    - 

     

    - 

    Galvanized 

     

    716 

     

    491

     

    277 

     

    51 

     

    65 

     

    49 

     

    14 

     

    9 

     

    7

    Tin Mill 

     

    351 

     

    203 

     

    130 

     

    25 

     

    27 

     

    23 

     

    7 

     

    4 

     

    3

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Sub-total 

     

    1,407 

     

    761 

     

    564 

     

    100 

     

    100 

     

    100 

     

    28 

     

    13 

     

    14

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Total 

     

    4,960 

     

    5,750 

     

    3,961 

     

     

     

     

     

     

     

    100 

     

    100 

     

    100 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Total Sales 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Slabs 

     

    187 

     

    67 

     

    72 

     

    4 

     

    1 

     

    2 

     

    3

     

    1 

     

    2 

    Hot-rolled 

     

    1,232 

     

    1,763 

     

    1,083 

     

    25 

     

    30 

     

    27 

     

    23 

     

    30 

     

    27

    Cold-rolled 

     

    623 

     

    781 

     

    591 

     

    13 

     

    14 

     

    15 

     

    12 

     

    13 

     

    15 

    Galvanized 

     

    1,813 

     

    2,074 

     

    1,328 

     

    36 

     

    36 

     

    34 

     

    34 

     

    36 

     

    32 

    Tin Mill 

     

    1,105

     

    1,065 

     

    887 

     

    22 

     

    19 

     

    22 

     

    21 

     

    18 

     

    22 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Sub-total 

     

    4,960

     

    5,750 

     

    3,961 

     

    100 

     

    100 

     

    100 

     

    93 

     

    98 

     

    98 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    By-products 

     

    398 

     

    115 

     

    138 

     

    - 

     

    - 

     

    - 

     

    7 

     

    2 

     

    2 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Total

     

    5,358 

     

    5,865 

     

    4,099 

     

    100 

     

    100 

     

    100 

     

    100 

     

    100 

     

    100 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Net Operating Revenues

     

    R$ (Reais)

    % of Net Operating Revenues

     

     

     

    In Market

    Total

     

    2010

    2009

    2010

    2009

    2010

    2009

     

    (in millions of R$)

    (in percentages)

    Domestic Sales

     

     

     

     

     

     

    Slabs

    41

    20

    0%

    0%

    0%

    0%

    Hot-Rolled

    3,011

    1,982

    35%

    29%

    31%

    25%

    Cold-Rolled

    1,387

    1,172

    16%

    18%

    14%

    15%

    Galvanized

    2,559

    2,099

    30%

    31%

    26%

    27%

    Tin Mill

    1,576

    1,511

    18%

    22%

    16%

    19%

    Subtotal

    8,575

    6,784

    99%

    100%

    87%

    86%

    Export Sales

     

     

     

     

     

     

    Slabs

    0

    123

    0%

    11%

    0%

    2%

    Hot-Rolled

    2

    182

    0%

    16%

    0%

    2%

    Cold-Rolled

    27

    8

    2%

    1%

    0%

    0%

    Galvanized

    778

    553

    70%

    49%

    8%

    7%

    Tin Mill

    300

    259

    27%

    23%

    3%

    3%

    Subtotal

    1,107

    1,125

    99%

    100%

    11%

    14%

    Total

    9,682

    7,909

     

     

    98%

    100%

    Total Sales

     

     

     

     

     

     

    Slabs

    41

    143

    0%

    2%

    0%

    2%

    Hot-Rolled

    3,013

    2,163

    31%

    27%

    30%

    26%

    Cold-Rolled

    1,414

    1,180

    15%

    15%

    14%

    14%

    Galvanized

    3,337

    2,637

    34%

    33%

    34%

    32%

    Tin Mill

    1,876

    1,770

    19%

    22%

    19%

    22%

    Subtotal

    9,682

    7,894

    99%

    100%

    98%

    98%

    By-Product

    244

    307

     

     

    2%

    2%

    Total

    9,926

    8,219

     

     

    100%

    100%

     

    Brazilian Macro-Economic Scenario

    As a company with the vast majority of its operations currently in Brazil, we are affected by the general economic conditions of Brazil.  We believe the rate of growth in Brazil is important in determining our future growth capacity and our results of operations.

         The Brazilian economy was affected by the global financial crisis especially in the first half of 2009, the Brazilian federal government took several measures in order to resume economic growth.  Control over inflation, reduced interest rates, improved earnings, lower unemployment, the increasing availability of credit and measures to encourage consumption all helped fuel demand and re-establish economic growth in 2009. Hence, industrial production recorded a strong growth in the second half of 2009, lead by the production of consumer durables, in turn increasing demand for steel products.

    61

    Table of Contents

    The following table shows certain Brazilian economic indicators for the periods indicated:

     

     

     

     

     

     

     

     

     

    Year ended December 31, 

     

     

     

     

     

    2007 

     

    2008 

     

    2009

     

     

     

     

     

     

     

    GDP growth 

     

    6.1% 

     

    5.1% 

     

    -0.2%

    Inflation (IPCA)(1)

     

    4.5% 

     

    5.9% 

     

    4.3%

    Inflation (IGP-M)(2)

     

    7.7% 

     

    9.8% 

     

    -1.7%

    CDI(3)

     

    11.7% 

     

    12.4% 

     

    9.8%

    Appreciation (depreciation) of therealagainst the U.S. dollar 

     

    17.2% 

     

    -32.0% 

     

    25.5%

    Exchange rate at end of period (US$1.00)

     

    R$1.771 

     

    R$2.337 

     

    R$1.741

    Average exchange rate (US$1.00)

     

    R$1.948 

     

    R$1.837 

     

    R$1.994

    ________________________

    Sources: IBGE, Fundação Getúlio Vargas, Central Bank and Bloomberg. 

    (1)The IPCA is a consumer price index measured by the IBGE. 

    (2)The IGP-M is the general market price index measured by the Fundação Getúlio Vargas. 

    (3)The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized).

     

     

     

     

     

     

     

     

     

    Year ended December 31,  

     

     

     

     

     

    2010

     

    2009

     

    2008  

     

     

     

     

     

     

     

    GDP growth 

     

    7.5%

     

    (0.2%

    )

    5.1% 

    Inflation (IPCA)(1)

     

    5.9%

     

    4.3%

     

    5.9% 

    Inflation (IGP-M)(2)

     

    11.3%

     

    (1.7%

    )

    9.8% 

    CDI(3)

     

    9.8%

     

    9.8%

     

    12.4% 

    Appreciation (depreciation) of therealagainst the U.S. dollar 

     

    4.3%

     

    25.5%

     

    (32.0%) 

    Exchange rate at end of period (US$1.00)

     

    R$1.666

     

    R$1.741

     

    R$2.337 

    Average exchange rate (US$1.00)

     

    R$1.759

     

    R$1.994 

     

    R$1.837 

    Sources:  IBGE, Fundação Getúlio Vargas, Central Bank and Bloomberg.  

    (1)The IPCA is a consumer price index measured by the IBGE.  

    (2)The IGP-M is the general market price index measured by the Fundação Getúlio Vargas.  

    (3)The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized). 

    61

     

    Effects of Exchange Rate Fluctuations

         Our financial statements included in this annual report are expressed in U.S. dollars. Our export revenues are substantially denominated in U.S. dollars.  Our domestic revenues are denominated in Brazilianreais reais (although(although domestic sales prices reflect international prices with a time lag of some months).

    A significant portion of our cost of products sold are commoditized raw materials, the prices of which are denominated in U.S. dollars.  The balance of our cost of products sold and our cash operating expenses (i.e., operating expenses other than depreciation and amortization) are denominated inreais.

    The appreciation of the U.S. dollar against thereal realhas the following effects on our results of operations expressed in U.S. dollars:

    • ·domestic revenues tend to be lower (in comparison with prior years) and to the extent we sell more products than usual in the domestic as opposed to the export markets, this effect is magnified;

    • ·the impact ofrealdenominated costs of products sold and operating costs tend to be lower; and

    • ·financial expenses are increased to the extent the exposure to dollar-denominated debt is not protected.

    The appreciation of thereal realagainst the U.S. dollar has the following effects on our results of operations expressed in US dollars:

    • ·domestic revenues tend to be higher (in comparison with prior years) and this effect is magnified to the extent that we sell more products than usual in the domestic markets;

    • ·the impact ofreal-denominated costs of products sold and operating costs tends to be higher; and

    • ·financial income is higher to the extent the exposure to dollar-denominated debt has not been protected.

    The impact during the three years ending December 31, 2009 of fluctuations in thereal realexchange rate against other currencies on our results of operations can be seen in the “foreign exchange and monetary gain (loss), net” line in our income statement, although that amount is partially offset by the net financial income (or expense) attributable to the profit (or loss) on our derivative transaction of our foreign currency-denominated debt. In order to minimize the effects of the exchange rate fluctuations, we often engage in derivative transactions, including currency swap and foreign currency option agreements.  For a discussion of the possible impact of fluctuations in the foreign currency exch angeexchange and interest rates on our principal financial instruments and positions, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

    62

    Table of Contents

    Effects of Inflation and Interest Rates

    Inflation rates in Brazil have been significantly volatile in the past, although they have stabilized in recent years.past. Inflation rates remained relatively stable from 2003 to 2004, decreased in 2005 and 2006 and increased in 2007 and 2008.  In 2009, for the first time since its creation in 1989, the IGP-M inflation index recorded a deflation in a calendar year, equivalent to 1.71%.Furthermore, in 2009 thereal appreciated against  In 2010 the U.S. dollar, reflecting especiallyindex increased again and closed the faster recovery of the Brazilian economy.year at 11.3%.

    Inflation affects our financial performance by increasing some of our costs and expenses denominated inreais reaisthat are not linked to the U.S. dollar.  Our cash costs and operating expenses are substantially denominated inreais reaisand have tended to follow the Brazilian inflation ratio because our suppliers and service providers generally increase or decrease prices to reflect Brazilian inflation.  In addition, some of ourreal-denominated denominateddebt is indexed to take into account the effects of inflation.  Under this debt, the principal amount is generally adjusted with reference to inflation indexes.  In addition, a significant portion of ourreal-denominated denominateddebt bears interest based on the Interbank Deposit Certificate (Certificado de Depósito Interbancário), or CDI, rate which is partially adjusted for inflation.

    The table below shows the Brazilian general price inflation and the CDI for the periods shown.

     

     

     

     

     

     

     

     

     

    Year ended December 31, 

     

     

     

     

     

     2007 

     

    2008 

     

    2009

     

     

     

     

     

     

     

    Inflation (IGP-M)(1)

     

    7.7% 

     

    9.8% 

     

    -1.7%

    CDI(2)

     

    11.7% 

     

    12.4% 

     

    9.8%

    _______________

    Source: Fundação Getúlio Vargas, or FGV, and Bloomberg. 

    (1) The IGP-M inflation is the general market price index measured by the FGV. 

    (2) The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized).

    62

     

     

     

     

     

     

     

     

     

    Year ended December 31,  

     

     

     

     

     

    2010  

     

    2009

     

    2008

     

     

     

     

     

     

     

    Inflation (IGP-M)(1)

     

    11.3%

     

    -1.7%

     

    9.8%

    CDI(2)

     

    9.8%

     

    9.8%

     

    12.4%

    _______________

    Source:  Fundação Getúlio Vargas, or FGV, and Bloomberg.  

    (1) The IGP-M inflation is the general market price index measured by the FGV.  

    (2) The Interbank Deposit Rate, or CDI, represents the average interbank deposit rate performed during a given day in Brazil (accrued as of the last month of the period, annualized).

     

    Accounting for mining production utilized by our steel production

    We are currently self-sufficient in iron ore used in the steel production.  The iron ore is extracted from our Casa de Pedra mine, which in 20092010 supplied approximately 6.26.9 million tons of its total iron ore production (approximately 2121.6 million tons) to us.  The remainder or the iron ore production is sold to third party clients in Brazil and throughout the world.

    The cost of iron ore supplied to ussold is recorded on our income statement in cost of goods sold line item at its extraction cost plus transport from the mine. In 2007, 20082010 and 2009, these costs were US$130.7 million, US$150.7R$239 million and US$110.7R$221 million, respectively. In December 2009, we announced a planned segregation of our iron ore business and correlated logistics activities into one of our subsidiaries. This segregation is pending certain regulatory approvals. Upon the transfer of the iron ore business to our subsidiary, iron ore will be provided to our steel works at market prices, which are higher than the currently recorded costs. This transfer of the iron ore business will decrease our steel segment margins and increase our mining segment margins, but should not affect our margins on a consolidated basis. We expect to have certain tax impacts which are currently u nder analysis.

    Critical Accounting Estimates

    We prepared our consolidated financial statements as of and for the year ended December 31, 2010 in accordance with IFRS, as issued by the IASB. In preparing our consolidated financial statements, we make estimates concerning a variety of matters.  Some of these matters are highly uncertain, and our estimates involve judgments we make based on the information available to us.  In the discussion below, we have identified several of these matters for which our financial presentation would be materially affected if either (1) we used different estimates that we could reasonably have used or (2) in the future we change our estimates in response to changes that are reasonably likely to occur.

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    This discussion addresses only those estimates that we consider most important based on the degree of uncertainty and the likelihood of a material impact if we used a different estimate.  There are many other areas in which we use estimates about uncertain matters, but the reasonably likely effect of changed or different estimates is not material to our financial presentation.

    ValuationImpairment  of long-lived assets, intangible assets and goodwill

    Under U.S. GAAP, inIn accordance with StatementsIAS 36 “ Impairment of Financial Accounting Standards, or SFAS, No. 144 FASB ASC Subtopic 360-10,assets”,  long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

    A determination of the fair value of an asset requires management to make certain assumptions and estimates with respect to projected cash inflows and outflows related to future revenues and expenditures.  These assumptions and estimates can be influenced by different external and internal factors, such as economic and industry trends, interest rates and changes in the marketplace.  A change in the assumptions and estimates that we use could change our estimate of the expected future net cash flows and lead to the recognition of an impairment charge in results of operations relating to our property, plant and equipment.

    We testAssets that have an indefinite useful life, such as goodwill, are not subject to amortization and are tested annually for impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” FASB ASC Topic 350, Intangibles - Goodwill and Other. SFAS No. 142 requiresIAS 36 “ Impairment of assets” . Assets that goodwill be testedare subject to amortizationare reviewed for impairment at the “reporting-unit” level (Reporting Unit) at least annually and more frequently upon the occurrence of certainwhenever events as defined by SFAS 142.or changes in circumstances indicate that their carrying amount may not be recoverable. Goodwill is testedallocated to Cash-Generating Units (CGUs) for impairment annually in December intesting purposes. The allocation is made to Cash-Generating Units or groups of a two-step process. First, we determine ifCash-Generating Units that are expected to benefit from the carrying amountbusiness combination from which the goodwill arose, and the unit is not greater than the operating segment. 

    63

    Depreciation and amortization

          The basis for calculation of our Reporting Unit exceedsdepreciation is the “fair value”cost of the Reporting Unit, which would indicate that goodwill mayasset less the estimated residual value upon sale. While no specific depreciation method is recommended, the method chosen should be impaired. If we determine that goodwill may be impaired, we then compare the “implied fair value”applied consistently for all significant components of assets and allocation of the goodwill, as defined by SFAS 142, to our carrying amount to determine if there is an impairment loss. We do not have any goodwilldepreciation should be on a systematic basis for each one of the accounting periods that we consider to be impaired.

    Depreciation and amortizationbest represents the realization of the economic benefits during the usable lives of assets.

     Adopted depreciation rates are based on

           A review of the estimated useful lives oflife was conducted, and the underlying assets, derived from historical information available to us, as well as known industry trends. Depreciation is computed on the straight-line basis at rates which take into consideration the useful lives of the related assets, as follows (average): buildings - 25 years; equipment - 15 years; furniture and fixtures - 10 years; hardware and vehicles - 5 years. The sensitivity of an impact in changesadjustments in the useful livesdepreciation of assets recorded in property, plant and equipment was assessed by applyingwere made on a hypothetical 10% increaseprospective basis as from January 1, 2010.  See further details in the depreciation rate existing at December 31, 2009. This hypothetical change would result in an incremental increase in the annual depreciation expense of US$34 million in the year of the change.Note 14 to our consolidated financial statements.

    Fair value of business combinations

    We estimate the fair value of assets acquired and liabilities assumed of our business combinations as required by SFAS No. 141, “Accounting for Business Combinations” - FASB ASC Subtopic 805-10.IFRS 3 “Business Combination”.  Accordingly, when determining the purchase price allocations of our business acquisitions, we usually adjust to fair value certain items such as inventories, property, plant and equipment, mines, present value of long-term assets and liabilities, among others, which are determined by independent appraisals that perform the valuations for us. Also, for business combinations purposes, we identify intangible assets apart from goodwill based on

            Goodwill represents the guidance provided in Appendix A of SFAS No. 141 and consider the establishments of SFAS No. 142, “Goodwill and Other Intangible Assets” as to impairment tests or definitionexcess of the useful livescost of our intangibles identifi ed apart froman acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired company. If there is any negative goodwill Statement No. 141(R), Business Combinations fordetermined by the initial recognitionacquirer in the fair value of the assets, liabilities and measurement,contingent liabilities acquired in relation to the cost of acquisition, the Company should recognize it immediately in the statement of income.

           The Company elected not to remeasure the business acquisitions that occurred prior to January 1, 2009, according to the business combination exemption permitted by IFRS 1. Acquisitions subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingenciesto January 1, 2009 have been recognized in business combinations, and of FAS 141(R)-1 Accounting for Assets Acquired and Liabilities assumed in a Business Combination that Arise from Contingencies.

    64accordance with IFRS 3, “Business Combinations”.

     

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    Derivatives

    SFAS No. 133, “Accounting for DerivativeIAS 39, “ Financial InstrumentsInstruments: Recognition and Hedging Activities” - FASB ASC Topic 815, as amended,Measurement”, requires that we recognize all derivative financial instruments as either assets or liabilities on our balance sheet and measure such instruments at fair value.  Changes in the fair value of derivatives are recorded in each period in the statementsstatement of income or in other comprehensive income, in the latter case depending on whether a transaction is designated as an effective hedge.  We haveOur derivative instruments do not designated any derivative financial instruments as hedges andqualify for hedge accounting. Changes in the fair value adjustments to our derivatives were thusof any of these derivative instruments are immediately recorded in the statements of income.income under “Other gains (losses), net".  Although the Company uses derivative for hedging purposes, it does not apply hedge accounting. With respect to the fair value measurement, we must make assumptions such as to future foreign currency exchange and interest rates.  For a discussion of the possible impact of fluctuations in the foreig nforeign currency exchange and interest rates on our principal financial instruments and positions, see “Item 11.  Quantitative and Qualitative Disclosures About Market Risk.”

    Pension plans

    We sponsor defined benefit pension plans covering some of our retirees.  We account for these benefits in accordance with SFAS No. 87, “Employers’ Accounting for Pensions,IAS 19, “Employee Benefits,” - FASB ASC Subtopic 715-20 – Defined Benefit Plans – General as amended, and SFAS Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”), included in ASC Subtopic 715-20, Compensation - Retirement Benefits - Defined Benefit Plans - General.

    . The determination of the amount of our obligations for pension benefits depends on certain actuarial assumptions.  These assumptions are described in Note 1530 to our consolidated financial statements and include, among others, the expected long-term rate of return on plan assets and increases in salaries.  In accordance with U.S. GAAP, actual results that differIFRS, when the benefits of a plan are increased, the portion of the increased benefit related to past services of employees is recognized under the straight-line method over the average period until the benefits become vested.  When the benefits become immediately vested, the expense is immediately recognized inprofit or loss. The Company has chosen to recognize all the actuarial gains and losses resulting from our assumptions are accumulated and amortized over future periods and generally affect our recognized expenses and recorded obligationsdefined benefit plans immediately in such future periods.other comprehensive income.

    64

    Deferred taxes

    We compute and pay income taxes based on results of operations determined under Brazilian GAAP.  We recognizeA deferred income tax liability is recognized for all temporary tax differences, while a deferred income tax asset is recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilized. Deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases ofare classified as long-term.  Tax assets and liabilities.liabilities are offset if the entity has a legally enforceable right to offset them and they are related to taxes levied by the same taxing authority. If the criterion for offset of current tax assets and liabilities is met, deferred tax assets and liabilities will also be offset. The income tax related to items recognized directly in equity in the current period or in a prior period is recognized directly in the same account. We regularly review the deferred income tax assets for recoverability and establish a valuation allowance if, under U.S. GAAP,IFRS, it is more likely than not probable that the deferred income tax assets will not be realized, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences.  A change in the assumptions and estimates with respect to our expected future taxable income could result in the recognition of a valuation allowance being charged to income.  If we operate at a loss or are unable to generate sufficient future taxa bletaxable income, or if there is a material change in the actual effective tax rates or discount rates, the time period over which the underlying temporary differences become taxable or deductible, or any change in its future projections, we could be required to establish a valuation allowance against all or a significant portion of our deferred tax assets, resulting in a substantial increase of our effective tax rate and a material adverse impact on operating results.

    In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109,” or FIN 48 - ASC Subtopic 740-10. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return that results in a tax benefit. Additionally, FIN 48 provides guidance on de-recognition, statement of operations classification of interest and penalties, accounting in interim periods, disclosure, and transition. We adopted FIN 48 on January 1, 2007, and the provisions of FIN 48 have been applied to all income tax positions commencing from that date. We recognize potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense.

         We record liabilities for uncertain tax positions that could be challenged by taxing authorities that, in our judgment, do not meet the more likely than not threshold of being sustained upon examination, based on thefacts, circumstances, and information available at the reporting date. We estimate and record the liability for uncertain tax positions considering the probabilities of the outcomes that could be realized upon settlement using the facts, circumstances and information available at the reporting date. It is often difficult to predict the final outcome or timing of resolution of any particular tax matter. Various events, some of which cannot be predicted, may occur that would affect our recognition of liabilities for uncertain tax positions.

    65

    Table of Contents

    Contingencies and disputed taxes

    We record provisions for contingencies relating to legal proceedings with respect to which we deem the likelihood of an unfavorable outcome to be probable and the loss can be reasonably estimated.  This determination is made based on the legal opinion of our internal and external legal counsel.  We believe these contingencies are properly recognized in our financial statements in accordance with SFAS No. 5 - ASC Topic 450, Contingencies. Those contingencies related to income taxesIAS 37  “ Provision, Contingent Liabilities and social contributions are accounted for based on the “more-likely-than-not” concept in accordance with FIN 48.Contingent Assets”.  We are also involved in judicial and administrative proceedings that are aimed at obtaining or defending our legal rights with respect to taxes that we believe to be unconstitutional or otherwise not required to be paid by us.  We believe that these proceedings will ultimately result in the realization of contingent tax credits or benefits that can be used to settle direct and indirect tax obligations owed to the Brazilian Federal or State Governments.Governments or to settle municipal tax obligations owed to the corresponding Municipality as per our laws.  We do not recognize these contingent tax credits or benefits in our financial statements until realization of such gain contingencies has been resolved.  This occurs when a final irrevocable decision is rendered by the courts in Brazil.  When we use contingent tax credits or benefits based on favorable temporary court decisions that are still subject to appeal to offset current direct or indirect tax obligations, we maintain the legal obligation accrued in our financial statements until a final irrevocable judicial decision on those contingent tax credits or benefits is rendered.  The accrual for the legal obligation related to the current direct or indirect tax obligations offset is not reversed until such time as the utilization of the contingent tax credits or benefits is ultimately realized.  The accounting for the contingent tax c reditscredits is in accordance with accounting for contingent assets under SFAS No. 5.IAS 37. Our accruals include interest on the tax obligations that we may offset with contingent tax credits or benefits at the interest rate defined in the relevant tax law.  The recorded accruals for these disputed taxes and other contingencies may change in the future due to new developments in each matter, such as changes in legislation, irrevocable, final judicial decisions specific to us, or changes in approach, such as a change in settlement strategy in dealing with these matters.  See “Item 5A. Operating Results-Results of Operations-2009 Compared to 2008-Disputed Taxes Payable” and “Item 8A.  Consolidated Statements and Other Financial Information—Legal Proceedings” for further information on the judicial and administrative proceedings in which we are involved.

    65

    Allowance for doubtful accounts

    We consider a provision for bad debts in our trade accounts receivable in order to reflect our expectation as to the net realizable value thereof.  This provision is estimated based on an analysis of our receivables and is periodically reviewed to maintain real expectation of collectability of our accounts receivable.

    Recently Issued Accounting Pronouncements Adopted and Not Adopted by Us

    For a description on the recently issued accounting pronouncements, see Note 32 to our consolidated financial statements contained in “Item 18.  Financial Statements”. We prepared our consolidated financial statements as of and for the year ended December 31, 2010 in accordance with IFRS, as issued by the IASB. Our consolidated financial statements presented in our annual report on Form 20-F were previously prepared and presented in accordance with U.S. GAAP. Pursuant to IFRS 1 “First-time Adoption of International Reporting Standards”, we have used consistent accounting policies for both the current period, financial data as of and for the year ended December 31, 2010 and the comparative period, financial data as of and for the year ended December 31, 2009. These accounting policies comply with IFRS effective at December 31, 2010.

    For the most significant differences and the reconciliation between our consolidated financial statements prepared in accordance with U.S. GAAP and IFRS, see, Note 4 to our consolidated financial statements  included elsewhere in this Form 20-F.

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    Results of Operations

         For purposes of comparison, theThe following table presents certain financial information with respect to our operating results for each of the years ended December 31, 2007, 20082010 and 2009  and the percentage change in each of these items from 2008comparing 2010 to 2007 and from 2009 to 2008:2009:

     

     

    Year Ended December 31, 

     

    Increase (Decrease)

     

     

     

     

     

     

     

    2007 

     

    2008 

     

    2009 

     

    2008/2007 

     

    2009/2008 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    % 

     

    % 

    Operating revenues 

     

     

     

     

     

     

     

     

     

     

       Domestic sales 

     

    5,283 

     

    7,377 

     

    5,204 

     

    39.6 

     

    (29.5) 

       Export sales 

     

    1,695 

     

    1,830 

     

    1,137 

     

    8.0 

     

    (37.9) 

     

     

     

     

     

     

     

     

     

     

     

       Total 

     

    6,978 

     

    9,207 

     

    6,341 

     

    31.9 

     

    (31,1) 

    Sales Taxes 

     

    (1,305)

     

    (1,835)

     

    (1,257)

     

    40.6 

     

    (31.5) 

     

     

     

     

     

     

     

     

     

     

     

    Discounts, returns and allowances 

     

    (156)

     

    (185)

     

    (70)

     

    18.6 

     

    (62.2) 

     

     

     

     

     

     

     

     

     

     

     

    Net operating revenues 

     

    5,517 

     

    7,187 

     

    5,014 

     

    30.3 

     

    (30.2) 

    Cost of products sold 

     

    (3,076)

     

    (3,602)

     

    (3,250)

     

    17.1 

     

    (9.8) 

     

     

     

     

     

     

     

     

     

     

     

    Gross profit 

     

    2,441 

     

    3,585 

     

    1,764 

     

    46.9 

     

    (50.8) 

    Operating expenses 

     

     

     

     

     

     

     

     

     

     

       Selling 

     

    (310)

     

    (412)

     

    (345)

     

    32.9 

     

    (16.3) 

       General and administrative 

     

    (185)

     

    (219)

     

    (208)

     

    18.4 

     

    (5.0) 

       Other income (expense)

     

    (85)

     

    (110)

     

    (47)

     

    29.4

     

    (57.3) 

     

     

     

     

     

     

     

     

     

     

     

    Operating income 

     

    1,861 

     

    2,844 

     

    1,164 

     

    52.8 

     

    (59.0) 

    Non-operating income (expenses), net 

     

     

     

     

     

     

     

     

     

     

       Financial income (expenses), net 

     

    (219)

     

    (380)

     

    (871)

     

    73.5

     

    129.2 

       Foreign exchange and monetary gain (loss), net 

     

    438 

     

    (1,265)

     

    422

     

    (388.8)

     

    (133.3)

       Other, net 

     

    81 

     

    1,742 

     

    (26) 

     

    (2,051) 

     

    (101.5)

     

     

     

     

     

     

     

     

     

     

     

    Income before income taxes and equity in results of affiliated companies 

     

    2,161 

     

    2,941 

     

    689 

     

    36.1 

     

    (76.6)

    Income tax 

     

    (534)

     

    (414)

     

    (219)

     

    22.5 

     

    (47.1)

       Current 

     

    (619)

     

    (615)

     

    (167)

     

    (0.6) 

     

    (72.8)

       Deferred 

     

                   85

     

    201 

     

    (52) 

     

    136.5

     

    (125.9)

     

     

     

     

     

     

     

     

     

     

     

    Equity in results of affiliated companies 

     

    76 

     

    127 

     

    809

     

    67.1

     

    537.0

     

     

     

     

     

     

     

     

     

     

     

    Net income 

     

    1,703 

     

    2,654 

     

    1,279 

     

    55.8 

     

    (51.8)

     

     

     

     

     

     

     

     

     

     

     

    Net loss attributable to noncontrolling interest

     

    -

     

    -

     

    2 

     

    - 

     

    100.0

     

     

     

     

     

     

     

     

     

     

     

    Net income attributable to Companhia Siderúrgica Nacional

     

    1,703 

     

    2,654 

     

    1,281 

     

    55.8 

     

    (51.8)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Year Ended December 31,

     

    Increase (Decrease)

     

     

    2010  

     

    2009 

     

     

     

     

     

     

     

     

     

    Net operating revenues

     

    14,451

     

    10,978

     

    32%

    Cost of products sold

     

    (7,687)

     

    (7,022)

     

    9%

     

     

     

     

     

     

     

    Gross profit

     

    6,764

     

    3,956

     

    71%

    Operating expenses

     

     

     

     

     

     

    Selling

     

      (678)

     

      (636)

     

    7%

    General and administrative

     

      (537)

     

      (480)

     

    12%

       Other income

     

     92  

     

    1,417

     

    (93%)

    Other expenses

     

      (643)

     

      (696)

     

    (8%)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Operating income

     

    4,998

     

    3,561

     

    40%

     

     

     

     

     

     

     

      Finance income (expenses),  net

     

    (1,911)

     

      (246)

     

    677%

     

     

     

     

     

     

     

    Income before income taxes

     

    3,087

     

    3,315

     

    (7%)

      Income Tax

     

      (571)

     

      (700)

     

    (18%)

       Current

     

      (314)

     

      (582)

     

    (46%)

       Deferred

     

      (257)

     

      (118)

     

    118%

     

     

     

     

     

     

     

    Net income

     

    2,516

     

    2,615

     

    (4%)

     

     

     

     

     

     

     

    Non-controlling interests

     

      (0)

     

      (4)

     

    (95%)

     

     

     

     

     

     

     

    Owners of the Company

     

    2,516

     

    2,619

     

    (4%)

    66

    Year 20092010 Compared to Year 20082009

    Operating RevenuesIn addition to the consolidated figures reported above, the Company reports its integrated operations in five business segments:  steel, mining, cement, logistics (including Port and Railway) and energy. The operating results of each segment are disclosed separately.  The information on CSN’s five business segments is derived from the accounting data, together with allocations and the apportionment of costs among the segments.

         DespiteOur consolidated results for the beginning of a global recovery in the economy,years ended December 31, 2010 and 2009 was marked by lower global demand for steel products, metals and other commodities. Consequently, our operating revenues decreased by 31.1%, from US$9,207 million in 2008 to US$6,341million in 2009, as a result of the shrinking demand and lower average prices. Total domestic revenues decreased 29.5%, from US$7,377 million in 2008 to US$5,204 million in 2009, while total export revenues decreased 37.9%, from US$1,830 million in 2008 to US$1,137 million in 2009.

    67business segment are presented below:

     

    R$ million

     

     

    Logistics

     

     

     

    Year Ended December 31, 2010

    Consolidated Results

    Steel

    Mining

    Port Logistics

    Railway Logistics

    Cement

    Energy

    Eliminations

    Consolidated

    Net operating revenues

    9.926

    3.615

    119

    838

    202

    114

    (364)

    14.451

    Domestic Market

    8.763

    574

    119

    838

    202

    114

    (364)

    10.247

    Export Market

    1.163

    3.041

     

     

     

     

     

    4.204

    Cost of goods sold

    (6.095)

    (1.187)

    (70)

    (522)

    (164)

    (42)

    393

    (7.687)

    Gross profit

    3.831

    2.428

    49

    317

    38

    72

    29

    6.764

    R$ million

     

     

    Logistics

     

     

     

    Year Ended December 31, 2009

    Consolidated Results

    Steel

    Mining

    Port Logistics

    Railway Logistics

    Cement

    Energy

    Eliminations

    Consolidated

    Net operating revenues

    8.201

    1.964

    144

    823

    60

    117

    (330)

    10.978

    Domestic Market

    7.046

    247

    144

    823

    60

    117

    (330)

    8.107

    Export Market

    1.156

    1.716

     

     

     

     

     

    2.872

    Cost of goods sold

    (5.572)

    (1.179)

    (76)

    (464)

    (61)

    (43)

    373

    (7.022)

    Gross profit

    2.629

    784

    69

    358

    (1)

    73

    43

    3.956

    Table of Contents

     

    Steel

         In 2009, our total steel revenues amounted to US$5,345 million, a decrease of US$2,439 million, or 31.3%, when compared to the US$7,784 million recorded in 2008. This decrease in steel revenues occurred in both the domestic and export markets.

         Our annual steel domestic revenues decreased US$2,168 million, or 31.3%, from US$6,934 million in 2008 to US$4,766 million in 2009, due to: (i) reduction of 22.0% in sales volume from 4,158 million tons in 2008 to 3,243 million tons in 2009, due to the decrease in demand, especially in the first half of 2009 and (ii) reduced prices granted during the first half of 2009.

         Our annual steel export revenues decreased US$271 million, or 31.9%, from US$850 million in 2008 to US$579 million in 2009, due to lower prices in the international market despite the increase in the total export sales from 733 thousand tons in 2008 to 868 thousand tons in 2009, we sold a lower volume of higher value-added products such as galvanized and tin plate. (see table “Sales Volume and Net Operating Revenues by Steel Products and Markets”above).

    Mining

         The global economic and financial crisis that commenced in 2008 impacted our iron ore business during 2009, negatively affecting our operating revenues. Prices decreased significantly in 2009 despite the increase in iron ore volumes imported by China during the year.

    Our mining operating revenues decreased US$692 million, or 50.1%, to US$690 million in 2009 from US$1,382 million in 2008, mainly due to the following factors:

    §The significant decrease in iron ore prices in 2009, which affected our net operating revenues in US$210 million;

    §The decrease in sales volumes of the Casa de Pedra mine of approximately 30%, due to the concentration of iron ore sales through Namisa, in which we own a non-consolidated 60% ownership interest. This decrease in volume sold by us through Casa de Pedra mine reduced our revenues in US$144 million;

    §The deconsolidation of Namisa, our 60% subsidiary in 2009, which negatively impacted our revenues in US$379 million in comparison to 2008; and

    §During 2009, we sold higher volumes of run-of-mine to our 60% non-consolidated investee Namisa, which increased our operating revenues in US$50 million as compared to 2008.

         Our domestic sales decreased US$270 million, or 67.2%, to US$132 million in 2009 from US$402 million in 2008 due to the lower domestic demand and a significant decrease in domestic prices. Domestic sales represented 3% of our total sales in 2009 as compared to 21% in 2008.

         Our export sales decreased US$422 million, or 43.1%, to US$558 million in 2009 from US$980 million in 2008 due to the deconsolidation of our 60% non-consolidated investee Namisa as of 2009, which impacted our export sales in US$337 million, as well as the decrease in iron ore prices worldwide. The sharpest sales decrease occurred in Asia, which reduced from US$826 million in 2008 to US$460 million in 2009, and to Europe, from US$148 million in 2008 to US$82 million in 2009.

    Sales Taxes

         Our deductions from operating revenues consist of sales taxes, which decreased by 31.5%, from US$1,835 million in 2008 to US$1,257 million in 2009.

    68

    Table of Contents

    Steel

         Steel sales taxes, which include the Social Integration Tax Program (Programa de Integração Social), or PIS, the Social Security Financing Tax (Contribuição para o Financiamento da Seguridade Social), or COFINS, the Tax on Industrial Products (Imposto sobre Produtos Industrializados), or IPI, and Tax on Services (Imposto sobre Serviços), or ISS, and the Value-Added Tax (Imposto sobre Circulação de Mercadorias e Serviços), or ICMS, tax decreased US$556 million, or 32.1%, from US$1,734 million in 2008 to US$1,178 million in 2009, due to the reduction on sales of steel products to the domestic market, as described above.

    Mining

         In terms of mining, sales taxes consist of PIS, COFINS and ICMS. Mining sales taxes decreased by 60.4%, from US$53 million in 2008 to US$21 million  in 2009 due to the decrease in sales to the domestic market and the decrease in iron ore prices.

    Discounts, returns and allowances

         Discounts, returns and allowances are also deducted from our operating revenues and decreased by 62.2%, from US$185 million in 2008 to US$70 million in 2009, representing 1% of our gross operating revenues in 2009 as compared to 2% in 2008. These discounts, returns and allowances are made in the ordinary course of our business.

    Net Operating Revenues

    Net operating revenues decreased by 30.2%were R$14,451 million in 2010, an increase of R$3,473 million, or 31.6%, from US$7,187R$10,978 million in 2008 to US$5,014 millionrecorded in 2009, mainly due to the 31.1% decreaseincrease in operatingsteel and mining revenues, as discussed above.segments that represent more than 90% of our total net revenues.

    Net domestic revenues increased 26.4%, from R$8,107 million in 2009 to R$10,247 million in 2010, while total net export revenues increased 46.4%, from R$2,872 million in 2009 to R$4,204 million in 2010.

    Steel

    Steel net operating revenues decreased US$1,766increased R$1,725 million, or 30.1%21.0%, from US$5,865 million in 2008 to US$4,099R$8,201 million in 2009 to R$9,926 million in 2010, mainly due to the reduction16.7% increase in steel sales volume from 4,110 million tons in 2009 to 4,796 million tons in 2010 and to the increase of 5.0% in the steel average prices.

    Steel net domestic revenues increased 24.4%, from R$7,046 million in 2009 to R$8,763 million in 2010, due to the increase of 27.5% in domestic sales volume from 3,243 million in 2009 to 4,135 million in 2010, given the slowdownincrease in demand, especiallydemand.

    Steel net export revenues increased 0.6%, from R$1,156 million in the first half of 2009 lower pricesto R$1,163 million in the international market and discounts in prices granted during the first half of 2009.2010.

    Mining

    NetMining net operating revenues decreased by 49.8%increased R$1,651 million, or 84.1%, from US$1,329R$1,964 million in 20082009 to US$667R$3,615 million in 2010 primarily due to higher international prices and the increase in sales volume.

    67

    Mining net domestic revenues increased R$327 million, or 132.4%, mainly due to the increase of 113.2% in domestic sales volume from 713 million tons in 2009 to 1,520 million in 2010, given the increase in demand.

    Mining net export revenues increased R$1,325 million, or 77.2%, from R$1,716 million in 2009 to R$3,041 million in 2010, primarily due to the decreasesincrease in sales volume and lowerinternational iron ore prices driven by the strong demand, mainly from China.

    Logistics

    Total logistics net operating revenues in 2010 achieved R$957 million, a reduction of 1.0% as described above.compared with the net logistics operating revenues of R$967 million reported in 2009. In 2010, net revenue from railway logistics totaled R$838 million and net revenue from port logistics amounted to R$119 million, while in 2009, net revenue from railway logistics totaled R$823 million and net revenue from port logistics amounted to R$144 million.

    Cement

    In May 2009, we began producing cement in our new plant in Volta Redonda, adjacent to the Presidente Vargas Steelworks, adding value to the slag generated during steel production.

    As we operated the plant during the whole year, in 2010 we increased significantly the sales of cement, reaching 992 thousand tons, a 193.5% increase over 2009.  This increase in sales does not consider the full operation of our cement segment, which is in process of growth.

    As a consequence, in 2010, net revenue from cement segment totaled R$202 million, an increase of 236.7% from 2009 net revenue of R$60 million.

    Energy

    In 2010 our net operating revenues from the energy segment totaled R$114 million, a decrease of R$3 million as compared with the net operating revenues of R$117 million reported in 2009 in this segment.

    Cost of Products Sold

    SteelIn 2010, consolidated cost of products sold amounted to R$7,687 million, representing a 9.5% increase as compared to R$7,022 million recorded in 2009.

    Steel

    Consolidated steel costs were R$6,095 million in 2010, representing a 9.4% increase as compared to the R$5,572 million recorded in 2009, mainly as a result of higher sales, partially offset by the greater dilution of fixed costs.

    Other than the sale of excess inventories from time to time and the purchase by our subsidiaries of semi-finished products from third parties for further processing, our cost of products sold is equivalent to our steel production cost.

    The following table sets forth our steel production costs, the production costs per ton of steel and the portion of production costs attributable to the primary components of our costs of production.  With the exception of coal and coke, which we import, and some metals (such as aluminum, zinc and tin), whose with domestic prices are linked to international prices, our costs of production are mostly denominated inreais. The devaluation of the Brazilianreal causes U.S. dollar-denominated or U.S. dollar-linked production costs to increase as a percentage of total production costs. Conversely, appreciation of thereal causes real-denominated production costs to increase as a percentage of total production costs. reais.

    69

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    Year Ended December, 31 

    		 

     

     

     

     

     

    2007

     

     

     

     

     

    2008 

     

     

     

     

     

    2009 

     

     

     

     

     

     

     

     

     

    US$ 000 

     

    US$/ton 

     

    % 

     

    US$ 000 

     

    US$/ton 

     

    % 

     

    US$ 000 

     

    US$/ton 

     

    % 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    R$ million 20102009

    Raw Materials

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    		R$ millionR$ / ton%R$ millionR$ / ton%

    Iron Ore

     

    130,712 

     

    24.65 

     

    5.7 

     

    150,716 

     

    29.55 

     

    5.1 

     

    110,743

     

    25.48

     

    4.7

    		239 47.0 4.3% 221 50.6 4.9% 

    Coal

     

    421,996 

     

    79.59 

     

    18.4 

     

    613,774 

     

    120.35 

     

    20.8 

     

    521,599

     

    119.99

     

    22.1

    		1,239 243.7 22.1% 1,042 238.7 22.9% 

    Coke

     

    63,994 

     

    12.07 

     

    2.8 

     

    232,151 

     

    45.52 

     

    7.9 

     

    189,042

     

    43.49

     

    8.0

    		382 75.1 6.8% 378 86.6 8.3% 

    Metals

     

    242,987 

     

    45.83 

     

    10.6 

     

    147,934 

     

    29.01 

     

    5.0 

     

    86,881

     

    19.99

     

    3.7

    		244 48.0 4.3% 174 39.9 3.8% 

    Outsourced Hot Coils

     

    955 

     

    0.18 

     

    0.0 

     

    84,726 

     

    16.61 

     

    2.9 

     

    30,308

     

    6.97

     

    1.3

    Outsourced Slabs

     

    11,052 

     

    2.08 

     

    0.5 

     

    174,073 

     

    34.13 

     

    5.9 

     

    893

     

    0.21

     

    -

    Outsourced Slabs and Hot Coils 272 53.5 4.9% 62 14.2 1.4% 
    Pellets 169 33.2 3.0% 59 13.5 1.3% 
    Scrap 64 12.6 1.1% 100 22.9 2.2% 

    Other(1)

     

    216,415 

     

    40.82 

     

    9.4 

     

    276,177 

     

    54.15 

     

    9.4 

     

    180,207

     

    41.45

     

    7.6

    		274 53.9 4.9% 201 46.0 4.4% 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    1,088,111 

     

    205.23 

     

    47.5 

     

    1,679,551 

     

    329.33 

     

    56.9 

     

    1,119,673

     

    257.57

     

    47.4

    Energy/Fuel

     

    228,767 

     

    43.15 

     

    10.0 

     

    274,339 

     

    53.79 

     

    9.3 

     

    268.410

     

    61.74

     

    11.4

    (1) Include limestone and dolomite  
    Energy / Fuel 561 110.3 10.1% 436 99.9 9.6% 

    Labor

     

    217,816 

     

    41.08 

     

    9.5 

     

    199,352 

     

    39.09 

     

    6.7 

     

    243.105

     

    55.92

     

    10.3

    		570 112.1 10.2% 468 107.2 10.3% 

    Services and

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Maintenance

     

    396,300 

     

    74.75 

     

    17.3 

     

    370,547 

     

    72.66 

     

    12.6 

     

    335,107

     

    77.09

     

    14.2

    Services and Maintenance 743 146.1 13.3% 657 150.5 14.4% 

    Tools and Supplies

     

    131,304 

     

    24.77 

     

    5.7 

     

    150,453 

     

    29.50 

     

    5.1 

     

    110,636

     

    25.45

     

    4.7

    		269 52.9 4.8% 221 50.6 4.9% 

    Depreciation

     

    217,824 

     

    41.08 

     

    9.5 

     

    264,880 

     

    51.94 

     

    9.0 

     

    280,720

     

    64.58

     

    11.9

    		489 96.2 8.7% 417 95.5 9.2% 

    Others

     

    12,414 

     

    2.34 

     

    0.5 

     

    11,023 

     

    2.16 

     

    0.4 

     

    3,685

     

    0.85

     

    0.2

    Other 59 16.5 1.5% 120 27.5 2.6% 

    		 

     

    2,292,537 

     

    432.4 

     

    100.0 

     

    2,950,145 

     

    578.47 

     

    100.00 

     

    2,361,336

     

    543.2

     

    100.00 

    Total Steel Cost Production 5,574 1,101.3 100.0% 4,556 1,043.5 100.0% 
    (*) adjustment according to adoption of the International Financial Reporting Standards (IFRS) (*) adjustment according to adoption of the International Financial Reporting Standards (IFRS)  

    (1) Include pellets, scrap, limestone and dolomite. 

         Other than the sale of excess inventories from time to time and the purchase by our subsidiaries of semi-finished products from third parties for further processing, our cost of products sold is equivalent toIn 2010, our steel production cost.costs were R$5,574 million, a 22.3% or R$1,018 million increase from R$4,556 million reported in 2009.

    We are self-sufficient in almost all the raw materials used in the steel production.  The principal raw materials we use in our integrated steel mill include iron ore, coke, coal (from which we produce most of our coke necessities), limestone, dolomite, aluminum, tin and zinc.  In addition, our production operations consume water, gases, electricity and ancillary materials.

    We obtain all of our iron ore requirements from our Casa de Pedra mine located in the State of Minas Gerais, and the limestone and dolomite from our Bocaina mine in the city of Arcos, in the State of Minas Gerais.

    The coal and coke we consume are acquired from different international producers “See Item Raw Materials and Suppliers”.  During 2009,2010, given the lowerhigher global demand for steel products, there was a decreaseincrease in the consumption and in the prices of some commodities used for steelmaking.

    Our coal costs decreased 15.0%increased 18.9%, from US$613.8 million in 2008 to US$521.6R$1,042 million in 2009 to R$1,239 million in 2010, corresponding to 22.1% of our steel production cost, given the reductionincrease in consumption and the lowerhigher average prices.

         There was also a decrease of 18.6% in the costs of coke, from US$232.1 million in 2008 to US$189.0 million in 2009, which accounted for 8.0% of our production cost, mainly due to the lower consumption.

    Production cost decreasedincreased also due to the lowerhiger consumption of slabs and hot-rolled coils acquired from third parties in 2008.2010.  Those costs decreased 87.9%increased 338.7%, from US$258.8R$62 million in 20082009 to US$31.2R$272 million in 2009.2010 due to the acquisition, by the company, of semi-finished products from third-parties, to face the strong steel demand after the global economic crisis. This increase in steel demand was mainly noticed in the 1st half of 2010, as compared to the same period of 2009, when the world was in the middle of the economic crisis.

    The costs of metals such as aluminum, zinc and tin also decreasedincreased from US$147.9 million in 2008 to US$86.9R$174 million in 2009 or 41.2%,to R$244 million in 2010, given the reductionincrease in consumption and lowerhigher prices.

    Other raw materials include pellets and scrap purchased in the market and also limestone and dolomite that we extract from our own mines in the city of Arcos, in the state of Minas Gerais.

    70

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    Table of Contents

     

     Mining

    Mining

    Our mining costs totaled R$1,187 million in 2010, in line with the R$1,179 million reported in 2009, despite the 6.2% increase in sales volume, which was offset by the greater dilution of fixed costs.

    Logistics

    In 2010, cost of goods sold increased by 5.5% from US$401services attributable to our logistics segment totaled R$592 million, in 2008representing a 9.6% (or R$52 million) increase as compared to US$423the R$540 million in 2009 due to an increase in certain costs, such as labor, services and maintenance and energy and fuel. Our costs of products sold per ton increased from US$ 21.79 in 2008 to US$23.24 in 2009.

    Gross Profit

         Gross profit decreased by 50.8%, from US$3,585 million in 2008 to US$1,764 millionreported in 2009, mainly due to the increase in the cost of services of our railway logistics, which totaled R$522 million in 2010, a 12.5% increase (or R$58 million) from the R$464 million reported in 2009. The railway logistics represented 88% of the total logistics costs in 2010 and 86% of the total logistics costs in 2009.

    On the other hand, cost of services from port logistics totaled R$70 million, a 7.9% decrease from the R$76 million reported in 2009.

    Cement

    Cost of 30.2%products sold attributable to our cement segment achieved R$164 million in 2010, R$103 million, or 168.8%, more than the R$61 million reported in 2009, due to increase in sales, as described above.

    Energy

    In 2010, cost of products sold attributable to our energy segment was R$42 million, in line with the R$43 million reported in 2009.

    Gross Profit

    Gross profit increased R$2,808 million, or 71.0%, from R$3,956 million in 2009 to R$6,764 million in 2010, due to the increase of  R$3,473 million in net operating revenues from US$7,187and the increase of R$665 million in 2008 to US$5,014 million in 2009 and given the decrease of 9.8% in the cost of products sold, from US$3,602 million to US$3,250 million.sold.

    Steel

    Gross profit in the steel segment decreased US$1,277increased R$1,202 million, or 48.0%45.7%, from US$2,661 million in 2008 to  US$1,384R$2,629 million in 2009 to R$3,831 million in 2010, due to the reductionincrease of US$1,766R$1,725 million in steel net revenues, driven by the increase in sales volume and in steel average prices, partially offset by the reductionincrease of US$489R$523 million in the cost of steel products sold,sold.

    Mining

    Our gross profit in the mining segment increased R$1,644 million, or 209.6% from US$3,204 million in 2008 to US$2,715R$784 million in 2009 mainly due to lower steel sales volumes and decrease in production, with a lower dilution of fixed costs.

    Mining

         Our gross profit decreased by 73.7% from US$928R$2,428 million in 2008 to US$244 million in 20092010, mainly due to the deconsolidationincrease of our 60% non-consolidated investee Namisa, a decreaseR$1,651 million in iron oremining net operating revenues due to higher international prices and demand constraintthe increase in sales volume.

    Logistics

    Gross profit in the logistics segment decreased 14.3% in 2010, from R$427 million in 2009 as compared to 2008.R$366 million in 2010, due to the decrease of 1.0% in net revenues and the increase of 9.6% in the cost of products sold.

    Cement

    Gross profit in the cement segment increased R$39 million, from a negative result of R$1 million in 2009 to a positive result of R$38 million in 2010, due to the increase of 236.7% in net revenues, partially offset by a  168.8% increase in the cost of products sold.

    70

    Energy

    The energy segment reported in 2010 a gross profit of R$72 million, in line with the R$73 million reported in 2009.

    Selling, General and Administrative Expenses

    In 2009,2010, we recorded selling, general and administrative expenses of  US$553R$1,215 million, representing a 12.4% decrease9% increase from the US$631 million recorded in 2008.2009.

    Selling expenses decreased by 16.3%increased 7% , from US$412 million in 2008 to US$345R$636 million in 2009 mainly due to a decreaseR$ 678 million in 2010, reflecting the steelstronger sales volume on the domestic market.efforts in 2010.

    General and administrative expenses decreased by 5.0%increased 12%, from US$219 million in 2008 to US$208R$480 million in 2009 to R$537 million in 2010.

    Other operating  income (Expenses)

    In 2010, we recorded a net other expense of R$551 million in the “Other Revenue and Expenses” line-item, as compared to a resultnet revenue of our efforts to adapt our structureR$721 million in 2009.  The R$1,272 million reduction was principally due to the global economicpositive non-recurring effects in 2009 of the reverse merger of Big Jump Energy Participacoes SA by our investee Namisa in the amount of R$ 835 million and financial crisis.our adherence of to the REFIS tax repayment program in the amount of R$ 505 million.

    OtherOperating Income (Expenses)

         Other expenses decreasedOperating income increased by US$6340.3%, or R$1,437 million, from US$110 million in 2008 to US$47R$3,561 million in 2009 mainly due to commercial contingencies and fines in 2008, in particular with respect to transportation of products, which did not occur in 2009.

    Operating Income

         Operating income decreased by 59.0%, or US$1,680 million, from US$2,844R$4,998 million in 2008 to US$1,164 million in 2009.2010.  This decreaseincrease was mainly due to the US$1,821R$3,473 million decreaseincrease in gross profit, reflecting mainlynet revenues, offset by the effectsreduction on cost of the global economic and financial crisis.

    Non-operating Expenses (Income), Net

         Our non-operating income (expenses), net are comprised of the financial results, foreign exchange and monetary results, and, in 2008, also included the gain on 40% dilution of interest in our 60% non-consolidated investee Namisa to an Asian consortium as explained below. Non-operating income, net decreased by US$570 million, from an income of US$97 million in 2008 to an expense of US$475 million in 2009.

         On December 30, 2008, weproduct sold 2,271,825 shares of Namisa’s voting capital, one of our mining subsidiaries and, subsequently, Namisa issued 187,749,249 new shares at a price of US$16.20 per share, subscribed and paid in by Big Jump, increasing its ownership interest to 40%, diluting our voting and total interest in Namisa to 60%. Big Jump paid in cash for Namisa’s shares the amount of US$3,041 million.

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         As a result of the acquisition, Big Jump holds 40% and CSN holds 60% of Namisa’s shares. Based on the shareholders’ agreement of Namisa, our management concluded that Namisa’s financial statements should not be consolidated with our financial statements as of December 30, 2008, as the purchaser consortium has effective and significant participation rights rather than protective rights through the right to participate in significant decisions related to Namisa’s ordinary course of business. Accordingly, Namisa’s results have been consolidated only until the date of sale and dilution, December 30, 2008.

         Upon the sale of Namisa’s shares and dilution, we adopted income statement recognition as our accounting policy for gains in dilution and, accordingly, recorded a net non-operating gain on 40%-dilution of our interest in the amount of US$1,667R$665 million as detailed below:

     

     

     

     

     

     

     

     

     

    Amount 

     

    Percentage 

     

    Gain (loss)

    Namisa’s net equity before capital increase by Big Jump, represented by 287,303,436 shares 

     

    395 

     

    40% 

     

    (158)

    Capital increase by Big Jump through issuance of 187,749,249 new shares (US$1.48 per share plus additional paid in capital of US$14.72 per share)

     

    3,041 

     

    60% 

     

    1,825 

    Net non-taxable gain on dilution of interest in Namisa 

     

     

     

     

     

    1,667 

    and the R$1,272 million reduction in the “Other Revenue and Expenses” line, principally due to the positive non-recurring effects in 2009 of the reverse merger of Big Jump Energy Participacoes SA by our investee Namisa in the amount of R$ 835 million and our adherence of to the REFIS tax repayment program in the amount of R$ 505 million.

         The gain of US$1,667 million referred to above is non-taxable since a dilution of interest is not considered as a capital gain in accordance with Brazilian tax law.

    Financial expenses (income), Netnet

    In 20092010, our net financial expenses increased by 129.2%676.8%, or US$491R$1,665 million, from US$380 million in 2008 to US$871R$246 million in 2009 to RS$1,911 million in 2010, mainly due to the following items:

    ·        US$156Interest income increased by 10%, or R$57 million, from R$586 million in 2009 to US$643 million in 2010 mainly due to the increase of R$118 million in interestreturns on financial investments, due to the increases in cash and cash equivalents.  This decrease was partially offset by the decrease of R$58 million in other financial income;

    ·        US$384Interest expense increased by 16.3%, or R$308 million, from R$1,892 million in 2009 to US$2,200 million in 2010 mainly due to the increase of R$514 million in interest expense;interests on loans and financing in local currency and the increase of R$128 million in interests on loans and financing in foreign currency.  This was partially offset by the increase of R$130 million in capitalized interests and the decrease of R$125 million in losses from derivatives instruments;

    ·        US$169 million decrease in our income from derivative instruments, and;

    ·US$94 million increase in our other financial expenses, net.

    Interest income

         Interest income increasedForeign exchange and monetary loss, net, including operations with derivatives decreased by 156%133.1%, or US$156R$1,414 million, from US$100 million in 2008 to US$256 million in 2009 mainly due to higher accrual of interest receivable from financial investments in the amount of US$67 million, interest receivable from loans to our 60% non-consolidated investee Namisa in the amount of US$87 million, and a waiver of interests on certain federal taxes in the amount of US$138 million. These increases in interest income were partially offset by a decrease of US$161 million related to the reversal of interest accrued on restricted deposits for legal proceedings on presumed credit of IPI.

    Interest expense

         Interest expense increased by 69.8%, or US$384 million, from US$550 million in 2008 to US$934 million in 2009 mainly due to interest on the prepayment agreements for port services and iron ore supplies entered into at the end of 2008. See “Item 5E. Off-Balance Sheet Arrangements – Contractual Obligations – Namisa.” These prepayment interest, that impacted the statements of income from January, 2009, amounted to US$450 million in 2009 partially offset by lower fines and interest on taxes in the amount of US$86 million.

    Derivative instruments

         The results on derivative instruments decreased by 135.2%, or US$169 million, shifting from a gain of US$125R$1,060 million in 20082009 to a loss of US$44R$354 million in 2009 primarily due to the net results of our hedging swaps (USD vs. CDI) which generated a net loss of US$417 million in 2009.

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    Other financial income (expenses), net

         Other financial income (expenses), net increased by 170.9%, or US$94 million, from an expense of US$55 million in 2008 to an expense of US$149 million in 2009 mainly due to an increase in discounts given to customers and certain bank commissions.

    Foreign Exchange and Monetary Gain, Net

         Foreign exchange and monetary gain, net increased by 133.4%, or US$1,687 million, from a loss of US$1,265 million in 2008 to a gain of US$422 million in 20092010 mainly affected by appreciation of thereal realagainst theU.S. dollar.  This appreciation affects:

    ·o   Our U.S. dollar-denominated gross debt;

    ·o   Our U.S. dollar-denominated cash and cash equivalents; and

    ·o   Our trade accounts receivable and payable.

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    Income Taxes

    We recorded an expense for income tax and social contribution of US$219R$571 million in 2009,2010, as compared to US$414R$700 million 2008.in 2009.  Expressed as a percentage of pre-tax income, income tax expense increaseddecreased from 14.0%21.1% in 20082009 to 31.7%18.5% in 2009.2010. Income tax expense in Brazil refers to the collection of federal income tax and social contribution tax.  The statutory rates for these taxes applicable to the periods presented herein were 25% for federal income tax and 9% for the social contribution. Therefore, the balances owed for these periods totaled US$234R$1,050 million in 20092010 and US$1,001R$1,127 million in 20082009 (34% of income before taxes and equity in affiliated companies).  Adjustments are made to these rates in order to reach the actual tax expense for the years.

    For the year ended December 31, 2009,2010, adjustments totaled US$15R$479 million and were comprised of:

    ·

    • a US$55R$121 million benefit from interest on stockholders’ equity; 

    • ·a US$65R$216 million adjustment related to non deductable foreign exchange expense fromequity income of subsidiaries or taxed at different rates; rates or which are not taxable;

    • ·tax incentives that represented a net tax adjustment of R$34 million;

      ·a US$126R$106 million benefit related to non taxable income from the Federal Tax Repayment Program, or REFIS, adjustments;

    • For the year ended December 31, 2009, adjustments totaled R$427 million and were comprised of:

      ·a R$109 million benefit from interest on stockholders’ equity; 

      ·a R$169 million benefit related to equity income of subsidiaries at different rates or which are not taxable; 

      ·tax incentives and other permanent differences that represented a net tax adjustment of US$29 millionR$12 million;

      ; and·        

    • a US$72 million addition to valuation allowance since certain subsidiaries had tax losses carryforward in 2009 which are not expected to be recovered.

         For the year ended December 31, 2008, adjustments totaled US$587 million and were comprised of:

    • a US$39 million benefit from interest on stockholders’ equity; 
    • a US$472R$252 million benefit related to non taxable income of subsidiariesfrom the Federal Tax Repayment Program, or income taxable at different rates, net of US$567 million benefit related to the 40% dilution of our interest in Namisa; 
    • a US$21 million addition to valuation allowance since certain subsidiaries had tax losses carryforward in 2008 which are not expected to be recovered;REFIS, adjustments; and

    • tax incentives and·These increases were offset by other permanent differences that represented a netexclusions in the amount of R$115 million,  mainly by the constitution of deferred income tax benefit of US$97 million. 

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         Our taxable income, generated from our operations in Brazil and abroad, is comprisedon the tax loss carryfowards of the following:subsidiary Prada.   

     

     

    Year Ended December 31, 

     

     

     

     

     

    2008 

     

    2009

     

    Changes 

     

     

    (In million of U.S. dollars)

    Brazil 

     

    3,225

     

    1,039

     

    (2,186)

    Foreign 

     

    (284)

     

    (350)

     

    (66)

     

     

     

     

     

     

     

    Total 

     

    2,941 

     

    689 

     

    (2,252) 

         Our taxable income in Brazil was impacted by the decrease in sales. The total decrease in taxable income generated in Brazil in 2009, as compared to 2008, totaled US$2,186 million. Expressed inreais, our taxable income decreased by 74.6% in 2009, as compared to 2008. Our foreign taxable income increased by US$66 million in 2009, as compared to 2008.

    It is not possible to predict the future adjustments to the federal income tax and social contribution at statutory rates, as they depend on interest on stockholder’s equity, non-taxable factors including income from offshore operations, and tax losses from offshore operations, especially when expressed as a percentage of income.

    Accruals for Disputed Taxes PayableNet Income

         The provisions for contingencies relate to legal proceedings with respect to which       In 2010, we deem the likelihood of an unfavorable outcome to be probable and the loss reasonably estimable. This determination is made based on the legal opinion of our internal and external legal counsel. We believe these contingencies are properly recognized in our financial statements in accordance with Statements of Financial Accounting Standards No. 5 (SFAS No. 5), included in ASC Topic 450, Contingencies. Those contingencies related to income taxes and social contributions are accounted for based on the “more-likely-than-not” concept in accordance with FIN 48, included in ASC Subtopic 740-10. We are also involved in judicial and administrative proceedings that are aimed at obtaining or defending our legal rights with respect to taxes that we believe to be unconstitutional or otherwise not required to be paid by us. We believe that these proceedings will ultimately result in the realization of contingent tax credits or benefits that can be used to settle direct and indirect tax obligations owed to the Brazilian Federal or State Governments. We do not recognize these contingent tax credits or benefits in our financial statements until realization of such gain after contingencies have been resolved. This occurs when a final irrevocable decision is rendered by a court in Brazil. When we use contingent tax credits or benefits based on favorable temporary court decisions that are still subject to appeal to offset current direct or indirect tax obligations, we maintain the legal obligation accrued in our financial statements until a final irrevocable judicial decision on those contingent tax credits or benefits is rendered. The accrual for the legal obligation related to the current direct or indirect tax obligations offset is not reversed until such time as the utilization of the con tingent tax credits or benefits is ultimately realized. The accounting for the contingent tax credits is in accordance with accounting for contingent assets under SFAS No. 5. Our accruals include interest on the tax obligations that we may offset with contingent tax credits or benefits at the interest rate defined in the relevant tax law.

         We classify an accrual as short-term when we expect the liability to be settled in 365 days or less. As of December 31, 2009, US$109 million had been classified as short-term accrual for contingencies, as compared to US$69 million as of December 31, 2008. This usually occurs when a final, unappealable and irrevocable judgment has been rendered and the legal processes are in the execution phase. Given the complexity of the Brazilian legal system and the intricacies of some claims, it is impracticable for Brazilian companies to predict the time period in which final decisions will be reached for such claims. Consequently, these claims are classified as long-term liabilities.

         The deposits for contingencies and disputed taxes payable are generally based on (i) accruals recorded in connection with lawsuits, (ii) judicial orders issued in connection with lawsuits and (iii) guarantees in connection with judicial foreclosure proceedings. Such deposits are classified as long-term assets, and the release of such deposits is conditioned upon judicial order. When such a judicial order is granted in our favor, the deposit is forfeited and returned to us in cash and the deposit account is appropriately offset. When such a judicial order is granted in a manner unfavorable to us, the deposit is used to offset the related liability and the deposit account is appropriately offset.

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         On November 26, 2009, CSN and its subsidiaries adhered to the REFIS introduced by Law 11,941/09 and Provisional Measure 470/09, in order to settle our tax and social security liabilities through a special settlement and installment payment system. Management’s decision took into consideration the economic benefits provided by the REFIS, such as discounts and fines exemptions, as well as the high costs of maintaining pending lawsuits.

         As a result, in 2009, we recorded the adjustments necessary to be made in the provisions, as well as reductions in debts, including debts offset against IPI premium credit over export, ordinary payment migration and sundry debts, which amounted to US$2.9 billion, including interests and related charges. Adherence to the special tax programs reduced the amount previously due in fines, interest and legal charges, generating a positive impact on our pre-taxnet income of US$255 million.

         The new amount of the debts following the reductions stipulated by the tax program of Law 11,941/09 was offset with court deposits and the residual amount will be settled in 180 installments as of the ratification of the debts by the authorities, which we expect will take place in mid-2010. The debts due under Provisional Measure 470/09 are being settled in 12 installments beginning in November 2009. On December 31, 2009, taxes payable in installments from REFIS amounted to US$475 million. ForR$ 2,516 million, a description of our policies for the provisioning of contingencies see "Item 8. Financial Information - A. Consolidated Statements and Other Financial Information - Legal Proceedings" below.

    Disputed taxes payable

    • Imposto sobre produto industrializado - IPI (Excise Tax) presumed credit on inputs

         We have accrued a liability for certain tax liabilities that were offset against credits related to IPI excise tax. The accrual is necessary to offset the contingent gain resulting from the use of IPI excise tax credits. The IPI excise tax credits are similar to value added tax credits related to the purchase of goods used in the production process. Brazilian law prevents companies from recognizing IPI excise tax credits on the acquisition of certain goods. We believe that this prohibition is unconstitutional since it is not consistent with general value added tax principles, the reason why we challenged this prohibition in Brazilian courts. In May 2003, we sought and obtained a favorable preliminary order from a Brazilian court authorizing us to compensate federal tax liabilities with IPI excise tax credits under dispute. We were awaiting the decision of a Brazi lian trial court. After such a decision is rendered, we expect the decision will be subject to several stages of appellate review before a final unappealable judgment is obtained. The IPI excise tax credit accrual recorded by us as of December 31, 2008 represented our statutory obligation to pay taxes that were offset with IPI excise tax credits.

         We have noted that several other Brazilian companies have challenged the same prohibition and these companies have received both favorable and unfavorable judgments at different stages of the judicial process. Recently, for example, the Brazilian Federal Supreme Court issued a final, unappealable and irrevocable decision on June 25, 2007 against a given taxpayer, denying the use of these credits. On August 27, 2007 the proceeding had an unfavorable decision for us, which were paying the amount of US$519 million with the Federal Revenue of Brazil in installments and transferred the liability to the accounts of taxes payable in installments. From the unfavorable aforementioned decision, an appeal was filed by us.

    In light of the above, on November 26, 2009, CSN adhered, the abovementioned cases to the REFIS introduced by Law 11,941/09 and Executive Order 470/09, and as a result the amount payable in installments was reduced to US$284 million as of December 31, 2009 (US$369 million as of December 31, 2008).

    • IPI premium credit over exports

         We have accrued a liability for certain tax liabilities that were offset against IPI premium tax credits. The accrual is necessary to offset the contingent gain resulting from the use of IPI premium tax credits and represents the statutory obligation to pay taxes that were offset against these credits. The IPI premium tax credits relate to export sales made during 1992 to 2002. Tax laws allowed Brazilian companies to recognize IPI premium tax credits until 1983, when an act of the executive branch of the Brazilian government cancelled such benefits and prohibited companies from recognizing these credits. We challenged the constitutionality of the executive branch’s action since only a law enacted by the Brazilian legislature could cancel or repeal benefits duly enacted by prior legislation. In August 2003, we sought and obtained a favorable decision from a B razilian trial court that authorized the use of IPI premium tax credits.

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         The Brazilian National Treasury filed an appeal against such decision and was awarded a favorable decision from a Brazilian court of appeals. We filed appeals against such decision before both the Brazilian Superior Court of Justice and the Brazilian Federal Supreme Court and were still awaiting for decisions from such courts. In September 2006, the Brazilian National Treasury filed five tax foreclosures against us to require payments in the total amount of approximately R$1 billion, referring to the collection of taxes which were offset against the use of IPI premium tax credits.

         During 2007, in view of these foreclosure proceedings, the distribution of dividends and the payment of interest on shareholders’ equity expected to take place on April 30, 2007 were suspended and the amount allocated for such purpose was blocked by court decision. On August 29, 2007, we offered assets in lien represented by treasury shares in the amount of US$270 million (R$536 million translated using the exchange rate as of the date of the transaction). 25% of this amount was substituted by judicial deposits in monthly installments performed up to December 31, 2007 and as these substitutions took place, the equivalent in shares was released from the lien at the share price determined at the closing price of the day prior to the deposit. In view of these events, our bank accounts were unblocked, the court decision to suspend the dividends distribution was revoked, and dividends were paid to shareholders as from September 4, 2007.

         In March 2009, we offered Letters of Guarantee in the amount of US$477 million (R$830 million), which aimed to replace the levy of execution upon securities carried out as of the disclosure of dividend payment. The prevalence of guarantee in treasury shares, bank surety or cash to be deposited judicially had not yet been decided by the Regional Federal Court.

         On August 13, 2009, the Brazilian Federal Supreme Court issued a decision with effects of general repercussion establishing that the IPI Premium Credit was only effective up to October 1990. Thus, the credits determined after 1990 were not recognized, and, in view of this court decision, our board of directors approved the adhesion of such debts to REFIS.

         We had provisioned the amount of credits already offset, increased by default charges up to September 30, 2009 (as of December 31, 2008, the IPI premium credit accrual represented the accumulated IPI tax credits used of US$953 million). The new balance after the application of reductions set forth in the program of Law 11,941/09 was offset with court deposits related to referred operations, resulting in excess deposits amounting to US$297 million after application of REFIS reductions, which may be offset by other debts discussed in court by the taxpayer or converted into cash. Such debts are yet subject to ratification by the proper authorities, which we expect will take place in mid-2010. Debts registered pursuant to Provisional Measure 470/09 are being paid in 12 installments as of November 2009.

    • Income tax and social contribution

         As disclosed in Note 6 to our consolidated financial statements for the year ended December 31, 2009 included elsewhere herein, we account for the uncertainties in income tax and social contribution in accordance with FIN 48 beginning on January 1, 2007.

    “Plano Verão”

         We claim recognition of the financial and tax effects on the calculation of income tax and social contribution on net income, related to Consumer Price Index – IPC understated inflation, which occurred in January and February 1989, by a percentage of 51.87% (“Plano Verão”). In 2004, the proceeding was concluded and judgment was made final and unappealable, granting to us the right to apply the index of 42.72% (Jan/89), of which the 12.15% already applied should be deducted. The application of 10.14% (Feb/89) was granted. The proceeding is currently under accounting investigation.

         At December 31, 2009, we had US$195 million, as compared to US$144 million in 2008 as judicial deposit and a provision of US$12 million, as compared to US$9 million in 2008, which represents the portion not recognized by the courts.

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    Social Contribution on Income from Export Revenues

         We filed a lawsuit challenging the assessment of Social Contribution on Income on export revenues, based on Constitutional Amendment No. 33/01 and in March 2004, we obtained an initial decision authorizing the exclusion of these revenues from referred calculation basis, as well as the offsetting of amounts paid as from 2001. The lower court decision was favorable and the proceeding is waiting for trial of the appeal filed by the Federal Government in the Regional Federal Court. At December 31, 2009, the amount of suspended liability and the offset credits based on the referred proceedings was US$712 million, as compared to US$495 million at December 31, 2008, already adjusted by the SELIC.

         The debts related to the offsetting of amounts paid as from 2001, as well as the debts related to the exclusion of export revenues from taxable basis were included in the REFIS. Such debts will be subject to ratification by the proper authorities, which we expect will take place in mid-2010. We still claim the exclusion of profits derived from exports from the calculation basis of the Social Contribution, according to the initial decision obtained by us.

    • PIS/COFINS–Law No. 9,718/98

         PIS and COFINS are taxes assessed on revenues. In 1998, new tax legislation was enacted which required Brazilian companies to pay PIS and COFINS on revenues resulted from financial investments. Prior to 1998, the Brazilian Federal constitution dictated that Brazilian companies were only required to pay PIS and COFINS taxes on revenues from operational activities. We challenged the constitutionality of the assessment of PIS and COFINS from financial investments since, in order to expand the PIS and COFINS tax calculation basis, the Brazilian legislature was required to observe a constitutionally mandated waiting period prior to enacting the legislation. In addition, at the time the new tax legislation was enacted, the Brazilian Federal constitution did not allow such taxes to be assessed on revenues from financial investments. In February 1999, a lower court confi rmed this position. We sought and obtained a favorable preliminary order in March 2000. In April 2000, the Brazilian tax authorities appealed to a Brazilian court of appeals. On March 6, 2006, the relevant Brazilian court of appeals issued a decision unfavorable to us. On March 10, 2006, we appealed against such decision before both the Brazilian Superior Court of Justice and the Brazilian Supreme Court. Until the resolution of these appeals, our rights under the initial favorable decision were still in effect. The PIS/COFINS accrual represents our statutory obligation to pay PIS/COFINS taxes due. We have noted that some Brazilian companies obtained favorable final and unappealable judgments in 2005 regarding similar PIS/COFINS legal challenges. Those companies have accordingly reversed some or most of their related disputed tax payment provisions. However, one given company did not obtain a favorable decision and was required to pay the related tax obligation.

    On May 31, 2007, a decision in our favor was made final and unappealable. Such decision was published in the Official Gazette of Justice, on June 16, 2007, when in view we reversed the provision existing on that date. The reversal of the provision increased our operating results of 2007 by US$179 million.

    Other non-income tax contingencies

    We are party to other judicial and administrative proceedings not described in the notes to our consolidated financial statements, involving a total of approximately US$2.6 billion as of December 31, 2009 (US$2.5 billion as of December 31, 2008), of which U$$1.8 billion is related to tax proceedings (US$1.9 billion as of December 31, 2008), US$0.2 billion to civil judicial processes (US$0.2 billion as of December 31, 2008) and US$0.6 billion to labor lawsuits (US$0.4 billion as of December 31, 2008). Most of these other proceedings are comprised of tax assessments received related to fines and penalties on credits used to offset legal and tax-related obligations that were previously considered as remote. Our external legal counsel deemed that the risk of loss arising from these lawsuits was only possible as opposed to probable. Therefore, we did not record accruals for co ntingencies with respect to these lawsuits.

         Other tax contingencies relate to a variety of disputes for which we have recorded provisions for probable losses. No single group of similar claims constitutes more than 5% of total contingencies.

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    Year 2008 Compared to Year 2007

    Operating Revenues

         Our operating revenues increased by 31.9%, from US$6,978 million in 2007 to US$9,207 million in 2008, as a result of the following combined effects: (i) successive steel price hikes along the year in the Brazilian market, (ii) a better sales mix concentration, and (iii) a larger share of the mining segment as a percentage of our total revenues, which benefits from higher iron prices in the international market.

         We recorded annual steel sales volume of 4,891 million tons in 2008, representing a4% decrease from 5,378 million tons 2009. The improved results in 2007,steel and annual iron-ore sales of 18.5 million tons in 2008, excluding own consumption, a Company record. In 2007, we recorded annual iron-ore sales of 10.5 million tons.

         The strong performance of the Brazilian steel sector in the first ten months of 2008 evidenced a 9% increase on our domestic sales as compared to 2007, as a result mainly of a strong demand for steel products and successive price increases. In November 2008, however, the global financial crisis affected our customers and demand for our products decreased abruptly. According to IBS, crude steel production remained flat over 2007 at 33 million tons.

    Domestic Sales

         Our annual domestic sales volume increased 15% from 3,614 million tons in 2007 to 4,158 million tons in 2008, in line with our strategy of prioritizing the Brazilian market, where we have historically generated higher profit margins.

         According to IBS, we recorded an average steel market share of 39% in 2008 in terms of volume, as compared to the 34% market share recorded during the previous year. As for the product mix, once again high value-added products such as galvanized, galvalume and tin plate accounted for approximately 40% of total domestic volume in 2008

         Domestic pricesmining segments were adjusted three times in March, May and July of 2008, amounting to the following increases: 50% for hot-rolled, 38% for cold-rolled, 27% for galvanized and 12% for tin plate.

         In the domestic market, our operating revenues increased by 39.6%, from US$5,283 million in 2007 to US$7,377 million in 2008, as a result of the combined effect described above.

         Annual iron-ore sales, excluding own consumption, reached 18.5 million tons in 2008, an all-time record for the Company, with domestic sales accounting for 3.9 million ton, or 21% of the total.

    Export Sales

         The year 2008 was marked by a slowing global demand for steel products, and exceptionally volatile prices for metals and other commodities.

         In 2008 we exported 733,000 tons of steel products, representing a 58.4% decrease as compared to the exported volume recorded in 2007. Our iron-ore sales exports volume increased 186.9% from 5.1 million tons in 2007 to 14.7 million tons in 2008.

         Operating revenues from our exports increased 8.0% from US$1,695 million in 2007 to US$1,830 million in 2008, as previously explained.

         The main effects the slowing global demand for steel products are explained below, by each international market.

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         USA

         Given the U.S. economy, which had been showing signs of weakening since the end of 2007, the steel demand fell by 25% in 2008. Lack of credit and consumer confidence had a direct impact on the destocking of steel products and distributors inventories began to fall slightly as of September 2008.

         Despite this reduction in inventory, however, prices continued to fall and hot-rolled coils closed the year at around US$540 per ton, 12% below the average prices recorded in the last 5 years.

         Industry capacity use also felt the effects of the downturn, falling from 90% in mid-year to 50% at the end of 2008, as the industry sought to balance domestic market supply by cutting back on production. Only 9 out of the 30 blast furnaces in the United States were operating by the end of 2007.

         According to the International Iron and Steel Institute, or IISI, U.S. steel production totaled 91 million tons in 2008, representing a decrease of 7.31% as compared to 2007.

         Europe

         The 2008 financial crisis spread through Europe in September and rapidly struck the steel sector. Auto production fell steadily throughout the year, reducing steel demand in the second half of 2008.

         In order to prevent a price collapse, European producers cut output by 35%. Nevertheless, inventories remained high and there was additional pressure from imports, and prices reached their lowest levels at the beginning of 2009.

         With the recent reduction in freight charges, imported steel became more competitive than the local product at the end of the year. Transport costs, which had peaked at US$130 per ton by mid 2008, closed at just US$10 per ton on December 2008, favoring imports, especially from China.

         Asia

         According to CRU Analysis, steel plate demand levels in China, which had been recording double-digit growth for some time, was in decline in the last two months of 2008 and it is estimated that the annual steel consumption must have fallen by 17% due to dwindling demand in both the domestic and international markets.

         Nevertheless, IISI figures show that Chinese steel production edged up by 1.7% in 2008 to more than 500 million tons. In Japan, however, it contracted by 1.2% to 118 million tons.

    Sales Taxes

         Our deductions from operating revenues consist of sales taxes the Social Integration Tax Program (Programa de Integração Social), or PIS, the Social Security Financing Tax (Contribuição para o Financiamento da Seguridade Social), or COFINS, the Tax on Industrial Products (Imposto sobre Produtos Industrializados), or IPI, and Tax on Services (Imposto sobre Serviços) , or ISS, and the ICMS tax. Sales taxes increased by 41%, from US$1,305 million in 2007 to US$1,835 million in 2008. This increase is explained by the substantial increase on sales in the domestic market, in line with our strategy of prioritizing the Brazilian market.

    Discounts, returns and allowances

         Discounts, returns and allowances are also deducted from our operating revenues. Although discounts, deductions and allowances increased by 18.6%, from US$156 million in 2007 to US$185 million in 2008, they remained stable when compared to our gross operating revenues. These discounts, returns and allowances were made in the ordinary course of our business.

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    Net Operating Revenues

         Net operating revenues increased by 30.3%, from US$5,517 million in 2007 to US$7,187 million in 2008, mainly due to the 31.9% increase in operating revenues, whereas sales deductions experienced an increase of 38.3%. Sales deductions, as a percentage of operating revenues, were 20.9% in 2007 and 21.9% in 2008.

    Cost of Products Sold

         The following table sets forth our production costs, the production costs per ton of crude steel and the portion of production costs attributable to the primary components of our costs of production. With the exception of coal and coke which we import and some metals (such as zinc, aluminum and tin), whose domestic prices are linked to international prices, our costs of production are mostly denominated inreais. The devaluation of the Brazilian real causes U.S. dollar-denominated or U.S. dollar-linked production costs to increase as a percentage of total production costs. Conversely, appreciation of thereal causes real-denominated production costs to increase as a percentage of total production costs.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Year Ended December, 31 

     

     

     

     

     

     

     

    2006 

     

     

     

     

     

    2007 

     

     

     

     

     

    2008 

     

     

     

     

     

     

     

     

     

     

     

    US$ 000 

     

    US$/ton 

     

    % 

     

    US$ 000 

     

    US$/ton 

     

    % 

     

    US$ 000 

     

    US$/ton 

     

    % 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Raw Materials 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     Iron Ore 

     

    66,174 

     

    14.92 

     

    3.2 

     

    130,712 

     

    24.65 

     

    5.7 

     

    150,716 

     

    29.55 

     

    5.1 

     Coal 

     

    348,264 

     

    78.52 

     

    16.9 

     

    421,996 

     

    79.59 

     

    18.4 

     

    613,774 

     

    120.35 

     

    20.8 

     Coke 

     

    36,048 

     

    8.13 

     

    1.7 

     

    63,994 

     

    12.07 

     

    2.8 

     

    232,151 

     

    45.52 

     

    7.9 

     Metals 

     

    165,020 

     

    37.20 

     

    8.0 

     

    242,987 

     

    45.83 

     

    10.6 

     

    147,934 

     

    29.01 

     

    5.0 

     Outsourced Hot Coils 

     

    30,712 

     

    6.92 

     

    1.5 

     

    955 

     

    0.18 

     

    0.0 

     

    84,726 

     

    16.61 

     

    2.9 

     Outsourced Slabs 

     

    389,095 

     

    87.72 

     

    18.9 

     

    11,052 

     

    2.08 

     

    0.5 

     

    174,073 

     

    34.13 

     

    5.9 

     Other(1)

     

    136,206 

     

    30.71 

     

    6.6 

     

    216,415 

     

    40.82 

     

    9.4 

     

    276,177 

     

    54.15 

     

    9.4 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    1,171,519 

     

    264.12 

     

    56.8 

     

    1,088,111 

     

    205.23 

     

    47.5 

     

    1,679,551 

     

    329.33 

     

    56.9 

     

    Energy/Fuel 

     

    169,349 

     

    38.18 

     

    8.2 

     

    228,767 

     

    43.15 

     

    10.0 

     

    274,339 

     

    53.79 

     

    9.3 

    Labor 

     

    175,651 

     

    39.60 

     

    8.5 

     

    217,816 

     

    41.08 

     

    9.5 

     

    199,352 

     

    39.09 

     

    6.7 

    Services and 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Maintenance 

     

    274,440 

     

    61.87 

     

    13.4 

     

    396,300 

     

    74.75 

     

    17.3 

     

    370,547 

     

    72.66 

     

    12.6 

    Tools and Supplies 

     

    100,752 

     

    22.71 

     

    4.9 

     

    131,304 

     

    24.77 

     

    5.7 

     

    150,453 

     

    29.50 

     

    5.1 

    Depreciation 

     

    165,813 

     

    37.38 

     

    8.0 

     

    217,824 

     

    41.08 

     

    9.5 

     

    264,880 

     

    51.94 

     

    9.0 

    Others 

     

    5,055 

     

    1.14 

     

    0.2 

     

    12,414 

     

    2.34 

     

    0.5 

     

    11,023 

     

    2.16 

     

    0.4 

     

     

     

    2,062,579 

     

    465.0 

     

    100.0 

     

    2,292,537 

     

    432.4 

     

    100.0 

     

    2,950,145 

     

    578.47 

     

    100.00 

    (1) Include pellets, scrap, limestone and dolomite. 

         Other than the sale of excess inventories from time to time and the purchase by our subsidiaries of semi- finished products from third parties for further processing, our cost of products sold is equivalent to our production cost.

         We are self-sufficient in almost all the raw materials used in the steel production. The principal raw materials we use in our integrated steel mill include iron ore, coke, coal (from which we make coke), limestone, dolomite, aluminum, tin and zinc. In addition, our production operations consume water, gases, electricity and ancillary materials.

         We obtain all of our iron ore requirements from our Casa de Pedra mine located in the State of Minas Gerais, and the limestone and dolomite from our Bocaina mine in the city of Arcos, in the State of Minas Gerais.

         The coal and coke we consume are acquired from different international producers “See Item Raw Materials and Suppliers”. Given the worldwide economic growth over the last few years and increasing demand for various commodities, coal and coke producers significantly raised their prices up until mid 2008, which strongly impacted the steel industry.

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         Our coal costs increased from US$422.0 million in 2007 to US$613.8 million in 2008, reaching 20.8% of our production cost, due to the increased prices.

         With respect to coke, we faced not only significant price increases, but also larger consumption, which impacted significantly our costs. Our coke costs raised from US$64.0 million in 2007 to US$232 million in 2008, accounting for 7.9% of our total production cost.

         Another factor that impacted our production costs was the acquisition until October 2008 of slabs and hot-rolled coils from third parties in order to face the increase in domestic demand for flat steel. The costs with outsourced slabs and hot coils reached US$258.8 million in 2008, representing almost 9% of our total production costs, different from 2007, when we did not acquire slabs and hot-rolled coils from third parties.

         Other raw materials include pellets and scrap purchase in the market and also limestone and dolomite that we extract from our own mines in the city of Arcos, in the State of Minas Gerais.

         Energy and fuel costs increased from US$228.8 million in 2007 to US$274.3 million in 2008 owing to the increase in gas price, corresponding to 9% of our total production costs.

    Gross Profit

         Gross profit increased by 47.9%, from US$2,441 million in 2007 to US$3,611 million in 2008, mainly due to the increase of 30.3% in net operating revenues from US$5,517 million in 2007 to US$7,187 million in 2008, which was partially offset by the increase of 16.2% in the cost of products sold.

         The 30.3% increase in our consolidated netother operating revenues from 2007 to 2008 can be attributed to the following: 

         In connection with our steel segment: (i) larger volume of sales in the domestic market (increase from 3,614 million tons in 2007 to 4,158 million tons in 2008) where we historically have recorded higher profit margins; (ii) increase of the domestic sales in terms of total sales volume, from 67% in 2007 to 85% in 2008; and (iii) successive steel price hikes in the domestic market during 2008. 

         In connection with the mining segment: (i) an all-time record of 18.5 million tons of iron ore sales volume in 2008expenses due to the increase of our iron ore export capacitynon-recurring gains recorded in the Itaguaí Port2009 and general improvements in iron ore extraction processes and logistics; and (ii) the increase in average iron ore prices in the international market realized in 2008. 

         On the other hand, our cost of products sold increased at a lower rate (16.2%) due to the following reasons: 

         In connection with the steel segment (i) cost of products sold is mainly driven by raw material prices (which represent 50% of our total steel production cost); (ii) we are self sufficient in the production of iron ore, which is one of the main raw material for steelmaking - thus, our exposure to the increases in raw material prices realized in 2008 was mainly limited to coke and coal (which represented 29% of our production cost in 2008); and (iii) there was no significant oscillation in the other steel production costs for the year. 

         In connection with the mining segment: (i) the production cost is basically driven by extraction, beneficiation and logistic costs, which remained stable in 2008; and (ii) we realized a dilution in our per ton iron ore fixed production costs, due to the aforementioned increase in sales volumes. 

    Selling, General and Administrative Expenses

         In 2008, we recorded selling, general and administrative expenses of US$631 million, representing a 27.5% increase from the US$495 million recorded in 2007.

         Selling expenses increased by 32.9%, from US$310 million in 2007 to US$412 million in 2008, mainly due to an increase in our efforts to sell steel products on the domestic market, an increase in freight prices and distribution costs, and higher provisions for doubtful accounts. If expressed inreais, these expenses increased by 30.0%, but remained stable at 5.6% as a percentage of net operating revenues.

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         General and administrative expenses increased by 18.4%, from US$185 million in 2007 to US$219 million in 2008, mainly due to higher labor costs, given the increase in the number of employees in 2008 and the annual wage increases in May 2008. If expressed inreais, these expenses increased by 11.7% and decreased from 3.3% to 3.0%, as a percentage of net operating revenues.

    Other Income (Expenses)

         Other expenses increased by US$51 million, from an expense of US$85 million in 2007 to an expense of US$136 million in 2008, mainly due to increases in commercial contingencies and fines, in particular with respect to transport of products.

    Operating Income

         Operating income increased by 52.8%, or US$983 million, from US$1,861 million in 2007 to US$2,844 million in 2008. This growth was mainly due to the US$1,170 million increase in gross profit, reflecting mainly the successive steel product price hikes along the year in the Brazilian market and the contribution of our mining segment.

    Non-operating Expenses (Income), Net

         Non-operating income, net decreased by US$203 million, from an income of US$300 million in 2007 to an income of US$97 million in 2008. Our non-operating expenses (income), net are comprised of financial expenses net, foreign exchange and monetary loss (gain), net and, in 2008, also the gain on 40% dilution of interest in our subsidiary Namisa to an Asian consortium.

         On December 30, 2008, we sold 2,271,825 shares of Namisa’s voting capital, one of our mining subsidiaries and, subsequently, Namisa issued 187,749,249 new shares at a price of US$16.20 per share, subscribed and paid up by Big Jump Energy Participações S.A., or Big Jump, a company whose shareholders are Brazil Japan Iron Ore Corporation, or BJIOC, and Posco, increasing its ownership interest to 40%, diluting our voting and total interest in Namisa to 60%. BJIOC is a company incorporated by a consortium formed by the Japanese companies Itochu Corporation, JFE Steel Corporation, Nippon Steel Corporation, Sumitomo Metal Industries Ltd, Kobe Steel Ltd and Nisshin Steel Co Ltd, and the Korean company, Posco. Big Jump paid in cash for Namisa’s shares the amount of US$3,041 million.

         As a result of the acquisition, Big Jump holds 40% and CSN holds 60% of Namisa’s shares and also based on the shareholders’ agreement of Namisa, our management concluded that Namisa’s balance sheet should not be consolidated with CSN’s balance sheet as of December 30, 2008; accordingly, Namisa’s results have been consolidated until the date of sale and dilution. After analyzing the transaction, we concluded that the purchaser consortium has effective and significant participation rights rather than protective rights through the right to participate in significant decisions related to Namisa’s ordinary course of business.

         Upon the sale of Namisa’s shares and dilution, CSN adopted income statement recognition as its accounting policy and, accordingly, recorded a net non-operating gain on 40%-dilution of its interest in the amount of US$1,667 million, as detailed below:

     

     

     

     

     

     

     

     

     

    Amount 

     

    Percentage 

     

    Gain (loss)

    Namisa’s net equity before capital increase by Big Jump, represented by 287,303,436 shares 

     

    395 

     

    40% 

     

    (158)

    Capital increase by Big Jump through issuance of 187,749,249 new shares (US$1.48 per share plus additional paid in capital of US$14.72 per share)

     

    3,041 

     

    60% 

     

    1,825 

    Net non-taxable gain on dilution of interest in Namisa 

     

     

     

     

     

    1,667 

    The gain of US$1,667 million referred to above is non-taxable since a dilution of interest is not considered as a capital gain in accordance with Brazilian tax legislation.

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    Financial Expenses (Income), Net2010.

         In 2008, our net financial expenses, increased by 73.5%, or US$161 million, from US$219 million in 2007 to US$380 million, mainly due to the following items:

    • US$21 million increase in interest income;
    • US$130 million decrease in interest expense;
    • US$291 million decrease in our income from derivative instruments; and
    • US$21 million decrease in other financial income (expenses).

    Interest Income

         Interest income increased by 26.6%, or US$21 million, from US$79 million in 2007 to US$100 million in 2008, mainly due to greater average amount of cash and cash equivalents.

    Interest Expense

         Interest expense decreased by 19.1%, or US$130 million, from US$680 million in 2007 to US$550 million in 2008. This decrease was mainly due to a sharp decrease in interest on tax contingencies of US$245 million, as well as lower interest rates on ourreal-denominated debt. This decrease was partially offset by an increase in taxes on financial income, in the amount of US$175 million.

    Derivative Instruments

         The results on derivative instruments decreased by US$291 million, from an income of US$416 million in 2007 to an income of US$125 million in 2008. Despite the depreciation of the exchange rate as of December 31, 2008, as compared to the exchange rate as of December 31, 2007, our foreign exchange derivative instruments generated an income of US$419 million in 2008 as compared to an expense of US$219 million in 2007, which was offset by an expense of US$530 million in 2008 in our equity linked derivatives, as compared to a gain of US$640 million in 2007. In September 2008, we realized our equity swap agreement with a gain of US$1,005.7 million. After realization, we renewed our equity swap agreement and, as of December 31, 2008, the accrued amount in our current liabilities, based on the market value of our ADRs was an unrealized loss of US$685.1 million. For more information on the equity swap agreements, see “Item 4B—Risk Factors”, “Item 10C—Material Contracts”, “Item 11—Quantitative and Qualitative Disclosures About Market Risk—Equity Risk” and Note 21 to our consolidated financial statements contained in “Item 18. Financial Statements”. For a copy of the equity swap agreements as amended and novated, see Exhibit 10.1 to this annual report.

    Other Financial Income (Expense)

         Other financial income (expense) decreased by US$21 million, from an expense of US$34 million in 2007 to an expense of US$55 million in 2008, mainly due to expenses incurred in the normal course of business such as discounts, taxes on financial income, bank charges and other minor items.

    Foreign Exchange and Monetary Gain, Net

         Foreign exchange and monetary gain, net is mainly affected by fluctuations in thereal/U.S. dollar foreign exchange rate and the impact of such fluctuations on the following:

    • our U.S. dollar-denominated gross debt;
    • our U.S. dollar-denominated cash, cash equivalents and short-term investments;
    • our equity investments in offshore subsidiaries; and
    • our trade accounts receivable and payable.

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         The 388.8%, or US$1,703 million, decrease in foreign exchange and monetary gain, from a US$438 million gain in 2007 to a US$1,265 million loss in 2008, was primarily caused by the depreciation of thereal against the U.S. dollar, which increased our expenses in connection with U.S. dollar-denominated debt and accounts payable.

    Income Taxes

         We recorded an expense for income tax and social contribution of US$414 million in 2008, as compared to US$534 million 2007. Expressed as a percentage of pre-tax income, income tax expense decreased from 24.7% in 2007 to 14.0% in 2008. Income tax expense in Brazil refers to the collection of federal income tax and social contribution tax. The statutory rates for these taxes applicable to the periods presented herein were 25% for federal income tax and 9% for the social contribution. Therefore, the balances owed for these periods totaled US$1,001 million in 2008 and US$735 million in 2007 (34% of income before taxes and equity in affiliated companies). Adjustments are made to these rates in order to arrive at the actual tax expense for the years.

         For the year ended December 31, 2008, adjustments totaled US$587 million and were comprised of:

    • a US$39 million benefit from interest on stockholders’ equity; 
    • a US$472 million benefit related to non taxable income of subsidiaries or income taxable at different rates, net of US$567 million benefit related to the 40% dilution of our interest in Namisa; 
    • a US$21 million addition to valuation allowance since certain subsidiaries had tax losses carryforward in 2008 which are not expected to be recovered; and
    • tax incentives and other permanent differences that represented a net tax benefit of US$97 million. 

         For the year ended December 31, 2007, adjustments totaled US$201 million and were comprised of: 

    • a US$40 million benefit from interest on stockholder’s equity; 
    • a US$159 million benefit related to non-taxable income of subsidiaries or taxable at different rates; 
    • a US$12 million additions to valuation allowances; and 
    • other permanent differences that represented a net tax benefit of US$14 million. 

         Our taxable income, generated from our operations in Brazil and abroad, is comprised of the following:

     

     

     

     

     

     

     

     

     

    Year Ended December 31, 

     

     

     

     

     

    2007 

     

    2008 

     

    Changes 

     

     

    (In million of U.S. dollars)

    Brazil 

     

    1,562 

     

    3,225 

     

    1,663 

    Foreign 

     

    599 

     

    (284)

     

    (883)

     

     

     

     

     

     

     

    Total 

     

    2,161 

     

    2,941 

     

    780 

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         Our taxable income in Brazil was impacted by the increase in sales. The total increase in taxable income generated in Brazil in 2008, as compared to 2007, totaled US$1,663 million. Expressed inreais, our taxable income increased by 28.4% in 2008, as compared to 2007. Our foreign taxable income decreased by US$883 million in 2008, as compared to 2007.

         It is not possible to predict the future adjustments to the federal income tax and social contribution at statutory rates, as they depend on interest on stockholder’s equity, non-taxable factors including income from offshore operations, and tax losses from offshore operations, especially when expressed as a percentage of income.

    Mining Segment

         We began exporting iron ore only in 2007, when we first presented our results by segment. As a result we only had a full year of iron ore export operation in 2008 and any comparative analysis for our mining segment between 2008 and 2007 is not representative in light of the low volumes sold in 2007. 

         Operating revenues for our mining segment, excluding intersegment sales1, amounted to US$1,211 million in 2008, as compared to US$267 million in 2007, an increase of US$944 million (or 353.6%). If we include intersegment sales, operating revenues for our mining segment would have amounted to US$1,382 million in 2008, as compared to US$267 million in 2007, an increase of US$1,115 million (or 417.6%). 

         The increase in operating revenues for our mining segment was mainly due to: 

         (i) Increase in total iron-ore sales volume from 10.5 million tons in 2007 to 18.5 million tons in 2008, a 76% increase, mainly due to the increase in capacity in our Solid Bulks seaport terminal in the Itaguaí Port. The completion of the second phase of this terminal project in the Itaguaí Port resulted in an increase of the handling capacity from 7 million tons of iron ore per year in 2007 to 30 million tons in 2008. 

         In terms of operating revenues, this increase in capacity enabled us to increase our export sales and, consequently, the total iron ore sales volumes, which resulted in an increase of US$523 million to our mining segment operating revenues from 2007 to 2008; and

         (ii) Increase in iron ore international prices in light of substantial demand from China. In 2008 iron ore export prices averaged US$67 per ton, 56% more than the US$43 per ton average in 2007. The impact of the increase in prices on our operating revenues resulted in an increase of US$421 million to our mining segment from 2007 to 2008. 

         Cost and Operating Expenses for the mining segment increased from US$347 million in 2007 to US$562 million in 2008 due to the higher volume sold in 2008. 

         In 2008 our gross profit for the mining segment amounted to US$928 million, with gross margin of 70%, and operating income amounted to US$767 million, with operating margin of 58%. As compared to 2007 our margins increased in light of increase in iron ore prices, greater volume sold and dilution of iron ore fixed production costs. 

         In 2008 operating revenues, gross profit, and operating income for Namisa were US$434 million, US$263 million and US$168 million, respectively. Therefore, excluding Namisa our operating revenues, gross profit, and operating income arising from our mining activities in 2008 would have been US$948 million, US$665 million and US$599 million, respectively, which would still represent significant increases if compared to 2007 (which included Namisa). 

         Namisa’s results for 2009 will be presented as equity in results of affiliates in our statement of income under our mining segment. 

    1 In 2008, intersegment sales from mining to steel segment amounted to US$171 million. Including intersegment sales, mining operating revenues totaled US$1,382 million as presented in our consolidated statements of income in Note 19. 

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    5B.  Liquidity and Capital Resources

    Overview

    Our main uses of funds are for capital expenditures, repayment of debt and dividend payments.  We have historically met these requirements by using cash generated from operating activities and through the issuance of short- and long-term debt instruments.  We expect to meet our cash needs for 20102011 primarily through a combination of operating cash flow, cash and cash equivalents on hand and newly issued long-term debt instruments.

    In addition, from time to time, we review acquisition and investment opportunities and will, if a suitable opportunity arises, make selected acquisitions and investments to implement our business strategy. We generally makegenerallymake investments directly or through subsidiaries, joint ventures or affiliated companies, and fund these investments through internally generated funds, the issuance of debt, or a combination of such methods.

    72

    Sources of Funds and Working Capital

    Cash Flows

    Cash and cash equivalents as of December 31, 2007, 20082010 and 2009 totaled US$1,213 million, US$3,542R$2,268 million and US$3,981R$ 1,181 million, respectively.

    Cash Generated by Operating Activities

            We generated cashCash provided from our operations in the total amount of US$1,264 million, US$2,067was R$ 2,482 million and US$40cash used in operations was R$ 773  million, in 2007, 20082010 and 2009 respectively. The US$2.027R$ 3,255  million decreaseincrease in cash flow from operating activities in 20092010 as compared to 20082009 was mainly due to:

    (i)a decreaseto an increase of US$1,373 million in the net income reported by us in 2009;

    (ii)a decrease of US$639R$ 3,106 million in adjustments to reconcile net income mainly driven by a US$1,687due to an increase of financial interests of  R$ 359 million, decreaseaccrual for derivatives in the amount of R$ 215 million and net foreign exchange gain a US$339of R$ 2,082 million decreaseand gain with equity investment variation in accrual for derivatives, and a gain in equity results2009 in the amount of US$694R$ 835 million due to Namisa’s results of operations, partially offset by the gain on dilution of our interestthat did not occur in Namisa of US$1,667 million recognized in 2008;2010.

    Investing Activities

    (iii)a decrease of 1,213 in our operating liabilities primarily due to a decrease of US$1,064 million in trade accounts payable, US$416 million in interest paid, partially offset by an increase of US$330 million in taxes payable; and

    (iv)these decreases were partially offset by a decrease of US$1,198 million in our operating assets such as trade accounts receivable and inventories.

    Cash Used in Investing Activities

    We used cash in our investing activities in the total amount of US$1,091 million, US$1,292 million and US$829R$ 4,636 million in 2007, 20082010 and 2009, respectively. The net decrease of US$463R$ 617 million in 2009 . The increase  of R$ 4,019 million in 2010 as compared to 20082009 was mainly due to net effects of equity swap margin of guarantee of US$404 million, offset by a increase of US$191 million in restricted deposits from legal proceedings, US$143 million related to  acquisition of investment in Riversdale Mining Limited and US$256 million dueacquisitions of fixed assets to intercompany loans.supply the projects, mainly related to: (i) the Casa de Pedra expansion; (ii) the construction of the cement plant in the city of Volta Redonda (State of Rio de Janeiro) and of the clinker plant in the city of Arcos (State of Minas Gerais); (iii) the construction of the long steel mill in the city of Volta Redonda (State of Rio de Janeiro) and (iv) the extension of Transnordestina railroad

    Cash Used in Financing Activities

    Cash used inprovided by financing activities was US$122R$ 4,651 million in 20072010 and provided by was US$1,867 million and US$872R$ 1,510 million in 2008, and 2009, respectively.2009.  The US$995R$ 3,141 million decreaseincrease in cash provided by financing activities in 2009,2010, as compared to 2008,2009, was mainly due to a increase in long-term debt repayments of US$509 million, distribution of dividends and interest on shareholders’ equity of US$1,017 millionduring the period to finance the current projects.  Also in 2009, decrease of US$221 million when compared to US$1,238 million in 2008, and increase in US$590 million due to acquisitionofwe acquired our own shares to be held in treasury. Additionally,treasury in 2008, financing activities were impacted by approximately US$3.0 billion received on December 30, 2008 as pre-payment for future salesthe amount of ROM and rendering of port services to Namisa.

    86R$ 1,350 million, a transaction not repeated in 2010.

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    Trade Accounts Receivable Turnover Ratio

    Our receivable turnover ratio (the ratio between trade accounts receivable and net operating revenues), expressed in days of sales increaseddecreased to 3626 on December 31, 20092010 from 2731 on December 31, 2008, reflecting the effects of the global economic and financial crisis.2009.

    Inventory Turnover Ratio

    Our inventory turnover ratio (obtained by dividing inventories by annualized cost of goods sold), expressed in days of cost of goods sold increased to 140113 days in 2009,2010, as compared to 11788 days in 2008, primarily as a result of the lower demand for steel products worldwide in 2009.

    Trade Accounts Payable Turnover Ratio

    The accounts payable turnover ratio (obtained by dividing trade accounts payable by annualized cost of goods sold), expressed in days of cost of goods sold, decreased to 6125 on December 31, 20092010 from 7926 on December 31, 2008, reflecting the effects of world financial crisis in  2009.

    Liquidity Management

    Given the capital intensive and cyclical nature of our industry, and the generally volatile economic environment in certain relevant emerging markets, we have retained a substantial amount of cash on hand to run our operations, to satisfy our financial obligations, and to be prepared for potential investment opportunities.  As of December 31, 2009,2010, cash and cash equivalent instruments totaled US$3,981R$ 10,239 million.

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    We were also taking advantage of the current liquidity conditions to extend the maturity profile of grossour debt.  These activities are unrelated to the management of any interest rate, inflation and/or foreign exchange risk exposure.  Given the lack of a liquid secondary market for our short term debt instruments, we have accumulated cash instead of prepaying our debt prior to final maturity.  As of December 31, 2009,2010, short-term and long-term indebtedness accounted for 5.8%6.51% and 94.2%93.49%, respectively, of our total debt, and the average life of our existing debt was equivalent to approximately tennine  years, considering 40 years-term for the perpetual bonds issued in July 2005.September 2010.

    Capital Expenditures and Investments

    In 2009,2010, our capital expenditures were US$930R$ 3,636 million used in acquisitions of equipment, of which US$214R$ 275 million was used in the Casa de Pedra mine expansion, US$23R$ 1.371 million relating to the expansion of the  Transnordestina railroad, R$ 249 million in construction of the cement plant in Volta Rendonda (RJ),  R$ 139 million in projects relating to the Itaguaí Port expansion and US$245R$ 483 million in maintenance.

         In 2010, we plan to make capital expenditures of up to US$2,305 million, compared to US$930 million in 2009, of which US$502 million will be used in the Casa de Pedra mine expansion, US$352 million in projects relating to the Itaguaí Port expansion and US$178 million in running capex. We also plan to invest US$1,325 million in subsidiaries, of which US$808 million in Transnordestina S.A, US$284 million in CSN Long Steel, US$155 million in CSN Cement and US$78 million in other subsidiaries.

    Total planned investments for the period between 2010 and 2016 amount to US$18.8 billion, of which: US$6.2 billion are planned for our mining business (Casa de Pedra capacity expansion to 50 mtpy; Namisa capacity expansion to 39 mtpy; TECAR capacity expansion to 84 mtpy); US$4.8 billion are planned for our steel business (increase in long steel capacity of 1.5 mtpy with 3 plants; expansion of flat steel of 1.5 mt; and other projects focused on improving our operational return, such as a coke battery revamp); US$1 billion are planned for our cement business (3 plants of 1 mt each, Arcos Integrated Plant of 0.6 mt and Volta Redonda Expansion to 2.4 mt); US$3.4 billion are planned for logistics (Transnordestina Extension and Berth 301 in TECON); and US$3.4 billion for our maintenance and programs to improve our performance.

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    We expect to meet our liquidity requirements from cash generated from operations, and, if needed, the issuance of debt securities. For details on our Planned Investments see “Item 4D. Property, Plant and Equipment – Capital Expenditures – Planned Investments”.

    Company Debt and Derivative Instruments

    At December 31, 20082010 and 2009, total debt (composed of current portion of long-term debt, accrued finance charges, mark-to-market adjustments on derivative instruments, and long-term debt and debentures) aggregated US$5,525R$20,206 million and US$8,034R$ 14,356 million , respectively, equal to 167%258% and 192%218% of the stockholders’ equity at December 31, 20082010 and 2009, respectively.  At December 31, 2009,2010, our short-term debt (composed of current portion of long-term debt mark-to-market adjustments on derivative instruments, and including accrued finance charges)charges and debentures) totaled US$715R$ 1,345 million and our long-term debt (composed of long-term debt and debentures) totaled US$7,319R$ 18,862  million.  The foregoing amounts do not include debt of others for which we are contingently liable.  See “Item 5E.  Off-Balance Sheet Arrangements.”

    At December 31, 2009,2010, approximately 41%48% of our debt was denominated inreais reaisand substantially all of the remaining balance was denominated in U.S. dollars.

    Our current policy is to protect ourselves against foreign exchange losses and interest rate losses on our debt and currently our exposure is protected through foreign exchange derivative products, including futures, swaps, and FRA-Forward Rate Agreement.Agreements.  For a description of our derivative instruments, see Note 2117 to our consolidated financial statements contained in “Item 18.  Financial Statements.”  Also see  “Non-operating Expenses (Income), Net under “Item 5A.  Operating Results—Results of Operations—Year 20092010 Compared to Year 2008—Non-operating Expenses (Income), Net” and “Item 5A. Operating Results—Results of Operations—Year 2008 Compared to Year 2007—Non-operating Expenses (Income), Net.”2009”.

    The major components of US$452R$ 1,345 million of our consolidated current portion of long-term debt outstanding at December 31, 20092010 were:

    • US$94 million of trade-related transactions;
    • US$124 million of advances on export contracts;
    • US$127 million of BNDES-Finame;
    • US$101 million of pre export financing; and
    • US$6 million of other financings.

    Components

    Average
    interest rate

    Total

    (in million of R$)

    Fixed rate notes

    6.5% - 10.5%

    108

     

    BNDES/Finame

    1.5% - 3.2%

    329

    Prepayment financing

    1.24% - 7.5%

    676

    Others

    3.3% - 9.5%

    232

    Total

    1,345

    The major components of US$7,319R$ 18,862  million of our consolidated long-term debt outstanding at December 31, 20092010 were (amounts are reflected in long-term debt):

    • US$345 million in a local debenture;
    • US$1,046 million of export pre-payments and trade-related transactions;
    • US$1,700 million of Euronotes;
    • US$819 million of BNDES-Finame;
    • US$750 million in perpetual bonds;
    • US$1,432 million of pre export financing; and
    • US$1,227 million of other financings.

    Components

    Average
    interest rate

    Total

    (in million of R$)

    Debenture

    9.4% + IGPM and 1% + TJLP

    1,761

    Fixed rate notes

    6.5% - 10.5%

    4,499

    BNDES/Finame

    1.5% - 3.2%

    1,963

    Perpetual bonds

    7% - 9.5%

    1,666

    Prepayment financing

    1.24% - 7.5%

    5,762

    CCB

    112.5% CDI

    3,000

    Others

    3.52% - 8%

    211

    Total

    18,862

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    The amount of interest paid in 2010 was R$ 1,867 million.

    The local debenture is a real-denominated debt instrument, issued in February 2006, of R$600 million six-year debentures bearing interest at a rate of 103.6% of the CDI rate per annum.

    Eurodollar and Euronotes issued in accordance with Rule 144A and Regulation S under the Securities Act reflect senior unsecured debt instruments issued by the parent companyus and itsour offshore subsidiaries, including the issuance in 2005 of US$750 million, 9.5% per annum coupon perpetual notes. They also include (i) the US$300 million bonds, 10% per annum coupon, and the US$300 million notes, 8.25% per annum coupon, issued in 1997 with final maturity in 2047; (ii) the issuance in December 2003 and January 2004 of US$550 million notes, 9.75% per annum coupon issued in December 2003 and January 2004 with final maturity in 2013; (iii) the US$400 million notes, 10% per annum coupon, issued in September 2004 and January 2005 with final maturity in 2015, and (iv) the US$750 million notes, 6.875% per annum coupon, issued in September 2009 with maturity in 2019.

    In July 2010, we issued US$ 1 billion notes, 6.50% per annum coupon and maturity date in July 2020, and in September 2010 we issued a US$ 1 billion Perpetual Bond, 7% per annum coupon.

         Pre-export agreements include the fourtwo series of the export receivables securitization program launched in June 2003 as well as other trade-related transactions outside the program.

          The first series, issued in June 2003 in the amount of US$142 million has a seven-year maturity and bears interest at a rate of 7.28% per annum, with a two-year grace period for payment of principal. The second series, issued in August 2003, in the amount of US$125 million has a three-year maturity and bears interest at Libor plus 1.55% per annum. The third series issued in June 2004, in the amount of US$162 59 million has an eight-yearas of December 31, 2010, with maturity date on May 2012 and bearsbearing interest at a rate of 7.43%7.43 per annum with a three-year grace period. In Mayannum; and the series issued in June 2005, a fourth series was issued in the amount of US$250 160 million having a ten-yearas of December 31, 2010, with maturity in May 2015 and bearing interest at 6.15% per annum with a three-year grace pe riod. A portion of the proceeds of the fourth series was used to repay the second series.

         Our export receivables securitization program launched in June 2003 currently includes three series of senior secured notes outstanding, issued in July 2003, June 2004 and July 2005. On July 2, 2009, we notified the creditors of the July 2003 tranche notes on our irrevocable intention of performing the early redemption of such notes, settlement of which occurred on August 5, 2009 at the principal amount of US$35.5 million.  Also on July 2, 2009 we began a consent solicitation process with creditors related to the June 2004 and July 2005 tranche notes in order to obtain their consent or waiver in relation to the following matters: (i) inclusion of iron ore receivables in the program; (ii) adoption of flexible dates for the performance of early redemption of notes; (iii) change in a few export coverage ratios provided for in the program; and (iv) waive certain accumulation events occurred in the 21st and 23rd quarters of the program, for possible characterization purposes of an early amortization event. On August 5, 2009, the trustee for the program confirmed to have received the creditors’ consents for both tranches in sufficient amount to approve all these matters.annum.

    We issued export credit notes, or NCEs:  (i) on April 11, 2008, in the amount of R$100 million in favor of Banco do Brasil S.A., due 2013; (ii) on September 30, 2009, in the amount of R$1.0 billion, in favor of Banco do Brasil S.A., due 2014; and (iii) on September 30, 2009, in the amount of R$300 million, in favor of Banco Nossa Caixado Brasil S.A., due 2014.

    On August 18, 2009 we contracted a credit facility from Caixa Econômica Federal, or CEF, under its special credit for large companies, in the form of a bank credit bill, or CCB, in the amount of R$2.0 billion and to be amortized in 36 months.

    On February 9, 2010 we contracted an additional credit facility from CEF under its special credit for large companies, in the form of a CCB, in the amount of R$1.0 billion and to be amortized in 36 month.

    On May 21, 2010, our subsidiary Congonhas Minérios S.A. issued an NCE in the amount of R$2.0 billion in favor of Banco do Brasil S.A.  The NCE will be amortized over eight years and is guaranteed by us.

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    Maturity Profile

    The following table sets forth the maturity profile of our long-term debt at December 31, 2009:2010:

     

     

     

     

    Maturity in

     

    Principal Amount 

     

    Principal Amount  

     

    (In millions of US$)

     

    (In millions of R$)

    2011

     

    1,112 

    2012

     

    2,104

     

    2,166

    2013

     

    1,250

     

    2,088

    2014

     

    601

     

    1,948

    2015 and thereafter

     

    1,502 

    Perpetual securities

     

    750

    2015

     

    2,188

    2016

     

    2,222

    2017 and thereafter

     

    6,584

    Perpetual bonds

     

       1,666   

     

     

     

     

    Total

     

    7,319

     

        18,862   

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    5C.  Research & Development and Development, Patents and Licenses, etc.Innovation

            Our researchIn the year of 2010, CSN has invested R$ 57 million in Research & Development to develop new products and development center works closely with our customers. Onemaintain the company in the vanguard of value-added products.  CSN is committed to pursue technological innovation, continuous improvement and systemic production processes and the generation of attractive products to market.

            To meet the new demands and expectations of the featuresmarket CSN has been continuously investing in creating innovative projects aiming to surprise its clients with creative solutions involving products and services.  The attitude of this unitinnovation associated with the workshop to reengineer the supply chain with the main customers, has been one of the main lines of action of the CSN R&D team  to maintain and consolidate its growing market share.

            CSN, a leading company in Brazil in coated flat steel products with high added value, has been continuously investing in improvements to its processes, products and services.  In its activities management believes there is the integrated technical assistance services, where CSN customers receive from our engineers guidancestrong performance in developing new products and recommendations to help them make better use of our steel products. This unit works closely with the sales sector, focusing on product developmentapplications that will meet our customers’current and future market needs.

            Another feature areA project that demonstrates the workshops focusinginnovative and pioneering the nature of CSN is the development of pre-painted steel to Organo-Metallic fuel tanks applied in automobiles, replacing the plastic tanks, with demand reaching a level of 500,000 tanks a year.  The project was designed with new steel base and coating application, continuous painting line at its facilities CSN / PR Araucaria, giving properties of higher corrosion resistance, formability and weldability. Currently, CSN is working on product development, applications, simultaneous engineering for costimproving the specification of the steel base in order to achieve weight reduction and parameters adjustment on CSN steel products and customers’ final products on automotive, home appliances, steel packaging and civil construction segments.of the components.

            Our investmentAnother project was developed and is finding increasing acceptance in research and development projects and activities in 2009 totaled US$22.8 million. New products recently developed under our research and development program include: (i) dual phase steels to reduce overall weight of automobiles; (ii) extra deep draw quality (EDDQ) steel for inner and exposal parts of automobiles; (iii) bake hardening ultra low carbon steel for exposal parts of automobiles; (iv) extra tinthe market is CSN Extra Thin ®” cold rolled steel “CSN Extra Fino ®” for home appliance“for new applications in white goods and steel furniture responding to a worldwide trend.

            In the packaging segment, CSN has invested in consolidating a modern Center of Innovation that enables greater proximity to customers and bottlers presenting new concepts and design, in packages of 3 pieces cans expanded with innovative formats.

            In the automotive segment the concept of innovation, product development and new applications (v) electrical has been the subject of priority and as an example we can cite the Dual Phase Steel, which has as a main feature the weight reduction of automobiles that enabling the industry to make vehicles more Lightweight, safe and with reduced CO2 emissions.  Besides the Dual Phase Steel CSN has developed new high-strength steels such as Bake Hardening, Microalloyedand Rephosphorizedsteel as cold-rolledwell as new high-formability steels for exposed parts such as Super Ultra Low Carbon Steel to Titanium stabilized.

            In the Construction segment there was a significant consolidation and support of our customers for application of CSN Pre-painted Steel in the manufacture of new construction systems for rapid assembly used for energy savingextensively in refrigerator compressorsthe UPP's - Police Units Pacifier and electric motors; (vi) special steel grades for thickness reduction on tin plate products for two-piece cans; (vii) special tin plate steel for expanded three-piece cans; (viii) innovation onPSUs - Emergency Care Units in the three pieces cans and  launching new design and shape in th e market; (ix) pre-painted steel for automotive fuel thanks replacing plastic in Brazilian automobile market; (x) pre-painted steel for home appliances refrigerator cabinets; (xi) high-strength low-alloy hot-rolled steels used for automobile parts; and (xii) galvalume used for civil construction.city of Rio de Janeiro.

    5D.  Trend Information

    Overview

         For 2010The recovery of the global economy is being led by the emerging countries. According to the IMF, China and Brazil will maintain growth expectations in their economies until 2016 due to the following years, thesize of Chinese economy and to Brazilian protectionist policy and strong domestic demand. The combination of gradual global economic recovery and the positive outlook of domestic consumption in Brazil provide a favorable scenario for our business.

    We expect that investments will benefit from this favorable economic scenario, rewarding our decision to continue to implement our investment projects during the global economic and financial crisis in 2008 and 2009.

    scenario. In addition to organic growth projects, we routinely review potential acquisition opportunities and strategic alliances in all segments in which we operate in Brazil and abroad, in order to accelerate our expansion and value generation.

    We have consistently presented sound financial results, and comfortablereasonable indebtedness level.levels.  Our comfortable current cash situation provides support for organic growth, portfolio, financesfinancing possible acquisitions and at the same time maintainsmaintaining a special policy of dividends distribution for our shareholders, beingresulting in a competitive and favorable position in relation to other groups of the sector.

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    Steel

         Despite

    Steel

    In accordance with World Steel Association (WSA), the slight recovery of global steel industry capacity utilization rate closed the year at around 74% in 2010, although production capacity and a more positive outlook for Brazil, idle capacity is still above historical average levels and the worldwide high values of capex demands compatible incentive prices in order to render new projects feasible.

         According to the IABr, domesticglobal steel product consumption still remain highly unbalanced. As stated by WSA, surplus production capacity is expected tocurrently running around 500 million tonnes.

    This imbalance, together with the appreciation of the real and the existence of state government import incentives fueled Brazil's flat steel imports in 2010.

    WSA forecasts that apparent steel use will increase by 23.3%5.9% to 1,359 mmt in 2010 to 22.9 million tons, while exports are2011, following the 13.2% growth in 2010. In 2012, it forecasts world steel demand will growth by 6.0%, reaching a new record of 1,441 mmt. The impact of the earthquake and tsunami in Japan may indicate a significant downward adjustment in steel use for 2011 and upward adjustment for 2012.

    In view of Brazil’s expected toeconomic growth in the coming years, the Brazilian Development Bank (BNDES) believes steel output and apparent consumption will increase by 23.4% to 11 million tons, alongside a 25.1% increase in production to 33.2 million tons. Due to the continuous rising urbanization in developing countries26.5% and also world population growth, steel consumption is forecast to continue to increase beyond 2014 and therefore raw materials will be needed to support the production growth.43.5%, respectively, through 2014.

    In this context, we are assessing alternatives and growingincreasing arrangements for our flat steel industrial facilities, with a view towards potential growth of our steel production, that currently operates at a 5.1 mtpy pace of rolling steel.

         We increased our interest in the automotive market and havenew projects under implementation that will allow growth in segments of higher added value, to optimize results per produced ton.

         AlsoWe increased our interest in higher added value products in 2010. In the flat steel market, in 2010 and 2011,next years, we will diversify our supply of greater added value products. Including the service center expansion directed at the automotive segment and the expansion of the pre painted line for home appliance and civil construction.

    Continuing with the goal of diversifying and investing in the growth expectation of the civil construction in the domestic market, our 500 Kta capacity plant offor long steel, including iron bar and wire rods in our portfolio, is under advanced stage of construction works, estimated to enter into operation by the first quarter of 2011. In the long steel segment,construction. Additionally, we are considering the implementation of two new plants in Brazil, of 500 kta capacity each, in addition to a cold rolled unit in order to offer a more complete product portfolio to the market.

    Iron OreMining

         We expect for 2010 and upcoming years a growth in consumption and further increase of exports to China, which overcame local productionThe forecast by Macquire for the first timeiron ore market is that between 2013 and 2014 worldwide supply may exceed demand as a result of expansion projects in 2009.the industry.

    The global outlook projects a substantialprojected price increase for 2010. The current difference between “spot” market prices and benchmark is of approximately 90%. Low inventories in China together with supply closefor 2013 is U$ 141.50 per dry tonnage, according to demand , withPLATTS and FIS.

    According to information released by the CRU, exports in Brazil show a slight tendency to shortage, supportincrease until at least 2015, due to the current investments in the sector.

    Considering this trend.

         In 2010,scenario, in the next years, we expect to achieve an important landmark in our expansion in mining and will gain a pace of production of 4050 million tons per year at our Casa de Pedra unit. For the following years, expansion projects, already with high percentages of hiring, will raise production level to 50 million tons per year.

    In addition, Namisa continues with its expansion leading to an expected sales level of 39 million tons per year, relying on projects of concentration and pelletizing in advanced stage of development.pelletizing.

    To ensure the production outflow, we expect the Itaguaí Port will reach an 84 mtpy shipment capacity, achieving 45 million tons per year still in 2010.the next years.

    This combined increase of production and shipment benefits from a favorable window of opportunity to the overseas iron ore market.

         At the same time, we continue our studies for the segregation of assets related to the iron ore business and correlated logistics, through the transfer to a new subsidiary, in order to capture the full value of the mining business. Based on the studies’ results and on market conditions, we may be able to carry out a public offering in Brazil of shares or the combination of these businesses with third parties.

         Considering the changes in the sales model and the iron ore pricing in the overseas market, we have been developing studies in the shipping area, in order to adjust in a competitive way to this new reality.

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    In addition to these projects, which are already being implemented, weWe are analyzing further expansions, such as production volume of 70 mtpy in Casa de Pedra reaching 70 mtpy and TECAR to reachshipment volumes of 130 mtpy other brownfield and greenfield opportunities and acquisitions options.in TECAR.

    Cement

    TotalSNIC (the Brazilian Cement Industry Association) indicates local cement sales in Brazil of 59 million tonnes in 2009 totaled 51.32010, 15% up from the previous year. The Southeast region consumed half of this total and the North was the bestperformer in terms of growth, moving up by 58%. Estimates indicate a new record in 2011, with sales increasing between 8% and 9% to 65 million tons,tonnes.

    77

    Annual exports decreased 23%, as manufacturers prioritized the domestic market.

    Currently, there are 70 plants operating in Brazil, belonging to 12 national and international groups, with a decreasejoint annual installed capacity of 0.8% as compared67 million tonnes, sufficient to 2008, despite an increasemeet all of domestic demand.

    Strong investments in domestic sales of 0.1%. The Brazilian Cement Manufacturers’ Association, or SNIC, is projecting a growth of approximately 6% for 2010.

         After successfully finishing the enhancement of the new plant, we estimate thatcapacity expansion were also announced in 2010, the unit operates at a 1.0 million tons per year capacity.effects of which should become apparent in the second half of 2011.

    In the coming years we expect the sector’s growth will continue to be fueled by increased income and employment, incentives for homebuyers, the expansion of Brazil's infrastructure and the intensification of the works related to the World Cup and the Olympic Games.  

    Our product and brand have had excellent acceptance, overcoming initial estimates.acceptance.  With the conclusion of the clinker production project and the gradual increase in the use of own slag we expect to be able to significantly reduce our costs. Distribution centers and logistics optimization projects, currently under studies, should also contribute to the increase of our cement business.

    We are considering alternatives for organic growth in order to take advantage of our crushing capacity (2.8 million tons per year) through the increase of clinker production.  Our goal is to produce approximately 4.05.4 million tons per year in Brazil as of 2013,in the next years, to capture the strong growth expected in the market due to the World Cup and the Olympic Games, in addition to the strong pace of construction of new housing and commercial units, as well as infrastructure projects.See  For details on our Plan Investments see “Item 4. Information on the Company —A. History4D. Property, Plant and Development of the Company—Planned Investments.”Equipment – Capital Expenditures – Plan Investments”.

    5E.  Off-Balance Sheet Arrangements

    In addition to the debt that is reflected on our balance sheet, we are contingently liable for the off-balance concession payments related to the activities of TECON.  The following table summarizes all of the off-balance sheet obligations for which we are contingently liable and which are not reflected under liabilities in our consolidated financial statements:

    Contingent Liability with Respect to Consolidated and Non-Consolidated Entities as of December 31, 20092010

     

    Aggregate Amount

     

    Maturity 

     

    Aggregate Amount

     

    Maturity  

     

    (In millions of US$)

     

    (In million of R$)

    Guarantees of Debt:

     

     

     

     

     

     

     

     

    Transnordestina

     

    173 

     

    2009-2020 

     

    1,152 

     

    2011-2028 

    Contingent Liability for Concession Payments(1):

     

     

     

     

     

     

     

     

    Sepetiba Tecon

     

    174

     

    2025

     

    318

     

    2026

    Transnordestina

     

    56

     

    2027

     

    99

     

    2027

    Solid Bulks Terminal - TECAR

     

    13

     

    2022

     

    1,514

     

    2022

    MRS Logística S.A

     

    3,502

     

    2026

    Total

     

    243

     

     

     

    5,433

     

     

    ”Take-or-Pay” Contractual Obligations

     

     

     

     

     

     

     

     

    MRS Logística S.A.

     

    843 

     

    2016 

     

    986

     

    2016

    White Martins Gases Industriais Ltda.

     

    385 

     

    2016 

     

    532

     

    2016

    Companhia Estadual de Gás do Rio de Janeiro – CEG Rio

     

    444 

     

    2012 

     

    529

     

    2012

    Ferrovia Centro Atlântica – FCA

     

    152 

     

    2013 

     

    438

     

    2013

    Vale S/A

     

                                350 

     

               2014

     

    519

     

               2014

    Companhia Paranaense de Gás - COMPAGÁS

     

                                102

     

               2024

     

    165

     

               2024

    Companhia Paranaense de Energia - COPEL

     

    55

     

               2021

     

    98

     

               2024

    ALL

     

    18

     

    2012

    K&K Tecnologia

     

    79

     

    2023

    Harsco Metals Ltda

     

    99

     

    2014

    Total

     

    2,331

     

     

     

    3,463

     

     

    Total Contingent Liability with Respect to Consolidated and Non-consolidated Entities:

     

    2,747 

     

     

     

    10,048

     

     

    (1)Other consortia members are also jointly and severally liable for these payments.  

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    Guarantees

    We guarantee the loans BNDES has granted to Transnordestina in May and December 2005, and in January 2006, all of which mature by November 2020,May 2028, adjusted based on the TJLP plus 1.5% per annum.  The total outstanding amount of the debt as of December 31, 20092010 was US$173R$1,152 million.

    Concessions

    Sepetiba Tecon

    We own 99.99% of Sepetiba Tecon S.A., or TECON, which holds a concession to operate, for a 25-year term (renewable for additional 25 years), the container terminal at the Itaguaí Port.  As of December 31, 2009, US$1742010, R$ 318 million (R$303 million) of the cost of the concession was outstanding and payable over the next 18 years of the lease.  For more information see “Item 4. Information on the Company —A. History4D. Property, Plant and Development of the Company—Equipment – Capital Expenditures – Planned Investments—Itaguaí CSN Logistics Platform Project.”Investments”

    Transnordestina

    As of December 31, 2009,2010, we held 84.34%76.45% of the capital stock of Transnordestina S.A., which has a 30-year concession granted in 1998 to operate Brazil’s Northeastern railway system.  The Northeastern railway system covers 4,238 km of track and operates in the states of Maranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and Rio Grande do Norte.  It also connects with the region’s leading ports, thereby offering an important competitive advantage through opportunities for intermodal transportation solutions and made-to-measure logistics projects.  As of December 31, 2009, US$562010, R$ 99  million was outstanding over the remaining 17-year16-year term of the concession.

    Solid Bulks Terminal

    We hold the concession to operate TECAR, a solid bulks terminal, one of four terminals that form the Itaguaí Port, located in the State of Rio de Janeiro, for a term expiring in 2022 and renewable for another 25 years.  Itaguaí Port, in turn, is connected to the Presidente Vargas steelworks, Casa de Pedra and CFM by the southeastern railway system.  Our imports of coal and coke are made through this terminal.  Under the terms of the concession, we undertook to load and unload at least 3.0 million tons of bulk cargo annually.  Among the approved investments that we announced is the development and expansion of the solid bulks terminal at the Itaguaí Port to also handle up to 84 million tons of iron ore per year.

    MRS Logística S.A

    Concession for a period of 30 years, renewable for another 30 years, for transporting iron ore from the mines of Casa de Pedra in MG and coke and coal from the Port of Itaguaí (RJ) to Volta Redonda and transportation of exports back to the Ports of Itaguaí and Rio de Janeiro. As of December 31, 2010, R$ 3,502 million was outstanding.

    Contractual Obligations

    Namisa

    Port Services

    On December 30, 2008, we received approximately US$2.2R$5.3  billion as prepayment under an agreement with Namisa with a term of 34 years.  Under this agreement, we are required to render port services to Namisa, which consists of transporting from 17.118.0 million tons to 39.0 million tons of iron ore annually.  The price of these port services is annuallyquarterly reviewed and prospectively adjusted considering the changes in price of iron ore. The contract is set to expire in 2042.

    79

    High Silica ROM

    On December 30, 2008, we received approximately US$665 millionR$ 1.6 billion as prepayment for a take-or-payan agreement with Namisa with a term of 30 years.  Under this agreement, we are required to provide high silica crude iron ore ROM to Namisa in a volume that ranges from 42.0 million tons to 54.0 million tons per year.  Depending on the market price for high silica crude iron ore ROM, we may receive additional or lower amounts under this agreement, which is set to expire in 2038.

    93agreement.

    Table of Contents

    Low Silica ROM

    On December 30, 2008, we received approximately US$177R$ 424 million as prepayment for a take-or-payan agreement with Namisa with a term of 35 years.  Under this agreement, we are required to provide low silica crude iron ore ROM to Namisa in a volume that ranges from 5.02.8 million tons to 2.85.04 million tons per year.  Depending on the market price for low silica crude iron ore ROM, we may receive additional or lower amounts under this agreement, which is set to expire in 2043.agreement.

    “Take-or-Pay” Contractual Obligations

    MRS Logística S.A.

    Transportation of Iron Ore, Coal and Coke to Volta Redonda

    The volume set for iron ore and pellets is 8,280,000 tons per year and for coal, coke and other reduction products is 3,600,000 tons per year.  It is accepted variation up to 10%, with a guarantee of payment of at least 90%, but the compromise is for each item individually.  MRS, on the other hand, is required to transport at least 80% of the volume established by the agreement.  The agreement expires on September 12, 2012.

    Transportation of Iron Ore for Export from Itaguaí

    The volume set is 8,000,000 tons per year.  It is accepted variation of up to approximately 5% of the volume set, with a guarantee of payment of at least 80%.  We may increase or decrease the volume set in the agreement every year up to 10%, taking into consideration the volume actually transported in the previous year.  The agreement expires on May 31, 2016.

    Transportation of Steel Product

         It accepts a reduction of up to 20% of volume for the quarter forecast, with a guarantee of payment of at least 80% of the volume agreed with “the accounts meeting.” We have established quarterly flexibility to renegotiate the Take or Pay if the volume is not reached. Our supplier is required to commit at least 90% of the monthly volume agreed in the agreement. The agreement expired on December27, 2009.

    For all the threeboth contracts we have flexibility to renegotiate the Take or Pay if the volume is not reached.  As we are a shareholder of MRS, the minimum amounts to be paid under the contract terms are calculated by a tariff model that assure competitive prices.

    Cement Transportation - CSN CIMENTOS

    We and MRS are negotiating new values for this contract.

    White Martins Gases Industriais Ltda.  

    To secure gas supply (oxygen, nitrogen and argon), in 1994 we signed a 22-year “take-or-pay” agreement with White Martins Gases Industriais, by which we are committed to acquire at least 90% of the gas volume guaranteed in the agreement with White Martins’ plant.  Under the terms of the agreement, we are not required to advance funds raised against future processing charges if White Martins is unable to meet its financial obligations.

    Companhia Estadual de Gás do Rio de Janeiro

    To secure natural gas supply, in 2007 we have signed a five-year “take-or-pay” agreement with CEG Rio, by which we are committed to acquire at least 70% of the gas volume guaranteed in the agreement with CEG Rio.  Under the terms of the agreement, we are not required to advance funds raised against future processing charges if CEG Rio is unable to meet its financial obligations.  In addition, if we do not acquire the minimum volume agreed, the amount paid which relates to that difference may be compensated in future years, including one year after the contract expiration.

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    Ferrovia Centro Atlântica - FCA 

    This agreement covers transportation of reduction products from the city of Arcos to the city of Volta Redonda.  Volume set for reduction products is 1,900,000 tons per year, which may vary up or down by 5%.  The agreement will expire on August 31, 2013.

    Vale S.A.

    To secure pellets supply, in 2009 we signed a 5-year “take-or-pay” agreement with Vale, by which we are committed to acquire at least 90% of the pellets volume guaranteed in an agreement with Vale.  Under the terms of the agreement, we are not required to advance funds raised against future processing charges if Vale is unable to meet its financial obligations.

    Companhia Paranaense de Gás - COMPAGÁS

    We  and Companhia Paranaense de Gás entered into a 20-year contract to secure natural gas supply.  According to the “take or pay” clause, we are committed to acquire at least 80% of the annual natural gas volume contracted from Companhia Paranaense de Gás.

    Companhia Paranaense de Energia – COPEL

    To secure energy supply, we entered into a 20-year agreement with Companhia Paranaense de Energia.  According to the “take or pay” clause, we are committed to acquire at least 80% of the annual energy volume contracted from Companhia Paranaense de Energia.

    América Latina Logística - ALL

    This agreement covers transportation of steel products from Volta Redonda to CSN Paraná.  Volume set for steel products is 20,000 tons per month, which may vary up or down by 10%.  The agreement will expire on March 30, 2012.

    K&K Tecnologia

    CSN undertakes to acquire at least 3,000 metric tons of blast furnace mud for processing at CSN's mud concentration plant.

    Harsco Metals Ltda

    The Harsco Metals Ltda. undertakes to perform the Scrap recovery Services resulting from the process of production of pig iron and steel from CSN / UPV, receiving by this process the equivalent in value the result of multiplying the unit price (U.S. $ / t) by the total Liquid Steel CSN’s Mill production, with a guarantee of a minimum production of liquid steel corresponding to 400,000 tons.

    5F.  Tabular Disclosure of Contractual Obligations

    The following table represents our long-term contractual obligations as of December 31, 2009:2010:

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Payment due by period 

     

    Payment due by period  

     

    (In millions of US$)

     

    (In millions of R$)

     

     

     

     

     

     

     

     

     

    More 

     

     

     

     

     

     

     

     

     

    More  

    Contractual obligations

     

     

     

    Less than 

     

     

     

     

     

    than 5 

     

     

     

    Less than  

     

     

     

     

     

    than 5  

     

    Total 

     

    1 year 

     

    1-3 years 

     

    3-5 years 

     

    years 

     

    Total  

     

    1 year  

     

    1-3 years  

     

    3-5 years  

     

    years  

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Long-term accrued finance

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    charges(1)

     

    2,389

     

    608 

     

    963

     

    387 

     

    431

     

    12,372

     

    1,514 

     

    2,869

     

    2,182 

     

    5,807

    Taxes payable in installments

     

    475 

     

    315

     

    160 

     

    - 

     

    - 

     

    1,444 

     

    652

     

    134

     

    166 

     

    492

    Long-term debt

     

    4,732 

     

    1,296 

     

    1,304 

     

    913 

     

    1,219 

     

    18,781 

     

    2,133

     

    4,013 

     

    4,385 

     

    8,250 

    “Take-or-Pay” contracts

     

    2,330 

     

    501 

     

    1,260 

     

    493 

     

    76 

     

    3,463 

     

    920 

     

    1,773 

     

    535

     

    235

    Concession agreements(5)

     

    243 

     

    15

     

    30

     

    30

     

    168

     

    5,433

     

    339

     

    745

     

    1,153

     

    3,196

    Unrecognized tax benefits(6)

     

    724

     

    - 

     

    - 

     

    - 

     

    - 

    Purchase obligations:

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Raw materials(2)

     

    1,097 

     

    748 

     

    349 

     

    0 

     

    0 

     

    1,228

     

    811

     

    359

     

    36

     

    22

    Maintenance(3)

     

    185 

     

    101 

     

    69 

     

    15 

     

    0 

     

    106

     

    62

     

    45

     

    0

     

    0

    Utilities/Fuel(4)

     

    2,377 

     

    474 

     

    942 

     

    417 

     

    544 

     

    1,553

     

    445

     

    616

     

    244

     

    247

    Total

     

    3,659 

     

    1,323 

     

    1,360 

     

    432 

     

    544 

     

    2,887

     

    1,317

     

    1,020

     

    280

     

    269

    (1)

    These accrued finance charges refer to the cash outflow related to the contractual interest expense of our long-term debt and were calculated using the contractual interest rates taken forward to the maturity dates of each contract.

    (2)

    Refer mainly to purchases of coal, tin, aluminum and zinc, which comprise part of the raw materials for steel manufacturing and take-or-pay contracts.

    (3)

    We have outstanding contracts with several contractors in order to maintain our plants in good operation conditions; due to the strong demand for specialized maintenance service, the term of some contracts is for more than one year.

    (4)

    Refer mainly to natural gas, power supply and cryogenics, which are provided by limited suppliers; and with some of which we maintain long-term contracts.

    (5)

    Refers to TECON, TECAR, MRS and Transnordestina’s concessions agreements since MRS is not consolidated for U.S. GAAP purposes.

    (6)

    Due to the uncertainties of the expected timing of cash payments, if any, associated with the unrecognized tax benefits, its total amount of US$724 million has been excluded from the tabular disclosure table above.

    agreements. 

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    5G.  Safe Harbor

    See “Forward-Looking Statements.”

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    Item 6. Directors, Senior Management and Employees

    6A.  Directors and Senior Management

    General

    We are managed by our Board of Directors (Conselho de Administração), which consists of seven to eleven members, and our Board of Executive Officers (Diretoria Executiva), which consists of two to nine Executive Officers with no specific designation (one of which is the Chief Executive Officer).  In accordance with our bylaws (Estatuto Social), each Director is elected for a term of one year by our shareholders at an annual shareholders’ meeting.  Our bylaws require our employees to be represented by one Director on the Board of Directors.  The members of the Board of Executive Officers are appointed by the Board of Directors for a two-year term.

    Our Board of Directors is responsible for the formulation of business plans and policies and our Board of Executive Officers is responsible for the implementation of specific operating decisions.  As of the date of this annual report, our Board of Directors was comprised of one Chairman, one Vice Chairman and five members, and our Board of Executive Officers was comprised of our Chief Executive Officer, our Chief Financial Officer and three Executive Officers.

    Our Directors and Executive Officers as of the date of this annual report are:

     

     

     

     

     

     

     

    Name  

     

    Position  

     

    First Elected to our Board on  

     

    Last Elected to our Board on  

     

     

     

     

     

     

     

    Board of Directors

     

     

     

     

     

     

    Benjamin Steinbruch 

     

    Chairman 

     

    April 23, 1993 

     

    April 30, 201029, 2011 

    Jacks Rabinovich 

     

    Vice Chairman 

     

    April 23, 1993 

     

    April 30, 201029, 2011 

     

     

     

     

     

     

     

    Fernando Perrone 

     

    Member 

     

    September 26, 2002 

     

    April 30, 2010

    Dionísio Dias Carneiro Netto 

    Member 

    April 30, 2002 

    April 30, 2010 29, 2011

    Antonio Francisco dos Santos 

     

    Member 

     

    December 23, 1997 

     

    April 30, 201029, 2011 

    Yoshiaki Nakano 

     

    Member 

     

    April 29, 2004 

     

    April 30, 201029, 2011 

    Gilberto Sayão da Silva 

     

    Member 

     

    April 30, 2009 

     

    April 30,29, 2011 

    Alexandre Gonçalves Silva*

    Member 

    November 9, 2010 

    April 29, 2011

     

    Board of Executive Officers

     

     

     

     

     

     

    Benjamin Steinbruch 

     

    Chief Executive Officer 

     

    April 30, 2002 

     

    August 06, 2009

    Paulo Penido Pinto Marques

     

    Chief Financial Officer 

     

    May 7, 2009 

     

    May 12, 2009

    Enéas Garcia Diniz 

     

    Executive Officer 

     

    June 21, 2005 

     

    August 06, 2009

    Alberto Monteiro de Queiroz Netto

     

    Executive Officer

     

    September 1, 2009

     

     September 1, 2009

    José Taragano

     

    Executive Officer

     

    December 15, 2009

     

    December 15, 2009

    *Mr. Carneiro Neto used to be a member of our Board of Directors until July 2010, when he passed away.  Mr. Gonçalves Silva was elected Director in place of Mr. Carneiro Neto.

     

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    The next election for our Board of Directors is expected to take place onin April 30, 2011,2012, and we are unable to anticipate when the next election for our Board of Executive Officers is expected to take place.

    Board of Directors

    Benjamin Steinbruch. Mr. Steinbruch was born on June 28, 1953 and has been ChairmanMember of ourthe Board of Directors since April 23, 1993, holding also the position of President of the Board since April 28, 1995 and Chief Executive OfficerCEO since April 30, 2002. Mr. SteinbruchHe is also Chief ExecutiveCEO of Vicunha Steel S.A., member of the Administrative Board of the Portuguese Chamber, 1st Vice-President of FIESP since September 2004, member of FIESP Superior Strategic Board, advisor to the Robert Simonsen Institute, director of IEDI - Institute for Industrial Development Studies. Over the past five years, he served as Director and CEO of Vicunha Siderurgia S.A.,Director and Officer of Vicunha Siderurgia, ourSteel S.A., Director and CEO of Vicunha Aços S.A., Officer of Rio Purus Participações S.A., and Officer of Rio Iaco (all these companies belong to the controlling shareholder.group of CSN), Director of Prada Metallurgical Company, Inal Nordeste S.A. and Nacional Minérios S.A. (all controlled by CSN) and member of the Deliberative Council of the CSN Foundation. Graduated from the Business School of the Fundação Getúlio Vargas – SP and specialized in Marketing and Finance also from the Fundação Getulio Vargas - SP.

     

    Jacks RabinovichRabinovich.. Mr. Rabinovich was born on September 20, 1929, and has been a member of our Board of Directors since April 23, 1993 and Vice Chairman since April 24, 2001.2001, currently holding the position of Vice President. Graduated in Civil Engineering from Mackenzie University, with a specialization in Textile Engineering from Lowell Institute, Massachusetts - USA.

     

    Fernando Perrone.  Mr. Perrone was born on May 6, 1947 and has been a member of our Board of Directors since September 26, 2002, and a member of our Audit Committee since June 24, 2005.2005, where he currently holds the position of President.  He was our Infrastructure and Energy Executive Officer from July 10, 2002, to October 2, 2002. Previously, Mr. Perrone occupiedOver theposition of Chief Executive Officer of Empresa Brasileira de Infra-Estrutura Aeroportuária – INFRAERO and was an officer of BNDES.

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    Dionísio Dias Carneiro Netto. Mr. Carneiro Netto was born on September 23, 1945 and has been a past five years, he served as member of ourthe Board of Directors since April 30, 2002 and aof Profarma - Pharmaceuticals Distributor S.A., member of our Audit Committee since June 24, 2005.Mr. Carneiro Netto has been a professor atPontifícia Universidade Católica do Rio de Janeiro, atUnB and atEPGE/FGV and currently teaches atInstituto de Gestão de Riscos Financeiros e Atuariais da Pontifícia Universidade Católica do Rio de Janeiro.He was also a Vice-President of FINEP from 1979 to 1980 and has been a member of BoardsBoard of Directors in several companies. Mr. Carneiro Netto was a member of the Advisory Board of the African Economic Research Council and of the Committee for Development Planning at United Nations.He is an officer-parter of Galanto Consultoria, officer of the Instituto de Estudos de Política Econômica da Casa das GarçasJoão Fortes Engenharia S.A., and member of the Executive CommitteeManagement Board of Instituto de Gestão de Riscos Financeiros e Atuariais atPontifíciaEnergia Sustentável S.A..Graduated in Business, sponsored by "Chimica" Bayer S.A., also holds a Law degree from the Universidade Católica do Rio de Janeiro.He writesFederal Fluminense, and has a fortnightly columnspecialization in Economics in the newspaperO Estado de Sao Paulo.area of Capital Markets from the Fundação Getulio Vargas.

    Antonio Francisco dos Santos. Mr. Santos was born on December 6, 1950, and has been a member of our Board of Directors since November 25,23, 1997. Mr. Santos was Coordinator and Chief of Industrial Engineering, Chief of Industrial Engineering and Chief of Production Planning and a member of the Board of Directors ofCaixa Beneficente dos Empregadosof CSN, or CBS, our pension plan, until 2008. He is currently Chairman and Chief Executive Officer of the Board of the CSN Employee Investment Club (Clube de Investimento CSN). Over the past five years he served as Planning and Support Officer of CSN and President of CSN Invest. Graduated in Business with a specialization in Organization and Finance, both by the Coordinator of Graduate Studies and Research - CECOP, and MBA in Industrial Strategy and Business Management from Universidade Federal Fluminense - UFF.

     

    Yoshiaki Nakano.  Mr. Nakano was born on August 30, 1944 and has been a member of our Board of Directors since April 29, 2004, and a member of our Audit Committee since June 24, 2005.  From 1995 to 2001,Over the past five years, Mr. Nakano  was Treasury Secretary of the State of São Paulo. Since 2001, he has been Chiefprofessor at the School of the Economics Department at FGV in Sãof Fundação Paulo. Mr. Nakano is also aGetulio Vargas and board member of the Board of Directors of the Fundação de Amparo à Pesquisa do Estado de São Paulo - FAPESP,– FAPESP; board member of the Conselho Superior de Economia (COSEC), of the FIESP/IRS, and aIRS; member of the Consulting Board of the Grupo Pão de Açúcar.  Previously, Mr. Nakano served as Special Secretary for EconomicAffairs in the Ministry of Finance. Graduated in Business Administration from Fundação Getulio Vargas and MBA and Ph.D. from Cornell University, USA.

     

    83

    Gilberto Sayão da Silva.  Mr. Sayão has been a member of our Board of Directors since April 30, 2009.  He is currently a partner at Vinci Partners Investimentos Ltda., and member of its Executive Committee. Between 2003 and 2009, Mr. Sayão also currently actsserved as the Chief Executive Officer of UBS Pactual Alternative Investments, a subsidiary of UBS Pactual Asset Management. He is currently on the Board of Directors of several companies, such as PDG Realty SA and Equatorial Energia S.A. (none of these being part of CSN´s economic group). He graduated from the Engineering School of the Pontificia Universidade Catolica do Rio de Janeiro - PUC / RJ.

    Alexandre Gonçalves Silva.  Mr. Gonçalves Silva has been member of our Board of Directors and Audit Committee since November 9, 2010.  Over the last five years he was CEO of General Eletric do Brasil Ltda. and member of the Board of Directors of TAM S.A., PDG Realty S.A. Empreendimentos e Participações, Equatorial Energia S.A., Fundições Tupy S.A. and Fibria Celulose S.A. Mr. Gonçalves Silva also was Advisor of the Global Infrastructure Partners (New York).  He graduated from the Mechanical Engenireeng School of Pontificia Universidade Católica do Rio de Janeiro – PUC/RJ.

    Board of Executive Officers

    In addition to Mr. Steinbruch, the following persons were members of our Board of Executive Officers as of the date of this annual report:

    Paulo Penido Pinto Marques.  Mr. Marques was elected our Chief Financial Officer on May 12, 2009.2009 and is also responsible for the Controlling, Enterprise Risk Management and Insurance departments, holding the position of Executive Officer for Investors Relations.  Prior to joining CSN, Mr. Marques was Finance, Investor Relations and Information Technology Vice-President of Usinas Siderúrgicas de Minas Gerais S.A. - USIMINAS, Financial Officer of Usiminas Mecânicas S.A., board member of the State Board ofAssociação Brasileira das Companhias Abertas, Financial Officer of the Companhia Siderúrgica Paulista - COSIPA, Officer of Mineração J. Mendes, Controlling Officer of Controle da Fasal S.A. and Officer of Consórcio Siderurgia Amazonia Ltd. (controller of Sidor - Venezuela).  Mr. Marques has also participated in the Board of Executive Officers or the Board of Directors of the following companies: Usiparts - automotive systems, Unigal, Rio Negro - steel trade and industrialization.  He was also Vice-President at Financing Area, Credit and Risk of JP Morgan (Morgan Guaranty Trust Co. of New York,York), Officer of Relationship with companies and Financial Institutions Area of BankBoston, Officer of Investments of Corporate Banking of Citibank.  Graduated from the Electrical Engineering School of the Federal University of Minas Gerais.

    Enéas Garcia Diniz.  Mr. Diniz was born on January 1, 1960 and was originally electedholds the position of Executive Officer in charge of in charge of Production onareasince June 21, 2005. He has been serving CSN since 1985, acting as General Manager of Hot Rolling, General Manager of Maintenance, Metallurgy Director and General Director of the Presidente Vargas steelworks.  Graduated in Mechanical Engineering from the Pontificia Universidade Católica do Rio de Janeiro - PUC / RJ, further specialized in Business Management in the Universidade Federal Fluminense in Rio de Janeiro and has a MBA from the Fundação Dom Cabral Business School of Belo Horizonte.

     

    Alberto Monteiro de Queiroz Netto, Mr. Queiroz was born on November 30, 1967 and was elected Executive Officer of the Treasury on September 01, 2009.  He is also President of CBS Previdência. He was a career employeeChief Financial Officer of the Bank of Brazil for twenty-five years, was chief financial conglomerate, Bank of Brazil, President of BB DTVM - Asset Management, where he worked for nine years, and also at the same time, vice presidentPresident of BESC DTVM - Administradora de Recursos, Vice President of the National Association Investment Bank’s(ANBID) and Chairman of Best Practices for Marketing Industry Investment Funds.  He was Director of the Board of BB Securities in London, and the Bank of Brazil Broker Dealer in New York.York and Officer of BB Fund in Cayman.  He was also President of the Board of Directors of Petróleo Petrobahia, member of the Board of Directors of Eletricidade da Bahia – Coelba, Neoenergia e BESC TV, member  of the Audit Committe of Gerdau, Cielo (formerVisanet), Coelba e Cosern e member Deliberative Committee of Fundo de Pensão do Banco do Brasil (PREVI).  Graduated from the Business School of the Fundação Getulio Vargas (RJ), where he further  specialized in Business Administration and obtained MBA in Corporate Finance. He also holds a Banking Specialist degree from the University of São Paulo Business School (FEA-USP).

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    José Taragano, Mr. Taragano was born on August 09, 1954 and was elected Executive Officer of Projects on December 15, 2009.2009, being the Chairman for Projects at CSN.  He was employed by Brenco as COO - Executive VP of Operations of Brenco - Companhia Brasileira de Energia Renovável, Executive and Business Officer of Klabin SA. He was Worldwide Environment, Health & Safety Officer of Alcoa Inc. in New York / Pittsburgh,  Officer of Primary Products /Aluminum, Alumina & Chemical Products, Director of Klabin SA, worked for 24 years at Alcoa, a large and diverse operations in the General Direction of the business of Aluminium, Alumina and Chemicals, and various locations in Engineering, Production, Quality and Customer Satisfaction, EHS, HR, Logistics & PurchasingHuman Resources and Start-Ups largeSuperintendent fo Production of Alcoa Latin America in BrazilSão Paulo.  He was also Chairman of CEMPRE – Compromisso Empresarial para a Reciclagem, served at Healthy People 2010 Business Advisory Comiteein Washington and abroad.as independent counsel at the Board of ECOSORB. He graduated in Metallurgical Engineering from PUC-RJ, has a MBA in Marketing from the FIA-USP and further education at MIT / Sloan Executive Program and Harvard Business School / Finance for Senior Executives.

    There are no family relationships between any of the persons named above.  The address for all of our directors and executive officers is Av.  Brigadeiro Faria Lima, 3400, 20th floor, Itaim Bibi, city of São Paulo, State of São Paulo, Brazil (telephone number 55-11-3049-7100).

    Indemnification of Officers and Directors

    There is no provision for or prohibition against the indemnification of officers and directors in Brazilian law or in our bylaws.  Officers are generally not individually liable for acts within the course of their duties.  We either indemnify, or maintain directors and officers liability insurance insuring our Directors, our Chief Executive Officer, our Chief Financial Officer and our other Executive Officers and certain key employees against liabilities incurred in connection with their respective positions with us.

    6B.  Compensation

    For the year ended December 31, 2009,2010, the aggregate compensation paid by us to all members of our Board of Directors and the members of our Board of Executive Officers for services in all capacities was US$11R$17.9 million, (R$22 million), which includes salaries, bonuses, profit sharing arrangements and benefits, such as medical assistance, pension plan and life insurance among others.  See “—Item 6D.  Employees” for a brief description of our profit sharing arrangements.

    We are the principal sponsor of CBS, our employee pension plan.  CBS had an excess of plan assets over pension benefit obligations of US$245R$ 333 million in 2009.2010.  The fair value of the resources of CBS, totaled US$1,245R$ 2,316 million as of December 31, 2009,2010, and projected benefit obligations were US$1,000R$ 1,983 million.  See “Item 3D-Risk Factors. We are exposed to valuation of our shares as result of certain equity swap agreements and our pension plan assets” and Note 1530 to our consolidated financial statements contained in “Item 18.  Financial Statements.”

    6C.  Board Practices

    Fiscal Committee and Audit Committee

    Under Brazilian Corporate Law, shareholders may request the appointment of a Fiscal Committee (Conselho Fiscal), which is a corporate body independent of management and our external auditors.  The primary responsibility of the Fiscal Committee is to review management’s activities and the financial statements, and report its findings to the shareholders.  Our shareholders did not request the installation of a Fiscal Committee at the Annual Shareholders’ Meeting held on April 30, 2010.29, 2011.

    In June 2005, an Audit Committee (Comitê de Auditoria) was appointed in compliance with SEC’s rules, which is composed of three independent members of our Board of Directors.

    The Audit Committee is responsible for recommending to the Board of Directors the appointment of the independent auditors, reporting on our auditing policies and our annual auditing plan prepared by our internal auditing team, as well as monitoring and evaluating the activities of the external auditors.  Our Audit Committee has also been tasked with identifying, prioritizing and submitting actions to be implemented by our Executive Officers, and analyzing the annual report, and our financial statements and making recommendations to our Board of Directors.

    The Audit Committee is currently composed of Mr. Perrone, Mr. Carneiro NettoNakano and Mr. NakanoAlexandre Silva and is constantly assisted by an outside consultant.   

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    For information on the date of election and term of office of the members of our Board of Directors and Board of Executive Officers, see “Item 6A.  Directors and Senior Management.”

    Service Contracts

    We permit our directors to continue to participate in our employee pension plan after ceasing to be a director of our Company.

    6D.  Employees

    As of December 31, 2007, 2008, 2009 and 2009,2010, we had 14.274, 15.10416,549, 16,903 and 16.49219,217 employees, respectively.  As of December 31, 2009,2010, approximately 2.4753.213 of our employees were members of the steelworkers’ union of Volta Redonda and region, which is affiliated with the Central Única dos Trabalhadores, or CUT, a national union.  We believe we have a good relationship with CUT.  We have collective bargaining agreements, renewable annually every May 1. Moreover, we have members affiliated to other unions, such as the Engineer Union with 5548 members, the Accountant Union with 76 members and the Workers Unions from Arcos, Casa de Pedra and Araucária, with a total of 352312 members.  On the others company’s controlled by CSN, as Prada, Ersa and Metalic, we have a total of 1.046945 members.

    In March 1997, we established an employee profit sharing plan.  All employees participate in the plan, and earn bonuses based on our reaching certain goals for each year, including a minimum EBITDA margin, as well as other measures such as sales, cost control, productivity and inventory levels, as appropriate for each sector based on its nature.

    6E.  Share Ownership

    The Steinbruch family, which includes Mr. Benjamin Steinbruch, our Chairman and Chief Executive Officer holds an indirect majority ownership interest in Vicunha Siderurgia and Rio Iaco Participações, our controlling shareholder.

    All our Executive Officers and members of our Board of Directors held an aggregate of 0.0001%1,559 shares of our outstanding common shares as of March 31, 2010.April 30, 2011.

    Item 7. Major Shareholders and Related Party Transactions

    7A.  Major Shareholders

    On March 31, 20102011, our capital stock was composed of1,510,359,220 1,483,033,685 common shares, including52,389,112 25,063,577 common shares held in treasury. On March 25, 2010 a two-for-one stock split that took place, whereby each common share of our capital stock as of that date became represented by two common shares.

    The following table sets forth, as of March 31, 2010,2011, the number of our common shares owned by all persons known to us that own more than 5% of our outstanding common shares as of such date:

     

    Common Shares 

     

    Common Shares  

     

     

     

     

     

     

     

    Percent of 

     

     

     

    Percent of  

     

    Shares Owned 

     

    Outstanding 

     

    Shares Owned  

     

    Outstanding  

    Name of Person or Group

     

     

     

    Shares(2)

     

     

     

    Shares(2)

    Vicunha Siderurgia S.A.(1)

     

     697,719,990

     

     47.86%

     

     697,719,990

     

     47.86%

    Rio Iaco Participações

     

    58,193,503

     

    3.99%

    (1)

    Owned indirectly by the Steinbruch family, which includes Mr Benjamin Steinbruch, Chairman of our Board of Directors, and other members of his family.  

    (2)

    It does not include common shares held in treasury.  

     

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    7B.  Related Party Transactions

    From time to time we conduct transactions with companies directly or indirectly owned by our principal shareholders or members of our Board of Directors.  See “Item 4. Information on the Company —A.  History and Development of the Company—Acquisitions and Dispositions,Company,” “Item 4B.  Business Overview,” “Item 4.Information on the Company —A. History4D. Property, Plant and Development of the Company —Planned Investments,”Equipment – Acquisitions and Dispositions”, “Item 6A.  Directors and Senior Management” and “Item 7A.  Major Shareholders” and Note 205 to the consolidated financial statements included in “Item 18.  Financial Statements.”

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         During 2008, we, through one of our subsidiaries, exported US$36 million of steel products to our subsidiary Lusosider, in Portugal. These export transactions were made using a third party, and have been eliminated in our consolidated financial statements.

    Item 8. Financial Information

    8A.  Consolidated Statements and Other Financial Information

    See “Item 3. Key Information—Selected Financial Data” and “Item 18.  Financial Statements” for our consolidated financial statements.

    Legal Proceedings

    In the ordinary course of our business, we are party to several proceedings, both administrative and judicial, which we believe are incidental and arise out of our regular course of business. We record provisions for contingencies relating to legalbelieve that the outcome of the proceedings with respect to which we deem the likelihoodare currently a party will not have a material adverse effect on our financial position, results of an unfavorable outcome to beoperations and cash flows. We have established provisions for all amounts in dispute that represent probable and the loss can be reasonably estimated. This determination is made based on the legal opinion of our internal and external legal counsel. We believe these contingencies are properly recognized in our financial statements in accordance with SFAS No. 5. Those contingencies related to income taxes and social contribution are accounted for based on the “more-likely-than-not” concept in accordance with FIN 48. We are also involved in judicial and administrative proceedings that are aimed at obtaining or defending our legal rights with respect to taxes that we believe to be unconstitutional or otherwise not required to be paid by us. We believe that these proceedings will ultimately result in the realizat ion of contingent tax credits or benefits that can be used to settle direct and indirect tax obligations owed to the Brazilian federal or state governments. We do not recognize these contingent tax credits or benefits in our financial statements until realization of such gain contingencies has been resolved. This occurs when a final irrevocable judgment is rendered by the courts in Brazil. When we use contingent tax credits or benefits based on favorable temporary court orders that are still subject to appeal to offset current direct or indirect tax obligations, we maintain the legal obligation accrued in our financial statements until a final irrevocable judicial judgment on those contingent tax credits or benefits is rendered. The accrual for the legal obligation related to the current direct or indirect tax obligations offset is not reversed until such time as the utilization of the contingent tax credits or benefits is ultimately realized. The accounting for the contingent tax credits is in accordance wi th accounting for contingent assets under SFAS No. 5. Our accruals include interest on the tax obligations that we may offset with contingent tax credits or benefits at the interest rate defined in the relevant tax law.

     We classify an accrual as short-term when it expects the liability to be settled in 360 days or less.

    Labor Contingencies

    As of December 31, 2009, US$109 million had been classified as short-term accrual for contingencies (US$69 million as of December 31, 2008). This usually occurs when a final, unappealable and irrevocable judgment has been rendered and2010, the Company is being enforced. Given the complexity of the Brazilian legal system, we are unable to anticipate when final judgments will be rendered on most of the claims. Consequently, these claims are classified as long-term liabilities.

         The deposits for contingencies and disputed taxes payable are generally based on (i) accruals recordeddefendant in connection with lawsuits, (ii) court orders issued in connection with lawsuits and (iii) guarantees in connection with judicial foreclosure proceedings. Such deposits are classified as long-term assets, and the release of such deposits is conditioned upon court order. When such a court order is granted in our favor, the deposit is forfeited and returned to us in cash and the deposit account is appropriately offset. When such a court order is granted in a manner unfavorable to us, the deposit is used to offset the related liability and the deposit account is appropriately offset.

         We are party to a number of legal proceedings arising from our ordinary course of business, including tax, civil and11,238 labor claims. As of December 31, 2009, we recorded aggregate long-term provisions of US$941 million relating to these claims, for which we had deposited US$807 milliona provision has been recorded in judicial escrow accounts. See Note 17 to our consolidated financial statements contained in “Item 18. Financial Statements” in this annual report.

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    Tablethe amount of Contents

    Labor Contingencies

    As of December 31, 2009, total accrual relating to probable losses for these contingencies was US$88 million (US$50 million in 2008). Our legal counselors periodically review accruals based on their judgment, as well as the recent track records of these disputes.R$ 188.2 million. Most of the lawsuitsclaims are related to alleged joint liability between us and our independent contractors, wage equalization, differences of 40% fine on the FGTS deposits due to inflation purge, additional payments for unhealthy and hazardous activities, overtime and profit sharing differences from 1997 to 1999 and from 2001 to 2003. The lawsuits related to the alleged joint liability between us and our independent contractors represent a significant portion of the total labor suits against us, and refer to non-payment of labor charges by our independent contractors to their employees, for which we may be found jointly liable.

    Civil Contingencies

     

    These are mainly claims for indemnities within the civil judicial processes in which we are involved. Such proceedings, in general, are a result of occupational accidents, diseases and diseasescontractual disputes related to our industrial activities. In 2009, our legal counsel revised estimated losses based on their own judgment and recent precedents for these disputes. As of December 31,2009,31,2010, the amount of the relating to probable losses for these contingencies was .  US$26 million (US$20 millionR$ 80.3 million.  

    We also classify as civil contingencies the administrative and judicial proceedings filed against us for alleged violation of environmental statutes, mainly as a result of our industrial activities, claims for regularization, indeminification or imposition of fines. As of December 31, 2008).2010, civil contingencies relating to environmental issues was R$ 500 thousand.

    Other Tax Contingencies

    Among tax contingencies are income tax and social contribution taxes in Brazil, for which a provision of R$ 1,911 million has been recorded in 2010.

         In additionIPI premium credit over exports

    The IPI premium tax credits relate to export sales made during 1992 to 2002. Tax laws allowed Brazilian companies to recognize IPI premium tax credits until 1983, when an act of the executive branch of the Brazilian government cancelled such benefits and prohibited companies from recognizing these credits. We challenged the constitutionality of the executive branch’s action by obtaining, in August 2003, a favorable decision from a Brazilian trial court that authorized the use of IPI premium tax credits. However, in August, 2009, the Brazilian Federal Supreme Court issued a decision with effects of general repercussion establishing that the IPI premium credit was only effective until October 1990.  Accordingly, the credits accrued after 1990 should not be recognized and, in view of this STF decision, the Company’s Board of Directors approved including this matter in the taxrecovery program for tax debts introduced by Provisional Measure 470/09 and Law 11941/09, which entails benefits in terms of reduction of fines, interest and legal charges.

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    Social Contribution on Income from Export Revenues

    We filed a lawsuit challenging the assessment of Social Contribution on Income on export revenues, based on Constitutional Amendment No. 33/01 and in March 2004, we obtained an initial decision authorizing the exclusion of these revenues from referred calculation basis, as well as the offsetting of amounts paid as from 2001.  The lower court decision was favorable and the proceeding is waiting for trial of the appeal filed by the Federal Government in the Regional Federal Court.  At December 31, 2010, the amount of suspended liability and the offset credits based on the referred proceedings was R$ 402 million, as compared to R$ 1,240 million at December 31, 2009, already adjusted by the SELIC 2010. Such reduction arose out of the inclusion in REFIS of debts related to the offset of amounts paid as of 2001 and debts related to the exclusion of export revenues from taxable basis. The valid inclusion of such debts in REFIS is subject to ratification by the proper authorities, which we expect will take place as of mid-2011, as set forth in Ordinance No. 2/2011. We still claim the exclusion of profits derived from exports from the calculation basis of the Social Contribution, according to the initial decision obtained by us.

    Refis

    In November 2009, we adhered to the Tax Recovery Program(REFIS)established by Federal Government in order to settle its tax and social security liabilities through a special settlement and installment payment system. Management’s decision took into consideration the economic benefits provided by the REFIS, such as discounts and fines exemptions, as well as the high costs of maintaining pending lawsuits. Joining the special tax programs reduced the amount of fines, interest and legal charges previously due. On December 31, 2010, the position of the debts under the Federal REFIS, recorded under taxes payable in installments, was R$ 1,444.2 million (R$ 826.8 million in 2009).

    Antitrust

    In October 1999, CADE fined us R$22 million claiming that certain practices adopted by us and other Brazilian steel companies until 1997 allegedly comprised a cartel.  We challenged the cartel allegation and the imposition of the fine judicially, and in June 2003 obtained a partially favorable judgment by a federal trial court.  CADE appealed the trial court decision and on June 14, 2010 a federal appellate court in Brasília held a judgment reversing the trial court’s decision and confirming the cartel allegation as well as the fine imposed by CADE.  We have asked the appellate court to clarify its decision and we will only know the exact content of the judgment, including the rate for adjustment of the fine amount, when the appellate court clarifies its decision.  Accordingly, we have not yet recorded any provision in connection with this fine.  We believe we have grounds for reversal of the judgment and intend to appeal the decision of the appellate court to the Brazilian Superior Court of Justice.

    Other Legal Proceedings

    The company and its subsidiaries are defendants in other proceedings at administrative and judicial levels, in the approximate amount of R$ 4.2 billion, of which R$ 2.9 billion related to tax contingencies, describedR$ 303 million to civil contingencies, and R$ 958 million to labor and social security contingencies. The assessments made by legal counsel define these contingencies as entailing risk of possible loss and, therefore, no provision was recorded in “Item 5A. Operating Results—Results of Operations—2009 Compared to 2008—Disputed Taxes Payable,” we are party to other judicialconformity with Management’s judgement.

    For further information on our legal proceedings and administrative proceedings not described in the notescontingencies, see Note 21 to our consolidated financial statements, involving a total of approximately US$2.6 billion as of December 31, 2009 (US$2.5 billion as of December 31, 2008). Our external legal counsel deemed that the risk of loss arising from these lawsuits are possible, as opposed to probable. Therefore, we did not record accruals for contingencies with respect to these lawsuits.statements.

         Other tax contingencies relate to a variety of disputes for which we have recorded provisions for probable losses. No single group of similar claims constitutes more than 5% of total contingencies.

    Legal Disputes with Vale

         Until 2001, we held an ownership interest in Vale, Latin America’s largest mining company and the largest producer and exporter of iron ore in the world, through Valepar. Pursuant to an agreement entered into on December 31, 2000, we sold our ownership interest in Valepar to certain companies and pension funds, including Bradespar S.A. and Litel Participações S.A. In connection with the sale of our then controlling stake at Valepar to Bradespar S.A. and Litel Participações S.A., and the subsequent sale of Valia’s (Vale’s pension fund) 10.3% ownership interest in our company in 2003, Vale obtained a 30-year right of first refusal to match all the conditions, including price, quality and tenor, obtained by us in contracts with third parties to purchase iron ore produced at Casa de Pedra in excess of our and our affiliates’ ne eds.

         In view of certain acquisitions made by Vale in 1995, CADE issued a decision in August 2005 pursuant to which Vale would have to choose between its ownership interest in Ferteco Mineração S.A., or Ferteco, or its rights of first refusal mentioned above. Such decision was challenged by Vale before the Brazilian courts. We filed with CADE a statement of compliance with the administrative order that requires the parties to refrain from exercising the rights of first refusal of Vale related to Casa de Pedra mine. This statement of compliance was publicly announced through a notice to the market (fato relevante) on January 17, 2008.

         Several disputes between us and Vale arose from the transactions described in the two preceding paragraphs, including those (i) related to alleged indemnification or compensation rights arising from the exclusion of the “preference rights” relative to the acquisition of surplus iron ore produced by the Casa de Pedra mine, as well as to the Casa de Pedra mine itself, (ii) arising from obligations envisaged in the agreements related to the elimination of crossed shareholdings between Vale and CSN, occurred in December 2000; and (iii) related to other pending matters in regard to these issues.

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         On April 27, 2009, we and Vale entered into a settlement agreement for the purpose of terminating all these pending lawsuits between the two companies. The settlement agreement, which has already been ratified by our and Vale’s shareholders, also encompassed the revision and/or the termination of certain terms and conditions included in certain commercial contracts entered into between us and Vale.

    Dividend Policy

    General

    Subject to certain exceptions set forth in Brazilian Corporate Law, our bylaws require that we pay a yearly minimum dividend equal to 25% of adjusted net profits, calculated in accordance with Brazilian Corporate Law.  

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    Proposals to declare and pay dividends in excess of the statutory minimum are generally made at the recommendation of our Board of Directors and approval by the vote of our shareholders.  Any such proposal will be dependent upon our results of operations, financial condition, cash requirements for our business, future prospects and other factors deemed relevant by our Board of Directors.  Until December 2000, it had been our policy to pay dividends on our outstanding common shares not less than the amount of our required distributions for any particular fiscal year, subject to any determination by our Board of Directors that such distributions would b ebe inadvisable in view of our financial condition.  In December 2000, our Board of Directors decided to adopt a policy of paying dividends equal to all legally available net profits, after taking into consideration the following priorities:  (i) our business strategy; (ii) the performance of our obligations; (iii) the accomplishment of our required investments; and (iv) the maintenance of our good financial status.

    Pursuant to a change in Brazilian tax law effective January 1, 1996, Brazilian companies are also permitted to pay limited amounts of interest on stockholders’ equity to holders of equity securities and to treat these payments as an expense for Brazilian income tax purposes.  These payments may be counted in determining if the statutory minimum dividend requirement has been met, subject to shareholder approval.

    For dividends declared during the past fivetwo years, see “Item 3A.  Selected Financial Data.”

    At our Annual Shareholders’ Meeting of April 30, 2009,29, 2011, our shareholders approved the payment of dividends and interest on shareholders’ equity relating to 2008,2010, in the total amount of US$868.6R$1,856.8 million (US$738.2(R$1,500 million as dividends and US$130.4R$356.8 million as interest on shareholders’ equity).

         The total amount of approved dividends include dividends paid in advance on November 27, 2008, in the amount of US$70.6 million, that had already been approved by our Board of Directors on August 12, 2008, and dividends that had already been approved by our Board of Directors on March 24, 2009 in the amount of US$667.6 million.

         Soon after the announcement of the payment of such dividends in the amount of US$667.6 million, a court order was issued by a trial state tax court in the State of Rio de Janeiro in connection with tax claims related to IPI premium credits on exports that we have recorded, in order to block US$354.2 million of our funds, which were later converted into a court deposit. For this reason, we paid our shareholders on April 2, 2009 the amount of funds that had not been blocked of US$313.4 million. Nevertheless, aiming at the preservation of our shareholders’ rights, we paid on June 26, 2009, the remaining dividends of US$354.2 million. Following our adhesion to the REFIS the US$313.4 million which had been blocked were used to settle our tax liabilities under the special settlement and installment payment system under REFIS.

         The US$130.4 million as interest on shareholders’ equity were paid on May 11, 2009.

         At our Annual Shareholders’ Meeting of April 30, 2010, our shareholders approved the payment of dividends and interest on shareholders’ equity relating to 2009, in the total amount of US$1,050.7 million (US$866.8 million as dividends and US$183.9 million as interest on shareholders’ equity).

         The distribution of the US$183.9 million as interest on shareholders’ equity had already been approved by our Board of Directors, on December 17, 2009, and was paid in two installments. The first payment of US$143.5 million was on December 29, 2009 and the second one of US$40.4 million was on April 30, 2010.

         The dividends of US$866.8 million are expected to be paid on June 25, 2010.

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          For further information, see “Item 5. Operating and Financial Review and Prospects - Item 5A. Operating Results—Results of Operations—2007 Compared to 2006—Disputed Taxes Payable”

    Amounts Available for Distribution

    At each Annual Shareholders’ Meeting, our Board of Directors is required to recommend how our earnings for the preceding fiscal year are to be allocated.  For purposes of Brazilian Corporate Law, a company’s net income after income tax and social contribution for any one fiscal year, net of any accumulated losses from prior fiscal years and amounts allocated to employees’ and management’s participation in earnings, represents its “net profits” for that fiscal year.

    In accordance with Brazilian Corporate Law, an amount equal to our net profits as further (i) reduced by amounts allocated to the legal reserve; (ii) reduced by amounts allocated to the contingency reserve; and (iii) increased by reversion of the contingency reserves constituted in prior years, will be available for distribution to shareholders, or the Distributable Amount, in any particular year.

    Legal Reserve.  Under Brazilian Corporate Law, we are required to maintain a “legal reserve” to which web must allocate 5% of our “net profits” for each fiscal year until the amount of the reserve equals 20% of our paid-in capital.  However, we are not required to make any allocations to our legal reserve in a year in which the legal reserve, when added to our other established capital reserves, exceeds 30% of our capital stock.  Any net losses may be offset with the amounts allocated to the legal reserve.  The amounts allocated to such reserve must be approved by our shareholders in the Annual Shareholders’ Meeting, and may be used to increase our capital stock or to offset loss eslosses and, therefore, they are not available for the payment of dividends.

    Discretionary (or Statutory) Reserves.Under Brazilian Corporate Law, any corporation may provide in its by-laws for additional reserves, provided that the maximum amount that may be allocated, the purpose and allocation criteria of the reserve are specified.  These reserves may not be allocated for if such reserve affects the payment of the Mandatory Dividend (as defined bellow).  Our by-laws currently do not provide for this reserve.

    Contingency Reserve.Under Brazilian Corporate Law, a percentage of our “net profits” may be allocated to a contingency reserve for estimable losses that are considered probable in future years.  Any amount so allocated in a prior year must either be reserved in the fiscal year in which the loss had been anticipated if the loss does not occur as projected or be written off in the event that the anticipated loss occurs.

    Tax Incentive Reserve.Our shareholders in a shareholders’ meeting may, as proposed by management, allocate to the tax incentive reserve part of our “net profits” resulting from donations or governmental grants for investments, which may be excluded from the taxable basis of a Mandatory Dividend (as defined bellow).  Our by-laws currently do not provide for such reserve.

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    Unrealized Income Reserve.  Under Brazilian Corporate Law, the amount by which the distributable amount exceeds realized net income in a given fiscal year may be allocated to unrealized profits reserves.  Brazilian Corporate Law defines realized “net profits” for the period as the amount by which our “net profits” exceeds the sum of (i) positive equity results and (ii) the profits, gains or returns that will be received by us after the end of the subsequent fiscal year.  “Net profits” allocated to the unrealized profits reserves must be added to the next mandatory dividend distribution after those profits have been realized, if they have not been used to absorb losses in subsequent periods.

    Retained Earnings Reserve.  Under Brazilian Corporate Law, our shareholders may decide at a general shareholders’ meeting to retain a portion of our net income that is provided for in a previously approved capital expenditure budget.  No allocation of net income may be made to the retained earnings reserve in case such allocation affects the payment of a mandatory dividend.

    The balance of our profit reserves, except those for contingencies, tax incentives and unrealized profits, shall not be greater than our capital stock.  If such reserves reach this limit, the manner in which such surplus is used will be decided at a shareholders’ meeting.

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    For purposes of determining reserve amounts, the calculation of “net profits” and allocations to reserves for any fiscal year are determined on the basis of financial statements prepared in accordance with Brazilian Corporate Law.  The consolidated financial statements included herein have been prepared in accordance with U.S. GAAP and, although our allocations to reserves and dividends will be reflected in the financial statements, investors will not be able to calculate the allocations or required dividend amounts from the consolidated financial statements.

    Capital Reserve.Under Brazilian Corporate Law, the capital reserve consists of premium from the issuance of shares, goodwill reserves from mergers, sales of founders' shares, sales of warrants, premium from the issuance of debentures, tax and fiscal incentives and gifts.  Amounts allocated to our capital reserve are not taken into consideration for purposes of determining Mandatory Dividends (as defined bellow).  Our capital stock is not currently represented by founders' shares.  In addition, the remaining balance in the capital reserve may only be used to increase our capital stock, to absorb losses that surpass accumulated profits and the profit reserves or to redeem, reimburse or purchase shares.

    Mandatory Dividend

    Under our bylaws, we are required to distribute to shareholders as dividends in respect of each fiscal year ending on December 31, to the extent profits are available for distribution, an amount equal to at least 25% of the Distributable Amount (the “Mandatory Dividend”) in any particular year (the amount of which shall include any interest paid on capital during that year).  See “Additional Payments on Shareholders’ Equity” below.  In addition to the Mandatory Dividend, our Board of Directors may recommend that shareholders receive an additional payment of dividends from other funds legally available therefore.  Any payment of interim dividends will be netted against the amount of the Mandatory Dividend for that fiscal year.  Under Brazilian Corporate Law, if the Board of Directors determines prior to the Annual Shareholders’ Meeting th atthat payment of the Mandatory Dividend for the preceding fiscal year would be inadvisable in view of our financial condition, the Mandatory Dividend need not be paid.  That type of determination must be reviewed by the Fiscal Council, if one exists, and reported, together with the appropriate explanations, to the shareholders and to the CVM.

    Payment of Dividends

    We are required to hold Annual Shareholders’ Meetings within the first four months after the end of our fiscal year at which an annual dividend may be declared.  Additionally, our Board of Directors may declare interim dividends.  Under Brazilian Corporate Law, dividends are generally required to be paid to the holder of record on a dividend declaration date within 60 days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of payment, which, in either case, must occur prior to the end of the fiscal year in which the dividend was declared.  A shareholder has a three-year period from the dividend payment date to claim dividends (or interest on shareholders’ equity as described under “Additional Payments on Shareholders’ Equity” below) in respect of its shares, after which we will no lon gerlonger be liable for the dividend payments.

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    Our payments of cash distributions on common shares underlying the ADSs will be made in Brazilian currency to our ADR custodian on behalf of our ADR depositary, which will then convert the proceeds into U.S. dollars and will cause the U.S. dollars to be delivered to our ADR depositary for distribution to holders of ADSs.

    Additional Payments on Shareholders’ Equity

    Since January 1, 1996, Brazilian companies have been permitted to pay interest on shareholders’ equity to holders of equity securities and to treat those payments as deductible expense for Brazilian income tax purposes.  The amount of interest payable on capital is calculated based on the TJLP, as determined by the Central Bank, applied to each shareholder’s portion of net equity.  Brazilian Corporate Law establishes that current earnings are not included as part of the net equity.

    The TJLP is determined by the Central Bank on a quarterly basis.  The TJLP is based on the annual profitability average of Brazilian public internal and external debt.  The TJLP rate for the fourth quarter of 20092009 was 6%.

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    Interest on shareholders’ equity is deductible to the extent it does not exceed 50% of either of the following amounts:  (i) net income, as determined for accounting purposes, for the current period of interest payment before the provision for income tax and the deduction of the amount of interest; or (ii) accumulated earnings from prior years.

    8B.  Significant Changes

    None

    Item 9. The Offer and Listing

    9A.  Offer and Listing Details

    Our capital stock is comprised of common shares without par value (ações ordinárias).  On January 22, 2008, our shareholders approved a one-for-three split of our common shares.  As a result of this stock split, each common share of our capital stock as of January 22, 2008 became represented by three common shares after the split.  The same ratio of one common share for each ADS was maintained.

    On March 25, 2010, our shareholders approved a two-for-one split of our common shares.  As a result of this stock split, each common share of our capital stock as of March 25, 2010 became represented by two common shares after the split.  The same ratio of one common share for each ADS was maintained.  See “Item 10.B. Memorandum and Articles of Association.”

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    The following table sets forth information concerning the high and low closing sale prices and the average daily trading volume of our common shares on the BM&FBOVESPA (per common share) and the ADSs on the NYSE for the periods indicated.

     

     

    Common Shares(1)

     

    American Depositary Shares(1)

     

     

     

     

     

     

     

    US$ per Share(2)

     

    Volume 

     

    US$ per ADS 

     

    Volume 

     

     

     

     

     

     

     

     

     

     

     

    High 

     

    Low 

     

    (In thousands)

     

    High 

     

    Low 

     

    (In thousands)

     

     

     

     

     

     

     

     

     

     

     

     

     

    2005: 

     

     

     

     

     

     

     

     

     

     

     

     

    Year end 

     

    4.49

     

    2.45

     

    5,771

     

    4.47

     

    2.47

     

    5,095

    2006: 

     

     

     

     

     

     

     

     

     

     

     

     

    Year end 

     

    6.27

     

    3.46

     

    4,216

     

    6.29

     

    3.49

     

    5,605

    2007: 

     

     

     

     

     

     

     

     

     

     

     

     

    Year end 

     

    15.00

     

    4.58

     

    5,330

     

    15.35

     

    4.58

     

    6,980

    2008: 

     

     

     

     

     

     

     

     

     

     

     

     

    First quarter 

     

    20.93

     

    11.88

     

    5,171

     

    20.99

     

    12.16

     

    8,521

    Second quarter 

     

    26.21

     

    17.76

     

    4,617

     

    26.23

     

    17.75

     

    6,895

    Third quarter 

     

    21.87

     

    8.24

     

    6,323

     

    21.78

     

    9.21

     

    11,038

    Fourth quarter 

     

    10.51

     

    4.07

     

    6,887

     

    10.41

     

    3.93

     

    10,390

    Year end 

     

    26.21

     

    4.07

     

    5,761

     

    26.23

     

    3.93

     

    9,219

    2009: 

     

     

     

     

     

     

     

     

     

     

     

     

    First quarter 

     

    9.27

     

    6.03

     

    5,967

     

    9.30

     

    5.92

     

    9,217

    Second quarter 

     

    13.29

     

    7.31

     

    5,039

     

    13.25

     

    7.27

     

    7,088

    Third quarter 

     

    15.45

     

    9.83

     

    4,573

     

    15.53

     

    9.73

     

    6,226

    Fourth quarter 

     

    19.20

     

    14.57

     

    4,145

     

    19.07

     

    14.47

     

    6,417

    Year end 

     

    19.20

     

    6.03

     

    4,930

     

    19.07

     

    5.92

     

    7,214

    2010: 

     

     

     

     

     

     

     

     

     

     

     

     

    First quarter 

     

    20.03

     

    14.25

     

    4,739

     

    20.00

     

    14.46

     

    6,578

    Month Ended: 

     

     

     

     

     

     

     

     

     

     

     

     

    November 30, 2009

     

    17.76

     

    16.66

     

    3,997

     

    18.12

     

    16.65

     

    6,534

    December 31, 2009

     

    17.67

     

    15.07

     

    4,603

     

    18.08

     

    15.57

     

    6,017

    January 31, 2010 

     

    16.91

     

    14.25

     

    4,556

     

    17.15

     

    14.52

     

    6,425

    February 29, 2010 

     

    16.33

     

    14.48

     

    5,426

     

    16.48

     

    14.46

     

    6,615

    March 31, 2010 

     

    20.03

     

    16.69

     

    5,082

     

    20.00

     

    16.75

     

    6,670

    April 30, 2010

     

    20.81

     

    18.34

     

    3,508

     

    20.76

     

    18.42

     

    4,779


     

     

    Common Shares(1)

     

    American Depositary Shares(1)

     

     

     

     

     

     

     

    US$ per Share(2)

     

    Volume  

     

    US$ per ADS  

     

    Volume  

     

     

     

     

     

     

     

     

     

     

     

    High  

     

    Low  

     

    (In  thousands) 

     

    High  

     

    Low  

     

    (In  thousands) 

     

     

     

     

     

     

     

     

     

     

     

     

     

    2005:  

     

     

     

     

     

     

     

     

     

     

     

     

    Year end

     

    4.49

     

    2.45

     

    5,771

     

    4.47

     

    2.47

     

    5,095

    2006:  

     

     

     

     

     

     

     

     

     

     

     

     

    Year end

     

    6.27

     

    3.46

     

    4,216

     

    6.29

     

    3.49

     

    5,605

    2007:  

     

     

     

     

     

     

     

     

     

     

     

     

    Year end

     

    15.00

     

    4.58

     

    5,330

     

    15.35

     

    4.58

     

    6,980

    2008:  

     

     

     

     

     

     

     

     

     

     

     

     

    First quarter

     

    20.93

     

    11.88

     

    5,171

     

    20.99

     

    12.16

     

    8,521

    Second quarter

     

    26.21

     

    17.76

     

    4,617

     

    26.23

     

    17.75

     

    6,895

    Third quarter

     

    21.87

     

    8.24

     

    6,323

     

    21.78

     

    9.21

     

    11,038

    Fourth quarter

     

    10.51

     

    4.07

     

    6,887

     

    10.41

     

    3.93

     

    10,390

    Year end

     

    26.21

     

    4.07

     

    5,761

     

    26.23

     

    3.93

     

    9,219

    2009:  

     

     

     

     

     

     

     

     

     

     

     

     

    First quarter

     

    9.27

     

    6.03

     

    5,967

     

    9.30

     

    5.92

     

    9,217

    Second quarter

     

    13.29

     

    7.31

     

    5,039

     

    13.25

     

    7.27

     

    7,088

    Third quarter

     

    15.45

     

    9.83

     

    4,573

     

    15.53

     

    9.73

     

    6,226

    Fourth quarter

     

    19.20

     

    14.57

     

    4,145

     

    19.07

     

    14.47

     

    6,417

    Year end

     

    19.20

     

    6.03

     

    4,930

     

    19.07

     

    5.92

     

    7,214

    2010:  

     

     

     

     

     

     

     

     

     

     

     

     

    First quarter

     

    18.38

     

    13.08

     

              4,800  

     

    19.17

     

    13.86

     

            6,742

    Second quarter

     

    19.09

     

    12.67

     

              4,114

     

    19.90

     

    13.24

     

            6,524

    Third quarter

     

    16.46

     

    13.77

     

              3,253

     

    17.49

     

    14.44

     

            4,555

    Fourth quarter

     

    16.85

     

    14.42

     

              2,687

     

    18.02

     

    15.49

     

            4,533

    Year end

     

    19.09

     

    12.67

     

    3,713

     

    19.90

     

    13.24

     

    5,589

    2011

     

     

     

     

     

     

     

     

     

     

     

     

    January 31

     

    17.03

     

    15.66

     

    1,119

     

    18.14

     

    16.45

     

    1,729

    February 28

     

    15.20

     

    16.15

     

    919

     

    17.11

     

    16.08

     

    1,396

    March 31

     

    15.52

     

    14.44

     

    1,018

     

    16.55

     

    15.25

     

    1,432

    First quarter

     

    17.03

     

    14.44

     

    3,055

     

    18.14

     

    15.25

     

    4,556

    April 30

     

    15.93

     

    14.35

     

    995

     

    17.04

     

    15.21

     

    1,126

     

     

     

     

     

     

     

     

     

     

     

     

     

    Source:  Economática.

    (1)

    Prices and volumes of our common shares and ADSs have been adjusted to reflect the two-for-one stock split occurred in March 2010 whereby each common share of our capital stock on March 25, 2010 became represented by two common shares.Seeshares. See “Item 10.B. Memorandum and Articles of Association.”

    (2)

    U.S. dollar amounts have been translated fromreaisat the exchange rates in effect on the respective dates of the quotations for the common shares set forth above.  These U.S. dollar amounts may reflect exchange rate fluctuations and may not correspond to changes in nominalreaisprices over time.


    91

    As of May26, 2010,June 14, 2011, the closing sale price (i) per common share on the BM&FBOVESPA was US$14.11R$19.58 and (ii) per ADS on the NYSE was US$14.31.12.59.  The ADSs are issued under a deposit agreement and JPMorgan ChaseJP Morgan Bankserves as depositary under that agreement.

    As ofMarch 31,, 2010, 2011, approximately 343.9364 million, or approximately 23.6%24.6%, of our outstanding common shares were held through ADSs.  Substantially all of these ADSs were held of record by The Depository Trust Company.  In addition, our records indicate that on that date there were approximately 440402 record holders (other than our ADR depositary) with addresses in the U.S., holding an aggregate of approximately 129.5476 million common shares, representing 8.8%32.1% of our outstanding common shares.

    9B.  Plan of Distribution

    Not applicable.

    9C.  Markets

    The principal trading market for our common shares is the BM&FBOVESPA.  Our ADSs trade on the NYSE under the symbol “SID.”

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    Table of Contents

    Trading on the BM&FBOVESPA

    In 2000, the BM&FBOVESPA was reorganized through the execution of memoranda of understanding by the Brazilian stock exchanges.  Under the memoranda, all securities in Brazil are now traded only on the BM&FBOVESPA, with the exception of electronically traded public debt securities and privatization auctions, which are traded on the Rio de Janeiro Stock Exchange.

    When shareholders trade in common and preferred shares on the BM&FBOVESPA, the trade is settled in three business days after the trade date without adjustment of the purchase price for inflation.  The seller is ordinarily required to deliver the shares to the exchange on the third business day following the trade date.  Delivery of and payment for shares are made through the facilities of the clearinghouse,Companhia Brasileira de Liquidação e Custódia,or CBLC, a subsidiary of the BM&FBOVESPA.

    The BM&FBOVESPA was a nonprofit entity owned by its member brokerage firms until August 2007.  Since then, Bovespa Holding S.A. became a public company with shares negotiated on the BM&FBOVESPA.  Trading on the BM&FBOVESPA is conducted through an electronic trading system called Megabolsa from 10:00 a.m. to 5:00 p.m.00p.m., or from 11:00 a.m. to 6:00 p.m., São Paulo time, during daylight savings time in Brazil, for all securities traded on all markets.  This system is a computerized system that links electronically with the seven smaller regional exchanges.  The BM&FBOVESPA also permits trading from 5:45 p.m. to 7:00 p.m., or from 6:45 p.m. to 7:30 p.m., São Paulo time, during daylight savings time in Brazil, on an online system connected to traditional and internet brokers called the “after market.”  Trading on the after market is subjec tsubject to regulatory limits on price volatility and on the volume of shares transacted through internet brokers.  There are no specialists or officially recognized market makers for our shares in Brazil.

    92

     

    In order to better control volatility, the BM&FBOVESPA adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes, one hour or for a period to be determined by BM&FBOVESPA whenever the BM&FBOVESPA’s index, or Ibovespa index, falls below the limits of 10%, 15% or 20%, respectively, in relation to the index registered in the previous trading session.

    The BM&FBOVESPA is significantly less liquid than the NYSE or other major exchanges in the world.  As of December 2009,2010, the aggregate market capitalization of the BM&FBOVESPA was equivalent to R$2.32.6 trillion (or US$1.31.5 trillion).  In contrast, as of December 2009,April 2010, the aggregate market capitalization of the NYSE was US$12.925.44 trillion.  The average daily trading volume of the BM&FBOVESPA and NYSE for December 2009April 2010 was approximately R$6.75.6 billion (or US$3.83.2 billion) and US$55.880.1 billion, respectively.  Although any of the outstanding shares of a listed company may trade on the BM&FBOVESPA, in most cases fewer than half of the listed shares are actually available for trading by the public, since the remaining shares are generally being held by small groups of controlling persons, by government entities or by one principal shareholder.  See “Item 3. Risk Factors—Risks Relating to the ADSs and Our Common Shares—The relative volatility and illiquidity of the Brazilian securities markets may substantially limit the ability of holders of our common shares or ADSs to sell the common shares underlying the ADSs at the time and price they desire.”

    As of December 31, 2009,2010, we accounted for approximately 1.75%1.88% of the market capitalization of all listed companies on the BM&FBOVESPA.

    The following table reflects the fluctuations in the Ibovespa index during the periods indicated:

    Ibovespa Index

     

     

     

     

     

     

     

     

     

    High 

     

    Low 

     

    Close 

     

     

     

     

     

     

     

    2005 

     

    33,629 

     

         23,610 

     

           33,456 

    2006 

     

    44,674 

     

         32,057 

     

           44,473 

    2007 

     

    65,790 

     

         41,179 

     

           63,886 

    2008 

     

    73,516 

     

         29,435 

     

           37,550 

    2009

     

    69,349

     

    36,234

     

    68,588

    2010 (through March 31)

     

    70,729

     

    62,762

     

    70,371

    107

     

     

     

     

     

     

     

     

     

    High  

     

    Low  

     

    Close  

     

     

     

     

     

     

     

    2005 

     

    33,629

     

    23,610

     

     33,456

    2006 

     

    44,674

     

    32,057

     

    44,473

    2007 

     

    65,790

     

    41,179

     

    63,886

    2008 

     

    73,516

     

    29,435

     

    37,550

    2009

     

    69,349

     

    36,234

     

    68,588

    2010

     

    72,995

     

    58,192

     

    69,304

    2011 (through March 31)

     

    71,632

     

    64,217

     

    68,586

    Table of Contents

     

    The IBOVESPA index closed at 69,38668,586 on March 31, 2010.2011.  Trading on the BM&FBOVESPA by nonresidents of Brazil is subject to certain limitations under Brazilian foreign investment legislation.  See “Item 10D.  Exchange Controls.”

    Regulation of the Brazilian Securities Markets

    The Brazilian securities markets are regulated by the CVM, which has authority over stock exchanges and the securities markets generally, and by the Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions.  The Brazilian securities market is governed by Law No. 6,385 dated December 7, 1976, as amended, or the Brazilian Securities Law, and Brazilian Corporate Law and regulations issued by the CVM.

    93

    Under Brazilian Corporate Law, a company is either public, acompanhia aberta, such as us, or private, acompanhia fechada.  All public companies are registered with the CVM and are subject to reporting and regulatory requirements.

    Trading in securities on the BM&FBOVESPA may be suspended at the request of a company in anticipation of a material announcement.  The company should also suspend its trading on international stock exchanges where its securities are traded.  Trading may also be suspended on the initiative of the BM&FBOVESPA or the CVM, among other reasons, based on or due to a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to the inquires by the CVM or the BM&FBOVESPA.

    The Brazilian Securities Law and the regulations issued by the CVM provide for, among other things, disclosure requirements, restrictions on insider trading and price manipulation, as well as protection of minority shareholders.  However, the Brazilian securities markets are not as highly regulated and supervised as the United States securities markets or markets in certain other jurisdictions.

    Disclosure Requirements

    According to Law No 6,385, a publicly held company must submit to the CVM and BM&FBOVESPA certain periodic information, including annual and quarterly reports prepared by management and independent auditors.  This legislation also requires us to file with the CVM our shareholders’ agreements, notices of shareholders’ meetings and copies of the related minutes.

    Pursuant to the CVM Resolution No. 358, of January 3, 2002, the CVM revised and consolidated the requirements regarding the disclosure and use of information related to material facts and acts of publicly held companies, including the disclosure of information in the trading and acquisition of securities issued by publicly held companies.

    Such requirements include provisions that:

    ·        establish the concept of a material fact that gives rise to reporting requirements.  Material facts include decisions made by the controlling shareholders, resolutions of the shareholders at a shareholders’ meeting and of management of the company, or any other facts related to the company’sour business (whether occurring within the company or otherwise somehow related thereto) that may influence the price of its publicly traded securities, or the decision of investors to trade such securities or to exercise any of such securities’ underlying rights;

    ·        specify examples of facts that are considered to be material, which include, among others, the execution of agreements providing for the transfer of control, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the company, and any corporate restructuring undertaken among related companies;

      ·        oblige the officer of investor relations, controlling shareholders, other officers, directors, members of the audit committee and other advisory boards to disclose material facts;

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      Table of Contents

      ·        require simultaneous disclosure of material facts to all markets in which the corporation’s securities are admitted for trading;

      ·        require the acquirer of a controlling stake in a corporation to publish material facts, including its intentions as to whether or not to de-list the corporation’s shares, within one year;

      ·        establish rules regarding disclosure requirements in the acquisition and disposal of a material ownership interest; and

      ·        forbid trading on the basis of material non-public information;information.

      Pursuant to the CVM Rule No. 480 of December 7, 2009, the CVM expand the quantity and improve the quality of information reported by issuers in Brazil.  This Rule represents a significant step forward in providing the market withmarketwith greater transparency over securities issuers.  For that purpose, the Annual Information Report (IAN) was replaced by a more comprehensive and opinative reference form (Formulário de Referência), which comprised the information requested byIAN IANand added several other data required under CVM Rule No. 400 of December 29, 2003 that were only subject to disclosure upon a public offering.

      94

      The reference form (Formulário de Referência) is in line with the Shelf Registration System recommended by the International Organization Securities Commission (IOSCO) and adopted in other countries (England and the United States, among others), by means of which the information regarding an specific issuer is consolidated into one document and is subject to periodic update (the “Shelf Document”).  This mechanism offers the investor the possibility to analyze one single document for relevant information about the issuer.

      CVM Rule No. 480 also created two groups of issuers per type of securities traded.  Group A issuers are authorized to trade in any securities, whereas Group B issuers must not trade in stocks, depositary receipts (BDRs, Units) and securities convertible or exchangeable into stocks or depositary receipts.  The greater extend of Group A authorization is followed by more stringent disclosure and reporting requirements.  We, as issuers of stocks, are part of Group A.

      CVM has also enacted Rule No. 481 of December 17, 2009 to regulate two key issues involving general meetings of shareholders in publicly held companies:  (i) the extent of information and documents to be provided in support of call notices (subject to prior disclosure to shareholders); and (ii) proxy solicitation for exercise of voting rights.

      CVM Rule No. 481 is intended to (i) improve the quality of information disclosure by publicly held companies to shareholders and to the market in general, favoring the use of Internet as a vehicle to that end; (ii) make the exercise of voting rights less costly and foster the participation of shareholders in general meetings, specially for companies with widely dispersed capital; and, consequently (iii) facilitate the oversight of corporate businesses.

      9D.  Selling Shareholders

      Not applicable.

      9E.  Dilution

      Not applicable.

      9F.  Expenses of the Issue

      Not applicable.

      Item 10.  Additional Information

      10A.  Share Capital

      Not applicable.

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      Table of Contents

      10B.  Memorandum and Articles of Association

      Registration and Corporate Purpose

      We are registered with the Department of Trade Registration under number 15,910.  Our corporate purpose, as set forth in Article 2 of our bylaws, is to manufacture, transform, market, import and export steel products and steel derived by-products from the manufacturing plant, as well as to explore other activities that are directly or indirectly related to our corporate purpose, including:  mining, cement and carbochemical business activities, the manufacture and assembly of metallic structures, construction, transportation, navigation and port activities.

      95

      Directors’ Powers

       

      Pursuant to our bylaws, a director may not vote on a proposal, arrangement or contract in which the director’s interests conflict with our interests.  In addition, our shareholders must approve the total compensation of our management and our Board of Directors is responsible for allocating individual amounts of management compensation.  There is no mandatory retirement age for our directors.  Brazilian Corporate Law requires that a director must be a shareholder of the company, but there is no minimum amount of shares required.  A detailed description of the general duties and powers of our Board of Directors may be found in “Item 6A.  Directors and Senior Management.”

      Description of Capital Stock

      Set forth below is certain information concerning our capital stock and a brief summary of certain significant provisions of our bylaws and Brazilian Corporate Law applicable to our capital stock.  This description does not purport to be complete and is qualified by reference to our bylaws and to Brazilian law.  For further information, see our bylaws, which have been filed as an exhibit to this annual report.  

      Capital Stock

           On January 22, 2008, our shareholders approved a one-for-three split of our common shares and the cancellation of 4,000,000 treasury shares (equivalent to 12,000,000 common shares after the split) . As a result of this stock split, each common share of our capital stock as of January 22, 2008 became represented by three common shares after the split. The same ratio of one common share for each ADS was maintained.

      On December 31, 20092010, our capital stock was composed of 755,179,6101,483,033,685 common shares, including 26,194,55625,063,577  common shares held in treasury.

      On MarchNovember 1, 2010 a two-for-one stock split that took place, whereby each common sharewe cancelled  27.325.535 of our capital stock as of March 25, 2010 became represented by two common shares.shares which were held on treasury at that time.  On March 31, 2010April 30, 2011 our capital stock was composed by 1,510,359,2201,483,033,685 common shares including 52,389,112 25.063.577common shares held in treasury. Our bylaws authorize the Board of Directors to increase the capital stock up to 2,400,000,000 common shares without an amendment to our bylaws by means of a vote at our shareholders’ meeting.  There are currently no classes or series of preferred shares issued or outstanding.  We may purchase our own shares for purposes of cancellation or to hold them in treasury subject to certain limits and conditions est ablishedestablished by the CVM and Brazilian Corporate Law.  See “Item 16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”

      Liability for Further Capital Calls

      Pursuant to Brazilian Corporate Law, a shareholder’s liability is generally limited to the issue price of the subscribed or purchased shares.  There is no obligation of a shareholder to participate in additional capital calls.

      Voting Rights

      Each common share entitles the holder to one vote at our shareholders’ meetings.  According to a CVM ruling, shareholders that represent at least 5% of our common shares may request cumulative voting in an election of our Board of Directors.  Pursuant to Brazilian Corporate Law, shareholders holding at least 15% of our common shares have the right to appoint a member of our Board of Directors.

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      Table of Contents

      Shareholders’ Meetings

      Pursuant to Brazilian Corporate Law, the shareholders present at an annual or extraordinary shareholders’ meeting, convened and held in accordance with Brazilian Corporate Law and our bylaws are empowered to decide all matters relating to our corporate purpose and to pass any resolutions they deem necessary for our protection and well-being.

      In order to participate in a shareholders’ meeting, a shareholder must be a record owner of the share on the day the meeting is held, and may be represented by a proxy.

      Shareholders’ meetings are called, convened and presided over by the Chairman or Vice-Chairman of our Board of Directors.  Brazilian Corporate Law requires that our shareholders’ meeting be convened by publication of a notice in theDiário Oficial do Estado do Rio de Janeiro, the official government publication of the State of Rio de Janeiro, and in a newspaper of general circulation in Brazil and in the city in which our principal place of business is located, currently the Jornal Valor Econômico, at least 15 days prior to the scheduled meeting date and no fewer than three times.  We have changed to the Jornal Valor Econômico as our main means of disclosing legal notices after our shareholders approved by unanimous vote such change at our shareholders’ meeting held on April 30, 2009.29,2010.  Both notices must contain the agenda for the meeting and, in the case of an amendment to our bylaws, an indication of the subject matter.

      96

       

      In order for a shareholders’ meeting to be held, shareholders representing a quorum of at least one-fourth of the voting capital must be present.  A shareholder may be represented at a shareholders’ meeting by means of a proxy, appointed not more than one year before the meeting, who must be a either a shareholder, a company officer or a lawyer.  For public companies, such as we are, the proxy may also be a financial institution.  If no quorum is present, notice must be given in the manner described above, no fewer than eight days prior to the scheduled meeting date.  On second notice, the meeting may be convened without a specific quorum requirement, subject to the minimum quorum and voting requirements for certain matters, described below.  A holder of shares with no voting rights may attend a shareholders’ meeting and take part in the discussion of m attersmatters submitted for consideration.

      Except as otherwise provided by law, resolutions passed at a shareholders’ meeting require a simple majority vote, abstentions not considered.  Pursuant to Brazilian Corporate Law, the approval of shareholders representing at least one-half of the issued and outstanding voting shares is required for the following actions:  (i) to change a priority, preference, right, privilege or condition of redemption or amortization of any class of preferred shares or creation of any class of non-voting preferred shares that has a priority, preference, right, condition or redemption or amortization superior to an existing class of shares (in this case, a majority of issued and outstanding shares of the affected class is required); (ii) to reduce the mandatory dividend; (iii) to change our corporate purpose; (iv) to merge into or consolidate with another company or to spin-o ffspin-off our assets; (v) to dissolve or liquidate our Company; (vi) to cancel any liquidation procedure; (vii) to create founders’ shares; and (viii) to participate in a centralized group of companies as defined under Brazilian Corporate Law.

      Pursuant to Brazilian Corporate Law, shareholders voting at a shareholders’ meeting have the power to:  (i) amend our bylaws; (ii) elect or dismiss members of our Board of Directors (and members of the Fiscal Council) at any time; (iii) receive and approve the annual management accounts, including the allocation of net profits and the distributable amounts for payment of the mandatory dividends and allocation to the various reserve accounts; (iv) authorize the issuance of debentures in general; (v) suspend the rights of a shareholder who has violated Brazilian Corporate Law or our bylaws; (vi) accept or reject the valuation of assets contributed by a shareholder in consideration of the subscription of shares in our capital stock; (vii) authorize the issuance of founders’ shares; (viii) pass resolutions to reorganize the legal form of, merge, consolidate or split the company, to dissolve and liquidate the company, to elect and dismiss its liquidators and to examine their accounts; and (ix) authorize management to declare the company insolvent and to request arecuperação judicial orrecuperação extrajudicial (a procedure involving protection from creditors similar in nature to reorganization under the U.S. Bankruptcy Code), among others.

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      Redemption Rights

      Our common shares are not redeemable, except that a dissenting and adversely affected shareholder is entitled, under Brazilian Corporate Law, to obtain redemption upon a decision made at a shareholders’ meeting by shareholders representing at least one half of the issued and outstanding voting shares to:  (i) create a new class of preferred shares or to disproportionately increase an existing class of preferred shares relative to the other classes of preferred shares (unless these actions are provided for or authorized by our bylaws); (ii) modify a preference, privilege or condition of redemption or amortization conferred on one or more classes of preferred shares, or to create a new class with greater privileges than an existing class of preferred shares; (iii) reduce the mandatory distribution of dividends; (iv) change our corporate purpose; (v) merge us wi thwith another company or consolidate us; (vi) transfer all of our shares to another company in order to make us a wholly-owned subsidiary of that company (incorporação); (vii) approve the acquisition of control of another company at a price that exceeds certain limits set forth under Brazilian Corporate Law; (viii) approve our participation in a centralized group of companies as defined under Brazilian Corporate Law; (ix) conduct a spin-off that results in (a) a change of corporate purpose, (b) a reduction of the mandatory dividend or (c) any participation in a group of companies as defined under Brazilian Corporate Law; or (x) in the event that the entity resulting from (a) a merger or consolidation, (b) anincorporaçãoas described above or (c) a spin-off of a listed company fails to become a listed company within 120 days of the shareholders’ meeting at which the decision was taken.  The right of redemption lapses 30 days after publication of the minutes of the relevant shareholders’ meeting.  We would be entitled to reconsider any action giving rise to redemption rights within 10 days following the expiration of those rights, if the redemption of shares of dissenting shareholdersdissentingshareholders would jeopardize our financial stability.  Law No. 9,457 dated May 5, 1997, which amended Brazilian Corporate Law, contains provisions which, among others, restrict redemption rights in certain cases and allow companies to redeem their shares at their market value, subject to certain requirements.  According to our bylaws, the reimbursement value of the common shares must equal the market value, determined by a valuation report in accordance with Brazilian Corporate Law, of our capital stock d ivideddivided by the total number of shares issued by us, excluding treasury shares.

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      Preemptive Rights

      Except as provided for in Brazilian Corporate Law (such as, mergers and public offerings), our bylaws allow each of our shareholders a general preemptive right to subscribe to shares in any capital increase, in proportion to his or her ownership interest.  A minimum period of 30 days following the publication of notice of a capital increase is allowed for the exercise of the right and the right is negotiable.  In the event of a capital increase that would maintain or increase the proportion of capital represented by common shares, holders of ADSs will have preemptive rights to subscribe only to newly issued common shares.  In the event of a capital increase that would reduce the proportion of capital represented by common shares, holders of ADSs will have preemptive rights to subscribe for common shares, in proportion to their ownership interest, only to the extent necessary to prevent dilution of their interest in us.

      Form and Transfer

      As our common shares are in registered form, the transfer of shares is governed by the rules of Article 31, paragraph 3, of Brazilian Corporate Law, which provides that a transfer of shares is effected by a transfer recorded in a company’s share transfer records upon presentation of valid share transfer instructions to the company by a transferor or its representative.  When common shares are acquired or sold on a Brazilian stock exchange, the transfer is effected on the company’sour records by a representative of a brokerage firm or the stock exchange’s clearing system.  Transfers of shares by a non-Brazilian shareholder are made in the same way and are executed by that shareholders’ local agent.

      The BM&FBOVESPA operates a central clearing system.  A holder of our common shares may choose, at its discretion, to participate in this system and all shares elected to be put into this system will be deposited in the custody of the BM&FBOVESPA (through a Brazilian institution duly authorized to operate by the Central Bank and having a clearing account with the BM&FBOVESPA).  The fact that those common shares are held in the custody of the BM&FBOVESPA will be reflected in our register of shareholders.  Each participating shareholder will, in turn, be registered in our register of beneficial shareholders maintained by the BM&FBOVESPA and will be treated in the same way as registered shareholders.

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      Limitations on Ownership and Voting Rights by non-Brazilians Shareholders

      There are no restrictions on ownership or voting of our common shares by individuals or legal entities domiciled outside Brazil.  However, the right to convert dividend payments and proceeds from the sale of common shares into foreign currency and to remit those amounts outside Brazil is subject to exchange control restrictions and foreign investment legislation which generally require, among other things, obtaining a Certificate of Registration under the Brazilian National Monetary Council’s Resolution No. 2,689 or its direct foreign investment regulations.  See “Item 10D.  Exchange Controls.”

      Share Ownership Disclosure

      There are no provisions in our bylaws governing the ownership threshold above which shareholder ownership must be disclosed.  CVM regulations require the disclosure of the acquisition of (i) 5% of the voting stock of a listed company, (ii) additional acquisitions by a controlling shareholder and (iii) shares by members of the Board of Executive Officers, members of the Fiscal Council (if any) and certain relatives of those persons.  

      10C.  Material Contracts

       In 2008, our subsidiary CSN Madeira Lda. (CSN Madeira) entered into a derivative transaction known in the market as Total Return Equity Swap with Goldman Sachs International (GSI), with the scope of exchanging the return on assets (swap). Pursuant to the terms of the transaction, CSN Madeira would owe GSI a LIBOR-based interest rate on a notional amount corresponding to the average price of approximately 29.7 million American Depositary Receipts (“ADRs”) representing common stock of CSN (“Notional Amount”), and GSI would owe CSN Madeira an amount corresponding to the appreciation of the ADRs forming the Notional Amount and to the dividends allocated to such ADRs. On August 13, 2009, this equity swap agreement was closed out and the settlement price was calculated based upon the weighted average price of CSN’s shares on the BM&FBOVESPA on each trading day during a 30 consecutive trading day period ending on and including August 12, 2009 (Settlement Price), as authorized by the CVM. In addition, CSN acquired the 29,684,400 ADRs currently held by GSI through a private transaction and paid the Settlement Price to GSI, as per the CVM authorization. The ADRs acquired by us were converted into shares of CSN held in treasury and cancelled on September 14, 2009. From the close out date on, we are no longer exposed to the devaluation of our shares as a result of equity swap agreements.

       None 

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      10D.  Exchange Controls

      There are no restrictions on ownership or voting of our common shares by individuals or legal entities domiciled outside Brazil.  However, the right to convert dividend payments and proceeds from the sale of common shares into foreign currency and to remit those amounts outside Brazil is subject to exchange control restrictions and foreign investment legislation which generally require, among other things, obtaining a Certificate of Registration under the Brazilian National Monetary Council’s Resolution No. 2,689 or its direct foreign investment regulations.  Resolution No. 2,689 dated March 31, 2000, introduced new rules to facilitate foreign investment in Brazil.  The principal changes for foreign investors entering the Brazilian market include:

      • ·the removal of restrictions on investments by portfolio composition (e.g., equities, fixed income and derivatives); and

      • ·permission for foreign individuals and corporations to invest in the Brazilian market, in addition to foreign institutional investors.

      Prior to Resolution No. 2,689, foreign investors had to leave and reenter the country in order to switch their investments from equity to fixed income.  Now foreign investors can freely switch their investments without leaving the local market.  Foreign investors registered with the CVM and acting through authorized custody accounts and a legal representative may buy and sell any local financial product traded on the local exchanges and registered on the local clearing systems, including shares on the BM&FBOVESPA, without obtaining separate Certificates of Registration for each transaction.  Pursuant to Resolution No. 2,689, as amended, investors are also generally entitled to favorable tax treatment.  See “Item 10E.  Taxation—Brazilian Tax Considerations.”

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      A Certificate of Registration has been issued in the name of JPMorganJP Morgan Chase Bank N.A., as our ADR depositary, and is maintained by theItaú Corretora de Valores S.A., our ADR custodian, on behalf of our ADR depositary.  Pursuant to the Certificate, our ADR custodian and our ADR depositary are able to convert dividends and other distributions with respect to the common shares represented by ADSs into foreign currency and remit the proceeds outside Brazil.  In the event that a holder of ADSs surrenders its ADSs for common shares, that holder will be entitled to continue to rely on our ADR depositary’s Certificate of Registration for only five business days after the surrender, following which the holder must obtain its own Certificate of Registration.  Thereafter, unless the common shares are held pursuant to Resolution No. 2,689 or direct foreign investment regulations, the holder may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, those common shares, and the holder generally will be subject to less favorable Brazilian tax treatment than a holder of ADSs.  See “Item 10E.  Taxation—Brazilian Tax Considerations.”

      A non-Brazilian holder of common shares may experience delays in obtaining a Certificate of Registration, which may delay remittances abroad.  This kind of delay may adversely affect the amount, in U.S. dollars, received by the non-Brazilian holder.

      Under current Brazilian legislation, the Brazilian government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments.  For approximately nine months in 1989 and early 1990, the Brazilian government froze all dividend and capital repatriations held by the Central Bank that were owed to foreign equity investors in order to conserve Brazil’s foreign currency reserves.  These amounts were subsequently released in accordance with Brazilian government directives.  See “Item 3D.  Risk Factors—Risks Relating to our Common Shares and ADSs—If holders of ADSs exchange the ADSs for common shares, they risk losing the ability to remit foreign currency abroad and Brazilian tax advantages.”

      For a description of the foreign exchange markets in Brazil, see “Item 3A.  Selected Financial Data– Exchange Rates.”

      10E.  Taxation

      The following is a summary of certain U.S. federal income and Brazilian tax consequences of the acquisition, ownership and disposition of our common shares or ADSs by an investor that holds the common shares or ADSs.  This summary does not purport to address all material tax consequences of the acquisition, ownership and dispositionanddisposition of our common shares or ADSs, does not take into account the specific circumstances of any particular investors and does not address certain investors that may be subject to special tax rules.

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      This summary is based on the tax laws of the United States (including the Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing and proposed Treasury regulations thereunder, published rulings and court decisions) and Brazil as in effect on the date hereof, which are subject to change (or changes in interpretation), possibly with retroactive effect.  In addition, this summary is based in part upon the representations of our ADR depositary and the assumption that each obligation in our deposit agreement and any related agreement will be performed in accordance with its terms.

      Although there is, at present, no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may result in such a treaty.  Both countries have been accepting the offset of income taxes paid in one country against the income tax due in the other based on reciprocity.  No assurance can be given, however, as to whether or when an income tax treaty will enter into force or how it will affect the U.S. Holders, as defined below, of common shares or ADSs.

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      The discussion does not address any aspects of U.S. taxation (such as estate tax, gift tax and Medicare tax on net investment income) other than federal income taxation or any aspects of Brazilian taxation other than income, gift, inheritance and capital taxation.  Prospective investors are urged to consult their own tax advisors regarding the U.S. federal, state and local and regarding Brazilian and other tax consequences of the acquisition, ownership and disposition of our common shares and ADSs.

      Brazilian Tax Considerations

      The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of common shares or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation (a "Non-Resident Holder"“Non-Resident Holder”).  It is based on Brazilian law as currently in effect.  Any change in such law may change the consequences described below, possibly with retroactive effect.  This discussion does not specifically address all of the Brazilian tax considerations applicable to any particular Non-Resident Holder.  Each Non-Resident Holder of common shares or ADSs should consult their own tax advisor concerning the Brazilian tax consequences of an investment in common shares or ADSs.

      A Non-Resident Holder of ADSs may withdraw them in exchange for common shares in Brazil.  Pursuant to Brazilian law, the Non-Resident Holder may invest in common shares under Resolution 2,689, of January 26, 2000, of the National Monetary Council, or a 2,689 Holder.

      Taxation of Dividends and Interest on Shareholders’ Equity

      Dividends, including stock dividends and other dividends, paid by us (i) to our ADR depositary in respect of the common shares underlying the ADSs or (ii) to a Non-Resident Holder in respect of common shares are currently not subject to Brazilian withholding income tax, as far as such amounts are related to profits generated on or after January 1, 1996.  Dividends relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding income tax at varying rates, depending on the year the profits have been generated.

      Since 1996, Brazilian companies have been permitted to pay limited amounts of interest on shareholders' equity to holders of equity securities and to treat those payments as a deductible expense for purposes of its Brazilian income tax and social contribution on net profits tax basis.  For tax purposes, this interest is limited to the daily pro rata variation of the Brazilian Federal Government's Long-Term Interest Rate ("TJLP"(“TJLP”), as determined by the Central Bank from time to time, multiplied by the net equity value of the Brazilian company, and the amount of the deduction may not exceed the greater of (i) 50% of the net income (before taking into account the amounts attributable to shareholders as interest on shareholders' equity and the provision of corporate income tax but after the deduction of the provision of the social contribution on net profits) related t oto period in respect of which the payment is made; or (ii) 50% of the sum of retained profits and profits reserves as of the date of the beginning of the fiscal year in respect of which the payment is made.  Payments of interest on shareholders' equity are decided by the shareholders on the basis of the recommendations of our Board of Directors.

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      Payment of interest on shareholders' equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% if the Non-Resident Holder is domiciled in a tax haven.  For this purpose, a "tax haven"“tax haven” is a country or location (1) that does not impose income tax, (2) where the income tax rate is lower than 20% or (3) where the local legislation imposes restrictions on disclosing the shareholding composition or ownership of the investment ("(“Tax Haven Jurisdiction"Jurisdiction”).  These payments of interest on shareholders' equity may be included, at their net value, as part of any mandatory dividend.  To the extent payment of interest on shareholders' equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the appl icableapplicable Brazilian withholding income tax, plus the amount of declared dividends is at least equal to the mandatory dividend.

      In addition, Law No. 11,727, of June 23, 2008, or Law No. 11,727, introduced a broader concept of tax haven jurisdiction applicable to transactions subject to Brazilian transfer pricing rules, with the creation of the privileged tax regime concept (which came into effect on January 1, 2009).

      Due to the recent enactment of this Law and the lack of relevant regulation issued by the Brazilian tax authorities, we are not able to ascertain if this privileged tax regime concept will also be applied to non-resident investors such as a Non-Resident Holder.  We recommend prospective investors to consult their own tax advisors from time to time about the changes implemented by Law 11,727 and by any Brazilian tax law or regulation with respect to the concept of tax haven jurisdiction.  If the tax authorities determine that payments of interest on shareholders' equity made to a Non-Resident Holder will benefit from a privileged tax regime, the withholding income tax rate applicable to such payments could be of 25%.

      No assurance can be given that our board of directors will not recommend that future distributions of income should be made by means of interest on shareholders' equity instead of dividends.

      Taxation of Gains

      According to Law No. 10,833/03, the gains recognized on a disposition of assets located in Brazil, such as our common shares, by a Non-Resident Holder, are subject to withholding income tax in Brazil.  This rule is applicable regardless of whether the disposition is conducted in Brazil or abroad and/or if the disposition is or is not made to an individual or entity resident or domiciled in Brazil.

      As a general rule, capital gains realized as a result of a disposition transaction are the positive difference between the amount realized on the disposition of the common shares and the respective acquisition cost.    

      Capital gains realized by Non-Resident Holders on the disposition of common shares sold on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market):

      •  ·are exempt, when realized by a Non-Resident Holder that (i) is a 2,689 Holder and (ii) is not resident or domiciled in a Tax Haven Jurisdiction; and

      •  ·are subject to income tax at a rate of 15% in case of gains realized by (A) a Non-Resident Holder that (i) is not a 2,689 Holder and (ii) is not resident or domiciled in a Tax Haven Jurisdiction; or (B) a Non-Resident Holder that (i) is a 2,689 Holder and (ii) is resident or domiciled in a Tax Haven Jurisdiction; and

      •  ·are subject to income tax at a rate of up to 25% in case of gains realized by a Non-Resident Holder that (i) is not a 2,689 Holder and (ii) is resident or domiciled in a Tax Haven Jurisdiction.  

      A withholding income tax of 0.005% will apply and can be offset against any income tax due on the capital gain.  Such withholding does not apply to a 2,689 Holder that is not resident or domiciled in a Tax Haven Jurisdiction.

      Any other gains realized on the disposition of common shares that are not carried out on the Brazilian stock exchange:

      •  ·are subject to income tax at a rate of 15% when realized by any Non-Resident Holder that is not resident or domiciled in a Tax Haven Jurisdiction, whether or not such holder is a 2,689 Holder; and

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      •  ·are subject to income tax at a rate of up to 25% when realized by a Non-Resident Holder that is resident or domiciled in a Tax Haven Jurisdiction, whether or not such holder is a 2,689 Holder.

      In the cases described above, if the gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% will also apply and can be offset against any income tax due on the capital gain.

      Any exercise of preemptive rights relating to common shares will not be subject to Brazilian withholding income tax.  Gains realized by a Non-Resident Holder on the disposition of preemptive rights will be subject to Brazilian income tax according to the same rules applicable to disposition of common shares.

      In the case of a redemption of common shares or a capital reduction, the positive difference between the amount received by the Non-Resident Holder and the acquisition cost of the common shares redeemed in reais is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market and is therefore subject to income tax at the rate of 15%, or 25%, as the case may be.

      Sale of ADSs by U.S. Holders to Other Non-Residents in Brazil

      As discussed above, pursuant to Law No. 10,833, the sale of assets located in Brazil involving Non-Resident Holders is subject to Brazilian withholding income tax.  We believe that the ADSs do not fall within the definition of assets located in Brazil for the purposes of Law No. 10,833, and, thus, should not be subject to the Brazilian withholding tax.  However, due to the lack of any administrative or judicial guidance, there is no assurance that such position would prevail.

      Gains on the Exchange of ADSs for Common Shares

      The withdrawal of ADSs in exchange for common shares is not subject to Brazilian income tax, assuming compliance with applicable regulation regarding the registration of the investment with Brazilian Central Bank.

      Gains on the Exchange of Common Shares for ADSs

      The deposit of common shares in exchange for the ADSs may be subject to Brazilian withholding income tax on capital gains if the amount previously registered with the Central Bank as a foreign investment in common shares or, in the case of other market investors under Resolution No. 2,689, the acquisition cost of the common shares, as the case may be, is lower than:

      •  ·the average price per common share on the Brazilian stock exchange on which the greatest number of such common shares were sold on the day of deposit; or

      •  ·if no common shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of common shares were sold during the 15 preceding trading sessions.

      The difference between the amount previously registered, or the acquisition cost, as the case may be, and the average price of the common shares, calculated as set forth above, is considered a capital gain subject to income tax at a rate of 15%, or 25% if the Non-Resident Holder is resident or domiciled in a Tax Haven Jurisdiction.

      Tax on Financial Transactions

      The Tax on Financial Transactions(Imposto sobre Operações de Crédito, Câmbio e Seguro ou relativas a Títulos ou Valores Mobiliários), or “IOF”, is imposed on foreign exchange, securities, credit and insurance transactions.

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      IOF onForeign Exchange Transactions

      Tax on foreign exchange transactions, or "IOF/Exchange"“IOF/Exchange”, may be levied on foreign exchange transactions (conversion of foreign currency in reais and conversion of reais into foreign currency), affecting either or both the inflow or outflow of investments.  Currently, the IOF/Exchange rate applicable to most foreign currency exchange transactions is 0.38%.

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      However, foreign exchange transactions entered into as of October 20, 2009December 30, 2010 by foreign investors in connection with inflows of proceeds to Brazil related to investments carried out in the Brazilian financial and capital marketsor under the regulations issued by investors which register their investment under Resolution No. 2,689 isthe Monetary Council of Brazil are subject to the IOF/Exchange at a rate ofrates ranging from 2% to 6% (outflow related to the return of such investment is subject to a zero percent rate). ThisThe 2% rate is levied on the trading in a Brazilian stock exchange (including over-the-counter trasactions) except for fixed income transactions with derivatives. The acquisition or subscription of shares through public offerings registered for trading on a Brazilian stock exchange is also subject to such rate. A zero percent rate applies to payments of dividends and interest on shareholders' equity received by foreign investors with respect to investments in the Brazilian financial and capital markets, such as investments made by 2,689 Holders.

      The Brazilian Government may increase the rate of the IOF/Exchange to a maximum rate of 25% of the amount of the foreign exchange transactions at any time, but such an increase will only apply in respect to future foreign exchange transactions.

      IOF on Bonds and Securities Transactions

      IOF may also be levied on transactions involving bonds and securities, or "IOF/Securities"“IOF/Securities”, including those carried out on a Brazilian stock, futures or commodities exchanges.  The IOF/Securities levies at a rate of 1.5% on transfer of shares traded on the Brazilian stock exchange with the specific purpose of enabling the issuance of depositary receipts to be traded outside Brazil starting November 19, 2009.

      The rate of the IOF/Securities applicable to most transactions involving common shares is currently zero percent.  In particular, the IOF/Securities levies at a rate of 1.5% on the transfer of shares traded in the Brazilian stock exchange with the purpose of the issuance of depositary receipts to be traded outside Brazil.  The Brazilian Government may increase the rate of the IOF/Exchange up to 1.5% per day at any time, but such an increase will only apply in respect of future transactions.

      Other Brazilian Taxes

      There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares or ADSs by a non-Brazilian holder, except for gift and inheritance taxes which are levied by some states of Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled in Brazil to individuals or entities resident or domiciled within that state in Brazil.  There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of common shares or ADSs.

      U.S. Federal Income Tax Considerations

      The summary discussion below is applicable to you only if you are a “U.S. Holder” (as defined below) that is not domiciled in Brazil (or domiciled or resident in a tax haven jurisdiction) for purposes of Brazilian taxation and, in the case of a holder of common shares, that has registered its investment in common shares with the Central Bank as a U.S. dollar investment.

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      For purposes of this discussion, a U.S. Holder is any beneficial owner of common shares or ADSs that is (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source, or (iv) a trust if a U.S. court is able to exercise primary supervision over administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or if the trust validly elects under applicable Treasury regulations to be taxed as a U.S. person.  A “Non-U.S. Holder” is any beneficial owner of common shares or ADSs that is an individual, corpo ration,corporation, estate or trust who is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes.

      If a partnership holds our common shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership.  A prospective investor who is a partner of a partnership holding our shares should consult its own tax advisor.

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      In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, holders of ADRs evidencing ADSs will be treated as the owners of the common shares represented by those ADSs, and exchanges of common shares for ADSs, and ADSs for common shares, will not be subject to U.S. federal income tax.

      Taxation of Dividends

      U.S. Holders

      Under the U.S. federal income tax laws, and subject to the passive foreign investment company (“PFIC”) rules discussed below, U.S. Holders will include in gross income, as dividend income, the gross amount of any distribution paid by us (including payments considered “interest” in respect of stockholders’ equity under Brazilian law) (before reduction for Brazilian withholding taxes) out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) when the distribution is actually or constructively received by the U.S. Holder, in the case of common shares, or by our ADR Depositary, in the case of ADSs.  Distributions in excess of current and accumulated earnings and profits, as determined under U.S. federal income tax principles, will be treated as a return of capital to the extent of the U.S. Hold er’sHolder’s adjusted tax basis in the common shares or ADSs and thereafter as capital gain, which will be either long-term or short-term capital gain depending on whether the U.S. holder held the common shares or ADSs for more than one year.  We do not intend to maintain calculations of our earnings and profits under U.S. federal income tax principles and, unless and until such calculations are made, U.S. Holders should assume all distributions are made out of earnings and profits and constitute dividend income.

      The dividend income will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.  Subject to certain exceptions for short-term and hedged positions certain non-corporate U.S. Holders (including individuals) may qualify for a maximum 15% rate of tax in respect of “qualified dividend income” received before January 1, 2011.2013.  Dividend income with respect to the ADSs will be qualified dividend income, provided that, in the year that a non-corporate U.S. Holder receives the dividend, the ADSs are readily tradable on an established securities market in the United States, and we were not in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a PFIC.  Based on existing Internal Revenue Service (“IRS&# 148;IRS”) guidance, it is not entirely clear whether dividends received with respect to the common shares will be treated as qualified dividend income, because the common shares are not themselves listed on a U.S. exchange.

      The amount of the dividend distribution includible in gross income of a U.S. Holder will be the U.S. dollar value of thereal realpayments made, determined at the spotreal/U.S. dollar rate on the date such dividend distribution is includible in the gross income of the U.S. Holder, regardless of whether the payment is in fact converted into U.S. dollars.  Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in gross income to the date such payment is converted into U.S. dollars will be treated as ordinary income or loss from sources within the United States and will not be eligible for the special tax rate applicable to qualified dividend income.

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      Dividends received by most U.S. holders will constitute foreign source “passive income” for foreign tax credit purposes.  Subject to limitations under U.S. federal income tax law concerning credits or deductions for foreign income taxes and certain exceptions for short-term and hedged positions, any Brazilian income tax withheld from dividends paid by us would be treated as a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or at a U.S. Holder’s election, may be deducted in computing taxable income if the U.S. Holder has elected to deduct all foreign income taxes paid or accrued for the relevant taxable year).  The rules with respect to foreign tax credits are complex and U.S. Holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their parti cularparticular circumstances.

      The U.S. Treasury Department has expressed concern that intermediaries in connection with depositary arrangements may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. persons who are holders of depositary shares.  Accordingly, investors should be aware that the discussion above regarding the availability of foreign tax credits for Brazilian income tax withheld from dividends paid with respect to common shares represented by ADSs could be affected by future action taken by the U.S. Treasury Department.

      104

       

      Distributions of additional common shares to U.S. Holders with respect to their common shares or ADSs that are made as part of a pro rata distribution to all our stockholders generally will not be subject to U.S. federal income tax.

      Non-U.S. Holders

      Dividends paid to a Non-U.S. Holder in respect of common shares or ADSs will not be subject to U.S. federal income tax unless those dividends are effectively connected with the conduct of a trade or business within the United States by the Non-U.S. Holder (and are attributable to a permanent establishment maintained in the United States by the Non-U.S. Holder, if an applicable income tax treaty so requires as a condition for the Non-U.S. Holder to be subject to U.S. taxation on a net income basis in respect of income from common shares or ADSs), in which case the Non-U.S. Holder generally will be subject to U.S. federal income tax in respect of the dividends in the same manner as a U.S. Holder.  Any such effectively connected dividends received by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional “branch profits ta x”tax” (at a 30% rate or at a reduced rate as may be specified by an applicable income tax treaty).

      Taxation of Capital Gains

      U.S. Holders

      Subject to the PFIC rules discussed below, upon a sale, redemption or other taxable disposition of common shares or ADSs, a U.S. Holder will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized (before deduction of any Brazilian tax) and the U.S. Holder’s adjusted tax basis (determined in U.S. dollars) in the common shares or ADSs.  Generally, the U.S. Holder’s gain or loss will be capital gain or loss.  Capital gain of a non-corporate U.S. Holder that is recognized before January 1, 2011 is generally taxed at a maximum rate of 15% where the property is held for more than one year.  The deductibility of capital losses is subject to limitations under the Code.

      If a Brazilian income tax is withheld on the sale, exchange or other taxable disposition of common shares or ADSs, the amount realized by a U.S. Holder will include the gross amount of the proceeds of that sale, exchange or other taxable disposition before deduction of the Brazilian tax.  Capital gain or loss, if any realized by a U.S. Holder on the sale, exchange or other taxable disposition of common shares or ADSs generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes.  Consequently, in the case of a gain from the disposition of a share or ADS that is subject to Brazilian income tax (see “Taxation – Brazilian Tax Considerations – Taxation of Gains”), the U.S. Holder may not be able to benefit from the foreign tax credit for that Brazilian income tax (i.e., because the gain from the disposition would be U.S. source income), unless the U.S. Holder can apply the credit against U.S. federal income tax payable on other income from foreign sources.  Alternatively, the U.S. Holder may take a deduction for the Brazilian income tax if it does not elect to claim a foreign income tax credit for any foreign taxes paid or accrued during the taxable year.

      Non-U.S. Holders.  A Non-U.S. Holder will not be subject to U.S. federal income tax in respect of gain recognized on a sale, exchange or other taxable disposition of common shares or ADSs unless:

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      • ·the gain is effectively connected with a trade or business of the Non-U.S. Holder in the United States (and is attributable to a permanent establishment maintained in the United States by that Non-U.S. Holder, if an applicable income tax treaty so requires as a condition for that Non-U.S. Holder to be subject to U.S. taxation on a net income basis in respect of gain from the sale or other disposition of the common shares or ADSs); or

      • ·in the case of a Non-U.S. Holder who is an individual, that Non-U.S. Holder is present in the United States for 183 or more days in the taxable year of the sale and certain other conditions apply.

      Effectively connected gains realized by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional branch profits tax (at a 30% rate or at a reduced rate as may be specified by an applicable income tax treaty).

      105

      Passive Foreign Investment Companies

       

      Based on current estimates of our gross income, gross assets and the nature of our business, we believe that our common shares and ADSs should not be treated as stock of a PFIC for U.S. federal income tax purposes.  There can be no assurances in this regard, however, because the application of the relevant rules is complex and involves some uncertainty.  The PFIC determination is made annually and is based on the portion of our assets and income that is characterized as passive under the PFIC rules.  Moreover, our business plans may change, which may affect the PFIC determination in future years.

      In general, we will be a PFIC with respect to a U.S. Holder if, for any taxable year in which the U.S. Holder held our ADSs or common shares, either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value (determined on the basis of a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income.  For this purpose, passive income generally includes, among other things, dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income.  If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the a ssetsassets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.

      If we are treated as a PFIC, a U.S. Holder that did not make a “mark-to-market election” or “QEF election,” each as described below, would be subject to special rules with respect to (a) any gain realized on the sale or other disposition of common shares or ADSs and (b) any “excess distribution” by CSN to the U.S. Holder (generally, any distributions to the U.S. Holder in respect of the common shares or ADSs during a single taxable year that are greater than 125% of the average annual distributions received by the U.S. Holder with respect to the common shares or ADSs during the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the common shares or ADSs).  Under these rules, (i) the gain or excess distribution would be allocated ratably over the U.S. Holder’s holding period for the common shar esshares or ADSs, (ii) the amount allocated to the taxable year in which the gain or excess distribution was realized would be taxable as ordinary income, (iii) the amount allocated to each prior year, with certain exceptions, would be subject to tax at the highest tax rate in effect for that year and (iv) the interest charge generally applicable to underpayments of tax would be imposed in respect of the tax attributable to each such prior year.

      If we are treated as a PFIC and, at any time, we invest in non-U.S. corporations that are classified as PFICs (each, a “Subsidiary PFIC”), U.S. Holders generally will be deemed to own, and also would be subject to the PFIC rules with respect to, their indirect ownership interest in that Subsidiary PFIC.  If we are treated as a PFIC, a U.S. Holder could incur liability for the deferred tax and interest charge described above if either (1) we receive a distribution from, or dispose of all or part of our interest in, the Subsidiary PFIC or (2) the U.S. Holder disposes of all or part of its common shares or ADSs.

      The special PFIC tax rules described above will not apply to a U.S. Holder if the U.S. Holder makes an election (i) to “mark-to-market” with respect to the common shares or ADSs (a “mark-to-market election”) or (ii) to have us treated as a “qualified electing fund” (a “QEF election”).  The QEF election is not available to holders unless we agree to comply with certain reporting requirements and provide the required annual information statements.  The QEF and mark-to-market elections only apply to taxable years in which the U.S. Holder’scommon shares or ADSs are treated as stock of a PFIC.  Our ADR Depositary has agreed to distribute the necessary information to registered holders of ADSs.

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      A U.S. Holder may make a mark-to-market election, if the common shares or ADSs are regularly traded on a “qualified exchange.”  Under applicable U.S. Treasury regulations, a “qualified exchange” includes a national securities exchange, such as the New York Stock Exchange, that is registered with the SEC or the national market system established under the Exchange Act.  Also, under applicable Treasury Regulations, PFIC securities traded on a qualified exchange are regularly traded on such exchange for any calendar year during which such stock is traded, other than inde minimis quantities, on at least 15 days during each calendar quarter.  We cannot assure you that the common shares or ADS sADSs will be eligible for a mark-to-market election.

      A U.S. Holder that makes a mark-to-market election must include for each taxable year in which the U.S. Holder’s common shares or ADSs are treated as shares of a PFIC, as ordinary income, an amount equal to the excess of the fair market value of the common shares or ADSs at the close of the taxable year over the U.S. Holder’s adjusted tax basis in the common shares or ADSs, and is allowed an ordinary loss for the excess, if any, of the adjustedtheadjusted tax basis over the fair market value of the common shares or ADSs at the close of the taxable year, but only to the extent of the amount of previously included mark-to-market inclusions (not offset by prior mark-to-market losses).  These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains.  A U.S. Holder’s tax basis in t hethe common shares or ADSs will be adjusted to reflect any such income or loss amounts.  Although a U.S. Holder may be eligible to make a mark-to-market election with respect to its common shares or ADSs, no such election may be made with respect to the stock of any Subsidiary PFIC that such U.S. Holder is treated as owning, because such Subsidiary PFIC stock is not marketable.  Thus, the mark-to-market election will not be effective to avoid all of the adverse tax consequences described above with respect to any Subsidiary PFICs.  U.S. Holders should consult their own tax advisors regarding the availability and advisability of making a mark-to-market election with respect to their common shares of ADSs based on their particular circumstances.

      106

       

      A U.S. Holder that makes a QEF election will be currently taxable on its pro rata share of our ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each of our taxable years, regardless of whether we distributed the income and gain.  The U.S. Holder’s basis in the common shares or ADSs will be increased to reflect taxed but undistributed income.  Distributions of income that had previously been taxed will result in a corresponding reduction of tax basis in the common shares or ADSs and will not be taxed again as a distribution to the U.S. Holder.

      In addition, notwithstanding any election that a U.S. Holder makes with regard to the common shares or ADSs, dividends that a non-corporate U.S. Holder receives from us will not constitute qualified dividend income if we are a PFIC either in the taxable year of the distribution or the preceding taxable year.

      Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or, in certain cases, QEF inclusions.

      A U.S. Holder who owns common shares or ADSs during any year that we are a PFIC must file IRS Form 8621.

      Backup Withholding and Information Reporting

      U.S. Holders

      Dividends paid on, and proceeds from the sale, redemption or other taxable disposition of common shares or ADSs to a U.S. Holder generally will be subject to information reporting and backup withholding, unless, in the case of backup withholding, the U.S. Holder provides an accurate taxpayer identification number or in either case otherwise establishes and exemption.  The amount of any backup withholding collected from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that certain required information is timely furnished to the IRS.

      Recently enacted legislation requires certain U.S. Holders to report information with respect to their investment in certain “foreign financial assets,” which would include an investment in our common shares, notheld through a custodial account with a U.S. financial institution to the IRS.  Investors who fail to report required information could become subject to substantial penalties.  Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of this new legislation on their investment in our common shares.

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      Table of Contents

      Non-U.S. Holders

      If common shares are held by a Non-U.S. Holder through the non-U.S. office of a non-U.S. related broker or financial institution, backup withholding and information reporting generally would not be required.  Information reporting, and possibly backup withholding, may apply if the common shares are held by a Non-U.S. Holder through a U.S., or U.S.-related, broker or financial institution, or the U.S. office of a non-U.S. broker or financial institution and the Non-U.S. Holder fails to provide appropriate information.  Information reporting and backup withholding generally will apply with respect to ADSs if the Non-U.S. Holder fails to timely provide appropriate information.  Non-U.S. Holders should consult their tax advisors regarding the application of these rules.

      107

      10F.  Dividends and Paying Agents

      Not applicable.

      10G.  Statement by Experts

      Not applicable.

      10H.  Documents on Display

      We are subject to the information requirements of the Exchange Act and accordingly file reports and other information with the SEC.  Reports and other information filed by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549.  You can obtain further information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  Our SEC filings are also available to the public from the SEC’s website at http://www.sec.gov.  You may also inspect our reports and other information at the offices of the NYSE, 11 Wall Street , New York, New York 10005, on which our ADSs are listed.  For further information on obtaining copies of our public filings at the NYSE, you should call (212) 656-5060.  We also file financial statements and other periodic reports with t hethe CVM.

      10I.  Subsidiary Information

      Not required.

      Item 11.  Quantitative and Qualitative Disclosures About Market Risk

      We are exposed to a number of different market risks arising from our normal business activities.  Market risk is the possibility that changes in interest rates, currency exchange rates, commodities prices will adversely affect the value of financial assets, liabilities, expected future cash flows or earnings.  We developed policies aimed at managing the volatility inherent to certain of these natural businessexposures.  We use financial instruments, such as derivatives, in order to achieve the main goals established by our Board of Directors to minimize the cost of capital and maximize the returns on financial assets, while observing, as determined by our Board of Directors, parameters of credit and risk.  Derivatives are contracts whose value is derived from one or more underlying financial instruments, indices or prices defined in the contract.  Only well-understood, conventional derivative instruments are used for these purposes.  These include futures and options traded on regulated exchanges and “over-the-counter” swaps, options and forward contracts.

      Market Risk Exposures and Market Risk Management

      Our treasury department is responsible for managing our market risk exposures.Weexposures.  We use some internal controls in order to:

      ·        help us understand market risks;

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      ·        reduce the likelihood of financial losses; and

      ·        diminish the volatility of financial results.

      The principal tools used by our treasury department are:

      ·        “Sensitivity Analysis,” which measures the impact that movements in the price of different market variables such as interest rates and exchange rates will have in our earnings and cash flows.flows; and

      ·        “Stress Testing,” which measures the worst possible loss from a set of consistent scenarios to which probabilities are not assigned.  The scenarios are deliberately chosen to include extreme changes in interest and currency exchange rates.

      Following is a discussion of the primary market risk exposures that we face together with an analysis of the exposure to each one of them.


      Interest Rate Risk

       

      We are exposed to interest rate risk on short- and long-term instruments and as a result of refinancing of fixed-rate instruments included in our consolidated debt.  Consequently, as well as managing the currency and maturity of debt, we manage interest costs through a balance between lower-cost floating rate debt, which has inherently higher risk, and more expensive, but lower risk, fixed-rate debt.  We can use swaps, options and other derivatives to achieve the desired ratio between floating-rate debt and fixed-rate debt.  The desired ratio varies according to market conditions:  if interest rates are relatively low, we will shift towards fixed rate debt.

      We are basically exposed to the following floating interest rates:

      ·        U.S. dollar LIBOR, due to our floating rate U.S. dollar-denominated debt (usually trade-finance related), to our cash position held offshore in U.S. dollars, which is invested in short-term instruments, and

      ·        TJLP (Long Term Interest Rate), due toreal-denominated debt indexed to this interest rate, and

      • ·CDI (benchmark Brazilian real overnight rate), due to our cash held in Brazil (onshore cash) and to our CDI indexed debt.

      Exposure as of December 2008* (amortization)

       

      Notional 

       

      2009 

       

      2010 

       

      2011 

       

      2012 

       

      2013 

       

      Thereafter 

      US dollar LIBOR

       

      619 

       

       47

       

      56 

       

      177 

       

      204 

       

      N/A 

       

      134 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      US dollar fixed rate

       

      3,287 

       

       1,155

       

      197 

       

      73 

       

      54 

       

      N/A 

       

      1,808 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Euro fixed rate

       

      2 

       

       0

       

      0 

       

      0 

       

      0 

       

      N/A 

       

      0 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      CDI

       

      324 

       

       0

       

      0 

       

      36 

       

      257 

       

      N/A 

       

      43 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      IGPM

       

      29 

       

       4

       

      4 

       

      4 

       

      4 

       

      N/A 

       

      11 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      TJLP

       

      432 

       

       87

       

      69 

       

      66 

       

      77 

       

      N/A 

       

      133 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Exposure as of December 2010* (amortization)

       

      Notional 

       

      2011

       

      2012

       

      2013

       

      2014

       

      2015

       

      Thereafter 

      US dollar LIBOR

       

      2,229

       

      488

       

      460

       

      130

       

      271

       

      279

       

      601 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      US dollar fixed rate

       

      6,734

       

      134

       

      113

       

      1.011

       

      77

       

      702

       

      4,697

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      CDI

       

      7,000

       

       0

       

      1.033

       

      533

       

      1.433

       

      1.000

       

      3.000 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      TJLP

       

      1,268

       

      210

       

      244

       

      251

       

      42

       

      29

       

      492

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Exposure as of December 2009* (amortization)

       

      Notional 

       

      2010 

       

      2011 

       

      2012 

       

      2013 

       

      2014 

       

      Thereafter 

       

      Notional  

       

      2010

       

      2011

       

      2012

       

      2013

       

      2014

       

      Thereafter  

      US dollar LIBOR

       

      1,538 

       

       105

       

      515 

       

      550 

       

      187 

       

      181 

       

      0 

       

      2,679 

       

      183

       

      897

       

      958

       

      326

       

      315

       

      0 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      US dollar fixed rate

       

      3,000 

       

       209

       

      82 

       

      67 

       

      606 

       

      46 

       

      1,990 

       

      5,224 

       

      364

       

      143

       

      117

       

      1,055

       

      80

       

      3,465 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Euro fixed rate

       

      0 

       

       0

       

      0 

       

      0 

       

      0 

       

      0 

       

      0 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      CDI

       

      2,297 

       

       0

       

      383 

       

      1,359 

       

      306 

       

      249 

       

      0 

       

      3,999 

       

       0

       

      667

       

      2,366

       

      532

       

      434

       

      0 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      IGPM

       

      0 

       

       0

       

      0 

       

      0 

       

      0 

       

      0 

       

      0 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      TJLP

       

      791 

       

       115

       

      115 

       

      135 

       

      139 

       

      23 

       

      264 

       

      1,377 

       

       200

       

      200

       

      235

       

      242

       

      40

       

      460

       

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      * All figures in U.S. dollars.Reais (R$) .  Because we primarily use Brazilian GAAP controls, the numbers shown in the table do not add up to 100% of our debt and might differ, within some margin, from the numbers shown in this report.

      Our cash and cash equivalent instruments were as follows:

       

       

       

       

       

       

       

       

       

       

       

       

       

      December 2008 

       

      December 2009 

       

      Exposure 

       

      December 31,  2010  

       

      December 31,  2009  

       

      Exposure  

       

       

       

       

       

       

      Cash inreais:

       

      698 

       

      2,131 

       

      CDI 

       

      2,635 

       

      2,131

       

      CDI 

      Cash in U.S. dollars:

       

      2,844 

       

      1,850 

       

      LIBOR 

       

      4,556 

       

      1,850

       

      LIBOR 

       

      The table below shows the average interest rate and the average life of our debt.

       

       

       

       

       

       

       

       

       

      December 2008 

       

      December 2009 

       

      December 2010  

       

      December 2009  

       

      Average rate % 

       

      Average life 

       

      Average rate % 

       

      Average life 

       

      Average rate %  

       

      Average life  

       

      Average rate %  

       

      Average life  

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      U.S. dollar LIBOR*

       

      1.35 

       

      3.28 

       

      2.52 

       

      2.36 

       

      2.23 

       

      3.15 

       

      2.52 

       

      2.36 

      U.S. dollar fixed rate

       

      7.83 

       

      11.43 (with perpetual bond)

       

      8.27 

       

      15.81 (with perpetual bond)

       

      7.41 

       

      14.91 (with perpetual bond)

       

      8.27 

       

      15.81 (with perpetual bond)

      Euro fixed rate

       

      5.74 

       

      2.54 

       

      N/A 

       

      N/A 

       

      N/A 

       

      N/A 

       

      N/A 

       

      N/A 

      UMBNDES*

       

      4.55 

       

      0,72 

       

      N/A 

       

      N/A 

       

      N/A 

       

      N/A 

       

      N/A 

       

      N/A 

      CDI

       

      103.83 of CDI 

       

      3.21 

       

      112.53 of CDI 

       

      2.46 

       

      110.58 of CDI 

       

      4.61 

       

      112.53 of CDI 

       

      2.46 

      IGPM*

       

      7.11 

       

      3.71 

       

      N/A 

       

      N/A 

       

      N/A 

       

      N/A 

       

      N/A 

       

      N/A 

      TJLP*

       

      2.54 

       

      3.07 

       

      3.00 

       

      5.57 

       

      2.21 

       

      5.58 

       

      3.00 

       

      5.57 

      * In these cases, figures shown in the table represents the average spread.

      109

       

              During 2008, our decision wasThe Company entered into cross-currency swap agreements to hedge part of our U.S. dollar fixed-rate exposure dueliabilities indexed to the volatility of U.S. interest rates. We maintained our policyUS Dollar from the previous year of keeping most of our position in OTC swaps, thus avoiding margin requirementsBrazilian Real fluctuations, which are mostly affected by market, economic, political, regulatory and rollover transaction costs at BM&F, the Brazilian derivatives exchange.geopolitical conditions, among others. The gains and losses from these contracts are directly related to exchange (dollar) and CDI fluctuations. The duration of our U.S. dollar fixed-rate derivatives decreasedincreased from  103 days as of December 31, 2008 to  40 days as of December 31, 2009 to  54 days as of December 31, 2010 (see tables below).

       

       

       

       

       

       

       

       

       

       

       

       

       

      Notional 

       

      Average interest rate 

       

      Average maturity 

       

      Notional  

       

      Average interest rate  

       

      Average maturity  

      As of December 2009

       

      (in U.S. dollar million, 

       

      (U.S. dollar)

       

      (days)

      As of December 31, 2010

       

      (in U.S. dollar million,  

       

      (U.S. dollar)

       

      (days)

       

      unless otherwise indicated)

       

       

       

       

       

      unless otherwise indicated)

       

       

       

       

       

       

      Swaps (U.S. dollar fixed - rate versus CDI)

       

      1,520

       

      0.8823%

       

      40

       

      1,178

       

      2.29%

       

      54

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Notional 

       

      Average interest rate 

       

      Average maturity 

       

      Notional  

       

      Average interest rate  

       

      Average maturity  

      As of December 2008

       

      (in U.S. dollar million, 

       

      (U.S. dollar)

       

      (days)

      As of December 31, 2009

       

      (in U.S. dollar million,  

       

      (U.S. dollar)

       

      (days)

       

      unless otherwise indicated)

       

       

       

       

       

      unless otherwise indicated)

       

       

       

       

       

       

       

       

       

       

      Swaps (U.S. dollar fixed - rate versus CDI )

       

      1,530

       

      3.4948%

       

      103

       

      1,520

       

      0.8823%

       

      40

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      * daily reset

      * daily reset

      * daily reset

       

      Foreign Currency Exchange Rate Risk

      Fluctuations in exchange rates can have significant effects on our operating results, which in filings with the SEC are presented in U.S. dollars.results.  Therefore, exchange rate fluctuations affect the values of ourreal-denominated assets, the carrying and repayment costs of ourreal-denominated financial liabilities, ourreal-denominated production costs, the cost ofreal-denominated capital items and the prices we receive in the Brazilian market for our finished steel products.  We attempt to manage our net foreign exchange rate exposures, trying to balance our non-real realdenominated assets with our non-real realdenominated liabilities.  We use derivative instruments to match our non-real realdenominated assets to our non-real realdenominated liabilities, but at any given time we may still have significant foreign currency exchange rate risk exposure.

      124

      Table of Contents

      Our exposure to U.S. dollar is due to the following contract categories:

      ·        U.S. dollar-denominated debt;

      ·        offshore cash;

      ·        currency derivatives (in the case of options, we use the delta as a measure of exposure);

      ·        U.S. dollar indexed accounts payable and receivable (usually related to international trade, i.e., imports and exports); and

      • ·offshore investments:  assets that we bought offshore and that are denominated in U.S. dollars on our balance sheet.

       

       

       

       

       

       

       

       

       

      December 2008 

       

      December 2009 

       

      December 31, 2010  

       

      December 31, 2009  

       

       

       

       

       

       

       

       

      U.S. dollar Liabilities

       

      4,460 

       

      4,660

       

      5,803

       

      4,660

      loans and financing

       

      3,906 

       

      4,597

       

      5,735

       

      4,597

      trade accounts payable

       

      554 

       

      32

       

      8

       

      32

      other

       

      - 

       

      31

       

      60

       

      31

      U.S. dollar Assets

       

      4,434 

       

      4,530 

       

      5,903

       

      4,530

      offshore cash and cash equivalents

       

      2,844 

       

      1,908 

       

      4,240

       

      1,908

      derivatives (swaps and NDFs)

       

      1,530 

       

      2,170 

       

      1,402

       

      2,170

      trade accounts receivable

       

      60 

       

      107 

       

      33

       

      107

      offshore investments (net of cash)

       

      - 

       

      184

       

      97

       

      184

      other

       

      - 

       

      161

       

      131

       

      161

      Total U.S. dollar Exposure

       

      26 

       

      131

       

      100

       

      131


      110

      Offshore investments

      We have capitalized our offshore subsidiaries domiciled in U.S. dollar-based countries with equity investments, and those investments are accounted as U.S. dollar investments.  The result is that they work as assets indexed to U.S. dollar from an earnings perspective.

      Commodity Price Risk

      Fluctuations in the price of steel and some of the commodities used in producing steel, such as zinc, aluminum, tin, coal, coke and energy, can have an impact on our earnings.  Currently, we are not hedging our exposure to commodity prices.  Our biggest commodity price exposure is the price of steel and coal, but there are no liquid instruments that provide an effective hedge against their price fluctuations.

      Equity Risk

      In 2003, we entered into certain equity swap agreements referenced to our shares. These agreements were originally entered into with POBT Bank and Trust Limited (an affiliate of Banco Pactual), which later assigned the agreements to UBS Symmetry Fund, UBS Strategy Fund and Fruhling Fund. In 2008, these agreements were assigned to Goldman Sachs International. Our last equity swap agreement with Goldman Sachs International had a termination date of September 10, 2009. The agreements set that the counterparty would pay us the cash dividends and final price return, if positive, on 29,684,400 CSN ADRs (equivalent to 59,368,800 ADRs after the stock split of March 25, 2010) and we would pay the counterparty a rate of USD three-month Libor plus 0.75% per annum on the initial price of this number of ADRs and the final price return, if negative, on the number of ADRs. The rationale for these transactio ns was that equities historically had yielded higher long-term returns than fixed-income securities, hence tending to offset our long-term debt servicing costs. On August 13, 2009, we pre-settled the total return equity swap operation contracted on September 5, 2008, as approved by our board of directors on July 8, 2009. The guarantee margin with the counterpart in the amount of US$593 million was released on the operation settlement date. During 2009 the operation generated a gain of US$515 million, which was recorded as financial income in the statement of income. We are no longer exposed to equity risk. See “Item10C. Material Contracts,” “Item 5A—Operating Results” and Note 21(c) to our consolidated financial statements contained in “Item 18. Financial Statements.”

      125

      Table of Contents

      Sensitivity analysis

      The economic environment in which we operate determines the main factors taken into consideration to establish risk scenarios.  In the Brazilian economic environment exchange rate variation is the most notable market risk.

      Thereal realexchange rate has significant volatility.  Between 1999 and 2008 thereal realexchange rate had an average annual volatility of 22% and in four years during this period volatility was of approximately 50%, including 2008.

      To develop our sensitivity analysis we analyze threefive different scenarios of exchange rate variation.  The first scenario reflects our projection, at the end of the fiscal year, and is the scenario we consider more likely.  The second scenario reflects a moderate adverse variation based on historic figures and the third scenario provides for a significantly adverse scenario based on exceptional but plausible economic shocks.

      Based on the foreign exchange rate of December 31, 20092010 of R$1.74121.6662 per US$1.00, adjustments to the swap agreement amounts were estimated for threefive scenarios:  scenario 1: Probable scenario,  rate of R$1.75361.6736 per US$1.00; scenario 2:  (25% depreciation)of Real appreciation) rate of R$1.30591.2497 per US$1.00; scenario 3:  (50% depreciation)of Real appreciation) rate of R$0.87060.8331 per US$1.00.1.00; scenario 4: (25% of Real devaluation) rate of R$ 2.0828; scenario 5: (50% of Real devaluation) rate of R$ 2.4993.

      December 31, 2009

      (In thousand of US$,

      except for exchange rates)

      Risk

      Scenario

      Reference

      Value

      Exchange

      Rates

      Additional

      Results

      1,519,500

      1.7412

      Foreign Exchange swaps

      Dollar devaluation

      1

      1.7536

      10,803

      2

      1.3059

      (379,875)

      3

      0.8706

      (759,750)

      (1,254)

      1.7412

      Interest Swap CDI x Libor

      Dollar devaluation

      1

      1.7536

      (9)

       

      2

      1.3059

      314

      3

      0.8706

      627

      649,500

      1.7412

      Exchange rate future agreements

      Dollar devaluation

      1

      1.7536

      4,618

      2

      1.3059

      (162,375)

      3

      0.8706

      (324,750)

      December 31, 2010

      Risk

      Scenario

      Reference

      Exchange

      Additional

       

      Value

      Rates

      Results

       

      (In million of US$)

       

      (In million of R$)

       

       

       

       

       

       

       

      1,178

      1.6662

       

      Foreign Exchange swaps

      Fluctuation of US$

      1

       

      1.6736

      9

       

       

      2

       

      1.2497

      (491)

       

       

      3

       

      0.8331

      (981)

       

       

      4

       

      2.0828

      491

       

       

      5

       

      2.4993

      981

       

       

       

       

       

       

       

       

       

      (1,151)

      1.6662

       

      Exchange position - BRL
      Functional currency

      Fluctuation of US$

      1

       

      1.6736

      (9)

      (not including exchange derivatives above)

       

      2

       

      1.2497

      479

       

       

      3

       

      0.8331

      958

       

       

      4

       

      2.0828

      (479)

       

       

      5

       

      2.4993

      (958)

       

       

       

       

       

       

       

       

       

      99

      1.6662

       

      Consolidated exchange position

      Fluctuation of US$

      1

       

      1.6736

      -

      (including exchange derivatives above)

       

      2

       

      1.2497

      (41)

       

       

      3

       

      0.8331

      (83)

       

       

      4

       

      2.0828

      41

       

       

      5

       

      2.4993

      83

      (*)  Source: Future Dollar closing rate on February 2010 in December 31, 2009.111

       

      For consolidated exchange transactions with Euro fluctuation risk, based on the foreign exchange rate on December 31, 2010, of R$ 2.2280 per €$ 1.00, adjustments were estimated for five scenarios: scenario 1: Probable scenario, rate of R$2.2188 per €$ 1.00; scenario 2: (25% of Real appreciation) rate of R$1.6710 per €$ 1.00; scenario 3: (50% of Real appreciation) rate of R$1.1140 per €$ 1.00; scenario 4: (25% of Real devaluation) rate of R$ 2.7850; scenario 5: (50% of Real devaluation) rate of R$ 3.3420.

       

       

       

       

       

       

      December 31, 2010

      Risk

      Scenario

      Reference

      Exchange

      Additional

       

      Value

      Rates

      Results

       

      (in million of EUR)

       

      (in million of R$)

       

       

       

       

       

       

       

      90

      2.2280

       

      Foreign Exchange swaps

      Fluctuation of EURO

      1

       

      2.2188

      (1)

       

       

      2

       

      1.6710

      (50)

       

       

      3

       

      1.1140

      (100)

       

       

      4

       

      2.7850

      50

       

       

      5

       

      3.3420

      100

       

       

       

       

       

       

       

       

       

      6

      2.2280

       

      Exchange position - BRL
      Functional currency

      Fluctuation of EURO

      1

       

      2.2188

      (0)

      (not including exchange derivatives above)

       

      2

       

      1.6710

      (3)

       

       

      3

       

      1.1140

      (6)

       

       

      4

       

      2.7850

      3

       

       

      5

       

      3.3420

      6

       

       

       

       

       

       

       

       

       

      96

      2.2280

       

      Consolidated exchange position

      Fluctuation of EURO

      1

       

      2.2188

      (1)

      (including exchange derivatives above)

       

      2

       

      1.6710

      (53)

       

       

      3

       

      1.1140

      (106)

       

       

      4

       

      2.7850

      53

       

       

      5

       

      3.3420

      106

      112

      Sensitivity analysis of interest rate swaps

      In millions of R$, except for nocional amount

                
       Nocional         
               2010 
       US$ million  Risk  Probable  25%  50% 
      Swapsof interest rate libor vs CDI 150  (Libor) US$  (2)  (27)  (32) 

      Sensitivity analysis of changes in interest rate

      The scenariosCompany considers  the effects of devaluationan increase or decrease of the real versus the U.S. Dollar would increase both losses5% in derivative transactionsinterest rates on its outstanding loans, financing and offsetting gainsdebentures as at December 31, 2010 in the underlying hedged exposure,consolidated financial statements.

      In millions of R$

           
       Impact on Profit or Loss    
       2010  2009  
      Variation on interest rates     
      TJLP 6  6  
      Libor 7  7  
      CDI 42  17  

      Share market price risk

              The Company is exposed to the risk of changes in the price of shares due to the investments made and classified as expected.available-for-sale.

              The sensitivity analysis is based on the assumption of maintaining the market values of 31/12/2010 as probable scenario. Therefore, not impacting on the above-mentioned financial instruments classified as available for sale. The Company considered the scenarios presented below for volatility of shares.

      Scenario 1: (25% of shares appreciation);

      Scenario 2: (50% of of shares appreciation);

      Scenario 3: (25% of shares devaluation);

      Scenario 4: (50% of shares devaluation).

      113

      In millions of R$

               
          Impact on Equity  
      Companies  25%  50%  25%  50% 
      Usiminas  205  410  (205)  (410) 
      Riversdale Mining Limited  103  206  (103)  (206) 
      Planatlântica  3  5  (3)  (5) 
        311  621  (311)  (621) 

      Item 12.  Description of Securities Other Than Equity Securities

      American Depositary Shares

      JPMorganTheJP Morgan Chase Bank, N.A. serves as the depositary for our ADSs.  ADR holders are required to pay various fees to the depositary, and the depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.

      ADR holders are required to pay the depositary amounts in respect of expenses incurred by the depositary or its agents on behalf of ADR holders, including expenses arising from compliance with applicable law, taxes or other governmental charges, facsimile transmission or conversion of foreign currency into U.S. dollars.  In this case, the depositary may decide in its sole discretion to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions.

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      Table of Contents

      ADR holders are also required to pay additional fees for certain services provided by the depositary, as set forth in the table below.

      Depositary service

       

      Fee payable by ADR holders

      Issuance and delivery of ADRs, including in connection with share distributions, stock splits

       

      USD 5.00 for each 100 ADSs (or portion thereof)

      Distribution of dividends

       

      USD 5.00 for each 100 ADSs

      Deposit of securities, including in respect of share, rights and other distributions

       

      USD 5.00 for each 100 ADSs (or portion thereof)

      Withdrawal of deposited securities

       

      USD 5.00 for each 100 ADSs (or portion thereof)

       

      Direct and indirect payments by the depositary

      The depositary reimburses us for certain expenses we incur in connection with the ADR program, subject to a ceiling agreed between us and the depositary from time to time.  These reimbursable expenses currently include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holders.  For the year ended December 31, 2009,2010, such reimbursements totaled US$0.6 million.520 thousand.

      Item 13.  Defaults, Dividend Arrearages and Delinquencies

      None.

      114

      Item 14.  Material Modification to the Rights of Security Holders and Use of Proceeds

      None.

      PART II

      Item 15.  Controls and Procedures

      Disclosure Controls and Procedures

      We have carried out an evaluation under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934.  Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) collected and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required dis closuredisclosure as of the end of our most recent fiscal year.

      Management’s annual report on internal control over financial reportingMANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

      Our management is responsible for establishing and maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.

      Our internal control over financial reporting is a process designed by, or under the supervision of, our Audit Committee, principal executive and principal financial officers, and effected by our board of directors, management, and other personnel to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and presentationprocedures that (1) pertain to the maintenance of publishedrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles.principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect material misstatements on a timely basis.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      127

      Table of Contents

      Management assessed the effectiveness of the Company’sour internal control over financial reporting as of December 31, 20092010 based on the criteria established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations – COSO – of the Treadway Commission.

      Based on the assessment, management has concluded that, the Company maintained effective internal control over financial reporting as of December 31, 2009. For a copy of our management’s report, dated May 28, 2010, on the effectiveness of our internal control over financial reporting as of December 31, 2009, see Exhibit 15.1 to this annual report.is effective.   

      Attestation Report of the Independent Registered Public Accounting Firm

      For the report of KPMG Auditores Independentes, our independent registered public accounting firm, dated May 28, 2010,June 17, 2011, on the effectiveness of our internal control over financial reporting as of December 31, 2009,2010, see “Item 18.  Financial Statements”.

      Changes in internal control over financial reporting

      Except as disclosed in the following paragraphs, there wasThere have been no changechanges in our internal control over financial reporting that occurred induring the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

      In order to prevent the occurrence of deficiencies in the process of identification, accounting and disclosure of four offshore dormant subsidiaries identified in 2008, during fiscal year 2009, our management took the necessary remediation measures to ensure accuracy and effectiveness of our monitoring controls over the process of identification, accounting and disclosure of subsidiaries. These measures included:115

      • definition of policies (including corporate approvals) concerning the incorporation, acquisitions of interests, modifications in the capital structure, operations and liquidation of branches and subsidiaries. These policies establish parameters for the analysis, approval and consolidation and flow of information regarding these entities.;
      • centralization in the International Accounting Department of the reconciliation, consolidation and reporting activities regarding the subsidiaries;
      • liquidation of dormant companies; and
      • implementation of the Financial Accounting (FI) and Materials Managements (MM) SAP System Modules for integrated subsidiaries (i.e. entities that operate as an extension of the parent company).

      This material weakness identified for the year ended December 31, 2008 concerning the process of identification, accounting and disclosure of four offshore dormant subsidiaries, mentioned above, was remediated during 2009 and no longer is a material weakness.

      Item 16.  [Reserved]

      16A. Audit Committee Financial Expert

      After reviewing the qualifications of the members of our Audit Committee, our Board of Directors has determined that all three members of our Audit Committee qualify as an “audit committee financial expert,” as defined by the SEC.  In addition, all of the members of out Audit Committee meet the applicable independence requirements both under Brazilian Corporate Law and under the NYSE rules.

      Our Audit Committee is permanently assisted by a consultant, who renders financial and consulting services, among others, to the members of our Audit Committee.

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      Table of Contents

      16B.  Code of Ethics

      We have adopted a Code of Ethics in 1998, reinforcing our ethical standards and values that apply to all of our employees, including executive officers and directors.

      Given its importance, copies of the Code of Ethics were distributed to each employee of the organization, to our Board of Directors and our Audit Committee members, who have signed a Commitment Letter, which reinforces the compromise with the established values.

      There was no amendment to or waiver from any provision of our Code of Ethics in 2009.2010.  Our Code of Ethics is in compliance with the SEC requirements for codes of ethics for senior financial officers.  A copy of our Code of Ethics is available on our websites www.csn.com.br or www.csn.com.br/ir.

      16C.  Principal Accountant Fees and Services

      Our interaction with our independent auditors with respect to the contracting of services unrelated to the external audit is based on principles that preserve the independence of the auditors and are otherwise permissible under applicable rules and regulations.  For the fiscal years endingended December 31, 20082010 and 2009, KPMG Auditores Independentes acted as our independent auditors.

      The following table describes the services rendered and the related fees.

       

       

       

       

       

       

       

       

       

      Year ending December 31, 

       

      Year ending December 31,  

       

      2008  

       

      2009

       

      2010   

       

      2009

       

      (In thousands of US$)

       

      (In thousands of R$)

      Audit fees

       

      1,809

       

      2,582 

       

      2,649

       

      4,496

      Audit – related fees

       

      251 

       

      112 

       

      774

       

      195

      Tax fees

       

      81 

       

      83 

       

      89

       

      145

      Other

       

      - 

       

      - 

      Total

       

      2,141 

       

      2,777 

       

      3,512

       

      4,836

      Audit fees

      Audit fees in 20082009 and 20092010 consisted of the aggregate fees billed and billable by KPMG Auditores Independentes forour independent auditors in connection with the auditsaudit of our consolidated financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.

      Audit-related fees

      Audit-related fees in 2008 and 2009the above table are fees billed by KPMG Auditores Independentesour independent auditors for services that are reasonably related to the performance of the audit or review of our financial statements.  In 2008 and 2009, audit-related fees refer mainly to due diligence services.services and in 2010 refer mainly to comfort letters for offering of bonds.

      Tax Fees

      Fees billed in 20082010 and 2009 for professional services rendered by KPMG Auditores Independentesour independent auditors are for tax compliance services.

      Other Fees

           Fees disclosed under the category “Other” refer mainly to out of pocket expenses. The services to be provided by the external auditors not directly related to the auditing of our financial statements are previously submitted to the audit committee in order to ensure that they do not infringe the auditor’s independence.

      129

      116 

      Table of Contents

       

      Pre-approval Policies and Procedures

      Our Board approval is requiredof Directors and Audit Committee  must approve before engagingwe engage independent auditors to provide any audit or permitted non-audit services to us or our subsidiaries. Pursuant to this policy, our Board of Directors pre-approves all audit and non-audit services provided by our independent auditors.

      16D.  Exemptions from the Listing Standards for Audit Committees

      We are in full compliance with the listing standards for audit committee pursuant to Exchange Act Rule 10A- 3. For a discussion on our audit committee, see “Item 6. Directors, Senior Management and Employees—Board Practices—Fiscal Committee and Audit Committee.”

      16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers

      Since the beginning of 2004, in accordance with the limits and provisions of CVM’s Instruction No. 10/80, our Board of Directors approved a number of share buyback programs.

      The following table sets forth our purchases of our equity securities in 2009:

      Total Number of

      Maximum Number

      Average

      Shares

      of Shares that May

      Total Number of

      Price Paid

      Purchased as Part of

      Yet Be Purchased

      Shares

      per

      Publicly Announced

      Under the

      Period

      Purchased(1)

      Share(1)

      Plans or Programs

      Program

      August 13, 2009 

      59,368,800(2)

      12.40(2)

      -

      -

      ______________

      (1) Our board of directors approved the acquisition, through a private operation, of 29,684,400 ADRs (before the stock split occurred on March 25,2010) previously held by Goldman Sachs due to an operation called “Total Return Equity Swap Transaction”, for the settlement price that was defined based on the weighted average of the price of the Company’s shares in the 30 floors sessions prior to the settlement date, translated into U.S. dollars by using the spot dollar translation rate of the business day immediately prior to the settlement date, as per the CVM Board’s decision – Proceeding RJ2009/5962. On August 13, the operation was settled and the ADRs were repurchased, converted into common shares and subsequently cancelled (See Item - 14 Stockholders Equity).

      (2) Prices and volumes of our common shares and ADS above have been adjusted to reflect the stock split that occurred on March 25, 2010. 


      No shares were acquired under the buyback program in 2009.

           From January to February 2009, our Board of Directors approved two buyback programs, authorizing us to acquire, in each one, up to 9,720,000 of our shares (before the stock split occurred on March 25, 2010), to be held in treasury for subsequent sale or cancellation. No shares were acquired through any of these two buyback programs.

           On December 18, 2009, our Board of Directors approved a new buyback program, authorizing us to acquire up to 14,437,405of our shares (before the stock split occurred on March 25, 2010), to be held in treasury for subsequent sale or cancellation. No shares were acquired through this buyback program.

      On May 6, 2010, our Board of Directors approved a new share buyback program, authorizing us to acquire up to 28,874,810 of our shares.  As of the date of this annual report no shares were acquired through this buyback program.

      16F.  Change in Registrant’s Certifying Accountant

      None.

      130

      Table of Contents

      16G.  Corporate Governance

      Significant Differences between our Corporate Governance Practice and NYSE Corporate Governance Standards

      We are subject to the NYSE corporate governance listing standards.  As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies.  Under the NYSE rules, we are required only to:  (i) have an audit committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (ii) provide prompt certification by our Chief Executive Officer of any material non-compliance with any corporate governance rules, and (iii) provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies.  The discussion of the significant differences between our corporate governance practices and those required of U .S.U.S. listed companies follows below.

      Majority of Independent Directors

      The NYSE rules require that a majority of the board of directors must consist of independent directors.  Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company.  Brazilian law does not have a similar requirement.  Under Brazilian law, neither our board of directors nor our management is required to test the independence of directors before their election to the board.  However, both Brazilian Corporate Law and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors.  While our directors meet the qualification requirements of Brazilian Corporate Law and the CVM, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence.  Brazilian Corporate Law requires that our directors be elected by our shareholders at an annual shareholders’ meeting.

      Executive Sessions

      NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present.  Brazilian Corporate Law does not have a similar provision.  According to Brazilian Corporate Law, up to one-third of the members of the board of directors can be elected from management.  Mr. BenjaminMr.Benjamin Steinbruch, our Chief Executive Officer, is also the Chairman of our Board of Directors.  There is no requirement that non-management directors meet regularly without management.  As a result, the non-management directors on our Board of Directors do not typically meet in executive session.

      117

      Nominating and Corporate Governance Committee

      NYSE rules require that listed companies have a nominating and corporate governance committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company.  We are not required under Brazilian Corporate Law to have, and currently we do not have, a nominating and a corporate governance committee.

      Compensation Committee

      NYSE rules require that listed companies have a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive-compensation and equity-based plans.  We are not required under applicable Brazilian law to have, and currently do not have, a compensation committee.  Under Brazilian Corporate Law, the total amount available for compensation of our directors and executive officers and for profit-sharing payments to our e xecutiveexecutive officers is established by our shareholders at the annual shareholders’ meeting.  The board of directorsis then responsible for determining the individual compensation and profit-sharing of each executive officer, as well as the compensation of our board and committee members.

      131

      Table of Contents

      Audit Committee

      NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities.  However, as a foreign private issuer, we need only to comply with the requirement that the audit committee meet the SEC rules regarding audit committees for listed companies to the extent compatible with Brazilian corporate law.  We have established an Audit Committee, which is equivalent to a U.S. audit committee, provides assistance to our Board of Directors in matters involving our accounting, internal controls, financial reporting and compliance.  Our Audit Committee recommends the appointment of our independent auditors to our Board of Directors and reviews the compensation of, and coordinates with, our independent auditors.  They also reports on our auditing policies and our annual auditing plan prepared by our internal auditing team, Our Audit Committee also evaluates the effectiveness of our internal financial and legal compliance controls, and is comprised of up to three members elected by our Board of Directors for a one-year term of office.  The current members of our Audit Committee are  Dionísio Dias Carneiro Netto, Fernando Perrone, Yoshiaki Nakano and Yoshiaki Nakano.Alexandre Gonçalves Silva.  All members of our Audit Committee satisfy the audit committee membership independence requirements set forth by the SEC and the NYSE.  All members of our Audit Committee have been determined by our Board of Directors to qualify as an “audit committee financial expert” within the meaning of the rules adopted by the SEC relating to the disclosure o fof financial experts on audit committees in periodic filings pursuant to the Exchange Act.  For further information on our Audit Committee, see “Item 6. Directors, Senior Management and Employees—Board Practices—Fiscal Committee and Audit Committee.”

      Code of Business Conduct and Ethics

      NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.  Applicable Brazilian law does not have a similar requirement.  We have adopted a Code of Ethics applicable to all our employees, including our executive officers and directors.  We believe this code addresses the matters required torequiredto be addressed pursuant to the NYSE rules.  For a further discussion of our Code of Ethics, see “Item 16B.  Code of Ethics.”

      118

      Shareholder Approval of Equity Compensation Plans

      NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions.  We currently do not have any such plan and, pursuant to our bylaws, we would require shareholder approval to adopt an equity compensation plan. Shareholder approval may be required, however, if an equity compensation plan would require an increase in our authorized capital to be implemented.

      Corporate Governance Guidelines

      NYSE rules require that listed companies adopt and disclose corporate governance guidelines.  We have adopted the following corporate governance guidelines, either based on Brazilian law, our Code of Ethics or institutional handbook:

      ·        insider trading policy for securities issued by us;

      ·        disclosure of material facts;

      ·        disclosure of annual financial reports;

      ·        confidential policies and procedures; and

      ·        Sarbanes-Oxley Disclosure Committee’s duties and activities.

      132

      Table of Contents

      Item 17.  Financial Statements

      We have responded to Item 18 in lieu of responding to this item.  See “Item 18.  Financial Statements.”

      PART III

      Item 18.  Financial Statements

      The following consolidated financial statements of the Registrant, together with the report of KPMG Auditores Independentes thereon, are filed as part of this annual report.

       

       

       

       

       

      Page 

      Report of Independent Registered Public Accounting Firm On Internal Control Over Financial Reporting

       

      FS-R1

      Reports of Independent Registered Public Accounting Firm

       

      FS-R2FS-R1

      Consolidated financial statements:

       

       

      Balance sheets as of December 31, 20082010 and 2009 and January 1, 2009

       

      FS-1FS- 1

      Statements of income for the years ended December 31, 2007, 20082010 and 2009

       

      FS-3FS- 3

      Statements of cash flows for the years ended December 31, 2007, 20082010 and 2009

       

      FS-4FS-4

      Statements of changes in stockholders’shareholders’ equity and comprehensive income for the years ended December 31, 2007, 20082010 and 2009

      FS-7

      Notes to consolidated financial statements

      FS-10


           The following consolidated financial statements of Namisa, together with the report of KPMG Auditores Independentes thereon, are filed as part of this annual report.

      Page 

      Reports of Independent Registered Public Accounting Firm

      FS-R1

      Consolidated financial statements:

      Balance sheets as of December 31, 2008 and 2009

      FS-4

      Statements of income for the years ended December 31, 2008 and 2009

       

      FS-5

      Statements of changes in stockholders’ equity and comprehensive income for the years ended December 31, 20082010 and 20092009.

      Notes to consolidated financial statements

       

      FS-6

      Statements of cash flows for the years ended December 31, 2008 and 2009

      FS-7

      Notes to consolidated financial statements

      FS-8


      Item 19.  Exhibits

       

       

       

      Exhibit  

       

      Description  

      Number  

       

       

      1.1+

       

      Bylaws of CSN, as amended to date.

      2.1

       

      Form of Amended and Restated Deposit Agreement dated as of November 1, 1997 as amended and as further amendedrestated as of November 13, 1997, and as of June 10, 2004, among CSN, JPMorganCompanhia Siderúrgica Nacional, JP Morgan Chase Bank, N.A. (as successor to Morgan Guaranty Trust Company of New York), as successor depositary, and the registeredall holders from time to time of the American Depositary Receipts including the form of American Depositary Receipt (incorporatedissued thereunder (iorporated by reference tofrom the Registration Statement on Form F- 6 relatingF-6 (333-7818) filed with the SEC).

      Form of Amendment No. 1 to the ADSs (File n° 333-115078)Deposit Agreement (inorporated by reference from the Registration Statement on Form F-6EF (333-115078) filed with the SEC on April 30, 2004).

      Form of Amendment No. 2 to Deposit Agreement, including the form of American Depositary Receipt (iorporated by reference from the Registration Statement on Form F-6POS Filed filed with the SEC on January 5, 2011)

      8.1+

       

      List of subsidiaries

      10.1* 

       

      Equity Swap Agreement, originally dated as of July 11, 2008 between CSN Madeira Ltda. and Goldman Sachs International.  (incorporated by reference from the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on June 30, 2009).

      10.2* 

       

      Share Purchase Agreement, dated October 21, 2008, among CSN, Big Jump Energy Participações S.A., Itochu Corporation, JFE Steel Corporation, Nippon Steel Corporation, Sumitomo Metal Industries, Ltd., Kobe Steel, Ltd., Nishin Steel Co., Ltd., and Posco.  (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010)

      10.3* 

       

      Shareholders Agreement of Nacional Minérios S.A., dated October 21, 2008, between CSN and Big Jump Energy Participações S.A.  (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010)

      10.4* 

       

      High Silica ROM Iron Ore Supply Contract, dated October 21, 2008, between CSN and Nacional Minérios S.A.  (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010)

      10.5* 

       

      Low Silica ROM Iron Ore Supply Contract, dated October 21, 2008, between CSN and Nacional Minérios S.A.  (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010)

      10.6* 

       

      Iron Ore Supply Contract, dated October 21, 2008, between CSN and Nacional Minérios S.A.  (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010)

      10.7* 

       

      Port Operating Services Agreement, dated October 21, 2008, between CSN and Nacional Minérios S.A.  (incorporated by reference from Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on March 18, 2010)

      12.1+

       

      Section 302 Certification of Chief Executive Officer.

      12.2+

       

      Section 302 Certification of Chief Financial Officer.

      13.1+

       

      Section 906 Certification of Chief Executive Officer.

      13.2+

       

      Section 906 Certification of Chief Financial Officer.

      15.1+ 

       

      Management’s report dated May 28, 2010,June 17, 2011, on the effectiveness of our internal control over financial reporting as of December 31, 20092010.. 

      15.2 

       

      Consent of Golder Associates S.A. (incorporated by reference from the Annual Report on Form 20-F for the year ended December 31, 2008, filed with the SEC on June 30, 2009).

       

      *      Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to the Securities Exchange Act of 1934, as amended.

       

      +      Filed herewith.

       

      133

      119 

      Table of Contents

       

      SIGNATURE

      The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

       

       

       

           May 28, 2010June 17, 2011

      Companhia Siderúrgica Nacional

       

      By:

      /s/ Benjamin Steinbruch

       

       

      Name:

      Benjamin Steinbruch

       

       

      Title:

      Chief Executive Officer

       

       

      By:

      /s/ Paulo Penido Pinto Marques

       

       

      Name:

      Paulo Penido Pinto Marques

       

       

      Title:

      Chief Financial Officer

       

       

       


      120

      Table of Contents

      Companhia Siderúrgica Nacional and
      Subsidiaries
      Consolidated Financial Statements
      For the Years Ended December 31,
      2007, 2008 and 2009
      And Reports of Independent Registered Public Accounting Firm

      Table of Contents

      Report of Independent Registered Public Accounting Firm

      The Board of Directors and Shareholders

      Companhia Siderúrgica Nacional:Nacional

      We have audited the accompanying consolidated balance sheets of Companhia Siderúrgica Nacional’sNacional and subsidiaries (“the Company”) as of December 31, 2010 and 2009 and January 1, 2009, and the related consolidated statements of income, changes in shareholders’ equity, comprehensive income and cash flows for each of the years in the two-year period ended December 31, 2010. We also have audited the Company’s internal control over financial reporting as of December 31, 2009,2010, based on criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Companhia Siderúrgica Nacional’sThe Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audit.audits.

      We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.opinions.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) prov ideprovide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Companhia Siderúrgica Nacional and subsidiaries as of December 31, 2010 and 2009 and January 1, 2009, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2010, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2010, based on criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Companhia Siderúrgica Nacional and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated May 28, 2010 expressed an unqualified opinion on those consolidated financial statements.

      KPMG Auditores Independentes

      São Paulo, SP – Brazil
      May 28, 2010
      Table of Contents

      Report of Independent Registered Public Accounting Firm

      The Board of Directors and Stockholders

      Companhia Siderúrgica Nacional:

      We have audited the accompanying consolidated balance sheets of Companhia Siderúrgica Nacional and subsidiaries (“the Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three‑year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Companhia Siderúrgica Nacional and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three‑year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Companhia Siderúrgica Nacional’s internal control over financial reporting as of December 31, 2009, based on criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 28, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

      KPMG Auditores Independentes

      São Paulo, SP –- Brazil

      May 28, 2010June 17, 2011

      FS-R1

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries 
      Consolidated Balance Sheets 
      Expressed in millionsThousands of United States dollarsBrazilian reais 

      Assets

      Assets  As of December 31, 
        2008  2009 
       
      Current assets     
      Cash and cash equivalents  3,542  3,981 
      Derivative assets  127  - 
      Financial instruments guarantee margin  1,059  28 
      Trade accounts receivable     
         Related parties  78  19 
         Other  409  489 
      Inventories  1,165  1,325 
      Recoverable taxes  160  411 
      Deferred income taxes  317  314 
      Receivables from related parties  63  124 
      Other accounts receivable  270  54 
      Other  117  96 
       
        7,307  6,841 
       
      Property, plant and equipment, net  3,543  5,616 
       
      Investments in affiliated companies and other investments  2,588  4,216 
       
      Goodwill  127  168 
       
      Other assets     
      Restricted deposits for legal proceedings  893  807 
      Receivables from related parties  659  842 
      Deferred income taxes  336  152 
      Prepaid pension cost  -  245 
      Recoverable taxes  82  86 
      Other accounts receivable  46  135 
      Other  128  80 
       
        2,144  2,347 
       
        15,709  19,188 
               
        Note  2010  2009  01/01/09 
      ASSETS         
      CURRENT ASSETS         
      Cash and cash equivalents  6  10,239,278  7,970,791  9,151,409 
      Trade accounts receivable  7  1,367,759  1,327,941  1,788,712 
      Inventories  8  3,355,786  2,605,373  3,621,249 
      Recoverable taxes    473,787  744,774  462,141 
      Prepaid expenses    12,997  15,814  27,945 
      Other current assets  9  344,081  170,780  2,893,049 
      Total current assets    15,793,688  12,835,473  17,944,505 
       
      NON-CURRENT ASSETS         
      Long-term receivables         
      Investment Securities    112,484     
      Trade accounts receivable    58,485  212,486  375,772 
      Deferred income taxes  10  1,592,941  1,957,058  1,596,905 
      Prepaid pension cost    115,755  105,921  125,011 
      Receivables from related parties  5  479,120  479,120  11,828 
      Other non-current assets  11  3,306,094  3,222,637  2,598,233 
          5,664,879  5,977,222  4,707,749 
       
      Investments  12  2,103,624  321,902  1,512 
      Property, plant and equipment  14  13,776,567  11,133,347  10,071,834 
      Intangible assets  15  462,456  457,559  526,796 
      Total non-current assets    22,007,526  17,890,030  15,307,891 
       
      TOTAL ASSETS    37,801,214  30,725,503  33,252,396 

       

      The accompanying notes are an integral part of these consolidated financial statementsstatements.

      FS - 1

      FS-1

      Table of Contents


      Companhia Siderúrgica Nacional and Subsidiaries 
      Consolidated Balance Sheets 
      Expressed in millionsThousands of United States dollarsBrazilian reais 

      Liabilities and stockholders’ equity  As of December 31, 
        2008  2009 
       
      Current liabilities     
      Trade accounts payable     
         Related parties  81 17
         Other  739 247
      Payroll and related charges  68 108
      Taxes payable  82 104
      Taxes payable in installments  101 315
      Dividends and Interest on stockholders’ equity  432 220
      Current portion of long-term debt  1,296 452
      Accrued finance charges     
         Related parties  - 114
         Other  107 130
      Derivative liabilities  686 26
      Other accounts payable  131 157
      Other  90 201
       
        3,813 2,091
       
      Long-term liabilities     
      Accrued pension cost  60 -
      Long-term debt and debentures  3,436 7,319
      Due to related parties  3,079 4,281
      Accrual for contingencies and disputed taxes payable  1,618 941
      Taxes payable in installments  270 160
      Deferred income taxes  14 4
      Other  103 128
       
        8,580 12,833
       
      Stockholders’ equity     
      Common stock – 2,400,000,000 shares (no par value) authorized – 1,586,807,676     
      (post split) at December 31, 2008 and 1,510,359,220 (post split) at December 31,     
      2009  2,447 2,447
       
      Capital surplus  53 53
      Treasury stock – 69,468,768 shares (post split) at December 31, 2008 and 52,389,112     
      shares (post split) at December 31, 2009  (326) (649)
       
      Retained earnings (loss)     
         Appropriated  1,920 3,134
         Unappropriated  692 (841)
      Accumulated other comprehensive (loss) income  (1,470) 72
       
      Total Companhia Siderúrgica Nacional stockholders’ equity  3,316 4,216
       
      Noncontrolling interests  - 48
       
      Total stockholders’ equity  3,316 4,264
       
        15,709 19,188


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

      FS - 2Liabilities and shareholders’ equity

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Consolidated Statements of Income 
      Expressed in millions of United States dollars, except share and per share data 


        Years ended December 31,
        2007  2008  2009 
       
      Operating revenues       
      Domestic sales  5,283 7,377 5,204
      Export sales  1,695 1,830 1,137
       
        6,978 9,207 6,341
       
      Sales taxes  (1,305) (1,835) (1,257)
      Discounts, returns and allowances  (156) (185) (70)
       
      Net operating revenues  5,517 7,187 5,014
      Cost of products sold  (3,076) (3,602) (3,250)
       
      Gross profit  2,441 3,585 1,764
       
      Operating expenses       
      Selling (includes allowance for doubtful accounts of US$3 in 2007,       
      US$51 in 2008 and US$74 in 2009 )  (310) (412) (345)
      General and administrative  (185) (219) (208)
      Other income (expense)  (85) (110) (47)
        (580) (741) (600)
       
      Operating income  1,861 2,844 1,164
       
      Non-operating income (expenses), net       
      Financial income (expenses), net  (219) (380) (871)
      Foreign exchange and monetary gain (loss), net  438 (1,265) 422
      Gain on dilution of interest in subsidiary  - 1,667 -
      Other  81 75 (26)
       
        300 97 (475)
      Income before income taxes and equity in results of affiliated       
      companies  2,161 2,941 689
       
      Income tax benefit (expense)       
      Current  (619) (615) (167)
      Deferred  85 201 (52)
       
        (534) (414) (219)
       
      Equity in results of affiliated companies  76 127 809
       
      Net income  1,703 2,654 1,279
       
      Net loss attributable to noncontrolling interest  - - 2
       
      Net income attributable to Companhia Siderúrgica Nacional  1,703 2,654 1,281
       
      Basic and diluted earnings per common share  1.11 1.73 0.86
       
      Weighted average number of common shares outstanding (in       
      thousands)  1,539,489 1,534,067 1,492,453


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

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      Companhia Siderúrgica Nacional and Subsidiaries
      Consolidated Statements of Cash Flows  
      Expressed in millions of United States dollars 


        Years ended December 31,
        2007  2008  2009 
       
      Cash flows from operating activities       
      Net income for the year  1,703 2,654 1,281
      Adjustments to reconcile net income for the year to net cash       
      provided by (used in) operating activities       
         Depreciation and amortization  397 341 343
         Foreign exchange and monetary loss (gain), net  (438) 1,265 (422)
         Federal tax repayment program (“Refis”) gain  - - (255)
         Interest accrued  246 345 415
         Accrual for contingencies and disputed taxes payable  47 48 46
         Accrual for derivatives  (415) 294 (45)
         Gain on sale of short-term investments  (65) - -
         Gain on dilution of interest in Namisa  - (1,667) -
         Deferred income tax expense (benefit)  (85) (201) 52
         Equity in results of affiliated companies  (76) (127) (809)
         Allowance for doubtful accounts  3 51 74
         Other  (24) (166) 145
       
      Decrease (increase) in operating assets       
        Trade accounts receivable  152 (137) 99
        Inventories  97 (8) 267
        Recoverable taxes  49 (134) (139)
        Other  (137) 71 363
       
      Increase (decrease) in operating liabilities       
        Trade accounts payable  (54) 336 (728)
        Payroll and related charges  11 6 15
        Taxes payable  64 (229) 101
        Interest paid  (381) (393) (809)
        Other  170 118 46
       
      Net cash provided by (used in) operating activities  1,264 2,067 40
               
        Note  2010   2009   01/01/09 
      SHAREHOLDERS’ EQUITY AND LIABILITIES         
      CURRENT LIABILITIES         
      Payroll and related charges    164,799  134,190  117,994 
      Trade accounts payable    521,156  504,223  1,939,205 
      Taxes payable    275,991  336,804  333,811 
      Current portion of long-term debt  16  1,308,632  1,113,920  3,302,055 
      Other accounts payables  18  1,854,952  1,618,574  3,563,466 
      Provisions for tax, social security, labor and  21  222,461  189,517  161,144 
      civil risks         
      Other    107,964  100,838  76,688 
      Total current liabilities    4,455,955  3,998,066  9,494,363 
       
      NON-CURRENT LIABILITIES         
      Long-term debt and debentures  16  18,780,815  13,153,681  8,681,098 
      Other accounts payables  18  4,067,435  3,666,323  3,930,613 
      Deferred income taxes  10    30,040  2,181 
      Provisions for tax, social security, labor and  21  2,016,842  2,838,670  3,747,601 
      civil risks         
      Employee benefits  30  367,839  317,145  364,140 
      Other  22  289,640  132,068  85,649 
      Total non-current liabilities    25,522,571  20,137,927  16,811,282 
       
      Shareholders’ Equity  23       
      Common stock    1,680,947  1,680,947  1,680,947 
      Capital surplus    30  30  30 
      Earnings reserves    6,119,798  5,444,605  4,254,572 
      Retained earnings      (33,417)  1,011,804 
      Other comprehensive income    (168,015)  (585,715)  (602) 
      Total shareholders’ equity attributable to         
      owners of the Company    7,632,760  6,506,450  6,946,751 
       
      Noncontrolling interests    189,928  83,060   
       
      Total shareholders’ equity    7,822,688  6,589,510  6,946,751 
       
      TOTAL SHAREHOLDERS’ EQUITY AND         
      LIABILITIES    37,801,214  30,725,503  33,252,396 

       

      The accompanying notes are an integral part of these consolidated financial statementsstatements.

      FS - 4

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      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries 
      Consolidated Statements of Cash FlowsIncome 
      Expressed in millionsThousands of United States dollarsBrazilian reais 


        Years ended December 31,
        2007  2008  2009 
       
       
      Cash flows from investing activities       
      Additions to property, plant and equipment  (632) (886) (930)
      Additions to investments  - - (143)
      Purchase of short-term investments and debt securities  437 - -
      Restricted deposits from legal proceedings  (561) (176) (367)
      Business acquisitions, net of cash acquired  (348) - -
      Proceeds received from insurance claims  134 160 -
      Proceeds (payments) from settlement of derivative instruments  - 1,006 (161)
      Financial instruments guarantee margin  - (1,347) 565
      Loans to related parties  (121) (49) 207
       
       
      Net cash used in investing activities  (1,091) (1,292) (829)
       
       
       
      Cash flows from financing activities       
      Proceeds from prepayment agreements  - 3,041 -
      Intercompany loan  - (500) -
      Long-term debt       
      Proceeds  1,659 1,630 4,053
      Repayments  (1,397) (919) (1,428)
      Purchase of Treasury stock  (32) (147) (736)
      Dividends and interest on stockholders' equity  (352) (1,238) (1,017)
       
       
      Net cash (used in) provided by financing activities  (122) 1,867 872
       
       
      Effects of changes in exchange rates on cash and cash equivalents  203 (313) 356
       
       
      Increase in cash and cash equivalents  254 2,329 439
       
      Cash and cash equivalents, beginning of year  959 1,213 3,542
       
      Cash and cash equivalents, end of year  1,213 3,542 3,981
             
        Note  2010  2009 
       
      NET OPERATING REVENUES  25  14,450,510  10,978,364 
      Cost of products sold    (7,686,742)  (7,022,119) 
       
      GROSS PROFIT    6,763,768  3,956,245 
       
      OPERATING EXPENSES    (1,765,422)  (395,013) 
      Selling    (677,962)  (635,784) 
      General and administrative    (536,857)  (480,072) 
      Equity in results of affiliated companies      13 
      Other expenses  26  (643,081)  (695,905) 
      Other income  26  92,478  1,416,735 
       
      Operating income    4,998,346  3,561,232 
      Finance income (expenses), net  27  (1,911,458)  (246,435) 
       
      Income before income taxes    3,086,888  3,314,797 
       
      Income tax benefit (expense)       
      Current  10  (313,371)  (581,735) 
      Deferred  10  (257,326)  (117,881) 
       
      Net income    2,516,191  2,615,181 
       
      Net income attributable to:       
      Compania Siderúrgica Nacional    2,516,376  2,618,934 
      Noncontrolling interests    (185)  (3,753) 
       
      Basic and diluted earnings per common share       
      Basic  29  1.72594  1.75478 
      Diluted  29  1.72594  1.75478 

       

      The accompanying notes are an integral part of these consolidated financial statementsstatements.

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      Companhia Siderúrgica Nacional and Subsidiaries 
      Consolidated StatementsStatement of Cash Flows 
      Expressed in millionsThousands of United States dollarsrazilian reais 

        Yearsended December 31,
        2007  2008   2009
       
       
      SUPPLEMENTAL DISCLOSURE OF CASH       
      FLOW INFORMATION       
       
      Cash paid during the year for:       
        Interest  381 393 809 
        Income taxes  821 446 375 
      Business acquisitions:       
        Fair value of assets acquired  475 - - 
        Fair value of liabilities assumed  (35) - - 
        Total purchase price  440 - - 
        Amount payable  (90) - - 
        Cash acquired  (2) - - 
        Purchase price, net of cash acquired  348 - - 
      Supplemental noncash financing and investing activities:       
        Interest on stockholders' equity and dividends unpaid in the year  298 432 220 
        Stock cancellation  - 109 413 
        Effects of FASB Statement No. 158, net of taxes, recognized as       
          accumulated other comprehensive income  234 (239) 204 
        Changes in fair value of available-for-sale securities, net of       
          taxes, recognized as accumulated other comprehensive income  (30) 4 23 
           
        2010  2009 
      - Net income for the year  2,516,191  2,615,181 
      - Provision for charges on loans and financing  1,489,191  1,130,089 
      - Depreciation and amortization  806,169  780,152 
      - Gain (loss) on disposal of assets  5,827  70,494 
      - Deferred income tax expense (benefit)  257,326  117,881 
      - Provision for swap/forward transactions  126,492  (88,986) 
      - Gain/loss on change in percentage equity interest  -  (835,115) 
      - Allowance for doubtful accounts  (46,675)  1,527 
      - Provision for actuarial liabilities  2,393  (47,622) 
      - Accrual for contingencies  199,558  99,157 
      - Inflation adjustment and foreign exchange gains (losses), net  57,119  (2,024,573) 
      - Other  (72,705)  416,265 
      Cash flows from operating activities  5,340,886  2,234,450 
       
      - Trade accounts receivables  143,250  (51,082) 
      - Inventories  (794,331)  926,260 
      - Taxes for offset  247,366  (313,697) 
      - Trade accounts payables  11,964  (1,137,203) 
      - Payroll and related charges  (36,757)  15,257 
      - Taxes payable  (101,723)  263,734 
      - Taxes payable in installments - Refis  (414,473)  (103,775) 
      - Judicial deposits  (33,822)  (737,041) 
      - Contingent liabilities  16,868  (422,375) 
      - Interest paid  (1,190,423)  (992,280) 
      - Interest paid on swap transactions  (676,163)  (742,700) 
      - Other  (30,107)  287,433 
      Changes in assets and liabilities  (2,858,351)  (3,007,469) 
       
      Net cash provided by (used in) operating activities  2,482,535  (773,019) 
       
      - Receipts/payments on derivative transactions  395,346  248,966 
      - Net effects of equity swap  -  1,420,322 
      - Investments  (1,370,016)  (284,232) 
      - Property, plant and equipment  (3,635,911)  (1,996,759) 
      - Intangible assets  (25,216)  (5,628) 
      Net cash used in investing activities  (4,635,797)  (617,331) 
       
      - Loans and financing  8,789,548  7,671,696 
      - Financial institutions - principal  (2,706,982)  (2,783,313) 
      - Dividends and interest on shareholders' equity  (1,560,795)  (2,027,600) 
      - Capital contribution in subsidiaries by non-controlling shareholders  128,811  - 
      - Treasury shares  -  (1,350,307) 
      Net cash provided by financing activities  4,650,582  1,510,476 
       
      Effects of changes in exchange rates on cash and cash equivalents  (228,833)  (1,300,744) 
       
      Increase (decrease) in cash and cash equivalents  2,268,487  (1,180,618) 
      Cash and cash equivalents, beginning of year  7,970,791  9,151,409 
      Cash and cash equivalents, end of year  10,239,278  7,970,791 

       

      The accompanying notes are an integral part of these consolidated financial statementsstatements.

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      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries 
      Consolidated Statements of Changes in Stockholders’Shareholders’ Equity and Comprehensive Income 
      Expressed in millionsThousands of United States dollars, except for share dataBrazilian reais 

        Years ended December 31, 
        2007  2008  2009 
       
      Movement of outstanding Common Shares (quantities):       
      Balance, beginning of year  1,544,480,676 1,538,938,908 1,517,338,908
      Treasury stock acquisition  (5,541,768) (21,600,000) (59,368,800)
       
      Balance, end of year  1,538,938,908 1,517,338,908 1,457,970,108
       
      Common stock       
        Balance, beginning and end of year  2,447 2,447 2,447
      Capital surplus       
      �� Balance, beginning and end of year  53 53 53
       
      Treasury stock       
        Balance, beginning of year  (256) (288) (326)
        Stock acquisition  (32) (147) (736)
        Stock cancellation  - 109 413
       
        Balance, end of year  (288) (326) (649)
                                       
                Profit reserves            Comprehensive Income         
       
                              Unrealized gain         
                          Cumulative  Gain (loss) on  (loss) on    Companhia     
        Common  Capital  Legal  Retained        Treasury  Retained  translation defined benefit   available-for-sale     Siderúrgica  Non-controlling    
        Stock  reserve  reserve  earnings  Dividends  Reserve  Total  stock  earnings   adjustment  pension plan  securities  Total    Nacional interests    Total equity
      At December 31, 2008 - as reported  1.680.947  30  336.190  2.493.493  -  1.658.115  4.487.798  (719.042)  1.012.732  200.124      200.124  6.662.589    6.662.589 
       
      Impact of restatement of prior years                  (176.185)          (176.185)    (176.185) 
      Balances at December 31, 2008  1.680.947  30  336.190  2.493.493  -  1.658.115  4.487.798  (719.042)  836.547  200.124  -  -  200.124  6.486.404  -  6.486.404 
       
      Unrealized gain/loss- Investment                    (602)      (602)  (602)    (602) 
      IFRS adjustments          485.816    485.816    175.257  (200.124)      (200.124)  460.949    460.949 
       
      Opening balance at January 1, 2009  1.680.947  30  336.190  2.493.493  485.816  1.658.115  4.973.614  (719.042)  1.011.804  (602)  -  -  (602)  6.946.751  -  6.946.751 
                                  -     
      Approval of proposed dividends          (485.816)    (485.816)            -  (485.816)    (485.816) 
      Profit for the year                  2.618.934        -  2.618.934  (3.753)  2.615.181 
      Allocation of profit for the year                          -  -    - 
      - Declared dividends (R$1,028.82 per thousand shares)                  (321.365)        -  (321.365)    (321.365) 
      - Interest on capital (R$219.46 per thousand shares)                  (319.965)        -  (319.965)    (319.965) 
      - Reserves        1.285.864    561.658  1.847.522    (1.847.522)        -  -    - 
      - Proposal to the General Meeting          1.178.635    1.178.635    (1.178.635)        -  -    - 
      Comprehensive income                    (618.723)  (3.275)  36.885  (585.113)  (585.113)    (585.113) 
      Repurchase of treasury shares as per EGM 8/13/2009                (1.350.308)          -  (1.350.308)    (1.350.308) 
      Cancelation of treasury shares as per EGM 8/21 and 9/14/2009            (877.791)  (877.791)  877.791          -  -    - 
      Non-controlling interests                          -  -  86.813  86.813 
      Other                  3.332        -  3.332    3.332 
      Balances at December 31, 2009  1.680.947  30  336.190  3.779.357  1.178.635  1.341.982  6.636.164  (1.191.559)  (33.417)  (619.325)  (3.275)  36.885  (585.715)  6.506.450  83.060  6.589.510 
                                  -    - 
      Approval of proposed dividends          (1.178.635)    (1.178.635)            -  (1.178.635)    (1.178.635) 
      Profit for the year                  2.516.376        -  2.516.376  (185)  2.516.191 
      Allocation of profit for the year                          -  -    - 
      - Declared dividends (R$186.76 per thousand shares)                  (272.297)        -  (272.297)    (272.297) 
      - Interest on capital (R$244.72 per thousand shares)                  (356.800)        -  (356.800)    (356.800) 
      - Dividends proposed to the General Meeting (R$842.06 per thousand shares)          1.227.703    1.227.703    (1.227.703)        -  -    - 
      Investment reserve            626.159  626.159    (626.159)        -  -    - 
      Cancelation of treasury shares            (621.417)  (621.417)  621.383          -  (34)    (34) 
      Comprehensive income                    (69.270)  (28.603)  515.573  417.700  417.700    417.700 
      Non-controlling interests              -            -  -  107.053  107.053 
      Balances at December 31, 2010  1.680.947  30  336.190  3.779.357  1.227.703  1.346.724  6.689.974  (570.176)  -  (688.595)  (31.878)  552.458  (168.015)  7.632.760  189.928  7.822.688 

       

      The accompanying notes are an integral part of these consolidated financial statementsstatements.

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      Companhia Siderúrgica Nacional and Subsidiaries 
      Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income 
      Expressed in millionsThousands of United States dollars, except for share dataBrazilian reais 

        Years ended December 31, 
       
        2007  2008  2009 
       
      Retained earnings       
      Appropriated       
      Investment reserve       
      Balance, beginning of year  317 998 1,776
      Transfer from unappropriated retained earnings  681 778 1,165
       
      Balance, end of year  998 1,776 2,941
       
       
      Legal reserve       
      Balance, beginning of year  157 190 144
      Transfer from (to) unappropriated retained earnings  33 (46) 49
       
      Balance, end of year  190 144 193
       
       
      Total balance, end of year  1,188 1,920 3,134
       
       
      Unappropriated retained earnings (losses)       
      Balance, beginning of year  (146) 293 692
      Net income  1,703 2,654 1,281
      Dividends and interest on stockholders’ equity (US$0.36, US$0.93 and US$0.81 per share, in 2007, 2008 and 2009, respectively)  (550) (1,414) (1,187)
      Stock cancellation  - (109) (413)
      Appropriation to reserves, net  (714) (732) (1,214)
       
      Balance, end of year  293 692 (841)
       
       
      Total retained earnings  1,481 2,612 2,293
       
       
      Accumulated other comprehensive loss       
      Adoption of FASB Statement No.158       
      Balance, beginning of year  38 272 33
      Change in the year, net of deferred tax benefit (expense) US$(124) in 2007, US$123 in 2008 and US$(105) in 2009  234 (239) 204
      Balance, end of year  272 33 237
       
       
      Unrealized gain (loss) on available-for-sale securities       
      Balance, beginning of year  24 (6) (2)
      Change in the year, net of deferred tax benefit (expense) US$15 in 2007, US$(2) in 2008 and US$(8) in 2009  (30) 4 23
      Balance, end of year  (6) (2) 21
       
       
      Cumulative translation adjustment       
      Balance, beginning of year  (1,587) (1,271) (1,501)

       

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      Table of Contents

       

       

       

       

       

      2010

       

      2009

       

       

       

       

       Profit for the year

        2,516,191

       

        2,615,181

       

       

       

       

       Other comprehensive income

           417,700

       

         (585,113)

       Cumulative foreign currency translation adjustments and 

       

       

       

       exchange gain on investments in foreign operations, net of taxes 

          (69,270) 

       

         (618,723)

       Pension plan, net of taxes

          (28,603) 

       

             (3,275)

       Available-for-sale financial assets, net of taxes

          515,573  

       

             36,885

       

       

       

       

       Comprehensive income for the year

       2,933,891  

       

        2,030,068

       

       

       

       

       Attributable to:

       

       

       

       Company Siderúrgica Nacional

        2,933,891

       

        2,030,068

       Non-controlling interests

      -

       

      -


      Companhia Siderúrgica Nacional and Subsidiaries
      Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income 
      Expressed in millions of United States dollars, except for share data 

      Change in the year  316 (230) 1,315
      Balance, end of year  (1,271) (1,501) (186)
       
       
      Total accumulated other comprehensive (loss) income  (1,005) (1,470) 72
       
      Noncontrolling interest       
      Balance, beginning of year  - - -
      Change in the year  - - 48
      Balance, end of year  - - 48
       
      Total Noncontrolling interest  - - 48
       
       
      Total stockholders’ equity  2,688 3,316 4,264
       
      Comprehensive income:       
      Net income for the year  1,703 2,654 1,281
      Effect of Statement 158, net of taxes  234 (239) 204
      Changes in fair value of available-for-sale securities, net of taxes  (30) 4 23
      Foreign exchange (loss) gain of long-term investment nature, net of deferred tax benefit (expense) US$194 in 2008 and US$(137) in 2009  - (376) 407
      Translation adjustments for the year  316 146 908
      Total comprehensive income  2,223 2,189 2,823

      The accompanying notes are an integral part of these consolidated financial statementsstatements.

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      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, unless otherwise stated 

       

      1Description


      (expressed In thousands of businessreais – R$, except otherwise stated)

      1. DESCRIPTION OF BUSINESS

      Companhia Siderúrgica Nacional is a publicly-held company incorporated on April 9, 1941, under the laws of the Federative Republic of Brazil (Companhia Siderúrgica Nacional, and its subsidiaries areand jointly-controlled subsidiaries collectively referred to herein as “CSN”"CSN" or “the Company”the “Company”).

      a) Consolidation process

      CSN is a vertically integrated company that produces a wide rangeCompany with shares listed on the São Paulo Stock Exchange (IBOVESPA) and New York Stock Exchange (NYSE). Accordingly, it reports its information to the Brazilian Securities Commission (CVM) and the U.S. Securities and Exchange Commission (SEC).

      The main operating activities of value-addedCSN are divided into 5 (five) segments as follows:

      •Steel:

      The Company’s main industrial facility is the Presidente Vargas Steel Mill (“UPV”), located in the city of Volta Redonda, State of Rio de Janeiro. This segment consolidates the operations related to the production, distribution and sale of flat steel, products, such as hot-dipmetallic packaging and galvanized sheetssteel, with operations in Brazil, the United States and tin mill products,Portugal aimed at gaining markets and is Brazil’s sole tinplate producer. CSN also runs its ownperforming excellent services for final consumers. Its steels are used in the home appliance, civil construction and automobile industries.

      •Mining:

      The production of iron ore is developed in the city of Congonhas, in the State of Minas Gerais. It further mines limestone and dolomite minesin branches in the State of Minas Gerais whichand tin in the State of Rondônia to supply all the needs of UPV, with the excess of these raw materials being sold to subsidiaries and third parties. CSN holds a concession to operate TECAR, a solid bulk maritime terminal, of the 4 (four) terminals that form the Port of Itaguaí, located in Rio de Janeiro. Importations of coal and coke are carried out through this terminal.

      •Cement:

      The Company entered the cement market boosted by the synergy between this new activity and its already existing businesses. Next to the Presidente Vargas SteelworksSteel Mill in Volta Redonda (RJ), it installed a new business unit: CSN Cimentos, which is already producing CP-III type cement by using slag produced by the UPV blast furnaces in Volta Redonda. At present the clinker used in manufacturing the cement is purchased from third parties, though it will begin to be produced by CSN Cimentos in 2011, with the conclusion of the first stage of the plant in Arcos (MG), where CSN further has a limestone quarry.

      •Logistics

      Railroads:

      CSN has equity interests in two railroad companies: MRS Logística, which manages the former Southeast Network of Rede Ferroviária Federal S.A. (RFFSA), and Transnordestina Logística, which operates the former Northeast Network of the RFFSA in the states of Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas.

      Ports:

      In the State of Rio de Janeiro. Janeiro, the Company operates the Container Terminal known as Sepetiba Tecon at the Port of Itaguaí. Located in the Bay of Sepetiba, this port has privileged highway, railroad and maritime access.

      FS-7


      Tecon handles the shipments of CSN steel products, movement of containers, as well as storage, consolidation and deconsolidation of cargo.

      •Energy:

      As a complement toenergy is fundamental in its activities,production process, the Company has also madeinvested in assets for generation of electric power to guarantee its self-sufficiency.

      For further details on strategic investments in cement production, railroadsthe Company’s segments, see Notes 12, 13 and power supply companies, among others. Abroad, the Company has rolling mills in Portugal and in the United States of America. The Company’s consolidated subsidiaries are:

        Direct and Indirect 
      Ownership interest (%)       		 Main activities 
       
      Companies  2008  2009   
       
      Full consolidation       
      CSN Energy S.à r.l.  100.00  100.00  Holding Company 
      CSN Export S.à r.l.  100.00  100.00  Financial operations, trading and holding company 
      CSN Islands VII Corp.  100.00  100.00  Financial operations 
      CSN Islands VIII Corp.  100.00  100.00  Financial operations 
      CSN Islands IX Corp.  100.00  100.00  Financial operations 
      CSN Islands X Corp.  100.00  100.00  Financial operations 
      CSN Islands XI Corp.  100.00  100.00  Financial operations 
      CSN Islands XII Corp. (2)  -  100.00  Financial operations 
      CSN Overseas S.à r.l.  100.00  100.00  Financial operations and holding company 
      CSN Panama S.à r.l.  100.00  100.00  Financial operations and holding company 
      CSN Steel S.à r.l.  100.00  100.00  Financial operations and holding company 
      Sepetiba Tecon S.A.  99.99  99.99  Maritime port services 
      Estanho de Rondônia S.A.- ERSA  99.99  99.99  Mining 
      Cia. Metalic Nordeste  99.99  99.99  Package production 
      CSN Cimentos S.A.  99.99  99.99  Cement production 
      Inal Nordeste S.A. - INOR  99.99  99.99  Steel products service center 
      CSN Energia S.A.  100.00  100.00  Trading of electricity 
      CSN Aceros S.A.  100.00  100.00  Holding company 
      CSN Cayman Ltd.  100.00  100.00  Financial operations, trading and holding company 
      CSN Iron S.A.  100.00  100.00  Financial operations 
      CSN LLC  100.00  100.00  Steel industry 
      CSN LLC Holdings Corp (1)  100.00  -  Holding company 
      CSN Partner LLC (1)  100.00  -  Holding company 
      Energy I Corp. Ltd.  100.00  100.00  Holding company 
      Tangua Inc.  100.00  100.00  Financial operations 
      CSN Madeira Ltd.  100.00  100.00  Financial operations, trading and holding company 
      Cinnabar Com. de Prod. Siderúrgicos Ltd. (1)  100.00  -  Financial operations and holding company 
      Hickory Com. Intern. Serv.Ltd  100.00  100.00  Financial operations and trading 
      Lusosider Projectos Siderúrgicos S.A.  100.00  100.00  Holding company 
      Lusosider Aços Planos S.A.  99.94  99.94  Steel industry and holding company 
      CSN Finance Ltd.  100.00  100.00  Financial operations and holding company 
      CSN Holdings Ltd.  100.00  100.00  Financial operations and holding company 
      Cia. Metalúrgica Prada - Prada  99.99  99.99  Package production 

      28 – Business Segment Reporting.

      FS - 10

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      GalvaSud S.A.  99.99  99.99  Steel industry 
      Mineração Nacional S.A. (3)  99.99  99.99  Mining and holding company 
      CSN Aços Longos S.A.  99.99  99.99  Steel and metal products industry and trading 
      Itaguaí Logística S.A. (4)  99.99  99.99  Logistics 
      CSN Gestão de Recursos Financeiros Ltda  99.99  99.99  Dormant Company 
      Congonhas Minérios S.A.  99.99  99.99  Mining and holding company 
      CSN Acquisitions Ltd.  100.00  100.00  Financial operations and holding company 
      CSN Finance B.V. (7)  100.00  -  Financial operations and holding company 
      International Investment Fund - IIF  100.00  100.00  Financial operations and holding company 
      Itamambuca Participações S.A.  99.93  99.99  Mining and holding company 
      Arame Corporation (7)  100.00  -  Dormant company 
      TdBB S.A.  100.00  100.00  Dormant company 
      International Charitable Corporation (7)  100.00  -  Dormant company 
      Transnordestina Logística S.A.  -  84.34  Railroad transportation 
      CSN Cement S.à r.l.(2)  -  100.00  Financial operations and holding company 
      CSN Ibéria Lda. (2)  -  100.00  Financial operations and holding company 
      Sociedade em Conta de Participação – SCP  100.00  100.00  Holding company 
       
      Not consolidated       
      Nacional Minérios S.A. - Namisa  59.99  59.99  Mining and holding company 
      Pelotização Nacional  59.99  59.99  Mining and holding company 
      MG Minérios S.A.  59.99  59.99  Mining and holding company 
      Namisa Europe Lda (6)  60.00  60.00  Financial operations, trading and holding company 
      Namisa Internacional Minérios SLU (5)  60.00  60.00  Financial operations, trading and holding company 
      Itá Energética S.A. - Itasa  48.75  48.75  Electricity Generation 
      Transnordestina Logística S.A.  84.50   - Railroad transportation 
      MRS Logística S.A - MRS  33.27  33.27  Railroad transportation 
      Riversdale Mining Ltd. (2)  -  14.99  Mining 
      Aceros Del Orinoco S.A.  31.81  31.81  Dormant Company 
      Consórcio da Usina Hidrelétrica de Igarapava  17.92  17.92  Electricity Consortium 
       
      Exclusive investment funds consolidated       
      Mugen – Fundo de Investimento Multimercado  100.00  100.00  Investment funds 
      Diplic – Fundo de Investimento Multimercado  100.00  100.00  Investment funds 
       
      (1)Companies merged during 2009. 
      (2)Company incorporated during 2009. 
      (3)Former Minas Pelotização 
      (4)Former Nacional Siderurgia 
      (5)Former Inversiones CSN Espanha 
      (6)Former NMSA Madeira 
      (7)Companies dissolved during 2009. 

      2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

      2 Summary of significant accounting policies and practices

      In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes.

      FS - 11

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      (a) Basis of presentation

      The consolidated financial statements have been prepared and are being presented in accordance with US GAAP, which differ in certain respects fromInternational Financial Reporting Standards (IFRS) issued by the statutoryInternational Accounting Standards Board (IASB).

      These are the first financial statements preparedpresented by the Company in accordance with IFRS. The main differences between the accounting practices derivedpreviously disclosed including the reconciliations of equity and profit for the year, are described in Note 4.2, 4.3 and 4.4.

      The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in the notes to this report and refer to the allowance for doubtful accounts, provision for inventory losses, provision for labor, civil, tax, environmental and social security risks, depreciation, amortization, depletion, provision for impairment, deferred taxes, financial instruments and employee benefits. Actual results may differ from these estimates.

      The financial statements are presented in thousands of reais (R$). Depending on the Brazilian Corporation Law, rulesapplicable IFRS standard, the measurement criterion used in preparing the financial statements considers the historical cost, net realizable value, fair value or recoverable amount.

      The consolidated financial statements were approved by the Board of Directors and regulationsauthorized for issue on June 16, 2011.

      (b) Consolidated financial statements

      The accounting policies have been consistently applied to all consolidated companies.

      The consolidated financial statements for the years ended December 31, 2009 and 2010 include the following direct and indirect subsidiaries and jointly-controlled subsidiaries, as well as the exclusive funds Diplic and Mugen:

      FS-8


       

       

       Equity interest (%)

      		  

      Companies

       

      2010

       

      2009

       

      Main activities

       

       

       

       

       

       

       

      Direct interest: full consolidation

       

       

       

       

       

       

      CSN Islands VII

       

        100.00

       

      100.00

       

      Financial transactions

      CSN Islands VIII

       

        100.00

       

      100.00

       

      Financial transactions

      CSN Islands IX

       

        100.00

       

      100.00

       

      Financial transactions

      CSN Islands X

       

        100.00

       

      100.00

       

      Financial transactions

      CSN Islands XI

       

        100.00

       

      100.00

       

      Financial transactions

      CSN Islands XII

       

        100.00

       

      100.00

       

      Financial transactions

      Tangua

       

        100.00

       

      100.00

       

      Financial transactions

      International Investment Fund

       

        100.00

       

      100.00

       

      Equity interests and financial transactions

      CSN Minerals (1)

       

        100.00

       

      100.00

       

      Equity interests

      CSN Export

       

        100.00

       

      100.00

       

      Financial transactions, sale of products and equity interests

      CSN Metals (2)

       

        100.00

       

      100.00

       

      Equity interests and financial transactions

      CSN Americas (3)

       

        100.00

       

      100.00

       

      Equity interests and financial transactions

      CSN Steel

       

        100.00

       

      100.00

       

      Equity interests and financial transactions

      TdBB S.A

       

        100.00

       

      100.00

       

      Dormant company

      Galvasud - Merged on 1/29/2010

       

       

       

        99.99

       

      Steel-making

      Sepetiba Tecon

       

          99.99

       

        99.99

       

      Port services

      Mineração Nacional

       

          99.99

       

        99.99

       

      Mining and equity interests

      CSN Aços Longos - Merged on 1/28/2011

       

          99.99

       

        99.99

       

      Manufacture and sale of steel and/or metallurgical products

      Florestal Nacional (4)

       

          99.99

       

        99.99

       

      Reforestation

      Estanho de Rondônia - ERSA

       

          99.99

       

        99.99

       

      Tin mining

      Cia Metalic Nordeste

       

          99.99

       

        99.99

       

      Manufacture of packaging and distribution of steel products

      Companhia Metalúrgica Prada

       

          99.99

       

        99.99

       

      Manufacture of packaging and distribution of steel products

      CSN Cimentos

       

          99.99

       

        99.99

       

      Manufacture of cement

      Inal Nordeste  - Merged on 05/30/2011

       

          99.99

       

        99.99

       

      Service center for steel products

      CSN Gestão de Recursos Financeiros

       

         99.99  

       

        99.99

       

      Dormant company

      Congonhas Minérios

       

          99.99

       

        99.99

       

      Mining and equity interests

      CSN Energia

       

          99.99

       

        99.90

       

      Sale of electric power

      Transnordestina Logística

       

          76.45

       

        84.34

       

      Railroad logistics

      Special partnership - Extinguished on 11/30/2010

       

       

       

        39.47

       

      Equity interests

       

       

       

       

       

       

       

      Indirect interest: full consolidation

       

       

       

       

       

       

      CSN Aceros

       

        100.00

       

      100.00

       

      Equity interests

      CSN Cayman - Liquidated on 8/31/2010

       

       

       

      100.00

       

      Financial transactions, sale of products and equity interests

      CSN IRON - Extinguished on 1/31/2010

       

       

       

      100.00

       

      Financial transactions and equity interests

      Companhia Siderurgica Nacional LLC

       

        100.00

       

      100.00

       

      Steel-making

      CSN Europe (5)

       

        100.00

       

      100.00

       

      Financial transactions, sale of products and equity interests

      CSN Ibéria

       

        100.00

       

      100.00

       

      Financial transactions and equity interests

      CSN Portugal (6)

       

        100.00

       

      100.00

       

      Financial transactions and sale of products

      Lusosider Projectos Siderúrgicos

       

        100.00

       

      100.00

       

      Equity interests

      Lusosider Aços Planos

       

          99.94

       

        99.94

       

      Steel-making and equity interests

      CSN Acquisitions

       

        100.00

       

      100.00

       

      Financial transactions and equity interests

      CSN Resources (7)

       

        100.00

       

      100.00

       

      Financial transactions and equity interests

      CSN Finance UK Ltd

       

        100.00

       

      100.00

       

      Financial transactions and equity interests

      CSN Holdings UK Ltd

       

        100.00

       

      100.00

       

      Financial transactions and equity interests

      Energy I - Liquidated on 8/31/2010

       

       

       

        99.99

       

      Equity interests

      Itamambuca Participações   - Merged on 05/30/2011

       

          99.99

       

        99.99

       

      Mining and equity interests

      Special partnership - extinguished on 11/30/2010

       

       

       

        60.53

       

      Equity interests

       

       

       

       

       

       

       

      Direct interest: proportional consolidation

       

       

       

       

       

       

      Nacional Minérios (NAMISA)

       

          59.99

       

        59.99

       

      Mining and equity interests

      Itá Energética

       

          48.75

       

        48.75

       

      Genaration of electric power

      MRS Logística

       

          22.93

       

        22.93

       

      Railroad transportation

      Consórcio da Usina Hidrelétrica de Igarapava

       

         17.92  

       

        17.92

       

      Electric power consortium

      Aceros Del Orinoco

       

          22.73

       

        22.73

       

      Dormant company

       

       

       

       

       

       

       

      Indirect interest: proportional consolidation

       

       

       

       

       

       

      Namisa International Minerios SLU

       

          60.00

       

        60.00

       

      Equity interests and sale of products and ores

      Namisa Europe

       

          60.00

       

        60.00

       

      Equity interests and sale of products and ores

      Pelotização Nacional - Merged on 12/30/2010

       

       

       

        59.99

       

      Mining and equity interests

      MG Minérios  - Merged on 12/30/2010

       

       

       

        59.99

       

      Mining and equity interests

      MRS Logística

       

          10.34

       

        10.34

       

      Railroad transportation

      Aceros Del Orinoco

       

            9.08

       

          9.08

       

      Dormant company

      (1) New corporate name of CSN Energy, changed on December 15, 2010.
      (2) New corporate name of CSN Overseas, changed on December 15, 2010.
      (3) New corporate name of CSN Panamá, changed on December 15, 2010.
      (4) New corporate name of Itaguaí Logística, changed on December 27, 2010.
      (5) New corporate name of CSN Madeira, changed on January 8, 2010.
      (6) New corporate name of Hickory, changed on January 8, 2010.
      (7) New corporate name of CSN Cement, changed on June 18, 2010.

      FS-9


      •Exclusive funds

       

       

       Equity interest in

      capital social (%)

      Special purpose entities

       

      2010

       

      2009

       

      Principal activities

      Direct equity interest: full consolidation

       

       

       

       

      DIPLIC  - Fundo de investimento multimercado

         100.00

       

       100.00  

       

      Multimarket Investment fund

      Mugen - Fundo de investimento multimercado

         100.00

       

       100.00  

       

      Multimarket investment fund

      In preparing the consolidated financial statements the following consolidation procedures have been applied:

      Unrealized gains on transactions with subsidiaries, jointly-controlled subsidiaries and affiliated companies are eliminated to the extent of CSN’s equity interests in the related entity in the consolidation process. Unrealized losses are eliminated in the same manner as unrealized gains, although only to the extent that there are indications of impairment. The base date of the Comissão de Valores Mobiliários –financial statements of the Brazilian Securities Commission or CVM.

      The U.S. dollar amounts forsubsidiaries, jointly-controlled subsidiaries and affiliated companies is the periods presented have been translated fromsame as that of the Brazilian real, the Company's primary functional currency, into U.S. dollars, the Company’s reporting currency,Company, and their accounting policies are in accordanceline with the criteria set forth in Statement of Financial Accounting Standards No. 52 “Foreign Currency Translation” (“SFAS 52”) – Topic 830. Accordingly,policies adopted by the Company.

      •Subsidiaries

      Subsidiaries are all entities (including special purpose entities) over which the Company has the power to determine the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are actually exercisable or convertible are taken into consideration when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date when control is transferred to the Company and are deconsolidated from the date when such control ceases.

      •Affiliated companies

      Affiliated companies are all entities over which the Company has significant influence, but not control, generally accompanying a shareholding of 20% to 50% of the voting rights. Investments in its affiliated companies are accounted for under the equity method of accounting and are initially recognized at cost. The Company’s investment in affiliated companies includes goodwill identified on acquisition, plus the investor’s share of the profit or loss of the investee after the acquisition and other changes in the value of the net assets, less any accumulated impairment loss.

      •Jointly-controlled subsidiaries

      The financial statements of jointly-controlled subsidiaries are included in the consolidated financial statements from the date when shared control starts through the date when shared control ceases to exist. Jointly-controlled subsidiaries are proportionally consolidated.

      (c) Foreign currencies

      i. Functional currency and reporting currency

      Items included in the financial statements of each one of CSN’s subsidiaries are measured using the currency of the primary economic environment in which each subsidiary operates ("the functional currency"). The consolidated financial statements are presented in Brazilian reais (R$), which is the Company’s functional currency, and also the Group’s reporting currency.

      ii. Transactions and balances

      Transactions in foreign currencies are translated all assets and liabilities into U.S. dollarsthe functional currency using the exchange rates in effect at the dates of the transactions or valuation on which items are remeasured. Foreign exchange rategains and losses resulting from the

      FS-10


      settlement of R$2.3370these transactions and R$1.7412 to US$1.00from the translation at exchange rates in effect as at December 31, 2008 and December 31, 2009, respectively, and all accounts in the statements2010 of income and cash flows (including amounts relative to local currency indexation and exchange variances onmonetary assets and liabilities denominated in foreign currency) atcurrencies are recognized in the average rates prevailing during the applicable periods. Treasury stock transactionsstatement of income, except when they are recognized in shareholders’ equity as qualifying cash flow hedges and dividendsqualifying net investment hedges.

      The balances of balance sheet accounts are translated usingat the exchange rate asin effect at the end of the datereporting period, with US$ 1.00 being equivalent to R$ 1.6662 as at December 31, 2010 (R$ 1.7412 as at December 31, 2009), Euro 1.00 being equivalent to R$ 2.2280 (R$ 2.5073 in 2009), and JPY 1.00 being equivalent to R$ 0.0205 (R$ 0.0188 in 2009).

      All other foreign exchange gains and losses, including foreign exchange gains and losses related to loans and cash and cash equivalents, are presented in the income statement as finance income or costs.

      Changes in the fair value of monetary securities denominated in foreign currency, classified as available-for-sale, are segregated into translation differences resulting from changes in the amortized cost of the transaction. The translationsecurity and other changes in the carrying amount of the security. Translation differences related to changes in amortized cost are recognized in profit or loss, and other changes in the carrying amount are recognized in equity.

      Translation differences on non-monetary financial assets and liabilities, such as investments in shares classified as measured at fair value through profit or loss, are recognized in profit or loss as part of the gain or loss resulting f rom this translation process is includedon the fair value. Translation differences on non-monetary financial assets, such as a component of accumulated other comprehensive lossinvestments in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the Brazilian realshares classified as available- for-sale, are included in comprehensive income in equity.

      iii. Group companies

      The results and financial position of all the resultsGroup’s entities (none of operations as incurred. Certain consolidated foreign subsidiarieswhich has the currency of a hyper-inflationary economy) that have the U.S. dollar as theira functional currency since their primary economic environment and cash flowsdifferent from the reporting currency are generated in this currency. Accordingly, these foreign subsidiaries do not generate gains and losses from exchange rate fluctuations when translating the Company’s consolidated financial statementstranslated into the reporting currency U.S. dollar.as follows:

      Stockholders’ equity included•Assets and liabilities of each balance sheet presented are translated at the closing rate at the balance sheet date.

      •Income and expenses of each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates in effect at the transaction dates, in which case income and expenses are translated at the rate in effect at the transaction dates); and

      •All resulting exchange differences are recognized as a separate component in other comprehensive income.

      On consolidation, exchange differences resulting from the translation of monetary items with characteristics of net investment in foreign operations are recognized in equity. When a foreign operation is partly disposed of or sold, exchange differences previously recorded in other comprehensive income are recognized in the financial statements presented herein differs from that included in the Company’s statutory accounting recordsincome statement as a result of differences between the variations in the U.S. dollar exchange rate and in the indices mandated, until June 30, 1997, when Brazil was considered to have a highly inflationary economy, for indexationpart of the statutory financial statements and adjustments made to reflect the requirements of US GAAP.gain or loss on sale.

      Beginning in 2008, significant changes are being made to Brazilian corporate law to permit Brazilian GAAP to converge with International Financial Reporting Standards (“IFRS”). Pursuant to CVM regulations, we are required to report our financial statements in IFRS beginning with the year ending December 31, 2010. We are currently expecting to discontinue U.S. GAAP reporting for the year ended December 31, 2010.

      (b) Use of Estimates

      The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; allowances for doubtful accounts and sales returns; the valuation of derivatives, deferred tax assets, fixed assets, inventory, investments, notes receivable, reserves for employee benefit obligations, environmental liabilities, mineral quantities to be recovered, income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent i n those estimates and assumptions.

      (c) Basis of consolidation

      The consolidated financial statements include the financial statements of CSN and its majority owned subsidiaries except for our non-consolidated majority-owned subsidiary Namisa, which we deconsolidated as from December 30, 2008 upon Big Jump Energy Participações S.A. (Big Jump) acquisition and dilution of our interest in Namisa, as further detailed in Note 10.

      All significant intercompany balances and transactions have been eliminated in consolidation. The financial statements of all subsidiaries have been prepared in accordance with US GAAP.

      FS - 12

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      (d) Cash and cash equivalents

      Cash and cash equivalents are consideredinclude cash on hand and in banks and other short-term highly investments redeemable within 90 (ninety) days from the end of the reporting period, readily convertible into a known amount of cash and subject to an insignificant risk of change in value. Certificates of deposit that can be all highly liquid temporary cash investments, mainly time deposits, with original maturity dates of three months or less, and certificates of deposits which may be withdrawnredeemed at any time at the discretion of the Company without penalty.penalties are considered as cash equivalents.

      (e) Short-term investments

      Securities for which the Company has positive intent and ability to hold to maturity are classified as held-to-maturity and measured at amortized cost. Securities that are not classified as held-to-maturity or as trading securities are classified as available-for-sale, which are recorded at fair value with the changes recognized as a component of accumulated other comprehensive loss.

      (f) Trade accounts receivable

      AccountsTrade accounts receivable are statedrecognized at estimated realizable values. Allowance is provided, when necessary,the amounts billed, including the related taxes and ancillary expenses, and trade accounts receivable in foreign currency are inflation adjusted at the exchange rate in effect at the end of the reporting period. The allowance for doubtful accounts was recorded in an amount considered by management to be sufficient to meet probable future losses related to uncollectible accounts.cover any losses. Management’s assessment takes into consideration the customer’s history and financial situation, as well as the opinion of our legal counsel regarding the collection of these receivables for recording the allowance.

      (g)

      FS-11


      (f) Inventories

      Inventories are stated at the lower of average cost or replacement orand net realizable value. Cost is determined using the weighted average cost method. Costmethod on the acquisition of productionraw materials. The costs of finished products and work in process comprise raw materials, labor and finished goods includeother direct costs (based on the purchasenormal production capacity). Net realizable value represents the estimated selling price in the normal course of business, less estimated costs of raw materialscompletion and conversion costs such as direct labor and an allocation of fixed and variable production overheads. Raw materials and spare parts are valued at cost including freight, shipping and handling costs.necessary to make the sale. Losses for slow-moving or obsolete inventories are recorded when considered appropriate. The Company holds spare parts that will be used within its operating cycle which are classified as other current assets rather than inventories.

      (h)(g) Investments in affiliated companies and other investments

      In the case of foreign exchange gains or losses on foreign investments that involve a functional currency different from the Company’s, the changes in the value of the investment that result exclusively from foreign exchange gains or losses are recognized under “Cumulative foreign currency translation adjustments” in the Company’s shareholders’ equity and are only recognized in profit or loss when the investment is sold or written off as a loss. Other investments are stated at cost or fair value. When necessary, the accounting policies of the subsidiaries and jointly-controlled subsidiaries are changed to ensure consistency and uniformity of criteria with the policies adopted by the Company.

      (h) Property, plant and equipment

      Property, plant and equipment are stated at cost of acquisition, formation or construction, less accumulated depreciation or depletion and any impairment. Depreciation is calculated under the straight-line method based on the remaining economic useful economic lives of assets, as mentioned in note 14, and depletion of mines is calculated based on the quantity of ore mined. Land is not depreciated since their useful life is considered indefinite. The Company recognizes in the carrying amount of property, plant and equipment the cost of replacement, reducing the carrying amount of the part that it is replacing if it is probable that future economic benefits embodied therein will revert to the Company, and if the cost of the asset can be reliably measured. All other disbursements are expensed as incurred. Borrowing costs related to funds obtained for construction in progress are capitalized until these projects are completed.

      If some components of the property, plant and equipment have different useful lives, these components are recognized separately as property, plant and equipment items.

      Gains and losses on disposal are determined by comparing the sale value less the residual value and are recognized in “Other operating income/expenses”.

      Costs for the development of new ore deposits or for the expansion of the capacity of mines already in operation are capitalized and amortized using the units produced (mined) method, based on the probable and proven quantities of ore. Exploration expenditures are recognized as expenses until the viability of mining activities is established; after this period subsequent development costs are capitalized.

      (i) Intangible assets

      Intangible assets comprise assets acquired from third parties, including through business combinations and/or those internally generated.

      These assets are recognized at cost of acquisition or formation, less amortization calculated under the straight-line method based on the exploration or recovery periods.

      Intangible assets with indefinite useful lives and goodwill based on expected future profitability are not amortized.

      •Goodwill

      Goodwill represents the excess of the cost of an acquisition over the net fair value of assets and liabilities of the acquired subsidiary. Goodwill on acquisitions of subsidiaries is included in “Intangible assets” in the consolidated financial statements.

      FS-12

      Negative goodwill is recognized as a gain in profit for the period at the acquisition date. Goodwill is tested annually for impairment. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of a Cash-Generating Unit (CGU) include the carrying amount of goodwill related to the CGU sold.

      Goodwill is allocated to Cash-Generating Units (CGUs) for impairment testing purposes. The allocation is made to Cash-Generating Units or groups of Cash-Generating Units that are expected to benefit from the business combination from which the goodwill arose, and the unit is not greater than the operating segment.

      •Computer software

      Software licenses acquired are capitalized based on the costs incurred to buy the software and bring them to use. These costs are amortized under the straight-line method over the estimated economic useful lives.

      (j) Impairment of non-financial assets

      Assets that have an indefinite useful life, such as goodwill, are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized in the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value of an asset less costs to sell and its value in use. For impairment assessment purposes, assets are grouped at the lowest levels for which there are separately identified cash flows (CGUs). Non-financial assets, except goodwill, that are considered impaired are subsequently reviewed for possible reversal of the impairment at the reporting date.

      (k) Employee benefits

      (i). Employee Benefits Defined contribution plans

      A defined contribution plan is as a post-employment benefit plan whereby an entity pays fixed contributions to a separate entity (pension fund) and will not have any legal or constructive obligation to pay additional amounts. Obligations for contributions to defined contribution pension plans are recognized as employee benefit expenses in the income statement for the periods during which services are provided by employees. Contributions paid in advance are recognized as an asset on condition that either cash reimbursement or reduction in future payments is available. Contributions to a defined contribution plan that is expected to mature 12 (twelve) months after the end of the period in which the employee provides services are discounted to their present values.

      Defined benefit plans

      A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation regarding defined pension benefit plans is calculated individually for each plan by estimating the value of the future benefit that the employees accrue as return for services provided in the current period and in prior periods; such benefit is discounted to its present value. Any unrecognized costs of past services and the fair values of any plan assets are deducted. The discount rate is the yield presented at the end of the reporting period for top line debt securities whose maturity dates approximate the terms and conditions of the Company’s obligations and which are denominated in the same currency as the one in which it is expected that the benefits will be paid. The calculation is made annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit for the Company, the asset to be recognized is limited to the total amount of any unrecognized costs of past services and the present value of the economic benefits available in the form of future plan reimbursements or reduction in future contributions to the plan. In calculating the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any Company plan. An economic benefit is available to the Company if it is realizable during the life of the plan or upon liquidation of the plan’s liabilities.

      FS-13

      When the benefits of a plan are increased, the portion of the increased benefit related to past services of employees is recognized under the straight-line method over the average period until the benefits become vested. When the benefits become immediately vested, the expense is immediately recognized in profit or loss.

      The Company has chosen to recognize all the actuarial gains and losses resulting from defined benefit plans immediately in other comprehensive income.

      ii. Profit sharing and bonuses

      Employee profit sharing is linked to the achievement of operating and financial targets, substantially allocated to the production cost when applicable and to general and administrative expenses.

      (l) Provisions

      Provisions are recognized when: (i) the Company has a present legal or constructive obligation as a result of past events, (ii) it is probable that an outflow of resources will be required to settle a present obligation, and (iii) the amount can be reliably measured. Provisions are determined discounting the expected future cash flows based on a pre-tax discount rate that reflects current market assessments of the time value of money and, when appropriate, the specific risks of the liability. The increase in the provision due to passage of time is recognized as finance costs.

      (m) Concessions

      The Company has government concessions and their payments are classified as operating leases.

      (n) Share capital

      Common shares are classified as equity.

      Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of taxes.

      When any Group company buys Company shares (treasury shares), the amount paid, including any directly attributable additional costs (net of income tax), is deducted from equity attributable to owners of the Company until the shares are canceled or reissued. When these shares are subsequently reissued, any amount received, net of any directly attributable additional transaction costs and the related income tax and social contribution effects, is included in equity attributable to owners of the Company.

      (o) Operating revenue

      The operating revenue from the sale of goods in the normal course of the Company’s business activities is measured at the fair value of the consideration received or receivable. Revenue is recognized when there is convincing evidence that the most significant risks and rewards of ownership of goods have been transferred to the buyer, it is probable that future economic benefits will flow to the entity, the associated costs and possible return of goods can be reliably estimated, there is no continued involvement with the goods sold, and the amount of the operating revenue can be reliably measured. If it is probable that discounts will be granted and the value thereof can be reliably measured, then the discount is recognized as a reduction of the operating revenue as sales are recognized. Revenue from services provided is recognized as it is realized.

      The appropriate timing for transfer of risks and rewards varies depending on the individual terms and conditions of the sales contract. For international sales, this timing depends on the type of incoterm of the contract.

      (p) Finance income and expenses

      Finance income includes interest income from funds invested (including available-for-sale financial assets), dividend income (except for dividends received from investees accounted for under the equity method in the Company), gains on disposal of

      FS-14


      available-for-sale financial assets, changes in the fair value of financial assets measured at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized in profit or loss under the effective interest method. Dividend income is recognized when the Company’s right to receive payment has been established. Distributions received from investees accounted for under the equity method reduce the investment value.

      Finance costs comprise interest expenses on loans, net of the discount to present value of the provisions, dividends on preferred shares classified as liabilities, losses in the fair value of financial instruments measured at fair value through profit or loss, impairment losses recognized in financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are measured through profit or loss under the effective interest method.

      Foreign exchange gains and losses are reported on a net basis.

      (q) Income tax and social contribution

      The current and deferred Income Tax and Social Contribution are calculated at the rates of 15% (plus a 10% surtax on taxable profit exceeding R$ 240 for income tax and 9% on taxable profit for social contribution on net profit, and consider the offset of income tax and social contribution tax loss carry forwards, limited to 30% of the taxable profit.

      The income tax and social contribution expense comprises current and deferred taxes. The current tax and the deferred tax are recognized in profit or loss unless they are related to business combinations or items directly recognized in equity.

      Current tax is the expected tax payable or receivable on taxable profit or loss for the year at tax rates that have been enacted or substantially enacted by the end of the reporting period and any adjustment to taxes payable in relation to prior years.

      Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax is not recognized for the following temporary differences: initial recognition of assets and liabilities in a transaction that is not a business combination and does not affect either the accounting or taxable profit or loss, and differences associated with investments in subsidiaries and controlled entities when it is probable that they will not reverse in the foreseeable future. Moreover, a deferred tax liability is not recognized for taxable temporary differences resulting in the initial recognition of goodwill. The deferred tax is measured at the rates that are expected to be applied on temporary differences when they reverse, based on the laws that have been enacted or substantially enacted by the end of the reporting period.

      Deferred tax assets and liabilities are offset if there is a legal right to offset current tax liabilities and assets and they relate to income taxes assessed by the same taxing authority on the same entity subject to the taxation.

      A deferred income tax and social contribution asset is recognized for tax losses, tax credits and deductible temporary differences that have not been utilized when it is probable that future profits subject to taxation will be available against which they will be utilized.

      Deferred income tax and social contribution assets are reviewed at the end of each reporting period and reduced to the extent that realization thereof is no longer probable.

      (r) Earnings per share

      Basic earnings per share are calculated by means of the profit for the year attributable to owners of the Company and the weighted average number of common shares outstanding in the related period. Diluted earnings per share are calculated by means of the average number of shares outstanding, adjusted by instruments potentially convertible into shares, with diluting effect, in the reported periods. The Company does not have any instruments potentially convertible into shares and, accordingly, diluted earnings per share are equal to basic earnings per share.

      FS-15


      (s) Environmental and restoration costs

      The Company recognizes a provision for the costs of recovery of areas and fines when a loss is probable and the amounts of the related costs can be reliably measured. Generally, the period for providing for the amount to be used in recovery coincides with the end of a feasibility study or the commitment to adopt a formal action plan.

      Expenses related to compliance with environmental regulations are charged to profit or loss or capitalized, as appropriate. Capitalization is considered appropriate when the expenses refer to items that will continue to benefit the Company and that are basically related to the acquisition and installation of equipment to control and/or prevent pollution.

      (t) Research and development

      All these costs are recognized in the income statement when incurred, except when they meet the criteria for capitalization. Expenditures on research and development of new products for the year ended December 31, 2010 amounted to R$ 4,314 (R$ 2,515 in 2009).

      (u) Financial instruments

      i) Classification

      Financial assets are classified under the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at the time of initial recognition.

      ·Financial assets at fair value through profit or loss

      Financial assets at fair value through profit or loss are financial assets held for active and frequent trading. Derivatives are also categorized as held for trading and, accordingly, are classified in this category unless they have been designed as cash flow hedging instruments. Assets in this category are classified in current assets.

      ·Loans and receivables

      This category includes loans and receivables that are non-derivative financial assets with fixed or determinable payments not quoted in an active market. They are included in current assets, except those with maturity of more 12 months after the end of the reporting period (which are classified as non-current assets). Loans and receivables comprise loans to affiliated companies, trade accounts receivable, other receivables and cash and cash equivalents, except short-term investments. Cash and cash equivalents are recognized at fair value. Loans and receivables are carried at amortized cost using the effective interest rate method.

      ·Held-to-maturity financial assets

      These are basically financial assets acquired with the positive intent and ability to hold to maturity. Held-to-maturity investments are initially recognized at their value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method, less any impairment loss.

      ·Available-for-sale financial assets

      These are non-derivative financial assets, designated as available-for-sale, that are not classified in any other category. They are included in non-current assets when they are strategic investments of the Company, unless Management intends to dispose of the investment within up to 12 months from the end of the reporting period. Available-for-sale financial assets are recognized at fair value.

      ii) Recognition and measurement

      FS-16


      Regular purchases and sales of financial assets are recognized at the trading date - the date on which the Company undertakes to buy or sell the asset. Investments are initially recognized at their fair value, plus transaction costs for all financial assets not classified as at fair value through profit or loss. Financial assets at fair value through profit or loss are initially recognized at their fair value and the transaction costs are charged to the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred, in the latter case, provided that the Company has transferred significantly all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method.

      Gains or losses resulting from changes in the fair value of financial assets at fair value through profit or loss are presented in the income statement under “finance income” in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the income statement as part of other finance income when the Company’s right to receive the dividends has been established.

      Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are segregated into translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences on monetary securities are recognized in profit or loss, while translation differences on non-monetary securities are recognized in equity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized in other comprehensive income.

      Interest on available-for-sale securities, calculated under the effective interest method, is recognized in the income statement as part of other income. Dividends from available-for-sale equity instruments, such as shares, are recognized in the income statement as part of other finance income when the Company’s right to receive payments has been established.

      The fair values of publicly quoted investments are based on the actual purchase prices. If the market for a financial asset (and for instruments not listed on a stock exchange) is not active, the Company establishes the fair value by using valuation techniques. These techniques include the use of recent transactions contracted with third parties, references to other instruments that are substantially similar, analysis of discounted cash flows, and models for pricing options that make the greatest possible use of information generated by the market and contain the minimum possible amount of information generated by the management of the entity itself.

      At the end of the reporting period the Company assesses whether there is objective evidence of impairment of a financial asset or group of financial assets. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security to a level below its cost is considered as an indication that the securities are impaired. If there is such evidence for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on the financial asset previously recognized in profit or loss – is removed from equity and recognized in the income statement. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement.

      •Offset of financial instruments

      Financial assets and liabilities are set off and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the recognized amount and the intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

      •Impairment of financial assets

      Assets measured at amortized cost

      The Company assesses, at the end of each reporting period, whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial

      FS-17


      recognition of the asset (a "loss event") and such loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

      The criteria used by CSN to determine whether there is objective evidence of an impairment loss include the following:

      ·significant financial difficulty of the issuer or counterparty;

      ·breach of contract, such as a default or delinquency in interest or principal payments;

      • the Issuer, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower a concession that the lender would not consider;

      • it becoming probable that the borrower will enter bankruptcy or financial reorganization;

      • the disappearance of an active market for that financial asset due because of the financial difficulties; or

      • observable data indicating that there is a measurable decrease in the estimated future cash flows based on a portfolio of financial assets since the initial recognition of such assets, although the decrease cannot yet be identified with the individual assets in the portfolio, including:
      - adverse changes in the payment status of the borrowers in the portfolio;
      - national or local economic conditions that correlate with defaults on the assets in the portfolio.

      The amount of the loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the original effective interest rate of the financial asset. The carrying amount of the asset is reduced and the amount of the loss is recognized in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate to measure an impairment loss is the current effective interest rate determined pursuant to the contract. As a practical expedient, the Company can measure the impairment based on the fair value of an instrument using an observable market price.

      If in a subsequent period the amount of the impairment loss decreases and the decrease can be objectively related to an event that occurred after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the impairment loss is recognized in the consolidated income statement.

      Assets classified as available-for-sale

      CSN assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Company uses the criteria mentioned above. In the case of equity instruments (shares) classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If there is any evidence of this type for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on the financial asset previously recognized in profit or loss – is removed from equity and recognized in the income statement. If in a subsequent period the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event that occurred after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement.

      iii) Derivative financial instruments and hedging activities

      •Foreign exchange gain on foreign operations

      Any gain or loss on the instrument related to the effective portion is recognized in capital. The gain or loss related to the ineffective portion is immediately recognized in the income statement under "Other gains (losses), net".

      Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposedof or sold.

      FS-18

      •  Derivatives measured at fair value through profit or loss

      Our derivative instruments do not qualify for hedge accounting. Changes in the fair value of any of these derivative instruments are immediately recognized in the income statement under "Other gains (losses), net". Although the Company uses derivatives for hedging purposes, it does not apply hedge accounting.

      (v) Segment information

      An operating segment is a component of the Group committed to the business activities from which it can obtain revenues and incur expenses, including revenues and expenses related to transactions with any other components of the Group. All the operating results of operating segments are reviewed regularly by the Executive Officers of CSN to make decisions regarding funds to be allocated to the segment and assessment of its performance, and for which there is distinct financial information available (see Note 28).

      (w) Government grants

      Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received, when they will be recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended.

      The Company has state tax incentives in the North and Northeast regions that are recognized in profit or loss as a reduction of the corresponding costs and expenses.

      (x) New standards and interpretations that have not yet been adopted

      Several IFRS standards, amendments to standards and interpretations issued by the IASB are not yet effective for the year ended December 31, 2010, as follows:

      •Limited exemption from Comparative IFRS 7 Disclosures for First-time Adopters;
      •Improvements to IFRS 2010;
      •IFRS 9 Financial Instruments;
      •Prepayment of a minimum fund requirement (Amendment to IFRIC 14); and
      •

      Amendments to IAS 32 Classification of rights issues.

      The Company has not yet estimated the extent of the impact of these new standards on its financial statements.

      3. RESTATEMENT OF THE 2008 AND 2009 FINANCIAL STATEMENTS

      •   Restatement – Health Care Plan

      Up to December 31, 2009, costs on the health care plan provided by the Company to former employees retired up to 1997 were recorded monthly as incurred, without any recognition of the constructive obligation resulting from probable future payments to be made.

      Upon adoption of the IFRS and the detailed review of the policies and contracts that link some post-retirement payment to employees, a need to recognize the constructive obligation was identified. Therefore, the Company decided to make retrospective adjustments to the financial statements for 2008 and 2009 issued in accordance with USGAAP.

      The balances of the accounts affected by the restatement as at January 1, 2009 are as follows:

      FS-19

       

       

       

       

       

       

       

       

       

       

       

       

      Published

      (US$ thousand)

       

      Exchange
      rate

       

      Published

      (R$ thousand)

       

      Adjustments

      (R$ thousand)

       

      Adjusted

      (R$ thousand)

       

      Adjusted

      (US$ thousand)

      Non-Current  Assets

       

       

       

       

       

       

       

       

       

       

       

      Deferred income tax and social contribution

      335,919 

       

      2.3370

       

                  785,043

       

      100,847

       

      885,889

       

               379,071

      Non-Current  Liabilities

       

       

       

       

       

       

       

       

       

       

       

      Provision for pension fund - Post-employment benefits

      60,343

       

      2.3370

       

                  141,022

       

                  296,608

       

               437,630

       

      187,261

      Equity

      3,315,687

       

      2.3370

       

               7,748,761

       

              (195,762)

       

            7,552,999

       

      3,231,921

       

       

       

       

       

       

       

       

       

       

       

       

      The balances of the accounts affected by the restatement as at December 31, 2009 are as follows:

       

       

       

       

       

       

       

       

       

       

       

       

      Published

      (US$ thousand)

       

      Exchange
      rate

       

      Published

      (R$ thousand)

       

      Adjustments

      (R$ thousand)

       

      Adjusted

      (R$ thousand)

       

      Adjusted

      (US$ thousand)

      Non-Current  Assets

       

       

       

       

       

       

       

       

       

       

       

      Deferred income tax and social contribution

      152,189

       

      1.7412

       

      264,991

       

      107,829

       

      372,820

       

      214,117

      Non-Current  Liabilities

       

       

       

       

       

       

       

       

       

       

       

      Provision for pension fund - Post-employment benefits

      -

       

      1.7412

       

      -

       

      317,145

       

      317,145

       

      182,142

      Equity

              4,263,762

       

      1.7412

       

               7,424,062

       

      (209,316)

       

            7,214,746

       

      4,143,548

      Income statement

       

       

       

       

       

       

       

       

       

       

       

      Other income (expenses)

      (46,854)

       

      1.9935

       

                (93,403)

       

                 (14,800)

       

            (108,203)

       

              (54,278)

      Deferred income tax and social contribution

      51,820

       

      1.9935

       

              103,303

       

                      5,032

       

               108,335

       

                 54,344

      Profit for the year

              1,280,778

       

      1.9935

       

               2,553,231

       

                   (9,768)

       

            2,543,463

       

            1,275,878

       

       

       

       

       

       

       

       

       

       

       

       

      In addition, the statements of comprehensive income, changes in equity, cash flows and value added, as well as Note 30 (Employee Benefits), Note 10 (Deferred Income Tax and Social Contribution) and Note 4.4 (Equity) have been adjusted to show the book balances and disclosures after the corrections mentioned in the paragraph and tables above.

      4. TRANSITION TO IFRS

      4.1. Application of the first-time adoption of IFRS

      As disclosed in Note 2(a), the consolidated financial statements for the year ended December 31, 2010 are the first annual consolidated financial statements in conformity with IFRS. The Company has applied IFRS 1 in preparing these consolidated financial statements.

      The transition date is January 1, 2009. Management has prepared the opening balance sheets in accordance with IFRS at that date, pursuant to the accounting policies defined in Note 2.

      In preparing these financial statements, the Company applied the relevant mandatory exceptions and certain optional exemptions in relation to full retrospective application.

      In preparing its opening balance sheet under IFRS, as mentioned in Note 3, the Company adjusted the amounts previously presented in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which are the accounting practices for the previously published consolidated financial statements in our annual report on Form 20-F.

      4.2. Exemptions from some requirements of other IFRS

      FS-20


      The Company elected to apply the following exemptions in relation to retrospective application of other IFRS, in accordance to IFRS 1:

      (a) Exemption from requirements for employee benefits – Defined benefit plan

      The Company elected to recognize all the past actuarial gains and losses up to the transition date against the retained earnings account. The application of this exemption is detailed in Note 30.

      (b) Exemption from requirements for business combination in accordance with IFRS 3

      The Company applied the exemption relating to the standard for business combinations described in IFRS 1 and, accordingly, elected not to remeasure and restate the business combinations that occurred prior to January 1, 2009, the transition date.

      (c) Exemption from requirements for fair value as deemed cost of property, plant and equipment:

      The Company elected not to measure its property, plant and equipment and intangible assets at fair value at the transition date, maintaining them at their historical costs of acquisition, adjusted by inflation indices through December 31, 1997, in conformity with standards IAS 21 and IAS 29. The application of this exemption is detailed in Note 14.

      4.3. Explanation of the transition to IFRS

      (a) Business combinations

      Goodwill represents the excess of the cost of an acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired company. If there is any negative goodwill determined by the acquirer in the fair value of the assets, liabilities and contingent liabilities acquired in relation to the cost of acquisition, the Company should recognize it immediately in the income statement.

      As previously mentioned, the Company elected not to remeasure the business acquisitions that occurred prior to January 1, 2009, according to the business combination exemption permitted by IFRS 1. Acquisitions subsequent to January 1, 2009 have been recognized in accordance with IFRS 3, “Business Combinations”.

      (b) Deferred charges

      With respect to the pre-operating expenses recorded prior to the transition date, the Company elected to recognize the net balance in retained earnings at the transition date.

      Up to December 31, 2008, the Company adopted as accounting practice the capitalization of pre-operating expenditures in the group of deferred charges. Pre-operating expenditures that were not attributed to the cost of property, plant and equipment items or the formation of intangible assets were immediately expensed.

      Part of the expenditures previously recorded as deferred charges related to pre-operating expenditures attributable to the cost of certain assets has been allocated to property, plant and equipment.

      (c) Deferred taxes

      The deferred income tax is recognized based on the estimated future effect of temporary differences and income tax and social contribution tax loss carryforwards. A deferred income tax liability is recognized for all temporary tax differences, while a deferred income tax asset is recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilized. Deferred tax assets and liabilities are classified as long-term. Tax assets and liabilities are offset if the entity has a legally enforceable right to offset them and they are related to taxes levied by the same taxing authority. If the criterion for offset of current tax assets and liabilities is met, deferred tax

      FS-21


      assets and liabilities will also be offset. The income tax related to items recognized directly in equity in the current period or in a prior period is recognized directly in the same account.

      (d)  Property, plant and equipment

      i. Cost

      •   Option for adoption of historical cost

      The Company did not elect to use the deemed cost for measuring its property, plant and equipment, due to the fact that its property, plant and equipment as presented in accordance with previous accounting practices already met in a material manner the main requirements for recognition, measurement and presentation under IAS 16, based principally on the fact that: (i) the internal controls in the area of property, plant and equipment already included at the transition date (January 1, 2009) periodic reviews as to the best estimate of useful life and residual value of the main classes of its property, plant and equipment; (ii) the procedures in place for measurement of property, plant and equipment under previous accounting practices were reviewed and confirmed as to the compliance with the measurement requirements of IAS 16, including, but not limited to, regarding non-recording of foreign exchange gains (losses), non-indexation in periods in which Brazil’s economy was considered hyper-inflationary, etc; and (iii) the segmentation and classification of the main items of the property, plant and equipment subject to depreciation already took into consideration the impacts of differentiated depreciation of the main components of the property, plant and equipment.

      Moreover, the Company’s Management believes that the accounting practice of measuring property, plant and equipment at historical cost less the best estimate of depreciation and the provision for impairment, when required, is an accounting practice that best reflects its property, plant and equipment.

      •    Hyper-inflation during 1996 and 1997

      The accounting for hyper-inflation, in accordance with previous BR GAAP, was applied in line with IAS 29 during the period in which Brazil was classified as a hyper-inflationary economy, for local purposes, through 1995. However, in accordance with IFRS, the Brazilian economy still met the definition of hyper-inflationary in 1996 and 1997. The effect of the recognition of these two additional years has been reflected in the transition adjustments.

      •   Loans costs

      Property, plant and equipment are stated at cost, including capitalized interest incurred during the construction of new facilities. Foreign exchange gains (losses) on loans denominated in foreign currency are capitalized to property, plant and equipment when they reflect an adjustment in the interest rate.

      ii.  Depreciation

      The basis for calculation of depreciation is the cost of the asset less the estimated residual value upon sale. While no specific depreciation method is recommended, the method chosen should be applied consistently for all significant components of assets and allocation of the depreciation should be on a systematic basis for each one of the accounting periods that best represents the realization of the economic benefits during the usable lives of assets.

      A review of the estimated useful life was conducted, and the adjustments in the depreciation of assets recorded in property, plant and equipment were made on a prospective basis as from January 1, 2010. See further details in Note 14.

      (e) Earnings per share

      The calculation of basic and diluted earnings per share (EPS) is required for entities with shares, or potential shares, traded on a stock exchange.

      FS-22


      Basic EPS are the amounts for profit or loss attributable to equity holders of the Parent Company in the period, divided by the weighted average number of shares outstanding.

      Diluted EPS are calculated by adjusting the numerator used in calculating basic EPS and the average number of shares outstanding (denominator) for the effects all potential dilutive shares outstanding. CSN does not have any instruments that are potentially convertible into shares with a diluting effect in the reported periods and, therefore, diluted earnings per share are equal to basic earnings per share.

      The data for the current period and prior periods for basic and diluted EPS are adjusted for those transactions that do not involve the conversion of potential shares that change the number of shares without a corresponding change in equity. Basic and diluted EPS also are adjusted for bonus issues and share splits or reverse share splits that occur after the end of the reporting period, but prior to the authorization for issue of the financial statements. The number of shares is adjusted as if the event had occurred at the beginning of the first reported period.

      (f) Dividends and interest on shareholders’ equity

      Dividends proposed or declared after the end of the reporting period, but prior to the authorization for issue of the financial statements, should not be recognized as liabilities, unless they meet the definition of liabilities at the end of the reporting period.

      (g) Reclassifications

      Under IFRS, the following reclassifications to the consolidated financial statements have also been made:

      i. Reclassifications in the balance sheet between BR GAAP and IFRS:

      •Judicial deposits are presented as an item of non-current assets and not net of the provisions for contingencies;
      •Restricted accounts are classified as judicial deposits;
      •Taxes recoverable and payable are presented at their net amounts;
      •Deferred taxes are reclassified as non-current;
      •Deferred tax assets and liabilities will be offset only when the entity has a legally enforceable right to do so and if they are related to taxes levied by the same taxing authority.

      ii. Reclassifications in the income statement between BR GAAP and IFRS:

      •Finance income (expenses) is presented after operating profit in finance income (expenses), net.

      FS-23


      4.4. Reconciliation of the consolidated financial statements adjusted to IFRS with those previously disclosed

      i. Balance Sheet as at January 1, 2009

       

       

       

       

       

       

       

       

       

      1/1/2009

       

      BRGAAP Published

      BRGAAP Republished

      IFRS

       

      IFRS

       

       

       

       

       

      Reclassifications

      Adjustments

       

      ASSETS

       

       

       

       

       

       

       

       

       

      Current assets

       18,352,070

       

             18,352,070

       

                   (432,746)

       

             25,181

       

             17,944,505

      Cash and cash equivalents

         9,151,409

       

               9,151,409

       

       

       

       

       

               9,151,409

      Trade accounts receivable

         1,086,557

       

               1,086,557

       

       

       

       

       

               1,086,557

      Inventories

         3,622,775

       

               3,622,775

       

       

       

            (1,526)

       

               3,621,249

      Income tax and social contribution for offset

           128,055

       

                  128,055

       

       

       

       

       

                  128,055

      Deferred income tax and social contribution

           739,227

       

                  739,227

       

                   (739,227)

       

       

       

              

      Proposed dividends receivable

              42,890

       

                    42,890

       

       

       

             26,707

       

                    69,597

      Guarantee margin for financial instruments

        2,570,050

       

               2,570,050

       

       

       

       

       

               2,570,050

      Other current assets

         1,011,107

       

               1,011,107

       

                     306,481

       

       

       

               1,317,588

      Non-current Assets

       13,145,369

       

            13,236,131

       

                  2,113,702

       

          (41,942)

       

             15,307,891

      Long-term receivables

             2,490,802

       

              2,581,564

       

                      2,113,702

       

                  12,483

       

               4,707,749

      Deferred income tax and social contribution

           753,831  

       

                  844,593

       

                     739,227

       

             13,085

       

               1,596,905

      Recoverable taxes

            302,831

       

                  302,831

       

       

       

       

       

                  302,831

      Judicial deposits

            740,341

       

                  740,341

       

                  1,366,910

       

       

       

               2,107,251

      Trade accounts receivable

            376,374

       

                  376,374

       

       

       

               (602)

       

                  375,772

      Prepaid expenses

            125,011

       

                  125,011

       

       

       

       

       

                  125,011

      Other

            192,414

       

                  192,414

       

                         7,565

       

       

       

                  199,979

      Investments in affiliated companies and other investments

               1,512

       

                     1,512

       

       

       

       

       

                      1,512

      Property, plant and equipment

       10,083,777

       

            10,083,777

       

                       21,708

       

          (33,651)

       

             10,071,834

      Intangible assets

            526,796

       

                 526,796

       

       

       

       

       

                  526,796

      Deferred charges

              42,482

       

                    42,482

       

                     (21,708)

       

          (20,774)

       

                             

      TOTAL ASSETS

       31,497,439

       

             31,588,201

       

                  1,680,956

       

          (16,761)

       

               3,252,396

       

       

       

       

       

       

       

       

       

       

      SHAREHOLDERS EQUITY AND LIABILITIES

       

       

       

       

       

       

       

       

       

      Current Liabilities

         9,633,228

       

              9,633,228

       

                     320,243

       

        (459,108)

       

               9,494,363

      Trade accounts payable

         1,939,205

       

              1,939,205

       

       

       

       

       

               1,939,205

      Loans and financing

         2,916,759

       

              2,916,759

       

                     340,868

       

       

       

               3,257,627

      Debentures

             44,428

       

                   44,428

       

       

       

       

       

                    44,428

      Payroll and related charges

           117,994

       

                 117,994

       

       

       

       

       

                  117,994

      Taxes payable

            333,811

       

                 333,811

       

       

       

       

       

                  333,811

      Taxes payable in installments

            249,930

       

                 249,930

       

       

       

       

       

                  249,930

      Provision for pension fund

              54,818

       

                   54,818

       

                     (54,818)

       

       

       

                                 

      Dividends payable

         1,790,642

       

              1,790,642

       

       

       

        (459,108)

       

               1,331,534

      Provisions for tax, social security, labor and civil risks

             91,710

       

                   91,710

       

                       69,434

       

       

       

                  161,144

      Equity swap financial instruments

         1,596,394

       

              1,596,394

       

       

       

       

       

               1,596,394

      Other

            497,537

       

                 497,537

       

                     (35,241)

       

       

       

                  462,296

      Non-current Liabilities

       15,201,622

       

            15,468,569

       

                  1,360,713

       

          (18,000)

       

             16,811,282

      Loans and financing

         8,040,773

       

               8,040,773

       

                         7,565

       

       

       

               8,048,338

      Debentures

            632,760

       

                  632,760

       

       

       

       

       

                  632,760

      Provisions for tax, social security, labor and civil risks

        2,450,126

       

               2,450,126

       

                  1,297,475

       

       

       

               3,747,601

      Provision for environmental risks

              71,425

       

                    71,425

       

                       14,224

       

       

       

                    85,649

      Deferred income tax and social contribution

       

       

       

       

                           855

       

      1,326

       

                      2,181

      Taxes payable in installments

            795,052

       

                  795,052

       

       

       

       

       

                  795,052

      Amounts due to related parties

        2,878,200

       

               2,878,200

       

       

       

       

       

               2,878,200

      Employee benefits

              62,750

       

                  329,697

       

                       54,818

       

      (20,375)

       

                  364,140

      Other

            270,536

       

                  270,536

       

                     (14,224)

       

      1,049

       

                  257,361

      Shareholders Equity

         6,662,589

       

               6,486,404

       

                                        

       

      460,347

       

               6,946,751

      Common stock

         1,680,947

       

               1,680,947

       

       

       

       

       

               1,680,947

      Capital reserve

                     30

       

                           30

       

       

       

       

       

                           30

      Earnings reserve

         3,682,865

       

               3,682,865

       

                       85,891

       

      485,816

       

               4,254,572

      Additional dividends proposed

       

       

       

       

       

       

      485,816

       

                  485,816

      Other

         3,682,865

       

               3,682,865

       

      85,891

       

       

       

               3,197,049

      Retained earnings

       

       

               (176,185)

       

      1,212,855

       

      (24,866)

       

               1,011,804

      Carrying value adjustment

         1,298,747

       

              1,298,747

       

      (1,298,746)

       

      (603)

       

                       (602)

      TOTAL SHAREHOLDERS EQUITY AND LIABILITIES

       31,497,439

       

             31,588,201

       

      1,680,956

       

      (16,761)

       

            33,252,396

      FS-24


      ii. Reconciliation of shareholders equity BRGAAP x IFRS as at January 1, 2009

      Note

      1/1/2009

      Shareholders equity in accordance with BRGAAP

      6,486,404  

      IFRS adjustments:

      Deferred charges

      4.3 b

                (44,113) 

      Capitalized exchange gains (losses)

      4.3 d

              (194,368) 

      Inflation adjustment for hyperinflationary period

      4.3 d

                180,635  

      Depreciation

      4.3 d

                       637  

      Excess dividends (mandatory minimum)

      4.3 f

                485,816  

      Pension plan - Private

      4.2 a

                  50,035  

      Pension plan - Health care plan

      4.2 a

                (29,661) 

      Deferred income tax and social contribution on IFRS adjustments

      4.3 c

                  11,759  

      Other adjustments, net

                     (393) 

      Shareholders equity in accordance with IFRS

      6,946,751  

      FS-25


      iii. Balance Sheet as at December 31, 2009

       

       

       

       

       

       

       

       

       

      12/31/2009

       

      BRGAAP Published

      BRGAAP Republished

      IFRS

       

      IFRS

       

       

       

       

       

      Reclassifications

       

      Adjustments

       

       

      ASSETS

       

       

       

       

       

       

       

       

       

      Current Assets

         13,568,594

       

         13,568,594

       

                      (749,273)

       

               16,152

       

        12,835,473

      Cash and cash equivalents

           7,970,791

       

               7,970,791

       

       

       

       

       

             7,970,791

      Trade accounts receivable

           1,186,315

       

               1,186,315

       

       

       

       

       

             1,186,315

      Inventories

           2,588,946

       

               2,588,946

       

                               (35)

       

                    16,462

       

             2,605,373

      Income tax and social contribution for offset

              398,172

       

                  398,172

       

       

       

       

       

                398,172

      Deferred income tax and social contribution

              749,272

       

                  749,272

       

                      (749,272)

       

       

       

                           

      Other current assets

              675,098

       

                  675,098

       

                                  34

       

                      (310)

       

                674,822

      Non-current Assets

       15,598,630

       

         15,695,676

       

                      2,241,576

       

              (47,222)

       

        17,890,030

      Long-term receivables

         3,640,162

       

           3,737,208

       

                      2,241,573

       

               (1,559)

       

          5,977,222

      Deferred income tax and social contribution

           1,112,299

       

               1,209,345

       

                         749,272

       

                   (1,559)

       

             1,957,058

      Recoverable taxes

              236,852

       

                  236,852

       

       

       

       

       

                236,852

      Judicial deposits

           1,214,670

       

               1,214,670

       

                      1,492,301

       

       

       

             2,706,971

      Trade accounts receivable

              212,486

       

                  212,486

       

       

       

       

       

                212,486

      Receivables from subsidiaries

              479,120

       

                  479,120

       

       

       

       

       

                479,120

      Prepaid expenses

              105,921

       

                  105,921

       

       

       

       

       

                105,921

      Other

              278,814

       

                  278,814

       

       

       

       

       

                278,814

      Investments in affiliated companies and other investments

             321,889

       

               321,889

       

       

       

                      13

       

             321,902

      Property, plant and equipment

       11,145,530

       

         11,145,530

       

                           17,846

       

             (30,029)

       

        11,133,347

      Intangible assets

            457,580

       

              457,580

       

       

       

                     (21)

       

             457,559

      Deferred charges

                33,469

       

                    33,469

       

                        (17,843)

       

                 (15,626)

       

                           

      TOTAL ASSETS

         29,167,224

       

             29,264,270

       

                      1,492,303

       

                 (31,070)

       

           30,725,503

       

       

       

       

       

       

       

       

       

       

      SHAREHOLDERS EQUITY AND LIABILITIES

       

       

       

       

       

       

       

       

       

      Current Liabilities

         5,128,196

       

           5,128,196

       

                           48,897

       

         (1,179,027)

       

          3,998,066

      Trade accounts payable

            504,223

       

              504,223

       

       

       

       

       

             504,223

      Loans and financing

         1,160,407

       

           1,160,407

       

                        (77,146)

       

       

       

          1,083,261

      Debentures

              30,659

       

                30,659

       

       

       

       

       

               30,659

      Amounts due to related parties

              80,062

       

                80,062

       

       

       

       

       

               80,062

      Payroll and related charges

              134,190

       

                134,190

       

       

       

       

       

             134,190

      Taxes payable

              336,804

       

                336,804

       

       

       

       

       

             336,804

      Taxes payable in installments

              582,190

       

                582,190

       

       

       

       

       

             582,190

      Provision for pension fund

                57,158

       

                  57,158

       

                        (57,158)

       

       

       

                               

      Dividends payable

           1,562,085

       

             1,562,085

       

       

       

            (1,179,006)

       

             383,079

      Provisions for tax, social security, labor and civil risks

                83,462

       

                  83,462

       

                         106,055

       

       

       

             189,517

      Other

              596,956

       

                596,956

       

                           77,146

       

                       (21)

       

             674,081

      Non-current Liabilities

         18,445,535

       

           18,730,965

       

                      1,443,406

       

                 (36,444)

       

           20,137,927

      Loans and financing

         12,547,840

       

           12,547,840

       

                        (18,729)

       

       

       

           12,529,111

      Debentures

              624,570

       

                  624,570

       

       

       

       

       

                624,570

      Provisions for tax, social security, labor and civil risks

           1,452,422

       

               1,452,422

       

                      1,386,248

       

       

       

             2,838,670

      Provision for environmental risks

              116,544

       

                  116,544

       

                           15,524

       

       

       

                132,068

      Deferred income tax and social contribution

                28,325

       

                    28,325

       

       

       

                      1,715

       

                  30,040

      Taxes payable in installments

              437,231

       

                  437,231

       

       

       

       

       

                437,231

      Amounts due to related parties

           2,980,772

       

               2,980,772

       

       

       

       

       

             2,980,772

      Employee benfits

                12,788

       

                  298,218

       

                           57,158

       

                 (38,231)

       

                317,145

      Other

              245,043

       

                  245,043

       

                             3,205

       

                           72

       

                248,320

      Shareholders Equity attributed to CSN

           5,510,433

       

             5,322,049

       

                                        

       

             1,184,401

       

             6,506,450

      Share capital

           1,680,947

       

               1,680,947

       

       

       

       

       

             1,680,947

      Capital reserve

                       30

       

                           30

       

       

       

       

       

                         30

      Earnings reserve

           4,211,770

       

               4,211,770

       

                           54,200

       

               1,178,635

       

             5,444,605

      Additional dividends proposed

      -

       

      -

       

       

       

               1,178,635

       

             1,178,635

      Other

           4,211,770

       

               4,211,770

       

                           54,200

       

       

       

             4,265,970

      Retained earnings

       

       

               (188,384)

       

                         150,604

       

                      4,363

       

                (33,417)

      Carrying value adjustment

            (382,314)

       

             (382,314)

       

                     (204,804)

       

                    1,403

       

             (585,715)

      Non-controlling interests

                83,060

       

                  83,060

       

       

       

       

       

                  83,060

      Shareholders equity

           5,593,493

       

             5,405,109

       

                                        

       

             1,184,401

       

             6,589,510

       

       

       

       

       

       

       

       

       

       

      TOTALSHAREHOLDERS  EQUITY AND LIABILITIES

      29,167,224

         

             29,264,270

       

                      1,492,303

       

                 (31,070)

       

           30,725,503

      FS-26

      iv. Reconciliation of equity BRGAAP x IFRS as at December 31, 2009

      Note

      12/31/2009

      Shareholders equity in accordance with BRGAAP

      5,405,109  

      IFRS adjustments:

      Deferred charges

      4.3 b

                (37,163) 

      Capitalized exchange gains (losses)

      4.3 d

              (173,145) 

      Inflation adjustment for hyperinflationary period

      4.3 d

                 164,323  

      Depreciation

      4.3 d

                        637  

      Excess dividends (mandatory minimum)

      4.3 f

              1,178,635  

      Pension plan

                   69,947  

      Pension plan - Health care plan

                (31,714) 

      Deferred income tax and social contribution on IFRS adjustments

      4.3 c

                  (3,277) 

      Other adjustments, net

                   16,158  

      Shareholders equity in accordance with IFRS

      6,589,510  

      v. Income statement for the year ended December 31, 2009

       

       

       

       

       

       

       

      12/31/2009

       

       

       

       

       

       

       

       

       

      BRGAAP Published

      BRGAAP Republished

      IFRS adjustments

      IFRS

      Net operating revenues

       10,978,364

       

       10,978,364

       

                           

       

            10,978,364

      Cost of Products sold

      (7,045,504)

       

      (7,045,504)

       

                23,385

       

           (7,022,119)

      Depreciation, depletion and amortization

         (751,266)

       

         (751,266)

       

                   4,102

       

               (747,164)

      Other

      (6,294,238)

       

      (6,294,238)

       

                 19,283

       

            (6,274,955)

      GROSS PROFIT

         3,932,860

       

         3,932,860

       

                 23,385

       

              3,956,245

      Operating Expenses/Income

         (400,455)

       

         (412,480)

       

                 17,467

       

               (395,013)

      Selling

         (635,784)

       

         (635,784)

       

                               

       

               (635,784)

      Depreciation and amortization

             (6,250)

       

             (6,250)

       

       

       

                   (6,250)

      Other

         (629,534)

       

         (629,534)

       

       

       

               (629,534)

      General and administrative

         (483,067)

       

         (483,067)

       

                   2,995

       

               (480,072)

      Depreciation and amortization

           (29,733)

       

           (29,733)

       

                   2,995

       

                 (26,738)

      Other

         (453,334)

       

         (453,334)

       

       

       

               (453,334)

      Other operating income

         1,416,756

       

         1,416,756

       

                     (21)

       

              1,416,735

      Other operating expenses

         (698,360)

       

         (710,385)

       

                14,480

       

               (695,905)

      Equity in results of affiliated companies

      -

       

      -

       

                       13

       

                          13

      OPERATING INCOME

         3,532,405

       

         3,520,380

       

                 40,852

       

              3,561,232

      Finance income (expenses)

         (246,435)

       

        (246,435)

       

                           

       

               (246,435)

      Finance income

            586,025

       

            586,025

       

       

       

                 586,025

      Finance expenses

         (832,460)

       

         (832,460)

       

                           

       

               (832,460)

      Inflation adjustment and foreign exchange gains (losses), net

         1,060,055

       

         1,060,055

       

       

       

              1,060,055

      Finance costs

      (1,892,515)

       

      (1,892,515)

       

       

       

            (1,892,515)

      INCOME BEFORE INCOME TAXES

         3,285,970

       

         3,273,945

       

                 40,852

       

              3,314,797

      Current income tax and social contribution

         (581,735)

       

         (581,735)

       

       

       

               (581,735)

      Deferred income tax and social contribution

         (109,323)

       

         (103,993)

       

              (13,888)

       

               (117,881)

      Deferred income tax

           (83,497)

       

           (79,578)

       

              (10,211)

       

                 (89,789)

      Deferred social contribution

           (25,826)

       

           (24,415)

       

                (3,677)

       

                 (28,092)

      Net incomeattributable to:

         2,594,912

       

         2,588,217

       

                 26,964

       

              2,615,181

       

       

       

       

       

       

       

       

      Companhia Siderúrgica Nacional

        2,598,665

       

         2,591,970

       

       

       

              2,618,934

      Noncontrolling interests

             (3,753)

       

             (3,753)

       

       

       

                   (3,753)

      FS-27

      vi. Reconciliation of profit BRGAAP x IFRS for the year ended December 31, 2009

      Note

      2009

      Net income in accordance with BR GAAP

      2,588,217  

      IFRS adjustments:

      Deferred assets

      4.3 b

                     7,519

      Capitalized exchange gains (losses)

      4.3 d

                   23,545

      Inflation adjustment for hyperinflationary period

      4.3 d

                (16,312)

      Pension plan

      4.2 a

                   14,481

      Deferred income tax and social contribution on IFRS adjustments

      4.3 c

                (13,887)

      Other adjustments, net

                   11,618

      Net income in accordance with IFRS

      2,615,181  

      vii. Reconciliation of cash flows BRGAAP x IFRS for the year ended December 31, 2009

       

       

       

       

       

       

       

      2009

       

      BRGAAP Published

      BRGAAP Republished

      IFRS adjustments

      IFRS

      Cash flows from operating activities:

       

       

       

       

       

       

       

      Profit for the year

      2,594,912

       

      2,588,217

       

      26,964

       

      2,615,181

      Adjustments to profit for the year

       

       

       

       

       

       

       

        to cash provided by operating activities:

       

       

       

       

       

       

       

      - Inflation adjustment and exhcange gains (losses), net

      (2,024,573)

       

      (2,024,573)

       

       

       

      (2,024,573)

      - Provision for charges on borrowings and financing

      1,130,089

       

      1,130,089

       

       

       

      1,130,089

      - Depreciation/depletion/amortization

      787,249

       

      787,249

       

      (7,097)

       

      780,152

      - Gain (loss) on disposal of assets

      70,494

       

      70,494

       

       

       

      70,494

      - Gains (losses) on change in percentage equity interest

      (835,115)

       

      (835,115)

       

       

       

      (835,115)

      - Deferred income tax and social contribution

      109,324

       

      103,994

       

      13,887

       

      117,881

      - Provision for losses on trade receivables

      1,527

       

      1,527

       

       

       

      1,527

      - Provision for actuarial liabilities - CBS

      (47,622)

       

      (47,622)

       

       

       

      (47,622)

      - Provision for swap transactions

      (88,986)

       

      (88,986)

       

       

       

      (88,986)

      - Provision for contingencies

      99,157

       

      99,157

       

       

       

      99,157

      - Other provisions

      437,994

       

      450,019

       

      (33,754)

       

      416,265

       

      2,234,450

       

      2,234,450

       

                               

       

      2,234,450

      - Trade accounts receivable

      (51,082)

       

      (51,082)

       

       

       

      (51,082)

      - Inventories

      926,260

       

      926,260

       

       

       

                926,260

      - Taxes for offset

      (313,697)

       

      (313,697)

       

       

       

              (313,697)

      - Taxes payable

      263,734

       

      263,734

       

       

       

                263,734

      - Taxes payable in installments - Refis program

      (103,775)

       

      (103,775)

       

       

       

              (103,775)

      - Trade accounts payable

      (1,137,203)

       

      (1,137,203)

       

       

       

           (1,137,203)

      - Payroll and payroll taxes

      15,257

       

      15,257

       

       

       

                  15,257

      - Contingent liabilities

      (422,375)

       

      (422,375)

       

       

       

              (422,375)

      - Judicial deposits

      (737,041)

       

      (737,041)

       

       

       

              (737,041)

      - Interest paid

      (992,280)

       

      (992,280)

       

       

       

              (992,280)

      - Interest paid on swap transactions

      (742,700)

       

      (742,700)

       

       

       

              (742,700)

      - Other

      287,433

       

      287,433

       

       

       

                287,433

      Changes in assets and liabilities

      (3,007,469)

       

      (3,007,469)

       

                               

       

           (3,007,469)

      Net cash provided by operating activities

      (773,019)

       

      (773,019)

       

                               

       

              (773,019)

       

       

       

       

       

       

       

       

      - Net effects of equity swap

      1,420,322

       

      1,420,322

       

       

       

             1,420,322

      - Swap transactions carried out

      248,966

       

      248,966

       

       

       

                248,966

      - Investments

      (284,232)

       

      (284,232)

       

       

       

              (284,232)

      - Property, plant and equipment

      (1,996,759)

       

      (1,996,759)

       

       

       

           (1,996,759)

      - Intangible assets

                      (5,628)

       

      (5,628)

       

       

       

                  (5,628)

      Net cash used in investing activities

                 (617,331)

       

      (617,331)

       

                               

       

              (617,331)

       

       

       

       

       

       

       

       

      - Loans and financing

                 7,671,696

       

      7,671,696

       

       

       

             7,671,696

      - Interest on shareholders’ equity

                (2,027,600)

       

      (2,027,600)

       

       

       

           (2,027,600)

      - Treasury shares

                (1,350,307)

       

      (1,350,307)

       

       

       

           (1,350,307)

      - Financial institutions - principal

      (2,783,313)

       

      (2,783,313)

       

       

       

      (2,783,313)

      Net cash used in financing activities

                  1,510,476

       

      1,510,476

       

                               

       

             1,510,476

       

       

       

       

       

       

       

       

      Exchange gains (losses) on cash and cash equivalents

                (1,300,744)

       

      (1,300,744)

       

       

       

           (1,300,744)

       

       

       

       

       

       

       

       

      Increase (decrease) in cash and cash equivalents

                (1,180,618)

       

      (1,180,618)

       

                               

       

           (1,180,618)

      Cash and cash equivalents at beginning of year

                   9,151,409

       

      9,151,409

       

       

       

             9,151,409

      Cash and cash equivalents at end of year

                  7,970,791

       

      7,970,791

       

                               

       

             7,970,791

       

       

       

       

       

       

       

       

      FS-28


      4.5. Additional reconciliation between US GAAP and IFRS

      Reconciliations between the U.S. GAAP and IFRS figures presented in the consolidated financial statements as of December 31, 2009 and as of January 1, 2009.

      I. Summary of main differences between U.S. GAAP and IFRS.

      a) Exchange variation on foreign operations

      Under U.S. GAAP and IFRS, part of the net investment in a foreign operation must be long-term in nature. The parties to the transaction can include not only the parent and / or any subsidiaries of the group, but also equity-method investees (affiliated companies). Loan payable to a subsidiary that the parent does not intend to repay is similar to a capital distribution, which reduces the parent’s net investment in the subsidiary. Therefore, we have compared the amount payable to subsidiaries with the net equity of these entities. Unlike IFRS, under US GAAP, the excess of such balances did not meet the definition of net investment and, consequently, the corresponding foreign exchange effect of this piece of the payable has to be recognized in the statement of income.

      b) Pension plan

      US GAAP, in accordance with “SFAS 158”, included in ASC Subtopic 715-20,Compensation - Retirement Benefits - Defined Benefit Plans -General, requires an entity to recognize in its statement of financial position the overfunded or underfunded status of its defined benefit employee pension and postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation. “SFAS 158” (ASC Subtopic 715-20) also requires an entity to recognize changes in the funded status of a defined benefit employee pension or postretirement plan within accumulated other comprehensive income, net of tax, to the extent such changes are not recognized in earnings as components of periodic net benefit cost.

      According to IFRS the asset resulting from the actuarial valuation was not recorded by the Company since there is no clear evidence of its realization, in accordance with IAS 19 – Employee benefits.

      c) Business combination (Goodwill)

      According to US GAAP, goodwill represents the difference between the amount paid and the carrying amount attributed to the net assets acquired; however, goodwill is the difference calculated between the net fair value of the assets acquired and liabilities assumed, including intangible assets.

      The Company applied the exemption relating to the standard for business combinations described in IFRS 1 and, accordingly, elected not to remeasure and restate the business combinations that occurred prior to January 1, 2009, the transition date. Accordingly, the goodwill for IFRS purposes corresponds to the amount recorded in BR GAAP and amortized until December 31, 2008.

      d) US GAAP differences in equity method investees

      According to U.S. GAAP, the Company used the equity method of accounting for all long-term investments for which it owns at least 20% of the investee’s outstanding voting stock or has the ability to exercise significant influence over operating and financial policies of the investee. Investments in which the Company has a majority interest, but, through stockholders’shareholders’ agreements, does not have effective management control are also accounted for under the equity method. Under IFRS, the Company uses proportionate consolidation for jointly controlled entities, thereby resulting in non-controlling results, using thegross method. The equity method requires periodic adjustmentsdifference between previous accounting practice and IFRS in investees refers mainly to business combination adjustments.

      FS-29

      e)Minimum dividends liability

      According to US GAAP and IFRS, dividends proposed or declared after the end of the reporting period, but prior to the authorization for issue of the financial statements, should not be recognized as liabilities, unless they meet the definition of liabilities at the end of the reporting period.

      The Brazilian Securities and Exchange Commission (CVM) Resolution 624, issued in January 2010, determined that the exchange rate variations of monetary items characterized as net investment account to recognize the Company’s proportionate sharein a foreign operation should be recognized within equity in the investee’s results, reduced by receiptparent company financial statements, with application on December 31, 2009 and retrospectively to the year 2008. Previously, those effects were required to be recognized only in the consolidated financial statements resulting in a difference between net income at the consolidated financial statements and the net income for statutory purposes (the latter is the basis for the determination of investee dividends and interest from stockholders’ equity.

      (i) Property, plant and equipment

      Property, plant and equipment are recorded at cost, including capitalized interest incurred duringminimum dividends). Therefore, due to the construction periodchange in Company’s statutory net income of major new facilities. Interest capitalized2008, in foreign currency borrowings excludes the effect of foreign exchange gain and losses. Depreciation is computed under the straight-line method at rates which take into consideration the useful livesIFRS financial statements there was a reclassification of the related assets, as follows (average): buildings - 25 years; equipment - 15 years; furniture and fixtures - 10 years; hardware and vehicles - 5 years. Assets under construction are not depreciated until placed into service.

      Costs of developing iron ore and other mines or expanding the capacity of operating mines are capitalized and charged to operations on the units-of-production method based on the total quantity to be recovered. These costs have not been material for the years presented.

      Maintenance and repair expenses, including those related to programmed maintenance of the Company’s blast furnaces, are charged to the cost of production as incurred. Any gain or loss on the disposal of property, plant and equipment are recognized on disposal.

      FS - 13

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      (j) Recoverability of long lived assets

      Management reviews long-lived assets to be held and used in the Company’s business activities, for the purpose of determining and measuring impairment on a recurring basis or when events or changes in circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. Write-down of the carrying value of assets or groups of assets is made if and when appropriate in accordance with FASB ASC Subtopic 360-10,Property, Plant, and Equipment - Overall, (FASB Statement No. 144,Accounting for the Impairment or Disposal of Long-Lived. In accordance with SFAS 144 - FASB ASC Subtopic 360-10, the carrying value of long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount byadditional minimum dividends which the carrying value exceeds the fair value of the assets. Fair value is determined primarily by usin g a discounted cash flow analysis. No impairment losses have been recorded for any of the periods presented.

      (k) Goodwill

      Goodwill represents the cost of investments in excess of the fair value of the net identifiable assets acquired and liabilities assumed. The Company adopts FASB ASC Topic 350,Intangibles - Goodwill and Other(Statement No. 142,Goodwill and Other Intangible Assets), under which goodwill is no longer amortized but is tested for impairment at least annually, using a two-step approach that involves identification of reporting units and estimates of fair values. No impairment losses have been recorded for any of the periods presented.

      (l) Revenues and expenses

      Revenues and expenses are recognized on the accrual basis. Revenues from the sale of goods are recognized upon delivery to customers, when title is transferred and the client has assumed the significant risks and rewards of ownership in accordance with the contractual terms. Revenue is not recognized if there are significant uncertainties as to its realization. The Company reflects value-added taxes as a reduction of gross operating revenues.

      Handling and shipping expenses are classified in the income statement as selling expenses. For the years ended December 31, 2007, 2008 and 2009 those expenses amounted to US$228, US$264 and US$184, respectively.

      FS - 14

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      (m) Asset retirement obligations

      Retirement of long-lived assets is accounted for in accordance with FASB ASC Topic 410-20 –Asset Retirement Obligations- SFAS 143-“Accounting for Asset Retirement Obligations.” Our retirement obligations consist primarily of estimated closure costs, the initial measurement of which iswere recognized as a liability discountedin the opening balance, without changing the total dividends distributed for that year.

      f) Deferred taxes

      The tax effect of the adjustments included in the reconciliation of net income and shareholders’ equity from IFRS to present values and subsequently accreted through earnings. An asset retirement cost equalUS GAAP is calculated by applying the applicable tax rate to the initial liabilitypretax adjustments where such adjustments have a tax effect. The applicable tax rate is capitalized as part of the related asset’s carrying value and depreciated over the asset’s useful life. The liability amounted to US$6 as of December 31, 2008 and US$9 as of December 31, 2009.

      (n) Environmental and remediation costs

      The Company provides for remediation costs and penalties when a loss is probable and the amount of associated costs is reasonably determinable. Generally, the timing of remediation accruals coincides with completion of a feasibility study or the commitment to a formal plan of action.

      Expenditures relating to ongoing compliance with environmental regulations are charged to earnings or capitalized, as appropriate. Capitalization is considered appropriate when the expenditures relate to items that will continue to provide benefits to the Company and primarily pertain to the acquisition and installation of equipment for pollution control and/or prevention. These ongoing programs are designed to minimize the environmental impact of the Company’s operations and are alsotax rate expected to reduce costs that might otherwise be incurredapply at the time the temporary difference will reverse based on cessationthe specific tax jurisdiction in which the reversal will occur.

      II. Reconciliation of mining activities.

      (o) Research and development costs

      Expenditures for research and development of new productsnet income under IFRS x U.S. GAAP for the year ended December 31, 2009 were US$12 (US$17 in 2008 and US$19 in 2007). All such costs are expensed as incurred.2009.

      (p) Accrued/ Prepaid pension cost

      The Company participates in a defined contribution pension plan that provides pension benefits for its employees. Expense is recognized as the amount of the required contribution for the period and is recorded on the accrual basis.

      Accrued pension costs are determined in accordance with SFAS No. 87 “Employers Accounting for Pensions, FASB ASC Subtopic 715-20 –Defined Benefit Plans – General. The Company provides disclosures related to its employee pension and post-retirement benefits in accordance with SFAS No. 132 “Employers’ Disclosure About Pensions and Other Post-retirement Benefits” and SFAS No. 132 (revised 2003) “Employers’ Disclosure About Pensions and Other Post-retirement Benefits, an amendment of FASB Statements No. 87, 88 and 106” (“SFAS 132R”), included in FASB ASC Subtopic 715-60 –Defined Benefit Plans – Other Postretirement.

      In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("SFAS 158"), included in ASC Subtopic 715-20,Compensation - Retirement Benefits - Defined Benefit Plans -General. SFAS 158 requires an entity to recognize in its statement of financial position the overfunded or underfunded status of its defined benefit employee pension and postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation. SFAS 158 also requires an entity to recognize changes in the funded status of a defined benefit employee pension or postretirement plan within accumulated other comprehensive income, net of tax, to the extent such changes are not recognized in earnings as components of periodic net benefit cost. The Company adopted the aforementioned provisions of SFAS 15 8 on December 31, 2006. The impact of adopting SFAS 158 on the Company's consolidated financial position is discussed further in Note 15. Additionally, SFAS 158 requires companies to measure plan assets and benefit obligations at their year-end balance sheet date. This requirement, which is effective for fiscal years ending after December 15, 2008, has no effect on the Company since its employee pension or postretirement medical plan assets and liabilities are already measured as of December 31, its year-end balance sheet date.

      FS - 15

      Table of Contents

      12/31/2009

      Companhia Siderúrgica Nacional and SubsidiariesNet income in accordance with IFRS

                      2,615,181

      Notes to the Consolidated Financial Statements 

      Expressed

      Exchange variation onforeign operations

      4.5.a

                       (137,046)

      Business combination (Goodwill)

      4.5 c

                             23,137

      US GAAP differences in millions of United States dollars, except share and per share data and unless otherwise stated equity method investees

      4.5.d

                            37, 669

      Deferred taxes

      4.5 f

                           (12,807)

      Other

                           17,329

      Net income in accordance with U.S. GAAP (Restated - note 3)

                      2,543,463

      Post-employment health benefits adjustments

      Note 3

                               9,768

      Net income in accordance with U.S. GAAP

      2,553,231

      (q) Accrual for contingencies and disputed taxes payable

      The Company accounts for contingencies in accordance with SFAS 5 “Accounting for Contingencies”, included in ASC Topic 450,Contingencies. The Company's contingencies were estimated by management and were substantially based upon known facts and circumstances, management's experience and the opinionsIII. Reconciliation of the Company's tax and legal advisors. The Company records accruals for contingencies for lawsuits which the Company classifies as probable losses. Legal costs are expensed as incurred. Additionally, the Company has (i) certain tax liabilities for which the Company is disputing payment with the applicable taxing authorities, and (ii) certain tax liabilities for which the Company is asserting a right to use certain tax credits to offset such tax liabilities. These items are referred to as disputed taxes payable. Accruals for contingencies, disputed taxes payable and the related legal deposits requested by the courts for those disputes are updated by the interest r ate charged by the Brazilian government (the SELIC rate) and inflation, when applicable.

      (r) Employee profit participation plan

      The parent company sponsors an employee profit participation plan for all parent company employees, which is based on annual EBITDA (earnings before interest, income taxes, depreciation and amortization) determined on the basis of the Company’s statutory financial statements. The plan establishes the distribution of up to a maximum of twice the normal payroll paid in the month of December, provided the EBITDA margin (EBITDA as a percentage of revenues) is equal to or greater than 40% (in 2007 it was limited to one month’s salary per employee plus a specified amount. In 2008 and 2009, each employee was paid two month salary. Expenses related to the employee profit participation plan in cost of sales, general and administrative expenses and selling expenses amounted to US$30, US$30 and US$42 in 2007, 2008 and 2009, respectively.

      (s) Compensated absences

      Compensated absences are accrued over the vesting period.

      (t) Income taxes

      The Company accounts for income taxes in accordance with SFAS No. 109 “Accounting for Income Taxes”, included in ASC Subtopic 740-10,Income Taxes – Overall,shareholders’ equity under IFRS x U.S. GAAP as of January 1, 2009, which requires and December 31, 2009.

        

      12/31/2009

       

      01/01/2009

      Shareholders’ equityin accordance withIFRS  

      		 

          6,589,510

       

           6,946,751

       

      		 

       

       

       

      Dividends

      4.5 e

      -

       

                     324,233

      Pension plan

      4.5 b

               516,746

       

                    (128,306)

      Business combination (Goodwill)

      4.5 c

                  179,645

       

                     156,508

      US GAAP differences in equity method investees

      4.5 d

                     158,269

       

                     230,359

      Deferred taxes

      4.5 f

                         (229,505)

       

                       46,923

      Other

      		 

      81

       

                     (23,469)

      Shareholders’ equityin accordance with U.S. GAAP (Restated - note 3)

      		 

                  7,214,746

       

                7,552,999

      Post-employment health benefits adjustments

      Note 3

                      209,316

       

                     195,762

      Shareholders’ equityin accordance with U.S. GAAP

      		 

                  7,424,062

       

                7,748,761

       

      		 

       

       

       

      FS-30

      5. TRANSACTIONS WITH RELATED PARTIES

      a) Transactions with Holding Company

      Vicunha Siderurgia S.A. is a holding company set up for the applicationpurpose of holding equity interests in other companies. It is the Company’s principal shareholder, holding 47.86% of the assetsvoting shares.

      CSN distributed dividends and liability methodpaid interest on shareholders’ equity to Vicunha Siderurgia in the amount indicated in the following table, according to the percentage equity interest held by Vicunha Siderurgia in CSN, at the end of accountingthe reporting period.

      Company

       

      Mandatory minimum dividend

      Proposed interest on shareholders’ equity

      Dividends paid

      Interest on shareholders’ equity paid

      Additional dividends proposed

       

       

       

       

       

       

       

       

       

       

       

      Total in 2010

       

      130,701

       

      170,813

       

      717,834

       

      33,499

       

      587,524

      Total in 2009

       

      153,805

       

      153,121

       

      689,747

       

      243,060

       

      564,095

      The ownership structure of Vicunha Siderurgia is as follows (unaudited information):

      Rio Purus Participações S.A. – holds 60% of National Steel and 59.99% of Vicunha Steel S.A.

      CFL Participações S.A. – holds 40% of National Steel and 39.99% of Vicunha Steel S.A.

      National Steel – holds 33.04% of Vicunha Aços

      Vicunha Steel – holds 66.96% of Vicunha Aços

      Vicunha Aços – holds 99.99% of Vicunha Siderurgia

      b) Transactions with jointly-controlled subsidiaries

      The Company’s strategic areas of mining, logistics and energy maintain equity interests in companies under joint control. The characteristics, objectives and transactions with these companies are as follows:

      •Assets

      Companies

       

      Trade receivables

       

      Intercompany loans (*)

       

      Total

      Nacional Minérios

       

      18,597

       

      496,438

       

      515,035

      MRS Logística

       

      518

       

       

       

      518

      Total in 2010

       

      19,115

       

      496,438

       

      515,553

      Total in 2009

       

      10,989

       

      492,689

       

      503,678

       

       

       

       

       

       

       

      (*) Intercompany loan in the amount of R$ 1,197,800 (loan non-consolidated corresponds to R$479,120), beginning January 28, 2009 and bearing interest in the amount of R$ 43,295 as at December 31, 2010. Interest is levied on the nominal amount of this agreement, corresponding to 101% of the CDI Cetip rate, with due date on January 31, 2012.
      FS-31

      •Liabilities

       

       

      Liabilities

       

       

       

       

       

       

      Companies

       

      Advances from customers

      Intercompany loans / Current accounts

      Other

       

      Total

      Nacional Minérios

      3,169,817

       

      7,369

       

       

       

      3,177,186

      MRS Logística

       

       

       

       

       

      36,846

       

      36.846

      Itá Energética

       

       

       

       

       

      6,726

       

      6,726

      Total in 2010

       

      3,169,817

       

      7,369

       

      43,572

       

      3,220,758

      Total in 2009

       

      3,055,463

       

      5,364

       

      55,766

       

      3,116,593

       

       

       

       

       

       

       

       

       

      Nacional Minérios: The customer advance received from the jointly-controlled subsidiary Nacional Minérios S.A. refers to the contractual obligation for income taxes.supply of iron ore and port services. The effectsagreement is subject to interest rate of US GAAP adjustments,12.5% p.a. and expires in June 2042. The amount falling due in 2011 corresponds to R$ 325,099.

      MRS Logística: In other payables we have recorded the amount accrued to cover contractual expenses for take or pay and block rates relating to the railroad transportation agreement.

      Itá Energética: These liabilities refer to the supply of electric power, which is billed under normal terms applicable to the Brazilian energy market, regulated by the Electric Power Trading Chamber.

      •Results

      Companies

       

      Income

       

       

       

       

       

      Expenses

       

       

       

       

       

       

      Sales

       

      Interest, inflation adjustment and exchange gains (losses)

      Total

       

      Purchases

       

      Interest, inflation adjustment and exchange gains (losses)

      Total

      Nacional Minérios

       

      277,751

       

      45,997

       

      323,728

       

      9,515

       

      373,606

       

      383,121

      MRS Logística

       

       

       

       

       

       

       

      248,039

       

       

       

      248,039

      Itá Energética

       

       

       

       

       

       

       

      79,067

       

       

       

      79,067

      Total in 2010

       

      277,751

       

      45,977

       

      323,728

       

      336,621

       

      373,606

       

      710,227

      Total in 2009

       

      203,553

       

      42,163

       

      245,716

       

      600,851

       

      359,340

       

      960,191

       

       

       

       

       

       

       

       

       

       

       

       

       

      The main transactions carried out by the Company with its jointly-controlled subsidiaries are sales and purchases of products and services, which include the supply of iron ore, provision of port services and railroad transportation, as well as the supply of electric power for CSN’s operations.

      c) Other related parties

      •CBS Previdência

      The Company is the principal sponsor of this not-for-profit entity established in July 1960. Its principal objective is paying benefits that supplement the official government Social Security benefits to participants. In its capacity as sponsor, CSN carries out transactions involving the payment of contributions and recognition of actuarial liabilities calculated in defined benefit plans, as detailed in Note 30.

      •Fundação CSN

      The Company develops socially responsible policies concentrated today in Fundação CSN, of which it is the sponsor. The transactions between the parties relate to the operating and financial support for Fundação CSN to carry out the social projects undertaken mainly in the locations where the Company operates.

      FS-32

      •Banco Fibra

      Banco Fibra is under the same ownership structure of Vicunha Siderurgia and the financial transactions carried out with this bank are limited to current account operations and investments in fixed-income securities.

      •CBL – Companhia Brasileira de Latas

      CBL – Companhia Brasileira de Latas is a company engaged in the manufacture of steel metallic packaging for the food and chemical industries, supplying to the main companies in the market. CSN has shares in this company because it is a holder of CBL debentures, representing an equity interest of 0.0053%.

      As at December 31, 2010 the Company has long-term receivables of R$ 239,039 (R$ 239,039 in 2009) and debentures of R$ 212,870 (R$ 212,870 in 2009), which are duly covered by a provision for losses.

      The balances of the transactions between the Company and these entities are as follows:

      Assets and Liabilities

       

       

      Assets

       

       

       

       

       

       

       

      Liabilities

       

       

       

       

      Companies

       

      Banks/Marketable securities

      Receivables

       

      Current account

      Total

       

      Actuarial liabilities

      Payables

       

      Total

      CBS Previdência

       

       

       

       

       

       

       

       

       

      367,839

       

       

       

      367,839

      Fundação CSN

       

       

       

       

       

      1,199

       

      1,199

       

       

       

      37

       

      37

      Banco Fibra

       

      94

       

       

       

       

       

      94

       

       

       

       

       

       

      Usiminas

       

       

       

      12,455

       

       

       

      12,455

       

       

       

      16,096

       

      16,096

      Panatlântica

       

       

       

      12,227

       

       

       

      12,227

       

       

       

       

       

       

      Total in 2010

       

      94

       

      24,682

       

      1,199

       

      25,975

       

      367,839

       

      16,133

       

      383,972

      Total in 2009

       

      37

       

       

       

      906

       

      943

       

      317,145

       

      90

       

      317,235

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Results

       

       

      Income

       

      Expenses / Cost

      Companies

       

      Sales / Interest income

      Other income

      Total

       

      Pension fund expenses

      Purchases / Other expenses

      Total

      CBS Previdência

       

       

       

      90

       

      90

       

      86,199

       

       

       

      86,199

      Fundação CSN

       

       

       

       

       

       

       

       

       

      2,385

       

      2,385

      Banco Fibra

       

      680

       

       

       

      680

       

       

       

       

       

       

      CBL

       

      84,350

       

       

       

      84,350

       

       

       

      37,672

       

      37,672

      Usiminas

       

      103,486

       

       

       

      103,486

       

       

       

      18,594

       

      18,594

      Panatlântica

       

      224,795

       

       

       

      224,795

       

       

       

       

       

       

      Total in 2010

       

      413,311

       

      90

       

      413,401

       

      86,199

       

      58,651

       

      144,850

      Total in 2009

       

      97,487

       

      190

       

      97,677

       

      77,515

       

      1,305

       

      78,820

       

       

       

       

       

       

       

       

       

       

       

       

       

      e) Key management personnel

      The key management personnel, who have authority and responsibility for planning, directing and controlling the Company’s activities, include the members of the Board of Directors and the statutory Executive Officers. The following is information on the compensation of such personnel and the related balances as at December 31, 2010.

       

       

      2010

       

      2009

       

       

      Results

       

      Results

      Short-term benefits for employees and officers

       

             17,881

       

             21,926

      Post-employment benefits

       

                    81

       

                    75

      Other long-term benefits

       

      n/a

       

      n/a

      Severance benefits

       

      n/a

       

      n/a

      Share-based compensation

       

      n/a

       

      n/a

       

       

             17,962

       

             22,001

       

       

       

       

       

      n/a – not applicable

      FS-33


      f) Policy of investments and payment of interest on shareholders’ equity and distribution of dividends

      At a meeting held on December 11, 2000, the Board of Directors decided to adopt a policy of distributing earnings which, after the provisions contained in 6404/76, as amended by Law 9457/97) are complied with, will entail the distribution of all the profit to the Company’s shareholders, provided that the following priorities are preserved, irrespective of their order: (i) carrying out the business strategy; (ii) fulfilling its obligations; (iii) making the required investments; and (iv) maintaining a healthy financial situation of the Company.

      6. CASH AND CASH EQUIVALENTS

       

       

       

       

       

      2010

       

      2009

      Current Assets

       

       

       

      Cash and cash equivalents

       

       

       

      Cash and banks

                156,580

       

                142,045

       

       

       

       

      Marketable securities

       

       

       

      In Brazil:

       

       

       

      Government bonds

                477,529

       

             3,339,972

      Fixed-income investments and debentures

             2,134,364

       

             1,304,713

       

             2,611,893

       

             4,644,685

      Abroad:

       

       

       

      Time deposits

      7,470,805

       

      3,184,061

      Total marketable securities

      10,082,698

       

      7,828,746

       

       

       

       

      Cash and cash equivalents

      10,239,278

       

      7,970,791

       

       

       

       

      The funds available in the Company and subsidiaries set up in Brazil are basically invested in exclusive investment funds, with repurchase agreements backed by Brazilian government bonds with immediate liquidity. In addition, a significant part of the funds of the Company and its foreign subsidiaries is invested in time deposits with leading banks.

      Fixed Income:Investments of R$ 2,079,549, backed by Certificates of Bank Deposit (CDBs), with yield based on the variation in the Certificate of Interbank Deposit (CDI) rate.

      Debentures:Investments in debentures made by the jointly-controlled subsidiary MRS in the amount of R$ 54,815, with yield based on the variation in the CDI rate, in securities issued by the following banks: Santander, Votorantim, Safra, Itaú BBA and Bradesco.

      7. TRADE ACCOUNTS RECEIVABLE

       

       

       

       

       

      2010

       

      2009

      Trade accounts receivable

       

       

       

      Third parties

       

       

       

      Domestic market

      846,507

       

      977,239

      Foreign market

      530,356

       

      359,355

      Doubtful debt allowance

      (117,402)

       

      (164,077)

       

      1,259,461

       

      1,172,517

      Related parties (Note 5)

       

       

      13,798

       

      1,259,461

       

      1,186,315

       

       

       

       

      Other receivables

       

       

       

      Loans to jointly-controlled subsidiaries

      17,318

       

      13,569

      Other receivables

              90,980

       

            128,057

       

            108,298

       

            141,626

       

         1,367,759

       

         1,327,941

       

       

       

       

      FS-34

      In order to meet the needs of some customers in the domestic market, related to the extension of the payment term for billing of steel, in common agreement with the internal commercial policy of the CSN Group and maintenance of its very short-term receipts (up to 14 days), at the request of the customer, transactions are carried out for assignment of receivables without co-obligation negotiated between the customer and banks with common relationship, where the CSN Group assigns the trade notes/bills that it issues to the banks with common relationship.

      Due to the characteristics of the transactions for assignment of receivables without co-obligation, after assignment of the customer’s trade notes/bills and receipt of the funds from the closing of each transaction, the CSN Group settles the trade accounts receivable and becomes entirely free of the credit risk on the transactions.

      These transactions total R$ 247,680 as at December 31, 2010 (R$ 235,204 in 2009), less the trade accounts receivable.

      The changes in the provision for losses on the Company’s trade accounts receivable are as follows:

       

       

       

       

       

       

       

      2010

       

      2009

      Opening balance

       

          (164,077)

       

          (162,550)

      Allowance for losses on trade accounts receivable

       

             (7,439) 

       

            (68,524)

      Receivables recovered

       

              54,114

       

              66,997

       

       

      (117,402)

       

      (164,077)

       

       

       

       

       

      8. INVENTORIES

       

       

       

       

       

      2010

       

      2009

      Finished products

      1,016,594

       

      600,955

      Work in process

      588,723

       

      510,006

      Raw materials

      656,286

       

      581,393

      Supplies

      864,205

       

      711,855

      Iron ore

      313,716

       

      249,978

      Provision for losses

      (83,738)

       

      (48,814)

       

             3,355,786

       

             2,605,373

       

       

       

       

      Provisions have been recognized for certain items considered as obsolete or slow-moving inventories.

      As at December 31, 2010, the Company has long-term iron ore inventories in the amount of R$ 130,341, classified in other non-current assets.

      FS-35


      9. OTHER CURRENT ASSETS

      The group of other current assets are comprised as follows:

       

       

       

       

       

      2010

       

      2009

      Prepaid taxes

      89,596

       

      54,831

      Guarantee margin on financial instruments (Note 17)

      254,485

       

      115,949

       

      344,081

       

      170,780

       

       

       

       

      10. INCOME TAXES

      (a) Income tax and social contribution recognized in profit or loss:

      The income tax and social contribution recognized in profit or loss for the year are as follows:

       

       

       

       

       

      2010

       

      2009

      Income tax and social contribution expense (income)

       

       

      Current

      313,371

       

      581,735

      Deferred

      257,326

       

      117,881

       

      570,697

       

      699,616

       

       

       

       

      Reconciliation of Consolidated income tax and social contribution expenses and income and the result from applying the effective rate on profit before income tax (IRPJ) and social contribution (CSLL) are as follows:

       

       

       

       

       

      2010

       

      2009

      Profit before income tax and social contribution

             3,086,888

       

                   3,314,797

      Tax rate

      34%

       

      34%

      Income tax and social contribution at combined tax rate

            (1,049,542)

       

             (1,127,031)

      Adjustments to reflect effective rate:

       

       

       

      Benefit of interest on shareholders’ equity

                121,312

       

                 108,788

      Equity in results of affiliated companies/ Profits (losses) of subsidiaries with different rates or not subject to taxation

                216,529

       

                 169,314

      Tax incentives

                   33,824

       

                   11,732

      Adjustments resulting from installment payments under Law 11941 and MP 470 (Note 20)

                106,216

       

                 252,838

      Other permanent exclusions (additions) (*)

                        964

       

                (115,257)

      Income tax and social contribution on profit (loss) for the year

               (570,697)

       

                (699,616)

      Effective rate

      18%

       

      21%

      (*) In 2009 this refers mainly to income tax on tax loss of subsidiary Prada.

      (b) Deferred income tax and social contribution:

      Deferred taxes are recorded to reflect the future tax effects attributable to temporary differences between the tax basisbase of assets and liabilities and the amounts included in these financial statements, have been recognized as temporary differences for the purpose of recording deferred income taxes. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period that includes enactment date. A valuation allowance is recorded when management believes it is more likely than not that s ome portion or alltheir carrying amounts.

       

       

       

       

       

      2010

       

      2009

       

      01/01/09

      Deferred income tax and social contribution

       

       

       

       

       

      Income tax loss carry forwards

      4,944

       

      162,123

       

      307,545

      Social contribution tax loss carryforwards

      1,871

       

      56,661

       

      110,763

      Temporary differences

      1,586,126

       

      1,708,234

       

      1,176,416

      - Provision for contingencies

      298,708

       

      279,184

       

      556,725

      - Provision for impairment of assets

      40,345

       

      46,984

       

      39,519

      - Provision for inventory losses

      26,011

       

      17,969

       

      6,899

      - Provision for gains/losses on financial instruments

      183,169

       

      160,239

       

      78,821

      - Provision for interest on shareholders’ equity

      121,351

       

      20,706

       

      91,276

      - Provision for long-term sales

      1,221

       

      6,806

       

      2,383

      - Provision for consumption and services

      43,828

       

      33,929

       

      26,074

      - Allowance for losses on trade accounts receivable

      146,865

       

      102,482

       

      59,950

      - Provision for payments of private pension plans

      7,012

       

      4,358

       

      21,336

      - IFRS adjustments

      57,813

       

      103,532

       

      102,757

      - Goodwill on merger

      599,730

       

      791,184

       

      61,563

      - Other temporary diffeences

      60,073

       

      140,861

       

      129,113

       

      1,592,941

       

      1,927,018

       

      1,594,724

      Non-Current Assets

      1,592,941

       

      1,957,058

       

      1,596,905

      Non-Current Liabilities

       

       

      (30,040)

       

      (2,181)

       

       

       

       

       

       

      FS-36

      Some companies of the deferredGroup recognized tax assets will not be realized.

      Beginning with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), included in ASC Subtopic 740-10,Income Taxes – Overall,as of January 1, 2009, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Prior to the adoption of FIN 48, the Company recognized the effect of income tax positions only if such positions were probable of being sustained.

      The Company records interest and penalties related to unrecognized tax benefits in interest expense (financial income (expense), net) in the consolidated statements of income.

      (u) Statements of cash flows

      Short-term investments that have a ready market and original maturity, when purchased, of 90 days or less, and certificates of deposits which may be withdrawn at any time at the discretion of the Company without penalty are considered to be cash equivalents.

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      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      (v) Earnings per share

      The Company presents its earnings per share in accordance with SFAS No. 128 “Earnings Per Share” ” included in ASC Subtopic 260-10,Earnings Per Share – Overall. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during the year. The Company does not have any potentially dilutive common shares outstanding and, accordingly, diluted earnings per share is equal to basic earnings per share.

      (w) Concentration of credit risk

      Financial instruments that potentially subject CSN to concentrations of credit risk are cash and cash equivalents, trade accounts receivable and derivatives. CSN limits its credit risk associated with cash and cash equivalents and derivatives by placing its investments with (1) highly-rated financial institutions in short-term investments and (2) Brazilian government notes. With respect to trade accounts receivable, CSN limits its credit risk by performing ongoing credit evaluations and, dependingcredits on the results of the evaluation, requiring letters of credit, guarantees or collateral. CSN’s products are utilized in a wide variety of industry segments, therefore accounts receivable and sales are not concentrated in one single industry and, accordingly, management does not believe significant concentration of credit risk with respect to any one industry exists.

      (x) Comprehensive income

      SFAS No. 130 “Reporting Comprehensive Income” (“SFAS 130”), included in ASC Topic 220,Comprehensive Income,requires that companies report changes in the equity of a business enterprise during a period resulting from transactions and other events and circumstances from non-owner sources. The Company has adopted SFAS 130 for all years presented and has included comprehensive income as part of the consolidated statements of changes in stockholders’ equity.

      (y) Interest attributed to stockholders

      As from January 1, 1996, Brazilian corporations are allowed to attribute interest on stockholders’ equity. The calculation is based on the stockholders’ equity amounts as stated in the statutory accounting records and the interest rate applied may not exceed the long-term interest rate (“TJLP”) determined by the Brazilian Central Bank (approximately 6.4%, 6.3% and 6.1% for the years 2007, 2008 and 2009 respectively). Also, such interest may not exceed the greater of 50% of net income for the year or 50% of retained earnings plus accumulated net income and unrealized income reserves, determined in each case on the basis of the statutory financial statements. The amount of interest attributed to stockholders is deductible for income tax purposes. Accordingly, the benefit to the Company, as opposed to making a dividend payment, is a reduction in income tax charge equivalent to the statutory rate applied to such amount. Income tax is imposed on interest payments at the rate of 15%. The Company opted to pay both dividends and such tax-deductible interest to its stockholders, and has therefore accrued the amounts due as of December 31, 2009 and 2008 with a direct charge to stockholders’ equity.

      (z) Treasury stock

      Treasury stock consists of the Company’s own stock which has been issued and subsequently reacquired by the Company and has not been reissued or cancelled. Such treasury stock is carried at cost of acquisition.

      (aa) Segment information

      SFAS No. 131 “Disclosures about Segments of Enterprise and Related Information” (“SFAS 131”) , included in ASC Topic 280,Segment Reporting,requires that a business enterprise supplementally disclose certain financial information about its various and distinct operating activities. Such information is to be presented from the point of view of how operating and financial decisions are made for each business sector. The Company has adopted SFAS 131 for all years presented, as further disclosed in Note 19.

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      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      (ab) Derivative financial instruments

      The Company accounts for derivative financial instruments pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” - FASB ASC Topic 815, as amended. This standard requires that all derivative instruments be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in the fair value of derivative instruments are recognized periodically in income as the Company recognizes all derivative financial instruments as non-hedge transactions. Gain and losses are classified as financial income and expense in the statements of income. See Note 21 for additional information.

      (ac) Concessions

      The Company holds certain governamental concessions which are accounted for in accordance with SFAS 13 -“Accounting for Leases” , included in ASC Subtopic 840 – 10Leases - Overall. Accordingly, the contracts are classified as operating leases or capital leases dependent upon whether certain criteria are met. The Company’s port facilities concession of Tecon is classified as an operating lease.

      3 Recently issued accounting pronouncements

      The following new accounting standards have been issued and were adopted by the Company as of December 31, 2009:

      SFAS No. 157, "Fair Value Measurements" (SFAS No. 157),included in FASB ASC Subtopic 310-10. In September 2006, the FASB issued SFAS No. 157, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. For us, SFAS No. 157 was effective as of January 1, 2008. The adoption of SFAS No. 157 did not have any material impact on our consolidated results of operations, cash flows or financial position. In February 2008, the FASB approved FSP FAS 157-2, which grants a one-year deferral of SFAS 157’s fair value measurement requirements for nonfinancial assets and liabilities, except for items that are required to be recognized or disclosed at fair value. In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3” ), which clarifies the application of FASB Statement No. 157, “Fair Value Measurements” (“FAS 157”) in an inactive market. The intent of this FSP is to provide guidance on how the fair value of a financial asset is to be determined when the market for that financial asset is inactive. FSP FAS 157-3 states that determining fair value in an inactive market depends on the facts and circumstances, requires the use of significant judgment and in some cases, observable inputs may require significant adjustment based on unobservable data. Regardless of the valuation technique used, an entity must include appropriate risk adjustments that market participants would make for nonperformance and liquidity risks when determining fair value of an asset in an inactive market. FSP FAS 157-3 was effective upon issuance. The Company has no financial assets in inactive markets.

      SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS No. 159),included in FASB ASC Subtopic 820-10. In February 2007, the FASB issued SFAS No. 159, which permits entities to choose to measure many financial instruments and certain other items at fair value. For us, SFAS No. 159 was effective as of January 1, 2008 and had no impact on amounts presented for periods prior to the effective date. We chose not to measure items subject to SFAS No. 159 at fair value, unless required by other standards.

      SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment to ARB No. 51 –Accounting Standards Update No. 2010-02,Consolidation: Accounting and Reporting for Decreases in Ownership of a Subsidiary - a Scope Clarification ,included in FASB ASC Subtopic 810-10.In December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51,” which clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. The effective date of this statement is the same as that of the related Statement No. 141(R) . This statement shall be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. SFAS No. 160 was adopted by the Company.

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      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162) ,included in FASB ASC Subtopic 105-10.In May 2008, the FASB issued SFAS No. 162, which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States (US GAAP). This Statement shall be effective 60 (sixty) days following the SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”.

      Accounting Standards Update No. 2009-01, Topic 105 -Generally Accepted Accounting Principles -amendments based on Statement of Financial Accounting Standards No. 168 - The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles(Statement 168). The ASU 2009-01 (Statement 168) divides nongovernmental U.S. GAAP into the authoritative Codification and guidance that is nonauthoritative. The contents of the Codification will carry the same level of authority, eliminating the four-level GAAP hierarchy previously set forth in Statement 162,The Hierarchy of Generally Accepted Accounting Principles, which has been superseded by ASU 2009-01 (Statement 168). The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is now nonauthoritative. Defining Issues 09-30 provides guidance and information on the stru cture and content of the Codification, issuance of new accounting pronouncements from the FASB after the release of the Codification, researching the Codification, and references to authoritative GAAP in financial statements. The FASB Accounting Standards Codification™ is the exclusive authoritative reference for nongovernmental U.S. GAAP for use in financial statements issued for interim and annual periods ending after September 15, 2009, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The Codification did not have any material impact on our consolidated results of operations, cash flows or financial position.

      In December 2007, the FASB issued SFAS No. 141“Business Combination,”,included in FASB ASC Subtopic 805-10, which replaces FASB Statement No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement No. 141 that the acquisition method of accounting (which Statement No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. Statement 141 did not define the acquirer, although it included guidance on identifying the acquirer, as does this statement. This statement’s scope is broader than that of Statement No. 141, which applied only to business combinations in which control was obtained by transferring consideration. The result of appl ying Statement No. 141’s guidance on recognizing and measuring assets and liabilities in a step acquisition was to measure them at a blend of historical costs and fair values, a practice that provided less relevant, representationally faithful, and comparable information than will result from applying this statement. In addition, this statement’s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to that attributable to the acquirer, which improves the completeness of the resulting information and makes it more comparable across entities. By applying the same method of accounting, the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses, this statement improves the comparability of the information about business combinations provided in financial reports. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The effective date of this statement is the same as that of the related FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” The Company will apply such pronouncement on a prospective basis for each new business combination.

      SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS No. 161),included in FASB ASC subtopic 815-10.In March 2008, the FASB issued SFAS No. 161, which requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of SFAS No. 161 did not have a material impact on our consolidated results of operations, cash flows or financial position.

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      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets”,included in FASB ASC subtopic 350-10.FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement No. 142, “Goodwill and Other Intangible Assets”. For a recognized intangible asset, an entity shall disclose information that enables financial statement users to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of FSP FAS No. 142-3 did not have a material impact on our consolidated results o f operations, cash flows or financial position.

      In June 2008, the EITF reached a consensus on Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”,included in FASB ASC subtopic 815-40. EITF 07-5 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock, which is the first part of the scope exception in paragraph 11(a) of Statement 133. If an instrument that has the characteristics of a derivative instrument is indexed to an entity’s own stock, it is necessary to evaluate whether it is or would be classified in stockholders’s equity. EITF 07-5 applies to ant freestanding financial instrument or embedded feature that has all the characteristics of a derivative in accordance with Statement 133. Accordingly, the company must use two-step approach in order to make this evaluation as follows: (a) evaluate the instrument’s contingent exercise provi sions, if any; and (b) evaluate the instrument’s settlement provisions. This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Earlier application by an entity that has previously adopted an alternative accounting policy is not permitted. The adoption of EITF No. 07-5 did not have a material impact on our consolidated results of operations, cash flows or financial position.

      In September 2008, the EITF reached a consensus on Issue No. 08-5,“Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement”,included in FASB ASC Subtopic 820-10.EITF 08-5 requires issuers of liability instruments with third-party credit enhancements to exclude the effect of the credit enhancement when measuring the liability’s fair value. The effect of initially adopting the requirements is included in the change in the instrument’s fair value in the period of adoption. Entities are required to disclose the valuation technique used to measure the liabilities and to discuss any changes in the valuation techniques used to measure those liabilities in prior periods. Entities will also need to disclose the existence of a third-party credit enhancement on the entity’s issued debt. EITF 08-5 is effective for the reporting period beginning after December 15, 2008. Early adoption is permitted. The a doption of EITF No. 08-5 did not have material impact on our consolidated results of operations, cash flows or financial position.

      In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” ,included in FASB ASC Section 815-10- 50.FSP FAS 133-1 and FIN 45-4 amends Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, and clarifies Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. This FSP amends Statement No. 133 to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. This FSP also amends FIN 45 to require an additional disclosure about the current status of the pa yment/performance risk of a guarantee. Further, FSP FAS 133-1 and FIN 45-4 clarifies the FASB’s intent that the disclosures required by Statement No. 161 should be provided for any reporting period (annual or interim) beginning after November 15, 2008. The provisions of this FSP that amend Statement No. 133 and FIN 45 are effective for reporting periods (annual or interim) ending after November 15, 2008. Early adoption is encouraged. The adoption of FSP FAS 133-1 and FIN 45-4 did not have material impact on our consolidated results of operations, cash flows or financial position.

      In April 2009 the FASB issued FSP FAS 141(R)-1Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.FSP FAS 141(R)-1 amends the provisions in Statement No. 141(R),Business Combinations,included in FASB ASC Subtopic 805-10, for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. No subsequent accounting guidance is provided in the FSP, and the FASB expects an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. FSP FAS

      FS - 20

      Table of Contents
      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      141(R)-1 is effective for contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This is the same effective date as Statement No. 141(R). The Company will apply such pronouncement on a prospective basis for each new business combination.

      In May 2009 the FASB issued SFAS No. 165, “Subsequent Events- Accounting Standards Update No. 2010-09,

      Subsequent Events - Amendments to Certain Recognition and Disclosure Requirements,included in FASB ASC Subtopic 855-10, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 becomes effective to interim or annual financial periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on our consolidated resul ts of operations, cash flows or financial position

      In November 2008, the EITF reached consensus on Issue No. 08-6,“Equity Method Investment Accounting Considerations”(“EITF 08-6”),included in FASB ASC Subtopic 323-10, which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. The intent of EITF 08-6 is to provide guidance on (i) determining the initial carrying value of an equity method investment, (ii) performing an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment, (iii) accounting for an equity method investee’s issuance of shares, and (iv) accounting for a change in an investment from the equity method to the cost method. EITF 08-6 is effective for our fiscal year beginning January 1, 2009 and is to be applied prospectively. The adoption of EITF No. 08-6 did not have a material impact on our consolidated results of operations, cash flows or financial position.

      In December 2008, the FASB issued FSP No. FAS 132(R)-1“Employers’ Disclosures about Post-Retirement Benefit Plan Assets”(“FSP FAS 132(R)-1”),included in FASB ASC paragraphs 715-20-50-1 and 50-5 and 715-20-55-16 and 55-17, which amends FASB Statement No. 132 “Employers’ Disclosures about Pensions and Other Post-Retirement Benefits” (“FAS 132”), to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other post-retirement plan. The objective of FSP FAS 132(R)-1 is to require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. FSP FAS 132(R)-1 is effective for our fiscal year beginning January 1, 2009. The disclosure requirements are effective for years ending afte r December 15, 2009. Upon initial application, the provisions of this FSP are not required for earlier periods that are presented for comparative purposes. The adoption of FSP No. FAS 132(R)-1 did not have a material impact on our consolidated results of operations, cash flows or financial position. SFAS No. 132(R)-1 was adopted by the Company.

      In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” ,included inFASB ASCSubtopic 820-10.FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with Statement No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased and provides additional guidance on the Statement No. 157 disclosure requirements. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and should be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009 is not permit ted. If a reporting entity elects to adopt early either FSP FAS 115-2 and FSP FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairment”, or FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”, the reporting entity also is required to adopt early this FSP. Additionally, if the reporting entity elects to adopt early this Statement, FSP FAS 115-2 and FSP FAS 124-2 also must be adopted early. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. FSP FAS 157-4 (included in ASC Topic 820) is effective for interim and annual reporting periods ending after June 15, 2009, and should be applied prospectively. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. The adoption of FSP FAS 157-4 did not have a material impact on our consolidated results of operations, cash flows or financial position.

      FS - 21

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      The following new accounting standards have been issued, but have not yet been adopted by the Company as of December 31, 2009.

      In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets – an amendment of Statement No. 140”,included in Accounting Standards Update 2009-16, Transferes and Servicing (FASB ASC Subtopic 860-10), which improves the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. This Statement must be applied to transfers occurrin g on or after the effective date. The adoption of SFAS No. 166 is not expected to have a material impact on our consolidated results of operations, cash flows or financial position.

      In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”,included in Accounting Standards Update 2009-17, Consolidation (FASB ASC Subtopic 860-10), which improves financial reporting by enterprises involved with variable interest entities. The Board developed this pronouncement to address (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”, as a result of the elimination of the qualifying special-purpose entity concept in FASB Statement No. 166, “Accounting for Transfers of Financial Assets”, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This Statement sh all be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The adoption of SFAS No. 167 is not expected to have a material impact on our consolidated results of operations, cash flows or financial position.

      Accounting Standards Update No. 2009-05“Fair Value Measurements and Disclosures: Measuring Liabilities at Fair Value (FASB ASC Subtopic 820-10) which determining the fair value of a liability may use the perspective of an investor that holds the related obligation as an asset, according to ASU 2009-05 that amends FASB ASC Topic 820,Fair Value Measurements(FASB Statement No. 157,Fair Value Measurements). The update addresses practice difficulties caused by the tension between fair-value measurements based on the price that would be paid to transfer a liability to a new obligor and contractual or legal requirements that prevent such transfers from taking place. We are currently evaluating the impact of adoption of Accounting Standards Update No. 2009-05 on our consolidated financial position or results of operations.

      Accounting Standards Update No. 2010-06 “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements”(FASB ASC Subtopic 820-10),which provides additional disclosures for transfers in and out of Levels I and II and for activity in Level III. This ASU also clarifies certain other existing disclosure requirements including level of desegregation and disclosures around inputs and valuation techniques. The final amendments to the Accounting Standards Codification will be effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis. That requirement will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.. Early adoption is permitted. The amendments in the Update do not require disclosures for earlier peri ods presented for comparative purposes at initial adoption. Adoption of ASU 2010-06, except for the Level 3 activity described above, is required in annual financial statements as of March 31, 2010 for SEC registrants and other entities that provide interim (quarterly) reports. Other entities with a March 31 fiscal year-end must adopt the provisions of ASU 2010-06 in the year ending March 31, 2011 and may elect to early adopt ASU 2010-06. Refer to Section III, Subtopic 820-10. We are currently evaluating the impact of adoption of Accounting Standards Update No. 2010-06 on our consolidated financial position or results of operations.

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      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Accounting Standards Update No. 2010-08, “Technical Corrections to Various Topics” (FASB ASC Subtopic 815-15 and 852-740), which provides technical corrections to several topics of the FASB Codification, including the guidance about embedded derivatives and hedging (Subtopic 815-15) and accounting for income taxes in a reorganization (Subtopic 852-740). The amendments are not expected to result in pervasive changes to accounting practices. However, because the clarified guidance about embedded derivatives and hedging may cause a change in the application of the related Subtopics, the FASB provided special transition provisions for those amendments. The clarifications of the guidance about embedded derivatives and hedging are effective for fiscal years beginning after December 15, 2009. The amendments to the guidance about accounting for income taxes in reorganization apply to reorganizations for which the date of the reorganization is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. All other amendments are effective as of the first reporting period (including interim periods) beginning after the date this ASU was issued (February 2, 2010). The Company will apply such pronouncement on a prospective basis.

      4 Insurance claim

      On January 22, 2006, we were affected by an accident involving equipment adjacent to Blast Furnace No. 3, mainly impacting our powder collecting system. As a result of this accident the equipment production was interrupted until the end of the first semester of 2006. The cause of the accident was expressly covered by the terms of the insurance policy, as formally confirmed by the insurance company. The total losses resulting from this accident were estimated in approximately US$650, of which we received payment of US$360 during 2006.

      Based on preliminary reports issued by independent consultants and on the confirmation of the insurance coverage by the insurance company, we recognized up to December 31, 2006, the amount of US$342 (R$730 million) related to costs incurred to purchase slabs from third-party sources and fixed expenses as an offset to cost of sales and US$9 (R$18 million) as an offset to cost of sales corresponding to the income in the write-off of damaged assets (net book value of approximately US$81 (R$174 million).

      At December 31, 2008, we reached a final agreement with the reinsurance companies to recover US$520 (R$1,031 million) of our losses. Accordingly, we received the outstanding balance as of December 31, 2007 of US$105 (R$186 million) and an additional amount of US$55 (R$183 million), recorded as other operating income in 2008.

      5 Business acquisitions

      CFM (Cia. de Fomento Mineral)

      In order to strengthen the Company´s position as a player in the iron ore market, in 2007 the Company acquired 100% of the capital of Companhia de Fomento Mineral e Participações (“CFM”), a mining company located in the State of Minas Gerais, for US$400 and additional US$40 in case no contingent liabilities were raised. In October 2008, the Company was released from paying this latter installment of US$40 since potential labor contingencies were discovered. The Company accounted for this acquisition using Statement of Financial Accounting Standards No. 141 -Business Combinations(“SFAS 141”), included in FASB ASC Subtopic 805-10 and Statement of Financial Accounting Standards No. 142 –Goodwill and Other Intangible Assets(“SFAS 142”),,included in FASB ASC Subtopic 805-20. Accordingly, the results of operations for the acquired business are included in the accompanying consolidated statements of income beg inning June 2007, the closing date of the acquisition, and the related assets and liabilities were recorded based upon their fair values as of the acquisition date.

      Management’s allocation of the purchase price at the acquisition date, based on the valuation of the acquired assets and liabilities performed by an unrelated third-party appraiser, was as follows:

      Current assets 
      Cash and cash equivalents 2
      Trade accounts receivable 3
      Inventories 13
      Prepaids and other assets 9
      Property, plant and equipment 667
      Current liabilities (35)

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Deferred taxes liabilities (219)
      Initial purchase price440
      Contingent consideration resolved(40)
      Final purchase price400

      The unaudited financial information in the table below summarizes the combined results of operations of the Company and CFM, on a pro-forma basis, as though the companies had been combined as of January 1, 2007. The pro-forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at January 1, 2007. The unaudited pro-forma financial information combines the historical results for CSN for 2007, which include the results of CFM as from July 1, 2007 and the historical results of CFM for the period from January 1, 2007 to June 30, 2007, date of the acquisition. The following table summarizes the pro-forma financial information, unaudited:

      Year ended December, 31
      Accounts2007
      Gross operating revenues 7,042
      Net operating revenues 5,575
      Costs of products sold and operating expenses (3,723)
      Income before income taxes and equity in 
      results of affiliated companies 2,153
      Income taxes (531)
      Net income 1,697
      Basic and diluted earnings per share 1.11
      Weighted number of shares (in thousands) (post split) 1,539,498

      6 Income taxes

      Income taxes in Brazil comprise federal income tax and social contribution (which is an additional federal income tax). The statutory rates applicable for each of the three years presented herein are: 25% for federal income tax and 9% for social contribution. The amounts reported as income tax expense in the financial statements are reconciled to the statutory rates as follows:

        Years ended December 31, 
       
        2007  2008  2009 
       
            Brazil  Foreign  Total 
      Income (loss) before income taxes and equity in results of affiliated companies  2,161 2,941 1,039 (350) 689
       
      Federal income tax and social contribution at statutory rates  (735) (1,001) (353) 119 (234)
      Adjustments to derive effective tax rate           
      Interest on stockholders’ equity  40 39 55 - 55
      Nontaxable foreign exchange gain (loss) from subsidiaries or taxed at different rates  159 (95) - (65) (65)
      Nontaxable gain on dilution of interest in Namisa    567 -   -
      Reductions (additions) to valuation allowance  (12) (21) (47) (25) (72)
      Federal Tax Repayment Program (“Refis”) adjustments  - - 126 - 126
      Tax incentives  10 5 5 - 5
      Transfer Pricing adjustment --(8)-(8)
      Non deductable expenses 319(20)-(20)
      Other permanent differences  1 73 21 (27) (6)
       
      Income tax expense per consolidated statements of income  (534) (414) (221) 2 (219)

      Income tax expense for the years ended December 31, 2007, 2008 and 2009 consist of:

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

        2007  2008  2009 
        Current  Deferred  Total  Current  Deferred  Total  Current  Deferred  Total 
      Brazil  (551) 72  (479) (609) 192  (417) (165) (56) (221)
      Foreign  (68) 13  (55) (6) 9  3 (2) 4 2
       
      Total  (619) 85  (534) (615) 201  (414) (167) (52) (219)

      For the years ended December 31, 2007, 2008 and 2009, income (loss) before income taxes and equity in results of affiliated companies consists of the following:

        Years ended December 31, 
             
        2007  2008  2009 
             
      Brazil  1,562  3,225 1,039
      Foreign  599  (284) (350)
       
      Total  2,161  2,941 689

      The major components of deferred income tax assets and liabilities in the consolidated balance sheets are as follows:

        As of December 31, 
       
        2008  2009 
       
      Current assets     
      Tax loss carryforwards  143 114
      Inventories – basis difference  16 25
      Expenses deductible when paid  144 81
      Other  56 94
       
      Current deferred tax assets  359 314
       
      Non-current assets     
      Tax loss carryforwards  93 225
      Deferred charges – basis difference  6 7
      Provision for contingencies  186 34
      Expenses deductible when paid  67 205
      Prepaid pension cost  - (83)
      Accrued pension cost  12 -
      Other  - (23)
       
      Total non-current deferred tax assets  364 365
       
      Total deferred tax assets  723 679
       
       
      Valuation allowance     
      Balance, beginning of year  (48) (70)
      Additions  (22) (151)
      Reductions  1 -
      Translation adjustment  (1) 8
       
      Balance, end of the year  (70) (213)
       
       
      Non-current deferred tax liability     
      Property, plant and equipment – basis difference  (14) (4)
       
      Total non-current deferred tax liabilities  (14) (4)
       
       
      Net deferred tax asset  639 462

      The tax loss carryforwards not subject to statute of limitations and social contribution negative basis,based on the history of profitability and expected future taxable profits determined in technical studies approved by Management.

      Since they are subject to significant factors that may change the amount of US$1,030 as of December 31, 2009 will expire as follows:

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 
      Expiration datesAmount
      December 31, 2010 - 
      December 31, 2011 38 
      December 31, 2012 - 
      December 31, 2013 23 
      December 31, 2014 2 
      December 31, 2015 66 
      2025 and thereafter 109 
      Indefinite 792 
      Total tax loss carryforwards 1,030 

      The valuation allowanceprojections for deferred tax assets as of December 31, 2009 was US$213 (US$70 as of December 31, 2008). The net change inrealization, the total valuation allowance during 2009 was an increase of US$143 (an increase of US$22 in 2008). The valuation allowance at December 31, 2008 and 2009 was related to tax loss carryforwards generated by certain subsidiaries that, in the judgment of management are not more likely than not to be realized in the near future. In assessing the realizabilitycarrying amounts of deferred tax assets management considers whether it is more likely than not that some portion or allare reviewed monthly and projections are reviewed annually. These studies indicate the realization of these tax assets within the term stipulated by the mentioned instruction and the limit of 30% of the deferredtaxable profit.

      Certain subsidiaries of CSN have tax assets will not be realized.in the amounts of R$ 265,532 and R$ 69,910, related to income tax and social contribution tax loss carryforwards, for which no deferred taxes were set up. Out of these totals, R$ 14,800 expire in 2011, R$ 50 in 2012, R$ 8,902 in 2013, R$ 623 in 2014, R$ 25,594 in 2015, and R$ 42,265 in 2025. The ultimate realization of deferredremaining tax assets is dependent uponrefer to Brazilian companies and, therefore, they can be carried forward indefinitely.

      The tax benefit of goodwill of Nacional Minérios S.A., which arose on the generationmerger of future taxable income during the periodsBig Jump in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances atJuly 2009, amounted to R$1,391,858. Up to December 31, 2009. The2010 a total amount of R$ 394,360 had been realized (R$ 115,988 in 2009), leaving a remaining amount of R$ 997,498, which will be realized through 2014. From 2011 to 2013, the deferred tax asset considered realizable, however, couldamount realized each year will be reducedR$ 278,372 and, in the near term if estimatesfinal year of future taxable income during2014, the carryforward period are reduced. benefit will be R$ 162,382.

      The Company’s deferred tax assets, net of valuation allowance, are expected to be realized based on actual levels of our past taxable income and our expectation of sustaining similar levels of profitability in the short, medium and long-terms.

         Pretax book income Taxable income 
       
       
      2007  2,161  1,795 
      2008  2,941  564 
      2009  691  465 

      As of December 31, 2009, the undistributed earningsprofits of the Company’s foreign subsidiaries have been invested and will continue to be indefinitelyindefinetly invested in tin their operations. These undistributed earningsprofits of the Company´sCompany’s foreign subsidiaries amounted to US$1,019R$ 2,434,537 as of December 31, 2009.2010. If circumstances change and the Company decides to repatriatetax authorities position on the application of tax treaties prevails in Courts, these undistributed earnings themay generate a tax liability related thereto will amount to US$485.

      In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48), included in ASC Subtopic 740-10. FIN 48 provides guidance on recognition, classification and disclosure concerning uncertain income tax liabilities. The evaluation of a tax position requires recognition of a tax benefit if it is more likely than not it will be sustained upon examination.

      A reconciliation of the unrecognized tax benefits (principal) is as follows:

        2007  2008  2009 
       
       
      Balance, beginning of year  311  444 370 
      Additions for tax positions of current year  63  42 - 
      Translation adjustments  70  (116) 126 
       
       
      Balance, end of year  444  370 496 

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      The balance of total unrecognized tax benefits above at December, 31 2009 contains potential benefits of US$496 (US$370 in 2008) that, if recognized, would affect the effective rate on income from continuing operations.

      In addition to the amounts above, interest on unrecognized tax benefits as of December 31, 2008 and 2009, amounts to US$134 and US$228, respectively, which were included in accrual for contingencies in the balance sheet and US$50 and US$42 accrued during 2008 and 2009, respectively, were included in financial income (expense), net in the consolidated statement of income.

      The Company does not expect that these unrecognized tax benefits will change significantly within the next twelve months.

      The Company’s major tax jurisdiction is Brazil. The Brazilian tax returns are open to examination by the respective tax authorities for the years beginning in 2004.

      7 Cash and cash equivalents

        As of December 31, 
       
        2008  2009 
       
      Cash in hand and bank deposits     
      Local currency  98  80 
      Bank and short-term investments     
      U.S. dollars  2,844  1,850 
      Local currency  600  2,051 
       
       
      Total  3,542  3,981 

      Management has been investing surplus cash in time deposits, bank and short-term investments with maturities of three months or less when purchased, and certificates of deposits which may be withdrawn at any time at the discretion of the Company without penalty.

      8 Trade accounts receivable

        As of December 31, 
        2008  2009 
      Domestic  521 572
      Export primarily denominated in U.S. dollars  60 135
        581 707
      Allowance for doubtful accounts  (94) (199)
      Total  487 508

      Supplementary information – valuation account for accounts receivable:

      Allowance for
      Doubtful Accounts
      Balance as of December 31, 2007 (64)
      Additions – charged to selling expenses (51)
      Amounts written-off 6
      Translation adjustment 15
      Balance as of December 31, 2008 (94)
      Additions – charged to selling expenses (74)
      Amounts written-off 1

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Translation adjustment (32)
      Balance as of December 31, 2009 (199)

      9 Inventories

        As of December 31, 
       
        2008  2009 
       
       
      Finished goods  256  285 
      Products in process  302  290 
      Raw material  484  383 
      Maintenance supplies  121  353 
      Other  2  14 
       
      Total  1,165  1,325 

      10 Investments in affiliated companies and other investments

        As of and for the years ended December 31 
       
        Direct/Indirect Ownership           
        2008  2009  Investments  Equity in results of affiliated companies 
       
      Investments  Total  Total  2008  2009  2007  2008  2009 
       
       
      Logistic Segment               
      MRS Logística.  33.27% 33.27% 243  348  73 120 100 
      Transnordestina  84.50% 84.34% 104  -  - (7) - 
      Itá Energética  48.75% 48.75% 114  168  11 14 15 
       
       
      Sub-total      461  516  84 127 115 
       
      Mining Segment               
      Namisa (1)  59.99% 59.99% 2,127  3,516  - - 694 
      Riversdale (2)  - 14.99% -  184  - - - 
       
      Total      2,588  4,216  84 127 809 
       
       
      Provision for loss on investments               
      Logistic segment               
      Transnordestina  84.50% - -  -  (8) - - 
       
      Total          76 127 809 

      (1) On December 30, 2008, our ownership interest in Namisa was decreased from 100% to 59.99%, and through a shareholders agreement we no longer controlled Namisa. Accordingly, Namisa’s results have been consolidated until the date of sale. In 2007, Namisa was fully consolidated. 
      (2) The Company, through its subsidiary CSN Madeira, has an indirect interest in Riversdale Mining Limited, a publicy-held company listed on the Australian Stock Exchange, with a 14.99% interest on December 31, 2009, corresponding to 28,750,598 capital stock shares. 

      MRS Logística (“MRS”)

      The interest in this railroad network was acquired through participation in a consortia which obtained, in privatization auctions, the concessions to operate the railway networks of the Rede Ferroviária Federal. MRS provides the principal means of transporting the Company’s raw materials to the Presidente Vargas Steelworks facility. As of December 31, 2009, the Company had direct ownership in MRS’ capital of 22.93% and indirect ownership of 6% through Namisa and 4.34% through IIF, totaling 33.27% of MRS capital.

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Transnordestina Logística S.A. (“Transnordestina”)

      In the General Meeting held on May 12, 2008, Transnordestina Logística S.A. (“Transnordestina”) became the name of former CFN, and at the same date CSN increased its ownership in Transnordestina to 71.24% through use of its advances for future capital increaselieu in the amount of US$81 (R$136 million). Further, on November 17, 2008, CSN increased its ownership to 84.50% by capitalization of US$111 (R$254 million). In 2009, CSN’s interestR$ 1,083,367.

      (c) Income tax recognized in Transnordestina decreased to 84.34%.equity:

      In association with the Brazilian Federal Government, the Company will invest R$2.1 billionThe income tax and social contribution recognized directly in Transnordestina to lay 1,800 kilometers of track, creating the Nova Transnordestina Railway, which will have a transport capacity twenty times greater than at present and is expected to play an important role in the development of Brazil’s Northeast region. Completion is scheduled for 2012. Transnordestina was jointly-controlled by us and Taquari Participações S.A., a related party Company, pursuant to a shareholder´s agreement dated November 27, 1997, as amended on May 6, 1999 and on November 7, 2003.equity are shown below:

       

       

       

       

       

      2010

       

      2009

      Income tax and social contribution (losses)/gains

       

       

      Actuarial gains and losses

      125,065

       

                 76,069

      Financial instruments (available-for-sale)

       75,522

       

      -

      Exchange variation onforeign operations

       433,297

       

               425,510

      (d) Tax incentives

      During 2009, the Company increased Transnordestina’s capital which was subscribed and paid-up only by CSN upon the capitalization of advance for future capital increase not followed by Taquari Participações S.A.. Pursuant to a shareholders’ agreement from December 2009, Taquari Participações decided not to follow the future capital increases, as well recompose its participation, giving up control over Transnordestina. Therefore, as from December 31, 2009, Transnordestina became a full controlled subsidiary of CSN, and has been consolidated since December 2009.

      ITÁ Energética S.A. (“Itasa”)

      Itasa has an ownership of 60.5% in the Consortium Itá, created to explore the Itá Hydrelectric Plant, in accordance with the concession contract signed on December 28, 1995 and its addendum No.1 dated of July 31, 2000 celebrated between the National Agency of Electric Energy (“ANEEL”) and the consorted companies Itasa and Tractebel Energia S.A. (former “Centrais Geradoras do Sul do Brasil – Gerasul”).

      We hold 48.75% of the subscribed capital and of the total common shares issued by Itasa, a special-purposeThe company formed for the purpose of owning and operating, under a 30-year concession, 60.5% of the Itá hydroelectric facility on the Uruguay river in Southern Brazil. One of its roles is to engage suppliers and contractors and obtain lines of credit and financings and negotiate adequate guarantees to the borrowings.

      Nacional Minérios S.A. (“Namisa”)

      On December 30, 2008, we sold 2,271,825 shares of Namisa’s voting capital, one of our mining subsidiaries and, subsequently, Namisa issued 187,749,249 new shares at a price of US$16.20 per share, subscribed and paid up by Big Jump Energy Participações S.A. (“Big Jump”), a company whose shareholders are Brazil Japan Iron Ore Corporation (“BJIOC”) and Posco, increasing its ownership interest to 40%, diluting our voting and total interest in Namisa to 59.99% . BJIOC is a company incorporated by a consortium formed by the Japanese companies Itochu Corporation, JFE Steel Corporation, Nippon Steel Corporation, Sumitomo Metal Industries Ltd, Kobe Steel Ltd and Nisshin Steel Co Ltd, and the Korean company, Posco. Big Jump paid in cash for Namisa’s shares the amount of US$3,041. Upon acquisition, the new corporate structure of Namisa by which Big Jump holds 40% and CSN holds 59.99% of Namisa’s shares and alsoenjoys Income Tax incentives based on the Shareholders’ A greement signedlegislation in effect, such as: Worker Food Program, the Rouanet Law (tax incentives related to cultural activities), Tax Incentives for Audiovisual Activities, Funds for the Rights of Childrenand Adolescents, and Incentives for Sporting and Para-sporting Activities. As at December 31, 2010, these tax incentives involved a total amount of R$ 8,160 (R$ 11,732 in 2009).

      FS-37

      (e) Transition Tax System

      The Transition Tax System (RTT), which was regulated by both parties,Law 11941/09, will remain in effect until a law takes effect to govern the Company’s management concluded that Namisa’s balance sheet should be deconsolidated on December 30, 2008; accordingly, Namisa’s results have been consolidated until the date of sale and dilution. For deconsolidating Namisa, the Company analyzed and applied EITF No.96-16 – “Investor’s Accounting for an Investee When the Investor Has a Majoritytax effects of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights” (“EITF 96-16”), included in ASC Subtopic 810-10 with the purpose of determining whether the minority rights held by the minority shareholder overcome the presumption of SFAS 94 –“Consolidation of All Majority-Owned Subsidiaries” (“SFAS 94”), included in ASC Subtopic 810-10, that all majority-owned investees should be consolidated. Based on the analysis of EITF 96-16, it was concluded that the Asian consortium has effective and significant participation rights r ather than protective rights. Substantive minority rights that provide the minority shareholder with the right to effectively participate in significant decisions that would be expected to be related to

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      the investee’s ordinary course of business, although also protective of the minority shareholder’s investment, should overcome the presumption in SFAS 94 that the investornew accounting standards, with a majority voting interest should consolidate its investee. Particularly with respectview to our non-consolidated subsidiary Namisa, we may be required to reacquire all ownership interest of our Asian partners in the event of a dead-lock with respect to a material issue under our shareholders’ agreement. We and Big Jump Energy Participações S.A. have entered into a shareholders’ agreement in order to govern our joint-control of Namisa. Under certain situations provided for in the shareholders’ agreement, a dead-lock resolution process may be established. This procedure requires us to initiate mediation with our partners and, if no solution is reached, the matter is then submitted to be addressed directly by the senior executives of the companies in dispute. In case the dead - -lock remains, the shareholders’ agreement provides for call and put options, which entitles Big Jump Energy Participações S.A. to elect to sell all its ownership interest in Namisa to CSN and CSN to elect to buy all ownership interest of Big Jump Energy Participações S.A. in Namisa, in each case for the fair market value of the respective shares.tax neutrality.

      The Company and Namisa have signed long-term contracts to ensure supply of iron ore (“run of mine”) extracted from Casa de Pedra mine, and port services rendered by CSN. These contracts have been prepaid by the abovementioned consorted companies at the same amount of US$3,041, recorded as due to related partiessystem was optional in long-term liabilities. Namisa’s operations are fully integrated and include rail transportation access guaranteed by a long-term contract signed with MRS. In this context, CSN capitalized Namisa by transfer of 10% of its ownership in MRS’ capital.

      Upon the sale of Namisa’s shares and dilution, CSN adopted income statement recognition as its accounting policy and, accordingly, recorded a net non-operating gain on 40%-dilution of its interest in the amount of US$1,667, as detailed below:

        Amount  Percentage  Gain (loss) 
       
      Namisa's net equity before capital increase by Big Jump, represented by 287,303,436 shares  395  40% (158)
      Capital increase by Big Jump through issuance of 187,749,249 new shares (US$1.48 per share plus additional paid in capital of US$14.72 per share)  3,041  60% 1,825
       
      Net non-taxable gain on dilution of interest in Namisa      1,667

      The gain of US$1,667 abovementioned is non-taxable since a dilution of interest is not considered as a capital gain in accordance with Brazillian tax legislation.

      Namisa’s assets, liabilities and statements of income information as of December 31,calendar years 2008 and 2009, andrespecting: (i) the application for the portiontwo-year period of 2008-2009, not one single calendar year; and (ii) the option in the Corporate Income Tax Return (DIPJ), and is now mandatory as from calendar year 2010.

      CSN elected to adopt the RTT in 2008. Accordingly, for purposes of calculating income tax and social contribution for the years then ended after CSN’s deconsolidation2009 and 2008, the prerogatives defined in the RTT were used.

      11. OTHER NON-CURRENT ASSETS

      The group of Namisa, are presentedother non-current assets classified in long-term receivables is as follows:

        Year ended December, 31 
       
      Accounts  2008  2009 
       
      Current assets  811 1,456
      Noncurrent assets  3,706 5,470
      Current liabilities  (667) (221)
      Noncurrent liabilities  (306) (846)
      Stockholder’s equity  (3,544) (5,859)
       
      Gross operating revenue  - 740
      Net operating revenue  - 735
      Costs of products sold and operating expenses  - (622)
      Non-operating income (expenses), net  - 513
      Income before income taxes and equity in results of affiliated companies  - 626
      Income taxes  - (168)
      Net income  - 458

       

       

       

       

       

      2010

       

      2009

      Judicial deposits (Note 21)

      2,774,706

       

      2,706,971

      Recoverable taxes (*)

      247,910

       

      236,852

      Other

      283,478

       

      278,814

       

      3,306,094

       

      3,222,637

       

       

       

       

       

      On July 30, 2009, Big Jump was merged into Namisa(*) Refer mainly to PIS/COFINS (taxes on revenue) and asICMS (state VAT) on purchases of property, plant and equipment items that will be recovered in a result, Namisa’s capital increased to US$591, represented by 475,067,405 shares,period of which 285,040,443 shares are owned by CSN, 159,242,336 shares are owned by BJIOC and 30,784,626 shares are held by Posco. Upon the merger, which occurred without changing CSN’s ownership interest, the Company adopted income statement recognition as its accounting policy following the same criteria used on the recognition of Namisa’s gain abovementioned and, accordingly, recorded a net gain48 months.

      12. INVESTMENTS

       

      2010

       

      2009

      Riversdale Mining

      1,061,961

       

      319,727

      Panatlântica

      19,800

       

      -

      Usiminas

      1,020,350

       

      -

      Other

      1,513

       

      2,175

      Total Investments

                     2,103,624

       

                     321,902

       

       

       

       

      •RIVERSDALE MINING LIMITED - Riversdale

      Founded in the amount of US$419.

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      The gain of US$419 abovementioned is non-taxable since is not considered as a capital gain in accordance with Brazilian tax legislation.

      1986, Riversdale Mining Limited (“Riversdale”)

      Incorporated in 1986, Riversdale Mining Limited is a mining company listed on the Australian Stock Exchange. Riversdale intends to develop as a diversified mining company, focusingwith focus on growth by investingthrough investments in mining opportunities. The company has aanthracite coal minemines in South Africa and coking coal mines in Mozambique.

      In November 2009, the Company’s Board of Directors approved the acquisition by the indirect subsidiary CSN Madeira Ltda. (currently named CSN Europe Ltd.) of a reservenon-controlling interest in Mozambique, among other mines. In 2009, CSN acquiredthe capital of Riversdale Mining Limited. This acquisition at first involved 28,750,598 shares, which at the time represented 14.99% of the capital of Riversdale. Subsequently, on January 8, 2010 CSN Europe obtained approval from the appropriate Australian governmental authorities, which allowed it to

      FS-38

      conclude the second stage of the operation, involving the acquisition of 2,482,729 shares. The price involved was A$ 6.10 (six Australian Dollars and ten cents) per share.

      In January 2010, with the conclusion of the two stages of the operation, CSN began indirectly holding 16.20% of Riversdale’s capital. Subsequently, due to the exercise of call options for shares issued by Riversdale, the Company’s indirect interest was diluted to 15.6%.

      Between the months of July and August 2010 Riversdale carried out an operation involving the issue of new shares and new fund-raising in which CSN Europe participated by acquiring 5,602,478 new common shares and thus raising its total stake to 36,835,805 shares, keeping its equity interest of 15.6% in Riversdale’s capital.

      •  PANATLÂNTICA

      On January 5, 2010 the Company’s Board of Directors approved the acquisition of common shares representing 9.39% of the capital of Panatlântica S.A. (“Panatlântica”), a publicly-traded corporation with head offices in the city of Gravataí, State of Rio Grande do Sul. The purpose of this company is to manufacture, sell, import, export and process steel and ferrous and non-ferrous metals, both coated and uncoated varieties. At present this investment is carried at fair value.

      •  USIMINAS

      Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS with head offices in city of Belo Horizonte, State of Minas Gerais, is engaged in steel and correlated industries. The Company produces flat rolled products in the steel mills known as Intendente Câmara and José Bonifácio de Andrada e Silva, located in Ipatiga – Minas Gerais and Cubatão – São Paulo, respectively, aimed at both the domestic market and exportation. USIMINAS owns and operates iron ore mines located in the city of Itaúna – Minas Gerais aimed at achieving the strategies of verticalization and optimization of production costs. The Company maintains service and distribution centers located in several regions of Brazil, as well as the ports of Cubatão in São Paulo and Praia Mole in Espírito Santo, as strategic points for shipping out its production.

      USIMINAS is listed on the AustralianSão Paulo Stock Exchange (“Bovespa”: USIM3 and USIM5). As at December 31, 2010 CSN directly and indirectly holds 4.97% of the capital of Usiminas.

      13. INVESTMENTS IN JOINTLY CONTROLLED ENTITIES

      The balances of the balance sheets and income statements of the companies under shared control are stated below and have been consolidated into the Company’s financial statements according to the percentage equity interests described in item (b) of Note 2.

       

       

       

       

       

       

      2010

       

       

       

       

       

      2009

       

       

      NAMISA

       

      MRS

       

      ITASA

      NAMISA

       

      MRS

       

      ITASA

      Current assets

       

      3,937,574

       

      1,034,466

       

      82,817

       

      2,266,333

       

      1,271,294

       

      78,005

      Non-current assets

       

      9,519,584

       

      3,769,878

       

      769,422

       

      9,651,083

       

      3,652,432

       

      883,329

      Long-term receivables

       

      8,570,421

       

      476,758

       

      48,850

       

      8,773,789

       

      763,116

       

      5,385

      Investments, PP&E and intangible assets

       

      949,163

       

      3,293,120

       

      720,572

       

      877,294

       

      2,889,316

       

      877,944

      Total Assets

       

      13,457,158

       

      4,804,344

       

      852,239

       

      11,917,416

       

      4,923,726

       

      961,334

       

       

       

       

       

       

       

       

       

       

       

       

       

      Current liabilities

       

      1,273,436

       

      1,015,234

       

      115,454

       

      624,682

       

      1,469,225

       

      118,072

      Non-current liabilities

       

      1,455,604

       

      1,769,262

       

      139,870

       

      1,473,765

       

      1,737,801

       

      207,694

      Equity

       

      10,728,118

       

      2,019,848

       

      596,915

       

      9,818,969

       

      1,716,700

       

      635,568

      Total Equity and Liabilities

       

      13,457,158

       

      4,804,344

       

      852,239

       

      11,917,416

       

      4,923,726

       

      961,334

       

       

       

       

       

       

       

       

       

       

       

       

       

      FS-39

       

       

       

       

       

       

      2010

       

       

       

       

       

      2009

       

       

      NAMISA

       

      MRS

      ITASA

       

      NAMISA

       

      MRS

       

      ITASA

      Net  Operating Revenue

       

           2,937,169

       

            2,247,101

       

           222,594

       

         1,465,327

       

          2,275,950

       

          226,453

      Cost of Products sold

       

         (1,109,067)

       

        (1,326,655)

       

           (76,600)

       

         (889,681)

       

         (1,217,982)

       

          (73,583)

      Gross Profit (Loss)

       

           1,828,102

       

               920,446

       

           145,994

       

            575,646

       

          1,057,968

       

          152,870

      Operating (expenses) income

       

            (476,621)

       

            (306,668)

       

           (52,422)

       

         (339,882)

       

            (118,866)

       

          (51,677)

      Finance income (expenses), net

       

           1,016,778

       

                 38,243

       

           (23,890)

       

         1,073,547

       

              (51,995)

       

          (25,508)

      Profit (Loss) before income tax and social contribution

           2,368,259

       

               652,021

       

             69,682

       

         1,309,311

       

             887,107

       

            75,685

      Current and deferred income tax and social contribution

            (412,989)

       

           (216,451)

       

           (23,724)

       

         (402,475)

       

            (281,385)

       

          (25,674)

      Net income

       

           1,955,270

       

               435,570

       

             45,958

       

            906,836

       

             605,722

       

            50,011

       

       

       

       

       

       

       

       

       

       

       

       

       

      •NACIONAL MINÉRIOS – NAMISA

      Headquartered in Congonhas, State of Minas Gerais, this company is primarily engaged in the production, purchase priceand sale of iron ore and is mainly focused on foreign markets for sale of its products. Its major operations are carried out in the cities of Congonhas, Ouro Preto, Itabirito and Rio Acima, in the State of Minas Gerais, and in Itaguaí, in the State of Rio de Janeiro.

      In December 2008 CSN sold 2,271,825 shares of the voting capital of Nacional Minérios S.A. to the company Big Jump Energy Participações S.A. (Big Jump), the shareholders of which are the companies Posco and Brazil Japan Iron Ore Corp (Itochu Corporation, JFE Steel Corporation, Sumitomo Metal Industries, Ltd., Kobe Steel Ltd., Nisshin Steel Co. Ltd., Nippon Steel). Subsequent to this sale, Big Jump subscribed to new shares, paying up in cash the total amount of US$162. This investment is currently recorded 3,041,473 thousand, corresponding to R$ 7,286,154, of which R$ 6,707,886 was recognized as availablegoodwill on the share subscription.

      Due to the new corporate structure of the jointly-controlled subsidiary, where Big Jump holds 40% and CSN 60%, and in view of the shareholders’ agreement signed by the parties, CSN consolidates it proportionally.

      Such shareholders’ agreement states that certain situations of severe impasse between the shareholders that are not resolved after mediation and negotiation procedures between the executive officers of the parties may give CSN the right to exercise its call option and Big Jump the right to exercise its put option regarding the equity interest held by Big Jump in Namisa.

      Other agreements signed, in order to make such association feasible, among them the agreement for salepurchase of shares and the long-term operating agreements between Namisa and CSN (see Note 31), provide for certain obligations to do that, if not complied with or remedied within the stipulated deadlines in certain extreme situations may give rise to the right on the part of the aggrieved party to exercise its put or call option, as the case may be, with respect to the equity interest held by Big Jump in Namisa.

      Further to the process of restructuring Namisa, on July 30, 2009 this jointly-controlled subsidiary merged its parent Big Jump Energy Participações S.A., such that Posco and Brazil Japan Iron Corp. began holding a direct interest of 39.99% in Namisa. There was no change in fair valuethe equity interest held by CSN as a result of this merger operation.

      •  MRS LOGÍSTICA

      This subsidiary is recorded within other comprehensive income (loss).engaged in providing public railroad freight transportation services, on the basis of an onerous concession agreement, on the tracks of the Southeast Network, located between the cities of Rio de Janeiro, São Paulo and Belo Horizonte, previously belonging to Rede Ferroviária Federal S.A. - RFFSA, which was privatized on September 20, 1996. In 2008 CSN transferred to Namisa in the form of a capital contribution a 10% equity interest of MRS

      11 GoodwillBesides this direct interest, the Company further holds an indirect interest of 6% through Nacional Minérios S.A. – Namisa, a proportionally consolidated subsidiary, and 4.34% through the International Investment Fund.

      AsMRS may further engage in modal transportation services related to railroad transportation and also participate in projects aimed at expanding the railroad services granted on a concession basis.

      FS-40


      For provision of the services covered by the concession agreement obtained for a period of 30 years starting on December 1, 1996, extendable for an equal period by exclusive decision of the concession-granting authority, MRS leased from RFFSA for the same concession period the assets required for operation and maintenance of the railroad freight transportation activities. Upon extinction of the concession, all leased assets will be transferred to the ownership of the railroad transportation operator designated in that same act.

      •ITÁ ENERGÉTICA S.A. - ITASA

      CSN holds 48.75% of the subscribed capital and all the common shares issued by Itasa, a special purpose company originally created to carry out the construction of the Itá hydroelectric power plant: contracting for the supply of goods and services necessary to carry out the project and raising funds, including posting the corresponding guarantees.

      Itasa has a 60.5% stake in Consórcio Itá, which was created to operate the Itá hydroelectric power plant, pursuant to the concession agreement of December 28, 1995 and its 1st amendment, dated July 31, goodwill recognized from2000, signed between the business acquisitionsmembers of the Company are comprised as follows:

        2008  2009 
      Logistics     
      MRS Logística  4  6 
        4  6 
      Mining     
      ERSA  32  43 
        32  43 
      Steel     
      GalvaSud  47  61 
      Prada  40  54 
      Lusosider Projectos Siderúrgicos  4  4 
        91  119 
       
        127  168 

      consortium (Itasa and Centrais Geradoras do Sul do Brasil - Gerasul, formerly named Tractebel Energia S.A.), granted by the federal government through the National Electric Power Regulatory Agency – ANEEL, which expires in October 2030.

      12 Property,Under the terms of the concession agreement, ITASA has the right to 60.5% of an average of 668 MW, the quantity corresponding to the project energy prorated among the consortium members, with the other consortium member Tractebel Energia S.A. (“Tractebel”) being entitled to the remaining 39.5 %. Of the average of 404.14 MW to which this subsidiary is entitled, an average of 342.95 MW is sold to its shareholders in proportion to their equity interest in the company, and an average of 61.19 MW is sold to consortium member Tractebel.

      •CONSÓRCIO DA USINA ELÉTRICA DE IGARAPAVA

      Igarapava Hydroelectric Power Plant is located in Rio Grande, which is located 400 kilometers from Belo Horizonte and 450 kilometers from São Paulo, with installed capacity of 210 MW. It consists of 5 bulb type generating units and is considered a major mark for power generation in Brazil.

      Igarapava stands out for being the first hydroelectric power plant built through a consortium involving five major companies.

      CSN holds 17.92% of the subscribed capital of the consortium, whose specific purpose is the distribution of electric power, which is made according to the percentage equity interest of each company.

      The balance of property, plant and equipment less depreciation in 2010 is R$ 32,919 (R$ 38,150 in 2009) and the amount of the expense attributable to CSN is R$ 7,333 in 2010 (R$ 6,422 in 2009).

      14. PROPERTY, PLANT AND EQUIPMENT

        As of December 31, 2008 
       
        Cost  Accumulated 
      Depreciation       		 Net 
       
      Land  59  - 59 
      Buildings  335  (43) 292 
      Equipment  2,699  (489) 2,210 
      Furniture and fixtures  51  (38) 13 
      Mines and reserves  7  - 7 
      Other  138  (55) 83 
       
        3,289  (625) 2,664 
      Construction in progress  879  - 879 
       
        4,168  (625) 3,543 

       

       

       

       

       

       

       

       

       

      Land

       

      Buildings

       

      Machinery, equipment and facilitie

      Furniture and fixtures

      Construction in progress

      Other  (**)

       

      Total

      Cost of property, plant and equipment

       

       

       

       

       

       

       

       

       

       

       

       

       

      Balance at January 1, 2009

        131,918

       

        1,109,598

       

        6,270,174

       

        103,935

       

      2,367,352

       

        1,743,074

       

      11,726,051

      Effect of foreign exchange gain (loss)

        (4,366)

       

      (20,246)

       

      (125,167)

       

        (3,576)

       

      (950)

       

      (10,568)

       

      (164,873)

      Acquisitions

       

       

       

       

       

       

       

       

      1,996,759

       

       

       

      1,996,759

      Disposals

       

       

        (181)

       

      (24,615)

       

        (10,568)

       

        (26,364)

       

      (28,407)

       

      (90,135)

      Transfers to other categories of assets

        (1,493)

       

      391,101

       

        1,603,859

       

        2,179

       

       (2,242,232)

       

      246,586

       

       

      Other

       

       

      (2,507)

       

        589

       

        5,334

       

        (4,830)

       

      27,811

       

      26,397

      Balances at December 31, 2009

        126,059

       

        1,477,765

       

        7,724,840

       

        97,304

       

      2,089,735

       

        1,978,496

       

      13,494,199

      Effect of foreign exchange gain (loss)

        (1,659)

       

      (2,914)

       

      (31,235)

       

        (1,230)

       

      (746)

       

      (11,919)

       

      (49,703)

      Acquisitions

       

       

       

       

       

       

       

       

      3,635,911

       

       

       

      3,635,911

      Disposals

       

       

       

       

      (12,754)

       

      (302)

       

        (15,501)

       

      (5,129)

       

      (33,686)

      Transfers to other categories of assets

        10,785

       

      131,138

       

        1,633,738

       

        10,645

       

       (1,195,423)

       

      (590,883)

       

       

      Write-off of supplies for internal consumption

       

       

       

       

       

       

       

       

       

       

      (154,662)

       

      (154,662)

      Other (*)

        40,607

       

      (194,344)

       

      101,028

       

        23,017

       

        1,830

       

      21,909

       

      (5,953)

      Balance at December 31, 2010

        175,792

       

        1,411,645

       

        9,415,617

       

       129,434

       

      4,515,806

       

        1,237,812

       

      16,886,106

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Accumulated depreciation

       

       

       

       

       

       

       

       

       

       

       

       

       

      Balance at January 1, 2009

       

       

      (147,187)

       

      (961,984)

       

        (79,135)

       

       

       

      (465,911)

       

      (1,654,217)

      Effect of foreign exchange gain (loss)

       

       

      8,111

       

      77,922

       

       2,955

       

       

       

      6,644

       

      95,632

      Depreciation

       

       

      (51,619)

       

      (602,726)

       

        (3,912)

       

       

       

      (133,088)

       

      (791,345)

      Impairment losses

       

       

       

       

       

       

       

       

       

       

      (11,472)

       

      (11,472)

      Disposals

       

       

       

       

      1,669

       

        10,544

       

       

       

      7,428

       

      19,641

      Other

       

       

      2,441

       

      3,773

       

        (5,341)

       

       

       

      (19,964)

       

      (19,091)

      Balance at December 31, 2009

         

       

      (188,254)

       

      (1,481,346)

       

        (74,889)

       

         

       

      (616,363)

       

      (2,360,852)

      Effect of foreign exchange gain (loss)

       

       

      2,739

       

      28,473

       

        1,180

       

       

       

      1,546

       

      33,938

      Depreciation

       

       

      (74,344)

       

      (677,266)

       

        (4,469)

       

       

       

      (36,877)

       

      (792,956)

      Disposals

       

       

       

       

      7,689

       

      280

       

       

       

      19,889

       

      27,858

      Transfers to other categories of assets

       

       

      28,849

       

      (290,017)

       

      (54)

       

       

       

      261,222

       

       

      Other

       

       

      32,973

       

      (29,126)

       

        (23,055)

       

       

       

      1,681

       

      (17,527)

      Balance at December 31, 2010

         

       

      (198,037)

       

      (2,441,593)

       

      (101,007)

       

       

       

      (368,902)

       

      (3,109,539)

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Property, plant and equipment, net

       

       

       

       

       

       

       

       

       

       

       

       

       

      At January 1, 2009

        131,918

       

      962,411

       

       5,308,190

       

        24,800

       

      2,367,352

       

      1,277,163

       

      10,071,834

      At December 31, 2009

       126,059

       

        1,289,511

       

        6,243,494

       

        22,415

       

      2,89,735

       

      1,362,133

       

      11,133,347

      At December 31, 2010

        175,792

       

        1,213,608

       

        6,974,024

       

        28,427

       

      4,515,806

       

      868,910

       

      13,776,567

       

       

       

       

       

       

       

       

       

       

       

       

       

       

                    

      (*) Refer mainly to the adjustment at ITASA, which elected adoption of deemed cost.
      (**) These refer basically to assets for railroad use, such as shunting yards, tracks and sleepers.

      FS-41

       

      FS

      The following is the weighted average depreciation (years):

      Buildings

      45

      Machinery, equipment and facilities

      15

      Furniture and fixtures

      10

      Other

      15

      The Company elected to adopt the historical cost, carrying out a review of the remaining economic useful life of the property, plant and equipment estimated by external specialists. The effects resulting from this review, recorded as from January 1, 2010, are as follows:

      Consolidated:

      Decrease in depreciation expense - 31R$ 69,744

      a)Loan costs in the amount of R$ 215,624 (R$ 85,260 in 2009) were capitalized. These costs are basically calculated for the mining, cement, long steel and Transnordestina projects, which refer mainly to: (i) expansion of Casa de Pedra; (ii) construction of the cement plant in Volta Redonda (RJ) and the clinker plant in Arcos (MG); (iii) construction of the long steel plant in Volta Redonda (RJ) and (iv) expansion of the Transnordestina railroad that will link the interior of the Northeast to the ports of Suape, in the State of Pernambuco, and Pecém, in the State of Ceará).

      The rates used to capitalize loan costs are as follows:

      FS-42

      Table of Contents


      Rates

      SpecificCompanhia Siderúrgica Nacional and Subsidiaries
      projects

      Non-specific
      projects

      Notes

      TJLP + 1.3% to the Consolidated Financial Statements 3.2%

      7.44%

      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      UM006 + 2.7%

       

      b)Additions to depreciation, amortization and depletion for the period were distributed as follows:

        As of December 31, 2009 
       
        Cost  Accumulated 
      Depreciation       		 Net 
       
      Land  74  - 74 
      Buildings  808  (111) 697 
      Equipment  4.504  (944) 3,560 
      Furniture and fixtures  64  (48) 16 
      Mines and reserves  9  - 9 
      Other  215  (85) 130 
        5,674  (1,188) 4,486 
       
      Construction in progress  1,130  - 1,130 
       
        6,804  (1,188) 5,616 

       

       

       

       

       

      2010

       

      2009

      Production cost

      770,542

       

      747,164

      Selling expenses

      6,471

       

      6,250

      General and administrative expenses

      29,156

       

      26,738

       

      806,169

       

      780,152

       

       

       

       

       

      Constructionc)CSN leases information technology equipment under a series of agreements and contracts, in progress consists principallythe form of a groupoperating leases. Total lease expenses in 2010 were R$ 4,446 (R$ 3,731 in 2009).

      d)CSN’s subsidiary Itasa elected to adopt the deemed cost, adjusting the opening balance at the transition date of investments in equipment in orderJanuary 1, 2009 according to improve the productivitytheir fair values, as estimated by external specialists. The need for application of the Company’s production unitsdeemed cost option was mainly due to the economic environment in which it operates and qualityother particular aspects of its products. The main investments are in the area of environmental protection, cost reduction, infrastructure and automation, and information and telecommunication technologies. In 2007, 2008 and 2009, capitalized interest amounted to US$37, US$116 and US$48, respectively.

      As of December 31, 2008 and 2009, the fixed assets securing financial obligations amounted to US$21 and US$28, respectively.subsidiary’s business.

      The Casa de Pedra mine is an asset that belongs to CSN, which has the exclusive right to explore such mine. Our mining activities of Casa de Pedra are based on the “Manifesto Mina”, which confers to CSN full ownership over the mineral deposits existing within our property limits.

      As of December 31, 20082009 and 2009,2010, the net fixed assets of Casa de Pedra were US$655R$2,020 and US$626,R$2,167, respectively, mainly represented by US$453R$965 and US$528R$911 of construction in progress. As of December 31, 20082009 and 2009,2010, capitalized interest in Casa de Pedra assets amounted to US$20R$55 and US$31,R$48, respectively.

      13 Loans15. INTANGIBLE ASSETS

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Goodwill

       

      Intangible assets with definite useful life

      Software

       

      Other

       

      Total

      Acquisition cost

       

       

       

       

       

       

       

       

       

      Balance at January 1, 2009

      743,469

       

        49,909

       

      43,089

       

       

       

        836,467

      Acquisitions and expenditures

       

       

       

       

         5,628

       

       

       

        5,628

      Deferred income tax and social contribution on goodwill on downstream merger in subsidiary (*)

        (39,462)

       

       

       

       

       

       

       

       (39,462)

      Balance at December 31, 2009

        704,007

       

      49,909

       

      48,717

       

       

       

       802,633

      Acquisitions and expenditures

       

       

       

       

      25,239

       

        1,002

       

       26,241

      Disposals

       

       

       

       

       (23)

       

       

       

      (23)

      Balance at December 31, 2010

       704,007

       

         49,909

       

      73,933

       

      1,002

       

        828,851

       

       

       

       

       

       

       

       

       

       

      Amortization

       

       

       

       

       

       

       

       

       

      Balance at January 1, 2009

        (257,172)

       

       (34,936)

       

         (17,563)

       

       

       

        (309,671)

      Amortization 

       

       

         (4,991)

       

         (7,275)

       

       

       

       (12,266)

      Impairment

        (23,137)

       

       

       

       

       

       

       

        (23,137)

      Balance at December 31, 2009

        (280,309)

       

       (39,927)

       

         (24,838)

       

       

       

       (345,074)

      Amortization 

       

       

         (4,991)

       

         (16,353)

       

       

       

       (21,344)

      Disposals

       

       

       

       

       23

       

       

       

         23

      Balance at December 31, 2010

        (280,309)

       

        (44,918)

       

        (41,168)

       

       

       

      (366,395)

       

       

       

       

       

       

       

       

       

       

      Net Intangible Assets

       

       

       

       

       

       

       

       

       

      At January 1, 2009

      486,297

       

        14,973

       

      25,526

       

       

       

      526,796

      At December 31, 2009

      423,698

       

        9,982

       

      23,879

       

       

       

      457,559

      At December 31, 2010

      423,698

       

        4,991

       

      32,765

       

        1,002

       

      462,456

       

       

       

       

       

       

       

       

       

       

      (*) Transfer related to deferred income tax and financingsocial contribution.

      FS-43

      The concession intangible assets with definite useful lives refer to the amount originally paid by the shareholders, the economic justification for which was the expected future profit as a result of the concession rights, incorporated by the Company. The amortization is calculated under the straight-line method at the rate of 10% p.a.

      The useful life of the computer software is 5 years. The annual depreciation rate is 20%.

      Goodwill:These amounts have not been amortized since January 1, 2009, when they became subject only to impairment testing, without any need being identified to recognize the impairment of these assets.

        As of December 31, 
       
        2008  2009 
       
        Current portion  Long-term  Current portion  Long-term 
       
        CSN  Subsidiaries  CSN  Subsidiaries  CSN  Subsidiaries  CSN  Subsidiaries 
       
      Foreign Currency                 
       
      Pre-export financing (e)  21  -  583  -  101  -  1,432  - 
      Securitized Receivables (c)  -  88  -  300  -  60  -  217 
      Euronotes (d)  -  -  -  950  -  -  -  1,700 
      Perpetual notes (b)  -  -  -  750  -  -  -  750 
      Financed imports  33  -  42  -  33  -  33  - 
      BNDES/Finame  4  -  43  3  10  1  39  4 
      Advances on export contracts (g)  973  -  100  -  124  -  -  - 
      Other  -  99  -  50  -  1  -  85 
       
        1,031  187  768  2,053  268  62  1,504  2,756 
       
      Denominated in                 
      Brazilian Reais                 
       
      BNDES/Finame (f)  73  2  298  21  92  24  543  233 
      Debentures (a)  -  -  257  -  -  -  345  - 
      Financed imports  -  -  -  -  1  -  4  - 
      Pre-export financing (i)  -  -  -  -  -  -  792  - 
      Bank Credit (h)  -  -  -  -  -  -  1,135  - 
      Other  -  3  2  37  -  5  -  7 
       
        73  5  557  58  93  29  2,819  240 
       
       
       
        1,104  192  1,325  2,111  361  91  4,323  2,996 

      Goodwill on Investments

      2010

      Investor

      GalvaSud

             13,091

      CSN

      Prada

             63,509

      CSN

      NAMISA

          CFM

           339,615

      Namisa

          Cayman do Brasil

               7,483

      Namisa

      Total

           423,698

      •Impairment test of goodwill

      In order to conduct impairment testing, goodwill is allocated to CSN’s operating divisions which represent the lowest level within the Company at which goodwill is monitored for internal management purpose, never above Operating Segments.

      Cash-Generating Unit (CGU)

       

      Segment

       

      2010

       

      2009

       

      01/01/09

      Mining (Namisa)

       

       Mining  

       

                    347,098

       

                    347,098

       

                    347,098

      Ersa

       

       Mining  

       

       

       

       

       

                      23,137

      Packaging

       

       Steel  

       

                      63,509

       

                      63,509

       

                      96,227

      Flat steel

       

       Steel  

       

                      13,091

       

                      13,091

       

                      19,835

       

       

       

       

                    423,698

       

                    423,698

       

                    486,297

       

       

       

       

       

       

       

       

       

      The recoverable amount of the Packaging Cash-Generating Unit (“CGU”) was based on its value in use with the aid of independent appraisers and this was the basis for the impairment testing, since the following criteria were met:

      •There were no significant changes in assets and liabilities;

      •The calculation resulted in a recoverable amount that substantially exceeded the CGU’s carrying amount;

      •There are no evidences or facts and circumstances that indicate any impairment of the assets in use since the last valuation conducted by independent experts.

      FS-44


      The recoverable amount of the Namisa Mining Cash-Generating Unit (“CGU”) is above its carrying amount and was determined based on a discounted cash flow using a discount rate before income tax and social contribution of 9.72% p.a. in US$, considering the long-term contracts signed for purchase of iron ore falling due in 2042. The revenue from the sale of ore supplied under these long-term contracts was limited to the contractual volume.

      The recoverable amount of the Cash-Generating Units ("CGUs") mentioned above (except Packaging and Mining) was determined based on a discounted cash flow and is above the carrying amount. The projections used are based on budgets approved by CSN Board of Directors and consider the following items:

      •Average Gross Margin of each Cash-Generating Unit based on the history and on projections approved by the Board for the next 3 years;
      •Updating of costs based on long-term inflation projections;
      •Discount rate before income tax and social contribution of 11.92% p.a.;
      •Average growth rate of 0.5% p.a. used to extrapolate the cash flows after the budged period.

      Management determined the budgeted gross margin based on past performance and expectations for market growth. The amounts relating to the cash flows after 3 years hence have been extrapolated based on the estimated growth rates and are based on projections included in specific industry reports.

      During 2009, due to the reduction in production for strategic reasons, the Ersa Cash-Generating Unit had an impairment loss of R$ 23,137, which was fully allocated to goodwill and recorded under other operating expenses.

      Based on these assumptions, no impairment has been identified in the cash-generating units described above.

      16. LOANS, FINANCING AND DEBENTURES

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Current Liabilities

       

       

       

      Non-Current Liabilities

       

      Rates (%)

       

      2010

       

      2009

       

      2010

       

      2009

      FOREIGN CURRENCY

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Exchange contract advances - ACC

      4.35% and 4.98%

       

       

       

             233,837

       

       

       

       

      Prepayment

      1.24% to 3.50%

       

             473,255

       

             309,437

       

        1,840,269

       

          2,872,698

      Prepayment

      3.51% to 7.50%

       

             138,210

       

       

       

           522,116

       

       

      Prepayment

       

       

       

       

       

       

       

       

       

      Guaranteed perpetual bonds

      7.00% and 9.50%

       

                 2,268

       

               26,191

       

        1,666,200

       

          1,305,900

      Fixed rate notes

      6.50% to 9.75%

       

               76,006

       

               29,339

       

        3,832,260

       

          2,263,560

      Fixed rate notes

      10.50%

       

               32,074

       

               33,518

       

           666,480

       

             696,480

      Financed imports

      3.52% to 6.00%

       

               57,293

       

               42,107

       

             59,322

       

               80,481

      Financed imports

      6.01% to 8.00%

       

               16,849

       

               38,041

       

             24,396

       

               41,679

      BNDES/Finame

      Res. 635/87 int. + 1.70% and 2.70%

               20,085

       

               19,796

       

             55,256

       

               75,241

      Other

      3.30% and 4.19% and 5.37% and CDI + 1.20%

               85,790

       

               27,826

       

           103,587

       

             126,870

       

       

       

      901,830

       

      760,092

       

      8,769,886

       

      7,462,909

       

       

       

       

       

       

       

       

       

       

      LOCAL CURRENCY

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      BNDES/Finame

      TJLP + 1.50% to 3.20%

       

             308,968

       

             280,802

       

        1,907,596

       

          1,634,920

      Debentures

      103.60 % CDI and 9.40% + IGPM and 1.00% + TJLP

               41,750

       

               30,659

       

        1,760,846

       

             624,570

      Prepayment

      104.80% and 109.50 % CDI

               64,216

       

               31,217

       

        3,400,000

       

          1,400,000

      CCB

      112.50% CDI

       

                 1,354  

       

               19,782

       

        3,000,000

       

          2,000,000

      Intercompany

       

       

       

       

       

       

       

       

       

      Other

      100% IGPDI and 106% CDI and CDI + 0.29% and 5% and 14%

               26,443

       

               18,489

       

             23,303

       

               93,444

       

       

       

      442,731

       

      380,949

       

      10,091,745

       

      5,752,934

      Total loans and financing

       

       

      1,344,561

       

      1,141,041

       

      18,861,631

       

      13,215,843

      Transaction costs

       

       

             (35,929)

       

             (27,121)

       

          (80,816)

       

              (62,162)

      Total loans and financing + transaction costs

       

      1,308,632

       

      1,113,920

       

      18,780,815

       

      13,153,681

       

       

       

       

       

       

       

       

       

       

      FS-45

      At December 31, 2010 transaction costs for the funding were as follows:

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Short-term

       

       

       

       

       

       

       

       

       

       

       

      Long-term

       

       

       

       

       

       

       

       

      Total

       

      2012

       

      2013

       

      2014

       

      2015

       

      After 2015

       

      TJ(1)

       

      TIR(2)

      Fixed rate notes

       

      3,900

       

      23,155

       

      2,786

       

      2,920

       

      2,219

       

      2,068

       

      13,162

       

      6,5% to 10%

       

      6,75% to 10,7%

      BNDES

       

      637

       

      5,602

       

      2,763

       

      403

       

      334

       

      300

       

      1,802

       

      1,3% to 1,7%

       

      1,44% to 7,39%

      BNDES

       

      1,578

       

      3,440

       

      1,578

       

      1,578

       

      284

       

       

       

       

       

      2,2% to 3,2%

       

      7,59% to 9,75%

      Prepayment

       

      7,590

       

      27,089

       

      7,591

       

      7,591

       

      5,928

       

      1,750

       

      4,229

       

      109,50% and 110,79% CDI

      		 

      10,08% to 12,44%

      Prepayment

       

      676

       

      3,461

       

      676

       

        676

       

      676

       

      578

       

      855

       

      2,37% and 3,24%

       

      2,68% to 4,04%

      CCB

       

      20,765

       

      17,881

       

      16,727

       

      1,154

       

       

       

       

       

       

       

      113,5% to 117,5% CDI

       

      11,33% to 12,82%

      Other

       

      783

       

      188

       

      188

       

       

       

       

       

       

       

       

       

      103,6% CDI

       

      12.59%

       

       

      35,929

       

      80,816

       

      32,309

       

      14,322

       

      9,441

       

      4,696

       

      20,048

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      (1) TJ – Annual interest rate contracted
      (2) TIR – Annual internal rate of return

      At December 31, 2010, the principal of the long-term loans, financing and debentures is as follows by year of maturity:

       

       

       

       

       

      2012

       

        2,165,803

       

      11.5%

      2013

       

        2,088,254

       

      11.1%

      2014

       

        1,947,418

       

      10.3%

      2015

       

        2,187,899

       

      11.6%

      2016

       

        2,221,853

       

      11.8%

      After 2016

       

        6,584,204

       

      34.9%

      Guaranteed Perpetual Bonds

       

        1,666,200

       

      8.8%

       

       

        18,861,631

       

      100.0%

       

       

       

       

       

       

      FS - 32

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Total of loans and financing  1,296  3,436  452  7,319 

      a. In December 2003,September 2009, through its subsidiary CSN Islands XI Corp, the Company issued R$900 million (US$312 translated usingbonds in the exchangeamount of US$ 750 million. These bonds, which fall due in September 2019, have interest rate of 6.875% p.a. payable semi-annually as from March 2010, and the issuer may redeem them in advance through payment of the date of the transaction) of real-denominated debentures in three tranches: a R$250 million (US$85.5 translated using the exchange rate as of the date of the transaction) tranche with a three-year maturity (liquidated in December 2006) and bearing interest at 106.5% of CDI (Interbank Certificate of Deposit), a R$400 million (US$136 translated using the exchange rate as of the date of the transaction) tranche with a three-year maturity (liquidated in December 2006) and bearing interest at 107% of CDI, and a R$250 million (US$190.5 translated at the exchange rate as of the date of the transaction) tranche with a five-year maturity, indexedpremium to the IGP-Mcreditors.

      In July 2010, through its subsidiary CSN Resources, the Company issued bonds in the amount of US$ 1 billion. These bonds, which fall due in July 2020, have interest rate of 6.5% p.a. payable semi-annually as from January 2011, and bearingthe issuer may redeem them in advance through payment of premium to the creditors.

      In September 2010, through its subsidiary CSN Islands XII Corp., the Company issued guaranteed perpetual bonds in the amount of US$ 1 billion. These bonds without defined maturity dates have interest rate of 7% p.a. payable quarterly as from December 2010, and the issuer has the option of redeeming them at 10% per annum.face value on any interest date as from September 23, 2015 (inclusive).

      FS-46

      On October 14, 2010, the Company fully redeemed the guaranteed perpetual bonds issued in 2005 through its wholly-owned subsidiary CSN Islands X Corp., collateralized by CSN, at an interest rate 9.50% p.a. and principal amount of US$ 750 million, plus accrued and unpaid interest through the redemption date, as well as any additional amounts payable in relation to the guaranteed perpetual bonds.

      The collateral granted for the loans are property, plant and equipment, collateral signatures, sureties and bank guarantees, as shown in the following table, and do not comprise guarantees granted by subsidiaries and jointly-controlled subsidiaries.

       

       

      2010

      2009

      Property, plant and equipment

       

      47,985

      47,985

      Guarantor collateral

       

      74,488

      74,612

      Imports

       

      21,820

      41,964

      Bank guarantees

       

      288,338

      206,125

       

       

      432,631

      370,686

       

       

       

       

      The following table show the amortizations and funding during the current period:

       

       

       

       

                       2010

                        2009

      Opening balance

             14,356,884

       

                  11,983,153

      Funding

               8,789,548

       

                    7,671,696

      Amortization

             (3,897,405)

       

                  (3,775,593)

      Other (*)

                  957,165

       

                  (1,522,372)

      Closing balance

             20,206,192

       

                  14,356,884

       

       

       

       

          

      (*) Includes inflation adjustment and foreign exchange gains (losses).

      a)Loans and financing with certain financial institutions contain some covenants that are usual in financial agreements in general and the Company is compliant with them at December 31, 2010.

      •DEBENTURES

      i. Companhia Siderurgica Nacional

      4thissue

      As approved at a meeting of the Board of Directors Meeting held on December 20, 2005 and ratified on April 24, 2006, the Company issued on February 1, 2006, a total of 60,000 non-convertible and unsecured debentures in onea single tranche, inseries at the unit face value of R$10. SuchThese debentures were issued in the total issuance valueamount of R$600 million (US$257 translated at 600,000, and the December 31, 2008 exchange rate). Compensation interest is applied to theproceeds from their trading with financial institutions were received on May 3, 2006.

      The face value balance of these debentures representingearns interest corresponding to 103.6% of the CDI Cetip rate, and the maturity of the face value is scheduled for February 1, 2012, withoutwith an early redemption option. The deeds

      ii. Transnordestina Logística

      On March 10, 2010 Transnordestina Logística S.A obtained approval from the Northeast Development Fund – FDNE for these issues contain certain restrictive covenants, which have been duly complied with.

      b. In July 2005, the Company issued perpetual notes in the amount of US$750 that bear interest at 9.5% per annum. The notes have no maturity date; however, as from 2010, the Company has the right to settle the notes paying the outstanding amounts at that date. The interest payments on the perpetual notes are mandatory and have been paid quarterly since October 14, 2005.

      c. In May 2003, June 2004 and June 2005, the Company received the proceedsissue of the notes issued by CSN Islands VI Corp. selling the rights1st Series of future exports (Securitization program), and such proceeds were transferred to CSN at the same interest rates and maturity dates. Such notes have original maturity periodsits 1st Private Issue of 7, 8 andshare-convertible debentures, comprising in all 10 years, respectively, and will be repaid through export sales of CSN subsidiaries.

      d. On July 24, 1997, CSN Iron issued Euronotes in the amount of US$600, with a maturity of 10 years, at an interest rate of 9.125% per annum., under the guarantee of CSN, represented by a Promissory Note. The interest is due semiannually. The Company has already paid a total amount of the US$521 up to December 31, 2006 and the outstanding amount of the Notes due in 2007 was settled during that year. In December 2003, the Company issued Bonds through its subsidiary CSN Islands VIII in the amount of US$550, which bear annual interest of 9.75% and have a maturity in 2013.

      In March 2004, through the subsidiary CSN Islands VII, the Company issued bonds in the amount of US$275, which bear interest of 10.75% . These Bonds matured in September 2008, and were liquidated during 2008.

      During 2005, the Company issued bonds through its subsidiary CSN Islands IXseries in the total amount of US$400,R$ 2,672,400. The first, third, fourth, seventh and ninth series refer to funds to be applied in the Missão Velha – Salgueiro

      – Trindade e Salgueiro – Porto de Suape module, which bear annualalso includes the investments in the Port of Suape, and reconstruction of the section of railroad track from Cabo to Porto Real de Colégio. The second and fifth series refer to funds to be invested in the Eliseu Martins – Trindade module. The sixth, eighth and tenth series refer to funds to be invested in the Missão Velha – Pecém module, which also includes the investments in the Port of Pecém. The 2nd and 3rd Series have been fully subscribed and paid up on the following dates and in the following amounts:

      FS-47

       

       

       

       

      General

       

      Number

       

      Unit face

       

      Issue

       

       

       

       

       

      Balance

      Issue

       

      Series

       

      Meeting

       

      issued

       

      value

       

      date

       

      Maturity

       

      Charges

       

      in 2010

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      1st

       

      1st

       

      02/08/10

       

      336,647,184

       

      R$ 1.00

       

      03/10/10

       

      10/03/27

       

      TJLP + 0,85% p.a

       

      336,647

      1st

       

      2nd

       

      02/08/10

       

      350,270,386

       

      R$ 1.00

       

      11/25/10

       

      10/03/27

       

      TJLP + 0,85% p.a

       

      350,270

      1st

       

      3rd

       

      02/08/10

       

      338,035,512

       

      R$ 1.00

       

      12/01/10

       

      10/03/27

       

      TJLP + 0,85% a.a

       

      338,036

      17. FINANCIAL INSTRUMENTS

      I – Identification and measurement of financial instruments

      The Company enters into transactions involving various financial instruments, mainly cash and cash equivalents, including financial investments, marketable securities, trade accounts receivable, trade payables, and loans and financing. In addition, it also carries out transactions involving derivative financial instruments, especially exchange and interest rate swaps.

      Considering the nature of 10.5%the instruments, the fair value is basically determined by the use of quotations in the Brazilian and matureforeign capital markets and Commodities and Futures Exchange. The amounts recorded in 2015.current assets and liabilities have immediate liquidity or short-term maturity, mostly less than three months. Considering the terms and characteristics of these instruments, the carrying amounts approximate their fair values.

      ·Classification of financial instruments

                           
        2010  2009 
      Consolidated - R$ thousand   Available- for-sale 

      Fair value
      through profit
      or loss

       

      		Loans
      and       receivables-Effective interest      		 Other liabilities - Amortized cost method  Balances Available 
      for-sale             		 Fair value
      through
       profit or loss             		 Loans and 
      receivables-Effective interest      		 

      Other liabilities - Amortized cost
      method

       

      		 Balances 
      Assets                     

      Current Assets 

      		                    

      Cash and cash equivalents 

      		     10,239,278    10,239,278      7,970,791    7,970,791 

      Trade accounts receivable, net 

      		     1,259,461    1,259,461      1,186,315    1,186,315 

      Guarantee margin on financial instruments 

      		     254,485    254,485      115,949    115,949 

      Securitization reserve fund 

      		     22,644    22,644      91,703    91,703 

      Non-current Assets 

      		                    

      Other receivables 

      		     73,731    73,731      59,952    59,952 

      Investments 

      		 2,102,112        2,102,112  319,727        319,727 

      Securitization reserve fund 

      		     32,031    32,031      34,389    34,389 
       

      Liabilities 

      		                    

      Current Liabilities 

      		                    

      Loans and financing 

      		       1,302,811  1,302,811        1,110,382  1,110,382 

      Debentures 

      		       41,750  41,750        30,659  30,659 

      Derivatives 

      		   116,407      116,407    77,147      77,147 

      Trade accounts payable 

      		       521,156  521,156        504,223  504,223 

      Non-current Liabilities 

      		                    

      Loans and financing 

      		       17,100,785  17,100,785        12,591,273  12,591,273 

      Debentures 

      		       1,760,844  1,760,844        624,570  624,570 

      Derivatives 

      		   263      263    18,730      18,730 

      •Fair value measurement

      The financial instruments recognized at fair value require disclosure of the fair value measurements at three hierarchy levels:

      •Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;

      •Level 2: Other available information, except those at Level 1 that are observable for the asset or liability, directly (as prices) or indirectly (derived from prices);

      •Level 3: Information unavailable due to slight or no market activity and which is significant for the definition of the fair value of assets.

      The following table shows the financial instruments recognized at fair value using a valuation method:

      FS-48

      The following table shows the financial instruments recognized at fair value using a valuation method:

       

       

       

       

       

       

       

       

      2010

       

       

       

       

       

       

       

      2009

       

       

      Level 1

       

      Level 2

       

      Level 3

       

      Balances

       

      Level 1

       

      Level 2

       

      Level 3

       

      Balances

      Assets

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Non-current Assets

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Available-for-sale financial assets

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Investments

       

         2,102,112

       

       

       

       

       

       2,102,112  

       

      319,727

       

       

       

       

       

          319,727

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Liabilities

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Current Liablities

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Financial liabilities at fair value through profit or loss

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Derivatives

       

       

       

        116,407

       

       

       

          116,407

       

       

       

       77,147  

       

       

       

            77,147

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Non-current Liabilities

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Derivatives

       

       

       

               263

       

       

       

                  263

       

       

       

      18,729

       

       

       

            18,729

      II - Cash and cash equivalents, financial investments, trade accounts receivable, other current assets, trade payables, and other current liabilities

      These amounts are recorded in the financial statements at their carrying amounts, which are substantially similar to those that would be obtained if they were traded in the market. The fair values of other long-term assets and liabilities do not differ significantly from their carrying amounts, except for the amounts shown in the next table.

      The estimated fair value for the consolidated long-term loans and financing have been calculated at current market rates, considering the nature, term and risks similar to those of the recorded contracts, as compared below:

       

       

       

      2010

       

       

       

      2009

       

      Carrying amount

       

      Fair value

       

      Carrying amount

       

      Fair value

      Guaranteed perpetual bonds

                       1,668,468

       

                 1,663,701

       

                      1,332,091

       

                 1,317,327

      Fixed rate notes

                       4,605,997

       

                 4,966,629

       

                      3,022,138

       

                 3,283,359

      III – Investments in available-for-sale securities and measured at fair value through profit or loss

      These consist mainly of investments in shares acquired in Brazil and abroad involving top ranked companies classified by international rating agencies as investment grade, which are recognized in non-current assets, and any gains or losses are recognized in equity, where they will remain until actual realization of the securities or when any loss is considered unrecoverable.

      The financial assets measured at fair value through profit or loss are recognized in current assets and any gains or losses are recognized as finance income and loss, respectively.

      IV - Policy for management of financial risks

      The Company has and follows a policy of managing its risks, with guidelines regarding the risks incurred by the company. Under the terms of the policy, the nature and general position of the financial risks is regularly monitored and managed in order to evaluate the results and the financial impact on cash flows. The credit limits and the quality of hedge of counterparties are also periodically reviewed.

      The risk management policy was established by the Board of Directors. Under this policy, market risks are hedged when it is considered necessary to support the corporate strategy or when it is necessary to maintain a level of financial flexibility.

      Under the terms of the risk management policy, the Company manages some risks by using derivative financial instruments.

      The Company’s risk policy prohibits any speculative deals or short sales.

      FS-49


      •Liquidity risk

      This risk arises if the Company does not have sufficient liquid funds to cover its financial commitments as a result of mismatching of terms or volumes between scheduled receipts and payments.

      In September 2009,order to manage cash liquidity in local and foreign currency, premises are established for future disbursements and receipts, and these are monitored on a daily basis by the Treasury area. The payment schedules for the long-term portions of loans, financing and debentures are shown in Note 16.

      The following table shows the contractual maturities of financial liabilities, including estimated interest payments.

       

       

       

       

       

       

       

       

      At December 31, 2010

      Less than one year

       

      From one to two years

      From two to five years

      Over five years

      Loans, financing and debentures

                       1,344,561

       

                 4,254,057

       

                      6,357,168

       

                 8,250,406

      Derivative financial instruments

                          116,407

       

                           263

       

       

       

       

      Trade accounts payable

                          521,156

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      At December 31, 2009

       

       

       

       

       

       

       

      Loans, financing and debentures

                       1,141,041

       

                 5,864,415

       

                      4,150,017

       

                 3,201,411

      Derivative financial instruments

                            77,147

       

                      18,729

       

       

       

       

      Trade accounts payable

                          504,223

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      •Exchange rate risk

      The Company assesses its exchange exposure by subtracting its liabilities from its assets denominated in Dollar, Euro and Yen, thus arriving at its net exchange exposure, which is the foreign currency risk exposure. Therefore, besides the trade accounts receivable arising from exports and investments overseas that in economic terms constitute natural hedges, the Company issued bonds throughfurther considers and uses various financial instruments, such as derivative instruments (US$ x Real swaps, forward exchange contracts, etc.) to manage its subsidiary CSN Islands XIrisks of variations in the total amountvalue of US$ 750, which bear annualthe local currency (Brazilian real) versus the U.S. Dollar.

      •Policies for use of hedging derivatives

      The Company’s financial policy reflects the parameters of liquidity, credit and market risks approved by the Audit Committee and Board of Directors. The use of derivative instruments in order to prevent fluctuations in interest and exchange rates from having a negative impact on the company’s balance sheet and income statements should consider the same parameters. As provided for in internal rules, this financial investment policy has been approved and is being managed by the finance officers.

      At the meetings of 6.875%the Executive Officers and mature in 2019.Board of Directors, the officers and directors routinely present and discuss the Company’s financial positions. Under the bylaws, transactions involving material amounts require the prior approval of management bodies. The use of other derivative instruments is contingent upon the express prior approval of the Board of Directors.

      e. Comprised of various bank loans which bear interest rates ranging between 1.50% and 6.25% per annum and have maturity dates from 2010 through 2014.

      f. In January 2007,To finance its activities, the Company entered into two new financing contractsresorts to the capital markets, both locally and internationally, and based on the indebtedness profile it is seeking, part of the debt is pegged to foreign currency, basically to the US$398, which causes Management to seek hedging for debt through derivative financial instruments.

      To contract derivative financial instruments for hedging within the internal control structure, the following policies are adopted:

      FS-50

      •ongoing calculation of exchange exposure that occurs by analyzing assets and liabilities exposed to foreign currency, under the following terms: (i) trade accounts receivable and payables in foreign currency; (ii) cash and cash equivalents and debts in foreign currency considering the maturity of the assets and liabilities exposed to exchange fluctuations;

      •presentation of the financial position and exchange exposure on a routine basis at meetings of the Executive Officers and Board of Directors that approve the hedging strategy;

      •carrying out derivative hedging transactions only with BNDES which amounted to US$635 (including current and long-term portion)leading banks, diluting the credit risk through diversification among these banks;

      The consolidated net exposure as ofat December 31, 2009, and bear annual interest of 8.7% and 9.7% with a maturity date in 2014. The proceeds will be used in certain mining and logistics projects.

      In March and November 2009, the Company entered into new financing contracts of US$147 with BNDES which amounted to US$181 (long-term portion)2010 is as of December 31, 2009, and bear annual interest of 7.55% with a maturity date in 2027. The proceeds will be used in certain logistics projects.follows:

      FS - 33

      Table of Contents

      2010

      Companhia Siderúrgica Nacional and Subsidiaries (amounts in US$)

      Notes to the Consolidated Financial Statements 

      Cash and cash equivalents overseas

                     4,239,578  

      Expressed in millions

      Derivative guarantee margin

                       152,734  

      Trade accounts receivable - foreign market

                         96,584  

      Securitization reserved fund

                         32,814  

      Other assets

                       130,645  

      Total assets

                    4,652,355  

      Loans and financing

                  (5,734,873) 

      Trade accounts payable

                         (7,795) 

      Other liabilities

                       (59,981) 

      Total liabilities

                  (5,802,649) 

      Gross exposure

                  (1,150,294) 

      Notional amount of United States dollars, except share and per share data and unless otherwise stated derivatives contracted

                    1,249,529  

      Net exposure

                          99,235  

      The results obtained on these transactions are consistent with the policies and strategies defined by Management.

      •Forward Contract – Real Exchange Rate for Commercial Dollar Exchange Rate

      During 2008The purpose of this contract is to hedge obligations denominated in foreign currency against the fluctuation in the Brazilian Real. The Company can buy or sell forward contracts for commercial dollar rates on the Commodities and 2009,Futures Exchange (BM&F) to mitigate the exchange exposure for its US$ denominated liabilities. The specifications of the Real x Dollar forward exchange rate contract, including detailed explanations on the characteristics of the contracts and calculation of the daily adjustments, are published by the BM&F. In 2010, the Company paid R$ 179,564 and received R$ 259,490 in adjustments, thus obtaining a gain of R$ 79,926. The gains and losses on these contracts are directly related to exchange fluctuations. At December 31, 2010 the Company did not have any outstanding transactions.

      •Exchange swap transactions

      The Company carries out exchange swap transactions in order to hedge its assets and liabilities against any fluctuations in the US$/R$ parity. This hedge through exchange swaps provides the Company, through its subsidiary Transnordestina, entered into financing contractsthe asset end of the contract, with a forward rate agreement (FRA) gain on the exchange coupon, which amounted to US$196 (including currentat the same time improves our investment rates and long-term portion) asreduces the cost of December 31, 2009, and bear annual interest of 7.30% with maturity date in 2020. The proceeds will be used in certain logistics projects.

      g. Consists primarily of U.S. dollar-denominated trade financing, mainlyour funding in the form of export sales advances with financial institutions. international market.

      At December 31, 2009,2010, the Company had a long position in exchange swap of US$124 outstanding short-term debt which bears interest rates between 4.35% 1,178,000 thousand (US$ 1,519,500 thousand in 2009) where we received, on the asset end, exchange rate change plus 2.29% per year on average (in 2009 exchange rate change plus 0.88% p.a.), and 4.98% per annum and matures at various dates through 2010. During 2009, manypaid 100% of the export sales advances were liquidated andCDI rate on the Company entered into new long-term Pre-export financings.asset end of the exchange swap contract.

      h. In August 2009,FS-51


      At December 31, 2010, the Company entered intoconsolidated position of these contracts is as follows:

      i) Open transactions

       

      Reference value (US$ thousand)

      2010 appreciation (R$ thousand)

      Fair value (market) (R$ thousand)

      Amount payable in the year (R$ thousand)

      Conterparties

      2010

       

      Maturity of transaction

      Asset position

      Liability position

      2010

       

      Amount payable

      HSBC

      223,000

       

      jan/3/11

       

      372,794

       

        (385,900)

       

        (13,106)

       

        (13,106)

      Deutsche Bank

      265,000

       

      jan/3/11 to feb/1/11

       

      443,143

       

        (468,544)

       

        (25,401)

       

        (25,401)

      Itau BBA

      450,000

       

      jan/3/11

       

      751,835

       

        (778,892)

       

        (27,057)

       

        (27,057)

      Santander

      110,000

       

      jan/3/11 to jan/2/15

       

      183,787

       

        (190,395)

       

        (6,608)

       

        (6,608)

      Goldman Sachs

      130,000

       

      jan/3/11 to feb/1/15

       

      215,302

       

        (224,658)

       

        (9,356)

       

        (9,356)

       

      1,178,000

       

       

       

        1,966,861

       

        (2,048,389)

       

        (81,528)

       

        (81,528)

       

       

       

       

       

       

       

       

       

       

       

       

      ii) Settled transactions

       

       

       

       

      Referencia value (Notional amount) US$ thousand

      2010 appreciation (R$ thousand)

      2009 appreciation (R$ thousand)

      Fair value (market)  (R$ thousand)

      Amount paid/received in the year (R$ thousand)

      Maturity

      Counterparties

      2010

       

      2009

       

      Asset position

      Liability position

      Asset position

      Liability position

      2010

       

      2009

       

      Amount received

      Amount paid

      01/04/2010 a 02/01/2010

      Deutsche Bank

      983,000

       

       

       

        1,740,799

       

      (1,748,563)

       

       

       

       

       

      (7,764)

       

       

       

      6,170

       

      (13,934)

      01/04/2010 a 03/05/2010

      Goldman Sachs

      2,132,000

       

      300,000

       

        3,857,227

       

      (3,845,925)

       

      523,270

       

      (527,928)

       

      11,302

       

        (4,658)

       

      54,579

       

        (38,619)

      01/04/2010  a 02/08/2010

      HSBC

       

      3,680,500

       

       

       

        6,442,985

       

      (6,587,554)

       

       

       

       

       

      (144,569)

       

       

       

      17,266

       

       (161,835) 

      01/04/2010 a 03/01/2010

      Itau BBA

       

      2,890,000

       

      130,000

       

        5,081,102

       

      (5,111,321)

       

      226,753

       

        (228,968)

       

      (30,219)

       

      (2,215)

       

      64,845

       

      (92,849)

      02/08/2010

       

      Santander

       

      4,601,220

       

        1,024,500

       

        8,285,964

       

      (8,292,883)

       

        1,788,212

       

      (1,824,172)

       

      (6,919)

       

      (35,960)

       

      131,592

       

       (102,551) 

       

       

      Westlb

       

      265,000

       

        65,000

       

      475,789

       

        (491,788)

       

      113,379

       

        (114,569)

       

      (15,999)

       

      (1,190)

       

       

       

      (14,809)

       

       

       

       

      14,551,720

       

       1,519,500  

       

      25,883,866

       

      (26,078,034)

       

        2,651,614

       

      (2,695,637)

       

      (194,168)

       

      (44,023)

       

      274,452

       

       (424,597) 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      The net position of the above contracts is recorded in a new financing contract with “Caixa Econômica Federal” under its Special Creditspecific account for Large Companies,derivatives as a loss in the amount of R$ 81,528 in 2010 (loss of R$ 44,023 in 2009) and its effects are recognized in the Company’s finance income (expenses) as a loss in the amount of R$ 231,673.

      Subsidiaries Tecon and Lusosider carry out transactions with derivatives to hedge their exposure to the Yen and the Dollar. The notional amounts of these transactions are JPY 2,390,398 and US$1,135 3,065, respectively, and the results of these transactions are consolidated in the Company’s financial results in the amount of R$ 11,387. As at December 31, 2010, the net open liability position was R$ 8,042.

      The jointly-controlled subsidiary MRS Logística carries out operations with derivatives (swaps) with a notional amount of US$ 71,529 that generated losses proportional to the Company’s equity interest in the amount of R$ 19,775 recognized in consolidated finance income (expenses). At December 31, 2010, the net open liability position was R$ 27,517.

      Besides the swaps mentioned above, the Company also engaged in non-deliverable forward (NDF) for its assets denominated in Euros. Basically, the Company carried out operations with financial derivatives of its assets in Euros, on which bears annualit will receive the difference between the exchange rate change observed in Dollars in the period, multiplied by the reference amount (asset end) and pay the difference between the exchange rate change in Euros observed in the period over the reference amount in Euros as of the contracting date (liability end). In general these involve transactions on the Brazilian over-the-counter market, and the counterparties are leading financial institutions contracted within exclusive funds.

      FS-52

      As at December 31, 2010 the consolidate position of these contracts was the following:

      i) Open transactions

       

       

      Reference value  (EUR thousand)

      Appreciation - 2010 (R$ thousand)

      Fair value (market) (R$ thousand)

      Amount receivable in the year (R$ thousand)

      Counterparties

      2010

       

      Maturity of transaction

      Asset position

      Liability position

      2010

       

      Amount receivable

      Deutsche Bank

      25,000

       

      jan/20/11

       

        56,648

       

        (55,707)

       

        941

       

      941

      Goldman Sachs

      50,000

       

      jan/20/11

       

        113,295

       

        (111,415)

       

      1,880

       

        1,880

      HSBC

       

      15,000

       

      jan/20/11

       

        34,029

       

        (33,424)

       

        605

       

      605

       

       

        90,000

       

       

       

      203,972

       

      (200,546)

       

      3,426

       

        3,426

       

       

       

       

       

       

       

       

       

       

       

       

       

      ii) Settled transactions

       

       

      Reference value

      (EUR thousand)

      Appreciation - 2010

       (R$ thousand)

      Amount payable in the year (R$ thousand)

      Conterparties

      2010

       

      Maturity of transaction

      Asset position

      Liability position

      Amount receivable/received

      Amount payable/paid

      Itau BBA

       

      25,000

       

      jul/12/10

       

      56,833

       

        (57,010)

       

       

       

      (177)

      Deutsche Bank

       

        30,000

       

      jul/12/10 to sep/15/10

      		 

      68,061

       

        (68,266)

       

       

       

      (205)

      HSBC

       

      75,000

       

      jul/12/10 to nov/18/10

      		 

        70,998

       

        (175,322)

       

       

       

        (4,324)

      Goldman Sachs

       

      25,000

       

      sep/15/10 to nov/18/10

      		 

      283,127

       

        (288,610)

       

       

       

        (5,483)

       

       

      255,000

       

       

       

      579,019

       

        (589,208)

       

       

       

        (10,189)

       

       

       

       

       

       

       

       

       

       

       

       

       

      •Sensitivity analysis

      For consolidated exchange transactions with dollar fluctuation risk, based on the exchange rate at December 31, 2010 -R$ 1.6662 = US$ 1.00 – adjustments have been estimated for five different scenarios, as follows:

      - Scenario 1: Probable Scenario, rate of 1.6736 for future dollar quotation on the BM&F falling due on February 1, 2010 –gathered at December 31, 2010;
      - Scenario 2: (25% appreciation of the real) R$/US$ parity of 1.2497;
      - Scenario 3: (50% appreciation of the real) R$/US$ parity of 0.8331;
      - Scenario 4: (25% devaluation of the real) R$/US$ parity of 2.0828;
      - Scenario 5: (50% devaluation of the real) R$/US$ parity of 2.4993.

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      2010

       

       

      Risk

       

      Reference value US$

      Scenario 1

       

      Scenario 2

       

      Scenario 3

       

      Scenario 4

       

      Scenario 5

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      1.6662

       

      1.6736

       

      1.2497

       

      0.8331

       

      2.0828

       

        2.4993

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Exchange swap

       

      Fluctuation of US$

       

        1,178,000

       

      8,720

       

        (490,696)

       

      (981,392)

       

      490,696

       

      981,392

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Exchange position - BRL functional cur.

       

      Fluctuation of US$

       

      (1,150,294)

       

        (8,514)

       

      479,155

       

      958,310

       

      (479,155)

       

        (958,310)

      (not including exchange derivatives above)

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Consolidated exchange position

       

      Fluctuation of US$

       

        99,235

       

      735

       

        (41,336)

       

      (82,673)

       

      41,336

       

        82,673

      (including exchange derivatives above)

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      FS-53

      For consolidated exchange transactions with Euro fluctuation risk, based on the exchange rate at December 31, 2010 -R$ 2.2280 = Euro 1.00 – adjustments have been estimated for five different scenarios, as follows:

      - Scenario 1: Probable Scenario, rate of R$ 2.2188 for future Euro quotation on the BM&F falling due on February 1, 2010 –gathered at December 31, 2010;
      - Scenario 2: (25% appreciation of the real) R$/Euro parity of 1.6710;
      - Scenario 3: (50% appreciation of the real) R$/Euro parity of 1.1140;
      - Scenario 4: (25% devaluation of the real) R$/Euro parity of 2.7850;
      - Scenario 5: (50% devaluation of the real) R$/Euro parity of 3.3420.

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      2010

       

       

      Risk

       

      Reference value EUR

      Scenario 1

       

      Scenario 2

       

      Scenario 3

       

      Scenario 4

       

      Scenario 5

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      2.2280

       

      2.2188

       

      1.6710

       

      1.1140

       

      2.7850

       

      3.3420

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Exchange swap

       

      Fluctuation of EURO

       

          90,000

       

             (831)

       

        (50,130)

       

      (100,260)

       

          50,130

       

        100,260

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Exchange position - BRL functional cur.

       

      Fluctuation of EURO

       

            5,588

       

               (52)

       

          (3,113)

       

          (6,225)

       

            3,113

       

            6,225

      (not including exchange derivatives above)

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Consolidated exchange position

       

      Fluctuation of EURO

       

          95,588

       

             (883)

       

        (53,243)

       

      (106,485)

       

          53,243

       

       106,485  

      (including exchange derivatives above)

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      •Interest rate risk

      Short- and long-term liabilities indexed to floating interest rate and inflation indices. Due to this exposure, the Company undertakes derivative transactions to better manage these risks.

      •LIBOR x CDI swap transactions

      The objective of these transactions is to hedge transactions indexed to LIBOR in US$ against fluctuations in Brazilian interest rates. Basically, the Company carried out swaps of its obligations indexed to the LIBOR, on which it receives interest of 117.5%1.25% p.a. over the notional value of the dollar (asset end) and pays 96% of the CDI rate on the reference value in R$ at the contracting date (liability end). The reference value of these swaps as at December 31, 2010 is US$ 150,000 thousand, hedging an export pre-payment transaction in the same amount. The gains and losses on these contracts are directly related to fluctuations in exchange rates (US$) and interest rates (LIBOR and CDI). Generally they involve transactions carried out on the Brazilian OTC market, with the counterparties being leading financial institutions.

      As at December 31, 2010, the position of these contracts is as follows:

      a) Open transactions

       

       

       

       

      Reference value (Notional amount) US$ thousand

      Appreciation - 2010

      (R$ thousand)

      Fair value (market)  (R$ thousand)

      Amount payable in the year (R$ thousand)

      Maturity date

      Counterparties

      2010

       

      Asset position

      Liability position

      2010

       

      Amount payable

      feb/12/11

       

      CSFB

       

      150,000

       

      254,575

       

      (257,584)

       

      (3,009)

       

      (3,009)

                   
      FS-54

      b) Settled transactions

       

       

       

      Reference value (Notional amount) US$ thousand

      Appreciation - 2010          (R$ thousand)

      Appreciation - 2009          (R$ thousand)

      Fair value (market)           (R$ thousand)

       

       

      Maturity

      Counterparties

      2010

       

      2009

       

      Asset position

      Liability position

      Asset position

      Liability position

      2010

       

      2009

       

      Amount paid

      feb/12/10

      CSFB

       

       150,000  

       

        150,000

       

          255,316

       

          (259,411)

       

        254,787

       

      (256,971)

       

        (4,095)

       

      (2,184)

       

         (1,911)

      may/12/10

      CSFB

       

       150,000  

       

       

       

          255,228

       

          (259,066)

       

       

       

       

       

       (3,838) 

       

       

       

         (3,838)

      aug/12/10

      CSFB

       

       150,000  

       

       

       

           255,367

       

          (260,316)

       

       

       

       

       

        (4,949)

       

       

       

         (4,949)

      nov/12/10

      CSFB

       

       150,000  

       

       

       

           255,320

       

          (260,475)

       

       

       

       

       

        (5,155)

       

       

       

         (5,155)

       

       

       

       

       

       

       

        1,021,231

       

       (1,039,268) 

       

        254,787

       

      (256,971)

       

      (18,037)

       

      (2,184)

       

       (15,853) 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      The net position of the above contracts is recorded in a maturity datespecific derivatives account as a loss in 2012.the amount of R$ 3,009 as at December 31, 2010 and its effects are recognized in the Company’s finance income (expenses) as a loss in the amount of R$ 18,862.

      •Sensitivity analysis of interest rate swaps

       

       

       

       

       

       

       

       

       

      2010

       

      Notional US$

       

      Risk

       

      Probable

       

      25%

       

      50%

      LIBOR interest rate vs CDI swaps

                               150,000  

       

       (LIBOR) US$

          (1,795)

       

       (26,823) 

       

        (31,904)

      •Sensitivity analysis of changes in interest rates

      The Company considers the effects of an increase or decrease of 5% in interest rates on its outstanding loans, financing and debentures as at December 31, 2010 in the consolidated financial statements.

       

       

      Impact on Profit or Loss

       

       

      2010

       

      2009

      Changes in interest rates

       

       

      TJLP

       

                  6,465

       

                  5,603

      LIBOR

       

                  7,102

       

                  7,466

      CDI

       

               42,103

       

                17,209

      •Share’s market price risks

      The Company is exposed to the risk of changes in the price of shares due to the investments made and classified as available-for-sale.

      i. The following table summarizes the impact of the changes in the prices of shares in equity, under other comprehensive income.

       

       

       

       

      Other Comprehensive Income

      2010

       

      2009

      Net change in fair value of financial instruments classified as available-for-sale

                         515,572  

       

                      36,885

      In 2010 the Company received R$11,754 related to interest on shareholders’ equity.

      Investments in acquired shares of leading companies are traded on the BOVESPA and ASX (Australian Securities Exchange).

      The following sensitivity analysis is based on the premise of maintaining as probable scenario the market values as at December 31, 2010. Accordingly, there is no impact on the financial instruments classified as available-for-sale as presented above. The Company considered the following scenarios for volatility of the shares.

      FS-55

      - Scenario 1: (25% appreciation of shares);
      - Scenario 2: (50% appreciation of shares);
      - Scenario 3: (25% devaluation of shares);
      - Scenario 4: (50% devaluation of shares);

       

      Impact on Equity

      Companies

      25%

       

      50%

       

      25%

       

      50%

      Usiminas

           204,934

       

           409,867

       

         (204,934)

       

         (409,867)

      Riversdale Mining Limited

           103,103

       

           206,205

       

         (103,103)

       

         (206,205)

      Planatlântica

               2,551

       

               5,101

       

             (2,551)

       

             (5,101)

       

           310,587

       

           621,174

       

         (310,587)

       

         (621,174)

       

       

       

       

       

       

       

       

      •Credit risks

      The exposure to credit risks of financial institutions is in line with the parameters established in the financial policy. The Company’s practice is to analyze in detail the financial position of its customers and suppliers, establishing a credit limit and conducting ongoing monitoring of the outstanding balance.

      In relation to financial investments, the Company only makes investments in institutions with low credit risk according to rating agencies. As part of the funds is invested in Brazilian government bonds, there is also exposure to the credit risk of Brazil.

      •Capital management

      The Company manages its capital structure in order to ensure the continuity of its operations, so as to offer return to shareholders and benefits to other interested parties, as well as maintaining an optimum capital structure to reduce this cost.

      Instruments associated with other risks of fluctuations in the prices of financial assets

      Total return equity swap contracts

      On August 13, 2009, the Company entered into eight new pre-export financing contractssettled in advance the total return equity transaction contracted on September 5, 2008 as approved by the Board of Directors on July 8, 2009.

       

       

       

       

       

       

       

       

       

       

      2009

      Issue date

       

      Settlement date

       

      Reference value         (US$ thousand)

       

      Assets

       

      Liabilities

      Fair value

      sep/05/08

       

      aug/13/09

       

                     1,050,763

       

        1,364,812

       

        (1,934,741)

       

         (569,929)

      In spite of the accumulated loss on this transaction since September 5, 2008 through the settlement date, in the totalamount of R$ 569,929, during 2009 the transaction generated a gain of R$ 1,026,465.

      The Company also engaged in a cashless swap that involved as its counterparty the bank Goldman Sachs International and was pegged to 29,684,400 American Depositary Receipts (“ADRs”) issued by Companhia Siderúrgica Nacional (asset end) and the 3-month LIBOR plus a spread of 0.75% p.a. (liability end).

      The gains and losses on this contract were directly related to the fluctuations in the exchange rate and the quotations of the Company’s ADRs and the LIBOR interest rate. This instrument was recognized in other payables in the balance sheet and the gains and losses were recorded on the accrual basis in the Company’s finance income (expenses).

      This transaction featured a deposit relating to the guarantee margin with the counterparty in the amount of US$792 which bear interest rates 593,410 remunerated daily according to the FedFund rate and this deposit was released on the date the transaction was settled. The guarantee margin was recognized in other receivables, in current assets.

      FS-56

      V – Guarantee margin

      The Company has deposits in guarantee in the amount of R$ 254,485 (R$ 115,964 in 2009); this amount is invested with Deutschebank to guarantee derivative financial instrument contracts, specifically the swap between 104.8%CSN Islands VIII and 109.5% of CDI per annum and mature at various dates between 2013 and 2014.

      Loans and financing with certain agents contain restrictive clauses, with whichCSN. In addition, the Company has a securitization reserve fund in the amount of R$ 54,675 (R$ 126,092 in 2009) set forth in the contracts for the securitization program (see Note 16).

      18. OTHER PAYABLES

      The group of other payables classified in current and non-current liabilities is comprised as follows:

       

       

       

      Current

       

       

       

      Non-Current

       

      2010

       

      2009

       

      2010

       

      2009

      Amounts due to related parties (Note 5)

      148,364

       

      80,062

       

      3,028,924

       

      2,980,772

      Unrealized losses on derivatives (Note 17)

      116,407

       

      77,146

       

      263

       

      18,729

      Dividends and interest on shareholders’ equity payable (Note 24)

      631,344

       

      383,079

       

       

       

       

      Advances from customers

      35,361

       

      85,464

       

       

       

       

      Taxes payable in installments

      656,678

       

      582,190

       

      859,898

       

      437,231

      Other payables

      266,798

       

      410,633

       

      178,350

       

      229,591

       

      1,854,952

       

      1,618,574

       

      4,067,435

       

      3,666,323

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      19. GUARANTEES

      The Company is liable for guarantees in compliancethe amount of R$ 7,484,271 (R$ 4,863,348 in 2009) for its subsidiaries and jointly-controlled subsidiaries, as follows:

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Millions

       

      Currency

      Maturities

       

      Borrowings

       

      Tax collection lawsuits

      Other

       

       

       

      Total

       

       

       

       

       

       

       

      2010

       

      2009

       

      2010

       

      2009

       

      2010

       

      2009

       

      2010

       

      2009

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Transnordestina

      R$

       

      jun/01/10 to may//08/28

      		 

      1,145,397

       

        298,000

       

       

       

       

       

          5,186

       

          2,800

       

      1,150,583

       

         300,800

      CSN Cimentos

      R$

       

      Indeterminate

       

       

       

       

       

        32,745

       

        26,100

       

        26,987

       

        26,987

       

           59,732

       

           53,087

      Prada

      R$

       

      Indeterminate

       

       

       

       

       

          9,958

       

          9,900

       

             740

       

          1,900

       

           10,699

       

           11,800

      Sepetiba Tecon

      R$

       

      Indeterminate

       

             1,465

       

             1,900

       

        15,000

       

        15,000

       

        61,519

       

        66,500

       

           77,983

       

           83,400

      Itá Energética

      R$

       

      sep/15/13

       

             9,587

       

           93,700

       

       

       

       

       

       

       

       

       

             9,587

       

           93,700

      CSN Energia

      R$

       

      Indeterminate

       

       

       

       

       

          1,029

       

          1,000

       

          2,336

       

          3,300

       

             3,365

       

             4,300

      Total em R$

       

       

       

       

      1,156,449

       

         393,600

       

        58,732

       

        52,000

       

        96,767

       

      101,487

       

      1,311,948

       

         547,087

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      CSN Islands VIII

      US$

       

      dec/16/13

       

         550,000

       

         550,000

       

       

       

       

       

       

       

       

       

         550,000

       

         550,000

      CSN Islands IX

      US$

       

      1/15/2015

       

         400,000

       

         400,000

       

       

       

       

       

       

       

       

       

         400,000

       

         400,000

      CSN Islands X

      US$

       

      Perpetual

       

                             

       

         750,000

       

       

       

       

       

       

       

       

       

                           

       

         750,000

      CSN Islands XI

      US$

       

      sep/21/19

       

         750,000

       

         750,000

       

       

       

       

       

       

       

       

       

         750,000

       

         750,000

      CSN Islands XII

      US$

       

      Perpetual

       

      1,000,000

       

       

       

       

       

       

       

       

       

       

       

      1,000,000

       

                           

      Aços Longos

      US$

       

      dec/31/11

       

             4,431

       

             8,700  

       

       

       

       

       

       

       

       

       

             4,431

       

             8,700

      CSN Resources

      US$

       

      7/21/2020

       

      1,000,000

       

       

       

       

       

       

       

       

       

       

       

      1,000,000

       

                           

      CSN Cimentos

      US$

       

      7/15/2010

       

       

       

                200

       

       

       

       

       

       

       

       

       

                           

       

                200

      Namisa

      US$

       

      dec/31/09

       

       

       

          20,000

       

       

       

       

       

       

       

       

       

                           

       

           20,000

      Total in US$

       

       

       

       

      3,704,431

       

      2,478,900

       

       

       

       

       

       

       

                       

       

      3,704,431

       

      2,478,900

      Total in R$

       

       

       

       

      6,172,323

       

      4,316,261

       

       

       

       

       

       

       

       

       

      6,172,323

       

      4,316,261

       

       

       

       

       

      7,328,772

       

      4,709,861

       

        58,732

       

        52,000

       

        96,767

       

      101,487

       

      7,484,271

       

      4,863,348

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      FS-57

      20. TAXES PAYABLE IN INSTALLMENTS

      a) Tax recovery program (Refis)

      •Federal Refis

      On November 26, 2009, the Company and its subsidiaries joined the Tax Recovery Programs established by Federal Law 11941/09 and Provisional Measure 470/09, aimed at settling tax liabilities through a special payment system and installment payment of their tax and social security obligations. Joining the special tax programs reduced the amount of fines, interest and legal charges previously due.

      Management’s decision took into consideration matters already judged by higher courts, as well as the assessment of external legal counsel regarding the possibility of favorable outcomes in the contingencies in progress.

      In November 2009 and February 2010, the companies recognized the adjustments required in the provisions, as well as the reductions in the debts set forth in special programs, according to the dates for waiver of administrative appeals or lawsuits. In 2009, a positive effect before income tax and social contribution was recorded in the amount of R$ 507,633, and in the 1st quarter of 2010, a negative effect before income tax and social contribution was recorded in the amount of R$ 42,364. These amounts were recorded in other operating income and expenses and in finance income (expenses) (see notes 26 and 27).

      The new amount of debts after application of the reductions related to the tax program under Law 11941/09 was offset against deposits in court related to these contingencies and is still subject to validation by the appropriate authorities. The remaining balance will be paid in 180 monthly installments based on the consolidation of the debts by the authorities.

      The debts under the terms of Provisional Measure 470/09 were divided into 12 installments as from November 2009. In July 2010, the Company elected to offset the four last installments under the tax recovery program against its income tax and social contribution tax loss carry forwards, as permitted by applicable legislation.

      The appropriate authorities are still examining the data submitted in order to consolidate the debts included in the installment payment programs established by Provisional Measure 470/09 and Law 11941/09.

      At December 31, 2009. Some2010, the position of the main covenantsdebts under the Refis, recorded under taxes payable in installments, was R$ 1,444,207 (R$ 826,844 in 2009) in the Consolidated.

      •State Refis

      On January 18, 2010 the State of Rio de Janeiro published Law 5647/10, which introduced the Tax Recovery Program. Based on these new regulations, amounts due were reduced in terms of fines and interest and could be settled with “precatórios” (bonds issued to pay court-ordered debts) through May 31, 2010. The Company and its subsidiaries CSN Cimentos and MRS elected to include some of their state tax debts, totaling R$ 52,387, in the Tax Recovery Program (REFIS), without significant impacts on profit or loss.

      21. PROVISIONS FOR TAX, SOCIAL SECURITY, LABOR AND CIVIL RISKS AND JUDICIAL DEPOSITS

      Contingencies and claims of different nature are informedbeing challenged at the appropriate courts. Details of the accrued amounts and related judicial deposits are as follows:

       

       

       

      2010

       

       

       

      2009

       

       

       

      1/1/2009

       

      Judicial deposits

      Provision

       

      Judicial deposits

      Provision

       

      Judicial deposits

      Provision

      Social security and labor

      107,237

       

      247,214

       

      86,541

       

      217,777

       

      63,448

       

      159,257

      Civil

      47,216

       

      80,330

       

      37,251

       

      61,428

       

      24,863

       

      63,542

      Tax

      878,309

       

      86,841

       

      869,399

       

      40,162

       

      9,552

       

      46,424

      Judicial deposits

      46,023

       

       

       

      44,493

       

       

       

      41,667

       

       

       

      1,078,785

       

      414,385

       

      1,037,684

       

      319,367

       

      139,530

       

      269,223

      Legal obligations challenged in court:

       

       

       

       

       

       

       

       

       

       

      Tax

       

       

       

       

       

       

       

       

       

       

       

      IPI premium credit 

      1,227,892

       

      1,227,892

       

      1,227,892

       

      1,227,892

       

      1,196,822

       

      2,227,203

      CSLL credit on exports

       

       

      401,916

       

       

       

      1,240,158

       

       

       

      1,156,830

      SAT

       

       

       

       

       

       

      50,880

       

       

       

      66,650

      Salary premium for education

      36,189

       

      33,121

       

      36,189

       

      33,121

       

      36,189

       

      33,121

      CIDE

      54,211

       

      27,545

       

      29,913

       

      27,674

       

      27,616

       

      27,390

      Income tax on ”Plano Verão”

      341,551

       

      20,892

       

      339,215

       

      20,892

       

      336,826

       

      20,892

      Other provisions

      36,078

       

      113,552

       

      36,078

       

      108,203

       

      370,268

       

      107,436

       

      1,695,921

       

      1,824,918

       

      1,669,287

       

      2,708,820

       

      1,967,721

       

      3,639,522

       

      2,774,706

       

      2,239,303

       

      2,706,971

       

      3,028,187

       

      2,107,251

       

      3,908,745

       

       

       

       

       

       

       

       

       

       

       

       

      Total current liabilities

       

       

      222,461

       

       

       

      189,517

       

       

       

      161,144

      Total non-current liabilities

      2,774,706

       

      2,016,842

       

      2,706,971

       

      2,838,670

       

      2,107,251

       

      3,747,601

       

       

       

       

       

       

       

       

       

       

       

       

      Export and import financing operationsFS-58

      “The Company shall maintain all authorizations necessary to comply with the obligations established


      Changes in the contract.”      provisions for contingencies in the years ended December 31, 2010 and 2009 are as follows:

       

       

       

       

       

       

       

       

       

       

       

       

      Non-Current

       

       

       

      Current

      Nature

       

      2009

       

      Additions

       

      Adjustment

       

      Utilization

       

      Transfer to taxes payable in instal.

      		 

      2010

       

      2010

       

      2009

      Civil

       

      17,717

       

      5,500

       

      5,38

       

      (5,393)

       

       

       

      23,208

       

      57,622

       

      43,711

      Labor

       

      18,778

       

       

       

      7,511

       

      (2,940)

       

       

       

      23,349

       

      164,839

       

      145,806

      Tax

       

      2,696,181

       

      60,707

       

      519,074

       

      (957,809)

       

      (406,893)

       

      1,911,260

       

       

       

       

      Social security

       

      105,994

       

      36,966

       

      16,550

       

      (100,485)

       

       

       

      59,025

       

       

       

       

       

       

      2,838,670

       

      103,173

       

      548,519

       

      (1,066,627)

       

      (406,893)

       

      2,016,842

       

      222,461

       

      189,517

      “The Company shall export products in an amount sufficient to cover the principalprovisions for civil, labor, tax, environmental and interest accrued which are duesocial security liabilities have been estimated by Management mainly based on the respective payment dates.”

      Export credit notes issued in favor of Banco do Brasil S.A.assessment made by legal counsel, and Banco Nossa Caixa S.A.

      “The Company shall export steel products in general and/or iron ore in an amount sufficient to cover the principal of the operation.”

      BNDES financing

      “The Company shall prove the investment of own funds established in the project.”

      “The Company shall promote acts or measures which may jeopardize or change the economic-financial equilibrium of the loan Beneficiary.”

      FS - 34

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Debentures

      “The Company shall immediately notify the Fiduciary Agent on the announcement of any general debenture holders’ meetingonly cases classified as probable losses are recorded. Moreover, these provisions include tax liabilities resulting from contingencies filed by the issuer.”Company, subject to SELIC (Special Settlement and Custody System) rate.

      The Company and its subsidiaries also assume specific covenantsare defendants in other contingencies (labor, civil and tax) at administrative or judicial levels, in the approximate amount of R$ 4,200,104, of which R$ 2,939,678 related to certain contracts, but usualtax contingencies, R$ 302,847 to civil contingencies, and R$ 957,579 to labor and social security contingencies. The assessments made by legal counsel define these contingencies at administrative or judicial levels as entailing risk of possible loss and, therefore, no provision was recorded in operations of the same nature, which had also been compliedconformity with as ofManagement’s judgment and accounting practices adopted in Brazil.

      a) Labor contingencies

      As at December 31, 2009, as follows:

      Covenants of2010, the Company and subsidiariesis a defendant in11,238 labor claims, for Eurobonds issued by subsidiaries:

      “In foreign currency and debt operations represented by securities traded on stock exchanges outside Brazil, the Company must not constitute guarantees on its assets, except for those allowed in the operation agreements, without simultaneously guaranteeing the notes.”

      CSN Islands IX Corp., CSN Islands X Corp. CSN Islands XI Corp. (Eurobonds):

      “The issuer must not assume debts, except for those represented by the notes, or debts representing commissions, costs or indemnifications due in accordance with the established in the operation documentation.”

      Company’s covenant in Bank Letter of Credit (“CCB”) with Caixa Econômica Federal:

      “The Company shall maintain in the collection account, at Caixa Econômica Federal, receivableswhich a provision has been recorded in the amount of 25%R$ 188,188 (R$ 164,584 in 2009). Most of the operation’s outstanding balance.”claims relate to subsidiary and/or joint liability, salary equalization, health hazard premiums and hazardous duty premiums, overtime pay, difference in the 40% fine for the severance pay fund (FGTS) as a result of federal government economic plans, health care plan, indemnity contingencies resulting from alleged occupational diseases or on-the-job accidents, and differences in profit sharing from 1997 to 1999 and from 2001 to 2003.

      Restrictive covenants applicableb) Civil contingencies

      Among the civil contingencies in which the Company is a defendant are claims for indemnity, generally resulting from on-the-job accidents, occupational diseases and contractual litigation related to the Company’s subsidiaries:

      CSN Export S.à.r.l (Securitization)

      “CSN Export must not assume debts except for those established in the operation documentation and debts resulting from law and which do not haveindustrial activities. For contingencies involving civil matters, a materially adverse effect.”

      On July 2, 2009, CSN (1) notified the creditors of 2003-1 tranche notes on its irrevocable intention of performing the early redemption of such notes, settlement of which occurred on August 5 and (2) started a consent solicitation process with creditors related to the 2004-1 and 2005-1 tranche notes of the Securitization program, in order to obtain from the latter consent or waiver in relation to the following matters: (i) inclusion of iron ore receivables in the Securitization program; (ii) adoption of flexible dates for the performance of early redemption of notes; (iii) change in a few export coverage ratios provided for in the program; and (iv) disregard of Accumulation Events occurred in the 21stand 23rdquarters of the program, for possible characterization purposes of early amortization event. On August 5, 2009, the Bank of New York Mellon confirmed to have received the creditors’ consents for both tranches in sufficient amount to approve all the aforementioned matters. Notwithstanding having obtained said approvals, the Company’s temporary fund allocation this quarter (up to the amount corresponding to twice the debt service) to an account managed by the custodian bank (Accumulation Eventprovision has been recognized in the amount of R$70,829) due to the insufficient level of exposure to comply with certain export coverage ratios in the 23rdquarter of the program (ended on April 30, 2009) shall be maintained until the Company resumes compliance with the coverage ratios originally provided for in the securitization program agreements.

      Transnordestina (BNDES financing)

      “Transnordestina commits not to change, without prior and express authorization of BNDES, its share control.”

      At December 31, 2009, the current portion of long-term debt and long-term portion of the Company’s indebtedness had annual interest rates80,330 as follows:

      FS - 35

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

        % per annum  CSN  Subsidiaries 
             
      Denominated in local currency       
       
      Long-term interest rate (“TJLP”)  TJLP plus 2.7 to 14.0  92  25 
      General price índex (“IGP-DI”)  IGP-DI plus 8.01  1  - 
      Other  Zero to 7.96  -  4 
          93  29 
      Denominated in foreign currency       
      United States dollar  1.50 to 9.55  268  62 
          361  91 
          452 

       
        % per annum  CSN  Subsidiaries 
      Denominated in local currency       
       
      Long-term interest rate (“TJLP”)  TJLP plus 2.7 to 14.0  543  233 
      General price index (“IGP-DI”)  IGP-DI plus 8.01  4  - 
      Interbank Certificate of Deposit (“CDI”)  104.8 to 117.5% of CDI  2,272  - 
      Others  Zero to 7.96  -  7 
          2,819  240 
      Denominated in foreign currency       
      United States dollar  1.50 to 11.74  1,504  2,721 
      Euro  Zero to 3.89  -  3 
      Yen  4.19  -  32 
          4,323  2,996 
          7,319 

      Indices (average) and foreign currency variation applied to debt in each year are as follows:

        % 
       
        2007  2008  2009 
       
      TJLP – Long-term interest rate  6.4 6.3  6.2
      CDI – Interbank deposit certificate  11.7 12.3  9.8
      IGPM – General index of market price  7.8 9.8  (1.7)
      United States dollar exchange rate change  (17.2) 31.9  (25.5)
      Euro exchange rate  (7.5) 24.1  (22.6)

      The long-term portion of the Company’s debt outstanding at December 31, 2009 becomes due2010 (R$ 61,428 in 2009).

      FS-59

      Among the environmental contingencies at administrative or judicial levels in which the Company is a defendant, most involve contingencies at administrative level aimed at determining possible occurrences of environmental irregularities and straightening out environmental licenses. At judicial level there are collection contingencies related to fines imposed as follows:

      2011  1,112 
      2012  2,104 
      2013  1,250 
      2014  601 
      2015 and thereafter  1,502 
      Perpetual securities  750 
       
      Total  7,319 

      Securitya result of these irregularities and class action contingencies with claims for indemnities, consisting of environmental repairs in most cases. Generally, these contingencies result from discussions regarding alleged damages to the environment related to the Company’s debt outstandingindustrial activities. For contingencies involving environmental matters, a provision was recognized in the amount of R$ 500 as at December 31, 20092010.

      c) Tax contingencies

      §Income tax and social contribution

      (i) ”Plano Verão”- The Company is claiming the recognition of financial and tax effects on the calculation of income tax and social contribution, related to removal by the government of inflation measured according to the Consumer Price Index (IPC) in January and February 1989, involving a total percentage figure of 51.87% (“Summer Plan”).

      In 2004 the lawsuit was as follows:

      Property, plant and equipment 28 
      Corporate guarantees 43 
      Imports 24 
      Bank guarantee 118 
      Total213

      terminated with a final and unappealable decision that granted the right to apply the index of 42.72% (January 1989), with the 12.15% already applied to be deducted from this index. The final decision also granted application of the index of 10.14% (February 1989). The proceeding is currently under accounting investigation.

      FS - 36

      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      14 Stockholders’ equity

      (a) Capital

      OnAs at December 31, 2010 there is an amount of R$ 341,551 (R$ 339,215 in 2009) deposited in court, classified in a specific account of judicial deposits in long-term receivables, and a provision of R$ 20,892 (R$ 20,892 in 2009), which represents the portion not recognized by the courts.

      (ii) CSLL Export (Social Contribution on Income from Export Revenues)– In February 2004 the Company filed a lawsuit claiming that it should not be subject to payment of CSLL (social contribution) on its export revenues/profits, as well as to obtain court authorization to offset all the amounts of CSLL incorrectly paid on such export revenues/profits since the publication of Constitutional Amendment 33/2001, which provided new wording to article 149, paragraph 2 of the 1988 Federal Constitution (CF/88), by determining that “social contributions shall not be levied on export revenues”.

      In March 2004 an injunction was granted, and subsequently confirmed in a court decision, authorizing the exclusion (from the CSLL tax base) of just the export profits.

      Such court decision was overturned by the 4th Panel of the Federal Regional Court (TRF) for the 2nd Region, which denied the injunction requested by the Company. An extraordinary appeal (RE) challenging the constitutionality of the regional court decision was filed, but it was put on hold until such time as the Federal Supreme Federal (STF) decides the matter in the case records of RE 564.413 (leading case), which recognized the existence of general repercussion of this same constitutional issue.

      In December 2008 the Company received a Collection Notice for the amounts relating to exclusion of such revenues from the CSLL tax base. Therefore, the Company’s Board of Directors approved a motion to attach the Collection Notice to the installment payment program introduced by Law 11941/2009 (REFIS), and 2009, shares issued were 1,586,807,676also to continue discussing the main matter in court relating to non-levy of CSLL on export profits, which was recently judged by the STF in the case records of RE 564.413 (leading case) in a vote contrary (6X5) to taxpayers. This decision has not yet been published and 1,510,359,220, respectively, common shares (post split) with no par value. Outstanding shares (post split) were 1,517,338,908 as ofwill probably be subject to appeal.

      Up to December 31, 20082010 the amount of the suspended requirement and 1,457,970,108 asthe credits offset on the basis of such lawsuit was R$ 401,916 (R$ 1,240,158 in 2009), plus the SELIC rate.

      §Contribution for intervention in the economic domain - CIDE

      The Company questioned the legal validity of Law 10168/00, which introduced the collection of CIDE on amounts paid, credited or remitted to non-resident beneficiaries by way of royalties or compensation for agreements involving supply, technical assistance, assignment and licenses for use of trademarks and patents.

      FS-60

      The ruling at the lower court was unfavorable and this was upheld by the TRF for the 2ndRegion. The Company filed an Appeal for Declaratory Judgment, which was likewise turned down. An extraordinary appeal was filed with the STF, admissibility of which is presently awaiting the higher court’s decision.

      In view of the unfavorable decisions and the benefits involving reduction in fines and interest, the Company’s Board of Directors approved including the amounts covered by the court litigation in the tax recovery program introduced by Law 11941/2009.

      After application of the benefits of this program, the Company maintains judicial deposits in the amount of R$ 6,141, of which R$ 2,895 involves excess deposits after application of the REFIS reductions that may be offset against other debts being challenged in court by the taxpayer or converted into income. As at December 31, 2009. The decreases2010 there is a provision recognized in the numberamount of commonR$ 3,246 (R$ 3,376 in 2009), including legal charges.

      §Salary premium for education – “Salário Educação”

      The Company has filed a lawsuit challenging the constitutionality of the salary premium for education and treasury sharesfor discussing the possibility of recovering the amounts paid in 2009the period from January 5, 1989 to October 16, 1996. The lawsuit was unsuccessful, and the TRF upheld the decision unfavorable to CSN, a decision that is final and unappealable.

      In view of the final and unappealable decision, CSN tried to make payment of the amount due, though the FNDE and INSS did not reach an agreement as compared to 2008which agency should receive it. They also required that the amount should be paid along with a fine, with which the Company did not agree.

      Lawsuits were causedthen filed challenging the above events, with judicial deposit of the amounts involved in the lawsuits. In the first lawsuit, the lower court partly accepted the Company’s request, with the judge deducting the fine, but upholding the SELIC rate, with counterarguments against the defendant’s appeal against the SELIC rate.

      The accrued amount and judicial deposit as at December 31, 2010 totals R$ 33,121 (R$ 33,121 in 2009).

      §On-the-job accident insurance - SAT

      The Company is challenging in court the increase in the SAT rate from 1% to 3% (first lawsuit), and is also challenging the increase in SAT for purposes of the Special Retirement Contribution, which was set at 6%, according to legislation applicable to employees exposed to toxic material (second lawsuit).

      As regards the first lawsuit mentioned above, the lower court decision was unfavorable and the lawsuit is now being judged by cancellationsthe TRF for the 2ndRegion. With respect to the second lawsuit, its decision was unfavorable to the Company and the amount due in this lawsuit, R$ 33,077, was deposited in court, in favor of the INSS (National Institute of Social Security).

      The accrued amount as describedat December 31, 2010 totals R$ 36,966 (R$ 50,880 in item (b) below.

      (b) Treasury stock

      During 2009,2009), which includes legal charges and refers exclusively to the lawsuit related to the increase from 1% to 3% for all the Company’s locations. In view of the likelihood of loss in this court challenge, the Board of Directors approved share buyback programsincluding the amount relating to this matter in the installment payment program under Law 11941/2009. Due to joining the REFIS and waiver of the lawsuit challenging the rate increase from 1% to 3%, CSN included the unassessed period in the Ordinary Installment Payment Program, which is presently awaiting ratification.

      §IPI premium credit over export

      The tax legislation allowed Brazilian companies to recognize an excise tax (IPI) premium credit until 1983, when by executive order from the government these benefits were cancelled and it was no longer permitted to utilize these credits.

      FS-61

      The Company challenged the constitutionality of this act and filed a lawsuit claiming the right to utilize the IPI premium credit on exports from 1992 to 2002, since only laws passed by the legislature can cancel or revoke benefits granted by past legislation.

      In August 2003 the Company to hold in treasury for subsequent sale and/or cancellation, made in accordance with the limits and provisions of CVM’s Instruction No. 10/80. Asobtained a result, on August 21, 2009,favorable decision at the Extraordinary General Meetinglower court, authorizing the cancelationutilization of 17,079,656 (post split) shares was approvedsuch credits. The National Treasury appealed and on August 13, 2009, 59,368,800 (post split) shares were repurchased. Onobtained a favorable decision. The Company then filed a special and extraordinary appeal against the decision to the Superior Court of Justice - STJ and STF, respectively.

      Between September 14, 2009 at2006 and May 2007, the Extraordinary General Meeting the cancelation of 59,368,800 (post split) shares was approved of which 6,979,688 (post split) were repurchased in August 13, 2009.

      The Board of Directors approved the acquisition byNational Treasury filed 5 tax collection lawsuits and 3 administrative proceedings against the Company through a private operation, of 29,684,400 ADRs previously held by Goldman Sachs duerelating to an operation called “Total Return Equity Swap Transaction”, for the settlement price that was defined based on the weighted averagecollection of the price oftaxes that were offset against the Company’sIPI premium credit. The total amount involved approximates R$ 4.5 billion, inflation adjusted through December 31, 2010.

      On August 29, 2007 CSN pledged assets backed by treasury shares in the 30 floor sessionsamount of R$ 536 million, with the equivalent of 25% of this amount being replaced by judicial deposits through monthly installments made through December 31, 2007, and as such replacements occur, a request was filed to release the pledges of the equivalent amounts in shares at the closing quotation for the share on the date prior to the settlement date, translated into U.S. dollars by using the spot dollar translation rate of the business day immediately priordeposit, and this request was about to the settlement date, as per the CVM Board’s decision – Proceeding RJ2009/5962. be granted.

      On August 13, 2009, the operationSTF rendered a decision, with general repercussion, determining that the IPI premium credit was settledonly in effect through October 1990. Accordingly, the credits accrued after 1990 were not recognized and, in view of this STF decision, the ADRsCompany’s Board of Directors approved including this matter in the tax recovery program for tax debts introduced by Provisional Measure 470/09 and Law 11941/09, which entails benefits in terms of reduction of fines, interest and legal charges.

      The Company maintened a provision for the amount of the credits already, plus late payment charges through September 30, 2009. The new amount of debt after application of the reductions prescribed in the program under Law 11941/09 was offset against the escrow deposits related to these lawsuits, resulting in excess deposits in the amount of  R$516 million after applicationof the REFIS reductions, wich can either be offset against other debits included in the installment payment program or refunded. These debits are still subject  to validation by the appropriate authorities, wich will take place during 2011. 

      The debts under Provisional Measure (MP) 470/09 were repurchased, converted into common sharespaid in 12 installments as from November 2009, with the last four installments being replaced by the use of the income tax and subsequently cancelled.social contribution tax loss carryforwards, in the manner provided by applicable legislation. The appropriate authorities are still examining the data submitted in order to consolidate the debts included in such installment payment program. So far 5 administrative cases, in the amount of R$ 1.8 billion, are being challenged by the authorities, with the first 2 being included as executable tax debts. The Company promptly challenged the challenges at the administrative level (by means of filing the appropriate appeals), since there are strong arguments in the sense of allowing inclusion of such debts in the installment payment under MP 470/09, and obtained a court order suspending the appeals filed by the government, which suspended the requirement to pay the debt until a final decision is reached at the administrative level. The administrative cases aimed at re-inclusion of the debts under MP 470/09 are still being analyzed.

      On§Other

      The Company has also recognized provisions for lawsuits relating to INSS, FGTS Complementary Law 110, COFINS Law 10833/03, PIS Law 10637/02 and PIS/COFINS - Manaus Free Trade Zone, totaling R$ 84,367 as at December 18, 2009,31, 2010, (R$ 72,124 in 2009), wich includes legal charges

      In relation to the COFINS Law 10833/03 debt, the Board of Directors authorizedapproved inclusion of the openingrelated amounts in the tax recovery program under Law 11941/09. The Company maintained a provision for the amount of these credits already offset, plus late payment charges through September 30, 2009.

      The new amount of debts after application of the reductions allowed under the program of Law 11941/09 was offset against judicial deposits related to these lawsuits, resulting in excess deposits in the amount of R$ 9,141 after application of the REFIS reductions, which may be offset against other debts included in the installment plan or challenge in court or refunded. These debts are still subject to validation by the appropriate authorities, which is set to occur in 2011.

      On June 14, 2010, the TRF for Brasília turned down a lawsuit for annulment filed by CSN against the Anti-Trust Board (CADE), which sought to annul the assessment imposed for allegedly committing the violations prescribed by articles 20 and 21, item I, of Law 8884/1984. The appropriate appeals were filed against this decision but were turned down, giving rise to an Appeal for Declaratory Judgment, which is awaiting judgment. The collection of fine in the amount of R$ 65,292 is suspended by court decision, which granted suspension based on the guarantee for the debt provided by CSN. This lawsuit is classified as possible loss.

      FS-62

      22. PROVISIONS FOR ENVIRONMENTAL AND DECOMMISSIONING LIABILITIES

      a) Environmental Liabilities

      As at December 31, 2010, a provision is recognized in the amount of R$ 278,106 (R$ 116,544 in 2009) for expenditures relating to environmental investigation and recovery services for potentially contaminated areas surrounding establishments in the States of Rio de Janeiro, Minas Gerais and Santa Catarina. Estimated expenditures will be reviewed periodically and the amounts already recognized will be adjusted whenever needed. These are Management’s best estimates considering recovery studies in areas that have been degraded and are in the process of being used for activities.

      The provisions are measured at the present value of the expenditures required to settle the obligation, using a pre-tax rate that reflects current market assessments of the time value of money and the specific risks of the obligation. The increase in the obligation due to passage of time is recognized as finance cost.

      The long-term interest rate used to discount to present value and update the provision through December 31, 2010 is 11.00%. The liability recognized is periodically updated based on these discount rates plus the general market price index (IGPM) for the period.

      b) Decommissioning of Assets

      Obligations on decommissioning of assets consist of estimated costs for decommissioning, retirement or restoration of areas upon the termination of activities related to mining resources. The initial measurement is recognized as a liability discounted to present value and subsequently through increase in expenses over time. The cost of decommissioning of assets equivalent to the initial liability is capitalized as part of the carrying amount of the asset, being depreciated over the useful life of the asset. The liability recognized at December 31, 2010 R$ 17,421 (R$ 15,524 in 2009).

      23. SHAREHOLDERS´ EQUITY

      i. Paid-up capital

      The Company’s fully subscribed and paid-up capital as at December 31, 2010 is R$ 1,680,947 (R$ 1,680,947 as at December 31, 2009), divided into 1,483,033,685 (755,179,610 in 2009) common shares without par value. Each common share entitles to one vote in resolutions of the General Meeting of Shareholders. At the Extraordinary General Meeting held on March 25, 2010 approval was granted to a split in shares representing the capital, a transaction whereby each share began to be represented by 2 (two) new share buyback program, authorizingshares. At the CompanyExtraordinary General Meeting held on November 1, 2010 approval was granted to acquirecancel 27,325,535 shares that were held in treasury.

      ii. Authorized capital

      The Company’s bylaws in effect as at December 31, 2010 determine that the capital can be raised to up to 28,874,8102,400,000,000 shares (post split) issued by decision of the Board of Directors.

      iii. Legal reserve

      This reserve is recognized at the rate of 5% of the profit for each period, in the manner provided by article 193 of Law 6404/76). The limit for this reserve has already been reached, as required by applicable legislation.

      iv. Treasury shares

      The Company itself, to be heldholds in treasury 25,063,577 shares that it issued, acquired in the market for subsequent saleR$ 570,176 (R$ 1,191,559 in 2009) for future disposal or cancellation. cancelation. The market value of these treasury shares as at December 31, 2010 corresponds to R$ 668,446 (R$ 1,466,895 in 2009).

      FS-63


      v. Ownership structure

      As of May 28,at December 31, 2010, the Company had not repurchased any shares under this program.

      Treasury stock as of December 31, 2009Company’s ownership structure was as follows:

      Number of Shares (*)  Amount Paid for Shares  Per Share Cost (in US$) Average 
      52,389,112 (post split)  649  12.40 

       

       

       

       

      2010

       

        Number of common shares

      % of total shares

      % w/o treasury shares

      Vicunha Siderurgia S.A.

      697,719,990

       

      47.05%

       

      47.86%

      Rio Iaco Participações S.A.

      58,193,503

       

      3.92%

       

      3.99%

      Caixa Beneficente dos Empregados da CSN - CBS

      12,788,231

       

      0.86%

       

      0.88%

      BNDESPAR

      31,773,516

       

      2.14%

       

      2.18%

      Diversos (ADR - NYSE)

      358,913,048

       

      24.20%

       

      24.62%

      Other shareholders (approximately 10 thousand)

      298,581,820

       

      20.13%

       

      20.47%

       

         1,457,970,108

       

      98.31%

       

      100.00%

      Treasury shares

      25,063,577

       

      1.69%

       

       

      Total shares

         1,483,033,685

       

      100.00%

       

       

            

       

      (*) Retroactively adjusted as per the stock split approvedvi. Changes in March 2010 (see note 25 (f)). outstanding shares

      While maintained in treasury, these shares are not entitled to receive dividends and have no property or voting rights. As of December 31, 2009, the market value of the shares held in treasury amounted to US$842 (US$426 as of December 31, 2008).

      Changes in common shares outstanding

       

      Number of shares

      Balance held in treasury

      Opening balance in 2009

       

      1,517,338,908

       

       69,468,768

      Acquisition of treasury shares

       

      (59,368,800)

       

       59,368,800

      Cancelation of shares

       

       

       

       (76,448,456)

      Balance at December 31, 2009

       

      1,457,970,108

       

       52,389,112

      Cancelation of shares

       

       

       

      (27,325,535)

      Balance at December 31, 2010

       

      1,457,970,108

       

      25,063,577

      (c)vii. Appropriated retained earnings

      Brazilian laws and CSN’s By-laws require that certain appropriations be made from retained earnings to reserve accounts on an annual basis. The purpose and basis of appropriation to such reserve accounts are described below:

      • •Investment reserve - this is a general reserve for future expansion of CSN’s activities.

      • Legal reserve - this reserve is a requirement for all Brazilian corporations and represents the annual appropriation of 5% of net income up to a limit of 20% of capital stock, as determined in the Brazilian Corporate Law. This reserve may be used to increase capital or to absorb losses, but may not be distributed as cash dividends.

      (d) Dividends and interest on stockholders’ equity

      The Company’s By-laws guarantee a minimum annual dividend equal to 25% of the adjusted net income for the year, as required by the Brazilian Corporate Law, which comprises net income after deduction of legal reserve. Interest on stockholders’ equity since January 1, 1996 is considered part of the minimum dividend. Brazilian law permits the payment of cash dividends only from retained earnings as stated in the Company’s statutory accounting records. At December 31, 2008 and 2009, retained earnings as stated in the statutory accounting records was fully transferred to reserves or distributed as dividends. In addition, in accordance with the statutory accounting records, appropriated retained earnings at

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      December 31, 2008 included the amount of US$1,776 related to the investment reserve, which could be transferred to unappropriated retained earnings and paid as dividends and interest on stockholders’ equity, if approved by the stockholders. As of December 31, 2009, the minimum annual dividend amounted to approximately US$220 which will be paid during 2010.

      15 Pension plan

      (a) Description of the plans

      The Company has pension plans which cover substantially all employees. The plans are administered by the Board of Directors of a foundation namedCaixa Beneficente dos Empregados da CSN(“CBS”), a private non-profit pension fund established in July 1960, which has as its members employees (and ex-employees) of the parent company and certain of its subsidiaries that joined the fund by agreement, and CBS’s own employees. The Board of Directors of CBS is comprised of its president and ten members, six of whom are chosen by CSN, the principal sponsor of CBS, and four of whom are chosen by the participants.

      Until January 1996, CBS had only a defined benefit plan with benefits based on years of service, salary and social security benefits. On December 27, 1995, theSecretaria de Previdência Complementar(the Brazilian Government’s Secretary for Supplementary Social Security or the “SPC”) approved the implementation of a new benefit plan as of January 1996, called thePlano Misto de Benefício Suplementar(the “Hybrid Plan”), structured in the form of a defined contribution plan. Employees hired after that date can only join the new hybrid plan. Additionally, all active employees who were participants in the old defined benefit plan were offered the opportunity to switch to the new hybrid plan. As of December 31, 2009, CBS had 28,419 participants, of whom 22,056 were contributors (28,201 and 22,721, respectively, at December 31, 2008) enrolled in the benefit plans, including 12,884 active (12,406 at December 31, 2008) and 15,535 benefi ciaries (15,795 at December 31, 2008) employees. Of the total participants at December, 31 2009, 14,669 belong to the defined benefit plan and 13,750 to the hybrid plan.

      CBS’s assets comprise principally shares of CSN, government securities and properties. At December 31, 2009, CBS owned 70,981,734 (post split) common shares of CSN (70,981,734 (post split) common shares at December 31, 2008). During 2009, CBS received US$0.77 per share (post split) of dividends and interest on stockholders’ equity from these shares. No shares were sold during 2009. Pension assets totaled R$2.3 billion (US$1 billion) and R$3.5 billion (US$2 billion) at December 31, 2008 and 2009, respectively. CBS’s fund managers seek to match the plan assets with benefit obligations over the long-term. Brazilian pension funds are subject to certain restrictions relating to their ability to invest in foreign assets and consequently, the funds primarily invest in Brazilian securities.

      (b) Investment policy

      The investment policy establishes principles and guidlines that must be followed in the investment process of the resources received, with the objective of promoting assurance, liquidity, and profitability levels needed to meet the balance between assets and liabilities of the plan.

      The investment plan is revised annually and approved by the Deliberative Board. This investment policy formalizes the targets and limits of implementation and management of the portfolio investment entity, and establishes guidelines for resources allocation and for assessment and risk control.

      The investment criteria and limits established are based on Resolution No. 3,792/09 issued by the National Monetary Council (“CMN”).

      (c) Expected long-term rate of return on assets

      The expected long-term rate of return on assets of each benefit plan was determined by CBS based on the return expectancy for each asset category, as well as the target allocation of assets between those categories specified in CBS’s investment policy and budget for year 2009. For purposes of determining the expected long-term rate of return on plan

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      assets the Company considered short and long-term scenarios for each category of assets. The resultant rates are shown in the table below:

      Assets Allocation (%)  
              Weighted-Average
      Asset        Expected Long-Term
      Category  December 31, 2008  December 31, 2009   Target  Rate of Return (%)
      Debt Securities  48.5  61.5  68.4  9.5 
      Equity Securities  44.0  33.8  23.3  12.3 
      Real Estate  3.2  1.9  4.2  9.7 
      Loans  4.3  2.8  4.1  16.0 
      Total  100.00  100.00  100.00  10.3 

      The table below demonstrates how the resources can be allocated:

      Assets Allocation (%)
      Asset       
      Category  Minimum   Maximum   Target 
      Debt Securities  30  100  68.4  
      Equity Securities  -  70  23.3  
      Real Estate  -  8  4.2  
      Loans  -  15  4.1  
      Structure Investments  -  10  -  
      Foreign Investments  -  10  -  

      (d) Defined benefit plan

      The Company applies its defined benefit plan actuarial assumptions using December 31 of each year as the measurement date. Information with respect to the Company’s defined benefit plan as of December 31 is as follows.

        2008   2009 
       
      Projected benefit obligation at beginning of year 887 609
      Service cost 1 2
      Interest cost on PBO 84 88
      Actual benefits payments (75) (75)
      Change in assumptions (149) 134
      Effect of exchange rate changes (197) 232
      Actuarial loss 58 10
       
      Projected benefit obligation at end of year 609 1,000
       
       
      Change in plan assets    
        2008   2009 
       
      Fair value of plan assets at beginning of year 1,025 525
      Actual return on plan assets (283) 511
      Employer contributions 36 35
      Employee contributions 1 1
      Actual benefits payments (75) (75)
      Effect of exchange rate changes (179) 248
       
      Fair value of plan assets at end of year 525 1,245
       
       
      Accrued pension cost asset (liability)    
        2008  2009 
       
      Funded status, excess (shortfall) of plan assets over projected benefit obligation (84) 245
      Unrecognized actuarial gain - -
       
       (84) 245
       
      Prepaid pension cost – non-current assets - 245
       
      Accrued pension cost – current liabilities (24) -
      Accrued pension cost – non-current liabilities (60) -

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Changes recognized in accumulated other comprehensive (loss) income before tax
      2009
      Transition asset not yet recognized in net periodic pension cost 1
      Prior service credit not yet recognized in net periodic pension cost 11
      Prior service credit recognized in net periodic pension cost during the period (1)
      Net actuarial gain arising in the period 331
      Gain not yet recognized in net periodic pension cost at beginning of period 16
      Gain recognized in net periodic pension cost 1
      Total 359
      Deferred tax effect (122)
      Total recognized in accumulated other comprehensive income 237

      Net periodic pension cost includes the following components for the years presented:

        2007   2008   2009 
       
      Service cost 1 1 1
      Interest cost on projected benefit obligation 83 84 88
      Expected return on plan assets (84) (100) (77)
      Amortization gain - (55) 2
      Net amortization and deferral (1) (1) (2)
       
       (1) (71) 12
      Employee contributions (1) (1) (1)
       
      Net periodic pension (credit) cost (2) (72) 11

      The expected net periodic pension cost, calculated in accordance with SFAS 87,included in FASB ASC Subtopic 715-10 and SFAS 158, included in FASB ASC Subtopic 715-20 for the year ending December 31, 2010, amounts to R$(75) million (US$(43) translated at the December 31, 2009 exchange rate) for the defined benefit plan as shown in the table below:

      Service cost 2
      Interest cost 107
      Expected return on assets (91)
      Net amortization and deferral (59)
      Periodic post retirement benefit (credit) (41)
      Expected employee contributions (2)
      Net periodic pension cost (43)

      Actuarial assumptions used for the calculations were:

      Discount rates 2007 2008 2009 
      Inflation plus 6% Inflation plus 8.5% Inflation plus 6.7% 
      Rates of increase in compensation levels Inflation plus 1% Inflation plus 1% Inflation plus 1% 
      Expected long-term rate of return on assets 10.7% 13.1% 10.3% 
      MortalityAT-83 Table
      segregated by sex(1)       		AT-83 Table
      segregated by sex(1)       		AT-2000 Table
      segregated by sex(1) 
      DisabilityMercer disability
      multiplied by two       		Mercer disability
      multiplied by two       		Mercer disability
      multiplied by two 
      Disabled mortality Winklevoss Winklevoss Winklevoss 
      Turnover 2% per year 2% per year 2% per year 
      Retirement age100% when first eligible for
      a retirement benefit       		100% when first eligible for
      a retirement benefit       		100% when first eligible for
      a retirement benefit 

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      (1)The increase in life expectancy of the general Brazilian population, as well as the life expectancy of the population covered by private pension plans have been discussed in the past few years. Life expectancy both in Brazil and around the world have increased due to a series of events, such as the technological development in medicine, the public health care policies and disease prevention resulting from quality of life programs.

      During 2006, the Brazilian government defined that post retirement benefit plans liabilities should be valued considering at least the life expectancies obtained through AT83 mortality table, which were considered to be the mortality tables that best reflect the life expectancy in Brazil. For 2009, the mortality table adopted for measuring the actuarial liabilities related to the post retirement benefits presented in these financial statements was amended from AT83 to AT-2000, segregated by sex.

      The projected annual inflation rate adopted was 4.2% for all years presented.

      The discount rates and expected long-term rate of return on assets have changed for 2009, as management believes the rates more adequately reflect CBS’s earnings and Brazil’s projected economic scenario.

      Accumulated benefit obligation

         2008   2009 
       
      Actuarial present value of:     
      Vested benefit obligation  607  998 
      Non-vested benefit obligation  2  2 
       
      Total accumulated benefit obligation  609  1,000 

      (e) Expected contributions

      Defined benefit plan

      The Company’s expected contributions for 2010, amounting to R$61.6 million (US$35.4 translated at the December 31, 2009 exchange rate), are estimated based on the actual cost for each valued plan as of the valuation date. The expected benefit payments for 2010, amounting to R$135.9 million (US$78.0 translated at the December 31, 2009 exchange rate), are estimated based on the projected benefit payroll as of the valuation date.

      The estimated future benefit payments, translated at the December 31, 2009 exchange rate, are as follows:

      2010 78 
      2011 80 
      2012 83 
      2013 85 
      2014 88 
      2015 to 2019 472 

      Hybrid plan

      The Company does not expect to make contributions for the defined benefits in 2010 for the hybrid plan. The Company’s expected contributions in 2010 for the defined contribution portion amounts to R$21.4 million (US$12.3 translated at the December 31, 2009 exchange rate).

      The estimated future benefit payments, translated at the December 31, 2009 exchange rate, are as follows:

      2010 10 
      2011 11 
      2012 11 
      2013 11 
      2014 12 
      2015 to 2019 59 

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      (f) Defined contribution plan

      The defined contribution plan is funded through contributions by the Company and the participants to the plan. CSN has committed to contribute to the plan a percentage of the salary of each participant, ranging from 3% to 5%. The Company’s contributions to the plan during 2007, 2008 and 2009 amounted to US$10.1, US$8.6 and US$12.3, respectively.

      (g) Fair value measurements of plan assets by major categories

        Fair value measurements on plan assets at December 31, 2009 
        Total  Level 1  Level 2  Level 3 
      Debt Securities  755 -  755  - 
      Equity Securities  1,157 1,157  -  - 
      Real Estate  43 -  43  - 
      Loans  57 -  57  - 
      Other  1 1  -  - 
        2,013 1,158  855  -- 
      Funds related to the defined contribution plan         
      (Hybrid plan)  (768)      
      Fair Value of plan assets at end of year  1,245      

      Level 2:

      Debt Securities are mainly comprised of debentures, Interbank Certificate of Deposit (“CDI”) and National Treasury Notes (“NTN-B”).

      Loans are related to loans to participants that must follow the rules approved by the CBS's Council and the maximum limit of 15% of total resources, established in Resolution No. 3,792/09 issued by the National Monetary Council (“CMN”).

      Real estate assets were valued by a specialized asset Appraisal Company.

      16 Employee benefits

      In addition to the pension fund, the Company makes monthly contributions based on the amount of payroll for government pension, social security and severance indemnity plans, and such payments are expensed as incurred. Also, certain severance payments are due upon dismissal of employees, consisting principally of one month’s salary and a severance payment calculated at 40% plus 10% (according to Supplementary Law No. 110/2001) of the accumulated contributions made to the government severance indemnity plan on behalf of the employee. The amounts paid on dismissal totaled US$8, US$6 and US$8 for the years ended December 31, 2007, 2008 and 2009, respectively. Based on current operating plans, management does not expect that amounts of future severance indemnities will be material.

      17 Commitments and contingencies

      (a) Accruals and deposits

      The accrual for contingencies, disputed taxes payable and the related legal deposit balances are as follows:

       As of December 31, 2008 As of December 31, 2009
       
       Deposits   Accrual  Deposits   Accrual 
       
      Short-term        
      Labor   49    84 
      Civil   20    25 
       
         69    109 
       
      Long-term        
      Labor 22  1  43  4 
      Civil 10  -  19  1 

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Disputed taxes payables        
      IPI 512  953  297  - 
      Income tax and social contribution 333  504  314  724 
      Other taxes 16  100  91  113 
      Environmental -  31  -  67 
      Other -  29  43  32 
       
       893  1,618  807  941 

      The provisions for contingencies relate to legal proceedings with respect to which CSN deems the likelihood of an unfavorable outcome to be probable and the loss reasonably estimable. This determination is made based on the legal opinion of CSN’s internal and external legal counsel. CSN believes these contingencies are properly recognized in our financial statements in accordance with Statements of Financial Accounting Standards No. 5 (SFAS No. 5), included in ASC Topic 450,Contingencies. Those contingencies related to income taxes and social contributions are accounted for based on the “more-likely-than-not” concept in accordance with FIN 48, included in ASC Subtopic 740-10. CSN is also involved in judicial and administrative proceedings that are aimed at obtaining or defending CSN’s legal rights with respect to taxes that CSN believes to be unconstitutional or otherwise not required to be paid by CSN. The Company believes that these proceedings wil l ultimately result in the realization of contingent tax credits or benefits that can be used to settle direct and indirect tax obligations owed to the Brazilian Federal or State Governments. CSN does not recognize these contingent tax credits or benefits in our financial statements until realization of such gain contingencies has been resolved. This occurs when a final irrevocable decision is rendered by the Courts in Brazil. When CSN uses contingent tax credits or benefits based on favorable temporary court decisions that are still subject to appeal to offset current direct or indirect tax obligations, CSN maintains the legal obligation accrued in the Company’s financial statements until a final irrevocable judicial decision on those contingent tax credits or benefits is rendered. The accrual for the legal obligation related to the current direct or indirect tax obligations offset is not reversed until such time as the utilization of the contingent tax credits or benefits is ultimately realized. The a ccounting for the contingent tax credits is in accordance with accounting for contingent assets under SFAS No. 5. The Company’s accruals include interest on the tax obligations that CSN may offset with contingent tax credits or benefits at the interest rate defined in the relevant tax law.

      CSN classifies an accrual as short-term when it expects the liability to be settled in 365 days or less. As of December 31, 2009, US$109 has been classified as a short-term accrual for contingencies (US$69 as of December 31, 2008). This usually occurs when a final, unappealable and irrevocable judgment has been rendered and the legal processes are in the execution phase. Given the complexity of the Brazilian legal system and the intricacies of some claims, it is impracticable for Brazilian companies to predict the time period in which final decisions will be reached for such claims. Consequently, these claims are classified as long-term liabilities.

      The deposits for contingencies and disputed taxes payable are generally based on (i) accruals recorded in connection with lawsuits, (ii) judicial orders issued in connection with lawsuits and (iii) guarantees in connection with judicial foreclosure proceedings. Such deposits are classified as long-term assets, and the release of such deposits is conditioned upon judicial order. When such a judicial order is granted in CSN´s favor, the deposit is forfeited and returned to us in cash and the deposit account is appropriately offset. When such a judicial order is granted in a manner unfavorable to us, the deposit is used to offset the related liability and the deposit account is appropriately offset.

      On November 26, 2009, CSN and its subsidiaries adhered to the Federal Tax Repayment Program (REFIS) introduced by Law 11,941/09 and Provisional Measure 470/09, in order to settle their tax and social security liabilities through a special settlement and installment payment system. Management’s decision took into consideration the economic benefits provided by the REFIS, such as discounts and fines exemptions, as well as the high costs of maintaining its pending lawsuits.

      As a result, in 2009, the Company recorded the adjustments necessary to be made in the provisions, as well as reductions in debts, including debts offset against IPI premium credit over export and sundry debts, which amounted to US$2.9 billion, including interest and related charges. Adherence to the special tax programs reduced the amount previously due in fines, interest and legal charges, generating a positive impact on the Company’s pre-tax income of US$255, recorded in other income (expense), net in the statement of income.

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      The new amount of the debts following the reductions stipulated by the tax program of Law 11,941/09 was offset with court deposits and the residual amount will be settled in 180 installments as of the ratification of the debts by the authorities, which is expected to take place in mid-2010. The debts due under Provisional Measure 470/09 are being settled in 12 installments beginning in November 2009. On December 31, 2009, taxes payable in installments from Refis were US$475.

      Labor contingencies

      As of December 31, 2009, total accrual relating to probable losses for these contingencies was US$88 (US$50 in 2008). Our legal counselors periodically review accruals based on their judgment, as well as the recent track records of these disputes. Most of the lawsuits are related to alleged joint liability between us and our independent contractors, wage equalization, differences of 40% fine on the FGTS deposits due to inflation purge, additional payments for unhealthy and hazardous activities, overtime and profit sharing differences from 1997 to 1999 and from 2001 to 2003. The lawsuits related to the alleged joint liability between us and our independent contractors represent a significant portion of the total labor suits against us, and refer to non-payment of labor charges by our independent contractors to their employees, for which we may be found jointly liable.

      Civil contingencies

      These are mainly claims for indemnities within the civil judicial processes in which we are involved. Such proceedings, in general, are a result of occupational accidents and diseases related to our industrial activities. Our legal counselors periodically revise the accruals based on their judgment and the recent track record on these disputes. As of December 31, 2009, the amount of the accrual relating to probable losses for these contingencies was US$26 (US$20 as of December 31, 2008).

      Disputed taxes payable

      •Imposto sobre produto industrializado - IPI(Excise Tax) presumed credit on inputs

      The Company has accrued a liability for certain tax liabilities that were offset against credits related to IPI excise tax. The accrual is necessary to offset the contingent gain resulting from the use of IPI excise tax credits. The IPI excise tax credits are similar to value added tax credits related to the purchase of goods used in the production process. Brazilian law prevents companies from recognizing IPI excise tax credits on the acquisition of certain goods. CSN has always believed that this prohibition is unconstitutional since it is not consistent with general value added tax principles, the reason why it challenged this prohibition in the Brazilian courts. In May 2003, we sought and obtained a favorable preliminary order from a Brazilian court authorizing us to compensate federal tax liabilities with IPI excise tax credits under dispute. CSN was awaiting the decision of a Brazilian court of first instance. After such a decision is rendered, CSN expects the decision wi ll be subject to several stages of appellate review before a final unappealable judgment is obtained. The IPI excise tax credit accrual recorded by CSN as of December 31, 2008 represented CSN’s statutory obligation to pay taxes that were offset with IPI excise tax credits.

      CSN has noted that several other Brazilian companies have challenged the same prohibition and these companies have received both favorable and unfavorable judgments at different stages of the judicial process. For example, the Federal Supreme Court issued a final, unappealable and irrevocable decision on June 25, 2007 against a given taxpayer, denying the use of these credits. On August 27, 2007 the proceeding had an unfavorable decision for the Company, whose amount of US$519 with the Federal Revenue of Brazil was being paid in installments and transferred the liability to the accounts of taxes payable in installments. From the unfavorable aforementioned decision, an appeal was filed by the Company.

      In light of the above, on November 26, 2009, CSN adhered, the abovementioned cases to the Federeal Tax Repayment Program (REFIS) introduced by Law 11,941/09 and Executive Order 470/09, and as a result the amount payable in installments was reduced to US$284 as of December 31, 2009 (US$369 as of December 31, 2008).

      • IPI premium credit over exports

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      The Company has accrued a liability for certain tax liabilities that were offsetagainst IPI premium tax credits. The accrual is necessary to offset the contingent gain resulting from the use of IPI premium tax credits and represents the statutory obligation to pay taxes that were offsetagainst these credits. The IPI premium tax credits relate to export sales made during 1992 to 2002. Tax legislation allowed Brazilian companies to recognize IPI premium tax credits until 1983, when an act of the executive branch of the Brazilian government cancelled such benefits and prohibited companies from recognizing these credits. CSN has challenged the constitutionality of the executive branch’s action since only a law enacted by the Brazilian legislature could cancel or repeal benefits duly enacted by prior legislation. In Aug ust 2003, CSN sought and obtained a favorable decision from a Brazilian court of first instance that authorized the use of IPI premium tax credits.

      The Brazilian National Treasury filed an appeal against such decision and got a favorable decision from Brazilian court of appeals. CSN filed appeals against such decision before both the Brazilian Superior Court of Justice and the Brazilian Federal Supreme Court and is still awaiting for decisions from such courts. In September 2006, the National Treasury filed five tax foreclosures against CSN to require payments in the total amount of approximately R$1 billion, referring to the collection of taxes which were offsetagainst the use of IPI premium tax credits.

      During 2007, in view of these executions, the distribution of dividends and the payment of interest on shareholders’ equity expected to take place on April 30, 2007 were suspended and the amount allocated for such purpose was blocked by court decision. On August 29, 2007, the Company offered assets in lien represented by treasury shares in the amount of US$ 270 million (R$536 million translated using the exchange rate as of the date of the transaction). 25% of this amount was substituted by judicial deposits in monthly installments performed up to December 31, 2007 and as these substitutions took place, the equivalent in shares was released from the lien at the share price determined at the closing price of the day prior to the deposit. In view of these events, the Company’s current accounts were unblocked, the court decision to suspend the dividends distribution on this date was revoked, and dividends were paid to shareholders as from September 4, 2007.

      In March 2009, Letters of Guarantee were also offered in the amount of US$ 477 million (R$830 million), which aimed to replace the levy of execution upon securities carried out as of the disclosure of dividend payment. The prevalence of guarantee in treasury shares, bank surety or cash to be deposited judicially has not yet been decided by the Regional Federal Court.

      On August 13, 2009, the Federal Supreme Court issued a decision with effects of general repercussion establishing that the IPI Premium Credit was only effective up to October 1990. Thus, the credits determined after 1990 were not recognized, and, in view of this court decision, the Company’s Board of Directors approved the adhesion of such debts to the federal tax repayment programs (REFIS) set forth in Provisional Measure 470/09 and Law 11,941/09, according to which the debts may be paid with the reduction of fines, interest and legal charges.

      The Company had provisioned the amount of credits already offset, increased by default charges up to September 30, 2009 (as of December 31, 2008, the IPI premium credit accrual represented the accumulated IPI tax credits used of US$953). The new balance after the application of reductions set forth in the program of Law 11,941/09, was offset with court deposits related to referred operations, resulting in an excess deposits amounting to US$297 after application of REFIS reductions, which may be offset by other debts discussed in court by the taxpayer or converted into cash. Such debts are yet subject to ratification by the proper authorities, which is expected to take place in mid-2010. Debts registered pursuant to Provisional Measure 470/09 are being paid in 12 installments as of November 2009.

      • Income tax and social contribution

      As disclosed in Note 6, the Company accounts for the uncertainties in income tax and social contribution in accordance with FIN 48 beginning on January 1, 2007.

      “Plano Verão”

      The Company claims recognition of the financial and tax effects on the calculation of income tax and social contribution on net income, related to Consumer Price Index – IPC understated inflation, which occurred in January and February 1989, by a percentage of 51.87% (“Plano Verão”). In 2004, the proceeding was concluded and judgment was made final and

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      unappealable, granting to CSN the right to apply the index of 42.72% (Jan/89), of which the 12.15% already applied should be deducted. The application of 10.14% (Feb/89) was granted. The proceeding is currently under accounting investigation.

      At December 31, 2009, the Company has US$195 million (US$144 million in 2008) as judicial deposit and a provision of US$12 million (US$9 million in 2008), which represents the portion not recognized by the courts.

      Social Contribution on Income from Export Revenues

      The Company filed a lawsuit challenging the assessment of Social Contribution on Income on export revenues, based on Constitutional Amendment #33/01 and in March 2004, we obtained an initial decision authorizing the exclusion of these revenues from referred calculation basis, as well as the offsetting of amounts paid as from 2001. The lower court decision was favorable and the proceeding is waiting for trial of the appeal filed by the Federal Government in the Regional Federal Court. At December 31, 2009, the amount of suspended liability and the offset credits based on the referred proceedings was US$712 (US$495 at December 31, 2008), already adjusted by the SELIC - Brazilian base interest.

      The debts related to the offsetting of amounts paid as from 2001, as well as the debts related to the exclusion of export revenues from taxable basis were included in the Federal Tax Repayment Program (REFIS) introduced by Law 11.941/09. Such debts included in the Tax Repayment Program will be subject to ratification by the proper authorities in mid-2010. CSN still claims for the exclusion of profits derived from exports from the calculation basis of the Social Contribution, according to the initial decision obtained by the Company.

      • PIS/COFINS–Law No. 9,718/98

      PIS and COFINS are taxes assessed on revenues. In 1998, new tax legislation was enacted which required Brazilian companies to pay PIS and COFINS on revenues resulting from financial investments. Prior to 1998, the Brazilian constitution dictated that Brazilian companies were only required to pay PIS and COFINS taxes on revenues from operational activities. CSN challenged the constitutionality of the assessment of PIS and COFINS from financial investments since, in order to expand the PIS and COFINS tax calculation basis, the Brazilian legislature was required to observe a constitutionally mandated waiting period prior to enacting the legislation. In addition, at the time the new tax legislation was enacted, the Brazilian constitution did not allow such taxes to be assessed on revenues from financial investments. In February 1999, a lower court confirmed this position. CSN sought and obtained a favorable preliminary order in March 2000. In April 2000, the Brazilian tax authoriti es appealed to Brazilian court of appeals. On March 6, 2006, Brazilian court of appeals issued a decision unfavorable to CSN. On March 10, 2006, CSN appealed against such decision before both the Superior Court of Justice and the Supreme Court. Until the resolution of these appeals, CSN’s rights under the initial favorable decision were still in effect. The PIS/COFINS accrual represents CSN’s statutory obligation to pay PIS/COFINS taxes due. CSN has noted that some Brazilian companies obtained favorable final and unappealable judgments in 2005 regarding similar PIS/COFINS legal challenges. Those companies have accordingly reversed some or most of their related disputed tax payment provisions. However, another company did not obtain a favorable decision and was required to pay the related tax obligation.

      On May 31, 2007, a decision in our favor was made final and unappealable. Such decision was published in the Official Gazette of Justice, on June 16, 2007, when in view we reversed the provision existing on that date. The reversal of the provision increased our operating results of 2007 by US$179.

      Other non-income tax contingencies

      We are party to other judicial and administrative proceedings not described in the notes to CSN’s consolidated financial statements, involving a total of approximately US$2.5 billion as of December 31, 2009 (US$2.5 billion as of December 31, 2008), of which U$$1.7 billion is related to tax proceedings (US$1.9 billion as of December 31, 2008), US$0.2 billion to civil judicial processes (US$0.2 billion as of December 31, 2008) and US$0.6 billion to labor lawsuits (US$0.4 billion as of December 31, 2008). Most of these other proceedings are comprised of tax assessments received related to fines and penalties on credits used to offset legal and tax-related obligations that were previously considered as remote. The Company’s external legal counsel deemed that the risk of loss arising from these lawsuits was only possible as opposed to probable. Therefore, we did not record accruals for contingencies with respect to these lawsuits.

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Other tax contingencies relate to a variety of disputes for which CSN has recorded provisions for probable losses. No single group of similar claims constitutes more than 5% of total contingencies.

      (b) Other commitments and contingencies

      •Environmental Regulation

      The Company is subject to Brazilian federal, state and municipal environmental laws and regulations governing air emissions, waste water discharges, and solid and hazardous waste handling and disposal. The Company is committed to controlling the substantial environmental impact caused by our steelmaking, mining and logistics operations, in accordance with international standards and in compliance with environmental laws and regulations in Brazil. The Company believes that it is in substantial compliance with applicable environmental requirements.

      The Company records accruals for remediation costs and environmental lawsuits when a loss is probable and the amount can be reasonably estimated. As of December 31, 2009, the Company has a provision for environmental regulation in the amount of US$67 (US$31 as of December 31, 2008) which is considered sufficient by management and its legal advisors to cover all probable losses. No changes in the present conditions and circumstances are expected for the near term which could impact our financial position, results for the year or cash flows.

      The main accruals for environmental contingencies as of December 31, 2009 relates to cleaning-up obligations at former coal mines decommissioned by 1989; legal environmental compensation (Federal Law no.985/2000) projected for new ventures at Santa Catarina, Minas Gerais and Rio de Janeiro states; and cleaning-up obligations due to former operations of Presidente Vargas steelworks. The Company did not include in the accruals the environmental liabilities related to ERSA, since they are by contract the express accountability of the former owner (CESBRA/BRASCAN).

      Additionally, we currently have no possible losses arising from environmental lawsuits or remediation costs to incur, that are presently deemed possible. No changes are expected in the near term for that situation.

      Commitments

      a) “Take-or-pay” contracts

      - MRS Logística S.A.

      The Company and MRS Logística S.A. entered into a 10-year contract for iron ore transport. According to the "take-or-pay" clause, the Company is committed to pay at least 80% of the tons agreed to be transported by MRS. The volume of iron ore transported by MRS in addition to the minimum agreed (take-or-pay) for a given month may be compensated with lower volumes transported in subsequent months. For the take-or-pay quantities, the Company will pay in accordance with the terms of the contract. The Company’s total payments under the agreement were US$39 in 2007, US$168 in 2008 and US$139 in 2009. The future minimum amounts of required payments at December 31, 2009, translated at the exchange rate at December 31, 2009, are as follows:

        Amount (US$) 
       
      2010  97 
      2011  97 
      2012  97 
      2013  97 
      2014  97 
      2015 and thereafter  146 
       
      Total  631 

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      -MRS Logística S.A

      The Company and MRS Logística S.A entered into a long-term contract for transportation of Iron Ore, Coal and Coke to Volta Redonda whose maturity is scheduled for 2012. The volume set for iron ore and pellets is 8,280,000 tons per year and for coal, coke and other reduction products is 3,600,000 tons per year. It is accepted a variation up to 10%, with a guarantee of payment of at least 90%. MRS, on the other hand, is required to transport at least 80% of the volume established by the agreement. The Company’s total payments under the agreement were US$74 in 2007, US$93 in 2008 and US$71 in 2009. The future minimum amounts of required payments at December 31, 2009, translated at the exchange rate at December 31, 2009, are as follows:

        Amount (US$) 
       
      2010  77 
      2011  77 
      2012  57 
       
      Total  211 

      -Ferrovia Centro-Atlântica S.A. (“FCA”)

      The Company and FCA entered into a long-term contract for mining products transportation which maturity is scheduled for 2013. According to the "take-or-pay" clause, the Company is committed to ship the minimum of 1,900,000 tons per year. The contract also previews that if CSN’s productive expansion occurs, the minimum volume may be increased up to 2,800,000 tons per year. The Company’s total payments under the agreement were US$35 in 2007, US$39 in 2008 and US$29 in 2009. The future minimum amounts of required payments at December 31, 2009, translated at the exchange rate at December 31, 2009, are as follows:

        Amount (US$) 
      2010  38 
      2011  38 
      2012  38 
      2013  38 
       
      Total  152 

      - ALL – América Latina Logística do Brasil S.A.

      The Company and ALL entered into a long-term contract for steel products transportation on the route from Água Branca to Araucária, renewable under terms and conditions agreeable to both parties. According to the "take-or-pay" clause, the Company is committed to ship a minimum volume per month of 30,000 tons and, in case the volume for the month exceeds the minimum, the Company will have the right to a discount in tariffs. Also, CSN may opt for transporting steel products on the return trip from Araucária to Água Branca at a maximum quantity of 600 shipments at a minimum of 50 tons per shipment. The tariffs may be adjusted once a year at each contract anniversary based on the changes in prices of fuel and cumulative inflation rates between anniversaries. For the take-or-pay quantities, the Company will pay in accordance with the terms of the contract. As of December 31, 2008, the outstanding balance of this take-or-pay contract was US$3. The contract expired during 2009 and was not renewed.

      - White Martins Gases Industriais Ltda.

      To secure gas supply (oxygen, nitrogen and argon), in 2005 the Company signed an addendum related to the 22-year “take-or-pay” agreement with White Martins Gases Industriais entered into in 1994, by which CSN is committed to acquire at least 90% of the annual gas volume contracted from White Martins. The Company’s total payments under the agreement were US$62 in 2007, US$56 in 2008 and US$52 in 2009. The future minimum amounts of required payments at December 31, 2009, translated at the exchange rate at December 31, 2009, are as follows:

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

        Amount (US$) 
       
      2010  55 
      2011  55 
      2012  55 
      2013  55 
      2014  55 
      2015 and thereafter  110 
       
      Total  385 

      - Companhia Estadual de Gás do Rio de Janeiro - CEG RIO

      To secure natural gas supply, in 2007 the Company signed a 5-year “take-or-pay” agreement with CEG RIO, by which CSN is committed to acquire at least 286,160,000 m3of natural gas, which represents 70% of the annual gas volume contracted from CEG RIO. The Company’s total payments under the agreement were US$130 in 2008 and US$180 in 2009. The future minimum amounts of required payments at December 31, 2009, translated at the exchange rate at December 31, 2009, are as follows:

        Amount (US$) 
       
      2010  148 
      2011  148 
      2012  148 
       
      Total  444 

      In addition, if the Company does not acquire the minimum volume agreed, the amount paid which relates to that difference may be compensated in future years, including one year after the contract expiration.

      - Vale S.A.

      To secure pellets supply, in 2009 the Company signed a 5-year "take-or-pay" agreement with Vale S/A, by which CSN is committed to acquire at least 90% of the pellets volume guaranteed in the agreement with Vale S/A. Under the terms of the agreement, we are not required to advance funds raised against future processing charges if Vale S/A is unable to meet its financial obligations. The Company’s total payments under the agreement were US$11 in 2009. The future minimum amounts of required payments at December 31, 2009, translated at the exchange rate at December 31, 2009, are as follows:

        Amount (US$) 
       
      2010  75 
      2011  75 
      2012  75 
      2013  75 
      2014  50 
       
      Total  350 

      - Companhia Paranaense de Gás – COMPAGÁS

      The Company and Companhia Paranaense de Gás entered into a 20-year contract to secure natural gas supply. According to the “take or pay” clause, the Company is committed to acquire at least 80% of the annual natural gas volume contracted from Companhia Paranaense de Gás. The Company’s total payments under the agreement were US$4 in 2008 and US$6 in 2009. The future minimum amounts of required payments at December 31, 2009, translated at the exchange rate at December 31, 2009, are as follows:

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

        Amount (US$) 
       
      2010  7 
      2011  7 
      2012  7 
      2013  7 
      2014  7 
      2015 and thereafter  67 
       
      Total  102 

      - Companhia Paranaense de Energia - COPEL

      To secure energy supply, the Company entered into a 20-year agreement with Companhia Paranaense de Energia. According to the “take or pay” clause, the Company is committed to acquire at least 80% of the annual energy volume contracted from Companhia Paranaense de Energia. The Company’s total payments under the agreement were US$4 in 2007, US$5 in 2008 and US$5 in 2009. The future minimum amounts of required payments at December 31, 2009, translated at the exchange rate at December 31, 2009, are as follows:

        Amount (US$) 
       
      2010  5 
      2011  5 
      2012  5 
      2013  5 
      2014  5 
      2015 and thereafter  30 
       
      Total  55 

      b) Steelmaking (Slab Mills) and Long Steel Production

      The Company initiated its long steel products brownfield project in Volta Redonda, in the State of Rio de Janeiro, which will be developed inside its main steelmaking facility. In this plant CSN intend to produce 500,000 tons per year of long steel products, such as rod bar (400,000 tons per year) and wire rod. The Company expects to benefit from the existing infrastructure and utilities used to support a blast furnace and a former foundry. The total investment in long steel products production will be of approximately US$340 in installations, including expanding and upgrading a 30-ton electric furnace. The facility will use surplus pig iron and low value added slabs as raw materials. In addition to this plant, CSN is developing in Brazil two greenfield long steel projects with 500,000 tons per year each. The Company’s forecast is that these two plants will start production by the end of 2013. CSN is developing a flat steel project with a projected capacity of 1.5 Mtpy in a location to be confirmed.

      c) Iron Ore Project

      CSN’s iron ore business comprises the expansion of its mining activities and its seaport facilities, the construction of pellet plants and, to a lesser extent, the trading of iron ore produced by other companies through its own logistics network. CSN expects to produce 89 Mtpy of iron ore products until 2014, 50 Mtpy in Casa de Pedra and 39 Mtpy in Namisa site. We expect to finance these investments with the National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico Social-BNDES), export credit agencies, the proceeds from offerings of securities and with the free cash flow from its current operations.

      CSN is also investing in the expansion of the seaport Solid Bulks Terminal in Itaguaí, or TECAR, to enable annual exports of 84 million tons of iron ore. The current annual export capacity is equivalent to 30 million tons.

      In addition to these projects, which are already being implemented, the Company analyzing other brownfield and greenfield opportunities and acquisitions options.

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      d) Cement Project

      The Company is investing approximately US$410 to build a greenfield grinding mill and clinker furnace, with capacity of 2.3 million tons and 820,000 tons, respectively. This project represented CSN’s entry into the cement market, taking advantage of the slag generated by its blast furnaces and of its limestone reserves, located in Arcos, Minas Gerais. The limestone, which is transformed into clinker, and the slag, accounts for approximately 95% of the production cost to produce cement. In 2009 its cement sales reached 338,000 tons, all from the grinding mill, and we expect to reach full production capacity by 2011. These investments will be financed by BNDES, which has already approved a seven-year credit line of up to US$81 indexed partially on the long-term interest rate (Taxa de Juros de Longo-Prazo), or TJLP, and partially on US dollars, as well as the use of free cash flow from its current operations. In addition to this plant, the Company is developing other projects , such as the installation of an integrated cement plant in Arcos, state of Minas Gerais, taking advantage of its calcareous mine, with capacity of 600,000 tons per year. CSN intends to build three new integrated plants (cement and clinker) in Brazil until 2013, each with a projected capacity of 1 million tons per year. Taken together these projects are expected to have a production capacity of 6.4 million tons of cement until 2013.

      e) MRS

      The Brazilian Southeastern railway system, covering 1,674 km of track, serves the São Paulo – Rio de Janeiro – Belo Horizonte industrial triangle in Southeast Brazil, and links its mines located in the State of Minas Gerais to the ports located in the states of São Paulo and Rio de Janeiro and to the steel mills of CSN, Companhia Siderúrgica Paulista, or Cosipa, and Gerdau Açominas. In addition to serving other customers, the line transports iron ore from its mines at Casa de Pedra in the State of Minas Gerais and coke and coal from the Itaguaí Port in the State of Rio de Janeiro to the Presidente Vargas steelworks and transports its exports to the ports of Itaguaí and Rio de Janeiro. The railway system connects the Presidente Vargas steelworks to the container terminal at Itaguaí Port, which handles most of its steel exports. Its transport volumes represent approximately 28% of the Brazilian Southeastern railway system’s total volume. As of December 31, 2009, US$1,964 (R$3,420) were outstanding and payable by MRS to the Brazilian government federal agencies within the next 17 years, of which US$1,899 (R$3,306) are treated as an off-balance sheet item (See “Item 5E. Off-Balance Sheet Arrangements”). While CSN is jointly and severally liable with the other principal MRS shareholders for the full payment of the outstanding amount, CSN expects that MRS will make the lease payments through internally generated funds and proceeds from financing.

      f) CFN/ Transnordestina

      In August 2006, in order to enable the implementation of a major infrastructure project led by the Brazilian federal government, CSN’s Board of Directors approved a transaction to merge Transnordestina S.A., a company that at the time was state-owned, into and with Companhia Ferroviária do Nordeste – CFN, an affiliate of CSN that holds a 30-year concession granted in 1998 to operate the Northeastern Railroad of the RFFSA with 4,238 km of railway track. The Nova Transnordestina Project includes an additional 1,728 km of large gauge, state-of-the-art railway track. The Company expects the investments will allow the company to increase the transportation of various products, such as iron ore, limestone, soy beans, cotton, sugar cane, fertilizers, oil and fuels. The investments will be financed through several agencies, such as FINOR – Northeastern Investment Fund, SUDENE - the Northeastern Development Federal Agency and BNDES. The Company has obtained certain o f the required environmental permits, purchased parts of the equipments and services and implementation is advanced in certain regions.

      The Company guarantees Transnordestina’s borrowings from BNDES which amount to US$173 at December 31, 2009. Those borrowings are for purposes of financing the investments in infrastructure of Transnordestina. The maximum amount for future payments the guarantor may be required to make under the guarantee is US$104.

      As of December 31, 2009, CSN holds 84.34% of the capital stock of Transnordestina S.A., which has a 30-year concession granted in 1998 to operate Brazil’s Northeastern railway system. The Northeastern railway system covers 4,238 km of track and operates in the states of Maranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and Rio Grande do Norte. It also connects with the region’s leading ports, thereby offering an important competitive advantage through opportunities for intermodal transportation solutions and made-to-measure logistics projects. As of December 31, 2009, US$56 million was outstanding over the remaining 17-year term of the concession. CSN is jointly and severally liable for the full payment of the outstanding amount.

      The future minimum rental payments, as of December 31, 2009, are due as follows:

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Amount (US$) 
       
      2010  3 
      2011  3 
      2012  3 
      2013  3 
      2014  3 
      2015 and thereafter  41 
       
      Total  56 

      g) Itaguaí CSN Logistics Platform Project

      The Company holds the concession to operate TECAR, a solid bulks terminal, one of four terminals that form the Itaguaí Port, located in the State of Rio de Janeiro, for a term expiring in 2022 and renewable for another 25 years. Itaguaí Port, in turn, is connected to the Presidente Vargas steelworks, Casa de Pedra and Namisa by the southeastern railway system. The Company’s imports of coal and coke are made through this terminal. Under the terms of the concession, CSN undertook to unload at least 3.4 million tons of coal and coke from CSN’s suppliers through the terminal annually, as well as shipments from third parties. Among the approved investments that CSN announced is the development and expansion of the solid bulks terminal at Itaguaí to also handle up to 130 million tons of iron ore per year.

      The future minimum rental payments, as of December 31, 2009, are due as follows:

      Amount (US$) 
       
      2010  1 
      2011  1 
      2012  1 
      2013  1 
      2014  1 
      2015 and thereafter  8 
       
      Total  13 

      h) Sepetiba Tecon Concession

      We own 99.99% of Sepetiba Tecon S.A., or Tecon, which has a concession to operate, for a 25-year term that is renewable for another 25 years, the container terminal at Itaguaí Port. As of December 31, 2009, US$174 (R$303 million) of the cost of the concession remained payable over the next 18 years of the lease.

      The future minimum rental payments, as of December 31, 2009, are due as follows:

      Amount (US$) 
       
      2010  11 
      2011  11 
      2012  11 
      2013  11 
      2014  11 
      2015 and thereafter  119 
       
      Total  174 

      i) Iron ore supply agreement with Namisa

      The Company entered into long-term agreements at the full amount of U$S3,041 with its non-consolidated subsidiary Namisa to supply iron ore from the Casa de Pedra mine, with maturity scheduled for 2041 as further described below:

      Port Operating Service Agreement

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      On December 30, 2008, CSN received approximately US$2.2 billion as prepayment under an agreement with Namisa with a term of 34 years. Under this agreement, we are required to render port services to Namisa, which consists of transporting from 17.1 million tons to 39.0 million tons of iron ore annually. The price of these port services is annually reviewed and prospectively adjusted considering the changes in price of iron ore. The contract is set to expire in 2042.

      High Silica ROM

      On December 30, 2008, CSN received approximately US$665 as prepayment for a take-or-pay agreement with Namisa with a term of 30 years. Under this agreement, we are required to provide high silica crude iron ore ROM to Namisa in a volume that ranges from 42.0 million tons to 54.0 million tons per year. Depending on the market price for high silica crude iron ore ROM, we may receive additional amounts under this agreement, which is set to expire in 2038.

      Low Silica ROM

      On December 30, 2008, CSN received approximately US$177 as prepayment for a take-or-pay agreement with Namisa with a term of 35 years. Under this agreement, we are required to provide low silica crude iron ore ROM to Namisa in a volume that ranges from 5.0 million tons to 2.8 million tons per year. Depending on the market price for low silica crude iron ore ROM, we may receive additional amounts under this agreement, which is set to expire in 2043.

      j) Covenants

      Certain long-term debt instruments contain financial covenants by which the Company is required to maintain levels of leverage, liquidity and ratio indices, such as debt to EBITDA and interest coverage. As of December 31, 2009, the Company was fully compliant with its financial covenants.

      18 Guarantees

      The Parent Company provides guarantees on obligations of its subsidiaries to third parties. The Parent Company has also provided unconditional and irrevocable guarantees for obligations of certain of its affiliates as follows:

      CurrencyNotional
      (in US$Millions)      		Expiration DateConditions
      Transnordestina(2)R$ 145.3 Apr 11, 2010 to Nov 15, 2020 BNDES loan guarantee 
      Transnordestina R$ 25.8 May 21, 2010 BNB FNE loan guarantee 
      Transnordestina R$ 1.6 Dec 9, 2010 To guarantee the responsibility of the use permit agreement between Transnordestina and Temmar. 
      CSN Cimentos R$ 15.5 Indeterminate Collateral signature in guarantee contract for write of summons, pledge, appraisal and registration 
      CSN Cimentos R$ 15.0 Indeterminate Collateral signature in guarantee contract for tax foreclosure 
      Prada R$ 5.7 Indeterminate Collateral signature in guarantee contract for tax foreclosure 
      Prada R$ 0.2 Indeterminate To guarantee the warrantee’s responsibility regarding ICMS 
      Prada R$ 0.2 Jan 3, 2012 To guarantee the warrantee’s responsibility regarding the purchase and sale of electric power 
      Prada(3)R$ 0.7 Mar 10, 2010 To guarantee the Private Instrument of Termination and  acknowledgment of indebtedness.
      CSN Energia R$ 0.6 Indeterminate Collateral signature in guarantee contract for tax foreclosure 

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated

      CSN Energia(3)R$ 1.9 Mar 22, 2010 To guarantee interest in aeolian energy auction 
      Itá Energética R$ 53.8 Sep 15, 2013 BNDES loan guarantee 
      Sepetiba Tecon R$ 2.9 Jun 1, 2010 To guarantee the warrantee’s responsibility regarding infraction notes 
      Sepetiba Tecon R$ 1.1 Jan 15, 2012 BNDES loan guarantee 
      Sepetiba Tecon R$ 35.3 Sep 26, 2011 Surety in Commercial Note 40/00048-6 
      Sepetiba Tecon R$ 8.6 May 5, 2011 Collateral by CSN to issue the Export Credit Note 
      CSN Islands VIII(1)US$ 550.0 Dec 16, 2013 Guarantee in Bond issuance 
      CSN Islands IX(1)US$ 400.0 Jan 15, 2015 Guarantee in Bond issuance 
      CSN Islands X(1)US$ 750.0 Perpetual Guarantee in Bond issuance 
      CSN Islands XI(1)US$ 750.0 Sep 21, 2019 Guarantee in Bond issuance 
      Nacional Minérios S.A.(3)US$ 20.0 Dec 31, 2009 Guarantee in agreement for the rendering of oexternal guarantee 
      Aços Longos US$ 8.7 Dec 31, 2011 Letter of Credit for equipment acquisition 
      CSN Cimentos(2)US$ 0.2 Mar 30, 2010 Letter of Credit for equipment acquisition 

      (1)Finance subsidiaries 100% owned by the Company which, fully and unconditionally, guarantees the installments. 
      (2)Expired on the maturity date mentioned above and renewed after the expiration date. 
      (3)Expired on the maturity date mentioned above and not renewed. 

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      19 Segment and geographical information

      The Company has adopted SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” - FASB ASC Topic 280 with respect to the information it presents about its operating segments. SFAS 131 - FASB ASC Topic 280 introduces a “management approach” concept for reporting segment information, whereby financial information is required to be reported on the same basis that the chief operating decision maker uses such information internally for evaluating segment performance and deciding how to allocate resources to segments. Accordingly, we analyze our segment information as follows:

      Steel – comprises our steel manufacturing and sales activities;

      Mining – comprises iron ore and tin mining by our mining subsidiaries, as well as mining operations of the Casa de Pedra mine;

      Logistics – comprises our infrastructure as a whole, with our transportation systems as they pertain to the operations of our port as well as our investments in railroad investees. Also, we consider in this segment our energy subsidiaries; and

      Cement – comprises operations under development of our cement subsidiary, which started up activities in May 2009.

      The information presented to top management with respect to the performance of each segment is generally derived directly from the accounting records together with certain intersegment allocations. Corporate transactions, such as loans and financing and cash surplus investments, are allocated within our steel segment.

      Sales by geographic area are determined based on the location of the customers. On a consolidated basis, domestic sales are represented by revenues from customers located in Brazil and export sales represent revenues from customers located outside of Brazil.

      The majority of the Company’s long-lived assets are located in Brazil.

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

        Year ended December 31, 2007 
       
        Steel  Mining  Logistics  Cement  Eliminations Consolidated 
      Results             
      Revenues             
      Domestic sales  5,090 49 160   (16) 5,283
      Export sales  1,477 218       1,695
      Sales taxes  (1,053) (187) (65)     (1,305)
      Discounts, returns and allowances  (156)         (156)
      Cost and operating expenses  (3,130) (347) (189) (6) 16 (3,656)
      Financial income (expenses), net  (568) 319 30     (219)
      Foreign exchange and monetary loss  447 (14) 5     438
      Other non-operating income  81         81
      Income taxes  (522) (7) (5)     (534)
      Equity in results of affiliated companies  (12) (4) 92     76
      Net income (loss)  1,654 27 28 (6) - 1,703
       
      Other information             
      Total assets  7,255 3,975 744 91   12,065
      Capital expenditures and other investments  362 192 29 49   632
      Investments in affiliated companies      399     399
      Goodwill  117 43 6     166
      Depreciation and amortization expenses  (221) (147) (26) (3)   (397)
       
      Sales by geographic area             
       
      Asia  48 7       55
      North America  665 99       764
      Latin America  96 14       110
      Europe  614 90       704
      Others  54 8       62
      Export sales  1,477 218       1,695
      Domestic sales  5,090 49 160 - (16) 5,283
      Total  6,567 267 160 - (16) 6,978

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

        Year ended December 31, 2008 
       
        Steel  Mining  Logistics  Cement  Eliminations Consolidated 
      Results             
      Revenues             
      Domestic sales  6,934 402 223   (182) 7,377
      Export sales  850 980 -     1,830
      Sales taxes  (1,734) (53) (48)     (1,835)
      Discounts, returns and allowances  (185)         (185)
      Cost and operating expenses  (3,765) (562) (194) (4) 182 (4,343)
      Financial income (expenses), net  (383) (11) 14     (380)
      Foreign exchange and monetary loss  (1,186) (65) (14)     (1,265)
      Other non-operating income  77 (2)       75
      Gain on dilution of interest in subsidiary  - 1,667 - -   1,667
      Income taxes  (469) 56 (1)     (414)
      Equity in results of affiliated companies  - - 127     127
      Net income (loss)  139 2,412 107 (4) - 2,654
       
      Other information             
      Total assets  10,385 4,545 603 176   15,709
      Capital expenditures  716 14 40 116   886
      Investments in affiliated companies and other investments    2,127 461     2,588
      Goodwill  89 32 6     127
      Depreciation and amortization expenses  (298) (38) (4) (1)   (341)
       
      Sales by geographic area             
       
      Asia  20 826       846
      North America  312 -       312
      Latin America  112 -       112
      Europe  381 148       529
      Others  25 6       31
      Export sales  850 980       1,830
      Domestic sales  6,934 402 223   (182 7,377
      Total  7,784 1,382 223   (182 9,207

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

       Year ended December 31, 2009
       
       Steel  Mining  Logistics  Cement  Eliminations  Consolidated 
      Results            
      Revenues            
         Domestic sales 4,766 132 306 44 (44) 5,204
         Export sales 579 558 - -   1,137
      Sales taxes (1,178) (21) (45) (13)   (1,257)
      Discounts, returns and allowances (68) (2) - -   (70)
      Cost and operating expenses (3,221) (453) (176) (44) 44 (3,850)
      Financial income (expenses), net (385) (469) (14) (3)   (871)
      Foreign exchange and monetary loss 382 29 9 2   422
      Other non-operating income (26) - - -   (26)
      Gain on dilution of interest in subsidiary - - - -   -
      Income taxes (125) (62) (32) -   (219)
      Equity in results of affiliated companies   694 115 -   809
      Net loss attributable to noncontrolling interest     2     2
      Net income (loss) 724 406 165 (14) - 1,281
       
      Other information            
      Total assets 12,057 5,285 1,495 351   19,188
      Capital expenditures 479 238 129 84   930
      Investments in affiliated companies and other investments   3,699 517 -   4,216
      Goodwill 119 43 6 -   168
      Depreciation and amortization expenses (287) (40) (14) (2)   (343)
       
      Sales by geographic area            
      Asia 125 462       587
      North America 162 12       174
      Latin America 61 2       63
      Europe 213 82       295
      Others 18         18
      Export sales 579 558       1,137
      Domestic sales 4,766 132 306 44 (44) 5,204
      Total 5,345 690 306 44 (44) 6,341

      Intersegment sales in 2007 occurred from logistics to steel segments, in 2008, US$11 was from logistics to steel and US$171 was from mining to steel segment. In 2009, US$1 was from logistics to cement, US$11 was from steel to cement, US$ 11 was from mining to steel and US$21 was from logistics to steel.

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      20 Transactions with related parties

      The transactions with related parties, relating primarily to purchases and sales in the ordinary course of business and other intercompany operations, resulted in the following balance sheet and income statement amounts.

      The balances at December 31, 2007, 2008 and 2009 and transactions for the years ended December 31, 2007, 2008 and 2009 with related parties are as follows:

       2007 
       
        Assets   Liabilities   Revenues   Expenses 
      MRS Logística 48  8    139 
      Ita Energética 2  6    59 
      CFN/Transnordestina 151    8   
      CBS – prepaid pension cost 138      2 
      Fundação CSN       7 
      Total 339  14  8  207 
       
       
       2008 
       
        Assets   Liabilities   Revenues   Expenses 
      MRS Logística 16  1    259 
      Ita Energética 1  5    67 
      CFN/Transnordestina 3    8   
      Nacional Minérios 241  3,154     
      NMSA Madeira 500       
      CSN Islands VI 39       
      CBS – accrued pension cost   84    61 
      Fundação CSN       2 
      Total 800  3,244  8  389 
       
       
       
       2009 
       
        Assets   Liabilities   Revenues   Expenses 
       
      MRS Logística 18  6    182 
      Ita Energética 3  8    68 
      Nacional Minérios 961  4,393  308  511(1) 
      Namisa Europe 3  5     
      CBS – prepaid pension cost 245      49 
      Fundação CSN       1 
       
      Total 1,230  4,412  308  811 

      (1)  US$450 of the total amount refers to interest on the prepayment agreements for port services and iron ore supplies entered into at the end of 2008, which was recorded in financial income (expense), net in the statements of income, and US$61 refers to sales of products, which was recorded in costs of goods sold in the statements of income. 

      21 Derivatives and financial instruments

      21.1 General description and accounting practices

      Most of the Company’s revenues are denominated in Brazilianreais. As of December 31, 2008 and 2009, US$4,039 and US$4,590, respectively, of the Company’s debt was denominated in foreign currencies, which includes short and long-term debt and accrued finance charges. Accordingly, the Company is exposed to market risk from changes in foreign exchange rates and interest rates. The Company manages risk arising from fluctuations in currency exchange rates, which affect the amount of Brazilianreaisnecessary to pay foreign currency denominated obligations, by using derivative financial instruments, primarily cross-currency swaps with financial institutions.

      While such instruments reduce the Company’s foreign exchange risks, they do not eliminate them. The credit risk exposure is managed by restricting the counterparties on such derivative instruments to major financial institutions with high credit quality. Therefore, the Company’s management believes that the risk of nonperformance by the counterparties is remote.

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      The Company’s contracts do not meet the accounting criteria to qualify as hedges of an exposure to foreign currency or interest rate risk. Therefore, the Company has accounted for the derivative transactions by calculating the unrealized gain or loss at each balance sheet date, and changes in the fair value of all derivatives are recorded in the statements of income.

      As of December 31, 2009, the consolidated position of outstanding derivative agreements was as follows:

      AgreementMarket value
      MaturityNotional Amount
      Foreign exchange arrangements
      From Jan 4 to 
      Foreign Exchange swaps (contracted by exclusive funds) March 5, 2010 US$1,520 (US$25) 
      Exchange rate futures agreements (realx U.S. dollar ) Feb, 2010 US$650 - 
      Interest rate arrangements
      Interest swaps Libor x CDI (registered with CETIP) Feb 12, 2010 US$150 (US$1) 

      21.2 Detailed transactions

      a) Foreign exchange arrangements

      Foreign exchange swap agreements (U.S. dollars)

      The Company entered into cross-currency swap agreements (intended to protect the Company from the effect that a devaluation of therealwould have in its liabilities denominated in foreign currency). Basically, the Company swapped its indebtedness index from the U.S. dollar to the interbank deposit certificate-CDI. The gains and losses from these contracts are directly related to exchange (dollar) and CDI fluctuations. These transactions are related to operations in the Brazilian over-the-counter market, primarily having first-tier financial institutions as counterparts, contracted within exclusive investment funds. The notional amount of these swaps aggregated as of December 31, 2009 was US$1,520 (US$1,530 as of December 31, 2008). The contracts outstanding at December 31, 2007, 2008 and 2009 were as follows:

        Maturity  Market Value
      Issued date  date  2007  2008  2009 
      05/16/07  01/02/08  (58.8)    
      05/16/07  01/02/08  (15.2)    
      05/16/07  01/02/08  (7.3)    
      05/16/07  01/02/08  (7.3)    
      05/16/07  01/02/08  (29.4)    
      09/03/07  01/02/08  (6.0)    
      09/03/07  01/02/08  (5.8)    
      09/24/07  01/02/08  (13.1)    
      03/18/08  03/16/09    4.7  
      07/29/08  07/24/09    18.8  
      07/30/08  07/27/09    9.4  
      08/05/08  07/31/09    6.2  
      08/08/08  08/03/09    2.9  
      08/18/08  08/13/09    28.8  
      08/19/08  08/14/09    27.0  
      08/29/08  08/24/09    14.5  
      10/01/08  07/24/09    18.7  
      10/24/08  04/20/09    0.3  
      11/21/08  11/16/09    (1.5)  
      11/27/08  11/19/09    0.6  
      11/28/08  12/11/09    0.1  
      12/01/08  01/02/09    (1.1)  
      12/03/08  12/11/09    (0.3)  
      12/08/08  11/30/09    (1.7)  
      12/16/08  12/11/09    (0.1)  
      12/01/09 and 03/12/09  01/04/10 and 05/03/10      (21.0)
      11/27/09 and 12/01/09  01/04/10      (2.7)
      11/30/09 and 12/01/09  01/04/10      (1.3)
      12/01/09  01/04/10      (0.4)
          (142.9) 127.3 (25.4)

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      The changes in the fair value of the aforementioned contracts were recorded in financial income (expense), net in the statement of income.

      Exchange rate futures agreements (realx U.S. dollar)

      The Company entered into future currency agreements (intended to protect the Company from the effect that a devaluation of therealwould have in its liabilities denominated in foreign currency). The Company may purchase or sell commercial U.S. dollar futures contracts on the Commodities and Futures Exchange (BM&F) to mitigate the foreign exchange exposure of its liabilities in U.S. dollar. The specifications of therealto U.S. dollar exchange rate futures contract, including detailed explanation on the contracts’ characteristics and calculation of daily adjustments, are published by BM&F. As of December 31, 2009, the Company had a long position in its exclusive investment fund in the amount of US$649. During the period, the Company paid US$701 and received US$585, resulting in a loss of US$116. Gains and losses from these agreements were directly related to foreign exchange fluctuation and were recorded in financial income (expense), net in the stat ement of income.

      b) Interest rate arrangements

      Interest swaps arrangements (Libor x CDI)

      The purpose of these transactions is to hedge liabilities indexed to US Dollar Libor from Brazilian interest rate fluctuations. The Company has basically executed swaps of its liabilities indexed to Libor, in which it receives interest of 1.25% p.a. on the notional value in dollar (long position) and pays 96% of the Interbank Deposit Certificate – CDI on the notional value in Reais on the date of the contracting (short position). The notional value of these swaps as of December 31, 2009 was US$150,000 thousand, hedging an export pre-payment operation in the same amount. The gains and losses from these contracts are directly related to exchange (dollar), Libor and CDI fluctuations, and were recorded in financial income (expense), net in the statement of income. They are related to operations in the Brazilian over-the-counter market, in general, having first-tier financial institutions as counterparts.

      c) Other arrangements

      Equity swap agreements

      The contracts outstanding at December 31, 2007 which were settled in September 2008 were as follows:

      Issued date  Maturity date  Notional amount  Receivable  Payable  Market value 
       
      04/07/03  09/05/08  35.8  644.9  (52.6) 591.5 
      04/09/03  09/05/08  5.6  100.5  (8.3) 92.2 
      04/10/03  09/05/08  2.0  36.1  (2.9) 33.2 
      04/11/03  09/05/08  1.0  18.6  (1.5) 17.1 
      04/28/03  09/05/08  1.1  17.8  (1.6) 16.2 
      04/30/03  09/05/08  0.1  1.3  (0.1) 1.2 
      05/14/03  09/05/08  0.2  3.3  (0.3) 3.0 
      05/15/03  09/05/08  0.4  7.5  (0.6) 6.9 
      05/19/03  09/05/08  1.0  19.0  (1.5) 17.5 
      05/20/03  09/05/08  0.3  4.9  (0.4) 4.5 
      05/21/03  09/05/08  0.4  8.1  (0.6) 7.5 
      05/22/03  09/05/08  0.3  6.4  (0.5) 5.9 
      05/28/03  09/05/08  0.4  8.3  (0.6) 7.7 
      05/29/03  09/05/08  0.4  7.8  (0.6) 7.2 
      06/05/03  09/05/08  0.1  1.8  (0.1) 1.7 
      Total    49.1  886.3  (72.2) 813.3 

      These swap agreements were related to 59,368,800 (post split) of the Company’s ADRs and were intended to enhance the return of CSN's financial assets by adding exposure to equity securities that historically yield higher long-term returns than fixed income assets, hence diminishing the impact of the cost of carry of CSN's long-term debt in the net consolidated financial expenses. The maturity of these agreements was on September 5, 2008 and the financial settlement was on September 8, 2008 resulting in proceeds of US$1,006.

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      On September 5, 2008, the Company entered into a new total return equity swap agreement. The agreement outstanding at December 31, 2008, was as follows:

      Issued date  Maturity date  Notional amount  Receivable  Payable  Market value 
      09/05/08  09/10/09  1,050.8  380.2  (1,065.4) (685.1)

      This swap agreement, which was entered into without cash and having as counterparty Goldman Sachs International, was pegged to 59,368,800 (post split) American Depositary Receipts (“ADR”) of Companhia Siderúrgica Nacional (purchased) and Libor of 3 months + spread of 0.75% p.a. (sold). The gains and losses from this agreement were directly related to foreign exchange fluctuations, the Company’s ADRs and Libor quotation. The fair value of this agreement was recorded in derivative liabilities in the balance sheet, and the change in fair value was recorded in financial income (expense), net in the statement of income.

      In addition to the loss on this agreement between September 5 and December 31, 2008, in the amount of US$685, the Company recorded a gain in the previous agreement, throughout 2008, in the amount of US$155, resulting in a net loss of US$530.

      The Company was required to maintain a deposit related to the guarantee margin with the counterparty and, at December 31, 2008, this margin totaled US$1,059 and was daily remunerated by the FedFund rate. Due to the temporary restriction as to withdrawal of this deposit, this amount had not been included as cash and cash equivalents.

      On August 13, 2009, the Company pre-settled the total return equity swap operation contracted as of September 5, 2008, as approved by the Board of Directors on July 8, 2009. The contracts outstanding at December 31, 2008 which were settled in August 2009 were as follows:

      Issued date  Maturity date  Notional amount  Receivable  Payable  Market value 
      09/05/08  09/10/09  1,050.8  684.6  (970.5) (285.9)

      Despite this operation’s accumulated losses from September 5, 2008 up to the date of its settlement, in the amount of US$286 (R$570), during 2009 the operation generated a gain totaling US$515 (R$1,026), which was recorded in financial income (expense), net in the statement of income.

      The gains and losses from this contract were directly related to foreign exchange fluctuations, the Company’s ADRs and Libor quotation. The fair value of this agreement was recorded in derivative liabilities in the balance sheet, and the change in fair value was recorded in financial income (expense), net in the statement of income. The guarantee margin with the counterpart in the amount of US$593 was released on the operation settlement date.

      Metals swap agreements

      Throughout 2007, the Company contracted Zinc swaps to set the price of part of its Zinc needs. Up to December 31, 2007, the Company maintained 5,000 tonnes of Zinc with settlement based on average Zinc prices from September to December 2007. The price used for the settlement of each agreement is the average price during the calendar month prior to the date of its settlement. They are generally agreements in the Brazilian over-the-counter market with first-tier financial institutions as counterparties. All agreements were settled in January 2008 with a realized gain of US$ 35 thousand (R$62 thousand).

      21.3 Fair value of financial instruments, other than derivatives

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Excluding the financial instruments presented in the table below, the Company considers that the carrying amount of its financial instruments generally approximates fair market value due to the short-term maturity or frequent repricing of these instruments, and the fact that non-indexed instruments are stated at present value.

      The financial instruments recorded in the Company’s balance sheets as of December 31, 2008 and 2009, in which fair value differs from the book value, are as follows:

        Book Value Fair Value
         2008   2009   2008   2009 
      Loans and financing (current portion and long- term)  4,732  7.771  4,627  7.966 

      The amounts presented as “fair value” were calculated according to the conditions that were used in local and foreign markets at December 31, 2009, for financial transactions with identical features, such as: volume and term of the transaction and maturity dates. Mathematical methods are used presuming there is no arbitrage between the markets and the financial assets. Finally, all the transactions carried out in non-organized markets (over-the-counter market) are contracted with financial institutions previously approved by the Company’s Board of Directors.

      (a) Exchange rate risk

      Although most of the Company’s revenues are in Brazilianreais, as of December 31, 2009, US$4,590 of the Company’s consolidated loans and financing were denominated in foreign currency (US$4,039 as of December 31, 2008). As a result, the Company is subject to changes in exchange rates and manages the risk of these rate fluctuations to the value in Brazilianreaisthat will be necessary to pay the liabilities in foreign currency, using derivative financial instruments, mainly futures contracts, swaps and forward contracts and foreign exchange option agreement, as well as investing of a major part of its cash and funds available in securities remunerated based on U.S. dollar exchange variation.

      (b) Credit risk

      The credit risk exposure with financial instruments is managed through the restriction of counterparties in derivative instruments to large financial institutions with high quality of credit. Thus, management believes that the risk of non-compliance by the counterparties is not significant. The selection of customers as well as the diversification of its accounts receivable and the control on sales financing terms by business segment are procedures that CSN adopts to minimize occasional problems with its trade partners. Since part of the Company’s funds available is invested in the Brazilian government bonds, there is exposure to the credit risk with the government.

      22 Fair value measurement

      SFAS 157, Fair Value Measurements - FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 - FASB ASC Topic 820 are described below:

      Level 1

      Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

      Level 2

      Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

      Level 3

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

      The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by SFAS 157 - FASB ASC Topic 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement

       Fair value at December 31, 2008 
       Level 1  Level 2  Level 3  Total 
      Assets        
      Cash equivalents -  3,444  -  3,444 
      Derivatives -  127  -  127 
       -  3,571  -  3,571 
      Liabilities        
      Derivatives -  686  -  686 
       
       
       Fair value at December 31, 2009 
       Level 1  Level 2  Level 3  Total 
      Assets        
      Cash equivalents -  3,901  -  3,901 
      Long-term investments 184  -  -  184 
       184  3,901  -  4,085 
      Liabilities        
      Derivatives -  26  -  26 

      The Company’s cash equivalent instruments are classified within Level 2 of the fair value hierarchy because they are related essentially to banks and short-term investments with maturity of three months and CDB (Bank Certificates of Deposit), with post fixed interest rates and no penalty in case of withdrawal.

      The long-term investments are classified within Level 1 of the fair value hierarchy because they are related to an investment in Riversdale Mining Limited, a mining company with shares listed on the Australia Stock Exchange.

      Our derivative instruments are comprised of foreign exchange swaps, equity swaps and interest swaps and all are classified within Level 2 of the fair value hierarchy since, even though we may obtain all the variables from official external sources, fair value measurement needs to be composed using pricing models generally used to value similar instruments. Where possible, the Company verifies the values produced by its pricing models to market prices. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, risk-free interest rates, credit spreads, measures of volatility, and correlations of such inputs. Our derivatives trade in liquid markets and, as such, model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value measurement.

      The Company manages its nonperformance risk by restricting the counterparties to prime and major institutions with high credit quality. Accordingly, the Company believes its nonperformance risk is remote.

      From the Company’s perspective, as the retail market is the principal market in which the Company transacts its financial instruments, in the case the Company transfers its rights and obligations, it would do so with financial institutions in that market. In that case, the transactions price represent the fair value to the Company at initial recognition, that is, the price that the Company would receive or pay to sell or transfer the financial instruments in transactions with the financial institutions in the retail market (exit price). For post-measurement purposes, the fair value of the financial instruments is the price that the Company would receive or pay to sell or transfer the financial instruments in transactions with the financial institutions in the retail market (exit price) dealt at the balance sheet date.

      23 Financial income (expenses), net

      The breakdown of the financial results, for the years ended December 31, 2007, 2008 and 2009, are represented below:

         2007   2008   2009 
      Derivatives  416  125  (44)
      Interest Income  79  100  256

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      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      Interest Expense  (680) (550) (934)
      Other financial income (expenses), net  (34) (55) (149)
        (219) (380) (871)

      Derivatives include contracts not held for trading purposes which upon settlement are presented on a net basis. Management considers the facts and circumstances of these contracts and applies EITF 03-11 – “Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not “Held for Trading Purposes” as Defined in Issue No. 02-3”,included in ASC Subtopic 815-10 to determine the basis of presentation for these instruments.

      24 Insurance coverage

      Aiming to properly mitigation risk and in view of the nature of its operations, the Company and its subsidiaries took out several different types of insurance policies. The policies are taken out in line with the Risk Management policy and are similar to insurance taken out by other companies operating in the same segment as CSN and its subsidiaries. The coverage of these policies include: National Transportation, International Transportation, Carrier Civil Responsibility, Import, Export, Life and Personal Accidents Insurance, Health, Vehicle Fleet, D&O (Administrator Civil Responsibility Insurace), General Civil Responsibility, Engineering Risks, Sundry Risks, Export Credit, Guarantee Insurance and Port Operator Civil Responsibility.

      The Company also renewed the Property Damage and Business Interuption insurance to its entities and subsidiaries with the following exceptions: Usina Presidente Vargas, Casa de Pedra, Mineração Arcos, CSN Paraná, Terminal de Carvão TECAR (it has Property Damage), which are under negotiation with insurance and reinsurance companies in Brazil and abroad in order to obtain, place and pay these other insurance policies.

      The risk assumptions adopted, given their nature, are not part of the scope of a financial statements audit, and, consequently, they were not audited by our independent auditors.

      25 Subsequent events

      The Company has evaluated subsequent events from the date of the balance sheet through the date at which the financial statements are issued, and determined there are no other items to disclose in addition to the following items:

      (a) Additional acquisition of minority interest in Panatlântica S.A.

      On January 6, 2010, the Company acquired a minority interest in the capital stock of Panatlântica S.A., a listed corporation whose main activity is the manufacturing, sale, import, export and processing of steel and metals.

      This acquisition comprised the purchase of eight hundred two thousand, sixty-nine (802,069) common shares representing 9.3963% of Panatlântica’s total capital stock.

      (b) Merger of subsidiary GalvaSud S.A

      On January 29, 2010, CSN merged subsidiary GalvaSud S.A., given the resemblance between the activities performed by both companies. The equity merger resulted in the optimization of processes and maximization of results, by concentrating both companies’ selling, operating and administrative activities in one single organizational structure.

      (c) Public offering for the Acquisition of Cimpor – Cimentos de Portugal, SGPS, S.A.

      On December 18, 2009, the Company disclosed a preliminary announcement of the launching of a direct or indirect acquisition public offering by CSN of shares issued by Cimpor – Cimentos de Portugal, SGPS, S.A. (“CIMPOR”), whose shares are traded on Euronext Lisboa (“Offering”). The Offering was registered and its corresponding launching

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      Table of Contents

      Companhia Siderúrgica Nacional and Subsidiaries
      Notes to the Consolidated Financial Statements 
      Expressed in millions of United States dollars, except share and per share data and unless otherwise stated 

      announcement was disclosed on January 27, 2010 and, on February 12, 2010, the amendment of certain conditions of the Offering was announced.

      On February 23, 2010, at a special Euronext Lisboa session, it was stated that, having established at the offering prospect an effectiveness condition based on the acquisition of, at least, 1/3 of Cimpor’s shares plus one, and, having not met such condition, no securities were acquired in the Offering.

      (d) Acquisition of minority interest in Riversdale Mining Limited

      On January 8, 2010, the Australian authorities allowed the Company to conclude the second stage of acquisition of 2,482,729 capital stock shares of Riversdale Mining Limited (“Riversdale”), for the price of six Australian dollars and ten cents (A$6.10) per share. The second acquisition stage was concluded on January 13, 2010, and CSN reached, indirectly, the total interest of 16.29%, corresponding to 31,233,327 shares of Riversdale’s capital stock.

      (e) Stock split

      During the Extraordinary General Meeting held on March 25, 2010, the stockholders approved the split of the number of shares representing the Company’s capital stock, and accordingly each share of the capital stock became 2 shares after the split. Accordingly, the shares and basic and diluted earnings per share have been adjusted retrospectively for all periods presented to reflect that change in the capital structure. The maintenance of the ratio share/ADR (American Depositary Receipt) at 1/1 was approved, and each ADR will continue to be represented by one share.

      (f) Securitization program accumulation event

      CSN Export S.à.r.l., a whole owned subsidiary of CSN, recorded in the 26thquarter of its securitization program, insufficient export level to meet certain coverage indicators provided for export contracts in the program (coverage ratios), which resulted in an accumulation event. This fact was due to the sharp reduction in sales margins for steel products in foreign markets in relation to the margins observed in the internal market, and certain measures (such as the inclusion of receivables from the export of iron ore in the Securitization Program) are now being taken by Company to remedy the situation in the near term. The accumulation event is merely a temporary routing resource (up to an amount equivalent to twice the debt service) to an account administered by the custodian bank until such event is remedied. This is not characterized, therefore, as an event of default and generates no consequences for other contracts of the Company and it’s financial po sition as of December 31, 2009.

      (g) New Financing Contracted

      On February 9, 2010, the Company contracted a new financing from Caixa Econômica Federal under its Special Credit for Large Companies, in the form of a bank credit bill amounting to US$529 (R$1 billion translated at the exchange rate as of the date of the transaction) to be amortized in 36 (thirty-six) months and bear interest of 113.5% per annum of CDI with a maturity date in 2013.

      (h) New Financing Contracted

      On May 21, 2010, the Company entered into a new export financing contract from Banco do Brasil S.A. in the total amount of US$1.1 billion (R$2 billion translated at the exchange rate as of date of the transaction) which bear interest rate 110,79% of CDI per annum with a maturity date in 2018.

      * * *

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      Table of Contents

      Nacional Minérios S.A.
      and its subsidiaries

      Consolidated financial
      statements December 31, 2009 and 2008

      Table of Contents

      Nacional Minérios S.A.

      Consolidated financial statements

      December 31, 2009 and 2008

      Contents
      Independent auditors’ report 3 
      Consolidated balance sheets 4 
      Consolidated statements of income 5 
      Consolidated statements of changes in shareholders’ equity 6 
      Consolidated statements of cash flows 7 
      Notes to the consolidated financial statements 8 - 37 

      Table of Contents

      Independent auditors’ report

      To the Board of Directors of
       Nacional Minérios S.A.

      We have audited the accompanying consolidated balance sheets of Nacional Minérios S.A. (“Company”) and its subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nacional Minerios S.A. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

      KPMG Auditores Independentes

      São Paulo, SP - Brazil

      May 21, 2010

      FS - R1 

      Table of Contents

      Nacional Minérios S.A.

      Consolidated balance sheets

      As ofDecember31, 2009 and 2008

      (In thousand of Reais, unless otherwise indicated)

      Assets  Note  2009  2008  Liabilities and shareholders’ equity  Note  2009 2008
       
      Current assets        Current liabilities     
        Cash and cash equivalents  5  1,579,171  1,325,978    Trade accounts payable     
        Trade accounts receivable            Related parties    42,719 188,201 
          Related parties  6 e 13  60,499  3,272      Other    21,414 34,019 
          Other  6  165,668  129,038    Payroll and related charges    7,180 2,874 
        Inventories  7  187,335  246,541    Taxes payable    26,525 1,772 
        Taxes recoverable    44,007  -    Due to related parties  13  37,616 1,176,686 
        Due from related parties  13  186,729  90,831    Dividends payable    217,818 49,783 
        Deferred income taxes  4  284,037  51,731    Advances from customers    21,448 49,347 
        Other  13  28,537  47,492    Contractual obligations  11  2,129 44,135 
                Other    7,087 12,578 
       
          Total current assets    2,535,983  1,894,883       Total current liabilities    383,936 1,559,395 
              Noncurrent liabilities     
      Noncurrent assets             
        Long-term investments  8  171,760  171,760    Accrual for tax contingencies  11  5,109 5,109 
        Property, plant and equipment  9  1,169,751  1,175,453    Deferred income taxes  4  - 344,156 
        Other assets          Due to related parties  13  1,465,945 359,898 
          Due from related parties  13  7,511,130  7,274,958    Other    2,710 5,104 
          Deferred income taxes  4  651,224  -        
          Other    20,337  40,038       
       
          Total noncurrent assets    9,524,202  8,662,209       
                   Total noncurrent liabilities    1,473,764 714,267 
              Shareholders’ equity     
       
                Common shares  10   
                  Common stock - 475,067,405 shares authorized, issued and outstanding at     
                  December 31, 2009 (475,052,685 at     
                  December 31, 2008), with no par value    1,173,954 1,173,692 
                Additional paid-in capital  10  8,099,745 6,707,886 
       
                Retained earnings     
                  Appropriated  10  588,577 130,013 
                  Unappropriated  10  373,847 185,464 
                Accumulated other comprehensive (loss) income    (33,638) 86,375 
                  
                  Total shareholders’ equity    10,202,485 8,283,430 
                  
           Total assets    12,060,185  10,557,092      Total liabilities and shareholders’ equity    12,060,185 10,557,092 

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

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      Nacional Minérios S.A.

      Consolidated statements of income

      For the Years ended December 31, 2009 and 2008

      (In thousand of Reais)

        Note  2009  2008 
      Operating revenues       
        Domestic sales    43,973  35,704 
        Export sales    1,430,636  1,034,134 
       
          1,474,609  1,069,838 
      Sales taxes    (7,633)  (7,501) 
      Discounts, returns and allowances    (1,649)  (420) 
       
      Net operating revenues    1,465,327  1,061,917 
      Cost of goods sold    (951,645)  (562,074) 
       
      Gross profit    513,682  499,843 
       
      Operating income (expenses)       
        Selling expenses  14  (332,538)  (114,959) 
        General and administrative  14  (27,246)  (10,291) 
        Other income (expenses), net  14  71,647  (43,145) 
       
          (288,137)  (168,395) 
       
      Operating income    225,545  331,448 
       
      Financial income  15  1,017,588  1,732 
      Financial expenses  15  (132,899)  (21,624) 
      Foreign exchange and monetary gain (loss), net    138,519  (138,853) 
       
       
          1,023,208  (158,745) 
       
      Income from continuing operations before income taxes    1,248,753  172,703 
       
      Income taxes       
        Current  4  (170,019)  (20) 
        Deferred  4  (164,185)  110,330 
       
          (334,204)  110,310 
       
      Net income    914,549  283,013 

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

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      Table of Contents

      Nacional Minérios S.A.

      Consolidated statements of changes in shareholders’ equity

      For the Years ended December 31, 2009 and 2008

      (In thousand of Reais, except for share data)

        2009  2008 
      Changes in common shares (number of shares)     
      Balance, beginning of period  475,052,685  30,000 
      Issuance of common shares  14,720  475,022,685 
       
      Balance, end of period  475,067,405  475,052,685 
       
      Common share     
      Balance, beginning of period  1,173,692  30,000 
      Paid-in capital  262  1,143,692 
       
      Balance, end of period  1,173,954  1,173,692 
       
      Additional paid-in capital     
      Balance, beginning of period  6,707,886   
      Change in the period  1,391,859  6,707,886 
       
      Balance, end of period  8,099,745  6,707,886 
       
      Retained earnings     
      Appropriated     
      Investment reserve     
      Balance, beginning of period  118,050  29,025 
      Transfer from unappropriated retained earnings  412,708  89,025 
       
      Balance, end of period  530,758  118,050 
       
      Legal reserve     
      Balance, beginning of period  11,963  2,037 
      Transfer from unappropriated retained earnings  45,856  9,926 
       
      Balance, end of period  57,819  11,963 
       
      Unappropriated     
      Balance, beginning of period  185,464  51,185 
      Net income for the period  914,548  283,013 
       
      Dividends distribution (R$0.5633 per share in 2009 and R$0.1048 per share in 2008)  (267,601)  (49,783) 
      Appropriation to reserves  (458,564)  (98,951) 
       
      Balance, end of period  373,847  185,464 
       
      Total retained earnings  962,424  315,477 
       
      Accumulated other comprehensive income (loss)     
      Cumulative translation adjustment     
      Balance, beginning of period  86,375   
      Change in the period  (120,013)  86,375 
       
      Balance, end of period  (33,638)  86,375 
       
      Total accumulated other comprehensive income (loss)  (33,638)  86,375 
       
      Total shareholders’ equity  10,202,485  8,283,430 
       
      Comprehensive income     
      Net income for the period  914,548  283,013 
      Translation adjustments for the period  (120,013)  86,375 
       
      Total comprehensive income  794,535  369,388 

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

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      Nacional Minérios S.A.

      Consolidated statements of cash flows

      For the Years ended December 31, 2009 and 2008

      (In thousand of Reais)

        2009  2008 
      Cash flows from operating activities     
      Net income for the period  914,548  283,013 
      Adjustments to reconcile net income for the periodto net cash provided by (used in) operating activities     
      Depreciation and amortization  70,788  69,671 
      Foreign exchange and monetary (gain) loss, net  (215,549)  138,853 
      Interest accrued  (776,210)  19,495 
      Deferred income taxes  164,185  (110,330) 
      Other  (45,635)  19,929 
       
      (Increase) decrease in operating assets     
      Trade accounts receivable  (92,368)  (99,477) 
      Inventories  73,667  (202,344) 
      Due from related parties  23,224  (7,344,521) 
      Interest received  279,528  - 
      Other  17,498  (60,047) 
       
      Increase (decrease) in operating liabilities     
      Trade accounts payable  98,336  175,180 
      Taxes payable  2,568  (3,386) 
      Other  (52,795)  36,814 
       
      Net cash provided by (used in) operating activities  461,785  (7,077,150) 
       
      Cash flows from investing activities     
      Net assets merged  105  - 
      Additions to property, plant and equipment  (67,217)  (26,126) 
       
      Net cash used in investing activities  (67,112)  (26,126) 
       
       
      Cash flows from financing activities     
      Due to related parties - intercompany loans  1,197,800  1,158,067 
      Capital increase  157  578,268 
      Additional paid-in capital  -  6,707,886 
      Repayments  (1,171,784)  - 
      Interest paid  (68,088)  (18,966) 
      Dividends paid  (99,565)  - 
       
      Net cash provided by (used in) financing activities  (141,480)  8,425,255 
       
      Increase in cash and cash equivalents  253,193  1,321,979 
      Cash and cash equivalents, beginning of period  1,325,978  3,999 
       
      Cash and cash equivalents, end of period  1,579,171  1,325,978 
       
      Cash paid during for the period     
      Interest  68,088  18,966 
      Income taxes  107,909  - 
       
      Supplemental cash flow information:     
      Dividends used for capital increase    9,674 
      Ownership interest in MRS contributed by CSN to Namisa    171,760 
      Tax credit from BJE merger  1,391,859   
      Interest receivable used for offsetting accounts payable  266,318   
      Dividends payable  217,818  49,783 

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

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      Nacional Minérios S.A.

      Notes to the consolidated financial statements

      As of December 31, 2009 and for the two-year period then ended

      (In thousand of Reais, unless otherwise stated)

      1 The Company and its operations

      Nacional Minérios S.A. (“Namisa” or “the Company”) was incorporated in November 2006 for the purpose of selling iron ore extracted from its own mines as well as acquired from third parties. Its sales are mainly directed to the foreign market and its operations are developed in the Municipalities of Congonhas, Ouro Preto, Itabirito, Rio Acima and Nova Lima, in the State of Minas Gerais, and in Itaguaí, in the State of Rio de Janeiro.

      In July 2007, Namisa acquired 100% of Companhia de Fomento Mineral e Participações S.A. (“CFM”), a mining company located in the State of Minas Gerais with an annual capacity of production of 6 million tons of iron ore. On March 30, 2008, CFM’s net equity was merged into Namisa.

      In April 2008, Namisa acquired at book value from a related party,100% of Namisa International SL, former Inversiones CSN Espanha SL, which controls Namisa Europe Lda., former NMSA Madeira Lda. (“NMSA”). NMSA’s activities are sales of iron ore, financial operations and participation in other companies. These entities did not have any material assets or liabilities at the time of the acquisition.

      In November 2008, Namisa’s shareholder, Companhia Siderúrgica Nacional (“CSN”), contributed 10% of its ownership in MRS Logística’s non-convertible preferred shares Class A in the amount of R$171,760 to the Company, in accordance with a Bonus of Subscription and Assessment Report on the shares issued by MRS.

      In December 2008, CSN sold 2,271,825 shares of Namisa’s voting capital to Big Jump Energy Participações S.A. (“Big Jump” or “BJE”), whose shareholders are Brazil Japan Iron Ore Corporation (“BJIOC”) and Pohang Iron and Steel Company (“Posco”). Subsequently, Namisa issued new shares which were fully subscribed and paid-up in cash by Big Jump, in the amount of US$3,041,473 thousand, equivalent to R$7,286,154, of which R$578,268 refers to a capital increase and R$6,707,886 refers to premium on the issuance of new shares (additional paid-in capital).

      On July 30, 2009 Big Jump was merged into Namisa and as a result, Namisa’s capital increased to R$1,173,954, represented by 475,067,405 shares, of which 285,040,443 shares are owned by CSN, 159,242,336 shares are owned by BJIOC and 30,784,626 shares are held by Posco. As a result of the BJE merger, the goodwill of R$4,093,703 recognized by BJE upon its acquisition of Namisa on December 30, 2008 generated a tax credit of R$1,391,859 to be realized in 60 months, beginning August 2009. This tax credit was considered to be a capital transaction and, accordingly, an additional paid-in capital of an equal amount was recognized at the date of the merger. The tax credit started being realized in August 2009 and as of December 31, 2009, R$115,988 had been realized against income as a deferred tax expense offset in a current income tax of the period for an equal amount; accordingly, no net effect in the statement of income arose from the tax credit recognized by Namisa upon the BJE merger.

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      Consolidation process

      The Company’s consolidated subsidiaries are:

      Investees 2009 2008 Main activities 
       
      Direct ownership:    
      MG Minérios S.A. 99.99% 99.99% Mining and holding company 
      Pelotização Nacional S.A. 99.99% 99.99% Mining and holding company 
      Namisa International SL (former Inversiones CSN Espanha SL) 100% 100% Financial operations, product
      sales and holding company 
       
      Indirect ownership:    
      Namisa Europe Lda. (former NMSA Madeira Lda.) 100% 100% Iron ore and steel products
      sales, financial operations and
      holding company 

      2 Summary of significant accounting policies and practices

      These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The Company prepared its first set of financial statements under US GAAP as of and for the year ended December 31, 2008.

      In preparing the consolidated financial statements in accordance with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. The Company’s consolidated financial statements therefore include various estimates concerning the selection of useful lives of property, plant and equipment, impairment of long-lived assets, allowance for doubtful accounts receivable, computation of fair value of assets and liabilities of Companies acquired and of derivative instruments, contingencies and environmental liabilities and other similar evaluations. Although these estimates are based on the Company’s knowledge of current events and actions that the Company may undertake in the future, actual results may vary from these estimates.

      The Accounting Standards Codification

      In June 2009, the Financial Accounting Standards Board (“FASB”) established theFASB Accounting Standards Codification(“ASC”) as the single source of authoritative GAAP to be applied by nongovernmental entities. The ASC is a new structure which took existing accounting pronouncements and organized them by accounting topic. Relevant authoritative literature issued by the Securities and Exchange Commission (“SEC”) and select SEC staff interpretations and administrative literature was also included in the ASC. All other accounting guidance not included in the ASC is non-authoritative. The ASC was effective for the Company’s interim quarterly period beginning July 1, 2009. The adoption of the ASC did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

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      a. Basis of presentation

      The consolidated financial statements have been prepared in accordance with US GAAP, which differ in certain respects from the statutory financial statements prepared in accordance with accounting practices adopted in Brazil.

      The Company's primary functional currency is theReal; also, the Company used as reporting currency theReal. The translation gain or loss to Brazilian Reais resulting from transactions of its offshore subsidiary Namisa Europe Lda., which the functional currency was considered to be the U.S. dollar, was included as a component of accumulated other comprehensive income (loss) in shareholders’ equity; its balance sheet was translated into Reais at the exchange rate prevailing on December 31, 2009 of US$1.00 to R$1.7412 (US$1.00 to R$2.3370 on December 31, 2008) and all accounts in the statement of income at the average exchange rates prevailing during the applicable periods. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the Brazilian real are included in the results of operations as incurred.

      Shareholders’ equity and net income included in the financial statements presented herein differs from that included in the Company’s statutory accounting records as a result of adjustments made to reflect the requirements of US GAAP.

      b. Basis of consolidation

      The consolidated financial statements include the financial statements of Nacional Minérios S.A. (“Namisa”) and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The financial information of all subsidiaries has been prepared in accordance with US GAAP.

      c. Cash and cash equivalents

      Cash equivalents are comprised of highly liquid temporary cash investments, mainly time deposits, with original maturity dates of three months or less, and certificates of deposits which may be withdrawn at any time at the discretion of the Company without penalty.

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      d. Trade accounts receivable

      Accounts receivable are stated at estimated realizable values. Allowance for doubtful accounts is recorded, when necessary, in an amount considered by management to be sufficient to cover probable future losses related to uncollectible accounts.

      e. Inventories

      Inventories are stated at the lower of average cost or replacement or realizable value. Cost is determined using the average cost method. Cost of finished products include the purchase cost of raw material and conversion costs such as direct labor and an allocation of fixed and variable overhead. Losses for slow-moving or obsolete inventories are recorded when considered appropriate.

      f. Long-term investments

      The Company accounts for long-term investments comprised of its participation in an investee’s outstanding voting stock classified as available-for-sale at cost.

      The Company uses the cost method of accounting for long-term investments for which the Company holds less than 20% of the outstanding voting stock and has no ability to exercise significant influence over operating and financial policies of the investee.

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      g. Property, plant and equipment

      Property, plant and equipment are recorded at cost, including capitalized interest incurred during the construction period of major new facilities. Interest capitalized in foreign currency borrowings excludes the effect of foreign exchange gain and losses. Depreciation is computed under the straight-line method at rates which take into consideration the useful lives of the related assets, as follows (average): buildings - 13 years; machinery and equipment – 6 years; furniture and fixtures - 7 years; and computer and peripherals - 4 years. Mining reserves are amortized based on the volume of iron ore extracted. Assets under construction are not depreciated until placed into service.

      Costs of developing iron ore and other mines or expanding the capacity of operating mines are capitalized and charged to operations based on the units-of-production method which considers the total quantity to be recovered. These costs have not been material for the two-year period presented herein.

      Maintenance and repair expenses are charged to the cost of production as incurred. Any gain or loss on the disposal of property, plant and equipment are recognized on disposal.

      h. Impairment of long-lived assets

      Management reviews long-lived assets to be held and used in the Company’s business activities for the purpose of determining and measuring impairment on a recurring basis or when events or changes in circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. Write-down of the carrying value of assets or groups of assets is made if and when considered appropriate. The carrying value of long-lived assets is considered impaired when the anticipated undiscounted cash flow from such asset is less than its carrying value.

      In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the assets. Fair value is determined primarily by using a discounted cash flow analysis. No impairment losses have been recorded for the periods presented.

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      i. Revenues and expenses

      Revenues and expenses are recognized on the accrual basis. Revenues from the sale of goods are recognized upon delivery to customers, when title is transferred and the customer has assumed the significant risks and rewards of ownership in accordance with the contractual terms. Revenue is not recognized if there are significant uncertainties as to its realization. The Company reflects sales taxes as a reduction of gross operating revenues.

      Handling and shipping expenses are classified in the statement of income as selling expenses. For the year ended December 31, 2009 those expenses amounted to R$318,411 (R$ 91,831 for the year ended December 31, 2008).

      j. Environmental and remediation costs

      The Company provides for remediation costs and penalties when a loss is probable and the amount of associated costs is reasonably determinable. Generally, the timing of remediation accrual coincides with completion of a feasibility study or the commitment to a formal plan of action.

      Expenditures relating to ongoing compliance with environmental regulations are charged to earnings or capitalized, as appropriate. Capitalization is considered appropriate when the expenditures relate to items that will continue to provide benefits to the Company and primarily pertain to the acquisition and installation of equipment for pollution control and/or prevention. These ongoing programs are designed to minimize the environmental impact of the Company’s operations and are also expected to reduce costs that might otherwise be incurred on cessation of mining activities.

      k. Accrual for contingencies

      The Company's contingencies were estimated by management and were substantially based upon known facts and circumstances, management's experience and the opinions of the Company's tax and legal advisors. The Company records accruals for contingencies for lawsuits which the Company classifies as probable risk of losses and the amount from the lawsuit can be reasonably estimated.

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      l. Income taxes

      Income taxes are accounted for under the asset and liability method. The effects of temporary differences between the tax basis of assets and liabilities and the amounts included in these financial statements have been recognized as deferred income taxes. Deferred taxes assets and liabilities are measured using enacted tax rates in effect for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period of the enactment date. Net operating loss carryforwards are recognized as deferred tax assets, and a valuation allowance is recorded when management believes it is not more likely than not that deferred tax assets will be fully recovered in the future.

      In accordance with FASB ASC 740-10, the Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

      The Company recognizes interest and penalties related to unrecognized tax benefits in interest expenses in the statement of income.

      m. Statement of cash flows

      Short-term investments that have a ready market and original maturity, when purchased, of 90 days or less and certificates of deposits which may be withdrawn at any time at the discretion of the Company without penalty are considered to be cash equivalents.

      FS - 14

      Table of Contents

      n. Earnings per share

      The Company presents its earnings per share in accordance with FASB ASC 260. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed in a manner consistent with that of basic earnings per share giving effect to all potentially dilutive common shares that were outstanding during the year. The Company does not have any potentially dilutive common shares outstanding and, accordingly, diluted earnings per share are equal to basic earnings per share.

      o. Concentration of credit risk

      Financial instruments that potentially subject Namisa to concentrations of credit risk are cash and cash equivalents and trade accounts receivable. Namisa limits its credit risk associated with cash and cash equivalents by placing its investments with highly-rated financial institutions. With respect to trade accounts receivable, Namisa limits its credit risk by performing ongoing credit evaluations and, depending on the results of the evaluation, requiring letters of credit, guarantees or collateral. Namisa’s iron ore is utilized in a wide variety of industry segments; however, accounts receivable and sales are primarily concentrated in the steel industry.

      p. Comprehensive income

      Reporting comprehensive income requires that companies report changes in the equity of a business enterprise during a period resulting from transactions and other events and circumstances from non-owner sources. The Company has reported comprehensive income for the period presented herein and has included a comprehensive income statement as part of the consolidated statements of changes in shareholders’ equity.

      q. Segment and geographic information

      FASB ASC 280 requires that a business enterprise supplementally disclose certain financial information about its various and distinct operating activities. Such information is to be presented from the point of view of how operating and financial decisions are made for each business sector. The Company operates in a single segment, which is the mining activity.

      r. Asset retirement obligations

      Retirement of long-lived assets is accounted for in accordance with the establishments of FASB ASC 410. Our retirement obligations consist primarily of estimated closure costs, the initial measurement of which is recognized as a liability discounted to present values and subsequently accreted through earnings. An asset retirement cost equal to the initial liability is capitalized as part of the related asset’s carrying value and depreciated over the asset’s useful life. As of December 31, 2009, we had recognized R$1,023 (R$1,746 in 2008) as asset retirement obligations related to our operations in the Fernandinho and Engenho mines.

      s. Fair value measurements

      In accordance with FASB ASC 820, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Also, a framework is established for measuring fair value and expands disclosures about fair value measurements (Note 15). We have not applied the provisions of FASB ASC 820 as of December 31, 2009 since we did not have nonfinancial assets and nonfinancial liabilities that were recognized or disclosed at fair value on a nonrecurring basis.

      FS - 15

      Table of Contents

      t. Fair value option

      Effective January 1, 2008, the Company adopted the provisions of FASB ASC 825-10-25. It gives the Company the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument-by-instrument basis, with changes in fair value reported in earnings. Fair value option has not been elected for any of the Company’s financial assets and liabilities.

      3 Recent accounting pronouncements

      a) Newly issued accounting pronouncements

      Accounting Standards Update (ASU) number 2010-06 Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 and are expected to provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The Company will adopt this update in 2010 and does not expect relevant impacts on fair value information currently disclosed.

      In June 2009, the Financial Accounting Standards Board (“FASB”) issued an amendment to Interpretation No. 46(R) on the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). Subsequently, in December 2009, the Accounting Standards Update (ASU) number 2009-17 Amendments to FASB Interpretation No. 46(R) was issued. The amendments replace the quantitative based risks and rewards calculation, for determining which reporting entity has a controlling financial interest in a VIE, with a qualitative analysis when determining whether or not it must consolidate a VIE. The newly required approach is focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. The amendments also require an enterp rise to continuously reassess whether it must consolidate a VIE. Additionally, the amendments eliminated the scope exception on qualifying special-purpose entities (“QSPE”) and require enhanced disclosures about: involvement with VIEs, significant changes in risk exposures, impacts on the financial statements, and, significant judgments and assumptions used to determine whether or not to consolidate a VIE. The Company will adopt these amendments in 2010. We are currently assessing the potential impacts of this pronouncement and do not expect major changes to the reported financial information.

      In June 2009, the “FASB” issued an amendment to the accounting and disclosure requirements for transfers of financial assets. Subsequently, in December 2009, the Accounting Standards Update (ASU) number 2009-16 Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140 was issued. The amendments improve financial reporting requiring greater transparency and additional disclosures for transfers of financial assets and the entity’s continuing involvement with them and also change the requirements for derecognizing financial assets. In addition, the amendments eliminate the exceptions for QSPE from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. The Company will adopt the amendments in 2010 and do not expect major effect to its financial statements.

      Accounting Standards Update (ASU) number 2009-08 Earning per share issued by the FASB provides additional guidance related to calculation of earnings per share. This guidance amends ASC 260.

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      The Company understands that the other recently issued accounting pronouncements that are not effective as of and for the year ended December 31, 2009 are not expected to be relevant for its consolidated financial statements.

      b) Accounting standards adopted in 2009

      Accounting Standards Update (ASU) number 2009-05 Fair value measurements and disclosures issued by the FASB provides additional guidance related to address the lack of observable market information to measure the fair value of a liability. This guidance amends ASC 820. It is effective after the issuance. The Company already adopts this statement.

      In June 2009, the FASB issued the FASB Accounting Standards Codification (Codification). The Codification became the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and does not have an effect on our financial position, results of operations or liquidity.

      In June 2009, we adopted a newly issued accounting standard for accounting and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The standard is effective for interim or annual periods ending after June 15, 2009. The Company already adopts this statement.

      In June 2009, we adopted a newly issued accounting standard for fair value of financial instruments which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This standard also requires these disclosures in summarized financial information at interim reporting periods. This standard became effective for interim reporting periods ending after June 15, 2009, and we have not opted for early adoption of this standard for the three-month period ended March 31, 2009. The application of this standard expanded the Company’s disclosures regarding the use of fair value. The required information is disclosed in Note 15.

      In January 2009, we adopted a newly issued accounting standard regarding disclosure of derivative instruments and hedging activities. As such, entities must now provide qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value gain and losses on derivative instruments and disclosures about credit-risk related contingent features in derivative agreements on a quarterly basis regarding how and why the entity uses derivatives, how derivatives and related hedged items are accounted for under the new standard and how derivatives and related hedged items affect the entity's financial position, performance and cash flows. The required information is disclosed in Note 16.

      In January 2009, we adopted a newly issued accounting standard that applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

      4 Income taxes

      Income taxes in Brazil comprise federal income and social contribution taxes (which is an additional federal income tax). The statutory rates applicable for the years presented herein are 25% for federal income tax and 9% for social contribution. The amounts reported as income tax expense in the consolidated financial statements for the two-year periods ended December 31, 2009 and 2008 are reconciled to the statutory rates as follows:

      FS - 17

      Table of Contents

         December 31, 2009 
       
       Brazil Abroad Total 
       
      Income before income taxes 1,178,312 70,440 1,248,752 
       
      Federal income and social contribution taxes    
      at statutory rates (34%) (400,626) (23,950) (424,576) 
       
      Adjustments to derive effective tax rate:    
      Nontaxable results from subsidiaries    
      or taxed at different rates - 23,950 23,950 
      Dividends received from investments at cost 18,521 - 18,521 
      Tax benefit from amortization of goodwill    
      recognized for tax purposes 47,208 - 47,208 
      Other permanent differences 693 - 693 
       
      Income taxes benefit (expense) (334,204) - (334,204) 
       
       
         December 31, 2008 
       
       Brazil Abroad Total 
       
      Income before income taxes (200,210) 372,913 172,703 
       
      Federal income and social contribution taxes    
      at statutory rates (34%) 68,071 (126,790) (58,719) 
       
      Adjustments to derive effective tax rate:    
      Nontaxable results from subsidiaries    
      or taxed at different rates - 126,790 126,790 
      Tax benefit from amortization of goodwill    
      recognized for tax purposes 39,340 - 39,340 
       
      Other permanent differences 2,899 - 2,899 
       
      Income taxes benefit (expense) 110,310 - 110,310 

      Income taxes benefit (expense) for the two-year periods ended December 31, 2009 and 2008 consists of:

       2009 2008 
       Current Deferred Total Current Deferred Total 
      Brazil (170,019) (164,185) (334,204) (20) 110,330 110,310 
      Abroad - - - - - - 
      Total (170,019) (164,185) (334,204) (20) 110,330 110,310 

      FS - 18

      Table of Contents

      For the period ended December 31, 2009, income from continuing operations before income taxes consists of the following:

      Brazil 1,178,312 
      Foreign 70,440 
      Total 1,248,752 

      The major components of deferred income tax accounts in the balance sheet as of December 31, 2009 and 2008 are as follows:

      Current assets 2009 2008 
      Tax loss carryforwards - 25,129 
      Expenses deductible when paid 5,665 18,282 
      Tax credit from amortization of BJE goodwill 278,372  
      Unrealized foreign exchange loss - 8,320 
       
      Current deferred tax assets 284,037 51,731 
       
       
      Noncurrent assets   
       
      Accrual for contingencies 1,087 1,087 
      Expenses deductible when paid 6,877 6,877 
      Tax credit from amortization of BJE goodwill 997,499 23,597 
       
      Noncurrent deferred tax assets 1,005,463 31,561 
       
      Total deferred tax assets 1,289,500 83,292 
      Noncurrent deferred tax liability   
      Property, plant and equipment 354,239 375,717 
       
      Total noncurrent deferred tax liability 354,239 375,717 

      As of December 31, 2009, the Company had fully realized its tax loss carryforwards and social contribution negative basis.

      No valuation allowance for deferred tax assets as of December 31, 2009 and 2008 was recognized since, in the judgment of management, tax credits are more likely than not to be realized in the near future. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

      The amount of taxable income necessary to be generated in order to fully realize the deferred tax asset recorded as of December 31, 2009 is approximate R$3,800,000 which is expected to be achieved by the end of 2013 (unaudited). In 2009, taxable income was of R$505,733. In future years the Company expects to generate higher taxable income due to the completion of the expansion projects and start-up of new industrial facilities as from 2011.

      FS - 19

      Table of Contents

      FASB ASC 740 provides guidance on recognition, classification and disclosure concerning uncertain income tax liabilities. The evaluation of a tax position requires recognition of a tax benefit if it is more likely than not it will be sustained upon examination. The Company adopted those provisions on January 1, 2007. The adoption of those provisions did not have a material impact on Namisa’s consolidated financial statements.

      Beginning with the adoption of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes,included in FASB ASC Subtopic 740-10 -Income Taxes - Overall, as of January 1, 2009, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Prior to the adoption of Interpretation 48, the Company recognized the effect of income tax positions only if such positions were probable of being sustained.

      The Company records interest and penalties related to unrecognized tax benefits in interest expense.

      There were no unrecognized tax benefits at beginning, during or end of the two-year period ended December 31, 2009 and the Company does not expect this situation will change significantly within the next twelve months.

      The Company and its subsidiaries file income tax returns in Brazil and in certain foreign jurisdictions. The Brazilian and Foreign tax returns are open to examination by the respective tax authorities since inception of the Company and its subsidiaries and will remain open to examination for a period of five years after the end of each fiscal year. Accordingly, tax years still open to examination by tax authorities are the fiscal years ending December 31, 2006 (year of incorporation of the Company), December 31, 2007, December 31, 2008 and December 31, 2009.

      As of December 31, 2009, the undistributed earnings of the Company’s foreign subsidiaries have been invested and will continue to be invested in their operations, having no presumption that they will be remitted to the parent company in the foreseeable future. These undistributed earnings of the Company’s foreign subsidiaries amounted to R$443,353 as of December 31, 2009 (R$372,913 as of December 31, 2008). If circumstances change and the Company decides to repatriate these undistributed earnings, the tax liability in lieu thereof will be generated in Spain at the rate of 15% and will amount to R$66,503.

      5 Cash and cash equivalents

      Cash and cash equivalents as of December 31, 2009 and 2008 were composed as follows:

       2009 2008 
      Cash in hand and bank deposits   
      In Reais 867 3,169 
      In Euros 1,136 - 
       
      Certificate of deposits and time deposits   
      In Reais 1,527,156 44,120 
      In Euros 50,012 1,278,689 
       
      Total 1,579,171 1,325,978 

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      Table of Contents

      Management has been investing surplus cash in time deposits with maturities of three months or less when purchased. Also the certificate of deposits may be withdrawn at any time at the discretion of the Company without penalty.

      6 Trade accounts receivable

       2009 2008 
      Domestic 36 1,042 
      Export - Primarily denominated in U.S. Dollars 226,131 131,268 
      Total 226,167 132,310 

      7 Inventories

       2009 2008 
      Finished goods 181,305 241,887 
      Maintenance supplies 5,237 4,652 
      Other 793 2 
       
      Total 187,335 246,541 

      8 Long-term investments

      The Company holds 10% of MRS Logística’s capital which has been accounted for at cost . The fair value of the investment was not estimated since there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment and it is not practicable to estimate the fair value since MRS’s shares are not quoted publicly and there is no other reasonable source of quotation to reliably determine its market value.

      9 Property, plant and equipment

       As of December 31, 2009
       
        Accumulated  
       Cost depreciation Net 
      Land 2,850 - 2,850 
      Buildings 18,357 ( 2,959) 15,398 
      Machinery and equipment 81,472 ( 25,062) 56,410 

      FS - 21

      Table of Contents

      Furniture and fixtures 834 (380) 454 
      Computers and peripherals 1,667 (847) 820 
      Mines and reserves 1,195,391 (152,632) 1,042,759 
      Other 136 (18) 118 
       
       1,300,707 (181,898) 1,118,809 
       
      Construction in progress 50,942 - 50,942 
       
      Total 1,351,649 (181,898) 1,169,751 

      As of December 31, 2008

        Accumulated  
       Cost depreciation Net 
       
      Land 2,850 - 2,850 
      Buildings 13,292 ( 1,924) 11,368 
      Machinery and equipment 54,228 ( 16,669) 37,559 
      Furniture and fixtures 699 ( 268) 431 
      Computers and peripherals 1,095 ( 671) 424 
      Mines and reserves 1,196,115 ( 91,541) 1,104,574 
       
       1,268,279 (111,073) 1,157,206 
       
      Construction in progress 18,247 - 18,247 
       
      Total 1,286,526 (111,073) 1,175,453 

      Construction in progress consists principally of a group of investments for the purpose of improving the Company’s productivity and quality of its products. The main investments are in the area of environmental protection, cost reduction, infrastructure and automation, and information technologies.

      10 Shareholders’ equity

      a. Capital

      During 2008, Namisa’s capital was increased through the consummation of the following transactions: (i) previous advances for future capital increase were capitalized by CSN in the amount of R$383,990 in accordance with the General Meeting held on July 25, 2008; (ii) dividends declared in the General Meeting held on July 25, 2008 in the amount of R$9,674 were contributed to Namisa by CSN; (iii) contribution of 10% ownership in MRS’ preferred shares by CSN in the amount of R$171,760; and (iv) new shares issued and fully subscribed and paid up by Big Jump in the amount of R$578,268 on December 30, 2008.

      On July 30, 2009, Big Jump was merged into Namisa and as a result Namisa’s capital increased by R$262 to R$1,173,954, represented by 475,067,405 shares as of December 31, 2009.

      b. Additional paid-in capital

      Additional paid-in capital as of December 31, 2009 amounted to R$8,099,745 (R$6,707,886 in 2008), of which R$6,707,886 was generated on December 30, 2008 as a result of the premium on issuance of 187,749,249 common shares, with no par value, subscribed and paid-up by Big Jump, and R$1,391,859 relating to the tax credit on goodwill generated by Big Jump upon Namisa’s acquisition in 2008 and merged in July 30, 2009, as further described in Note 1.

      FS - 22

      Table of Contents

      c. Appropriated retained earnings

      Brazilian laws and Namisa’s By-laws require that certain appropriations be made from retained earnings to reserve accounts on an annual basis. The purpose and basis of appropriation to such reserve accounts are described below:

      i. Investment reserve- This is a general reserve for future expansion of the Company’sCSN’s activities.

      ii. •Legal reserve- Thisthis reserve is a requirement for all Brazilian corporations and represents the annual appropriation of 5% of net income up to a limit of 20% of capital stock, as determined in the Brazilian Corporate Law. This reserve may be used to increase capital or to absorb losses, but may not be distributed as cash dividends.

      FS - 2324. DIVIDENDS AND INTEREST ON SHAREHOLDERS’ EQUITY

      12/31/2010

      Net income for the year

          2,516,376

      IFRS adjustments - First-time adoption

            (33,416)

      Basic net income for determination of dividends

      2,482,960

      Proposed allocation:

      Investment reserve

           (626,160)

      Total allocation to reserves

           (626,160)

      Interest onshareholders’ equity

           (356,800)

      Proposed dividends

        (1,500,000)

      Total proposed dividends and interest on shareholders’ equity

      (1,856,800)

      Weighted average number of shares

         1,457,970

      Dividends and interest on shareholders’ equity per share

              1.2736

      Additional information

      Mandatory minimum dividends for the year (*)

            629,094

      Residual balance from prior years

                   957

      Dividends payable

             630,051

      (*) CSN’s bylaws establish mandatory minimum dividends of 25% after exclusions of the legal reserves.

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      Table of Contents

      d. Dividends anda) Interest on shareholders’ equity

      The Company’s management will propose to the Annual General Meeting the payment of interest on shareholders’ equity

      The Company’s By-laws guarantee a minimum annual dividend equal to 25% of the adjusted net income for the year, as required by the Brazilian Corporate Law, which comprises net income determined in accordance with accounting practices adopted in Brazil after deduction of legal reserve. Interest on shareholders’ equity since January 1, 1996 is considered part of the minimum dividend. Brazilian law permits the payment of cash dividends only from retained earnings as stated in the Company’s statutory accounting records. In addition, in accordance with the statutory accounting records, appropriated retained earnings at December 31, 2008 included the amount of R$118,050 related 356,800, corresponding to the investment reserve, which could be transferred to unappropriated retained earnings and paid as dividends andR$ 0.244724 per share outstanding at that date.

      The calculation of interest on shareholders’ equity if approvedis based on the variation in the Long-Term Interest Rate (TJLP) on equity, limited to 50% of the profit for the period before income tax or 50% of the retained earnings and earnings reserves, and the higher of the two limits may be used, as provided for by the shareholders. Asprevailing legislation.

      Pursuant to CVM Resolution 207 of December 31, 2009,1996 and applicable tax rules, the 25%Company elected to record interest on shareholders’ equity proposed against the finance costs account and to reverse it in the same account and, therefore, it is not presented in the income statement and has no effect on profit, except regarding the tax effects recognized in the income tax and social contribution lines. Management will propose that the amount of interest on shareholders’ equity be attributable to the mandatory minimum annual dividenddividend.

      25. OPERATING REVENUES

      Net operating revenues is as required byfollows:

       

       

       

       

       

       

       

      2010

       

      2009

      Operating revenues

       

       

       

       

      Domestic market

       

      13,201,074       

       

            10,488,409

      Foreign market

       

       4,270,333         

       

              3,197,187

       

       

      17,471,407      

       

            13,685,595

      Deductions

       

       

       

       

      Cancelled sales and discounts granted

      (416,706)         

       

                (462,954)

      Taxes levied on sales

       

      (2,604,191)      

       

             (2,244,278)

       

       

      (3,020,897)      

       

             (2,707,232)

      Net operating revenues

       

       14,450,510       

       

            10,978,364

       

       

       

       

       

      26. OTHER OPERATING EXPENSES AND INCOME

       

       

       

       

       

       

       

      2010

       

      2009

      Other operating expenses

       

      (643,081)

       

      (695,905)

      Taxes and fees

       

      (81,394)

       

      (109,753)

      Effect of REFIS - Law 11941/09 and MP 470/09 (Note 20)

       

      (8,444)

       

                                 

      Provision for contingencies and net losses on reversals

       

      (260,235)

       

      (297,695)

      Contractual and non-deductible fines

       

      (155,445)

       

      (46,882)

      Fixed cost of equipment stoppages

       

      (21,213)

       

      (34,198)

      Write-off of obsolete assets

       

      (32,098)

       

      (112,483)

      Expenses on studies and project engineering

       

      (21,142)

       

      (6,385)

      Impairment of goodwill ERSA

       

                                 

       

      (23,137)

      Other expenses

       

       (63,110)

       

      (65,372)

      Other operating income

       

                    92,478

       

               1,416,735

      PIS / COFINS / ICMS credits recovered during the year

       

                   32,739 

       

       

      Gains on investments

       

                     2,534 

       

                  835,115

      Effect of REFIS - Law 11941/09 and MP 470/09 (Note 20)

       

                                 

       

                 505,297

      Gain on acquisition of "precatórios" from the city of Piraí

       

                   15,595 

       

       

      Other income

       

                    41,610

       

                    76,323

      Other operating (expenses) income

       

      (550,603)

       

                  720,830

       

       

       

       

       

      FS-65

      27. FINANCE EXPENSES AND INCOME

       

       

       

       

       

       

       

      2010

       

      2009

      Finance expenses:

       

       

       

       

      Loans and financing - foreign currency

       

             (641,632)

       

             (598,849)

      Loans and financing - local currency

       

             (791,926)

       

             (277,699)

      Related parties

       

      (374,929)

       

      (365,150)

      Capitalized interest

       

               215,624

       

                 85,260

      PIS/COFINS on other revenues

       

                 (1,079)

       

                 (1,072)

      Losses on derivatives (*)

       

               (27,252)

       

             (152,102)

      Net effect of REFIS - Law 11941/09 and MP 470/09

       

               (33,921)

       

                   2,336

      Interest, fines and late payment charges

       

             (283,768)

       

             (281,190)

      Other finance costs

       

      (261,570)

       

      (304,049)

       

       

          (2,200,453)

       

          (1,892,515)

      Finance income:

       

       

       

       

      Related parties

       

                 53,491

       

                 55,750

      Yields from marketable securities

       

               394,183

       

               276,177

      Other yields

       

               195,466

       

               254,098

       

       

               643,140

       

               586,025

      Inflation adjustment:

       

       

       

       

      - Assets

       

                      271

       

                   8,465

      - Liabilities

       

                 (8,714)

       

                 69,266

       

       

                 (8,443)

       

                 77,731

      Exchange gains (losses):

       

       

       

       

      - On assets

       

             (585,719)

       

             (295,526)

      - On liabilities

       

               398,527

       

               995,064

      - Exchange gains (losses) on derivatives (*)

       

             (158,510)

       

               282,786

       

       

      (345,702)

       

      982,324

      Inflation adjustment and exchange gains (losses), net

             (354,145)

       

            1,060,055

       

       

       

       

       

      Finance costs, net

       

          (1,911,458)

       

             (246,435)

       

       

       

       

       

      (*) Statement of results of derivative transactions

       

       

       

       

      CDI x US$ swap

       

             (231,673)

       

             (581,523)

      EUR x US$ swap

       

                 (6,763)

       

       

      LIBOR x CDI swap

       

               (18,864)

       

               (17,445)

      Future US$

       

                 79,926

       

             (231,563)

      Total return on equity swap

       

       

       

            1,026,463

      Other

       

                 (8,388)

       

               (65,248)

       

       

             (185,762)

       

               130,684

       

       

       

       

       

      FS-66

      28. SEGMENT AND GEOGRAPHICAL INFORMATION

      According to the Company’s By-laws amountedstructure, its businesses are distributed into 5 (five) operating segments. Thus, we analyzed our information by segment as follows:

      •Steel

      The Steel Segment consolidates all the operations related to R$217,818,the production, distribution and sale of packaging, metallic packaging and galvanized steel, with operations in Brazil, the United States and Portugal. This segment serves the following markets: civil construction, steel packaging for Brazilian chemical and food industries, white line (home appliances), automobile and OEM (motors and compressors). The Company’s steel units produce hot and cold rolled steel, galvanized and pre-painted steel with great durability. They also produce tinplate, a raw material used to produce packaging.

      Overseas, Lusosider, which is based in Portugal, also produces metallic sheets, as well as additional R$240,746,galvanized steel. CSN LLC in the U.S. meets local market needs by supplying cold rolled and galvanized steel. For 2012, it is slated to begin production of long steel products. The initial production slated, to the tune of 500 thousand metric tons per year (mtpy), will consolidate the company as a source of complete solutions for civil construction, complementing its portfolio of products with high added value in the steel chain.

      •Mining

      This segment encompasses the activities of iron ore and tin mining. The high-quality iron ore operations are located in the Iron Quadrilateral in MG, the Casa de Pedra mine in Congonhas – MG that produces high quality iron ore, as well as the Company’s subsidiary Nacional Minérios S.A. (Namisa), which together represent 50%has its own mines, which are also of excellent quality, and further sells third party iron ore. Furthermore, CSN also owns Estanho de Rondônia S.A. (ERSA), a company that has both tin mining and casting units.

      CSN holds the concession to operate the solid bulk terminal TECAR, one of the consolidated net incomefour terminals that comprise the Port of Itaguaí (RJ). Importations of coal and coke are carried out through this terminal.

      •Logística

      i. Railroad

      CSN has equity interests in two railroad companies: MRS Logística S. A., which manages the former Southeast Network of Rede Ferroviária Federal S.A. (RFFSA), and Transnordestina Logística S. A., which operates the old Northeast Network of RFFSA in the States of Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas.

      a) MRS

      The railroad transportation services provided by MRS are based on the supply of raw materials and the shipment of final products. The total amount of iron ore, coal and coke consumed by the Presidente Vargas Mill is carried by MRS, as is part of the steel produced by CSN for the year 2009,domestic market and for export.

      The Southeast Brazilian railroad system, encompassing 1,674 kilometers of tracks, serves the tri-state industrial area of São Paulo - Rio de Janeiro - Minas Gerais, linking the mines located in Minas Gerais to the ports located in São Paulo and Rio de Janeiro, and the steel mills of CSN, Companhia Siderúrgica Paulista (or Cosipa) and Gerdau Açominas. Besides serving other customers, the railroad system carries iron ore from the Company’s mines in Casa de Pedra, Minas Gerais, and coke and coal from the Port of Itaguaí, in Rio de Janeiro, to Volta Redonda, and carries CSN’s exports to the ports of Itaguaí and Rio de Janeiro. Its volumes of cargo carried account for approximately 28% of the total volume carried by the Southeast railroad system.

      FS-67

      b) Transnordestina Logística

      Together, CSN and the federal government will be making investments for implementation of the Transnordestina Project for construction of around 1,728 km of new lines. The work on this project, slated for conclusion in 2013, further includes complementing and renewing part of the infrastructure (or lines) of the concession held by Transnordestina Logística, which will be paid during 2010.expanded from the nearly 2,600 kilometers of track presently operating to around 4,300 kilometers.

      11 CommitmentsTransnordestina Logística S.A. has a 30-year concession granted in 1998 to operate the Northeastern Brazil railroad system, which covers 4,238 kilometers of railroads in the states of Maranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and accrualRio Grande do Norte. Moreover, it links up the main ports in the region, thus providing an important competitive advantage by means of opportunities for contingencies

      (a) Accrual for contingencies

       December 31, 2009 December 31, 2008 
       Deposits Accrual Deposits Accrual 
      Labor - 9 - 12 
      Civil - - - 87 
      Total current - 9 - 99 
      Labor 103 - 3 - 
      Tax 16 5,109 - 5,109 
      Total non-current 119 5,109 3 5,109 

      combined transportation solutions and logistics projects tailored to customer needs.

      The provisions for contingencies relate to legal proceedings for which Namisa deemsproject underway will increase the likelihoodtransportation capacity of an unfavorable outcome to be probable andTransnordestina Logística 20-fold, bringing it up the loss reasonably estimated. This determination is made based onlevel of the legal opinion of Namisa’s internal and external legal counsel. Namisa believes these contingencies are properly recognizedmost modern railroads in our financial statements in accordance with FASB ASC 450-20.the entire world.

      Court deposits relating to contingencies and disputed taxes payable are generally based on (i) accruals recorded in connection with lawsuits, (ii) judicial orders issued in connection with lawsuits and (iii) guarantees in connection with judicial foreclosure proceedings. Such deposits are classified as long-term assets and the release of such deposits is conditioned upon judicial order. When such a judicial order is granted in Namisa’s favor, the deposit is forfeited and returned to us in cash. When such a judicial order is unfavorable to us, the deposit is used to offset the related liability and the deposit account is appropriately offset.

      FS - 24

      Table of Contents

      The Company considers that the amounts currently provisioned areWith its new configuration, Transnordestina will become the best estimateslogistics option for export of grains through the losses which are probableports of occurringPecém and does not expect that future events will occur to change this situation.Suape, as well as other solid bulk cargos such as iron ore from the Northeast Region, playing an important role in the region’s development.

      ii. Port

      The Company is partyPort logistics segment consolidates the operation of the terminal built during the post-privatization period of the ports, Sepetiba Tecon. The Sepetiba terminal features complete infrastructure to meet all the needs of exporters, importers and ship-owners. Its installed capacity exceeds that of most other judicial and administrative proceedings for which the riskBrazilian terminals. It has excellent depths of losses was determined to be possible , involving a total of approximately R$3,771 as of December 31, 2009, of which R$837 refers to civil lawsuits and R$2,934 to labor lawsuits. The Company does not expect that future events will occur14.5 meters in the near-term causing additional losses to be recognized.

      Labor contingencies

      As of December 31, 2009,mooring berths and a huge storage area, as well as the amount of the accrual relating to probable risk of losses for these contingencies was R$9 (R$12 in 2008). Most of the lawsuits are related to additional payments for unhealthymost modern and hazardous activities, overtimeappropriate equipment, systems and disagreement between employees and the Brazilian government over the amount of severance payable by us. These contingencies are classified in the consolidated balance sheet as “other” in current liabilities.inter-modal connections.

      The Company’s operating labor force is subject to collective bargaining agreementsconstant investment in Brazil entered into withprojects in the Miners Labor Union on a yearly basis. The operating labor force represents approximately 75%terminals consolidates the Itaguaí Port Complex as one of the Company’s total labor force.most modern in the country. At present it has capacity for annually handling 480 thousand containers and 30 million metric tons of bulk cargo.

      Accrual for tax contingencies•Energy

      Tax contingencies relate to a variety of disputes for which Namisa has recorded provisions for probable losses. As of December 31, 2009 and 2008, the amountCSN is one of the accrual relatinglargest industrial consumers of electric power in Brazil. As energy is fundamental to probable lossesits production process, the Company invests in assets for generation of electric power to guarantee its self-sufficiency. These assets are as follows: Itá hydroelectric power plant, in the State of Santa Catarina, with rated capacity of 1,450 MW, where CSN has a share of 29.5%; Igarapava hydroelectric power plant, Minas Gerais, with rated capacity of 210 MW, in which CSN holds of 17.9% of the capital; and a thermoelectric co-generation Central Unit with rated capacity of 238 MW, which has been operating at the UPV since 1999. For fuel the Central Unit uses the residual gases produced by the steel mill itself. Through these contingencies was R$5,109. These tax contingencies do not relate to income tax items.three power generation assets, CSN obtains total rated capacity of 430 MW.

      Environmental contingencies•Cement

      The Companycement division consolidates the Company’s cement production, distribution and sales operations, which use the slag produced by the Volta Redonda plant’s blast furnaces. Currently, the clinker used in cement production is subject to Brazilian federal, state and municipal environmental laws and regulations governing air emissions, waste water discharges, and solid and hazardous waste handling and disposal. The Companyleased from third parties however, it will be produced by CSN itself in 2011, when the first stage of the Arcos factory in Minas Gerais will be completed. CSN also has a limestone mine on that site, which is committed to controlling the substantial environmental impact caused by our mining and related logistics operations in accordance with international standards and in compliance with environmental laws and regulations in Brazil. The Company believes that it is in substantial compliance with applicable environmental requirements.already part of its cement division.

      The Company provides accruals for remediation costs and environmental lawsuits when a lossinformation presented to Management regarding the performance of each business segment is probable andgenerally derived directly from the amount can be reasonably estimated. The Companyaccounting records, provisions for all environmental liabilities and obligations for which the Company is formally enforced by competent authorities. As of December 31, 2009 and 2008, the Company has not recognized any provision for environmental regulation.

      We currently do not have environmental lawsuits and no changes are expected in the near term for our current situation.

      (b) Commitments

      i. Take-or-pay contract

      The Company and MRS Logística S.A. entered into a ten-year contract for iron ore transport. According to the “take-or-pay” clause, in the case the volume transported is lower than the minimum contractually agreed, the Company is obliged to pay at least 80% of the volume committed to be transported by MRS. The volume of iron ore transported by MRS in addition to the minimum agreed (take-or-pay) for a given month may be compensatedcombined with lower volumes transported in subsequent months. For the take-or-pay quantities, the Company will pay in accordance with the terms of the contract. As Namisa is a shareholder of MRS, the minimum amounts to be paid under the contract terms are calculated by a tariff model which is designed to assure competitive prices. The future minimum amounts of required payments until maturity of the contract in 2014 is over R$1,200,000 with annual amounts over R$250,000. In 2009, the Company paid R$278,304 under this contract (R$179,856 in 2008).

      FS - 25

      Table of Contents

      As of December 31, 2009, contractual obligations of R$2,129 in current liabilities relate to block rates payable to MRS (R$44,135 in 2008 relate to block rates and take-or-pay payable).

      iii. Covenants

      Long-term debt instruments (due to related parties) are not subject to covenants by which the Company is required to maintain levels of leverage, liquidity and ratio indices, such as debt to EBITDA and interest coverage.

      12 Segment and geographical information

      The Company operates in the mining segment.

      The Company’s net assets included in the consolidated balance sheet are primarily located in Brazil. Operational assets are in two separate locations.some intercompany allocations.

      Sales by geographic area are determined based on the location of customers. On a consolidated basis, domestic sales are represented by revenues from customers located in Brazil, while export revenues represent revenues from customers located abroad.

      FS-68


       

       

       

       

       

       

       

        2010

       

      Steel

       

      Mining

       

      Logistics

       

      Energy

       

      Cement

       

      Corporate Expenses / Elimination

      Consolidated

       

       

       

       

       

      Port

       

      Railroad

       

       

       

       

       

       

       

       

      Results

       

       

       

       

       

       

       

       

       

       

       

       

       

       

                                 

      Metric tons (Th.) - (unaudited) (*)

          4,795,851

       

      18,554,984

       

       

       

       

       

       

       

          991,789

       

       

       

             24,342,624

      Revenues

       

       

       

       

       

       

       

       

       

       

       

       

       

       

                                 

      Domestic market

           8,763,470

       

           573,976

       

             119,315

       

          838,436

       

       113,517  

       

          201,841

       

        (363,750)

       

             10,246,805

      Foreign market

           1,162,539

       

        3,041,166

       

       

       

       

       

       

       

       

       

       

       

               4,203,705

      Cost of sales and services

         (6,095,348)

       

      (1,186,962)

       

             (70,046)

       

        (521,747)

       

      (41,579)

       

        (163,631)

       

          392,571

       

            (7,686,742)

      Gross Profit

           3,830,661

       

        2,428,180

       

               49,269

       

          316,689

       

         71,938

       

            38,210

       

            28,821

       

               6,763,768

      Selling and administrative expenses

           (573,572)

       

         (134,580)

       

             (16,590)

       

          (70,644)

       

      (25,555)

       

          (43,119)

       

        (350,759)

       

            (1,214,819)

      Depreciation

              519,411

       

           145,817

       

                 5,577

       

          102,629

       

         22,501

       

            13,648

       

            (3,414)

       

                  806,169

      Adjusted EBITDA

           3,776,500

       

        2,439,417

       

               38,256

       

          348,674

       

         68,884

       

              8,739

       

        (325,352)

       

               6,355,118

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

                      

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      2010

       

       

      Steel

       

      Mining

       

      Logistics

       

      Energy

       

      Cement

       

      Corporate Expenses / Elimination

      Consolidated

       

       

       

       

       

       

      Port

       

      Railroad

       

       

       

       

       

       

       

       

      Sales by geographic area

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

                                 

      Asia

       

                       40,752

       

               2,513,499

       

       

       

       

       

       

       

       

       

       

       

               2,554,251

      North America

       

                     432,229

       

       

       

       

       

       

       

       

       

       

       

       

       

                  432,229

      Latin America

       

                     193,692

       

       

       

       

       

       

       

       

       

       

       

       

       

                  193,692

      Europe

       

                     454,997

       

                  527,667

       

       

       

       

       

       

       

       

       

       

       

                  982,664

      Other

       

                       40,869

       

       

       

       

       

       

       

       

       

       

       

       

       

                    40,869

      Foreign market

       

                  1,162,539

       

      3,041,166

       

                                 

       

                                

       

                            

       

                            

       

                            

       

               4,203,705

      Domestic market

       

                  8,763,470

       

      573,976

       

      119,315

       

              838,436

       

       113,517

       

          201,841

       

       (363,750)

       

             10,246,805

      TOTAL

       

                  9,926,009

       

      3,615,142

       

      119,315

       

              838,436

       

       113,517

       

          201,841

       

       (363,750)

       

             14,450,510

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      (*) The volumes of ore sales presented in this note consider the customers. Company’s sales and investments in subsidiaries (Namisa 60%).

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      2009

       

       

      Steel

       

      Mining

       

      Logistics

       

      Energy

       

      Cement

       

      Corporate Expenses / Elimination

      Consolidated

       

       

       

       

       

       

      Port

       

      Railroad

       

       

       

       

       

       

       

       

      Results

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Metric tons (Th.) - (unaudited) (*)

       

           4,110,266

       

         17,478,837

       

       

       

       

       

       

       

       338,272

       

       

       

             21,927,375

      Revenues

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

                                 

      Domestic market

       

           7,045,510

       

              247,490

       

          144,363

       

          822,503

       

       116,641

       

         60,380

       

        (330,353)

       

               8,106,534

      Foreign market

       

           1,155,780

       

           1,716,050

       

       

       

       

       

       

       

       

       

       

       

               2,871,830

      Cost of sales and services

       

         (5,572,268)

       

         (1,179,304)

       

          (75,563)

       

        (464,104)

       

      (43,363)

          

      (60,893)

       

          373,376

       

            (7,022,119)

      Gross Profit

       

           2,629,022

       

              784,236

       

            68,800

       

          358,399

       

         73,278

       

           (513)

       

            43,023

       

               3,956,245

      Selling and administrative expenses

       

            (490,708)

       

            (108,137)

       

          (14,290)

       

          (58,283)

       

      (24,978)

       

      (16,135)

       

        (403,325)

       

           (1,115,856)

      Depreciation

       

              484,351

       

              134,665

       

            10,776

       

          109,514

       

         25,234

       

           8,714

       

              6,898

       

                  780,152

      Adjusted EBITDA

       

           2,622,665

       

              810,764

       

            65,286

       

          409,630

       

         73,534

       

        (7,934)

       

       (353,404)

       

               3,620,541

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      2009

       

       

      Steel

       

      Mining

       

      Logistics

       

      Energy

       

      Cement

       

      Corporate Expenses / Elimination

      		 

      Consolidated

       

       

       

       

       

       

      Port

       

      Railroad

       

       

       

       

       

       

       

       

      Sales by geographic area

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Asia

       

          248,663

       

       1,368,608

       

       

       

       

       

       

       

       

       

       

       

               1,617,271

      North America

       

          322,798

       

            79,426

       

       

       

       

       

       

       

       

       

       

       

                  402,224

      Latin America

       

          117,982

       

       

       

       

       

       

       

       

       

       

       

       

       

                  117,982

      Europe

       

          424,314

       

          268,016

       

       

       

       

       

       

       

       

       

       

       

                  692,330

      Other

       

            42,023

       

       

       

       

       

       

       

       

       

       

       

       

       

                    42,023

      Foreign market

       

       1,155,780

       

       1,716,050

       

       

       

       

       

       

       

       

       

       

       

               2,871,830

      Domestic market

       

       7,045,510

       

          247,490

       

          144,363

       

          822,503

       

       116,641

       

            60,380

       

           (330,353)

       

               8,106,534

      TOTAL

       

       8,201,290

       

       1,963,540

       

          144,363

       

         822,503

       

       116,641

       

            60,380

       

           (330,353)

       

             10,978,364

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      (*) The volumes of ore sales presented in this note consider the Company’s sales and investments in subsidiaries (Namisa 60%).
      FS-69

      The Adjusted EBITDA consists of profit plus net finance income (expenses), income tax and social contribution, depreciation and amortization and other operating income (expenses), which are excluded as they refer mainly to non-recurring items of the operation.

      The Company’s export salesExecutive Officers use the Adjusted EBITDA as a tool to measure the recurring operating cash generation capacity, as well as a means for allowing it to make comparisons with other companies.

           
        2010  2009 
      Adjusted EBITDA  6,355,118  3,620,541 
      Depreciation  (806,169)  (780,152) 
      Other operating (Note 26)  (550,603)  720,843 
      Finance income (expenses) (Note 27)  (1,911,458)  (246,435) 
      Profit before taxes  3,086,888  3,314,797 
      Income tax and social contribution (Note 10)  (570,697)  (699,616) 
      Net income  2,516,191  2,615,181 

      29. EARNINGS PER SHARE (EPS)

      Basic earnings per share:

      Basic earnings per share have been calculated based on the profit attributable to the owners of CSN and non-controlling interests, which amounted to R$ 2,516,376 (R$ 2,618,934 in 2009), divided by geographic area for the weighted average number of common shares outstanding during the year (after the share split), excluding the common shares purchased and held as treasury shares, as follows:

       

       

       

       

       

      2010

       

      2009

       

      Common shares

      Profit attributable to owners of CSN

                     2,516,376

       

                    2,618,934

      Weighted average number of shares

                     1,457,970

       

                    1,492,453

      Basic and Diluted EPS

                         1.72594

       

                       1.75478

      30. EMPLOYEE BENEFITS

      The pension plans granted by the Company cover substantially all employees. The plans are administered by Caixa Beneficente dos Empregados da CSN (“CBS”), which is a private non-profit pension fund established in July 1960. The members of CBS are employees and former employees of the Company and some subsidiaries that join the fund through an agreement, and the employees of CBS itself. The Executive Officers of CBS is comprised of a CEO and two other executive officers, all appointed by CSN, which is the main sponsor of CBS. The Decision-Making Council is the higher decision-making and guideline-setting body of CBS, presided over by the president of the pension fund and made up of 10 members, six chosen by CSN in its capacity as main sponsor of CBS and four elected by the fund’s participants.

      FS-70

      Until December 1995, CBS Previdência administered two defined benefit plans based on years endedof service, salary and Social Security benefits. On December 27, 1995 the Private Pension Secretariat (“SPC”) approved the implementation of a new benefit plan. This new plan took effect as from that date and was called Mixed Supplementary Benefit Plan (“Mixed Plan”), structured in the form of a variable contribution plan. Employees hired after that date were only entitled to join the new Mixed Plan. In addition, all active employees who were participants of the old defined benefits plans had the opportunity to switch to the new Mixed Plan. As at December 31, 2010 CBS had 30,540 participants (28,419 in 2009), of whom 15,433 were active contributors (12,884 in 2009), 9,888 were retired employees (10,117 in 2009) and 5,219 were related beneficiaries (5,418 in 2009). Out of the total participants as at December 31, 2010, 14,108 belonged to the defined benefit plan and 16,432 to the mixed plan.

      The assets of CBS are primarilyinvested in repurchase agreements (backed by federal government bonds), federal securities indexed to inflation, shares, loans and real estate. As at December 31, 2010 CBS held 12,788,231 common shares of CSN (70,981,734 common shares as at December 31, 2009). In 2010 CBS received R$ 73 million in dividends on the equity interest represented by such shares. The total assets of the entity amounted to R$ 3.4 billion and R$ 3.6 billion as at December 31, 2009 and 20082010, respectively. The administrators of the CBS funds seek to match plan assets with benefit obligations payable on a long-term basis. Pension funds in Brazil are as follows:subject to certain restrictions regarding their capacity for investment in foreign assets and, therefore, these funds invest mainly in Brazilian securities.

       2009 2008 
       
      Asia   
      Bahrein 98,747 114,331 
      China 172,064 391,522 
      Hong Kong 400,515 77,007 
      Japan 271,972 48,217 
      Singapore 33,934 64,822 
      South Korea 56,392 36,524 
      Taiwan 6,975 - 
       1,040,599 732,423 
      Europe   
      Germany - 34,614 
      Luxembourg 61,722 78.827 
      Portugal 270,776 63,996 
      United Kingdom 57,539 114,067 
       390,037 291,504 
      Others   
      United States - 10,207 
       - 10,207 
      Total 1,430,636 1,034,134 

      a. Description of the pension plans

      Plan covering 35% of average salary

      This plan began on February 1, 1966 and is a defined benefit plan aimed at paying pensions (for length of service, special situations, disability or old-age) on a lifetime basis, equivalent to 35% of the adjusted average of the participant’s salary for the last 12 months. The concentrationplan also guarantees sick pay to participants on Official Social Security leaves of sales in Asiaabsence and further ensures payments of savings fund, funeral allowance and pecuniary aid. This plan was discontinued on October 31, 1977 when the new supplementary plan based on average salary took effect.

      Supplementary average salary plan

      This plan began on November 1, 1977 and is due toa defined benefit plan aimed at complementing the fact thatdifference between the major steel manufacturers are in Japan. Also, China continues withadjusted average of the participant’s salary for the last 12 months and the Official Social Security benefit for retirement, also on a strong demand for iron ore. This concentration is expected to continue within the next twelve months.

      FS - 26

      Table of Contents

      13 Related parties

      Transactions with related parties, relating primarily to purchases and saleslifetime basis. As in the ordinary course of business and other intercompany operations, resulted in the following balance sheet and statement of income amounts.

      The balances as of December 31, 2009 and 2008 and transactions35% plan, there is coverage for the years then endedbenefits of sick pay, death and pension. This plan was discontinued on December 26, 1995 with related parties are as follows:

         As of December 31, 2009 
       CSN and    
       Other MRS Asian  
      Balance sheet Subsidiaries Logística Consortees Total 
       
      Current assets     
      Trade accounts receivable 8,649 - 51,850 60,499 
      Due from related parties (1)  186,729 - - 186,729 
      Other 9,681 18,189 - 27,870 
       205,059 18,189 51,850 275,098 
       
      Noncurrent assets     
      Due from related parties (1)  7,511,130 - - 7,511,130 
       
      Total assets 7,716,189 18,189 51,850 7,786,228 
       
      Current liabilities     
      Trade accounts payable 30,481 12,238 - 42,719 
      Due to related parties (2) 37,616 - - 37,616 
      Dividends payable 130,691 - 87,127 217,818 
      Advances from customers 12,724 - - 12,724 
       211,512 12,238 87,127 310,877 
       
      Noncurrent liabilities     
      Due to related parties (2) 1,465,945 - - 1,465,945 
      Other - 1,650 - 1,650 
       1,465,945 1,650 - 1,467,595 
       
      Total liabilities 1,677,457 13,888 87,127 1,778,472 

      the creation of the mixed supplementary benefit plan.

      ForMixed supplementary benefit plan

      This plan began on December 27, 1995 and is a variable contribution plan. Besides the year ended December 31, 2009

      FS - 27

      Tablescheduled retirement benefit, it also covers the payment of Contents

       CSN and    
       Other MRS Asian  
      Statement of Income Subsidiaries Logística Consortees Total 
       
      Domestic sales     
      CSN 19,560 - - 19,560 
       
      Export sales     
      CSN Madeira 271,034 - - 271,034 
      Itochu Corp. - - 19,447 19,447 
      JFE Steel Corp. - - 88,197 88,197 
      Nippon Steel Corp. - - 108,892 108,892 
      Nisshin Steel Corp. - - 13,242 13,242 
      Sumitomo - - 22,868 22,868 
      Kobe Steel Ltd. - - 13,890 13,890 
      Posco - - 56,392 56,392 
       271,034 - 322,928 593,962 
       
      Cost of goods sold (508,779) (231,316) - (740,095) 
      Selling expenses (294,843) (2,129) - (296,972) 
      Other income     
      (expenses), net - 70,297 - 70,297 
      General and Administrative 12,193 - - 12,193 
      Financial income, net 778,363 - - 778,363 
      Foreign exchange gain, net 92,383 - - 92,383 
       
       369,911 (163,148) 322,928 529,691 

          As of December 31, 2008 
       CSN and     
       Other MRS    
      Balance sheet Subsidiaries Logística Big Jump CFM Total 
       
      Current assets      
      Trade accounts receivable 3,272 - - - 3,272 
      Due from related parties (1) 90,831 - - - 90,831 
       94,103 - - - 94,103 
       
      Noncurrent assets      
      Due from related parties (1)  7,274,958 - - - 7,274,958 
       
      Total assets 7,369,061 - - - 7,369,061 
       
      Current liabilities      
      Trade accounts payable 180,978 7,223 - - 188,201 
      Due to related parties (2) 1,176,686 - - - 1,176,686 
      Advances from customers 15,116 - - - 15,116 
      Dividends payable 29,870 - 19,913 - 49,783 
       1,402,650 7,223 19,913 - 1,429,786 
       
      Noncurrent liabilities      
      Due to related parties (2) 359,898 - - - 359,898 

      FS - 28

      Table of Contents

      Total liabilities 1,762,249 7,223 19,913 - 1,789,385 
       
       
       
       
         For the year ended December 31, 2008 
       CSN and     
       Other MRS    
      Statement of Income Subsidiaries Logística Big Jump CFM Total 
       
      Cost of goods sold (289,784) - - (973) (290,757) 
      Selling expenses (78,722) - - - (78,722) 
      Other income      
      (expenses), net - (44,135) - - (44,135) 
      Financial income      
      (expenses), net (19,281) - - 92 (19,189) 
      Foreign exchange loss, net(71,462)  - - - (71,462) 
       
       (459,249) (44,135) - (881) (504,265) 

      Prepayment agreement for port servicesrisk benefits (pension paid while the participant is still working, disability compensation and supply of iron ore insick/accident pay). Under this plan, the retirement benefit is calculated based on the amount accumulated by the monthly contributions of R$7,638,658, bearing annual interest ratethe participants and sponsors, as well as on each participant’s option for the manner in which they receive them, which can be lifetime (with or without continuity of 12.5%; R$186,729 is classified in current assets and R$7,451,929 in non-current other assets which maturity date is in July 2042. The shareholder CSN provides iron ore and port services to Namisa which are monthly discounted from the balance of prepayments. As the prepayments are of long term nature,pension for death) or through a portion of interest income accrued by Namisa is addedpercentage applied to the balance of the prepayments and will be settled with iron ore supply and port services through 2042.fund generating the benefit (loss for indefinite period). After retirement is granted, the plan takes on the characteristics of a defined benefit plan.

      b. Investment policy

      The outstanding balanceinvestment policies establish the principles and guidelines that will govern the investments of R$7,638,658funds entrusted to the entity, in order to foster the security, liquidity and profitability required to ensure equilibrium between the plan’s assets and liabilities, based on an ALM (Asset Liability Management) study that takes into consideration the benefits of participants and beneficiaries for each plan.

      FS-71

      The investment plan is reviewed annually and approved by the Decision-Making Council considering a 5-year horizon, as established by resolution CGPC 7 of December 4, 2003. The investment limits and criteria established in the policy are based on Resolution 3792/09 published by the National Monetary Council (“CMN”).

      c. Employee benefits

       

      2010

       

      2009

       

      1/1/2009

      Obligations recorded in the Balance Sheet

       

       

       

       

       

      Pension plan benefits

       

       

       

       

                  67,532

      Post-employment health benefits

                367,839

       

                317,145

       

                296,608

       

                367,839

       

                317,145

       

                364,140

       

       

       

       

       

       

      The reconciliation of assets and liabilities of employee benefits is as follows:

       

      2010

       

      2009

       

      1/1/2009

      Present value of defined benefit obligations

            1,982,556

       

             1,731,767

       

             1,415,029

      Fair value of plan assets

          (2,316,018)

       

           (2,160,158)

       

            (1,396,350)

      Deficit/(surplus)

              (333,462)

       

               (428,391)

       

                   18,679

      Restriction due to limitation of recovery

                280,582

       

                 380,092

       

                   18,737

      Net Liabilities/(Assets)

                (52,879)

       

                (48,299)

       

                  37,416

      Liabillities

       

       

       

       

                   67,534

      Assets (*)

                (52,879)

       

                (48,299)

       

                 (30,118)

      Net Liabilities(Assets)

                (52,879)

       

                (48,299)

       

                  37,416

       

       

       

       

       

       

      (*) The Asset resulting from the actuarial valuation was not recorded by the Company since there is no clear evidence of its realization, in accordance with IAS 19 – Employee benefits.

      Changes in the present value of the defined benefit obligation during the year are as follows:

       

      2010

       

      2009

      Present value of obligations at beginning of year

            1,731,767

       

             1,415,029

      Cost of service

                    1,313

       

                     1,249

      Cost of interest

                185,285

       

                 174,122

      Benefits paid

              (166,147)

       

              (148,561)

      Actuarial loss/(gain)

                225,341

       

                287,146

      Other

                    4,999

       

                    2,782

      Present value of obligations at end of year

            1,982,556

       

      ��      1,731,767

       

       

       

       

      The changes in the fair value of the plan assets during the year are as follows:

       

      2010

       

      2009

      Fair value of assets at beginning of year

          (2,160,158)

       

           (1,396,350)

      Expected return on plan assets

              (218,229)

       

              (176,356)

      Contributions of sponsors

                (63,109)

       

                (68,890)

      Contributions of participants

       

       

                  (2,782)

      Benefits paid

                166,147

       

                148,561

      Actuarial gains/(losses)

                (40,669)

       

              (664,341)

      Fair value of plan assets at December 31

          (2,316,018)

       

           (2,160,158)

       

       

       

       

      FS-72

      The amounts to be recognized in the income statement are presented below:

       

      2010

       

      2009

      Cost of current service

                    1,313

       

                    1,249

      Cost of interest

                185,285

       

                 174,122

      Expected return on plan assets

              (218,229)

       

               (176,356)

      Total unrecognized revenue (*)

                (31,631)

       

                   (4,467)

      Total costs recognized in the income statement

       

       

                     3,482

      Total costs (revenues), net (*)

                (31,631)

       

                      (985)

       

       

       

       

      (*) The revenue resulting from the actuarial valuation was not recorded by the Company since there is no clear evidence of its realization, in accordance with IAS 19 – Employee benefits.

      The cost is recognized in the income statement in other operating expenses.

      Changes in actuarial gains and losses are as follows:

       

      2010

       

      2009

      Actuarial (gains) and losses

                184,671

       

              (377,195)

      Restriction due to limitation of recovery

               (99,509)

       

                361,355

      Total cost of actuarial (gains) and losses

                 85,162

       

                (15,840)

       

       

       

       

      There were no changes in actuarial liabilities (assets) from 2009 to 2010, with the actuarial loss being the result of the fluctuations in the investments comprising the portfolio of assets held by CBS.

      The history of actuarial gains and losses is as follows:

       

      2010

       

      2009

       

      1/1/2009

      Present value of defined benefit obligations

            1,982,556

       

             1,731,767

       

             1,415,029

      Fair value of plan assets

          (2,316,018)

       

            (2,160,158)

       

            (1,396,350)

      Surplus

                 333,462

       

                 428,391

       

                 (18,679)

      Experience adjustments in plan obligations

                 225,341

       

                 287,146

       

       

      Experience adjustments in plan assets

                 40,669

       

                664,341

       

       

      The main actuarial assumptions used were:

       

      2010

       

      2009

       

      1/1/2009

      Actuarial method for Financing

      Projected Unit Credit

       

      Projected Unit Credit

       

      Projected Unit Credit

      Functional currency

      Real (R$)

       

      Real (R$)

       

      Real (R$)

      Recording of plan assets

      Marke value

       

      Market value

       

      Market value

      Amount used as estimate of equity at year end

      Best estimate of CBS for

      position at 12/31/2010

      		 

      Best estimate of CBS for position at 12/31/2009

      		 

      Best estimate of CBS for position at 1/1/2009

      Discount rate

      10.66%

       

      11.18%

       

      12.76% - 13.07%

      Inflation rate

      4.40%

       

      4.20%

       

      4.50%

      Nominal salary increase rate

      5.44%

       

      5.24%

       

      5.55%

      Nominal benefit increase rate

      4.40%

       

      4.20%

       

      4.50%

      Rate of return from investments

      11.31% - 12.21%

       

      10.21% - 10.78%

       

      12.93% - 13.21%

      General mortality chart

       AT 2000 segregated by gender

       

       AT 2000 segregated by gender

       

       AT 83 segregated by gender

      Disability table

      Mercer Disability with probabilities multiplied by 2

      		 

      Mercer Disability with probabilities multiplied by 2

      		 

      Mercer Disability with probabilities multiplied by 2

      Mortality table for disabled persons

       Winklevoss - 1%

       

       Winklevoss - 1%

       

       Winklevoss  

      Turnover table

       Millennium plan at 2% p.a., nil for DB plans

       

       Millennium plan at 2% p.a., nil for DB plans

      		 

       Milennium plan at 2% p.a., nil for DB plans

      Retirement age

       100% on first date for becoming eligible for programmed retirement beneft under plan

      		 

       100% on first date for becoming eligible for programmed retirement benefit under plan

      		 

       100% on first date for becoming eligible for programmed retirement benefit under plan

      Family composition of active participants

       95% will be married at the time of retirement, with the wife being 4 years younger than the husband

      		 

       95% will be married at the time of retirement, with the wife being 4 years younger than the husband

      		 

       95% will be married at the time of retirement, with the wife being 4 years younger than the husband

      FS-73

      The assumptions related to the prepaymentmortality table are based on published statistics and mortality tables. These tables represent an average life expectancy in years of employees retiring at the age of 65, as shown below:

       

      2010

       

      2009

       

      1/1/2009

      Longevity at age of 65 for current participants

       

       

       

       

       

      Male

                   19.55

       

                   19.55

       

                   18.63

      Female

                   22.17

       

                   22.17

       

                    21.98

      The actual return on the plan assets was R$ 258,898 (R$ 840,697 as at December 31, 2009).

      Allocation of plan assets:

       

       

       

      2010

       

       

       

      2009

      Variable income

                234,303

       

      10.12%

       

             1,308,232

       

      60.56%

      Fixed income

             1,961,306

       

      84.68%

       

                756,424

       

      35.01%

      Real estate

                  52,352

       

      2.26%

       

                  41,190

       

      1.92%

      Other

                  68,057

       

      2.94%

       

                  54,312

       

      2.51%

      Total

             2,316,018

       

      100.00%

       

             2,160,158

       

      100.00%

       

       

       

       

       

       

       

       

      Expected long-term returns on plan assets:

       

      2010

       

      2009

      Variable income

      15.58%

       

      12.30%

      Fixed income

      10.44%

       

      9.48%

      Real estate

      9.62%

       

      9.71%

      Other

      9.62%

       

      16.05%

      Total

      10.31%

       

      11.50%

       

       

       

       

      Variable-income assets comprise mainly CSN shares.

      Fixed-income assets comprise mostly debentures, Certificates of Interbank Deposit ("CDI") and National Treasury Notes (“NTN-B”).

      Real estate refers to buildings appraised by a specialized asset appraisal firm. There are no assets in use by CSN and its subsidiaries.

      Expenses for the year 2010 on the mixed plan, which includes defined contribution components, amounted to R$ 22,514 (R$ 19,560 for 2009).

      d. Expected contributions

      Expected contributions of R$ 64,747 will be paid to defined benefits plans in 2011.

      For the mixed supplementary benefit plan, which includes defined contribution components, expected contributions of R$ 25,000 will be paid in 2011.

      FS-74

      e. Post-employment health care plan

      This is a health care plan created on December 1, 1996 exclusively for retired former employees, pensioners, those who received amnesty, veterans, widows of employees who died as a result of on-the-job accidents and former employees who retired on or before March 20, 1997 and their related dependents. Since then, the health care plan has not permitted the inclusion of new beneficiaries. The plan is sponsored by CSN and administered by Caixa Beneficente dos Emprados da Cia. Siderúrgica Nacional - CBS.

      The amounts recognized in the balance sheet were determined as follows:

       

      2010

       

      2009

      Present value of obligations

                367,839

       

                317,145

      Liabilities

                 367,839

       

                 317,145

       

       

       

       

      The interest on the actuarial obligation amounted to R$ 35,457 in 2010 (R$ 38,440 in 2009).

      The reconciliation of liabilities for health benefits is as follows:

       

      2010

       

      2009

      Actuarial liabilities at beginning of year

               317,145

       

                296,608

      Cost of current service

                   35,457 

       

                   38,440

      Contributions of sponsor transferred in prior year

                (33,064) 

       

                 (35,136)

      Recognition of (gain)/loss for the year

                   48,301 

       

                   17,232

      Actuarial liabilities at end of year

                367,839 

       

                 317,145

       

       

       

       

      The actuarial gains and losses recognized in equity are as follows:

       

      2010

       

      2009

      Actuarial loss on obligation

                  48,301

       

                  17,232

      Loss recognized in equity

                  48,301

       

                  17,232

      The history of actuarial gains and losses is as follows:

       

      2010

       

      2009

       

      01/01/2009 (*)

      Present value of defined benefit obligation

               367,839

       

                317,145

       

                296,608

      Deficit/(surplus)

                 367,839

       

                 317,145

       

                 296,608

      Experience adjustments in plan obligations

                   48,301

       

                   17,232

       

                     9,023

      (*) IAS 19 requires disclosure of the history for 5 (five) years, although this does not have to be retrospectively applied for a first-time adopter of IFRS.

      The effect of a 1% (one per cent) change in the presumed tendency rate for health costs is as follows:

       

      2010

       

       

       

      2009

       

       

       

       

       

       

       

       

       

       

      Total effect of cost of current service and finance cost

               3,603  

       

              (3,128)

       

                3,274

       

              (2,847)

      Effect on defined benefit obligation

             34,122  

       

            (29,617)

       

              29,287

       

            (25,461)

      FS-75

      The actuarial assumptions used for calculating post-employment health benefits were:

       

      2010

       

      2009

      Biometric assumptions

       

       

       

      General mortality table

      AT 2000 segregated by gender

       

      AT 2000 segregated by gender

      Turnover

      N/A

       

      N/A

      Family composition

      Actual composition

       

      Actual composition

       

       

       

       

       

       

       

       

      Financial assumptions

      2010

       

      2009

      Nominal actuarial discount rate

      10.77%

       

      11.18%

      Inflation

      4.40%

       

      4.20%

      Increase in medical cost based on age

      1.50%

       

      1.50%

      Nominal growth rate in Medical Service Costs

      2.31%

       

      2.31%

      Average Medical Cost

      316.22

       

      274.16

      31. COMMITMENTS

      a. Take-or-pay contracts

      As at December 31, 2010 and 2009, the Company was a party to take-or-pay contracts as shown in the following table:

                             
            Payments  Minimum future commitments 
      Company                       
      contracted  Nature of service  Contract terms  2009  2010  2011  2012  2013  2014  2015  After 2016  Total 
      MRS Logística  Transportation of iron ore  Transportation of at least 80% of the metric tons agreed to be carried by MRS.  157,685  92,504  136,607  136,607  136,607  136,607  136,607  68,303  751,338 
      MRS Logística  Transportation of iron ore, coal and coke  Transportation of 8,280,000 mtpy for coal, coke and other reduction products - 3,600,000 Mpta.  259,979  7,151  133,412  100,060          233,472 
       FCA  Transportation of mining
      products             		  Transportation of at least 1,900,000 Mpta.  58,473  419  63,085  63,085  63,085        189,255 
      FCA  Railroad transportation of clinker by FCA for CSN Cimentos  Transportation of at least 675,000 Mpta of clinker in 2011 and 738,000 Mpta of clinker as from 2012.      24,638  26,937  26,937  26,937  26,937  116,727  249,113 
       ALL Railroad transportation of steel products  Railroad transportation of at least 20,000 metric tons of stell products per month from the Água Branca Terminal in São Paulo to CSN PR in Araucária - PR.    10,214  14,760  3,690          18,450 
      White Martins  Supply of gas (oxygen, nitrogen and argon)  CSN undertakes to acquire at least 90% of the annual volume of gas contracted w ith White Martins.  103,008  103,098  88,698  88,698  88,698  88,698  88,698  88,698  532,188 
      CEG Rio  Supply of natural gas  CSN undertakes to acquire at least 70% of natural gas.  359,780  431,093  264,646  264,646          529,292 
       Vale S.A   Supply of ore pellets  CSN undertakes to acquire at least 90% of the volume of lead pellets guaranteed in the contract.  22,268  195,221  141,765  141,765  141,765  94,510      519,805 
       Compagás   Supply of natural gas  CSN undertakes to acquire at least 80% of the annual volume of natural gas contracted w ith Compagás.  11,984  15,318  11,754  11,754  11,754  11,754  11,754  105,786  164,556 
                           
      COPEL  Supply of energy  CSN undertakes to acquire at least 80% of the annual volume of electric pow er contracted w ith COPEL.  9,583  13,178  8,809  8,809  8,809  8,809  8,809  52,852  96,897 
       K&K Tecnologia  Supply of blast furnace mud generated in the pig iron production process  CSN undertakes to acquire at least 3,000 metric tons of blast furnace mud for porcessing in the mud concentration plant of CSN.      6,480  6,480  6,480  6,480  6,480  46,980  79,380 
      Harsco Metals Supply of slag resulting from the pig iron and steel production process  The Harsco Metals Ltda. undertakes to perform the Scrap recovery Services resulting from the process of production of pig iron and steel from CSN / UPV, receiving by this process the equivalent in value the result of multiplying the unit price (U.S. $ / t) by the total Liquid Steel CSN’s Mill production, w ith a guarantee of a minimum production of liquid steel corresponding to 400,000 tons.  32,819  37,279  28,416  28,416  28,416  14,208      99,456 
            1,015,579  905,475  923,070  880,947  512,551  388,003  279,285  479,346  3,463,202 

      b. Concession agreements

      Minimum future payments related to government concessions as at December 31, 2010 fall due according to the schedule set out in the following table:

       

       

       

      Minimum future commitments

       

       

       

       

       

       

       

       

      Concession

       

      Nature of service

      2011

       

      2012

       

      2013

       

      2014

       

      2015

       

      After 2016

       

      Total

      MRS

       

      Concession for a period of 30 years, renewable for another 30 years, for transporting iron ore from the mines of Casa de Pedra in MG and coke and coal from the Port of Itaguaí (RJ) to Volta Redonda and transportation of exports back to the Ports of Itaguaí and Rio de Janeiro.

      225,944

       

      225,958

       

      225,958

       

      225,958

       

      225,958

       

      2,372,42

       

      3,502,202

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Transnordestina

       

      Concession for a period of 30 years granted on December 31, 1997, renewable for another 30 years, for development of public railroad transportation services in the Northeast of Brazil.  The Northeast System covers 4,238 km of railroad track and operates in the states of Maranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and Rio Grande do Norte.

      5,809

       

      5,809

       

      5,809

       

      5,809

       

      5,809

       

      69,705

       

      98,750

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Tecar

       

      Concession to operate the solid bulk terminal TECAR, one of the four terminals that comprise the Port Itaguaí, in Rio de Janeiro, for a period expiring in 2022 and renewable for another 25 years.

      86,530

       

      108,895

       

      131,856

       

      131,856

       

      131,856

       

      922,992

       

      1,513,985

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      Tecon

       

      Concession for a period of 25 years granted on September 3, 1998 , renewable for another 25 years, to operate the container terminal at the Port de Itaguaí (RJ).

      20,490

       

      20,490

       

      20,490

       

      20,490

       

      20,490

       

      215,142

       

      317,592

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      338,773

       

      361,152

       

      384,113

       

      384,113

       

      384,113

       

      3,580,265

       

      5,432,529

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      FS-76

      c. Projects and other commitments

      •Steel – Flat and long steel

      The Company is implementing a long-steel unit in Volta Redonda, in Rio de Janeiro, within its main facility. In this new unit, CSN intends to produce 500,000 metric tons per year (mtpy) of log steel products, of which 400,000 mtpy of beams and 100,000 mtpy of machine wire. Total investment in production of long-steel products will amount to approximately R$ 974 million. The new facilities will use scrap and pig iron as the main raw materials. Besides this mill, CSN is also developing two entirely new long-steel projects, each also with capacity of 500,000 mtpy. The Company’s forecast is that these two new units will start up production by the end of 2013. CSN is also developing a long steel project, with slated installed capacity of 1.5 million mtpy, in a site to be confirmed.

      •Iron ore project

      The iron ore business lines of CSN encompass expansion of its mining activities and its maritime port facilities. The Company is forecasting that by 2014 it will be producing iron ore products to the tune of 89 million mtpy, 50 million mtpy at Casa de Pedra and 39 million mtpy at Namisa. We expect to finance these investments through the Brazilian Development Bank (BNDES), export credit agencies, placement of securities and free cash flows from our current operations.

      Moreover, CSN is investing in expanding the capacity of its maritime port in Itaguaí, or TECAR, up to the point where it can handle 84 million mtpy. The present export capacity is equivalent to 30 million mtpy.

      In addition to these projects, the Company is evaluating other opportunities for portgreenfield and brownfield projects, as well as some acquisition options.

      CSN holds the concession to operate the solid bulk terminal TECAR, one of the four terminals that comprise the Port of Itaguaí, in Rio de Janeiro, through which coal and coke imports are carried out. The term of the concession agreement is 25 years, renewable for another 25 years.

      Upon extinction of this concession, all the rights and privileges transferred to CSN, together with the assets owned by CSN and those resulting from investments it made in leased assets declared reversible by the government will be returned to CDRJ (Companhia Docas do Rio de Janeiro) since they are need for the continued provision of services granted under the concession. The assets declared to be reversible will be indemnified by CDRJ for the residual value of their cost, after deduction of depreciation/amortization.

      FS-77

      •Cement project

      The Company has invested R$ 814 million in the construction of an entirely new grinding unit in Volta Redonda, which is already in operation, and a new clinker furnace in Arcos/MG, with production capacity of 2.4 million mtpy and 830,000 mtpy, respectively. This project represents CSN’s entry into the cement market, taking advantage of the slag generated by its blast furnaces and its limestone reserves in Arcos.

      In the 4thquarter of 2010, cement sales reached 342,799 metric tons (338,000 in 2009), and is expected to reach full production capacity by 2012. These investments are partly financed by BNDES. In addition to this plant, the Company is undertaking other projects as well, such as the installation of an integrated cement plant in Arcos, with capacity of up to 1 million mtpy, and is further considering setting up three additional integrated plants (cement and clinker) in Brazil by 2014, also with capacity of 1 million mtpy. Combined, these cement operations and projects will involve total capacity of 6.4 million mtpy by 2014.

      •Nova TransnordestinaProject

      In August 2006, in order to permit implementation of a major infrastructure project led by the Brazilian federal government, CSN Executive Officers approved a transaction for the merger of Transnordestina Logística S.A., a company that was linked to theNova Transnordestinaproject by Companhia Ferroviária do Nordeste - CFN, a CSN subsidiary currently named Transnordestina Logística S. A. that holds a 30-year concession granted in 1998 to operate the Northeast Railroad of RFFSA, with 4,238 kilometers of railroad tracks. TheNova Transnordestinaproject includes 1,728 additional kilometers of the latest generation wide-gauge track. The Company expects that the investments will permit Transnordestina Logística S.A. to boost the transportation of varied products as iron ore, limestone, soybeans, cotton, sugarcane, fertilizers, oil and fuels. The investments will be financed by means of several agencies, such as the Northeast Investment Fund (FINOR), the Northeast Development Superintendency (SUDENE) and BNDES. The company has already obtained the required environmental authorizations, purchased part of the equipment, contracted some of the services and supplyimplementation of iron ore will be receivable as follows:

      Year Amount (R$) 
       
      2010 186,729 
      2011 298,345 
      2012 366,211 
      2013 518,522 
      2014 536,806 
      2015 and thereafter 5,732,045 
       
      Total 7,638,658 

      the project is already advanced in certain regions.

      Additionally, a loan agreement with CSN MadeiraThe Company guarantees the loans for theTransnordestinaproject from BNDES, in the total amount of US$34R$ 373.5 million corresponding to R$59,201 with annual interest rate of 5.37% and maturity dates from April 2009 through June 2015 is classified as long-term receivable.

      FS - 29

      Table of Contents

      (1)at December 31, 2010. These loans refer to:

      (a) an agreement with CSN Export S.à.r.l.are for the purpose of US$100 million and annual interest rate of 6.5%. In August and October of 2008,financing the Company paid two installmentsinvestments in infrastructure to be made in the totalTransnordestinaproject. The maximum amount of US$40 million and renegotiatedfuture payments that can be required of the guarantor under the guarantee for the project is R$ 373.5 million.

      •CSN’s Logistic Platform Project in December 2008Itaguaí

      Under the remaining US$60 million for final maturity in March 2015.

      (b) anterms of the concession agreement, with CSN Madeira in the total amount of US$34 million with annual interest rate of 5.37% and maturity dates in June 2015.

      (c) an agreement with CSN Ibéria of US$60 million with annual interest rate of 6.8%, renegotiated in December 2008 for final maturity in March 2015.

      (d) an agreement with CSN of R$1,197,800 with annual interest rate of 12% and maturity date in January 2012.

      14 Operating income (expenses)

       2009 2008 
      Operating expenses   
      Selling Expenses   
      Handling Port Services (318,411) (91,831) 
      Demurrage (13,584) (23,128) 
      Other distribution costs (543) - 
       (332,538) (114,959) 
      General and administrative (27,246) (10,291) 
      Other income (expenses)   
      Take or Pay MRS(1) 15,823 (44,135) 
      Dividends received 54,474 - 
      Port performance reimbursement(2) 18,239 - 
      Provision for write-off in advance to (11,765) - 
      suppliers   
      Other (5,124) 990 
       71,647 (43,145) 
       (288,137) (168,395) 

      (1) The take or pay provision with MRS recognized in 2008 was reduced based on renegotiations occurred with the suppliers during 2009.

      (2) According to the Port Service Agreement, CSN is required to pay fines to Namisa when delays in shipments occur.

      15 Financial income (expenses)

       2009 2008 
      Financial expenses   

      FS - 30

      Tableresponsible for unloading at least 3.4 million of Contents

      Nacional Minérios S.A.

      Notes tocoal and coke from the consolidated quarterly financial information

      (In thousand of Reais, unless otherwise stated)

      Interests on debt (123,673) (19,513) 
      Financial taxes (354) (959) 
      Interests (7,669) (49) 
      Others (1,203) (1,103) 
      Total (132,899) (21,624) 
       
      Financial income   
      Interest income 1,013,036 - 
      Others 4,552 1,732 
      Total 1,017,588 1,732 

      16 Fair value accounting

      A fair value hierarchy is established that prioritizesCompany’s suppliers through the inputs to valuation techniques used to measure fair value. The hierarchy givesterminal, as well as third party shipments. Among the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements)approved investments announced by CSN, we highlight the development and the lowest priority to unobservable inputs (Level 3 measurements). The three levelsexpansion of the fair value hierarchy are described below:solid bulk terminal at Itaguaí so that it can also handle up to 130 million mtpy of iron ore.

      FS - 31

      Table of Contents

      Nacional Minérios S.A.

      Notes to the consolidated quarterly financial information

      (In thousand of Reais, unless otherwise stated)

      Level 1

      Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

      Level 2

      Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

      Level 3

      Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

      The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

       Level 1 Level 2 Level 3 Total 
       
      Assets     
      Cash equivalents 1,579,171 - - 1.579,171 

      The Company’s cash equivalent instruments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The cash instruments that are valued based on quoted market prices in active markets are primarily money market securities comprised of short-term time deposits, overnight liquidity securities and certificates of deposits which may be withdrawn at any time at the discretion of the Company without penalty.

      17 Financial instruments•Long-term agreements with Namisa

      The Company considershas signed long-term agreements with Namisa for the provision of port operation services and supplies of raw iron ore (ROM) from the Casa de Pedra mine, as described below:

      i. Port operation service agreement

      On December 30, 2008 CSN signed an agreement for the provision of port services for Namisa for a period of 34 years, consisting of receiving, handling, storing and shipping iron ore from Namisa in volumes that vary from 18.0 to 39.0 million . CSN has received the carrying amount of approximately R$ 5.3 billion as an advance for part of the payments due for the services to be provided under this agreement. The amounts charged for these port services are reviewed on a quarterly basis and adjusted considering the changes in the market price for iron ore.

      FS-78

      ii. High silicon ROM

      On December 30, 2008, CSN signed an agreement for supply of high silicon ROM ore to Namisa for a period of 30 years in volumes varying from 42.0 to 54.0 million. CSN has already received approximately R$ 1.6 billion as an advance for part of the payments due for the supplies to be made under this agreement. The amounts supplied are reviewed every quarter and adjusted considering changes in the market price for iron ore.

      iii. Low silicon ROM

      On December 30, 2008, CSN also signed an agreement for supply of low silicon ROM ore to Namisa for a period of 35 years in volumes that vary from 2.8 to 5.04 million. CSN has already received about R$ 424 million as an advance for part of the payments due for the supplies to be made under this agreement. The amounts supplied are reviewed every quarter and adjusted considering changes in the market price for iron ore.

      32. INSURANCE COVERAGE

      Aiming to properly mitigate risk and in view of the nature of its financial instruments generally approximates fair market value dueoperations, the Company and its subsidiaries have taken out several different types of insurance policies. Such policies are contracted in line with the CSN Risk Management policy and are similar to the short-term maturity or frequent repricinginsurance taken out by other companies operating in the same lines of thesebusiness as CSN and its subsidiaries. The risks covered under such policies include the following: Domestic Transportation, International Transportation, Carrier’s Civil Liability, Importation, Exportation, Life and Casualty, Health Coverage, Fleet Vehicles, D&O (Civil Liability Insurance for Administrators), General Civil Liability, Engineering Risks, Sundry Risks, Export Credit, Performance Bond and Port Operator’s Civil Liability.

      FS - 32

      Table of Contents

      Nacional Minérios S.A.

      Notes to the consolidated quarterly financial information

      (In thousand of Reais, unless otherwise stated)

      instruments, and the fact that non-indexed instruments are stated at present value. During the years presented herein,As mentioned in note 33, on May 4, 2011 the Company did not enter into derivative instruments.

      Exchange rate risk

      Mostcontracted an insurance policy of Operational Risk of Property Damage and Business Interruption with LMI – Maximum Limit of Indemnity of R$850 million to its entities, units and subsidiaries Usina Presidente Vargas, Mining Casa de Pedra, Arcos Mining, CSN Parana, CSN Porto Real, TECAR Coal Terminal, Terminal TECON, NAMISA and CSN Cement, which was negotiated with the insurers and reinsurers in Brazil and abroad for placement of insurance. The company decided to take responsibility for a range of retention of R$170 million excess of the Company’s revenues are U.S. dollar denominateddeductibles for property damage and as of December 31, 2009, a portionbusiness interruption and co-participate with 64% of the Company’s consolidated loans and financing from related parties were U.S. dollar denominated. As a result, the Company is subject to changes in exchange rates.

      Credit risk

      The selection of customers as well as the diversification of its accounts receivable and the control on sales financing terms are procedures that Namisa adopts to minimize occasional risk of default of its trade partners. However, for the year ended December 31, 2009 our total sales were concentrated on two customers, Baosteel (13%) and Mineral Power (18%).

      18 Insurance coverage

      risks. The Company maintains insurance policies with a major insurer company for protection against fire, explosions and events of force majeure in its operating locations. These insurance policies include loss damage upplans to reduce the limit of R$53,000 and income stoppage up to a limit of R$50,000.co-participation.

      The risk premises adopted, dueDue to their nature, the risk assumptions adopted are not part of the scope of an audit of the consolidated financial statements and, accordingly, havewere not been auditedexamined by our independent auditors.

      19 Subsequent events33. SUBSEQUENT EVENTS

      •On January 26, 2011 the Company disclosed to the market, through a Significant Event Notice, that it has increased its equity interest in Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS, through purchases of common and preferred shares. The Company has evaluated subsequent eventsnow holds 5.03% of the common shares and 4.99% of the preferred shares, as already disclosed to the market on January 13, 2011. Between January 26 and March 21, 2011, the Company purchased new common shares of Usiminas, so that it became the owner of 8.62% of the common shares. Further, on April 20, 2011, the Company increased its participation in Usiminas’ capital through acquisitions of common shares and preferred shares, such that the Company holds 10.01% of common shares and 5.25% of preferred shares. The Company is assessing strategic alternatives in relation to its investment in Usiminas, including potential additional acquisitions of shares in percentage amounts higher than those mentioned above. Any additional acquisitions might lead to changes in the ownership structure or administrative structure of Usiminas.

      •On January 28, 2011 CSN merged its subsidiary CSN Aços Longos S.A., which resulted in optimization of processes and reduction and simplification of administrative costs, notably with respect to matters of a managerial nature, due to the concentration in a single organizational structure of all commercial, operational and administrative activities of the two companies.

      FS-79

      •The Company took out a R$ 2 billion loan from Caixa Econômica Federal on February 3, 2011. This transaction was carried out through a Special Credit Line for Major Corporations, with issue of a bank credit note in the balance sheet datetotal amount of the loan, which falls due in 94 months.

      •Between February 1 and 10, 2011 the Company purchased 10,456,086 shares of the capital of the mining company Riversdale Mining Limited, in the amount of R$ 281,438, thus achieving total indirect interest of 19.98% of the capital of this company.

      •On April 20, 2011 the Company adhered to a takeover bid for shares of Riversdale Mining Limited (“Riversdale”) promoted by Rio Tinto. The Company will sell the total participation currently held in the share capital of Riversdale, equivalent to 47,291,891 shares at A$ 16.50 per share, total A$ of 780,316.

      •On April 20, 2011 the Company entered into a new financing contract through a export credit note in the amount of R$ 1.5 billion issued by Banco do Brasil S.A.

      •On May 21, 2010,4, 2011 the date atCompany contracted insurance policy of Operational Risk of Property Damage and Business Interruption to its entities, units and subsidiaries Usina Presidente Vargas, Mining Casa de Pedra, Arcos Mining, CSNParana, CSN Porto Real, TECAR Coal Terminal, Terminal TECON, NAMISA and CSN Cement.

      •On May 19, 2011, the Company entered into, through our Spanish subsidiary CSN Steel SL, a share purchase agreement with the Spanish group Alfonso Gallardo (“AG Group”) to establish the acquisition of all the shares held by the AG Group in (i) Cementos Balboa S.A., a cement and clinker producer located in the Extremadura region in Spain; (ii) Corrugados Azpeitia, S.L. and Corrugados Lasao, S.L.U., long steel manufacturers with plants in the Basque Country; (iii) Stahlwerk Thüringen GmbH, a long steel manufacturer located in Unterwellenborn, Germany, specialized in the production of steel profiles, and; (iv) Gallardo Sections S.L.U., a AG Group steel distributor.

      Subject to adjustments, pursuant to the share purchase agreement, CSN Steel SL will pay €543 million for the acquisition of the abovementioned shares, and will assume approximately €403 million in indebtedness and further adjustments. The transaction will be submitted to necessary regulatory and/or antitrust approvals, and its closing is still subject to other conditions which the financial statements were availableare inherent to be issued, and determined there are no other items to disclose.transactions of this nature.

      FS - 33* * * * *

      FS-80